ACN 097823142 (Formally Sherwood Group Pty Ltd) v Gadens Lawyers [2018] QDC 271

DISTRICT COURT OF QUEENSLAND CITATION: ACN 097823142 (Formally Sherwood Group Pty Ltd) v Gadens Lawyers [2018] QDC 271 PARTIES: ACN 097823142 (FORMALLY SHERWOOD GROUP PTY LTD) (applicant) v GADENS LAWYERS (FIRM) (respondent) FILE NO: 3494/18 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: Brisbane DELIVERED ON: 21 December 2018 DELIVERED AT: Brisbane HEARING DATE: 7 November 2018 JUDGE: Richards DCJ ORDER: Application granted. CATCHWORDS: LAWYERS – REMUNERATION – BILL OF COSTS – ACTION TO RECOVER COSTS – GENERALLY – where the applicant is seeking an order for assessment of all legal costs under section 335 of the Legal Profession Act 2007 – where the applicant was not updated about the cost of the litigation – whether the application was made within 12 months after the delivery of the bill – whether an itemised bill can be provided. COUNSEL: Mr G Dietz for the applicant Mr T Pincus for the respondents SOLICITORS: Rose Litigation Lawyers for the applicant Gadens Lawyers for the respondent [1] The applicant has applied to this court seeking an order for assessment of all legal costs charged by the respondent to the applicant from 18 December 2013 in respect -- 1 of 11 -- 2 of the applicant’s dispute with LGT Bank (Schweiz) AG including costs incurred by the respondent with: (a) Mr Brian O’Donnell QC; (b) Mr John K Meredith of counsel; and (c) Nobel and Hug. [2] The matter initially came before Judge Rackemann and it was ordered by consent that there be a hearing to determine a preliminary issue with respect to the application namely whether the application ought to be dealt with pursuant to s 335(6) of the Legal Profession Act 2007 (Qld) despite being out of time pursuant to s 335(5) of the Act. [3] In or around late July 2013 Noel Collett, the sole director, secretary and shareholder of the applicant, contacted John McGaw, who at the relevant time, was a solicitor practicing with the respondent and asked for assistance in an ongoing dispute with LGT over an alleged misappropriation and fraudulent transfer of investment funds in February 2002. McGaw had previously worked with the applicant at MacGillvrays solicitors. MacGillvrays had not long before this matter merged with the respondent. [4] In December 2013 the applicant retained the respondent to institute proceedings against LGT and act on the applicant’s behalf in these proceedings. Proceedings were instituted against LGT in the Supreme Court of Queensland on 12 February 2014. During the course of those proceedings, and in or about June 2014, Mr John Meredith of counsel was briefed and on or about 18 November 2014, Mr Brian O’Donnell QC was briefed. On or about 24 March 2015 the respondent retained a foreign law expert (Noble & Hug) to advise on jurisdictional issues concerning Swiss Law. -- 2 of 11 -- 3 [5] The matter progressed to an interlocutory hearing on 9-11 November 2015 before His Honour Justice Flanagan who reserved his decision at the conclusion of the hearing. Whilst waiting for judgment the parties agreed to engage in a mediation and the proceedings were resolved on 17 March 2016 by the parties executing a deed of settlement. [6] Between December 2013 and March 2016, 13 invoices for professional fees and miscellaneous disbursements were sent to the applicant by Gadens. Six of the invoices attached a written statement in prescribed Form 2 for the purposes of s 331 of the Act explaining that Sherwood was entitled to have the firms costs assessed but must do so within 12 months. During that period there was a number of invoices issued by counsel. All the firms and counsel’s invoices appear to have been paid by April of 2016. Two invoices were also issued by Noble & Hug in March 2015 and 12 July 2016. The first was paid in November 2015 having been reduced by agreement and the latter was disputed by the applicant and remains unpaid. The Law [7] Section 335 of the Legal Profession Act 2007 deals with disputes in relation to costs. It provides that a client may apply for an assessment of the whole or any part of the legal costs1 and the application may be made even if the legal costs have been wholly or partly paid.2 Sections 335(5) and (6) of the Act provide: “(5) A costs application by a client or a third party payer must be made within 12 months after— (a) the bill was given, or the request for payment was made, to the client or third party payer; or (b) the costs were paid if neither a bill was given nor a request was made. 1 Legal Profession Act 2007 s 335(1). 2 Legal Profession Act 2007 s 335(3). -- 3 of 11 -- 4 (6) However, a costs application made out of time, otherwise than by any of the following, may be dealt with by a costs assessor or a court if, under the Uniform Civil Procedure Rules, the assessor or the court decides to deal with it after considering the reasons for delay— (a) a sophisticated client; (b) a third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned.” [8] The term sophisticated client is defined in the Act and it is accepted for the purposes of this application that the applicant is not a sophisticated client within the meaning of the Act.3 It is agreed between the parties that 12 July 2016 is the date of the final bill for the purposes of this application. [9] The applicant relied in argument on Cupo & Anor v Anderssen Lawyers [2015] QSC 202 where Justice Boddice considered the relevant factors in determining whether it is appropriate to grant leave:4 “…the nature of the overall retainer, the length of time over which it took the ultimate proceeding to be finalised and the circumstance that the excessive nature of any costs may only have been fully clear once all of the bills had been rendered…” [10] In assessing similar (but not identical provisions) in New South Wales, Davies J in Golden Destiny Investments Pty Ltd v McCrohon Berseng Partners t/as MPB Legal [2016] NSW Supreme Court 1639 looked at the following considerations in determining whether it was fair and just for a costs application brought out of time: 5 (a) Whether the person was aware of the 12 month time limit; (b) Whether the person may be more informed than others about challenging costs; (c) Whether the person continued to be represented by solicitors after the end of the retainer with the respondent; 3 See Legal Profession Act 2007 s 311(1) (c) and (d). 4 Cupo & Anor v Anderssen Lawyers [2015] QSC 202 at 55. 5 Golden Destiny Investments Pty Ltd v McCrohon Berseng Partners t/as MPB Legal [2016] NSW Supreme Court 1639 at 32-45. -- 4 of 11 -- 5 (d) A satisfactory explanation for delay; (e) Any delay in bringing an application for assessment after knowledge of the clients rights became apparent; (f) Likelihood of recovery of costs from another party to any relevant proceedings; (g) Evidence of overcharging; and (h) Issues of prejudice to the respondent. [11] It is noted that our legislation only refers to the reasons for delay but it is accepted that the court must always act justly. Delay [12] The applicant did nothing to challenge the bills between July 2016 and April 2018 other than to indicate that he was not paying the last bill from Noble & Hug. In late April 2018 he retained Rose Litigation Lawyers to provide advice in relation to concerns he had about the quality of the professional services provided by the respondent during the retainer. During the course of that consultation he disclosed the quantum of legal fees he had paid and that prompted Rose Litigation Lawyers to provide advice about having legal costs assessed, including the relevant time limits that applied. Rose Litigation wrote to the respondent on 2 July and 3 August and this application was finally filed on 27 September 2018. [13] The applicant maintains that he was not aware that he had a right to have costs assessed or that there was a time limit running in relation to that. He acknowledges that he was given at least some invoices with the Form 2 attached, however as it was placed at the back of the bill and after all the information in relation to the bill and payment, he did not read that information. He says that once he was advised in April -- 5 of 11 -- 6 2018 about his rights he engaged his solicitors to correspond with Gadens and then promptly instructed them to make the application. [14] The respondent submits that as to the first part of the delay between 12 July 2017 and late April 2018 it is unlikely that Mr Collett had no awareness of his right to have costs assessed. He received six formal notices in the prescribed form expressly identifying his rights and the time limit to exercise it. He emphasised in instructions that Sherwood had limited funds and was reliant on third party funding and repeatedly raised concerns about the disparity between the estimated costs and costs incurred. [15] It was submitted that while he was not a sophisticated client, he was a careful and intelligent man who was closely involved in the litigation and who clearly read material carefully. He also had close involvement in many matters of procedural and legal detail. In that context the respondent says it should not be accepted that he didn’t even look at the notices attached to the invoices. [16] Further, they submit that he also sought independent advice from a top law firm by 18 November 2016 in relation to Gadens conduct of the matter. [17] In relation to the second period of delay the fact is, the respondent says, it took five months to make the application despite the advice that was given. Rose litigation wrote to Gadens in late June and early August but waited until 27 September to file any application. [18] In all the circumstances, the respondent submits there is no satisfactory explanation for the delay. -- 6 of 11 -- 7 Prejudice [19] The respondent claims that there is a presumptive prejudice in relation to the delay and relies on the observations by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] 186 CLR 541 at 555: “First, as time goes by, relevant evidence is likely to be lost. Second, it is oppressive, even “cruel” to a defendant to allow an action to be brought long after the circumstances which gave rise to it have past. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them. Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period.” [20] In this particular case the two practitioners with primary conduct of the proceeding have left the firm. Mr McGaw is still in Brisbane but no longer working for the firm and Mr Chumbley is overseas. This would add to the complexity of attempting to prepare an itemised bill for work which was initiated five years ago. [21] There is some dispute as to whether there was a signed costs agreement. That agreement cannot presently be found although it may be misfiled. The point however is, had the matter been raised within time, it may have been easily determined whether it existed and where it was located. The applicant swears that there was never any costs agreement provided. [22] There are 2 files in the name of the Sherwood group which were held by MacGillvrays prior to its merger with Gadens (one of which was described as the “Swiss Dispute”) which have been destroyed. There is no way of knowing if a costs agreement was on those files although there is evidence which suggests that may be the case. In the affidavit of Demack filed on 6 November 2018 at paragraph 28 which states: “On 12 February 2014, the date on which the claim and statement of claim were filed in the Primary Proceeding, the “Dispute” file contains an email exchange between Mr Edgecombe and Mr McGaw which relevantly provides: -- 7 of 11 -- 8 Mr Edgecombe: “John, have you a costs agreement? Has a conflict search been done?” Mr McGaw “Cost agreement done long ago at MacGillvrays re Sherwood. I spoke to Lionel re suing these banks including Dresdner and did a conflict search. No issues.” Other relevant factors. [23] A portion of this matter was funded by third party litigation funders and involved settlement with them as well by the applicant. The third party litigation funders are not interested in participating in this application. [24] The applicant was clearly concerned during the litigation of the rising costs. He had told the solicitors that the company could not afford excessive legal costs and the firm was aware that he needed to seek external help to fund the litigation. [25] The initial estimate of the cost of the litigation was significantly under the actual cost. Senior counsel’s estimate of his costs was also significantly under the actual costs. [26] It seems from the material filed at this application that in each case the cost estimates ran significantly over estimates and the applicant expressed his concern about the significant differences therein. Disclosure [27] The applicant maintains that the respondent did not provide a costs agreement and did not comply with its duty of disclosure. Section 308 of the Legal Profession Act 2007 provides: “Disclosure of costs to clients (1) A law practice must disclose to a client under this division— (a) the basis on which legal costs will be calculated, including whether a scale of costs applies to any of the legal costs; and (b) the client’s right to— (i) negotiate a costs agreement with the law practice; and (ii) receive a bill from the law practice; and (iii) request an itemised bill after receipt of a lump sum bill; and (iv) be notified under section 315 of any substantial change to the matters disclosed under this section; and (c) an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an -- 8 of 11 -- 9 explanation of the major variables that will affect the calculation of those costs; and (d) details of the intervals, if any, at which the client will be billed; and (e) the rate of interest, if any, that the law practice charges on overdue legal costs, whether that rate is a stated rate of interest or is a benchmark rate of interest as mentioned in subsection (2); and (f) if the matter is a litigious matter, an estimate of— (i) the range of costs that may be recovered if the client is successful in the litigation; and (ii) the range of costs the client may be ordered to pay if the client is unsuccessful; and (g) the client’s right to progress reports under section 317; and (h) details of the person whom the client may contact to discuss the legal costs; and (i) the following avenues that are open under this Act to the client in the event of a dispute in relation to legal costs— (i) costs assessment under division 7; (ii) the setting aside of a costs agreement under section 328; and (j) any time limits that apply to the taking of any action mentioned in paragraph (i); and (k) that the law of this jurisdiction applies to legal costs in relation to the matter; … (4)For subsection (1)(f), the disclosure must include— (a) a statement that an order by a court for the payment of costs in favour of the client will not necessarily cover the whole of the client’s legal costs; and (b) if applicable, a statement that disbursements may be payable by the client even if the client enters a conditional costs agreement.” [28] The initial estimate from Gadens including a senior junior fees to trial was $160,000 to $220,000. There is no evidence before me that there was any explanation of the major variables that would affect the calculation of the costs. In fact the first third party litigation funder expressed significant doubts about the cost estimate initially provided to the applicant. Ultimately it was decided to engage senior counsel as well as a senior junior. Senior counsels estimate was 13 days including preparation at $10,000 per day plus GST. Ultimately the applicant paid $665,094.56 to the respondents representing $125,925.47 to the respondents, $217,358.39 to senior counsel, $194,792.50 to junior counsel and $52,112.36 to Nobel and Hug. [29] The applicant deposes in his affidavit: i. He was not provided with regular updates as to fees or costs or likely future fees or costs ii. He was not informed in writing about the basis of the legal costs, or how they were being calculated -- 9 of 11 -- 10 iii. That he had a right to negotiate a costs agreement iv. Any estimate of the likely costs that might be recovered if successful or ordered to be paid if unsuccessful v. That he had a right to receive progress reports vi. Significant costs continued to be incurred even after the respondent was instructed to restrict costs to essential analysis vii. The respondents were negligent in settlement negotiations. [30] Despite the applicant’s affidavit being filed 27 September 2018 and the matter being adjourned until 7 November 2018 for further hearing, nothing in the respondent’s material challenges these assertions. All of the material does support the applicant’s contention that he held significant concerns about the rising costs of the litigation. [31] The respondents has provided material which deposes to the complex nature of the litigation and the significant size of the file. However, it can be assumed that an experienced solicitor would have had this in mind when giving the original fee estimate and experienced counsel did not give his fee estimate until he had fully appraised the brief. It may be, as was noted by the respondent in an email to the applicant that costs increased due to the litigious nature of the defendant in the litigation, however, it is impossible for the applicant to make that assessment without an itemised bill. Conclusion [32] The delay in this matter has been significant. The applicant has explained the delay however, it is less than satisfactory and it is a factor that does not count in his favour. However, on the evidence filed in this application it does seem as though there has been little by way of compliance with disclosure obligations outlined in s 308 of the Legal Profession Act 2007. Whilst there may have been an earlier costs agreement which has been mislaid or destroyed, the solicitors were nonetheless obliged to comply with their statutory obligations of disclosure in relation to this litigation. Whether that was done and when is not clear on the evidence before me. In fact the only evidence in relation to that matter is the sworn evidence of the applicant that proper disclosure was not made. In these circumstances, despite the delay and the inevitable difficulties that this will pose to the respondent it is appropriate, in my view, to grant the application. -- 10 of 11 -- 11 The applicant is given leave to proceed pursuant to s 335(6) despite being out of time pursuant to s 335(5) of the Act. -- 11 of 11 --