Equuscorp Pty Ltd v Wilmoth Field Warne (a firm)

[2007] VSCA 280

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No. 6284 of 2003

EQUUSCORP PTY LTD (ACN 006 012 344)

v

WILMOTH FIELD WARNE (A FIRM)

AND BETWEEN

WILMOTH FIELD WARNE (A FIRM)

v

EQUUSCORP PTY LTD (ACN 006 012 344)

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JUDGES:	BUCHANAN, ASHLEY and NEAVE JJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	13 and 14 March 2007
DATE OF JUDGMENT:	10 December 2007
MEDIUM NEUTRAL CITATION:	[2007] VSCA 280

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Legal practitioners – Costs – Contract – Costs agreement – Whether party could reopen its case after the hearing was complete to plead that costs agreement was void – Election – Estoppel – Whether costs agreement void – Whether disbursements recoverable under void agreement – Whether costs recoverable on a quantum meruit under void agreement – Legal Practice Act1996 (No 35), ss 97, 98, 99, 102.

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APPEARANCES:	Counsel	Solicitors
For the Appellant/Cross Respondent	Mr M L Sifris, SC with Mr S J Maiden	Phillip Kotsanis
For the Respondent/Cross Appellant	Mr R M Garratt, QC with Mr M K Moshinsky	Minter Ellison

BUCHANAN JA:
ASHLEY JA:
NEAVE JA:

1. The appellant (‘Equus’) until 1992 carried on business as a financier.  Since then its principal activity has been the recovery of debts and enforcing collateral obligations, principally by litigation.  In order to conduct the litigation Equus employed solicitors, among them the respondent (‘WFW’). 

1. Equus and WFW executed a deed (‘the agreement’) dated 25 September 2002, which provided the terms upon which they conducted their professional relationship.  The agreement provided for two rates at which WFW was to be remunerated:  a ‘normal rate’ of $400 per hour and a ‘discount rate’ of $66 per hour.  WFW were to render monthly bills showing professional costs at both rates.  Payment was to be made on an interim basis at the discount rate.  The normal rate was to be paid upon a ‘successful result’, which included the achievement of a settlement or judgment and the recovery of money.  Certain disbursements paid by WFW were to be reimbursed with the monthly accounts;  other disbursements were to be reimbursed only upon a successful result.

1. Money recovered as a result of litigation was to be appropriated in a specified order of priority.  After reimbursement to Equus of disbursements and certain expenses incurred, the proceeds were to be shared between WFW and Equus on a dollar for dollar basis until all legal fees at the normal rate were paid.  Equus was entitled to the surplus, if any.

1. The parties fell out, and on 17 June 2003 Equus commenced proceedings against WFW alleging that the defendant had breached various express and implied terms of the agreement.  It was also alleged that Equus had terminated the agreement and thereupon the liability of Equus to pay fees to WFW became fixed, that Equus had paid all sums due to WFW and that Equus had become entitled to delivery up of files, which were wrongly retained by WFW.  A further claim was that in order to recover certain files Equus had been required to provide security, and the provision of that security prevented Equus from pursuing a commercial venture, thereby causing it loss.

1. By counterclaim, WFW sought, inter alia, a declaration that it was entitled to a lien over files it had created in the course of working for Equus and payment of fees said to be due under the agreement. 

1. Certain questions were tried between December 2003 and March 2004 and decided in June 2004. The remaining issues raised by the pleadings were tried in October 2005. Some six weeks after the conclusion of this second trial, and before judgment was delivered, Equus applied for leave to re-open its case and to amend its pleadings to allege that the agreement contravened ss 97, 98 and 99 of the Legal Practice Act 1996 (‘the Act’) and accordingly, by reason of the provisions of s 102, the agreement was void and WFW was not entitled to recover the fees it claimed. The trial judge granted the applications.

1. The issues raised by the amendments were the subject of a third trial, which commenced on 3 February 2006. The trial judge held that the agreement was void pursuant to s 102 of the Act, which provided that a costs agreement contravening s 97, s 98 or s 99 was void. His Honour held that the agreement made on 25 September 2002 contravened s 98 in that it provided for uplifted fees, and that the premium amounted to a specified percentage exceeding 25 per cent of the costs otherwise payable on a successful outcome.

1. On 7 April 2006 the judge made, relevantly, the following orders:

1.Declare that the deed of costs entered into between the Plaintiff and Defendant dated 25 September 2002 is void pursuant to s 102(1) of the Legal Practice Act 1996.

2.There is judgment for the Plaintiff on the claim and for the Defendant by counterclaim on the counterclaim.

3.        The application of the Plaintiff to re-open its case is refused.

4.The costs of the proceeding including reserved costs be dealt with as follows:

(a)The costs of the Defendant and the Plaintiff by counterclaim up to and including 14 October 2005 referred to in ‘part b’ be paid by the Plaintiff.

(b)The costs referred to in ‘part a’ in default of agreement be taxed on a party and party basis other than those incurred after 22 December 2004 in respect of the claims for relief set out in paragraphs D, E, F and H of the prayer for relief in the amended counterclaim, which costs shall be taxed on a solicitor client basis.

(c)The Defendant’s costs of the Plaintiff’s application to amend made on the 5 December 2005 be paid by the Plaintiff.

(d)The Plaintiff’s costs of the hearing on 2 February 2006 be paid by the Defendant.

(e)There be no order for the costs of the hearing on 3 April 2006 or on this day.

1. Before the Court is an aspect of an appeal by Equus, and most aspects of a cross-appeal by WFW.  By its Notice of Appeal Equus challenges the decision of the learned trial judge to dismiss its claim for loss of opportunity damages – which it quantifies at about $5.3 million.  That challenge occupies the first 39 grounds of the Notice of Appeal, a document apparently prepared by Equus’s in-house solicitor.  Equus secondly challenges the order made at trial as to costs.  The complaint, particularized in paragraphs 40-42 of the Notice of Appeal, is in substance that the learned trial judge did not give Equus all the costs, notwithstanding that it succeeded in part on its claim and entirely on WFW’s counter-claim. 

1. On 28 July 2006, Nettle and Neave JJA ordered, in effect, that grounds 5 and 6 of the Notice of Appeal should be heard at the same time as at the hearing of grounds 1-8 of WFW’s cross-appeal; and that pending hearing and determination of the issues encompassed by those grounds, the reminder of the appeal should be stayed.  Grounds 5 and 6 of the Notice of Appeal read as follows:

5.The trial judge erred in presuming that the invalidity of the Deed of Costs did not mean that the plaintiff was not liable to pay any disbursements.

6.The trial judge should have found that the invalidity of the Deed of Costs meant that the plaintiff was not liable to pay any disbursements.

1. Then there is the cross-appeal by WFW.  The effect of the order made on 28 July 2006 is that the issues now raised for this Court’s consideration by the cross-appeal are as follows:

·Whether the trial judge erred in allowing Equus to reopen its case to plead the provisions of the Act.

·Whether the trial judge erred in holding that Equus was not precluded from challenging the validity of the agreement on the basis of election or estoppel.

·Whether the trial judge erred in holding that the agreement was void.

·Whether, if the agreement is void, WFW can recover disbursements and remuneration on a quantum meruit basis.

1. The first issue which we have just identified seeks to challenge interlocutory orders.  WFW applied, so far as might be necessary, for leave to appeal in that connection. 

1. Having regard to the confined issue which is to be agitated on the appeal, it is desirable to focus upon the subject matter of the cross-appeal.  The issue raised by the appeal can be conveniently disposed of in the course of doing so. 

Did the trial judge err in allowing Equus to re-open its case and amend its pleadings?

1. The application made by Equus to the trial judge was, as we have already said, in effect two applications—first an application to re-open its case after the hearing was completed, and secondly an application for leave to amend its pleadings (both its claim and its defence to WFW’s amended counterclaim) to contend that the agreement was void under s 102 of the Act.

1. After discussion with counsel, his Honour granted the applications.  He said that he did so:

because the points were arguable and they turned upon questions of statutory construction without any need for further evidence, and because, if successful they would have  profound effect on the result.[1]

[1]Equuscorp Pty Ltd v Wilmoth Field Warne [2006] VSC 28, [5].

1. WFW seeks leave to appeal from his Honour’s interlocutory orders on the basis that they are attended with sufficient doubt to justify the granting of leave.  It is said that leave to appeal should be granted because there would have been a different outcome in the proceedings below, if his Honour had refused Equus’ applications. 

1. So far as the merits of the appeal against these interlocutory orders is concerned, WFW contends that the discretion of the trial judge miscarried.  It is said that his Honour took insufficient account of the fact that two trials had already been conducted on the assumption that the agreement was valid.  WFW alleges that the situation is similar to that in Manwelland Pty Ltd v Dames and Moore Pty Ltd,[2] in that reopening amounted to ‘a wholesale restructuring and revision of the plaintiff’s case’.[3]  It is contended that the earlier proceedings imposed significant financial costs and emotional strain on WFW’s four equity partners and that an award of costs against Equus would not overcome the prejudice caused by its failure to raise the issue of the validity of the agreement at an  earlier stage in the proceedings.

   [2][2001] QCA 436.

   [3]Ibid, [33].

1. In oral argument WFW’s counsel submitted that it was not open to his Honour to conclude that it was in the interests of justice to grant leave.  Counsel said that, in addition to the two trials conducted by his Honour before the application was made by Equus, an arbitration under clause 24 of the agreement had commenced in November 2005, although it had not been completed when his Honour made his orders.[4] 

   [4]The arbitration began on 28 November 2005 and continued throughout November, December January and February.  On 23 May 2006 the arbitrator published his interim award in relation to the majority of issues, dismissing Equuscorp’s claim on all issues that were decided.  Following submissions, the arbitrator determined that each party should bear its own costs of the arbitration.  Pursuant to the Commercial Arbitration Act 1984 WFW appealed this costs determination to a single judge sitting in the Practice Court of the Supreme Court.  On 26 November 2006, that judge dismissed the application but on 15 February 2007 the Court of Appeal allowed an appeal and remitted the matter back to the arbitrator for determination according to law: see Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28.

1. Counsel for WFW also contended that the learned judge below had not fully appreciated the implications of permitting Equus to reopen its case after the second trial had been completed.  In particular, the submissions put to his Honour on behalf of Equus had indicated that the issue was concerned only with a point of law.  Counsel for Equus had not made it clear to his Honour that, if the application was successful, Equus would seek to reargue its case that it was entitled to damages for loss of opportunity, because it had been required to provide security for payment of its legal fees under the agreement.

1. Finally, counsel for WFW referred to the affidavit of Nicola Russo, sworn 5 December 2005 in support of Equus’ application to reopen its case. Mr Russo deposed that ‘in the period leading up to’ the arbitration he realised he had not considered the impact of the Act on the proceedings. Counsel for WFW submitted that his Honour should not have granted leave to reopen or amend because the issue as to the validity of the agreement was one which would have been identified and raised in the earlier stages of the proceedings if Equus’ legal advisers had exercised reasonable diligence.

1. Counsel for Equus submitted that the issue of the validity of the costs agreement was a discrete point which could have been raised in the alternative, so that permitting Equus to re-open did not amount to wholesale reconstitution of its case.  Equus’ claims for loss of opportunity had been pleaded in the first statement of claim and his Honour had taken account of all the implications of re-opening the case after the second trial.  All relevant factors had been weighed by his Honour in determining whether the orders sought by Equus should be made, including Mr Russo’s explanation for the issue not having been previously raised, and the prejudice suffered by WFW if the case were reopened.

1. This Court will not interfere with the exercise of his Honour’s discretion, unless it is shown that it was based on incorrect principles, or took account of irrelevant considerations, or that the decision is so unreasonable that error must have occurred.[5]  The submissions made by WFW and Equus referred both to the principles governing the grant of leave to amend pleadings[6] and the principles relating to the exercise of the discretion to permit reopening of a case.

   [5]House v the King (1936) 55 CLR 499, 504–505.

   [6]For example both parties relied on Ketteman v Hansel Properties Ltd [1987] AC 189, a case concerning leave to amend.

1. A party will normally be given leave to make amendments to pleadings necessary to enable the real questions in controversy between the parties to be determined, provided that any consequential prejudice to the other party can be compensated by the imposition of terms, such as an adjournment or costs orders.[7] 

   [7]          Commonwealth v Verwayen (1990) 170 CLR 394, 456 (Dawson J) (“Verwayen”); State ofQueensland v JL HoldingsPty Ltd (1997) 189 CLR 146, 154 (Dawson, Gaudron and McHugh JJ). See also Rule 36.01 of the Supreme Court (General Civil Procedure) Rules 2005.

1. Although leave will generally be given to a party to amend pleadings where it is necessary in the interests of justice,[8] the facts of this case are unusual.  Equus did not seek leave to amend its pleadings prior to or during the hearing of its case, but after two hearings had concluded and a judgment on preliminary issues had been handed down.  There is a significant difference between this situation and the situation in State ofQueensland v JL HoldingsPty Ltd,[9] where the High Court held that the judge below had erred in refusing to grant leave to the respondent to amend its pleadings before the final hearing, but after a number of contested interlocutory hearings.  The circumstances in this case are closer to those in Ketteman v Hansel Properties Ltd,[10] where the House of Lords held that the interests of justice did not require the grant of leave to a party who sought to amend its defence to raise a limitation plea, during counsel’s closing addresses.

   [8](1997) 189 CLR 146.

   [9]Ibid.

   [10][1987] AC 189.

1. In such circumstances, the principles governing the exercise of the discretion to reopen a final judgment after it has been handed down, but before orders have been perfected,[11] have some relevance, though they may not be directly applicable. In De L v Director General, NSW Department of Community Services (No 2)[12] Toohey, Gaudron, McHugh, Gummow and Kirby JJ commented as follows:

The power of this Court to reopen its judgments or orders is not in doubt.  The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded “on a misapprehension as to the facts or the law, where “there is some matter calling for review” or where “the interests of justice so require”.  It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required “without fault on his part”, ie without the attribution of neglect or default to the party seeking reopening.  By such expressions of the power to reopen final orders, courts seek to recognize competing objectives of the law.  On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority.  On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice.[13]

[11]As to which see Smith v New South Wales Bar Association(No 2) (1992) 176 CLR 256, 265 (Brennan, Dawson, Toohey and Gaudron JJ). In Metwally v University of Wollongong (No 2) [1985] HCA 28 (Gibbs CJ, Mason, Wilson, Brennan, Deane and Dawson JJ) it was assumed without deciding that a court could vacate an order even after it had been perfected, though this power should be exercised with great caution. See also State Rail Authority of NSW v Codelfa Construction Pty Ltd(No 2) (1982) 150 CLR 29, 38; Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471.

[12](1997) 190 CLR 207.

[13]Ibid 215 (Toohey, Gaudron, McHugh, Gummow and Kirby JJ).

1. In that case the High Court had made a costs order in ignorance of a regulation providing that the Director should not be required to pay costs.  No reference had been made to the regulation in submissions made on behalf of the Director.  The majority of the court (Toohey, Gaudron, McHugh, Gummow and Kirby JJ) would have been prepared to reopen the orders, which had not been formally entered in the records of the court, but for the fact that there was another basis on which the orders could have been upheld.  It was recognised that:

[I]t is one thing to permit reopening of orders to allow consideration of a matter accidentally overlooked so that it may be taken into account.  It is another to provide relief where the party seeking it has, by its own admission, not done all to raise the point when it was timely and appropriate to do so.  Especially in this Court, judges are entitled to look to the parties, at least where they are legally represented, to defend their own interests and to alert the Court to any claimed immunities which rest upon legal provisions.[14]

[14]Ibid 223.

1. In our view, it was necessary for his Honour to give considerable weight to the fact that the application was made by Equus at a very late stage of the proceedings. The submissions made by both parties in the first trial in these proceedings assumed that the agreement was valid.[15]  The main issues determined by his Honour concerned the interpretation of clauses in the agreement, whether WFW had breached its terms and whether and when the agreement had been terminated.  In essence, his Honour held that WFW was entitled to payment of its fees calculated at the ‘normal rate’ until the operation of the agreement was terminated.[16]  The issues which were left to be resolved in the second trial related to WFW’s entitlement to costs from money recovered by Equus from defendants in the Beagle litigation and a claim by Equus for loss of opportunity damages for breach of contract by WFW in seeking an order that Equus provide security in the sum of $700,000 as a condition for WFW delivering certain files to it.

   [15]The questions in the Equus statement of claim which were determined in the first proceedings are set out in Equuscorp Pty Ltd v Wilmoth Field Warne (No 3) [2004] VSC 164, [7].

   [16]His Honour concluded that Equus had not terminated the agreement by its first and second notices of default.  Whether Equus terminated it by its third notice of default depended on allegations of default which were referred to arbitration.

1. In deciding whether to grant leave to Equus to reopen its case after the second trial had concluded, his Honour was required to consider the competing objectives of promoting finality in litigation and promoting the interests of justice.  Although the public interest in ensuring finality in litigation was not as powerful as in a case where a party seeks to reopen a case after orders have been made but not perfected,[17] it was still considerable. 

   [17]In Smith v New South Wales Bar Association (1992) 176 CLR 256, 266-67 (Brennan, Dawson, Toohey and Gaudron JJ) it was said that “different considerations may apply depending on whether the case is simply one in which the hearing is complete, or one in which reasons for judgment have been delivered” though that comment appears to relate to the admission of new evidence after the decision to permit re-opening had been made.

1. In determining whether the interests of justice required Equus to be permitted to re-open its case, his Honour was required to consider whether the prejudice to the WFW could be compensated by making appropriate costs orders.  In Ketteman v Hansel Properties Ltd[18], Lord Griffiths said that, in determining whether prejudice consequent on a party receiving leave to amend its defence could be compensated by making a costs order:

justice cannot always be measured in terms of money and a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes, and the legitimate expectation that the trial will determine the issues one way or the other. [19] 

A similar view was taken by the majority in Commonwealth v Verwayen.[20]

[18][1987] AC 189.

[19]Ibid, 220.

[20](1990) 170 CLR 394, 456 (Dawson J), 464-5 (Toohey J) and 482 (Gaudron J). See also Etna & Anor v Arif & Ors [1999] 2 VR 353, 367-368 (Batt JA) (Charles and Callaway JJA concurring); Shinn & Ors v Commonwealth of Australia [2004] VSC 221, [13]–[14] (Kaye J); Rebolledo v Royal & Sun Alliance Financial Services Ltd [2002] NSWSC 104, [32]-[33] (Palmer J); and Craven v Hidding [2004] TASSC 147, [22]- [24] (Blow J).

1. His Honour was also required to take account of the fact that the delay in raising the issue was due to an oversight on the part of Mr Russo and his legal representatives.  The fact that Equus was represented in both trials by experienced counsel, who might have recognised and raised the issue of validity of the agreement at a much earlier stage of the proceedings, militates against the grant of leave.  As Brennan J said in Autodesk Inc & Anor v Dyason & Ors (No 2),[21] where the application was made after orders had been pronounced:

A court should not pronounce a judgment against a person on a ground which that person has not had an opportunity to argue. However a sufficient opportunity to argue a ground is given when the ground is logically involved in a proposition that has been raised in the course of argument before the court or is to be considered by the court as an unconceded step in determining the validity of a conclusion for which one of the parties contends.[22]

[21](1993) 176 CLR 300.

[22]Ibid 308 (citations omitted).

1. On the other hand, reopening of Equus’ case did not require the admission of new evidence[23] and there was a public interest in having the issue as to the interpretation of the Act determined. Although an appropriate order for costs would not alleviate the strain which the litigation has imposed on WFW[24], an appropriate order for costs against Equus would reduce the extent to which WFW is affected financially by the reopening of the case.

   [23]Cf Whisprun Pty Ltd v Dixon (2003) 200 ALR 447, [51] (Gleeson CJ, McHugh and Gummow JJ) relating to the situation where the raising of a new point on appeal may require consideration of additional evidence.

   [24]As to which see Ketteman v Hansel Properties Ltd [1987] AC 189, 220; The State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, 170 (Kirby J).

1. On the facts of this case, the decision whether or not to grant leave to Equus to reopen its case and amend its pleadings was finely balanced.  The factors to be taken into account by his Honour were extensively discussed by the judge and counsel for Equus and WFW, before leave was granted.  In light of that discussion, we do not accept WFW’s submission that his Honour was not aware of the  full implications of granting leave.[25] Indeed, his Honour commented that the issue as to the validity of the agreement was ‘a killer point’ and ‘a point which overrides all the litigation that we have been involved in and, if it’s a good point, it’s all dead.’ 

   [25]Indeed his Honour confined the effects of the grant of leave by refusing to give leave to Equus to amend their statement of claim to cover moneys paid to WFW under earlier retainers.  [See AB B 14 and see AB B 18].

1. It was said that it would have been preferable for the trial judge to have referred specifically in his reasons to the weight to be given to the fact that two trials had been conducted on the basis that the agreement was valid. On the other hand, we have examined the transcript, and the discussion between his Honour and counsel makes it clear that his Honour took this matter into account. Further, his Honour was also entitled to give considerable weight to the fact that the reopening would permit resolution of a question of statutory interpretation involving a matter of public interest, that the court would not be required to consider new evidence to resolve this issue,[26] and that the prejudice to WFW could, at least to some extent, be dealt with by making appropriate costs orders.

   [26]As to the approach to be taken in such cases see McCarthy v McIntyre [2000] FCA 1250;[21] –[33]; Manwelland Pty Ltd v Dames & Moore Pty Ltd  {2001] QCA 436.

1. In our opinion his Honour applied the correct principles in exercising his discretion, and the decision he made was open to him.  The application for leave to appeal against his  Honour’s decision to permit Equus to reopen its case and amend its pleadings should be refused.

Election and Estoppel

1. In its defence to Equus’ amended statement of claim, WFW alleged that, even if the agreement was void under the Act, the principles of election and estoppel prevented Equus from denying its validity.[27]  His Honour found that neither election nor estoppel prevented Equus from asserting that the agreement was invalid.  Ground 7 of WFW’s notice of cross-appeal contends that the judge erred in holding that the principle of election did not apply and Ground 8 makes a similar submission in relation to estoppel.   We now consider whether WFW has made out either of these claims.

The factual basis for election or estoppel

[27]WFW did not argue that this was a case of waiver: see Craine v Colonial Mutual Fire Insurance Co Ltd (1920) 28 CLR 305. In Commonwealth v Verwayen (1990) 170 CLR 394, Mason CJ at 406–407 treated waiver as a concept which could be dealt with under the principles of estoppel and election and Deane J at 449 said that waiver was being absorbed by the more flexible doctrine of estoppel by conduct. See also Dawson J at 451, 458. By contrast, Brennan J at 424 and Toohey J at 475 regarded waiver as distinct from estoppel. Gaudron J at 485 regarded estoppel and waiver as different, but analogous principles.

1. Before considering the principles relevant to election and estoppel, it is necessary to refer to the factual basis of WFW’s assertions. The judge below found as follows:

Equus has, until very recently, relied upon various provisions of the deed of costs in litigation in this Court and in arbitration.  To this may be added the fact that it obtained the benefit of the various provisions of the deed of costs in the period prior to mid-2003 when WFW declined to act further as its solicitors.  To this may be added the fact that, during these same periods, WFW has also relied upon provisions of the deed and, further, it has incurred substantial detriment as a consequence.  It has incurred the trouble and expense of resisting the contentions of Equus based on its interpretation of the deed and, generally, of being engaged in hard and long fought litigation.

More controversial is the pleaded assertion that Equus has so acted with knowledge that the deed of costs contravened s 98 and s 99 of the Legal Practice Act. I make no such finding. There is no evidence that Equus, through any of its officers, had that knowledge. Indeed, the probabilities must be that it did not. It is most improbable that with such knowledge it would have embarked upon and continued this expensive litigation and then, at the death knock, raised this point. The more probable position is that this point has only recently come to its attention.[28]

[28]Equuscorp Pty Ltd v Wilmoth Field Warne (No 4) [2006] VSC 28, [23]-[24].

Election

1. WFW submits that in both the first and second trials Equus elected to enforce the agreement and the doctrine of election therefore precludes it from claiming that the Act makes the agreement invalid.

1. In Verwayen the doctrine of election was described by Brennan J as follows:

Election consists in a choice between rights which the person making the election knows he possesses and which are alternative and inconsistent rights. A doctrine closely related to election, and sometimes treated as a species of election, is the doctrine of approbation and reprobation.  This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercises.[29]

[29](1990) 170 CLR 394, 421.

1. When discussing the applicability of election to these circumstances, the judge below said:

In this case the necessary ingredients are lacking.  There are here no alternative and inconsistent rights.  Parliament dictates that this costs agreement is void.  Equus is given no choice.  In any event, I do not find that Equus had the necessary knowledge.[30]

Was there a right to elect?

[30]Equuscorp Pty Ltd v Wilmoth Field Warne (No 4) [2006] VSC 28, [25].

1. In relation to the right to elect, counsel for WFW relied on the decision of Starke J in Bienvenu v RSPCA,[31] in which it was held that, because an interlocutory order and costs had been awarded to a plaintiff in 1964 on the basis that the defendant’s by-laws were valid, she could not seek a declaration that the by–laws were invalid in later proceedings.[32]  By analogy, it was submitted that Equus could not approbate the agreement by taking proceedings to enforce it and later reprobate the agreement by denying its validity.[33]  WFW contends that Bienvenu v RSPCA is authority for the proposition that a person who takes action to enforce a right which is void under a statute cannot thereafter contend that right does not exist.

   [31][1967] VR 656.

   [32]Ibid 664. The by-laws did not comply with legislative requirements regulating procedures for their enactment.

   [33]Reliance was placed on Verschures Creameries, Ltd v Hull and Netherlands Steamship Company, Ltd [1921] 2 KB 608.

1. In our view his Honour was correct in holding that Equus did not have a choice between relying on the agreement and asserting its invalidity. Under the Act a client who enters into an invalid contingent fee agreement does not have a choice between enforcing the agreement and obtaining a declaration that it is invalid. If Equus did have a choice, the doctrine of election might have applied to prevent Equus claiming that the agreement was void.[34] 

   [34]This would depend on whether the situation was characterised as posing an election between inconsistent remedies or inconsistent rights.  Where a person has alternative remedies to enforce a right “no question of election arises until one or other claim has been pursued until judgment”  . See UnitedAustralia Ltd v Barclays Bank Ltd [1941] AC 1, 30 (Lord Atkin). By contrast, where the rights are inconsistent with each other, a person must choose between exercising one or other of them, see Sargent v ASL Developments Ltd (1974) 131 CLR 634, 641 (Stephen J). For an example of such a case see Suttons Motors Pty Ltd v Campbell (1956) 73 WN (NSW) 212. In Ciaverella v Balmer (1983) 153 CLR 438, 449, the distinction between alternative rights and remedies was described as “fundamental”.

1. Instead, s 102(1) of the Act provides that costs agreements which contravene any of ss 97, 98 and 99 of the Act, are void; and s 102(3) provides that where a costs agreement has been entered into in contravention of s 97(5), 98(3), or 99, the legal practitioner is not entitled to recover any sum in respect of the provision of legal services in the matter to which the costs agreement relates. In these circumstances Equus cannot be regarded as having two competing legal rights, one permitting enforcement of the agreement and the other entitling it to a declaration that the costs agreement was void. For that reason Equus is not precluded from relying on the invalidity of the agreement, even though it previously took proceedings to enforce it.

1. If Bienvenu does support the broad proposition on which WFW relies, we would be reluctant to follow it.  It is not necessary to decide the point because, in any event, the facts of this case are distinguishable.  Although the order made in favour of Bienvenu was formally interlocutory, it was final in effect and the plaintiff  obtained the benefit of that order, including costs.  That is not the case here.  Equus did not obtain a judgment enabling it to enforce the agreement against WFW and then seek to have the agreement declared void. 

Was Equus aware of the right to elect?

1. If, contrary to the view expressed above, his Honour was wrong in finding that Equus did not have a choice between enforcing the agreement and relying on its invalidity, it is necessary to decide whether his Honour erred in finding that Equus had insufficient knowledge of its rights to be put its election.

1. Counsel for WFW contended that it was unnecessary to show that Equus knew that the particular agreement was void.  It was sufficient to show that Equus was aware of the general existence of a right to claim a declaration that an agreement contravened the Legal Practice Act. Such knowledge could be inferred from the background to the litigation, including the fact Mr Russo relied on the Act in his statement of evidence in the arbitration.

1. The case law on this issue does not provide a clear answer to the question of whether it is necessary to show that a party is aware of facts which may give rise to a legal right, or whether more specific knowledge of the existence of the right is required.

1. In Verwayen Brennan J spoke of an election between rights which the person making the election knows that he or she possesses.[35]  This imposes a high bar for the application of the doctrine in a case such as this one, where there was uncertainty about the meaning of the legislation and the extent of the rights claimed.  Further, it is not clear whether Brennan J required a similar state of knowledge to apply for the purpose of the related doctrine prohibiting approbation and reprobation.

   [35](1990) 170 CLR 394, 421.

1. In Sargent v ASL Developments Ltd, Stephen J said that there was dispute as to whether:

knowledge of the facts giving rise to the legal rights suffices or whether, on the contrary, there must also be knowledge of the right of election between two available, inconsistent rights.[36]

[36](1974) 131 CLR 634, 643. See also the cases cited therein.

1. In that case it was ultimately held that knowledge of the facts giving rise to the right to rescind a contract was sufficient to put a vendor to his or her election to decide whether to rescind or affirm it.  Stephen J refrained from deciding whether the same principle applied in other situations, where it was alleged that a person had made an election between inconsistent rights.[37]  Mason J accepted that case law suggested that different states of knowledge were required in different contexts, but said that ‘the doctrine of election is of general application and that no good purpose is to be served by drawing distinctions in [the various applications of the doctrine of election] unless considerations of justice make it necessary or expedient to do so.’[38]

   [37]Ibid 644-645.

   [38]Ibid, 658.

1. Given our conclusion above, we do not need to finally determine the precise state of knowledge which is required before election will apply in a case which is not concerned with a choice between alternative rights arising under a contract.

Estoppel

1. The judge below also rejected WFW’s submission that Equus was estopped from claiming that the costs agreement was void because both contracting parties had acted on the basis of an assumption that the agreement was valid. In his view, estoppel was excluded by s 102 of the Legal Practice Act 1996.  His Honour did not decide whether the ingredients of an estoppel would otherwise have been made out. 

1. In his view, however, WFW could not have relied on estoppel because it would not have been unconscionable for Equus to rely on the statute. The requirement of unconscionability was not satisfied because, at the time that Equus sought to enforce the agreement, it did not know that the agreement contravened s 98 of the Act.

1. WFW contends that his Honour erred in finding that WFW could not rely on estoppel. 

1. We deal first with the question whether the elements of an estoppel were made out and, if so, whether that conclusion would permit WFW to enforce the agreement against Equus. We then go on to consider whether his Honour erred in finding that the policy expressed in s 102 excluded reliance on estoppel.

Were the elements of an estoppel made out?

1. WFW’s counsel submitted that the agreement had been carefully negotiated and Equus benefited from it over a lengthy period.  WFW had acted to its detriment on the basis that the agreement determined the rights and obligations of the parties.  Not only had it suffered financial loss, but the two previous trials had imposed emotional strain and financial costs on the four equity partners in the firm at the time of the first trial and the three equity partners at the time of the second trial.  Thus Equus should be estopped from denying the validity of the agreement.

1. As the learned judge below noted, the type of estoppel upon which WFW relies was traditionally classified as estoppel by convention.  The elements of this form of estoppel were set out in Con-Stan Industries of Australian Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd:

Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying … [T]here is no estoppel unless the alleged assumption has in fact been adopted by the parties as a conventional basis of their relationship.[39] 

[39](1986) 160 CLR 226, 244 (Gibbs CJ, Mason, Wilson, Brennan and Dawson JJ) (“Con-Stan Industries”).  See also Thompson v Palmer (1933) 49 CLR 507, 547 (Dixon J); Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 657 ( Latham CJ) 674 (Dixon J).

1. Circumstances of the kind described in Con-StanIndustries were held to give rise to an estoppel in Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Limited,[40] although Robert Goff J referred to it as a form of equitable estoppel, rather than estoppel by convention.  In that case, the defendant bank agreed to make a loan to a subsidiary of the plaintiff.  The loan was channelled through a subsidiary of the bank.  The negotiations which occurred at the time of the loan and later transactions between the parties were conducted on the basis that the plaintiff had guaranteed the loan.  In reliance on the belief of both parties that the plaintiff had done so, the bank allowed the loans to remain outstanding when they could have been called in.  When the borrower defaulted, the defendant bank purported to exercise its rights under the guarantee.  The plaintiff company sought a declaration that it was not liable to the defendant under the guarantee. The defendant contended that the plaintiff was estopped from denying that the guarantee covered the loan.

   [40][1982] QB 84. Note that the trial judge, Robert Goff J, relied upon the earlier decision of Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd;Old & Campbell Ltd v Liverpool Victoria Friendly Society [1982] QB 133 (“Taylors Fashions”).  Taylors Fashions, which was also cited by Deane J in Verwayen (1990) 170 CLR 394, 444 and Mustill J in The “Leila” [1985] 2 Lloyds Reports 172, concerned a situation where both parties had proceeded on the same mistaken assumption. Oliver J had found that the inquiry which he had to make was simply whether, in all the circumstances, it was unconscionable for the defendants to seek to take advantage of the mistake which, at the material time, the parties shared.

1. The trial judge, Robert Goff J, found that the officers of both the plaintiff and the defendants believed that the guarantee covered the loan.  The mistaken belief of the plaintiff’s officers was not derived from anything that the bank had done- it was more probable that the mistaken belief of each party operated to reinforce the mistaken belief of the other.  But the conduct of the plaintiff had encouraged the bank to act to its detriment on the basis that the guarantee was binding and effective.

1. Robert Goff J rejected the proposition that the bank could rely on estoppel only if the plaintiff was aware that the bank was mistaken in its belief that the guarantee covered the loan.  It was sufficient that the plaintiff company’s conduct:

contributed to lulling the representee into a state of false security … [the] conduct although of course completely innocent, so influenced [the defendant’s] conduct as to render it unconscionable on the part of the plaintiffs now to take advantage of the bank’s error.[41]

[41][1982] QB 84, 108.

1. He held that, although it was necessary to show some encouragement or representations by the plaintiff, which would make it unconscionable for it to deny the validity of the guarantee, it was not necessary to show that the conduct of the party asserting estoppel was solely derived from the ‘encouragement or representation’ of the first party.[42]  The learned judge gave a hypothetical example to illustrate this proposition:

Let it be supposed that A and B are neighbours, and that A proposes to build a wall, on what is in fact B’s land, though both parties mistakenly believe it to be A’s. A invites B’s co-operation in the building of the wall, for example, by providing a means of access over his land for the purposes of building work or by supporting an application for planning permission.  B co-operates as requested, and the wall is built at A’s expense.  In such circumstances, it may well be unconscionable for B thereafter to assert his strict legal rights.[43]

[42]Ibid 104-105.

[43]Ibid 105.

1. Robert Goff J’s decision that the plaintiffs were estopped from denying that they were bound to guarantee the loan was affirmed by the Court of Appeal. [44]   Lord Denning MR accepted that ‘the mistake by the bank was self-induced’ but that the plaintiff was similarly mistaken.[45]  He said:

When the parties to a contract are both under a common mistake as to the meaning or effect of it — and thereafter embark on a course of dealing on the footing of that mistake — thereby replacing the terms of the contract by a conventional basis on which they conduct their affairs, then the original contract is replaced by the conventional basis.[46]

[44]Ibid. Note that the Court of Appeal also held that, having regard to the fact that the bank’s subsidiary company was its alter ego, the monies owing were covered by the guarantee.

[45][1982] QB 84, 120 (Lord Denning MR).

[46]Ibid 121 (Lord Denning MR). See also, 126 (Eveleigh LJ) and 131 (Brandon LJ). Note that Eveleigh LJ said that this had the effect that the bank could realise securities provided by the plaintiff, but doubted whether the contractual action would have succeeded if the security was insufficient.

1. Brandon LJ rejected the submission that:

since the bank came to hold its mistaken belief in the first place as a result of its own error alone, and the plaintiffs had at most innocently acquiesced in that belief which it also held, there was no representation by the plaintiffs to the bank on which an estoppel could be founded.[47]

[47][1982] QB 84, 130 (Brandon LJ).

1. He held that the bank could rely on estoppel and that:

[t]he kind of estoppel which is relevant in this case is not the usual kind of estoppel in pais based on a representation made by A to B and acted on by B to his detriment.  It is rather the kind of estoppel which is described in Spencer Bower and Turner, Estoppel by Representation, 3rd ed. (1977), at pp. 157-160, as estoppel by convention.  The authors of that work say of this kind of estoppel, at p. 157:

This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed state of fact the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter.  When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed.[48]

[48]Ibid 130.

1. Estoppel by convention was originally a common law evidentiary principle.  But in Verwayen Mason CJ suggested that the various categories of common law and equitable estoppel were:

intended to serve the same fundamental purpose, namely “protection against the detriment which would flow from a party’s change of position if the assumption (or expectation) that led to it were deserted”[49]

and that

the consistent trend in modern decisions points inexorably towards the emergence of one overarching doctrine of estoppel rather than a series of independent rules.[50]

[49](1990) 170 CLR 394, 409. His Honour cited Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 419 (Brennan J), 404 (Mason C J and Wilson J) and Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641, 674–675.

[50]Ibid 410.

1. Similarly, Deane J said that ‘[t]he doctrine should be seen as a unified one which operates consistently in both law and equity’.[51] 

   [51]Ibid 445.

1. In the same case, Deane J explained that the conceptual foundations of estoppel were based on the unconscionable departure by the estopped party from the subject matter of an assumption adopted by the other party as the basis of action or inaction, which would operate to his or her detriment if the assumption was not adhered to for the purposes of litigation.  His Honour then described four main but not exhaustive categories in which a party:

must have played such a part in the adoption of, or persistence in, the assumption that he would be guilty of unjust and oppressive conduct if he were now to depart from it.[52] 

[52]Ibid 444.

1. Two of the four categories described by Deane J would  traditionally have been seen as examples of estoppel by convention.  They cover situations where the party said to be estopped:

(b)has entered into contractual or other material relations with the other party on the conventional basis of the assumption;

(c)has exercised against the other party rights which would exist only if the assumption were correct.[53]

[53]Ibid 444–445.

1. His Honour continued:

Ultimately, however, the question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yard stick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted.[54]

[54]Ibid 445.

1. Apart from the question whether s 102 of the Act prevents WFW from relying on the estoppel, which is discussed below, there are two reasons why it might be contended that estoppel by convention does not apply in this case.

1. First, in Con-Stan Industries,[55] the High Court said that estoppel by convention would operate only where the mistaken assumption related to a state of facts.  If the doctrine is limited to mistaken assumptions as to facts, WFW may not be able to rely on the parties’ common assumption as to the legal effect of the agreement to give rise to an estoppel.  Secondly, it may not be unconscionable for Equus to depart from that assumption, on the facts of this case.

   [55](1986) 160 CLR 226.

1. We doubt that estoppel by convention is any longer limited to assumptions as to fact.  In Verwayen, both Mason CJ and Deane J said that estoppel could arise from an assumption as to a legal state of affairs.[56]  In ACIL and Anor v Enland[57] Doyle CJ said that the limitation derived from Con-Stan Industries might no longer be good law in light of the decision in Verwayen.  This is a view shared by text writers including the learned authors of Meagher, Gummow and Lehane’s Equity Doctrines and Remedies[58] and Paterson, Robertson and Heffey,[59] who refer to a number of cases in which assumptions as to the legal rights of the parties have been held to give rise to an estoppel by convention.

   [56]Ibid 413 (Mason CJ), 445 (Deane J).

   [57]Unreported South Australian Supreme Court 1 November 1995.

   [58]Meagher, Gummow and Lehane, Equity:  Doctrines and Remedies (4^th Ed, 2002) 540.

   [59]Patterson, Robertson and Heffey, Principles of Contract Law (2nd Ed, 2005), 188-189.

1. Further, even if estoppel by convention is confined to assumptions of fact, it is arguable that the assumption which underpinned the relationship between WFW and Equus was an assumption of fact.  In Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Limited,[60] Callaway JA characterised an assumption as to the existence of a binding contract as an assumption of fact, rather than an assumption of law.  He commented as follows:

The August Leonhardt [1985] 2 Lloyd's Rep. 28 at 35 Kerr L.J., delivering the judgment of a strong Court of Appeal, treated the leading English case, Amalgamated Investment & Property Co. Ltd. v Texas Commerce International Bank Ltd. [1982] Q.B. 84, as an instance of parties having acted on “their common assumption of a binding contractual nexus between them which did not in fact exist”. That is perhaps the narrowest view that may be taken of the Amalgamated Investment case, but it does suggest that the existence of a binding contract, or by parity of reasoning the validity of an assignment, may be an assumption of fact giving rise to a conventional estoppel.  A “fact” in this context includes the existence of at least some private legal rights.  The law cannot be deformed by reference to considerations of commercial convenience, but the view that there cannot be a conventional estoppel with respect to the existence of a binding contract or the validity of an assignment is so plainly inconvenient as to cast doubt on whether it is indeed the law. [61]

[60][1998] 2 VR 70.

[61]Ibid 77. See also Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175, 185–189 (Samuels JA).

1. There are therefore two bases for holding that an assumption as to the validity of the agreement may give rise to an estoppel by convention, provided that the other requirements for an estoppel are satisfied.  In our view the principle in Con-Stan Industries limiting estoppel by convention doubtfully applies, for the reasons given above.  Alternatively an assumption as to the binding nature of a contract can be regarded as an assumption of fact, consistently with the approach taken by Callaway JA in Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd.[62]

   [62][1998] 2 VR 70.

1. Are the facts of this case sufficient to give rise to an estoppel against Equus?  In order to rely on estoppel WFW must show that it suffered detriment as the result of its reliance on the assumption that the agreement was valid and that it would be unconscionable for Equus to deny that assumption.  In Commonwealth v Clark Ormiston J said:

what must be demonstrated are acts, facts or circumstances from which it can be inferred:

(1)that detriment to the party claiming estoppel is more than likely than not to occur if the other party is permitted to depart from the assumption relied upon;  and

(2)that detriment of that kind will derive from the first party’s proven acts or inaction in reliance on the assumption. [63]

[63][1994] 2 VR 333, 380. Fullagar J agreed with Ormiston J. Marks J delivered a separate judgment in which he said at 342 that “it is artificial in the extreme to define detriment narrowly”.

1. In our view there is no doubt that WFW has suffered detriment as the result of its reliance on the parties’ common assumption that the agreement was valid.  Prior to the termination of the agreement WFW provided extensive legal services to Equus because it assumed that the parties’ legal relationship was regulated by the agreement.  WFW acted for Equus in a number of proceedings and Equus paid WFW for its legal services at the ‘discount rate’ set out in the agreement.  After Equus sought to terminate the agreement the parties fought two trials to their conclusion on the assumption that the parties’ relationship was governed by the agreement.  In addition to its legal costs, WFW experienced the stress and anxiety associated with the conduct of that litigation and is now faced with the prospect that its efforts in defending the action will have been entirely pointless.  In Verwayen Deane and Dawson JJ accepted that the stress and anxiety occasioned by litigation may amount to detriment for the purposes of estoppel and this proposition also seems to have been assumed by Mason CJ.[64]

   [64](1990) 170 CLR 394, 448-449 (Deane J), 461-462 (Dawson J), 416 (Mason CJ).

1. WFW must also show that it would be unconscionable for Equus to contend that the agreement was void because of s 102 of the Act. His Honour considered that this requirement was not satisfied because:

[i]t is not suggested that [Equus] contributed in any way to the assumption of WFW that the deed of costs was not void.  It has not been established that it knew of the statute but, nevertheless, permitted the agreement to be implemented and indeed litigated.  The fact that the consequence of the point Equus now takes is that it has had the benefit of WFW’s legal work without payment is a result of the decision of Parliament to visit this draconian punishment upon the legal practitioner.[65]

[65]Equuscorp Pty Ltd v Wilmoth Field Warne [2006] VSC 28, [30].

1. In our view it was unnecessary to show that Equus contributed to WFW’s assumption.  As we have already said, cases such as  Amalgamated Investment and Property Co Ltd v Texas Commerce International Bank Limited show that it may be unconscionable for a party to seek to depart from an assumption which provided the basis for their relationship with the other party, even if that assumption was not based on a representation made by the party sought to be estopped.[66]   In our view it would be unconscionable for Equus to now assert that the agreement is void.

   [66][1982] QB 84. This case concerned a situation where both parties had proceeded on the same mistaken assumption. Oliver J had found that the inquiry which he had to make was simply whether, in all the circumstances, it was unconscionable for the defendants to seek to take advantage of the mistake which, at the material time, the parties shared.

1. What remedy is available as the result of the estoppel? Estoppel by convention is a form of common law estoppel. Historically, the effect of establishing such an estoppel was that effect was given to the assumption on which the parties relied. If that principle applies, WFW would be able to enforce the terms of the agreement, unless this is inconsistent with the policy underlying the Act, an issue discussed below.

1. On the other hand, the trend towards unification of common law estoppel and equitable estoppel may mean that the remedy available to the party benefiting from the estoppel is now limited to rectifying the detriment which he or she suffers as a result of reliance on the assumption.  The majority view in Verwayen was that a party benefited by estoppel is not necessarily entitled to have the assumption made good.  Rather, the remedy will reflect the ‘minimum equity’ necessary to prevent that party from suffering detriment. [67]

   [67](1990) 170 CLR 394, 412-416 (Mason CJ), 429–430 (Brennan J), 475-476 (Toohey J), 487 (Gaudron J). See also Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 405 (Mason CJ and Wilson J) 419 and 423 (Brennan J), and Commonwealth v Clark [1994] 2 VR 333, 383 (Ormiston J).

1. Even if the remedy for estoppel by convention is now based on the minimum equity necessary to prevent WFW suffering detriment, in our view the detriment suffered by WFW could only be made good by requiring Equus to be held to the parties’ common assumption—that is the assumption that the agreement was valid.  It would not be a sufficient remedy for the detriment suffered by WFW to simply require Equus to pay the costs following upon the amendment of the statement of claim.  Such an order would not redress the strain suffered by the WFW partners as a result of their involvement in litigation which was based on the assumption that the agreement was valid.[68] 

   [68]Cf Commonwealth v Verwayen (1990) 170 CLR 394, 447-48 (Deane J), 461–462 (Dawson J).

Does the policy of the Legal Practice Act exclude reliance on estoppel?

1. It remains necessary to consider whether his Honour erred in holding that s 102 of the Act prevented WFW from relying on estoppel.[69]  In his view:

the policy behind s 102 is to protect clients and to discourage legal practitioners from entering into agreements which contravene ss 97(5), 98(3) and 99. In the present case where, it would seem, the prohibition was not in the minds of any of the parties, it would be extraordinary that this meant that, for that reason, it should be ignored. [70]

[69]A similar question has arisen in a number of cases concerning the operation of waiver.  See Commonwealth v Verwayen (1990) 170 CLR 394, 486 (Gaudron J).

[70]Equuscorp Pty Ltd v Wilmoth Field Warne [2006] VSC 28, [29]. His Honour referred to Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, 1016 and Overmyer Industrial Brokers Pty Ltd v Campbells Cash and Carry Pty Ltd [2003] NSWCA 305.

1. Counsel for Equus relied upon Kok Hoong v Leong Cheong Kweng Mines Ltd[71], in which it was held that reliance on estoppel was precluded by money lenders legislation, which made the particular agreements void.  Their Lordships said:

It has been said that the question whether an estoppel is to be allowed or not depends on whether the enactment or rule of law relied upon is imposed in the public interest or “on grounds of general public policy”.[72]  But a principle as widely stated as this might prove to be rather an elusive guide, since there is no statute, at least public general statute, for which this claim might not be made.  In their Lordships’ opinion, a more direct test to apply … is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the Court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise …

General social policy does from time to time require the denial of legal validity to certain transactions by certain persons.  This may be for their own protection, as in the case of the infant or other category of persons enjoying what is to some extent a protected status, or for the protection of others who may come to be engaged in dealings with them, as, for instance, the creditors of a bankrupt.  In all such cases there is no room for the application of another general and familiar principle of the law that a man may, if he wishes, disclaim a statutory provision enacted for his benefit, for what is for a man’s benefit and what is for his protection are not synonymous terms.  Nor is it open to the court to give sanction to departures from any law that reflects such a policy, even though the party concerned has himself behaved in such a way as would otherwise tie his hands.[73]

[71][1964] AC 993.

[72]In re A Bankruptcy Notice [1924] 2 Ch 76, 97 (Atkin LJ) cited therein.

[73][1964] AC, 1016-1017.

1. In Shah v Shah,[74] the English Court of Appeal held that the defendants were estopped from denying the validity of a agreement which had not been attested in accordance with statutory requirements.  Pill LJ said that, in deciding whether an estoppel would offend the public policy behind the relevant statute, it was necessary to consider ‘the particular statutory provision, its purpose and the social policy behind it when deciding whether an estoppel is to be allowed.’[75]

   [74][2002] QB 35.

   [75]Ibid, 44.

1. The question in this case is therefore whether the Act reflects a purpose and a social policy which necessarily excludes the operation of the doctrine of estoppel. In our view the answer to this question may depend on the level of generality with which it is posed.[76] In Kok Hoong this question was approached by considering whether the protective purpose of the particular legislation is inconsistent with the ability of the parties to enter into arrangements which may give rise to an estoppel. [77] 

   [76]Cf Australasian Concrete Services v Multiplex Constructions [1999] NSWSC 1140, [52] (Hunter J).

   [77][1964] AC 993, 1016-1017.

1. If the relevant question is whether the doctrine of estoppel is inconsistent with the prohibition of certain types of costs agreements between solicitors and their clients, it must be answered in the affirmative. The report which preceded the introduction of the Act indicates that the purpose of provisions regulating certain types of the agreements was to increase access to justice by giving lawyers an incentive to pursue meritorious claims, while at the same time protecting their clients against excessive costs by limiting the amount which the lawyer can charge if the litigation is successful.[78] Section 102 of the Act is consistent with that goal because agreements between solicitors and clients which do not comply with the legislation are void. Under this broad approach to the question it would clearly be inconsistent with the policy of the Act to allow estoppel to operate so as to permit enforcement of a costs agreement in breach of the Act.

   [78]Victoria, Report of the Attorney-Generals’ Working Party on the Legal Profession Reforming the Legal Profession (August 1995)  [9.6]–[9.8].

1. If, on the other hand, the question is whether permitting WFW to assert estoppel against Equus would undermine the policy of the Act,[79] in our view it would not do so, because of the particular facts of this case.  There was no inequality of bargaining power between Equus, ‘a very experienced professional litigant’,[80]  and WFW.  As the learned judge below observed, although Equus had no independent legal advice when drafting the agreement, it had been carefully negotiated over a 15 month period by Mr Russo - Equus’ then managing director, key shareholder and ‘intelligent and experienced litigant who demonstrated himself to be well able to look after his own interests’ - to reflect the financial interests which Equus sought to achieve in its capacity as a financier of litigation.[81]  Far from exposing the client to excessive costs, the learned judge below actually observed that ‘in many respects … [the agreement] operates surprisingly harshly against the interests of WFW’.[82]

   [79]Cf JS Bloor (Measham) Ltd v Calcott  [2002] 09 EG 222.

   [80]Equuscorp Pty Ltd v Wilmoth Field Warne (No. 3) [2004] VSC 164, [11] (Byrne J).

   [81]Ibid [9]-[11].

   [82]Ibid [10].

1. The situation would be different if a person who was unable to fund his or her claim had been presented by a solicitor with an agreement on a take it or leave it basis and the parties had thereafter acted on the assumption that the agreement was valid.  Estopping a party in those circumstances from claiming that the agreement was invalid would clearly undermine the protective purpose of the legislation.

1. Because we have reached the conclusion that the agreement is not void under s 102 of the Act, we do not need to resolve the question whether the applicability of estoppel is determined by an examination of the social policy objectives of the relevant legislation, or by an examination of the effect of permitting estoppel to be raised in the circumstances of the particular case. It should be noted that the distinction between these approaches was not made Kok Hoong, or in the later cases which have held that the policy of legislation does or does not prevent reliance on estoppel.  Nor was the question argued in this case. 

Was the agreement void for contravention of s 98 or s 99 of the Act?

Submissions, and resolution of construction issues at trial

1. At trial, according to the reasons of the learned trial judge, Equus contended that the agreement was void because it contravened both sections 98(3) and 99 of the Act.

1. The relevant provisions of the Act are as follows:

97.      Costs agreements may be conditional on success

(1)A costs agreement may provide that the payment of some or all of the legal costs is contingent on the successful outcome of the matter to which those costs relate.

(2)An agreement referred to in sub-section (1) is called a “conditional costs agreement”.

(3)A conditional costs agreement may relate to proceedings in any court or tribunal, except criminal proceedings or proceedings under the Family Law Act1975 of the Commonwealth.

(4)A conditional costs agreement—

(a)must set out the circumstances that constitute a successful outcome of the matter; and

(b)may exclude disbursements from the legal costs that are payable only on the successful outcome of the matter.

(5)A legal practitioner or firm must not enter into a conditional costs agreement unless the practitioner or a partner of the firm has a reasonable belief that a successful outcome of the matter is reasonably likely.

98.Uplifted fees are allowed

(1)A conditional costs agreement may provide for the payment of a premium on the legal costs otherwise payable under the agreement on the successful outcome of the matter in respect of which the agreement is made.

(2)The premium must be a specified percentage of the legal costs otherwise payable, and must be separately identified in the agreement.

(3)A legal practitioner or firm must not enter into a conditional costs agreement under which a premium, other than a specified percentage not exceeding 25% of the costs otherwise payable, is payable on the successful outcome of any matter involving litigation.

100 penalty units.

99.Contingency fees are prohibited

(1)A legal practitioner or firm must not enter into a costs agreement under which the amount payable to the legal practitioner or firm under the agreement, or any part of that amount, is calculated by reference to the amount of the award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates.

Penalty:  100 penalty units.

(2)Sub-section (1) does not apply to the extent that the costs agreement adopts an applicable scale of costs of a court or tribunal.

…

102.Certain costs agreements are void

(1)A costs agreement that contravenes any provision of this   Division is void.

(2)Subject to sub-section (3), legal costs under a void costs agreement are recoverable as set out in section 93(b) and (c).

(3)A legal practitioner or firm that has entered into a costs agreement in contravention of section 97(5), 98(3) or 99 is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related and must repay any amount received in respect of those services to the person from whom it was received.

(4)If a legal practitioner or firm does not repay an amount required by sub-section (3) to be repaid, the person entitled to be repaid may recover the amount from the practitioner or firm as a debt in a court of competent jurisdiction.[83]

[83]The Legal Practice Act 1996 – including, of course, ss 97-99, construction of which is central to resolution of the issues presently before this Court – was repealed by the Legal Profession Act 2004 (Act No 99/2004).  There are provisions in the 2004 Act which address the general subject-matter of ss 97–99 (and s 102) of the 1996 Act.  They are not identical with the repealed provisions.  It is in light of their repeal that we refer to ss 97–99 and 102 in the past tense. 

1. His Honour noted that under the agreement WFW agreed to share the risks of the Equus litigation, and that the working out of this arrangement was seen in clause 13, which provided that the so-called normal rate of fees was only chargeable when a successful result had been achieved in a matter, and which further provided  that moneys recovered were to be applied in an agreed order of priority.  His Honour said this:

This means that WFW will receive payment of legal costs only where there was a fund available for Equus to make that payment and, further, only to the extent that the amount of the fund is equal to or greater than twice the amount of those costs. Disbursements are dealt with under a different regime.

1. His Honour recorded the argument advanced on behalf of Equuscorp this way:

There was no issue before me that the deed of costs is a conditional costs agreement within the meaning of s.97. On behalf of Equus it was then put that the legal costs ‘otherwise payable under the agreement’ under s. 98(1) are the costs calculated at the discount rate, for these are the costs payable otherwise than on a successful outcome in the matter. The premium is therefore represented by the difference between the costs calculated at $400 per hour and those calculated at $66 per hour. This premium is not specified as a percentage of the costs otherwise payable. As a matter of calculation, it is $334 per hour or 506 per cent of the discount rate.

1. Then his Honour noted two preliminary arguments advanced on behalf of WFW. It is only necessary to refer to the first of them, which was that, since s 98(3) of the Act created a criminal offence, it should be construed strictly.

1. Concerning the core issue, the learned judge noted WFW’s contention that this was  -

… not a case of an uplift of fees in the event of a successful outcome.  A liability to pay fees at the normal rate was always the expectation of the parties, for they always contemplated a successful outcome.  The effect of the [agreement] was as [Equus] wished; there was to be a monthly payment fees at a reduced rate which was on account of fees at the full rate which would be paid later.  In [that] way the [agreement] had the consequence, in the event of an unsuccessful outcome, of reducing the fees payable rather than that of providing for a premium in the event of success.

1. His Honour held, and we respectfully agree, that the answer to the controversy lay in the terms of the agreement, not in the expectation of the parties. That, he said, was the import of s 98 of the Act. Such a conclusion, we add, would equally follow from s 99.

1. Focusing upon the issue which he had identified, the learned judge concluded that, despite there being two clauses[84] of the agreement supportive of ‘the contention … that payment of the normal rate is seen as a future event rather than as a contingent one’, nonetheless –

… the whole thrust of the deed of costs is that legal fees at the normal rate are to be chargeable only where there is a successful result. The converse follows: absent a successful result the legal fees of WFW are to be at the discount rate. For example, cl. 27b speaks of certain events that “will not trigger the payment to WFW at the Normal Rate. It is also abundantly clear from cl. 13a which provides that The Normal Rate will be charged where there has been a successful result...” My attention was taken to no provision of the deed which suggests that the failure to achieve a successful result has the effect of removing from WFW an existing right to receive its fees at the normal rate. Clauses 16 and 17b, which deal with the consequences of termination in certain circumstances, also show the intention of the document is that, pending a successful conclusion of the litigation, WFW has no present entitlement to receive in the future payment for legal services at other than at the discount rate.

[84]5(b) and 27.

1. That conclusion led on to His Honour holding that -

…under the deed of costs, legal costs payable to WFW on a successful outcome are greater than those otherwise payable under the agreement. The deed of costs, therefore, provides for uplifted fees. Since the premium payable on the successful outcome is not expressed in terms of a specified percentage not exceeding 25 per cent, the deed of costs contravenes s. 98(3).

1. His Honour also addressed the contention for Equus that the agreement infringed s 99 of the Act. He noted the competing submission. For Equus –

It was contended … that the deed of costs contravenes this prohibition because, under cl. 13(b)(iv), the amount payable to WFW is calculated by reference to the amount of the award or settlement. In one sense, this is uncontrovertible because, if, following a successful result, the fund available for payment under para (iv) after the priority payments have been made, is nil or less than twice the amount of the WFW bill for legal fees, then WFW is not entitled to payment of its fees in full.

1. The submissions for WFW in response, his Honour observed –

…fastened upon the word “calculated” in s99(1). The section strikes at a costs agreement under which the amount payable is calculated by reference to the amount of the award. In the present case, it is said, the amount payable is calculated by reference to the billable units of time which have been applied to the matter and the appropriate hourly rate. The amount of the award or settlement will have the effect, where it is insufficient, only of reducing the amount which becomes due and payable, that is, the amount recoverable by WFW from the client.

1. His Honour held that the agreement did not infringe s 99. He said this:

While in this respect, as in others, the terminology of the deed is not always consistent, the provisions of cll. 5 and 13 clearly show that WFW is entitled to bill its client at the discount rate during the interlocutory stages of the litigation. It is entitled to charge at the normal rate only if and when a successful result has been achieved. The deed contemplates that, at this stage, WFW will have been paid in accordance with its monthly accounts at the discount rate. It may also have received moneys paid under orders for costs against the other party pursuant to cl.13(e) and cl.14. Clause 13b then deals with the distribution of the fund represented by the money recovered from the successful result. It does not say anything about the amount which WFW has or may charge for its legal services. This distribution regime, which is as advantageous to Equus as it is perilous for WFW, is, on one view, concerned with “the amount payable to the legal practitioner” for if the fund is exhausted or diminished beyond a certain amount, so too is the amount which Equus is obliged under the deed of costs to pay to its solicitors. Nevertheless, I am of opinion that the distinction drawn by counsel for WFW is a good one. Clause 13b is not so much concerned with the calculation of the legal costs which Equus is liable to pay; it is concerned with the satisfaction of that liability. The legislation, too, draws a distinction between the amount which is payable under the costs agreement and that which is recoverable. Clause 13b(iv) is concerned only with the latter; it is not concerned with the calculation of the costs. The deed of costs does not contravene s99. (footnotes omitted).

Submissions in this Court

1. It was submitted for WFW that –

· Sections 97, 98 and 99 of the Act addressed different situations. Section 97(1) provided for an arrangement by which ‘the payment of some or all of the legal costs is contingent on the successful outcome of the matter to which those costs relate.’

· It was significant that s 97(1) referred to an arrangement whereby ‘some or all’ of the legal costs were contingent on success. This showed that s 97(1) embraced arrangements other than those by which no legal costs were payable absent success.

· Section 97 in substance clarified and regulated the existing common law position in Australia, which was that speculative fee arrangements were permitted.

· Section 98 addressed a different kind of arrangement - one in which a conditional costs agreement provided for an agreed [percentage] fee uplift on a successful outcome. The phrase ‘on the successful outcome of the matter’ in subsection (1) attached to the phrase ‘the legal costs otherwise payable’. The offence created by subsection (3) was thus in respect of a premium exceeding 25 per cent of the costs otherwise payable on a successful outcome. It was not a reference to a premium on the costs payable in the event of failure – which could be nil. The costs otherwise payable in the event of a successful outcome were, in the Act, the ‘baseline costs’ upon which the 1994 Sackville report had speculated.

· It was not apparent why s 98(1) should restrict availability of uplift arrangements to conditional costs agreements. But such restriction did not lead to a conclusion that the content of ss 97 and 98 agreements was, at least except in the ‘no win no fee’ type of case, one and the same.

· Section 99 addressed a still different kind of arrangement, a so-called ‘percentage fee arrangement’.

·     That the three sections addressed different kinds of arrangement was evident from first, the language of the legislation itself; and second, its context, which relevantly included the August 1995 Report of the Attorney-General’s Working Party on the Legal Profession[85] and the Second Reading Speech of the then Attorney-General.[86]

[85]Which referred, inter alia, to the May 1994 Report of the Access to Justice Advisory Committee (the Sackville Report) to the Commonwealth government.

[86]Hansard, Assembly, 20 June 1996, pp 982 and following, particularly p 985.

· The agreement in the present case was of the s 97 kind. It was not an agreement of the fee uplift kind. The learned trial judge had been wrong to so conclude. The normal rate was the fee payable in the event of a successful outcome. The extent of the contingency was established by the difference between the discount rate and the normal rate.

·     The learned trial judge had construed the legislation – which had been intended to liberalise the permissible costs regime, thus enlarging access to justice – so as to proscribe an arrangement which had been permissible at common law.

· The arrangement was not of the s 98 kind. There was no provision for a premium on the costs payable in the event of successful outcomes to the various proceedings.

· Contrary to Equus’s argument in its Notice of Contention, the arrangement was not of the s 99 kind. WFW was not entitled to be paid a specified percentage of damages recovered. The costs were to be calculated in a conventional way – by reference to hours worked and an applicable hourly rate. The amount payable was not ‘calculated’ by reference to ‘the amount of the award or settlement or settlement or the value of any property that may be recovered’. Assuming that subclause 13b of the agreement operated as an implied release by WFW of any balance unpaid after the operation of that subclause, it would be perverse if a provision which had the effect of reducing the amount which WFW was paid converted the arrangement into one to which s 99(1) applied.

· No public policy consideration stood in the way of construing ss 97, 98 and 99 to have the separate areas of operation for which WFW contended. Rather, the construction proposed was consistent both with the access to justice consideration, and with a move to a uniform position in Australia.

1. It was submitted for Equus that –

· The agreement contravened s 98(3).

· It was wrong to say, as WFW did, that ss 97 and 98 were intended to authorise two distinct types of arrangements. Section 98 agreements were a species of s 97 agreements. Except for ‘No win no fee’ cases - to which s 98 could not apply – s 97 could not operate to authorise agreements which fell foul of s 98.

· Section 98 applied to every conditional costs agreement in respect of which provision was made for some payment regardless of success or failure. Provided that an amount in excess of zero was payable in the event of failure, s 98(1) and (3) operated. But it had not offended s 98(3) to agree that disbursements only be paid in the event of failure, and that disbursements plus professional costs (even if the professional costs exceeded disbursements by more than 25 per cent) be paid in the event of success.[87] 

[87]Reference being made to s97(4)(b).

· The phrase ‘the legal costs otherwise payable’ should be given a consistent meaning in s 98(1) and (3). Section 98(1) should be read as if, relevantly, it ended with the phrase ‘the legal costs otherwise payable under the agreement’. By ‘legal costs’ was meant professional costs payable if the matter ended in failure.

· Section 98(3) required a comparison between the usual fees payable under the relevant agreement with the premium payable on success. The Sackville report supported that interpretation.

·     The usual fee payable under the agreement was the ‘discount rate’, which must be paid within 14 days of receipt of invoice.  The ‘normal rate’ was the basis for charging only when there was a successful outcome.  The part of the costs contingent on a successful outcome was the difference between $66 and $400 per hour. This was not a ‘specified percentage of the costs otherwise payable; and it exceeded 25 per cent of the costs otherwise payable.

· It was artificial for WFW to suggest that the $400 per hour was the usual fee, and that, in effect, there was no uplift. Under the agreement, the ‘normal rate’ was not the usual fee payable to WFW by Equus. The normal rate was chargeable only in the event of a successful outcome, and payment depended upon the availability of recovered funds or assets. If s 98 was construed as WFW contended for, it would be relieved of any work. A solicitor could nominate any fee as the ‘usual fee’ payable under an uplift agreement regardless of the substance of the transaction.

· The agreement contravened s 99 of the Act. Clause 13b(iv) operated so that it was impossible to calculate the amount payable to WFW upon a successful result without reference to the amount of the award or settlement or the value of property recovered (for sake of convenience, hereafter ‘award’). Thus, part of the amount payable to WFW was necessarily calculated by reference to the amount of such award. The learned trial judge, in holding that clause 13b was not so much concerned with the calculation of the costs which Equus was liable to pay, but with satisfaction of that liability, had drawn a non-existent distinction; for Equus’ responsibility to pay costs was entirely discharged by payment of fees at the normal rate up to the capped amount.[88]

The proper construction of ss 97-99 of the Act

[88]That being calculated by multiplying $400 per hour by the number of hours charged.

1. It was said in CIC Insurance Limited v Bankstown Football Club Ltd[89] that –

… the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy …

and

… if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance.  Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which, by the steps identified above, is reasonably open and more closely conforms to the legislative intent …

[89](1997) 187 CLR 384, 408 (Brennan CJ, Dawson, Toohey and Gummow JJ).

1. That approach has been repeatedly insisted upon by the High Court.  See, for instance, Newcastle City Council v GIO General Ltd,[90] Project Blue Sky Inc and Ors v Australian Broadcasting Authority[91] and AssetInsure Pty Ltd v New Cap Reinsurance Corporation Ltd (in Liq).[92]

   [90](1997) 191 CLR 85, 112-113 (McHugh J).

   [91](1998) 194 CLR 355, 381-382 (McHugh, Gummow, Kirby and Hayne JJ) - particularly touching the problem of giving each provision a meaning which best gives effect to its purpose and language whilst maintaining the unity of the statutory scheme.

   [92](2006) 80 ALJR 733, 751 [87] (Kirby and Hayne JJ).

1. We are of opinion that, considered in context, the construction of ss 97-99 contended for by WFW is correct.  We would so conclude even if the bare words of the provisions were considered standing apart from context.

1. Sections 97-99 were part of the legislative response to the 1995 report of the Attorney-General’s working party on the legal profession.  So much is clear from the Attorney-General’s Second Reading Speech, of which we have earlier made mention.

1. It is noteworthy that the working party –

·     Identified three different kinds of contingency fee arrangements:  speculative fee arrangements – where the client paid the ‘usual fee’ in the event of success;  uplift fee arrangements – where the client paid the usual fee plus a percentage uplift;  and percentage fee arrangements – where the client paid a percentage of the amount payable under the judgment or settlement.

· Made the point that speculative fee arrangements were not illegal at common law. This was probably unaffected by s 65 of the Supreme Court Act 1986.

·     Made the point that both fee uplift and percentage fee arrangements remained void and illegal.

·     Recommended that the former be made lawful – as had already occurred in South Australia and NSW – but that the latter should remain prohibited.

·     In formulating its advice, had regard to the 1994 Sackville report.

1. The Sackville report was entitled ‘Access to Justice an Action Plan’.  In discussing contingency fees, the report drew the same distinction between three kinds of situations as was thereafter drawn by the Victorian working party.  It noted the argument that the principal advantage claimed for contingency fees was that they increased access to justice.  It analysed the common law position in the same way as did the Victorian report, and noted the legislative change in South Australia and the imminent legislative change in New South Wales.  It recommended, in effect, Australia-wide legislation to permit uplift fee agreements in most civil matters, and that the prohibition upon percentage contingency fees should be maintained.  In all, it can be seen that the Victorian report was relevantly in harmony with the Sackville report.

1. It is next convenient to notice relevant provisions of the Legal Reform Act 1993 No 87 (NSW), which amended the Legal Profession Act 1987 (NSW).  Those provisions were adverted to in both the Sackville report and the Victorian report.  Section 186(1) of the amending Act said this:

(1)A barrister or solicitor may make a costs agreement under which the payment of all of the barrister’s or solicitor’s costs is contingent on the successful outcome of the matter in which the barrister or solicitor provides the legal services.

Section 187(1)(2)(3) were as follows:

(1)A conditional costs agreement may provide for the payment of a premium on those costs otherwise payable under the agreement only on the successful outcome of the matter.

(2)The premium is to be a specified percentage of those costs or a specified additional amount.  The premium is to be separately identified in the agreement.

(3)     The premium is not to exceed 25 per cent of those costs.

1. The New South Wales provisions were not exactly the same as their later Victorian counterparts.  Section 186(1) was restricted to the situation in which payment of all legal costs (disbursements could be excluded) was made contingent on success.  It seems that s 187(1), when it spoke of a permitted uplift, could only have been referring to an uplift on costs which were payable in the event of success.

1. Sections 97, 98 and 99, consistently with the identification of three kinds of contingency costs in the two reports, and as reflected in the New South Wales and South Australian legislation, on their face appear to have addressed three identified situations – speculative fee arrangements ( s 97), uplift fee arrangements (s 98), and percentage fee arrangements (s 99) – which is not to say that there might not have been an area of overlap between the first and second of them.

1. It is next clear, in our opinion, that s 97(1) addressed, within the overall description of speculative fee arrangements, two situations: one where payment of all legal costs was made dependent upon a successful outcome; the other where payment of some of those costs was made so dependent. Indeed, there was potential for other variations, because, although ‘legal costs’ was defined by s 3 to involve disbursements, s 97(4)(b) seems to have permitted an agreement which required payment of disbursements, whatever the outcome, to be characterised as an agreement by which payment of all legal costs was made contingent on a successful outcome.

1. The consequence of the first situation addressed by s 97(1) is that it was lawful that nothing (save perhaps for disbursements) be payable in the event of failure, but that a payment obligation perhaps measured in hundreds of dollars per hour should arise in the event of success. It is, no doubt, impossible to speak of percentages in a case where the payment obligation was on the one hand nil and on the other hand, say, $100 per hour. It is possible to do so, however, if the comparison is between $1 and $100. The point is that, in practical terms, an agreement was lawful under 97(1) if, in substance if not by arithmetic, the costs payable in the event of success far exceeded 25 per cent of the costs payable in the event of failure.

1. According to Equus’s submission, s 98(1) and (3) applied to every case in which provision was made for some legal costs to be payable in the event of failure. In such a case, it was contended, the premium mentioned in s 98 was represented by the difference between the amount payable in the event of failure and the amount payable in the event of success.

1. It followed from this submission that an agreement which provided that nothing was payable for failure but that $1,000 per hour was payable for success was lawful under s 97 and did not infringe s 98(3), but that an agreement which provided for payment of legal costs of $75 per hour in the event of failure and $110 per hour in the event of success was lawful under s 97 but proscribed under s 98. Moreover, an agreement which provided for payment of costs of $75 per hour in the event of failure and $110 per hour in the event of success would be no different – in that it constituted a breach of s 98(3) – to an agreement by which $1 per hour was payable for failure and $1,000 per hour for success.

1. The consequences of Equus’s construction of s 98 to which we have referred, and the kinds of agreement which, on Equus’s case, s 97 permitted and were left unaffected by s 98, suggest to us that the construction is probably incorrect.

1. It was essential to Equus’s argument that the phrase ‘on the successful outcome of the matter’ in s 98(1) not be read as attaching to ‘the legal costs otherwise payable’. Counsel accepted that it would have been to the advantage of this argument had s 98(1) read:

A conditional costs agreement may provide for a premium, on the successful outcome of the matter, on the legal costs otherwise payable under the agreement.

This would have made it clearer, he submitted, that ‘the costs otherwise payable’ meant the costs payable in the event of an unsuccessful outcome.

1. It seems to us, contrary to Equus’s submissions, that a natural reading of s 98(1) attaches the phrase ‘on the successful outcome of the matter’ to ‘the costs otherwise payable’. That is, the premium was to be determined by reference to the costs otherwise payable in the event of success. It was suggested that to calculate the premium in such a way would be to render the words ‘otherwise’ otiose. But that is not so. It served to identify the costs payable in the event of success but before the application of a premium. It is beside the point that, had the subsection been differently constructed, the word ‘otherwise’ might have been a reference to costs payable in the event of failure.

1. In deciding how s 98(1) should be construed, we think there is no point in attaching descriptions to costs such as ‘usual’, ‘normal’, ‘base’, ‘standard’, ‘ordinary’, or the like. The fact that the several reports to which we have referred used the term ‘usual fees’, that the agreement in the present case used the terms ‘normal rate’ and ‘discount rate’, and that other descriptive terms were used in argument, does not alter the position. To speak of ‘usual fees’, for example, is to beg the question: usual in what circumstances; usual in the event of failure, or usual in the event of success?

1. The argument advanced for Equus meant, of course, that there could only ever be two tiers of costs in a costs agreement: costs in the event of failure and costs in the event of success. The corollary is that the difference between the two tiers was what s 98(1) described as a premium. But s 97(1) said nothing which would suggest that any differential should be so characterised.

1. There was some mention in argument about differences in the punctuation of s 98(1) and (3). For several reasons we consider that the difference does not assist Equus. First, sub-ss (1) and (3) should be read consistently, one with the other. Subsection (1) enlarged the permissible area of costs agreements. Subsection (3) created an offence. We would be reluctant to use sub-s (3) to give a meaning to sub-s (1) which restricted its apparent ambit, and which at the same time enlarged the circumstances in which there would be a breach of sub-s (3) - this having a further effect by reason of s 102. Secondly, we think that the punctuation served to emphasise when and in what circumstances a premium was payable. Thirdly, regardless of punctuation, the question would remain what was meant by ‘the costs otherwise payable’.

1. It is the fact that s 98(1) was expressed to be referable to conditional costs agreements. Equus, as we understand it, relied upon that circumstance, submitting that had it not been intended that fee uplift arrangements were the second tier contemplated by s 97(1), then s 98(1) could have been generally expressed, just as was s 99.

1. We do not accept that submission. Other considerations apart, s 98(1) was cast, as we have said, in permissive language. Section 97(1) had already said that an agreement might provide that payment of some or all of the costs might be contingent on success. On Equus’s approach, s 98(1) seems to have been unnecessary. The charging of a premium was already permitted. All that was required was the specification of the maximum premium payable.

1. We consider that the access to justice issue to which we have earlier referred is also of some importance. If Equus’s position prevailed, speculative fee agreements which provided for the payment of some costs in the event of failure would, in many instances we should think, have been rendered unlawful. The only agreements of that kind which could have survived s 98(3) would have been agreements in which there was a small differential in what was payable in the event of success and what was payable in the event of failure. That must have been a disincentive to solicitors to enter into speculative fee arrangements other than those under which no costs were payable in the event of failure. Access to justice would scarcely, if at all, have been increased in such circumstances.

1. We should mention the issue of uniformity. The Sackville report spoke in favour of legislative uniformity. The Victorian report was compatible, in its relevant recommendations, with the legislative regime advocated by the Sackville report. The New South Wales legislation current in 1996 was, as we have said, a little narrower than its Victorian counterpart. Nonetheless, to construe ss 97 and 98 as Equus contended for would mean that differences in the two legislative regimes would be magnified.

1. We turn to s 99. In our opinion sub-s (1) addressed the mischief of costs payable in a particular case running in tandem with the amount of an award. The most obvious case of that kind is one in which the amount of costs is a percentage of the amount of the award. But s 99(1) also embraced – subject to the exclusionary effect of sub-s (2) – agreements which provided for costs calculated on a conventional basis, but at rates varying according to the amount of the award, settlement or value of property recovered.

1. The key features of s 99(1), then, were that the ‘amount payable’ must not be ‘calculated by reference to the amount of the award …’. Equus argued that the amount of costs payable was so calculated because, in establishing the sequence in which the amount of an award that was recovered was to be applied in favour of Equus and WFW, the amount actually received by WFW for its costs out of that fund might – not would – vary according to the size of the fund. For reasons which we shall state hereafter, we do not accept that such a possible outcome demonstrated any contravention of s 99.

Application of the facts to the statute as construed

1. Earlier in these reasons[93] we briefly described the key points of the agreement.  The particularly pertinent clauses were these:

   [93][2], [3].

5. a.Except as otherwise provided, for each file handled by WFW an account will be rendered each month showing the professional fees and disbursements incurred for the month, inclusive of GST, and the total number of six (6) minute units billed by the solicitors performing the work.  Each account will also record the cumulative amount at the Discount Rate and the Normal Rate. … Save for the matter referred to as Gilmour Nominees, all work performed by the solicitors on the files is to be billed at the agreed rate of $66.00 per hour inclusive of GST (“the Discount Rate”).  Equus shall pay WFW invoices within 14 days of receipt.

b.Disbursements such as photocopying, postage, local and international telephone calls and local and international facsimiles etc will be shown separately on the monthly accounts for each file but will not be required to be paid by Equus until payment of the Normal Rate as defined in Clause 13 becomes due and payable except as otherwise provided for in Clause 4, Clause 7, Clause 7e and Clause 26 hereof.

…

8.A file will be considered concluded where:

a.the debt has been recovered, settled or compromised;  or

b.the debtor is deceased or becomes bankrupt or executes a Part X agreement or, in the case of a corporation, the corporation enters into liquidation;  or

c.the debtor is unable to be located;  or

d.if Equus considers it would be uneconomic or inadvisable to pursue the debtor any further.

Once a file is concluded as defined in 8b, 8c or 8d, the file shall be returned to Equus for archiving.  Where a file is concluded as defined in Clause 8a the file shall be returned to Equus upon WFW receiving payment as provided for in Clause 13.

…

13.Except as otherwise provided in this Deed, as from the 19^th December 2000, WFW shall be compensated in the following manner for the provision of the legal services under this Deed.

a.WFW will charge at the rate of $400 per hour inclusive of GST (‘the Normal Rate’) for work undertaken by the solicitor working on the file and the Equus Partner as provided for in Clause 3 herein.  The Normal Rate will be charged where there has been a successful result (this is deemed to include a settlement or compromise of some or all of the sum claimed in the litigation) which leads to a recovery of some or all of the claimed amount in the litigation represented by each file.

b.From any moneys recovered from the Defendants or any other third parties pursuant to the litigation on a particular file the following priorities as to entitlements to such money will apply:

(i)reimbursement to Equus of all reasonable disbursements incurred by Equus pursuant to the litigation that file, including all disbursements of the kind referred to in Clause 7 of this Deed;  then from the balance (if any)

(ii)reimbursement to Equus of any adverse cost orders (including interlocutory cost orders) against Equus or its associates;  then from the balance (if any)

(iii)reimbursement to Equus of all moneys previously paid by Equus for legal fees on the file (to either WFW or other solicitors for any fees);  then from the balance (if any)

(iv)one dollar shall be due and payable to Equus and one dollar shall be due and payable to WFW until WFW has been paid all legal fees on the file calculated at the Normal Rate and all disbursements due pursuant to Clause 5(b) with the balance (if any) thereafter payable to Equus.

…

f.Except as otherwise provided elsewhere in this Deed and in particular in Clause 13c of this Deed, the Normal Rate is payable on any matter when a judgment or a compromised settlement is reached in favour of Equus and recoveries are made.

…

14.If Equus receives an order in its favour for party/party costs, and payment is made in respect of such order, WFW may retain all monies paid pursuant to such order on account of its costs, but must account to Equus for same.

…

25.Where interlocutory proceedings take place and costs are awarded in favour of Equus, then upon a full recovery of all disbursements incurred by Equus pursuant to the interlocutory proceedings, any surplus costs will be paid to WFW in part satisfaction of moneys due to WFW pursuant to Clause 13 after the deduction has been made in accordance with Clause 13e.

1. There were also clauses which –

·     Provided for variant normal rates of costs in respect of particular litigation (clauses 13c, d, e and second e).

·     Specified the trigger for payment at the normal rate in particular instances (clause 27).

·     Specified the start date for operation of the costs regime in respect of particular files (clauses 29, 30, 31).

·     Provided for payment by Equus of certain disbursements within 30 days of receipt of an ‘approved account’ (clause 7).

·     Specified what costs were payable in the event that one or other party terminated the agreement (clauses 4, 16, 17, 18).

1. Given the detail of the arrangements, the relevant characteristics of the agreement are clear enough. There was provision for charging and payment of legal costs at two rates. One applied in any case, the other only in the event of a successful outcome of proceedings. There was no provision for payment of a premium on the costs otherwise payable in the event of a successful outcome. It was not a three tier arrangement. It was an arrangement which fitted the language of s 97(1), but not the language of s 98(1). It was also an arrangement which complied with s 97(4)(a) in that, in inclusive language (clause 13a), it defined what was meant by a ‘successful result’.[94]

   [94]We note that no argument was advanced by Equus, if it could have been, that there was any want of compliance with s 97(4)(a).

1. What we have thus far said about the agreement means that we respectfully disagree with the conclusion of the learned trial judge that the agreement contravened s 98(3) of the Act. We think, however, reviewing the submissions which his Honour noted as having been advanced on behalf of WFW, that it seems to have been put, at best, less clearly at trial than it was in this Court that the agreement was not of the s 98(1) kind because there was no provision for uplift of fees on the costs payable in the event of success.

1. We turn to consideration of s 99(1). In our view the trial judge was correct to conclude that the agreement did not contravene that provision. The normal rate of costs was chargeable when there was a successful result which led to recovery of some or all of the sum claimed. Calculation of costs at the normal rate had nothing to do with the amount of the award. Nor was the calculation and charging of costs at the normal rate dependent upon whether it was some or all – and if some, then how much – of the claimed sum which was recovered. So much is clear not only from clause 13a, but from clause 13f.

1. It can be said – subject to the impact of costs having been received by WFW pursuant to clauses 13 (second) e, 14 and 25 – that WFW’s entitlement to payment of costs at the normal rate out of moneys recovered might be limited by the quantum of the amount recovered.  But as the learned judge said, clause 13b is concerned with satisfaction of the liability to pay costs.  Moreover, to emphasise the point, calculation of costs at the normal rate, and their becoming payable, was unaffected by whether the amount recovered turned out to be an adequate or inadequate source for payment.  So, if the amount was much more than adequate, the costs as calculated, charged and payable remained the same.

Quantum meruit

1. By summons dated 8 August 2006 WFW sought leave to amend its notice of cross-appeal to add the following ground:

6A … if (which is denied) the Deed of Costs was void pursuant to s 102(1) of the Act:

(a)the learned judge erred in concluding that “WFW may not recover any amount for the provision of legal services in any matter to which the costs agreement relates” … ;

(b)the learned judge ought to have held that WFW was entitled to payment of reasonable remuneration for the services the payment to WFW for which would otherwise have been governed by the Deed of Costs.

The application was referred to the court hearing the appeal and cross-appeal.  As we have heard full arguments on the questions of the ability of WFW to recover on a quantum meruit and the amount of its disbursements, we will state our conclusions in case these proceedings are taken further.

1. In its defence to the amended statement of claim raising the question of the validity of the agreement, WFW alleged that, if the agreement was void because it contravened the Act, the firm was entitled to be paid for its legal work on the basis of a quantum meruit. Although WFW pleaded a quantum meruit, it did not advance that case at trial. Written and oral submissions made on behalf of WFW appeared to assume that there was no right to recover any payment for work done under an agreement that was void because it contravened the Act. No evidence was led to establish the reasonable value of the work performed by WFW.

1. Nevertheless, we think the question of WFW’s entitlement to a quantum meruit can be entertained at this stage. The question whether the value of work performed under a contract rendered void by the Act can be recovered by an action on a quantum meruit is a question of law, which does not depend upon evidence. Only if it is determined that such a claim succeeds is evidence of the value of the work required. In those circumstances, there is no injustice in now entertaining the claim. Although we have held that the agreement has not been struck down by the Act, having heard argument on the question, we consider it is desirable that it be determined.

1. Counsel for WFW contended that s 102 of the Act did no more than render the agreement unenforceable. He relied upon the decision of the High Court in Pavey & Matthews Pty Ltd v Paul[95].  In that case the majority of the Court held that an action upon a quantum meruit for work done under a contract was not precluded by a statue which provided that the contract ‘is not enforceable against the other party to a contract unless the contract is in writing signed by each of the parties or his agent in that behalf and sufficiently describes the building work the subject of the contract.’  The majority of the Court was of the view that action on a quantum meruit was not an action by which the plaintiff sought to enforce the oral contract, and thus was not caught by the statute.

   [95](1987) 162 CLR 221.

1. Counsel also relied upon the decision of the Full Court of South Australia in Upjay Pty Ltd v MJK Pty Ltd[96].  In that case it was held that an action upon a quantum meruit succeeded notwithstanding that the work was performed by a person who held an oral authorisation, when a statute provided that he was ‘not entitled to commission or other consideration for services as an agent unless the person … is authorised in writing to act as an agent.’  Wicks J, with whom Doyle CJ and Williams J agreed, said:

As the contractual obligation for the payment of commission is unenforceable there is no agreement or request from which a promise to pay might be expressed or implied.  Without a contractual obligation, the way is clear for the proceedings on a quantum meruit to apply and for the Court to determine fair and just remuneration to be recoverable having regard to the nature, value and extent of the services provided.[97]

[96](2001) 79 SASR 32.

[97]Above, at [72]. See also Ovidio Carrideo Nominees Pty Ltd v The Dog Depot Pty Ltd [2006] VSCA 6.

1. Where a contract is declared void by statute, the availability of restitution for benefits provided under the contract depends upon the purpose of the invalidating legislation.  As McHugh JA said, in Hurst v Vestcorp Pty Ltd[98]:

   [98](1988) 12 NSWLR 394.

Whether restitution is possible in respect of benefits accepted under a contract declared by statute to be unenforceable depends on the intention of the legislature.[99]

In the present case, s 102 provides not only that a contract contravening the Act is unenforceable, but also that a legal practitioner who has entered into such a contract ‘is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related.’ Further, the Act expressly provides for the circumstances in which costs may be recovered on a quantum meruit. Those circumstances do not include the provision of services under a void agreement. Section 93 of the Act provides:

Legal costs are recoverable –

(a)     under a costs agreement made in accordance with Division 3;  or

(b)in the absence of a costs agreement, in accordance with an applicable practitioner remuneration order or scale of costs;  or

(c)if neither paragraphs (a) or (b) applies, according to the reasonable value of the legal services provided.

[99]Above at 445.  See also Australian Breeders Co-operative Society Pty Ltd v Jones & Ors (1997) 150 ALR 488 at 541 (Wilcox and Lindgren JJ).

1. Accordingly, in our opinion, WFW would not be entitled to recover on a quantum meruit for the work to which the agreement related if the agreement contravened the Act.

Disbursements

1. In his reasons for judgment the trial judge said:

I conclude therefore that the costs agreement is void and that WFW may not recover any amount for the provision of legal services in any matter to which the costs agreement relates. The restriction in s 102(3) to remuneration for legal services presumably means that the prohibition attaches to its legal fees rather than to disbursements which it incurred in the furtherance of the client’s interests.

1. Equus contends that his Honour erred: if the agreement is void, it maintains that WFW cannot recover either fees for its own work or amounts it has paid to others. Equus relies upon the definition of the term ‘legal costs’ in s 3 of the Act, which is:

“Legal costs” means all amounts that a person has been or may be charged by, or is or may become liable to pay, a legal practitioner or firm for the provision of legal services including disbursements but not including interest …

It was submitted that in order to render the definition in s 3 and the prohibition in s 102(3) consistent, it was necessary to construe the expression ‘legal services’ in s 102(3) to include disbursements.

1. We disagree. The fact that the definition of ‘legal costs’ is expressed to include disbursements in charges for the provision of legal services does not require the construction of the expression ‘legal services’ in s 102(3) for which Equus contends. If anything, the fact the disbursements are expressly mentioned in the definition may indicate that otherwise disbursements are not included in fees for the provision of legal services.

1. In our view the legal services to which s 102(3) refers are the legal services supplied by a legal practitioner or firm which has entered into a costs agreement that contravenes the provisions of the Act. If s 102(3) had been intended to prevent the recovery of all charges, including disbursements, the obvious means of achieving that result would have been to employ the term ‘legal costs’ instead of the words ‘amount in respect of the provision of legal services’. The words ‘in respect of’ are of wide import[100], but in our view in s 102(3) they do not serve to broaden the scope of the expression ‘legal services’.

   [100]See, for example, Trustees Executors and Agency Co Ltd v Reilly [1941] VLR 110 at 111 per Mann CJ.

Conclusion

1. For the foregoing reasons we are of the opinion that Equus was entitled to reopen its case and that the doctrine election did not prevent Equus contending that the agreement was void as one forbidden by the Act. We are of the opinion, however, that the agreement did not contravene the Act.

1. We would allow the cross-appeal and set aside paragraphs 1, 2 and 4 of the judgment given and orders made by the trial judge on 7 April 2006.  We will hear the parties as to the orders which should be made in lieu thereof.

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