Plaintiff v Defendant

2 I approved the plaintiff's entry into the settlement agreement on 4 September 2020. However, I did not at that time approve the plaintiff's solicitors' application for costs. The plaintiff seeks an order that costs and disbursements be fixed in the sum of $3,369,478.07. Today, I approve the following costs, as calculated in the expert report of Elizabeth Harris dated 2 October 2020.

3 The Court must satisfy itself that the plaintiff's costs are reasonable in all the circumstances,[1] and that they have been proportionately incurred. This is a protective role which recognises that group members are restricted in their capacity to assess costs, given the limited information available to them.[2] Group members in this proceeding do not know how the sum of $3,369,478.07 has been quantified and have not had the benefit of reading the confidential reports of the costs consultant, Ms Harris.

4 What is reasonable and proportionate will vary in each case. As Nichols J observed in Lenehan v Powercor Australia Ltd,[3] the requirement for proportionality as it concerns legal costs generally, is expressed in s 172 of the Legal Profession Uniform Law (Vic) ('the Uniform Law')and in s 24 of the Civil Procedure Act 2010 (Vic).[4]

5 Section 172 of the Uniform Law states that legal costs must be no more than fair and reasonable in all the circumstances and in particular:

(a) proportionately and reasonably incurred; and

(b) proportionate and reasonable in amount.

6 The matters to be taken into account in considering what costs are fair and reasonable include:

(a) the level of skill, experience, specialisation and seniority of the lawyers concerned;

(b) the level of complexity, novelty or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest;

(c) the labour and responsibility involved;

(d) the circumstances in acting on the matter, including:

(e) the urgency of the matter;

(f) the time spent on the matter;

(g) the time when business was transacted in the matter;

(h) the number and importance of any documents involved;

(i) the quality of the work done; and

(j) the retainer and the instructions.

7 On 3 August 2020, I made orders appointing Ms Harris as an independent costs expert to inquire into and report to the Court as to whether the plaintiff's claim to legal costs is fair and reasonable as to both the work performed and the amount claimed. Ms Harris has practiced as a costs lawyer since 1989 and has particular experience in group proceedings.

8 Ms Harris produced two expert reports for the Court dated 3 September 2020 and 2 October 2020.

9 The methodology used by Miss Harris was in line with accepted principles approved by Gordon J in Modtech Engineering Pty Ltd v GPT Management Holdings Pty Ltd.[5] Ms Harris' assessment proceeded in the following stages.

10 Ms Harris was provided with spreadsheets which set out all of the time recorded in this proceeding. In total there were almost 12,400 entries. Ms Harris correctly took the view that it was not appropriate to review each record and adopted the following approach.

11 First, Ms Harris reviewed court documents and orders in the proceeding to gain a broad understanding of the background to and particular issues in the proceeding and the complexity of facts and law.

12 Ms Harris then considered the cost agreements and their compliance with the Uniform Law.

13 Ms Harris reviewed the time records, undertaking the following tasks:

(a) calculated the total time spent by each fee earner and total time of all fee earners on each day;

(b) calculated and reviewed total time spent in different categories of activity to identify work which was possibly undertaken by the wrong level of fee-earner;

(c) reviewed the records to gain an overall impression of the level of certain work;

(d) identified periods of high work activity, and possible anomalies in the time records; and

(e) identified work which may not be recoverable.

14 Ms Harris also undertook sampling of extracts from the files to ascertain whether a file supported the time records.

15 Due to restrictions imposed as a result of the COVID-19 pandemic, Ms Harris could not physically attend the offices of the plaintiff's solicitors to undertake this aspect of her assessment. Instead, Ms Harris identified several periods of time and requested that she be provided with scanned copies of files for those dates. Due to the unique circumstances imposed by the COVID-19 pandemic, I am satisfied with this approach.

16 In relation to counsel's fees, Ms Harris considered the number and seniority of counsel engaged and their rates, having regard to fees of other counsel and the plaintiff's solicitors concerning the same work.

17 Finally, Ms Harris identified peak periods of work and reviewed the time records in these periods to ensure there was good reason for the peaks in activity. Ms Harris found that the files support the accuracy of the time records.

18 On 22 September 2020, Ms Harris was able to attend the offices of Maddens Lawyers and undertake a further, physical review of the common cause file and files relating to eight group members. This further review supported Ms Harris' earlier findings that time records are generally well supported.

19 The Maddens Lawyers Conditional Costs Agreement and Disclosure Statement ('CCA') was signed by the lead plaintiff, Michela Burke, on 27 February 2017. By the end of April 2017, the CCA has been signed by a total of 28 group members.

20 As implied by its name, the CCA is conditional in that it provides that costs are only chargeable in the event of a successful outcome. Under the CCA, professional fees were to be calculated in accordance with the Supreme Court Scale of Costs.[6]

21 In addition, the CCA provided for the following:

(a) an increase of 30 per cent on professional fees pursuant to Order 63.34 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic); and

(b) an 'uplift' of 25 per cent on professional fees.

22 The Uniform Law requires a solicitor to provide an estimate of total legal costs (including disbursements and GST), before or at the time of retainer, and to update this estimate if there is a significant change during the retainer.

23 In relation to the 'uplift fee' sought by Maddens Lawyers, s 182 of the Uniform Law provides that the costs agreement must identify the basis upon which the uplift fee is to be calculated and include an estimate of the uplift fee (or a range, if an estimate is not possible).

24 The CCA estimated the costs of the common benefit work to be in the range of $800,000 to $1.3 million and the uplift fee to be in the range of an additional $200,000 to $325,000. The cost of the individual benefit work was estimated to be in the range of $10,000 to $30,000 and the uplift fee to be in the range of an additional $2,500 to $7,500.

25 In April 2017, Maddens provided group members yet to sign the CCA with an updated Conditional Costs and Disclosure Statement ('Updated CCA').

26 The Updated CCA was identical to the CCA, save that the costs estimate was updated to $1.3 million with a resulting uplift fee of $325,000 for the common benefit work. The estimate for individual benefit work was revised to $30,000 with a resulting uplift of $7,500.

27 Group members who had signed the original CCA were sent a letter advising of the costs update in May 2017 ('Costs Update Letter').

28 In or around October 2018, a second updated CCA ('Second Updated CCA') was provided to group members. It was identical in all respects to the CCA and Updated CCA save that the estimate of common benefit work increased from $1.3 million to $1.5 million.

29 On 16 July 2020, Maddens Lawyers wrote to the lead plaintiff and group members advising of their intent to no longer charge two separate categories of legal costs (namely, common benefit and individual benefit), but rather to apply to the Court for an order approving the payment of one 'lump sum' common benefit costs figure. This figure was estimated at approximately $3,775,000.

30 Ms Harris' view was that the estimates of total costs did comply with the disclosure provisions under s 174 of the Uniform Law.

31 Section 175 of the Uniform Law mandates the disclosure of the basis of counsel's charges and an estimate of counsel's fees when retaining counsel.

32 The consequence of non-compliance with s 175 of the Uniform Law is that the relevant costs agreement is void, by operation of s 178(1)(a), for failure to comply with the disclosure obligations under Division 3 of the Uniform Law.

33 In her assessment of the fee agreement provided by counsel, Ms Harris took the view that there was a failure by counsel to provide a realistic cost estimate or updates and that it was therefore void due to non-compliance with the disclosure obligations. The effect of the failure to comply with s 175 of the Uniform Law, therefore, is that the CCA and all updates to the CCA are void.

34 In circumstances in which a costs agreement is void, as here, costs are assessed by reference to what is fair and reasonable and the criteria in s 172(2) of the Uniform Law.

35 Ms Harris' view is that the best approach for the assessment of fair and reasonable costs is the application of market hourly rates with an uplift to reflect the risk of conducting the proceeding on a speculative basis.

36 In determining the 'market rate', Ms Harris reviewed the rates charged by nine law firms who conduct a significant number of group proceedings on behalf of plaintiffs. Maddens Lawyers' rates were generally lower than the median rate calculated by Ms Harris, with the exception of paralegals and law clerks. However, Ms Harris noted that it was her experience that Maddens Lawyers' clerks generally undertake work which is often undertaken by junior lawyers in other firms. This was a complex and unusual proceeding and I accept Ms Harris' assessment.

37 In the circumstances, Ms Harris concluded that the costs incurred were reasonable.

38 The question remains, however, whether an uplift is appropriate in this case given that the agreement is void for failure to comply with the disclosure obligations under Division 3 of the Uniform Law.

39 Rule 72A of the Legal Profession Uniform General Rules 2015 relevantly provides:

Non-compliance with disclosure obligations - disapplication of sections 178(1) & (2) of the Uniform Law

(1) This rule applies where a law practice has contravened the disclosure obligations of Part 4.3 of the Uniform Law in relation to a particular matter.

(2) Section 178(1) and (2) of the Uniform Law do not apply in relation to the law practice (so far as they would otherwise apply to the matter concerned) in circumstances where the relevant authority, a costs assessor, a court or a tribunal is satisfied that:

(a) the law practice took reasonable steps to comply with the disclosure obligations of Part 4.3 of the Uniform Law before becoming aware of the contravention, and

(b) the law practice, no later than 14 days after the date on which it became aware of the contravention, rectified the contravention, as far as practicable, by providing the client with the necessary information required to be disclosed under Division 3 of Part 4.3 of the Uniform Law (including, where relevant, an estimate or revised estimate of the costs), and

(c) the contravention was not substantial and it would be reasonable to expect that the client would not have made a different decision in any relevant respect.

40 As was noted by Forbes J in Schmid v Skimming ('Schmid'):[7]

[The] Court would need to be satisfied that the law practice took reasonable steps to comply with disclosure obligations before being aware of the contravention and then prompt remedial action upon becoming aware of the contravention. It would also have to be satisfied that the contravention is not 'substantial' and of any likely different decision of the plaintiff had the disclosure been made.

41 In Schmid, Forbes J found that the costs agreement was valid (including uplift fee) notwithstanding the failure to comply with the disclosure obligations under s 175(1) of the Uniform Law.[8]

(a) once counsel made disclosure, the solicitor promptly disclosed the relevant information;

(b) the obligation to disclose the estimate of counsel's fees was dependent upon receiving that information from counsel;

(c) it was unlikely that the plaintiff would have made a different decision to enter into the costs agreement given that it was a conditional costs agreement it would have been the law firm who was liable for counsel's fees if the action was not successful; and

(d) the estimates disclosed by the solicitors had included counsel's fees, despite counsel not making the required disclosures and the fees sought were less than those disclosed.

43 In this case, I am assisted by the Confidential Affidavit of Kathryn Emeny of 2 October 2020 which recounts that Maddens Lawyers discussed counsel's fees with Ms Burke on 2 February 2017, that the estimates provided in the CCA and Updated CCA were formulated by reference to the solicitors' experience in this field and with this particular counsel and that no group member has raised concerns about likely legal costs.

44 In the circumstances, I accept that neither Ms Burke nor the other group members would have made a different decision to enter into the costs agreement if disclosure had been made in accordance with Division 3 of the Uniform Law. As noted by Forbes J in Schmid, it is relevant that this was a proceeding conducted on a conditional basis and it would have been Maddens Lawyers who would have borne counsel's fees in the event that the proceeding was not successful. In addition, the non-disclosure was not flagrant and I am satisfied that Maddens Lawyers took appropriate steps.

45 It is also worthwhile noting that group members have not been disadvantaged by the lack of disclosure of counsel's bases of charge and estimated fees, as the estimates disclosed in each of the CCA and Updated CCA are higher than the fees now sought to be charged.

46 For these reasons, I will allow an uplift fee as part of the fair and reasonable costs.

47 Regarding the question of proportionality, I have been assisted by the submissions of Maddens Lawyers. In the circumstances, the likely net recovery of the group members will be approximately 77 per cent of their assessed damages. This estimate is significantly higher than the initial estimate provided to group members of recovery in the range of 60 to 65 per cent of assessed amounts. I therefore find that the costs incurred were proportional.

[1] Matthews v Ausnet Electricity Services Pty Ltd [2014] VSC 663, [348].

[2] Rowe v AusNet Electricity Services Pty Ltd & Ors [2015] VSC 232 [113].

[3] [2020] VSC 82.

[5] [2013] FCA 626.

[6] Supreme Court (General Civil Procedure) Rules 2015 (Vic) - Appendix A.

[7] [2020] VSC 493 [68].