Mednis v Chand & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3389/01 AIVARS ROLANDS MEDNIS T/A MACELBING, MEDNIS & ASSOCIATES v HARRY CHAND & 2 ORS (No 3) JUDGMENT 1 The plaintiff is a solicitor who sues the first defendant, a former client, for his fees. The first defendant sued the third defendant. That action was settled while the second defendant acted as the solicitor for the first defendant. The plaintiff claims a lien over the settlement sum for his costs. The second defendant and the third defendant have entered submitting appearances save as to costs. 2 An arrangement was entered into whereby the first defendant utilised the premises of MacElbing, Mednis & Associates to conduct his own mercantile agent's business. There was a conflict in the evidence as to when this arrangement began and as to its terms. The first defendant said, inconsistently, that it began in 1995 and in 1997. The plaintiff had said the arrangement commenced in 1997 but he corrected that to 1995. His former partner, Mr MacElbing, was adamant that it was before 1997 because he had been hospitalised in August 1996 and did not return to the office until April 1997. Ultimately he said the arrangement commenced in 1995 or 1996. 3 If it were necessary for me to resolve this conflict, I would prefer the evidence of Mr MacElbing. He was precise in answering all questions put to him and struck me as an impressive witness. 4 Mr MacElbing and the plaintiff said the arrangement was that the first defendant could use the firm's facilities to conduct his business. The quid pro quo was his introduction of clients to the firm and his carrying out of some process serving work for the firm when the firm's process server was not available. Occasionally he answered telephones, occasionally he worked on the firm's files and occasionally he attended on counsel on behalf of the firm. He provided Mr MacElbing with printouts of recent cases on request. 5 Suzanne Frugtniet, who was employed as a secretary by the plaintiff for seven or eight months, confirmed that Mr Chand carried out activities in the office other than those related to his mercantile agency. He did "running around" work. She described him as a "foot soldier." He took clients to see barristers and gave her instructions to type up memoranda. On occasions he signed letters on behalf of the firm. John Nathan, a solicitor, met the first defendant when he was instructing counsel in a District Court criminal matter. 6 In 1997, the plaintiff commenced an action in the District Court on behalf of the first defendant against the third defendant. He said he was retained on the basis that he would charge reasonable costs. In another action on behalf of the first defendant costs were claimed by the plaintiff and paid out of the settlement moneys in March 2001. 7 On the other hand, the first defendant said that there was a loose arrangement whereby, if he introduced clients to the firm he would receive a portion of any costs recovered and, in addition, the firm was to appear for him in his own actions without charge. In his defence and cross-claim, the first defendant claimed he was an employee of the plaintiff and he claimed wages and holiday pay from March 1995. 8 That the first defendant was an employee of the plaintiff, was not made out on the evidence. Mr Rollinson, who appeared for the first defendant, conceded that there was no evidence of employment as alleged in the cross-claim and it would be difficult to infer that an employer/employee relationship existed. In my view that concession was properly made. 9 As to the issue whether the plaintiff was retained on the basis that no costs would be charged, its resolution depends on my assessment of the entirety of the evidence and, in large measure, on my determination of the credit of the witnesses. 10 An adjourned hearing of the case against the third defendant was due to commence on Monday 7 May 2001. On Sunday 6 May 2001 a conference with counsel took place. Norman Potts was retained as junior counsel. He prepared a disclosure of costs and costs agreement dated 6 May 2001. It was signed by him and the first defendant. It provided for the payment of costs on a contingency basis. No costs were payable if the first defendant was not successful. 11 The first defendant had signed two previous costs agreements with Mr Potts. Mr Potts recalled that one of them was signed on the morning of a hearing in a conference room at the Court. It could have been the agreement dated 6 May 2001. The document was prepared on 6 May 2001 and, whether signed by the first defendant on that day or on 7 May 2001, Mr Potts said it was presented to the first defendant already signed by Mr Potts and the first defendant read it before signing it. 12 Craig Stewart was retained as a senior counsel for the first defendant. Mr Potts printed off a costs disclosure and costs agreement for Mr Stewart. It was also on a contingency basis. It was also dated 6 May 2001. Mr Stewart said the first defendant signed the agreement during the conference on Sunday 6 May 2001. 13 The first defendant said the costs agreements were signed by him on the afternoon of 8 May 2001 at a hotel. He said he was told to sign them as it would help the recovery of costs from the third defendant. This contention was denied by the plaintiff and by Mr Potts. When it was put to Mr Stewart that Mr Potts had told the first defendant to sign the costs agreements as it would help in recovering costs from the third defendant, Mr Stewart said he had no recollection of such a conversation. 14 Monday 7 May 2001 was taken up by interlocutory arguments. Phegan DCJ gave an ex tempore judgment allowing a defence under the Limitation Act 1969 which significantly reduced the first defendant's claim. The morning of 8 May 2001 was taken up by settlement negotiations. The plaintiff, Mr Stewart and Mr Potts all said that before lunch the first defendant accepted an offer by the third defendant to pay him $62,500. 15 Orders for costs in the first defendant's favour had been made earlier in the proceedings. The plaintiff had written to the solicitors for the third defendant indicating his assessment of those costs at $21,714 and estimating recoverable party and party costs at that time in the vicinity of $60,000. The offer of settlement was on the basis that previous costs orders be vacated. 16 The plaintiff, Mr Stewart and Mr Potts said that the plaintiff wrote out on a piece of paper the costs which he and the barristers would accept, leaving a balance payable to the first defendant out of the proposed settlement sum. Mr Potts said this process was followed in response to the first defendant's request for the costs that would be payable if he accepted the offer. 17 Philip Beale, barrister, had earlier acted for the first defendant. Mr Potts said the plaintiff telephoned Mr Beale to ascertain his costs. The plaintiff said the costs totalled approximately $48,000. He said the first defendant gave instructions to accept the offer and signed the paper containing the costs calculation. Mr Potts' recollection was that the costs totalled approximately $50,000. Mr Stewart's recollection was that approximately $13,000 was the balance payable to the first defendant. 18 Mr Potts said he observed the plaintiff writing the costs figures in the document. He said he was seated at the time with the first defendant on his right and Mr Stewart on his left and the plaintiff was directly opposite him. 19 Mr Stewart said he saw the document with the first defendant's signature on it at some stage. He believed he saw it before it was signed because otherwise he would not have been able to negotiate the terms of settlement with the first defendant and make sure that he was cognisant of the contents of the costs calculations. Mr Stewart said he told the first defendant that the offer of $62,500 included all previous costs orders. 20 After lunch, terms of settlement prepared by the third defendant's legal representatives were handed to Mr Stewart, Mr Potts and the plaintiff. The terms stated that there was to be a verdict for the third defendant and that the settlement moneys were to be for costs only. The plaintiff telephoned the first defendant and requested him to return to the Court. When he did, Mr Stewart advised him not to accept the settlement because of the implications of a judgment against him. The first defendant accepted that advice and the matter was not settled. 21 The first defendant said that on 8 May 2001 he was advised by the plaintiff that he would lose his case due to the adverse effects of the judgment of Phegan DCJ. The first defendant said that the plaintiff advised him to accept an offer of settlement of $62,000 and the plaintiff would then seek the previous costs orders from the third defendant. According to the first defendant, the plaintiff said that he would receive $62,000 clear. The plaintiff said he would attend to the settlement and the first defendant should go home. 22 In the afternoon, the first defendant received a telephone call from the plaintiff requesting him to return to the Court and sign some papers. The first defendant said he never consented to any moneys being taken out of the settlement sum of $62,500 for fees or charges to any party. 23 In cross-examination, the first defendant said he was not involved in any settlement discussions during the morning of 8 May 2001. He was told by the plaintiff to leave the settlement negotiations to him and to leave the Court. It was during the afternoon telephone conversation with the plaintiff that he was told there was an offer of $62,000. It was at a hotel that he signed a number of documents including the costs agreements of counsel without explanation from Mr Stewart who said he should not accept the offer. The first defendant denied any discussion about costs payable to the plaintiff, Mr Stewart or Mr Potts and denied seeing or signing a handwritten document containing a costs calculation by the plaintiff. 24 The first defendant said that during his telephone conversation with the plaintiff he was told he would get $62,000 clear. He refused to sign the terms of settlement because he would not get $62,000 clear. Later in his evidence he said he became aware that he would not get this sum clear late in the afternoon in a car. He did not ask what his legal advisers would charge if he accepted the settlement. The first defendant agreed that the plaintiff telephoned Mr Beale. 25 I prefer the evidence of the plaintiff, Mr Steward and Mr Potts to that of the first defendant. Not only is there a direct conflict in the evidence about the events of 8 May 2001, but also there are other aspects which reflect poorly on the credit of the first defendant. I found the evidence of Mr Stewart and Mr Potts to be impressive. Both were at pains to confine their evidence to their recollections which, due to the course of time, were imperfect. Nonetheless, their evidence and that of the plaintiff on this issue was totally congruent whereas the testimony of the first defendant was totally inconsistent with their testimony and displayed internal inconsistencies. 26 Why would the plaintiff telephone Mr Beale if the first defendant rejected the terms of settlement because they were not to provide a clear sum of $62,000 for him? On one version of his evidence, the first defendant discussed the settlement offer with the plaintiff during the morning prior to being told to leave the court. In his later evidence he said it was not until he received the telephone call from the plaintiff in the afternoon that he learned that an offer of $62,000 had been made. He agreed that Mr Stewart had advised him not to accept the terms of settlement because of judgment against him, yet he said he rejected them because they did not provide him with $62,000 clear. 27 The first defendant's course of conduct following the events of 8 May 2001 does not reflect favourably on him. On 11 May 2001, further dates in October 2001 were allocated for the hearing of the first defendant's claim against the third defendant. Shortly before 11 May 2001, the plaintiff received a letter from the third defendant's solicitors putting a proposal that the proceedings be settled on the same terms as in the terms of settlement. On instructions from the first defendant, the plaintiff rejected the offer. The plaintiff subsequently became aware that the second defendant had written to the solicitors for the third defendant accepting the settlement offer. The first defendant informed the plaintiff he was no longer acting on his behalf. 28 The first defendant took possession of the plaintiff's main correspondence file pertaining to the first defendant's action against the third defendant. It was subsequently returned. The plaintiff said that his handwritten costs calculation of 8 May 2001 was missing from the file as were a number of handwritten memoranda. 29 The first defendant's action against the third defendant was settled on identical terms to those contained in the terms of settlement rejected on 8 May 2001. A notice of change of solicitors was lodged by the second defendant. These proceedings were then commenced. 30 On 4 July 2001, Young CJ in Eq made orders restraining the second defendant from delivering to the first defendant any cheque or other negotiable instrument or sum of money arising out of the settlement of the proceedings between the first defendant and the third defendant and restraining the first defendant from dealing with or disposing of any cheque or other negotiable instrument or sum of money arising out of the settlement. Those orders were made until further order. 31 The first defendant's explanation for accepting the settlement offer was that he was advised by his new solicitor to accept it and sue the plaintiff for negligence. The negligence alleged was vacation of the costs orders in favour of the first defendant. But those costs orders were not vacated as a result of any action on the part of the plaintiff. The settlement offered of 8 May 2001 was not accepted and the costs orders remained in force. I do not accept that explanation. 32 In the absence of a plausible reason for accepting the settlement, the inference I draw is that the first defendant sought thereby to receive the settlement sum freed from his obligations to pay the costs of the plaintiff and counsel. My preference for the testimony of the plaintiff, Mr Stewart and Mr Potts rather than that of the first defendant with respect to the events of 8 May 2001, also leads me to prefer the evidence of the plaintiff where it conflicts with that of the first defendant. I reject the first defendant's testimony that his agreement with the plaintiff was that the plaintiff should provide legal services free of charge. 33 In June 2002, the plaintiff received notice that this matter had been given a hearing date on 12 August 2002. On 5 August 2002 the plaintiff paid the hearing allocation fee. On 9 August 2002 the plaintiff telephoned the Registry to confirm the hearing but was told that the hearing date had been vacated because a notice of discontinuance had been filed, apparently by the plaintiff. 34 The first defendant had filed a notice of change of solicitor indicating that he was appearing for himself. The notice of discontinuance was said to be filed on behalf of MacElbing, Mednis & Associates but its format was similar to the first defendant's notice of change of solicitor. The plaintiff said that the signature on the notice of discontinuance was not his. It appeared over other writing that had been covered over. 35 The first defendant's explanation of this document was far from convincing. He said he was telephoned by a person purporting to act on behalf of MacElbing, Mednis & Associates who met him and with him obtained the signature of the second defendant. The first defendant said the document did not bear his signature. He began to sign it and someone else must have finished it. When he started to sign, the person purporting to represent the plaintiff told him he had to pay the plaintiff $50,000. He did not complete his signature. 36 The first defendant did not appear at the hearing on 12 August 2002. The matter was stood over until 2 pm. His explanation at that time through legal representatives was that he had been ill. He denied that he did not appear because he assumed the notice of discontinuance had done its work. 37 While this aspect of the evidence might give rise to serous allegations against the first defendant, I refrain from making any. I have arrived at my conclusion on the evidence discussed above. It is unnecessary for me to make any findings with respect to the origin of the notice of discontinuance. 38 On 26 September 2001, the plaintiff forwarded to the first defendant bills for his costs totalling $21,838.07, bills for Mr Potts totalling $33,904.75, a bill for Mr Beale totalling $19,950 and a bill for Mr Stewart totalling $7,150. 39 The plaintiff claimed an equitable lien over the settlement moneys for his costs. In Akki Pty Ltd v Martin Hall Pty Ltd (1994) 35 NSWLR 470 at 474, Windeyer J explained the divergence of authority as to the nature of this right. His Honour pointed out that the older view was that it was merely a claim to the equitable interference of the court to have the judgment held as security for the solicitor's debt (Barker v St Quintin (1844) 12 M & W 441 (152 ER 1270)). On the other hand, in Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 at 100-101, Jordan CJ said that while a solicitor had no lien for costs over any property that did not come into possession, the solicitor acquired a right to have costs paid out of moneys received in judgment or compromise of an action and, in practice, the solicitor was treated as possessing equitable rights in the judgment or settlement independently of any declaration of those rights and the courts assistance was invoked not to create the rights but to enforce them. 40 The question whether the right extended to judgment or settlement achieved by some other solicitor, was considered by Young J in Kelso v McCulloch (unreported, 24 October 1994). His Honour cited Re Fuld (No 4) [1968] P 727 and Ross v Buxton (1889) 42 Ch D 190 as authority for the proposition that equity will not only enforce the fruits of the judgment lien in favour of the solicitor on the record at the time of judgment, but any solicitor who played at least a significant part in the conduct of the litigation that led to the verdict being recovered. 41 It follows, in my view, that the plaintiff may have a lien over the settlement sum notwithstanding that the settlement was effected by the second defendant. The settlement was in identical terms to that offered to the first defendant while the plaintiff was his solicitor on 8 May 2001. It was through the efforts of the plaintiff that the offer, finally accepted, was made. 42 The first defendant submitted that no lien arose because the plaintiff had agreed to act for no fee. Alternatively, no lien could arise because there was no costs agreement and no disclosure of the basis of the costs for legal services for the purposes of the Legal Profession Act 1987. I reject the first submission. I have already found in favour of the plaintiff that his retainer was not, as the first defendant alleged, on the basis that no costs would be charged. 43 The Legal Profession Act 1987, s 184(4) provides that a costs agreement is void if it is not in writing or evidenced in writing. It follows that any agreement as to the costs of the provision of legal services to the first defendant by the plaintiff in 1997 was void. 44 The plaintiff accepted that he had not disclosed to the first defendant in 1997 the basis of the costs of legal services to be provided by him. The Legal Profession Act 1987, s 175(1) required him to do so. In Wentworth v Rogers [2002] NSWSC 709 from par 14, Barrett J discussed the operation of the legislation with respect to such omissions. Section 182(1) provides that a failure to make such a disclosure to a client means that the client need not pay the costs of the legal services unless they have been assessed. 45 The Legal Profession Act 1987, s 199(1) provides that a client who is given a bill of costs may apply to the proper officer of the Supreme Court for an assessment. Section 201(1) entitles a barrister or solicitor who has given a bill of costs to apply for an assessment. On 5 February 2002, the plaintiff applied for an assessment of his costs including those of counsel. That assessment has not yet taken place. 46 The Legal Profession Act 1987, s 208C(1) provides that a costs assessor is to decline to assess a bill of costs if the disputed costs are subject to a costs agreement and it specifies the amount of the costs or the dispute relates only to the rate specified in the agreement for calculating the costs. The absence of a costs agreement disentitles a practitioner from reliance on that immunity. That immunity does not exist if the practitioner failed to make a disclosure of the basis of the costs of legal services or the assessor determines that a provision of the costs agreement is unjust. 47 It follows that apart from the effect of the handwritten calculation of costs of 8 May 2001, the plaintiff was not entitled to payment of his bill of costs until assessment. 48 It was argued by the plaintiff that the written costs calculation of 8 May 2001 constituted a costs agreement for the purposes of the Legal Profession Act 1987, s 184. There was no suggestion that the document disclosed billing arrangements, the client's rights to an assessment of costs or the client's rights to receive a bill of costs. In the absence of that information the costs calculation of 8 May 2001 did not constitute a disclosure of the basis of costs of legal services for the purposes of s 175 and the plaintiff is not entitled to the immunity from assessment in s 208C(1). 49 The first defendant submitted that since counsels' costs agreements were with the first defendant, the plaintiff could not sue for the recovery of their costs. 50 The Legal Profession Act 1987, s 38I(3) provides that a barrister or solicitor may enter into a contract for the provision of services with a client or with another legal practitioner. The provision goes on to provide that the barrister or solicitor may accordingly sue and be sued in relation to the contract. Section 38I(4) provides that a barrister may enter into a contract with a client even though the barrister has accepted a brief from a solicitor in the matter. 51 While the Legal Profession Act 1987 controls some aspects of the contract between a client and a legal practitioner, the question of the identity of the contracting parties and the nature and terms of the contract are to be determined according to the ordinary principles. The legislation does not establish a statutory contract between a barrister and a solicitor or a barrister and a client. The identity of the contracting parties and, subject to the strictures of the Legal Profession Act 1987, the terms of the contract will depend upon the circumstances (Dimos v Hanos [2001] VSC 173 at par 70- par 71). 52 In this case, the contract was between the first defendant and each of the barristers. The agreements were in identical terms. Clause 6 provided that fees for providing the identified legal services would be charged at a specified rate. The clause did not identify to whom fees would be rendered. Clause 7 assumed that the retainer was on a contingency basis. It reserved the right in the barrister to serve notice upon the instructing solicitor terminating the contingency aspect of the retainer and requiring that all fees from the date of the notice be paid at the specified rates. 53 A contract between a barrister and a client for the payment of fees at a specified rate does not exclude a contract between the barrister and the instructing solicitor under which the instructing solicitor takes responsibility for the payment of fees at those specified rates. Nor does it exclude the possibility of a contract between the instructing solicitor and a client for the payment of costs by the client including fees at the specified rates for the barrister. The barristers' contracts with the first defendant in this case not only contemplated the giving of notice terminating the contingent aspect of the retainer to the instructing solicitor, but also referred to the receipt of further instructions upon the brief. 54 In my view, the contract between the barristers and the first defendant presupposed an instructing solicitor to whom the relevant notice might be given and from whom instructions on the brief would be received. That must imply an instructing solicitor with authority to give and receive instructions and notices. That implies an instructing solicitor with contractual rights and obligations with the client. In those circumstances I construe the barristers' agreements with the first defendant as providing for the rendering of fees at the specified rates to the instructing solicitor and I imply in the contract between the plaintiff and the first defendant a term that the first defendant would not only pay the plaintiff's reasonable professional charges and expenses, but would also pay to the plaintiff fees rendered by the barristers at the rates specified in their agreements with the first defendant. 55 A clear endorsement of these interrelated contractual obligations arose with respect to the costs calculations of 8 May 2001. In pursuing his entitlement to costs against the first defendant, the plaintiff included costs of counsel. 56 If, contrary to my view, counsels' entitlement to recover costs was limited by the costs agreements to recovery against the first defendant, I am of the view that the inclusion of their costs within the calculations made by the plaintiff in the note of 8 May 2001 constituted a variation of the contracts between counsel and the first defendant. In consideration for counsel releasing the first defendant from full payment of fees at the specified rates, the first defendant agreed that the plaintiff on his own behalf and as agent for counsel should receive $48,000 from the settlement moneys and disburse the agreed amounts to counsel. 57 The first defendant submitted that the plaintiff and counsel should be bound by the $48,000. It was submitted that, in accordance with the Legal Profession Act 1987, s 208D(1), the first defendant is entitled to submit to the costs assessor that the terms of the written cost calculations of that date were unjust in the circumstances. The plaintiff submitted there should be no limit upon the amount that might be assessed. He submitted that s 208D(1) might operate in favour of the plaintiff. 58 It does not seem to me to be appropriate to circumscribe the power of the assessor to determine what, if anything, in the circumstances, is unjust. Nor do I regard it as appropriate to require the plaintiff who comes to equity to do equity by refraining from making the submission that the assessment should not exceed $48,000. Each of the plaintiff, Mr Stewart and Mr Potts gave evidence that they accepted a discounted fee to assist in a settlement of the matter. Those discounted fees were brought into the costs calculation in the written document of 8 May 2001. The first defendant did not settle on 8 May 2001 and in those circumstances it does not seem to me to be appropriate that the plaintiff and counsel should be restricted to concessional fees. 59 In my opinion the plaintiff is entitled to have his costs and those of counsel assessed. 60 The plaintiff claimed interest up to judgment under the Supreme Court Act 1970, s 94(1). Section 94(2)(b) provides that the section does not authorise the giving of interest on any debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise. In NRMA Insurance Ltd v Tatt (1989) 92 ALR 299 at 314-315, McHugh JA expressed the view that where it was the evident purpose of a particular provision in another statute to lay down a code for the payment of interest on certain claims, it was hardly conceivable that the Parliament intended that those claims could be made liable for interest under the Supreme Court Act 1970. 61 The Legal Profession Act 1987, s 190(1) provides that a barrister or solicitor may charge interest on the unpaid costs for legal services if the costs are unpaid for 30 days or more after the barrister or solicitor has given a bill of costs. Section 190(2) provides that a barrister or solicitor may not charge interest on the unpaid costs for legal services unless the bill of costs for those services contains a statement that interest is payable and specifies the rate of interest. Section 190(3) provides that a barrister or solicitor may also charge interest on the unpaid costs for legal services in accordance with a costs agreement. 62 In my view, the Legal Profession Act 1987 provides for the payment of interest as of right to the exclusion of the discretion to award interest under the Supreme Court Act 1970, s 94(1). 63 Since neither counsels' cost agreements, nor the cost calculation of 8 May 2001, nor the plaintiff's nor counsels' bills of costs included a statement that interest was payable at a specified rate, the as of right entitlement to charge interest under the Legal Profession Act 1987, s 190 did not arise. 64 If I be wrong in this analysis and there is scope for the operation of the Supreme Court Act 1970, s 94(1), I decline to exercise my discretion in favour of an award of interest in circumstances in which there was non-compliance with the prerequisites for a claim to interest under the Legal Profession Act 1987. 65 In my view, therefore, the plaintiff is entitled to a declaration that he has a lien over the settlement moneys for the payment of costs, including counsels' costs and he is entitled to a continuation of the injunction until the assessment of those costs is made. Neither the plaintiff nor counsel are entitled to interest on their costs. 66 As to the cross-claim, the first defendant failed in his claim to wages and holiday pay. The case in negligence was not made out. As a result of the rejection of the settlement offer, the earlier orders as to costs in favour of the first defendant were not vacated. His argument that inadequate consideration was given to those orders in negotiation of the settlement fails, because there was no settlement. The first defendant's subsequent acceptance, when represented by different solicitors, of a settlement offer in identical terms cannot sheet home to the plaintiff any claim in negligence. The first defendant had the opportunity for independent advice, including advice on any shortcomings in the alleged negotiations for settlement at the earlier juncture. 67 The first defendant's cross-claim fails. 68 I direct parties to bring in short minutes of orders to reflect these reasons. I will hear the parties on costs.

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