New South Wales Supreme Court CITATION : Bountros v South Western Sydney Area Health Service [2005] NSWSC 564 HEARING DATE(S) : 3/6/05 JUDGMENT DATE : 15 June 2005 JUDGMENT OF : Bell J at 1 DECISION : Applicant's motion dismissed; Applicant to pay respondent's costs of the motion Damages (Infants and Persons of Unsound Mind) Act 1929 Legal Profession Act 1987 Legal Profession Regulation 2002 LEGISLATION CITED : Protected Estates Act 1988 Supreme Court Act 1970 Supreme Court Rules 1970 Davies v Kur-ring-gai Municipal Council [2003] NSWSC 1010 Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 CASES CITED : Hughes Brothers Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1999) NSWSC 1051 Lolomanaia v Roads & Traffic Authority of New South Wales [2002] NSWSC 918 Keke Bountros (Applicant/Plaintiff) PARTIES : South Western Sydney Area Health Service (Respondent/Defendant) FILE NUMBER(S) : SC 20398/01 E.E. Beilby (Plaintiff/Applicant) COUNSEL : K.C. Morgan (Defendant/Respondent) MBP Legal (Plaintiff/Applicant) SOLICITORS : Ebsworth & Ebsworth (Respondent/Defendant) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION BELL J 15 June 2005 20398/01 Keke Bountros v South Western Sydney Area Health Service JUDGMENT 1 BELL J: By notice of motion filed on 3 May 2005 the applicant claimed order in the following terms: "1. An order that the defendant pay to the plaintiff interest as prescribed by the Supreme Court Act 1970 (presently nine percent per annum) on the party/party component of the plaintiff's cost and disbursements which remain unpaid thirty days or more after the service of the bill of costs and any counsel fee notes or amended bill of costs pursuant to s 190(3) of the Legal Profession Act 1987 and Regulation 45 of the Legal Profession Regulation 2002 ; 2. Further, or in the alternative, an order pursuant to s 190 of the Legal Profession Act 1987 that the defendant pay to the plaintiff interest on the party/party component of costs paid by the plaintiff to his solicitors arising from these proceedings at the rate prescribed by the Supreme Court Act 1970 (presently nine percent per annum) from the date upon which the plaintiff pays such costs to his solicitor until the date that such reimbursement of the party/party component of such costs by the second defendant. 3. Further, or in the alternative, an order pursuant to s 190 of the Legal Profession Act 1987 that the defendant pay to the plaintiff interest on such disbursements as have been paid by the plaintiff from the date of such payment until the date of reimbursement by the defendant." 2 The motion was returnable in the Professional Negligence Motions List on 3 June 2005. The time available to deal with the matter was limited on that occasion. The applicant read the affidavit of Christine Louise Perry, sworn 3 May 2005 and the respondent read the affidavit of Alice Zgolak, sworn 3 June 2005. I heard oral submissions from counsel and reserved my decision fixing a timetable to allow for supplementary written submissions should either party wish to make them. Supplementary written submissions were received from both the applicant (dated 8 June 2005) and the respondent (dated 10 June 2005). 3 The applicant acknowledged that the orders sought in her motion were in some respects misconceived. In oral submissions counsel did not press for the making of orders under s 190 of the Legal Profession Act 1987. This provision admits of a barrister or solicitor charging interest on the unpaid costs of legal services provided by him or her in the circumstances set out therein. 4 In oral argument counsel for the applicant pressed for relief broadly in the terms of that claimed in order 2 above. In her submission the power to make such an order is to be found in s 76 and/or s 95 of the Supreme Court Act 1970. 5 Relevantly s 76 provides: " Costs 76 (1) Subject to this Act and the Rules and subject to any other Act - (a) costs shall be in the discretion of the Court; (b) the Court shall have full power to determine by whom and to what extent costs are to be paid, and (c) the Court may order costs to be assessed on the basis set out in Division 6 of Part 11 of the Legal Profession Act 1987 or on an indemnity basis." 6 Section 95 is as follows: " 95 Interest on debt under judgment or order (1) Where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. (2) Notwithstanding subsection (1), where, in proceedings on a common law claim the Court gives judgment for damages and the damages are paid within 21 days after the date when the judgment takes effect, interest on the judgment debt is not to be payable under subsection (1) unless the Court otherwise orders. (3) Notwithstanding subsection (1), where, in proceedings for damages on a common law claim, the Court makes an order for the payment of costs and the costs are paid within twenty-one days after ascertainment of the amount of the costs by assessment under Division 6 of Part 11 of the Legal Profession Act 1987 or otherwise, interest on the costs shall not be payable under subsection (1) unless the Court otherwise orders. (4) If an order is made for the payment of costs, the Court may order that interest is to be paid on the amount so ordered, at the prescribed rate referred to in subsection (1), from the date or dates when the amount in respect of costs was duly paid." 7 It was not submitted that s 95(4) does not confer power to make an order for the payment of interest on costs that have not been agreed or assessed: Grogan v Thiess Contractors Pty Limited [2000] NSWSC 1101 and Lolomanaia v Roads & Traffic Authority of New South Wales [2002] NSWSC 918. Rather, in the defendant's submission, no occasion for the exercise of the discretion had been demonstrated by the applicant. 8 The principles on which an order for interest might be made were discussed by Barr J in Grogan at [11]: "No doubt the Court in deciding whether to award interest on costs ought to look at all the circumstances of the case, including the amount of costs paid, the length of time the claimant has been out of pocket before recovery, whether during the time between commitment and assessment the respondent has been relieved of the need to borrow at interest or has obtained the advantage of leaving monies invested at interest and how the parties have conducted themselves during the litigation." 9 Dunford J observed in Lolomanaia at [12]: "In Australian Development Corporation Pty Ltd v White Constructions, Einstein J at [17], by reference to other authorities cited therein, summarised the objectives and principles behind orders for payment of interest on costs and concluded at [28] that the ordering of interest on costs will be appropriate (absent disentitling conduct) where the applicant has been relevantly out-of-pocket from having arranged to pay legal costs from time to time during the course of lengthy litigation in which the applicant has ultimately succeeded and where the respondent may be presumed to have benefited from not having had to pay the costs at the time when they were paid to the applicant's legal representatives and having had the use of the money from that time." Next his Honour turned to a consideration of the application of the broad power conferred by s 95(4) to common law claims. In this context his Honour noted that at [17]: "In my opinion, where the ordinary course of common law claims for personal injury litigation is departed from and, for example, the plaintiff has funded his solicitor before the conclusion of the litigation, it is appropriate to 'otherwise order'. That is what has happened here because although judgment for the plaintiff was ordered on 7 June 2000, the litigation was not concluded until the judgment of the Court of Appeal on 27 August 2001, and the vast bulk of the plaintiff's costs were paid to his solicitors on 7 July 2000 during the course of the litigation." 10 The applicant is a profoundly mentally retarded woman who brought the present proceedings by her tutor claiming damages in negligence arising out of the failure to promptly diagnose and aggressively treat her condition of hypoglycaemia, which was evident from shortly after her birth. 11 The proceedings were commenced in 2001. An amended statement of claim was filed on 14 March 2005. On 18 March 2005 the proceedings were settled subject to approval pursuant to s 4 of the Damages (Infants and Persons of Unsound Mind) Act 1929. On 4 May 2005 the settlement was sanctioned. 12 Christine Louise Perry is a partner of the firm McCrohon Bergseng Partners, ("MBP Legal") who act for the applicant in the proceedings. On 16 February 2001 the applicant, with the assistance of her tutor, entered into a conditional costs agreement with MBP Legal. On 29 March 2005, following the settlement of the proceedings, the agreement was varied so as to include a term having the effect that MBP Legal may charge interest at the rate prescribed in Schedule "J" of the Supreme Court Act on costs and disbursements payable to them under any bill of costs issued by them that is not paid within twenty-one days of the date of its submission to the applicant. 13 On 16 October 2003 the applicant's solicitors entered into a retainer agreement with Mr Levy SC. It was a term of the retainer that should any part of his fees remain unpaid after forty-two days following the date of the verdict or settlement of the matter interest should apply to the unpaid fees at the rate specified from time to time in schedule J. 14 On 2 May 2004 the applicant's solicitors entered into a retainer agreement with Mr McGillicuddy of junior counsel. It was a term of the agreement that in the event his memorandum of fees remained unpaid after twenty-eight days interest is to run at the rate prescribed by schedule J. 15 Ms Perry deposes on information and belief that the plaintiff's tutor will pay all outstanding legal costs and disbursements out of any judgment immediately upon receipt of the judgment monies and will thereafter seek to recover the costs from the respondent on an agreed or assessed basis. 16 Annexed to Ms Perry's affidavit is the report of Peta Soloman, a legal costs consultant. Ms Soloman expresses the opinion that the process of negotiating an agreement with respect to costs may take up to two months in a proceeding such as the present. In the event the negotiations are unsuccessful the preparation of a properly itemised bill of costs is likely to require 2 ½ - 3 ½ months. Although the Legal Profession Act and the Legal Profession Regulation 2002 provide that a respondent has twenty-one days in which to serve a notice of objection, an extension of time of up to 8 weeks is likely to be allowed in this case having regard to the size and complexity of this matter. The probable time allowed to respond to the respondent's notice of objections in Ms Solomon's opinion is a further 3 to 4 weeks. 17 Although not stated in the report, Ms Perry deposes to Ms Soloman's opinion that it is reasonable to expect a period of up to nine months to elapse before the conclusion of the formal costs assessment process. 18 MBP Legal submitted a bill of costs to the applicant on 27 April 2005. A copy of the bill is annexed to Ms Perry's affidavit. A covering facsimile addressed to the applicant's tutor signed by Ms Perry advised that as at 27 April 2005 counsels' fee notes had not been received. 19 Also annexed to Ms Perry's affidavit is a copy of a letter sent by MBP Legal to the respondent's solicitors Ebsworth & Ebsworth ("Ebsworths") dated 3 May 2005. The applicant's professional costs and disbursements, excluding counsel's fees, were claimed in the sum of $814,098.71. A breakdown of the disbursements was provided. A one-line item recorded MBP's professional costs in the amount of $602,676.00. 20 Annexed to Ms Zgolak's affidavit is a copy of Ebsworths' response to MBP's letter of 3 May. It noted that no particulars of the amounts claimed for counsel's fees had been supplied and asserted that this made it impossible for Ebsworths to make recommendations to their client with respect to the claim. Further particulars were requested to assist Ebworths in assessing the reasonableness of the claim for MBP's professional costs. 21 Annexure D to Ms Zgolak's affidavit is a copy of a facsimile communication by Ms Perry dated 1 June 2005. From this it appears that copies of counsels' fee notes were served on Ebsworths on 30 and 31 May 2005. 22 By letter dated 2 June 2005 Ebsworths noted that the applicant's tutor had thus far paid expenses totalling between $85,000 and $90,000. It was further noted that Ms Robyn Bailey of MBP Legal had informed the author that all remaining costs and disbursements were unpaid. Upon these assumptions the respondent made an offer of an interim payment of $90,000 towards the applicant's party/party costs. 23 The applicant points to the circumstance that senior and junior counsel were retained with provision for payment of interest on outstanding fees and that MBP Legal are entitled to interest upon their unpaid fees. 24 In written submissions it was noted that there was no challenge to the evidence that the tutor has instructed the applicant's solicitors that he will pay costs from the settlement monies. The settlement monies are held in trust for the benefit of the applicant. On 4 May 2005 the Court was informed that an application was to be brought within a fortnight of that date for the appointment of a Manager pursuant to s 13 of the Protected Estates Act 1988. No evidence was led on this application to establish whether a Manager has been appointed and what if any orders may have been made with respect to the disposition of the settlement monies. For present purposes I will approach the matter upon the basis that the tutor is trustee of the applicant's funds and that it is his intention to pay her legal costs out of the settlement monies when they are to hand. 25 There is no evidence that any legal costs have been paid by the applicant to date. In written submissions counsel for the applicant notes that Mr Levy SC's fees are subject to interest if they remain unpaid forty-two days following the verdict or settlement. She contended that interest commenced to run on 30 April 2005. I assume from this that the reference in the retainer agreement to the date of the verdict or settlement is taken to be a date earlier than the date upon which the settlement was approved under s 4 of the Damages (Infants and Persons of Unsound Mind) Act. Mr McGillicuddy's fees are the subject of an agreement that interest will run after twenty-eight days and counsel contended that interest has been running since 16 April. The applicant's counsel contended that MBP Legal are entitled to interest on their professional costs running from 9 April 2005. It is not clear (having regard to the terms of the costs agreement set out in Ms Perry's affidavit) why interest commenced to run on 9 April given that the evidence is that the memorandum of fees was not submitted until 27 April. However nothing of moment turns on this. 26 The applicant submits that "common sense and justice" favour the making of an order for interest on the party/party component of her costs in the circumstances of this case. Reliance was placed on the judgment of Foster AJ in Hughes Brothers Pty Limited v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney (1999) NSWSC 1051. At paragraph [60] his Honour discussed the principles that inform the exercise of the s 95(4) discretion in the context of a case in which a successful party has outlaid amounts of money by way of payments to his or her legal representatives at an early stage and often continuously. 27 It is submitted that: "The plaintiff in this case is a severely disabled young woman, with obvious earning incapacities and considerable expenses. The defendant is a body of vast resources and has had the benefits of any monies now owed to the plaintiff. It would be vastly unfair to expect that the plaintiff pay for interest that is legally binding whilst the defendant retains and uses the funds." 28 The situation in which the applicant finds herself would seem to arise in no small measure by reason of the fact that, after the parties arrived at a settlement, MBP Legal and her tutor varied their agreement so as to make provision for her to be liable to the payment of interest should any bill of costs remain unpaid twenty-one days after its submission. That such a variation should have been perceived to have been in the best interests of the applicant may be thought surprising. It is not clear what consideration supported it. I will assume for present purposes that it is enforceable. 29 To my mind there is merit to the respondent's submission that the amendment of the costs agreement after the settlement such as to make the applicant liable for interest on the costs owing by her to MBP Legal constitutes disentitling conduct that is relevant to take into account in determining whether to exercise the discretion in the applicant's favour. It is one consideration that in my view weighs against granting the relief that is sought. 30 The applicant complains that the respondent has been provided with all relevant fee notes and has failed to make a realistic offer with respect to the quantum of costs. As I have noted, the evidence is that the respondent has been served with MBP's memorandum of costs setting out that firm's professional costs as a one-line item. More recently some particulars disclosing the identity of those within MBP Legal who have worked on the file have been made available to the respondent. Counsel's fee notes were only submitted to the respondent on 30 and 31 May last. 31 I do not consider that to date the evidence justifies the conclusion that the respondent is adopting an unrealistic or tardy approach to the resolution of the question of costs or that the respondent requires an incentive to finalise the matter. As Austin J noted Davies v Kur-ring-gai Municipal Council [2003] NSWSC 1010, if an order is made under s 95(4) at a time when the schedule J rate exceeds the interest rates available commercially, the incentive may be seen to operate the other way. 32 In supplementary written submissions counsel for the applicant concluded by submitting that if the Court were not minded to grant the relief that is sought at this time the applicant should not be cut off from making application for such an order should circumstances change. In the event that there is a material change in circumstances it is a matter for the applicant to take such course as she may be advised. 33 On the material before me I do not consider the appropriate exercise of discretion to favour the making of an order for the payment of interest on the party/party component of costs under s 95(4) or otherwise. Orders 1. Dismiss the applicant's motion. 2. Applicant is to pay the respondent's costs of the motion. ********** 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.