Shapiro v Jacobson

The Application

1. Ultimately, the plaintiff's tutor made oral application on 4 April 2014, for orders which permitted the payment out of Court from the plaintiff's damages of a sum of a little under $45,000 for legal costs and disbursements in addition to the sum of $18,000 which had been ordered to be paid out. As well, an order was sought that the balance of the monies remaining in Court be paid to the NSW Trustee & Guardian pursuant to s 77(3) of the Civil Procedure Act, to be held in trust by the NSW Trustee & Guardian for the benefit of the plaintiff until he attains 18 years of age.
2. There was no appearance by any other party to the proceedings. The NSW Trustee & Guardian did not appear, and there was no one who sought to contradict the orders which were being sought, in substance and effect, by the plaintiff's tutor.
3. A number of issues arose for careful consideration, and accordingly, after submissions were received, the Court reserved judgment.

Relevant Legislation

1. Section 77 of the Civil Procedure Act provides ample power to the Court to order payment of the monies out of court. Section 77 is in the following terms: "77 Payment of money recovered on behalf of person under legal incapacity (1) This section applies to money recovered in any proceedings on behalf of any of the following persons: … pursuant to a compromise, settlement, judgment or order in any proceedings. (2) All money recovered on behalf of a person referred to in subsection (1) is to be paid into court. (3) ... (4) Money paid into court under subsection (2) is to be paid to such person as the court may direct, including: (a) if the person is a minor, to the NSW Trustee and Guardian, or (b) if the person is a protected person, to the manager of the protected person's estate."
2. If the monies in court are ordered to be paid to the NSW Trustee & Guardian, in respect of a minor, then the provisions of s 78 of the Civil Procedure Act have effect. That section is in the following terms: "78 Application of money by NSW Trustee and Guardian (1) Subject to any order of the court, money paid under this Division to the NSW Trustee and Guardian on behalf of a minor is to be held and applied by the NSW Trustee and Guardian for the maintenance and education of, or otherwise for the benefit of, the minor. (2) On the application of the NSW Trustee and Guardian, the Supreme Court may give directions to the NSW Trustee and Guardian as to the administration of any such money. (3) If given effect to by the NSW Trustee and Guardian, any such direction exonerates the NSW Trustee and Guardian from any claim or demand by any other person."

Evidence

1. On 6 February 2014, the plaintiff's solicitor, Mr T L Stern, sent a "Lump Sum Memorandum of Fees" to the plaintiff's tutor and her husband, Mr Alan Shapiro. The Memorandum was addressed to Mrs Shapiro "… as tutor and guardian of Matthew Harry Shapiro, in respect of the costs and disbursements in case number 2009/297664".
2. That Memorandum of Fees records that five experts had been retained to provide reports on liability, seven expert reports had been obtained on the question of damages, a junior counsel had been briefed and had provided lengthy advice with respect to the claim, and a second opinion had been obtained from another junior counsel. It indicated that there had been thirteen directions hearings, of which only a small number had been attended by counsel, and that there had been a day long mediation in May 2012.
3. It appears from the Memorandum that correspondence in the file occupied five large volumes, and that shortly prior to the approval by the Court of the settlement of the matter, a sixth volume of correspondence had been opened. As well, the Memorandum indicated that there were about 6,000 pages of documents which had been photocopied.
4. The Memorandum asserted that the solicitor's fees exceeded $75,000 but it was noted that they had been reduced, by agreement, to $26,500 inclusive of GST, plus disbursements. The disbursements noted came to $2,118.85 which were reduced on the Memorandum to $1,060,35.
5. Accordingly, the total of fees and disbursements billed to the plaintiff's tutor on the Lump Sum Memorandum of Fees came to $27,560.35.
6. As is clear from its terms, this Memorandum did not include monies paid by the tutor to experts to obtain their reports ($14,979.50), and monies owing for counsel's fees ($20,310.00). These totalled $35,289.50.
7. In an affidavit sworn 5 March 2014, Mr Stern deposed to a number of matters, including the following: "This case was prepared as a fully contested medical negligence claim in which I considered that there was a reasonable prospect of recovery of substantial damages for non-economic loss and other heads of damage. I considered that the measure of damages realistically justified the commencement of proceedings in the Supreme Court of NSW. … Significant work was involved in this matter given that it was complex both in terms of breach of duty and causation giving rise to more conferences with counsel, the plaintiff's parents and more attendances on me than would normally have been the case in a less complex claim."
8. Mr Stern expressed the view that a costs assessor would consider his fees and disbursements generally, including counsel's fees, as "… very modest and fair and reasonable".
9. The plaintiff's tutor also swore an affidavit which was seemingly prepared for her by Mr Stern. In it, she says that she has been informed that an application is to be made for payment out of the settlement funds which are in court. She then expresses this opinion: "I consider Mr Stern's fees and those of counsel to be fair and reasonable."
10. It seems that she expresses that opinion based upon the Lump Sum Memorandum of Fees of 6 February 2014, and Mr Stern's various affidavits. It does not appear that she has received any advice from any person on that question other than such documents as she has received from Mr Stern.
11. On 1 April 2014, Mr Stern swore an affidavit which annexed to it a lengthy letter from the NSW Trustee & Guardian. Relevantly, it includes this paragraph: "Under s 78 Civil Procedure Act 2005, NSW Trustee & Guardian is, subject to any order of the Court, to hold and apply money paid under Division 4 for the maintenance and education of or otherwise for the benefit of, the minor. NSWTG has previously obtained counsel's advice that this does not extend to payment of costs without a specific order. NSWTG could apply to the Court for directions to apply the money for payment of costs under s 78(2), but it would constitute an unwarranted drain on available funds."
12. Rather confusingly, the letter goes on to say the following: "In the absence of a specific [court] order, NSWTG's approach is to consider payment of any gap between the party/party costs and solicitor/client costs if itemised party/party bills and solicitor/client bills are prepared by an independent costs consultant. However, each matter is dependant on the circumstances and where appropriate, we will consider the amount of costs proportionate to the amount covered for the benefit of the trust fund, and after seeking instructions from the tutor in regard to the 'gap' costs. We generally expect that 75 to 80% of the solicitor/client costs would be recovered as party/party costs."
13. In an affidavit of 3 April 2014, Mr Stern deposed, amongst other things, to the fact that in 2008, he sent a conditional costs agreement to the plaintiff's parents, which they executed and returned to him in May 2008.

Submissions on the Application

1. Counsel appeared on the instructions of the tutor, and submitted that the Court should exercise its powers to order the payment directly out from the monies in Court the amounts claimed by way of solicitor's fees and disbursements, which were in addition to the sum of $18,000 which had been paid by the defendant in the proceedings. He submitted that it would then be appropriate to order that the balance of the monies be paid to the NSW Trustee & Guardian pursuant to s 78 of the Civil Procedure Act.
2. Counsel submitted that what was in effect, being sought was that the Court make an order that the shortfall between the sum of costs paid by the defendant, which sum was capped by reference to the judgment sum, pursuant to s 338 of the Legal Profession Act 2004, and the compromised amount for legal fees and disbursements, the subject of the Lump Sum Memorandum of Fees, be paid out of the sum for damages which was in court as opposed to being paid by the tutor from her own funds.
3. He submitted that having regard to the terms of the correspondence with the NSW Trustee & Guardian, the quickest, cheapest and most efficient way of proceeding, was for the Court to order pursuant to s 77(4) of the Civil Procedure Act, the payment of the specified sums directly from the funds in Court, and for the balance of the monies to be paid to the NSW Trustee & Guardian, rather than to pay all monies in Court to the NSW Trustee & Guardian and to leave it to that office to determine which amount ought be paid for solicitor's costs and disbursements.
4. Counsel submitted that the Court had been provided with a costs agreement with complied with the legislation, and, as well, a notification in accordance with s 317 of the Legal Profession Act which provided the appropriate estimation of likely costs, the effect of which was that the solicitors and counsel were entitled to recover on a solicitor/client basis, costs which exceeded the capped amount for which the defendant was liable.
5. Further, counsel submitted that it was appropriate for the Court to order that the costs be paid out of the damages rather than by the tutor, because the analysis of principles suggested that the position of the tutor personally was akin to that of a trustee conducting litigation in respect of, or else for the benefit of, a trust fund.
6. Counsel accepted that he was unable to point directly to any single authority on the position of a tutor or a next friend, but he did draw the Court's attention to the decision of Williams J in Murray v Kirkpatrick (1940) 57 WN (NSW) 162. That decision is not directly in point because it refers to whether a guardian ad litem was entitled to be paid out of the estate of an infant under a will, their costs of litigation with respect to that will.

Further Authorities

1. In NSW Insurance Ministerial Corporation v Abualfoul [1999] FCA 433; (1999) 94 FCR 247, Sackville J dealt with bankruptcy proceedings arising out of the unsuccessful prosecution of a claim for damages for personal injuries brought on behalf of a minor by a tutor.
2. There his Honour, in considering submissions put to him, expressed these views about the position of a next friend: "27. In considering the creditor's submissions, it is helpful to commence with a brief examination of the office of next friend independently of the DCR. Under the general law, because of an infant's inability to bind himself or herself, or to incur liability for costs, the infant was incapable of bringing an action without the assistance of some other person responsible to the court for the proper conduct of the suit: Daniell's Chancery Practice (7th ed, 1901), 116. This person was known as the next friend (or "prochein amy" in the earlier cases), apparently because he or she was usually a near relative of the plaintiff. If an action was instituted by an infant without a next friend, the defendant could apply to have the action dismissed: ibid. The limitation on the capacity of infants did not extend to matters of substantive entitlement or liability, since at common law an infant could sue and be sued: Haines v Leves (1987) 8 NSWLR 442 (CA), at 449, per Street CJ. The limitation on capacity was procedural. 28. One reason for requiring an infant plaintiff to sue by a next friend was so that there would be a person answerable to the defendant for the costs of the litigation, although the defendant could waive this benefit: Daniell's Chancery Practice, at 116; Ex parte Davis (1901) 1 SR (NSW) 187, at 189. The next friend was liable for all costs incurred in the actions brought by the infant, until the infant attained his or her majority: Bligh v Tredgett (1851) 5 De G & SM 74; 64 ER 1024; Simpson on the Law of Infants (3rd ed, 1909), 391. The next friend could be attached for the non-payment of the costs of an action in which the defendant obtained a verdict: Radford v Cavanagh (1899) 15 WN (NSW) 226. However, the next friend was ordinarily entitled to recover the costs from the infant's estate (if there was one), provided he or she acted bona fide: Pritchard v Roberts (1873) LR 17 Eq 222. 29. The next friend was regarded as an officer of the court appointed to safeguard the interests of the infant: Rhodes v Swithenbank (1889) 22 QBD 577, at 579, per Bowen LJ; Dey v Victorian Railways Commissioners (1949) 78 CLR 62, at 113-114, per Williams J; Ex parte Davis. The conduct of the proceedings was in the hands of the next friend: Rhodes v Swithenbank, at 578, per Lord Esher MR. The next friend was not, however, a party to the action: Pink v J A Sharwood & Co Limited [1913] 2 Ch 286, at 289, per Eve J. The next friend derived his or her authority from the court, not the infant, and could be removed if, for example, he or she acted improperly or had an interest adverse to that of the infant: Stephenson v Geiss [1998] 1 Qd R 542, at 557, per Lee J; Simpson on the Law of Infants, at 384-385."
3. As the judgment of Sackville J shows, his Honour's attention was drawn to, and he relied upon, the decision in Pritchard v Roberts (1873) LR 17 Eq 222, a decision of the Vice Chancellor, Sir Charles Hall. The suit in question was brought under the Declaration of Titles Act 1862 (25 & 26 Vict. c.67) on behalf of an infant which sought to recognise that the infant was entitled to one undivided moiety in a parcel of real estate.
4. Although the infant was represented on the application before the Vice Chancellor, counsel did not make any submissions other than informing the Court he could see no ground for objecting to the orders sought.
5. The Vice Chancellor's judgment is short, and is as follows: "The costs of obtaining the declaration of title are in substance costs incurred in the partition suit. Moreover, in my opinion, all these costs might, in a circuitous manner, be made to come out of the infant's estate. If the solicitor had sued the next friend of the infant for these costs and recovered them, the next friend might have recovered them against infant. There must, therefore, be a declaration that the plaintiff is entitled to a lien on the fund in court for the costs of the petition, and of the two suits as between solicitor and client, and an order that such costs be taxed and paid."
6. In 1886, Stirling J, sitting in the Chancery Division, held that where a fund belonged entirely to an infant, the next friend was entitled to have his costs, charges and expenses paid out of the infant's fund: Damant v Hennell (1886) 33 Ch. D. 224.
7. In 1891, Webb J, sitting in the Supreme Court of Victoria, followed the decision in Damant and ordered that the solicitor/client costs of the next friend of an infant plaintiff be paid out of the monies recovered by the infant plaintiff: see Ronayne v Anstead (1891) 12 A.L.T. 159.
8. In 1910, Eve J said in Steeden v Walden (1910) 2 Ch 393, this, at 399-400: "These and other decisions, whereby property of the infant under the control of the Court has been made available to recoup the next friend, proceed upon the footing that the infant is prima facie liable to indemnify the next friend against costs properly incurred on his behalf, and they shew that such liability ought, and will, be enforced in all cases where the Court is satisfied that the litigation has been prompted by motives of benevolence towards the infant, and has been conducted in his interest and with diligence and propriety."
9. Returning then to the decision of Williams J in Murray, his Honour having referred to some historic cases, including the passage just extracted from the judgment of Eve J, said this: "It appears therefore that the right to an indemnity of a next friend against the estate of an infant plaintiff is analogous to that of a trustee against the trust estate, and I think the right to an indemnity of a guardian ad litem must be determined on a similar basis. … These considerations lead me to the conclusion that the guardian ad litem is entitled to recover under his indemnity out of the estate of the infant, all costs properly incurred on his behalf in connection with the legal proceedings in respect of which he has been appointed the guardian ad litem of the infant."
10. Moving to more recent cases, in Stephenson v Geiss [1998] 1 Qd R 542, Lee J said: "The next friend alone is liable to the solicitors conducting the action on behalf of the plaintiff for the costs properly incurred in the proceedings … On the other hand, just as the next friend is liable for the solicitor and own client costs properly incurred, he is entitled to be reimbursed for all costs and expenses properly incurred by him for the benefit of the plaintiff and providing no costs were incurred which cannot be said to be for the plaintiff's benefit: Fearns v Young (1804) 10 Ves. Jun. 184; 32 ER 815, which Philip J applied in Phillips v Munro [1957] St. R. Qd. 427 at 431 … He is entitled to costs properly incurred for the infant's benefit on the solicitor and own client basis and is entitled to recover them out of the estate of the person whom he represents."
11. In 2005, Wheeler JA (with whom Roberts-Smith JA and Miller AJA agreed), approved the observations of Sackville J in NSW Insurance to which reference has been made above. Her Honour then added: "The most significant features of that summary for present purposes are that the next friend is liable for all costs incurred in actions brought by the infant, although ordinarily entitled to recover those costs from the infant's estate, and that the next friend is not, however, a party to the infant's action. " See Dissidomino by her next friend Dissidomino v Butcher Paull and Calder [2005] WASCA 210 at [20].
12. This approach was followed by Refshauge J in J by his litigation guardian Vardanega v Australian Capital Territory [No 2] [2011] ACTSC 36 at [8].
13. The approach was also followed by Buss JA in Farrell by her next friend Ronald Waugh v Royal Kings Park Tennis Club (Incorporated) [2007] WASCA 173 at [17].

Discernment

1. I conclude from a review of these authorities that, providing that costs have been reasonably incurred, and for the benefit of the infant party to the litigation, whilst that party remains an infant, the tutor or next friend, or guardian ad litem if one has been appointed, are entitled to be indemnified out of the estate of the infant party for their liability for legal costs of the litigation.
2. Such a position is no different in principle from that of a trustee who is entitled, upon the assumption of proper conduct, to be indemnified by the trust estate, and it recognises the true position that a tutor or next friend has no personal interest in the litigation, but is undertaking the litigation for the benefit of the infant party.
3. Accordingly, I conclude that there is no bar to the payment out, by way of reimbursement, to the tutor of any monies already paid for legal fees and disbursements, providing that the fees and disbursements were reasonable, from an award of damages held in Court, or held by the NSW Trustee & Guardian, for the benefit of a minor.
4. Since there is no bar to such a payment by way of reimbursement as I have just noted, then there is, ordinarily no bar to a Court, in similar circumstances, ordering the payment of the monies directly to the solicitor, or the person entitled to receive payment.
5. The issue which needs to be determined is whether, in all of the circumstances, the particular monies claimed in the proceedings are appropriate. This is a decision which must be made on a case-by-case basis.
6. Factors which seem to me to be potentially relevant in making such a decision include, but are not limited to: 1. the sum of money which is being claimed; 2. the size of the estate which will be called upon to pay the claim; 3. whether, in all of the circumstances, the relevant provisions of the Legal Profession Act 2004 have been complied with; 4. whether the costs, or any part of them, can properly be said to have been unreasonably incurred; 5. the nature and complexity of the proceedings which have given rise to the claim for costs; 6. whether an order for payment, empowered as it is by the Civil Procedure Act, insofar as it relates to money which has been paid into court, will achieve the overriding purpose of the Civil Procedure Act, and comply with any other relevant provisions; 7. whether, in the particular circumstances of the case, it is appropriate on the application for the orders, that the estate of an infant be separately represented from the tutor, particularly in circumstances where the tutor continues to be represented by the solicitor engaged by the tutor to act for the infant plaintiff in the principal proceedings; and 8. whether there is any reason that it would not be in the interests of justice to order the monies claimed to be paid.
7. Commonly, where the sums claimed to be paid out are large, or the complexity of the matter is such that the Court cannot be readily satisfied that the sums claimed for costs and disbursements have been reasonably incurred, a court will be disinclined to make any order directing payment out of funds held in Court of any amount at all. After all, the Court is not a financial manager, nor is a court necessarily the best body to make a decision about what is in the best financial interests of an infant, and certainly not without significant evidence about the infant's estate. The interests of an infant plaintiff are best protected in those circumstances by their financial manager, commonly the NSW Trustee and Guardian.
8. However, there may be good reasons why, having regard to the size of a relatively small estate and the relatively small size of the moneys claimed, that a court can readily be satisfied that it is appropriate for it to order payment out from the funds in court.

These Proceedings

1. The evidence, in these proceedings, comfortably satisfies me that the sums now claimed for legal costs and disbursements are significantly discounted from the sums actually able to be charged, and are manifestly reasonable.
2. Although the monies claimed represent a significant proportion of the entire estate of the infant plaintiff, as the judgment of Hislop J, to which I have earlier made reference shows, the estate is one which resulted from a significant compromise of the proceedings, and is modest because of that compromise.
3. To require, in this case, as appears to be the NSW Trustee and Guardian's standard practice, the presentation of a Certificate of Assessment of solicitor and client costs before the tutor could claim reimbursement, would be both unnecessary and unduly expensive. It would only serve to diminish the infant's modest estate even further, and for no real benefit.
4. In all of the circumstances, because it is in the interests of justice, and in the best interests of this particular infant plaintiff, the orders sought should be made.

Order

1. The Court orders: 1. Pursuant to s 77(4) of the Civil Procedure Act 2005, the sum of $29,870.35, be paid out of the monies held in Court for the plaintiff to Terence Stern Trust Account to be applied for payment of outstanding solicitor's costs and disbursements, including counsel's fees. 2. Pursuant to s 77(4) of the Civil Procedure Act 2005, the sum of $14,979.50, be paid out of the monies held in Court for the plaintiff to the tutor, Bianca Maria Shapiro, by way of reimbursement for disbursements paid. 3. Pursuant to s 77(4)(a) of the Civil Procedure Act 2005, the balance of the monies held in Court for the plaintiff, after the payments referred to in Orders 1 and 2 are made, is to be paid to the NSW Trustee and Guardian to be held and applied in accordance with s 78(1) of the Civil Procedure Act 2005.

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: 01 April 2015