Bell v Hartnett Lawyers (No 3)

Mr Anthony Robert Bell, in the position of a mortgagor, claims that Mr Beau Timothy John Hartnett, a Queensland solicitor trading as Hartnett Lawyers, ought to be ordered to disgorge or pay back what are said to be excessively charged legal fees that were borne by Mr Bell.

Mr Hartnett charged his (now deceased) mortgagee client $288,601.03 for acting in uncontested possession proceedings to enforce a $30,000 mortgage.

Mr Hartnett sought and obtained authority from the elderly mortgagee to pay himself those fees from the $352,137.02 proceeds of sale of the mortgaged property, which left only $33,834.45 for the mortgagor.

For the reasons that follow, I consider this an appropriate case for the Court to exercise its inherent supervisory jurisdiction to require Mr Hartnett to pay to Mr Bell the sum of $311,356.47.

The long history of this dispute is set out in various judgments of this Court:

Mr Bell was the beneficiary under the will of his mother, Mabel Deakin-Bell, pursuant to which he was left, among other things, a property in West Ballina (the Property). The Property was subject to a $30,000 mortgage (the Mortgage) in the name of Gwendoline Deakin-Bell, payable on Mabel’s death, which occurred in late 2013. Without intending any disrespect, this judgment will refer to the Deakin-Bells by their first names.

On 2 February 2014, Mr Hartnett sent a letter to Gwendoline setting out the legal work that he would do for her. That letter is not in evidence but is referred to in Mr Hartnett’s costs agreement apparently sent on 12 February 2014, which gave an estimate of $3,900-$6,500 for the work. The first invoices Mr Hartnett sent in 2014 related to the preparation of Gwendoline’s will.

There is no evidence that Mr Hartnett issued a new costs agreement, but from early 2014 acted for Gwendoline in seeking repayment of the Mortgage and exercising mortgagee rights of possession and sale in the Possession Proceedings.

On 6 June 2014 Mr Hartnett sent Mr Bell’s lawyer a letter stating that the amount of $32,687.88 was owing to Gwendoline “including costs”.

On 10 November 2014 Mr Hartnett indicated that costs were then $27,871.55.

On 2 December 2014 Mr Hartnett filed a Statement of Claim seeking possession of the property and payment of the mortgage and costs of $34,683.19.

On about 15 January 2015 Mr Hartnett applied for default judgment, and shortly thereafter the application was rejected because Mr Bell had been named as defendant and executor of Mabel’s will, but he had not at that stage obtained a grant of probate. The NSW Trustee and Guardian was the proper defendant.

On 18 March 2016 an Amended Statement of Claim was filed naming the NSW Trustee and Guardian as defendant and removing Mr Bell. The delay in taking this step appears to have been because Mr Hartnett continued to agitate that Mr Bell apply for probate. The reasoning behind that course was not explained to me.

Mr Bell did not oppose the relief sought in the Amended Statement of Claim.

On 29 April 2016, Davies J made orders for possession and sale of the Property as requested by Mr Hartnett, with the following orders concerning the proceeds of sale:

On 30 September 2016, Mr Bell’s lawyers wrote to Mr Hartnett indicating Mr Bell was in the process of seeking probate of Mabel’s estate and asking for copies of Mr Hartnett’s costs agreement and invoices to date. It was at about that time that Mr Bell became aware that Mr Hartnett had provided the NSW Trustee and Guardian with an estimate of fees of $302,000 - $330,000 without any detail justifying that estimate.

On 1 October 2016, the Property was sold at auction for $376,000.

On 13 October 2016, Mr Hartnett informed Mr Bell’s lawyers of the sale, but not the sale price, and indicated he would provide an update when the sale completed.

On 20 October 2016, Mr Bell’s lawyers informed Mr Hartnett that Mr Bell and his sister had agreed that Mr Bell would obtain probate and again asked for documents including all the documents relating to the Possession Proceedings, Mr Hartnett’s itemised accounts and costs disclosure, settlement adjustment sheet for the sale of the Property and the contract for the sale of the Property. Mr Hartnett did not respond. In submissions the reason given for this failure was because Mr Bell had not yet obtained probate; Mr Hartnett did not give Mr Bell that explanation at the time.

On 31 October 2016, the nett proceeds of sale of the Property in the sum of $352,137.02, were paid into Mr Hartnett’s trust account. Mr Hartnett did not notify Mr Bell, despite his earlier assurance.

From 20 October 2016, Mr Bell asked for documents with respect to the Possession Proceedings, including itemised accounts, costs disclosure, settlement adjustment sheet for the sale of the Property and the contract for the sale of the Property. Mr Hartnett did not respond.

Between 11 February 2014 and 11 May 2015 Mr Hartnett had issued Gwendoline invoices totalling $77,739.43.

On 14 November 2016, Mr Hartnett issued Gwendoline two further invoices:

Mr Hartnett has consistently justified his fees on the basis of his costs agreement and the relevant costs clause, clause 5 in Memorandum of Mortgage Q860000, which provided:

On 17 November 2016, Mr Hartnett provided Gwendoline a document entitled “Specific Trust Account Authority” and it can be inferred he asked her to sign it. It stated:

On 18 November 2016, Mr Hartnett transferred the sum of $288,601.03 from his trust account to his office account. He also paid Gwendoline in accordance with that authority. However, despite preparing the authority document and asking Gwendoline to sign it, he did not make the transfer to the Court as “instructed and authorised”. Mr Hartnett only paid that money into Court in May 2021 after Slattery J made a further order that he do so.

On 29 November 2016, Mr Bell obtained probate of Mabel’s estate. From that point on he stood in the shoes of the mortgagor.

At no time before Mr Bell commenced litigation against Mr Hartnett in 2020 did Mr Hartnett provide any invoices or details of amounts charged and allegedly recoverable by Gwendoline under the mortgage and Davies J’s order. This was despite years of requests for that information. No cogent explanation was given as to why Mr Hartnett would not provide that information to the mortgagor’s legal practitioner.

Instead, Mr Hartnett’s attitude to those requests as documented in correspondence included:

Some of this disappointing conduct of Mr Hartnett is summarised below.

On 12 December 2016, Mr Bell’s lawyer provided Mr Hartnett a copy of the Court’s order to grant probate to Mr Bell and again requested documentation including costs agreement and invoices, with an indication that if there was no response a complaint to the Legal Services Commissioner would be made. Mr Hartnett did not accede to the request.

On 11 January 2017, Mr Bell’s lawyers wrote to Mr Hartnett enclosing a copy of the grant of probate and again asking for the same documentation, failing which the complaint to the Legal Services Commissioner would be made.

On 2 March 2017, Mr Bell’s lawyers wrote a complaint to the Legal Services Commissioner of Queensland (LSCQ) asking for assistance to have the “excessive fees assessed” and complaining of Mr Hartnett’s failure to provide documentation as requested.

On 12 June 2017, the LSCQ responded to Mr Bell’s solicitors noting:

Mr Hartnett’s submission in relation to this letter from the LSCQ was that it cannot be read too precisely as Mr Hartnett’s communications with LSCQ were not in evidence. Obviously, Mr Hartnett had the ability to go into evidence about this and many other matters and chose not to. I do not accept there is any basis for a suggestion that the LSCQ misrepresented what Mr Hartnett had told them.

On 14 June 2017, Mr Bell’s lawyers followed the recorded advice of Mr Hartnett and the LSCQ and requested an itemised bill from Mr Hartnett with reference to section 335 of the Legal Profession Act 2007 (Qld) (LPAQ).

On 10 July 2017, Mr Bell’s lawyers again complained to the LSCQ that Mr Hartnett had not responded to the request for documentation and that they wished to proceed with a complaint against Mr Hartnett.

On 12 July 2017, Mr Hartnett responded:

That letter has the following notable features:

On the same day Mr Hartnett sent a second letter to Mr Bell alleging various matters and that he would seek instructions to have Mr Bell’s grant of probate set aside (which never occurred) and that:

It is difficult to see why Mr Hartnett would threaten that costs of an application to revoke Mr Bell’s grant of probate would entitle Gwendoline to recover those costs from the proceeds of sale.

On 31 July 2017, Mr Bell’s lawyers replied to Mr Hartnett again requesting Davies J’s judgment, all invoices issued, whether itemised or not, and other documents, and responding the allegations about probate.

On 2 August 2017, Mr Hartnett did not provide documentation but responded by threatening that he had instructions to make an application to revoke the grant of probate.

On 20 September 2017, Mr Bell’s lawyers wrote to the QLSC indicating that they had not received Mr Hartnett’s response with documentation and indicating that Mr Bell wanted to have Mr Hartnett’s costs in the Possession Proceedings assessed. Mr Bell’s application for costs assessment was included in the letter with an indication it would be filed on 12 October 2017.

On 11 October 2017, Mr Hartnett responded in a 5-page letter (for which he appears to have charged Gwendoline $3,410) with further threats about Mr Bell’s grant of probate and stating “we maintain that your client lacks standing to make such Application [for costs assessment]. Further, we consider that until the above issues [concerning probate] are resolved… then no steps should be taken by your client”. The letter went on to state that should a costs assessment be filed that “we hereby place you on notice that … our client will object to such application”, effectively asserting that he held instructions to resist such application.

From October 2017 through to 12 February 2018, Mr Hartnett continued to write to Mr Bell challenging his grant of probate. No application was ever made by Mr Hartnett or Gwendoline to revoke Mr Bell’s grant of probate. Mr Hartnett issued invoices to Gwendoline for researching these challenges to probate and writing long letters to Mr Bell in circumstances where it is entirely unclear how such conduct was of any assistance or relevance to Gwendoline. None of Mr Hartnett’s advice to Gwendoline is in evidence. Examples of charging include:

On 10 January 2018, Mr Bell’s lawyers wrote to Mr Hartnett with the following:

The letter:

Mr Hartnett did not respond at all. Thus, he did not suggest that his earlier instructions to resist the costs assessment had been withdrawn, nor that the costs assessor would lack jurisdiction. Such a response would be expected of a legal practitioner if applicable.

Mr Bell filed the costs assessment application on 12 February 2018, and it was assigned by the Supreme Court Manager Costs Assessment to Mr Wall.

In his first letter to the parties on 26 February 2018, Mr Wall indicated:

Mr Hartnett did not respond. There is no evidence he contacted Gwendoline and gave her advice, but he did charge her for reading the letter.

On 1 March 2018, Mr Wall contacted the parties, including Mr Hartnett for Gwendoline, acknowledging receipt of Davies J’s judgment but requesting a copy of orders 5 and 6 and reminding the parties of the timetable for documents and submissions.

On 6 March 2018, Mr Wall contacted the parties, including Mr Hartnett for Gwendoline, and required Gwendoline to provide details of the claims for costs pursuant to Davies’ J’s order by 12 April 2018. Mr Hartnett charged Gwendoline for reading the letter and for a conference with her.

On 20 April 2018, Mr Wall extended the time for Gwendoline’s compliance to 3 May 2018 and indicated “if the details required are not provided by then, then I will complete costs at that time on the basis of the information I have at that time”, and “with the costs order having been made so long ago, it is unlikely I will allow any extension of time beyond 3 May 2018, particularly having regard to the history of this assessment so far”. Mr Hartnett charged Gwendoline for reading the letter.

In that letter, Mr Wall also indicated his preliminary view based on “looking at the statement of claim, the amended statement of claim, the Probate, [Davies J’s judgment], the nature of the costs order as an indemnity costs order in respect of those proceedings and the mortgage, the amount of the mortgage in question, and the other information before me”. He further indicated that:

He concluded:

On 3 May 2018, being the date of the extended deadline for Gwendoline to provide particulars, Mr Hartnett responded to Mr Wall requesting a direction for an extension of time so that that particulars be provided “within 28 days” and:

However, Mr Hartnett’s invoices demonstrate that he was charging Gwendoline for reading each piece of correspondence received from Mr Wall and Mr Bell. He also charged for a telephone call in March 2018 with Gwendoline. The only basis upon which Mr Hartnett would be entitled to charge Gwendoline for these time entries was if he had instructions to carry out that work. It can be assumed that in the phone call he advised Gwendoline of the serious consequences if she did not engage in the assessment process:

In his 3 May 2018 letter, Mr Hartnett sought until 31 May 2018 to provide information asserting various reasons including Gwendoline’s age of 81, failing health, and limited financial means, the complexity of the matter, a solicitor had been on leave, and the Commonwealth Games taking place on the Gold Coast where his law practice is based. However, no explanation was provided about how those facts had impacted on collating the information, which Mr Bell had been seeking for over 18 months and was available to Mr Hartnett. There was no explanation as to why it would take a further 4 weeks.

Mr Hartnett also finally acknowledged “that until such time as there is further or other order of the Court” the grant of probate to Mr Bell was valid.

Mr Hartnett also indicated without explaining or providing any detail or reference or basis:

The next day, on 4 May 2018, Mr Wall wrote to the parties noting the receipt of Mr Hartnett’s letter and proposing to grant a short extension of time to Gwendoline for the provision of documents, but allowing Mr Bell an opportunity to make submissions in relation to the proposed extension of time. Mr Wall also dealt with some of Mr Hartnett’s unexplained issues:

On 10 May 2018, Mr Bell’s lawyers wrote to Mr Wall submitting no further extension of time should be allowed, including because Mr Bell had been seeking documentation since 2016. Mr Hartnett charged Gwendoline for reading the letter.

On 15 May 2018, Mr Wall wrote to the parties indicating that Gwendoline would only be given until 24 May 2018 to provide the information sought by Mr Wall.

Mr Hartnett never wrote to Mr Wall again. There is no evidence that his instructions to respond to the costs assessment had been withdrawn. Instead, he continued to record time and invoice. He never assisted Gwendoline comply with Mr Wall’s direction for particulars.

Mr Hartnett provided no explanation why he did not take any steps to assist his client obtain the highest costs assessment possible.

On 24 May 2018, not having received any information or communication at all from Gwendoline or Mr Hartnett, Mr Wall proceeded to finalise his costs assessment at an amount of $40,000 less the costs assessment filing fee of $2,654.50 paid by Mr Bell. Therefore, Mr Wall issued a certificate that the total amount payable by Mr Bell pursuant to Davies J’s order “up to the date of the costs assessment application” was $37,345.50.

On 31 May 2018, Gwendoline died.

No further claim has been made by Gwendoline or her estate pursuant to Davies J’s order for “future costs” or pursuant to the mortgage. However, Mr Hartnett has issued further invoices to Gwendoline’s estate.

On 3 July 2018, Mr Bell’s lawyers wrote to Mr Hartnett requesting that $287,551.30 be transferred to their trust account.

On 24 July 2018, Mr Hartnett wrote to Mr Bell’s lawyers indicating that he had instructions from Gwendoline’s executor to “lodge an application for a review of the determination of the costs assessor” and to notify Mr Bell of that intention to apply for a review.

No review or review was ever lodged. Mr Hartnett did not write to Mr Bell’s solicitors again until 2020.

As noted above, Mr Hartnett recognised Mr Bell as a “non-associated third party”, who was entitled to seek information from Mr Hartnett and apply for a costs assessment that would bind him (see the definition of “non-associated third party payer” in s 302A Legal Profession Act 2004 (NSW)).

Mr Wall considered that it did not matter if Mr Bell was a “non-associated third party payer”, because he was assessing the costs referable to Davies J’s order and the mortgage, which he described as “party-party costs” but on an indemnity basis in accordance with the mortgage. Mr Wall did not refer to a particular section of the LPA that he was applying.

Mr Hartnett submitted there was a critical difference between a party-party assessment and a third-party payer assessment because of differences in the wording of sections 361 and 365 of the Legal Profession Act 2004 (NSW):

The submission appears to be that Mr Walls’ assessment cannot bind Mr Hartnett, even though it binds Gwendoline, because it did not assess the costs on the correct basis and with regard to Mr Hartnett’s costs agreement with Gwendoline. It is said that to be relevant to Mr Hartnett, the third party payer assessment had to be carried out, which it was not.

Because Mr Wall’s assessment was never challenged by review or appeal, it operated to bind Gwendoline and she was only entitled to retain $37,345.50 (up to the date of the assessment) from the proceeds of sale towards her legal costs in accordance with Davies J’s orders. Further in accordance with those orders, the residue was to be paid into Court (or to Mabel’s estate).

On 22 July 2020, Mr Bell’s lawyers wrote a 12 page letter to Mr Hartnett setting out the history of the matter and relying on Mr Wall’s assessment to demand $287,551.30 be paid to Mr Bell’s trust account or alternatively the Court (in accordance with Davies J’s orders) by 24 July 2020, failing which proceedings would be commenced. The letter acknowledged that Gwendoline was entitled to retain from the proceeds of sale costs on an indemnity basis, however, it also noted that complaint had repeatedly been made that Mr Hartnett’s costs were “extortionate”.

On 31 July 2020, Mr Hartnett responded seeking an extension of time until 28 August 2020 to respond because inter alia “our client intends to address your client’s correspondence”.

On 4 August 2020, Mr Bell’s lawyers required confirmation by 7 August 2020 that the money had been paid to the Court.

On 5 August 2020, Mr Hartnett indicated “we will not be in a position by … 7 August 2020 to confirm that monies in the sum of $287,551.30 have been paid into Court.” The email complained that the timeframe for a response was “onerous upon our client”.

On 6 August 2020, Mr Bell’s lawyers rejected the request for an extension of time and sought by 7 August 2020 confirmation from Mr Hartnett that he held the monies in his trust account or that Mr Hartnett provide a list of his assets or undertakings to preserve that sum of money.

On 7 August 2020, Mr Hartnett responded again seeking further time and complaining that “Hartnett Lawyers is a small firm and like many other small firms we have encountered substantial issues in the day-to-day management of the law firm complying with and responding to government directions as a result of the coronavirus … We advise that we are taking positive steps to schedule an appointment with our client to attend our office so that we may seek further instructions in relation to the matters raised in your correspondence”. No further response was sent from Mr Hartnett.

On 31 August 2020, Mr Bell filed a summons (Equity Proceedings 2020/254590) and then, on 26 October 2021, Mr Bell filed an amended statement of claim seeking relief in the form of an order that Mr Hartnett pay to Mr Bell $285,047.00, “being money payable by [Mr Hartnett] to [Mr Bell] for money had and received by [Mr Hartnett] for the use of [Mr Bell]”, with interest and costs. Effectively, Mr Bell claimed that Mr Hartnett is liable to pay to him, as the person entitled to the residue of the proceeds of sale, after the proper quantum of costs had been retained by Gwendoline.

On 21 September 2020 Mr Hartnett complained about the service of the summons but did not engage with the substance of the complaint.

On 26 February 2021, Slattery J ordered that the Possession Proceedings be re-listed with the Equity Proceedings.

On 19 March 2021, Slattery J ordered Mr Hartnett to produce a copy of Gwendoline’s will and all invoices issued to Gwendoline between 2014 and 2016. Mr Hartnett complied with that order on 7 April 2021.

On 26 April 2021, Slattery J made further orders inter alia to the effect:

In their judgments in the matter, Slattery J and Basten JA provided other comments about the possible resolution of the substance of the claim.

In his judgment [2021] NSWSC 202 at [21] Slattery J indicated that the circumstances:

In [2021] NSWSC 1270 at [40], Slattery J indicated to the parties that:

Slattery J continued at [41]-[43]:

His Honour required Mr Bell to identify how he said Mr Hartnett’s fees were excessive and provided Mr Hartnett an opportunity to respond justifying his fees.

His Honour also indicated that the parties both had an equitable interest in the proceeds of the sale, namely Mr Bell’s equity of redemption or beneficial interest in the residue of the proceeds of sale and Mr Hartnett’s equitable lien for payment (at [85]-[89]) and directed the parties to prepare points of claim and a defence and submissions on that issue at this hearing.

Justice Slattery also did not accept the parties’ joint submission that the appropriate way forward was for the costs to be subject to a third-party payer costs assessment.

When Mr Hartnett unsuccessfully sought to have the proceedings removed to the NSW Court of Appeal, Basten JA also made reference to the Court’s inherent jurisdiction in [2022] NSWCA 42 at [13]-[14], [17], [19], [21]-[22]:

The parties provided an agreed list of issues said to require determination which can be summarised:

The circumstances in which Mr Bell finds himself are very unfortunate. Mr Bell did not obtain probate promptly it seems because of delay by his former solicitors, whom I was informed he is now suing. Had he obtained probate earlier and been provided with information from Mr Hartnett earlier, he may have been able to take steps to prevent Mr Hartnett obtaining Gwendoline’s instructions to pay himself from the proceeds of sale before his invoices were assessed.

It was not disputed that Gwendoline was entitled to retain only those “reasonable” costs which were incurred in the enforcement of the mortgage, including obtaining possession and the proceeds of the sale: see eg Elder’s Trustee & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205 at 9209 (McLelland J); Micarone v Perpetual Trustees Australia Ltd (No 2) [1999] SASC 533 at [32]-[34] (Olsson, Debelle and Wicks JJ).

It was accepted by Mr Hartnett that as a proposition of law, Gwendoline, as mortgagee, was required to hold the residue of the proceeds of sale on trust for Mr Bell: Rajah Kishendatt Ram v Rajah Mumtaz Ali Khan (1879) LR 6 Ind App 145 at 160 (PC); Coroneo v Australian Provincial Assurance Association Ltd (1935) 35 SR (NSW) 391 at 394-395 (Jordan CJ); Weld-Blundell v Synott [1940] 2 KB 107 at 115 (Asquith J); Adams v Bank of New South Wales (1984) 1 NSWLR 285 at 299 (Hutley JA). Gwendoline was also required to comply with the Court’s order to pay the residue into Court or Mr Bell.

The basis for the relief sought by Mr Bell was described by Justices Basten and Slattery as either the Court’s inherent jurisdiction or equity. As noted by Parker J, “there is an overlap between the Court’s general jurisdiction to review solicitors’ remuneration and the doctrines of undue influence, unconscionable transaction and fiduciary conflict as they apply to solicitors and clients”: Malouf v Constantinou [2017] NSWSC 923 at [136].

Slattery J noted that:

Mr Hartnett accepted that this Court has jurisdiction to supervise his conduct in relation to these proceedings even though he practises primarily in Queensland.

The court’s inherent jurisdiction encompasses supervisory power in relation to costs that solicitors charge which has not been ousted by statute. Various judgments have explained this inherent jurisdiction, which can be traced to English cases and to the court’s jurisdiction “to secure that the solicitor, as an officer of the court, is remunerated properly, and no more, for work he does as a solicitor … it is a jurisdiction to control the remuneration” (emphasis added): Electrical Trades Union v Tarlo [1964] 2 WLR 1041 at 1050 (Wilberforce J).

In Atanaskovic & Ors v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 573, Hammerschlag J stated in obiter at [36]-[37]:

On appeal, in Atanaskovic Hartnell v Birketu Pty Ltd [2021] NSWCA 201 at [145], Gleeson JA (with whom Basten JA and McCallum JA agreed) impliedly accepted that exorbitant overcharging is at least one basis for the exercise of the Court’s supervisory jurisdiction.

In Woolf v Snipe (1933) 48 CLR 677, Dixon J at 678 explained:

In Kowalski v Cole [2017] SASCFC 23 at [25], Blue J (with whom Nicholson and Hinton JJ agreed) explained that the Court’s inherent jurisdiction to regulate the costs charged by a solicitor and set aside a costs agreement if it is not fair and reasonable finds a rationale in the special relationship of confidence between solicitor and client which gives rise to a presumption of undue influence.

It has been suggested that the supervisory jurisdiction has empowered orders for repayment by solicitors of amounts overcharged to and paid by a client as part of solicitor-own client costs to ensure such costs are “fair and reasonable and no more”: Harrison v Tew [1990] 1 All ER 321 at 330, 332 (Lord Lowry, with whom Lords Ackner, Oliver and Jauncy agreed). The effect of this aspect of the inherent jurisdiction could be likened to disgorgement: see Kelly v Willmott Forests Ltd (in liquidation) (No 4) [2016] FCA 323 at [335] (Murphy J); and was so described by Basten JA in [2022] NSWCA 42.

The difference between the above-mentioned cases and this case is that Mr Bell was not Mr Hartnett’s client. I was not taken to any authority where the inherent jurisdiction has been engaged to order a solicitor to pay monies to a person other than the solicitor’s client. However, that difference was not raised by Mr Hartnett, and I do not consider it an impediment for at least the following reasons.

First, as Garling J stated in Damm v Coastwide Site Services Pty Ltd [2017] NSWSC 1361 at [131]-[132] in the context of the Court’s power to set aside a judgment:

Secondly, the Court’s jurisdiction to regulate the quantum of professional charges is a general one which is not bounded by technicalities. As Hammerschlag J noted in Atanoskovic v Atanaskovic & Ors v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 573 at [80-[81]:

I consider an appropriate exercise of the Court’s inherent jurisdiction is to make an order requiring a solicitor pay the amount of exorbitantly charged costs to a person who bore those costs.

I have already indicated that Mr Walls’ costs assessment bound Gwendoline and that I am prepared to exercise the Court’s inherent jurisdiction in supervising Mr Hartnett and to order that he pay Mr Bell a sum of money. The question is the appropriate quantum.

Mr Hartnett’s counsel submitted that Gwendoline’s rights under Davies J’s order and the mortgage continue to operate into the future and that the mortgage clause required the mortgagor to “indemnify the mortgagees in respect of any expenditure they may incur in their capacity as mortgagees and in relation to the secured debt”: Halsted v Official Trustee in Bankruptcy (No 2) [2012] FCA 66 at [16] (Logan J). However, even that would not extend to “unjustifiable or vexatiously incurred costs”: Re Solicitor’s Bill of Costs; Re Shanahan (1941) 58 WN (NSW) 132 at 136 (Street J).

I was referred by Mr Hartnett’s counsel to Australia and New Zealand Banking Group Ltd v Mishra [2012] NSWSC 1333 for the proposition that a mortgagee is entitled to require security for potential future costs of defending a threatened claim against it and where the mortgagor had not provided a release of future claims against the bank. In that case Davies J quoted from Overton Investments Pty Ltd v Cuzeno RVM Pty Ltd [2003] NSWCA 27 at [63] where Hodgson JA (with whom Handley and Stein JJA agreed) stated:

Here, there was no redemption of the mortgage; instead, Gwendoline exercised her mortgagee’s power of sale. Nevertheless, it can be accepted that it remains open to the mortgagee to seek payment of “whatever is necessary to protect and preserve the mortgagee’s rights when their validity is challenged or their exercise is sought to be prevented or impeded”: Liberty Funding Pty Ltd v Steele-Smith [2004] NSWSC 1100 at [21] (Palmer J).

However, I was not taken to any evidence that Mr Bell was seeking to challenge the exercise of Gwendoline’s rights as mortgagee after the Possession Proceedings. I do not consider an application for a costs assessment under the LPA amounted to an attempt to “prevent or impede” the exercise of the mortgagee’s rights. I note that in Parramatta River Lodge Pty Ltd v Sunman (1991) 5 BPR 12,038 at 12,048, Young J did not consider that a mortgagor was liable under the same mortgage clause to pay for the costs of preparation of the mortgagee’s bill of costs suitable for taxation.

I do not consider that Gwendoline had any entitlement to retain sums for likely future costs, where no such order had been sought from Davies J (as was sought in Mishra). I therefore make no allowance for possible future costs in the assessment of quantum here.

I note that in 2021 the parties agreed that the matter could progress by way of a third-party payer costs assessment. However, Slattery J rejected that approach and ordered progress of the matter to be determined in a final hearing by the Court.

Nevertheless, Mr Hartnett submitted that I ought to dismiss Mr Bell’s proceedings, but Mr Bell could recommence seeking a remedy against Mr Hartnett by way of third-party costs assessment. I do not consider such an approach is efficacious nor accords with the requirements of “just, quick and cheap” in ss 56-60 of the Civil Procedure Act 2005 (NSW) in circumstances where the parties have already provided the Court with volumes of material concerning the costs and there has been a 2 day hearing.

In accordance with Slattery J’s orders the parties have provided detailed analysis of every time entry charged by Mr Hartnett to Gwendoline. Mr Hartnett provided responses to Mr Bell’s criticisms and a concession of a mere $13,316 for amounts charged for:

Mr Hartnett did not submit that I was required to deal with each line item. I accept counsel for Mr Bell’s submissions that a “broad brush” approach can be taken to the assessment of Mr Hartnett’s fees.

Below are some examples of what I consider to be exorbitant overcharging that sufficiently demonstrates the reasons why the Court ought to exercise its supervisory jurisdiction in this matter.

Mr Hartnett primarily justified his invoices on the basis that his costs agreement entitled him to charge these exorbitant amounts. The circumstances in which Gwendoline came to agree to those terms are unknown, but Mr Hartnett complained to Mr Wall that in May 2018 she was 81, in ill-health and without financial means. In that regard, I note the relevant comments of Young J about mortgagees agreeing to “pay more for a service than one otherwise would because it is going to be paid out of someone else’s money” in Parramatta River Lodge Pty Ltd v Sunman (1991) 5 BPR 12,038 at 12,046.

These invoices might also be seen as part of a wider issue with time-based charging going beyond the bounds of professional propriety that has been the subject of criticism in the authorities: New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116 at 126 (Gleeson CJ, with whom Hope JA agreed); Law Society of New South Wales v Foreman (1994) 34 NSWLR 408, 422-423 (Kirby P).

I consider the amount assessed by Mr Wall is an appropriate figure, having regard to the issues identified above and Mr Hartnett’s lack of cogent explanation, or an explanation at all, for many of the categories of charges and the quantum.

As Mr Bell was only obliged to pay $37,345.50 towards Gwendoline’s legal costs pursuant to Justice Davies’ order, I consider the inherent jurisdiction is engaged to do justice between the parties and Mr Hartnett must pay the sum he was paid over and above that sum from the proceeds of sale to Mr Bell.

For completeness, I note that the order I am making is not a variation of Justice Davies’ order, which did not quantify costs and assumed compliance with the mortgage terms. Instead, the order is in the exercise of the Court’s inherent supervisory jurisdiction in the Equity Proceedings.

For the reasons above, it is not strictly necessary for me to consider any other arguments of the parties and I outline them only briefly below.

Justice Slattery required the parties to address the issue of competing equities. Mr Hartnett pleaded he retained a “fruits of the litigation lien” or possessory lien in relation to the proceeds of sale, and that it trumped Mr Bell’s “equity of redemption”. Mr Bell submitted that his equity of redemption was first in time or Mr Hartnett’s entitlement would not be prioritised because of disentitling conduct.

Mr Bell’s equity of redemption was created at the time of the creation of the mortgage on 11 November 1994. However, that equity of redemption was lost when the power of sale was exercised. What remained was a beneficial interest in the surplus proceeds of sale held on trust by Gwendoline. Any equitable lien of Mr Hartnett could not override Gwendoline’s trust obligation; Mr Hartnett’s lien does not extend to money to which Gwendoline is not entitled. Pursuant to Davies J’s orders and the mortgage, Gwendoline was only entitled to the repayment of the sum secured by the mortgage and that only included “reasonable” legal costs.

Further, the Court will not enforce a fruits of the litigation lien if to do so would be unjust. In GA Atkins & Ors v Probuild Constructions (Aust) Pty Ltd (2020) 148 ACSR 111 Hammerschlag J stated at [52]-[53]:

I consider that to enforce a lien for Mr Hartnett’s benefit ahead of Mr Bell’s equitable entitlement would be unjust in the circumstances where he has charged his client more than is reasonable, and persistently avoided and obfuscated in relation to Mr Bell’s attempts to obtain information for any costs assessment process.

Mr Bell submitted that Mr Hartnett had been “unjustly enriched” through his retention of money for his invoices above the amount assessed by Mr Wall.

He relied on the principles of restitution set out in Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498 at 516, [30] by French CJ, Crennan and Kiefel JJ as follows (footnotes omitted):

As Mr Bell’s counsel accepted when challenged, it is not immediately apparent into which of the accepted categories of “unjust factors” Mr Bell’s retention of the benefit would be allocated. Gwendoline may have been mistaken that she was obliged to pay Mr Hartnett from the proceeds of sale she held on trust, however, the mistake was not Mr Bell’s as the claimant in these proceedings. However, I was not taken to any authorities where the mistake of a trustee/payer of trust funds can be used by a plaintiff/beneficiary for the purposes of a restitutionary claim. In any case, the Court is not precluded from exercising its inherent jurisdiction.

Exercising the Court’s inherent jurisdiction, I consider that Mr Hartnett must pay Mr Bell:

I make the following orders: