McVeigh v Moses (Legal Practice) [2007] VCAT 342

1 The costs agreement entered into between Luigi Caccaviello and the respondent on or about 21 May 1999 is cancelled.

2 All tax invoices and bills of costs rendered by the respondent to Luigi Caccaviello pursuant to the costs agreement are set aside.

3 The respondent is to submit to the applicant bills of costs in taxable form drawn on the Magistrates Court Scale and County Court Scale as appropriate. In the absence of agreement, the bills of costs are to be submitted to the Taxing Master for taxation.

4 Liberty to apply seeking orders as to the costs of these proceedings.

1 This is an application to cancel a costs agreement in which the applicant is Dean McVeigh, the registered trustee in bankruptcy of Luigi Caccaviello.

2 The respondent is Darren Douglas Moses, a legal practitioner.

3 Mr Caccaviello was a client of Mr Moses and the costs agreement in question was entered into between Mr Caccaviello and Mr Moses. The question of Mr McVeigh's standing to bring this application has already been dealt with in a preliminary decision.

4 The respondent acted on behalf of Mr Caccaviello in relation to a Magistrates' Court proceeding in May 1999 and in a County Court proceeding from May 1999 until 6 February 2001 when he withdrew as Mr Caccaviello's legal practitioner on the Court record. Following the respondent's withdrawal as legal practitioner on the record, evidence was that he continued to assist Mr Caccaviello until the County Court proceeding was heard in August 2001. Both the Magistrates' Court proceeding and the County Court proceeding were commenced by the same person against Mr Caccaviello.

5 Subsequent to the entering into of the costs agreement, and prior to the County Court proceeding being heard and determined, the title to real estate owned by Mr Caccaviello and his wife ("the property") was converted from ownership as joint tenants to ownership as tenants in common. Mr Caccaviello entered into agreements charging his interest in the property in favour of the respondent as security for unpaid costs and a mortgage was registered over Mr Caccaviello's interest in the property with Mr Caccaviello as mortgagor and the respondent as mortgagee.

6 Evidence was given by the respondent that no payment towards outstanding costs has been made by Mr Caccaviello. The mortgage remains registered and undischarged.

7 On 5 September 2001 the County Court ordered Mr Caccaviello to pay the plaintiff $74,000 plus costs to be taxed on County Court Scale "D".

8 On 17 September 2001, Mr Caccaviello filed a Notice of Bankruptcy. Other than his interest in the property over which the respondent holds a mortgage, Mr Caccaviello had no realizable assets. Mr Caccaviello has no equity in the property above the amount secured by the mortgage to the respondent.

9 On 19 June 2002, the applicant replaced the Official Trustee in Bankruptcy as the Registered Trustee of Mr Caccaviello's bankrupt estate.

10 In October 2004, Mr Caccaviello was discharged from bankruptcy.

11 The County Court Order has not been satisfied, in whole or in part.

12 This application is heard pursuant to section 103 of the Legal Practice Act 1996 (Vic) ("the Act"), which reads as follows:

(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

(2) The Tribunal may adjourn the hearing of an application under this section pending the completion of any investigation or charge in relation to the conduct of the legal practitioner or firm.

(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.

(4) The Tribunal may order the payment of the costs of and incidental to a hearing under this section and, for that purpose, sections 162 and 164 apply accordingly.

13 The applicant argues that the costs agreement is constituted by two documents both dated 21 May 1999, the first being information given by Mr Moses to Mr Caccaviello pursuant to section 86 of the Act ("the s 86 statement") and the second being a document headed "Costs Agreement". These documents are set out as follows:

Information Pursuant to s.86 of the Legal Practice Act 1996

Matter: Proceeding brought by [ ] in the County Court at Melbourne [ ] and all matters related or incidental thereto.

I am a sole practitioner and will primarily provide the legal services.

2. Legal Costs - Professional Fees/Disbursements:

It is not reasonably practicable to estimate the total legal costs which you will incur in respect of the matter. However, such costs including disbursements and Counsels fees could well exceed $70,000. There are many variables which could affect the calculation of costs and disbursements including the number of interlocutory steps required in the Proceeding, whether the matter proceeds to trial, the length of any hearings, the seniority of Counsel, unexpected problems and the cooperation of other persons.

My fees are based on the time taken by me in acting on your behalf using an hourly charging rate of $375.00. Work undertaken for periods of less than one hour are charged at one- tenth of the hourly rate for each six minutes or part thereof Additional charges may be made for secretarial and administrative work performed by non-legal staff.

I may reduce my fee by excluding any time taken which, in my opinion was unnecessary or duplicated. I may increase my fee by making additional charges where I and/or my staff are required by the circumstances of the matter:-

•

to work outside normal office hours;

•

to work exclusively on the one matter for a ff11 day or longer;

•

to use precedent documents not previously prepared by me; and/or;

•

to undertake work which is complex or prolix or requires a higher than usual level of skill or urgency or involves a higher than usual degree of responsibility.

Disbursements such as fees of banisters, experts and other consultants, interstate or overseas solicitors, agents solicitors, searches, STD telephone calls, process servers or other para-legal service providers or external couriers are charged to you at the cost amount charged to me. My charges for necessary photocopying are $1.20 per page and local facsimile transmission and reception are charged at a rate of $2.00 per page.

I will notify you of any costs and charges which will significantly increase the likely total legal costs (including disbursements) as soon as I become aware of it.

•

negotiate a costs agreement with me;

•

receive a bill of costs from me;

•

request an itemised bill within 30 days after receipt of a lump sum bill.

In the absence of arrangements to the contrary, I will render Accounts for my services and for any other charges and disbursements on a monthly basis until the matter has been completed. Each of these Accounts should be paid immediately upon being rendered to you.

Costs are in the discretion of the Court and a party has no right to costs unless and until the Court awards them. If you are successful in the litigation, you may be able to claim some costs from the other party and it is possible that the Court will make an Order which obliges the other party to pay some of your costs. These are known as party/party costs and for the most part are calculated according to a scale but the quantum of costs which may, in the event of you being the successful party, be recoverable is likely to represent only a fractional part of the costs you actually incur.

Conversely, if you are unsuccessful in the litigation the other successful party could claim costs from you and the Court could make an Order against you obligating you to pay some of the other party's costs.

You are entitled to receive at reasonable intervals written reports as to the progress of the matter.

If you at any time have any query or concern you should contact me so I may discuss any query or concern with you. If you are not satisfied following my discussion with you, you are entitled to raise the matter with my Recognised Professional Association, Victorian Lawyers RPA Ltd of 470 Bourke Street, Melbourne, Victoria.

Matter: Proceedings brought by [ ] in the County Court at Melbourne and all matters related or incidental thereto

1. Legal costs for this matter will be charged at the rate of $375.00 per hour plus increase from 1 July 2000.

2. All necessary and proper costs (fees, charges and disbursements) will be incurred by the legal practitioner on the client's behalf

3. Immediately on request the client shall pay such amounts as are required for anticipated disbursements.

4. Interim bills of costs will be given at monthly or otherwise from time to time at the legal practitioner's discretion and a final bill of costs will be given at the conclusion of the matter. Accounts are payable immediately upon being rendered.

5. Interest will be charged on legal costs at a rate not exceeding the rate for the time being fixed under S.2 of the Penalty Interest Rates Act 1983 with daily rests for the period beginning 30 days after payment is demanded until the legal costs are paid.

6. An itemised bill of costs will be given on request of the client made within 30 days after receipt of a lump sum bill of costs.

Pursuant to S.86 of the Legal Practice Act 1996 information in relation to this retainer has been provided to the client and the client acknowledges having received such information.

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the right to negotiate a Costs Agreement;

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had the opportunity to obtain independent legal advice in relation to this Costs Agreement; and

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read and approved this Costs Agreement.

14 The respondent argues that the costs agreement is constituted by the costs agreement document only not both it and the s 86 statement.

a)

the costs agreement be cancelled;

b)

all tax invoices submitted by the respondent to Mr Caccaviello be set aside;

c)

the respondent's costs be taxed in accordance with the Magistrates' Court Scale and, where appropriate, the County Court Scale;

d)

any costs and charges paid by Mr Caccaviello to the respondent in excess of the legal costs and charges be paid by the respondent to the applicant;

e)

costs; and

f)

any other and necessary consequential relief the Tribunal may see fit to grant.

(a) that Mr Moses has been guilty of misconduct and/or unsatisfactory conduct in relation to the provision of legal services to which the agreement relates in as much as he has:

2. breached rule 24 of the Trust Account Practice Rules by failing to retain files relating to trust transactions and bills of costs for a period of not less than 7 years following the completion of the matter;

(b) that the agreement is not fair and reasonable.

17 The substantive hearing took place over the course of 7 days. Both parties were represented by counsel.

18 Oral evidence was given on behalf of the applicant by:

a. Dennis Healey, an accountant with the applicant's practice;

b. Dean McVeigh, the applicant;

c. Craig Bolwell, an accountant with the applicant's practice; and

d. John White, a legal practitioner and costs consultant.

19 An affidavit sworn by Frances May Grindlay, Law Clerk, on 11 November 2005 was also put into evidence on behalf of the applicant.

20 Oral evidence was given on behalf of the respondent by:

a. Eva Curry, a courier;

b. Ken Stout, an accountant, liquidator and arbitrator;

c. Luigi Caccaviello, the client;

d. Francesca Caccaviello, the wife of Luigi Caccaviello; and

e. Darren Moses, the respondent.

21 Submissions were made by both counsel.

22 Clearly, the document headed "Costs Agreement" dated 21 May 1999 signed by Mr Moses and Mr Caccaviello at least forms part of its costs agreement. But what of the document having the same date headed "Information Pursuant to s86 of the Legal Practice Act 1986"? (the s86 statement"). The applicant contends that this forms part of the costs agreement and the respondent denies this.

23 Section 96(2) of the Act states that a costs agreement must be in writing or evidenced in writing. This indicates that the document headed "Costs Agreement" need not stand alone.

24 The document headed "Costs Agreement" contains as its penultimate paragraph:

Pursuant to s86 of the Legal Practice Act 1996 information in relation to this retainer has been provided, to the client and the client acknowledges having received such information.

25 By reference, this paragraph incorporates the contents of the s86 statement into the costs agreement. Indeed, far greater detail regarding the calculation of costs is contained in the s86 statement than in the document headed "Costs Agreement".

26 It may also be said that the agreement entered into between Mr Caccaviello and Mr Moses whereby Mr Caccaviello charged his interest in the property in favour of Mr Moses as security for unpaid costs and the consequential mortgage are also relevant in determining the terms of the costs agreement.

27 In Nicholson v Behan & Speed (LPT Reference T0333 of 1999), Registrar Howell considered "fair" and "reasonable":

"Fair" and "reasonable" are different concepts: In re Stuart; Ex Parte Cathcart [1893] 2 QB 201 @ 204-205. There is a requirement at common law that a costs agreement between a client and his or her solicitor be both fair and reasonable: Weiss v Barker Gosling (1992-93) 16 Fam LR 728, where the following passage appears @ 758:

... there is, in my view, a requirement at common law that a costs agreement between a solicitor and client be fair and reasonable. Although that expression may be a composite one, it appears generally to have been approached in the cases on the basis that "fairness" relates to the point of entry into the agreement whilst "reasonableness" relates to the terms of the agreement itself.

28 The applicant did not contend that the costs agreement was entered under circumstances that render it "not fair".

29 Mr Caccaviello gave evidence that he was happy with the agreement, that he had received advice from his son-in-law who is an accountant concerning the terms of the agreement and that he readily entered into the agreement.

30 Fairness is, therefore, no an issue.

31 I accept the submission of the applicant that the reasonableness of the terms of the costs agreement are to be measured objectively (see Nicholson v Behan & Speed (LPT T0333 of 199 at p13 citing D'Allessandro v Legal Practitioners Complaints Committee (1995) 15 WAR 198 at 202) and independent of the fact that the client has actually elected to enter into the agreement (Weiss v Barker Gosling No 2 (1993) 17 Fam GR 626 at 641-2).

32 Apart from minor differences which I do not consider to be material, the section 86 statement and the document headed "costs agreement" are all but identical to those contained in documents considered by Registrar Howell in the Legal Profession Tribunal in Alessi v Moses (LPT T0100 of 2003). Consistent with the findings of Registrar Howell at pp71 - 72, I find that the section 86 statement and the document headed "costs agreement" which between them form the terms of engagement and which must be read together to consider the reasonableness of the costs agreement, contain internal inconsistencies, such as:

i

The section 86 statement provided for costs to be charged at an hourly rate of $375.00. The costs agreement provided for costs to be charged at $375.00 per hour 'plus increase from 1 July 2000.

ii

The section 86 statement provided that costs were to be charged in six minute units. The costs agreement contained no reference to this.

iii

The section 86 statement provided for additional charges for secretarial and administrative work. The costs agreement contained no reference to this.

iv

The section 86 statement provided for Mr Moses to notify Mr Caccaviello of any costs and changes which would significantly increase the likely total legal costs (including disbursements, as soon as Mr Moses became aware of such costs and charges. The costs agreement contained no reference to this.

v

The section 86 statement provided for the reduction or increase of fees at the discretion of Mr Moses. The costs agreement contained no reference to this. No further information is given in this regard.

vi

The section 86 statement provided for Mr Moses to be entitled to charge for all disbursements. The costs agreement entitled Mr Moses to charge only for "all necessary and proper" disbursements.

vii

The costs agreement obliged Mr Caccaviello to pay anticipated disbursements upon request. The section 86 statement contained no reference to this.

viii

The section 86 statement obliged Mr Caccaviello to pay bills rendered on a monthly basis. The costs agreement obliged payment of interim bills rendered at the discretion of Mr Moses.

33 When viewed together, these inconsistencies are sufficient to negative any certainty of the basis upon which charges were to be calculated and rendered. The effect of this is to render the costs agreement unreasonable.

Interest payable pursuant to the costs agreement

34 Paragraph 5 of the costs agreement provides for payment of interest on legal costs at a rate not exceeding the rate for the time being fixed under s2 of the Penalty Interest Rates Act 1983 with daily rests for the period beginning 30 days after payment is demanded until the legal costs are paid.

35 Mr Moses holds the degree of Bachelor of Economics. He gave evidence that this degree was obtained from Monash University and that he had studied a first year accounting subject as part of his studies for this degree. It was put to Mr Moses by the Tribunal that the study of financial mathematics formed part of this subject and he agreed. It was further put that a calculation of interest pursuant to the costs agreement would result in an effective interest rate of over 300% per annum. He agreed with this.

36 As at 21 May 1999, the date of the costs agreement, the rate fixed under s2 of the Penalty Interest Rates Act 1983 was 12.30%. In order to calculate the effective interest rate the formula is:

37 The effective rate is the interest rate that would give the same yield if compounded only once per year. "Daily rests" means that interest is compounded 365 times per year.

Therefore

Effective rate = (1 + 12.3/365)365 - 1

(1 + .034)365 - 1

(1.034)365 - 1

377.41 - 1

376.41%

38 The costs agreement provides for an effective interest rate of 376.41% per annum.

39 The effect of this provision is to further render the costs agreement unreasonable.

40 Section 137 of the Legal Practice Act 1996, whilst preserving the common law definition of misconduct defines "misconduct" as meaning (inter alia):

(a) misconduct of a legal practitioner or firm in the course of engaging in legal practice, including

(i) wilful or reckless contravention of this Act, the regulations or practice rules that apply to the practitioner or firm or any other Act that relates to legal practice;

(v) the charging of grossly excessive legal costs...

41 The section defines "unsatisfactory conduct" as meaning (inter alia) -

(b) contravention of this Act, the regulations or practice rules that apply to the practitioner or firm or any other Act that relates to legal practice, not amounting to misconduct.

42 Rule 24(1) of the Law Institute of Victoria Limited Trust Account Practice Rules provides:

Trust account records shall be retained for not less than seven years following the completion of the matter.

(m) files relating to trust transactions and bills of costs.

44 It is not contended by the applicant that transactions took place involving trust money. The evidence of Mr Moses that he does not, and did not at the relevant time, conduct a trust account. The contention of the applicant is in effect that the words "trust transactions" and "bills of costs" are not concomitant and that accordingly, any file upon which a bill of costs is rendered must be kept for 7 years.

45 Section 433(1) of the Act provides:

(1) A legal practitioner or firm may destroy or dispose of any documents held by them relating to a matter after a period of 7 years has elapsed since the completion of the matter if the practitioner or firm has been unable, despite making reasonable efforts, to obtain instructions from the client to whom the documents relate as to the destruction or disposal of the documents.

46 This section does not require the legal practitioner to wait for 7 years before obtaining instructions from the client as to the destruction or disposal of the documents, or to wait for 7 years before following those instructions.

47 It is well established that it is the client who owns the file with the exception of notes made by the legal practitioner, internal office requisitions and accounting records. The legal practitioner may retain a file pursuant to a lien if fees are unpaid but is not compelled to do so.

48 In this case, Mr Moses gave the file to Mr Caccaviello, who was the owner of the file, without exercising a lien for unpaid fees. Mr Moses gave evidence that he copied the file in its entirety and gave the original, including file notes, to Mr Caccaviello. Mr Caccaviello gave evidence that he destroyed the file when he was released from bankruptcy.

49 Mr Moses gave evidence that he sent the copy file to the applicant without making a further copy.

50 The copy file in the possession of the applicant appears to be incomplete, particularly in relation to file notes. The circumstances giving rise to this are unclear.

51 Copies of the bills rendered by Mr Moses to Mr Caccaviello have survived. There are no trust records. A prudent legal practitioner would have made and retained a further copy of the file when providing the copy file to the applicant.

52 Nevertheless, I am not satisfied that in providing the original file to Mr Caccaviello Mr Moses is guilty of misconduct or unsatisfactory conduct by way of a breach of Rule 24(1).

53 Mr Moses rendered accounts to Mr Caccaviello totalling $117,837.35 including disbursements.

54 Evidence was given by Mr John White, a costs consultant, on behalf of the applicant. Mr White had costed the matter at $53,000 including disbursements on the basis of material available and by estimating costs within what he described as a proper range. It is to be remembered that the material available is said to be incomplete and that the circumstances giving rise to this are unclear.

55 Mr Moses contended throughout his evidence that Mr Caccaviello's County Court civil case required a great deal of research and preparation resulting in many hours of attendance by Mr Moses, even after Mr Moses had withdrawn. The following comments were made by the judge in his judgment:

A search of the Court file ... suggests that whilst a defence was entered to the Statement of Claim as originally pleaded, and indeed there were subsequent pleadings, there was no defence filed with regard to the amended Statement of Claim. The Court Book included a copy of the original defence but no reference to any further pleadings by the defendant...

Thus the conduct of the case resolved to be such that the plaintiff gave evidence, called witnesses both expert and lay, adduced evidence and made detailed submissions by counsel. The defendant I took not to be admitting or indeed denying the main allegations against him and gave no evidence, confining himself as I have said to limited cross-examination and making no submissions of an argumentative nature ...

The defendant asked of the plaintiff a number of questions which were somewhat peripheral and did not directly challenge the principal thrust of the plaintiff's evidence, other than by implication. Similarly I should add that the defendant asked a number of questions of lay witnesses called which do not call for comment by me. Likewise, the medical witnesses were not challenged by the defendant as to the opinions they expressed, notwithstanding, of course, that he had copies of the reports to which reference was made.

As I have said, the defendant called no evidence and gave no evidence. I have already referred to the unhappy situation in which I found myself with regard to the defendant's situation in this regard ...

56 These comments are inconsistent with the contention by Mr Moses that a great deal of preparation was undertaken.

57 Clearly, there is a gulf between $117,837.35 and $53,000. It may well be that there was overcharging. However, in order to find that any overcharging was "grossly excessive" it is necessary for the Tribunal to be able to consider all material upon which the accounts are said to be based. The absence of such material prevents the Tribunal from being in a position to be satisfied to the appropriate standard that grossly excessive fees have been charged.

58 The costs agreement should be cancelled on the ground that it is not reasonable.

59 The costs agreement entered into between Luigi Caccaviello and the respondent on or about 21 May 1999 is cancelled.

All tax invoices and bills of costs rendered by the respondent to Luigi Caccaviello pursuant to the costs agreement are set aside.

The respondent is to submit to the applicant bills of costs in taxable form drawn on the Magistrates Court Scale and County Court Scale as appropriate. In the absence of agreement, the bills of costs are to be submitted to the Taxing Master for taxation.

Liberty to apply seeking orders as to the costs of these proceedings.