Able Demolitions and Excavations Pty Ltd v Barry Kenna & Co [2016] VSCA 312

COSTS - Features of a 'costs agreement' as defined in Legal Profession Act 2004 s 3.4.2.

CONTRACT - Principles relating to accord and satisfaction - Interrelationship between those principles and the provisions of the Legal Profession Act 2004.

1 This proceeding concerns the circumstances in which the common law principles of accord and satisfaction can render inapplicable key provisions of the Legal Profession Act 2004 ('LPA') which, until 30 June 2015, regulated the recovery of legal practitioners' costs in Victoria.[1]

2 The proceeding arises from an agreement the parties made on 29 May 2012 for the payment of costs for legal work that had been performed by the respondent for the applicant in respect of nine separate matters in Western Australia since 2007 and for some incidental future work ('nine Western Australian matters'). The agreement was reached on that day at a meeting between Paul Rossignoli, the director in control of the applicant, and Barry Kenna, the sole principal of the respondent ('29 May meeting'). The respondent had acted for the applicant for nearly 30 years and over that period Mr Kenna became a close friend of Mr Rossignoli.

3 As discussed more fully below, at the 29 May meeting: Mr Kenna told Mr Rossignoli that he estimated his outstanding costs for the nine Western Australian matters at between $1.3 and $1.5 million but that he was prepared to accept $1 million plus GST 'all in'; Mr Rossignoli agreed to pay this amount on the condition that the respondent did not issue an invoice or charge interest until the applicant had sold certain properties in Ringwood ('Wonga Road properties'); and Mr Kenna agreed to that condition ('Agreement').

4 The respondent sent a lump sum bill for $1 million plus GST to the applicant on 7 October 2013, after the sale of the Wonga Road properties. The applicant did not pay the lump sum bill but instead requested an itemised bill. After initially agreeing to provide an itemised bill, the respondent ultimately refused to do so on the basis that the Agreement constituted an enforceable accord and satisfaction and that the rights in pt 3.4 of the LPA to request an itemised bill and to seek a review of the legal costs did not apply. The applicant denied that any agreement for the payment of legal costs was reached at the 29 May meeting.

5 The parties prepared an agreed list of issues for determination by the trial judge, the first of which was whether, in May 2012, 'the parties reach[ed] an accord and satisfaction in relation to legal costs in the amount of [$1 million] plus GST, and if so, what were the terms of that agreement'. Understandably, the judge determined this issue first. Having found that the Agreement was reached by the parties and that it constituted an accord and satisfaction, the judge then considered the effect of the Agreement on the applicant's rights under the LPA. The judge concluded that there was an implied term in the Agreement which extinguished the applicant's rights to request an itemised bill and have the legal costs reviewed under pt 3.4 of the LPA.[2]

6 The applicant has sought leave to appeal against the judge's decision.[3] The applicant has not challenged the judge's finding that the parties reached the Agreement, but it has contended that the judge's legal characterisation of the Agreement and her findings about its legal consequences are erroneous.

7 Contrary to the position it adopted at trial, the applicant submitted before this Court that the first issue to be determined is whether the Agreement is a 'costs agreement' as defined in s 3.4.2 of the LPA rather than whether it constitutes an accord and satisfaction. The applicant contended that the Agreement is an oral costs agreement which is void because it is not in writing and that the applicant has all the rights conferred by pt 3.4 of the LPA, including the right to request an itemised bill and (subject to obtaining an extension of time) to seek review of such a bill. According to the applicant, the Agreement does not constitute an accord and satisfaction and, even if it did, such a characterisation would not have the effect of excluding the abovementioned rights.

8 For the reasons set out below, we have reached the following conclusions:

(a) Part 3.4 of the LPA contains provisions of a 'consumer protection' nature in relation to the payment of legal costs by a client to a legal practitioner.[4]

(b) Common law contractual principles do not apply to contracts between a client and a legal practitioner in relation to the payment of legal costs insofar as those principles are inconsistent with the LPA.[5]

(c) Where a legal practitioner seeks to enforce a contract with a client for the payment of legal costs, it is necessary to determine whether it is a 'costs agreement' as defined in s 3.4.2 of the LPA, and whether the LPA precludes its enforcement, before determining whether it satisfies the common law principles of accord and satisfaction.[6]

(d) A contract for the payment of legal costs which constitutes an accord and satisfaction will not be a 'costs agreement' as defined in s 3.4.2 of the LPA and will be enforceable according to its terms if:

(i) the contract is entered into in circumstances where the legal costs have already been incurred and billed and are therefore temporally distant from the circumstances in which a costs agreement may be entered into in respect of the billed costs; and

(ii) the bill setting out the costs complies with the LPA, including s 3.4.35 which requires the provision of a statement of rights.[7]

(e) The Agreement does not satisfy the requirements in (d) above and is a costs agreement which, not being in writing, is void under ss 3.4.26(2) and 3.4.31(1) of the LPA.

9 It follows that the application for leave to appeal will be granted and the appeal will be allowed.

10 For a proper understanding of the issues before this Court, it is necessary for us to refer in detail to the provisions of pt 3.4 of the LPA which is headed 'Costs Disclosure and Review'.

11 Section 3.4.1 of the LPA provides that the purposes of pt 3.4 are as follows:

(a) to provide for law practices to make disclosures to clients regarding legal costs;

(b) to regulate the making of costs agreements in respect of legal services, including conditional costs agreements;

(c) to regulate the billing of costs for legal services;

(d) to provide a mechanism for the review of legal costs and the setting aside of certain costs agreements.

12 Section 3.4.9 of the LPA sets out various matters in relation to costs which, in accordance with s 3.4.11, a law practice must disclose in writing to a client before, or as soon as practicable after, the law practice is retained in a matter. Section 3.4.9 relevantly provides as follows:

3.4.9 Disclosure of costs to clients

(1) A law practice must disclose to a client in accordance with this Division -

(a) the basis on which legal costs will be calculated, including whether a practitioner remuneration order or scale of costs applies to any of the legal costs; and

(b) the client's right to -

(i) negotiate a costs agreement with the law practice; and

(ia) receive a bill from the law practice; and

(ii) request an itemised bill within 30 days after receipt of a lump sum bill; and

(iii) be notified under section 3.4.16 of any substantial change to the matters disclosed under this section; and

(c) an estimate of the total legal costs or, if that is not reasonably practicable -

(i) a range of estimates of the total legal costs; and

(ii) an explanation of the major variables that will affect the calculation of those costs; and

...

(e) details of the intervals (if any) at which the client will be billed; and

(f) the rate of interest (if any) that the law practice charges on overdue legal costs ...; and

(g) if the matter is a litigious matter, an estimate of -

(i) the range of costs that may be recovered if the client is successful in the litigation; and

(ii) the range of costs the client may be ordered to pay if the client is unsuccessful; and

...

(j) the following avenues that are open to the client in the event of a dispute in relation to legal costs -

(i) costs review under Division 7;

(ii) the setting aside of a costs agreement under section 3.4.32;

(iii) making a complaint under Chapter 4; and

(k) any time limits that apply to the taking of any action referred to in paragraph (j); ...

...

13 Pursuant to s 3.4.16, a law practice has an ongoing obligation to disclose, in writing, any substantial change to anything included in a disclosure already made as soon as is reasonably practicable after the law practice becomes aware of that change.

14 Section 3.4.17 of the LPA provides that the consequences of a law practice failing to comply with the above disclosure requirements include that:

(a) the client need not pay the legal costs unless they have been reviewed under div 7; and

(b) the law practice may not maintain proceedings against the client for the recovery of legal costs unless the costs have been reviewed under div 7.

15 Section 3.4.19 of the LPA sets out the following bases upon which a law practice can recover its costs:

(a) under a costs agreement made in accordance with Division 5 ... ; or

(b) if paragraph (a) does not apply, in accordance with an applicable practitioner remuneration order or scale of costs; or

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

16 Section 3.4.26 of the LPA provides that a costs agreement may be made between a client and a law practice. Costs agreement is defined in s 3.4.2 as 'an agreement about the payment of legal costs'. Section 3.4.26(2) provides that a costs agreement must be written or evidenced in writing. Section 3.4.26(5) provides that a costs agreement cannot provide that the legal costs to which it relates are not subject to costs review under div 7, except as provided by s 3.4.48A which is in the following terms:

A sophisticated client of a law practice, or an associated third party payer who would be a sophisticated client if the third party payer were a client of the law practice concerned, may contract out of this Division.

17 Section 3.4.30 of the LPA provides that a costs agreement may be enforced in the same way as any other contract. Section 3.4.31(1) provides that a costs agreement that contravenes div 5 of pt 3.4 of the LPA (which includes s 3.4.26) is void. Pursuant to s 3.4.31(2), legal costs under a void costs agreement are recoverable as set out in s 3.4.19(b) or (c). Section 3.4.32 deals with the setting aside of a costs agreement.

18 Division 6 of pt 3.4 of the LPA relates to billing. The relevant provisions of that division are as follows:

3.4.33 Legal costs cannot be recovered unless bill has been served

(1) A law practice must not commence legal proceedings to recover legal costs from a person until at least 65 days after the law practice has given a bill to the person in accordance with sections 3.4.34 and 3.4.35. ...

...

(4) This section applies whether or not the legal costs are the subject of a costs agreement.

3.4.34 Bills

(1) A bill may be in the form of a lump sum bill or an itemised bill.

...

3.4.35 Notification of client's rights

(1) A bill must include or be accompanied by a written statement setting out -

(a) the following avenues that are open to the client in the event of a dispute in relation to legal costs -

(i) costs review under Division 7;

(ii) the setting aside of a costs agreement under section 3.4.32;

(iii) making a complaint under Chapter 4; and

(b) any time limits that apply to the taking of any action referred to in paragraph (a).

...

3.4.36 Request for itemised bill

(1) If a bill is given by a law practice in the form of a lump sum bill, any person who is entitled to apply for a review of the legal costs to which the bill relates may, within 30 days after the day the bill is given, request the law practice to give the person an itemised bill.

(2) The law practice must comply with the request within 21 days after the date on which the request was made.

...

(4) If a person makes a request for an itemised bill in accordance with this section, the law practice must not commence legal proceedings to recover the legal costs from the person until at least 35 days after complying with the request. ...

...

19 Division 7 of pt 3.4 of the LPA deals with costs reviews by the Costs Court. Section 3.4.38 relevantly provides as follows:

3.4.38 Application by clients or third party payers**[8]** for costs review

(1) A client may apply to the Costs Court for a review of the whole or any part of legal costs.

(2) A third party payer may apply to the Costs Court for a review of the whole or any part of legal costs payable by the third party payer.

(3) An application for a costs review may be made even if the legal costs have been wholly or partly paid.

...

(5) An application by a client or third party payer for a costs review under this section must be made within 12 months after -

(a) the bill was given or the request for payment was made to the client or third party payer; or

(b) the costs were paid if neither a bill was given nor a request was made.

(6) However, an application that is made out of time ... may be dealt with by the Costs Court if the Supreme Court constituted by a Judge of the Court ... determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for review to be dealt with after the 12 month period.

(7) If the third party payer is a non-associated third party payer, the law practice must provide the third party payer, on the written request of the third party payer, with sufficient information to allow the third party payer to consider making, and if thought fit to make, an application for a costs review under this section.

20 Section 3.4.40 of the LPA provides that a law practice may apply to the Costs Court for a review of costs. Pursuant to s 3.4.41, if an application for a costs review is made, the law practice must not commence any proceedings to recover the legal costs until the costs review has been completed.

Principles relating to accord and satisfaction

21 In Gadens Lawyers v Beba Enterprises Pty Ltd,[9] Emerton J summarised the principles relating to the nature of an accord and satisfaction, by reference to the reasons of McColl JA in El-Mir v Risk,[10] as follows:

(a) The essence of accord and satisfaction is the acceptance of something in place of a cause of action; the accord is the agreement or consent to accept the satisfaction; upon provision of the satisfaction, there is a discharge which extinguishes the cause of action;

(b) Where there is an agreement to accept a promise in satisfaction of a cause of action, the original cause of action is discharged from the date on which the promise is made;

(c) Where there is an accord and satisfaction, only the agreement for compromise may be enforced because the previous cause of action has gone; it has been 'satisfied' by the making of the new agreement constituted by abandonment of the earlier cause of action in return for the promise or other benefit;

(d) In other words, the role of an accord is to replace the former contract with a new one;

(e) The question of whether there has been an accord and satisfaction is one of fact. It turns upon determining the parties' intentions, which may be discerned from the terms of the document said to constitute all or part of the agreement or from the surrounding circumstances.[11]

22 On appeal to this Court from Emerton J's decision, it was not in dispute that the above passage accurately sets out the relevant principles.[12]

23 At the hearing of the present application for leave to appeal, following exchanges with the Bench, it became common ground that the reference to a 'cause of action' in paras (a), (b) and (c) of the principles set out above can, in some circumstances, include an 'untested' claim which is made in good faith as well as a cause of action which is contingent in the sense that some act must be performed before it can be enforced. An example that was given of the former is an agreement to settle a potential defamation action which is reached in circumstances where, following the sending of a letter of demand by the potential plaintiff, the potential defendant denies that any defamatory imputations were conveyed by the relevant publication but he or she nevertheless agrees to settle in order to avoid litigation.[13] An example that was given of the latter is an agreement which involves the waiver of the relevant contingency, such as an agreement by parties to a contract to settle a dispute without a mediation notwithstanding that the contract provides that neither party can institute proceedings in respect of a breach unless the dispute is first submitted to a mediation.

24 It also became common ground that an accord and satisfaction can arise in circumstances where parties with competing rights and obligations - including rights due to accrue in the future - agree for valuable consideration to a compromise which involves substitution of other rights and obligations. There was also consensus that it is not a necessary precondition that, prior to the time that the accord and satisfaction is negotiated for valuable consideration, a dispute has crystallised between the parties to the accord and satisfaction.

Interrelationship between accord and satisfaction and provisions of LPA

25 Although the applicant accepted the correctness of the above principles relating to accord and satisfaction, it contended that those principles are not applicable to agreements relating to the payment of legal fees except in very limited circumstances, as such agreements are strictly regulated by the LPA.

26 In order to properly understand the applicant's contention, which is discussed in more detail below, it is necessary for us to refer to some key cases which have considered the interrelationship between the principles of accord and satisfaction and the statutory provisions that govern the recovery of costs by legal practitioners.

27 In Koutsourais v Metledge & Associates,[14] the New South Wales Court of Appeal considered s 192 of the Legal Profession Act 1987 (NSW) which was, at the relevant time, the New South Wales equivalent of s 3.4.33 of the LPA. Section 192 prohibited the commencement of '[p]roceedings for the recovery of costs by a [legal practitioner]' unless at least 30 days had passed since a bill for those costs was given to the client. In Koutsourais, a solicitor had commenced proceedings against two clients (one a corporate entity) to recover legal fees without first complying with s 192, and the clients relied on that section to defend the proceedings. The solicitor had served statutory demands on the corporate client, following which the parties agreed that, as consideration for the solicitor not proceeding with the statutory demands, the corporate client would pay the amount outstanding by instalments. This was found to be an accord and satisfaction.

28 Hodgson JA, with whom Beazley JA agreed, decided that the fact that the agreement was an accord and satisfaction did not necessarily mean that the proceedings to enforce it were not 'proceedings for the recovery of costs by a [legal practitioner]' for the purposes of s 192 of the Legal Profession Act 1987 (NSW).[15] They held that the proceedings were for recovery of costs and were not maintainable because of lack of compliance with s 192. Hodgson JA outlined factors which he considered would tend to make proceedings ultimately based, at least in part, on a lawyer's entitlement to costs, other than proceedings for recovery of costs. They included the following:

[A] compromise of previous legal proceedings; a compromise involving other matters as well as costs; a compromise accepting in respect of costs a substantially lesser sum; and legal advice to the client at the time of the compromise.[16]

29 In Amirbeaggi v Business in Focus (Australia) Pty Ltd,[17] Brereton J considered whether a deed which provided for payment of legal costs was a 'costs agreement' as defined in s 302 of the Legal Profession Act 2004 (NSW) ('LPA (NSW)'). The definition of 'costs agreement' in the LPA (NSW) was the same as the definition of that term in s 3.4.2 of the LPA. Section 4 of the LPA (NSW) defined 'legal costs' to mean 'amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest'.

30 At the time the parties executed the deed, the law firm had rendered bills to the clients for legal costs totalling $321,091, around $200,000 of which remained outstanding. The deed set out how and when the clients would make payment of the outstanding debt. Clause 3.1 of that deed provided that, as consideration for the payment provisions in the deed, the law firm released the clients from all claims relating to the outstanding debt. Clause 6.1 provided that the deed was a complete defence to any proceedings, including an application for a costs assessment. After the deed was executed, a dispute arose as to the payment of further costs that had been or would be incurred after the date of the deed, and the law firm instituted proceedings claiming an order for specific performance of the deed. Before those proceedings were instituted, the law firm had commenced costs assessment proceedings.

31 Brereton J found that the debt the subject of the deed was a debt for legal costs within the definition of 'legal costs' in s 4 of the LPA (NSW) and that the deed, which made 'provision for how that debt will be paid' was an agreement about the payment of legal costs and therefore a costs agreement within the meaning of s 302.[18] Brereton J held that cl 6.1 of the deed rendered it a void costs agreement under s 327(1) of the LPA (NSW) (the equivalent of s 3.4.31(1) of the LPA) because the clause purported to exclude a costs assessment, contrary to s 322(5) of the LPA (NSW) (the equivalent of 3.4.26(5) of the LPA).[19]

32 On the question of whether the law practice had maintained proceedings for the recovery of costs contrary to s 355(b) of the LPA (NSW), which prohibited the commencement of proceedings where an application for a costs assessment has been made, Brereton J referred to the factors listed by Hodgson JA in Koutsourais and concluded that the proceedings were proceedings for the recovery of legal costs. He did so on the following basis:

None of the factors which his Honour identified as potentially rendering a proceeding ultimately based on a lawyer's entitlement to costs as one other than a proceeding for recovery of costs are present: there has been no compromise of previous legal proceedings in respect of those costs, let alone one involving other matters as well as costs; there has been no acceptance in respect of costs of a substantially lesser sum; and, although there is reference in the agreement to an opportunity to obtain legal advice, there is no evidence that legal advice was in fact obtained at the time of the deed.[20]

33 In the Beba proceedings, a settlement agreement was entered into by a lender and borrower ('Beba') in relation to the repayment of a loan by instalments following Beba's default. Under the loan agreement, Beba was required to pay 'all costs, charges and expenses ... reasonably incurred by the lender because of any default by [Beba]'. Pursuant to the settlement agreement, Beba was required to make a payment described as 'a contribution' in the sum of $60,000 towards fees owed by the lender to her legal advisors ('Gadens') and financial advisors (PPB Advisory). Beba was a 'non-associated third party payer' of the legal fees and had a right to seek review of the legal costs under s 3.4.38(2) of the LPA. Beba paid the amount of $60,000 and then applied to the Costs Court for a review of Gadens' costs under s 3.4.38(2).[21] The Costs Court held that Beba was entitled to make the application and Gadens appealed to the Trial Division.

34 Emerton J found that the parties to the settlement agreement intended: that the payment of $60,000 would constitute a compromise of their respective rights in relation to the legal and advisory costs incurred by the lender by reason of Beba's default; that the agreement would conclusively resolve the issue of what costs the lender was entitled to recover as a result of Beba's default; and that it would not be open to either party to revisit this question.[22] Emerton J concluded that the settlement agreement constituted an accord and satisfaction and that it was implicit that Beba gave up the right to a review when it agreed to pay the amount of $60,000 in satisfaction of its obligation to pay the lender's costs arising from its default.[23] Emerton J also held that s 3.4.48A of the LPA did not preclude Beba from entering into an agreement which had the effect of extinguishing its rights to request information under s 3.4.38(7) or to apply for a costs review under s 3.4.38(2).[24]

35 An appeal from Emerton J's decision was dismissed by this Court. Ashley JA, with whom Redlich and Priest JJA agreed, concluded that the course of the negotiations between the parties in relation to costs 'shows why their resolution of the costs issue was intended by them to conclusively bring that issue to an end, such that neither party could re-open or re-visit it.'[25] The Court also held that s 3.4.48A of the LPA did not preclude Beba from entering into an agreement by which it gave up its rights to request information under s 3.4.38(7) or to apply for a costs review under s 3.4.38(2).[26]

36 The reasons for these conclusions were articulated by Ashley JA as follows:

[T]he language of s 3.4.48A, with its reference to contracting out, has an evident relationship with the conception of a costs agreement. A client and an associated third party payer may enter into such a contract. In doing so, they are permitted by s 3.4.26(5) to contract out of Div 7 - by reference to s 3.4.48A - but only if the client is, or the associated third party payer is akin to, a sophisticated client. A reading that the provisions are in step makes more sense, in my opinion, than a construction that s 3.4.26(5) addresses the time of making a costs agreement, whilst s 3.4.48A addresses contracting out either at that time or when a contract to contract out of Div 7 is made at some later time. I reject such a construction.

If s 3.4.48A has the field of operation which I have described, it makes perfectly good sense why the section does not refer to non-associated third party payers. Such persons cannot enter into a costs agreement. Except for the definitional section, they are not referred to in any of Divs 1-6 of Pt 3.4.

It is a corollary of the conclusions which I have already expressed that neither s 3.4.26(5) nor s 3.4.48A says anything about the ability of a client or associated third party payer to reach a binding settlement with a law practice respecting the quantum of legal costs charged, or of a non-associated third party payer to reach a binding settlement respecting the quantum of costs charged with the person who is under a legal obligation to pay those costs. Each of these situations - costs having been incurred and charged out - is temporally distant from the time when a costs agreement may be entered into (and then only between clients or associated third party payers with a law practice).

In that event, subject to considering Beba's submission that Div 7 is legislation of a kind that cannot be displaced by private agreement, it appears to me that non-associated third party payers, a fortiori clients and associated third party payers, are not prevented by Div 7 from entering into binding agreements to pay a quantified amount in costs, such agreements precluding a party from later seeking information or applying for a costs review.

...

Whilst it must be recognised that Pt 3.4, and specifically Div 7, is designed to protect persons obliged to pay legal costs, it does not follow that the desirability of parties bringing an end to a legal dispute, including its costs ramifications, and whether or not involving litigation, should be ignored. Nor would it do much for the administration of justice if agreements settling costs issues (whether solely relating to costs, or part of a wider resolution), entered into in apparent good faith, could be at risk of being partly set aside at the instance of the payer, the other party then being at risk, in some cases, of having to repay some part of moneys already received and paid to the party's legal practitioner.[27]

37 Ashley JA concluded that div 7 of pt 3.4 of the LPA should not be understood to be legislation of a kind that cannot be displaced by private agreement.[28] He did not consider that Brereton J's decision in Amirbeaggi stood in the way of his conclusions or that the reasons of Hodgson JA in Koutsourais assisted Beba.[29]

38 In GLS v Goodman Group Pty Ltd,[30] Goodman Group Lawyers ('Goodman') charged their client, GLS, approximately $173,000 in legal fees and disbursements. A costs agreement was in place. GLS had paid the majority of the costs billed. At the time it sent the last of the bills (in itemised form) totalling some $24,783, bringing the outstanding amount to $58,749, and in the context of an ongoing dispute about the quantum of the costs charged, the parties agreed that Goodman would accept $39,118 to resolve the dispute. GLS applied for a review of the costs pursuant to the LPA and Goodman sought summary dismissal of that application on the basis that the parties had reached an accord and satisfaction which extinguished GLS's rights of review under the LPA.

39 GLS's main argument was that the agreement to pay the discounted sum constituted a costs agreement which was thereby void pursuant to ss 3.4.26(5) and 3.4.31(1) of the LPA insofar as it purported to exclude her rights of review. Macaulay J rejected that argument on the basis that the parties had entered into an accord and satisfaction which was not a costs agreement as defined by the LPA.[31] Macaulay J made the following observations about Beba v Gadens:

[T]he conclusion in paragraph 75 [of Ashley JA's judgment] was determinative in that case as it is here. It is important to understand the temporal distinction Ashley JA was making. His Honour's statement that the provisions of ss 3.4.26(5) and 3.4.48A must be read in step in paragraph 73 is to be taken as meaning that they must be read as being concerned with the same point in time: that is, they are both concerned with the time of the making of the costs agreement. His Honour rejected an extended ambit of operation of s 3.4.48A which would also apply to an agreement made after the making of the relevant costs agreement.[32]

40 Macaulay J held that the reasons in Beba v Gadens make it clear that if an agreement is found to be a 'costs agreement' as defined in the LPA and the agreement does not comply with ss 3.4.26(5) and 3.4.31(1), a court will likely find that the agreement is void. He considered that Amirbeaggi could be distinguished because in that case, the deed signed by the parties during the course of the retainer did not compromise a dispute about legal costs but simply provided security for payment of previous fees.[33] Macaulay J's conclusion was as follows:

Here ... the parties made a costs agreement between them at one point in time and, later, following a dispute about the costs, they entered an accord and satisfaction compromising the costs to be paid and displacing any existing right of action for or entitlement to review the costs incurred under the costs agreement. Notwithstanding the breadth of the definition of 'costs agreement' in the [LPA], applying [Beba v Gadens], the accord and satisfaction was not such an agreement and the parties here are not prevented from settling their dispute (including shutting off the possibility of a review of costs).[34]

41 As stated at [2] above, between 2007 and 2012, the respondent acted for the applicant in the nine Western Australian matters. Two of those matters arose out of a dispute with BHP Billiton Direct Reduced Iron Pty Ltd ('BHP') over the applicant's performance of a contract to demolish an iron ore processing plant in Port Hedland ('BHP contract'). The dispute in relation to that contract began in 2007 and, following the commencement of litigation in the Supreme Court of Western Australia, settled on 17 December 2008 ('BHP dispute'). The settlement included a payment of $250,000 by BHP to the applicant as a contribution towards the applicant's costs. The remaining seven matters related to proceedings the applicant had commenced against a former business associate and his corporate entities ('Wilson matter'). Judgment in favour of the applicant in the Wilson matter for $1,762,521.65 plus interest and costs was delivered on 19 April 2012. Ultimately, however, no amount was recovered pursuant to the judgment.

42 The nine Western Australian matters were described in the parties' agreed summary for the appeal as follows:

File 8878 - Able Demolitions & Excavations P/L v Wilson - a substantial debt recovery action in which the [r]espondent engaged a Western Australian legal practice to act for the [applicant];

File 8927 - Crushing Services International Ltd - a deposit contract dispute;

File 8939 - Able Demolitions and BHP Billiton Direct Reduced Iron Pty Ltd (the 'Boodarie Iron matter') - a substantial dispute between the [applicant] and Boodarie Iron, a subsidiary of BHP, arising out of a contract for the demolition of a reduced iron plant at Port Hedland, Western Australia;

File 8957 - Police report - arising out of the Wilson matter, in which the [r]espondent engaged in correspondence with the Western Australian police about potential charges against Wilson;

File 9056 - Able Demolitions and BHP Billiton (Boodarie Iron) - appeal;

File 9091 - Able Demolitions ats All Mining Equipment Pty Ltd - arising out of the Wilson matter, effectively treated as a counterclaim and heard together with the Wilson matter. Judgment was handed down in April 2012;

File 9898 - Able Demolitions ats All Mining Equipment Pty Ltd - appeal;

File 9919 - All Mining Equipment Pty Ltd - winding up;

File 9920 - Wilson - bankruptcy.

43 The respondent provided three documents each entitled 'Disclosure Statement' to the applicant on 2 January 2008, 25 July 2008 and 2 September 2008 ('2008 disclosure statements').[35] The first and third related to File 8939 and the second related to File 9056.

44 It is not clear whether it was intended that the 2008 disclosure statements be disclosure statements or costs agreements, as they have features of both types of documents. For example, although the disclosure statements contain references to 'this agreement', the opening paragraph in each disclosure statement stated as follows:

Under section 3.4.9 of the [LPA] we must disclose to you the following information relating to legal costs. You may negotiate a costs agreement with us on the basis of the information contained in this disclosure statement.

45 The disclosure statement dated 2 January 2008 estimated that costs (excluding disbursements) would be between $30,000 and $100,000. The estimates in the disclosure statements dated 25 July 2008 and 2 September 2008 were between $30,000 and $50,000, and between $500,000 and $750,000, respectively.

46 The hourly rate set out in the 2008 disclosure statements was $500 plus GST, but there was a verbal agreement that the rate charged to the applicant would be $400 plus GST if the applicant did not recover its costs from BHP. On the appeal, the parties agreed that the 2008 disclosure statements failed to comply with some mandatory provisions of the LPA, including s 3.4.9, and that to the extent that the documents did refer to the LPA, they incorrectly referred to a version that had been superseded as at that time. The parties also agreed that, insofar as the 2008 disclosure statements purported to be costs agreements, they were void because the agreed hourly rate of $400 was not in writing.[36]

47 Between 2007 and 2013, the applicant experienced financial difficulties. Richard Charylo, who was a director of the applicant and Mr Rossignoli's brother-in-law, requested the respondent to defer issuing any invoices. As a result, prior to the 29 May meeting, the respondent issued only three invoices in relation to the BHP dispute, each of which was for $5,000 plus GST. In 2010, Mr Kenna agreed with Mr Charylo that the respondent would invoice the applicant for its fees in the BHP dispute once the applicant had raised some funds through the sale of some machinery.

48 By early to mid-2012, the applicant's financial position had stabilised. There was an expected surplus from the sale of some properties and nearly $3 million was expected to be realised by the applicant from the sale of equipment after the winding up of its demolition business.

49 As we have already discussed, at the 29 May meeting between Mr Kenna and Mr Rossignoli, the parties reached the Agreement. The judge accepted Mr Kenna's evidence in relation to the meeting, which she described as follows:

Mr Kenna deposed that on 29 May 2012, Mr Rossignoli attended [Mr Kenna's] office to discuss selling [the Wonga Road properties]. Mr Kenna agreed to act as his solicitor and attorney. Mr Kenna deposed that he advised Mr Rossignoli that he ... estimated that his outstanding costs in relation to the BHP dispute and the Wilson matter ... were in the range of $1.3 to $1.5 million, but that he was prepared to accept $1 million plus GST 'all in'. Mr Kenna deposed that Mr Rossignoli agreed to this sum without protest, on condition that Mr Kenna did not issue an invoice or charge interest until he sold the Wonga Road properties, and Mr Kenna agreed to those terms.[37]

50 Nothing was said during the 29 May meeting about the impact of the Agreement on the applicant's rights under the LPA. Neither Mr Kenna nor Mr Rossignoli turned their minds to those rights at that time.

51 By October 2013, the applicant's financial situation had deteriorated again. The sale of the Wonga Road properties had not realised as much as expected, and the surplus was being used to prop up other ailing businesses controlled by Mr Rossignoli, rather than being set aside for the payment of legal fees. The sale of the applicant's equipment also achieved far less than expected.

52 On 1 October 2013, Mr Rossignoli attended Mr Kenna's office and requested a reduction to the costs amount of $1 million. Mr Kenna refused that request.

53 On 7 October 2013, the respondent sent to the applicant a lump sum bill for $1 million plus GST for work performed on the nine Western Australian matters in the period from 30 October 2007 until 7 October 2013 ('Lump Sum Bill'). Mr Kenna described the Lump Sum Bill in his affidavit of 17 August 2015 as a 'short form Tax Invoice to [the applicant] pursuant to my Costs Agreement with [Mr Rossignoli]'. The Lump Sum Bill stated 'More, but as agreed and if paid within 30 days - $1,000,000.00' plus GST.

54 The Lump Sum Bill was accompanied by a page headed 'If You Dispute Our Legal Costs' which included the following statement:

If you have any concern about our legal costs, or our legal services, please do not hesitate to speak to Barry Kenna. If we cannot satisfactorily resolve your concern with you, you may:

• Seek a costs review by the Costs Court under Division 7 of Part 3.4 of the [LPA] within 60 days after the bill is given to you or the law practice requests payment of costs or you pay the costs (whichever is earlier or earliest);
• Apply to VCAT pursuant to section 3.4.32 of the [LPA] to set aside the Costs Agreement entered into between you and us on (date); or
• Make a complaint to the Legal Services Commissioner under chapter 4 of the [LPA] within 60 days after the legal costs were payable or, if an itemised bill was requested in respect of those costs, within 30 days after the request was complied with.[38]

55 The statement accompanying the Lump Sum Bill did not comply with s 3.4.35 of the LPA because it incorrectly stated that the time limit for seeking a costs review was 60 days instead of 12 months.

56 On 14, 15 and 16 October 2013, the applicant paid the respondent a total sum of $220,000 on account of legal fees. From December 2013, the respondent rendered invoices on a monthly basis with respect to the outstanding balance, plus the interest accumulating upon the unpaid balance.

57 After the Agreement had been reached, Mr Kenna continued to carry out work in relation to the sale of the Wonga Road properties and acted for Mr Rossignoli in a dispute with a body corporate manager between May 2012 and October 2013.

58 On 21 October 2013, the applicant's accountant sent an email to the respondent requesting that it provide, 'in writing, a complete breakdown/detail of your invoice of $1,000,000 + GST.' Mr Rossignoli repeated the request for further details in a letter dated 27 October 2013 to Mr Kenna. Subsequent correspondence between Mr Kenna and Mr Rossignoli or his accountant (and from April 2015 between Mr Kenna and Slater + Gordon on behalf of the applicant) failed to resolve the costs issue.

59 The respondent agreed to prepare itemised bills and commenced work on them. However, after Slater + Gordon became involved, Mr Kenna stopped working on the bills and they were never completed.

60 As at 1 August 2015, the outstanding balance of the Lump Sum Bill with accumulated interest was $942,235.53.

61 On 18 June 2015, the applicant issued a summons in the Costs Court seeking an order that the respondent file and serve an itemised bill in relation to the Lump Sum Bill. The respondent resisted the making of such an order on the basis that the Agreement amounted to an accord and satisfaction which had the effect of relieving the applicant of its rights to seek an itemised bill and to review the costs which were the subject of the Agreement. The applicant disputed that any agreement had been reached between the parties and submitted that even if it had been, that agreement could not give rise to an accord and satisfaction such as to deprive the applicant of its entitlements under the LPA. The applicant did not deny its liability to pay some amount in respect of the respondent's costs, but wanted to be satisfied that the amount said to be owing was fair in the context of the work actually performed.

62 As we indicated earlier, at trial, the parties prepared an agreed list of issues for determination by the judge. The list was as follows:

1. In May 2012 did the parties reach an accord and satisfaction in relation to legal costs in the amount of [$1 million] plus GST, and if so, what were the terms of that agreement?
2. If 'yes' to (1), is the [a]pplicant prohibited from requesting an itemised bill under s 3.4.36 [of the LPA]?
3. If 'no' to (1), does the [a]pplicant require an extension of time to commence proceedings in the Costs Court, and in particular to seek an order that the [r]espondent serve an itemised bill in compliance with s 3.4.36 [of the] LPA?
4. If 'yes' to (3), should an extension of time be granted to the [a]pplicant pursuant to s 3.4.38 [of the] LPA, having regard to the delay and the reasons for the delay?

5 Should the [r]espondent now be required to provide an itemised bill?

63 The judge summarised her conclusions on the above issues as follows:

(a) in May 2012, the parties reached an accord and satisfaction in relation to legal costs. The terms of the May 2012 agreement were that Mr Kenna would accept $1 million in full and final payment for his work on the Western Australian matters (including the work yet to be carried out in enforcing the judgment in the Wilson matter), and refrain from issuing a tax invoice and charging interest until the completion of the settlement of the sale of the Wonga Road properties. [The applicant] agreed to pay the $1 million, and surrendered its rights to seek information and review the legal costs. ...

(b) by reason of the finding in paragraph (a) above, [the applicant] is precluded from requesting an itemised bill under s 3.4.36 of the LPA;

(c) subject to my comments below, it is unnecessary to determine whether [the applicant] requires an extension of time to commence proceedings in the Costs Court and in particular, to seek an order that Mr Kenna serve an itemised bill in compliance with s 3.4.36 of the LPA;

(d) subject to my comments below, it is not necessary to determine whether an extension of time to apply for a review of Mr Kenna's costs is required, having regard to the delay and the reasons for the delay; and

(e) subject to my comments below, given the answers provided in relation to (a) and (b) above, Mr Kenna is not required to provide an itemised bill in relation to the Western Australian matters.[39]

64 In relation to the first issue, the judge elaborated as follows:

Put in an expanded form, what transpired at the 29 May 2012 meeting was as follows: Mr Kenna told Mr Rossignoli he had a claim for costs, which if invoiced in the ordinary way would be in the order of $1.3-$1.5 million, subject of course to [the applicant's] rights of review. However, he was prepared to accept a lesser amount. Whether he used the term 'happy to accept', 'all-in', or 'call it quits' does not really matter: each of these terms has the flavour of finality. Mr Rossignoli agreed, provided that he had time to pay, and that interest would not accumulate prior to the settlement of the sale of the Wonga Road properties. This is a classic example of an accord and satisfaction: Mr Kenna accepted [the applicant's] promise to pay a discounted sum on an ascertainable date in satisfaction of his claim for legal costs. The May 2012 agreement involved a substantial compromise on Mr Kenna's part: both in reducing the quantum of the claim and in extending the time for payment. There is no uncertainty in the terms ... The fact that Mr Kenna's assertion that his actual costs were in the range of $1.3-$1.5 million were not supported by any detailed calculations or other evidence is beside the point: it was always open to Mr Rossignoli to request such information before agreeing to the figure of $1 million. Mr Rossignoli is an experienced businessman, who at that stage was under no undue pressure to pay Mr Kenna's fees, and it is apparent from the evidence that many months would pass before the Wonga Road properties were sold, giving Mr Rossignoli an ample opportunity to query or seek information about costs, particularly given that Mr Kenna was still doing legal work for him.[40]

65 The judge considered that it was not necessary for there to be an antecedent dispute between the parties in order for there to be an accord and satisfaction. She found it was sufficient that a party to such an agreement had a cause of action which is compromised.[41] In that regard, the judge held that there could be no doubt that as at the time of the 29 May meeting, Mr Kenna had a cause of action. That cause of action was 'his claim for unpaid fees, which he could have billed then and there, subject of course to [the applicant's] rights of review under the LPA'.[42]

66 The judge held that any failures by the respondent to comply with its obligations under the LPA were not relevant to the question of whether the parties had reached an accord and satisfaction.[43] The fact that the respondent had attached a statement of rights to the Lump Sum Bill, and had initially agreed to provide details of the costs incurred by the applicant on the nine Western Australian matters, was also held not to be inconsistent with an accord and satisfaction having been concluded. The judge accepted that the statement attached to the Lump Sum Bill had been attached as a result of the routine billing practices of the respondent's staff and that Mr Kenna had not turned his mind to the question of whether he needed to inform the applicant of its rights of review.[44]

67 The judge also concluded that the fact that Mr Kenna considered the Agreement to be a costs agreement did not of itself confer upon it the status of a costs agreement that would attract the requirements in pt 3.4 of the LPA. She described the applicant's submissions to the contrary as 'misconceived'.[45] The judge held that an accord and satisfaction which compromises a claim for costs, or a dispute which has arisen between parties to a costs agreement is not, without more, a costs agreement.[46]

68 The judge then considered whether the Agreement included a term which precluded the applicant from relying upon its rights under the LPA, in particular, its right to receive an itemised bill, and its right to have the costs charged by the respondent reviewed. Despite finding that the applicant's written submissions appeared to concede that an accord and satisfaction would extinguish those rights,[47] the judge considered the question and concluded as follows:

It is certainly the case that it was not an expressly articulated term of the [Agreement] that [the applicant] would relinquish its rights to receive information and its rights of review: it is clear from the evidence that this was not in the contemplation of the parties during the 29 May meeting. However, for the avoidance of doubt, I would imply such a term into the [Agreement] on the basis that 'it is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case', being the test applicable for the implication of terms in oral contracts.

...

In my view, it would be necessary for the reasonable and effective operation of the [Agreement] that the [Agreement] finally determine the rights and obligations of the parties.[48]

69 In reaching that conclusion, the judge relied on the observations of Ashley JA in Beba v Gadens referred to at [36] above, to the effect that it would not be in the interests of justice if agreements entered in good faith in settling costs issues could be at risk of being set aside at the instance of the payer.

70 The judge held that her finding that the Agreement constituted an accord and satisfaction which precluded the applicant's rights under pt 3.4 of the LPA meant that it was not necessary for her to deal with the third to fifth issues set out at [62[49]] above.49 However, she addressed those issues in case her finding was wrong.

71 The judge concluded that the applicant did not require an extension of time to make a request for an itemised bill. This was held to be because the applicant had made two requests for an itemised bill, on 21 and 27 October 2013,[50] which were within 30 days from the day that the Lump Sum Bill was delivered on 7 October 2013, as required by s 3.4.36(1) of the LPA. The judge found that they were valid requests even though they did not use the phrase 'itemised bill'.[51]

72 The judge accepted that the applicant required an extension of time, under s 3.4.38(6) of the LPA, to apply to the Costs Court for a review of the respondent's costs because s 3.4.38(5) provides that such an application must be made within 12 months of receipt of a bill. She concluded that an extension of time ought be granted on the basis that, if the applicant's summons of 18 June 2015 was to be treated as an application for an extension of time to bring an application for review, then the relevant delay was eight months, which is 'not an unduly lengthy delay'.[52] This was held to be so in the light of the respondent's failure to provide an itemised bill, as promised by it, the errors in the statement attached to the Lump Sum Bill as to the applicable timelines for an application for review, and the fact that the applicant was unrepresented between late 2013 and early 2015. The judge said that the prejudice to the respondent arising from the granting of an extension of time was outweighed by the prejudice to the applicant arising from the refusal of an extension of time.[53]

73 The judge decided that, if her conclusion that the Agreement constituted an enforceable accord and satisfaction were wrong, she would have made the following orders:

(a) [The respondent] provide [the applicant] an itemised bill with respect to the Western Australian matters within sixty days; and

(b) Provided that any application for review under s 3.4.38(1) of the LPA is made within sixty days of the provision of an itemised bill, I declare that it would be just and fair for the application to proceed.[54]

74 The applicant relies on the following proposed grounds of appeal:

1. The trial judge erred in finding that the oral agreement made between the applicant and the respondent on 29 May 2012 was an 'accord and satisfaction' and was not a 'costs agreement' as defined in s 3.4.2 of the [LPA].
2. The trial judge erred in finding that at the time of the meeting on 29 May 2012 at which the oral agreement was made, Mr Kenna had a cause of action, being his claim for unpaid fees, notwithstanding that he had not given a bill to the applicant in accordance with ss 3.4.34 and 3.4.35 of the LPA, and was therefore not entitled to commence legal proceedings to recover the legal costs until 65 days after providing a bill in accordance with those sections by operation of s 3.4.33 of the LPA.
3. The trial judge erred in finding that it was an implied term of the oral agreement made between the applicant and the respondent on 29 May 2012 that the applicant was not entitled to rely upon its rights under the LPA to receive an itemised bill and its right to a review of the costs charged by the respondent.
4. [T]he trial judge ought to have made an order that the respondent provide to the applicant an itemised bill in relation to the legal costs to which the lump sum bill dated 7 October 2013 provided by the respondent to the applicant relates.
5. [T]he trial judge ought to have declared that it would be just and fair for any application for review under s 3.4.38(1) of the LPA to proceed, provided such application is made within 60 days of the provision of an itemised bill.[55]

Grounds 1 and 2: Costs agreement and accord and satisfaction

75 The applicant submitted that the correct characterisation of the Agreement must be determined by application of the provisions of the LPA rather than by considering whether the Agreement constituted an accord and satisfaction, the latter question being 'a little bit beside the point'. According to the applicant, the LPA contains statutory protections that must be satisfied before a legal practitioner can recover legal costs.

76 The applicant's primary submission was that, by application of the provisions of the LPA, the Agreement was a costs agreement within the meaning of s 3.4.2 because it was an agreement as to the amount of legal costs to be paid and when those costs were to be paid. According to the applicant, as s 3.4.26(2) requires a costs agreement to be in writing, and s 3.4.26(5) prohibits a costs agreement from excluding the right to seek costs review, the costs agreement was void by virtue of s 3.4.31(1). As a result, so it was said, the legal costs the subject of the Agreement were only recoverable as set out in s 3.4.19(b) or (c), that is, in accordance with an applicable practitioner remuneration order or scale of costs, or according to the fair and reasonable value of the legal services.

77 Further, the applicant submitted that, as at the time of the Agreement, there had been no costs disclosure as required by the LPA. According to the applicant, the 2008 disclosure statements were, despite their title, costs agreements, and were void by virtue of their deficiencies.[56] In particular, the applicant submitted that because the agreement between Mr Kenna and Mr Rossignoli as to the hourly rate to be paid ($400 plus GST) was verbal rather than being reflected in the 2008 disclosure statements, those documents were void by the operation of ss 3.4.26(2) and 3.4.31(1). Accordingly, the applicant contended that there had been no compliant disclosure in relation to the costs that were the subject of the Agreement. To the extent that the Agreement included fees not yet incurred, the applicant submitted that there had been no purported disclosure at all. Accordingly, so it was said, the respondent was prevented by s 3.4.17 from recovering those costs or commencing proceedings in relation to them, unless and until they had been reviewed by the Costs Court.

78 The applicant submitted that the respondent was prohibited from commencing proceedings to recover its legal costs by s 3.4.33(1) which provides that a legal practitioner cannot do so until at least 65 days after a bill has been provided in accordance with ss 3.4.34 and 3.4.35. The applicant contended that the respondent had no extant entitlement to payment of the legal costs, nor did the applicant have an obligation to pay, at the time of the Agreement. According to the applicant, the respondent did not have a cause of action in relation to the unpaid fees, contrary to the judge's conclusion.[57]

79 The applicant accepted that what occurred at the 29 May meeting was a negotiation between Mr Kenna and Mr Rossignoli as to the amount to be paid for legal costs but submitted that that negotiation did not constitute a compromise by the parties in the nature of an accord and satisfaction. According to the applicant, a costs agreement cannot be an accord and satisfaction which would exclude pt 3.4 of the LPA because the LPA prohibits the parties from excluding, by the terms of a costs agreement, the right to request an itemised bill or to seek costs review.

80 The applicant accepted that Beba v Gadens and GLS are authority for an exception to the rule that the parties cannot by agreement displace the rights conferred by the LPA to request an itemised bill and to seek review of costs. However, according to the applicant, there are preconditions to the application of that exception, particularly that the costs must not only have been incurred, but also billed to the client such that the client has the benefit of the statement of rights that must accompany a bill and is thereby made aware of the rights that will be displaced if an agreement is reached. The applicant accepted that at that later time, for the reasons outlined by Ashley JA in Beba v Gadens, the LPA does not prohibit parties from reaching a settlement as to the payment of the costs that were billed which would constitute an enforceable accord and satisfaction.

81 The applicant described Ashley JA's reasoning as involving a reading down of the literal language of the definition of costs agreement in s 3.4.2 of the LPA so that an agreement settling a dispute about the legal costs after those costs have been incurred and billed, will fall outside that definition. According to the applicant, it is clear from Ashley JA's reasons in Beba v Gadens that the fact that the costs had already been charged was critical to determining that a settlement agreement in respect of their quantum is not a costs agreement, that same conclusion being adopted in GLS. To allow that conclusion to be reached in the present case, where the applicant had not been given a bill which quantified the costs and notified the applicant of its rights under the LPA, would be, in the words of counsel for the applicant, 'to drive a cart and six horses through the legislative scheme'. This was said to be because it would enable a practitioner who has failed to comply with the obligations in the LPA to avoid the consequences of that failure by reaching an accord and satisfaction in relation to the payment of fees.

82 By its amended written case, the applicant sought to rely on an additional argument that, even if the Agreement was an accord and satisfaction, that did not mean it was not an agreement about the payment of legal costs and therefore a costs agreement as defined in s 3.4.2 of the LPA. The applicant sought to rely on Koutsourais,[58] and submitted that none of the factors identified by Hodgson JA in that case as being capable of rendering proceedings other than for recovery of legal costs apply in this case. According to the applicant, if the Agreement was a costs agreement, the applicant's rights under the LPA were not extinguished.

83 The respondent submitted that there is no dispute that the applicant had a liability to the respondent for the legal work it performed on behalf of the applicant. The respondent accepted that, at the time the Agreement was made, the amount to be paid for that work had not been quantified, nor had invoices been raised and rendered, because of the close relationship between the parties and because Mr Charylo had requested that invoices be deferred. However, according to the respondent, the applicant was able to make an informed decision about whether to enter into the Agreement because of the 2008 disclosure statements and the regular discussions that had taken place between Mr Kenna and Mr Charylo about the progress of the nine Western Australian matters and the costs that were being incurred.

84 The respondent submitted that the factual findings made by the judge were properly applied to the question of whether an accord and satisfaction had been reached and that the judge had correctly applied the decisions in Beba v Gadens and GLS. According to the respondent, the Agreement was an accord and satisfaction with the effect of finalising the question as to the costs to be paid by the applicant to the respondent including the finalisation of any rights that the applicant might have otherwise had pursuant to the LPA.

85 The respondent submitted that the Agreement could not be a costs agreement in the light of the accord and satisfaction. According to the respondent, this submission is not inconsistent with Koutsourais because the facts of the present case fall within the exceptions recognised by Hodgson JA to the characterisation of proceedings as proceedings for recovery of costs, namely, 'a compromise involving other matters as well as costs; a compromise accepting in respect of costs a substantially lesser sum'.[59]

86 The respondent contended that the applicant's submission that a finding that the Agreement constituted an accord and satisfaction would not necessarily extinguish the applicant's rights under the LPA, was inconsistent with the position it had adopted at trial.[60] However, the respondent accepted that it was not prejudiced by the applicant's change in position because the issue was a legal one which turned on the proper interpretation of the LPA and thus there was no impediment to this Court hearing and determining it. The respondent also conceded that, if this Court found that the Agreement was a costs agreement, the applicant's appeal must succeed.

87 The starting point for an analysis of Grounds 1 and 2 is the fact that the relationship between lawyers and their clients is highly regulated by the LPA. This regulation extends to the fees which lawyers can charge clients and how and when such fees can be recovered.

88 Ordinarily, lawyers are more knowledgeable than their clients about their respective rights and obligations and are in a far better position to anticipate the work that will be required in acting for the client in a matter, estimate the costs of that work and assess what is ultimately properly chargeable for the work once it has been performed. This knowledge imbalance means that clients will often be unaware of their rights in the lawyer-client relationship in the absence of disclosure of those rights. It also creates opportunities for lawyers to take advantage of their clients. In these circumstances, it is unsurprising that the LPA contains many provisions of a 'consumer protection' nature.

89 Part 3.4 of the LPA contains consumer protection measures that cover the relationship between a lawyer and a client from the commencement of work on a matter to the conclusion of that matter and the recovery of costs charged for that work. The key features of pt 3.4 for present purposes can be summarised as follows:

(a) When a lawyer commences to act for a client on a matter, he or she must provide a disclosure statement to the client which, among other things, informs the client of his or her rights in relation to legal costs and provides an estimate of the costs to be incurred for that matter (LPA s 3.4.9). Failure to provide a disclosure statement means that the lawyer cannot recover costs unless they are reviewed by the Costs Court (LPA s 3.4.17).

(b) There are only four permitted methods for calculating a lawyer's costs, namely, in accordance with a written costs agreement, practitioner remuneration order or scale of costs, or according to the fair and reasonable value of the costs (LPA s 3.4.19).

(c) A bill for legal costs must be itemised, if requested by the client, and must contain a statement of the client's rights in relation to it, including the right to have it reviewed by the Costs Court (LPA ss 3.4.35(1) and 3.4.36(1)).

(d) A lawyer cannot sue to recover legal costs until 65 days after providing a bill (LPA s 3.4.33(1)).

(e) The LPA limits the ability of parties to exclude by contract some of the provisions in pt 3.4 (LPA ss 3.4.26(5) and 3.4.48A).

90 It follows that the broad latitude that the common law provides to parties to agree to contractual provisions of their choosing is circumscribed by the LPA where the contract relates to the charging of legal fees by a lawyer. Common law principles of contract cannot apply in relation to such fees if they are inconsistent with the provisions of the LPA.

91 In these circumstances, the parties were wrong to pose for the judge, as the first question for determination, whether the Agreement constitutes an accord and satisfaction under common law. Rather, the first and critical question is whether the Agreement is a 'costs agreement' within the meaning of the LPA. It is only once that question is answered that the legal attributes of the Agreement under the LPA can be ascertained and consideration can be given to whether the LPA is able to accommodate the application of any common law principles, including the principles relating to accord and satisfaction. If those principles are inconsistent with the provisions of the LPA, effect cannot be given to them.

92 In the present case, after the respondent had performed work for the applicant for five years and deferred the charging of fees during that period at the applicant's request, at the 29 May meeting, the parties reached the Agreement. The Agreement dealt with the quantum of the costs to be charged by the respondent for that work and when the applicant would be required to pay those costs. The subject matter of the Agreement is clearly 'about the payment of legal costs' and therefore the Agreement falls within the definition of 'costs agreement' in s 3.4.2 of the LPA.

93 The fact that the Agreement was reached five years after the work commenced, and at a time when the bulk of the work had been completed, does not preclude the Agreement from being a costs agreement. Unlike disclosure statements which the LPA requires be provided to a client before, or as soon as practicable after, a lawyer is retained in a matter, the LPA does not specify any temporal requirement in relation to costs agreements. Also, while provision of a disclosure statement is compulsory, with adverse consequences for a lawyer who fails to provide it, costs agreements are not compulsory. This is because costs agreements usually benefit the lawyer more than the client in that they enable a lawyer to charge fees on a more certain - and often on a more generous - basis than is provided by the alternatives set out in s 3.4.19(b) and (c), namely pursuant to a practitioner remuneration order or scale of costs or according to the fair and reasonable value of the legal services. The only consequence of the absence of a costs agreement is that costs must be charged pursuant to one of those alternatives.

94 Ordinarily, costs agreements are entered into when the lawyer commences work on a matter so that both parties know in advance the basis upon which legal costs will be calculated. However, there may be good reasons for a costs agreement to be entered into at any time after work commences, including at the conclusion of the work, as long as a bill has not been issued for that work before the costs agreement is entered into. This is because it may be beneficial to the parties for costs to be charged on an agreed basis - such as on the basis of an agreed amount or agreed hourly or daily rates - rather than pursuant to the less certain alternatives.

95 In the present case, due to the long-standing relationship between the parties, the arrangements for charging costs for the nine Western Australian matters were very informal and not properly documented. It can also be inferred from the difficulty that the respondent had in preparing itemised bills, during the time that it had agreed to prepare such bills, that the respondent's records were not kept in a manner that enabled it to readily calculate its costs. The estimate of $1.3-1.5 million that Mr Kenna provided to Mr Rossignoli at the 29 May meeting also indicates that there was uncertainty about the quantum of the costs. In these circumstances, it made sense for Mr Kenna to reach agreement with Mr Rossignoli about the costs to be paid and the time for their payment so that costs could be charged and recovered on the agreed basis rather than the alternative bases set out in s 3.4.19(b) and (c) of the LPA. In other words, it made sense for the parties to reach a costs agreement.

96 The fact that the Agreement is an unenforceable costs agreement because it was not in writing does not mean that, considered objectively and in the context of the provisions of the LPA, it was not intended to be a costs agreement.

97 Under the LPA, the unenforceability of the Agreement as a costs agreement and the absence of valid disclosure statements meant that the respondent could not recover any costs against the applicant unless those costs were assessed by the Costs Court and also that proceedings to recover costs could not be commenced until 65 days after the provision of a bill to the applicant.

98 It can be accepted that the principles of accord and satisfaction that are summarised at [21] to [24] above, when considered independently of the LPA, are potentially wide enough to apply to the Agreement. That is because, at the 29 May meeting, the parties had competing actual and contingent rights and obligations relating to legal costs which they compromised by substituting for them the agreed rights and obligations. However, the principles of accord and satisfaction cannot be considered independently of the LPA, as they cannot apply to the extent that they are inconsistent with the provisions of the LPA.

99 To date, the authorities have recognised only limited circumstances in which legal costs can be recovered pursuant to an agreement that amounts to an accord and satisfaction even though the agreement is not enforceable under the LPA. Beba v Gadens clarified that those circumstances are where costs have already been incurred and billed and are therefore temporally distant from the circumstances in which a costs agreement may be entered into in respect of the billed costs, with the result that the accord and satisfaction is not a costs agreement. This, of course, assumes that the accord and satisfaction involves a genuine compromise and is not tainted by undue influence, misrepresentation, unconscionable conduct or similar vitiating factors.

100 The exception in the circumstances set out in Beba v Gadens is not inconsistent with the consumer protection purposes of the LPA because the bill which charges the costs must be accompanied by a detailed statement of the client's rights in relation to challenging the costs. Armed with that information, the client is able to make an informed decision about whether to agree to a compromise in respect of the amount of legal costs payable instead of exercising the rights provided by the LPA which might be costly and time consuming. A genuine compromise in these circumstances is in the public interest because it involves final resolution of the costs issue by mutual agreement rather than through a court process.[61]

101 An agreement which compromises the amount of legal costs to be paid by a client and is reached after the costs are incurred and charged is capable of falling outside the definition of 'costs agreement' in s 3.4.2 of the LPA. This is because, at the time that the agreement is made, the lawyer has already prepared a bill which calculates costs either pursuant to an existing costs agreement or one of the alternatives set out in s 3.4.19(b) and (c) of the LPA. In such a situation, the purpose of the agreement is unlikely to be to establish a basis for calculating the billed costs but rather to substitute an agreed amount that is to be paid by the client in lieu of the amount charged. In this sense, such an agreement may be seen to be different in nature to a costs agreement and temporally distant from the circumstances in which a costs agreement may be entered into in respect of the billed costs.

102 The Agreement does not fall within the limited circumstances set out in Beba v Gadens in which an agreement for the payment of legal costs can be enforced as an accord and satisfaction even though it is unenforceable under the LPA. This is because, although the Agreement was entered into after a large amount of legal work had been performed and an indeterminate amount of costs had been incurred, some costs were yet to be incurred and no bill had been rendered. The Agreement was not temporally distant from the circumstances in which a costs agreement may be entered into in respect of unbilled costs and future work. On the contrary, as we have already discussed, it had all the features of a costs agreement and was capable of satisfying the purposes of such an agreement. It follows that there is no legal basis for the principles of accord and satisfaction to displace the provisions of the LPA which render the Agreement a void costs agreement.

103 Although this conclusion may, at first sight, appear unfair to the respondent because it deferred rendering a bill for over five years at the request of, and for the benefit of, the applicant, the provisions of the LPA must be given effect. Moreover, on closer analysis, the conclusion is not unfair. At the time of the Agreement the applicant did not have the benefit of any calculations in respect of the costs claimed or any statement of its rights in relation to those costs. This meant that the applicant was not in a position to make an informed decision about whether to compromise the costs claimed instead of exercising those rights.

104 Further, as there was no valid disclosure statement in respect of the costs and Mr Kenna provided only a vague estimate of between $1.3-1.5 million without explaining how he had arrived at that estimate, the applicant was not in a position to assess the true measure of the purported discount that was being offered and whether the respondent would be better off financially to accept the offer rather than pursue its rights under the LPA.

105 In these circumstances, if the Agreement were held to be enforceable as an accord and satisfaction notwithstanding that it was void under the LPA, the provisions of the LPA would be seriously undermined.

106 We reject the respondent's submission that, at the time of the Agreement, the applicant was in a position to make an informed decision about the proposed compromise of the amount of legal costs payable because of the 2008 disclosure statements and the regular updates that Mr Kenna provided to Mr Charylo. As we have already discussed, the 2008 disclosure statements only related to two matters, did not comply with the LPA and, in any event, had become out of date by May 2012. Further, informal 'updates' do not comply with the obligation in s 3.4.16 of the LPA for a lawyer to inform the client in writing when information in a disclosure statement ceases to be accurate.

107 More fundamentally, in accordance with Beba v Gadens, a client must have the benefit of a statement of rights accompanying a bill in order to enter into an accord and satisfaction which may be capable of displacing the provisions of the LPA.

108 It follows that Grounds 1 and 2 are made out insofar as they seek to impugn the judge's conclusion that the Agreement is not a costs agreement and that it can be enforced independently of the LPA as an accord and satisfaction.

Ground 3: Implied term displacing the applicant's rights under the LPA

109 As we stated at [86] above, the respondent conceded that, if this Court concluded that the Agreement was a costs agreement which was void in accordance with the LPA, the appeal would have to be allowed. For the reasons we have discussed under Grounds 1 and 2, this concession was properly made. A term cannot be implied into an agreement which is void. In any event, our conclusion that the Agreement is unenforceable because of the operation of the provisions of the LPA means that it is not possible to imply into the Agreement a term which purports to displace those provisions.

Grounds 4 and 5: Provision of an itemised bill and application for review

110 As we stated at [73] above, the judge decided that, if her conclusion that the Agreement constituted an enforceable accord and satisfaction were wrong, she would have made the following orders:

(a) [The respondent] provide [the applicant] an itemised bill with respect to the Western Australian matters within sixty days; and

(b) Provided that any application for review under s 3.4.38(1) of the LPA is made within sixty days of the provision of an itemised bill, I declare that it would be just and fair for the application to proceed.[62]

111 The applicant submitted that the judge should have made the above orders because there was no enforceable accord and satisfaction.

112 The respondent did not make any submissions on Grounds 4 and 5.

113 Having regard to our conclusion that the judge erred in finding that the Agreement constituted an enforceable accord and satisfaction, we will hear further submissions from the parties as to the orders to be made by this Court in relation to the matters covered by Grounds 4 and 5.

114 For the reasons set out above, the application for leave to appeal will be granted and the appeal will be allowed.

[1] The repeal of the LPA on 1 July 2015 does not affect its application to the present case.

[2] Able Demolitions and Excavations Pty Ltd v Barry Kenna & Co [2016] VSC 96 [92], [94] ('Reasons'). See also para B of the judge's order dated 17 March 2016.

[3] The application for leave to appeal was required to be made to this Court under r 77.07(1) of the Supreme Court (General Civil Procedure) Rules 2015 because the proceeding was heard and determined by an associate judge upon referral by a judge of the Trial Division under r 77.05(1).

[4] See [88]-[89] below.

[5] See [90], [98] below.

[7] See [99]-[100] below.

[8] The provisions in s 3.4.38 relating to third party payers are relevant to the discussion of the leading Victorian authority, Beba Enterprises Pty Ltd v Gadens Lawyers [2013] VSCA 136; (2013) 41 VR 590 ('Beba v Gadens'), below.

[9] [2012] VSC 519 ('Gadens v Beba').

[10] (2006) 22 BCL 16, 24-5 [48]-[54]. See also McDermott v Black [1940] HCA 4; (1940) 63 CLR 161, 183-184.

[11] Gadens v Beba [2012] VSC 519 [35] (citations omitted).

[12] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 600 [56].

[13] The requirement that a claim must be made in good faith is discussed in Wigan v Edwards (1973) 1 ALR 497, 512-13.

[14] [2004] NSWCA 313 ('Koutsourais').

[15] Koutsourais [2004] NSWCA 313 [7]-[9], [11].

[16] Koutsourais [2004] NSWCA 313 [11]. Although Beazley JA agreed with Hodgson JA's conclusion, she stated that she did not consider it necessary to express an opinion as to when proceedings might not be proceedings for recovery of costs. See Koutsourais [2004] NSWCA 313 [1]. Bryson JA dissented.

[17] [2008] NSWSC 421 ('Amirbeaggi').

[18] Amirbeaggi [2008] NSWSC 421 [27].

[19] Amirbeaggi [2008] NSWSC 421 [28].

[20] Amirbeaggi [2008] NSWSC 421 [42].

[21] In the alternative, Beba sought an order under s 3.4.38(7) of the LPA for the provision of sufficient information to allow it to decide whether to make an application for a review of Gadens' costs.

[22] Gadens v Beba [2012] VSC 519 [39], [41].

[23] Gadens v Beba [2012] VSC 519 [44].

[24] Gadens v Beba [2012] VSC 519 [45]-[49].

[25] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 610 [92].

[26] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 605 [65].

[27] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 606-7 [73]-[76], 607 [79].

[28] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 607 [80].

[29] Beba v Gadens [2013] VSCA 136; (2013) 41 VR 590, 609 [90].

[30] [2015] VSC 627 ('GLS').

[31] GLS [2015] VSC 627 [47].

[32] GLS [2015] VSC 627 [50] (emphasis in original).

[33] GLS [2015] VSC 627 [54].

[34] GLS [2015] VSC 627 [56] (citations omitted).

[35] Mr Kenna gave evidence that he believed that a similar document was provided in relation to the Wilson matter but he was unable to find it.

[36] Section 3.4.31(1) of the LPA provides that a costs agreement is void if it contravenes a provision in div 5 of pt 3.4, which includes s 3.4.26(2). That section requires that a costs agreement must be in writing. See [16]-[17] above.

[46] Reasons [19]. The judge referred to GLS [2015] VSC 627 [57].

[47] Reasons [8], [91]. In its written submissions for trial, the applicant cited Beba v Gadens and GLS as support for the proposition that 'a defence of accord and satisfaction in relation to legal fees is available in Victoria, in limited and appropriate circumstances' and then stated that 'where an accord and satisfaction is reached, the Applicant is effectively shut [out] of the rights of review afforded by Part 3, Division 7 of the [LPA]'. However, in oral submissions at trial, the applicant contended that the agreement upon which the respondent relied did not waive any rights the applicant had under the LPA because those rights were not in the contemplation of the parties when that agreement was allegedly made.

[48] Reasons [92]-[93] (citations omitted).

[50] See [58] above.

[56] See [46] above.

[57] See [65] above.

[58] See [27]-[28] above.

[59] See [28] above.

[60] See [68] and n 47 above.

[61] Where the Civil Procedure Act 2010 applies to a dispute between a lawyer and a client about costs, such a compromise would be consistent with the overarching obligation under s 22 of that Act to 'use reasonable endeavours to resolve a dispute by agreement'.