Federal Court of Australia

Schoneweiss v The Fourth Force Pty Ltd (No 2) [2022] FCA 1489

ORDERS

THE COURT ORDERS THAT:

1.    For the purposes of the Deed of Settlement and Release dated 7 March 2022, the Assessed Adero Costs be fixed in the sum of $365,357.30 inclusive of GST.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Revised from transcript)

CHARLESWORTH J

1    This representative proceeding was commenced under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (FCA Act) by the lead applicant Mr Craig Schoneweiss against corporate entities operating supermarkets in South Australia (collectively, Drakes). The group members worked in Drakes supermarkets in middle management positions at times dating back six years from the commencement of the proceedings.

2    By his statement of claim, Mr Schoneweiss alleged that Drakes contravened various provisions of the Fair Work Act 2009 (Cth) (FW Act), including by failing to comply with an applicable Award concerning, amongst other things, the taking of breaks, additional duties and excessive work.

3    Mr Schoneweiss has at all times been represented in these proceedings by Adero Law. The lawyer responsible for the conduct of the matter on his behalf is Mr Rory Markham.

4    Following a private mediation, Mr Schoneweiss entered into a Deed of Settlement and Release (incorporating a Settlement Distribution Scheme) with Drakes dated 7 March 2022. The recitals state that the Deed was entered into on the basis that Drakes denies liability.

5    Adero Law is a party to the Deed in its own name and right.

6    The Deed makes provision for the payment by Drakes of amounts that together may be referred to as the “Settlement Sum” exceeding $2.045 million. The terms of the Deed provide for the deduction of an amount referred to as the “Assessed Adero Costs” from the Settlement Sum before the remainder is distributed to persons defined as “eligible group members”.

7    On 28 November 2022 the Court made an order that the Assessed Adero Costs be fixed in the sum of 359,633.20. Prior to its entry, the order was varied to correct a slip so as to fix the sum at $365,357.30.

8    Oral reasons for the order were given on 28 November 2022. The parties and Adero Law (as an interested non-party) were informed that the Court may publish more detailed written reasons in due course. These are those written reasons.

9    As will become apparent, the Court has quantified the Assessed Adero Costs in a sum considerably lower than that recommended by an independent costs consultant and urged upon the Court by both Mr Schoneweiss and Adero Law with their apparent agreement.

10    In the reasons that follow I will explain why I have placed no weight on the apparent consent of Mr Schoneweiss.

Background

11    On 30 March 2022, Adero Law filed an interlocutory application on Mr Schoneweiss’ behalf, later amended on 11 April 2022 (Approval Application) by which Mr Schoneweiss sought orders under s 33V and s 33ZF(1) of the FCA Act approving the settlement on the terms contained in the Deed and retrospectively authorising him to enter into and give effect to the Deed on behalf of all group members who had not opted out of the proceedings. He sought a further order that the Assessed Adero Costs as defined in the Deed be “approved in the amount as endorsed by the Court”.

12    The Deed contains the following provisions relating costs:

(1)    by clause 10, the parties to the Deed make the following acknowledgments:

10    Costs Generally

10.1    Adero Law and Drakes acknowledge and agree that:

…

10.1.2    Registered Group Members and Additional Registered Group members have a liability to contribute to and pay the Assessed Adero Costs and the Administration Costs.

10.1.3    Contributions for such costs will be deducted from the Settlement Entitlements that Registered Group Members and Additional Registered Group Members will receive as Eligible Group Members under the Scheme, following an assessment, and determination by the Court of such costs.

(emphasis added)

(2)    the expressions “Adero Costs” and “Assessed Adero Costs” are defined as follows:

1.3    Adero Costs means the:

1.3.1    legal costs and disbursements of and incidental to the Drakes Class Action (including solicitor, counsel and expert fees) incurred by the Applicant on behalf of themselves and Group Members;

1.3.2    any other amount payable to Adero Law in connection with its services for and on behalf of the Applicant and Group Members; and

1.3.3    costs and disbursements incurred by Adero Law in carrying out its duties and obligations as Administrator under and incidental to the Scheme;

…

1.10    Assessed Adero Costs means Adero Costs as assessed and ordered by the Court at the time of entering the Approval Orders, or such Adero Costs as assessed and determined by way of a formal assessment and subsequently ordered by the Court.

(emphasis added)

(3)    Adero Law will be paid the Assessed Adero Costs following prior to distribution of the Settlement Sum to the eligible Registered Group Members and Additional Registered Group Members.

13    By an order made on 6 October 2022, the Administration Costs referred to in clause 1.3.3 of the Deed were fixed at $95,634.00. The orders made on 28 November 2022 do not affect that sum.

Cost consultant

14    On 31 May 2022, Adero Law filed an affidavit (again on behalf of Mr Schoneweiss) in support of the Approval Application in which Mr Markham referred to the engagement of an independent costs consultant, Ms Catherine Dealehr, for the purposes of obtaining her opinion in relation to the amount of (relevantly) the Assessed Adero Costs. Annexed to that affidavit is a copy of a report of Ms Dealehr dated 30 May 2022 (First Report). The First Report discloses correspondence passing between Adero Law and Ms Dealehr, by which Adero Law urged her to reconsider a number of opinions she had expressed in a draft report apparently provided to Adero Law before the First Report was finalised. Ms Dealehr revised her opinion in light of some corrected facts, but otherwise stood by the opinions she expressed in the draft.

15    In his affidavit, Mr Markham deposed:

…  I find that the independent assessment of Mr [sic] Dealehr in the [First Report] demonstrates the reasonableness and fairness of the legal costs incurred in the Proceedings.

16    By an affidavit affirmed on 10 June 2022 Adero Law filed a further affidavit of Mr Markham, again on behalf of Mr Schoneweiss. In that affidavit Mr Markham said that a staff member of Adero Law had raised an issue as to whether Ms Dealehr had adequately considered an issue relating to Adero Law’s non-compliance with its statutory obligations to disclose information to Mr Schoneweiss. The staff member reported that Ms Dealehr said that it was her intention to prepare a supplementary report, including to address that issue. Annexed to that affidavit is the foreshadowed supplementary report dated 9 June 2022 (Second Report).

17    Mr Markham then deposed that he had reviewed the contents of the Second Report and that he agreed with the findings contained in it. After referring to a number of other matters relevant to the Approval Application, Mr Markham concluded with words to the effect that he sought approval of the settlement on behalf of Mr Schoneweiss.

18    Read together, the First Report and the Second Report contain opinions of Ms Dealehr to the effect that the Assessed Adero Costs (including disbursements and GST) should be quantified in the sum of $537,132.86.

Approval of the settlement and subsequent hearings

19    The Approval Application was heard on 14 June 2022. That hearing occurred in close proximity to the hearing of an approval application in two other representative proceedings having similar features and in which Adero Law acted for the lead applicants. The judgment relating to the other matters was delivered on 19 September 2022:  Thomas v Romeo Lockleys Asset Partnership [2022] FCA 1106. The reasons in Thomas referred to a number of issues bearing on the assessment of the lead applicants’ costs liability vis a vis Adero Law.

20    There was a further hearing in this matter on 29 September 2022 at which Mr Markham made submissions with respect to some concerns of the Court expressed in Thomas.

21    On 6 October 2022, I made a conditional order granting approval of the settlement on the terms recorded in the Deed, together with an order authorising Mr Schoneweiss nunc pro tunc to enter into the Deed on behalf of group members. Reasons were later published as:  Schoneweiss v The Fourth Force Pty Ltd [2022] FCA 1236.

22    I made further orders relating to costs as follows:

7.    For the purposes of the Deed, the Administration Costs are fixed in the sum of $95,634.00 including GST.

8.    For the purposes of sub-clause 1.10 of the Deed the amount of the ‘Assessed Adero Costs’:

(a)    is to be determined in such a manner as the Court thinks fit, such determination to be made on or before 29 November 2022; and

(b)    is not to exceed, in any event, the sum of $537,132.86 including GST.

9.    The parties and Adero Law as an interested non-party have liberty to apply to vary the date in paragraph 8(a).

10.    On or before 13 October 2022, the applicant’s solicitor (Adero Law) in its capacity as an interested non-party is to file and serve an affidavit deposing to the existence of any collateral agreement or arrangement affecting the operation or meaning of clause 7 of the costs agreement forming annexure RMM-3 to the affidavit of Mr Markham sworn on 31 May 2022.

11.    On or before 13 October 2022, Adero Law is to:

(a)    undertake a review of the time keeping records referred to in the reports of Ms Catherine Dealehr dated 30 May 2022 (First Dealehr Report) and 9 June 2022 (Second Dealehr Report), so as to ensure that they contain (and only contain) work that Adero Law asserts is properly chargeable to the applicant, and time entries Adero Law asserts are reasonably necessary for the performance of itemised activities; and

(b)    file and serve on the applicant an affidavit:

i.    disclosing the outcome of its review and annexing (in electronic form as appropriate) the revised time records;

ii.    providing a description of the tasks undertaken prior to the entry into the costs agreement and an explanation as to why they are said to be chargeable to the applicant;

iii.    discretely identifying the fees and disbursements said to be chargeable to the applicant for obtaining the opinion of any cost consultant;

iv.    providing a detailed description of the work undertaken in the preparation of pleadings, including the provision of work product justifying the professional fees and disbursements claimed against the applicant, and explaining those charges in light of the hours referred to in Table 11 and Table 21 of the First Dealehr Report; and

v.    disclosing the extent to which any drafting, analysis, case theory preparation, modelling or other work product is a duplication of work produced in relation to any other litigation and explaining why duplicated work (if any) is claimed against the applicant.

12.    All outstanding costs orders otherwise be vacated.

23    The effect of those orders was to defer the quantification of the Assessed Adero Costs to a later time. As explained in Schoneweiss, I was not at that time willing to adopt the opinion of Ms Dealehr without further enquiry. The Court has since proceeded with a view to deciding the costs issues by 29 November 2022 so as to ensure that the Settlement Sum may be distributed in accordance with the terms of the Deed, including within the timeframes contracted for.

24    A further hearing took place on 17 October 2022. On 2 November 2022 Mr Markham filed an affidavit annexing a further report of Ms Dealehr dated 2 November 2022 (Third Report) in which Ms Dealehr confirmed that she maintained the opinions she had previously expressed.

25    There was a further hearing on 23 November 2022 at which Mr Markham announced his appearance on behalf of both Adero Law and Mr Schoneweiss. Ms Dealehr attended at that hearing to assist the Court.

The consent of Mr Schoneweiss

26    The quantification of the Assessed Adero Costs is to be undertaken in the context of Pt IVA of the FCA Act. Section 33V(1) relevantly provides that a representative proceeding may not be settled without the approval of the Court. The principles guiding the Court’s discretion under s 33V are well established. The Court has a protective role in relation to the interests of group members who are not directly represented in the proceedings, similar to the role of the Court when approving settlements on behalf of infants:  Australian Securities and Investments Commission v Richards [2013] FCAFC 89, Jacobson, Middleton and Gordon JJ (at [8]); Kelly v Willmott Forests Ltd (in liq) (No 4) [2016] FCA 323; 335 ALR 439, Murphy J (at [62]); Blairgowrie Trading Ltd v Allco Finance Group Ltd (recs & mgrs apptd) (in liq) (No 3) [2017] FCA 330; 343 ALR 476 (at [81] – [85]); Caason Investments Pty Limited v Cao (No 2) [2018] FCA 527, Murphy J (at [12]); Baker v Woolworths Group Limited (No 2) [2022] FCA 534, Murphy J (at [37]). The Court’s protective role extends to the determination of questions of costs.

27    The structure of the Deed and the circumstance that Adero Law is a party to it has the consequence that there is now a matter before the Court in respect of which the interests of Adero Law conflict with the duties it owes to Mr Schoneweiss and (through him) the group members.

28    Whilst that is not uncommon in representative proceedings in which approval orders are sought, it nonetheless remains the responsibility of Adero Law to manage any conflict between its interests and duties. The general law in that respect is reflected in this Court’s class actions practice note GPN-CA, [5.9] and [5.10].

29    The requirement in the Deed for there to be a “formal assessment” is just that. The parties did not agree to be bound by the opinion of an independent costs consultant. Whilst it was open to them to obtain such an opinion, it at all times remained open to Mr Schoneweiss to agitate for an outcome more beneficial for group members than that recommended to the Court by the expert. As a consumer of legal services Mr Schoneweiss has statutory rights discussed in these reasons and he is entitled to assert them as against Adero Law.

30    The Court granted Adero Law an audience to make submissions as an interested non-party, but that did not relieve Adero Law of its responsibility to manage any conflict between its interests and the duties it continues to owe to Mr Schoneweiss as lead applicant, for whom it continues to act. The various issues identified by the Court in these reasons are issues that ought to have been the subject of advice to Mr Schoneweiss in his individual capacity and in his capacity as the representative of group members whose interests will be affected by the outcome of the “formal assessment”.

31    In its capacity as an interested non-party Adero Law emphasised that Mr Schoneweiss had agreed to the terms of the Deed and that he had also agreed with the recommendation of Ms Dealehr. That submission fails to grasp the antecedent question as to whether Adero Law has first discharged its fiduciary duties to Mr Schoneweiss before obtaining his “agreement” in either respect and communicating that “agreement” to the Court. It may be accepted that upon the finalisation of non-representative proceedings a lawyer has no duty to advise a client in respect of the client’s rights concerning the lawyer’s claim for costs (other than its duty to fulfil its statutory obligations of disclosure of the kind discussed below). However, in the present legal context the rights and liabilities as between Adero Law and Mr Schoneweiss have become a substantive issue to be adjudicated in the very proceedings in which Adero Law continues to act for Mr Schoneweiss. Moreover, the controversy between the parties to the proceedings (including the rights of group members as against Drakes) cannot be finally resolved until Adero Law’s claim for costs against Mr Schoneweiss is determined.

32    It appears that Mr Markham has “managed” the conflict between Adero Law’s interests and duties by causing another (unnamed) staff member to inform Mr Schoneweiss that he has the “opportunity” to obtain independent legal advice. It is reasonable to infer that the “opportunity” is one that Mr Schoneweiss should pursue at his own expense. Adero Law advanced no proposal to the Court as to how independent advice or representation could or should be arranged.

33    The arguments advanced by Mr Markham were otherwise directed to persuading the Court not to fix costs in an amount less than that recommended by Ms Dealehr. They were submissions directed to protecting the interests of Adero Law.

34    These considerations have affected the Court’s approach to the determination of the Assessed Adero Costs in three ways.

35    First, I am not satisfied on the material before me that the position of Mr Schoneweiss with respect to costs was fully informed, especially having regard to the fiduciary relationship between solicitor and client. That is not to say that Adero Law does not have a legitimate interest in receiving remuneration for the legal services it has provided. However, the quantification of its costs is a matter in respect of which there may be a range of lawful outcomes, depending upon the quality and quantity of material provided by Adero Law to any expert, the methodology employed, the manner in which discretionary powers are exercised and the extent to which Adero Law has complied with disclosure obligations that may have a bearing on an assessment of costs. Mr Schoneweiss on behalf of the group members is entitled to advance submissions contrary to those advanced by Adero Law, including as to whether the opinion of any independent costs consultant should be accepted in whole or in part. Adero Law has a corresponding duty to act in the best interests of Mr Schoneweiss in these proceedings.

36    On the material before me, I am not satisfied that Mr Schoneweiss has had the benefit of legal advice with respect to the various issues that may affect the quantification of Adero Law’s asserted entitlement to be paid.

37    Accordingly, I have placed no weight on the existence of any apparent agreement of Mr Schoneweiss in relation to the adoption of the opinions of the independent costs consultant or otherwise. In the circumstances just identified, the Court can have no confidence in the quality of his consent. That should not be understood as a criticism of Mr Schoneweiss. It is simply to say that it appears that Mr Schoneweiss is in no position to effectively advance the interests of group members at this stage of the proceedings without obtaining legal advice at his own expense. On the material before me, it appears that the prospect that he should have to do so at this stage of the proceedings may not have been explained to him prior to his execution of the Deed.

38    Second, the Court has adapted its procedures so as to put questions to Ms Dealehr of a kind that might otherwise have been put by a person acting in the interests of group members. Adero Law consented to those processes, so as to resolve the issues in a cost-effective way. It is generally undesirable that the Court’s administrative and judicial resources be expended in that way.

39    Third, the Court has carefully scrutinised the instructions given to Ms Dealehr and the quality of the material provided to her, notwithstanding that she has the obligations of an independent expert. To the extent that the opinions of Ms Dealehr have not been accepted, that is in part explained by the Court’s concerns about the quality of the materials and instructions provided to her by Adero Law. Relatedly, I consider there to have been insufficient attention given to the general law in relation to costs assessments, particularly laws imposing obligations on lawyers to present information on request in a prescribed way for the purposes of a costs assessment, and to pay for the costs of an assessment in prescribed circumstances. That law is as follows.

The applicable law

The Legal Profession Act 2006 (ACT)

40    Ms Dealehr concluded that Adero Law’s rights and liabilities are governed by (at least) the Legal Profession Act 2006 (ACT) (LP Act).

41    In the course of submissions, Mr Markham acknowledged that if the LP Act did not apply, then equivalent provisions contained in a schedule to the Legal Practitioners Act 1981 (SA) (LP Act (SA)) would operate to the same effect. Accordingly, when identifying the obligations of Adero Law vis à vis Mr Schoneweiss, these reasons will refer to the LP Act and to the Federal Court Rules 2011 (Cth) that make provision for the quantification of cost claims in the resolution of cost disputes.

42    It is appropriate that this Court act in a manner consistent with those laws, whether or not they have direct application in the unique legal context in which the Assessed Adero Costs are to be quantified. In other words, to the extent that the laws do not operate of their own force, in accordance with the principles stated in Rizeq v Western Australia (2017) 262 CLR 1, or are not picked up by reason of s 79 and s 80 of the Judiciary Act 1903 (Cth), the Court may act in accordance with them in the exercise of its discretionary powers under Pt IVA of the FCA Act. Prior to the Court making orders approving the settlement in circumstances where the question of the Assessed Adero Costs remained undetermined, the Court asked Mr Markham if it was his intention to make submissions to the effect that the Court could not exercise discretions of the kind referred to in the LP Act relating to Adero Law’s non-compliance with its terms. Mr Markham gave an undertaking to the Court that he would not do so.

43    A purpose of the LP Act is to provide for the regulation of legal practice in the Australian Capital Territory (ACT) in the interests of the administration of justice and for the protection of consumers of the services of the legal profession and the public generally, and to facilitate the regulation of legal practice on a national basis across State and Territory borders:  LP Act, s 6.

44    Part 3.2 of the LP Act is headed “Costs disclosure and assessment”. It applies in a case where the client first instructs the relevant law practice in relation to the matter in the ACT, or otherwise by agreement: LP Act, s 266.

45    Mr Schoneweiss executed a written Costs Agreement with Adero Law on 15 May 2020. The Court has been told that a further 66 group members executed agreements on “substantially similar terms”.

46    The Costs Agreement is rendered void under s 287 of the LP Act because it does not comply with s 283 and s 284 (contained in Div 3.2.5) relating to the imposition of a 25% contingency fee. It is unnecessary to detail those instances of non-compliance here, suffice to say that they appear to have been first identified by Ms Dealehr and may not have been known to Mr Schoneweiss at the time that the Deed was entered into.

47    Under s 287(2) of the LP Act, legal costs under a void costs agreement are recoverable as set out in s 279(b) or (c). Section 279 provides:

On what basis are legal costs recoverable?

Subject to division 3.2.2 (Application—pt 3.2), legal costs are recoverable—

(a)    under a costs agreement made in accordance with division 3.2.5 or the corresponding provisions of a corresponding law; or

(b)    if paragraph (a) does not apply—in accordance with an applicable scale of costs; or

(c)    if neither paragraph (a) nor (b) applies—according to the fair and reasonable value of the legal services provided.

48    As the Costs Agreement was not made in accordance with Div 3.2.5, Adero Law has no entitlement to enforce any costs liability against Mr Schoneweiss quantified by reference to the schedule of fees contained within the void Costs Agreement (Retainer Fees). Quantification of the Assessed Adero Costs is instead to be undertaken “in accordance with an applicable scale of costs”:  LP Act, s 279(b). Ms Dealehr has proceeded from the premise that the applicable scale is that contained in Sch 3 to the Rules (the Scale) and it was not contended otherwise by Adero Law. I have accordingly proceeded on that basis.

49    As discussed below, Adero Law has also failed to comply with disclosure obligations contained in Div 3.2.3 of the LP Act. If the Costs Agreement was not rendered void by virtue of its non-compliance with Div 3.2.5, then its non-compliance with Div 3.2.3 may also have the consequence that fees are to be recovered in accordance with the applicable scale. So much is apparent from s 300A of the LP Act. It provides:

Assessment of costs by reference to costs agreement

(1)    The Supreme Court must assess the amount of any disputed legal 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 of working out the amount, of the costs; and

(b)    the agreement has not been set aside under section 288 (Setting aside costs agreements);

unless the Supreme Court is satisfied—

(c)    that the agreement does not comply in a material respect with any applicable disclosure requirements of division 3.2.3 (Costs disclosure); or

(d)    that division 3.2.5 (Costs agreements) prevents the law practice concerned from recovering the amount of the costs; or

(e)    that the parties otherwise agree.

(2)    The Supreme Court is not required to initiate an examination of the matters mentioned in subsection (1) (c) and (d).

50    The criteria for an assessment of costs under the LP Act are otherwise set out in s 300:

Criteria for costs assessment

(1)    In conducting an assessment of legal costs, the Supreme Court 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 way; and

(c)    the fairness and reasonableness of the amount of legal costs in relation to the work, except to the extent that section 300A (Assessment of costs by reference to costs agreement) or section 300B (Assessment of costs by reference to scale of costs etc) applies to any disputed costs; and

(d)    if the costs agreement contained provision for an uplift fee under section 284 (Conditional costs agreements involving uplift fees), whether the uplift fee was justified in the circumstances.

(2)    In considering what is a fair and reasonable amount of legal costs, the Supreme Court 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 this Act;

(b)    any disclosures made by the law practice under division 3.2.3 (Costs disclosure);

(c)    any relevant advertisement about—

(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)    the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter;

(e)    the retainer and whether the work done was within the scope of the retainer;

(f)    the complexity, novelty or difficulty of the matter;

(g)    the quality of the work done;

(h)    the place where, and circumstances in which, the legal services were provided;

(i)    the time within which the work was required to be done;

(j)    any other relevant matter.

51    The criteria are largely evaluative, especially those set out in subs (1)(a) and (b). They require an assessor to consider, among other things, whether the time expended on a task was reasonably necessary for its performance.

52    Adero Law’s disclosure obligations included those imposed under s 269(1) and s 273 of the LP Act, each of which is contained in Div 3.2.3. It is necessary to say more about those provisions as they have consequences for the manner in which an assessment is to be conducted (and at whose expense).

53    Section 269(1)(d) provides that a law practice must disclose to a client, in accordance with Div 3.2.3:

an estimate of the total legal costs, if reasonably practicable or, if it is not reasonably practicable to estimate the total legal costs, a range of estimates of the total legal costs and an explanation of the major variables that will affect the working out of the costs; …

54    The disclosure required under s 269(1) must made in writing before, or as soon as practicable after the law practice is retained:  LP Act, s 271.

55    Section 273 relevantly provides that if a law practice negotiates the settlement of a litigious matter on behalf of a client, the practice must disclose to the client, before the settlement is executed, (relevantly) a reasonable estimate of the amount of legal costs payable by the client if the matter is settled.

56    Adero Law breached those obligations in circumstances described later in these reasons. The effect of that non-compliance is provided for in s 277 of the LP Act. It provides relevantly:

Effect of failure to disclose

(1)    If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer (as the case may be) need not pay the legal costs unless they have been assessed under division 3.2.7.

(2)    A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not bring a proceeding against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been assessed under division 3.2.7.

(3)    If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed and the client or associated third party payer has entered into a costs agreement with the law practice, the client or associated third party payer may also apply under section 288 (Setting aside costs agreements) for the costs agreement to be set aside.

(4)    If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the amount of the costs may, on an assessment of the relevant legal costs, be reduced by an amount considered by the Supreme Court to be proportionate to the seriousness of the failure to disclose.

…

(7)    Failure by a law practice to comply with this division can be unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian-registered foreign lawyer involved in the failure.

57    Adero Law did not submit that s 277 had no application in a proceeding commenced in this Court. Whilst the consequences refer to an assessment to be undertaken by the Supreme Court of the ACT under Div 3.2.7, the Deed in the present case of contemplates that the quantification of the Assessed Adero Costs will be undertaken by this Court. In undertaking that assessment, the same consequences for breach should be considered, as if upon an assessment under Div 3.2.7 of the LP Act.

58    Section 302(2) of the LP Act provides that unless the Supreme Court of the ACT otherwise orders, the law practice to which the costs are payable must pay the costs of the costs assessment if on the assessment the legal costs are reduced by 15% or more, or the Court is satisfied that the law practice failed to comply with Div 3.2.3. The requirement that the law practice pay the costs of the costs assessment is not confined to that part of the assessment that is concerned with any inquiry in to the fact of the breach. It applies to the whole of the assessment.

59    Section 278 of the LP Act provides that a law practice must not start a legal proceeding to recover legal costs from a person until at least 30 days after the day the practice has given a bill to the person in accordance with s 290 and s 291. Section 290 provides that a bill may be in the form of a “lump sum bill” or “itemised bill”. A bill must include or be accompanied by a written statement setting out avenues that are open to the client if there is a dispute in relation to legal costs, including costs assessment under Div 3.2.7. If a person is given a “lump sum bill” the person may ask for an itemised bill within a prescribed time:  LP Act, s 292(2), (3). The law practice must comply with such a request as soon as possible:  LP Act, s 292(4). The law practice is not entitled to charge for the preparation of an itemised bill:  LP Act, s 292(8). For the purposes of these provisions, an “itemised bill” means a bill that states in detail how the legal costs are made up in a way that would allow them to be assessed under Div 3.2.7. On the material before me it does not appear that any of these provisions were brought to Mr Schoneweiss’ attention.

60    Notwithstanding those provisions, Ms Dealehr was instructed to proceed on the assumption that the costs of the preparation of her reports were to be deducted from the Settlement Sum. Whilst there was no limit placed on the cost of her own services, Ms Dealehr was (understandably) constrained in her scrutiny of Adero Law’s records so as not to increase an expense by her own invoice that she assumed must necessarily be met by group members. That assumption is difficult to justify in light of the above provisions. I consider that the assumption has caused Ms Dealehr to refrain from undertaking enquiries that were called for in the present case, and that she was so restrained because of her concern that the expense of applying greater scrutiny would outweigh the possible benefit to group members. In addition, Ms Dealehr’s opinions are based in part on her understanding that a greater level of scrutiny need not be scrutinised unless there is a “dispute” raised by the client.

61    The words “formal assessment” in the Deed should be understood to refer to the procedure that may be undertaken by an assessor under Div 3.2.7 of the LP Act or equivalent regimes. In other words, a formal assessment is to be undertaken whether or not the “client” in this case raises a “dispute” in response to any bill prepared by the lawyer.

62    The assessment is otherwise concerned with the amount that Adero Law may lawfully charge Mr Schoneweiss and the group members in light of the Court’s order that the group members are bound by the Deed. It is akin to a solicitor-client assessment, albeit one to be undertaken in accordance with the Scale.

Ms Dealehr’s methodology and conclusions

63    Ms Dealehr considered Adero Law’s professional fees and disbursements in two parts. Part A relates to the period up to 22 April 2022 (around the time that she was first retained). Part B relates to costs from 23 April 2022 through to the approval hearing on 14 June 2022. The conclusions relating to Part B were necessarily based on estimates of the expenses that Adero Law expected to incur in the lead up to and including the approval hearing.

64    For the purposes of her reports, Ms Dealehr relied upon data extracted from Adero Law’s time-keeping systems. It appears that Adero Law did not conduct its own review of that data to remove non-claimable items before providing it to Ms Dealehr. So much is apparent from its extraordinary inclusion of charges for the preparation of its own costs agreements.

65    Ms Dealehr utilised a method referred to as Rate And Time Timekeeper And Narrative (RATTAN), and Phase Task Activities coding (PTA coding), which she described in the First Report as follows (at [21]):

…  My reports summarise the value of the legal work by coding each time recording entry by reference to List 1 categories which are later grouped together into various aspects of the litigation (Phases). It also identifies the nature of the work done (Tasks). Each time recording is simultaneously coded using List 2 codes to identify the form of the work done (Activities). I have developed this method to better understand the nature of the legal work undertaken by the law practice and, in particular, to identify non-claimable work or work where a discount ought to be applied.  …

66    In considering the Part A costs, Ms Dealehr employed a methodology involving six steps. In steps 1 and 2, she determined the positions of “operators” with reference to the dates upon which they were admitted to practice and applied the hourly rates applicable to each operator in accordance with the Scale. That exercise resulted in a reduction of $109,789.50 of the amount originally claimed by Adero Law. I accept that aspect of her opinion.

67    At step 3 of her analysis, Ms Dealehr describes how Adero Law’s time entries were allocated to “Phases”. The “Phases” do not follow each other in time but are rather categories of work undertaken over concurrent or overlapping periods. The method of categorising the tasks involves interpretation of the time entries considered in the context of other information. Eight “Phases” were identified:  pre-action work, pleadings, case management, lay witness evidence, mediation/settlement negotiations, settlement approval, large scale litigation management and miscellaneous.

68    The time attributed to the “pleadings” phase was 185.7 hours.

69    Ms Dealehr then identified the “activities” that were nestled under the Phases. One such activity is titled “plan, prepare, drafting” (361.8 hours). Another is titled “review, analysis” (106.1 hours).

70    At step 5, Ms Dealehr applied discounts for unclaimable or unreasonable work to the value of $31,978.63. After that deduction, the professional fees totalled $380,825.38.

71    At step 6, Ms Dealehr applied a “loading”, being an additional amount for skill care and responsibility under item 11.1 of the Scale. She opined that a 12.5% loading was appropriate, so increasing the professional fees referable to the Part A period to $428,428.55.

72    Ms Dealehr then calculated disbursements up to 22 April 2022 in the amount of $38,357.76.

73    As to the Part B period, Ms Dealehr acted on anticipated future tasks suggested by Adero Law to be necessary. She applied the Scale rates to those hours, before adding a 12.5% loading for care, skill and attention, arriving at a sum of $30,116,25.

74    The disbursements for the Part B period were revised in the Second Report. As revised, they total $40,230.30 resulting in total fees and disbursements for the Part B period of $70,346.55.

75    The summary of Ms Dealehr’s conclusions is to be found in Table 2 at [16] of the Second Report:

TABLE 2 –APPLICANT’S LEGAL COSTS UP TO APPROVAL HEARING

The Court’s assessment

76    I have concluded that there should be eight discrete deductions in the Assessed Adero Costs from the $537,132.86 ascertained by Ms Dealehr. After factoring in these eight deductions, the Assessed Adero Costs should be fixed at $365,357.30. The table below sets out each deduction and its value, and its effect on the total.

Part A professional fees

Pleadings

77    The body of the amended statement of claim is a little under 36 pages long. There are eight pages of particulars. As identified below, the document is spaciously formatted and totals (at the very most) 13,200 words although the true count is more in the order of 7,500 words. A not insubstantial portion of the document is expressed in exactly the same terms as the pleading filed in the earlier action of Thomas. At least four pages have that character. I infer they have been cut and pasted from an earlier document. There is nothing impermissible about that. Efficiencies can be gained in using one document as the template to begin another. But if that has occurred, ordinarily it should alter the allowable fee for the preparation of the document.

78    In the First Report, the Phase referred to as “pleadings” and the activity referred to as “plan, prepare, draft” did not identify how many hours were dedicated to the drafting of the pleading. It was apparent that the pleadings Phase incorporated work in addition to the drafting of the document itself. It must also be inferred that the activities description “plan, prepare, draft” also includes tasks in addition to drafting of the plea. After the provision of the Second Report, the time dedicated to the drafting of the pleadings remained unclear. Given the quantity of hours attributable to the relevant Phase and activities, the Court required Adero Law to file an affidavit giving better information.

79    In his affidavit of 13 October 2022, Mr Markham deposed that Adero Law’s time-keeping system permitted work to be categorised into “tranches” that do not necessarily coincide with the categorisation of “Phases” referred to by Ms Dealehr. One such tranche was titled “Statement of Case”. That tranche included activities referable to the pleadings, but was not wholly confined to the activity of drafting. Mr Markham stated that the costs referrable to the whole of the “Statement of Case” tranche totalled $93,857.00 (calculated on Retainer Fees). Of that sum, $63,699.50 (also calculated in Retainer fees) was said to be attributed purely to the task of drafting the pleadings.

80    In later submissions, Mr Markham confirmed that the sum dedicated to the task of drafting did not include other tasks necessary to obtain all instructions and perform the analyses required for the drafting to occur. He also accepted that the dollar figure translated into approximately 120 hours of work, on the assumption that it was performed by a mid-level lawyer at Scale rates. That figure does not include the considerable hours dedicated by Counsel who settled the pleadings (as to which see below).

81    The time expended on the drafting of the pleading is a question of fact. On the basis of Mr Markham’s affidavit evidence, I find that the time in fact charged purely for the drafting of the pleadings by Adero Law (and not including disbursements in Counsel fees) is approximately 120 hours.

82    Mr Markham’s affidavit and submissions on this topic predated the preparation of the Third Report.

83    In her Third Report, Ms Dealehr acknowledged that she had not previously broken down her own figures in a way that enabled the Court to identify the hours attributable to the drafting of the pleading (as opposed to associated tasks such as taking instructions, preparing a brief to Counsel, preparing analysis to inform the pleadings and the like). She went on to break down the activities as follows:

84    On Ms Dealehr’s interpretation of the time records, the hours dedicated to drafting totals 65.3, much of which was undertaken at the Associate and lawyer level. That translated to a fee of $29,024.00 (calculated on the Scale).

85    According to Ms Dealehr, Counsel spent 18.75 hours drafting and settling the pleadings, and a further 28.75 hours on tasks described as “preparation, reading brief & reading re pleadings”.

86    There is a significant discrepancy between the 65.3 hours identified by Ms Dealehr and the 120 hours said by Mr Markham in his affidavit and submissions to have been dedicated to the task. I have preferred the direct evidence of Mr Markham to the interpretation Ms Dealehr placed on the records, principally because the records are those of Adero Law with which Mr Markham should be familiar. If Adero Law were requested to prepare an itemised bill in accordance with the requirements of the LP Act, it would have been obliged to furnish detail as to the time expended on drafting. Any method employed by Ms Dealehr to interpret the records differently should not be preferred to the objective evidence of Mr Markham going to the same fact.

87    All of that serves to illustrate the importance that independent cost experts be briefed with documents expressed with sufficient detail and clarity to properly facilitate an assessment. Where costs are recoverable in accordance with the Scale that obligation extends to informing the assessor as to the actual time expended on the preparation of documents:  the time in fact expended should not be a question of opinion for the expert but a question of fact to be frankly disclosed by the lawyers.

88    Item 2.1 of the Scale makes express provision for legal fees chargeable for the preparation of a document. The rate to be paid is $59.00 per 100 words. Ms Dealehr informed the Court that she had not performed the arithmetic as to ascertain the fee payable under item 2.1. She opined that she would not utilise the item-based approach in any event because the difference in the outcomes would be “marginal”.

89    There are about 300 words on the most densely worded page of the pleading and about 60 words on the least populated page. Generously assuming all pages contain 300 words, the 44 page document contains 13,200 words. The allowable fee on the item based approach (rounded to the nearest 100) is $7,800. Ms Dealehr’s recommendation is about five times that figure. The difference is not marginal. The difference is even more marked when Counsel fees referable to the drafting and settling of the document are considered. The difference on a charge allowing 120 hours at the hour rate of a lawyer or Associate would be extreme.

90    An assessor may have a discretion to calculate costs referrable to the drafting of a document in accordance with item 1.1 of the Scale, which makes provision for an hourly rate to be applied to “attendances” according to the reasonable time in fact expended on a task. But in my view, departure from the item-based costing provided for in item 2.1 should be explained and justified, especially when the difference between the two outcomes is as extreme as in this proceeding.

91    It seems to me that the item-based costing for the preparation of documents has a purpose. Its purpose is to ensure that a consumer of legal services pays only for the utility residing in the drafted words. The consumer should not be put to the expense of multiple authors massaging the same words over and over. The Court should be particularly concerned to protect consumers from lawyers’ fees incurred in the drafting of a document in circumstances where the work ultimately is of little or no real value to the client, including because it is later deleted or rewritten by more senior practitioners or Counsel. Ms Dealehr had before her five drafts of the pleading but her reports disclose no interrogation of them, from a costing perspective, at even the most cursory level. On a formal assessment, I consider that the onus should be on the lawyer to demonstrate some special feature of the case that justifies resorting to an hourly rate applied to time in fact expended, in substitution for the item based costing required by item 2.1. The difference between the two outcomes should bear some proportion to the evidence relied upon by the lawyer. On the material before me, I am not satisfied that there exists a compelling basis to allow a charge other than that calculated in accordance with item 2.1 of the Scale.

92    It is necessary to consider what deductions should be made to the recommended professional fees set out in Ms Dealehr’s conclusions table. In my view, it is appropriate to first reduce the Part A professional fees by $21,224.00 being the difference between $29,024.00 (the amount allowed by Ms Dealehr) and $7,800.00 (the amount to be allowed by the Court) (Deduction 1).

93    It is appropriate to make a further reduction in light of the evidence before me on this topic. A consequence of my findings is that Ms Dealehr ought to have identified 120 hours as referrable to “purely” the drafting of pleadings, rather than the 65.3 hours she in fact identified. It is reasonable to infer (and I find) that she has mistakenly categorised 54.7 hours in truth attributable to the drafting of pleadings to some other activity. Again, I consider that to be a consequence of the nature of the materials provided to her. I will disallow a further 54.7 hours as an unreasonable charge associated purely with the drafting of pleadings. To those hours it is appropriate to apply the hourly rate chargeable by an Associate in accordance with the Scale (that is $485.00 per hour inc GST) given that about half of the drafting work identified by Ms Dealehr was undertaken at the lawyer or Associate level, so totalling $26,529.50.

94    In my discretion I will reduce that deduction to $13,000 (Deduction 2).

95    The total deduction referable to the pleadings issue is $47,753.50.

96    In addition to the observations I have made, I do not otherwise accept the reasons advanced by Mr Markham or Ms Dealehr as to why the amount recommended by Ms Dealehr was fair and reasonable in any event. Ms Dealehr acknowledged (properly) that the legal subject matter of the proceedings was something she knew little about. Ms Dealehr’s opinion in respect of the reasonableness of the costs associated with the pleadings Phase more generally was expressed as follows:

In arriving at this opinion, I rely on my experience in what typically Federal Court and other Court taxing officers would allow on solicitor-own taxations where the reasonableness of time spent on plan, prepare and drafting pleadings is considered. I also draw on my experience in class actions in which I have been directly involved and which have been approved by the Courts.

97    I do not garner much assistance from that opinion. There is a danger in expressing a view based mostly upon what the expert has seen happen in other taxation processes before taxation officers. Ms Dealehr has not identified any particular instance in which the question of the reasonableness of drafting costs have been considered in accordance with legal principle and in a case where costs are only recoverable in accordance with the Scale. In such cases, if it is the practice of taxing officers to routinely allow costs for pleadings calculated in accordance with an hourly rate as a multiple of hours spent without explaining why the item based approach provided for under item 2.1 should not apply, then the typical approach referred to by Ms Dealehr is one to be discouraged. Even if the item-based approach was not adopted, I consider that a claim based on 65.3 hours for the preparation of a widely spaced 44 page document (involving a degree of duplication) warranted careful scrutiny in and of itself. That is especially so in light of the additional hours dedicated by Counsel to the same document, bringing the total time to approximately 100 hours (using Ms Dealehr’s figures).

98    Ms Dealehr referred to a process by which a taxing officer making a lump sum assessment might “sample” work product to ensure that the time expended on it is fair and reasonable. In my view, that process was called for in the present case if an hourly rate was to be applied. In cases where that process appears to be called for but the independent costs consultant considers there might be a concern with respect to its cost-effectiveness, the concerns of the consultant may be brought to the attention of the Court.

99    Finally on this topic, Ms Dealehr told the Court that if I were not to accept her finding that the hours dedicated to drafting were 65.3 hours, then it would follow that I must reject the whole of her opinion as unreliable. That is not so. It is true that Ms Dealehr’s methodology includes a process under which an evaluation must be made of the time entries and a decision made as to how they should be categorised. The reliability of that method in accurately identifying the tasks to which a time entry refers must depend on the integrity of the record and the manner in which it is expressed. Adherence to the method becomes problematic when it is applied in the face of reliable evidence pointing to a different interpretation. Whilst Ms Dealehr appears to have been provided with a transcript of a hearing at which Mr Markham made submissions in relation to the time in fact expended on the drafting of pleadings, it appears that she was not provided with the affidavit that gave that exchange its proper context. My rejection of Ms Dealehr’s conclusion with respect to this issue involves a question about the quality of the records and instructions provided to her. It should not be understood as casting an aspersion on her expertise more generally.

Costs relating to other documents

100    The activities described as “plan, prepare, draft” are activities nestled among a number of the Phases described by Ms Dealehr. The activity of drafting was not confined to pleadings. The material before the Court indicates that a significant portion of Adero Law’s claim for costs derives from activities in the nature of drafting documents to which item 2.1 of the Scale should apply. The documents of which the Court is aware include correspondence, witness statements, notices to group members, correspondence to the respondents and group members, the Deed and the Approval Application, including supporting affidavits. Of the 1024 hours claimed, I estimate that at least 100 of them are attributable to the drafting of documents other than the pleadings. That is a conservative estimate in Adero Law’s favour. Ms Dealehr opines that it is not practicable to attempt to extricate from the time record entries those hours that are attributable to drafting and those hours that relate to activities that are in the drafting task. In my view, if the time records do not readily disclose information that would enable that distinction to be drawn, then that is a failure on the lawyer’s part to prepare the time records in an adequate manner that would permit an assessment in accordance with the Scale to be made. I do not consider that the desirability of a “lump sum” assessment is a reason to excuse a lawyer from presenting its claim for costs in a way that is amenable to the breaking down of figures so that the claims can be properly interrogated. That is especially important in a case, such as the present, when the only basis for charging is that provided for under the applicable Scale. As I have mentioned, at general law Adero Law was obliged on request to present an itemised ill, that is, a bill expressed in a way that facilitates an assessment, and to do so at its own expense.

101    I am confident that if there was to be an assessment of the costs attributable to the drafting of documents in this case then the outcome, expressed in dollar terms, would be substantially lower than that claimed by Adero Law and approved by Ms Dealehr using a time-based approach.

102    At this late stage in the proceeding, I do not consider it desirable to afford Adero Law an opportunity to improve its time records so as to enable the Court to identify which hours are referrable to drafting tasks and which are not. The Court will not adopt a procedure that would have the effect of delaying the final resolution of the costs issue as that would only serve to delay the distribution of the net Settlement Sum to group members. The most appropriate response is to apply a lump sum reduction to Adero Law’s claim to professional fees to reflect the circumstance that document preparation in this case should be charged in accordance with item 2.1 of the Scale and not in accordance with item 1.1. I have generously assumed (in Adero Law’s favour) that only 100 of the 1024 total hours are referrable to drafting documents other than the pleadings. Again, approaching the matter generously toward Adero Law I will disallow a further sum of $15,000.00 as an indication of the absolute minimum deduction I consider would ensue if the document drafting tasks were to be properly assessed in accordance with item 2.1 (Deduction 3).

Part A disbursements

103    I am satisfied that all the disbursements in Part A were reasonable and necessary.

Part B professional fees

104    I turn now to the amount allowed by Ms Dealehr referable to the Part B period. Ms Dealehr proceeded on the basis that the predicted tasks and the time to be dedicated to them (as asserted by Adero Law) were reasonably necessary. I do not agree.

105    The tasks in the Part B period involved the preparation for the hearing of the Approval Application. As at 23 April 2022, the Approval Application had already been filed and amended, and a supporting affidavit had also been filed. The hearing was set down for 14 June 2022 with a half day set aside. Counsel was briefed to appear. The orders were sought by consent. If there was an issue that was likely to require particular attention, it was the issue of Adero Law’s own claim for costs.

106    The estimated tasks from 23 April 2022 and the hours said by Adero Law to be required for them are as follows:

TABLE 25 - REASONABLE ESTIMATED COSTS TO APPROVAL

107    Three deductions should be made to these claims.

108    First, the tasks referable to the Principal are difficult to comprehend. The Principal did not have a speaking role. The 12 hours specified in the first row are in addition to the six hours referred to in the fourth row for the preparation of the principal’s affidavit, thus totalling 18 hours charged at the Principal’s rate. The suggestion that it was reasonably necessary for the Principal to spend 12 hours on tasks that included reviewing the entire file is concerning. The appropriate response is to disallow the whole of the $7,800 claim in the first row on the basis that it is an ambit claim (Deduction 4). It is not for the Court to rewrite the separate tasks in a manner that would make each of them amenable to assessment.

109    Second, I assume that the work of the Senior Associate may be reasonably necessary to assist Counsel in the preparation of an opinion as to the reasonableness of the settlement. However, the Court has heard evidence about the operation of the “model” there referred to and I do not consider that 12 hours spent on manipulating the figures could be justified given that the Deed had already been negotiated and agreed. I will reduce that claim by $2,200.00 (Deduction 5).

110    Third, the five remaining items in the table relate to the preparation of documents including submissions, affidavits and correspondence. There is no information provided to Ms Dealehr as to their likely length. Ms Dealehr gives no consideration to the application of item 2.1 to that future work. Applying a broad brush approach, I will reduce those items by 50% on the basis that they should be assessed according to item 2.1 and not on an hourly rate (Deduction 6).

Part B disbursements

111    Ms Dealehr’s conclusion concerning disbursements in the Part B period are set out in table 27 at [16] of her Second Report. They include an amount of $21,347.70 in cost expert fees, referable to Ms Dealehr’s own invoice.

112    In the circumstances described earlier in these reasons, the group members should not bear any expense associated with obtaining Ms Dealehr’s reports. Mr Markham has informed the Court that Adero Law’s claimed costs did not include the costs of preparing briefs to Ms Dealehr. Whilst Adero Law has agreed to shoulder 50% of the cost, that is not sufficient, particularly in light of s 300 of the LP Act.

113    The whole of that disbursement should be disallowed, resulting in a reduction of $21,347.70 (Deduction 7).

Loading for care, skill and responsibiity

114    Item 11 of the Scale states:

Skill care and responsibility

11.1    An additional amount may be allowed, having regard to all the circumstances of the case, including the following:

(a)    the complexity of the matter;

(b)    the difficulty or novelty of the questions involved in the matter;

(c)    the skill, specialised knowledge and responsibility involved and the time and labour expended by the lawyer;

(d)    the number and importance of the documents prepared and read, regardless of their length;

(e)    the amount or value of money or property involved;

(f)    research and consideration of questions of law and fact;

(g)    the general care and conduct of the lawyer, having regard to the lawyer’s instructions and all relevant circumstances;

(h)    the time within which the work was required to be done;

(i)    allowances otherwise made in accordance with this scale (including any allowances for attendances in accordance with item 1.1); and

(j)    any other relevant matter.

115    This Court’s “Guide to Discretionary Items in Bill of Costs” states that “A percentage of the amount allowed for items 1 - 10 in the range of 0-15% is commonly allowed”. The Guide includes a note to the effect that taxing officers will consider the matters set out in r 40.13 of the Rules and item 11.1 including lawyers’ work already allowed at the item 1.1 rate.

116    The reference to a percentage amount of between 0 – 15% being commonly allowed is of little utility. The proper approach is to weigh all of the considerations in item 11.1 to determine whether any allowance should be made at all and, if so, what that amount should be. It is a fact sensitive task.

117    A loading under item 11.1 of the Scale should not be assumed as a matter of right. The starting point is that all lawyers have a duty to exercise care and skill in the conduct of litigation on their clients’ behalf.

118    I have found the opinion of Ms Dealehr to be of little assistance in relation to this topic. On the subject of legal complexity, she acknowledged (frankly and properly) that she is not experienced in litigation commenced under the FW Act. The Court may draw from its own experience in adjudicating disputes under the FW Act when evaluating the complexity of the legal and factual subject matter. In that respect, it may be observed that claims alleging contraventions of civil remedy provisions (including contravention of s 50 of the FW Act by virtue of failure to comply with an Award) are routinely made in this Court.

119    I do, however, accept that there may be legal complexity attending to the task of defining group members and identifying common issues so as to properly constitute the proceedings as representative proceedings under Pt IVA of the FCA Act. As to that species of complexity, however, the Court may have regard to the circumstance that Counsel was briefed from a very early stage, including for the purpose of drafting the pleadings. As Ms Dealehr has identified, Counsel expended 50 hours on reading, analysing and drafting to the completion of the pleading. In a case where it is evident that Counsel has had significant involvement, I consider that is necessary for a lawyer seeking a loading under item 11.1 to show that the legal complexity attending a proceeding was one justifying an increase in the lawyer’s own professional fees. On the material before me, I do not consider there to be a proper basis for the allowance of a loading referable to legal complexity attending the definition of group members and the formulation of common issues.

120    It may also be accepted that a representative proceeding may have procedural complexities, including the requirement for additional disclosures and notices, than would otherwise be the case in a non-representative proceeding. I also accept that the conduct of a representative proceeding necessitates the lawyer for the lead applicant maintaining data in connection with a large number of group members and corresponding with them.

121    In this case, there is evidence before me that the data relating to group members was analysed using a model. On the material before me, it appears to take the form of a spreadsheet in which data may be inputted and manipulated so as to demonstrate different outcomes depending on different assumptions. It may be accepted that the multitude of combinations and permutations of fact and law informing the quantification of group members’ claims involves considerable complexity. However, I consider that for the most part that complexity has been accommodated in the development of the model. The model was developed by an accountant. Mr Markham has acknowledged that group members should not be charged for its development or for the intellectual property residing in it. In and of itself, I do not consider that the complexity in any formulas embedded in the model is a feature that should justify a loading under item 11.1 of scale.

122    On the material before me, I am also satisfied that it was necessary for the model to be modified to some extent so as to accommodate the particular facts and questions of law in issue in this particular proceeding. According to Mr Markham’s evidence the task of inputting and manipulating data in the model was properly the work of lawyers, and I accept that to be the case. However, Mr Markham alleges that a cost of less than $17,000 is as attributable to that particular work. That is very small fraction of the total work. It does not justify the application of the loading to the whole of the matter.

123    Moreover, in her First Report, Ms Dealehr identifies one of the Phases of work as “Large Scale Litigation Management”, which accounts for 131 hours or 12.8% of the total work. Whilst it is true that a class action carries with it additional complexity due to matters of scale, Adero Law’s claim for costs already includes an allowance of 208.7 hours (or 20.4% of the total work) attributable to management of litigation of a “large scale”. In accordance with item 11.1(i), I place considerable weight on the fact that there are already very significant allowances made for attendances in accordance with item 1.1, in terms of the expenditure of time. To the extent that conduct of the matter involved a large quantity of work, that quantity sounds in remuneration under 11.1 of the scale. In light of those charges, I consider it is necessary for Adero Law to point to something more than the mere circumstance that this is a representative proceeding.

124    I also have had regard to the stage to which the proceedings had progressed at the time that they were ordered to proceed to mediation. They were at a particularly early stage. No case management hearing had been conducted. There had been no order for discovery. No contested interlocutory applications had been made. Evidence preparatory to trial had not been ordered to be filed. It may be accepted that if the matter had proceeded to trial, new tasks and new demands may have arisen involving different degrees of complexity. However, I do not consider that the progress of the matter to mediation resembles the conduct of the trial to an extent that should justify the allowance of the loading recommended by Ms Dealehr.

125    I particularly reject the methodology employed by Ms Dealehr in suggesting why a loading of 12.5% is warranted. In her First Report Ms Dealehr stated that her instructions were that the matter had “a high level of complexity”. She then expressed the opinion that the appropriate loading should be 12.5% before stating that in arriving at her opinion, she drew on her experience “in what taxing officers from the Federal Court and the Victorian Costs Court would typically allow in solicitor/client disputes”. An approach based on what is “typically” allowed is not at all helpful. As I have said, the Court’s responsibility on an assessment is to exercise the discretion under item 11.1 of the Scale having careful regard to all of the relevant considerations. Necessarily, those considerations will differ from case to case. It has not been established that it is the practice of taxing officers in this Court to unthinkingly apply a loading simply because a loading has been applied by another taxing officer in what appears to be a similar case. If that is an established practice of taxing officers in this Court, it should stop.

126    In the result, I am not satisfied that there is a basis for allowing a loading in any amount, especially because of my observations of the significant portion of time charged to Mr Schoneweiss and the group members in accordance with tasks necessitated by the fact that this matter is as a representative proceeding.

127    I will accordingly not apply any uplift to the professional fees in either Part A or Part B.

Breach of Div 3.2.3

128    The Court has a discretion to make a reduction of the allowable professional fees to reflect its view of the seriousness of Adero Law’s failure to comply with disclosure requirements under Div 3.2.3 of the LP Act. As I have mentioned, Adero Law did not seek to argue that the power could not be exercised in a case such as the present. It matters not whether the power to make the deduction is to be sourced directly in s 277 of the LP Act or under Pt IVA of the FCA Act.

129    Contrary to s 269 and s 271 of the LP Act, Adero Law did not disclose to Mr Schoneweiss, before or as soon as practicable after it was retained (at s 269(1)(d)):

an estimate of the total legal costs, if reasonably practicable or, if it is not reasonably practicable to estimate the total legal costs, a range of estimates of the total legal costs and an explanation of the major variables that will affect the working out of the costs; …

130    Adero Law was retained on 15 May 2020. The proceedings were commenced on 26 October 2020. Adero Law did not give the required estimate until 10 June 2021, that is, after the proceedings had commenced and after the matter had been referred to mediation.

131    It is to be borne in mind that Adero Law’s breach of s 269(1)(d) and s 271 of the LP Act is in addition to the breaches of s 283 and s 284 (contained in Div 3.2.5), those being the contraventions that rendered the Costs Agreement void.

132    In addition, I am satisfied on the material before me that Adero Law failed to comply with the requirement in s 273 of the LP Act in circumstances described below.

133    In her First Report, Ms Dealehr did not consider whether any reduction in the allowable costs in accordance with s 277 of the LP Act by reference to Adero Law’s contraventions of Div 3.2.3.

134    In her Second Report, Ms Dealehr said that a deduction on account of the non compliance would typically occur in the event of a costs “dispute”. Earlier in these reasons I have explained why it was not appropriate to identify a “dispute” before considering a reduction in Adero Law’s fees referable to its breach. The Court can and will consider the issue in the exercise of its discretion, particularly having regard to the interests of group members.

135    In addition, Ms Dealehr had regard to clause 7 of the Costs Agreement. Clause 7.1 is expressed as follows:

It is estimated that it will cost $400,000.00 in legal fees, costs and disbursements for Adero to perform the following Work in relation to the Claim:

(a)    initial bookbuild;

(b)    drafting and briefing counsel to prepare pleadings;

(c)    first case management conference; and

(d)    correspondence with the Respondent.

136    Ms Dealehr considered that estimate to constitute partial compliance by Adero Law, as explained at [8] of her Second Report:

The costs disclosure of $400,000 provided for in the Costs Agreement, albeit inadequate and limited to the preliminary stage, had not been exceeded at the time of the update disclosure on 10 June 2021. I have since examined the professional fees found in Adero’s time recording records as at 10 June 2021 and the professional fees were approximately $250,000. Disbursements incurred at that time were also not substantial. Accordingly, I do not believe that Adero failed to comply with its ongoing disclosure obligations pursuant to Section 276 of the LPA. However, I still consider Adero’s initial disclosure to be inadequate but this was updated and included total legal costs in its update disclosure letter.

137    Ms Dealehr proceeded on the basis that Adero Law had not failed to comply with s 273 of the LP Act. It requires a lawyer to disclose to his or her client, before settlement is executed, a reasonable estimate of the total legal costs payable including a reasonable estimate of any contributions towards those costs likely to be received from another party. Ms Dealehr stated that “at the conclusion of this matter, once approval is obtained, Adero would be placed to disclose to the Applicant the total legal costs payable in compliance with this Section”.

138    Ms Dealehr affirmed her opinions in her Third Report. She explained that Adero Law’s non compliance had already had the consequence that she had calculated costs in accordance with the Scale and that the non-compliance had also resulted in Adero Law being unable “to seek an uplift fee which would have been $107,107.13” (in her calculations). Ms Dealehr stated that a “further reduction” in accordance with s 277 of the LP Act “is a discretion that vests with the Court on a costs assessment when there is a dispute between the law practice and client as to the quantum of legal fees payable”. She said that she was aware that Mr Schoneweiss had been provided with a copy of the First Report and “now advises” that he is not disputing Adero Law’s claim for costs except in a limited aspect. Ms Dealehr continued:

34.    The Applicant had the benefit of Adero acting on a no win no fee basis, including carrying disbursements under the agreement that is not relied on. I have not been provided any information that the Applicant would have acted differently if Adero had provided proper disclosures, in particular in relation to the estimates of total legal costs at the commencement of the proceeding.

35.    Furthermore, I am not aware of a reduction being applied by the Courts in class action approval applications where the Legal Profession Act is the applicable legislation on the basis of an exercise of discretion pursuant to the equivalent Section 277 provision.

36.    Accordingly, for all the reasons stated above, I do not wish to change my position in regards to the non-disclosure breaches by Adero.

139    I have concluded that Ms Dealehr was misinformed in her instructions with respect to clause 7 of the Costs Agreement. She relied on that clause as constituting a genuine estimate of the costs of the stage of the proceeding to which the clause expressly refers. Mr Markham then invited the Court to accept Ms Dealehr’s opinion, including her conclusions as to partial compliance. On its face, clause 7 appears to provide an estimate of fees to a particular stage of the proceedings. However, on the evidence and submissions subsequently provided, I am satisfied that the estimate is not a genuine estimate with respect to that tranche of work at all. Contrary to Ms Dealehr’s finding, it does not constitute partial compliance so as to ameliorate the breach of s 269(1)(d) of the LP Act.

140    Mr Markham’s written and oral submissions on this issue related, in large part, to the reasons the Court has published in Thomas and subsequently in Thomas v Romeo Lockleys Asset Partnership (No 2) [2022] FCA 1276 (Thomas No 2), particularly with a view to distinguishing the circumstances of that case. It will be recalled that the reasons in Thomas relate to two concurrent representative proceedings heard in proximity to this case and raising some similar issues. In those proceedings there existed a Costs Agreement in substantially the same terms as the Costs Agreement executed by Mr Schoneweiss in this case. Clause 7.1 in each instance is identical.

141    The judgment in Thomas was delivered on 19 September 2022. It contains the following observations relating to the equivalent clause 7 in the costs agreements there in issue:

33    When the hearing commenced, I ventured the preliminary opinion that I did not have sufficient evidence to consider the appropriateness of the Costs Amount. My initial concerns about the quantum of costs were caused in part by cost estimates contained on the face of the Retainer. Those estimates suggested that the lead applicants may incur legal fees in the amount of $400,000.00 (excluding GST) in each matter, only to the point of the first case management hearing. On the material then in evidence, the total estimate of $800,000.00 (excluding GST) for the two proceedings up to the first case management hearing was (and remains) surprising. The pleadings in each matter were substantively identical and the work encompassed in the estimate did not include the preparation of evidence, any interlocutory process or attendance at any other hearing.  …

…

75    As mentioned earlier, the Cost Agreement contained within it an estimate of costs through to the first case management hearing in amounts that attracted the Court’s attention, given the very early stage of the proceedings to which they related. It did not contain an estimate of total costs, whether expressed within a range or otherwise.

142    In effect, the Court expressed its dismay that in the concurrent proceedings in Thomas estimates there totalling $800,000.00 had been given to progress the matters to such an early stage of the proceedings referred to in clause 7.

143    There was a further hearing on 29 September 2022 in Thomas and this matter jointly. At that hearing, Mr Markham sought to ameliorate the Court’s concerns about the quantum of the estimate.

144    On the basis of submissions and evidence then provided to the Court, I made further orders and published reasons in Thomas No 2. The reasons in Thomas No 2 reiterate that Ms Dealehr had acted on the estimate of costs given by clause 7 of the Costs Agreement in that case. The reasons continue:

38    Ms Dealehr had regard to that estimate in concluding that there had been at least ‘partial’ compliance by Adero Law with its cost estimate obligations under the LP Act.

39    The Court itself referred to that estimate and expressed the view that it was surprisingly high, given the early stage of each proceeding to which clause 7 expressly related (Reasons, [33]). The estimate was one of multiple factors affecting the Court’s confidence in the time keeping and billing records of Adero Law.

40    In the course of the most recent hearing the Court received evidence and submissions casting a new light on the estimate given in clause 7 of the retainer.

41    Mr Markham submitted that what is described on the face of the retainer as an estimate was in fact not a genuine estimate at all. He relied upon the statement of Mr Thomas in which it is said:

In connection with Adero Law’s non-compliance with the Legal Professions Act, I wish to make clear that at all times I understood that the initial $400,000.00 estimate was in connection with Adero Law seeking to undertake the matter on a no win, no fee basis. I was also aware that this estimate was made whilst also trying to secure … the necessary funding in order to ensure that the matter could be taken to hearing and run efficiently. I did not understand that the estimate was intended for the full matter. I also recall having facilitated through Adero Law various applications for litigation funding which were not ultimately pursued.

42    In oral submissions, Mr Markham asserted further facts concerning the ‘estimate’. He emphasised that Adero Law was acting on a “no win no fee” basis and so was shouldering the risk of an unsuccessful outcome in the litigation and emphasised the public interest in the due prosecution of actions for remedies under the FW Act. He said that the lead applicants were both aware that $400,000.00 was not intended to be an estimate of the total costs. That it was not an estimate of total costs is plain on the terms of the retainer itself. The Reasons do not treat it as such.

145    In that case, Mr Markham adduced evidence concerning the existence of what he termed a “collateral agreement”. He submitted that the “costs estimate” contained in clause 7 of the Deed was not in fact a genuine estimate of the costs that would be incurred in the performance of the work described in that clause (namely initial bookbuild, drafting and briefing Counsel to prepare pleadings, first case management hearing and correspondence with the respondent). Instead, he said, the amount of $400,000 represented the amount of work in progress Adero Law would be prepared to accrue before it exercised an entitlement to cease to act for Mr Schoneweiss in the proceeding if litigation funding could not be secured. In other words, the $400,000.00 figure in clause 7.1 did not represent Adero Law’s estimate of the cost of the particular work referred to in clause 7.1. That matter was not disclosed to the Court at the time of the Approval Application. It should have been.

146    As I have mentioned, on the Approval Application (and until at least 29 September 2022) Adero Law relied upon the Second Report of Ms Dealehr in which she referred to the estimate in clause 7.1 as a matter counting in Adero Law’s favour when considering the fact and seriousness of its breach.

147    In his affidavit evidence, Mr Markham stated:  “I understand that at the time that the Applicant signed the Cost Agreement, Adero Law staff informed the Applicant that Adero Law would need to secure litigation funding to continue the proceedings beyond the limit of $400,000.00 otherwise provided for in the Cost Agreement”.

148    In his submissions, Mr Markham confirmed that the “limit” related to Adero Law’s willingness to sustain the matter on a no win no fee basis. The evidence does not state the basis of Mr Markham’s understanding. The “staff” who “informed” Mr Schoneweiss of the matters referred to are not identified.

149    Mr Markham also stated:  “I understand that Adero Law also informed the Applicant that Adero Law was actively preparing applications for litigation funding for the matter” based on certain assumptions, including an assumption that “the amount of legal costs to be funded may be up to $1,700,000.00 for the entire matter”. Again, Mr Markham does not disclose the source of his understanding, and there is no evidence that Mr Schoneweiss was “informed” of such matters in writing.

150    Mr Markham has annexed to his affidavits some brief correspondence from Mr Schoneweiss. In one letter, Mr Schoneweiss states:

1.    Adero Law has informed me that they have been asked to give an affidavit about the existence of any litigation funding proposals.

2.    I remember a proposal was made early in the matter. At this time, we believed that the class action may have been up to $20 million. I understand that the amount of costs we were looking to fund were around $1.7 million for the entire matter.

151    Whilst it is unsworn, that evidence goes some way to confirm that there was some understanding on Mr Schoneweiss’ part about the likely legal costs for the entirety of the matter, albeit not provided in writing and not provided at the earliest practicable time as required by s 271 of the LP Act. Considered in context, I am prepared to assume that the information was provided orally to Mr Schoneweiss before this proceeding was commenced as that is when litigation funding was sought (although not at the earliest practicable time after Adero Law was retained). A written total estimate meeting the requirement of s 269(1)(d) of the LP Act was not provided until some eight months after the commencement of the action.

152    Section 273 of the LP Act is also contained in Div 3.2.3. Ms Dealehr has expressed the opinion that the obligation under s 273 is one that arises after approval of the settlement is granted, and not at the time that the Deed was executed. That is not correct. Upon executing the Deed, Mr Schoneweiss became contractually bound to take the steps recorded in it, including the steps necessary to obtain the Court’s approval of the settlement recorded in it. He could not unilaterally depart from its terms. On the proper construction of s 273 of the LP Act, Adero Law was required to disclose to Mr Schoneweiss a reasonable estimate of the amount of legal costs payable by him “if the matter is settled”. In the context of a class action, that included an obligation to inform Mr Schoneweiss before the Deed was executed of what his cost liability would be if the matter were to settle in accordance with the terms of the Deed he was then being advised to execute. The circumstance that the matter could not settle without the approval of the Court did not absolve Adero Law of that responsibility. The obligation to provide a reasonable estimate of the actual costs payable is particularly heightened in a case where Mr Schoneweiss had commenced an action on behalf of group members, where the costs were to be deducted from the Settlement Sum and where it was known that the Court would be approached for an order binding the group members to the Deed.

153    In submissions, Mr Markham said that there was no need for the cost estimate to be given because the Deed made provision for there to be a “formal assessment” of the costs in any event. I do not accept that submission. A reasonable estimate of the costs that would be payable (as asserted by Adero Law) is critical information necessary to assist Mr Schoneweiss to make his own assessment about the commercial value of Settlement Sum, not only for his own benefit but for the benefit of other group members. The estimate is of no utility if it is provided at a time after Mr Schoneweiss becomes bound to observe the terms of the Deed (including those terms affecting rights between him and Adero Law).

154    In my evaluation, the seriousness of the breach of s 269(1)(d) is ameliorated to a significant degree by the circumstance that there is some evidence (albeit unsworn) from Mr Schoneweiss to the effect that he had some appreciation of the likely total costs of the litigation before the action was commenced, by virtue of his knowledge that litigation funding was being sought in an amount equivalent to that stated in the written estimate provided to him in June 2021. I nonetheless consider the breach of s 269(1)(d) to warrant a reduction in the claimed costs. In so concluding, I have proceeded on the basis that there was no initial genuine estimate for any early stage of the proceeding at all, notwithstanding clause 7.1 of the Costs Agreement. I remain of the view that an estimate of $400,000.00 for the work referred to in that clause should be cause for real concern as to Adero Law’s methods of charging in any event. If I act upon Mr Markham’s submission that that figure should not be understood to be a genuine estimate at all, it follows that there was no “partial” compliance of the kind identified by Ms Dealehr and that she was misinformed in that respect.

155    I do not accept that a deduction should only be applied if it can be established that Mr Schoneweiss could or would have arranged his affairs differently had there been strict compliance with the LP Act. Nor do I accept that a deduction for the breach of s 269(1)(d) should not be made in the absence of a complaint from Mr Schoneweiss about it. It is in the interests of all group members that Adero Law strictly comply with its obligations under the general law to the consumers of its services. Having asked the Court to order that group members be bound by the Deed, it would be a strange result if no deduction could be made referrable to Adero Law’s breach simply because Mr Schoneweiss as the lead applicant did not advance a counter factual as to what he personally could or would have done had there been compliance.

156    In all of the circumstances, the appropriate reduction for the breach of s 269(1)(d) and s 271 is 5 %. I emphasise that this figure is reached in light of an additional deduction to be made below, and in light of Mr Schoneweiss’ confirmation that he gained some knowledge of the likely legal costs in the context of seeking litigation funding. It is at the very lowest end of the range this Court would ordinarily consider to be appropriate.

157    Whilst I consider the breach of s 273 of the LP Act to be particularly serious, the deduction with respect to that breach will be assessed having regard to the cumulative effect of the Court’s response to the whole of Adero Law’s conduct. The deduction for that breach should be 5%.

158    I do not accept Ms Dealehr’s response that no deduction for any breach should be made because there have already been consequences for non compliance with the LP Act, particularly the requirement that costs be assessed in accordance with the Scale, and Adero Law’s inability to charge the 25% contingency uplift provided for in the Cost Agreement. The application of the Scale is the legal consequence of different and further departures with other requirements of the LP Act. They do not provide a proper basis for the breaches of Div 3.2.3 of the LP Act to be ignored.

159    There will accordingly be a 10% deduction applied to the professional fees in respect of the Part A period and the Part B period (Deduction 8).

Associate:

Dated:    28 November 2022