Supreme Court New South Wales Medium Neutral Citation: Garcia Arenas v Fica; Crosby v Fica (No 3) [2018] NSWSC 385 Hearing dates: 28 February 2018 Date of orders: 29 March 2018 Decision date: 29 March 2018 Jurisdiction: Equity - Family Provision List Before: Parker J Decision: Terms of trust specified for trust provision to be made in favour of one claimant who is a minor. Party-party costs orders made on a specified gross sum basis in favour of two claimants. Other claimant's solicitor ordered to apply for assessment of costs on a solicitor-client basis, with a party-party specified gross sum order to follow if required. Catchwords: COSTS – gross sum order – where actual solicitor-client costs exceed estimated solicitor-client costs – whether sufficient material provided to calculate an appropriate "gross sum" – whether plaintiffs have prior experience of litigation – risk of unfairness – Legal Profession Uniform Law 2014 (NSW), s 172 – costs subject to "an overriding limit of fairness and reasonableness" – Legal Profession Uniform Law 2014 (NSW), s 184 – s 172 limit prevails over contractual provisions – impact of proportional gap between party-party and solicitor-client costs on "net recovery" Legislation Cited: Legal Profession Uniform Law 2014 (NSW) Probate and Administration Act 1898 (NSW) Trustee Act 1925 (NSW) Cases Cited: Firth v Centrelink (2002) 55 NSWLR 451 Harrison v Schipp (2002) 54 NSWLR 738 Category: Consequential orders (other than Costs) Parties: 2016/236378 Susana Garcia Arenas (First Plaintiff) Gemma Garcia Arenas (Second Plaintiff) Juan Fica (Defendant) 2016/269892 Dasha Crosby by her tutor Olga Crosby (Plaintiff) Juan Fica (Defendant) Representation: Counsel: 2016/236378 P Folino-Gallo (First and Second Plaintiff) A Hill (Defendant) 2016/269892 FFF Salama (Plaintiff) A Hill (Defendant) Solicitors: 2016/236378 Prime Lawyers (First and Second Plaintiff) Villari Lawyers (Defendant) 2016/269892 SAS Lawyers (Plaintiff) Villari Lawyers (Defendant) File Number(s): 2016/236378; 2016/269892 Publication restriction: Nil Judgment 1. In December 2017 I delivered my decision (published as [2017] NSWSC 1769) on these family provision applications. The parties and their claims were described in that decision at [1]-[9]. What follows assumes familiarity with that description. 2. In my decision I concluded that provisions should be made out of the deceased's estate in favour of each of the plaintiffs (Susana, Gemma and Dasha). I directed that the executor, Mr Fica, bring in short minutes of order to give effect to my conclusions. Some aspects of the orders could not be agreed. On 28 February I delivered a second decision (unpublished) on some of the outstanding questions. The present judgment deals with the remaining ones. Provision for Dasha 1. In my initial decision, I concluded that provision should be made for Dasha out of the deceased's estate by way of maintenance and education up until she turns eighteen, in the sum of $25,000. I also concluded that a further provision of $65,000 should be made in her favour by way of advancement, but that if Lilly wished to stay in the Glendenning property and to raise the finance to pay out the expenses of the estate and the immediately payable legacies for which I had provided, Dasha's further provision would be deferred until the sale of the property. As recorded in my second decision, Lilly does not wish to do this and it is common ground that the property should be sold and the potentially deferred provisions, including Dasha's, paid out. Thus in Dasha's case there should be a provision for $90,000, payable following the settlement of the sale. 2. In my second decision I also concluded that, as Dasha is only fourteen years old, the appropriate course is for the money to be held for her on trust by Olga until she turns eighteen. The remaining question is what further specification the terms of the trust should be made in the Court's order. 3. The $25,000 provision for maintenance and education was designed to ensure that $5,000-$6,000 a year would be available to help to defray the costs of Dasha's upbringing for the four years or so until she turns eighteen. It is unlikely that the trust will generate this much income and accordingly, the trustee will need to have a power to apply trust moneys out of capital for Dasha's maintenance and education. I think the trustee should also have power to apply moneys out of capital for Dasha's advancement before she turns eighteen, in case circumstances arise where that becomes desirable. 4. The Trustee Act 1925, s 44(1), applies unless there is a contrary intention expressed in the trust instrument. Section 44(1) gives a trustee power to advance moneys from trust capital by way of maintenance, education or advancement. The power is limited, however, to $4,000 a year for maintenance and education: s 44(1A). This limit is slightly too low for the purposes that I have in mind and accordingly it will be necessary to provide for a higher one. 5. Counsel for Dasha proposed that the Court should express the trust as vesting at the age of eighteen. I do not think this is appropriate. I see no reason not to make an immediate provision in favour of Dasha: the money will be hers, albeit that during her minority her ability to control it will be restricted. Once she turns eighteen she will be entitled, having reached her majority, to terminate the trust when she wishes. 6. Counsel also suggested that the terms of the trust specified by the Court should provide for the application of the trust moneys to pay the legal costs incurred by Dasha (through her tutor, Olga) in these proceedings. I think it is clear that where a solicitor acts for an adult who successfully obtains an order for family provision in his or her favour, the solicitor would have a lien over the provision recovered under the principles in Firth v Centrelink (2002) 55 NSWLR 451. Accordingly, the terms of the trust will provide that, to the extent that Olga's costs as Dasha's tutor (assessed on a solicitor-client basis) are not recovered out of the estate, they may be paid out of the capital of the trust. The requirement of assessment is to ensure that there is an independent check on the quantum of any costs coming out of the trust: I explain the reasons for this in more detail below. 7. Counsel for Dasha put forward for the Court's consideration a trust deed prepared by his instructing solicitor. On reflection, I do not think it is necessary for the Court to specify the terms of the trust in this level of detail. It will be sufficient if the order is made reflecting the three specific matters I have mentioned. Other contingencies which may arise will be sufficiently covered by the provisions of Part 2 of the Trustee Act. Costs 1. I dealt with the incidence of costs, to the extent not agreed between the parties, in my second decision. The upshot was that Susana and Gemma (who were commonly represented) and Dasha were to receive costs orders in their favour on the ordinary basis out of the estate. Counsel for Dasha sought to have the order in her favour out of the estate extended to include an uplift fee which is said to be payable, and this was disputed. I indicated that, in the interests of expeditious winding up of the estate, I would make orders for costs on a specified gross sum basis. I also indicated that I would deal with the question of the inclusion of the uplift in Dasha's costs at that point. 2. At the time of the debate which led to my second decision, the evidence before the Court on costs consisted of estimates given by the solicitors for the parties in August 2017, in advance of the hearing. I directed that the parties file further evidence so as to show the actual level of expenditure, and further submissions. That has been done. Dasha's costs 1. Dasha's solicitor in these proceedings is SAS Lawyers Pty Limited ("SAS"), an incorporated legal practice. The solicitor-principal responsible for the conduct of Dasha's claim is Samuel Alber Shenouda. Mr Shenouda swore both the August 2017 affidavit containing the costs estimate prior to the trial and the February 2018 affidavit concerning Dasha's actual costs. 2. Mr Shenouda gave the following evidence concerning the disputed uplift: 5. The Plaintiff, through her Tutor, has entered into a Conditional Costs Agreement and Disclosure with S.A.S Lawyers. Such Conditional Costs Agreement and Disclosure provides for an uplift of 20%, on professional fees only, pursuant to Section 182 of the Legal Profession Uniform Law (NSW). The uplift factor is triggered and payable if a successful outcome (including, a settlement or judgement) is obtained in the proceedings and relates to the risk of S.A.S Lawyers entering into the Conditional Costs Agreement and Disclosure, that is, to carry out all the legal work and incur all the disbursements without being paid until a successful outcome is obtained in the proceedings. The Conditional Costs Agreements and Disclosure was not itself in evidence before me. 1. In my view, counsel for the executor was correct to resist the inclusion of the uplift in the party-party costs awarded against the estate. Counsel for Dasha sought to justify the claim on the basis that it was a reasonable and appropriate charge to have incurred because of the risk to Dasha's lawyers in taking on a case where there was a high risk that, given Olga's financial position, they would not be paid unless the claim was successful. 2. I do not accept this premise. As I described in my first decision, the deceased had a legal obligation to contribute to Dasha's maintenance and education during her minority, and this gave her a strong claim for provision at least to that extent. There is no specific evidence from Mr Shenouda about the actual degree of perceived risk in taking on her case. There is no evidence that Dasha's claim was ever formally denied by the executor. Certainly, by the time the applications came on for hearing before me, the executor had accepted that provision should be made for Dasha; it was simply a question of how much. 3. In any event, I do not think that even if it were established that the uplift was a reasonable reflection of the commercial risk to SAS in taking on the proceedings, that makes it recoverable as an item of party-party costs. An award of costs is not a form of compensation for loss directly or indirectly caused by having to bring proceedings; it is an entitlement by way of indemnity against reasonable professional costs incurred, "reasonableness", for this purpose, being determined by reference to the nature of the services provided. If a litigant borrows funds on commercial terms in order to pay legal costs, then in a sense the interest payable has been occasioned by the litigation. But that does not make it recoverable as an item of cost. In my opinion, it is no different if the litigant in effect obtains financing for the proceedings from the solicitor by agreeing to pay an uplift on top of the usual rate for the solicitor's services. 4. There are two matters which give me some concern in fixing the quantum of Dasha's party-party costs. First, Mr Shenouda's February 2018 affidavit merely stated the amounts of the solicitor-client costs now said to be payable. Separate figures were given for SAS's professional fees, counsel's fees, other disbursements, and the uplift. But no costs agreements were provided; indeed the bills from SAS and Dasha's counsel (if issued) were not even provided. 5. It is the practice in cases in the Family Provision List to require each party to provide an estimate of costs in advance of the hearing, and, as I have noted, that was done in this case. The provision of figures without supporting material may be sufficient for an affidavit of this type, but in my opinion, it is not an adequate basis for the making of a specified gross sum costs order. In the present case it is impossible to make any meaningful assessment of how the costs claimed were calculated, or indeed whether they were consistent with whatever costs agreements were made with SAS and Dasha's counsel. In my view, for a gross sum costs order to be made it would usually be a minimum requirement that bills for all of the costs, and supporting costs agreements for all of the costs claimed, be put before the Court. 6. My second concern is that the August 2017 estimate of Dasha's total costs incurred, and to be incurred, was approximately $62,000. Actual solicitor-client costs are now said to be approximately $85,000. This does not include the further amount of $10,000 claimed by way of uplift. The August 2017 estimate was based on an assumed two day hearing when in fact the hearing lasted for one day. Admittedly there was a short hearing on costs in February but a slight decline from the estimated figure might have been expected. Instead there has been an increase of approximately 35%. In my opinion, the increase is such as to require explanation if it were to be the basis of a gross sum costs order. Mr Shenouda's affidavit contains no such explanation. 7. I have considered whether I should ignore the increase beyond the August 2017 estimate of costs, apply an arbitrary percentage (say 70% or 80%) to that estimate and make a gross sum costs order out of the estate for that amount. But this presents a risk of unfairness to the plaintiffs if the increased figures now put forward could ultimately have been justified on a party-party basis. A gross sum costs order should not be made unless there is sufficient information to do so with fairness to both parties: Harrison v Schipp (2002) 54 NSWLR 738 at [22]. 8. I have reluctantly concluded, therefore, that the evidence before me provides an insufficient basis on which to make a gross sum costs order as foreshadowed, in Dasha's case. I have considered making directions for the provision of yet further evidence which would contain details of the costs agreements and an explanation of the increase. But in my view the existing evidence gives rise to a further concern which for the moment subsumes the quantification of party-party costs. 9. As I have mentioned, a costs order operates by way of indemnity against the costs incurred by the successful party. It follows that the costs of the successful party cannot be determined on a party-party basis until those costs have been fixed on a solicitor-client basis, either by agreement or, in the event of disagreement, by assessment. A number of the features of the evidence before me gives me concern about the level of Dasha's solicitor-client costs that are said to be payable. The absence of supporting costs agreements and the absence of any explanation for the large increase in costs above the August 2017 estimate are both relevant for this purpose. But my concern about solicitor-client costs goes further. The evidence before the Court does not include SAS's or counsel's costs disclosures, so it is not possible to know whether the disclosure requirements of the Legal Profession Uniform Law 2014 (NSW), have been complied with. In view of the increase above the estimate, the requirements concerning the giving and updating of costs estimates (s 174(1)(a) and (b)) could be of particular significance. 10. It must also be borne in mind that, by s 172, costs are subject to an overriding limit of fairness and reasonableness. This limit prevails over any contractual provisions: s 184. Olga's evidence in the proceedings shows that she is an unsophisticated person with, apparently, no previous experience of litigation. The uplift charge, in particular, may require specific justification in terms of fairness and reasonableness. 11. The gap between party-party and solicitor-client costs would include the uplift at least. It would make significant inroads into the modest provision which I have made in Dasha's favour. For these reasons I thought it necessary to require that any costs paid out of Dasha's trust be limited to assessed costs. 12. The limitation on recovery from the trust would probably have the practical effect of requiring SAS to submit its costs for assessment. In the circumstances, I think it appropriate to go one step further and order SAS to make an application to assess its bill of costs under the Legal Profession Uniform Law 2014 (NSW), s 198(1)(c). The Court's powers over its solicitors are wide enough to permit this order to be made. But as I have not heard SAS on the question, I propose to grant it liberty to apply should it wish to argue against that order. 13. The assessment of the costs should generate sufficient information to allow the Court to proceed to assessment of a specified gross sum on a party-party basis (if the parties cannot at that point agree on one). Accordingly I will grant liberty to apply for a specified gross sum costs order in due course should it be necessary. Susana's and Gemma's costs 1. Susana and Gemma were previously represented by another firm of solicitors, Jordan Djundja. Their current solicitor, Mr Peter Murphy, took over acting for them in February 2017. 2. Counsel for Susana and Gemma sought a single order for their costs rather than separate costs orders in favour of each of them. This is appropriate in principle where parties are commonly represented but there is a complication. When the proceedings were commenced in August 2016 Susana was the sole plaintiff. It appears from the solicitor's bill which was in evidence before me on this application that it was not until after the first appearance in the proceedings on 9 September 2016 that advice was given which led to the joinder of Gemma as the second plaintiff. Leave was granted to amend the Summons for this purpose on 14 October and the Amended Summons was filed formally joining Gemma on 27 October. 3. The bills from Jordan Djundja and counsel retained by them show that significant costs were incurred prior to the joinder. Starting in March 2016, advice was given, instructions were taken and Susana's main affidavit was prepared. These are costs which must have related solely to Susana's claim. To the extent that solicitor-client costs exceed party-party costs, Susana must bear the shortfall for this period; there is no justification for Gemma to have to do so. 4. Accordingly, there will need to be two costs orders. The first will be in favour of Susana for the period when she was the sole plaintiff and the second will be in favour of Susana and Gemma for the period of their common representation. 5. In his August 2017 affidavit, Mr Murphy estimated that party-party costs of $57,000 had been incurred, which included $30,000 for Jordan Djundja's costs. He estimated the party-party costs to complete the case as $25,000, resulting in an estimated total of $82,000. The affidavit contained no figures for solicitor-client costs or an explanation for how the figure for party-party costs had been reached. 6. According to Mr Murphy's February 2018 affidavit, the actual solicitor-client costs are approximately $107,000, including $35,000 for Jordan Djundja's costs. Detailed invoices from solicitors and counsel were attached to the affidavit, but copies of the supporting costs agreements were not. 7. Counsel for the executor pointed out that three separate counsel have been retained for the purposes of Susana's and Gemma's claim, resulting in charges of approximately $40,000 in total. One of those counsel charged approximately $1,400 by way of 25% "contingency uplift". Counsel for the executor submitted that the total charged for counsel appeared excessive on a party-party basis. 8. Mr Murphy suggested in his affidavit that on a party-party basis the whole of counsel's fees (apart from the $1,400 "contingency uplift") should be allowed as well as 80% of the solicitors' professional costs. This resulted in a suggested recovery of approximately $94,000. This too represents an increase above the estimate but less than that for Dasha's costs (the increase is approximately 14%). This increase is not attributable to Jordan Djundja's costs, which were known when the August 2017 estimate was given. It must be attributable to the period when Mr Murphy was acting. As with the increase in Dasha's costs, the increase is unexplained. 9. Some of the points which I have made above concerning Dasha's solicitor-client costs are reflected in the evidence presented concerning Susana's and Gemma's costs. Although the bills have been provided, the supporting costs agreements have not. There has apparently been an increase in costs, although it is a more modest one. And I do not have any evidence of what disclosures were made to Susana and Gemma about costs. 10. On the other hand, there are also some points of difference. The evidence at the hearing showed that Susana and Gemma have not just been involved in this litigation. They apparently are making personal injury claims arising out of a car accident. There was also some confusing evidence about Susana making a claim for wrongful dismissal against an employer (see my initial decision at [71]). Susana and Gemma are not complete novices in litigation. The increase in costs is not as great in percentage terms as Dasha's. Between them, Susana and Gemma obtained provisions totalling $230,000, considerably more than Dasha's provision. Any gap between party-party and solicitor-client costs will have a proportionately smaller impact on their net recovery. Apart from the $1,400 charged by one of their counsel, there are no uplift charges said to be payable. 11. On balance, I have decided to proceed to a specified gross sum assessment in Susana's and Gemma's case. This does expose Susana and Gemma to the risk that the "broad brush" assessment will yield less than they might have recovered on a formal assessment and that they will be required to bear the difference between the party-party costs so assessed and the solicitor-client costs for which they are liable. I have assumed, because I have no reason to think otherwise, that Susana and Gemma have been advised of this and have given their consent to a gross sum assessment with a full understanding of this risk. However, I will grant Susana and Gemma liberty to apply in case they wish to seek orders for assessment of their solicitor-client liability, to be followed by a gross sum assessment of party-party costs, as in the case of Dasha. 12. For the period when Susana, and then Susana and Gemma, were represented by Jordan Djundja, that firm's professional costs amounted to approximately $18,600 with counsel's fees of $16,500 and disbursements of $100. Counsel charged $385 per hour but then reduced her fee by about 18% "on account of the size of the estate". I see no reason why counsel's fees should not be allowed in full together with the disbursements. Jordan Djundja's professional costs were charged at approximately $370 per hour which is below the rate charged by Mr Murphy. I see no reason why Mr Murphy's 80% rule of thumb should not be applied. Apportionment of the fees between the period up to and the period after 9 September 2016 yields gross sum assessments of $21,000 and $11,000 respectively. 13. I have reviewed counsel's fee notes for the period after Mr Murphy took over acting for Susana and Gemma. It appears that Mr Murphy retained new counsel when he took over and that counsel prepared the written submissions for the trial. He was then replaced by a more junior counsel (at a lower rate) for the conduct of the trial itself. I see no sign of duplication between the work done by counsel and the work done by the three counsel prior but the fees charged by counsel retained by Mr Murphy are somewhat above the August 2017 estimate. No complaint was made about the other disbursements ($5,100). 14. So far as professional costs are concerned, Mr Murphy charged $440 per hour. He stated in his affidavit that in his experience this was the average rate charged by solicitors undertaking family provision work. This was not challenged, although, as I have noted, Jordan Djundja charged about 15% less. 15. Counsel for the defendant submitted that a 20% discount was too low. He said that the "usual" discount was 30%, and that the total fees should be between $60,000 and $70,000. These submissions are difficult to evaluate in the absence of evidence, but I consider that the unexplained increase in costs compared with the estimate means that some discount is warranted. I think it is also legitimate to take into account that Mr Murphy's rates are significantly higher than those of Jordan Djundja and no evidence was presented as to why it was found necessary to change representation. On balance, I allow the total sum of $49,000 for the defendant which compares with the $52,000 estimated (presumably on an 80% basis) in August 2017. Orders 1. The further orders of the Court in the proceedings brought by Susana and Gemma (2016/236378) are as follows: 1. Order that the defendant pay the first plaintiff's costs of the proceedings up to and including the hearing on 9 September 2016 on the ordinary basis out of the estate of the late Ricardo Garcia, fixed in the sum of $21,000. 2. Order that the defendant pay the first and second plaintiffs' costs of the proceedings from 9 September 2016 onwards on the ordinary basis out of the estate of the late Ricardo Garcia, fixed in the sum of $60,000. 3. Grant to the plaintiffs liberty to apply with respect to Orders 1 and 2, such liberty to be exercised within 21 days of today's date. 1. The Court's orders in Dasha's proceedings (2016/269892) are as follows: 1. Order that provision be made in favour of the plaintiff from the estate of the late Ricardo Garcia in the form of a legacy in the sum of $90,000 on the following terms: (A) The legacy is to be held by Olga Crosby as trustee for the plaintiff. (B) The trustee may from time to time pay or apply any of the capital moneys subject to the trust, not exceeding altogether a sum amounting to one-half of the value of the property or share of that capital, for the maintenance, education or advancement or benefit of the plaintiff in such manner as the trustee shall in the trustee's absolute discretion think fit. But the amount to be applied for the maintenance or education of the plaintiff shall not exceed the total sum of $25,000 over the period up to when the plaintiff attains the age of eighteen. (C) The trustee may apply the capital of the trust towards paying the costs incurred by her as tutor for the plaintiff in these proceedings, as assessed on a solicitor-client basis, to the extent such costs are not recovered pursuant to the costs orders made in favour of the plaintiff in these proceedings. 2. Order that the legacy referred to in Order 1 shall carry interest pursuant to s 84A of the Probate and Administration Act 1898 (NSW) if not paid within 7 days of the settlement of the sale of the Glendenning property pursuant to the orders made by the Court on 28 February 2018. 3. Order that the defendant pay the plaintiff's costs of the proceedings on the ordinary basis out of the estate of the late Ricardo Garcia. 4. Order that the solicitor for the plaintiff, SAS Lawyers Pty Ltd, within 28 days of today's date, make application to assess, on a solicitor-client basis, its costs of acting for the plaintiff in these proceedings. 5. Grant SAS Lawyers Pty Ltd liberty to apply with respect to Order 4, such liberty to be exercised within 21 days of today's date. 6. Reserve to the plaintiff liberty to apply for an order specifying the costs in order 3 in a gross sum, such liberty to be exercised within 21 days of the completion of the assessment in order 4. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 March 2018