//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2009] VCAT 99
plaintiff. The Tribunal cancelled both costs agreements, set aside invoices 06/075 and 06/104, and listed the proceeding for a further directions hearing on consequential orders or directions; it made no...
The Tribunal found that the solicitor's written agreements wrongly told the clients they could have time-based invoices assessed by a court official. The clients relied on that statement when entering the agreements. Although other allegations, including misconduct, unsatisfactory conduct and unfairness, were not established, the Tribunal considered the overall circumstances sufficient to cancel both agreements. It also set aside the two final invoices, which included charges that the solicitor was not entitled to increase retrospectively under the agreements. The Tribunal did not decide the final balance between the parties and left consequential issues for a later directions hearing.
AI-generated legal information, not legal advice. Zoe can make mistakes. Check the cited source, and for advice about your situation consult a qualified Australian lawyer.
2,201 words · generated 01/10/2026
Leong v J P Sesto & Co concerned legal fees charged by solicitor John Sesto for Supreme Court litigation about two units at 123-139 La Trobe Street, Melbourne. The applicants, Mr and Mrs Leong, had economic interests in the companies involved in that litigation. Jadewealth Pty Ltd, a trustee company associated with the Leong family, and Aljade Development and Construction SDN BHD were also clients for at least part of the retainer. Jadewealth was joined to the VCAT proceeding as an interested party. Aljade was in liquidation and was not joined.
2 cited instruments linked from this judgment.
The contested final invoices claimed a total of $672,184.64. That figure sat against several other significant amounts in the record: the costs agreements' estimates ultimately totalled $198,580; invoices rendered up to 16 January 2004 totalled $313,103.56 after adding counsel's fees omitted from those invoices; and OCBC agreed to pay $440,000 towards the costs awarded in the Supreme Court litigation. The Tribunal recorded that the differences between these figures were unexplained.
The first written costs agreement was sent on 7 May 2002. It identified Mr Leong, Mrs Leong and Jadewealth as clients, provided for hourly time-based charges, and stated that invoices could be assessed for fairness and reasonableness by a court official. The document was not signed and returned, but the parties agreed that its terms became part of their contract.
A second agreement, headed “Restatement of Our Retainer Terms”, was sent on 21 March 2003. The Tribunal treated it as a new agreement, rather than merely a variation, because it added Aljade as a party. Mr and Mrs Leong signed on behalf of themselves and purportedly on behalf of the companies. Aljade later ratified the execution through a power of attorney. The second agreement repeated the statement about court-official assessment.
The Tribunal found that the assessment statement was wrong for time-based charges. It also found that Mr Leong read and was comforted by that statement, and that he and, through him, the other clients were induced to enter the agreements. It cancelled both agreements and set aside invoice nos 06/075 and 06/104. It did not decide the eventual amount, if any, payable to either side. A further directions hearing was ordered to address consequential steps.
The central statutory ground was s 103(1)(a) of the Legal Practice Act 1996. As quoted in the reasons, that provision allowed cancellation where a client was induced to enter an agreement by the legal practitioner's fraud or misrepresentation. The Tribunal found the review-right statement was a misrepresentation of law: the agreements charged by time, whereas s 101(2) made an agreement assessable under Division 5 only to the extent that costs were calculated under a practitioner remuneration order or court or tribunal scale. The Tribunal also read s 109 consistently with s 101. It concluded the Taxing Master could not assess these time-based charges.
The Tribunal did not treat proof of misrepresentation as requiring cancellation. It emphasised that s 103 said the Tribunal “may” cancel. In exercising that discretion, it looked beyond the error in the agreements. It considered the gap between the final account and the estimates, earlier invoices, and costs recovered from OCBC; the clients' evidence that Mr Sesto said they would “get something back” if $440,000 was recovered; and the absence of an estimate when the first agreement was made. The Tribunal regarded these matters as relevant to whether cancellation was just, even though it had not found that the other alleged grounds for cancellation were made out.
The Tribunal did not find misconduct or unsatisfactory conduct. It treated the allegation of grossly excessive costs cautiously and identified the lack of expert evidence as significant. It also noted that the comparison between earlier and later invoices was not a complete comparison, because no invoices had been rendered for all the later work. However, it separately construed the agreements and invoices as not permitting Mr Sesto to increase charges retrospectively for work already invoiced. The agreements did not reserve a right to issue higher revised invoices, and the earlier invoices did not say they were provisional.
The Tribunal also rejected the argument that the applicants could not seek relief because the companies were among the clients. It found that the first agreement involved Mr and Mrs Leong and Jadewealth, and the second involved those three plus Aljade. Jadewealth was already joined as an interested party and would be bound by the outcome. The Tribunal considered Aljade's joinder impracticable and futile, given its liquidation and lack of an Australian registered office or place of business.
The reasons describe the governing statutory framework as it applied to the dispute, rather than setting out a general history of legal-costs law. Before this decision, the provisions being applied were ss 86, 90, 91, 101, 103, 109 and 137 of the Legal Practice Act 1996, continued for this dispute through transitional provisions in the Legal Practice Act 2004.
Section 86(3), as set out in the reasons, required a practitioner to provide a concise written statement that included an estimate of total legal costs if reasonably practicable, or a range of estimates and an explanation of variables if not. It also addressed ranges of costs recoverable if the client succeeded and costs the client might have to pay if unsuccessful. Section 90 contained exceptions relevant to corporate clients: the Tribunal said the exceptions applied to Aljade as a foreign company and to Jadewealth as trustee, but not to Mr or Mrs Leong. Section 91 specified consequences for failure to give required information in an assessment or a costs dispute within the statutory scheme. The Tribunal found those direct consequences did not apply in this proceeding, but considered the failure potentially relevant indirectly to unsatisfactory conduct or the s 103 discretion.
The important clarification in this decision was the Tribunal's reading of ss 101(2) and 109: time-based agreements of the kind before it were not assessable by the Taxing Master merely because invoices were issued. This made the agreements' statement about review materially inaccurate. The Tribunal's treatment of that statement is fact-specific: it relied on evidence of actual inducement, then separately exercised the statutory discretion to cancel.
The decision also illustrates the distinction between a statutory ground for cancellation and the discretionary remedy. Misrepresentation was established, but the Tribunal separately considered whether cancellation was just in the circumstances. It did not hold that every inaccurate statement in a costs agreement automatically cancels an agreement.
The reasons do not provide a later history of this decision or identify later appellate treatment. The effect of any subsequent authority cannot be established from this judgment alone.
The agreements stated that the Legal Practice Act gave clients “the right to have the fees in a Tax Invoice assessed for their fairness and reasonableness by a court official.” The Tribunal held this was wrong for the time-based arrangements in question. In plain English, the clients were told they had a review right that did not apply to these charges.
The Tribunal found that Mr Leong “read, and was comforted by” the statement and accepted his evidence. It concluded that he and, through him, the other clients were induced to enter both agreements. This mattered because s 103(1)(a) required a connection between the misrepresentation and entry into the agreement, not just the presence of an error in a document.
On the invoices, the Tribunal said Mr Sesto “was not entitled to revise his charges” for work invoiced before 16 January 2004. It relied on the absence of any contractual term allowing later, higher invoices and on the earlier invoices' lack of a reservation that they were provisional. The finding concerns the agreements and invoices in this case; it should not be read as a conclusion about every interim invoice or retainer.
The Tribunal also explained that the misrepresentation alone did not automatically dictate the result. It said it did not “strike at the heart” of the agreements, and then assessed whether cancellation was just in light of the wider circumstances. The Tribunal's reasoning combined the established statutory ground with contextual factors, rather than treating any one discrepancy as conclusive.
Finally, the order cancelled the agreements and set aside the two disputed invoices but did not determine a final refund or debt. The Tribunal considered that a careful costs assessment would require further evidence and submissions. Its order for a further directions hearing preserved that issue.
The reasoning is most directly relevant to a written legal costs agreement that charges by time and inaccurately tells clients that invoices can be assessed for fairness and reasonableness by a court official. The decision makes inducement central: the Tribunal accepted evidence that the client had read and relied on the statement. The judgment does not establish that the same result follows if the statement was not read, did not influence entry, or the agreement provided for a different method of charging.
The decision is also relevant where a solicitor has issued invoices for particular work and later seeks to increase those charges through a final account. The Tribunal examined whether the agreement or invoices reserved a right to revise amounts. Here it found no such reservation. The reasoning will therefore depend on the wording of the particular retainer and invoices.
A separate feature was the presence of competing figures: estimates, earlier invoices, an amount recovered from an opposing party, and a much higher final account. The Tribunal considered the unexplained differences when deciding whether cancellation was just. It did not hold that a large difference alone proves overcharging or professional misconduct. It expressly identified the lack of expert evidence as an obstacle to finding grossly excessive costs.
The client-identity issue may also matter where individuals and companies are named or treated as clients together. The Tribunal read the written agreements, the surrounding circumstances, and the parties' conduct to identify the clients. It then considered who was a party to the proceeding and whether the other clients' absence prevented relief. The outcome depended on Jadewealth's joinder as an interested party and the practical barriers to joining Aljade.
The judgment itself does not report later court or tribunal decisions applying, distinguishing, affirming or reversing Leong. No later treatment can therefore be reliably stated from the supplied judgment.
It does discuss authorities that were available to Senior Member Vassie. Gaweda v Shaw was treated as consistent with the view that time-based charges were not assessable by the Taxing Master. Redfern v Mineral Engineers was considered in relation to whether a solicitor was bound by a bill already delivered, although the Tribunal noted that the case concerned an itemised bill prepared for taxation and did not decide the precise point before it.
The Tribunal also addressed the meaning of “in trade or commerce” under the Fair Trading Act. It considered Walsh and Kane, L.T. King and Naylor, and declined to conclude that a solicitor's costs agreement and work under it fell outside that expression. Those discussions concern the Fair Trading Act issue in this proceeding, not later treatment of Leong itself.
Briginshaw was applied as a cautionary principle when the Tribunal considered serious allegations of misconduct and unsatisfactory conduct. Re a Solicitor was cited for the professional conception of misconduct. These authorities informed the Tribunal's approach to the allegations before it; the judgment does not establish how later courts interpreted Leong's particular findings.
The principal issue expressly left open was the final account between the parties. The Tribunal had cancelled the agreements and set aside the disputed invoices, but did not assess what Mr Sesto was properly entitled to charge for work not already covered by earlier invoices. It discussed possible next steps, including a fresh bill and assessment, or a further conference or mediation, and left the choice for a later directions hearing.
The Tribunal also left the treatment of any repayment subject to further consideration. It recorded that OCBC or Aljade's liquidator might conceivably make claims and gave a provisional view that a repayment order might be conditional on an indemnity. It did not decide that issue.
The exact consequences of the estimates failure were also limited by the statutory scheme as the Tribunal understood it. It found a failure to provide an estimate between the first agreement and the second, but did not find that this amounted to unsatisfactory conduct or independently determined a reduction in costs. It considered the failure as one circumstance in the discretionary cancellation analysis.
Finally, the Fair Trading Act findings were not the basis of the operative orders. The Tribunal found misleading or deceptive conduct under s 9 but found no evidence of loss or damage for compensation under s 159, and no basis for unconscionability under s 8A. It said it would have considered rescission under s 108(2)(g) as an alternative, but no such order was required after it cancelled the agreements under s 103.
This is general legal information, not legal advice. Zoe can make mistakes. Before acting on this, relying on it, or using any draft, have a qualified Australian lawyer check it.
Costs agreements - application for cancellation under Legal Practice Act 1996 - grounds for cancellation.
Costs agreements - time based charges agreed upon - whether subject to assessment by Taxing Master - Legal Practice Act 1996 ss 101, 109.
Misrepresentation - whether misrepresentation of law inducing entry into costs agreements - exercise of discretion to cancel the costs agreements - Legal Practice Act 1996 s103.
Misconduct - unsatisfactory conduct - whether such allegations were made out - whether costs agreements "not fair and reasonable".
Costs agreements - requirement to give estimates of costs - effect of failure to give estimates - Legal Practice Act 1996 ss 86, 90, 91.
Parties - identification of the clients who were parties to the costs agreements - applicants not the only clients - whether that affects their rights to claim relief.
Fair Trading Act - jurisdiction - whether alternative remedies available under that Act - whether conduct was misleading or deceptive, or unconscionable - whether solicitor's conduct was "in trade or commerce" - whether a solicitor supplies "services" - Fair Trading Act 1999 ss 3, 8A, 9, 107, 108, 158, 159.
Leong v J P Sesto & Co (Legal Practice) [2009] VCAT 99
Whether It Matters that Jadewealth and Aljade are not Applicants 18
The Law: What Costs Agreements are subject to Assessment 22
At all times since the beginning of 1999 that have been material to this proceeding, John Sesto carried on practice as a solicitor under the name J.P. Sesto & Co. The title to this proceeding, and the applicants' Amended Application (entitled the "Third Further Amended Application"), described two respondents, "J.P. Sesto & Co" and "John Sesto." It is common ground that the two named respondents are one and the same person, to whom I shall refer as "Mr Sesto."
The applicants Leong Voon Shing (also called "Alvin Leong") and Jade Leong, who are husband and wife, are Malaysian citizens. This proceeding reflects a dispute they have with Mr Sesto over invoices he has rendered for services as a solicitor. He rendered those services when he acted in Supreme Court litigation on behalf of two companies in which Mr and Mrs Leong had economic interests.
One of these companies, Aljade Development and Construction SDN BHD ("Aljade"), was a Malaysian company. It went into liquidation on 19 November 2003. It was never registered in Australia as a foreign company or otherwise. Mr and Mrs Leong had been directors of and shareholders in Aljade until some time in 2000.
The other company, Jadewealth Pty Ltd ("Jadewealth"), is registered in Australia. It is the trustee of a family trust. Mr Leong is and always has been a director of it. Jadewealth has been joined to the proceeding as an interested party.
The invoices which are in dispute charged sums totalling $672,184.64. Until the hearing of this proceeding began before me on 27 October 2008, Mr Sesto had taken the stance that he received $651,169.00 in reduction of those sums totalling $672,184.64 so that there was a balance of $21,015.64 still owing to him upon those invoices. Of the $651,169.00 that he said he had received, $211,169.00 had come from payments made from time to time by or on behalf of his clients. (Mr and Mrs Leong have maintained that those payments actually totalled $221,169.00, an extra $10,000.00.) The other $440,000.00, Mr Sesto had said, had come from an opposite party to the litigation. That figure of $440,000.00 had been an agreed figure for the costs awarded against that opposite party. During the hearing, however, Mr Twigg of Counsel for Mr Sesto took a different stance, submitting that the $440,000.00 paid as costs by the opposite party should not be taken into account in any determination of how much was owing under the disputed invoices.
By "this proceeding" I mean proceeding no. J138/2006, commenced in the Legal Practice List, in which Mr and Mrs Leong are the applicants. There is a second proceeding, no. C6430/2008, commenced in the Civil Claims List, in which Mr Sesto is the applicant and Jadewealth is the respondent. In the second proceeding Mr Sesto has claimed $21,015.64, consistently with his original stance as I have described it in the preceding paragraph. That second proceeding was fixed for
hearing together with this proceeding, no. J138/2006. During the five days of the hearing before me, however, the second proceeding was scarcely mentioned. These reasons for decision deal with proceeding no. J138/2006 only. I shall give brief separate reasons for the order I am making in the other proceeding.
The charges for professional services made in the disputed invoices are time-based charges. It is common ground that at all material times from 7 May 2002 onwards there was a costs agreement, evidenced in writing, in force between Mr Sesto and his clients under which Mr Sesto had authority to make time-based charges in accordance with agreed hourly rates. (Who the "clients" were is a matter in dispute, as will appear below.) The Amended Application alleged that there was one costs agreement but variations of it. Mr Coady of Counsel for the applicants made submissions that were consistent with that allegation. As will appear below, I consider that there were two successive costs agreements and that the parties to them were not identical. For the moment, however, it is convenient to speak of a "costs agreement" as if there had been only one.
The primary orders that Mr and Mrs Leong ask VCAT to make in this proceeding are orders, pursuant to section 103(1) and (3) of the Legal Practice Act 1996, that the costs agreement be cancelled and that VCAT make such consequential orders as it thinks fit, including orders for cancellation of the disputed invoices and orders for payment of money to the applicants.
By virtue of clause 3.1 of Schedule 2 of the Legal Practice Act 2004, Part 4 of the Legal Practice Act 1996 (which includes section 103) continues to apply to the subject matter of this proceeding. By virtue of clause 8.1(3) of the same Schedule, "the Tribunal" in Part 4 of the 1996 Act now means VCAT. Unless I state otherwise, or unless the context indicates otherwise, references in these reasons for decision are references to sections in the Legal Practice Act 1996, and references to "the Act" or to "the 1996 Act" are references to that Act.
The fact that Mr and Mrs Leong are the applicants seeking the orders referred to in paragraph 8 above would be unremarkable if there were no dispute that they were the persons who had entered into a costs agreement with Mr Sesto and so were his clients. There is a dispute, however. Mr and Mrs Leong maintain that they and they alone were parties as clients to the costs agreement. Mr Sesto maintains (and Mr Twigg submitted) that the persons who were parties as clients to the costs agreement were Jadewealth and Aljade. For reasons that I shall give below, I consider that neither of those maintained positions is correct, and I find that Mr Sesto's clients were:
Jadewealth and Aljade, although parties to a costs agreement with Mr Sesto from time to time, are not applicants. Only Mr and Mrs Leong are the applicants. In my opinion, for reasons that I shall give below, the absence of Jadewealth and Aljade as applicants is no impediment to Mr and Mrs Leong seeking orders for the cancellation of the costs agreements or any other orders, and does not affect VCAT's capacity to make such orders.
The Supreme Court litigation in which Mr Sesto acted concerned two units described in a proposed subdivision of land at 123-139 La Trobe Street Melbourne. The registered proprietor of the land was Richfield Investments Pty Ltd ("Richfield"). A Mr Fong was a director of Richfield.
A Malaysian company of which Mr Fong was also a director owed in excess of $1 million to Aljade. So as to satisfy the debt, in part, Richfield agreed in 1998 to sell the two La Trobe Street units to Aljade for a price which was to be paid as an offset against the Malaysian company's debt to Aljade. Mr Leong, then a director of and shareholder in Aljade, consulted Mr Sesto, who was then an employee solicitor at Rawling & Company, for the purpose of formalising the agreement for the sale of the two La Trobe Street units.
The agreement was formalised as follows. There was a contract of sale by Richfield to Aljade dated 3 September 1998. It provided for payment of the purchase price by way of offset as described above. Richfield became obliged to deliver an instrument of transfer of the units within a specified time after registration of the plan of subdivision. The contract contained a nomination clause. On 7 October 1998 Aljade nominated Jadewealth as the proposed transferee. Jadewealth had been incorporated, on Mr Sesto's advice, for that purpose. It was the trustee of a discretionary trust for the benefit of Mr and Mrs Leong and their family. There was a costs agreement in place between Rawling & Company as solicitors and Mr and Mrs Leong as clients.
On 11 January 1999 Mr Sesto commenced practice as a solicitor on his own account. He took with him the conveyancing file for the purchase of the units. Mr and Mrs Leong agreed to his doing so.
Little then happened for more than two years. Although the plan of subdivision was registered, settlement of the purchase was delayed during that time. A cause of the delay was the need for Richfield to arrange a partial discharge of a mortgage over the La Trobe Street land. The mortgagee was Oversea-Chinese Banking Corporation Limited ("OCBC").
The attempt to arrange a partial discharge of mortgage led to a dispute between Jadewealth and OCBC over the priority of their respective interests in the two units. On 13 May 2002 OCBC commenced Supreme Court proceedings against Jadewealth seeking the removal of a caveat which Mr Sesto had lodged on Jadewealth's behalf. On 12 June 2002 Aljade commenced Supreme Court proceedings against Richfield and OCBC seeking, amongst other things, specific performance of the contract of sale. Mr Sesto was the solicitor on the record for Jadewealth and Aljade respectively in those proceedings. He had received instructions from Mr Leong to defend OCBC's proceeding on behalf of Jadewealth and to commence the other proceeding for Aljade.
Although Mr Leong gave those instructions on behalf of Aljade he was no longer a director of Aljade or a shareholder in Aljade by 12 June 2002. He had ceased to be so by August 2000. He and his wife had sold their interests in Aljade to his mother-in-law and sister-in-law.
In May 2003, shortly before the trial of the two Supreme Court proceedings was due to commence on 2 June 2003, the directors of Aljade executed a power of attorney giving proper authority to Mr Leong to pursue Aljade's proceeding and to instruct Mr Sesto.
In June 2002 Mr Leong had sworn two affidavits, one for each of the two proceedings, in which he stated, incorrectly, that he was a director of Aljade. The affidavits described him as a "controlling director" of Aljade. Mr Sesto had prepared each affidavit. One had been forwarded by him to Malaysia for execution. The other evidently had been executed in Melbourne. Mr Sesto filed each affidavit once it had been sworn. In cross-examination it was put to Mr Leong that he had failed to inform Mr Sesto until May 2003 that he was not a director of or shareholder in Aljade, and that that was why he had been advised to procure the power of attorney. Mr Leong denied the allegation and swore that he had told Mr Sesto before the litigation had commenced that he was no longer a director of or shareholder in Aljade.
This is the topic on which I do not accept Mr Leong's evidence, even though Mr Sesto did not give evidence to contradict it. It is inherently improbable that any conscientious solicitor would facilitate or permit the swearing and filing of an affidavit that, to the solicitor's knowledge, contained a false statement. It is inherently improbable that Mr Sesto would have done that on one, let alone two, occasions. The hasty procurement of the power of attorney is consistent with the more probable version of events having been the one put to Mr Leong in cross-examination. Nevertheless, on the overall view that I took of Mr Leong and his credibility, this topic was of minor importance, and does not cause me to reject any other part of his evidence, uncontradicted as it was.
The trial of the Supreme Court proceedings commenced on 2 June 2003 and concluded after 11 sitting days. Judgment was reserved. On 19 December 2003 the court gave judgment. Aljade and Jadewealth were successful. Specific performance was ordered. The issue of costs was adjourned for submissions and argument.
On 19 November 2003, one month before judgment was given in favour, Aljade had gone into liquidation as a consequence of a winding-up order made in Malaysia. Mr Leong swore, and I accept, that he did not know of the liquidation at the time.
On 22 September 2004 the Supreme Court made orders for costs of the proceedings in favour of Jadewealth and Aljade against Richfield and OCBC. The orders were for payment of costs on a party-party basis up to 1 June 2003 and on an indemnity basis thereafter. So there was an indemnity costs order that covered the period of the trial itself.
Mr Sesto had a bill of costs prepared for taxation. He filed it with the Supreme Court, together with a summons for taxation, on 16 June 2005. The taxation commenced before the Taxing Master on 2 November 2005. Mr Sesto briefed Mr Lapirow to appear for Jadewealth and Aljade. On the following day, 3 November 2005, the issue of costs was settled by OCBC agreeing to pay $440,000.00. Subsequently the solicitors for OCBC paid that sum to Mr Sesto.
It is common ground that Mr Sesto inadvertently omitted from those invoices a sum of $13,700.00 for Counsel's fees and that Mr Sesto was always entitled to include those and to charge for them. With that amount added, the total of those invoices became $313,103.56.
On 1 October 2004, shortly after the costs order made on 22 September 2004 against Richfield and OCBC, Mr Leong wrote to Mr Sesto asking for a summary of "professional fees during and after the court hearing". By a letter in reply dated 19 October 2004 Mr Sesto advised that he had "engaged a cost consultant to cost the file and advise us generally on the question for costs". The letter enclosed the requested summary of the invoices rendered to 16 January 2004 and also a "summary of invoices received from client" which listed payments totalling $211,169.00.
Evidently the costs consultant did his work promptly, because on 29 November 2004 Mr Sesto wrote to Mills Oakley Lawyers, who were the solicitors for OCBC in the Supreme Court litigation, demanding payment of $636,598.00 for professional costs and disbursements, plus two other figures, one being for an amount charged by Malaysian lawyers A.G. Dicom (whom Mr Leong had retained to assist him in the litigation) and the other being for "ancillary claims" which I do need to specify at the moment. The letter enclosed a 31 page particularisation of the calculation of the sums claimed for professional costs alone, which was $455,198.00.
By then it was obvious that the total sums which Mr Sesto had charged his client or clients (whoever they were) by 16 January 2004 were about one half of what had been demanded of OCBC under the Supreme Court's costs order.
As I have stated above, the taxation of a bill of costs before the Taxing Master was settled on 3 November 2005 by OCBC agreeing to pay $440,000.00. Even that sum was approximately $127,000.00 more than Mr Sesto had charged up to 16 January 2004.
On 28 October 2004, that is to say about a week before the taxation of the bill of costs took place, Mr Sesto sent an "interim tax invoice" numbered 06/075 addressed to Jadewealth. It commenced, "To our professional costs incidental to this matter from its inception to 30 September 2005 in accordance with the attached itemised statement". The invoice claimed professional fees of $383,926.00 and, with GST and disbursements added, a total of $644,962.14. It stated that $211,169.00 had been received on account and claimed a balance of $433,793.14. The "attached itemised statement" comprised 97 pages.
On 1 December 2005 Mr Sesto sent a "final account, tax invoice" numbered 06/104. It was addressed to Jadewealth, Aljade and Mr and Mrs Leong. It read as follows:
To our professional costs incidental to this matter from its inception to 4 November 2005:
4 November 2005 as set out in Annexure A $ 14,055.00
Less monies received from OCBC pursuant to Costs order -$440,000.00
On three occasions in the course of the Supreme Court proceedings Mr Sesto gave written estimates of his costs of acting in those proceedings.
Mr Sesto gave no estimate until 21 March 2003, when he included as a schedule to a letter of that date (addressed to Mr Leong, Mrs Leong, Aljade and Jadewealth) a detailed estimate which totalled $120,757.00. The estimate was expressed to be based on a provision for a 7 day trial in the Supreme Court. This letter was the same as the one to which I shall refer below as having evidenced a second costs agreement.
On 18 June 2003 Mr Sesto gave a revised estimate of an extra $44,240.00, including extra professional costs of $12,000.00. The revised estimate was in a letter addressed to Mr and Mrs Leong. Again it was expressed to be based on a provision for a 7 day trial.
On 20 January 2004, by a letter addressed to Mr and Mrs Leong, Mr Sesto gave a further revised estimate. It was of an extra $20,798.86, including extra professional costs of $12,784.00. The letter gave a total of the estimates, after the two revisions, of $198,580.00.
The total of the estimates contrasts sharply with the figure of $440,000.00 agreed upon as the party-party and indemnity costs of the two proceedings, and contrasts even more sharply with the sum of $672,184.64 calculated in the "final account" dated 1 December 2005.
ACTION AGAINST RICHFIELD INVESTMENTS PTY LTD AND OCBC UNITS 19 & 22, 123-139 LA TROBE STREET, MELBOURNE
Pursuant to the provision of the Legal Practice Act 1996 (Vic), we are obliged to outline the basis upon which our firm will provide legal services to you in relation to the above matter, and the manner in which our professional costs will be charged.
In keeping with our responsibilities under the Act, we now set out the terms and conditions upon which you will further your claim against Richfield Investments Pty Ltd and OCBC. Please take note of the funds required in advance of any formal court proceedings.
Should the need arise, we will be happy to answer any questions you may have.
Mr Alvin Leong, Mrs Jade Leong and Jadewealth Pty Ltd, each of you being joint and severally liable for our Tax Invoices.
To advise on, institute and assume the care and conduct of Supreme Court proceedings against Richfield Investments Pty Ltd and OCBC seeking among other things, specific performance of the Contract of Sale of the above mentioned properties ("your Claim").
We require an individual to accept and guarantee responsibility for legal costs where the client is a corporate entity. Mr Alvin and Mrs Jade Leong will be jointly and severally responsible for payment of our Tax Invoices.
.................................................................. Date:
.................................................................. Date:
.................................................................. Date:
Alvin Leong for and on behalf of Jadewealth Pty Ltd
Our fees are calculated based on the time spent working on your claim. Time is calculated on a per unit basis where each unit equals 6 minutes or part thereof. For example, 28 minutes equals 5 units.
These rates may change during the course of your claim. We will give you 30 days notice of any changes in the fee rates.
The precise amount of the legal costs that will be payable will vary depending on a number of factors including:
If you are successful the other party may be ordered to pay a proportion of your costs, which will be calculated according to the court scale. We estimate that the amount recoverable will be approximately 60% of the total costs incurred by yourself, depending on the variables listed above. We cannot guarantee recovery of these amounts.
The Legal Practice Act 1996 (Vic) gives you the right to have the fees in a Tax Invoice assessed for their fairness and reasonableness by a court official. An application for assessment must be made within two months of your receiving the bill.
In support of his submission that the agreement should be regarded as one to which Mr and Mrs Leong were the clients, not any corporate entity, Mr Coady relied upon the following matters:
Matters (f), (g) and (h) mentioned in the previous paragraph accord with the evidence but face a difficulty. There has been a general rule of construction of contracts that the conduct of parties to a contract subsequent to its formation cannot be used for the purpose of construing its terms. Whether that rule is as applicable as generally as it used to be is an open question: see Halsbury's Laws of Australia, vol 6, para [110-2295]. So I propose to have regard to those matters as well as to the other matters upon which Mr Coady relied.
As to matter (d), the fact that Jadewealth did not expressly acknowledge that it accepted the terms in the letter and was a client, there are counterweighing considerations. The proposed litigation was to be for the benefit of Jadewealth. If the litigation was successful Jadewealth would become the registered proprietor of land in Australia. Mr and Mrs Leong were Malaysian citizens. It was understandable that Mr Sesto would want to bind to a costs agreement a person with Australian assets. The letter was framed in a way that invited Jadewealth to acknowledge that it was becoming a party to a costs agreement and promising, together with Mr and Mrs Leong, to pay legal fees. In those circumstances, if Mr Leong in his capacity as a director of Jadewealth did not intend Jadewealth to be bound by the terms of the letter it was incumbent upon him to say so before continuing to instruct Mr Sesto. He did not say so.
In his support of his submission that the agreement should be regarded as one to which Jadewealth and Aljade were the clients, Mr Twigg relied upon the following matters:
The matters which Mr Twigg relied upon are valid reasons for concluding that Jadewealth was a party to a costs agreement with Mr Sesto but in my opinion do not lead to a conclusion that Mr and Mrs Leong were not parties to it also. The reference in the letter of 7 May 2002 to a "guarantee" is puzzling but inconsistent with the rest of the letter, particularly the section quoted in paragraphs 53 and 54 above, which expressed that Mr Leong, Mrs Leong and Jadewealth would be jointly and severally responsible for payment of invoices and so would be joint principal debtors.
Similarly, the matters which Mr Coady relied upon support a conclusion that Mr and Mrs Leong were parties to a costs agreement with Mr Sesto but in my opinion do not lead to a conclusion that Jadewealth was not a party to it also.
What predominate, in my opinion, are those plain words of the letter dated 7 May 2002 that I have underlined in paragraph 53 above. When Mr Leong and Mr Sesto proceeded after 7 May 2002 on the basis that they should abide by the terms in the letter, they did so in accordance with a contract between Mr Sesto as solicitor and Mr Leong, Mrs Leong and Jadewealth as clients.
Aljade was not a party to that contract. It did not expressly retain Mr Sesto, under a costs agreement or otherwise, in May 2002. Yet it became a party to litigation and Mr Sesto acted for it in that litigation and Mr Sesto acted for it in that litigation as its solicitor on the court record. The consequence is that Aljade was deemed to have retained Mr Sesto. The principle of the "deemed retainer" is expressed in Dal Pont, The Law of Costs (2003), para [1.13], as follows:
It is presumed, in the absence of proof of an express agreement to the contrary, that a solicitor who acts upon instructions for a party on the record is taken to be entitled to look to that party for costs, even if the instructions have come from another person. The doctrine in this respect is one of 'deemed retainer'.
There is no incongruity, therefore, in saying that Aljade was not a party to a costs agreement and in saying also that Mr Sesto was acting for Aljade in the litigation and entitled to charge it with fees for doing so if he saw fit to charge it.
The address given was a room at Crown Towers, Southbank, at which Mr and Mrs Leong were staying while in Melbourne.
By signing below, you indicate that you wish to retain J.P. SESTO & CO to act for you according to the terms of this Agreement.
Provision was made at the foot of that page for signing as follows:
_____________________________________________________________
Directors for and on behalf of Aljade Development and Construction SDN BHD & Jadewealth Pty Ltd
_____________________________________________________________
We require an individual to accept and guarantee responsibility for legal costs where the client is a corporate entity.
By signing this Agreement you expressly acknowledge that you are personally responsible for the payment of any legal costs and disbursements incurred by Aljade Development and Construction SDN BHD & Jadewealth Pty Ltd or any other company you instruct us to act for.
The Legal Practice Act 1996 (Vic) gives you the right to have the fees in a Tax Invoice assessed for their fairness and reasonableness by a court official. An application for assessment must be made within two months of your receiving the bill.
The applicants' case has been that the "Restatement" document was part of the retainer that had been created in 2001 then varied when a costs agreement was entered into on or about 7 May 2002. Consistently with that case, Mr Coady submitted that the clients who retained Mr Sesto on and after 21 March 2003 remained Mr and Mrs Leong only. Consistently with his other submissions, Mr Twigg submitted that the clients who retained Mr Sesto on and after 21 March 2003 remained Jadewealth and Aljade.
In my opinion the "Restatement" document, once executed, created a second costs agreement. It introduced a new party, Aljade, which had not been party to what had been agreed in May 2002. The accompanying letter dated 21 March 2003 had been addressed to Aljade as well as to the three persons who had been parties, as clients, to what had been agreed in May 2002. Mr and Mrs Leong purported to sign the "Restatement" on behalf of Aljade, and Aljade later ratified their having done so. The introduction of the additional party compels the conclusion that what had occurred in March 2003 was not the continuation or variation of a previous agreement but the creation of a new agreement, a second costs agreement, albeit with most of its terms similar to those in the first costs agreement.
For those reasons, together with reasons I gave in respect of the first costs agreement when dealing with the respective submissions, I reject the submission that the "Restatement" document evidenced a contract between Mr Sesto and Mr and Mrs Leong only as clients, and also reject the submission that it evidenced a contract between Mr Sesto and Jadewealth and Aljade only as clients. I find that the parties to the second costs agreement, as clients, were all four: Mr Leong, Mrs Leong, Jadewealth and Aljade.
That remained the state of affairs from 21 March 2003 until 19 November 2003 when Aljade went into liquidation and thus lost the capacity to instruct Mr Sesto, even though Mr Leong purported to continue to instruct Mr Sesto on Aljade's behalf. Following the liquidation Aljade would only have had the capacity to enforce the second costs agreement if the liquidator had adopted it. That did not happen. For practical purposes, therefore, Aljade dropped out of the costs agreement and the remaining parties to it, as clients, were Mr Leong, Mrs Leong and Jadewealth.
Mr Sesto's retainer ended shortly after the settlement of the taxation-of-costs issue when, on 3 November 2005, Mr and Mrs Leong changed solicitors.
Whether It Matters that Jadewealth and Aljade are not Applicants
Mr and Mrs Leong, the applicants, are only two of the four persons who, from time to time, were parties to a costs agreement with Mr Sesto in relation to the Supreme Court proceedings. So only two of those four persons have sought the cancellation of a costs agreement and consequential relief.
Where several persons, being joint contractors, are entitled to make a claim against the other party to the contract, a proceeding brought to enforce that claim ought to be brought by and in the names of all the joint contractors. Where one of the joint contractors does not consent to being a plaintiff, rules of court permit the other joint contractors to name the non-consenting one as a defendant: see Rule 9.03(1) of the Supreme Court Rules. Unless the non-consenting joint contractor is named in that way, the defendant sued on the contract may apply for a stay of the proceeding. The court has a discretion to stay or not to stay the proceeding in those circumstances. Where the non-consenting joint contractor is out of the jurisdiction, the court in the exercise of its discretion may, and generally will, decline to order a stay unless in the circumstances it is just to order a stay: Wilson Sons & Co Ltd v Balcarres Brook Steamship Company Limited [1893] Q.B. 422. The difficulties which might be attendant upon obtaining leave to serve the non-consenting contractor outside the jurisdiction are a reason for declining to order a stay.
Mr Twigg submitted that in the event that I found (as I have) that there were four joint contractors, and four clients of Mr Sesto, from time to time, the proceeding should be stayed until Jadewealth and Aljade were joined either as applicants or respondents to this proceeding. I reject the submission.
Jadewealth is a party to the proceeding already. It was joined as an interested party, on the application of Mr Sesto made pursuant to section 60 of the Victorian Civil and Administrative Tribunal Act 1998, which enables VCAT to order that a person be joined as a party to a proceeding if it considers that the person ought to be bound by or have the benefit of an order in the proceeding, or if the person's interests are affected by the proceeding, or if for some other reason it is desirable that the person be joined as a party. By any of those criteria it was proper that Jadewealth should be a party to this proceeding and become bound by, or have the benefit of, the result in the proceeding. Why Mr and Mrs Leong did not ever seek to have Jadewealth joined as a party, either as an alternative applicant or as a respondent, has not been explained. Nevertheless Jadewealth is an interested party, having been joined pursuant to Mr Sesto's application for joinder.
The joinder of Jadewealth as an interested party has achieved the same purpose as would have been achieved in a Supreme Court proceeding by the joinder, under Rule 9.01, of a non-consenting joint contractor as a defendant. Jadewealth will be bound by the outcome of the proceeding. Possible multiplicity of litigation - the commencement of a separate proceeding by Jadewealth against Mr Sesto - has been avoided. Nothing further would be achieved, in my opinion, by joining Jadewealth as a respondent or by staying this proceeding until Jadewealth was joined.
As for Aljade, its joinder as a respondent is a practical impossibility and would be futile. Joinder is a practical impossibility because Aljade is in liquidation and, if Malaysian law has relevant similarity to Australian law (as I imagine it does), it would not be possible for one to take a step against it in a proceeding (which joinder of it would be) without the leave of the court that had a supervising jurisdiction over the liquidation. Joinder would be futile because, in the absence of any registered office or place of business in Australia, it would not be possible for one to serve Aljade with a copy of the initiating application in the proceeding. Judge Ross, Vice-President of VCAT, has recently confirmed that service of VCAT process cannot be effected outside Australia: Apollo Marble and Granite Imports Pty Ltd v Industry & Commerce (Civil Claims) [2008] VCAT 2298.
Those reasons are sufficient for me to reject the submission that the absence of Aljade as a party to the proceeding should result in an order for a stay. But there are other reasons. During the six years that have passed since the liquidation of Aljade occurred there has not been the slightest indication, so far as I am aware, that the liquidator of Aljade has shown any interest in making a claim against Mr Sesto in relation to legal costs that have been paid to him. Moreover, the only such legal costs to which Aljade might conceivably have a claim were those that related to work done between 21 March 2003 and 19 November 2003.
I consider, therefore, that the fact that Jadewealth is not an applicant or a respondent, and the fact that Aljade is not a party to the proceeding at all, do not prevent Mr and Mrs Leong from pursuing the relief that they seek and do not create any legal impediment to the granting of that relief.
(1) On application by a client, the Tribunal, constituted by the registrar or a deputy registrar, may order that a costs agreement be cancelled if satisfied -
(a) that the client was induced to enter into the agreement by the fraud or misrepresentation of the legal practitioner or firm; or
(b) that the legal practitioner or firm has been guilty of misconduct or unsatisfactory conduct in relation to the provision of legal services to which the agreement relates; or
(c) that the agreement is not fair and reasonable.
(2) ....
(3) If the Tribunal orders that a costs agreement be cancelled, it may make such order as it thinks fit in relation to the payment of legal costs the subject of the cancelled agreement, taking into account the seriousness of the conduct of the legal practitioner or firm.
(a) misconduct by a legal practitioner or firm in the course of engaging in legal practice, including -
(i) ....
(ii) ....
(iii) ....
(iv) unsatisfactory conduct that amounts to a substantial or consistent failure to reach reasonable standards of competence and diligence;
(v) the charging of grossly excessive legal costs; or
(a) conduct by a legal practitioner or firm in the course of engaging in legal practice that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner or firm; or
(ab) conduct by a legal practitioner or firm in the course of engaging in legal practice that would be regard by a legal practitioner or firm in good standing as being unacceptable, including -
(i) conduct unbecoming a legal practitioner or firm;
(ii) unprofessional conduct; or
(b) an estimate of the total legal costs, if reasonably practicable;
(c) if it is not reasonably practicable to estimate the total legal costs, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs;
(d) if the legal services involve or are likely to involve litigation, an estimate of -
(ii) the range of costs that may be recovered if the client is successful in that litigation; and
(iii) the range of costs the client may be ordered to pay if they are unsuccessful.
If a legal practitioner or firm does not give to a client any information required to be given by this Division--
(a) on an assessment of a bill of costs, the assessed amount of the bill may be reduced by an amount considered by the person conducting the assessment to be proportionate to the seriousness of the failure to give the information;
(b) in determining a dispute in relation to legal costs, the Tribunal may reduce the amount of the legal costs by an amount considered by it to be proportionate to the seriousness of the failure to give the information.
The Law: What Costs Agreements are Subject to Assessment
As I have already stated, "assessment under Division 5" (of Part 4) is assessment by the Taxing Master of the Supreme Court.
As I have said, Mr and Mrs Leong's primary claim is are made under section 103 of the 1996 Act. They claim to be entitled to an order for cancellation of a costs agreement and to consequential orders including monetary orders.
The Amended Application includes a secondary claim. It is further or alternative claim which relies not upon the 1996 Act but upon the Fair Trading Act 1999. In turn, that secondary claim is put in two ways, each of which corresponds to a head of jurisdiction made available to VCAT by the Fair Trading Act:
In one way or another, Mr and Mrs Leong rely upon the following grounds for cancellation of a costs agreement which section 103 of the 1996 Act makes available:
I say that Mr and Mrs Leong rely upon the ground of "misrepresentation" even though no express allegation of "misrepresentation" within the meaning of section 103 was discernible either in the Amended Application or in Mr Coady's written final submission. I shall explain below why I say, nevertheless, that that ground is relied upon.
To support the allegations of misconduct and of unsatisfactory conduct, Mr and Mrs Leong rely upon features of Mr Sesto's conduct which, in the Amended Application, were alleged to have been breaches of terms of his retainer. Those features of his conduct were:
The conduct alleged to have been misleading or deceptive, or unconscionable in contravention of the Fair Trading Act, includes those alleged features already set out in the preceding paragraph, but includes four more:
The statement in each of the two costs agreements, that the 1996 Act gave the clients "the right to have the fees in a Tax Invoice assessed for their fairness and reasonableness by a court official", would be understood by any reasonable reader to refer to a "Tax Invoice" rendered pursuant to, and in accordance with, the costs agreement. For reasons given in paragraphs 105, 106 and 107 above, the statement was wrong. It was a misrepresentation of law.
When Mr Coady opened the case for Mr and Mrs Leong almost the first point he made was that there was a costs agreement which included that incorrect statement. At that time neither the initiating application, nor any subsequent amendment of it, had included any allegation about the incorrect statement. On the second day of the hearing, Mr Coady applied for leave to file and serve what became the Amended Application. That document included an allegation of that incorrect statement. It was not included as an allegation of "misrepresentation" for the purposes of section 103 of the 1996 Act. It was included only as a particular of the conduct that allegedly contravened provisions of the Fair Trading Act.
Mr Twigg opposed the application for leave to file and serve the Amended Application. I granted leave. The case was listed for a five day hearing, and it took five days. Despite the late emergence of the allegation, Mr Sesto had reasonable opportunity to consider the allegation, to call any evidence he wished to call about it, and to argue that the allegedly incorrect statement was indeed correct, as he did. I was told by Mr Coady during his opening, and Mr Twigg did not dispute, that when Mr and Mrs Leong made an application to the Taxing Master for an assessment of the disputed invoices, Mr Sesto took the very point that the Taxing Master had no jurisdiction to assess invoices rendered pursuant to a costs agreement that provided for time-based charges.
In a court of pleading, the failure to allege specifically in a pleading that the incorrect statement was a "misrepresentation" for the purposes of section 103 might have been significant. The failure might have debarred Mr and Mrs Leong from relying upon misrepresentation as a ground for the setting aside of a costs agreement under section 103. But VCAT is not court of pleading. It is required to make determinations in accordance with the substantial merits of the cases before it (VCAT Act section 97). That is to say, VCAT should attend to matters of substance more than to matters of form. In substance, there is little difference between an allegation that an incorrect statement of law amounted to misleading or deceptive conduct (in contravention of section 9 of the Fair Trading Act) and an allegation that the incorrect statement was a misrepresentation. The former allegation would include the latter.
In my opinion, having regard to the way in which the hearing proceeded, it is proper that I should consider and decide whether the incorrect statement of law was a misrepresentation, within the meaning of section 103, that induced Mr Sesto's clients to enter into the two costs agreements.
Mr Leong gave evidence that he read, and was comforted by, the statement in the costs agreements that there would be the right to have Mr Sesto's invoices assessed by a court official. I accept that evidence. I have no doubt that such a statement would, at least to some degree, influence any prospective client's decision about whether to enter into a costs agreement which would provide for time-based charges. I find that Mr Leong, and through him, Mrs Leong and Jadewealth, were induced to enter into the first costs agreement by the misrepresentation constituted by the incorrect statement of law. I find that they, and also Aljade (whom Mr Leong purported to represent at the time), were induced to enter into the second costs agreement by the same misrepresentation.
Mr and Mrs Leong have established one of the grounds available under section 103 for the making of an order setting aside the costs agreements. The fact that one ground has been established does not mean that I am obliged to make such an order. It means only that I may do so. I have a discretion in the matter. Before I exercise that discretion one way or the other I shall deal with the other claims made.
(i) the estimates given by Mr Sesto from time to time, which totalled $198,580.00;
(ii) the total of the invoices rendered up to 16 January 2004 which (including the Counsel's fees omitted inadvertently) had been $313,103.56; and
(iii) $440,000.00 which OCBC agreed to pay as the costs of the Supreme Court litigation.
Each of the two costs agreements had included an estimate that the amount recoverable from the opposite party, if the clients were successful in the litigation, would be approximately 60% of the total costs that the clients would incur. Experience tells one that that is a reasonably accurate estimate, in most cases, of the proportion that party-party costs bear to total costs incurred. These clients gained the benefit not only of an order for party-party costs but also of an order for costs on an indemnity basis that covered the period of the eleven day trial. Notoriously, costs are heaviest during the trial itself. In those circumstances it is most surprising, at least to me, that the proportion of the costs recovered to the total costs charged was only about two-thirds. I would have expected it to be 80% or even higher. In saying that, I have borne in mind that the indemnity costs order would not have applied to the costs of preparing for taxation the bill for the costs of the proceedings.
The matters referred to in the two preceding paragraphs support an argument that the rendering of the disputed invoices for $672,184.64 was the charging of grossly excessive costs. For two reasons, however, I consider that the allegations of the charging of grossly excessive costs has not been made out.
The first reason is that, by agreement between the parties, Mr Sesto had not rendered any invoice for work done after 16 January 2004 until he rendered the disputed invoices in late 2005. There has been no evidence of what it would have been reasonable for him to have charged for work done during that period. Despite the remarkable discrepancies, when one is comparing the figures of $313,103.56 and $672,184.64 one is not comparing like with like.
The second, and I think more cogent, reason is that there was simply no evidence, from any person expert or even experienced in matters of legal costs, of an opinion that the costs charged in the disputed invoices were grossly excessive. In view of the seriousness of the allegation of misconduct, and in view of the weight that must be given to the word "grossly", it is not good enough for Mr and Mrs Leong just to point to the figures referred to above and to invite a VCAT member to infer that the charges must have been grossly excessive. In my opinion, appropriate caution should cause one to decline to draw such an inference.
I now consider the features of Mr Sesto's conduct which were relied upon as establishing either common law misconduct or, under sub-paragraph (a)(iv) of the definition by "misconduct" in section 137, unsatisfactory conduct that amounted to a substantial failure to reach reasonable standards of competence and diligence.
Taxable bill claimed more than the permitted indemnity. The bill submitted to the Taxing Master claimed more than $440,000.00, which was the figure for which settlement was achieved. Yet when the bill was submitted Mr Sesto had rendered invoices to his clients for only $313,103.56. Submitting to the Taxing Master a bill claiming a greater amount than that offended, it was said, the principle that costs payable by an opposite party in litigation should be an indemnity of the client, so that if the client does not incur costs there is no entitlement to recover costs under a costs order. The argument was that it was misconduct for a solicitor to submit a bill to the Taxing Master for more than he had charged his clients.
The argument falls at an early hurdle, in my opinion. The invoices of Mr Sesto to his clients had been rendered for work done up to 16 January 2004. When on 16 June 2005 he submitted the taxable bill he had not attempted to charge the clients for work done since that date, for he had agreed with them not to do so pending the taxation. While it may seem very unlikely that his charges for the period after 16 January 2004 would bring the total of the invoices to a figure that exceeded $440,000.00, one cannot say that they certainly would not have done. So it simply was not the case that the bill submitted to the Taxing Master claimed more than the total of invoices rendered to his clients for the work covered by the bill, for he had not rendered invoices for all the work covered by the bill at the time he submitted it for taxation.
If things had been otherwise, I still would not have been persuaded that there had been misconduct. It is one thing to say that if at the taxation OCBC had objected, or if the Taxing Master had become aware, that costs were being claimed that were more than the persons claiming them had been charged by their own solicitor then the taxed costs would have been and could have been no more than the total that the persons claiming them had been charged by their own solicitor. It is quite another thing to say that the solicitor who had submitted the bill for taxation had behaved improperly to a degree that justified a finding of misconduct. I would accept that a solicitor who did that, knowing that he had no right to do it, would be acting improperly. But by the time that the bill in this case was being considered by the Taxing Master Mr Sesto had already sent one of the two disputed invoices which claimed from his clients much more than the amount of the bill, and I have no reason to doubt that he thought he was entitled to do so. Moreover, it is taking a significant further step to say that such improper behaviour amounted to misconduct. In the absence of any expert evidence on the point, and being appropriately cautious when considering that further step, I would not conclude that the conduct was disgraceful or dishonourable or amounted to a substantial failure to reach reasonable standards of competence and diligence.
Even if I had concluded that this particular conduct complained of constituted misconduct as defined in the 1996 Act, I would not have concluded that it justified the setting aside of a costs agreement. In my opinion the only misconduct or unsatisfactory conduct that should bear upon a decision about cancellation of a costs agreement under section 103 by reason of that conduct is misconduct or unsatisfactory conduct that in some way impeaches the costs agreement itself. Conduct that is unrelated to the making or to the operation of the costs agreement does not impeach the costs agreement and so does not give rise to an entitlement to cancel the costs agreement. Whatever happened concerning the bill submitted to the Taxing Master had nothing to do with either of the costs agreements. It did not impeach them in any way.
The $440,000.00 applied to costs without consent. Mr Leong gave evidence that he did not consent to Mr Sesto applying for his own benefit, and paying into his office account, the sum of $440,000.00 which OCBC had paid once the issue of the costs of the litigation had been settled. I accept that Mr Sesto applied that sum in that manner without obtaining or seeking the consent of Mr Leong. The submission was that that was misconduct of Mr Sesto's part. I reject the submission. At about the same time as Mr Sesto applied the $440,000.00 in that fashion, he sent to his clients the final accounts totalling $672,184.64. The clients had paid $221,169.00 on account of costs. Whether or not he was entitled to send the final accounts and to claim $672,184.00, I have no reason to conclude that Mr Sesto did not believe that he was entitled to claim that sum less what had been paid on account. If he was entitled to claim that sum, there would have been a balance owing of $451,015.64. I see no reason why a solicitor who is owed $451,015.64 but is paid $440,000.00 by way of costs of litigation is not immediately entitled to pay that sum into his office account in reduction of what he is owed. If the solicitor happened to have a mistaken belief that he was owed $451,015.64 the mistaken belief would not, in my opinion, turn the application of the $440,000.00 to his own benefit into misconduct.
Re-drawn invoices. Mr Coady's submission was that once Mr Sesto had rendered invoices from time to time, under a costs agreement, that had totalled $313,103.56 for work done up to 16 January 2004 he was not entitled to render fresh invoices for the same work that claimed higher amounts. Yet that is what he did, it was submitted, when he sent the disputed invoices, the final accounts totalling $672,184.64; for they purported to charge that sum for all work done from the beginning of the litigation until 4 November 2005. The itemised statement of 97 pages that accompanied the first of those final accounts showed that Mr Sesto had revised and increased the charges made for the work done before 16 January 2004.
The submission was correct, in my opinion. Mr Sesto was not entitled to revise his charges made for work done before 16 January 2004 and was not entitled, in effect, to re-draw the invoices that had been sent earlier. There are several reasons for that opinion.
First, nothing in either of the costs agreements conferred upon Mr Sesto any right to send revised or re-drawn invoices. There was no statement or implication in either costs agreement that periodic or interim invoices would be provisional only until a final account was rendered. On the contrary, the statements in the costs agreements that interest would be charged if an invoice was not paid within 14 days, and that action would be taken to recover the amount of an invoice if it was not paid, implied that the clients would have a legal liability to pay for the amount charged in an invoice as soon as it was rendered.
Secondly, there was no statement in the interim invoices themselves that purported to reserve a right to send a later revised invoice for a higher amount.
Thirdly, the reasoning in Redfern v Mineral Engineers Pty Ltd [1987] VicRp 47; [1987] VR 518 seems to support the opinion. In that case Tadgell J. held that solicitor who had delivered an itemised bill, in taxable form, was bound by that bill and was not entitled to deliver another bill containing additional items unless the solicitor obtained the leave of the court to do so. Because the case was concerned with an itemised bill prepared for taxation the case does not decide the point now under discussion. But if in principle a solicitor is bound by an itemised bill once it is delivered then, in the absence of a costs agreement that provided for a right to render a further and larger invoice, it is hard to see why a solicitor should not be bound by an invoice in the form of a lump sum bill once it is rendered.
Fourthly, section 118(2) of the 1996 Act, which provides that on an assessment the legal practitioner is not bound by the amount stated in a lump sum bill, is not relevant because it only applies when the client or the practitioner has made an application to the Taxing Master, under section 115 or section 116 for an assessment of the bill.
Mr Coady submitted that the contract of retainer with Mr Sesto had been discharged by performance. In my opinion, that cannot be right, because the earlier invoices totalling $313,103.56 had not been paid in full. 18. Nevertheless the submission was that it was misconduct by Mr Sesto to render the final accounts which were, in part, re-drawn invoices. I do not accept that. There was no expert or other evidence of an opinion that other members of the profession would consider the conduct to be disgraceful or dishonourable. I was not referred to any authority for the proposition that such conduct amounted to misconduct as defined in the 1996 Act. I have borne in mind the caution with which should approach the determination of so serious a question as whether a solicitor has exhibited misconduct.
An allegation of unsatisfactory conduct is a less serious allegation to make against a legal practitioner than is an allegation of misconduct. Nevertheless, in another context a finding of unsatisfactory conduct could have disciplinary implications for the practitioner, although those implications would be less serious that those following a finding of misconduct. Accordingly I consider that the principles set out in Briginshaw v Briginshaw, above, are applicable also to my consideration of allegations of unsatisfactory conduct. I should act with caution also before finding that any such allegation has been established, although the degree of caution need not be so great as for consideration of allegations of misconduct.
All the features of Mr Sesto's conduct that were relied upon to establish misconduct were also relied upon, in the alternative, to establish unsatisfactory conduct. I repeat the reasons I gave above, when deciding that none of those features constituted misconduct, as reasons for concluding that they did not constitute unsatisfactory conduct. There are additional reasons that derive from a consideration of paragraphs (a) and (ab) of the definition of "unsatisfactory conduct" in section 137. As to paragraph (a), no question seems to arise as to Mr Sesto's competence or diligence. The applicability of paragraph (a) seems to be to a case where there is an allegation of negligence, as distinct from an allegation of impropriety. As to paragraph (ab), I do not think that I should go so far as to find that any of Mr Sesto's conduct was "unacceptable" (as distinct from being wrong in law) in the absence of any expert or other opinion as to the matter.
There were additional features, however, of Mr Sesto's conduct that were said to have amounted to unsatisfactory conduct.
Failing to provide estimates of costs. The evidence established that Mr Sesto did not give, and did not attempt to give, any estimate of the total legal costs, or any range of estimates of total legal costs, of the Supreme Court litigation until, in the second costs agreement, an estimate of $120,757.00 was given. So between 7 May 2002, the date of the first costs agreement, and 21 March 2003, the date of the second costs agreement, Mr Sesto had not complied with section 86(3).
The evidence also established that Mr Sesto provided to his clients two revised estimates. On 18 June 2003 he estimated an additional $44,240.00, of which $12,000.00 was for professional costs. On 20 January 2004 he estimated an additional $20,798.00 and stated that the total costs estimate had become $198,580.00.
It must be extremely difficult for a solicitor, at the commencement of what is likely to be lengthy and complex litigation, to give a realistic estimate of the likely cost to the client. Nevertheless, the law in 2002 and 2003 required, and the law still requires, that the task be attempted and an estimate given before or soon after the solicitor is retained. The 1996 Act stipulated consequences for a solicitor who failed to comply with that requirement. For reasons given above, none of those consequences applies in the present case.
The failure to give an estimate, or a range of estimates, in May 2002 or shortly afterwards is something for which Mr Sesto should be criticised. He did not repeat the error in March 2003. The second costs agreement included an estimate. It was given several months before the commencement of the Supreme Court trial. Mr Leong had the opportunity to consider the estimate when deciding whether or not to continue to retain Mr Sesto and to enter into the second costs agreement. So, overall, I do not regard the failure in May 2002 to be a serious one. It is not so serious as to justify a finding of unsatisfactory conduct.
On any view, the final estimate of $198,580.00 was inaccurate. Just how inaccurate it was remains to be seen. It was inaccurate even in comparison with the amount recovered from OCBC. I have mentioned what I regard as the extreme difficulty of giving an estimate in a case such as the one which Mr Sesto faced. The fact that an estimate given turns out to be inaccurate, even very inaccurate, does not in my opinion justify a finding of unsatisfactory conduct.
Making claims for costs that were "doomed to fail". The Amended Application included an allegation that Mr Sesto included, in the claims for costs made against the opposite parties to the litigation, claims that were doomed to fail and should not have been undertaken. Those claims included the costs charged by A.G. Dicom & Co, the Malaysian lawyers, the costs of a retired Malaysian barrister who was present at the trial as an advisor to Mr and Mrs Leong, and various "ancillary claims" (as they were described in the evidence) including travel and accommodation costs.
That allegation was not made, however, at any time during the hearing of the proceeding. Moreover, the evidence of Mr Lapirow established clearly that Mr and Mrs Leong, against advice, had been insisting on those claims, which were indeed "doomed to fail", being included in the taxable bill of costs and being pursued before the Taxing Master. That is why I have described this potential issue as not really having been an issue.
Claiming costs that were more than an indemnity. I have already dealt with this allegation in paragraphs 131 to 134 above. In the absence of any evidence that Mr Sesto included in the taxable bill of costs items that he knew he was not entitled to include, I would not find that there had been any unsatisfactory conduct in that regard, and even if there had been, the conduct was unrelated to the making, implementation or operation of a costs agreement, did not impeach a costs agreement and so would not lead to a conclusion that a costs agreement should be cancelled.
A representation that payment of invoices would be a "good and valid discharge". It was submitted that the costs agreements implied such a representation. The submission was not really elaborated and it is not obvious what features of the costs agreements might give rise to such an implication. It seems to me that the submission is really just another way of saying that Mr Sesto was not entitled to re-draw, and render as the disputed invoices, earlier invoices which had been rendered as final invoices without qualification. I refer to what I have said in paragraphs 136 to 143 above on that subject, and repeat my reasons for concluding that the conduct was not "misconduct" as reasons for concluding that it was not "unsatisfactory conduct" either.
For all the above reasons, Mr and Mrs Leong have not established that there was unsatisfactory conduct on Mr Sesto's part.
Under section 103(1)(c) VCAT may order that a costs agreement be cancelled if satisfied that the agreement "is not fair and reasonable."
"[F]airness and reasonableness are distinct concepts: fairness relates to the circumstances at the point of entry into the [costs] agreement, whereas reasonableness relates to the substantive terms of the agreement": Dal Pont, op. cit., para [2.23].
Mr Coady submitted that the costs agreement (for he submitted that there was only one) was not "fair" because Mr Sesto was in a position of ascendancy over Mr Leong. He pointed to the facts that English was not Mr Leong's first language, that Mr Leong had seen the need to engage Malaysian lawyers to assist him and advise him, and that Mr Sesto knew that most of his written communications with Mr Leong were being sent to Malaysia for consideration. All those facts, he submitted, should have raised a real doubt in Mr Sesto's mind whether Mr Leong fully understood the costs agreement that he was being asked to sign, and should raise the same doubts now in my mind.
I reject that submission. I was able to observe Mr Leong at length while he was giving evidence. His command of English was good, even though it is not his first language. He is a capable and experienced businessman. He not only has headed building construction firms in Malaysia but also owns two restaurants in Malaysia. He showed a very good grasp of the complex litigation into which Jadewealth and Aljade had entered in Australia. I am satisfied that, by and large, he well understood the costs agreements that he made and freely chose to make them. They were "fair".
Although Mr Coady foreshadowed an intention to submit that the costs agreement was not reasonable, he did not elaborate. At all events there is nothing in either costs agreement that suggests unreasonableness to me. Costs agreement for time-based charges are vulnerable to attack on the grounds of unreasonableness if the rates of charge are not properly explicit. The differing rates of charges - differing according to the status of the persons nominated to provide the legal invoices - seem to me to have been quite explicit. The costs agreements were "reasonable".
I have found that Mr Leong, and through him the other parties (as clients) to the costs agreements, were induced to enter into the costs agreements by a misrepresentation of law, namely, that invoices rendered pursuant to the costs agreements could be assessed for their fairness and reasonableness by a court official. Thereby Mr and Mrs Leong have established a ground upon which, under section 103, the costs agreement could be cancelled. They have established no other grounds specified in section 103.
The section provides that the Tribunal may order - not that it must order - that a costs agreement be cancelled if one of the grounds in sub-section (1)(a), (b) or (c) is established. So there is a discretion as to whether to cancel or not to cancel.
The misrepresentation is not something that strikes at the heart, as it were, of the costs agreements. It is a misrepresentation that a right will exist as a consequence of the costs agreements being entered into. If there were nothing more of relevance in this case than the misrepresentation, it might well be thought to be of insufficient moment to justify the cancellation of the costs agreements.
I consider, however, that in the exercise of the discretion I should have regard not only to the ground for cancellation made out but also to other circumstances of the case, in order to determine whether the cancellation of the costs agreements would be a just result.
I have come to the conclusion that cancellation would be a just result, in all the circumstances, and that I should exercise the discretion in favour of making an order for cancellation of both costs agreements. In coming to that conclusion I have had particular regard to the following circumstances.
First, there are very large discrepancies between the figure claimed in the disputed invoices as a "final account", $672,184.64, and other figures which one might have expected to have been a guide to a reasonable final figure. The discrepancies are between that figure of $672,184.64 and
(a) $198,580.00 given on 20 January 2004 as the last revised estimate of the costs of the litigation;
(b) $313,103.56 which was the total of the charges made (once inadvertently omitted disbursements of Counsel's fees were included) in invoices rendered up to 16 January 2004; and
(c) $440,000.00 which was the total of the costs which Mr and Mrs Leong, on Mr Sesto's advice, agreed to accept from OCBC on Aljade's and Jadewealth's behalf.
None of those discrepancies has been explained. Each calls for an explanation. So far Mr Sesto has not been obliged to give one. Exercise of the discretion to cancel the costs agreements would clear the way for Mr Sesto to prepare and justify a bill of costs (calculated otherwise than upon a time-charge basis) which could be assessed either by a court officer or pursuant to a VCAT order.
In saying that the other three figures might have been expected to have been a guide to a reasonable final figure, I have borne in mind that, as I have stated previously, the comparison of the second and third figures with the final figure is not a comparison of like with like. As to the second figure of $313,103.86, Mr Sesto had not rendered any invoices for work done after 16 January 2004 and before 4 November 2005 which was the concluding date to which the final account related. Even allowing for the facts that work was done for submissions about costs in 2004 after judgment had been given, and that work was done in preparation for the taxation of the bill of costs in 2005, it is inconceivable that that extra work would have led to extra costs that were more than the costs charged to a date beyond the trial. As to the third figure of $440,000.00, work was done which could not have been included in the taxable bill of costs, but to my mind the costs order, which had included indemnity costs for the period of the trial, should have meant that the proportion by which the solicitor's bill to the clients exceeded the costs recoverable under that order was much less than the actual proportion, which exceeded 50%.
Secondly, Mr Leong gave evidence that before he gave Mr Sesto instructions to accept a settlement of $440,000.00 by way of the costs payable under the costs order by the opposite parties to the litigation, Mr Sesto had told him that he would "get something back" from the moneys that had been paid on account of costs if those opposite parties paid $440,000.00. That evidence was uncontradicted. I accept it and find that Mr Sesto did say that. It was quite a reasonable statement to make, because the moneys paid on account of costs had been $221,169.00, the clients had been charged $313,103.56 up to 16 January 2004, and because there had been an indemnity costs order the proportion of the proposed settlement of $440,000.00 to the likely actual total costs to the clients should have been high. The "final account", however, was quite at odds with that statement.
Thirdly, Mr Sesto failed to give an estimate or a range of estimates of likely costs when the first costs agreement was made. I have already said that I do not regard that failure as misconduct or as unsatisfactory conduct. But it is another reason, albeit a less important reason than the first two I have given, why the justice of the case favours a cancellation of the costs agreements so that Mr Sesto may be called to account for the amount he charged in the disputed invoices.
Fourthly, a measure of justice might be afforded also to Mr Sesto if the costs agreements were cancelled and he was permitted to render a fresh bill of costs. In view of the fact that the bill of costs in the litigation was settled for $440,000.00, I think it likely that in charging his clients sums totalling only $313,103.56 up to 16 January 2004 Mr Sesto charged them considerably less than he was really entitled to charge them. If, as I consider was the case, Mr Sesto was bound by those invoices which he had delivered up to 16 January 2004 and was not entitled thereafter under the costs agreements to charge more later for work done to that date, but was entitled to charge for work done between that date and 4 November 2005, I would be surprised if properly rendered invoices for that extra work to 4 November 2005 would bring the total of the invoices to as much as $440,000.00. If the total figure were to come to less than $440,000.00, then Mr and Mrs Leong would, in effect, be making a profit from the fact that the opposite parties had agreed to pay $440,000.00, for Mr Sesto would be obliged to repay to them a sum which was greater than the sums of $221,169.00 paid to Mr Sesto on account of costs. It would be unfair to Mr Sesto for them to obtain a windfall in that fashion. An exercise of the discretion in favour of cancelling the costs agreement would clear the way for Mr Sesto to deliver another bill of costs which would, I suspect, justifiably claim at least $440,000.00 in total and probably more.
Accordingly I shall order that the two costs agreements evidenced by writing dated 7 May 2002 and 21 March 2003 respectively are cancelled.
Pursuant to the power given by section 103(3) in that event to make any other order as I think fit in relation to the legal costs the subject of the two cancelled agreements, I shall order that the disputed invoices, no. 06/075 dated 28 October 2005 and no. 06/104 dated 1 December 2005, are set aside.
Below I shall specify what further orders or directions, consequent upon the cancellation, I make.
Mr and Mrs Leong had relied, in support of the allegation of unsatisfactory conduct, upon the fact that a costs agreement had contained the incorrect statement about their ability to have costs assessed by a court official. I need to make a decision about that allegation in case my primary conclusion, that the incorrect statement was a misrepresentation inducing entry into a costs agreement and hence an independent ground for cancellation of the costs agreement, is wrong. My decision is that that incorrect statement, on its own, does not amount to unsatisfactory conduct. My reasons are the same as they were for deciding that other allegations of unsatisfactory conduct had not been made out.
Mr and Mrs Leong's secondary claim, made under the Fair Trading Act further or in the alternative to the claim made under the 1996 Act, received little attention during the hearing. In his final written submission Mr Coady submitted that "only if there is some inadequacy in the remedies available under s103 [of the 1996 Act] would it be necessary to make orders by reference to the Fair Trading Act." He did not specify what orders were sought under the Fair Trading Act should resort to it be considered necessary.
One head of jurisdiction available to VCAT under the Fair Trading Act is the statutory cause of action under section 159 for compensation for any loss or damage caused by a contravention of a provision of that Act. The provisions of that Act which Mr and Mrs Leong allege to have been contravened are sections 9 (misleading or deceptive conduct in trade or commerce) and section 8A (unconscionable conduct in trade or commerce in relation the supply or possible supply of goods or services by or to a business consumer). Section 158 of that Act makes consequential remedies available if the cause of action under section 159 has been made out. Under that head of jurisdiction, the Amended Application asked only for declarations that Mr Sesto's conduct was unconscionable and hence contravened section 8A and was misleading or deceptive and hence contravened section 9, and for compensation pursuant to section 159. It did not ask for any consequential remedies under section 158. In particular, it did not ask for an order under section 158(2)(a) that a costs agreement was void.
The other head of jurisdiction available to VCAT under the Fair Trading Act is the jurisdiction under Part 9 to hear and determine a "consumer and trader dispute" which is defined (so far as presently relevant) in section 107(1) as a dispute or claim arising between a purchaser of services and a supplier of services in relation to a supply of services. In section 3 "services" is defined in such a way as to require they are to or are to be provided, granted or conferred "in trade or commerce." The Amended Application invoked this head of jurisdiction (erroneously using the expression "fair trading dispute", which occurred in earlier versions of Part 9, instead of the current expression "consumer and trader dispute"), but under this head it asked only for an order for "restitution" pursuant to section 108(2)(b). It did not ask for an order under section 108(2)(g) for rescission of a costs agreement.
Under each head of jurisdiction, it is necessary to show that Mr Sesto, being the person whose conduct is complained of, or being the supplier, was acting "in trade or commerce". That is because, under one head, the provisions allegedly contravened proscribe certain conduct "in trade or commerce", and, under the other head, whatever are supplied are not "services" as defined if they are not supplied "in trade or commerce". See Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2004] VSCA 242.
In his final oral address Mr Twigg referred to a decision of Judge Harbison, Vice-President of VCAT, Walsh and Kane v Patrick J. Cannon, Coburn & Associates Pty Ltd & Others (Legal Practice) [2008] VCAT 962. In that case her Honour decided that solicitors were not engaging in conduct "in trade or commerce" when they accepted instructions from a testator and then accepted instructions from the executors of the estate when the testator died. It was not clear to me whether Mr Twigg was submitting that that decision meant that a solicitor who procures a costs agreement and does work pursuant to it does not engage in conduct "in trade or commerce" so that there is no jurisdiction under the Fair Trading Act for VCAT under either head of jurisdiction. If he was, and if I were to uphold the submission, the ironical consequence would be that proceeding no. C6430/2008, by Mr Sesto against Jadewealth, would have to be struck out for want of jurisdiction, because the jurisdiction that the proceeding had invoked was the "consumer and trader dispute" jurisdiction.
I think it is true to say that VCAT conducts its Civil Claims List and its Legal Practice List in accordance with an assumption that a solicitor supplies to a client "services" as defined by the Fair Trading Act because whatever the solicitor does for the client is done "in trade or commerce". It also true to say that the decision in Walsh and Kane raises a question about the correctness of that assumption, at least in some cases. So does a decision of Osborn J. of the Supreme Court of Victoria in L.T. King Pty Ltd v Besser and White Cleland Pty Ltd [2002] VSC 354, which was cited in Walsh and Kane. Neither case, however, decides that a solicitor never engages in conduct "in trade or commerce" vis-à-vis the client. Each case merely allows for the possibility that in some circumstances a solicitor does not engage in conduct "in trade or commerce." Indeed the decision in L.T. King was that in the circumstances of the case the defendant firm of solicitors did engage in conduct "in trade or commerce."
In Naylor v Oakley Thompson & Co & Others (Legal Practice) [2008] VCAT 1724 Judge Ross, Vice President of VCAT, heard an application by respondent legal practitioners for an order striking out a proceeding summarily on grounds which included the proposition that VCAT had no jurisdiction because the legal practitioners had not been acting "in trade or commerce". Judge Ross heard that application the day before Judge Harbison heard Walsh and Kane, but Judge Harbison gave her decision first. Judge Ross made no mention of Judge Harbison's decision and may well have been unaware of it. At all events Judge Ross stated that he was not persuaded that the correctness of the proposition was so clear that the proceeding should be dismissed summarily for that reason.
In Naylor Judge Ross pointed out that comments of Osborn J. in L.T. King about whether conduct of solicitors was "in trade or commerce" were obiter and "did not lay down any prescriptive criteria." Judge Ross cited well-known High Court authorities describing the hallmarks of conduct "in trade or commerce" for the purposes of section 52 of the Trade Practices Act 1974 (Commonwealth), which is the analogue of section 9 of the Fair Trading Act. Judge Ross also cited a Federal Court decision of French J. (as he then was) in 1987 which took a wide view of the expression "in trade or commerce" in the context of the conduct of a profession. Decisions of State Supreme Courts (cited in Walsh and Kane) taking a narrower view related to different legislative provisions.
I consider that a solicitor who procures a costs agreement with a client, performs work under that agreement and renders invoices pursuant to it, is engaging in conduct "in trade or commerce" and is providing "services" (necessarily "in trade or commerce"). I would not hold otherwise unless there were a decision of a superior court which imperatively bound me to hold otherwise. There is not. Accordingly, if Mr Twigg did submit that VCAT has no jurisdiction under either head made available by the Fair Trading Act, then I reject the submission.
I find that the incorrect statement of law in each of the costs agreements, which I have found to have been a misrepresentation, constituted misleading or deceptive conduct, in trade or commerce, in contravention of section 9 of the Fair Trading Act. The reasons are the same as I gave for finding that the statement was a misrepresentation, with the additional reason that I consider that a solicitor who draws a costs agreement for his clients to sign is engaging in conduct in trade or commerce. I shall not make any declaration to that effect because I do not understand what would be achieved by my making a declaration as distinct from making a finding.
Mr Twigg submitted that even if Mr and Mrs Leong established that there had been a contravention of a provision of the Fair Trading Act there was no evidence that they had suffered any loss or damage because of the contravention and so they had not established any cause of action under section 159, were not entitled to any monetary relief under that section and were not entitled (if they were to seek it) to any consequential relief under section 158. I accept that submission. Mr and Mrs Leong did not show that they had suffered any loss or damage because of the contravention of section 9. Indeed there was no evidence of any loss or damage. The only demonstrated consequence of the contravention was that they entered into costs agreements which, contrary to a representation contained in those agreements, did not entitle them to have Mr Sesto's bills of costs assessed for their fairness by a court official. Accordingly, if Mr and Mrs Leong had asked for an order under section 158(2)(a) that a costs agreement was void, they would not have been entitled to that order.
As to the allegation that Mr Sesto's conduct was unconscionable conduct in contravention of section 8A, there was no elaboration in argument of exactly what conduct was alleged to have been unconscionable or why it was unconscionable. So it is enough for me to say, as I do, that the evidence did not reveal anything about any conduct of Mr Sesto that would attract the kind of adverse moral judgment that the term "unconscionable" connotes.
As to the other head of jurisdiction under the Fair Trading Act afforded by Part 9, I hold that this proceeding related to a "consumer and trader dispute" and that VCAT has the necessary jurisdiction to make orders under section 108. Mr Twigg submitted that there was no "consumer and trader dispute" between Mr and Mrs Leong and Mr Sesto, but that submission depended upon the contention that the corporations, Jadewealth and Aljade, were the "purchasers" to whom Mr Sesto supplied services. From my conclusion that Mr and Mrs Leong were parties to the costs agreements and hence clients of Mr Sesto together with one or both of the corporations it follows that Mr and Mrs Leong were purchasers of services from Mr Sesto, even though the corporation were purchasers too.
My findings in this case would justify the determination of the consumer and trader dispute between Mr and Mrs Leong and Mr Sesto by ordering rescission of the two costs agreements, for the same reasons as I concluded that there had been a misrepresentation that had induced Mr and Mrs Leong's entry with the costs agreements and that I should exercise the discretion under section 103 of the 1996 Act to cancel the costs agreements. In case my conclusions about cancellation of the costs agreements under section 103 of the 1996 Act are wrong, I have to consider whether under the secondary claim of Mr and Mrs Leong I should order a rescission of the costs agreements and hence achieve the same result.
The obstacle to me making an order for rescission of the costs agreements under section 108(2)(g) of the Fair Trading Act is that that is not a remedy that Mr and Mrs Leong have specifically asked VCAT to make. They did not ask for it in the Amended Application. Mr Coady did not ask for it in his opening address or in his closing submissions, whether written or oral.
I refer to what I said in paragraph 118 above about VCAT not being a court of pleading and being required to attend to matters of substance more than to matters of form. I acknowledge that it is taking a large step to grant a remedy that has not been asked for specifically. It is a larger step than making a determination that there had been a "misrepresentation" within the meaning of section 103 of the 1996 Act even though that allegation had not been made in express terms. On the other hand the issue of whether or not costs agreements ought to be "cancelled" was in the forefront throughout the hearing and Mr Sesto (through his legal representatives) had the chance to say whatever he wished to say about that issue. In substance there is no difference between that issue and an issue of whether or not the costs agreements should be rescinded. So I do not think that any injustice would be done by my making a determination that the costs agreements should be rescinded if such a determination needs to be made.
Accordingly, if it is not open to me for some reason to make an order under section 103 of the 1996 Act cancelling the costs agreements, as I have said I shall do, or if my conclusions on that issue are wrong, I would make an order under section 108(2)(g) of the Fair Trading Act, determining a consumer and trader dispute between Mr and Mrs Leong and Mr Sesto, by ordering that the two costs agreements are rescinded.
For reasons that I shall express below, I do not propose at present to make any monetary orders under the Fair Trading Act, just as I do not propose to make any consequential orders under section 103(3) of the 1996 Act other than the setting aside of the disputed invoices.
Before I come to the question of what further orders or directions should be made beyond the orders for cancellation of the costs agreements and setting aside the disputed invoices, there are three matters upon which I need to comment. They are not matters that are central to my reasons for decision but my treatment of the proceeding will not be complete unless I deal with them.
The $440,000.00 paid by OCBC. Mr Twigg submitted that it was a "profound misconception" to regard the payment of $440,000.00 in costs by OCBC as having been an amount that Mr and Mrs Leong had paid towards Mr Sesto's fees, and that that amount should not be taken into account upon a calculation of whether Mr and Mrs Leong were entitled to a refund of moneys they had paid on account of costs.
The submission depended upon three propositions. The first, undoubtedly correct, was that OCBC had, in effect, paid the $440,000.00 to Aljade and Jadewealth, because it had paid the sum to Mr Sesto who was acting as solicitor for those corporations. The second, also correct, proposition was that if the $440,000.00 was part of what is decided to have been an overpayment to Mr Sesto of fees then persons other than Mr and Mrs Leong would be entitled to share in a refund. The third proposition was that any refund should be drawn from the sum of $440,000.00 rather than from the moneys paid on account by Mr and Mrs Leong or by persons on their behalf.
That third proposition I do not accept. The submission loses much of its significance in the light of my conclusion that Mr Sesto's clients were not Mr and Mrs Leong alone but were Mr Leong, Mrs Leong, Jadewealth and (for a short time) Aljade. The question of which clients paid which sums to Mr Sesto is less likely to matter than if my conclusion had been otherwise. To the extent that it does matter, the right way to have treated money received by Mr Sesto for costs, whether by way of payments by clients on account of costs or by way of OCBC's payment of costs of the litigation, seems to me to have been demonstrated by Mr Sesto himself in his "final account" invoice, as set out in paragraph 40 above. He had treated all that money received for costs in the same way. He had deducted both $211,169.00 (it should have been $221,169.00) and $440,000.00 from the total of the costs he was claiming and had arrived at a claimed balance of $21,015.64. In my opinion that was the practical and legally correct way to have treated those two payments. When at the end of this case there is occasion to consider whether there is a sum which Mr Sesto should pay to others, or whether there is a sum which others should pay to Mr Sesto, there should be taken into account the fact (as I have found it) that his clients paid him, one way or another, sums totalling $661,169.00.
Nevertheless, Mr Twigg raised two prospects which, although unlikely, were by no means completely fanciful. Since Aljade was one of the persons who had contributed towards payment of costs to Mr Sesto (for it was a person to whom OCBC had paid $440,000.00) there is a prospect that the liquidator of Aljade may see fit to make a claim to any refund which Mr Sesto might be ordered to pay. The other, much more unlikely, prospect emerges from the argument that Mr Sesto was never entitled to claim from OCBC as costs of the litigation any more than he had actually charged his clients. The prospect is that OCBC may somehow seek to set aside the agreement for the payment of costs of $440,000.00 and seek restitution of some part of that amount. I refer below to the way in which I consider that those prospects could be dealt with.
Refund of $60,000.00. Several months before the hearing before me began Mr and Mrs Leong and Mr Sesto reached an agreement to settle this dispute. Terms of settlement were signed. I have not seen them. What appears in this paragraph comes from what the parties' legal representatives have told me. Pursuant to the terms of settlement, Mr Sesto paid to Mr and Mrs Leong $60,000.00. Then something happened to cause the settlement to come to grief. I have not been told what it was. I suspect that the discovery that Aljade had gone into liquidation in 2003 played a part. At all events Mr and Mrs Leong and Mr Sesto agreed to rescind the terms of settlement. They agreed that VCAT should hear and determine the proceeding as if the terms of settlement had never been entered into. At a directions hearing on 6 March 2008 I made an order that noted that agreement.
Mr and Mrs Leong have not, however, paid back to Mr Sesto the $60,000.00 which he had refunded to them. Nor has Mr Sesto commenced any legal proceeding to claim it from them. He has not sought to amend his claim in proceeding C6430/2008 to include a claim for that sum. The reason may be that he has brought that proceeding against Jadewealth but the $60,000.00 refund was not made to Jadewealth.
Counsel told me that they agreed that in calculating any monetary award I should take the amount of the refund into account. I shall not be making any monetary award at present. Should the need arise for me to make one, I shall take the refund into account as requested.
The agreement to settle the proceeding had been reached after a hearing had begun before Judge Bowman, Vice-President of VCAT. Pursuant to the agreement the parties asked his Honour to make a finding that Mr Sesto's clients had been the applicants, Mr and Mrs Leong. Consistently with evidence that had been given before him by Mr Leong before the agreement was reached, his Honour made that finding. As part of the later agreement to rescind the terms of settlement, Mr and Mrs Leong and Mr Sesto agreed that VCAT should hear and determine the proceeding as if that finding had never been made. The order made on 6 March 2008 noted that agreement too. The parties' legal representatives asked me to proceed on that basis. Obviously I have done so, and have made a different finding.
Goods and Services Tax. One of the allegations which Mr and Mrs Leong made when they commenced this proceeding was that they, as Malaysian citizens and residents, were not registered or required to be registered for GST purposes and so Mr Sesto ought not to have added GST to his invoices. When Mr Coady opened the case before me he told me that that allegation had been abandoned. I mention it for two reasons. First, by presumable oversight, the first paragraph of the Amended Application still contains a remnant of the allegation. Secondly, the late abandonment of the allegation may have a bearing upon a decision as to the costs of this proceeding, should such a decision need to be made. Likewise, the late introduction of the issue upon which Mr and Mrs Leong have been successful - the misrepresentation of law in the costs agreements - may have a bearing upon that decision.
I have already stated that I shall order that the two costs agreements evidenced in writing dated 7 May 2002 and 21 March 2003 respectively are cancelled, and that the disputed invoices no. 06/075 dated 28 October 2005 and no. 06/104 dated 1 December 2005 are set aside.
What remains to be established somehow is whether any further sum is due to Mr Sesto in addition to what he has already received (and not refunded), or whether any sum ought to be payable by Mr Sesto to Mr and Mrs Leong. It seems to me that there are three alternative ways of establishing that.
First, pursuant to the power under section 103(3) to make any order that I think fit, I could make an immediate determination, on the basis of the evidence as it stands, of how much should be paid by Mr Sesto to Mr and Mrs Leong or vice versa. That determination would involve me making my own assessment of the quantum of costs to which Mr Sesto had been entitled. While Mr Coady submitted in this final address that that was something which I could do, I am not sure that it was something which he was urging me to do. I am quite sure that Mr Twigg was not urging me to do it.
The advantage of adopting that first course would be that it would achieve finality without involving the parties in any further expense. It is, however, a course that I am reluctant to follow. The sums that are in issue are large. The evidence which is available to me for the making of an assessment is thin. Apart from Mr Lapirow's evidence, which was about the bill before the Taxing Master rather than about Mr Sesto's invoices, there was no expert evidence at all. I have recorded some of the impressions I have about the size of the disputed invoices. Gaining impressions is one thing; making a careful assessment of costs is quite another. I shall not adopt this first course unless all parties urge me to do so.
Secondly, pursuant to section 103(3), I could direct Mr Sesto to prepare a proper bill of costs for assessment and to make directions for its assessment. It may be appropriate to refer the assessment to a special referee pursuant to section 95 of the Victorian Civil and Administrative Tribunal Act 1998. Whether such a direction, and such a reference, should be made are things about which the parties have not yet been heard but are entitled to be heard. The advantage of this second course is that it is much more likely than the first course to result in a fully informed, careful and fair assessment. The obvious disadvantage is that it would involve the parties in further considerable expense.
Thirdly, I could defer for the time being any determination and instead direct that there be a further compulsory conference (for there has been one already) or a mediation, to take place in the light of these reasons for decision. This third course is the one that I hope the parties wish to follow. Mr and Mrs Leong are represented by solicitors who have expertise in the assessment of legal costs. At some stage Mr Sesto had engaged a costs consultant whose work Mr Lapirow has praised. Expert advice, therefore, is available to both sides. With the assistance of experts the parties ought to be able to reach a compromise on the issue of Mr Sesto's costs and thus resolve that issue with little additional expense to themselves.
I consider that there now needs to be a directions hearing in the proceeding so that the parties may be heard on which of the three suggested courses should be followed, or whether some varied or different course should be followed.
In paragraph 200 above I had mentioned the prospects that the liquidator of Aljade, or OCBC, or both, might make some kind of claim against Mr Sesto. I said that the prospects were unlikely but not completely fanciful. Claims could be made either before or after the final determination of this proceeding.
Whichever course is followed to reach either a final determination or a settlement of the dispute in this proceeding, those prospects may need to be addressed. My provisional view is that any payment which VCAT orders Mr Sesto to make to Mr and Mrs Leong (if such an order is made) should be expressed to be conditional upon Mr and Mrs Leong executing and delivering to Mr Sesto a deed whereby they indemnify him against any claim that might be made against him by either Aljade (in liquidation) or OCBC. Obviously, the parties are entitled to be heard on the matter of whether that condition, or any condition, ought to be imposed.
I propose, therefore, to direct that this proceeding be listed for a further directions hearing, before me, on a date to be fixed, so that the parties any make submissions as to what further orders or directions should be made as a consequence of these reasons for decision. If in the meantime the parties agree that there should be a compulsory conference or a mediation, and submit signed minutes of a consent order to that effect, I shall make a direction accordingly and vacate the direction for a further listing.
Leong
J P Sesto & Co
(1938) 60 CLR 336
The Tribunal cancelled both costs agreements, set aside invoices 06/075 and 06/104, and listed the proceeding for a further directions hearing on consequential orders or directions; it made no final monetary award.