The construction of s 361
23 The determination of the S 361 Issue involves the proper construction of that section. Section 361, in its present form, also forms part of the statutory scheme introduced by the Legal Profession Further Amendment Act 2006 (see Sch 2, [137]) and provides:
"(1) A costs assessor must assess the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of a costs agreement if:
(a) a relevant provision of the costs agreement specifies the amount, or a rate or other means for calculating the amount, of the costs, and
(b) the agreement has not been set aside under section 328 (Setting aside costs agreements),
unless the assessor is satisfied:
(c) that the agreement does not comply in a material respect with any applicable disclosure requirements of Division 3 (Costs disclosure), or
(d) that Division 5 (Costs agreements) precludes the law practice concerned from recovering the amount of the costs, or
(e) that the parties otherwise agree.
(2) The costs assessor is not required to initiate an examination of the matters referred to in subsection (1) (c) and (d).
24 In the present case, the costs assessor assessed the costs payable by Mrs McIntyre to KT without reference to the provisions of the costs agreement between CHH and KT. The Review Panel and Harrison AsJ upheld this approach. CHH contends that it is erroneous.
25 Linguistically, Mr Burton, of counsel, who appeared for CHH, relied on the definition of "costs" and "legal costs" in the Legal Profession Act.
26 Section 4, in dealing with "costs" refers the reader to the definition of "legal costs". "Legal costs" are defined as "amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest".
27 Section 302(1) provides that, in Part 3.2 of the Act, the word "costs" includes "fees, charges, disbursements, expenses and remuneration". Sections 301 to 400 constitute Part 3.2.
28 Mr Burton relied particularly on that part of the s 4 definition of legal costs that includes the requirement that the amount constituting legal costs must be an amount that a person has paid or is liable to a law practice for the provision of legal services.
29 Mr Burton drew attention to the provision in s 361(1) that a costs assessor must assess the amount of any "disputed costs". The phrase "disputed costs" is not relevantly defined in the Act. Although there is a definition of "costs dispute" in s 335, it applies only to Division 8, Part 3.2 and is not applicable to s 361 - which is not part of Division 8. Mr Burton submitted that, by the definition of "costs" and "legal costs" in s 4, the phrase "disputed costs" in s 361(1) must be construed to mean the costs that a person has paid or is liable to pay to a law practice. On this basis, he submitted, the disputed costs (the subject of this appeal) were the costs KT had to pay to CHH, and not the costs that KT claimed from Mrs McIntyre. He pointed out that only the costs that KT had to pay to CHH were costs that were or were liable to be paid to a law practice; the costs that Mrs McIntyre had agreed to pay KT were not costs of that kind.
30 Thus, he submitted, as the "disputed costs" were the costs owing by KT to CHH, those costs were subject to the costs agreement between CHH and KT and the costs assessor erred in failing to have regard to that agreement.
31 The effect of Mr Burton's submission is that, even where the costs as between the law practice and the client are not disputed - and the only dispute is between the non-third party associated payer and the client - the disputed costs are the costs required to be paid by the client to the law practice.
32 At the outset, I would observe that, without reference to the definition in s 4 of "legal costs", the construction advanced by Mr Burton is not in accord with the natural meaning of s 361(1). There are inherent difficulties in the argument that the disputed costs are costs for which the non-third party associated payer is not liable, has not paid, is not obliged to pay, and which it does not require the costs assessor to assess.
33 Where a client does not dispute the costs that a law practice calls on it to pay, and where the only costs that are in fact disputed are those that the client claims from the non-third party associated payer, it would be anomalous to describe the "disputed costs" as those that are in fact not in dispute. In context, according to the natural meaning of this phrase, disputed costs are the costs disputed by the non-third party associated payer. They are, after all, the only costs that are being disputed.
34 Significantly, the expressions "costs" and "legal costs" are not always used in the Act in accordance with their defined s 4 meaning. In particular, the defined meaning of costs is not the meaning that can be accorded to costs in the expression "disputed costs" in s 302A.
35 I repeat that s 302A(1)(a) provides that a person is a third party payer if the person is not the client and:
"(1) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client, or
(2) being under that obligation has already paid all or a part of those legal costs, …"
36 Ordinarily, a person who is not the client of a law practice (and who has no contractual obligation to it) will not be under a legal obligation to pay that practice, and will not pay it, costs for legal services the practice provided to its client. Thus, were the defined meaning to apply, a person who is not the client of a law practice would, ordinarily, never be a third party payer as defined by s 302A(1)(a). It follows that, were the defined meaning to be applied to legal costs in s 302A, the section would have no practical application.
37 This conclusion supports the inference that, in the context of the Legal Profession Act as a whole, the s 4 definition of "legal costs" does not apply to "disputed costs" in s 361(1) (see s 6 of the Interpretation Act 1987). In context, the natural meaning of the phrase "disputed costs" in s 361(1) is the costs that, by agreement between the client and a third party payer, the third party payer is obliged to pay the client. A like meaning is to be given to "legal costs" in s 302A(1).
38 Section 350(8)(b) provides that the client may participate in the costs assessment process required by a non-associated third party payer and the client is taken to be a party to and is bound by such an assessment. Section 350(8)(c) provides that the law practice must participate in such a costs assessment process, and is taken to be a party to it. Nevertheless, the Act does not bind the law practice to an assessment required by a non-associated third party payer. Section 350(8)(d) provides that the assessment of costs payable by the non-associated third party payer (that is, as between the non-associated third party payer and the client) does not affect the amount of costs payable by the client to the law practice.
39 By the provisions mentioned in the previous paragraph, the Act contemplates that, by reason of the assessment process and the particular parties it binds, the amount owing by a client to a law practice in respect of legal costs might differ from the amount a non-associated third party payer would have to pay the client under an indemnity agreement between them. An assessment required by a non-associated third party payer might reduce the costs payable by that non-associated third party payer to the client, but the client's obligation to the law practice will not be affected by that assessment. This reinforces the notion that an assessment of costs at the instance of a non-associated third party payer may proceed in accordance with criteria that differ from those applicable to an assessment of costs as between the client and the law practice concerned.
40 Other features of the argument advanced on CHH's behalf are inconsistent with the consumer protection aspects of the scheme relating to third party payers introduced in 2006 into the Legal Profession Act by the Legal Profession Further Amendment Act.
41 Under Division 5 of Part 3.2 only a client or an associated third party payer may enter into a costs agreement. Only such a party to the agreement can set aside a costs agreement (s 328). It would be odd for the legislature to provide that the amount of legal costs that a non-third party associated payer might be required to pay could be affected, significantly, by a costs agreement to which the non-third party associated payer was not a party.
42 Section 361(1) provides that the requirement to assess the amount of any disputed costs by reference to an existing costs agreement falls away if the costs agreement has been set aside under s 328. But, by s 328(1), only the client, and not a non-associated third party payer, may apply for a costs agreement to be set aside. This means that if grounds exist for the setting aside of costs agreement, the non-associated third party payer would have to rely on the client for protection. It is difficult to conceive of a situation where a non-associated third party payer would be entitled to compel the client to apply to set aside a costs agreement. The notion that the legislature intended costs disputed by a non-associated third party payer to be assessed by reference to a costs agreement, but that only the client would be entitled to apply to set such the costs agreement aside, is difficult to accept.
43 Section 309 requires a law practice to make disclosure to the client of several matters relating to the costs the legal practice intends to charge the client. These include, for example, the basis on which it intends to calculate the costs (s 309(1)(a)). By s 311(1), the disclosure must be in writing and by s 311(3) disclosure must be made before the law practice is retained. Section 318A provides that if a law practice is required to make a relevant disclosure of a matter relating to a costs agreement to its client, it must make that disclosure, to a relevant extent, to any associated third party payers for the client. The Act does not provide that any such disclosure must be made to a non-associated third party payer.
44 Section 361(1)(c) provides that a costs assessor is to take no account of a costs agreement where the assessor is satisfied that the agreement does not comply in a material respect with any of the disclosure requirements in question. It follows, once more, that if grounds exist for raising a failure by the law practice to comply with the disclosure provisions under the Act, the non-associated third party payer would have to rely on the client for protection. It is again difficult to accept that the legislature intended such a situation to arise.
45 Mr Burton submitted that, in the process of assessment, the non-associated third party payer would be entitled to investigate questions of disclosure. I doubt that this is correct, but, in any event, such an entitlement would have limited utility to a non-associated third party payer who has no right under s 328 to set the costs agreement aside.
46 The duties of a law practice to make disclosure to clients and associated third party payers, and not to non-associated third party payers have additional significance. The inference is that the legislature regarded it necessary to require disclosure to be made to clients and associated third party payers because the costs for which they would become liable would be assessed by reference to a costs agreement (should such an agreement have been made). On the other hand it is to be inferred that the Act did not provide for such disclosure to be made to non-associated third parties as, when assessing the costs for which they may be liable, no reference would be made to any costs agreement.
47 Harrison AsJ observed (at [39]):
"[It] is difficult to read s 361 to mean that a costs assessor must assess the costs agreement between a law practice and its client in accordance with the provision of that costs agreement even though the non-associated third party had no right to disclosure of certain information nor a right to negotiate the terms of that costs agreement."