7.3.2 The Kelly matter and the Hillig Proceedings matter
90 I have found that instructions were first received in the Hillig Proceedings matter in Victoria on about 20-22 May 2006. If there is a choice of law clause in the costs agreement for the Hillig Proceedings matter, it is the clause imported from the costs agreement in the Appointment of Administrator matter, selecting Victorian law. Therefore there is no occasion for the application of New South Wales law or the displacement of Victorian law.
91 I have found that instructions were first received in the Kelly matter in Victoria in late September 2005. The Kelly matter may be subject to the 1996 Victorian Act, but additionally, to the extent that the execution of his instructions required Mr Cunliffe to practice law in New South Wales, he was subject to Part 11 of the 1987 NSW Act in the matter I have described, regardless of any choice of law clause.
8. Question 1.1 - Whether the first defendant [DPL] entered into a costs agreement under a document provided by the solicitors then trading as Norton White Melbourne in September 2005?
92 My finding is that DLALC entered into a costs agreement with Norton White Melbourne with respect to the Kelly matter in accordance with Mr Cunliffe's letter to DLALC dated 30 September 2005, by issuing instructions after having received the letter. There is nothing in the evidence to indicate that DPL was a party to that costs agreement regarding the Kelly matter.
93 The letter of 30 September 2005 was not about the Validity of Trust matter. DPL first gave instructions to Mr Cunliffe in that matter on 20 October 2005 in Wyong, and consequently Part 3.2 of the 2004 NSW Act applied, for the reasons I have given, and notwithstanding any choice of Victorian law provision. At that time or subsequently there was an oral agreement between Mr Cunliffe and Mr Bradford on behalf of DPL that the terms of the letter of 30 September 2005 would apply to the new matter.
94 Section 322(2) of the 2004 NSW Act states that a costs agreement must be written or evidenced in writing. Section 327(1) states that a costs agreement that contravenes, or is entered into in contravention of, any provision of Part 3.2 Division 5 (which includes s 322(2)) is void. By s 327(2), legal costs under a void costs agreement are recoverable as set out in s 319(1)(a) or (c), according to which the costs are recoverable in accordance with an applicable fixed costs provision, or if there is none, according to the fair and reasonable value of the legal services provided.
95 In my opinion it cannot be said that the letter of 30 September 2005, addressed to a different entity relating to a different matter, is evidence of a costs agreement orally made 20 or more days later, simply because the parties orally agreed that the terms of their new costs agreement would be in accordance with the earlier letter. Accordingly, there is no costs agreement: Wentworth v Rogers (2006) 66 NSWLR 474, [2006] NSWCA 145.
96 For these reasons, my answer to Question 1.1 is "No".
9. Question 1.2 - If it was made, who were the solicitors trading as Norton White Melbourne who were party to it?
97 This question does not arise.
10. Question 1.3 - If it was made, during what period was it in force?
98 This question also does not arise.
11. Question 1.4(a) - In respect of the costs agreement made pursuant to the document dated 12 May 2006 from the solicitors trading as Norton White Melbourne, who were the solicitors who were party to that agreement?
99 In response to an inquiry by DLALC's solicitor, the Legal Services Board of Victoria issued a certificate dated 19 September 2008 (Ex A2, pages 693-4), stating that the partners of Norton White Melbourne during the period 1 May 2005 to 1 May 2007 were:
Richard J Thompson (partner from 1 May 2005 to 16 July 2006)
Ulf P Lidstrom (partner from 1 September 2005 to 1 November 2006)
Mark R W Williams (partner from 1 August 2005 to 15 December 2006)
Ian G Cunliffe (partner from 1 May 2005 to 30 April 2007)
100 The certificate stated that Norton White Melbourne merged with Heydon & O'Loghlen on 1 May 2007 and that the sole practitioner of Heydon & O'Loghlen is currently Denis P O'Haire.
101 A business name search of the name "Norton White Melbourne" made on 7 August 2006 named Messrs Thompson, Cunliffe, Williams and Lidstrom as the "persons carrying on business (current)" (Ex PW 4-6 to the affidavit of Mr Woods made on 28 August 2006). Mr Woods also tendered a promotional brochure for Norton White copied on 8 July 2006, which listed the names of "Our Partners", including Messrs Cunliffe, Williams, Lidstrom and Thompson (the others evidently being Sydney partners) (Ex PW 4-7). There are brief biographical sketches of all four of them. I can see nothing in the nature of disclosure that any of them was a partner only on some limited salary basis.
102 In his 11th affidavit made on 24 August 2009, Mr Cunliffe deposed as follows:
"21. As at 2 September 2005, 12 May 2006 and 30 June 2006, and at all times in between, the proprietors of Norton White Melbourne were Mr Thompson on me. We were the only people who were entitled to share in the profits of the firm. We were also the only people to whom we would respectively look in the event that Norton White Melbourne incurred liabilities. Mr Thompson and I were the only people entitled to proceed to recover, tax or claim any of the costs claimed in the first cross-claim in respect of that period. Mr Thompson and I were the only people liable to be proceeded against for assessment or taxation of any of the costs which are the subject of the first cross-claim or the third cross-claim in respect of that period.
22. From 1 July 2006 until 30 April 2007, I was the only person who was entitled to the profits of the firm; and I had no other person to whom to look in the event that Norton White Melbourne incurred liabilities. I was the only person entitled to proceed to recover, tax or claim any of the costs claimed in the first cross-claim in respect of that period. I was the only person liable to be made a party to assessment or taxation of any of the costs which are the subject of the first cross-claim or the third cross-claim in respect of that period."
103 Mr Cunliffe's evidence needs to be interpreted. In light of the way Norton White Melbourne and Norton White nationally held out all four Melbourne solicitors as partners, Mr Cunliffe's evidence can only be about the internal arrangements within the firm in Melbourne. I take him to be saying that he and Mr Thompson were the only Melbourne equity partners until 30 June 2006, and thereafter until 30 April 2007 he was the only equity partner. As an equity partner, he was entitled to share the net profits the partnership, and later to take all the net profits. He was obliged as between the partners of the firm to share responsibility and later to take sole responsibility for the debts of the partnership. Presumably that meant he was obliged to indemnify other partners who might be held liable to third parties. But his evidence cannot be accepted as establishing that the non-equity partners, Mr Lidstrom and Mr Williams, had no liability for the debts of the partnership as regards any third party, including someone who may wish to tax the costs of the firm and to recover any overpayment.
104 To the extent that Mr Cunliffe claimed that the non-equity partners had no liability for partnership debts and were, indeed, not partners, his evidence is inconsistent with the Norton White promotional material and the Legal Services Board's certificate, both of which indicate that all four individuals were held out as the partners of Norton White Melbourne, and to that extent I reject his evidence. Equally I reject his evidence to the extent that he denies that the non-equity partners were not parties to the costs agreements made by the firm.
105 The answer to Question 1.4(a) is that the solicitors who were party to the 12 May 2006 costs agreement with DPL in respect of the Appointment of Administrator matter were Messrs Cunliffe, Thompson, Lidstrom and Williams.
12. Question 1.4(b) -In respect the costs agreement made pursuant to the document dated 12 May 2006 from the solicitors trading as Norton White Melbourne, during what period was it in force?
106 The costs agreement of 12 May 2006 was accepted when Mr Flanders faxed back the last page of the offer document, signed by him, on 15 May 2006. The agreement commenced at that time. Its subject matter was the Appointment of Administrator matter, defined as above. The parties were Norton White Melbourne and DPL.
107 The agreement was terminated on 22 May 2006 when Mr Hillig's solicitor faxed a notice of termination of all retainers, purporting to act pursuant to Mr Hillig's decisions to dismiss the board of DPL and take their place, and as director, to terminate the retainer. As I have explained, the effect of the Court of Appeal's decision is that Mr Hillig's actions on 22 May were effective and so the costs agreement was validly terminated on that day. In Hillig v Darkinjung Pty Ltd & ors (No 2) [2008] NSWCA 147, McColl JA (with whom Beazley and Giles JJA agreed) put the matter succinctly as follows (at [46]):
"The effect of this Court's decision that the Resolutions [by Mr Hillig] were effective was that on and from the date they were passed (22 May 2006) the retainer of Messrs Norton White was withdrawn and [Mr Cunliffe] had no authority to continue to act for Darkinjung."
108 I received submissions on the question whether DPL had power to enter into the costs agreement. As a corporation formed under Australian corporations legislation, DPL had all of the legal capacity and powers of an individual: Corporations Act 2001 (Cth), s 124(1).
109 DPL was a trustee, and its power to act as trustee so as to bind the trust property was strictly limited. The powers conferred on the trustee by the Trust were explained by Barrett J in his 3 October 2006 judgment (Darkinjung Pty Ltd v Darkinjung Local Aboriginal Land Council & ors [2006] NSWSC 1008) at [53] to [57] and [204] to [217]. It was submitted on behalf of DLALC that, consistently with Barrett J's reasoning, DPL did not have the power as trustee to apply trust property to procure legal services in the Appointment of Administrator matter. This issue has not been fully argued before me and it does not appear necessary for me to address it in order to answer the separate questions listed for determination. A decision on this issue would probably require some findings of fact (for example, about the purposes of the directors of DPL) that have not been fully canvassed in the evidence before me. I would prefer not to express any view on this issue.
110 My answer to Question 1.4(b) is that the 12 May 2006 costs agreement, if otherwise valid, was in force from 15 May to 22 May 2006.
13. Question 1.6(a) -What was the effect, if any, of termination of the costs agreements or either of them on the ability of the solicitor or solicitors (if otherwise entitled) to proceed to recover, tax and assess any of the costs claimed in the first cross-claim?
111 Question 1.5 is about the effect of non-disclosure on the ability of the solicitors to recover costs shall be subject to taxation or assessment. Question 1.6 is about the effect of termination of the costs agreement on those matters. It seems to me that in the interests of clarity, I should address Question 1.6 first, so as to establish the rights and obligations of the solicitors after termination of the costs agreement, before dealing with the effect of non-disclosure.
112 It is submitted on behalf of DLALC that, since Mr Hillig validly terminated all retainers of Norton White Melbourne on 22 May 2006, Mr Cunliffe has no entitlement to costs in respect of any period after that date. Mr Cunliffe concedes that the Norton White Melbourne retainer came to an end on 13 December 2006 when an order was made for the winding up of DPL and a liquidator was appointed to that company, but he claims that there was a valid retainer giving rise to an entitlement to costs for work done up to the latter date.
113 I have found that the oral agreement between Mr Bradford and Mr Cunliffe or after 20 October 2005 to extend the terms of the costs agreement in the Kelly matter to the Validity of Trust matter was void and consequently there was no costs agreement governing that matter. That conclusion renders it unnecessary to consider the effect of the notice of termination of 22 May 2006, as regards the Validity of Trust matter. But the question of the effect of termination on 22 May 2006 is a live issue in relation to the costs agreement concerning the Appointment of Administrator matter arising out of acceptance, on 15 May, of the letter of offer dated 12 May.
114 As mentioned above, on 19 June 2006 I made declarations to the effect that Mr Hillig's actions of 22 May 2006 were inoperative and ineffective, the directors remained in office, the constitution had not been amended and Mr Cunliffe remained DPL's solicitor. I restrained Mr Hillig from holding himself out or purporting to act as a director of DPL in reliance on his actions of 22 May. Those orders remained in force until well after 13 December 2006. My decision was not reversed until the Court of Appeal delivered judgment on 29 April 2008. Thus, in the period from 22 May 2006 to 13 December 2006 the position was that although the Norton White Melbourne retainer had been validly terminated, the validity of the termination had not been confirmed by the Court; rather, there were binding declarations and orders in force to contrary effect.
115 On appeal, McColl JA (with whom Beazley and Giles JJA agreed) addressed the question of utility of the appeal, in circumstances where, by the time the appeal was heard, DPL had transferred substantially all its assets to DLALC, except for the amount of $430,000 that had been paid in Court. Her Honour continued ([2008] NSWCA 75):
"[32] Mr Murr [senior counsel for Mr Hillig] submitted, in support of the utility of the appeal, that if successful the appellant would argue as relevant to the question of costs (whether in this Court or before Barrett J was not made clear) that the proceedings before Barrett J were conducted by people who had been removed from office and who had no proper authority to conduct them.
[33] This submission appeared to me to be based on a misconception. Acts done according to the exigency of a judicial order afterwards reversed are protected as being 'acts done in the execution of justice, which are compulsive': Commissioner for Railways (NSW) v Cavanough (1935) 53 CLR 220 (225) per Rich, Dixon, Evatt and McTiernan JJ. This principle is a corollary of the proposition that an order made by a court of competent jurisdiction must be obeyed unless and until the order is discharged: Hadkinson v Hadkinson [1952] P 285 (at 288) per Romer LJ, cited with approval by Lord Diplock in delivering the judgment of the Privy Council in Isaacs v Robertson [1985] A C 97 (at 101-102)."
116 McColl JA (with whom, once again, Beazley and Giles JJA agreed) returned to this general territory in her judgment on costs of the appeal and the hearings before me: Hillig v Darkinjung Pty Ltd (No 2) & ors [2008] NSWCA 147. Her Honour referred to what she called the "common order, when a solicitor has taken unauthorised steps in litigation, to require the solicitor personally to pay the costs he has thereby caused other parties to incur (at [47]). She located that common order in the discretionary context provided by s 98(1) of the Civil Procedure Act 2005 (NSW) and UCPR 42.3(2)(d), which preserves the Court's power to make an order for costs against a person who purports, without authority, to conduct proceedings in the name of another person. She supported the approach taken by Bryson J in Zimmerman Holdings & ors v Wales & ors [2002] NSWSC 447, to the effect that on occasions, the common order should be departed from for good discretionary reasons. She found that there were good discretionary reasons in the circumstances before the Court of Appeal. Here there was at least an arguable case that the resolutions made by Mr Hillig were ineffective, although the Court of Appeal had eventually held they were valid. She took the view that the costs of the proceedings were not attributable to DPL's joinder. She continued:
"[55] It was the appellant [Mr Hillig] who commenced the proceedings and joined the first to sixth respondents as defendants. The principles concerning a solicitor acting without authority apply whether the party represented is the plaintiff or a defendant. However, where the party represented is a defendant, and the question whether the defendant can retain a solicitor lies at the heart of the proceedings, the Court would not readily order the solicitor to pay the costs of the proceedings even when the effect of its conclusion is that those the solicitor represented were not authorised to retain him or her.
[56] A solicitor placed on notice of a challenge to retainer would do well to determine, as Zimmerman demonstrates, whether the client's authority to retain him or her can be objectively determined. Where that cannot be done, the Court must be anxious to ensure that an order that the solicitor bear the costs is appropriate in all the circumstances. Those circumstances include, in my view, the public interest that citizens have legal representation for the purposes of the conduct of litigation: Orellana-Fuentes v Standard Meeting Mills Pty Ltd [2003] NSWCA 146; (2003) 57 NSWLR 282 (at [96]) per Ipp JA (Spigelman CJ and Handley JA agreeing).
[57] In my view, Mr Cunliffe was entitled to proceed on the basis that the efficacy of the Resolutions [by Mr Hillig] and the question whether Darkinjung [DPL] could retain him, was an issue of law which should properly be determined by the Court and that the defendant should have legal representation for the purposes of that contest. Accordingly I would not exercise the UCPR 42.3(d) power against him in relation to the trial."
117 In my view the passage that I have extracted is directed to the Court's exercise of the discretion conferred by UCPR 42.3(2)(d) to make an order for costs against a solicitor acting without authority, notwithstanding the general rule in UCPR 42.3(1) that the Court may not make a costs order against a person who is not a party. When her Honour said at [57] that Mr Cunliffe was entitled to proceed to act, she was conveying the idea that in the exercise of its discretion as to costs orders, the Court would regard that conduct as fair and reasonable, and not a course of unauthorised conduct that was, in the circumstances, in any way culpable. She was not intending to lay down a legal right for Mr Cunliffe to continue to act. My task is to determine a legal question. Therefore her observations in the costs judgment do not directly assist me. But it is helpful for my purposes that her Honour regarded it as reasonable for Mr Cunliffe to proceed on the basis that the efficacy of Mr Hillig's actions was an issue of law that should properly be determined by the Court and that DPL should have legal representation for that purpose.
118 It seems to me that the quoted observations in the Court of Appeal's principal judgment provide the key to a solution of the matter argued before me. It is established, as McColl JA said at [33], that an order made by a court of competent jurisdiction must be obeyed unless and until that order is discharged. My orders of 19 June 2006 included declarations of right binding on the parties and having the effect, inter alia, of asserting the invalidity of Mr Hillig's actions and consequently the invalidity of the purported termination of retainer. Therefore after my declarations and orders were made and before they were set aside, it was not open to the parties, including DPL, to proceed as if Norton White's retainer had been terminated by Mr Hillig. To put the matter positively, DPL was entitled by my declarations and orders to regard Norton White as continuing to be retained under the contractual arrangements that were in place before Mr Hillig purported to act. As was later established by the Court of Appeal, the retainer had in fact been terminated, but DPL and the other parties to the litigation were bound to act as if the retainer remained in place until my declarations and orders were set aside.
119 Mr Cunliffe was not himself a party at that stage, as McColl JA found in the costs judgment (at [42]). But DPL was entitled to the benefit of my declarations and orders and if Norton White Melbourne had declined to act for DPL, they would have deprived DPL of the benefit of my decision in its favour.
120 In the period from 22 May to 13 December 2006 Norton White's retainer by DPL had been terminated and so had all previous costs agreements, and Norton White was no longer contractually authorised to undertake any work for DPL. But after 22 May it continued to receive requests for legal services from individuals who were entitled by my orders to regard themselves as the directors of DPL. The solicitors carried out work as requested, in circumstances where it was reasonable for them to act for the reasons explained by McColl JA. It seems to me that these matters have given Norton White Melbourne an entitlement as against DPL to claim remuneration for their services on a quantum meruit basis.
121 It seems to me that the 2004 NSW Act (as regards the Appointment of Administrator matter) and the 2004 Victorian Act (as regards the Hillig Proceedings matter) do not stand in the way of quantum meruit entitlement in the circumstances I am addressing. In this case there was a written costs agreement in place for the Appointment of Administrator matter and apparently an oral costs agreement for the Hillig Proceedings matter but they were terminated, in circumstances where the validity of the termination was challenged, and the law practice continued to provide legal services. Legal costs are recoverable according to the fair and reasonable value of the legal services provided: NSW s 319(1)(c); Victoria s 3.4.19.
122 Counsel for DLALC submitted that it is strictly speaking unnecessary to consider any question of quantum meruit as no such claim has been pleaded or made in the first cross-claim. But as I read the question for separate determination, the answer would be incomplete if quantum meruit entitlement were overlooked. I take the reference, in the stated question, to the ability of the solicitors to recover, tax or assess the costs claimed in the first cross-claim to be a reference to their ability to recover, tax or assess costs in the amount stated in the first cross-claim, rather than simply the costs claimed in the first cross-claim as arising under specified costs agreements. If the termination on 22 May 2006 of the costs agreement of 12 May 2006 brought Norton White's contractual entitlement to recover costs to an end, but left it with a quantum meruit claim for an amount of remuneration not necessarily the same as would be recovered under a valid costs agreement, it seems to me appropriate to say so in answer to the question.
123 Counsel for DLALC submitted that the costs and disbursements claimed in respect of services incurred after 22 May 2006 do not have the character of expenses of DPL in its capacity as trustee of the trust declared by the court in Order 3 made on 13 December 2006, apparently because they were not costs and disbursements incurred under a valid retainer and costs agreement. This is another issue that is not directly raised by the separate questions for determination, and which has not been addressed fully in submissions, and therefore need not and should not be decided. I merely note that a solicitor entitled to payment on a quantum meruit basis may well have the same right of subrogation to the trustee's right of indemnity out of trust assets or against a beneficiary, as a contractual creditor would have; and there are factual issues to be addressed as to whether the trustee's right of indemnity is available in the circumstances.
124 Counsel for Mr Cunliffe placed some reliance on Hudgson & Anor v Endrust (Australia) Pty Ltd & Anor (1986) 11 FCR 152, ASIC case indicating a willingness on the part of the court to imply a retainer in the absence of an express agreement. But that was an example a case where a solicitor act as upon instructions from a party even though the instructions come to the solicitor from another party or from some non-party interested in the litigation. It was not a case of a solicitor not been retained by the party who had the benefit of the order. In my opinion there is no scope for implying a retainer here, superimposed on the invalid retainer.
125 My answer to Question 1.6(a) is as follows:
The termination of the costs agreement of 12 May 2006 by Mr Hillig on 22 May 2006 had the effect of bringing to an end the contractual entitlement of Norton White Melbourne to recover, tax or assess any of the costs claimed in the first cross-claim, but the firm acquired an entitlement to recover reasonable remuneration on a quantum meruit basis in respect of legal services provided in the period from 22 May 2006 to 13 December 2006 at the request of the persons purporting to act as directors of the first defendant.
14. Question 1.6(b) - What was the effect, if any, of termination of the costs agreements or either of them on the liability of the solicitor or solicitors (if otherwise liable) to be proceeded against for assessment or taxation of any of the costs which are the subject of the first cross-claim or the third cross-claim?
126 Once again this question does not arise in respect of the document of 30 September 2005 because the first defendant, DPL, did not make any valid costs agreement under that document. The answer to this question is confined to the costs agreement of 12 May 2006, accepted on 15 May 2006.
127 The costs agreement of 12 May 2006 relates to the Appointment of Administrator matter, first instructions for which were received at Wyong in New South Wales on 4 May 2006, and so the 2004 NSW Act is applicable. It is appropriate to consider the current provisions rather than those in force in 2006, because the question of entitlement to an assessment of costs concerns a procedural right governed by the law in force at the present time.
128 Section 350 of that Act enables a "client" or "third party payer" who is given a bill to make an application for an assessment of the whole or any part of the legal costs. "Client" is defined in s 349A to include not only a person "to whom" legal services are provided, but also a person "for whom" they are provided. The definition appears to cover not only cases where the client has a contractual relationship with the law practice, but also cases where the entitlement of the law practice to fees is based on a quantum meruit, and possibly even cases where legal services are provided to a person who has not asked for them. According to my analysis in answer to question 1.6(a), Norton White Melbourne was entitled to be paid reasonable fees by DPL in the period from 22 May to 13 December 2006 on a quantum meruit basis. In those circumstances DPL was the client of Norton White Melbourne although there was no valid contractual costs agreement in place during that period.
129 The statutory entitlement to apply to an assessment, conferred by s 350, is an assessment of the whole or any part of legal costs. "Legal costs" are defined in s 4(1) 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. The definition is wide enough to encompass a costs claim made on a quantum meruit basis.
130 Counsel for DLALC submitted that the money received by Norton White Melbourne after 22 May 2006 in payment of the firm's invoices was money had and received to the use of DPL, except to the extent that it was properly applied to costs charged for services rendered and disbursements incurred up to 22 May 2006. That issue is evidently not raised by Question 1.6(b), since the question is only about liability to assessment or taxation of costs, not recovery of payments. It is not necessary to deal with this submission, and probably unwise to do so, but I note that any entitlement of DPL to recover payments would be qualified to the extent that the firm is entitled to claim costs on a quantum meruit.
131 My answer to Question 1.6(b) is as follows:
The termination of the costs agreement of 12 May 2006 by Mr Hillig on 22 May 2006 had no effect on the liability of Norton White Melbourne to be proceeded against for assessment of the costs that are the subject of the first cross-claim and the third cross-claim, given that the relevant statutory provisions confer a right to apply for assessment in terms sufficiently wide to encompass legal costs not contractually authorised but claimed on a quantum meruit basis.
15. Question 1.5(a) and (c) - Whether there is by reason of non-disclosure of any of the matters set out in paras 35 to 40 of the defence of the first cross-defendant to the first cross-claim an effect on the ability of the solicitor or solicitors (if otherwise entitled) to proceed to recover, tax or assess any of the costs claimed in the first cross-claim, and if so, what is that effect (including the effect, if any, on the appropriate jurisdiction for taxation and assessment)?