CSR LIMITED v EDDY [2008] NSWCA 83 | Case summary

2 May 2008 CSR LIMITED & ANOR v Jarradd EDDY Judgment 1 HODGSON JA: I agree with the orders proposed by Basten JA, and subject to what I say below, I agree substantially with his reasons. 2 I agree with Basten JA that there was in the agreement between the plaintiff and his solicitors no directly stated "cap" to the amount of costs recoverable by the solicitors. However, in my opinion, the rates of charges provided by the agreement could operate to give rise to an indirectly derived cap that could, by virtue of the indemnity principle, enure to the benefit of the appellants. 3 It is true that s 208H(2) of the Legal Profession Act 1987 (NSW) (the 1987 Act) provides that the costs assessor must not apply the terms of a costs agreement for the purposes of determining appropriate fair and reasonable costs when assessing costs payable as a result of a court order; but this does not displace the indemnity principle. Accordingly, if a costs agreement provides for rates of charges lower than those assessed as fair and reasonable, and if, by reason of the rates of charges provided by the agreement, a client is liable to the solicitor for something less than the total amount otherwise assessed to be fair and reasonable, then the indemnity principle would require that the assessment be for this lower amount. 4 There was debate before this Court as to whether this approach applied on an item by item basis, or only to the global figure reached on assessment. We were referred to no authority on this question; but in my opinion the indemnity principle, as applied in cases such as Tarry v Pryce (No. 2) (1987) 88 FLR 270, does not support an item by item process. 5 Suppose that there were just two items in a bill being assessed for party and party costs. Suppose that, according to an agreement between the solicitor and the client, the client is liable to pay the solicitors $1,000 for one item and $2,000 for the other item, and both are assessed as no more than reasonable as between solicitor and client. Suppose further that, on assessment on a party and party basis, the fair and reasonable assessment is found to be $1,500 for each item. Then I would see no reason why a total assessment, on a party and party basis, of $3,000 would be incorrect. 6 This has some bearing on the appellants' argument concerning six minute intervals. In reaching his assessment, the assessor could not and did not rely on the agreement between the plaintiff and his solicitors in order to determine what was a fair and reasonable assessment for each item; so he must have concluded that the amount he allowed reflected both a reasonable time for the item and a reasonable rate. He had before him a submission objecting to the claim for minimum units of time on the basis that it resulted in charges for time not spent. In at least one instance, he allowed only three minutes where six minutes had been charged for. The appellants' present argument would have to show that, notwithstanding these matters, in some cases the solicitors had actually spent materially less time than the assessor considered reasonable, and also had charged for more time than they actually spent because there was rounding up to six minute intervals; and also that this rounding up outweighed any rounding down. Where the assessor has not in fact proceeded on any basis that rounding up was permissible, in my opinion there is no reasonable possibility that this argument could make a material difference to the assessment. 7 I agree with Basten JA that costs agreements that do no more than specify rates for work to be done by specified classes of persons, and/or give a global figure for carrying out a specified task, and/or give estimates for carrying out a specified task, are not the subject of client legal privilege at general law. However, if an agreement contains material which expressly or impliedly conveys legal advice or views about tactics or strategy, then that material may be privileged. I agree also that there was no such material in this case. 8 In my opinion also, there is a real question whether any privilege that might exist in material of such direct relevance to the task of a costs assessor could be maintained. A person with the benefit of a costs order is, when applying for assessment, seeking what will in effect be a judgment for a sum of money; and according to the indemnity principle, that judgment cannot be for more than what is payable under the relevant costs agreement. In any case where there is a reasonable possibility that the costs agreement could raise a question under the indemnity principle, there would be inconsistency between the application for assessment (and thus for a judgment) and refusal to permit fair adjudication of the matter (that is, an adjudication in which the other side can make submissions concerning the terms of the agreement): cf Attorney General for the Northern Territory v Maurice (1986) 161 CLR 475; Standard Chartered Bank of Australia Limited v Antico (1995) 36 NSWLR 87. 9 The decision of McHugh J in Giannarelli v Wraith (No. 2) (1991) 171 CLR 592 does not precisely apply in this situation, because of the terms of s 203(2) and s 207(1), (5) and (6) of the 1987 Act. However, even if it were the case that legal professional privilege would not be a reasonable excuse under s 207, so that any production would be under compulsion, in my opinion the principle in Attorney General v Maurice would still apply in any case where the terms of an agreement did in fact raise a question under the indemnity principle. In my opinion, the terms of the agreement did so in this case, and the assessor should have made the agreement available to the appellants. However, in the event, this Court has held, having heard submissions, that the indemnity principle did not in fact operate to reduce the assessment. 10 McCOLL JA: I agree with Basten JA. 11 BASTEN JA: In September 2002 the late John Leonard Thompson retained solicitors to bring proceedings against the appellants, CSR Limited and Midalco Pty Ltd, the latter being the formerly known as Australian Blue Asbestos Pty Ltd ("the appellants"). Mr Thompson instructed his solicitors to commence proceedings against the appellants in the Dust Diseases Tribunal of New South Wales seeking damages in relation to his condition of malignant mesothelioma, resulting from his exposure to asbestos dust and fibre at work. (Although Mr Thompson died in November 2003, the proceedings being continued in the name of Mr Eddy, the administrator of his estate, they will be referred to collectively as "the plaintiff.") 12 Ultimately liability was not disputed and an award of damages was made by the Tribunal in favour of the plaintiff, together with an order that the appellants pay his costs of the proceedings before the Tribunal. The present appeal concerns the assessment of those costs, which were not agreed and were subject to assessment by a costs assessor pursuant to the provisions of the Legal Profession Act 1987 (NSW) ("the 1987 Act"). 13 By an application filed on 14 February 2006 the appellants sought review of the assessor's decision before the Costs Review Panel, which treated the application as one brought under s 208KA of the 1987 Act. The Panel affirmed the costs assessor's determination, pursuant to the power conferred under s 208KC(1). Although the statement of reasons given by the Review Panel was dated 16 May 2006, it appears not to have been received by the appellants until 26 June 2006. On 24 July 2006 the appellants filed proceedings in the Common Law Division appealing from the determination of the Panel pursuant to s 384 of the Legal Profession Act 2004 (NSW) ("the 2004 Act"), following the repeal of the 1987 Act. 14 The summons was dismissed by Malpass AsJ: see CSR Ltd v Eddy [2007] NSWSC 210. The appellants then filed an application for leave to appeal to this Court. Pursuant to leave granted on 6 November 2007 the matter is now before the Court by way of an appeal. 15 The sole fact forming the basis of the proceedings in this Court and in the Common Law Division was the failure of the appellants to obtain a copy of the costs agreements entered into by the plaintiff with his solicitors and between the solicitors and counsel, prior to the determinations of the costs assessor and the Costs Review Panel. Jurisdiction of this Court 16 The application for assessment of costs was made on 8 June 2005 and referred to a costs assessor on 10 June 2005. The 1987 Act was repealed on 1 October 2005. Nevertheless, the transitional provisions provided that the application for assessment might be dealt with under the 1987 Act, as if the relevant Part had not been repealed: the 2004 Act, Schedule 9, cl 18(3) (inserted by the Legal Profession Amendment Act 2005 (NSW), which commenced on the date of commencement of the 2004 Act). 17 Pursuant to cl 22A, in Schedule 9 of the 2004 Act, an appeal could be made under either the 1987 Act or the 2004 Act, in relation to a matter arising under the 1987 Act. (This provision commenced on 2 June 2006: see Legal Profession Amendment Act 2006 (No. 30) (NSW), Schedule 8, [4].) The appeal was argued on the basis that the existence of error on the part of the costs assessor was to be determined by reference to the provisions of the 1987 Act. Issues 18 The failure of the plaintiff or the Tribunal to provide the appellants with copies of the costs agreements entered into by the plaintiff and his lawyers, those agreements having been obtained by the costs assessor prior to making his determination, was said to constitute procedural unfairness requiring that the determinations be set aside. 19 By way of response, and at different stages of the proceedings, the plaintiff asserted that the agreements were irrelevant, that there was no breach of procedural fairness in failing to provide them to the appellants, that even if there were a breach, it could have made no difference to the outcome and that the agreements were subject to client legal privilege which had not been waived by or on behalf of the plaintiff, a fact which justified a failure to produce them to the appellants, even if they should otherwise have been provided. 20 In the grounds of appeal set out in the summons commencing proceedings in the Common Law Division, the appellants identified error on the part of the Panel in finding that the agreements were subject to privilege and that the privilege had not been waived. In this Court, the plaintiff contended that unless the appellants could establish an entitlement to see the costs agreements, as a matter of procedural fairness, and that the failure to provide them justified interference by this Court, no question of privilege would arise; that there had been no formal claim for client legal privilege and that, accordingly, it would be inappropriate for the Court to rule upon the question of privilege if the case could otherwise be determined. 21 As a matter of fact, it would appear that a claim for privilege was made, though perhaps not expressly before the costs assessor, but in any event the first limb of the plaintiff's submission should be accepted and the matter dealt with by considering first whether there was procedural unfairness, warranting appellate intervention, in the failure to provide copies of the costs agreements to the appellants, assuming for that purpose that there was no client legal privilege. (It is convenient to use the term "client legal privilege", being the term used in Part 3.10, Div 1 of the Evidence Act 1995 (NSW). The Evidence Act did not apply to the exercises of power by the assessor or the Costs Review Panel, but the statutory term is apt to describe the general law principle previously known as legal professional privilege.) 22 The question of procedural fairness involved a further issue, namely the purpose for which the appellants sought the costs agreements. The principal purpose was to support an argument that, in accordance with the indemnity principle, no costs were payable by the appellants to the plaintiff, because the plaintiff had no legal liability to his solicitors. This gave rise to debate as to the scope and operation of the "indemnity principle". 23 The plaintiff did not dispute that the assessor and the Panel were required to act fairly, but argued that procedural fairness did not require disclosure of the costs agreements to the appellants. Following the grant of leave to appeal by this Court on 6 November 2007, the plaintiff provided copies of the costs agreements. By reference to those agreements, he contended that the claim of unfairness must fail and that the decision of the primary judge could be supported on that basis. 24 Although the various requests made by the appellants prior to the assessments requested both agreements, the focus of the present proceedings was on the costs agreement entered into between the plaintiff and his solicitors, which governed the particular issues sought to be raised by the appellants. Procedural fairness 25 The right to obtain an assessment of costs required to be paid to another party as a result of an order made by a court or tribunal, arose under s 202 of the 1987 Act. The procedure required an application to "the Manager, Costs Assessment" (s 202(1)), being an officer in the Attorney-General's Department: see definition in s 3(1). Section 203 provided how an application was to be made and in particular stated: "203 … (2) The application must authorise a costs assessor to have access to and to inspect, all documents of the applicant that are held by the applicant, or by any barrister or solicitor concerned, in respect of the matter to which the application relates." 26 An application was to be referred by the manager to a "costs assessor" (s 206), being a person appointed as such by the Chief Justice under s 208S. A person so appointed was not, however, an officer of the Court: s 208S(4). 27 The powers and functions of a costs assessor were set out in ss 207 and 208, relevant provisions of which stated: " 207 Costs assessor may require documents or further particulars (1) A costs assessor may, by notice in writing, require a person (including the applicant, the barrister or solicitor concerned, or any other barrister, solicitor or client) to produce any relevant documents of or held by the person in respect of the matter. (2) The costs assessor may, by any such notice, require further particulars to be furnished by the applicant, barrister, solicitor, client or other person as to instructions given to, or work done by, the barrister or solicitor or any other legal practitioner in respect of the matter and as to the basis on which costs were ascertained. … (5) If a person fails, without reasonable excuse, to comply with a notice under this section, the costs assessor may decline to deal with the application or may continue to deal with the application on the basis of the information provided. (6) A barrister or solicitor who fails, without reasonable excuse, to comply with a notice under this section is guilty of professional misconduct. 208 Consideration of applications by costs assessors (1) A costs assessor must not determine an application for assessment unless the costs assessor: (a) has given both the applicant and any barrister, solicitor or client or other person concerned a reasonable opportunity to make written submissions to the costs assessor in relation to the application, and (b) has given due consideration to any submissions so made. (2) In considering an application, a costs assessor is not bound by rules of evidence and may inform himself or herself on any matter in such manner as he or she thinks fit. (3) For the purposes of determining whether an application for assessment may be or is required to be made, or for the purpose of exercising any other function, a costs assessor may determine any of the following: (a) whether or not disclosure has been made in accordance with Division 2 …, (b) whether a costs agreement exists, and its terms." 28 In considering the scope of these provisions, it is necessary to bear in mind that they were general provisions which applied both to an assessment as between lawyer and client and an assessment as between party and party. As between lawyer and client, there is little danger of any breach of client legal privilege (so long as provision of information to the costs assessor does not constitute a waiver of privilege), whereas quite different considerations may arise in relation to a party and party assessment, where disclosure may give rise to real questions as to breach of confidentiality and waiver of client privilege. Similarly, different considerations may come into play where a client seeks an assessment of his or her own lawyer's costs in contrast to the situation where a party is forced to seek an assessment in order to enforce a court order against another party. 29 Provisions relating specifically to the assessment of party and party costs were to be found in Subdivision 3, including, relevantly, ss 208F, 208G and 208H. Pursuant to s 208F, a costs assessor was required to consider whether or not it was "reasonable to carry out the work" and to determine the "fair and reasonable amount of costs for the work concerned": s 208F(1). Matters relevant to the consideration of a fair and reasonable amount were set out in s 208G. Relevantly to the present dispute, s 208H provided: " 208H Effect of costs agreements in assessment of party/party costs (1) A costs assessor may obtain a copy of, and may have regard to, a costs agreement. (2) However, a costs assessor must not apply the terms of a costs agreement for the purposes of determining appropriate fair and reasonable costs when assessing costs payable as a result of an order by a court or tribunal." 30 The function of a costs assessor under these provisions was, subject to the statutory form of appeal, to determine in a manner binding on all parties to the assessment the liability of the respective parties for the payment of legal costs, with no cap on the amount which might have been in issue: see, generally, s 208KI(2). Subject to questions of appeal and review, the determination made by the costs assessor, as set out in a certificate issued by the assessor, could be filed in a court of competent jurisdiction and enforced as a judgment of that court: s 208J. Although the assessor was not bound by the rules of evidence and had broad powers to inform himself or herself on any matter in issue (s 208(2)) it was not in doubt that he or she was required to comply with the rules of procedural fairness. In part those rules were given statutory effect by requiring that the parties be given a reasonable opportunity to make written submissions and requiring the assessor to give due consideration to those submissions: s 208(1). Further, as the appellants contended, an entitlement in a party to make submissions involved an implied entitlement to know the material before the assessor, about which submissions might be made. 31 In broad terms, that submission should be accepted: the question concerned its limits. 32 According to the appellants, procedural fairness required that they have access to all of the material available to the costs assessor in relation to the matter, a right which was not constrained by the absence of any indication in the decision of the assessor, or his reasons for decision, that particular material had been taken into account. The appellants knew that the costs agreements had been sought by the assessor and had been provided to him. The agreements, they contended, constituted material which should have been provided to them, absent which they were unable to make submissions on material matters, with the result that the determination of the assessor was a nullity. Similarly, the determination of the Review Panel was similarly infected with error. As the appellants noted, it was clear that the Review Panel had in fact taken the costs agreement into account: the Panel stated in par [29] of its reasons: "The Review Panel notes that the Costs Assessor did not specifically make any reference to him having regard to the Costs Agreement between the Respondent and his solicitor or that he was satisfied that the Respondent had not breached the costs indemnity rule. Notwithstanding his failure to do so the Review Panel is nevertheless satisfied that proper regard has now been made to the Costs Agreement and notwithstanding the fact that a Tax Invoice/Bill of Costs has not been rendered to the plaintiff, it is satisfied that the Respondent has not breached the costs indemnity rule." 33 If it were relevant, there might be some doubt as to whether the reasons of the assessor complied with the requirements of s 208JAA and cl 26IJ of the Legal Profession Amendment (Costs Assessment) Regulation 1999 (NSW); and see generally, Attorney-General (NSW) v Kennedy Miller Television Pty Ltd (1998) 43 NSWLR 729, dealing with the obligations to give reasons prior to the insertion of those provisions. If the statement of reasons did not comply with the statutory requirements, little weight could be placed upon the failure of the assessor to refer to the costs agreements. In any event, that issue has been overtaken by the express reference in the reasons of the Panel. 34 Failure on the part of a tribunal to provide one party with material to which it has access may give rise to different questions with respect to procedural fairness, depending upon the nature of the material and its potential relevance to the matter before the Tribunal. Thus, if the material can be characterised as credible, relevant and significant and adverse to the interests of the applicant, he or she must be given an opportunity to deal with it: see Kioa v West (1985) 159 CLR 550 and Applicant VEAL of 2002 v Minister for Immigration and Multicultural and Indigenous Affairs (2005) 225 CLR 88; [2005] HCA 72, at [14]-[18]. However, that principle was not relevant in the present case. Rather, the appellants sought an opportunity to establish, on the basis of the agreements, that there was no unconditional and immediately enforceable liability in a fixed amount, as between the plaintiff and his solicitors, with respect to his costs. Absent such a liability, the indemnity principle, the appellants contended, prevented recovery of any amount by way of costs from them. 35 At the factual level, the issue thus identified was raised in express terms before the costs assessor. In response to the application for assessment, the appellants filed a notice of objection which invited the assessor to have regard "to all memoranda of costs and disbursements forwarded to the plaintiff by his solicitors to ensure that the costs indemnity rule has not been breached". In response, the plaintiff noted that no memoranda of costs and disbursements had been forwarded to the plaintiff prior to his death on 20 November 2003, nor thereafter until 29 June 2005 (the date of the response), because the judgment had been subject to appeal both in this Court and the High Court of Australia, judgment in the High Court being delivered only on 21 October 2005: see CSR Ltd v Eddy (2005) 226 CLR 1; [2005] HCA 64. The solicitors included in their letter an assurance that they would not charge "more than the costs and disbursements as set out in the party/party bill of costs": letter to costs assessor, 29 June 2005, p 3. This latter statement did not respond correctly to the issue, which was whether they would (or strictly, had) charged anything at all, or would charge less than the amount of the bill forwarded to the assessor. 36 On 7 July 2005 the appellants (described as the defendants in the Tribunal) wrote to the costs assessor noting the response and stating that they considered the concession that no memorandum of fees had been sent to the plaintiff as significant and needing to be considered "in light of the terms of the costs agreement". The letter continued: "In accordance with the costs indemnity rule, the Defendants' liability for party/party costs cannot exceed the amount for which the plaintiff is liable for costs and the indication provided by the plaintiff's solicitors that in fact no costs had been charged to the plaintiff, we do not consider the Defendants' request [for the agreement] unreasonable. We note that the plaintiff's solicitor provided you with a copy of his fee agreement with the plaintiff dated 18 September 2002 (a copy of which was not sent to us). We consider the circumstances of this case are such that the Defendants are entitled to consider the terms of the fee agreement in light of the comments outlined above, and in order that appropriate submissions can be made if required." 37 The issue so formulated was not expressly determined by the costs assessor. The Review Panel contented itself with the proposition that the failure to render a memorandum of fees to the client did not prevent recovery from the appellants. Whether that was because the agreement did not require a bill to be rendered in order for a liability to arise, or because the indemnity principle did not require an immediately enforceable liability or for some other reason, is not clear. However, it seems that the Panel considered it appropriate to address the question, as raised by the objection, and determine it. That position was not challenged and was consistent with the judgments of this Court in Wentworth v Rogers [2006] NSWCA 145; (2006) 66 NSWLR 474, at [41] (Santow JA, Hislop J agreeing at [215]); cf my comments at [185]. The plaintiff did not, in his response, challenge the power of the assessor to determine this question. 38 Once it has been accepted that the costs assessor had power to deal with the objection, which was based, at least in part, on the content of the costs agreements, it would seem that the appellants were entitled to be provided with copies of those agreements, so that they could make appropriate submissions in support of their objection. That they were unable to do, but that alone is insufficient to establish procedural unfairness. They still need to establish that the failure to provide them with the costs agreements caused them "practical injustice": see Re Minister for Immigration and Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6, at [37]-[38] (Gleeson CJ); see also the reference to an "entirely speculative" adverse reaction, at [59] (McHugh and Gummow JJ) and see [149] (Callinan J). The appellants must demonstrate that they have in a practical sense lost an opportunity to make some submission material to the question in issue because they did not have access to the costs agreements. 39 Care must be taken in relation to the application of phrases such as "practical injustice" which can, taken out of context, appear to have a broad and indefinite scope of operation. There is a distinction to be drawn between a complaint of unfairness where, on proper examination, it may be perceived that the unfairness is not established, and a case where unfairness has been established but the decision was inevitable, so that a grant of relief would be futile. In Lam a departmental officer told the applicant that he intended to make certain inquiries, but did not in fact do so. The failure to inform the applicant of the change of plan could have been unfair if the applicant had omitted to take some step in reliance upon the officer's intention, as originally communicated. Because the applicant was not deprived of any opportunity to put his case as fully as he wished and because he did not in fact rely upon the stated intention to his detriment, there was no unfairness in a practical sense. It is only when unfairness has been established that a second question arises, namely whether the lost opportunity could possibly have made any difference to the outcome. In Re Refugee Review Tribunal; Ex parte Aala (2000) 204 CLR 82; [2000] HCA 57, the Tribunal wrongly told the applicant that it had certain material before it. The existence of the material was relevant to the credibility of the applicant. The applicant gave evidence on an application for judicial review that he had been misled by the statement and that, had he known it to be incorrect, he would have taken certain steps which he did not take, to demonstrate the consistency of his position and hence bolster his credibility. As explained by Gleeson CJ at [4]: "It is possible that, even if the prosecutor had been given an opportunity to deal with the point, the Tribunal's ultimate conclusion would have been the same. But no one can be sure of that. Decisions as to credibility are often based upon matters of impression, and an unfavourable view taken upon an otherwise minor issue may be decisive." 40 The circumstances in Aala, in which the orders of the Tribunal were set aside, may be contrasted with the example given in Stead v State Government Insurance Commission (1986) 161 CLR 141, in which the appellant's counsel had been stopped by the trial judge in a personal injury case from addressing on an issue of causation. Whilst affirming the right of a litigant to a fair trial, the Court noted an important qualification to the entitlement to relief in circumstances where unfairness had been demonstrated, stating at p 145: "That qualification is that an appellate court will not order a new trial if it would inevitably result in the making of the same order as that made by the primary judge at the first trial. An order for a new trial in such a case would be a futility. For this reason not every departure from the rules of natural justice at a trial will entitle the aggrieved party to a new trial. By way of illustration, if all that happened at a trial was that a party was denied the opportunity of making submissions on a question of law, when, in the opinion of the appellate court, the question of law must clearly be answered unfavourably to the aggrieved party, it would be futile to order a new trial." 41 The approach in Stead, an appeal in a civil trial, owed much to the principles derived from Balenzuela v De Gail (1959) 101 CLR 226 as to whether the wrongful rejection of evidence will lead to a new trial unless it appears that the rejected evidence "could not have affected the jury's verdict": Stead at pp 144 and at 147. In that event, the appellant would not have lost "a possible chance" of obtaining a favourable verdict": ibid at 147. That approach was expressly adopted in relation to administrative decision-making in Ex parte Aala at [4] (Gleeson CJ), [58] and [80] (Gaudron and Gummow JJ, Hayne J agreeing at [172]), [87] (McHugh J dissenting), [131] (Kirby J) and at [211] (Callinan J). 42 Where the appeal turns upon a question of law, with no need for additional fact-finding, it will rarely be necessary for an appellate court conducting a rehearing to remit a matter, rather than determine the question itself. For that reason the example given in Stead of a case where a new trial would be a futility is somewhat removed from a case in which the unfairness infects the fact-finding process. Where the error truly concerns a question of law only, tests of practical unfairness and whether, absent unfairness, the appellants could have obtained a different result, have little bearing on the matter. Thus, in the present case, the costs agreements which were not produced before the costs assessor were put in evidence without objection and it is undoubtedly open to this Court to determine, as a matter of law, whether the Panel's conclusion that the costs agreement did not support the submission that the indemnity principle had been contravened was correct. It is convenient to turn directly to that question. Operation of indemnity principle 43 Before considering the effect of the costs agreements and any relevant statutory provisions, it is necessary to identify the scope and operation of the "indemnity principle". 44 As articulated by the appellants, that principle required that they be ordered to pay no more than the amount which the plaintiff was liable to pay to his solicitors, as a legally enforceable obligation, extant at the date of the assessment. In Wentworth v Rogers Santow JA at [45] articulated the basic principle in the following terms: "Where a party to an action has an agreement with their legal adviser that they do not have to pay any costs, then the general law principle states that that party cannot recover party and party costs against their adversary: McCullum v Ifield [1969] 2 NSWR 329 at 330, per Taylor J, citing Gundry v Sainsbury [1910] 1 KB 645." 45 His Honour noted that the principle was subject to exceptions and, in particular, must accommodate the kind of conditional costs agreement recognised by s 186 of the 1987 Act. That section provided that a lawyer may enter into a costs agreement with a client pursuant to which the payment of legal costs is made contingent on the successful outcome of the matter. The agreement must relate to proceedings in a court or tribunal (other than criminal proceedings), must specify what constitutes a successful outcome and may identify the costs to be paid otherwise than as a proportion of the amount recovered: see s 186(3), (4) and s 188. In a sense, a conditional costs agreement does not involve any qualification of the indemnity principle, but rather is dependent upon it: see Wentworth at [166]. 46 There are a number of possible elements to the indemnity principle, some of which are not in issue in the present case. Thus, the leading case in which it was relied upon to deny recovery from the other party to litigation was Gundry v Sainsbury, in which the solicitor entered into an agreement with his client that the client did not have to pay costs in any event. This is not that case, but is one where recovery was made conditional upon success. Once success was achieved, a liability to pay costs arose. 47 A second proposition which is not directly in issue in the present case is that where an agreement caps the amount of costs recoverable, no more than the capped amount can be recovered from the other party. This proposition was referred to in Dyktynski v BHP Titanium Minerals Pty Ltd (2004) 60 NSWLR 203; [2004] NSWCA 154 at [7] by Mason P, referring to Tarry v Pryce (No. 2) (1987) 88 FLR 270 (Kearney J, NTSC). There is no suggestion that the amount recoverable was so limited in the present case, with the result that this element of the principle has no direct application. 48 Rather, the appellants sought to argue that recovery was conditional upon the delivery of a bill of costs to the plaintiff. That followed, it was said, from paragraph 4 of the agreement which was headed "Method of Billing and Payment" and stated: "We will send you a bill on the successful conclusion of your case for those expenses we have incurred on your behalf." 49 This provision, it was contended, made the liability of the plaintiff conditional upon receipt of a bill. Indeed, it was argued, the matter could hardly have been otherwise, or the plaintiff would not have known what amount to pay. This conclusion was also consistent with the prohibition on proceedings for recovery of costs by a lawyer unless and until the client had been served with a bill and at least 30 days have passed since such service: s 192(1). Because no memorandum of fees had been served on the plaintiff personally (or on the administrator representing his estate) the appellants contended that there was no current liability and hence no amount was payable by way of indemnity. 50 There are a number of difficulties with this submission. The first is that, as a matter of contract, a statement that the solicitors would send the client a bill is not apt to condition the existence of the legal obligation upon receipt of the bill. Although the bill would provide a quantification of the liability, the liability is incurred upon the provision of the services, although payment may not be immediately due and owing. Further, the amount or amounts identified in the bill will not necessarily constitute the legal liability of the client, who is entitled to obtain the determination of a costs assessor as to the amount of a fair and reasonable payment. 51 The fact that no relevant pre-condition to liability arose from the terms of the agreement would not necessarily preclude an argument that it arose by virtue of s 192 of the 1987 Act. However, that alternative basis does not assist the appellants: their challenge to the decision of the trial judge and the Panel was not that, as a matter of law, the plaintiff had no liability to his solicitors, but rather that they had been deprived of a document which provided a relevant basis for that conclusion. If the document in question (the costs agreement) did not in law provide a basis for that conclusion, the failure to provide them with a copy did not constitute procedural unfairness. Accordingly, the appeal should be dismissed. 52 In reaching that conclusion, it should not be assumed that there are no other difficulties with the appellants' contention as to the legal basis on which their argument purported to rest. If the argument were otherwise correct, no costs would be recoverable in any case until the client had received a bill from his or her solicitors and a period of 30 days had elapsed. Indeed, there might be a further argument that the bill would either need to be paid or be assessed as fair and reasonable before the amount of the legal obligation could be said to be determined. The Court was taken to no authority which supported such an approach. That is understandable if the indemnity principle is based, not upon the existence of an enforceable obligation in a specific amount, but on the absence of any agreement not to charge or not to charge an amount in excess of an agreed figure. Further, as noted by Mason P in Dyktynski, a conditional costs agreement may define success as not merely a judgment in favour of the client, but a judgment together with an order for costs and payment of the judgment and costs. If the appellants were right, such an agreement would fail in its manifest purpose because there might never be a time at which there would be success. It is not necessary to decide in this case if that conclusion be correct, but it is not a conclusion which sits well with the policy underlying s 192 of the 1987 Act which, in days of high legal costs and limited availability of legal aid, provided a mechanism for people without means to have access to the courts to enforce their rights. Such an approach would take the indemnity principle, as a prohibition on the recovery of costs, beyond any present authority known to this Court. Even if such a position were correct under the general law, it might well be inconsistent with the statutory scheme of conditional costs agreements permitted under successive Legal Profession Acts. Other aspects of reliance on costs agreements 53 Two other challenges were based on the failure to provide the costs agreements. 54 First, there was a complaint that the solicitors had charged on the basis of 6 minute intervals, at 10% of the hourly rate. The basis of complaint in the objection provided to the costs assessor was that "the claims for minimum units of time … results in considerable inflation of the costs and charges for time not spent". The basis of the objection appeared to be that when any time was devoted to a matter, a 6 minute unit would be charged whether or not that time was spent. In other words, the adoption of the units involved some element of "rounding up". 55 Whether that objection was good or not was a matter for the costs assessor. The relevant question for present purposes was whether the costs agreement itself provided any support for the objection. It was claimed that it did in that it contained no reference to charging by 6 minute units but only by an hourly rate. 56 The bill commenced with a heading "Itemisation of costs" which covered 53 clauses. The last of these stated that the bill was prepared "in accordance with our costs agreement dated 18/09/02, stipulating the following rates …". The rates were, relevantly, all hourly rates. The clause then stated that the bill "has been also prepared on the basis of 6 minute units". There was no suggestion that 6 minute units were referred to in the costs agreement, as indeed they were not. Thus, the first response to the present complaint is that the information sought to be relied upon as derived from the costs agreement was in fact set out in the itemised bill at p 10, cl 53. 57 The second reason for rejecting this complaint is that it is inconsistent with both the statutory obligations of the costs assessor and other objections raised by the appellants to the itemised bill. Thus, the appellants' objection was to reliance upon 6 minute units: the validity of that objection did not depend on whether the costs agreement permitted such calculation. In considering whether the charges were fair and reasonable, the costs assessor was obliged not to apply the terms of the costs agreement: s 208H(2). Accordingly, if the costs agreement had provided for assessment of time based on a minimum 6 minute unit, the appellants might have had a reasonable complaint in that they might have wished to object specifically to the application of that provision, as they did in relation to the hourly rates prescribed by the costs agreement. As there was no such provision in the agreement, no additional objection was called for. 58 The second challenge was based on the estimates provided in the costs agreements. Thus the solicitors included an estimate of charges and expenses in an amount of $40,000 and senior counsel provided an estimate in an amount of $38,000 plus goods and services tax. The estimates were based on certain assumptions. The total estimate was approximately 50% of the costs as determined by the costs assessor. The significance of these amounts (which may or may not have been increased before the completion of the work - an obligation to notify any significant increase in the estimate arose under s 177(3) of the 1987 Act) demonstrated, it was said, that the matter was a largely routine claim before the Dust Diseases Tribunal and did not involve any elevated allowance for skill, labour and responsibility, or complexity, novelty or difficulty, being factors which might justify higher costs pursuant to s 208G of the 1987 Act. 59 The way in which this argument was sought to be deployed was not entirely clear. The estimates were merely the result of multiplying the specified hourly rates by the anticipated number of hours. How the anticipated number of hours could be used to demonstrate, for example, that the case involved no complexity, novelty or difficulty is somewhat obscure: a more accurate basis for assessing complexity based upon the time factor would presumably be by reference to the time in fact expended. That was not reflected in the estimates, but in the itemised bill. This contention, which was only raised in the course of oral argument on the appeal, should be rejected. Any opportunity to rely upon such an argument, based on the estimates contained in the costs agreements, was either flawed or insignificant. Client legal privilege 60 If a different view were taken of the effect of the agreement, it would be necessary to consider whether provision of the agreement to the appellants could properly have been resisted before the assessor and the Panel on the basis of client legal privilege. In my view it could not, for reasons which, in the circumstances, may be stated briefly. 61 The relevant test arose under the general law; neither the costs assessor nor the Costs Review Panel constituted a court for the purposes of the Evidence Act, ss 118-119: see Dictionary and s 208(2) of the 1987 Act, providing that an assessor is not bound by the rules of evidence. 62 The purpose of client legal privilege is to protect confidential communications between client and lawyer for the purpose of obtaining legal advice and the provision of that advice and communications in relation to the conduct of litigation. The existence of a retainer between client and lawyer is not the subject of the protection, but a precondition to its operation. Accordingly, and generally speaking, the retainer will not be privileged: see Cook v Pasminco Pty Ltd (No. 2) (2000) 107 FCR 44; [2000] FCA 1819 at [47] (Lindgren J). If provisions of the costs agreement had served a different purpose, being one within the sphere of protection provided by the privilege, it would have been appropriate to consider a claim of privilege in relation to such provisions separately: ibid at [48]-[49]. That question did not arise in this case. 63 The plaintiff contended that the document was not the creation of the lawyer/client relationship, as, based on items in the bill of costs, it was clear that work had been done by the solicitor prior to the execution of the costs agreement. That chronology is no doubt correct; however, it provides no reason to doubt that the basis of the contractual relationship was that set out in the costs agreement. 64 The plaintiff also supported his claim for privilege by reference to four authorities in the Equity Division, commencing with Re Global Medical Imaging Management Ltd (In liq) [2001] NSWSC 476, in which Santow J considered whether a funding agreement fell within the protection of s 119 of the Evidence Act. His Honour held at [7]: "To deny legal privilege to a funding agreement of this sort would fail to give proper weight to its inextricable connection with the very subject matter of the legal advice that might be given and the nature of the professional legal services to be rendered. It has the potential to reveal the litigant's likely legal strategy. The funding agreement in a literal and substantive sense, fulfils the purpose of providing legal services in terms not only of the overall capacity to have them at all, but also their availability at critical junctures of the case. While it may not reveal the content of legal advice, it reveals the confidential circumstances of its availability and throws oblique light on the confidential circumstances to which the advice is directed." 65 Santow J referred to the decision of Lindgren J in Cook but, other than stating that it did not "preordain the result in the present circumstances" did not address the reasoning or the authorities upon which Lindgren J relied. The approach of Santow J has been followed, but without refinement of the reasoning, in Apple Computer Australia Pty Ltd v Wily [2002] NSWSC 855 at [18] (Barrett J), Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2006] NSWSC 234 at [58] (Bergin J) and in Re Bauhaus Pyrmont Pty Ltd (In liq) [2006] NSWSC 543 at [46] (Austin J). 66 There is no doubt that a funding arrangement, whether with a third party or with a lawyer, may be characterised as a confidential document and may indeed be prepared for the dominant purpose of obtaining legal services. However, the nature of the connection must be assessed according to the purpose of the statutory provision. That purpose is the same as the purpose of the general law protection and, for reasons already noted, does not extend to a document the purpose of which is to create the relationship. Different issues may arise in relation to documents prepared for or provided to a litigation funder. Further, because the operation of s 119 of the Evidence Act does not arise, it is sufficient for present purposes to say that the general law principle in relation to lawyer-client costs agreements was correctly stated by Lindgren J in Cook. Accordingly, the costs agreements were not protected by client legal privilege. 67 Other issues were debated in the course of the hearing, including the possibility that if privilege existed, it had been waived either by commencement of the proceedings which relied upon the costs agreements, the disclosure of the financial arrangements in the bill of costs, or the provision of the costs agreements to the assessor. It is not necessary to explore any of these issues for present purposes. Costs of appeal 68 For the reasons set out above, the appellants have not made good their claim in relation to procedural unfairness. However, that conclusion resulted, at least in part, from knowledge of the content of the costs agreements between the plaintiff and his solicitors. The appellants knew from the itemised bill of costs that there was a costs agreement dated 18 September 2002 between the plaintiff and his solicitors. They may have assumed, not unreasonably given the nature of the plaintiff's claim, that it was a conditional costs agreement. Accordingly, an argument was available that if the conditions were not satisfied, no costs were recoverable from them pursuant to the Tribunal's costs order. 69 It was accepted that they were entitled to object on that basis and they did so. Given that the objection could only be made out by reference to the agreement, which had been provided to the costs assessor at his request, procedural fairness dictated that they be provided with a copy of the agreement. 70 In one sense, this objection was highly speculative, because the plaintiff had been successful in obtaining damages and a costs order. Nevertheless, the possibility that there might be other conditions on recovery by the solicitors, which had not been fulfilled, remained. 71 The reasoning of the Court below dismissed the appellants' complaint out of hand as demonstrating no breach of procedural fairness: see CSR Ltd v Eddy [2007] NSWSC 210 at [26]-[35]. There is no need to analyse in detail the reasoning of the Associate Justice, beyond saying that it would have been difficult to sustain in its terms. 72 The appellants have ultimately been unsuccessful in this Court because the costs agreement did not in terms provide any basis for asserting a breach of the indemnity principle. That conclusion was reached as a matter of construction and by reference to the scope of the indemnity principle. That conclusion in effect accepted the contention of the plaintiff, based on the contents of the costs agreements which were disclosed for the purposes of the appeal. 73 The costs agreements were only supplied by the plaintiff after a suggestion made by the Court in the course of the leave application. Accordingly, if the matter were otherwise at large, an appropriate costs order might have allowed the appellants their costs in this Court up to and including the application for leave to appeal, but thereafter required them to pay the costs of the plaintiff, being the respondent in this Court. 74 There are, however, two considerations which qualify these potential orders. The first is that the proceedings before the trial judge were based on an attempt to litigate the question of client legal privilege as a basis for resisting disclosure of the costs agreements. That issue was not reached below, nor is it determinative in this Court on the reasoning set out above. Secondly, it is apparent from the transcript of the argument on the leave application and the judgment granting leave to appeal (and now accepted by the parties) that the appellants were to be placed on terms to submit to such order in relation to the costs in this Court, as the Court considers appropriate. The precise effect of that condition was not identified, but it is clear from the course of argument that leave was granted because there was a point of principle involved, both in relation to procedural unfairness and client legal privilege. The principle potentially affected the appellants in other cases before the Tribunal, whereas the interests of the plaintiff were limited to his own case and may indeed have been limited to the financial interests of his solicitors. These factors militate in favour of an order that costs should follow the event, namely dismissal of the appeal. 75 In all the circumstances, the appropriate order is that the appeal be dismissed with costs. **********

CSR LIMITED v EDDY

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Judgment (44 paragraphs)

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Legislation Cited (5)

Cases Cited (27)

Cited By (31)