Cavallaro v FNE Lawyers - [2012] SASC 189

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
CAVALLARO v FNE LAWYERS
[2012] SASC 189
Reasons of Judge Lunn a Master of the Supreme Court
16 October 2012
PROCEDURE - COSTS
Lawyer sued client for his costs in Magistrates Court which adjourned hearing for the costs to be taxed in this Court under s 42 of the Legal Practitioners Act 1981 – client sought variation of retainer agreement under s 42(7) for costs to be assessed on the Family Law Act 1975 Scale and not on the Supreme Court Scale – held it was for the Supreme Court, and not the Magistrates Court, to determine which was the applicable scale – as the costs claimed were for acting in a matrimonial matter in the Federal Magistrates Court the Family Law Act Rules on costs as between lawyer and his own client did not apply to the proceedings in the Federal Magistrates Court.

CAVALLARO v FNE LAWYERS
[2012] SASC 189
JUDGE LUNN:
Reasons on the preliminary issue of the scale on which the costs are to be adjudicated
Definitions

The applicant, Domenico Cavallaro, is referred to as the client. The respondent, FNE Lawyers, which was the trading name of Francis Elekwachi, is referred to as the lawyer.
Background
At about the beginning of 2008 the client’s former wife instituted proceedings against him in the Federal Magistrates Court in Cairns seeking orders for a property settlement. The client consulted a Queensland lawyer, Mr Lago, who quoted him fees of between $300 and $350 per hour plus GST to defend the Federal Magistrates Court proceedings and also required an immediate payment of $4000 into his trust account. The client did not then retain Mr Lago.
In late March 2008 the client approached the lawyer about him acting for him. The lawyer accepted the instructions. The client signed a written retainer agreement which is dated 27 March 2008. It provided the lawyer would charge his fees by reference to the Supreme Court of (South) Australia scale of costs.[1] It also provided that subject to certain conditions, the lawyer’s fees would not become due for payment until the matter was resolved.
[1] The scale annexed to the agreement was Schedule 1 to the Supreme Court Civil Rules 2006.
The lawyer then acted for the client in the Federal Magistrates Court proceedings. His application to have the proceedings transferred to the Adelaide Registry of the Federal Magistrates Court was unsuccessful. In about September 2008 the client terminated the lawyer’s instructions and instructed Mr Lago to act in the matter. On 23 September 2008 the client signed a payment authority directed to Mr Lago authorising him to pay to the lawyer his costs of $25,299. The proceedings were subsequently settled on terms which the client now regards as disadvantageous to him. None of the lawyer’s costs have been paid.
The client lodged a complaint about the lawyer with the Legal Practitioners Conduct Board. The Board obtained a report dated 3 November 2009 from a costs assessor, Ms Woodhead, who calculated the costs properly payable to the lawyer at $16,618.53 on the basis of the Family Law Act 1975 Scale. The lawyer objected that this was not the applicable scale. The Board obtained a second report from Ms Woodhead dated 26 February 2010[2] in which she calculated the costs payable to the lawyer on the Supreme Court Scale at $23,387.50. The Board subsequently determined that the costs were payable on the Supreme Court Scale and were properly fixed at $23,387.50. The lawyer accepted a recommendation of the Board that he reduce the amount he claimed to that figure.
[2] Neither of the reports of Ms Woodhead are in evidence before me.
On 10 May 2011 the lawyer sued the client in the Magistrates Court for $23,387.50. The client defended the action and represented himself. There was a three day trial in January 2012 before Mr Millard SM. On 21 March 2012 Mr Millard SM delivered a detailed set of reasons and found that the client was liable to pay the lawyer his fees for a sum to be fixed by a taxation in this Court under s 42 of the Legal Practitioners Act 1981[3] (“the Act”). He then adjourned the proceedings for that taxation to occur.
[3] Section 42 refers to a taxation of costs but 6R 272 of the Supreme Court Civil Rules 2006 refers to the process as an adjudication.
On 15 June 2012 the client instituted this action seeking a taxation of the lawyer’s costs under s 42. As part of his proceedings he has also sought an order under s 42(7) of that Act that the retainer agreement of 27 March 2008 be varied on the grounds that it was not fair and reasonable in providing that the costs should be payable on the Supreme Court Scale and not the Family Law Act Scale. I directed that I should first determine a preliminary issue on the adjudication of whether the costs were to be adjudicated on the Supreme Court Scale or on the Family Law Act Scale. Until the correct scale is ascertained, it is impossible for the lawyer to file a meaningful itemised schedule of the costs for adjudication. In this action the client has represented himself.
The evidence
I have before me affidavits of Mr Elekwachi filed on 14 September 2012 (FDN6) and of the client filed on 26 September 2012 (FDN7). In the course of his submissions the client made reference to some other affidavits which are not on the Court file and which I presume he sought to file but were rejected by the Court registry. These affidavits do not appear to be crucial to the determination which I need to make. Reopening the hearing to consider if they should be received would only add significantly to the costs. Regrettably, the costs of this action will almost certainly exceed the amount which is at stake. Neither party sought to cross-examine on the affidavits which are before me.
Reasons of Mr Millard SM
By virtue of the relevant legislation, recovery of lawyers’ costs from clients can require separate proceedings in two different courts. It is for the Magistrates Court to determine the retainer and the contractual liability of the client to the lawyer and it is for this Court to determine the proper quantum of the costs which are payable.[4] I am not sitting on appeal against the findings of Mr Millard SM. There is probably an issue estoppel between the parties arising from his findings, insofar as he had jurisdiction to make them, which now prevents them being contested in these proceedings.
[4] Von Doussas Legal Pty Ltd v NASR (2009) 105 SASR 46 at 58-60.
It is necessary to ascertain the precise boundaries of the jurisdictions of this Court and of the Magistrates Court in this matter. At [81] of his reasons Mr Millard found that the retainer agreement “entitles the bill to be drawn on the Supreme Court Scale”. I do not consider that it was within his jurisdiction to determine this. The appropriate scale is only relevant to the quantification of the costs. Issues of quantification are for the Supreme Court and not the Magistrates Court. Therefore, I do not consider myself bound by Mr Millard’s determination on the point. I determine it afresh as a matter to be decided as part of the preliminary question in this action.
In his papers the client has raised issues of negligence and breach of duty by the lawyer in his conduct of the Federal Magistrates Court proceedings. It is likely that he will seek to raise these issues on the adjudication. Negligence issues can only be raised where they are confined to the quantum of a particular item of costs claimed in the itemised schedule. Where any wider loss is claimed by the client the issues need to be resolved in separate proceedings.[5] Here the client has not brought any counterclaim in the Magistrates Court proceeding. It will be for the Magistrates Court now to decide whether he should now be permitted to do so. If he does not do so, he may be barred by Anshun estoppel[6] from raising it in subsequent proceedings.
[5] Dal Pont “Law of Costs” 2^nd Ed paras [5.35-5.39].
[6] See Civil Procedure South Australia [6R 193.55.15].
The applicability of the Family Law Act Scale
The client’s former wife instituted her proceedings in the Federal Magistrates Court. It was never transferred to the Family Court of Australia and as far as I am aware no application was made to do so. As a proceeding in the Federal Magistrates Court it was governed by the Federal Magistrates Court Rules 2001. Those Rules are silent on issues of costs as between parties and their own lawyers. Rule 1.05(2) of those Rules provides:
1.05(2)However, if in a particular case the Rules are insufficient or inappropriate, the Court may apply the Federal Court Rules or the Family Law Rules 2004…in whole or in part and modified or dispensed with, as necessary.
Rule 1.05(3) of those Rules provides:
1.05(3) Without limiting subrule (2):
(a)the provisions of the Family Law Rules set out in Part 1 of Schedule 3 apply, with necessary changes, to family law…proceedings…
None of the Family Law Rules relied upon by the client appear in Part 1 of Schedule 3.
Rule 1.05(2) only applies where the Federal Magistrates Court makes an order that those particular Rules under the Family Law Rules 2004 are to apply to the Federal Magistrates Court Act proceedings. There is no suggestion that the Federal Magistrates Court made any such order in respect of the proceedings between the client and his former wife. Hence the parts of Chapter 19 of the Family Law Rules 2004, which applied before 1 July 2008 relating to costs notices to be given to clients and regulating the charges to be made by lawyers to their own clients in proceedings governed by those Rules, did not apply in this matter.[7]
[7] Jones v Brian Deegan & Associates Withers M, 31 March 2011, [2011] SASC 44.
By R 19.19 of the Family Law Rules 2004 the scales laid down in Schedules 3 and 4 of the Rules are only party and party scales. There is no evidence that any lawyer would have accepted that scale for the costs as between solicitor and own client.
The client complains that it cannot be the law that the costs chargeable for proceedings in the Federal Magistrates Court, which is an inferior court to the Family Court of Australia, could be more than the costs chargeable if the same proceedings had been brought in the Family Court of Australia. However, that cannot override the clear, proper interpretation of the Federal Magistrates Court Rules which I have set out above. As will be mentioned later, it may be that the issue can be addressed under Note A to the Supreme Court Scale, but that is not a matter for determination on this preliminary issue.
Whether the retainer agreement was fair and reasonable?
The fairness and reasonableness of the retainer agreement is to be assessed on the circumstances which existed at the time of its making, and not in the light of subsequent events except insofar as they were relevant to the current circumstances at the time it was made.[8] For the purposes of this exercise I act on the client’s version of what occurred, but the lawyer contests some of it. It is not necessary to resolve the disputed issues.
[8] McNamara Business & Property Law v Kasmeridis (No 2) (2007) 97 SASR 129 at [45].
It was not necessary for the lawyer to supply a copy of the costs notice under the Family Law Rules, as those Rules did not apply to the action in the Federal Magistrates Court. In any event, the client already had received such a notice from Mr Lago.
Even if the client was not given an opportunity to take the retainer agreement away and read it before signing it, and did not get a copy of it afterwards, that does not give rise to relevant unfairness. There is no suggestion that even if he had been able to take it away and read it he would not have signed it. He said he could have sought quotes from other lawyers for their terms of acting. However, there was no evidence that any other lawyer would have given him more favourable terms.
The alleged statement by the lawyer that “he would look after me”, in its context, was referring to the time for paying the legal costs and not to the amount of them. It was in response to the client saying that he could not afford such fees. It was expected that there would be assets available at the conclusion of the property settlement from which the costs could be paid. The retainer agreement gave a generous delay in the time for payment. It was not unfair.
The client alleged that a cap of $3000 had been placed on the costs for the work which the lawyer was instructed to carry out. Mr Millard SM has found against the client on this and he cannot reargue it in this action.
The failure of the lawyer to explain to the client the difference between the Supreme Court Scale and the Family Law Act Scale is irrelevant as the Family Law Act Scale had no direct application to the proceedings.
The lawyer did not inform the client that other lawyers would be prepared to act for him in the matter for costs based on the Family Law Act Scale. This can only be relevant to fairness if there were lawyers who were so prepared to act. There is no evidence of it. In time-based costing disputes, such as McNamara Business & Property Law v Kasmeridis (No 2) above, the Court has taken judicial notice of the fact that there are lawyers who will act for costs based on the Supreme Court Scale, which is almost invariably less than a time-costing scale. There is no basis for taking such judicial notice here. The instructions were not of a routine kind where it might be expected lawyers would be prepared to cut their charges in order to get the work. Here the client was alleging fraud, and apparent perjury, by his former wife which would almost certainly be difficult to prove and require a great deal of effort and expertise from the lawyer.
Accordingly, I do not find the retainer agreement was unfair or unreasonable for the purposes of s 42(7) of the Act.
On the preliminary issue I rule that the costs are to be adjudicated on the Supreme Court Scale as it existed at the relevant time.
Note A to that Scale allows the taxing Master to increase or reduce the amounts in the Scale for particular items of work. In relation to solicitor and own client adjudications for work done in the Magistrates Court of South Australia there is precedent for the Court allowing only a percentage of the Supreme Court Scale to reflect that the work was done in a lesser jurisdiction.[9] I am not aware of it ever having been applied in respect of the Federal Magistrates Court, but the point is open for argument. Also, some of the costs claimed here do not directly relate to the prosecution of the Federal Magistrates Court action, but are relating to caveats where Supreme Court Scale would usually apply.
[9] See Carter v Coombe (1989) 154 LSJS 317; Director of Public Prosecutions v Su (1996) 19 ACSR 572; Anderson v Glen Ewin & Staff Pty Ltd (1985) 41 SASR 42 at 46. These cases all deal with party and party costs in the criminal jurisdiction of the Magistrates Court and its predecessor. The same principle of using a percentage of the Supreme Court Scale has also been regularly used in taxing costs between solicitors and their own clients under s 42 of the Act in respect of civil proceedings in the Magistrates Court and its predecessor, but I cannot find it mentioned in any reported case. Similarly R 19.40 of the Family Law Rules 2004 provides that only 80 per cent of costs is to be recovered for work done in courts of summary jurisdiction or similar claims.
I have today made the following orders:
1On the preliminary issue I rule that the costs are to be taxed on the applicable Supreme Court Scale.
2The lawyer is to file an itemised schedule of the costs within 14 days.
3The client is to file a Notice of Dispute within 28 days of service of the itemised schedule.
4Adjourned to a directions hearing on Thursday 31 January 2013 at 2.45pm.
I point out to the client that he has a right of appeal against my determination of the preliminary issue.[10] Such an appeal needs to be lodged within 21 days and a fee of $2296 is payable on its lodgement unless a waiver of fees can be obtained.
[10] As to the right of appeal see Catto v Hampton Australia Ltd (in Liq),Full Court, (2008) 257 LSJS 245 at 251-252. Such an appeal may also require permission under 6R 288(1)(b).