Quama v Toll Transport Pty Ltd [2003] VSC 404

Supreme Court of Victoria|2003-10-17|Before: GILLARD J.

ACCIDENT COMPENSATION ACT 1985 - Proceeding under s.135A compromised - Plaintiff accepted offer inclusive of costs - Application by solicitors for costs pursuant to s.135A(13C) and (13D) - Necessity for costs to be taxed - Matters relevant to discretionary order.

1 This is an application by the solicitors acting for the plaintiff in the proceeding, Andrew Quama, for an award of costs payable by him pursuant to s.135A of the Accident Compensation Act 1985 ("the Act").

2 On 12 September 1997, the plaintiff suffered an injury at work and subsequently retained Slater and Gordon Lawyers to act on his behalf. A writ was issued seeking damages pursuant to s.135A, and the proceeding was compromised. The amount paid pursuant to the compromise was a lump sum and the employer's insurer did not pay any sum for costs.

3 The application by Slater and Gordon Pty Ltd ("the solicitors") was filed with the court supported by affidavits of the solicitor and the plaintiff, both sworn 22 May 2003. The Prothonotary referred the application to me, as the judge sitting in the Practice Court, and after consideration of the file I decided to refer the matter into court for argument. Mr M. Croyle of Counsel appeared on behalf of Slater and Gordon Pty Ltd in support of the application. The application raises a number of important issues.

4 It is necessary to briefly trace the history of the litigation in chronological order.

12 September 1997 - Plaintiff injured at work - injury to his back. Claim made for compensation and payments made.

26 October 1999 - Plaintiff retains the solicitors to institute a common law claim. Solicitors and plaintiff enter into a "no win-no fee" agreement.

11 August 2000 - Serious injury application made.

20 March 2001 - Employer's insurer accepts that the injury suffered by the plaintiff was a "serious injury". The plaintiff is entitled to bring the damages proceeding pursuant to s.135A of the Act.

15 June 2001 - The Victorian WorkCover Authority ("the Authority") made a statutory offer in writing pursuant to s.135A(2DE)(b) of $175,000 together with retention of all benefits. At that stage the benefits paid were in the order of $30,000.

6 July 2001 - The plaintiff made a statutory counter-offer pursuant to s.135A(2DE)(c) of $620,000 plus retention of benefits paid.

16 August 2001 - Writ issued. Thereafter interlocutory steps take place.

December 2002 - Mediation. Proceeding settled for $200,000 lump sum and retention of benefits paid inclusive of costs.

27 February 2003 - Solicitors, on behalf of plaintiff, file notice of discontinuance.

23 May 2003 - Application by Slater and Gordon Pty Ltd, Solicitors, for an order that the plaintiff's solicitors be granted leave to charge solicitor/client costs. The application was instituted by a Notice to Produce documents listed in a schedule to the Court seeking an order that the plaintiff's solicitors be granted leave to charge solicitor-client costs pursuant to s.135A(13C) of the Act. The draft order forwarded with the notice provided for an order in those terms and also an order that, "the proposed Bill of Costs be approved". The orders sought do not conform with the provisions of either sub-sections (13C) or (13D).

5 The application is pursuant to s.135A(13C) for an order that an award of costs be made by this Court in respect of the plaintiffs' costs of the proceeding. By reason of s.135A(13D) the court, on the application of the solicitors, may determine the amount of the costs to be awarded. The applications made by the solicitors were for an award of costs and that the court determine the amount of costs to be awarded. The issue of costs is dealt with by s.135A(13A) - (13D) (inclusive) of the Act. It is necessary to set out those provisions. The provisions were inserted by Act No. 107 of 1997 and were amended by Act No. 81 of 1998. The sub-sections provide -

"(13A) In proceedings for the recovery of damages commenced in accordance with this section after a statutory offer was made, or deemed to have been made, under sub-section (2DE) -

(a) if no liability to pay damages is established, the worker must pay the party and party costs of the employer, Authority or self-insurer and the worker's own costs;

(b) if judgment is obtained or a settlement or compromise is made in an amount not less than 90 per cent of the worker's statutory counter offer under sub-section (2DE) and more than the statutory offer of the Authority or self-insurer, the Authority or self-insurer must pay the worker's party and party costs and its own costs;

(c) if judgment is obtained or a settlement or compromise is made in an amount not more than the statutory offer of the Authority or self-insurer under sub-section (2DE), the worker must pay the party and party costs of the Authority or self-insurer and the worker's own costs;

(d) if judgment is obtained or a settlement or compromise is made in an amount that is more than the statutory offer of the Authority or self-insurer under sub-section (2DE) but less than 90 per cent of the worker's statutory counter offer under that sub-section, each party bears its own costs -

and the court must not otherwise make an order as to costs.

(13B) For the purpose of the taxing of costs in proceedings to which this section applies, that are commenced on or after 12 November 1997 any applicable scale of costs has effect as if amounts in the scale were reduced by 10 per cent.

(13C) A person who represents or acts on behalf of a worker is not entitled -

(a) to recover any costs from that worker in respect of any proceedings under this section commenced on or after 12 November 1997;

unless an award of costs has been made by the court in respect of those costs or those costs are payable in accordance with this section by the worker,

(b) the person representing or acting on behalf of the worker -

may determine the amount of costs to be awarded to the person representing or acting on behalf of the worker."

6 The plaintiff's proceeding for damages was brought pursuant to s.135A. Section 135A(13A) deals with the party's entitlement to costs. In support of the solicitors' applications the solicitor acting for the plaintiff, Diana Agostinelli, filed an affidavit. She stated that the compromise was not greater than or equal to 90% of the statutory counter offer made by the solicitors on the instructions of the plaintiff. It followed that the plaintiff was not entitled to recover his costs against the defendant. However, the affidavit did not disclose what the statutory offers were. In addition, exhibited to the affidavit was a document headed "TAX INVOICE" which set out the costs claimed by the solicitors from their client, and although it referred to the work performed by the solicitors, it is not an itemised bill of costs. The document revealed that the solicitors claimed costs totalling $39,385 which together with disbursements of $14,354.20 resulted in a total for solicitor/client fees and disbursements of $53,739.20. The solicitors sought an order that the court determine that that is the amount of costs to be awarded to the solicitors. In addition to the affidavit of Ms Agostinelli, there was an affidavit of the plaintiff sworn 22 May 2003. He stated that on that day he received from his solicitors what was described as "a bill of costs" and that Ms Agostinelli explained to him that an application would be made to the court for an order that the solicitors have leave to charge him costs reasonably incurred on a solicitor/client basis. He stated he understood the significance of the "all inclusive" offer of settlement and that he was entitled to obtain legal advice and challenge the solicitor's affidavit. He was told he was also entitled to make submissions in opposition to the application and to ask the court to determine the amount of costs. He also understood that if the court makes an award of costs the amount awarded would be deducted from his damages. He stated he did not wish to obtain legal advice, did not wish to challenge his solicitor's affidavit and did not wish the court "to determine the amounts of costs (if any) to be awarded to my solicitors". He also went on to state that he consented to the order that his legal representatives have leave to charge costs reasonably incurred on a solicitor and client basis. A draft order, headed "ORDER APPROVING SOLICITOR/CLIENT COSTS" was filed by the solicitors.

7 The documentation raised a number of issues. First, were the solicitors entitled to any order for costs? Secondly, if the solicitors were entitled to costs, on what basis were they entitled to the costs? Finally, although the plaintiff did not seek an order that the amount of costs be determined, nevertheless the order sought approval of the bill of costs. Does s.135A empower the Court to make such an order? These questions concerned the obligations of this Court on an application for an award of costs.

8 The plaintiff worker brought his proceeding for damages pursuant to s.135A. This section was introduced into the law in 1992. It heralded a new approach to claims for common law damages by a worker injured in the course of his employment. A worker may recover damages for any injury which occurred after 1 December 1992 if it was a serious injury and the employment was a significant contributing factor.[1] The clear object of the new regime was to exclude injuries which were not serious. The new procedure was designed to meet the concern of Parliament as to the cost of insuring employers against work related injuries. Later amendments continued this policy. The Act was substantially amended by the Accident Compensation (Miscellaneous Amendments) Act 1997 (107 of 1997).

9 The amending Act changed the scheme for compensation and abolished some rights of action at common law. The right to recover damages at common law was eliminated for all work related injuries occurring after 11 November 1997. In addition, and relevantly to the present application, a number of changes were made to the procedure that had to be followed prior to the commencement of a common law proceeding. The amending Act also dealt with the question of costs of the common law proceeding. The amendments were introduced in the context of attempting to contain the costs of workers' compensation and allegations that the legal profession, aided to some extent by the medical profession, prolong proceedings with consequential increases in the costs.

10 Measures designed to avoid prolonged disputes between the medical practitioners retained by the employers and employees and to bring litigation to an end earlier rather than later, were put in place. The Treasurer, in the second reading speech, referred to a review process and stated -

"The review process confirmed that while Victoria has the best workers' compensation scheme in Australia, our advantage was being eroded and that the underlying cost of the scheme was now running ahead of premium levels and demanded urgent attention. The issues of common law, serious injury classification, as well as the overall level of disputation emerged as the most obvious factors in the cost shift and became the focus of further very detailed and extensive research and analysis. ... The Government, as the ultimate custodian of the scheme is acting for two reasons. In the first place, the Government must make certain that the basic legislative structure of the scheme continues to encourage work place safety, rehabilitation and the efficient delivery of compensation and that it is not compromised by those who would abuse the scheme for their own enrichment. To fail to protect the scheme in the interest of Victoria's workers and employers would be irresponsible."[2] (Emphasis added).

11 The new regime required the follow steps to be taken before commencing a common law proceeding -

(i) Co-operation by the worker in the serious injury application - s.135A(2BA).

(ii) The decision concerning the "serious injury" application to be advised within a certain period, see s.135A(2D) and disclosure of the medical reports and other materials existing and known to the determining authority - s.135A(2DA);

(iii) That a conference take place between the worker and the WorkCover Authority or self-insurer ("the insurer") within a certain period - s.135A(2DE)(a).

(iv) That a statutory offer in writing be made by the insurer, within a certain period, and if not accepted, a statutory counter-offer be made by the worker - s.135A(2DE)(b) and (c).

12 If that procedure does not result in a settlement of any claim, a proceeding may then be instituted within a specified period - s.135A(2DE)(e).

13 Section 135A(13A - 13D, inclusive) deals with the costs consequences following the completion of the common law proceeding. The new procedure had as one of its objects, a requirement that the parties and their lawyers make realistic offers of settlement before the proceeding was commenced and it is clear from the costs provisions that the entitlement to costs depended upon the outcome compared with the statutory offers. The mere fact that a lawyer represents a worker who recovers damages does not of itself entitle the lawyer to his costs. The present application is made pursuant to s.135A(13C) and (13D). The lawyer is only entitled to recover costs if the court orders an award of costs or the costs are otherwise payable by the worker pursuant to the provisions of s.135A. Unless the obligation is statutory, the solicitors must persuade the court that an award of costs should be made in their favour. The plaintiff was not obliged to pay costs pursuant to s.135A. The awarding of costs is an exercise of discretion. The section does not identify any criteria which must be considered in determining the question. In my opinion, matters relevant to the exercise of the discretion, are matters which give effect to the purpose of the new common law scheme. Three relevant matters are -

(i) Whether the solicitors have acted properly, carefully and responsibly in conducting the litigation in the interests of their client and not exposing the client to adverse costs consequences;

(ii) that the costs sought to be recovered from the client are reasonable, proper and necessarily incurred;

(iii) that the client has been properly advised as to his rights to retain independent legal advice on the question of costs and his right to have the bill of costs taxed.

14 There may be other relevant criteria. It would be unwise, assuming it could be done, to attempt to exhaustively list all relevant criteria. Each application will depend upon its own circumstances. Effect must be given to the purposes of the new scheme. In Loveday v Lloyds Tree Care Pty Ltd,[3] Hedigan J, referring to s.135A(13C) said -

"Without going to the history of the passage of this sub-section (inserted by the 1997 amendment) I would estimate that it was directed towards preventing lawyers from accessing their client's damages in order to pick up the difference between the actual costs of maintaining the proceeding and the costs recovered from the opposite party, and also to prohibit (in the rare case) unscrupulous practitioners from filching excessive amounts for costs from the compensation awarded, without the court's supervision and order."[4]

15 I respectfully agree. In my opinion, the task of this court on an application under s.135A(13C) and (13D) is supervisory and in a case such as the present where no costs were paid by the defendant, a necessary safeguard against possible abuse.

"I do not find it expedient to expound any general principle that might be applicable to the exercise of discretion on applications of this kind. Against the desirability of discouraging unsupervised diminishing of worker's damages on account of costs must be balanced the chance that workers might be cut off from competent representation because solicitors acting simply could not afford to run the risks of substantial loss, particularly when irrecoverable expenditures are made in an effort to get the case into the best possible position for trial. No one consideration can dominate the exercise and discretion in these cases."[5]

17 I respectfully agree. His Honour's observations were made in a case where the defendant agreed to pay costs on a party-party basis and the application was made for the additional solicitor-client costs.

18 Lawyers when retained provide services, the costs of which will depend upon the nature and quantity. Once the litigation is finalised, save for a few tidying up matters, the entitlement to costs ceases. There is a temptation not only for lawyers but also for others who provide services, to prolong them. The requirement of the statutory offers with costs consequences which may be a penalty, is aimed at stopping the delay in finalising claims. It requires a responsible and careful approach to any common law claim.

19 Another complaint sometimes made of legal practitioners is that they overcharge their clients. When an all-in offer is accepted there is no mechanism in place to monitor the costs charged by the legal practitioner. Of course a client does have the right to have the costs taxed but that is not often exercised. The provisions of s.135A(13C) and (13D) in my opinion make it clear that the court in a case such as the present exercises a supervisory role over the legal practitioners.

20 In the present case, the solicitors and their client entered into a no win-no fee agreement. That agreement does not entitle the solicitors to their costs. Their entitlement depends upon an order under s.135A(13C). If an award of costs is made by the court the agreement may be relevant to the amount. That is an issue which requires further submissions.

21 The insurer's statutory offer was $175,000 plus retention of compensation. The plaintiff's counter offer was $620,000 plus retention of statutory benefits received to date. That offer was made on 6 July 2001. The proceeding was compromised by the plaintiff accepting $200,000 inclusive of legal costs plus retention of benefits received. Because the settlement involved an amount that was more than the statutory offer of the insurer but less than 90% of the plaintiff's statutory counter-offer, s.135A(13A)(d) applied which meant that each party was to bear its own costs. It followed that under sub-s.(13C) there were no costs payable in accordance with s.135A by the plaintiff. The enormous difference between the statutory counter-offer and the final settlement leads to the prima facie conclusion that the solicitors failed to carefully and properly advise their client. The enormous differences in the offers and the plaintiff's back-down to accepting a small increase on the insurer's earlier offer, has been explained. Evidence has been given that unbeknown to his solicitors, he had a prior back problem of some severity. This was not disclosed until late in the interlocutory steps. At a meeting between representatives of the parties on 13 November 2002 the plaintiff's solicitors were informed that the insurer had received an anonymous letter which made allegations concerning a previous back injury. Not surprisingly, the Authority withdrew all offers. Shortly thereafter the proceeding was settled.

22 In my opinion, the solicitors have acted responsibly and carefully and the cause of the unrealistic statutory counter-offer was the fault of the plaintiff.

23 In considering whether or not a solicitor has acted responsibly and carefully in respect to the making of the statutory offer on behalf of the client, it must not be overlooked that the exercise is difficult and more often than not fraught with uncertainty. The evidence revealed that Ms Agostinelli and another senior member of the solicitors' firm carefully considered the question based on the material that they had available to them. No criticism can be made of them. The solicitors have proven that they acted responsibly and carefully in advising and acting for the client prior to the commencement of the proceeding. I am also satisfied that the plaintiff has been informed of his rights concerning the costs question by the solicitors.

24 However, that is not the end of the exercise. A bill of costs has been prepared but it is not itemised. It is asserted by Ms Agostinelli and also Mr Croyle of Counsel appearing on behalf of the solicitors, that the costs are reasonable. The plaintiff has sworn an affidavit that he does not wish to contest the costs. However, I am not assisted by that. The client would not know whether the costs are reasonable and neither do I. At the hearing, I requested Ms Agostinelli to provide evidence as to the costs associated with a taxation. She swore an affidavit on 1 October 2003 which enclosed a report from a costs consultant. The report addressed the question of whether the costs claimed were reasonable. I am not assisted by the report.

25 My concern was the burden imposed upon a solicitor if required to tax the bill of costs. On further reflection, it is a necessary step required by the legislation that the bill of costs be taxed before a court could make an order under s.135A(13C) in a case such as the present. If an order is to be made under s.135A(13D) then the bill of costs must be taxed. The original application sought an order that the court approve the amount of costs charged by the solicitors. The court has no power to do that. The court has power to award costs and secondly, determine the amount of costs.[6]

26 The solicitor has also requested that the court order that the costs of any taxation be paid by the plaintiff, capped at $1,500. I am not prepared to make that order. The entitlement of the solicitors to costs is governed by s.135A. It provides a statutory procedure. It is there to protect, inter alia, the plaintiff. But nevertheless the requirement that the bill of costs be taxed in the present matter, comes about because of that statutory scheme. It would be unfair and inappropriate to make the plaintiff pay for what the Legislature has required to be done. The solicitors will have to bear the costs themselves.

27 In my opinion, it is necessary to refer the question of costs to the Taxing Master and this will involve the preparation of an itemised bill of costs. That is the procedure followed in the County Court in like applications. In my opinion, it is an essential step in the process. A summons seeking taxation must be issued by the solicitors pursuant to Rule 63.38. Sub-section (13B) raises a number of difficulties. It provides that for the purpose of taxing of costs in a proceeding under s.135A which is commenced after 12 November 1997, the applicable scale of costs is to be reduced by 10%. I have decided that it is relevant to the exercise of the court's discretion under sub-s.(13C) that the costs be taxed. Clearly, any order made under sub-s.(13D) requires the taxation of the bill of costs. The difficult question concerns who should carry the burden of the reduction of 10%. Should it be the solicitors or should it be the plaintiff worker? The Legislature has made it clear that insofar as a party is obliged to pay the other party in the proceeding an award of costs, the amount payable is 90% of the applicable scale of costs. But who carries the burden? Are the solicitors precluded from seeking the 10% from their client as part of the solicitor-client costs?

28 I have been unable to locate any authority on the question. I propose that the Taxing Master should tax the costs in accordance with the applicable scale of costs. If 10% is to be reduced then the orders made by the Master can be adjusted. I will give the solicitors the opportunity to make further submissions in regard to that question. In my opinion, the summons must be served on the plaintiff personally as he has an interest in the outcome, and that accords with Rule 63.38(4).

29 I require the Taxing Master to tax the costs and order what are reasonable costs as between solicitor and client. The quantum of costs so ordered will be relevant to the exercise of the court's discretion as well as the amount payable pursuant to sub-s.(13D).

30 The relevance of the no win-no fee agreement will also have to be considered.

31 After taxation the applications will be referred back to me for consideration and determination whether the Court should make an award of costs against the worker in favour of the solicitors and the amount of such costs.

32 Accordingly, subject to any submissions by counsel, I propose to make the following orders -

(i) That the application by the plaintiff's solicitors, Slater and Gordon Pty Ltd, pursuant to s.135A(13C) and (13D) be adjourned to a date to be fixed;

(ii) that the plaintiff's solicitors, Slater and Gordon, prepare an itemised bill of costs for taxation on a solicitor and client basis;

(iii) that the solicitors issue a summons pursuant to Rule 63.38 and a copy be served on the plaintiff in accordance with the sub-rule;

(iv) that the itemised bill of costs be taxed by the Taxing Master of this Court, as between solicitor and client;

(v) that when the Taxing Master has ordered what are the reasonable and necessary solicitor-client costs, the matter be referred back to the Hon. Justice Gillard for final determination.

[2] Hansard, 12 November 1997 at p.1073.

[3] Unreported decision delivered 23 May 2000.

At a glance

Court

Decision date

Before

Source

Judgment (74 paragraphs)

Parties