New South Wales Supreme Court CITATION : Boyce v McIntyre [2008] NSWSC 1218 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S) : 27 August 2008 JUDGMENT DATE : 20 November 2008 JURISDICTION : Common Law JUDGMENT OF : Harrison AsJ (1) Leave to appeal is refused. (2) The appeal is dismissed. DECISION : (3) The decision of the costs review panel dated 7 March 2008 is affirmed. (4) The summons filed 3 April 2008 is dismissed. (5) The plaintiffs are to pay the first defendant's costs as agreed or assessed. CATCHWORDS : APPEAL - Costs Review Panel - sublease - costs payable by non-associated third party payer LEGISLATION CITED : Legal Profession Act 2004 Legal Profession Further Amendment Act 2006 CATEGORY : Principal judgment Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297 Frumar v The Owners of Strata Plan 36957 (2006) 67 NSWLR 321 CASES CITED : Institute of Patent Agents v Lockwood [1894] AC 347 Larsen v Vile [1999] NSWCA 397 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Thomas Damien Boyce (First Plaintiff) Charmian Victoria Barton (Second Plaintiff) Peter Ravelin Grinter (Third Plaintiff) Luke Aiken (Fourth Plaintiff) Lucinda Judith Smith (Fifth Plaintiff) Michael George (Sixth Plaintiff) Philip Raymond Smith (Seventh Plaintiff) PARTIES : Philip Noel de Haan (Eighth Plaintiff) Jacquie Charak Seemann (Ninth Plainitff) Millie Telan (Tenth Plaintiff) Sean O'Donnell (Eleventh Plaintiff) Plaintiffs trading as Cutler Hughes & Harris Catherine Anne McIntyre (First Defendant) Kosciuszko Thredbo Pty Limited (Second Defendant) FILE NUMBER(S) : SC 30035/2008 COUNSEL : J K Kirk (Plaintiffs) Cutler Hughes & Harris (Plaintiffs) SOLICITORS : Redmond Hale Simpson (First Defendant) Minter Ellison, Submitting Appearance (Second Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION ADMINISTRATIVE LAW LIST ASSOCIATE JUSTICE HARRISON THURSDAY, 20 NOVEMBER 2008 30035/2008 - THOMAS DAMIEN BOYCE t/as CUTLER HUGHES & HARRIS v CATHERINE ANNE McINTYRE JUDGMENT (Appeal – Costs review panel- sublease – costs payable by non-associated third party payer) 1 HER HONOUR: The issue to be decided is whether a third party payer must pay the fixed fee that was agreed between the solicitor and the client, or can that sum be assessed. By summons filed 3 April 2008, the plaintiff seeks firstly, an order that the determinations of the costs review panel dated 7 March 2008 be set aside; secondly, an order that the determination of the costs assessor dated 20 November 2007 be set aside; thirdly, a declaration that section 361 of the Legal Profession Act 2004 (the Act) still applies to an application for assessment under s 350 (2) of the Act by a "non-associated third party payer"; fourthly, an order granting leave to appeal the review determination and the assessors determination pursuant to s 385 of the Act; fifthly, a determination that the costs be assessed in the amount of $3502 or, in the alternative, that the first defendant's application for assessment be remitted to an assessor to be determined according to law. 2 The first plaintiff is Thomas Damien Boyce. The second plaintiff is Charmian Victoria Barton. The third plaintiff is Peter Ravelin Grinter. The fourth plaintiff is Luke Aiken. The fifth plaintiff is Lucinda Judith Smith. The sixth plaintiff is Michael George. The seventh plaintiff is Philip Raymond Smith. The eighth plaintiff is Philip Noel de Haan. The ninth plaintiff is Jacquie Charak Seemann. The tenth plaintiff is Millie Telan. The eleventh plaintiff is Sean O'Donnell. The plaintiffs are the partners of the law firm Cutler Hughes & Harris and for convenience shall be referred to as CHH. The first defendant is Catherine Anne McIntyre. The second defendant, Kosciuszko Thredbo Pty Ltd who I shall refer to as "KT". CHH rely on the affidavit of Richard Mark Hamwood filed 6 May 2008 and Mrs McIntyre relies on the affidavit of John McIntyre filed 4 June 2008. KT forwarded a letter to CHH and Mrs McIntyre's solicitor dated 22 August 2008 (Ex A), which is in effect a submitting appearance. Grounds of Appeal 3 CHH appeals the whole of the decision of the costs assessor in accordance with ss 384 and 385 of the Act. The grounds of appeal can be summarised as falling into four main issues. They are firstly, whether the costs review panel and the costs assessor erred in law in finding that s 361 of the Act did not apply to the application; secondly, whether the review panel and the costs assessor erred in law in failing to determine or have regard to whether it was reasonable to carry out the work to which the legal costs relate; thirdly, whether the costs review panel and the assessor erred in law in having regard to "the question of proportionality"; and finally whether the review panel and the costs assessor erred in law in purporting to determine the first defendant's liability to the second defendant to reimburse any liability of the second defendant for GST. The appeal provisions 4 Section 384 of the Legal Profession Act 2004 reads: "Appeal against decision of costs assessor as to matter of law (1) A party to an application for a costs assessment who is dissatisfied with a decision of a costs assessor as to a matter of law arising in the proceedings to determine the application may, in accordance with the rules of the Supreme Court, appeal to the Court against the decision. (2) After deciding the question the subject of the appeal, the Supreme Court may, unless it affirms the costs assessor's decision: (a) make such determination in relation to the application as, in its opinion, should have been made by the costs assessor, or (b) remit its decision on the question to the costs assessor and order the costs assessor to re-determine the application. (3) On a re-determination of an application, fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given." 5 And s 385 provides: "Appeal against decision of costs assessor by leave (1) A party to an application for a costs assessment relating to a bill may, in accordance with the rules of the Supreme Court, seek leave of the Court to appeal to the Court against the determination of the application made by a costs assessor. (2) A party to an application for a costs assessment relating to costs payable as a result of an order made by a court or a tribunal may, in accordance with the rules of the court or tribunal, seek leave of the court or tribunal to appeal to the court or tribunal against the determination of the application made by a costs assessor. (3) The Supreme Court or court or tribunal may, in accordance with its rules, grant leave to appeal and may hear and determine the appeal. (4) An appeal is to be by way of a new hearing and fresh evidence, or evidence in addition to or in substitution for the evidence received at the original proceedings, may be given. (5) After deciding the questions the subject of the appeal, the Supreme Court or court or tribunal may, unless it affirms the costs assessor's decision, make such determination in relation to the application as, in its opinion, should have been made by the costs assessor." 6 Sections 384 and 385 apply to decisions or determinations of a review panel – see s 382(1). 7 The approach that should be taken by the court in an appeal from a costs assessor was set out in Larsen v Vile [1999] NSWCA 397. This is equally applicable to a costs review panel. An appeal under s 384 is confined to law. An appeal under s 385 (provided leave is granted) is a complete new hearing (at [31]). The plaintiff relies on both ss 384 and 385 of the Act. The background facts 8 KT leases land from the State of New South Wales in the Kosciuszko National Park. Mrs McIntyre is one of some 675 sub-lessees from KT. Mrs McIntyre's original sub-lease commenced on 2 July 1999 and expired on 24 June 2007. Clause 18 of the sub-lease provided for an option to renew. The head lease of KT itself expired on 27 June 2007 but was renewed for a further period of 50 years commencing 28 June 2007. All of the sub-leases, which expired just prior to the head lease, contained an option to renew, albeit expressed in a variety of forms. CHH acted for KT in relation to the renewal of the sub-leases. 9 CHH and KT entered into a costs agreement covering the legal services CHH provided to KT in relation to the renewal of the sub-leases. The costs agreement provided for a fixed fee of $3,000 plus GST for each sub-lease, subject to a right to charge for certain additional work beyond the scope of the work outlined in relation to each renewal. The sub-leases contained provisions requiring the sub-lessees to pay KT's costs of any renewal of the sub-lease. The two relevant clauses in the sub-lease are 16.4 and 18.3. Those clauses read: "16.4 The Lessee must pay the Company's reasonable legal costs and all duties, fees, charges and expenses of or incidental to the preparation completion stamping and registration of this Sublease and any renewal surrender, assignment or variation of this Sublease and any application for the consent of the Company under this Sublease or the consent of the Headlessor and any fees charged by the Headlessor incidental to any and every breach or default by the Lessee and in or incidental to the exercise or attempted exercise of any right power privilege authority or remedy of the Company and the Headlessor under or by virtue of this Sublease or the Headlease and the fees of all professional consultants properly incurred by the Company in consequence of or in connection with breach or default by the Lessee. … 18.3 If the Lessee desires to take a renewed Sublease of the Demised Premises for a further term of fifty (50) years less one day from the expiration of this Sublease and gives to the Company notice in writing of such desire within three (3) months of the date of receipt from the Company (pursuant to clause 18.2 ) of the details or the renewed Sublease (but in any event not less than 9 months prior to the expiration of the terms hereby granted) and provided the Lessee is not then in default under the provisions of the Sublease whether express implied the Company must at the cost and expense of the Lessee grant to the Lessee a renewal of this Sublease for the said further term upon terms and conditions generally consistent with this Sublease for the said further term upon terms and conditions generally consistent with this Sublease (including provisions for periodic rent reviews) but subject however to such variations as practice custom or the requirements of authorities at the time render necessary with the exception of this option to renew." 10 Clause 16.4 is a contractual provision that provides that Mrs McIntyre was obliged to pay KT's reasonable legal costs of or incidental to the preparation, completion, stamping and registration of the sub-lease. If the costs were not reasonable, she may have a contractual remedy. While Clause 18.3 refers to the cost and expense of the sub-lease it does not go any further. 11 Mrs McIntyre was notified of the proposed process, in relation to the option to renew, by letter from CHH. It included the estimated legal fees for the renewal to be at about $3000, plus GST and disbursements. Mrs McIntyre returned a "Notice of Exercise of Option" and a new sub-lease commenced on 29 June 2007. Subsequently, CHH sent tax invoices to Mrs McIntyre and KT totaling $3502, $3000 for professional costs, plus $300 for GST and disbursements of $202. 12 Mrs McIntyre applied to have these costs assessed. In his reasons, the costs assessor stated that the costs were to be determined according to s 363 of the Act. He stated that given that the Client was a non-associated third party and the cost agreement made between the KT and CHH was not binding on Mrs McIntyre. The costs assessor concluded that the fair and reasonable amount of the costs of CHH was $2050. The disbursements of $202 were not challenged thus the total costs payable was $2252. However, the costs assessor decided there should be a deduction of $1200 from this amount relating to the costs of Mrs McIntyre for the assessment itself. The formal determination of the amount payable "to the Costs Respondent" was $1052. On 7 March 2008, the costs review panel affirmed the assessment. The statutory framework of the Legal Profession Act 2004 in so far as third party payers is concerned 13 The purposes of the Act are two fold. They are firstly, to provide for the regulation of legal practice in this jurisdiction in the interests of the administration of justice and for the protection of clients of law practices and the public generally; and secondly, to facilitate the regulation of legal practice on a national basis across State and Territory borders (s 3). 14 The term "legal costs" is defined in s 4 as, amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest. Under clause 16.4 of the sub-lease, Mrs McIntyre is liable to pay KT. 15 Chapter 3 of the Act is headed "Conduct of Legal Practice". Part 3.1 is headed "Trust Money and Trust Accounts" and is not relevant here. Part 3.2 of the Act regulates "Costs Disclosure and Assessment" and this is the relevant part in these proceedings. Part 3.2 is made up of 12 divisions. There are four divisions in Part 3.2 that are relevant here. They are, Division 3, which is headed "Costs disclosure". Division 4, which is headed "Legal costs generally". Division 5, which is headed "Costs agreements" and Division 11, which is headed "Costs assessment". The purposes of Part 3.2 are set out in s 301. They relate to providing for law practices to make certain disclosures to clients regarding legal costs, the regulation of the making of costs agreements in respect of legal services, regulation of the billing of costs for legal services, and the provision of a mechanism of the assessment of legal costs and the setting aside of certain costs agreements. 16 Section 302A refers to third party payers. It reads: "302A Terms relating to third party payers (1) For the purposes of this Part: (a) a person is a third party payer , in relation to a client of a law practice, if the person is not the client and: (i) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client, or (ii) being under that obligation, has already paid all or a part of those legal costs, and (b) a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person, and (c) a third party payer is a non-associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not the law practice. (2) The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise. (3) 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." 17 Section 302 defines "costs agreement". Section 302A introduces two types of third party payers, the associated third party payer and the non-associated third party payer. Mrs McIntyre is a third party payer in that she is under a legal obligation to pay all the legal costs provided to KT in preparation of the sub-lease. She falls into the category of being a non-associated third party payer as her legal obligation is to KT not to the law practice under s 302A(1)(c). 18 The third party payer provisions in the Act were introduced by the Legal Profession Further Amendment Act 2006 ("the amended Act"). In introducing those amendments, the Second Reading Speech relevantly stated: "Third, the Bill includes amendments to clarify that a person who is liable to pay legal costs, but who is not a client of a law practice, may apply for the assessment of the legal costs that the person is liable to pay. One example where these changes are relevant is where borrowers are required, under a mortgage contract, to pay the legal costs of their lender in preparing the mortgage documentation. In that case, borrowers will have a right to seek assessment of the legal costs of the law practice that advised the lender in the transaction." 19 A costs agreement is defined to mean an agreement about the payment of the legal costs. Division 3 deals with costs disclosures a law practice must make to a client. 20 Section 309 is headed "Disclosure of costs to clients" and it relevantly reads: "309 Disclosure of costs to clients (1) A law practice must disclose to a client in accordance with this Division: (a) the basis on which legal costs will be calculated, including whether a fixed costs provision 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 316 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 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 … (h) details of the person whom the client may contact to discuss the legal costs, and …" 21 General disclosure under s 309 must be made in writing – s 311. There are exceptions to the requirement for disclosure as set out in s 312 but none are relevant here. Interestingly, s 317 makes it plain that if the law practice does not disclose to a client or associated third party payer, the client or associated third party payer need not pay the legal costs unless they have been assessed. Section 317 does not refer to a non-associated third party payer. 22 Division 4 is headed "Legal costs generally". Importantly, s 319(1) sets out what basis legal costs are recoverable. It reads: "319 On what basis are legal costs recoverable? (1) Subject to the provisions of this Part, legal costs are recoverable: (a) in accordance with an applicable fixed costs provision, or (b) if paragraph (a) does not apply, under a costs agreement made in accordance with Division 5 or the corresponding provisions of a corresponding law, or (c) if neither paragraph (a) or (b) applies, according to the fair and reasonable value of the legal services provided. …" 23 Under s 319 there are three basis for recovery of legal costs, one of which is in accordance with an applicable fixed costs provision. 24 Section 319 manifests the policy of the Act to encourage the making of, and then the giving of effect to, costs agreements between law practices and clients. That policy is further reflected in s 326, which provides that, subject to Division 5 and Division 11, "a costs agreement may be enforced in the same way as any other contract." 25 Division 5 is headed "Costs agreements". As a costs agreement can be made between a law practice and an associated third party payer, it is consistent that the disclosure provisions apply to an associated third party payer. 26 Section 322 reads: "Making costs agreements (1) A costs agreement may be made: (a) between a client and a law practice retained by the client, or (b) between a client and a law practice retained on behalf of the client by another law practice, or (c) between a law practice and another law practice that retained that law practice on behalf of a client, or (d) between a law practice and an associated third party payer. (2) A costs agreement must be written or evidenced in writing. (3) A costs agreement may consist of a written offer in accordance with subsection (4) that is accepted in writing or by other conduct. Note. Acceptance by other conduct is not permitted for conditional costs agreements—see section 323 (3) (c) (i). (4) The offer must clearly state: (a) that it is an offer to enter into a costs agreement, and (b) that the client may accept it in writing or by other conduct, and (c) the type of conduct that will constitute acceptance. (5) Except as provided by section 395A, a costs agreement cannot provide that the legal costs to which it relates are not subject to costs assessment under Division 11. Note. If it attempts to do so, the costs agreement will be void—see section 327 (1). (6) A reference in section 328 and in any prescribed provisions of this Part to a client is, in relation to a costs agreement that is entered into between a law practice and an associated third party payer as referred to in subsection (1) (d) and to which a client of the law practice is not a party, a reference to the associated third party payer." 27 Now, it is necessary to turn to Division 11 "Costs assessment". It comprises of seven sub-divisions. Sub-division 1 is entitled "Applications" and it comprises of ss 349A to 356A. 28 Section 349A says that in this division "client" means a person whom legal services are or have been provided. Section 350 treats associated third party payers and non-associated third party payers similarly but the difference is that where a non-associated third party payer is involved, the client is liable to the law firm for the difference, if the costs assessor reduces the amount claimed by the law firm. 29 Section 350(2) states that a third party payer may apply to the costs assessor for an assessment of the whole or any part of the legal costs payable by the third party payer. It is common ground that Mrs McIntyre, as a non-associated third party payer, made and was entitled to make an application in accordance with s 350(2). 30 Section 350 relevantly reads: "350 Application by client or third party payers for costs assessment (1) A client may apply to the Manager, Costs Assessment for an assessment of the whole or any part of legal costs. (2) A third party payer may apply to a costs assessor for an assessment of the whole or any part of legal costs payable by the third party payer. … (6) If the third party payer is a non-associated third party payer, the law practice must provide the third party payer, on the written request of the third party payer, with sufficient information to allow the third party payer to consider making, and if thought fit to make, an application for a costs assessment under this section. (7) If there is an associated third party payer for a client of a law practice: (a) nothing in this section prevents: (i) the client from making one or more applications for assessment under this section in relation to costs for which the client is solely liable, and (ii) the associated third party payer from making one or more applications for assessment under this section in relation to costs for which the associated third party payer is solely liable, and those applications may be made by them at the same time or at different times and may be dealt with jointly or separately, and (b) the client or the associated third party payer: (i) may participate in the costs assessment process where the other of them makes an application for assessment under this section in relation to costs for which they are both liable, and (ii) is taken to be a party to the assessment and is bound by the assessment, and (c) the law practice: (i) must participate in the costs assessment process where an application is made under this section by the associated third party payer in the same way as the practice must participate in the process where an application is made under this section by a client, and (ii) is taken to be a party to the assessment and is bound by the assessment. (8) If there is a non-associated third party payer for a client of a law practice: (a) nothing in this section prevents: (i) the client from making one or more applications for assessment under this section in relation to costs for which the client is liable, and (ii) the non-associated third party payer from making one or more applications for assessment under this section in relation to costs for which the non-associated third party payer is liable, and those applications may be made by them at the same time or at different times but must be dealt with separately, and (b) the client: (i) may participate in the costs assessment process where the non-associated third party payer makes an application under this section in relation to the legal costs for which the non-associated third party payer is liable, and (ii) is taken to be a party to the assessment and is bound by the assessment, and (c) the law practice: (i) must participate in the costs assessment process, and (ii) is taken to be a party to the assessment, and (d) despite any other provision of this Division, the assessment of the costs payable by the non-associated third party payer does not affect the amount of legal costs payable by the client to the law practice." …" 31 Hence, the law practice must provide the non-associated third party payer with sufficient information to allow it to consider making an application for costs assessment. Both the associated third party payer and the non-associated third party payer are able to participate in the costs application process and both are taken to be a party to the assessment. But only the associated third party payer is bound by the assessment. The associated third party payer or the client and the law practice are bound by the costs assessment. Likewise, where the non-associated third party payer applies for costs assessment, the client is bound by the assessment but the assessment of costs payable by the non-associated third party payer does not affect the amount of the legal costs payable by the client to the law practice. Thus, if the costs assessed were less than the amount charged by the law practice to the client, the client has to pay the difference. 32 Sub-division 2 is entitled "Assessment". It comprises of ss 357 to 363A. 33 Relevantly, s 361 reads: "361 Assessment of costs by reference to costs agreement (1) A costs assessor must assess the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of the costs agreement if: (a) a relevant provision of the costs agreement specifies the amount, or a rate or other means for calculating the amount, of the costs, and (b) the agreement has not been set aside under section 328 (Setting aside costs agreements), unless the assessor is satisfied: (c) that the agreement does not comply in a material respect with any applicable disclosure requirements of Division 3 (Costs disclosure), or (d) that Division 5 (Costs agreements) precludes the law practice concerned from recovering the amount of the costs, or (e) that the parties otherwise agree. (2) The costs assessor is not required to initiate an examination of the matters referred to in subsection 1(c) and (d)." The decision of the Cost's Review Panel 34 Following the determination by the costs assessor, CHH applied for a review of the determination by a costs review panel. There were 28 grounds for review. The review panel dealt at length with each ground pleaded and affirmed the determination of the costs assessor. Relevantly the costs review panel stated (at [6]-[8]): "6 There is simply no evidence that the Assessor did not have regard to section 361(1) of the Act… . Section 361 is not applicable as there is no costs agreement between RA and RR. Accordingly, and as the Assessor correctly determined, disputed costs are assessed against the considerations of section 363 of the Act, including, for example, as to fairness and reasonableness. This task the Assessor did. The ground is not made out. … 7 & 8 The Assessor, in the view of the Panel correctly, dealt with this element of matters, indeed in his very first paragraph under the heading of 'Discussion' in Reasons where the Assessor succinctly states: 'The legislation makes it quite clear that the costs are to be determined according to s.363, given that the Client is a non-associated third party. Thus the cost agreement made between the Sub-Lessor and the Practitioner is not binding on the Client.'…The Assessor's conclusion is correct. (1) Whether the review panel erred in finding that s 361 of the Legal Profession Act did not apply to the application 35 On this issue, the plaintiff submitted that firstly, a costs assessment, even instigated by a third party payer, relates to legal costs; secondly, the terms "legal costs" refers to the amount that a person is charged by or is liable to pay to a law practice for the provision of legal services, and thus does not encompass amounts that a third party is liable to pay to a client as an indemnification for the client's legal costs; thirdly, the subject of the costs assessment is the disputed costs and the legal costs charged by the law practice to the client; fourthly, if the relationship between the practice and the client is relevantly governed by a costs agreement, then the disputed costs are subject to a costs agreement and fall within the terms of s 361(1); fifthly, s 361(1) is in no way qualified to apply only in relation to costs assessments instigated by clients, and not to those instigated by non-associated third party payers; and sixthly, s 363 is relevantly subject to the terms of s 361, reflecting the policy of the Act relating to the promotion of an efficacy of costs agreements between law practices and clients. 36 In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 the High Court stated that the primary objection of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined [at 69] "by reference to the language of the instrument viewed as a whole" (per Mason and Wilson JJ in Cooper Brookes (Wollongong) Pty Ltd v FCT (1981) 147 CLR 297 at 320) and the legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. The Court said [at 70] that reconciling conflicting provisions will often require the court "to determine which is the leading provision and which the subordinate provision, and which must give way to the other" (Institute of Patent Agents v Lockwood [1894] AC 347 at 360 per Lord Herschell LC). Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme. 37 Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. 38 I do not agree that Mrs McIntyre is liable to pay a law practice for the provision of legal services. Rather, she is obliged to pay KT. Thus, the costs do not fall within the definition of "legal costs" as set out in s 4(1) of the Act. Further, s 322 defines where a costs agreement may be made. Section 322(1)(d) stipulates that a costs agreement may be made between a law practice and an associated third party payer but it does not include non-associated third party payers. This makes sense because there is no association between the law practice and the non-associated third party payer. While a costs agreement was made between KT and the law practice, s 322 does not envisage any costs agreement between the law firm and the non-associated third party payer. 39 It is my view that the reference to costs agreement in s 361 is a reference to a costs agreement envisaged by s 322. If a costs agreement was made between an associated third party payer and the law practice then s 361(1) could apply. But it is difficult to read s 361 to mean that a costs assessor must assess the costs agreement between a law practice and it's client in accordance with the provision of that costs agreement even though the non-associated third party payer had no right to disclosure of certain information nor a right to negotiate the terms of that costs agreement. 40 So far as party/party costs are concerned, where the successful party and its law firm have entered into a costs agreement, this costs agreement is not binding on the unsuccessful party. Rather, the costs assessor may obtain a copy of and may have regard to a costs agreement but the costs assessor must not apply the terms of the costs agreement for the purposes of determining appropriate, fair and reasonable costs – see s 365. 41 Section 365 makes it clear that a costs agreement between a law practice and its client is not to be binding on a third party. This is consistent and in harmony with my view of s 361. It is my view that s 361 does not impose a fixed costs agreement between a law practice and a client on a non-associated third party payer. Section 361 does not apply. The costs review panel was correct. (2) Whether the review panel erred in law in failing to determine or have regard to whether it was reasonable to carry out the work to which the legal costs relate 42 Section 363 reads: "Criteria for costs assessment (1) In conducting an assessment of legal costs, the costs assessor must consider: (a) whether or not it was reasonable to carry out the work to which the legal costs relate, and (b) whether or not the work was carried out in a reasonable manner, and (c) the fairness and reasonableness of the amount of legal costs in relation to the work, except to the extent that section 361 or 362 applies to any disputed costs. (2) In considering what is a fair and reasonable amount of legal costs, the costs assessor may have regard to any or all of the following matters: (a) whether the law practice and any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf complied with any relevant legislation or legal profession rules, (b) any disclosures made by the law practice under Division 3 (Costs disclosure), (c) any relevant advertisement as to: (i) the law practice's costs, or (ii) the skills of the law practice or of any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf, (d) (Repealed) (e) the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter, (f) the retainer and whether the work done was within the scope of the retainer, (g) the complexity, novelty or difficulty of the matter, (h) the quality of the work done, (i) the place where, and circumstances in which, the legal services were provided, (j) the time within which the work was required to be done, (k) any other relevant matter." 43 On 7 November 2007, the costs assessor directed CHH, in accordance with s 358 of the Act, to provide the following details namely, the date upon which each item of work was done; the time engaged in doing each item of work; the identity of each person who did each item of work; the amount charged for doing each item of work; and the basis for calculating the amount charged for doing the work. 44 On 13 November 2007, CHH provided a response, which gave a generic itemised bill in relation to a number of matters. On 14 November 2007, the costs assessor wrote: "I have some difficulty understanding the comments as to the file. I am seeking only the file relating to this matter. If the file is needed, is it possible for me to inspect it at your offices? If so when?" 45 The costs assessor in his reasons stated: "I have assessed the costs in this Application, having regard to the need for a determination of the "fair and reasonable costs"." 46 The costs review panel in their reasons stated (at [10]): "This ground has various sub provisions as follows. They are all prefaced by the contention of Assessor 'error' in his consideration of 'factors in section 363'. Each is briefly dealt with by the Panel as follows: (a) The relevant part of the Assessor's 'Discussion' here concludes: 'The only question relates to the fair and reasonable costs in acting in this matter'. This is the correct criterion including by reference to the benchmarks within section 363 of the Act. Here, it is noted in RA's assessment Response document, paragraph 13, that RA itself recognises (acknowledged in the context of the 'alternate' argument expressed above): 'What appears to be the sole issue in dispute is whether the amount of legal costs in relation to the work to which the legal costs relate (sic) is fair and reasonable ... that is the fair and reasonable costs of preparation of the renewed sublease for the costs applicant..'. RA itself reiterates, effectively in terms of this ground, its acknowledgement that this the central assessment criterion, again at paragraph 42 of that Response, namely: 'The question in this assessment is simply whether $3000 is a reasonable charge, or a lump sum basis, for the preparation of the sublease for the costs applicant.' For the third time in the Response document, RA reiterates this at paragraph 53. In the view of the Panel, that is exactly the task which the Assessor exercised. In that exercise, the Assessor may have regard to a host of considerations, not exclusively exemplified, for example, within section 363(2), as to discretionary assessment considerations. There is no error. (b) This alleged Assessor failure is not pertinent to assessment determination. The same observations are made here as at 10(a) above. There is no error." 47 CHH submitted that the assessment was not done in accordance with s 363 of the Act as the first duty of the costs assessor was to consider pursuant to s 363(1) "whether or not it was reasonable to carry out work to which the legal costs relate". 48 CHH says that the use of the definite article makes it clear that the provision fixes upon the particulars of work namely that "to which the legal costs relate"; and ordinarily, that work will be particularised in a bill. Where it is not, power exists for a costs assessor to require any necessary information, including as to "work done by any law practice" – s 358(1)(d)(i). 49 CHH says that it appears the costs assessor was conscious of the need to identify the work to which the legal costs relate and referred to the costs assessor's letter dated 7 November 2007 and CHH responded to this request with details of the work done. 50 CHH submitted that the costs assessor's reasons do not refer to the information provided by it in its letter dated 13 November 2007, which set out the work done. CHH says that the costs assessor's reasons make no reference to the work undertaken beyond listing the documents he found from an inspection of the file. CHH submitted that the costs assessor failed to "consider" the work actually undertaken by it and whether any (and if so which) work "was reasonable to carry out" or "was carried out in a reasonable manner". CHH further submitted that there was a failure to give effect to the terms of the statute, and this amounts to an error of law; and this error was not corrected by the costs review panel. 51 Mrs McIntyre says that she did not put in issue the first two factors in s 363(1) in her application for assessment. She never suggested that it was not necessary to carry out the work involved in renewing the sub-lease once she exercised her option nor that the work was not carried out in a reasonable manner. I agree. What was in issue was the fairness and reasonableness of the amount of legal costs in relation to the work – s 363(1)(c). As the first two factors were not in issue on the face of the application it was unnecessary for the costs assessor and costs review panel to make any particular findings in that regard. 52 The costs assessor considered the material placed before him. In so far as CHH submitted that the costs assessor did not refer to its letter of 13 November 2007. The costs assessor did take it into account and decided that as a result of the lack of precise information provided, he needed to inspect the solicitor's file. The costs review panel referred to this at [13] and [14] of its reasons. It was clear from the reasons of the costs assessor and the costs review panel considered that requirements of s 363 in making the assessment and conducting the review. There is no error of law. (3) Whether the costs review panel erred in law in having regard to "the question of proportionality and conduct" 53 The costs assessor stated: "In assessing costs I have had regard to the question of proportionality, not only in terms of the quantum of the costs as against the value of the subject of the proceedings, but also in terms of the complexity of the matter, and the conduct of the parties." 54 The costs review panel stated (at [12]): "Section 363(2) illustrates some of the discretionary factors which the Assessor may consider in determining the fair and reasonable amount of legal costs. These factors are not exclusive, as illustrated by section 363(2)(k), that is, to being able to have regard to '.. any other relevant matter..'. For example, the relative 'complexity' is one such discretionary factor only; potentially, there are many other. The mandate for the Assessor is that prescribed within section 363(1) of the Act, that is, whether or not it was reasonable to carry out the work, whether it was carried out in a reasonable manner, and the fairness and reasonableness of the amount claimed. It is the function which the Assessor, with some emphasis as to it in his Reasons, undertook. It is in fact, as noted by the Panel earlier, acknowledged by RA itself in its own submissions (in the alternative) to the assessment. Further, relative 'proportionality', in the terms as expressed by the Assessor is a deliberation available to him within the statutory discretions. Further, and for completeness, the Panel reiterates that the Assessor troubled with not only a comprehensive assessment approach, but one which involved a forensic inspection of the original matter file. In the view and determination of the Panel, there is no error. 55 Section 363(2) sets out a number of criteria to which an assessor "may have regard". The plaintiff submitted that none refer to "the question of proportionality" as referred to by the costs assessor in his reasons. Importantly, s 363(k) refers to "any other relevant matter". The costs assessor considered proportionality as a relevant matter. 56 Conduct was only considered in the context of determining the costs of assessment. CHH conceded that conduct of the parties could be relevant in determining the costs of the assessment. 57 Section 363(k) allows the costs assessor to consider any other relevant matter. Other relevant matters may include proportionality and conduct. The costs review panel said as much. The approach of the costs review panel is correct. There is no error of law. (4) Failing to consider the fairness of the actual legal costs 58 CHH submitted that the assessment was one "relating to a bill" and as such, the costs assessor was required, pursuant to s 367, to be satisfied that "the disputed costs are unfair or unreasonable" before proceeding to assess a substituted amount. Assuming "the disputed costs" related to the entire legal costs, leaving aside disbursements, there was no express finding by the costs assessor that they are unfair or unreasonable. 59 CHH says that although such a finding might sometimes be implied in the costs assessor's determination of a substituted amount, this cannot be assumed here. The costs assessor gave express consideration to what he was required to determine when he stated, "I have assessed the costs in this Application, having regard to the need for a determination of the "fair and reasonable costs"." 60 CHH says that the costs assessor's reasons demonstrate a misconception of his role. CHH submit that the costs assessor was required to consider whether the bill should be confirmed and only "if" satisfied that the disputed costs were unfair was he to proceed to determine a substituted amount or amounts. CHH further submitted that the costs assessor instead merely assessed an amount, which, in his opinion, was fair and reasonable. 61 Section 367(1) reads: "Determinations of costs assessments (1) A costs assessor is to determine an application for a costs assessment relating to a bill by confirming the bill or, if the assessor is satisfied that the disputed costs are unfair or unreasonable, by substituting for the amount of the costs an amount that, in the assessor's opinion, is a fair and reasonable amount." 62 Under s 367, the costs assessor's task to make a determination by determining one of two things. If the costs assessor determines the disputed costs as fair and reasonable, he or she confirms the bill. If the costs assessor is satisfied that the disputed costs are unfair or unreasonable, he or she is to substitute for the amount of costs an amount that, in the costs assessor's opinion is a fair and reasonable amount. The costs assessor adopted the later course. It is not necessary to make a specific finding that the disputed costs were unfair and unreasonable. (5) Failure to give reasons 63 CHH submitted that the obligation to provide reasons is found in s 370. As well as "a statement of reasons for the costs assessor's determination", s 370 requires prescribed "supplementary information" be issued. The regulations set out the type of information required. Regulation 128(1)(d) of the Legal Profession Regulation provides: "(1) A statement of reasons for a costs assessor's determination that is required by section 370 of the Act to accompany a certificate issued under section 368 or 369 of the Act must be accompanied by the following information: (d) in respect of any disputed costs: (i) the basis on which the costs were assessed; (ii) how the submissions made by the parties were dealt with." 64 CHH submitted that the costs assessor should have complied with s 363(1). CHH referred to Frumar v The Owners of Strata Plan 36957 (2006) 67 NSWLR 321, where the Court of Appeal gave consideration to the adequacy of reasons given by a costs review panel under the 1987 Act on a party/party assessment. The complaint in Frumar (at [31]) was that the panel "simply made a "declarative statement" as to the amount of costs it considered fair and reasonable." 65 However, the costs assessor did more than give a declarative statement as to the amount of costs. After not receiving a proper itemised bill, he inspected the solicitor's file and determined that having regard to the whole of the material placed before him, he was of the opinion that the fair and reasonable attendances for the practitioner's attendances would amount to five hours at the rate of $350 per hour for a solicitor, plus an allowance of two hours for a para-legal at the rate of $150 per hour. In other words the fair and reasonable costs of the practitioner would be $2050. Then the costs assessor proceeded to explain how he calculated various types of work, such as correspondence, perusals and six minute units of time. The costs review panel agreed with the way the costs assessor made the determination. There is no error. (6) Using the wrong information 66 CHH submitted that the obligation of the costs assessor was to consider the work to which the legal costs related. That work was identified in the schedule attached to CHH's letter to the costs assessor dated 13 November 2007. CHH further submitted that the costs assessor had regard to the estimate rather than the summary of work undertaken, and it was the summary of work undertaken which set out the work to which the legal costs related. The costs assessor requested information about the work undertaken, and this had been provided. 67 It is open to the costs assessor to ask for information to be provided and to inspect the solicitor's file. The costs assessor may require the law practice to provide written information on or before a specified date including, for example, information as to the instructions given to, or work done by any law practice in respect of the matter concerned, and information as to the basis on which the costs concerned were calculated, to otherwise assist in, or co-operate with, the determination of the assessment in a specified manner, and to carry out the assessment in the manner he did – see s 358. (7) Whether the costs review panel erred in law in purporting to determine CHH's liability to KT for GST 68 The costs review panel in its written reasons stated (at [11]): 11 The Assessor's determination on GST is correct and for exactly the reason given by the Assessor. The ground is not made out." 69 To understand the costs review panel's reasons in relation to GST, it is necessary to refer to the reasons of the costs assessor where he stated: "GST is not claimable given the undoubted fact that the Sub-lessor has an input credit. The submissions made by the Practitioner seem to ignore the fact that the costs are the costs of acting for the Sub-lessor, who has the primary liability to pay them, but that contractually, the Sub-lessee is required to make that payment." 70 CHH submitted that the assessment can only relate to "legal costs" payable by Mrs McIntyre, and an assessor cannot determine any GST liability sought to be recovered from her under the sublease any more than an assessor can determine any entitlement to recover electricity or rate charges. 71 Mrs McIntyre submitted that the costs assessor and the costs review panel were satisfied on the material before them that KT is conducting an enterprise, is registered for GST and that the supply of legal services to it by CHH was a taxable supply including GST. 72 Mrs McIntyre submitted that KT is entitled to an input tax credit for the GST component to the plaintiff's bill of costs. Since the liability of the first defendant to pay the reasonable costs of KT, is in the nature of a partial indemnity created by the terms of the sublease, Mrs McIntyre is not liable to pay GST. Mrs McIntyre further submitted that it is an identical situation to that of a party/party assessment where a successful party who is registered for GST and entitled to claim an input tax credit is only entitled to recover the GST exclusive amount of its costs. I agree. There is no error of law and this ground fails. 73 There is no error of law. Although the sum in dispute is a modest one, I have covered the submissions in some detail as I understand there are other sub-leases where the law firm's costs are in dispute. There is nothing more to address that may have been addressed under s 386. Leave to appeal is refused. The appeal is dismissed. The decision of the costs review panel dated 7 March 2008 is affirmed. The summons filed 3 April 2008 is dismissed. 74 Costs are discretionary. Costs normally follows the event. The plaintiffs are to pay the first defendant's costs as agreed or assessed. The Court orders (1) Leave to appeal is refused. (2) The appeal is dismissed. (3) The decision of the costs review panel dated 7 March 2008 is affirmed. (4) The summons filed 3 April 2008 is dismissed. (5) The plaintiffs are to pay the first defendant's costs as agreed or assessed. ********** 26/11/2008 - Line 3, second sentence of para 41 inserted the word "not" after does - Paragraph(s) 41 - Line 3 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.