Applicant v Respondent

Was there an agreement between the parties on 25 August 2011 to the effect that the Respondent [Mr Defteros] would waive any outstanding fees owing by the Applicant [Mr Jaha] to that point, and the Respondent would continue to act for the Applicant until the end of the trial for the payment of a lump sum of $30,000 by the Applicant?

The nature of the appeal from his Honour's order is by way of rehearing de novo of the application, except that r 77.06(7) of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) requires that it be heard on the material that was before the Associate Justice, and no other material, unless special leave is given for a party to rely upon additional material.[1] The appellant sought special leave to rely upon additional material that was not before the Associate Justice. The additional material upon which he sought to rely was in amplification of evidence he gave in para 11 in the affidavit that was before the Associate Justice and was available for my consideration on the appeal. I rejected his application giving oral reasons at the hearing.

2 The issue on appeal concerns the terms of an oral agreement reached between Mr Defteros and his former client, Mr Jaha, on 25 August 2011. The Associate Justice dealt with the matter as a preliminary question under r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) with the apparent agreement of the parties. Neither party objected to that course being taken by his Honour and both parties filed material and made submissions before his Honour. Counsel for Mr Defteros before me, however, contended that the issue for determination was not one appropriate for determination as a preliminary point. He submitted that, therefore, I should set aside his Honour's order on the basis that the matter ought not to have proceeded on that basis notwithstanding that no objection had been made before his Honour at the time.

3 I see no reason why the question determined by his Honour, and on appeal before me, should not be determined as a preliminary question. The issue in question arose as a clearly identified objection raised by Mr Jaha to Mr Defteros' Bill of Costs. A Bill of Costs had been prepared on 17 July 2012 to which the first of Mr Jaha's general objections was stated to be:

The applicant alleges that on 25 August 2011 an agreement was made between him and the respondent that all outstanding fees claimed by the respondent plus the fees the respondent would charge the applicant up to the end of the forthcoming 5 day County Court jury trial first listed for hearing on 17 October 2011 including barristers fees would be in the fixed lump sum amount of $30,000.00 ("Agreement").

Other objections were made to the Bill of Costs but the first of the general objections, if established, will have an impact upon the further consideration of the Bill of Costs. It was a discreet issue with separate and identifiable facts specifically relating to an agreement and is capable of being determined separately from the matters which either flow from the agreement or arise independently of the agreement. I see no contrary reason why a question ought not to be determined in the manner adopted by the Associate Justice and now before the Court on appeal. Furthermore, and separately, the general policy considerations against allowing the parties from relying upon fresh evidence on an appeal from an Associate Justice should generally inform a decision about whether a party should be permitted to challenge the process adopted before the Associate Justice where it was not challenged before the Associate Justice. The proceedings before the Associate Justice should not be regarded as a dry run and the parties should, subject to questions of fairness as between the parties, be bound by the conduct they, or their advisors, have adopted in the proceeding at first instance.[2]

4 The main challenge to the orders was to the answer to be given to the preliminary question posed. There was common ground between the parties that there had been an agreement between them on 25 August 2011 but they disagreed about its terms. Mr Jaha contended, as his Honour found, that the agreement on 25 August 2011 was to the effect that Mr Defteros would waive any outstanding fees owed by Mr Jaha to that point and that Mr Defteros would continue to act for Mr Jaha until the end of the trial for the payment of a lump sum of $30,000 by Mr Jaha. Mr Defteros contended, in contrast, that the agreement was that he would continue to act for Mr Jaha for a lump sum of $30,000 for future work but not that he would waive his claim to the $48,640.48 for work done to date.

5 It was also common ground between the parties that any agreement they reached on 25 August 2011 was made between them orally but there was a letter confirming the discussions and bearing upon the terms upon which the parties had reached agreement. The case conducted before his Honour, and before me, was not one of a written agreement about which parol evidence might not be admitted,[3] but of an oral agreement to be found from what the parties said and did.

6 Mr Defteros' firm had been retained in June 2010 to act on behalf of Mr Jaha in respect of criminal charges including charges of extortion, assault and the use of steroid drugs. On 11 June 2010 Defteros Lawyers wrote to Mr and Mrs Jaha enclosing a copy of the firm's cost agreement together with the firm's disclosure statement in respect of the extortion charges, assault charges and drug charges. Another costs agreement and disclosure statement was sent by the firm to Mr Jaha on 23 March 2011 in respect of the extortion matter. In that letter the firm estimated the total costs for the defence at $68,500 of which the firm would charge the flat fee of $30,000. The letter also noted that there was then an amount of $48,640.48 outstanding in respect to invoices previously provided to Mr Jaha.

7 The evidence of Mr Jaha was that he was dissatisfied with the amount that had been charged by the firm for its fees and disbursements. On 25 August 2011 Mr Jaha and Mr Defteros met in the latter's office together with a Mr Saracevic (a friend of Mr Jaha) to discuss fees. Mr Jaha told Mr Defteros at the meeting that he had already paid a lot of money for legal fees and he was unwilling to pay the additional amounts claimed. Mr Jaha said in his affidavit:

I told him [Mr Defteros] his options were one last payment of $30,000.00 for all fees from whatever was owing to the end, including the upcoming 5 day jury trial and his other option was nothing at all and I would change lawyers. We ultimately agreed that Mr Defteros could have another $30,000.00 to cover all costs he was claiming were unpaid and to finish the case including barristers' fees. I was uneasy about paying yet another $30,000.00, but I felt I had no choice. The trial was coming up in October (it was later adjourned to May 2012) and I had to have a lawyer. Mr Defteros agreed to this and I asked him to write it all down in a letter which he did.

Mr Saracevic was present at the meeting and gave evidence by affidavit. His evidence concerning the agreement was:

1. There were then some more discussions about whether Emir [Mr Jaha] was willing to pay anything at all. I recall that Mr Defteros asked Emir what amount could be paid. Emir said he was confident he could get another lawyer to run the case through to the end for $30,000 or even less. Mr Defteros wanted to know if it was possible to pay something in the $40,000 range and keep the file with him. Emir said that it wasn't.
2. Emir said that he would make one more payment of $30,000.00 and that would be it. I recall Emir said words like "$30,000 and that's it". Emir said that money would be paid in the next few days if he accepted that.
3. Mr Defteros accepted that Emir would pay $30,000 to cover the trial and all other previous costs that were claimed to be outstanding. The costs claimed to be outstanding were definitely part of this agreement. It was made clear that the $30,000 would be the only payment and that there would be no money paid to Mr Defteros again ...

It is common ground that $30,000 was paid to Mr Defteros shortly thereafter.

8 The evidence of Mr Defteros was that the additional $30,000 would include all preparation and counsel's fees thereafter to be incurred but that the agreement did not include a waiver of the fees then outstanding. In his affidavit Mr Defteros said:

On 25 August 2011, my office wrote to the Applicant confirming my discussion with the Applicant of even date that we would be prepared to act on the Applicant's behalf with regard to the Applicant's forthcoming trial for a lump sum of $30,000 that would include all preparation and Counsel's fees.

The affidavit of Mr Defteros was made on 26 June 2012 whilst the affidavits of Mr Jaha and Mr Saracevic were made on 9 August 2012 and 30 August 2012 respectively. The latter two affidavits were, therefore, responsive to the first and not the other way around. No criticism can be made that the earlier affidavit of Mr Defteros did not respond to the detail of the subsequent evidence given by Mr Jaha and Mr Saracevic.

9 On the same day as the meeting between Mr Jaha and Mr Defteros, the latter's firm wrote to Mr Jaha confirming their discussions in the following terms:

We confirm our discussion of even date that we would be prepared to act on your behalf with regard to your forthcoming trial for a lump sum of $30,000 that would include all preparation and Counsel's fees.

The letter, however, was not said by either party to constitute the agreement. Both parties, for different reasons, maintained that the agreement was made orally although the letter bore upon the terms and existence of the oral agreement.

10 Both parties to the agreement attempted to give evidence about their subjective understanding and intention. Mr Defteros, for example, said in his affidavit about the agreement to receive a lump sum of $30,000:

This lump sum agreement was provided to the client as a lump sum for the trial moving forward. It was never intended that this lump sum would be inclusive of work completed prior to the lump sum agreement.

However, the terms upon which the parties agreed is not to be determined by reference to the subjective intentions of either party. It may readily enough be accepted that Mr Defteros' subjective intention was as he said, but that is not the basis upon which the contract is to be interpreted.[4]

11 The objective approach to the formation and interpretation of contracts requires that the parties rights and obligations be determined by the interpretation to be placed upon the words and actions of the parties by a reasonable person.[5] It is not difficult to see how Mr Defteros, on the one hand, and Mr Jaha, on the other, may each have subjectively thought they were agreeing to different things on 25 August 2011. On 17 August 2011 Defteros Lawyers had written to Mr Jaha pressing for payment of fees immediately but suggesting that if Mr Jaha was "only able to raise $30,000, then" they would engage counsel other than had been suggested in that letter. The 23 March 2011 letter had given a preliminary estimate of counsel's fees at $38,500 and solicitors fees, on a flat fee basis, of $30,000. That letter, as I have previously mentioned, indicated that there was then outstanding an amount of $48,640.48 and that a further $68,500 was being asked from Mr Jaha. From Mr Defteros' point of view agreeing to act at the trial for a total of $30,000 including "all preparation and Counsel's fees" was a substantial discount of the additional $68,500 he had asked, and, on one view, agreeing to do then future work for $30,000 that would effectively cover only counsel's fees. From Mr Jaha's point of view, the meeting of 25 August 2011 was about how much more, in total, including the $48,640.48 claimed and not yet paid, that he would pay to Mr Defteros to secure future representation.

12 On the basis of the evidence, however, the objective conclusion of a reasonable person is that the parties (whatever may have been their subjective intention) agreed that a payment of $30,000 would cover all fees payable to the firm including any amount which may have been outstanding as at 25 August 2011. The evidence of Mr Jaha, corroborated by Mr Saracevic, was that the offer was in such terms: $30,000 for all fees or nothing. Mr Jaha may not have been entitled to assert that Mr Defteros would not be paid anything for the then outstanding fees but that was the offer put and acceptance of the offer by Mr Defteros must be taken to be acceptance of the offer upon those terms. There is no suggestion that Mr Jaha was aware of Mr Defteros making a serious mistake about the terms of the offer such as to justify equity to order rescission of the agreement made between them.[6]

13 It was next contended for Mr Defteros that the oral agreement reached with Mr Jaha was void. This, like the first submission raised for Mr Defteros, had not been argued before the Associate Justice at first instance. Counsel for Mr Jaha submitted that I ought not to deal with the issue since it was not raised by the appeal and had not been a question which the Associate Justice was required to answer. There is much force in that submission: the question for his Honour was about the terms of an agreement otherwise assumed to be valid. However, the matter was fully argued before me and Mr Jaha's counsel filed supplementary written submissions dealing with the substance of contention. In those circumstances it may be desirable for me to express my conclusions.

14 Section 3.4.31 of the Legal Profession Act 2004 (Vic) provides that a costs agreement that contravenes, or is entered into in contravention of, any provision of Part 3.4 Division 5 is void. Section 3.4.26 provides that a "costs agreement must be written or evidenced in writing". A costs agreement is defined in s 3.4.2 broadly to mean an agreement "about the payment of legal costs". The oral agreement reached on 25 August 2011 is a costs agreement within the meaning of s 3.4.31 of the Legal Profession Act 2004 (Vic). Brereton J considered in Amirbeaggi v Business in Focus (Australia) Pty Ltd[7] that a Deed dealing with a debt for legal costs was within the meaning of costs agreement in the equivalent New South Wales provision. The Deed made provision for how a debt was to be paid and, therefore, his Honour considered that it was an agreement about the payment of legal costs.[8] Section 3.4.26(2), however, permits an agreement to be "evidenced in writing" and does not mandate that an agreement always be in writing as long as it is either in writing or evidenced in writing. The letter from Defteros Lawyers of 25 August 2011 refers to the agreement and thereby evidences what the parties had agreed on that day. The terms of the agreement evidenced in the letter are consistent with the agreement as I have found the parties to have reached orally.

15 Accordingly I propose to dismiss the appeal and will hear the parties on questions of cost.

[1] Australian Management Consultants Pty Ltd v Direct Mortgage Funding Pty Ltd [2003] VSC 202; Portbury Development Pty Ltd v Ottedin Investments Pty Ltd & Ors [2012] VSC 362.

[2] Smits v Roach (2006) 227 CLR 423, 441 [46] (Gleeson CJ, Heydon and Crennan JJ).

[3] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337, 352 (Mason J).

[5] J W Carter, Elisabeth Peden and G J Tolhurst, Contract Law in Australia (Butterworths, 5th ed, 2007) 9, 40, 207, 241, 243.

[6] Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422; see also Smith v Hughes (1871) LR 6 QB 597, 607 (Blackburn J).

[7] (Unreported, New South Wales Supreme Court, Brereton J, 2 April 2008).