Boyce v McIntyre

Boyce v McIntyre - [2008] NSWSC 1218 - NSWSC 2008 case summary — Zoe

[11]

JUDGMENT (Appeal - Costs review panel- sublease - costs payable by non-associated third party payer) 1 HER HONOUR: The issue to be decided is whether a third party payer must pay the fixed fee that was agreed between the solicitor and the client, or can that sum be assessed. By summons filed 3 April 2008, the plaintiff seeks firstly, an order that the determinations of the costs review panel dated 7 March 2008 be set aside; secondly, an order that the determination of the costs assessor dated 20 November 2007 be set aside; thirdly, a declaration that section 361 of the Legal Profession Act 2004 (the Act) still applies to an application for assessment under s 350 (2) of the Act by a "non-associated third party payer"; fourthly, an order granting leave to appeal the review determination and the assessors determination pursuant to s 385 of the Act; fifthly, a determination that the costs be assessed in the amount of $3502 or, in the alternative, that the first defendant's application for assessment be remitted to an assessor to be determined according to law. 2 The first plaintiff is Thomas Damien Boyce. The second plaintiff is Charmian Victoria Barton. The third plaintiff is Peter Ravelin Grinter. The fourth plaintiff is Luke Aiken. The fifth plaintiff is Lucinda Judith Smith. The sixth plaintiff is Michael George. The seventh plaintiff is Philip Raymond Smith. The eighth plaintiff is Philip Noel de Haan. The ninth plaintiff is Jacquie Charak Seemann. The tenth plaintiff is Millie Telan. The eleventh plaintiff is Sean O'Donnell. The plaintiffs are the partners of the law firm Cutler Hughes & Harris and for convenience shall be referred to as CHH. The first defendant is Catherine Anne McIntyre. The second defendant, Kosciuszko Thredbo Pty Ltd who I shall refer to as "KT". CHH rely on the affidavit of Richard Mark Hamwood filed 6 May 2008 and Mrs McIntyre relies on the affidavit of John McIntyre filed 4 June 2008. KT forwarded a letter to CHH and Mrs McIntyre's solicitor dated 22 August 2008 (Ex A), which is in effect a submitting appearance.

[22]

The background facts 8 KT leases land from the State of New South Wales in the Kosciuszko National Park. Mrs McIntyre is one of some 675 sub-lessees from KT. Mrs McIntyre's original sub-lease commenced on 2 July 1999 and expired on 24 June 2007. Clause 18 of the sub-lease provided for an option to renew. The head lease of KT itself expired on 27 June 2007 but was renewed for a further period of 50 years commencing 28 June 2007. All of the sub-leases, which expired just prior to the head lease, contained an option to renew, albeit expressed in a variety of forms. CHH acted for KT in relation to the renewal of the sub-leases. 9 CHH and KT entered into a costs agreement covering the legal services CHH provided to KT in relation to the renewal of the sub-leases. The costs agreement provided for a fixed fee of $3,000 plus GST for each sub-lease, subject to a right to charge for certain additional work beyond the scope of the work outlined in relation to each renewal. The sub-leases contained provisions requiring the sub-lessees to pay KT's costs of any renewal of the sub-lease. The two relevant clauses in the sub-lease are 16.4 and 18.3. Those clauses read: "16.4 The Lessee must pay the Company's reasonable legal costs and all duties, fees, charges and expenses of or incidental to the preparation completion stamping and registration of this Sublease and any renewal surrender, assignment or variation of this Sublease and any application for the consent of the Company under this Sublease or the consent of the Headlessor and any fees charged by the Headlessor incidental to any and every breach or default by the Lessee and in or incidental to the exercise or attempted exercise of any right power privilege authority or remedy of the Company and the Headlessor under or by virtue of this Sublease or the Headlease and the fees of all professional consultants properly incurred by the Company in consequence of or in connection with breach or default by the Lessee. … 18.3 If the Lessee desires to take a renewed Sublease of the Demised Premises for a further term of fifty (50) years less one day from the expiration of this Sublease and gives to the Company notice in writing of such desire within three (3) months of the date of receipt from the Company (pursuant to clause 18.2 ) of the details or the renewed Sublease (but in any event not less than 9 months prior to the expiration of the terms hereby granted) and provided the Lessee is not then in default under the provisions of the Sublease whether express implied the Company must at the cost and expense of the Lessee grant to the Lessee a renewal of this Sublease for the said further term upon terms and conditions generally consistent with this Sublease for the said further term upon terms and conditions generally consistent with this Sublease (including provisions for periodic rent reviews) but subject however to such variations as practice custom or the requirements of authorities at the time render necessary with the exception of this option to renew." 10 Clause 16.4 is a contractual provision that provides that Mrs McIntyre was obliged to pay KT's reasonable legal costs of or incidental to the preparation, completion, stamping and registration of the sub-lease. If the costs were not reasonable, she may have a contractual remedy. While Clause 18.3 refers to the cost and expense of the sub-lease it does not go any further. 11 Mrs McIntyre was notified of the proposed process, in relation to the option to renew, by letter from CHH. It included the estimated legal fees for the renewal to be at about $3000, plus GST and disbursements. Mrs McIntyre returned a "Notice of Exercise of Option" and a new sub-lease commenced on 29 June 2007. Subsequently, CHH sent tax invoices to Mrs McIntyre and KT totaling $3502, $3000 for professional costs, plus $300 for GST and disbursements of $202. 12 Mrs McIntyre applied to have these costs assessed. In his reasons, the costs assessor stated that the costs were to be determined according to s 363 of the Act. He stated that given that the Client was a non-associated third party and the cost agreement made between the KT and CHH was not binding on Mrs McIntyre. The costs assessor concluded that the fair and reasonable amount of the costs of CHH was $2050. The disbursements of $202 were not challenged thus the total costs payable was $2252. However, the costs assessor decided there should be a deduction of $1200 from this amount relating to the costs of Mrs McIntyre for the assessment itself. The formal determination of the amount payable "to the Costs Respondent" was $1052. On 7 March 2008, the costs review panel affirmed the assessment.

[64]

(1) Whether the review panel erred in finding that s 361 of the Legal Profession Act did not apply to the application 35 On this issue, the plaintiff submitted that firstly, a costs assessment, even instigated by a third party payer, relates to legal costs; secondly, the terms "legal costs" refers to the amount that a person is charged by or is liable to pay to a law practice for the provision of legal services, and thus does not encompass amounts that a third party is liable to pay to a client as an indemnification for the client's legal costs; thirdly, the subject of the costs assessment is the disputed costs and the legal costs charged by the law practice to the client; fourthly, if the relationship between the practice and the client is relevantly governed by a costs agreement, then the disputed costs are subject to a costs agreement and fall within the terms of s 361(1); fifthly, s 361(1) is in no way qualified to apply only in relation to costs assessments instigated by clients, and not to those instigated by non-associated third party payers; and sixthly, s 363 is relevantly subject to the terms of s 361, reflecting the policy of the Act relating to the promotion of an efficacy of costs agreements between law practices and clients. 36 In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 the High Court stated that the primary objection of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined [at 69] "by reference to the language of the instrument viewed as a whole" (per Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297 at 320) and the legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. The Court said [at 70] that reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other" (Institute of Patent Agents v Lockwood [1894] AC 347 at 360 per Lord Herschell LC). Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme. 37 Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. 38 I do not agree that Mrs McIntyre is liable to pay a law practice for the provision of legal services. Rather, she is obliged to pay KT. Thus, the costs do not fall within the definition of "legal costs" as set out in s 4(1) of the Act. Further, s 322 defines where a costs agreement may be made. Section 322(1)(d) stipulates that a costs agreement may be made between a law practice and an associated third party payer but it does not include non-associated third party payers. This makes sense because there is no association between the law practice and the non-associated third party payer. While a costs agreement was made between KT and the law practice, s 322 does not envisage any costs agreement between the law firm and the non-associated third party payer. 39 It is my view that the reference to costs agreement in s 361 is a reference to a costs agreement envisaged by s 322. If a costs agreement was made between an associated third party payer and the law practice then s 361(1) could apply. But it is difficult to read s 361 to mean that a costs assessor must assess the costs agreement between a law practice and it's client in accordance with the provision of that costs agreement even though the non-associated third party payer had no right to disclosure of certain information nor a right to negotiate the terms of that costs agreement. 40 So far as party/party costs are concerned, where the successful party and its law firm have entered into a costs agreement, this costs agreement is not binding on the unsuccessful party. Rather, the costs assessor may obtain a copy of and may have regard to a costs agreement but the costs assessor must not apply the terms of the costs agreement for the purposes of determining appropriate, fair and reasonable costs - see s 365. 41 Section 365 makes it clear that a costs agreement between a law practice and its client is not to be binding on a third party. This is consistent and in harmony with my view of s 361. It is my view that s 361 does not impose a fixed costs agreement between a law practice and a client on a non-associated third party payer. Section 361 does not apply. The costs review panel was correct.

[78]

If the file is needed, is it possible for me to inspect it at your offices? If so when?" 45 The costs assessor in his reasons stated: "I have assessed the costs in this Application, having regard to the need for a determination of the "fair and reasonable costs"." 46 The costs review panel in their reasons stated (at [10]): "This ground has various sub provisions as follows. They are all prefaced by the contention of Assessor 'error' in his consideration of 'factors in section 363'. Each is briefly dealt with by the Panel as follows: (a) The relevant part of the Assessor's 'Discussion' here concludes: 'The only question relates to the fair and reasonable costs in acting in this matter'. This is the correct criterion including by reference to the benchmarks within section 363 of the Act. Here, it is noted in RA's assessment Response document, paragraph 13, that RA itself recognises (acknowledged in the context of the 'alternate' argument expressed above): 'What appears to be the sole issue in dispute is whether the amount of legal costs in relation to the work to which the legal costs relate (sic) is fair and reasonable ... that is the fair and reasonable costs of preparation of the renewed sublease for the costs applicant..'. RA itself reiterates, effectively in terms of this ground, its acknowledgement that this the central assessment criterion, again at paragraph 42 of that Response, namely: 'The question in this assessment is simply whether $3000 is a reasonable charge, or a lump sum basis, for the preparation of the sublease for the costs applicant.' For the third time in the Response document, RA reiterates this at paragraph 53. In the view of the Panel, that is exactly the task which the Assessor exercised. In that exercise, the Assessor may have regard to a host of considerations, not exclusively exemplified, for example, within section 363(2), as to discretionary assessment considerations. There is no error. (b) This alleged Assessor failure is not pertinent to assessment determination. The same observations are made here as at 10(a) above. There is no error." 47 CHH submitted that the assessment was not done in accordance with s 363 of the Act as the first duty of the costs assessor was to consider pursuant to s 363(1) "whether or not it was reasonable to carry out work to which the legal costs relate". 48 CHH says that the use of the definite article makes it clear that the provision fixes upon the particulars of work namely that "to which the legal costs relate"; and ordinarily, that work will be particularised in a bill. Where it is not, power exists for a costs assessor to require any necessary information, including as to "work done by any law practice" - s 358(1)(d)(i). 49 CHH says that it appears the costs assessor was conscious of the need to identify the work to which the legal costs relate and referred to the costs assessor's letter dated 7 November 2007 and CHH responded to this request with details of the work done. 50 CHH submitted that the costs assessor's reasons do not refer to the information provided by it in its letter dated 13 November 2007, which set out the work done. CHH says that the costs assessor's reasons make no reference to the work undertaken beyond listing the documents he found from an inspection of the file. CHH submitted that the costs assessor failed to "consider" the work actually undertaken by it and whether any (and if so which) work "was reasonable to carry out" or "was carried out in a reasonable manner". CHH further submitted that there was a failure to give effect to the terms of the statute, and this amounts to an error of law; and this error was not corrected by the costs review panel. 51 Mrs McIntyre says that she did not put in issue the first two factors in s 363(1) in her application for assessment. She never suggested that it was not necessary to carry out the work involved in renewing the sub-lease once she exercised her option nor that the work was not carried out in a reasonable manner. I agree. What was in issue was the fairness and reasonableness of the amount of legal costs in relation to the work - s 363(1)(c). As the first two factors were not in issue on the face of the application it was unnecessary for the costs assessor and costs review panel to make any particular findings in that regard. 52 The costs assessor considered the material placed before him. In so far as CHH submitted that the costs assessor did not refer to its letter of 13 November 2007. The costs assessor did take it into account and decided that as a result of the lack of precise information provided, he needed to inspect the solicitor's file. The costs review panel referred to this at [13] and [14] of its reasons. It was clear from the reasons of the costs assessor and the costs review panel considered that requirements of s 363 in making the assessment and conducting the review. There is no error of law.

[79]

(3) Whether the costs review panel erred in law in having regard to "the question of proportionality and conduct" 53 The costs assessor stated: "In assessing costs I have had regard to the question of proportionality, not only in terms of the quantum of the costs as against the value of the subject of the proceedings, but also in terms of the complexity of the matter, and the conduct of the parties." 54 The costs review panel stated (at [12]): "Section 363(2) illustrates some of the discretionary factors which the Assessor may consider in determining the fair and reasonable amount of legal costs. These factors are not exclusive, as illustrated by section 363(2)(k), that is, to being able to have regard to '.. any other relevant matter..'. For example, the relative 'complexity' is one such discretionary factor only; potentially, there are many other. The mandate for the Assessor is that prescribed within section 363(1) of the Act, that is, whether or not it was reasonable to carry out the work, whether it was carried out in a reasonable manner, and the fairness and reasonableness of the amount claimed. It is the function which the Assessor, with some emphasis as to it in his Reasons, undertook. It is in fact, as noted by the Panel earlier, acknowledged by RA itself in its own submissions (in the alternative) to the assessment. Further, relative 'proportionality', in the terms as expressed by the Assessor is a deliberation available to him within the statutory discretions. Further, and for completeness, the Panel reiterates that the Assessor troubled with not only a comprehensive assessment approach, but one which involved a forensic inspection of the original matter file. In the view and determination of the Panel, there is no error. 55 Section 363(2) sets out a number of criteria to which an assessor "may have regard". The plaintiff submitted that none refer to "the question of proportionality" as referred to by the costs assessor in his reasons. Importantly, s 363(k) refers to "any other relevant matter". The costs assessor considered proportionality as a relevant matter. 56 Conduct was only considered in the context of determining the costs of assessment. CHH conceded that conduct of the parties could be relevant in determining the costs of the assessment. 57 Section 363(k) allows the costs assessor to consider any other relevant matter. Other relevant matters may include proportionality and conduct. The costs review panel said as much. The approach of the costs review panel is correct. There is no error of law.

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(4) Failing to consider the fairness of the actual legal costs 58 CHH submitted that the assessment was one "relating to a bill" and as such, the costs assessor was required, pursuant to s 367, to be satisfied that "the disputed costs are unfair or unreasonable" before proceeding to assess a substituted amount. Assuming "the disputed costs" related to the entire legal costs, leaving aside disbursements, there was no express finding by the costs assessor that they are unfair or unreasonable. 59 CHH says that although such a finding might sometimes be implied in the costs assessor's determination of a substituted amount, this cannot be assumed here. The costs assessor gave express consideration to what he was required to determine when he stated, "I have assessed the costs in this Application, having regard to the need for a determination of the "fair and reasonable costs"." 60 CHH says that the costs assessor's reasons demonstrate a misconception of his role. CHH submit that the costs assessor was required to consider whether the bill should be confirmed and only "if" satisfied that the disputed costs were unfair was he to proceed to determine a substituted amount or amounts. CHH further submitted that the costs assessor instead merely assessed an amount, which, in his opinion, was fair and reasonable. 61 Section 367(1) reads: "Determinations of costs assessments (1) A costs assessor is to determine an application for a costs assessment relating to a bill by confirming the bill or, if the assessor is satisfied that the disputed costs are unfair or unreasonable, by substituting for the amount of the costs an amount that, in the assessor's opinion, is a fair and reasonable amount." 62 Under s 367, the costs assessor's task to make a determination by determining one of two things. If the costs assessor determines the disputed costs as fair and reasonable, he or she confirms the bill. If the costs assessor is satisfied that the disputed costs are unfair or unreasonable, he or she is to substitute for the amount of costs an amount that, in the costs assessor's opinion is a fair and reasonable amount. The costs assessor adopted the later course. It is not necessary to make a specific finding that the disputed costs were unfair and unreasonable.

[81]

(5) Failure to give reasons 63 CHH submitted that the obligation to provide reasons is found in s 370. As well as "a statement of reasons for the costs assessor's determination", s 370 requires prescribed "supplementary information" be issued. The regulations set out the type of information required. Regulation 128(1)(d) of the Legal Profession Regulation provides: "(1) A statement of reasons for a costs assessor's determination that is required by section 370 of the Act to accompany a certificate issued under section 368 or 369 of the Act must be accompanied by the following information: (d) in respect of any disputed costs: (i) the basis on which the costs were assessed; (ii) how the submissions made by the parties were dealt with." 64 CHH submitted that the costs assessor should have complied with s 363(1). CHH referred to Frumar v The Owners of Strata Plan 36957 (2006) 67 NSWLR 321, where the Court of Appeal gave consideration to the adequacy of reasons given by a costs review panel under the 1987 Act on a party/party assessment. The complaint in Frumar (at [31]) was that the panel "simply made a "declarative statement" as to the amount of costs it considered fair and reasonable." 65 However, the costs assessor did more than give a declarative statement as to the amount of costs. After not receiving a proper itemised bill, he inspected the solicitor's file and determined that having regard to the whole of the material placed before him, he was of the opinion that the fair and reasonable attendances for the practitioner's attendances would amount to five hours at the rate of $350 per hour for a solicitor, plus an allowance of two hours for a para-legal at the rate of $150 per hour. In other words the fair and reasonable costs of the practitioner would be $2050. Then the costs assessor proceeded to explain how he calculated various types of work, such as correspondence, perusals and six minute units of time. The costs review panel agreed with the way the costs assessor made the determination. There is no error.

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11 The Assessor's determination on GST is correct and for exactly the reason given by the Assessor. The ground is not made out." 69 To understand the costs review panel's reasons in relation to GST, it is necessary to refer to the reasons of the costs assessor where he stated: "GST is not claimable given the undoubted fact that the Sub-lessor has an input credit. The submissions made by the Practitioner seem to ignore the fact that the costs are the costs of acting for the Sub-lessor, who has the primary liability to pay them, but that contractually, the Sub-lessee is required to make that payment." 70 CHH submitted that the assessment can only relate to "legal costs" payable by Mrs McIntyre, and an assessor cannot determine any GST liability sought to be recovered from her under the sublease any more than an assessor can determine any entitlement to recover electricity or rate charges. 71 Mrs McIntyre submitted that the costs assessor and the costs review panel were satisfied on the material before them that KT is conducting an enterprise, is registered for GST and that the supply of legal services to it by CHH was a taxable supply including GST. 72 Mrs McIntyre submitted that KT is entitled to an input tax credit for the GST component to the plaintiff's bill of costs. Since the liability of the first defendant to pay the reasonable costs of KT, is in the nature of a partial indemnity created by the terms of the sublease, Mrs McIntyre is not liable to pay GST. Mrs McIntyre further submitted that it is an identical situation to that of a party/party assessment where a successful party who is registered for GST and entitled to claim an input tax credit is only entitled to recover the GST exclusive amount of its costs. I agree. There is no error of law and this ground fails. 73 There is no error of law. Although the sum in dispute is a modest one, I have covered the submissions in some detail as I understand there are other sub-leases where the law firm's costs are in dispute. There is nothing more to address that may have been addressed under s 386. Leave to appeal is refused. The appeal is dismissed. The decision of the costs review panel dated 7 March 2008 is affirmed. The summons filed 3 April 2008 is dismissed. 74 Costs are discretionary. Costs normally follows the event. The plaintiffs are to pay the first defendant's costs as agreed or assessed.

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