Infant sanction and supervision of indemnity costs

Nicotra v State of Queensland [2017] QSC 303

Burns J

The applicant was 15 months old when she sustained severe brain damage in 1998 allegedly caused by deficiencies in treatment provided to her during the course of two separate hospital admissions that year. As a consequence of her injuries, the applicant was left profoundly disabled with a range of physical and cognitive deficits and is distinctly incapable of managing her own affairs.

In April 2017, a compulsory conference was held where the applicant’s claim was settled, subject to compromise, reached in May 2017, that the respondent to pay $6 million to the applicant, $5.4 million for damages and the balance in management fees. The compromise also provided for the payment of the applicant’s standard costs to be assessed or agreed.

In July 2017, interim orders were made sanctioning the compromise.

Burns J described the issue as follows:

[4] Among the orders proposed by the applicant’s counsel on the hearing of the application on 12 May 2017 were orders requiring the applicant’s costs to be assessed on the indemnity basis and then paid by the administrator to the applicant’s solicitors from the moneys received from the respondent. Because any differential between the amount assessed for indemnity costs and the amount paid by the respondent for standard costs would have a reducing effect on the net amount available to the applicant, enquiry was made of the applicant’s counsel as to the amount likely to be assessed for indemnity costs.

[5] … Indemnity costs were assessed by Mr Ryan in the amount of $546,779.01 and standard costs came to $292,688.17; a difference of $254,090.84….

The applicant contended that the quantification of costs, both standard and indemnity, was not a factor the court needed to concern itself with beyond ensuring that ordinary statutory protections are in place to ensure that costs are reasonable.

Therefore, the issue for Burns J was whether it is beyond the purview of the court on the hearing of a sanction application to inquire into the reasonableness of the costs and outlays charged and how the interests of a person under a legal incapacity may be protected against the charging of costs and outlays that are unreasonable or excessive.

General principles

Determining the matter, his Honour went on to state as follows:

[34] On the hearing of an application for the sanction of a compromise pursuant to s 59 of the Public Trustee Act, the central question will always be whether, in all of the circumstances of the case, the compromise is reasonable and for the benefit of the person under the legal disability.[33] But, as Mullins J observed in Dickson v Australian Associated Motor Insurers Ltd,[34] provisions such as s 59 fall to be considered against the background of the court’s parens patriae jurisdiction.[35] That aspect of the inherent jurisdiction of the court has as its object the protection of those who cannot look after themselves,[36] and a proper appreciation of that object helps to inform how the discretion conferred on the court by s 59 is to be exercised.

[38] … The sanctioning of the compromise should also result in a significant saving in legal costs and outlays, and that will be especially so if (as here) the compromise is reached before any proceeding is commenced in the court…

The costs differential

In relation to the costs differential, his Honour continued:

[41] The respondent’s argument proceeded on the footing that the “sole enquiry by the court” on a sanction application pursuant to s 59 of the Public Trustee Act was whether the settlement was reasonable and for the benefit of the person under the disability. It was submitted that the amount the claimant will receive by way of compromise, net of all costs and outlays, would “not ordinarily be regarded as relevant to that question” …

[43] The respondent’s submissions involve several misconceptions.

[44] First, the submissions ignore the supervisory jurisdiction over legal practitioners which the court may exercise in any appropriate case to “regulate the charges made for work done by [practitioners] in that capacity, and to prevent exorbitant demands”.[44]

[45] … it is wrong to think that the exercise of the parens patriae jurisdiction of the court is in some way divorced from the judicial task under s 59 Public Trustee Act. As already discussed (at [34]), s 59 provides the framework within which the court exercises the inherent protective jurisdiction that it has.[48] The overarching concern of the court is to protect the person under a legal disability and that is why it is commonplace for safeguards regarding the assessment of costs to be incorporated in orders approving settlements involving such persons.

[50] … in order for the court to determine whether a compromise is reasonable and for the benefit of the person under a legal disability, evidence should be placed before it as to the amount likely to comprise the applicant’s estate after the various external calls on the compromise sum (including statutory charges, management fees, costs and payments out for past expenses and care) have been paid…

Court supervision

As to whether the assessment of indemnity costs should be supervised by the court, his Honour stated:

[54] … the assessment of indemnity costs should be supervised is ultimately one of impression, but the greater the differential between the estimated indemnity costs and the costs that are estimated to be recoverable from the respondent in the form of standard costs, the greater the need for scrutiny. That will be particularly so where the proportion which the estimated differential bears to the gross sum the respondent agreed to pay is higher than what might be expected for a case of its kind…

[75] … There are other features of concern such as the number of hours expended on what was essentially an unlitigated claim and the differences in the hourly rates provided for under the costs agreement and those prescribed under the court scale, the details of which have already been set out (at [26]-[28]). There is also a real risk in my view that the administrator might make the same mistake I suspect others in the case have made of thinking that the assessment of indemnity costs is governed by the terms of the costs agreement and not much else.

[76] … the features I have briefly mentioned make it necessary to supervise the final assessment of the indemnity cost so as to ensure that the applicant’s estate is protected as much as possible from any further misapprehension as to the proper basis for the final assessment of costs.

In relation to the claim for past expenses and care, his Honour stated:

[65] Before an order for the payment to the litigation guardian of the sums sought for the provision of past care ($220,000) and reimbursement of expenses paid on behalf of the applicant ($80,000), there must be satisfactory evidence before the court of the details of the actual expenses, the nature and extent of the services provided and the fair value of those services.[67] Also, any risk that the proposed payment might unacceptably diminish the capital sum required to be invested to meet the applicant’s future needs should be addressed.

Orders

In addition to payment of the amounts sought for past expenses and care, Burns J ordered, inter alia, that:

  • The costs assessor may only allow costs that have been reasonably incurred and are of a reasonable amount having regard to, inter alia, the scale of fees and the costs agreement between the applicant’s litigation guardian and her solicitors;
  • The administrator give due consideration to the assessment including considering whether a different costs assessor should be commissioned to review the assessment; and
  • Requiring the Registrar of the court to review the administrators actions and either notifying the administrator that the payments can be made or referring the matter to the court for further directions.

David Cormack – Brisbane Barrister & Mediator

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