4WD Systems Pty Ltd v McNamara
[2009] SASC 166
•15 June 2009
SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
4WD SYSTEMS PTY LTD v MCNAMARA
[2009] SASC 166
Reasons of Judge Lunn a Master of the Supreme Court
15 June 2009
CORPORATIONS
Application to set aside statutory demand - failure of plaintiff to respond to new material in defendant's answering affidavit - alleged estimate of $150,000 for costs held not to be a bona fide ground of genuine dispute - defects in the demand held not to cause substantial injustice for s 459J(1)(a) of Corporations Act - errors in creditor's supporting affidavit held not to be an "other ground" to set aside the demand under s 459J(1)(b) - application dismissed.
Legal practitioners - recovery of costs - held s 41(1) of the Legal Practitioners Act does not require the bill for the costs to show the cost charged for each individual item of work.
4WD SYSTEMS PTY LTD v MCNAMARA
[2009] SASC 166Reasons on application to set aside the statutory demand.
JUDGE LUNN:
Background.
The defendant is a solicitor practising in Adelaide. The plaintiff carries on business in the after-market for four-wheel-drive vehicles. Julian Hoberg has been a director of it since 1994. The defendant had acted as a lawyer for the plaintiff in many matters going back to well before 1994. Since 2000 he has acted in at least 17 different matters for the plaintiff. These included a major case against the plaintiff by the ACCC in the Federal Court which went to trial for over six weeks in 2003. Between May 2002 and September 2004 the defendant rendered numerous tax invoices to the plaintiff for his professional charges. From at least February 2002 various payments were made on behalf of the plaintiff against the indebtedness to the defendant on a running account for his professional fees. As at 27 July 2005 the defendant alleged that he was owed $546,935 for outstanding fees, including disbursements.
On 5 June 2003, which was apparently just before the Federal Court trial mentioned above, the parties entered into a deed (“the Deed”) in which the plaintiff is referred to as the Mortgagor and the defendant as the Mortgagee. It provided:
WHEREAS the Mortgagee at the request of the Mortgagor has agreed to certain financial matters with the Mortgagor full details of which financial matters are set out in Schedule IV hereto AND WHEREAS the Mortgagor in consideration of the matters set out in Schedule IV hereto and generally in consideration of these presents has agreed to execute and give this Mortgage to the Mortgagee over the property set out in Schedule VII to secure the repayment by the Mortgagor of all monies advanced or lent by the Mortgagee to the Mortgagor and all other monies which may be advanced or which may accrue hereunder and all other monies hereby secured including costs and interest.
NOW THIS DEED BETWEEN THE PARTIES HERETO WITNESSES as follows:
1The Mortgagor hereby charges all the property set out in Schedule VII hereto (which said undertakings property rights and assets are hereinafter for brevity referred to as “the mortgaged property”).
2The Mortgagor shall pay to the Mortgagee interest under the terms of this Deed at the annual rate of interest set out in Schedule V hereto which interest shall be payable monthly in advance by the Mortgagor to the Mortgagee unless herein otherwise provided.
3All monies payable by the Mortgagor to the Mortgagee hereunder shall be paid by the Mortgagor to the Mortgagee at the times and in the manner set out in Schedule VI hereto. If the Mortgagor however shall default under the terms of this Deed the Mortgagee may demand repayment of the monies hereby secured from the Mortgagor forthwith. The Mortgagor acknowledges that should the Mortgagee make any such demand the Mortgagor shall forthwith pay to the Mortgagee the monies hereby accrued.
4The mortgagor acknowledges that the monies hereby secured shall include:
(i)All monies on account of legal fees charged both now and in the future to 4WD Systems Pty Ltd …..
Schedules IV to VI provided:
SCHEDULE IV
FINANCIAL AGREEMENT
For the securing of all monies due and payable both now and in the future by the Mortgagor to the Mortgagee for legal work carried out by the Mortgagee for and on behalf or at the request of the Mortgagor and related companies in relation but not limited to Federal Court of Australia action no S170 of 2001 and in relation to matters concerning the Australian Taxation Office
AND WHEREAS the Mortgagor has agreed to execute and give this debenture to the mortgagee
SCHEDULE V
INTEREST
1% higher than the interest rate as charged from time to time by the Commonwealth Bank of Australia on overdrafts under $100,000.00
SCHEDULE VI
TIME FOR REPAYMENT
With in forty eight months of the date of the presentation of any invoice by the Mortgagee to the Mortgagor or such other earlier time as the parties may agree.
What was described in Schedule VII were items of equipment. The Deed was stamped as a security for $150,000.
At about the same time Super Benefit Pty Ltd (“Super Benefit”) and B & CC Pty Ltd (“BCC”) jointly gave a written guarantee (“the Guarantee”) to the defendant to pay on demand all moneys then owing, or to become owing, by the plaintiff to the defendant.
On 17 December 2008 the defendant served a statutory demand dated 16 December 2008 (“the Demand”) on the plaintiff. It also served similar demands on Super Benefit and BCC. The Schedule in the Demand read:
SCHEDULE
DESCRIPTION OF THE DEBT
Amount due pursuant to the deed dated 5 June 2003 and attached hereto is $675,522.60
TOTAL AMOUNT $675,522.60
Accompanying the Demand was a Form 7 affidavit sworn by the defendant in which the plaintiff is referred to as “the Company” and the defendant as “the Creditor”. It stated:
…..
2In or about 2002 the Company appointed the Creditor to provide legal services to it, its Directors, its related entities and the Directors of its related entities. The creditor rendered accounts to the Company on a regular, usually monthly, basis.
3On 5 June 2003, the Company executed a Deed of Mortgage (“the Deed”) in favour of the Creditor of all monies due on account of legal fees and interest.
…..
5The company paid some of the Creditor’s accounts but the amount of $675,522.60 (“the Debt”) is still outstanding to the Creditor.
6The Company has defaulted on the terms of the Deed in failing to make all or some of its payments to the Creditor and as such, the Debt, being the amount stated in the Statutory Demand is due and payable by the Company to the Creditor.
7The Company has not disputed the existence or the amount of the Debt.
8I believe there is no genuine dispute about the existence or the amount of the Debt.
Attached to the affidavit were copies of the Deed and of the Guarantee.
On 7 January 2009 the plaintiff instituted this proceeding seeking to set aside the Demand under ss 459G and 459J of the Corporations Act 2001 (“the Act”). The application was supported by an affidavit of Mr Hoberg in which he raised the grounds of challenge to the Demand which are dealt with below. At the same time Super Benefits (41/09) and BCC (42/09) each instituted similar proceedings to set aside the demands made on them pursuant to the Guarantee. All three actions have proceeded in tandem, but the main focus has been on this action which deals with the primary liability of the plaintiff to the defendant.
On 9 February 2009 the defendant filed an affidavit opposing the plaintiff’s action. On 6 April I gave directions that the plaintiff was to file any answering affidavit to that of the defendant within 21 days. No such affidavit has been filed and the plaintiff did not seek any extension of time to do so. Accordingly, the assertions in the defendant’s affidavit, which raise new material, are uncontradicted and must be accepted.
On 15 January 2009 the plaintiff’s solicitors initiated a request for the taxation of the defendant’s costs under s 42 of the Legal Practitioner’s Act (“the LPA”) and 6R 272. I directed that this request should be dealt with in this action. On 6 April I ruled that the plaintiff’s application to set aside the Demand should be listed for argument without awaiting the completion of an adjudication of the costs under 6R 272. In consequence of this ruling no further steps have been taken as yet for the taxation of those costs.
Whether the costs are not payable due to non-compliance with s 41 of the LPA.
S 41 of the LPA provides:
41Bill of costs to be delivered
(1)A person cannot bring an action for the recovery of legal costs or appropriate money in or towards satisfaction of a claim for legal costs unless a bill specifying the total amount of those costs, and describing the legal work to which the costs relate, has been delivered to the person liable to the costs either personally, or by post addressed to the person at the person’s last known place of business or residence.
(2)The person liable to legal costs may at any time within six months after delivery of a bill of costs under subsection (1) request the person claiming to be entitled to the costs to provide a statement showing in detail how the amount of the costs to which the bill relates is made up.
…..
(4)Where the defendant to an action for the recovery of legal costs has made a request of the plaintiff under subsection (2), and the plaintiff has not complied with the request, the court must, at the request of the defendant, stay the action until the plaintiff has complied with the request.
The plaintiff’s counsel cited Costello v Law Society of SA (1979) LSJS 304 as authority for the proposition that the defendant’s bills of costs had to sufficiently specify the charges claimed to enable the client to obtain advice as to whether the bills should be taxed. He argued this meant that the bills had to show the specific items of work done and the specific charges allocated to each item. Here each of the defendant’s invoices in evidence gave a general description of the work done and a total for the amount claimed, but did not give a breakdown of the costs claimed for each item of work.
Costello’s case was decided on s 16 of the now repealed Legal Practitioners Act 1936 which enacted:
(1)No legal practitioner …… shall bring any action for the recovery of any fees, charges or disbursements until one month after a bill of those fees ….. has been delivered in accordance with the requirements of this section …..
I accept the defendant’s contention that there is a significant difference between s 16 of the 1936 Act and the current s 41 of the LPA. S 41(1) only requires the bill to specify “the total amount of those costs”. Subs (2) enables a person liable to pay the costs to request “a statement showing in detail how the amount of the costs to which the bill relates is made up”. Here there was no request under subs (2). I do not consider that s 41 requires each individual item of work contained in the bill delivered to be costed. I find that all of the defendant’s invoices which are in evidence complied with s 41.
The plaintiff’s counsel also cited Jarena Pty Ltd v Scholle Nicholson Pty Ltd (1996) 19 ACSR 425 and Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223 in support of his contention. As far as can be gauged from the reports of those cases they dealt with legislation similar to s 16 of the 1936 Act rather than s 41 of the LPA.
Genuine dispute and offsetting claim arising from an estimate of the costs of $150,000.
In paragraphs 26 – 31 of his affidavit Mr Hoberg deposed:
26As at 5 June 2003 the plaintiff was incurring legal fees and the purpose of the Deed was to provide security to the defendant for current and anticipated legal fees. At that time the defendant estimated to me that those fees would not exceed $150,000.
27This estimate follows previous estimates given by the defendant in the course of providing legal advice as to the legal costs to be incurred.
28On the basis of previous representations and thereafter on the basis of the representations made by the defendant that the past and future legal fees would not exceed $150,000, I agreed to continue to incur legal expenses with the defendant.
29The claim for legal fees within the Statutory Demand exceeds the estimated legal fees. As a result of this the plaintiff has an offsetting claim for the debt claimed within the Statutory Demand on the basis that the defendant has engaged in misleading and deceptive conduct in misrepresenting the legal fees payable.
30Since the representation by the defendant in or around June 2003, that the legal fees would not exceed $150,000 the plaintiff has paid in excess of $150,000 in legal fees to the defendant.
31The plaintiff claims that there is a genuine dispute and offsetting claim with the debt claimed in the Statutory Demand on the basis that the Statutory Demand claims for legal fees which were above and beyond the estimate provided to the plaintiff by the defendant in or about June 2003.
In his affidavit on this topic the defendant deposed:
13.1The only time an estimate of legal fees of $150,000 was provided to the Plaintiff in relation to the ACCC matter was when the matter commenced. The estimation was provided by Robert Sallis of Counsel. The estimate was reviewed by me from time to time. In particular I became worried about the accounts outstanding during the course of the ACC matter hearing and I wrote to the Plaintiff, Hoberg and Hewitson on a number of occasions. Exhibited hereto and marked “SPM-5” are samples of the letters I wrote to the Plaintiff, Hoberg and Hewitson in relation to the accounts and arrangements to pay accounts, the first of which is dated 5 April 2003, well before the Deed was entered into.
13.2that as of 5 June 2003 the Plaintiff had already incurred substantial legal fees and was continuing to do so. I was not prepared to continue to act for the Plaintiff without first being paid for work I had already undertaken and invoiced. I refer to the reconciled statement exhibited hereto and marked “SPM-3” which shows that on the ACCC matter alone, as of 5 June 2003, the amount outstanding to me was over $240,000. Hoberg and Hewitson assured me that I would be paid and offered security in order for me to keep working.
13.3The purpose of the Deed was to provide me with security for payment so that I had some level of comfort in continuing to undertake work for the Plaintiff.
13.4I never provided an estimate of legal costs at $150,000 in relation to the ACCC matter or made such a representation at the commencement of the ACCC matter. Robert Sallis of Counsel made this statement when he was first retained by the Plaintiff in the ACCC matter. However the estimation was varied as the matter proceeded and became significantly more complex. I kept the Plaintiff updated on its costs at all times and met with Hoberg and Hewitson on many occasions in relation to costs.
13.5The Plaintiff, Hewitson nor Hoberg instructed me to stop work once fees reached $150,000 and the amount in relation to the accounts have never been disputed since the last of the accounts for the ACCC matter were sent to the Plaintiff in November 2003.
13.6The matters that I acted on behalf of the Plaintiff for were complex and time consuming as outlined above at paragraph 4. Attached hereto and marked “SPM-6” is a true copy of the judgment handed down in the ACCC matter. This is attached to provide some insight into the complexity of the matter and to provide some insight into the amount of work undertaken on the file.
13.7At the time the Deed was executed the amount outstanding by the Plaintiff to me on the ACCC matter alone was over $240,000.
13.8The outstanding amount on disbursements on the ACCC matter alone is over $150,000 at $164,977.67 as at the 5th June 2003. Attached hereto and marked “SPM-7” is a copy of a breakdown prepared and provided to Hewitson and Hoberg on or abouth (sic) the 1st December 2003 in respect to the disbursements outstanding on the ACCC matter.
13.9In respect to the disbursements, I have personally paid:
(sic)12.9.1 Robert Sallis of Counsel the amount of $132,430 for acting in the ACCC matter and have not been refunded by the Plaintiff.
(sic)12.9.2 Photocopying discovered documents, $2,976.
(sic)12.9.3 Transcript fees, $16,000.
The plaintiff has not seen fit to respond to the defendant’s affidavit on the topic. The assertion of Mr Hoberg in his affidavit that the past and future legal fees would not exceed $150,000 is spurious and unconvincing. He does not say when or where it was said or in what context. He sought to support his assertion by reference to the Deed being stamped as security for $150,000, but the defendant explained that this figure was the value of the equipment over which the charge was given. The plaintiff has not refuted this. There is nothing in the correspondence prior to the issue of the statutory demand in which the plaintiff had suggested that there was some limitation of $150,000. The plaintiff gives no details of the assertion that he had paid more than $150,000 for the defendant’s legal costs. The exhibits to the defendant’s affidavit show payments since 2002 of much less than $150,000. The plaintiff has not joined issue with this. He has not shown that any such payments related to the costs which are the subject of the Demand. I find that his alleged grounds of a genuine dispute and an offsetting claim are not bona fide and are not an answer to the Demand: Bentham Management Pty Ltd v Union Finance Pty Ltd (2007) 247 LSJS 103.
Genuine dispute based on some of the costs not being due for payment under the Deed.
Although the Deed provided that the defendant’s costs would be payable within 48 months of the presentation of an invoice, Mr Hoberg deposed in paragraph 32 of his affidavit:
32Further, the Deed provides for payment within 48 months of presentation of an invoice, but the defendant and I agreed at the time of entering into the Deed in June 2003 that until the ACCC matter was finalised.
…..
34I verily believe that the ACCC matter was not finalised until in December 2004 or early 2005.
35The plaintiff claims that there is a genuine dispute with the debt claimed on the basis that the date of the Statutory Demand the claimed legal fees were not yet due and payable.
In response the defendant said in paragraphs 17 and 18 of his affidavit:
17In respect of paragraph 32, 33, 34 and 35 I say that I was assured that my invoices would be brought up to date within 48 months from the date of issue of the last account rendered to the Plaintiff by me on or before the execution of the Deed, that is before the 5th June 2003.
18I did not agree that all outstanding fees would become payable under the Deed for four years from the finalisation of the ACCC matter, but rather 4 years from the date of the last invoice issued before the execution of the Deed, even so the ACCC matter finalised on 14th August 2003 with the argument on costs in October 2003, all of which are over 4 years ago.
The plaintiff’s case on its affidavit was that the costs would become due four years after the finalisation of the ACCC matter. (Neither in the affidavit nor in submissions of its counsel did the plaintiff seek to rely on the actual terms of the Deed on this point, although it may have been partly to its benefit to have done so). I accept that the defendant as the solicitor running the litigation is likely to have a better knowledge of when the ACCC case was finalised. The plaintiff has not sought to answer the defendant’s affidavit on the point by exhibiting Court documents or the like which would be better evidence on the topic. The plaintiff’s evidence as to when the ACCC action was finalised is spurious and misconceived and cannot be accepted as the basis for a genuine dispute that all of the costs had not become due for payment before the demand was served.
The defendant also sought to support his case by reference to the acceleration provisions for the time of payment in Clause 13 of the conditions of the Deed, but that is problematical as neither party was relying on the terms of the Deed in their respective contentions about when the costs did become due for payment.
Retainer agreements not fair or reasonable.
Although the plaintiff initially said there was no retainer agreement, the defendant said that there were unsigned retainer agreements which had been explained to the plaintiff and accepted by it by its conduct which entitled the defendant to charge for his work on a time costing basis rather than on the relevant Court scales. The plaintiff submitted that these agreements, if they were found to exist, could be set aside under s 42(7) of the LPA as being not fair and reasonable. This is a matter to be pursued on the 6R 272 taxation of costs. However, even if that argument succeeds, the defendant would still be entitled to his costs assessed on the relevant Court scale. While they would probably be substantially less than under time costing agreements they nevertheless would be a substantial amount. The plaintiff’s counsel submitted that it was reasonably possible that if the costs were taxed on scale, they may not exceed the $150,000 which the plaintiff contended it had already paid. I have commented upon the weakness of this assertion earlier. There is also no basis on the evidence before me at present to find that the retainers were not binding (McNamara v Kasmeridis (No 1) (2005) SASR 382) or that, if they are binding agreements, they could be set aside as unfair or unreasonable: McNamara v Kasmeridis (No 2) (2007) SASR 129. The plaintiff has not sought to contradict the defendant’s affidavit where he deposes that the retainer agreements were explained to the plaintiff’s representatives and apparently accepted by them. I do not accept the plaintiff’s contention that in such a situation I should find that there is some “other reason” for the demand to be set aside under s 459J(1)(b) of the Act, or that there is a genuine dispute to some part of the costs claimed.
Defects in the Demand.
S 459J(1) of the Act provides:
On an application under s 459G, the Court may by order set aside the demand if it is satisfied that:
(a)because of a defect in the demand, substantial injustice will be caused unless the demand is set aside …..
The plaintiff relied on three principal defects in the Demand:
·In its schedule, quoted above, the debt was described as “due pursuant to the Deed”. The Deed did not impose any liability on the plaintiff to pay for legal services. That liability emanated from the retainer agreements. The Deed only provided security for payment of those legal costs. However, in addition it did impose in clause 2 a liability for interest. Insofar as the retainer agreements provided for interest, that interest obligation was superseded by clause 2 of the Deed. Nevertheless, the plaintiff’s liability for a major part of the moneys claimed in the Demand did not primarily arise from the Deed.
·In respect of each liability of the plaintiff to the defendant for legal costs, which were part of the debt claimed, it was necessary that the Demand should have identified each such liability separately: Condor Asset Management Ltd v Excelsior Eastern Ltd (2005) 56 ACSR 223 at 229-232, but it did not even refer to legal costs let alone identify them. The amount claimed in the Demand was the balance of a running account made up of various charges for legal services, credits for various payments on account and debits for interest accrued under clause 2 of the Deed. There was no breakdown of this running account in the Demand.
S 459J(1)(a) of the Act only enables a Demand to be set aside if the plaintiff shows that these defects in the Demand would cause it substantial injustice if the Demand is not set aside. The onus is on the plaintiff to show such “substantial injustice”. It is a question of fact to be determined on the affidavit evidence before the Court. I find that the defects relied on by the plaintiff do not constitute any “substantial injustice” for the purposes of subs (1)(a) for the following reasons:
·While the liability for legal costs arose under many separate retainers, the totality of that liability, insofar as it remained outstanding, was the subject of the Deed. The effect of the Deed was to bring all of the invoices for legal services rendered to the plaintiff by the defendant together and to impose a liability on the plaintiff for interest on the outstanding balance. While it was not legally correct that the liability for the legal costs arose from the Deed the plaintiff could have been under no misapprehension that the amount claimed in the Demand as being pursuant to the Deed was the totality of the legal costs plus interest less payments made on account.
·Over a substantial period of time the plaintiff had received numerous accounts, invoices and items of correspondence from the defendant concerning its outstanding indebtedness to the defendant. The plaintiff has not sought to contradict the defendant’s evidence about these matters. It is clear from reading the voluminous exhibits to the defendant’s affidavit that substantial information about the way in which the amount claimed was made up had been given to the plaintiff. Insofar as it alleged that it was never able to achieve a proper reconciliation of all of the amounts claimed and payments made, it has made no attempt by an affidavit in response, or in its submissions, to show that the material supplied by the defendant was not sufficient for it to reasonably understand the basis for the whole of the defendant’s claim against it.
·Nowhere in the correspondence exhibited did the plaintiff challenge its liability for the legal costs claimed by the defendant. It did no more than seek further information and request additional time to pay.
·Apart from the matters dealt with elsewhere in these reasons, the plaintiff did not suggest that if proper details of the defendant’s claim for legal charges had been included in the Demand it would then have been able to pursue any other challenge to those charges. The defendant’s affidavit has given the plaintiff the material which should have been in the Demand, and more, but no bases have been shown to mount any additional challenge to the Demand based on that material. In other words, if the Demand had been properly expressed there is no likelihood that the plaintiff could have raised other grounds of challenge which it has not in fact pursued.
“Other reason” for the Demand to be set aside.
S 459J(1) also provides:
(b)There is some other reason why the demand should be set aside.
The plaintiff relied on alleged errors in the defendant’s affidavit supporting the demand, as quoted above, that the liability was said to emanate from the Deed and it only referred to a single debt. Although it has not been expressed correctly as a matter of law, I am satisfied that the affidavit does correctly reflect and support the defendant’s claim for $675,522. For similar reasons to those given above in relation to defects in the Demand the inaccuracies in the affidavit are not such as to constitute a sufficient “other reasons” to set aside the Demand. It is not necessary for the affidavit to depose to the grounds of the debts: H’van Steel Services Pty Ltd v DCT (2004) 211 ALR 327.
Accordingly, the plaintiff’s application to set aside the demand is refused.
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