This family provision application, concerning the estate of the father of the plaintiff (Dasha), was heard at the same time as another application for family provision out of the estate by two of Dasha's half-sisters (Susana and Gemma). In December 2017 I delivered my decision (published as [2017] NSWSC 1769) on both applications. I have since delivered a second decision (unpublished) and a third decision (published as [2018] NSWSC 385) in which I determined the form in which provision should be made, and costs.
The present application arises out of liberty to apply which I granted in the orders I made in these proceedings as part of my third decision.
The parties and their claims were described in my first decision at [1]-[9]. The reasons which I gave for making the orders in question appear in my third decision at [12]-[26] and the actual orders were set out at [43]. What follows assumes familiarity with, and uses the same abbreviations as are used in, those parts of my decisions.
Relevantly for present purposes, I included in the terms of the trust covering the provision in favour of Dasha a provision permitting the trustee (Dasha's mother, Olga, who is her tutor in these proceedings) to apply the capital of the trust towards paying her costs as tutor, to the extent not recovered pursuant to the party-party costs order made in favour of Dasha, but only if those costs were first assessed on a solicitor-client basis (order 1(c)). I also ordered that Dasha's solicitor (SAS) make application for such an assessment (order 4). I reserved liberty to Dasha to apply for an order specifying the party-party costs in a gross sum, such liberty to be exercised within 21 days after the completion of the solicitor-client assessment (order 6).
These orders differed from the orders I made in the proceedings brought by Susana and Gemma. In those proceedings, I made orders fixing the party-party costs to which Susana and Gemma were entitled out of the estate on a gross sum basis. I granted liberty to Susana and Gemma to apply to vacate the gross sum costs orders and proceed by way of assessment in the ordinary course, but no such application was made.
In this application, I am asked to proceed to a gross sum assessment of Dasha's party-party costs entitlement out of the estate. Necessarily a gross sum assessment (or any other type of assessment) of party-party costs cannot take place until the costs for which the client is liable on a solicitor-client basis have been fixed as between the solicitor and the client: this is a consequence of the indemnity principle, as I explained in my third decision at [16]. I am also asked, in effect, to dispense with the requirement of assessment of Dasha's solicitor-client costs by varying order 1(c) and discharging order 4.
When the application was called on before me, counsel announced his appearance both for SAS and for Dasha (by her tutor, Olga) as the plaintiff in the proceedings. The application itself purported to be made pursuant to order 5, which granted SAS liberty to apply with respect to order 4.
There is a technical difficulty with the application. The grant of liberty to apply was only with respect to order 4, which was the order made directly against SAS requiring it to make application to have its costs assessed. Liberty to apply was granted only to SAS, against whom the order was made.
Order 1(c) was part of the order I made fixing the provision to which I concluded Dasha was entitled out of her father's estate. That was a final order. It would not have been appropriate to grant liberty to apply to effect a substantive variation of it (Katter v Melhem (2015) 90 NSWLR 164 at [72]), and I did not purport to do so.
The Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") provide in limited circumstances for an application to be made to vary or discharge an order, including a final order, made by the Court. In particular, any party has a strictly limited period of fourteen days to apply to set aside or vary a judgment under UCPR, r 36.16(3A). But SAS, as Dasha's solicitor, has no standing to seek to vary the order for provision made in her favour. And for reasons I explain in more detail below, I cannot see how it is in Dasha's interest to vary order 1(c). In any event, the fourteen day period had expired before any attempt was made to vary that order.
In my view, however, the difficulties with the application are not merely procedural. They include matters of substance.
In support of the application, a further affidavit from Mr Shenouda of SAS was filed. In that affidavit Mr Shenouda deposed to have read my third decision. He annexed copies of the costs disclosures, costs agreements, and also the memoranda of fees of SAS and counsel. On this basis, it was put to me that I now had sufficient material to make a gross sum assessment of the party-party costs to which Dasha is entitled out of the estate. I was asked to make a gross sum assessment of those costs in the interests of disposing of the matter as quickly as possible. A comparison was presented between the costs charged to Dasha by her solicitors and the costs charged to Susan\na and Gemma by their solicitors, showing that Dasha's costs are lower.
In my third decision I said that it would generally be inappropriate to proceed to making a gross sum costs assessment without evidence of the terms of the retainer and copies of the memoranda of fees rendered by solicitors and counsel (at [20]). For this reason alone, I would not have embarked on making a gross sum assessment at that stage.
But there was another aspect of the matter which was of even greater importance (as I indicated in my third decision at [21]). I was concerned at the level of the solicitor-client costs which SAS was charging, and which would (to the extent not recovered on a party-party basis) be paid out of Dasha's trust. I made order 1(c) in the form in which I did because I wished to ensure that before any costs were taken from the trust, those costs had first been assessed independently.
One of my concerns about the level of solicitor-client costs was the propriety of the uplift fee of twenty per cent which SAS was charging. In Mr Shenouda's affidavit, he undertook not to pursue this charge against Dasha. But this was not my only concern.
I also expressed concern (at [19]) about the increase between the costs estimated in Mr Shenouda's affidavit just prior to the trial and the costs ultimately charged. The increase was 35 per cent, not including the uplift fee. I pointed out that this increase had not been explained. It is still unexplained; the point is not addressed in Mr Shenouda's affidavit at all. I also observed that the increase raised questions about whether the relevant disclosure requirements had been properly complied with: see at [22]. As a result of Mr Shenouda's latest affidavit, the disclosures made by both SAS and counsel are now in evidence. But I regret to say that these disclosures only raise further unanswered questions.
Among the relevant disclosure obligations was an obligation on both counsel and SAS to disclose their estimate of costs of acting in the proceedings and to update that disclosure on becoming aware of any change: Legal Profession Uniform Law 2014 (NSW) ("UP") s 174(a), 174(b), and 175(c). Counsel's disclosure is dated October 2016, when he was first retained by SAS to act for Dasha. In that disclosure he estimated his fees at $16,500. The estimate was based on a two day hearing and was said to be "erring on the side of caution" given the uncertainties at that stage about how long the hearing would actually take. In fact, the hearing took one day (plus a further short hearing on the form of orders in February) but counsel's fees were approximately $25,300, an increase of over fifty per cent from the estimate. Counsel's disclosure had said that further estimates would be provided "upon request" but there is no evidence of any such further estimate being given.
The significance of this increase does not just lie in the fact that it is unexplained. If, it appears counsel failed to comply with his obligation to update his estimate, then he was obliged to have his bill assessed before he would be entitled to recover any fees at all: see UL, s 178(1). Counsel would presumptively be liable for the costs of the assessment, whatever the outcome: UL, s 204(2)(a).
SAS' disclosure is dated March 2016, which is when SAS was initially retained. The estimate was provided as a range of between $45,100 and $112,200 (not including the uplift fee). The costs which SAS is now charging, fall, of course, within that range. And it seems to me perfectly reasonable that an estimate under the Uniform Law should be provided by means of a range, especially when it is given at an early stage of the matter when the length of the hearing and the work that will be required to prepare the case, are unknown. But what is provided must still be a genuine estimate. It must be the product of actual consideration by the solicitor of the likely costs in the case, having regard to the particular features of the case in question as they then appear.
I think the range of SAS' estimate is so wide as to call into question whether it was a genuine estimate at all. There is no evidence that Dasha's claim was ever actually contested by the executor on behalf of the estate. It is difficult to see how a figure of $112,200 (not including uplift fee) could ever have been regarded as a realistic assessment of the costs required to present the case. Counsel's estimate was based on the estimated length of the hearing. There was no comparable basis for SAS' estimate. The explanation provided for the range of figures in SAS' letter consists of nothing more than bland generalities about the uncertainties of litigation and the variability of costs.
And even if the estimate was a genuine one in March 2016, SAS can hardly have continued to think that that range of figures continued to apply throughout the rest of the litigation. By the time SAS received counsel's estimate of fees in October 2016, at the latest, it should have been possible to formulate a more precise, and probably lower, estimate of the upper bound. In fact, a much lower estimate was provided to the Court in August 2017, and the disclosure should have been updated accordingly, by that point. The question then arises as to when the increase reflected in the actual charge became foreseeable, and why (apparently) that increase was not disclosed. All this means is that it is at least arguable that SAS, like counsel, had no entitlement to recover any costs until and unless it had its bill assessed, and then, presumptively, at its own cost.
In making these observations, I think that I am only fleshing out questions which were clearly signalled in my third decision about whether SAS was entitled to charge the full amount that it was claiming on a solicitor-client basis. Those questions have not been answered, or even addressed, in the evidence and the submissions which have been put to me for the purposes of this application. To say that the costs which SAS is charging Dasha are less than those charged by the solicitors for Susana and Gemma (when, incidentally, there were two separate applications in their proceedings, both of which appear to have been more complicated and more contestable than Dasha's claim) is to miss the point. The question is whether SAS' charges to represent a proper legal entitlement, having regard both to the provisions of the Uniform Law and to the complexity and difficulty of the work undertaken.
Mr Shenouda's affidavit deposed to the fact that he had received written instructions from Olga to pursue this application. Counsel argued this was a factor in favour of making the orders sought. When I questioned why the application was in Dasha's interests, Mr Shenouda was called to give further oral evidence in which he reiterated that he had given advice to Olga and that she was keen to have the application made in order to "wrap up the matter" as quickly as possible.
I do not doubt that Mr Shenouda has obtained instructions from Olga to bring this application or that she genuinely wishes to put the proceedings behind her. But if this factor is to carry any weight, then those instructions would need to have been based on a full appreciation of the relevant circumstances as they affect Dasha's (not Olga's) interests.
In advising his client on an application for a gross sum costs order, Mr Shenouda was in a delicate position. It is easy to see why such an assessment is in the solicitor's own interest. It saves the solicitor the bother, and perhaps the embarrassment, of having to give a line-by-line justification for the fees charged. But it is less obvious that there is an advantage to the client. A gross sum costs assessment is done on a "broad brush" basis and usually involves a discount on what might be recovered through a formal assessment: see Bechara v Bates [2016] NSWCA 294 at [15]. Where the solicitor will recover any excess solicitor-client costs from the client, the outcome of the application is of no financial concern to the solicitor: he or she will be paid the same amount in any event. But if the client recovers less than would otherwise be the case, the client's financial interests will suffer. In these circumstances, there is a potential for tension between the interests of the solicitor and the client, which calls for the most careful and candid disclosure in seeking instructions from the client.
There may of course be circumstances where the client prefers to proceed expeditiously to recover a lesser amount by way of gross sum assessment than to proceed to a full assessment in the hope of obtaining a fuller recovery. A commercial organisation may conclude that the extra management time in following the more extensive process is not justified, having regard to the amount of costs involved. But such considerations do not appear to apply in this case.
The provision which was awarded in favour of Dasha was designed to provide her with a relatively modest amount of money (approximately $6,000 per year) to contribute to her living expenses until she turns 18. No money can be made available until the property is sold, and that process has not been completed yet (in my second decision, on 28 February, I ordered that the executor sell the property within three months). Once the sale takes place, there will be ample funds to contribute to Dasha's immediate living expenses. Even if the process of determining the level of solicitor-client and party-party costs dragged on for another two years (and I can see no reason why it should take anything like as long as that) it is hard to see why that would cause Dasha any problems. The commercial reality is that it is in SAS' interests to have the quantum of its solicitor-client costs accepted and the quantum of Dasha's party-party costs entitlement determined urgently, not Dasha's.
In the present case, where Mr Shenouda was proposing to seek not only a gross sum assessment of Dasha's party-party costs but also to dispense with the requirement for independent verification of SAS' solicitor-client costs, his position was even more delicate. There was even more tension between SAS' interest in wrapping the proceedings up quickly, with the lack of scrutiny of the costs it has charged which that entails, and the client's interest in being as little out of pocket as possible.
Obtaining proper instructions from a client to proceed in this way requires even more explicit disclosure of the advantages to the solicitor and the corresponding disadvantages to the client. If, as appears to be the case here, there is an argument that counsel is not legally entitled to the amounts he seeks to charge, the solicitor must consider whether to advise the client to require counsel's bills to be assessed. Close personal relations between the solicitor and counsel, who may be briefed by the solicitor in other matters, may make this embarrassing; but if the client's interests require it, it is a necessary embarrassment. Sometimes, even if counsel has failed to comply with disclosure requirements, counsel's fees are sufficiently reasonable that an assessment would make no practical difference. But if the decision is to be made to pay counsel anyway, that must be a decision made by the client, and on the basis of full information. The client must be told, regardless of any personal relationship between counsel and the solicitor, that the client is entitled to require (and should feel no compunction about requiring) counsel to assess his or her fees. The strength of this advice must be even greater, in a case, such as the present, where the instructions are coming from a trustee who is not spending his or her own money. These observations of course apply equally to the solicitor's own fees if there is any potential issue, such as there appears to be here, about the adequacy of the solicitor's disclosure.
In the circumstances of this case, I simply cannot see any reason why the current application is in Dasha's interests. In response to my enquiries of counsel (and also of Mr Shenouda when he gave evidence), all I was told was that it was generally in the interests of everyone to have the matter wrapped up. When pressed, counsel offered that the assessment might result in a figure for solicitor-client costs which is the same or only slightly less than what SAS has charged. This rather overlooks the fact that my order has already prompted SAS to drop the "uplift fee" which was part of its charges when I delivered my third decision. Be that as it may, I do not think that counsel's point has any real weight.
If SAS failed to comply with its disclosure obligations, it will presumptively have to bear the costs of the assessment, whatever the outcome, as I have already mentioned. And even if there was no failure to comply, Dasha has already achieved a 20 per cent reduction in SAS' fees because of the dropping of the uplift fee, a factor which would favour SAS having to pay the costs of the assessment even if there were no further reduction. An assessment is therefore unlikely to leave Dasha worse off, and every dollar that is saved through further reduction of the solicitor-client costs will be a dollar which she can enjoy as part of the provision which has been awarded to her by the Court. Furthermore, although the amounts at stake in this application are small, the unexplained increases are large in percentage terms and are significant when compared to the modest provision which Dasha was awarded.
I have not been provided with a full account of the advice given to Olga when she gave instructions for the application to be pursued. I was told, and accept, that Olga has always known that there would likely be a difference between solicitor-client and party-party costs which would have to be paid out of any provision recovered. I also accept that she has been told (correctly) that this application is likely to result in the matter being finalised more quickly than would otherwise be the case. But I see no reason to suppose that she has been advised of the potential issues with the level of costs charged to which I have referred, or of her paramount duty as Dasha's trustee to minimise the extent to the provision which the Court has made in favour of Dasha will be depleted by solicitor-client costs. Despite the efforts of counsel, I remain of the view that this application is really, and only, for the benefit of Dasha's lawyers. The fact that instructions have been obtained from Olga approving it only emphasises, in my mind, the need for an independent check on the amount Dasha's lawyers can charge for their work in this matter.
For these reasons, the application fails on substantive, as well as procedural, grounds. In Mr Shenouda's affidavit he stated that neither he nor counsel would be charging Olga, or Dasha, for any time spent on the matter after the delivery of my second decision. Nevertheless, I think it appropriate to make a formal order that SAS bear the costs of this application.
The orders of the Court are:
I dismiss the application to vary the Court's orders of 29 March 2018.
I order that SAS Lawyers Pty Ltd bear the costs of the application.
[2]
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Decision last updated: 10 May 2018