Sedgwick v Varzonek

Supreme Court of NSW|2015-10-30|Before: Slattery J, Mr P

Judgment

This is the Court's third judgment in these proceedings. In the Court's principal judgment the plaintiff, Mr Sedgwick, was successful in his claim in equitable estoppel that he was entitled to $200,000 from the proceeds of settlement of from the estate of the late Marlene Reis, the deceased,: Sedgwick v Varzonek [2015] NSWSC 1275.
The Court's second judgment dealt with issues of costs: Sedgwick v Varzonek (No. 2) [2015] NSWSC 1613. In the second judgment the Court ordered the plaintiff's costs to be paid out of the estate on the ordinary basis up to 24 July 2014 and on the indemnity basis from 25 July 2014.
The second judgment indicated that the Court would contemplate making a specified gross sum costs order under Civil Procedure Act 2005 ("the CPA"), s 98(4)(c) ("a lump sum costs order"), if the parties could engage in a co-operative procedure to facilitate making such an order without significant further costs being incurred. The Court considered this course as a way of speeding up the distribution of the estate, because of the plaintiff, Mr Sedgwick's poor health, because the deceased died four years ago and because her mother, Anna, is now an elderly pensioner in Poland. All these, together with the deceased's sister, Kamilla in Poland and her daughter, Tania, in Australia have immediate financial needs. The parties filed limited evidence and exchanged submissions preliminary to the Court making a lump sum costs order.
This judgment deals with the issues of making of a lump sum costs order under CPA, s 98(4)(c) and questions of interest on the judgment sum of $200,000. Events, matters and things are referred to in this judgment in the same way as they are in the Court's principal judgment and in the second judgment.
Once again, Mr M. Willmott SC and Mr A. Blank appeared for the plaintiff and Mr P. O'Loughlin appeared for the defendant.

Should a Lump Sum Costs Order be Made?

The first question is whether a lump sum costs order should be made. The plaintiff submits that such orders should be made and he adopts the remarks the Court made on this issue in the second judgment: Sedgwick v Varzonek (No. 2) 2015 NSWSC 1613, [33] - [38] to the following effect: "[33] The Court is minded to make a specified gross sum order under Civil Procedure Act 2005 ("CPA"), s 98(4)(c) in this matter, if the parties can agree upon a co-operative procedure to implement such an order without much further cost being incurred. [34] The applicable principles in relation to the making of specified gross sum costs orders under CPA, s 98(4)(c) may be shortly stated. Although the CPA s 98(4)(c) power has been described as particularly suited to complex litigation, the rule is expressed in general terms and is not limited to cases of that type: Australasian Performing Rights Association Ltd v Marlin [1999] FCA 1006 at [3] (Burchett J). The power to award a CPA s 98(4)(c) specified gross sum instead of assessed costs is exercised whenever the circumstances warrant its exercise; the purpose of the rule is to avoid the expense, delay and aggravation arising out of taxation: Beach Petroleum NL v Johnson (No. 2) (1995) 57 FCR 119 (von Doussa J). [35] Probable inability to pay a costs order will usually provide a proper basis for the making of a s 98(4)(c) order. If the unsuccessful party ordered to pay costs is unlikely to be able to pay the amount of costs ordered then the successful party is further aggravated by having to fund the additional costs of taxation, those costs also being unrecoverable: Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 ("Schipp") at [21] (Giles JA) and Hadid v Lenfest Communications Inc [2000] FCA 628 ("Hadid") (Lehane J). [36] But there are many other reasons for making such an order. Here there is a pressing need in the interests of a number of parties interested in these proceedings to bring consequential aspects of the proceedings to a rapid conclusion. Marlene died almost four years ago. Mr Sedgwick is in poor health and has pressing financial needs. Marlene's mother Anna is an elderly pensioner in Poland. She and her daughter, Marlene's sister, have immediate financial needs. Rapid disposal of costs issues is desirable. [37] There is no procedural obstacle to the CPA s 98(4) discretion being exercised now. CPA s 98(4) provides as follows: '98. Courts powers as to costs (4) In particular, at any time before costs are referred for assessment, the court may make an order to the effect that the party to whom costs are to be paid is to be entitled to: (a) costs up to, or from, a specified stage of the proceedings, or (b) a specified proportion of the assessed costs , or (c) a specified gross sum instead of assessed costs, or (d) such proportion of the assessed costs as does not exceed a specified amount.' [38] The Court may make such an order "at any time before costs are referred for assessment". The costs order being made today has not yet been referred for assessment."
Mr Sedgwick emphasised in his submissions the factors favouring the making of a lump sum award: the need to bring proceedings commenced in December 2012 to finality; the plaintiff's age, health and financial circumstances; the delay from referring the matter for a costs assessment; and, the prejudice to Tania and the Polish beneficiaries from further delay.
The defendant's submissions do not oppose the making of a lump sum costs order. The defendant acknowledges the Court's power to make such an order in the present circumstances. But she points out that she is only entitled to receive 2 per cent of the net estate and is not a major beneficiary. In her capacity as executor of the estate she seeks to assist the Court to determine the proper quantum of costs payable to the plaintiff pursuant to the Court's costs orders made on 30 October 2015. However she submits that due to her position she cannot "consent to a particular amount of costs payable". Instead, she requests that "the Court determine the amount of costs payable to the plaintiff, with the assistance of the submissions of the parties".
The Court has an unconfined discretion under CPA, s 98(4): "the Court may make an order…." [emphasis added] including a lump sum costs order. Cases such as Harrison v Schipp [2002] NSWCA 213; 54 NSWLR 738 ("Schipp") and Hadid v Lenfest Communications Inc [2000] FCA 628 ("Hadid") make clear that lump sum costs orders are not limited to existing categories of case but may be made where circumstances require. In my view the matters raised in the Court's second judgment and emphasised by the plaintiff in its submissions are a sufficient basis for the Court now to make such an order.
The Court will deal with the lump sum costs issue first.

What Amount Should be Assessed?

A lump sum costs order under CPA, s 98(4)(c) can be fixed broadly having regard to all the information available to the Court: Schipp, [22] and Hadid, [27]. The approach taken to the estimation of costs must be "logical, fair and reasonable" and the power should only be exercised when the Court considers it can do so "fairly" between the parties and that includes "sufficient confidence in arriving at an appropriate sum on the materials available": Schipp at [22], per Giles JA.
The plaintiff filed additional evidence, an affidavit of Mr David Leon Penkin of 6 November 2015 on the lump sum costs issue. The Court notes that affidavit has been read on this application. The parties exchanged written submissions. The Court indicated that, given the nature of the application, it would deal with the matter on the papers. The parties accepted this course. The parties' submissions may be briefly recorded.

The Plaintiff's Submissions

The plaintiff submits that a lump sum costs award of $223,738 should be made. He submits that represents a lump sum of costs consistent with the costs regime the Court ordered under the second judgment. In the plaintiff's written submissions he submits that the Court should approach the assessment bearing the following matters in mind: "4. In short, the following comments are made: (a) The Plaintiff has not embarked on a line by line analysis of the time sheets or material annexed to the Affidavit of David Leon Penkin sworn 6 November 2014 (DLPAff). (b) The Plaintiff has assumed that disbursements ought to be paid or allowed in full regardless of whether they were incurred in the "ordinary" or "indemnity" period. (c) The Plaintiff notes there are two types of disbursements: there are disbursements paid by the Plaintiff's solicitor as appears at page 48 of the DLP Affidavit and these may be termed solicitor's "out of pocket" disbursements, meaning the solicitor has paid these disbursements for and on behalf of the plaintiff. Then there are disbursements by way of filing fee and Court allocation fee which were paid by funds plaintiff provided to solicitors as appears from the trust ledger at page 62 DLP Aff. (d) The Plaintiff has also assumed that Counsels' fees would not be subject to any deduction on an assessment and accordingly these have been claimed in full. In New South Wales Counsel's fees are assessed according to whether they are fair and reasonable (see Dal Pont The Law of Costs Second Ed at [17.50]). (e) In relation to the period up to and including 24 July 2014 (the ordinary period) the Plaintiff has applied a 35% deduction of costs (but not including disbursements and/or counsel's fees incurred in that period). These are allowed in full as above. The 35% deduction is a "rule of thumb" deduction. (f) In relation to the period after 24 July 2014 - "the indemnity period" the Plaintiff submits that unless it can be demonstrated that any of the costs as itemised were "of an unreasonable amount or had been unreasonably incurred" (see Dal Pont The Law of Costs Second Ed at [16.24]) no deduction should be made in relation to costs incurred in that period."
The plaintiff reaches the figure of $223,738 by the following steps. First he attempts to isolate the costs incurred during the "ordinary period" (namely the period during which costs are allowed on the ordinary basis, up to 24 July 2015), excluding counsel's fees and other disbursements. Counsel's fees and disbursements are excluded, so that any deduction made to the solicitor's professional costs incurred in this period is not taken from the solicitor's fixed outgoings.
Secondly, having isolated a figure representing the solicitor's professional costs, excluding disbursements and counsel's fees, the plaintiff makes a 35 per cent deduction on account of the difference between solicitor-client and party-party costs.
Thirdly the plaintiff adds back the disbursements and counsel's fees during the ordinary period, to arrive at the final figure for costs to be allowed during that ordinary period.
Finally the plaintiff submits that all his costs incurred during the "indemnity period" (the period from 25 July 2015 during which costs are allowed on the indemnity basis) should be allowed in full, on the basis that they were all "not unreasonable as to amount or unreasonably incurred", that being a basis on which the plaintiff submits that indemnity costs may be disallowed: GE Dal Pont, The Law of Costs (3rd ed 2013, LexisNexis Butterworths) at [16.23].
When the costs for the ordinary period and the indemnity period are added together the sum is $223,738.
The plaintiff's full calculation is set out below: Solicitor's costs for ordinary period (exc. disbursement and counsel) 55,392 Solicitor's costs for indemnity period (exc. Disbursements and counsel) 61,651 Senior Counsel Costs 62,315 Junior Counsel Costs 37,565 Out of pocket disbursements 3,851 Plaintiff's disbursements 2,964 TOTAL 223,738

The Defendant's Submissions and Analysis

It is convenient in this matter to set out the defendant's submissions in relation to the lump sum costs order issue and for the Court to analyse those submissions.
The defendant raises issues of law concerning the plaintiff's disclosure of costs pursuant to a costs agreement. These will be dealt with later in these reasons. But first she takes issue with individual items in the assessment.
Individual Items. The defendant takes issue with a number of the items claimed. Some of those issues have greater merit than others. These matters are set out in the following paragraphs.
The amount the plaintiff claims is said to be disproportionate because it exceeds the judgment amount. But it does not exceed the judgment amount by much. The complexity of the issues in this case justified the employment of senior and junior counsel except perhaps in relation to costs issues. When assessed against the matters actually in issue, the costs were not in my view disproportionate.
The costs of both senior and junior counsel appearing at the hearing and on the costs argument are challenged. This challenge is not justified except on costs issues. This proceeding was not an uncomplicated application for an order for family provision under the Succession Act 2006. It also involved an equitable estoppel case with its own special characteristics and a case in restitution. The multiple claims for relief justified the employment of both senior and junior counsel at the hearing but not on the costs arguments.
Double attendances by 2 different partners within the firm covering the same subject matter are challenged. It is quite understandable in certain circumstances that attendances by 2 partners will be required where the handover of aspects of the case between them is occurring, and some allowance for double partner attendances on such occasions would ordinarily be allowed. But generally a case of this kind should be and can be competently and reasonably managed by an experienced lawyer under the supervision of a single partner. Some reasonable reduction in the fees claimed in this category is justified. The number of attendances by two partners indicate that the costs of such double partner attendances were generally "of an unreasonable amount or unreasonably incurred".
Lengthy attendances on the plaintiffs are challenged. The defendant submits that there were a large number of lengthy attendances upon the plaintiff in preparation for his affidavits, all of which should not be allowed. This observation is correct in part. There were certainly a number of lengthy attendances upon the plaintiff for the purpose of affidavit preparation. But it must also be said that the detail of the plaintiff's evidence in his affidavits in this case helped the Court greatly in understanding both a complicated chronology and the nuances of each of the various ways that he put his case. That being said in my view some discount it should be allowed from the total of attendances on this ground: it is not reasonable to sacrifice too much economy for the provision of detail.
The plaintiff's mediation costs are challenged. The plaintiff submits that mediation costs are not claimable, unless the Court makes a specific order in relation to those costs, or otherwise there is an agreement between the parties. The governing provision is CPA, s 28, which relates to the recoverability of the costs of mediation, provides as follows:- "28 Costs of Mediation The costs of mediation, including the costs payable to the mediator, are payable: (a) if the court makes an order as to the payment of those costs, by one or more of the parties in such manner as the order may specify, or (b) in any other case, by the parties in such proportions as they may agree among themselves."
But CPA section 28 should be read together with existing authority. If an order for payment of "the costs of the proceedings" is made, that order includes the cost of the mediation: Newcastle City Council v Wieland (2009) 74 NSWLR 173 [2009] NSWCA 113. Such an order for the payment of the costs of the proceeding has already been made in the Court's second judgment. In my view, these costs are recoverable. It would be rare indeed that a court could say that the costs of a mediation were unreasonably incurred, unless they were excessive in amount. They are not excessive here.
Defendant's Legal Issues. The defendant then raises three legal issues in relation to the assessment of costs. These issues relate to the following matters: (1) the applicable legislation and the regime for the assessment of party/party and solicitor/client costs; (2) issues relating to whether the plaintiff's solicitor made proper disclosure; and (3) whether by the terms of an additional costs agreement the condition requiring payment has been fulfilled.
This judgment in relation to a lump sum costs order, which orders are designed to be part of a streamlined costs process, does not require lengthy reasons for its conclusions on these three legal issues. The issues may be shortly stated, together with the Court's conclusions.

(1) The Applicable Legislation and the Regime for Assessment of Party/Party and Solicitor/Client Costs

I agree with the plaintiff's submission that the transitional provisions of Schedule 4, Division 3, Item 18(b) of the Legal Profession Uniform Law ("the New Act") mean that the repealed Legal Profession Act 2004 ("the Old Act") applies to the assessment of the plaintiff's legal costs. This is because the plaintiff, the client, first instructed his solicitors "before the commencement day" of the New Act and accordingly questions of disclosure and assessment are governed by the Old Act.
Moreover I accept the plaintiff's submission that if the Old Act is applied the relevant principles applicable to a costs assessment that follows costs orders by the Court, even where such costs are to be assessed on the indemnity basis is set out in s 364 of the Old Act. The test has been conveniently summarized in GE Dal Pont, The Law of Costs (3rd ed 2013, LexisNexis Butterworths) at [16.23] as allowing the recoverability of all costs, where indemnity costs are awarded unless such costs are "unreasonable as to amount or unreasonably incurred". That is the principle which the Court has brought to bear in the present lump sum costs assessment.

(2) Issues Relating to Whether the Plaintiff's Solicitor has made Proper Disclosure

The defendant submits that the solicitors for the plaintiff did not comply with the applicable costs disclosure requirements, in that they did not provide estimates of counsels' fees in their costs disclosure.
The defendant submits that the plaintiff's solicitors did not comply with the disclosure requirements of the Old Act. The defendant further submits that the reasonableness of the amount of the legal costs claimed can therefore be considered at large. The alleged non-compliance is said to be in two David Landa Stewart Costs Disclosure letters. The first is a letter of 4 February 2014, which provides an estimate of costs of $50,000 to $60,000 for professional fees prior to mediation and $30,000 to $35,000 for professional fees to the conclusion of the two day hearing without any estimate being given for counsel's fees in the solicitor's costs disclosure. The second is a letter of 24 March 2014, which gives an updated estimate of future costs of $40,000 to $50,000 to the conclusion of the two day hearing, again without an estimate for counsels' fees. As is common with barristers' fee disclosures, the fee agreements of Mr Willmott SC and Mr Blank do not contain any overall estimate of fees. There is no other costs disclosure. The effect of s 310(2) of the Old Act is that although the counsel in this case did not give a disclosure, all that was required was that they give sufficient disclosure to the solicitors of the information necessary for the solicitors in turn to give their disclosure.
But the solicitors did not disclose an estimate of counsel's fees in this case, so in my view there was a failure to disclose to the client. But the consequences of this failure only relate to the assessment of costs between solicitor and client. In my view they do not stop the Court from now making a lump sum costs order under Civil Procedure Act, s 98(4)(c).

(3) Whether the Condition Required for Payment has been fulfilled under a Conditional Costs Agreement

The plaintiff signed unconditional costs agreements. These cost agreements were conditional on a "successful outcome". The defendant submits that plaintiff was not successful in the family provision claim, which was the work defined to be the subject matter of the costs agreement when it was signed. Accordingly it is submitted that the plaintiff has not incurred any liability to his solicitors pursuant to the costs agreement and that no costs are now recoverable under the indemnity principle.
This submission is not persuasive. The signed conditional costs agreement, properly construed, allows the payment upon the successful "outcome of the matter". The "matter" changed once the estoppel and restitution claims were pursued. Upon both solicitors and client embarking upon those altered claims the substance of the work done under the agreement altered. There was clearly success on that altered work.
In conclusion, the Court is entitled to take a broad brush view upon a lump sum costs assessment. There can be greater reduction of costs incurred before the indemnity costs order cuts in. There are a number of matters referred to earlier which will reduce the costs recoverable. In my view having reviewed the costs that are itemized and taking these matters into account, a fair lump sum costs order should be fixed at $175,000.

The Plaintiff's Claim for Interest

In the contested hearing leading up to the Court's second judgment the plaintiff asked for interest on the $200,000 awarded to him pursuant to the Civil Procedure Act, s 100 from the date the Amended Statement of Claim was filed on 25 February 2014. As will be seen from the Court's second judgment interest was not awarded on the sum of $200,000 in the Court's orders: Sedgwick v Varzonek (No.2) [2015] NSWSC 1613 at [43]. The plaintiff now presses for interest.
The plaintiff submits that interest could be awarded from the date on which the deceased received her personal injuries settlement, 10 December 2011, being the date from which she was liable to pay the plaintiff the sum of $200,000. But the parties did agree in the proposed short minutes of order supplied to the Court to interest being applied from the date that the Amended Statement of Claim was filed. The Amended Statement of Claim did substantially expand the claims the plaintiff was making and so this agreement was reasonable. The plaintiff says that at this point that the Court is not bound by this agreement and may still determine an appropriate date from which interest is to run, as the earlier date.
The plaintiff should be held to the agreement made as to the date from which interest runs. The parties have conducted themselves on the basis of this agreement. Other injustices may arise if departure is now allowed from it. And the agreement was soundly based, reflecting as it did the change in the issues for trial when the Amended Statement of Claim was filed. Any interest payable must be calculated from 25 February 2014.
But the defendant submits the Court should not exercise its discretion to award prejudgment interest under Civil Procedure Act, s 100. The defendant argues that she was obliged to hold the deceased's estate pursuant to the trusts of the will and because of the family provision claims. When holding the funds interest was earned only at the rate of 2 to 2.5 per cent, the rate generally payable on the solicitor's controlled monies account, from which tax was required to be paid on behalf of the estate. The defendant says she was not a defaulting fiduciary and she was required to hold the funds in the way she did. This is said to lead to the conclusion that prejudgment interest should not be awarded.
I do not find this argument persuasive. The defendant is correct that no finding has been made against her as a defaulting fiduciary. But the plaintiff has succeeded against the estate because he has established the liability of the deceased to him (and in turn the liability of the estate) by reason of the deceased's conduct. Simply because the estate has invested funds in a controlled monies account, earning a low rate of interest, does not in any way change the estate's liability to pay interest at the normal prejudgment rate to the plaintiff for one of the deceased's liabilities. An award of interest is to compensate the plaintiff for the loss he has suffered by being kept out of his money during the relevant period: Batchelor v Burke [1981] HCA 30; 148 CLR 448 and see Maestrale v Aspite [2014] NSWCA 182.
The parties should bring in short minutes of order calculating prejudgment interest in accordance with the rates of applicable under Civil Procedure Act, s 100, calculated from 25 February 2014.

Orders

The Court orders: (1) pursuant to Civil Procedure Act s 98 (4)(c) that the defendant pay on behalf of the estate the plaintiffs costs in the specified gross sum of $175,000; (2) that the defendant pay interest at the rates prescribed on the judgment sum of $200,000 under Civil Procedure Act, s 100 from 25 February 2014; and (3) direct the parties to submit agreed interest calculations to the Court for the entry of judgment as to interest.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 December 2015

(2009) 74 NSW LR 173

At a glance

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