Quama v Toll Transport Pty Ltd [2004] VSC 81

2. This is the continuation of an application by the plaintiff's solicitor Slater and Gordon Pty Ltd for orders pursuant to s.135A(13C) and s.135A(13D) of the Accident Compensation Act 1985 ("the Act").

5. The plaintiff suffered injury at work and retained the solicitor to act on his behalf, seeking damages pursuant to s.135A of the Act, and the proceeding was compromised. The proceeding was compromised by the payment of a lump sum of $200,000. The employer's insurer did not pay any sum for costs. Statutory offers had been made prior to the commencement of the proceeding pursuant to s.135A(2DE). Because the settlement sum was more than the statutory offer made on behalf of the defendant but less than ninety percent of the plaintiff's statutory offer, there was no obligation on the insurer to pay costs by reason of ss.13A(d). On 23 May 2003 the solicitor made application to the Court by a Notice to Produce seeking an order that the solicitor 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 order sought according to that draft did not conform with the provisions of either ss.13C or 13D.

8. The matter came before me in the Practice Court in July last year and on 17 October 2003 I delivered my reasons for judgment. I proceeded on the basis that there was an application pursuant to s.135A(13C) for an order that an award of costs be made by this Court in respect of the plaintiff's costs of the proceeding, and further, that an application had been made to the Court pursuant to ss.13D to determine the amount of the costs to be awarded. The focus of the argument in support of the application and my reasons concern the matters relevant to the discretion to award costs pursuant to ss.13C and the determination of the amount of costs pursuant to ss.13D. I identified three relevant matters concerning the application under ss.13C, namely whether the solicitor had acted properly, carefully and responsibly in conducing the litigation in the interests of its client and not exposing the client to adverse costs consequences and in particular the question of making reasonable and proper statutory offers; secondly, whether the costs sought to be recovered were reasonable, proper and necessarily incurred; and finally whether the client was made aware of his rights. I referred to the second reading speech which demonstrated the concern of the Legislature regarding the ever expanding cost of the Workers' Compensation Scheme, the concern that disputation was increasing the costs and a concern that those involved in acting for the parties should not abuse the scheme for their own enrichment. It was assumed by both the solicitor and counsel, and also the Court, that ss.13C applied and that the costs sought to be recovered by the solicitor were not "costs payable in accordance with this section by the worker" (see latter part of ss.13C). This was on the basis that ss.13A(d) did not require the worker to pay costs.

11. On 17 October 2003 I made 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 had ordered what are the reasonable and necessary solicitor-client costs, the matter be referred back to the Honourable Justice Gillard for final determination.

17. The reasons can be found at [2003] V.S.C. 404. I have set out in some detail the nature of the proceeding and its passage through this Court.

20. The Court has before it an application which appeared to be pursuant s.135A(13C) and (13D). The Court proceeded on the assumption that it was necessary for such an application to be made and this was clearly the view of the solicitor. Similar applications have been made in the past and a number of judges had discussed s.135A(13A, B, C and D). It appears to be generally accepted that in certain circumstances such an application must be made.

23. Soon after ss.13A was inserted into the Act, His Honour Judge Strong considered the provision in a series of cases, the lead one being Shane Arnold Mundy v Australian Cooperative Foods Ltd. His Honour's reasons are found on the County Court website. Hedigan J in May 2000 heard a proceeding brought by a plaintiff against his employer and the proceeding was compromised. His Honour made orders by consent that the defendant pay the plaintiff's costs and counsel for the plaintiff then made application to the Court for a further order "namely that they be paid from the settlement sum the plaintiff's solicitor's costs on a solicitor-own client basis, in default of agreement between the plaintiff and his solicitors, such costs to be taxed and when taxed paid to the solicitors for the plaintiff". His Honour referred to s.135A(13C) and (13D) and observed that he thought the purpose of the provisions was directed towards preventing lawyers from accessing their clients damages "in order to pick up the difference between the actual cost of maintaining the proceeding and the costs recovered from the opposite party and also to prohibit (in the rare case) unscrupulous practitioners from filching excess amounts for costs from the compensation awarded, without the Court's supervision and order". His Honour directed that certain material be filed in support of the application and His Honour indicated that he would make an order to enable "the difference between the recoverable party-party costs and the cost of running the case be paid out of the settlement amount". His Honour made observations about relevant matters to take into account. The case is Clifford James Loveday v Lloyds Tree Care Pty Ltd[1]. In Elaine Chapman v Tobin Brothers Pty Ltd[2] Balmford J also considered the question and following what Hedigan J had stated in Loveday, her Honour was prepared to make an order in respect to the solicitor and client costs.

26. The County Court Consolidated Practice Note of 2002 concerning the operation and management of County Court civil lists deals with applications pursuant to, inter alia, s.135A(13C) and the Accident Compensation Act 1985. The practice direction proceeds on the assumption that it is necessary to make an application pursuant to s.135A(13C) and that a bill of costs should be prepared in taxable form clearly identifying party-party costs "and as to what items make up the solicitor-client component of the bill". It was noted that upon receipt of the information the application would be dealt with by the Judge in charge of a list in chambers.

29. It is clear that it has been the view of the profession and the courts to date that in certain circumstances when a proceeding is brought pursuant to s.135A of the Act, that at the end of the proceeding application must be made pursuant to ss.13C for an award of costs to be made by the Court. Clearly the solicitors in this proceeding proceeded on that assumption and I considered the matter on that assumption.

32. Mr David Collins SC, who did not appear at the first hearing before me and who now appears with Mr Croyle, has submitted that in the circumstances, an application pursuant to ss.13C was not necessary and hence no order was sought pursuant to that sub-section, and that the application under ss.13D pursuant to which the Court would determine the amount of costs to be awarded was superfluous and unnecessary and could be withdrawn by leave. However he submitted that since the latter was before the Court, the Court should entertain it. His submission was that the practice which has grown up is not required by the legislation and indeed is not supported by it.

35. It is therefore necessary to reconsider the obligation to make such an application and this requires a close analysis of ss.13A.

38. Mr Collins submitted that ss.13C did not apply in the circumstances of this case. His submission can be summarised as follows-

(i) The restriction on the solicitor recovering costs found in ss.13C applies to the specified instances subject to proviso that it does not apply if "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";

(ii) The plaintiff worker was obliged to pay costs in accordance with the section;

(iii) The worker's obligation arose under sub-section 13A(d) and the proviso applied.

44. Mr Collins traced through the paragraphs of ss.13A.

47. Paragraph (a) deals with the situation where the worker fails to establish a liability to pay damages. In those circumstances the worker is obliged to pay the party-party costs of the employer and "the worker's own costs". It is observed that the phrase "the worker's own costs" would cover his full costs including solicitor-client costs. This is made clear by his obligation to pay "the party and party costs of the employer etc".

50. Paragraph (b) is concerned with a situation where a worker has succeeded but the amount of the judgment or settlement is not less than a certain percentage of the worker's statutory offer and more than the statutory offer of the employer. In those circumstances the authority must pay the worker's party and party costs. It is clear that if that situation arises, the employer is not obliged to pay the solicitor-client costs. In those circumstances ss.13C would apply and application would have to be made for the solicitor-client costs.

53. Paragraph (c) is concerned with a different situation in which the worker obtains a judgment or settlement not more than the statutory offer, and in those circumstances the worker is obliged to pay the party-party costs of the authority "and the worker's own costs". Again the phrase "the worker's own costs" would cover his solicitor-client costs and accordingly he would be obliged pursuant to the section to pay the costs and ss.13C would not apply.

56. Paragraph (d) applies to the present case. It provides for a situation where the judgement or settlement is more than the statutory offer but less than ninety percent of the worker's statutory offer, and in those circumstances the obligation to pay costs is expressed by the phrase "each party bears its own costs". Mr Collins submits that it is clear that in those circumstances the worker must bear his own costs and that would include solicitor-client costs and accordingly, ss.13C would not apply.

59. In my opinion the paragraphs (a) to (d) (inclusive) of ss.13A cover all the possible situations which may arise as a result of a judgment being obtained or a settlement or compromise being reached. It is arguable that the Court is not required to make an order as to costs because the paragraphs apply once the judgment is obtained or settlement or compromise is made. However I understand that the usual practice is to make orders for costs in accordance with the paragraphs.

62. It is noted that in paragraph (d) the wording is different to the wording used in the other paragraphs and does not refer to "the party-party costs" or "the worker's own costs". However I agree with Mr Collins that there is no real difference in effect in the different phraseology, and that the phrase "each party bears its own costs" is a convenient and correct way of stating the obligation of each party to pay his/her or its own costs.

65. The question then arises as to the necessity of ss.13C. What work does it have to do? Clearly in my view it would apply where the defendant pays the worker's party-party costs and the solicitor seeks solicitor-client costs. Further the phrase "an award of costs has been made by the Court in respect of those costs" in my view refers to costs orders made in interlocutory proceedings and orders for costs, if made, at the completion of the proceeding. The result of ss.13C is that unless there has been a costs order during the interlocutory steps, the solicitor is not entitled to recover its costs until the completion of the proceeding, whether it be by judgment or compromise.

68. In my opinion ss.13C does not apply in the circumstances of this case. The solicitor is entitled to its costs because the worker is obliged to bear his own costs under paragraph (d) and "his own costs" would cover solicitor-client costs.

71. In my opinion ss.13A(d) applies in the present proceeding. The solicitor is entitled pursuant to the contract of retainer to recover the full costs against the plaintiff as the plaintiff is obliged to bear his own costs, and that would include all costs due and payable to his solicitor.

74. It follows that it is unnecessary for me to consider the application pursuant to ss.13C because it does not apply. The solicitor is entitled to its full costs, ie. party-party and solicitor-client costs, pursuant to the retainer.

77. Whether or not it is necessary for an application to be made under ss.13D depends upon whether or not the worker or the solicitor wishes to bring an application to determine the amount of costs to be awarded. It does not appear to me to be necessary to bring such an application whether ss.13C does or does not apply. Sub section 13D is only concerned with "the amount of costs" and is not concerned with the obligation to pay costs. In my opinion it would be appropriate to make an order that under ss.13C the solicitor is entitled to recover solicitor-client costs, without fixing the amount. In my opinion ss.13D is a dispute resolution procedure and if either the worker or the solicitor wished to have the question of the amount determined the application can be made to the Court. Of course under the Legal Practice Act a client may seek to have a bill of costs taxed. See s.115 of the Legal Practice Act 1996. In my view ss.13D provides an additional method of fixing the amount of costs and provides a procedure whereby a matter of principle could be determined by the Court without the necessity of having the bill taxed.

80. In my view it was unnecessary, in the light of my conclusions as to ss.13C, for the solicitor to have applied under ss.13D. Mr Collins did raise the question of withdrawing the application but appreciated that leave would be required. He indicated that since the solicitor had made the application and since the costs had been taxed it was appropriate in the circumstances to proceed with the application.

83. The original bill sent to the plaintiff, which was not itemised, totalled $53,739.20 for costs. The order I made on 17 October 2003 required an itemised bill to be prepared and this came to $63,172.62. The contract of retainer between the plaintiff and the solicitor was subject to "no win-no fee" agreement. In fact the retainer was subject to a number of agreements because there were a number of applications that had to be made. The bill of costs was divided into three parts and the work done in relation to part A had a ten percent uplift pursuant to the agreement. The work done in relation to parts B and C was subject to a twenty-five percent uplift. The Master ordered that the bill of costs be taxed in the sum of $48,271.27. In the affidavit sworn by the solicitor Diana Agostinelli on 4 March 2004 she stated that the solicitor and the plaintiff had agreed that the solicitor would not seek a sum in excess of $54,673.00. An affidavit by a cost consultant Catherine Mary Dealehr provides a calculation of the final sum taking into account the uplift fees in relation to each part of the work. The calculation satisfies me, taking into account the terms of the various "no win-no fee" agreements, that the solicitor is entitled to the sum of $54,673.00. This was some $2,000 less than the full amount, taking into account the Master's taxation and the uplift for the various parts of the work done. As ss.13C does not apply, it is not a question for the Court whether or not the solicitor is entitled to the fees but in any event I am quite satisfied that the fees charged by the solicitor were proper and reasonable in the circumstances.

86. Finally there is the question of the effect of ss.13B which provides-

"(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 ten percent."

90. This sub section applies if a taxation of costs takes place. As things turned out, by reason of the application pursuant to ss.13D, a taxation did take place. If costs were payable by the worker or the employer to the other party, the applicable scale of costs would result in a reduction of ten percent of the party-party costs. In those circumstances what is the liability of the worker to his solicitor? Who should carry the burden? In my opinion there is nothing in section 135A which reduces the obligation of the worker to pay the full amount of costs that he is obliged to pay pursuant to his contract of retainer with the solicitor. One may express some surprise that the Legislature, having set out to reduce the costs payable by one party to another nevertheless leaves the burden on the worker to find the extra ten percent to pay his solicitor. On the other hand as Mr Collins submitted, why should the solicitor carry the burden of the reduction? There may be a variety of reasons why a client may not accept the advice of his solicitor and thereby cause an adverse result under ss.13A. I think Mr Collins is correct. The Legislature in its wisdom has left the burden with the worker. There is no reason why the solicitor should not recover its full costs pursuant to its retainer with its client. Maybe justice would be best effected by considering the relationship of the parties and determining whether any particular step was taken by either party which led to the increase of costs. By way of example, if the proceeding was unduly prolonged. In other words, make an assessment of who should be saddled with the burden, depending on conduct relevant to the outcome of the trial. Who was at fault which caused an adverse costs result? If that was relevant in the present case then the facts clearly demonstrate that the plaintiff failed to disclose a pre-existing injury which had a significant impact upon the difference between the original statutory offers and the eventual compromise of the proceeding at a substantially lesser sum, which resulted in the failure to recover costs against the defendant.

93. It follows in my opinion that the application pursuant to ss.13C was misconceived and was unnecessary and accordingly the Court is not obliged to give consideration to that sub-section. As the solicitor has invoked the jurisdiction under ss.13D I have considered the application and in my view the solicitor is entitled to the costs sought. There will be no order for the costs of this application. Mr Collins did not seek costs and indeed indicated that the solicitor was not seeking costs. In my view the general rule must be that in circumstances such as this, the solicitor is not entitled to any costs. The necessity to make the application, if there is a necessity, comes about by the legislation and is not due to anything done or omitted to be done by the worker. It would be different if the worker made application pursuant to s.135A(13D).

96. Subject to submissions by counsel I propose to make the following orders -

(i) The application by the plaintiff's solicitors Slater and Gordon Pty Ltd pursuant to s.135A(13C) of the Accident Compensation Act 1985 is dismissed;

(ii) Pursuant to s.135A(13D) of the said Act, the amount of costs payable to Slater and Gordon Pty Ltd in this proceeding is determined at $54,673.

(iii) There be no order of costs of the application.

[2] [2002] VSC 81