NSWCA takes inherent supervisory jurisdiction over its officers into new territory

A recent decision of the NSW Court of Appeal has reinforced the vigor and breadth of the inherent supervisory jurisdiction of Australia’s superior courts, a hobby horse of mine for a couple of years now, and applied it in the context of a solicitor who overcharged his client, a mortgagee, to the ultimate detriment of the mortgagor who was asked to bear the brunt of the overcharging: Hartnett v Bell [2023] NSWCA 244. But it’s a complicated decision, made more complicated by the need to rehearse its complex procedural history in order to deal with a procedural fairness ground of appeal. So I’ve written a case note which winnows out the procedural fairness guff. At [123], the Court gathered together the law in relation to the inherent jurisdiction, which I have set out in full in this sister post.

Mabel Deakin-Bell died in 2013. She left a house in Ballina, near Byron Bay in NSW, to her son Anthony Bell which was subject to a $30,000 mortgage. The mortgagee was Gwendoline Deakin-Bell. Mabel and Gwendoline were two wives of Mr Bell’s father. The mortgaged sum was payable on Mabel’s death. Gwendoline was in her late 70s, and a few years later was in frail health and did not have a lot of money.

Mr Bell was named as Mabel’s executor, but his solicitors delayed in obtaining probate. The poor man did not have a lot of luck with solicitors and is now engaged in a negligence action against them. Meanwhile, the estate defaulted on the mortgage for reasons which are unexplained.

Gwendoline engaged lawyers on the Gold Coast in Queensland to recover the mortgage debt from Mabel’s estate. Ultimately this involved obtaining orders for the sale of the Ballina house. The lawyers’ initial costs estimate was $3,900 – $6,500, but the work in respect of which it was given is unclear. They did not at any stage produce any evidence that they updated their estimate before charging nearly $290,000.

The lawyers’ costs agreement, which was said to be governed by the Legal Profession Act 2007 (Qld), was particularly pernicious, which plainly did not assist their cause in this case. It provided for an uplift of 25%, justified by the lawyers’ willingness to defer their fees until the mortgage debt was recovered, even though it probably did not qualify as a conditional costs agreement and did not comply with the formal requirements of such costs agreements. For example, Gwendoline did not sign it, and there was no estimate of the uplift. Accordingly, it was probably void.

But in addition, a ‘care and consideration’ loading of up to 30% of the fees (including the uplift) otherwise chargeable was leviable where the urgency and difficulty of the case warranted it in the lawyers’ opinion.

It seems that the lawyers ended up somewhat confusingly charging one 25% increase described as a care and consideration allowance. Nevertheless, the Court treated it as an impermissible uplift fee: [151].

The lawyers demanded of Mabel’s estate, on Gwendoline’s behalf, about $2,500 in June 2014 in addition to the mortgaged sum. There was a clause in the mortgage which provided for the mortgagor to pay the mortgagee’s indemnity costs following a default. The authorities about the construction of these kinds of clauses, and the courts’ special statutory and non-statutory jurisdictions to moderate these costs as between mortgagor and mortgagee are well-rehearsed at [85], [100], [121]-[122], [160].

By November, the lawyers were claiming that Gwendoline’s costs were nearly $28,000. By December, they were said to be nearly $44,000.

Then, through the lawyers, Gwendoline sued Mabel’s estate for possession of the Ballina house, a case which took several years though it was undefended.

The lawyers sued the wrong defendant. Mr Bell should not have been sued when he had not yet obtained probate and so had not yet become the legal personal representative of Mabel’s estate, so the NSW Trustee and Guardian was substituted by the NSW Supreme Court.

The lawyers’ costs to May 2015 were said to be $77,739.

In April 2016, the Supreme Court of NSW ordered the Ballina house to be sold, and ordered the mortgagor to pay the mortgagee’s indemnity costs, including future costs, pursuant to a clause in the mortgage which provided for that course, plus interest. Any remainder after payment of the mortgage and the mortgagee’s costs was to be paid into court.

By September 2016, the lawyers had advised the NSW Trustee and Guardian that they estimated that Gwendoline’s fees recoverable under the mortgage would be between $302,000 and $330,000.

In October 2016, the property sold for $376,000.

In November 2016, the lawyers gave a bill of more than 100 pages for work between May 2015 and November 2016, in the sum of $210,862 (an average of $2,689 per week). That brought the fees total to $288,601.

The lawyers took their fees out of the proceeds of sale allegedly on Gwendoline’s instructions, and paid Gwendoline $39,090, keeping the paltry balance available to Mabel’s estate of $33,834 in trust contrary to the Court’s order that it be paid into court.

Mr Bell was eventually granted probate and as legal personal representative of the mortgagor, requested details of the legal costs paid from the mortgage sale. Obfuscation and threats were the lawyers’ response even though they could have shared their hundred page bill. Though their client Gwendoline as mortgagee owed duties to account to the mortgagor, and held the balance of the sale proceeds over and above the reasonable costs of the mortgagee on trust for the mortgagor, the mortgagee’s lawyers did not provide information about their costs and neither did the mortgagee. Queensland’s Legal Services Commissioner did not prove to be of much assistance.

Mr Bell sought a costs assessment from the NSW Supreme Court, not as a non-associated third party payer, but apparently for the quantification of the costs he was ordered to pay on an indemnity basis under the Court’s judgment for possession. The parties to that costs assessment were the mortgagor and the mortgagee. The lawyers were not party to it.

One would expect the costs agreement of a Queensland lawyer to specify that the law of Queensland would regulate relations with the client. Even if it did not do so, that would be a not unlikely legal conclusion. But the lawyers did not take any point about the NSW costs assessor’s jurisdiction and their costs agreement was probably void anyway. [For a resolution of a similar issue, see Fields v Martin Street Lawyers, Costs Court, Supreme Court of Victoria, Judicial Registrar Conidi, 2 November 2023, S ECI 2022 03707, which it is hoped the Court will publish on Austlii.]

The lawyers did not cooperate with the costs assessment. Nor did Gwendoline, even though it would clearly have been in her interests to do so. Accordingly, in May 2018 the costs assessor fixed the costs payable by Mr Bell to Gwendoline at $40,000, about 14% of what the lawyers had charged Gwendoline, leaving Gwendoline (according to the lawyers) with a liability to them for $288,601 and an entitlement to recover only $40,000 of that sum under the indemnity costs order in her favour.

Gwendoline died later in May 2018.

(As an aside, the lawyers argued that Gwendoline’s costs of the costs assessment were costs caught by the indemnity costs of default clause in the mortgage. The Court disagreed at [159]-[161].)

In August 2020, Mr Bell sued the lawyers for $285,047 as money had and received, being the proceeds of sale less the mortgage and less the assessed indemnity costs, by a proceeding described in the judgment as ‘the equity proceeding’. This somewhat novel restitutionary claim failed, but a claim on the inherent jurisdiction added into the proceeding along the way succeeded.

The lawyers claimed in the equity proceeding that they were not bound by the costs assessor’s costs assessment because they were not parties to it. Accordingly, the Court conducted its own analysis. Since the lawyers did not get into the witness box, or even produce critical documents in the lawyer client relationship with Gwendoline, the Court came to the same conclusion as the costs assessor had. The trial judge was not required to and did not engage in a line by line analysis of the bills. Rather, having identified some gross instances of overcharging, she took a broad-brush approach: [106].  At [150]-[158], the Court vindicated this approach, the lawyers’ own original costs estimate being used as probative evidence against them notwithstanding the uncertainty as to the scope of works it was in respect of.

On 8 September 2022 her Honour Peden J ordered the lawyers to pay the $33,792 wrongfully retained in their trust account to Mabel’s estate, with interest, and ordered them (not Gwendoline) to disgorge to Mabel’s estate $251,256, being the difference between the costs assessment and the amount appropriated by the lawyers from the mortgage sale proceeds, plus interest.

The trial judge effectively said that the inherent jurisdiction was not involved with causes of action between parties, so that the absence of a contractual relationship or restitutionary entitlement between Mabel’s estate and Gwendoline’s lawyers posed no obstacle to the Court stepping in to adjust rights between the two parties where one of its officers had charged more than fair remuneration: [103], citing Atanoskovic v Birketu Pty Ltd [2020] NSWSC 573 at [80]-[81].

Her Honour expressly refused to send the parties away to a costs assessment as between third party payer and the lawyers, even though the parties had previously agreed that to be an appropriate course.

The lawyers appealed, asserting that the inherent jurisdiction did not extend to allow the Court to do what it had done; that if it did, it should not have exercised the discretion to do so; and that even if it should have, the amount it ordered be disgorged was too much.

The Court held that its inherent jurisdiction extended to cover conduct of an interstate solicitor much of which occurred interstate: [114], citing a passage from Council of the NSW Bar Association v Siggins [2021] NSWCA 40 at [137]-[138] the relevance of which is not immediately apparent to me.

The Court dismissed at [126]-[140] the lawyers’ argument recorded at [116]-[117] that more orthodox modes of disposing of the parties’ dispute were available, such that it was not necessary for the Court to exercise its inherent jurisdiction, and it accordingly should not have done so. The argument was, essentially, that orthodox jurisdictions, such as a costs assessment at the suit of a non-associated third party payer to which the lawyers promised to regard themselves as bound by, or an accounting between mortgagor and mortgagee, should be exhausted before recourse was had to the extraordinary case of an exercise of the inherent jurisdiction. The Court held that the argument was inconsistent with Woolf v Snipe (1993) 48 CLR 677 and simply wrong as a matter of law.

In additional reasons for agreeing with Chief Justice Bell’s reasons, with which Griffiths AJA also agreed, Adamson JA observed that ‘I am not persuaded that the Court’s inherent jurisdiction ought be constrained by the principles which apply when its inherent jurisdiction is invoked in circumstances which do not involve the conduct of officers of the Court.’

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