26/04/2012
ASSESSMENT OF COSTS –THIRD PARTY PAYER –Where Respondent Solicitor acted for one party-Whether other party client by reason of orders.
In Legal Services Commissioner v Wright [2010] QCA 321 the Court of Appeal determined that s 301(1) of the Legal Profession Act 2007 (Qld), which defines “third party payers” ,requires the existence of a legal obligation to pay as opposed to a person who might be liable to pay whilst not being under a legal obligation to do so.
Mrs. A brought proceedings for property settlement in the District Court against her former de facto partner, Mr. A. Mr. A was the registered proprietor of the real property in question and was represented in the proceedings by the solicitor, Wright. The proceedings were settled on the basis of consent orders that provided for :
1) The real property to be sold;
2) Wright to act on behalf of Mr. A in the conveyance;
3) The proceeds of sale (so far as is relevant) to be distributed:
“(i) To pay all costs, commissions and expenses of the sale;
(iv) To divide the balance 75% to the Applicant and 25% to the Respondent, by way of payment of same to the trust account of Dargan Kelly Lawyers and the trust account of D M Wright & Associates Solicitors.”
The sale settled about a week after the consent orders were made. Wright paid the sum of $7,179.76 to herself for professional fees and outlays and distributed the remainder in the shares of 75% and 25% according to the consent order.
The solicitors who had acted for Ms A in those proceedings subsequently wrote to Wright asking for an itemised bill of her costs and outlays, upon the basis that she was a “third party payer”. Wright refused and the Legal Services Commissioner commenced the present proceedings by an originating application. The purpose of the declaratory relief which was sought was to establish that Ms A was entitled to apply for an assessment of these costs on the basis that she was either a “client” of Wright or a “third party payer” as defined in Legal Profession Act 2007 (Qld), s 301.
The Judge at first instance accepted that Ms A was under a legal obligation to pay all or part of these costs. But he reasoned as follows:
“[25] It may be accepted that because of the court order, Ms [A] was under a legal obligation. That was an obligation owed to Mr. [A].
[26] The order obliges Mr. [A] and Ms [A] to apply the proceeds of sale first in payment of costs. The legal costs were primarily payable by Mr. [A], because the respondent, entitled to the payment, was his solicitor. Mr. [A] presumably remained primarily liable notwithstanding the court order, to which the respondent was not a party.
[27] All that has happened is that as between Ms [A] and Mr. [A], there has been agreement about how the costs will be paid, which would result in Ms [A] bearing three-quarters of them and Mr. [A] one-quarter.
[28] But by force of the court order, Ms [A] undertook no legal obligation vis-à-vis the respondent, and that is I believe the sort of obligation which section 301 has in mind.”
The judge at first instance did not consider whether Mrs. A was a “non-associated third party payer”. His Honour held that s 301 was confined to a legal obligation “vis-à-vis the respondent”, so that it did not apply because Ms A’s obligation was one which was owed to Mr. A.
On appeal the LSC did not pursue the argument that Mrs. A was a client of Wright, but argued that she was a “non-associated third party payer” as defined in s 301(3) and thus entitled to an itemized bill (s.335(7)) and make an application for assessment of the costs (s 335(2).) Wright argued that the burden (as to 75%) of these costs fell upon Ms A, not because she was obliged to pay that amount, but simply as a practical consequence of the agreed distribution of the proceeds of sale. It was argued that, in particular, the order did not confer upon Mr. A a right to sue Ms A for this share of the costs.
S. 301 is in the following terms:
“301 Terms relating to third party payers
(1) A person is a third party payer, in relation to a client of a law practice, if the person is not the client an3 –
(a) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(b) being under that obligation, has already paid all or a part of those legal costs.
(2) A third party payer is an associated third party payer if the legal obligation mentioned in subsection (1)(a) is owed to the law practice, whether or not it is also owed to the client or another person.
(3) A third party payer is a non-associated third party payer if the legal obligation mentioned in subsection (1)(a) is owed to the client or another person but not the law practice.
(4) A legal obligation mentioned in subsection (1) can arise by or under contract or legislation or otherwise.
(5) A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client.”
The leading judgement was delivered by McMurdo J (with whom Holmes JA and White JA agreed). At para’s [27] his Honour observed as follows:
“Unambiguously, s 301 requires the existence of a legal obligation to pay the costs. As the judgments in Debney and in Andrew Koh Nominees specifically recognised, a person might have been “liable to pay” the costs in the relevant sense whilst not being under a legal obligation to pay them. Some of the obiter in Equuscorp might have supported a narrower construction which would have required a legal obligation. But what must be considered now are the terms of the present statute which in my view cannot be construed, in its requirement for a legal obligation to pay the costs, as including a case where there is no such obligation.”
His Honour drew a careful distinction between cases where there is a legal obligation to pay as opposed to someone on whom the burden of payment will fall or someone who has a mere interest in the fund from which payment is taken. It is evident from the decision that a lessee who covenanted to pay the lessor’s legal costs would be caught by s.301, but that a beneficiary who had contributed to a fund out of which costs and expenses might be paid would not be so caught.
In the particular circumstances of this case McMurdo J found that there was a legal obligation imposed upon Mrs. A to pay imposed by the order of the Court itself. That is, the order required both Mr.A and Mrs. A “to cause the proceeds of sale to be distributed. It was not an order which obliged Mr A to do so and which simply entitled Ms A to a share of the balance.
The obligation of Ms A, to cause the proceeds of sale to be paid in the various ways according to the order, was enforceable against her. In the unlikely event that the respondent here had not seen that all of her costs were paid from the proceeds of sale, and something of her bill had remained outstanding after those proceeds had been distributed to the parties, Ms A’s obligation could have been enforced by Mr A, claiming that she contribute 75% of the shortfall for which he would have been liable to the respondent. Moreover, the legal obligation to cause the proceeds of sale to be applied in accordance with the order had its basis and thereby its enforceability primarily from the force of the order itself, as well as its contractual force. It was thereby an obligation enforceable not only by a money claim, but also by proceedings to compel compliance with the Court’s order.” (per McMurdo J at para’s [30]&[31].
Holmes J (at para [2]) found that:
“Although the respondent’s argument focussed largely on whether Ms A was a “non-associated third party payer” under ss 301(3), it was not necessary for the appellant in establishing Ms A’s entitlement to an assessment of costs to take the further step of showing that the legal obligation was owed to or could be enforced by any particular individual (although to do so might be a useful means of confirming the existence of the obligation to pay). It was sufficient that the order created, at the least, an obligation owed to the court to pay the funds in settlement of the legal costs.”
Particular reference was made to the decision of White JA in Amos v Ian K Fry & Company [2010] QCA 131. In that case Amos and his siblings were entitled to the residuary estate of their late father. Costs orders were made against Amos and further orders were made with the intended effect that those costs should be deducted by the solicitor acting in the sale of the estate’s property from Amos’s share of the residuary estate. Amos sought to challenge the amount of costs and expenses charged by the solicitor for his work overall in the estate and applied to have them assessed. The solicitor had not billed separately for the costs which had been ordered against Amos, but his brother’s evidence was that about $245,000 which had been billed was in that category, so that this had been deducted from Amos’s share.
White JA discussed earlier authorities which had defined who was entitled to challenge a solicitor’s bill in terms of whether a person was “liable to pay” or “under a legal liability to pay” that bill and concluded that Amos did not have standing because “[t]he respondent solicitor, were he minded to do so, could not recover his costs incurred in work for the estate from a beneficiary.”
In respect of this decision McMurdo J made the following observations:
“In Amos, the appellant was legally obliged to pay costs, but he sought an assessment not of a discrete bill for those costs, but of the solicitors’ bills for all of the work performed for the estate. Accordingly, the costs he sought to have assessed were not the costs which he was obliged to pay.”
White JA herself made the following observations:
“I have read the reasons for judgment of McMurdo J and agree with his Honour’s reasons for allowing the appeal and with the orders he proposes.
[6] Since counsel for the respondent have referred to my decision in Amos v Ian K Fry & Company[2] in support of the proposition that Mr. A was not legally liable to pay the respondent solicitor’s costs, I should make some reference to it. At para 46 of Amos I concluded:
“Mr. Edward Amos is not legally liable to pay the respondent solicitor’s costs. The respondent solicitor, were he minded to do so, could not recover his costs incurred in work for the estate from a beneficiary. The decision in Equuscorp supports that conclusion.”
[7] The analysis which preceded this conclusion does not sufficiently take into account the essentially remedial nature of the legislation which has led courts in cases such as Re Early,[3] Debney v Semerdziev[4] and Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Joint Venture[5] to adopt a broad construction of the expression “liable to pay”. The latter two cases were not referred to in Amos. The extent to which Amos might suggest that a person liable to pay any part of a solicitor’s costs out of a fund by virtue of an order of the court was not legally liable to pay costs must be regarded as incorrect, although noting that in Amos the applicant was seeking to have the whole of the bill assessed, not that part for which he was legally liable.”
It is of note perhaps that McMurdo J , in discussing Re Early [1897] 1 IR 6, Debney v Semerdziev [1982] 2 NSWLR 391 and Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Joint Venture (2007) 33 WAR 561, indicated that the circumstances described in those cases would not bring the payer within the definition of “third party payer”.
