Costs - Written agreement - Unreasonableness - Circumstances surrounding entry into costs agreement - Fairness

Costs - Written agreement - Settlement of court proceedings for entitlement to costs - Taxation

Legal Practitioners Act 1893 (WA) s 59

Dissidomino v Mossensons, unreported; SCt of WA; Library No 990019; 22 January 1999

Stobbart v Mocnaj & Ors [1999] WASC 252

1 The plaintiff, who I will call "the client" seeks review of a costs agreement pursuant to s 59 of the Legal Practitioners Act, or certain alternative relief. The background to the matter is that the client suffered an accident on 23 June 1993 in circumstances suggesting that he might have a claim for damages. He consulted the defendant ("the firm"). The circumstances of his entering into a written retainer agreement are the subject of some dispute, there being inconsistent assertions in the affidavits filed on behalf of the client and of the firm. It is not appropriate to make any findings of fact on those disputed affidavits. However, it appears that a retainer agreement was entered into by the client and the firm issued a writ on his behalf. Prior to trial, the firm required him to pay certain disbursements and to make payment on account of anticipated fees. He was unable to do so and the firm declined to represent him further and referred him to another firm. The action was in due course settled.

2 After ceasing to act for the client, the firm rendered an account to him for its services. As he refused to pay them or compound them to the satisfaction of the firm, the firm issued a writ dated May 1999 out of the District Court against him for unpaid legal fees. The statement of claim pleaded that the agreement in writing dated 30 August 1993 was made, and referred to invoices rendered upon the client. The one which appears to remain in dispute is that dated 19 October 1998, in an amount of approximately $35,000. The client defended the matter, admitting the costs agreement but pleading that the firm had been negligent in its representation of him. A minute of proposed amended defence dated 4 April 2000 also admitted the agreement, but claimed that the firm had been in breach of it in rendering interim accounts, claiming that it was a term of the agreement, which was said to be partly written and partly oral, that no accounts would be rendered until the conclusion of the proceedings.

3 For reasons which will shortly emerge, it is desirable to trace the history of settlement of the District Court action. There appear to have been some oral negotiations, the terms of which are not before me (although an affidavit of Mr McManus purports to summarise his understanding of their content). Relevant correspondence is as follows.

4 On 3 April 2000, solicitors for the client wrote to solicitors for the firm advising that:

"... our client agrees that the sum of $43,834 be withheld and paid into Court pending resolution of this claim either by way of the existing Court proceedings or Taxation of Costs."

5 Referring to a suggestion apparently made by the firm, the solicitors advised that they considered that there was some merit in relation to a suggestion relating to taxation of costs and that they agreed to that proposal subject to a number of conditions, one of which was that the proceedings be dismissed on the basis that each party bear their own costs, and another of which was that, "subject to the solicitor/client Bill of Costs for Taxation being determined such moneys as are payable on taxation shall be paid to your firm and the balance to this firm on behalf of our client".

6 On 4 April there were a number of letters. The first in time from the firm recorded that it agreed "to have the matter resolved by taxation" on a number of bases, including that the proceedings not be dismissed until after the taxation. A later letter from the firm referred to discussions during the course of the day and purported to confirm "our agreement in principal [sic] that your client's defence be limited to quantum, which will be fixed by a taxation of our bills". Certain orders were proposed. Solicitors for the client then advised that they considered that the agreement in principle was becoming too complicated. They purported to summarise the agreement. The salient features of that summary were that the firm's bill be lodged for taxation and that a sum of over $43,000 be paid into court "pending settlement or resolution of the proceedings and upon taxation such amount as is properly payable to your firm will be disbursed to you and the balance to this firm on behalf of our client". It appears that at that time there was still some prospect of a settlement without resort to taxation, as the firm had advised that it was prepared, in order to settle the matter, to accept a sum significantly below that claimed by its account of 19 October.

7 Consent orders were then made by Kennedy DCJ on 6 April 2000. They included the following:

"1. The defendant do forthwith apply, with the consent of the plaintiff for an extension of time within which to tax the plaintiff's bill dated 19 October 1998.

2. Upon an extension of time being granted, the defendant do forthwith request the plaintiff to tax his said bill and the plaintiff thereupon do lodge its bill for taxation.

...

4. The defendant do pay the plaintiff interest on the sum found to be payable on the taxation ...

5. Of the monies to be received by the defendant [in respect of another action] ...

(b) $38,500 be paid into court to satisfy any sums to which the plaintiff may become entitled as against the defendant ...

8 A question has arisen in these proceedings as to what the intended compromise of the proceedings actually was. On behalf of the firm it is submitted that it was intended that the question of the liability of the client to the firm would be determined by taxation of the bill of costs prepared by the firm pursuant to the written agreement, and that this necessarily involved the proposition that the taxation would occur in accordance with the written agreement, there being at that time no suggestion of any application to set the agreement aside, and the existence of the agreement being admitted by the client in his defence. The sum allowed by the taxing officer would then be the sum "to which the plaintiff may become entitled" in accordance with par 5 of the consent orders.

9 However, on behalf of the client, it is submitted that the consent orders had as their sole purpose the determination of "the amount which should properly be in dispute between the parties in the proceedings in the District Court", so as to avoid having a Judge of the District Court carry out any taxation during the course of a trial. This assertion is supported by an affidavit of Mr McManus, who represented the client during the negotiations leading to the consent order. He deposes that, "The agreement between the parties reflected in the order dated 6 April 2000 was not a concluded settlement of all matters raised in the District Court proceedings. It was only a manner to establish the quantum of Macdonald Rudder's claim ...". He further deposes that, "If the costs agreement is set aside then Mr Alman's defence in the District Court proceedings will be amended to reflect the correct legal position at such time". It appears to be implicit in the affidavit that, notwithstanding the consent orders, the client would, after taxation, still be in a position to maintain his defence to the firm's claim, on the basis that he was not required to pay any sum because the firm had no right to render interim accounts to him.

10 In my view, the submissions of the client in relation to the consent orders must be rejected. First, the only support for that view of the compromise reached between the parties, which is found in the affidavit of Mr McManus, is expressed in the form of a conclusion. Mr McManus does not purport to set out any conversation which occurred between the parties which led to the view of the settlement agreement to which he deposes. The correspondence between the parties in my view plainly suggests that the taxation mechanism was seen as a means of settling the entirety of the action; that is, as a means of disposing once and for all of the plaintiff's claim against the defendant. The only equivocal aspect of any of the correspondence is to be found in the fourth paragraph of the letter from the client's solicitors which refers to a payment into court "pending settlement or resolution of the proceedings". However, read in its context, it seems to me to be referring to a possibility of settlement by agreement on a sum prior to taxation, and not to be reserving the right to proceed with the client's defence to the claim once taxation was complete. The view which I take of this reference is reinforced by the presence in the same sentence of the assertion that, "upon taxation such amount as is properly payable to your firm will be disbursed to you ...". This plainly sees the taxation, rather than any other conclusion of the action, as the trigger for disbursement of moneys to the firm. It is further to be noted that in the consent orders themselves, the action is not otherwise adjourned and no mechanism is provided for bringing the matter back before the court subsequent to taxation for further determination of outstanding issues (save as to the reserved costs). Another difficulty with the submission on behalf of the client is that the statement of claim plainly relies upon the accounts rendered pursuant to the written agreement. At the time at which the consent orders were made, the client was well out of time to request taxation of those accounts. There was therefore no reason to consider that a District Court Judge trying that action would be required to embark upon any "taxation" of any accounts.

11 For the sake of completeness, I should note that on the morning of the hearing before me, it was submitted on behalf of the client that an appropriate way to resolve the conflict between the parties as to the meaning and effect of the settlement between them was to permit the calling of the solicitors involved in those negotiations and to permit them to be cross-examined. I said that I would consider that matter if I reached the view that the terms of the settlement were of importance. I do consider the terms of the settlement to be of importance, and I would have been prepared to permit the calling of witnesses if it seemed to me that there was any real factual dispute. However, the only evidence upon which the client relies to support the submission which he makes in relation to the settlement is the affidavit of Mr McManus. As I have already noted, that deposes to Mr McManus' conclusions, or to his interpretation of the settlement, without condescending to indicate what conversations or what material Mr McManus relied upon in order to reach those conclusions. All of the correspondence and the terms of the orders are in my view inconsistent with the conclusion which Mr McManus appears to have reached. In those circumstances, while it may be said that there is a "dispute" between the parties in the sense that there are conflicting submissions concerning the settlement agreement, the admissible evidence is all one way, and there is no factual conflict which it is desirable to resolve by the hearing of oral evidence.

12 The firm submits that the settlement agreement is relevant for a number of reasons. First, it says that the terms of the compromise between the parties are such that the client is not permitted to apply to set aside the written agreement, since the client had consented to the taxation of the bill prepared on the basis of that written agreement. Alternatively, it is submitted that the client could and should have raised the alleged unreasonableness of the costs agreement in the District Court action, so as to give rise to an estoppel, relying upon Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1981) 147 CLR 589. Alternatively, it is submitted that s 59 of the Legal Practitioners Act gives the court a discretion, which I should exercise by refusing to set aside the agreement, even if I were to form the view that it might be unreasonable, on the basis that it would be unfair to the firm to do so, in the light of its agreement with the client in the District Court action.

13 Taking these in order, it seems to me that on a strict construction of the terms of the consent orders which were made, they do not preclude an application to this Court to set aside the costs agreement. Nor does any of the correspondence or other material put before me suggest that the parties agreed that the client would forego any rights he might have pursuant to s 59. The prospect of such an application appears simply not to have been considered by them. Nor do I think it can properly be said that the alleged unreasonableness of the costs agreement was a matter which should have been raised, or could properly have been raised, in the District Court action. It is this Court, and not the District Court, which has the jurisdiction to set such an agreement aside. Attempting to raise that issue in the course of the District Court proceedings would have been productive only of confusion and increased costs.

14 However, I think there is force in the unfairness submission which is made on behalf of the firm. It seems to me that at the time of settling the District Court action the firm was in the position where it was entitled to sue on the accounts which it had rendered, and the client was not in a position to seek taxation of those accounts without leave.

15 The courts have generally taken a fairly generous attitude towards granting of leave to a client to extend time for taxation. A number of cases are usefully discussed in the decision of Hasluck J in Harrison v Hocking [2000] WASC 188 at pars 65 - 71. However, notwithstanding the general principle which suggests that time will often be enlarged, the firm would have been in a position to oppose any application for an extension of time within which to seek taxation and might, for example, have sought to argue that the request was one which involved an unfair delay, given that the account had been rendered in October 1998 and the writ issued in May 1999, and that no request for taxation had been made by April 2000, notwithstanding that the client had been legally represented for the greater portion of that time. There was therefore a concession made by the firm during the course of this compromise which gave away a right of some value.

16 It is submitted by the firm that it emerges from the correspondence and from the consent order that the firm entered into the compromise on the basis that it was full and final settlement of its claim under the costs agreement. There was at that time no indication that an application of this kind would be made pursuant to the Legal Practitioners Act. The unfairness to the firm is identified by it as it being deprived of the opportunity to consider all that should be given away in the course of the compromise in the light of all claims which the client intended to make. It is said that, the firm having performed its part of that compromise by consenting to an extension of time and presenting its bill for taxation, it would be unfair now effectively to bypass that agreement between the parties by setting aside the costs agreement which formed the basis of the bill.

17 I should note at this point one factual matter which was not satisfactorily resolved during the course of argument before me, but upon which I am now in a position to make a finding. Having compared the final page of the costs agreement of October 1998 (the entirety of the agreement not having been put before me) with the final items of the bill presented for taxation, it appears to me that the bill presented for taxation was (save for a covering page which also claims for attendance at taxation) identical to the account of 19 October 1998. While the bill presented for taxation on its face refers to an amount of only $25,000, the annexed schedule contains items which in fact total a little over $36,000, on my calculation, which is consistent with the sum claimed in the account of 19 October 1998. It appears to me therefore that the bill presented for taxation is, as the consent agreement appears to contemplate, precisely the account dated 19 October 1998 and not some variation of it or some other bill.

Discretion pursuant to s 59

18 I accept that there is a discretion pursuant to s 59 of the Legal Practitioners Act, so that the court might decline to cancel the agreement even if of the view that it was unreasonable. The word "may" in s 59(5) points to this conclusion. So too, in my view, does the great variety of circumstances in which agreements may come to be seen as "unreasonable". While it appears to me that the purpose of s 59, in ensuring that legal practitioners comply strictly with their fiduciary duties in entering into agreements with clients, is of paramount importance, I do not think that an intention is displayed either in the terms of s 59 or in its context which requires agreements to be set aside wherever the court forms the view that they are unreasonable, notwithstanding what may have passed between the parties in the meantime. I add that I agree with the observations of Hasluck J in Harrison v Hocking, as to the existence of a discretion, and the criteria for its exercise (pars 79-82).

19 Because of the importance of ensuring that legal practitioners act honestly and ethically, and because of the importance of the fiduciary duty involved, it appears to me that whatever considerations might point to the undesirability of setting aside the agreement, it is nevertheless necessary to consider the conduct of the practitioners involved, and whether there is any unfairness or potential unfairness in the agreement which is the subject of the dispute.

20 In this case, the agreement relied upon by the firm was the then current Law Society of Western Australia Litigation Retainer Agreement. A letter was sent with that agreement which drew attention to certain aspects of it and which, while it may have been incomplete in some respects, did not misrepresent any aspects of it. It appears therefore that the firm was acting in accordance with what at the time was widely considered to be an appropriate standard of professional conduct in relation to the explanation to the client of the costs agreement and the disclosure to the client of its potential disadvantages to the client. That course does not guarantee that the firm did properly comply with the requirements of disclosure which flow from its fiduciary duty, but it does in my view require the conclusion that any inadequacy in disclosure was inadvertent and did not result from any improper motive.

21 There are certain aspects of the agreement which may be considered to be unsatisfactory. The client relied upon the decision of Ipp J in Brown v Talbot & Olivier (1993) 9 WAR 70, adopted by Parker J in Barfield v Friedman & Lurie, unreported; SCt of WA; Library No 970441; 5 September 1997. In that case, Ipp J set out at pp77 - 78 what might be described as a "checklist" of matters which should be expressly disclosed to the client. The list was not intended to be an exhaustive one. The Litigation Retainer Agreement did expressly contain the information that remuneration of solicitors was governed by scales fixed by the Legal Costs Committee which limited the amount of fees recoverable whatever the amount of time spent on the case. It also contained the information that the rates set out in the Litigation Agreement were in most instances higher than costs under the scale of fees approved by the Legal Costs Committee which would apply if there were no agreement. On its face, it disclosed that the rates which were proposed to be charged were hourly ones and that there were in addition very significant administrative charges, including charges for typing of letters and filing or posting of documents.

22 The disclosure of these matters in that agreement is less than ideal. These important matters are set out under the heading "Acknowledgement" and are introduced with the words "The client acknowledges that:". It might not readily be apparent to the reader of such a document that information under such a heading, introduced in such a way, contained important material concerning the fees which the client would be required to pay and the way in which the agreement might affect the calculation of those fees. A question might arise on some other occasion as to whether, notwithstanding that the information contained therein was accurate, the heading and format was such as to mislead or as to distract attention from the importance and nature of the subject matter.

23 In my view, an issue of this kind does not arise in this case. All that the client has condescended to say about his reading of the agreement was that he had not previously been engaged in litigation, "and I did not understand the nature or import of the costs agreement or of the portions of annexure A [an accompanying letter from the solicitors] which dealt with the costs agreement". I do not know what this portion of the client's affidavit is intended to convey. It seems most unlikely that he did not understand that the agreement dealt with costs, for example, since the hourly rates are a prominent feature of the first sheet of the agreement and since the letter devotes some paragraphs to explaining that the agreement sets out the basis upon which the firm charged and that it was likely that even if the client was successful, the costs which might be recovered from the other party would not amount to more than perhaps half of the amount which the firm would charge him. There are other paragraphs of Mr Alman's affidavit which purport to deal with a conversation with one of the firm's practitioners in which the agreement was misleadingly explained to him. However, the allegations in these paragraphs are denied in an affidavit filed by the practitioner, and those are matters which it is not possible to resolve on the face of the affidavits.

24 It was submitted on behalf of the client that estimates should have been given of the approximate amount of fees which would be recovered on taxation under the scales, the approximate amount recoverable from the opposing party, and of the amount which the client would have to pay under the proposed agreement. It is true that no estimates were provided, although the accompanying letter set out an example of the way in which a shortfall might arise because of the probable difference between party and party and solicitor/client costs. That example involved a possible offer of settlement in a sum of approximately $40,000, with legal costs of approximately $8,000, half of which might be borne by the client. That is of course a far cry from the approximately $36,000 in fact claimed by the firm, even though it ceased to represent the client prior to trial.

25 Because my understanding of the issues involved in the action which the firm commenced on behalf of the client is limited, I am not in a position to assess whether the gap between the amount referred to in the example contained in the firm's letter and the amount contained in the bill ultimately sent to the client resulted from some peculiarity of the litigation. It appears to me that it may have done so, because I understand from the affidavits that at some time an allegation was made by the defendant's insurer that the client had fraudulently staged the accident alleged to have resulted in his injuries, and that there was a witness who would give evidence to support that conclusion, circumstances not commonly found in personal injuries actions. Although it is said, then, that the amounts referred to in the example provided by the firm cannot be considered to be a substitute for an estimate of costs, there is no material before me enabling me to calculate whether those figures are within the range of possible genuine estimates of costs which might be incurred in a matter in which liability was admitted and settlement occurred at what the letter refers to as the "pre-trial conference stage". No estimate was made of what costs might be payable if the matter were to proceed to trial, it being said in the letter that it was "premature" to estimate what the likely legal fees would be "if we act for you". In fact, the matter did not proceed to trial, as is the case with the majority of personal injuries actions.

26 In my view therefore, it can be said at this stage that the Litigation Retainer Agreement and accompanying letter might arguably be unreasonable in that, although they make disclosure of certain matters, the disclosure is made in a way which may be apt to mislead some clients. The affidavit material before me does not adequately establish whether the client in this case was likely to be so misled. There was no disclosure of the likely effect of the costs agreement were the matter to proceed to trial, but as the matter did not proceed to trial, this aspect of non-disclosure would not have affected the client in this case.

27 As to the amount claimed by the firm, the draft bill provided to me on behalf of the client suggests that a sum of a little under $17,000 would be the maximum payable to the firm pursuant to the scale, while the amount claimed pursuant to the bill under the costs agreement is, as I have indicated, in the vicinity of $36,000. This tends to suggest that the effect of the agreement upon the client is unreasonable, so that the agreement could be regarded as unreasonable in one of the aspects discussed by Seaman J in Jovetic v Stoddart & Co (1992) 7 WAR 208 at 220.

28 To summarise, it appears to me that the amount of the bill arrived at pursuant to the costs agreement is, prima facie, unreasonable and so the agreement may be regarded as unreasonable in its effect upon the client, because it permits that result. However, there is no evidence that the circumstances in which the agreement was entered into were unreasonable and there is no evidence that there was any failure to disclose material which should have been disclosed which affected the client's consideration of the agreement.

29 As against those considerations, I have already noted that the client has, during the course of negotiations in which he was legally represented, entered into an agreement with the firm, involving the firm in making a concession which it was not required to make, which was apparently intended by all parties to settle between the client and the firm, the firm's entitlement to costs. That agreement appears to have been arrived at on the basis that the costs agreement which the client now seeks to set aside was to be relied upon for the purposes of taxation. There is no material put before me to explain the delay in seeking to set the agreement aside. In those circumstances, it is my view that the agreement is not so unfair in its effect upon the client that it should be set aside notwithstanding the unfairness to the firm which would be involved in that course. For those reasons I would dismiss the plaintiff's summons.