David Brady v Bale Boshev Solicitors

David Brady v Bale Boshev Solicitors - [2009] NSWDC 387 - NSWDC 2009 case summary — Zoe

[54]

26 The defence filed by the client denied the debt and alleged that the basis of the retainer was, "no win, no fee". There appears to have been a large number of factual issues in dispute. Commencing at [8], the Court said: "[8] The condition that the client must 'win the case' before being liable for fees is to say the least vague. If that was the arrangement, it would be necessary for the Court to determine whether it means that damages had to be obtained in court before the condition would be satisfied, or whether something less, such as an acceptable settlement would suffice. The uncertainty of such an arrangement underlines the desirability that it be made in writing. Indeed at the relevant time in 1996, s 23 of the Legal Practitioners Act 1995 provided some incentive to solicitors to make such agreements in writing: cf Re Central Queensland Developments Pty Ltd (1988) 2 QdR 476, although courts have always carefully scrutinised such arrangements, particularly if the remuneration exceeded what might ordinarily be expected from a proper taxation: Clare v Joseph [1907] 2 KB 369; Wolf v Trebilco [1933] VLR 180. Subsequent legislation has emphasised this need still further. [9] Arrangements for speculative actions between solicitors and clients are now by no means uncommon. It should not be thought that solicitors who make such arrangements thereby achieve some dominance over the client in the future conduct of the action. The client does not surrender control of the proceedings to the solicitor. The client retains the power to give instructions as to the further conduct of the action, including the right to settle it or terminate it. As an action proceeds it may become increasingly clear to a client that the prospects of success are negligible and that the dangers of proceeding further outweigh the potential benefits. Ordinarily, the client (not the solicitor) is the person who will have to bear a possibly crippling burden of cost in favour of the other party if the litigation proceeds to an unsuccessful outcome. [10] What costs then is a solicitor who is on a speculative retainer entitled to if a client decides to settle or withdraw before the action is concluded? Commonly a consensual arrangement is reached at such a point between solicitor and client. In the absence of such an arrangement, unless the original contract of retainer covers the situation, the answer will depend on the circumstances. If the client terminates the retainer before it is apparent that he will not win, he will have deprived the solicitor of the opportunity of completing the retainer and earning the right to charge fees. Prima facie the solicitor will be entitled to be remunerated on the basis of a quantum meruit in respect of services rendered up to that time. An alternative approach would be to regard the client's premature termination of proceedings as a prevention of performance, or a breach of implied duty to do all such things as are necessary on his part to enable the other party to the benefit of the contract: Secured Income Real Estate (Australia) v St Martin's Investments Pty Ltd (1979) 144 CLR 596. Different assessments are conceivable according to whether the claim proceeds upon a claim for damages for breach of contract or upon a quantum meruit. If the plaintiff elects to proceed on quantum meruit, prima facie the scale or method of calculation for costs prescribed in the original retainer should be applied to the work so far done."

[55]

27 The problem in Adamson v Williams was that the reasons of the magistrate did not result in findings of relevant facts or in any clear resolution of the conflicts in the evidence. The Court pointed out that the issues were too broadly stated in the plaint in the magistrate's court and the defence was never particularised. Their Honours pointed out that the parties seem to have been content to tell their stories with an expectation that the magistrate would apply whatever law might apply to the facts that were found. Essentially that did not enable the Court of Appeal to come to any concluded view. Commencing at [19] the Court said this: "[19] The magistrate clearly misdirected herself in her approach to findings of credit. There was a contest between a solicitor on the one hand and a client on the other. Her Worship observed 'an oath taken before any court by ... a legal practitioner is never lightly taken, and ordinarily the evidence of a solicitor must be heard by the court and accepted as evidence given seriously, truthfully and honest (sic).' This suggests an incorrect approach. Courts have taken a fairly hard attitude towards solicitors who come before them relying on oral retainers. Cordery on Solicitors 10th ed para E 424 suggests that more weight is given to the client's affidavit than to that of the solicitor. Denning LJ in Griffiths v Evans [1953] 2 All ER 1364 stated: 'On this question of retainer, I would observe that where there is a difference between a solicitor and his client on it, the courts have said for the last one hundred years or more that the word of the client is to be preferred to the word of the solicitor, or, at any rate more weight is to be given to it ... The reason is plain. It is because the client is ignorant and the solicitor is, or should be, learned. If the solicitor does not take the precaution of getting a written retainer, he has only himself to thank for being at variance with his client over it and must take the consequences.' [20] Such an approach originated in courts confronted with a task of deciding which affidavit to rely upon when there was a conflict between affidavits and no oral evidence: cf Allen v Bone [1841] 49 ER 429; re Gray v Coles [1891] 65 LT 743; Morgan v Blyth [1891] 1 Ch 337. The above statements are perhaps more reflections on matters of policy than directives to a court to favour one party over the other when such contests emerge. However, plainly the magistrate's approach in the present case was conducive to error. [21] Finally, the magistrate did not advert to the question whether it had become clear to the parties prior to the termination of the retainer that the client could not 'win'. If such was the position and the retainer provided for the solicitor's costs on a contingency fee basis, the solicitor would have no entitlement to fees except for outlays that were expressly agreed to be paid. It would have been demonstrated, after the passage of a reasonable time, that the solicitor could not satisfy the condition necessary to entitle him to fees. It is unnecessary to decide whether 'win' includes the reaching of a settlement in which the client might obtain some damages over and above his obligation for fees. At best for a solicitor, assuming such a settlement could be regarded as a 'win', it would be a legitimate defence for the client to show that no such settlement was reasonably possible in view of his complete recovery."

[57]

28 The next decision to which I was referred is Baker Johnson v Jorgensen [2002] QDC 205, a decision of McGill DCJ. The judgment commences thus: "[1] This is an appeal from a decision of a magistrate who on 13 February 2002 dismissed the appellant's claim against the respondent. The appellant is a firm of solicitors, and the respondent had retained the appellant to act in connection with a claim for damages in the District Court at Brisbane for personal injuries suffered in the course of her employment. That claim was ultimately settled on terms that the respondent would be paid $10,000 inclusive of costs, but after deducting the amount refundable in respect of worker's compensation: Ex 2. The $10,000 was paid to the appellant's trust account; of that sum $334.40 was refunded to the Health Insurance Commission on behalf of the respondent, and the balance was applied by the appellant towards the payment of the amount payable to it by the respondent for professional costs and outlays. The total amount claimed by the appellant for costs and outlays was $18,616.65: Ex 1. Accordingly the appellant sued the respondent for the balance, $8,951.05. [2] The magistrate found that the retainer of the appellant was on a "no win, no fee" basis and rejected the respondent's evidence that that was qualified by the further expression "no cost to me". The appellant had argued before the magistrate that, because the respondent's claim had been settled for a payment of $10,000 this meant that she had won and was therefore required to pay the normal professional costs as outlined in the itemised account, Ex 1. That argument was rejected by the magistrate who described it as "misleading and inequitable and bordering on unconscionable". The magistrate regarded it as ludicrous to suggest that the retainer entitled the solicitors to the full costs if for example, the client recovered a nominal amount only, and found that that was not the intention of the parties to the agreement. The appellant's claim was therefore dismissed; although the magistrate did not say so expressly, this must have been on the basis that, on the true instruction of the retainer, the appellant was not entitled to recover from the respondent more than the respondent in fact recovered by the settlement."

[62]

31 The decision in Jorgensen has been cited with approval in a monograph, "Law of Costs", published by LexisNexis Butterworths in 2003, written by G E Dal Pont, Associate Professor, Faculty of Law at the University of Tasmania, and by R J Walker, the Deputy Registrar and Taxing Officer of the Supreme Court of Tasmania. Under the heading "Speculative Fee Agreements", the authors state this: "[2.50] Where a lawyer considers that the client has a reasonable cause of action (or defence) and does not bargain for an interest in the subject matter of the litigation, there is in Australia no impediment at general law for the lawyer to charge the clients on a speculative fee basis. The leading judicial statement of this is that of the Full High Court in Clyne v The New South Wales Bar Association (1960) 104 CLR 186 at 203: '...it seems to be established that a solicitor may, with perfect propriety, act for a client who has no means, and expend his own money in payment of counsel's fees and other outgoings, although he has no prospect of being paid either fees or outgoings except by virtue of a judgment or order against the other party to proceedings. This, however, is subject to two conditions. One is that he has considered the case and believes that his client has a reasonable cause of action or defence as the case may be. And the other is that he must not in any case bargain with his client for an interest in the subject matter of the litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceeding...' In fact, it has been said '[j]ustice would very often not be done if there were no professional man to take up the cases and take the chance of ultimate payment'. The taking of such a chance is not champerty and has been described as conduct 'consistent with the highest professional honour'. To this end, judges have queried 'a widespread reluctance in the legal community to recognise, if not to commend, a speculative action'. [2.51] Speculative fee agreements are often described as 'no win no fee'. Aside from an express definition in the retainer, such a phrase is open to be interpreted as the solicitor saying, in effect: 'You will not have to pay me any fees except out of whatever I recover for you' ( Baker Johnson Lawyers v Jorgensen , McGill DCJ). The solicitors had taken the case on a 'no win, no fee' basis, and had not defined in the retainer what was meant by 'win'. McGill DCJ rejected the solicitors' claim to recover the shortfall from the plaintiff on the ground that an outcome cannot properly be characterised as a 'win' from a plaintiff's point of view unless he or she actually recovers something. Implicit in this logic is that if solicitors wish to protect their entitlement to costs, it is within their power to state expressly what constitutes a 'win' via the terms of the retainer, which may then be assessed as to fairness and reasonableness. In the absence of a specific provision, a retainer is interpreted by reference to 'what ordinary people in the position of the parties would have understood it to mean'. [2.52] There is no relaxation of professional standards required from lawyers who act on a speculative basis. In this regard, the extent to which the lawyer's own interest in a speculative claim may interfere with the duties to the client and the lawyer's professional duties must be considered. Re Robb (1996) 134 FLR 294 highlights some of the dangers of speculative fee agreements. The solicitors ran a personal injury practice where they acted for plaintiffs on a 'no win no fee' basis. As the solicitors in effect financed the litigation disbursements, they were necessarily out of pocket until the final and successful resolution of the plaintiff's claim, and 'had a substantial personal interest in the successful outcome of their clients' cases and the monies that thereby became payable to the clients'. This created a conflict between their interests and those of the clients in being properly advised in relation to settlements and the profit costs and disbursement. This conflict obscured the solicitors' perceptions of their fiduciary duties, leading them to treat settlement monies as their own rather than on trust for their clients."

[66]

33 The only other decision which is relevant is a decision made in the present matter by her Honour Judge Sidis on 8 May 2009. Her Honour has set aside that decision because the solicitor who appeared for the plaintiff misunderstood what her Honour was doing, that is, dealing with the whole matter at once. He thought her Honour was only dealing with the matter on an interlocutory basis. However, one must have regard to her Honour's reasoning. Her Honour said this: "The question therefore remains whether the no-win, no-fee agreement was more than an arrangement or whether it represented an agreement that served two purposes, namely to allow the defendant to recover costs and disbursements only if they pursued the plaintiff's claim to a successful conclusion, and to restrict the defendant's rights, if they pursued the plaintiff's claim to the successful conclusion, to recover costs and disbursements only to the amount recovered by the plaintiff through an award of the court or agreed by way of settlement. It was argued for the plaintiff that the second of these conditions should be implied into the agreement. In my view there was no basis for such an implication. In BP Refinery Western Port Pty Limited v Hastings Shire Council (1977) 52 ALJR 20, the High Court set out the following essential requirements before an implied condition will be imported into a contract: (1) The asserted condition must be reasonable and equitable. (2) It must be necessary to give business efficacy to the contract. (3) No term will be implied if the contract is ineffective without it. (4) It must be so obvious that it goes without saying. (5) It must not contradict any express term of contract. In Codelfa Constructions Pty Limited v State Rail Authority of New South Wales (1981) 149 CLR 377 at 345, Mason J said that an implied term was one that the parties would have agreed upon if they had turned their minds to it. He pointed out that courts are slow to imply a condition and said it was not enough to say that it was reasonable to imply the term. It was necessary that the BP Refinery test be satisfied. Therefore, while the plaintiff argues that as a matter of reason and equity the arrangement he had with the defendants was that he would not under any circumstances be out of pocket if an award of damages was made in his favour, it cannot be said that this condition meets the test set out in BP Refinery . In particular, it cannot be said with any certainty that it was a term to which the defendants would have agreed, if they had turned their minds to it. Such a condition would potentially place them in situations where they were deprived of the right to recover substantial costs in circumstances where a client acted unreasonably, or even dishonestly, in pursuing a claim."

[76]

41 The principles governing the granting of leave to appeal in cases of this nature has been considered by White J in Cassegrain v CTK Engineering; Cassegrain v Cassegrain [2008] NSWSC 457. Commencing at [110] his Honour said this: "[110] In Chapman's Ltd v Yandell [1999] NSWCA 361, Fitzgerald JA, with whom Mason P and Davies AJA agreed, said of the predecessor provision (s 208M of the Legal Profession Act 1987) (at [11] and [12]): 'On the other hand, it is important to keep in mind the purpose of a requirement of leave to appeal. It is intended to act as a filter to ensure that unsuitable appellant proceedings which are not able to be brought with the demands which that places upon the resources of the court and the burden which it places upon other parties and the delays which it causes to other litigants. See for example Coulter v Regina (1988) 166 CLR 350 about 359. It is also in my opinion important to keep in mind that s 208M must be considered in the context of s 208L, which restricts an appeal as of right to matters of law. In considering whether or not leave to appeal is granted, it must be decided whether or not, there not being a matter of law arising in the proceeding and there being an appeal as of right only as to a matter of law, there is some other matter which in justice requires that leave to appeal be granted to allow that matter to be relitigated. The party seeking leave to appeal obviously bears the burden of establishing that justice does require that leave to appeal be granted. Further, the master when considering whether to grant leave to appeal obviously has a very wide discretion: see CDJ v VAJ [1998] HCA 67 per McHugh, Gummow and Callinan JJ.' [111] In Wentworth v Rogers , Santow JA (at 491 [65]) warned that the costs assessment process would become trammelled by unnecessary litigation if leave to appeal were allowed too readily. Basten JA said that to require an applicant for leave to establish an obvious error on the face of the record and substantial injustice if the determination were allowed to stand would be too inflexible and restrictive a test (at 517-518 [194]-[195]). The question whether leave should be given should be approached on the broad basis of whether or not justice so requires ( Chapman's Ltd v Yandell at [12]; Wentworth v Rogers at 519 [202])."

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