Barclay & Ors v McMahon Clarke

[2] The applicants retained McMahon Clarke as their lawyers to act in connection with two land developments in which, in different ways, the various applicants were interested. Those are multi-million dollar projects called Seaspray and Seaside.

[3] By mid-2013, McMahon Clarke had acted for the applicants in connection with the developments for some months, and invoices rendered for some professional fees remained unpaid. At that stage, McMahon Clarke expected to be doing a large amount of further work in relation to the two property developments. The firm decided to prepare a new costs agreement.

[4] On 13 August 2013, McMahon Clarke wrote to Mr Barclay and Mr Creswick. The letter, headed "Seaside and Seaspray", began by recording that the firm had been acting for the two men and their "associated entities" in relation to "issues arising out of" the two developments and continued:

"This agreement will act as the overarching agreement for all files we open for any of your entities...".

The letter proceeded to explain why the firm was not proposing a costs agreement for each applicant, saying:

"Even though we may open discrete files in the name of each entity, this fee agreement will act as the agreement for all entities and all matters and will obviate the need for us to enter into an agreement for each new file."

[5] The letter summarised the classes of work to be done: as one example, "Aztec Management... - acting...in proceedings commenced against Seaside City Developments...in relation to guarantees given by that entity to NAB and any other issue affecting Aztec and arising out of the Seaside or Seaspray developments".

[6] The letter mentioned remuneration, advising that the firm would be "acting for you on the basis of our hourly rates"; and it proposed that "we will bill you on a monthly basis".

[7] The proposed costs agreement was attached to the letter, together with a "disclosure notice" that contained "information that we are required by law to disclose to you".

[8] The costs agreement was signed by Mr Barclay and Mr Creswick.

[9] The applicants seek to have the costs agreement set aside, invoking s 328 of the Legal Profession Act 2007 ("the Act"), which provides:

"(1) ...the...court...may order that a costs agreement be set aside if satisfied the agreement is not fair..."[4]

[10] The applicants contend that the costs agreement is not fair because McMahon Clarke failed to make all the pre-agreement disclosures required by s 308(1) of the Act, which, relevantly, stipulates that:

(a) the basis on which legal costs will be calculated, including whether a scale of costs applies to any of the legal costs...

(c) an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs..."

[11] By s 328(2) of the Act, in deciding whether a costs agreement is "fair...",

"and without limiting the matters to which the...Court...can have regard, the...Court...may have regard to any or all of the following matters -

(c) whether the law practice failed to make any of the disclosures required...

(d) the circumstances and conduct of the parties before and when the agreement was made..."

[12] The disclosure notice described the "scope of the work" to be done as being "set out in the covering letter" dated 13 August 2003. The notice said that the work would be charged at hourly rates. Those rates, set out in a schedule to the notice, ranged from $550 for a partner to $180 for a paralegal.

[14] Under the heading "Services and Disbursements", the notice:

• recorded that the firm did charge for fees charged by third parties; and

• provided for engaging a barrister in these terms:

"In the event we engage on your behalf another law practice to provide specialist advice (e.g. a barrister)...then you will be advised. If the other practice provides us with fee disclosures or the basis of fee calculation, then we will pass this information on to you."

[15] There was a relatively long description of litigious processes. This was accompanied by reference to factors that created difficulties in estimating the time a court case might take to resolve, by compromise or judgment.

[16] The disclosure notice also discussed the various bases that legal practices use as a basis for charging professional services (including itemised scale fees, statutory scales and task based fees) and continued:

"McMahon Clarke's professional fees for your matter will be charged as an amount calculated by reference to the amount of time spent attending to your matter and our hourly charge out rates as set out in our costs agreement...

Our professional fee for this matter will be calculated on a time basis according to our hourly rates detailed in the attached fees and costs schedule. We estimate that continuing to act for you in relation to all the possible instructions outlined in the attached covering letter is likely to cost between $10,000 and $40,000 per month until the matter is resolved."

[17] The applicants contend that the costs agreement is not "fair..." because:

• no, or no adequate, disclosure was made of the basis on which legal costs would be calculated; and

• no range of estimates of the total legal costs was given with an explanation of major variables that will affect the calculation of those costs.

[18] McMahon Clarke's disclosure was not directed to the circumstances of individual clients. Instead, it was attempted in aggregate.

[19] The nature of the bulk disclosure is said for the applicants to be significant because none of them was liable to pay the costs incurred by any other.

[20] No applicant was informed how much of the estimated $10,000 to $40,000 per month related to its separate retainer. Nor was an estimate given of the anticipated duration of any of the retainers.

[21] McMahon Clarke's disclosure, although it extended over seven pages, did not fully comply with the requirements of s 308(1). There was some explanation of variables that could affect the extent of the costs (as, for example, in describing the exigencies of litigation). But:

• there was no estimate of the anticipated duration of any of the retainers; and so there was no range of estimates of the total legal costs, whether in aggregate or separately;

• there was not, for each applicant, an explanation of the "major variables" that would affect the amount of the costs for work to be done, litigious or non-litigious.

[22] In the result, no applicant could calculate its particular prospective costs liability.

[23] Is the non-disclosure a basis for satisfaction that the costs agreement itself is "not fair..."?[5]

[24] Section 328(1)(c) indicates that such non-disclosure might demonstrate that a costs agreement was not fair. But the Act also permits the court to consider, among other things, the "circumstances and conduct of the parties before and when the agreement was made".

[25] Mr Barclay and Mr Creswick were men of commercial experience, and they were accustomed to dealing with McMahon Clarke. The firm had acted for them and entities of theirs involved in the two property developments since 2009. Work had been done for them on more than 25 files before the August 2013 costs agreement was signed. At least one prior costs agreement had been concluded. Fees for a variety of work, including litigation, had been rendered; and the bills had mostly been paid. Moreover, Mr Creswick was the person who gave McMahon Clarke instructions about the projects; and throughout the various retainers, he held a practicing certificate as an Australian legal practitioner.

[26] McMahon Clarke's non-disclosure involved a partial failure to comply with the statutory prescriptions. But the omitted information was, it seems, of no significance to Mr Barclay or Mr Creswick when, for themselves and their corporations, they decided to conclude the costs agreement.

[27] There is nothing to suggest that the agreement would not have been concluded on the same terms if the omitted disclosures had been made, and there is no reason to suppose that the omitted disclosures mattered to any of the applicants.

[28] No evidence was adduced from Mr Barclay, Mr Creswick or anyone else to suggest that the disclosure agreement did not provide the applicants with all the information they desired to make informed decisions whether to enter into a costs agreement and, if so, on what terms. Nor was it suggested, in evidence or in argument, that any of the applicants could have been misled by the disclosure notice, either because of what it disclosed or else left unexpressed.

[29] The disclosure notice gave the applicants a fair understanding of the effect of the costs agreement. They must have understood its operation. And they made a free choice to enter into it with information sufficient for their needs.[6]

[30] Accordingly, the omission to comply fully with the statutory prescription did not render the costs agreement unfair.

[31] Section 309 of the Act stipulates:

"(1) If a law practice intends to retain another law practice on behalf of a client, the first law practice must disclosure to the client the details mentioned in section 308(1)(a), (c) and (d) in relation to the other law practice, in addition to any information required to be disclosed to the client under section 308.

(2) A law practice retained or to be retained on behalf of a client by another law practice is not required to make disclosure to the client under section 308, but must disclose to the other law practice the information necessary for the other law practice to comply with subsection (1)."

[32] In late August 2013, McMahon Clarke retained senior counsel to give advice about a prospective application for summary judgment and a pleading. The barrister, who gave his written advice the day after being briefed, did not give McMahon Clarke a costs agreement. So the firm did not disclose such an agreement to the applicants.

[33] The applicants contend that the absence of a barrister's costs agreement justifies setting aside the firm's costs agreement made about a fortnight earlier.

[34] A few days before the barrister was briefed, McMahon Clarke informed Mr Creswick and Mr Barclay of their estimate of the barrister's fees[7] and asked for that amount to be paid into their trust account. When doing so, the firm also told the two men, in writing, the nature of the work the barrister was to do and the time he was expected to take.

[35] It is not suggested that the information the firm had furnished was inaccurate or insufficient to enable the applicants to decide whether to proceed to retain the barrister as the firm proposed.

[37] The costs agreement should not be set aside.

[4] S 328(1) authorises the setting aside of a costs agreement that is "not fair or reasonable". It is not suggested that the agreement was not "reasonable": see, generally, G E Dal Pont, Law of Costs, 3rd ed, (2013), s3.16, s3.24 ff; McNamara Business & Property Law v Kasmeridis (2007) 97 SASR 129, [2007] SASC 90, [22]-[24].

[5] If the costs agreement is not set aside, the non-disclosure means that the costs payable "may be reduced by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose". See s 316(4) of the Act.

[6] cf McNamara Business at [28], [52].