Boyce v McIntyre

CATCHWORDS: PROCEDURE - costs - appeals as to costs - construction and application of s 361 of the Legal Profession Act 2004 - assessment of costs involving non-associated third party payer - whether costs assessor required to consider costs agreement where non-associated third party payer not party to that costs agreement - whether costs assessor entitled to determine amounts in respect of GST.

Interpretation Act 1987 LEGISLATION CITED: Legal Profession Act 2004 Legal Profession Further Amendment Act 2006 Supreme Court Act 1970 (NSW)

Thomas Damien Boyce & the persons listed in the schedule to the summons seeking leave to appeal (Applicants) PARTIES: Catherine Anne McIntyre (First Respondent) Kosciuszko Thredbo Pty Ltd (Second Respondent)

G K Burton SC (Applicants) COUNSEL: M R Aldridge SC (First Respondent) Submitting appearance (Second Respondent)

Thomson Playford Cutlers (Applicants) SOLICITORS: Redmond Hale Simpson (First Respondent) Submitting appearance (Second Respodent)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT DATE OF DECISION: 20 November 2008

LOWER COURT MEDIUM NEUTRAL CITATION: Boyce v McIntyre [2008] NSWSC 1218

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40037/09 SC 30035/08

IPP JA MACFARLAN JA HOEBEN J

20 JULY 2009 Thomas Damien Boyce & 9 Ors v Catherine Anne McIntyre & Anor

The dispute about a costs assessment, the prior proceedings and the application for leave to appeal 2 This is an application for leave to appeal and, if granted, an appeal against a decision of Harrison AsJ. Her Honour's decision concerned Issues relating to legal costs and it was common ground that leave to appeal is required under s 101(2)(c) of the Supreme Court Act 1970. 3 The proceedings before Harrison AsJ involved an appeal under s 384 of the Legal Profession Act 2004 against a decision of a costs assessor as to a matter of law and an application under s 385 of that Act for leave to appeal against the determination of an application for a costs assessment made by the costs assessor. 4 The applicants are the partners of the former law practice of Cutler, Hughes & Harris ("CHH") which has since become part of the law practice of Thomson Playford Cutlers. By these proceedings, CHH seeks to overturn the costs assessor's assessment referred to in the previous paragraph, a decision by a Review Panel under the Legal Profession Act affirming that assessment, and her Honour's judgment. 5 The dispute between the parties concerns legal costs payable by the first respondent, Mrs McIntyre, under a contract of sub-lease she entered into with the second respondent, Kosciuszko Thredbo Pty Ltd ("KT"). There is no contractual relationship between Mrs McIntyre and CHH and CHH did not act as Mrs McIntyre's solicitors. Nevertheless, the Legal Profession Act entitles persons in Mrs McIntyre's position - who are not clients of law practices - to require the assessment of legal costs that they did not personally incur. The basis of such assessments is the first (and main) Issue before this Court. 6 The sub-lease to Mrs McIntyre was in respect of a section of land in the Kosciuszko National Park, known as the Thredbo Alpine Village. KT had leased land from the State of New South Wales and had sub-let sections of it to about 675 sub-lessees (with each individual sub-lessee thereby acquiring a sub-lease of their own individual section). Mrs McIntyre was one of the approximately 675 sub-lessees. Each sub-lease was in the same form. By the sub-leases, each sub-lessee agreed to pay KT the amount of certain legal costs that it had incurred. 7 Mrs McIntyre's original sub-lease commenced on 2 July 1999 and expired on 24 June 2007. KT's head lease expired on 27 June 2007. KT renewed the head lease with effect from 28 June 2007 for a further period of 50 years. Following that renewal, each sub-lessee, including Mrs McIntyre, renewed their sub-lease. CHH acted for KT in connection with the renewal of all the sub-leases. 8 Clause 16.4 of each renewed sub-lease provided: "The Sub-lessee must pay [KT's] reasonable legal costs and all duties, fees, charges and expenses of or incidental to: (a) the preparation, negotiation, completion, stamping and registration of this Sub-lease" 9 Before the sub-leases were renewed, CHH and KT entered into a costs agreement applicable to the legal services CHH was to provide to KT in relation to the renewal of the sub-leases. The costs agreement provided for a fixed fee of $3000 plus GST for each sub-lease, subject to a right to charge for certain additional work beyond the scope of that outlined in relation to each renewal. 10 CHH proceeded to review the forms of sub-leases previously in use and produced a new form of sub-lease and memorandum of a new sub-lease to be renewed. 11 I would pause to note that, by this costs agreement, CHH stood to earn more than $2M. On one view, this is a staggeringly large fee for reviewing existing forms of sub-lease, drawing up what is essentially one form of sub-lease (which was not of unusual complexity), and attending to the formalities involved in supervising the entering into of 675 sub-leases in that form. 12 CHH rendered tax invoices to KT in accordance with the costs agreement. KT, in turn, sent a tax invoice to each sub-lessee seeking payment of $3000, plus $202 (the amount charged by CHH for disbursements), and an amount of $300 for GST payable by KT. KT's tax invoice to Mrs McIntyre thereby totalled $3502. 13 Mrs McIntyre applied to have the $3502 (the amount KT claimed from her) assessed by a costs assessor under the Legal Profession Act. The costs assessor determined that the fair and reasonable amount of CHH's costs was $2050. Mrs McIntyre did not challenge the disbursements of $202 and thus the total costs payable amounted to $2252. The costs assessor decided that there should be a deduction of $1200 (being the costs of the assessment) from this amount. Accordingly, he formally determined that the amount payable to KT was $1052. 14 KT applied for a review of that determination. A Review Panel undertook the review as provided by the Legal Profession Act. The Panel affirmed the determination of the costs assessor and held that he had not committed any error. Following the decision of the Panel, CHH applied for leave to appeal and appealed, unsuccessfully, to Harrison AsJ. 15 Mrs McIntyre and CHH were the active parties to the assessment before the assessor, the review before the Review Panel, the proceedings before Harrison AsJ, and in this Court. Although KT is the second respondent in the proceedings before this Court, it has filed a submitting appearance. 16 According to CHH's summary of argument, by the costs agreement KT agreed to pay CHH a fixed fee of $3000, plus GST, for each sub-lease. The GST which is the subject of the present proceedings is payable by KT, not CHH. There is no evidence that CHH has any financial interest in the proceedings. This is an Issue relevant to the grant of leave to appeal. 17 CHH raises four categories of Issues in its grounds of appeal. These are described in its summary of argument as follows: "a. whether s 361 applies to an application for assessment involving a ' non-associated third party payer' , as that term is defined in s 302A of the Act, so as to require the assessor to assess the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of the costs agreement in circumstances where the client is, but the non-associated third party payer is not, a party to the costs agreement ( the "S 361 Issue"); b. whether the costs assessor and panel failed to undertake the assessment in accordance with the Act by failing to taking into account the mandatory criteria in section 363(1) of the Act, in particular failing to consider the reasonableness of the work actually undertaken by CHH and apparently using the wrong information, failing to be satisfied that the disputed costs were unfair or unreasonable before proceeding to assess a substitute amount and failing to give reasons which included the basis on which the costs were assessed and how the parties' submissions were dealt with; c. whether the costs assessor and panel wrongly took account of 'proportionality' and 'conduct' in making their determination ( the Assessment Issues ); and d. whether the costs assessor was entitled to determine the right of the ' client ' to charge or recover from the non-associated third party payer, an amount in respect of GST (the " GST Issue ").

The legislative background to the S 361 Issue 18 It is common ground that Mrs McIntyre is a "non-associated third party payer" as that term is defined in s 302A of the Act. Section 302A was introduced into the Legal Profession Act in 2006 by the Legal Profession Further Amendment Act 2006 (Sch 2, [87]). By the latter Act, a number of changes were made to the Legal Profession Act whereby a statutory scheme involving the concept of "associated" and "non-associated third party payers" was created. These terms are defined by s 30A as follows: " 302A Terms relating to third party payers (1) For the purposes of this Part: (a) a person is a third party payer , in relation to a client of a law practice, if the person is not the client and: (i) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client, or (ii) being under that obligation, has already paid all or a part of those legal costs, and (b) a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person, and (c) a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice."

By s 4 a "law practice" is defined to include a law firm. 19 The point to be noticed about a "non-associated third party payer" is that such a person, while being under legal obligation to pay "legal costs" for legal services provided to the client, owes no legal obligation to the law practice that provided the legal services. 20 Section 350(2) (which also was introduced into the Legal Profession Act by the Legal Profession Further Amendment Act 2006 (Sch 2 [131]-[133]) provides that a third party payer may apply to a costs assessor for an assessment of the whole or any part of legal costs payable by the third party payer. This means that a non-associated third party payer may require a costs assessment to be made notwithstanding that the non-associated third party payer is not obliged to pay the costs in Issue to the law practice that rendered the services giving rise to the costs in question. 21 Thus, s 302A read with s 350(2) affords persons in the position of non-associated third party payers the right to have legal costs assessed even though they are only liable to pay the amount of such costs to a party other than the law practice which charged that other party for those costs. Such a liability will ordinarily arise out of a contract entered into between a non-associated third party payer and the client of the law practice. In many cases such a contract will be a lease or a mortgage (with the non-associated third party payer being the lessee or mortgagor). 22 In these circumstances, the introduction in 2006 of the non-associated third party payer provisions in the Legal Profession Act in 2006 can be seen as being for the purpose of consumer protection. In particular, the introduced provisions afford protection to persons who agree, in effect, to indemnify other parties (such as lessors and mortgagees) in respect of legal costs for services rendered to those other parties.

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."

Her Honour went on (at [41]) to express the opinion that, by the Act, a costs agreement between a law practice and its client is not to be binding on a third party. I agree. 48 I would grant leave to appeal on the S 361 Issue (as it is an Issue of general importance) but would dismiss the appeal.

The Assessment Issues 49 I would not grant leave to appeal in relation to the Assessment Issues. CHH's arguments in regard to these Issues are the same as those it advanced before Harrison AsJ. I agree with the way in which her Honour dealt with those arguments and I do not consider it necessary to add anything to what her Honour said.

The GST Issue 50 The fourth category of Issues raised by CHH raises the question whether a costs assessor may determine the amount of GST payable on legal costs. 51 The costs assessor, the Panel and Harrison AsJ all held that the assessor had that power. I disagree. By the Act, a costs assessor is empowered to assess costs that are defined by s 302(1) as including "fees, charges, disbursements, expenses and remuneration". GST does not fall under any of these categories and does not come within the ambit of legal costs. GST is an Issue in respect of taxation, not legal costs. 52 I would grant leave to appeal in relation to the GST Issue and uphold the appeal.

Costs 53 Mrs McIntyre was substantially successful in the proceedings before this Court. The GST Issue concerned a trivial amount and occupied relatively little time in argument. In the circumstances, I consider that the costs of the application for leave to appeal and the appeal should be paid by CHH.

Orders proposed 54 I propose the following orders: (a) Leave to appeal in regard to the s 361 Issue is granted but the appeal is dismissed. (b) The application for leave to appeal in regard to the Assessment Issues is dismissed. (c) Leave to appeal is granted in regard to the GST Issue and the appeal on that issue is upheld. (d) The orders made by Harrison AsJ, the Review Panel and the costs assessor in relation to GST are set aside. (e) CHH to pay Mrs McIntyre's costs of the application for leave to appeal and the appeal.

55 MACFARLAN JA: I agree with Ipp JA. 56 HOEBEN J: I agree with Ipp JA and the orders he proposes.

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