Equuscorp Pty Ltd v Wilmoth Field Warne (No 3)

iiit

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 6284 of 2003
F5559

EQUUSCORP PTY LTD (ACN 006 012 344)	Plaintiff
v
WILMOTH FIELD WARNE (a firm)	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATE OF HEARING:	1, 2, 3, 4 December 2003, 26 February, 25 March 2004
DATE OF JUDGMENT:	25 June 2004
CASE MAY BE CITED AS:	Equuscorp Pty Ltd v Wilmoth Field Warne (No. 3)
MEDIUM NEUTRAL CITATION:	[2004] VSC 164	First Revision: 11 October 2005

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Barristers and solicitors – contract – fees agreement – construction – implied terms – whether breaches – whether agreement terminated – solicitor's entitlement to fees following termination.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr F. George A Beaumont QC with Mr S. Maiden	Phillip Kotsanis
For the Defendant	Mr R. M. Garratt QC with Mr Mark Moshinsky	Wilmoth Field Warne

Table of Contents

Introduction......................................................................................................................................... 1

The terms of the Deed of Costs....................................................................................................... 5

Equus Implied Terms................................................................................................................... 8
WFW Implied Terms as to the proceeds of Litigation............................................................ 9
Equus Implied Term as to the Time for Costs Payment....................................................... 14

The Beagle Litigation...................................................................................................................... 17

New South Wales Supreme Court Proceeding...................................................................... 18
WA Supreme Court Proceeding............................................................................................... 18
Western Australian Federal Court Proceeding...................................................................... 19
The Targridge Proceeding......................................................................................................... 19
The Bailey Proceeding............................................................................................................... 20
The cl. 5.1(j) Claim....................................................................................................................... 24

WFW's Breaches of the Deed of Costs......................................................................................... 28

The Beagle Settlement Money................................................................................................... 28
The Failure to Cease Work........................................................................................................ 38
The Failure to Conduct File Review Meetings and to Provide Task Lists........................ 41
The Worts Litigation................................................................................................................... 46

Termination of the Deed of Costs................................................................................................. 48

The contractual provisions........................................................................................................ 49
Termination by Equus on 27 May 2002................................................................................... 54
Termination by Equus on 2 June 2003..................................................................................... 56
Termination by Equus on 25 August 2003.............................................................................. 57
Termination by WFW on 3 June 2003...................................................................................... 58
Termination by WFW on 29 May 2003.................................................................................... 62
Conclusion................................................................................................................................... 64

WFW's Entitlement to Legal Fees.................................................................................................. 64

The Beagle matter....................................................................................................................... 65
Clause 17(b).................................................................................................................................. 66
Clause 16...................................................................................................................................... 66
Waiver........................................................................................................................................... 67
Termination under cl. 2.............................................................................................................. 68
Quantum meruit......................................................................................................................... 68
Other matters............................................................................................................................... 69

WFW Disbursements....................................................................................................................... 70

HIS HONOUR:

The plaintiff, Equuscorp Pty Ltd (“Equus”), is a general financier. Since 1992, when all of its shares were purchased by the family interests of its present managing director, Nicola Russo, Equus has concerned itself with recovering debts and enforcing rights under other choses in action stemming from its past lending activities. This has involved it in much litigation and, for the purpose, it has had need of professional legal assistance. This assistance was, according to Mr Russo, provided up to July 1999 by its in-house “litigation department comprising of 5 solicitors, a barrister and support staff”. From about 1998, Equus has also retained outside solicitors, including the defendant Wilmoth Field Warne (“WFW”).

In the course of their professional relationship, Equus and WFW entered into three formal retainer agreements whereby WFW in some way shared with its client the risks of the litigation it was conducting on the client's behalf. The first is contained in a letter dated 10 February 1999; the second in a formal agreement dated 18 December 2000; and the third in a formal deed of costs dated 25 September 2002. In the first half of 2003 Equus and WFW fell into dispute and this litigation requires the determination of their rights under the deed of costs.

Introduction

Central to the solicitor/client relationship provided for in the deed of costs is that WFW should share with the client the risks of the litigation. This was achieved in two ways. First, there were two hourly rates chargeable for the legal work of WFW: the normal rate which was generally $400 per hour including GST,[1] and the discount rate of $66 per hour including GST.[2] During the conduct of the litigation, monthly bills were to be rendered, including bills for professional costs calculated at each rate, but payment would be made on an interim basis at the discount rate. I put to one side disbursements which may have been paid by WFW for which it was to be reimbursed with the monthly accounts[3], or passed to Equus for it to pay[4] or, in certain circumstances, deferred disbursements paid by WFW were to be reimbursed by Equus some time later, upon a “successful result”[5]. The normal rate, too, was payable only where there had been a “successful result” in the litigation. A successful result is said in the deed to include the case where a settlement, compromise or judgment is achieved or obtained in the litigation and some money is recovered.[6] And so, in such an event, there was to be an adjustment for the change in applicable rate.
[1]Cl 13a.
[2]Cl 5a.
[3]Cl 5a.
[4]Cl 7.11.
[5]Cl. 5b.
[6]Cl 13a, (f).

Second, the moneys recovered in the litigation were to be paid 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 and then the surplus, if any, to Equus.[7]
[7]Cl 13b, (iv).

A further feature of the deed of costs, and one which assumed much importance in this litigation, is that, if the deed be terminated by WFW[8] or by Equus,[9] WFW is entitled to its unpaid professional costs incurred to that date at the discount rate only. These provisions had the curious consequence in this case that WFW took the ambiguous position that the deed remained on foot notwithstanding that its client demanded and obtained the delivery up of all of its files and refused to give to WFW instructions for the further conduct of the litigation and, further, notwithstanding that it refused to perform further work otherwise than under a fresh retainer[10]. Equus, on the other hand, contended that the deed was at an end so that the costs were payable only at the discount rate. This issue, which carried with it subsidiary questions as to the construction of the deed and the factual and legal assertions by Equus as to its determination, represented the principal question in the litigation. Accordingly, on 20 November 2003 I directed that these questions be determined before other questions.
[8]Cl 16, unless there has been a recovery before termination. This result follows notwithstanding that the determination is as a result of default by Equus.
[9]Cl 17b.
[10]See at [174] below.

The order that I then made was that there be a preliminary trial of the questions raised by the following paragraphs of the Equus statement of claim[11]: paragraphs 1, 2, 3, 4, 5, 6, 6A, 6B, 6C, 6D, 6E, 6F, 6H, 6I, 6J, 6K, 6L, 6M, 6N, 6O, 6P, 6Q, 7, 7A, 7B, 7C, 8, 9, 10, 10A, 10C, 13 and 14 and the pleas to those paragraphs. The WFW pleas in answer to these paragraphs are those in the following paragraphs of the defence and counterclaim:[12] paragraphs 1, 2, 3, 4, 5, 6, 6A, 6B, 6C, 6D, 6E, 6F, 6H, 6I, 6J, 6K, 6L, 6M, 6N, 6O, 6P, 6Q, 7, 7A, 7B, 7C, 8, 9, 10, 10A, 10C, 13 and14. In its reply[13] Equus responded to these in paragraphs 1A, 1B, 1C, 2, 3, 3A, 3B and 33. In addition, there were included in the order for preliminary trial those questions raised in paragraph 31 of the counterclaim of WFW which was responded to in paragraph 31 of the Equus defence to counterclaim. WFW’s reply to defence to counterclaim joins issue[14]. The terms of paragraph 31 of the Equus defence to counterclaim also had the consequence of bringing into the preliminary trial the allegations in paragraphs 21 and 22 of that pleading. This had the further consequence of bringing in paragraphs 21 and 22 of the WFW counterclaim to which the paragraphs responded and also paragraphs 1 and 2 of the WFW reply to defence to counterclaim. The questions raised by paragraph 31A of the Equus defence to counterclaim and the responding paragraph 31A of the WFW reply to defence to counterclaim were also included in the November order for preliminary trial. In the course of the opening the parties also agreed to bring in to the trial the questions raised by paragraph 20 of the WFW counterclaim and the Equus denial of this in paragraph 20 of its defence to counterclaim. After the trial was completed, in order to bring into the pleadings certain arguments that were advanced in final addresses, Equus sought and WFW did not oppose the further amendment of its statement of claim by introducing new paragraphs 7AA and 10CA. Leave to amend was granted and these allegations, which I took to be denied, were included in the preliminary trial.
[11]Second further amended statement of claim filed 29 March 2004.
[12]Defence to further amended statement of claim and amended counterclaim filed 12 November 2003.
[13]Third amended reply and defence to amended counterclaim filed 3 December 2003.
[14]Reply to defence to amended counterclaim filed 13 October 2003, para 7.

In fact this rather complicated list of pleadings belies the fact that many of these allegations were admitted or, as the evidence emerged, were not contentious, at least from a factual point of view. An allegation that WFW was in breach of the deed of costs by itself refusing to accept the termination by Equus[15] was not pursued. The substantial issues of fact and law for determination may be listed as follows:
[15]Equus statement of claim, para 8-10A.

(1)Whether the deed of costs contained the implied terms alleged in paragraph 6(q) of the Equus statement of claim, in paragraph 20 of the WFW counterclaim and in para 31(c)(i) of the Equus defence to counterclaim.
(2)A subsidiary issue assumed such importance at the trial that it warrants special consideration. This was as to what litigation was comprehended in the expression “Beagle” in the deed of costs[16].
[16]WFW counterclaim, para 21; Equus defence to counterclaim, para 21; WFW reply to defence to counterclaim, para 1.
(3)Whether WFW was in breach of the deed of costs –
(a)in its disposition of $500,000 received upon settlement of the Beagle Litigation[17];
(b)in its failure to cease work on 9 December 2002[18];
(c)in its failure to conduct file review meetings[19];
(d)in its failure to provide task lists within the periods specified in the costs deed[20];
(e)in its failure to comply with an instruction of Equus as to the Worts Litigation[21].

4.Whether the deed of costs was terminated on 27 May 2003, 29 May 2003 2 June 2003, 3 June 2003 or 25 August 2003.[22]
5.Whether WFW is entitled to be paid for its legal fees otherwise than at the discount rate.[23]
[17]Equus statement of claim, paras 6A – 6F.
[18]Equus statement of claim, paras 6H – 6I.
[19]Equus statement of claim, paras 6J, 6L and 6M.
[20]Equus statement of claim, paras 6K and 6N.
[21]Equus statement of claim, paras 6O – 6Q.
[22]Equus statement of claim, paras 7 – 7C (including par 7AA); and Equus reply, para 3B.
[23]Equus statement of claim, paras 10C, 10CA 13 and 14; and WFW defence para 31.

The terms of the Deed of Costs

The deed is, as I have mentioned, couched in formal legal terms. It contains in Recital C an entire agreement provision. It is apparent that the parties executing this document intended that it should be the repository of their agreement. It follows from this that, subject to well known exceptions, the intent of the parties is to be had from a construction of the words which they have adopted in the document rather than from their pre-contract communications and superseded drafts.

The deed of costs is a complex and, in many respects, an obscure document. Notwithstanding that it bears the hallmarks of having been prepared by a person or persons with legal knowledge, if not legal training, it contains a great many drafting deficiencies and inconsistencies. The evidence shows that it was the product of a series of drafts prepared and exchanged between the parties between about July 2001[24] and September 2002. The drafting on behalf of WFW, at least, was by trained lawyers; that on behalf of Equus to some extent at least, by Mr Russo himself. He is not a qualified lawyer.
[24]Cl 7.11.

In construing this document, it was put on behalf of Equus that I should approach the document contra-proferentem so that any ambiguity should be resolved in favour of the client. This was said to arise from the fact that a solicitor is a fiduciary vis-à-vis their client. When preparing costs agreements with the client they have a direct financial interest in the terms of the agreement and, therefore, a potential conflict of interest. The client in this case had no independent legal advice. Consistent with the heavy responsibilities which the law imposes upon a fiduciary in such circumstances, the court should resolve any ambiguity in favour of the client. Reliance was placed upon the following passage from the judgment of Fletcher Moulton LJ in Clare v Joseph[25]:

“[Agreements between a client and his solicitor as to the terms on which the solicitor’s business was to be done] were, however, viewed with great jealously by the Courts, because they were agreements between a man and his legal adviser as to the terms of the latter’s remuneration, and there was so great an opportunity for the exercise of undue influence, that the Courts were very slow to enforce such agreements where they were favourable to the solicitor unless they were satisfied that they were made under circumstances that precluded any suspicion of an improper attempt on the solicitor’s part to benefit himself at his client’s expense.”

With the greatest respect, his Lordship’s views are as apposite today as they were a century ago – perhaps even more so in the modern environment where fees agreements, including provisions for contingency fees[26] are more common. Nevertheless, there is in this case no allegation of undue influence and no relief is sought based on any breach of the solicitors' duty with respect to the preparation of the deed. And this is not surprising. The lay party in this case is an intelligent and experienced litigant who demonstrated himself to be well able to look after his own interests. Indeed, as will be seen, in many respects a document operates surprisingly harshly against the interests of WFW. In the circumstances of this case, I decline to construe the document contra proferentem.

[25][1907] 2 KB 369 at 376.

[26]But not fees calculated by reference to the amount of recovery: Legal Practice Act 1996 s. 99.

The document deals not only with the legal costs to be payable by Equus and with the manner of their payment, but also in some detail as to the manner in which the legal services are to be provided. Equus and, in particular, Mr Russo is a very experienced professional litigant. It and he were, naturally enough, concerned to keep its legal costs to a minimum and to obtain the maximum benefit from its lawyers. Add to this the fact that Equus was a “hands on client”: it sought to be involved in every aspect of the litigation to an extent which would exceed the interest and ability of the ordinary client. And so, Mr Russo took an active role in technical and tactical decisions and in deciding what priority should be given to the legal tasks to be undertaken. And he expected that this should be so. On occasions, he instructed counsel directly and Equus paid them directly. He customarily undertook the inspection of documents himself. Mr Russo totally controlled settlement negotiations. In every respect he had an active involvement in the conduct of each file. The deed of costs provides in cl 12 for periodic file review conferences with Mr Russo at which the solicitor and the client would confer on the progress of the file and Mr Russo would provide instructions to progress the file further.[27] Following these meetings, WFW was to produce and provide to Equus “a detailed task list showing all work (including any proposed conferences with Counsel) to be done by WFW and Equus in the ensuing 90 day period, detailing tasks to be performed, the date the task is due to be completed by and for each of the WFW tasks, the likely amount of time required to complete each task.”[28] In this case the late delivery of these task lists is a matter of complaint by Equus.
[27]Cl 12a.
[28]Cl 12c.

WFW had acted for Equus for some years before the deed of costs was entered into. Indeed, in late 2002 when it was executed there had been already disputes between the solicitor and the client about WFW’s conduct on the Beagle file and the costs incurred as a consequence of an abandonment of the Beagle trial in the Federal Court after two or three days hearing. Mr Russo said that this was the consequence of deficiencies in the pleadings for which he held WFW responsible. The dispute has been passed to WFW’s insurers and is the subject of a reference to arbitration. I express no view as to the rights and wrongs of this dispute. It is sufficient that the negotiations between the parties in 2002 which culminated in the deed of costs were conducted against a background of an already strained relationship between the solicitor and client.

The deed of costs had to address the position of the parties with respect to work in progress and with respect to work which had been already performed under previous agreements[29]. Under the earlier regimes, WFW conducted different files under different agreements and at different hourly rates. I shall concern myself only with the nine files which are referred to in cl 1(i) of the deed of costs. These are known by their shorthand description in that clause as follows: the Beagle Litigation, Blueberry Litigation, Sintoff Litigation, ANZ Cellante/Chelmaness Litigation, ANZ Club Resorts Litigation, RMBL Litigation, Worts Litigation, Gilmour Nominees Litigation and Gadens Stamp Duty Litigation.
[29]See cll 13c, d, e, 29, 30 and 31.

In each case disbursements were treated separately and were reimbursable in full at cost; the differing regimes, for present purposes, concerned the payment of professional costs. Prior to the entry into of the deed of costs, the Gilmour Nominees Litigation was conducted at an agreed rate of $150 per hour for professional costs. Five files were dealt with under the 10 February 1999 agreement: the ANZ Cellante/Chelmaness file, the ANZ Club Resorts file, the RMBL file, the Worts file and the Gadens Stamp Duty file. The Blueberry file and the Sintoff file were conducted under the 18 December 2000 agreement. There is some uncertainty as to the basis upon which WFW undertook the conduct of the Beagle file in May or thereabouts 2001. It was to restore this uncertainty and to establish a general regime for the conduct by WFW of the extensive Equus litigation that negotiations commenced in or about June 2001 for a new costs agreement. These negotiations continued for about 18 months and culminated in the execution of the deed of costs on 16 December 2002.

Equus Implied Terms

The deed is in writing. Equus in sub-paragraphs (a) – (p) of paragraph 6 of its statement of claim sets out in summary many of the written terms of the deed of costs. These are, for the most part, admitted by WFW[30]. The pleaded terms which are wholly or partly denied by WFW are those following:

(b)Nick Russo of the plaintiff is entitled to meet with the Equus partner and the relevant solicitor on a particular file to provide instructions. Within a reasonable time following such a meeting (a 'file review meeting',) the solicitor must provide a detailed task list showing all work to be done by the plaintiff and the defendant in the 90-day period following the meeting (clause 12).
(ga)If the normal rate is payable on a particular file, and the proceeds of the money recovered on that file are exhausted according to the mechanism set out in sub-paragraph (g) above prior to the entire amount that can be claimed by the defendant at the normal rate on that file being paid, the defendant's entitlement to be paid the normal rate for that file is limited to the amount paid at that point (clause 13b).
(q)[WFW] will follow the instructions given by [Equus] in relation to the files.”

Terms (b) and (ga) were accepted by WFW in the course of final addresses.

[30]WFW Defence, para 6.

Term (q) is said to be implied by operation of law and to give business efficacy to the deed of costs. Putting to one side the exceptional position where the client’s instruction contravenes a solicitor’s supervening duty to the court or the solicitor’s ethical responsibilities, neither of which arise in this case, I have no doubt that the retainer of WFW includes a term such as that pleaded. But, even so, the instruction must be one which is proper for the client to give and, absent some express term to the contrary, is limited to instructions as to the steps which are to be taken in pursuing the litigation in question. It is not, for present purposes, necessary for me to delineate the ambit of such an instruction. I shall return to an aspect of this when dealing with the suggested breaches of this term[31]. That it is omitted from the deed of costs is probably explicable from the fact that it goes without saying. I find that the deed of costs included an implied term as alleged in paragraph 6(q).
[31]See at [123] below.

WFW Implied Terms as to the proceeds of Litigation

The terms alleged by WFW in paragraph 20 of its counterclaim are less straightforward. They are pleaded as follows:

“(a)the moneys recovered pursuant to litigation on a particular file would be kept separately by the Plaintiff or the Defendant (as the case may be) until effect had been given to the entitlements provided for in clause 13b of the Deed.
(b)on the recovery of moneys pursuant to litigation on a particular file, the Plaintiff would account forthwith to the Defendant in respect of the amounts for which it claimed an entitlement to reimbursement under clause 13b of the Deed, and then promptly give effect to the Defendant’s entitlement (if any) under clause 13b by paying or authorising payment of the same.
(c)until the Defendant’s entitlement in respect of moneys recovered pursuant to litigation on a particular file had been ascertained and given effect to, the Plaintiff would not encumber or otherwise deal with the funds represented by the said moneys and any accretion thereto.
(d)the quantum of any such entitlement of the Defendant in respect of moneys recovered pursuant to litigation on a particular file would carry its aliquot share of interest earned on any such moneys up to the date of payment.”

Equus denies the allegation. In its particulars WFW says that the terms arise “as a matter of express inference from the provisions of cl. 13b, alternatively [they] are to be implied in order to give business efficacy to the Deed”.

By cl. 21 of the deed of costs, it is provided that:

“Any settlement or other moneys due to Equus will, unless otherwise directed by Equus, be made payable to WFW’s Trust Account, with such monies to be paid over to Equus within 96 hours of receipt of cleared funds by WFW.”

Elsewhere in the deed, provision is made in particular circumstances permitting WFW to retain money payable to Equus on account of its entitlement to legal costs[32].
[32]See cll. 13e, 14 and 25.

Clause 13b of the deed is concerned with the distribution between Equus and WFW of the moneys recovered in the litigation. It is in these terms:

“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 on 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 costs 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.”

It was submitted on behalf of WFW that cl. 13b could not operate unless the money recovered from the litigation was retained in a separate account until the priority reimbursements, in favour of Equus, had been determined and made under parts (i), (ii) and (iii). The balance would be then dealt with in terms of part (iv).

In their final submissions, counsel for WFW argued that the words of cl. 13b create in WFW a right with respect to the proceeds of the litigation. This right, it was said, would be characterised in equity as giving rise to a charge or equitable interest. They said, however, that it was not necessary for the purpose of their submission that the terms of the trust be such that WFW had an interest in the fund. All that was contended for was a contractual right that the fund be held separate until distribution. This, it was said, was the other side of the coin of the implied term of the deed under which WFW could not look elsewhere other than to this fund for payment for its services.

Counsel for Equus protested that the submission based on an equitable interest or charge was not pleaded, and this is correct. The pleading and the contention of WFW was put in terms of a contractual obligation only. On behalf of Equus it was then put that, even if there were a contractual obligation as contended for, then WFW had waived it by permitting Equus in previous settlements to deal with the proceeds as if they were its own money. This attracted from counsel for WFW a similar protest that waiver was not pleaded. Again, this is correct. As I indicated to the parties, I will decide this case on the pleadings.

I return, then, to consider whether, as a matter of construction of the deed of costs or as a matter of implication, the terms contended for have been made out.

The principal argument against the terms fastened upon cl. 21. An obligation in WFW to pay to its client the moneys received from the litigation does not sit easily of the obligation of the client to keep the money separate. Other provisions in the deed dealing with costs recovered[33] are also said to be inconsistent with the suggested term. I am not at all persuaded that there is necessarily the inconsistency suggested on behalf of Equus. Clause 21 is concerned with the destination of moneys due to Equus. It creates a procedure for dealing with these unless a contrary instruction is given. The fact that they are to be passed on to Equus says nothing of its obligation with respect to the moneys which it receives. Clauses 13e, 14 and 25 deal with costs received by WFW on behalf of its client. The directions contained in these provisions are qualifications upon its general obligation under cl. 21 to pass the money to the client. In each case, WFW was entitled to keep the money and obliged to account for it in due course.
[33]Clauses 13e, 14 and 25.

Clause 13b does not specify who is to effect the distribution. It is expressed as a procedure for distributing moneys received pursuant to the litigation. The words, “from any moneys recovered” suggest that the clause is concerned to specify the application of those particular moneys and not to create a general contractual obligation in Equus to make certain payments from its general resources. This is emphasised by the words “then from the balance (if any)” which appear at the end of each of parts (i), (ii) and (iii). These words indicate that the next ranking payment is to be made from a particular fund, namely the balance (if any) of the moneys recovered. It can be paid from no other money. The contrary contention, that the words simply signify the possibility that the next payment may not be paid in full cannot be correct. The words of cl. 13b deal not with the fact that there may be no funds from which to make each successive payment; they are concerned with the fund from which these payments may be made.

Clause 4 was also mentioned in argument against the suggested term. This provision deals with the case where WFW’s accounts are in dispute at the time of termination of the deed. In such case, Equus is to pay the disputed fees into WFW’s trust account pending resolution of the dispute. It might have been expected, if the parties were so minded, that a similar procedure would have been provided in cl. 13b if a separate fund were to be set aside pending the determination and distribution of entitlements under that sub-clause.

I remind myself that the deed is a commercial document which must be interpreted in a practical way. It is likely that the distribution of the fund pursuant to cl. 13b will be undertaken by or at the direction of Equus. It is Equus which is in the position to know the amounts for which it is entitled to priority reimbursement under parts (i), (ii) and (iii), and it is Equus which is in a position to appropriate the moneys necessary to do so. The suggested term would ensure that this is done.

On its behalf, it was submitted that the term would operate harshly against Equus which has, it may be supposed, expended money in the litigation. It was said that it would be nonsensical and inequitable for its working capital to be tied up until the priority entitlements under cl. 13b were known and quantified. Such a scenario assumes two facts which I do not accept. The first is that no distribution can take place until all costs and disbursements have been settled and that this cannot take place until the file is completed. Second, that it is inequitable for Equus to have to wait for its entitlement, but not inequitable for WFW to do so.

Finally, it was put on behalf of Equus that the implication of the suggested terms would be commercially impracticable in the case where it had granted a debenture charge over its assets. The charge in such a case would attach to the proceeds of the litigation in the hands of Equus. This may be so, unless cl. 13b has the effect of impressing the fund in the hand of Equus with a trust, a result which counsel for WFW did not press.

I conclude, therefore, that, upon receipt of the proceeds of litigation, Equus was contractually bound to apply the fund for the purposes set out in cl. 13b[34]. I make no finding as to whether the fund was, in these circumstances, held by Equus on trust for those entitled upon distribution. This was neither pleaded nor contended for. I find that the deed of costs contained terms (a), (b) and (c) as alleged in paragraph 20 of the counterclaim, but not term (d).
[34]Palmer v Carey [1926] AC 703.

Equus Implied Term as to the Time for Costs Payment

In response to the WFW counterclaim[35] seeking payment at the normal rate in respect of its work on the Beagle file, Equus in paragraph 31 of its defence to counterclaim alleges that moneys recovered by Equus upon settlement of the Beagle matters are not available for the payment of WFW’s legal costs pursuant to cl. 13b. This defence in part relies upon the matters affecting the Beagle claim to which I shall return[36] and in part upon an implied term which I shall now consider. The suggested implied term is pleaded as follows:
[35]WFW counterclaim, para 31.
[36]See at [64]ff below.

“It is a term of the Deed of Costs that any entitlement of [WFW] to be paid at the Normal Rate does not accrue until the relevant file is complete; and
Particulars
The term is implied by operation of law to give business efficacy to the Deed of Costs.”

Clause 8 of the deed defines the circumstances in which a file is said to be concluded. It may be that, in the suggested term, the word “complete” is intended to mean "concluded". I shall proceed first on that assumption. Under cl. 8:

“8. A file will be considered concluded where:
athe 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
dif Equus considers it would be uneconomic or inadvisable to pursue the debtor any further.”

First it will be noted that in none of these events, except possibly the first, does there inevitably exist the circumstance which would permit cl. 13b to operate. This circumstance is the recovery of moneys from a defendant. Even event (a) does not inevitably carry with it this circumstance, because a claim may be settled or compromised without the payment of money to Equus. In paragraph 31(c) of its defence to counterclaim Equus takes this one step further. It says that the Beagle file is incomplete because further work remains to be done and some recoveries remain to be finalised[37]. This suggests a more extreme meaning for the word "complete" in the suggested term. A file will not be complete until all recoveries under the settlement or judgment are made. One could well imagine a case where judgment was obtained against the defendant and final execution was not levied or distribution in insolvency not received for very many years.
[37]Equus defence to counterclaim, para 22(b).

It should be noted, too, that the implication of the suggested term would have the possible consequence that, at some point before a recovery is achieved, Equus could, for no cause shown, conclude the file pursuant to cl. 8d and thereby deprive the solicitor of any rights under cl. 13b.

Furthermore, the deed is surprisingly silent on the point that it should be taken to intend that the payment under cl. 13b(iv) should await completion or conclusion. The deferred disbursements dealt with in cl. 5b are to be reimbursed to WFW as part of its entitlement under cl. 13b(iv). Clause 5b says of these, not that they are payable on completion or upon conclusion, but that they “will not be required to be paid by Equus until payment of the Normal Rate as defined in clause 13 becomes due and payable”. This occurs when a judgment or compromised settlement is reached in favour of Equus and recoveries are made[38].
[38]Clause 13f.

It is said that the implied term is necessary for the achievement of the commercial objective of the agreement. The objective of cl. 13b is that the solicitor should not receive payment at the normal rate and reimbursement for the cl. 5b deferred disbursements until each of the priority reimbursements has been made to Equus. Since the amounts to be reimbursed cannot be finally known until the file is completed the surplus, if any, available for the payment of WFW’s legal costs and deferred disbursements cannot be known until this time.

This is, of course, correct. It may be supposed, moreover, that when judgment is obtained or settlement achieved and recovery made most of the legal work and the disbursements will have been done and incurred. It does not, however, follow from this that no payment can be made at that point[39], at least until the file is closed, for the entitlement to payment at the normal rate arises when the recovery is made[40]. The difficulty of quantifying the entitlement at this time will depend upon the circumstances of the case. Where there is a prospect that a fund will be available for the payment of legal fees after making the priority reimbursements, there is nothing in the agreement which inevitably leads to the conclusion that no right to the payment then exists. If the expectation is not fulfilled, an adjustment may be made later.
[39]See cl. 8. Compare the particular arrangement reached in the case of the Sintoff Litigation and the Blueberry Litigation in cl. 27.
[40]See cl. 13a, f.

This is confirmed by the provisions of the deed which established the entitlement of WFW to payment at the normal rate. In cl. 13a it is agreed:

"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."

The definition is an inclusive one. It includes the case where some, but not necessarily all, of the money claimed is recovered following judgment or settlement. Clause 13f takes the matter up again:
"Except as otherwise provided elsewhere in this Deed and in particular cl. 13c[41] 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."

I take this to mean that cl. 13b will operate following settlement or judgment as soon as any recoveries are made.

[41]This reference appears to be an error.

The suggested term should not, therefore, be implied. It is not necessary for the reasons which I have set out. It is not reasonable for it unnecessarily defers the entitlement of WFW to payment.

The Beagle Litigation

The deed of costs relates to the conduct by WFW of “the files”. This expression is defined in cl. 1i, as meaning –

“any matter agreed to from time to time by the parties for WFW to provide to Equus legal services and includes matters commonly referred to as the Blueberry litigation, the Sintoff litigation, Beagle, ANZ Cellante/Chelmaness, ANZ Club Resorts, RMBL, Worts, Gilmour Nominees and Gadens Stamp Duty.”

I have mentioned[42] that the deed of costs addresses the situation where work on a particular file has been performed by WFW under previous costs agreements. It also contemplates that WFW might have taken over a file from other solicitors, for in cl.13b(iii) payments previously made by Equus for legal fees “on the file” to other solicitors rank equally in priority to those previously made to WFW. It may be, too, that disbursements payable to other solicitors fall under cl.13b(i).

[42]See at [13] above.

In the deed different files are dealt with in different ways. The matter commonly referred to as “Beagle” is specifically referred to in cll 28 and 30. Clause 28 provides that “the Beagle litigation” includes two proceedings which I will call the Targridge proceeding and the Bailey proceeding; cl.30 speaks of files identified simply as “Beagle”. In the circumstances of this case, it is also necessary to know what is comprehended by the word “Beagle” for the purposes of determining the priority entitlements of Equus pursuant to cl. 13b.

The very complicated Beagle litigation arises out of a scheme entered into in 1987 whereby investors put money into a pinus radiata plantation in New South Wales. The managers of the project included companies whose names included the word “Beagle”. Equus financed the involvement of approximately 200 investors in the scheme including that of Targridge Pty Ltd, a private family company of Mr Russo. It seems that the parties fell out and this spawned the following litigation.

New South Wales Supreme Court Proceeding

This was a proceeding in the New South Wales Supreme Court in 1994 in which the manager parties challenged caveats lodged by Equus over the pine forests to prevent their being transferred out of the name of the manager parties. This challenge was defeated and the proceedings were terminated prior to April 2001.

WA Supreme Court Proceeding

Proceeding CIV 1363 of 1994 to the Supreme Court of Western Australia was brought by Equus against the manager parties of the scheme. Mr Russo said that, in this proceeding, Equus sought from the manager parties, pursuant to a recourse agreement, sums outstanding to Equus from defaulting investors and that the Court found that Equus was prevented from recovering some of these amounts for failure to give timeous notices.

Whether this summary be correct I do not say. It appears from the judgment of the Court entered on 5 October 2001 that there were in fact two proceedings, CIV 2427 of 1992 and CIV 1363 of 1994 and that the final order of the trial judge, Templeman J, was that the manager parties pay $260,224.30 to Equus and, further, that Equus pay this sum into a Loss Reserve Fund under the Finance Provision Agreement. On appeal, the latter part of the order was set aside on 4 October 2002. The order of the trial judge that Equus pay some of the costs of the respondents was remitted to the trial judge and the respondents ordered to pay the Equus costs of the appeal.

Western Australian Federal Court Proceeding

In proceeding WAG 62 of 1995 in the Federal Court (Western Australian Registry) the manager parties sued Equus and Targridge for misleading and deceptive conduct. The allegation was that Equus and Targridge had written to investors falsely stating that the manager parties had not complied with their obligations under the scheme to use their best endeavours to create a second market for forestry interests. The matter went to trial and, on 18 December 1996, Carr J published his judgment. My reading of this suggests that the matter is more complicated than the above summary given by Mr Russo would suggest, but nothing turns on this. His Honour found that the manager parties had not shown that the best endeavours statement was misleading.

The Targridge Proceeding

This is proceeding VG 299 of 1998 in the Federal Court (Victorian Registry). In this proceeding the applicants were Targridge and Second Lenbourne Pty Ltd, and the respondents were the manager parties. Second Lenbourne was a private company owned by Mr Russo’s accountant. The two applicants, as investors in the Beagle scheme, contended that the manager parties had failed to use their best endeavours to create a second market for the forestry interests as found by Carr J in the Western Australian Federal Court proceeding and that they were guilty of certain misleading and deceptive conduct. According to Mr Russo, the applicants to this proceeding sought, indirectly, to recover the sums sought by Equus in the Western Australian Supreme Court proceeding. He said that the applicants in the Targridge proceeding contended that, if the manager parties had used their best endeavours, they would have established a second market upon which Equus could have sold the interests of the defaulting investors and recovered its losses. In this way the sums guaranteed by the manager parties to Equus, the subject of the Western Australian Supreme Court proceeding, would have been reduced.

The Targridge proceeding was not concluded in April 2001 when Mr Russo and Royden Euan Luff, a partner of WFW, discussed the prospect that WFW would take over the Beagle litigation. It is common ground that the conduct of this proceeding was taken over by WFW in May 2001 and that it is part of the Beagle litigation for the purposes of the deed of costs.

The Bailey Proceeding

In proceeding VG435 of 2000 in the Federal Court (Victorian Registry) seventeen investors, led by Peter G. Bailey, and Equus sued the manager parties. The applicants assert causes of action, again based directly or indirectly upon the failure of the manager parties to use their best endeavours to establish a second market for timber interests.

The Bailey proceeding was also on foot in April 2001 and it was accepted that it was part of the Beagle litigation for the purposes of the deed of costs.

The issue, here, therefore, is whether the New South Wales Supreme Court proceeding, and the two incomplete Western Australian proceedings, the Western Australian Federal Court proceeding and in the Western Australian Supreme Court proceeding, are part of the Beagle litigation for the purposes of the deed of costs.

I start with the text of the deed of costs. Clause 1i[43] defines files in terms of “matters”. In particular, it speaks of “any matter” agreed to from time to time by the parties for WFW to provide Equus legal services. It would seem, therefore, that it must be the subject of some agreement for the performance by WFW of legal services. Within that general description are included “matters commonly referred to as … Beagle”. In a document of this kind entered into between a solicitor and an experienced litigant it may be supposed that terminology will be adopted with which the parties are familiar. In litigation parlance a file commonly refers to one proceeding only. “Matter”, on the other hand, is a word of broader meaning. And so, it is clear in the present case that the “matter commonly referred to as Beagle” covers more than one piece of litigation. The evidence of Julie Maree Colsell, a member of WFW in charge of Equus matters in 2001 and 2002, confirms this. She said, for example, that the Sintoff matter involved five proceedings and the Blueberry litigation approximately 550 separate proceedings, all in this Court. It is accepted by WFW, and cl. 29 indicates, that the Targridge proceeding and the Bailey proceeding are included within the expression "Beagle".
[43]Set out at [42] above.

When the deed of costs was executed WFW had been working on the Beagle matter since May 2001 or thereabouts. As at May 2001, the Targridge proceeding was already three years old and the Bailey proceeding about one year old. They had previously been conducted by other solicitors on behalf of Equus. Mr Russo said he approached Mr Luff on or about 4 April 2001 raising with him the prospect that WFW might represent Equus “in some aspects of a file which we call the Beagle file”. Mr Russo said that it involved two related Federal Court proceedings in Victoria which were to be heard together in October 2001. He explained the litigation to the lawyer. He said that it involved in effect an assessment of damages, for liability issues had already been determined by Carr J in the Federal Court in Western Australia. Mr Russo told me, too, that he expressly mentioned to Mr Luff that, for the purposes of legal fees and disbursements, the two Victorian proceedings will be seen as part of the Western Australian proceedings and that the Western Australian lawyers retained to conduct the Western Australian proceedings would work with WFW as a team. In this way, he said, "whatever is recovered from the two WA proceedings [would] be added to whatever we recover in the Victorian proceedings and from that total we will deduct all disbursements incurred in West Australia, NSW and Victoria before we get to the net figure that will determine the size of your 'success fee'". He said that Mr Luff agreed to this. Mr Luff denied this.

This is a very significant piece of evidence because, at the time, Mr Russo was asking Mr Luff to take over the conduct of the two Victorian proceedings only and that the legal work should be done on the basis of a success only fee under the arrangements then in place for other Equus litigation under the 18 December 2000 agreement. By cl.11 of that agreement success was defined as recovery of 70 percent of the amount claimed. Pending completion, the solicitors would charge at $66 per hour. If 70 percent was recovered, then WFW was to be paid its fees calculated at the “normal rate” of $330 per hour. If less than 70 percent was recovered after reimbursement to Equus of disbursements paid by it, the fees payable at the normal rate would be reduced pro rata. It was therefore important for WFW to form some view of the prospects of recovering the amount claimed, in terms of the chances of success and also in terms of the ability of the defendants or respondents to satisfy a judgment, and also to have some idea of the disbursements which were to be deducted for the purposes of calculating its success only fee.

If Mr Luff agreed to the proposition Mr Russo said he put to him on 4 April 2001, he was undertaking a very uncertain venture. The outcome of the Western Australian Supreme Court proceeding was not yet known. He knew nothing about any costs agreement between Equus and its allies and its lawyers in Western Australia. The documentation relating to any of the proceedings had not yet been examined by anyone on behalf of WFW. It was not suggested the he was asked or was told anything about the disbursements incurred over the preceding seven years in the Beagle proceedings conducted in New South Wales and Western Australia. If he, in fact, agreed to this, it is very remarkable that Mr Russo, who in these matters was meticulous, did not document it.

The following day, 5 April, Mr Russo sent a letter to Ms Colsell setting out the number of archived boxes being handled by WFW. This list included 45 boxes for the Beagle matter. It is clear that no agreement to provide legal services with respect to this matter had been reached as the last sentence indicates:

“We have included the files pertaining to Beagle, as Phillip Kotsanis is scheduled to leave our employ by the 15^th May 2001. I spoke to Euan [Mr Luff] last night and would like your urgent confirmation that your firm is agreeable to take over this file on the same basis as the Blueberry and the Sintoff lease litigation.

The Blueberry and Sintoff litigation were then being conducted on the basis of the 18 December 2000 agreement to which I have referred.

The Equus letter of 5 April attracted a response from WFW dated 26 April. On the last page of this letter under the heading Bailey and Beagle, WFW put its fee proposal for legal services “for this matter”. The terms proposed are again on a success only basis, but otherwise they are of no present concern. It is, however, significant, in my view, that the matter in respect of which WFW was agreeing to act was the proceeding which I have called the Bailey proceeding. Negotiations as to fees continued through June 2001 and thereafter.

The evidence of Mr Luff and Ms Colsell, which is not contradicted by Mr Russo, is that in 2001 WFW did no work on the two Western Australian Beagle proceedings. Its only contact with these was by way of background to it’s conduct of the two Victorian proceedings.

I now return to the disputed evidence of the 5 April conversation. On behalf of Equus Corp I was pressed, naturally enough, to prefer the evidence of Mr Russo. Reference was made to the dictum of Denning LJ in Griffiths v Evans[44] in support of the proposition that, in the event of conflict between the evidence of a solicitor and that of the client with respect to an oral retainer, that of the client should be given greater weight. This dictum has been considered and explained recently by the Queensland Court of Appeal in Adamson v Williams[45] where the court concluded that it should be understood as a reflection of the public policy which is against informality in a solicitor's retainer rather than as an a priori directive to prefer the evidence of one class of witness to that of another. If I may say so, with respect, this is the way I would prefer to understand his Lordship. I see my task as a trial judge to assess the evidence of the solicitor and that of the client on its merits and to resolve conflicts between them in the usual way in the light of my impressions of the witnesses and in the light of the surrounding circumstances. I do not approach this task with a predisposition to prefer either witness.
[44][1953] 2 All ER 1364 at 1369.
[45][2001] QCA 38 at [19].

Having undertaken this task, I do not accept the evidence of Mr Russo that he proposed and Mr Luff agreed that, for the purposes of calculating the success only fee, recoveries made and disbursements incurred in proceedings other than the two Victorian proceedings were to be brought to account in calculating the WFW success only fee. It is, to my mind, inherently improbable that Mr Luff would have agreed to act on such an uncertain basis. It is inconsistent with the contemporaneous correspondence to which I have referred. While I was generally impressed with Mr Russo’s recollection and reliability as a witness, I consider that he is not correct in this respect.

I find that, at the time of the deed of costs was entered into, WFW had agreed to and had performed and was continuing to perform legal work for Equus with respect to the two Victorian proceedings and that it had not done so with respect to other aspects of the Beagle matter. While I can well understand that Mr Russo might have seen the totality of all litigation and other aspects of claims arising from the Beagle venture as constituting the Beagle matter, this is not how the expression was understood at the level at which WFW was operating. This is not the meaning of Beagle and expressions derived from this in the deed of costs. Put another way, I conclude that the references to Beagle and associated expressions in the deed of costs are to the two Victorian proceedings only, which I have called the Targridge Proceeding and the Bailey Proceeding.

The cl. 5.1(j) Claim

To this point, the contentions of Equus have been directed to enlarging the scope of work comprehended in the expression "the Beagle file". The argument with respect to the 5.1(j) claim tends in the opposite direction. It appears in paragraphs 21(b) and 31 of the Equus defence to counterclaim. Paragraph 31 of the WFW counterclaim alleges an entitlement to payment out of the proceeds of the Beagle litigation pursuant to cl. 13b, alternatively on a quantum meruit basis. The sum claimed is $619,058.60 for its professional costs at the normal rate plus $29,130.14 for deferred disbursements. In the particulars, credit is given for $122,621.40 paid for the legal costs previously paid at the discount rate.

In its defence to the WFW counterclaim, Equus says in paragraph 21(b) that the cl. 5.1(j) claim was not part of the Beagle file and that it was therefore not subject to the deed of costs regime. In its defence to the WFW claim in paragraph 21 of the counterclaim Equus says a number of things, including the following with respect to the cl. 5.1(j) claim: The Beagle settlement was of the cl. 5.1(j) claim and not a settlement of the matters properly covered by the word "Beagle" in the deed of costs, so that the moneys received upon the settlements with the trustee and with the manager parties were not "moneys recovered… pursuant to the litigation on a particular file", within the meaning of the opening words of cl. 13b. They were therefore not available for distribution under that provision, including for distribution to WFW under cl. 13b(iv). The further consequence, pleaded in the alternative, was that there had been no recovery or only a partial recovery in respect of the Beagle matter before determination of the deed of costs and therefore no "successful result" so that WFW had no entitlement to payment of its professional costs at the normal rate[46]. It became apparent in the course of final submissions that these contentions of Equus had no practical utility, for the terms of the settlement deeds entered into between Equus and the other parties to the Targridge proceeding and the Bailey proceeding contained releases in the widest terms which drew no distinction between the claim under cl. 5.1(j) and other claims made or which might be made arising out of the subject matter of those two proceedings. Furthermore, the cl. 5.1(j) claim was included only in the Bailey proceeding. Not surprisingly, no attempt was made by Equus to lead evidence to dispute the generality of these settlements or to apportion the moneys received under them to any particular claim or claims. Notwithstanding this, counsel for Equus told me that their client did not abandon the point. I will therefore deal with it.
[46]Cl. 13a. See, too, cl. 13f.

The first general observation which I make about this point is to comment on its tactical audacity. If it is correct and the settlement proceeds, including the $500,000 received from the manager parties, were received, not subject to the deed of costs, then the failure of WFW to pass this amount to Equus pursuant to cl. 21 or otherwise does not amount to a breach of the deed of costs. I must confess to some surprise that Equus would in this way put to one side one important point in support of its termination arguments.

Pursuant to cl. 1i the word "files" means "any matter agreed to from time to time by the parties for WFW to provide to Equus legal services…". There is no doubt that in October 2002 Mr Russo was advised by his Western Australian solicitors about the making of a claim against the manager parties under cl. 5.1(j) of the finance provision agreement as varied. The basis of this claim is not presently relevant. Mr Russo says that the right of Equus under this claim was entirely separate from the claims otherwise made against the manager parties in the other Beagle proceedings, which claims arose out of its failure to use its best endeavours to create a secondary market. Having regard to the provisions of cl. 1i, I approach this question on the basis that this new claim, if undertaken by WFW, would be covered by the deed of costs unless a contrary agreement was reached between Equus and WFW.

After receiving advice that this new claim might be pursued either by fresh proceedings in Western Australia, by a fresh proceeding in Victoria or by adding it to the existing Victorian Federal Court proceedings, Mr Russo said that he discussed with Mr Luff in January 2003 whether WFW would act for Equus in respect of this new claim on the basis that WFW would treat this as a separate matter for which it would be paid a retainer of $165.00 per hour. In the correspondence which followed between Mr Russo and Mr Luff between 20 January and 23 January 2003, it appears that it was considered important that the claim be brought promptly for fear that this might jeopardise the 11 March Feral Court trial date. It is also apparent that no agreement was reached as to how WFW might charge for its work with respect to this new claim. Mr Russo was insisting on a separate retainer at $165.00 per hour; Mr Luff that it would be dealt with, as a matter of construction of the deed of costs, under that agreement. Mr Russo then said that on the afternoon of 21 January 2003 Mr Luff telephoned him and agreed to his proposal. Mr Luff denied this conversation.

This dispute represents another puzzling aspect of this case. Mr Russo did not, of course, anticipate the use which was to be made of the suggested arrangement in paragraph 31 of the Equus defence to counterclaim in this proceeding. The reason he gave to Mr Luff in early January 2003 for treating the matter separately was that WFW had had no previous involvement in this new claim and that he saw no commercial sense in giving the solicitors "a free kick" which would give them a windfall gain and would cost Equus about $500,000. Mr Russo explained in cross-examination that he was a "commercial animal" and that he foresaw that, if work on the cl. 5.1(j) claim were done by WFW otherwise than under the deed of costs and if all existing claims in the Victorian proceedings failed and if the new claim succeeded, then WFW would not receive for it’s professional costs payment at the normal rate. If, on the other hand, it was covered by the deed, he estimated that the solicitors would receive about $500,000 in respect of the whole Beagle matter for the very little extra work involved in handling the new claim. Since he was optimistic about the chances of success of the new claim, he saw little point in risking such an event.

The cl. 5.1(j) claim was added to the Bailey proceeding by an amendment permitted by the Federal Court on 28 February 2003 and the matter, as amended, moved forward to trial and ultimate settlement in early March.

The issue, therefore, turns upon the disputed telephone conversation between Mr Russo and Mr Luff of 23 January 2003. On this matter, I prefer the evidence of Mr Luff. It is, to my mind, highly improbable that Mr Luff would have departed from his previous position on the point at a time when all efforts were being directed towards readying the Beagle matter for mediation and trial. As will be seen, their exchanges took place at a time when WFW had received a cease work instruction and was being pressed by Mr Russo to implement the task lists provision of cl. 12 of the deed of costs. I would in these circumstances have expected Mr Russo to have confirmed such an arrangement had it been made. Finally, the existence of such an agreement which resolved the disputes set out in the correspondence is inconsistent with the contention of Mr Russo in his letter to WFW of 2 May 2003 that he then maintained "the position set out in our letter to you of 22 January 2003".

I conclude that the s. 5.1(j) claim fell within cl. 1i, so that it and the professional costs incurred in respect of it fell to be dealt with under cl. 13b of the deed of costs.

WFW's Breaches of the Deed of Costs
The Beagle Settlement Money

The breach of the deed of costs here alleged is that a cheque for $500,000 payable to Equus in settlement of part of the Beagle litigation was, contrary to Mr Russo’s instructions and contrary to the deed of costs, paid, not to Equus but into the WFW trust account and not passed to the client[47]. This breach is relied upon as a foundation of the first notice of default dated 1 May 2003.
[47]Equus statement of claim, para 6F.

I shall deal first with the factual basis for the Equus contention of breach. In March 2003 the two Victorian Beagle proceedings were settled. There were in fact two settlements. The first, with the manager parties, was made by a settlement deed dated 8 March 2003. Pursuant to cl.3.1 of this deed, $1.6M was to be paid by bank cheque to Equus in settlement of matters the subject of the Bailey proceeding and $300,000 was to be placed in a bank account pending final determination of certain cross-claims brought by the trustee of certain trusts established as part of the Beagle scheme against the manager parties[48]. Each party was to bear its own costs[49]. The second settlement was entered into with the trustee by deed dated 20 March 2003. By this agreement the trustee agreed to pay to Equus the sum of $500,000 within 14 days of its execution that is, by 3 April 2003.
[48]Cl. 7.
[49]Cl. 326.

On 21 March bank cheques for $1.6M and the balance of the $300,000 payable under the manager parties’ settlement, were handed to Mr Russo.

There were further things and payments to be received by or on behalf of Equus consequent upon the settlements.

(1)Four bank guarantees totalling $160,000 lodged with the Federal Court on account of security for the costs of the manager parties of the Targridge proceeding.
(2)$100,000 being the return of the security provided by Equus for the costs of the trustee. This sum, when received, was deposited by solicitors for the trustee directly into an Equus bank account pursuant to a request by Anthony Leigh Snell, the solicitor employed by WFW handling the Beagle file, on 24 March 2003 in accordance with Mr Russo’s direction.
(3)$100,000 being the return of the security provided by Equus for the costs of the manager parties. This sum plus interest was paid by cheque drawn in favour of WFW on or about 25 March and delivered to Mr Snell on that day. On 28 March, Mr Russo requested that WFW endorse the cheque in favour of Equus and forward to him the cheque and the bank guarantees, and this was done.

This leaves the sum of $500,000 which under cl.2 of the trustee's settlement was to be paid to Equus by 3 April. Clause 21 of the deed of costs provides:

“21.Any settlement or other moneys due to Equus will, unless otherwise directed by Equus, be made payable to WFW’s Trust Account, with such monies to be paid over to Equus within 96 hours of receipt of cleared funds by WFW.”

It is necessary that I set out in a little detail the events surrounding this payment of the trustee settlement sum of $500,000. Agreement to settle was reached about 14 March including a provision that the trustee pay $500,000. On that day, Mr Snell e-mailed Mr Nixon of Blake Dawson Waldron, the solicitors for the trustee, a letter regarding aspects of the settlement deed which Mr Nixon was to prepare. He included in this e-mail:

“We also require that the Terms provide for payment of the $500,000.00 settlement sum to be received within WFW’s Trust Account within twenty-one (21) days of the execution of the Deed by the Applicants …”

On 18 March, Mr Snell sent to Mr Russo a copy of the draft settlement deed prepared by Blake Dawson Waldron. This document included as cl.2 relating to payment:

“The Trustee covenants:
(a)to pay to Equuscorp, within 21 days of the Effective Date, the Settlement Sum; and
(b)to direct it solicitors to pay to Equuscorp, within 21 days of the Effective Date, the Security Sum.”

In a telephone conversation of that day Mr Russo told Mr Snell that he was happy with the deed.

In the final draft of the deed for execution which Mr Snell received on or about 20 March, this clause was changed so that it read:

“The Trustee covenants to pay to Equus Corp, within 14 days of the Effective Date, the Settlement Sum.”

Mr Snell said he spoke to his client on the preceding day, 19 March, about changes to the draft deed. With respect to this cl.2, he said he told Mr Russo about the change in the time for payment. This was not a substantial matter since, under both clauses, the trustee's settlement sum was payable on 3 April. Clause 2(b) was removed because the trustee agreed to release the securities forthwith. Mr Russo said that he told the solicitor that he was “happy to leave it out provided you tell them to bank the money direct into our bank account”.

The trustee's settlement deed was executed in Melbourne and Perth in the morning of Friday, 21 March 2003. It should be noted that there was some last minute discussions by e-mail between the solicitors concerning this cl.2, but the concern was as to the date for payment rather than how payment should be made.

In fact, the two Beagle settlements were running more or less parallel at this time. Under the manager parties' settlement deed the sum of $1.6M was payable “by bank cheque to Equus”. On Monday, 17 March, Mr Russo’s daughter, Katie, an employee of Equus, e-mailed Mr Snell the details of the Equus National Australia Bank account, number 036 708 414, into which the manager parties’ settlement sum was to be deposited. Mr Russo says this was done as a consequence of discussions he had had with Mr Snell on Sunday 16 March or perhaps a day or so earlier. In his witness statement Mr Russo says this of the conversation:

“I had provided the instructions about the bank account to Snell on or about 16 March 2003 when I instructed him how to instruct the Manager Parties to pay the $100,000 they held as security for their costs. My instructions to Snell that day were not only in relation to this $100,000 but in relation to all sums payable under both the Manager Settlement and the Trustee Settlement.”

Mr Snell denied that such a conversation occurred on that day or on any day. I do not accept Mr Russo’s evidence of this conversation. The payment by the manager parties of the security sum was made by bank cheque dated 21 March payable to WFW and delivered to WFW on 25 March. This cheque was not paid into the WFW account at this time but was dealt with on 28 March in circumstances to which I shall return. These circumstances are inconsistent with Mr Russo’s evidence. He says, too, that he gave instructions on 16 March in relation to all sums payable under both settlements. He does not say what those instructions were. It does not appear and I do not accept that all of those sums were to be dealt with in the same way.

On Monday, 24 March at 2.20 pm Mr Nixon e-mailed Mr Snell seeking instructions as to the person to whom the trustee's settlement sum due on 3 April should be paid. Mr Snell’s reply was not responsive. He informed Mr Nixon that the trustee's security sum should be deposited directly into Equus account number 535 485 577 with the National Australia Bank. This appears to have been in compliance with an instruction by Mr Russo of 19 March. Mr Snell gave no direction, however, with respect to the trustee's settlement sum. Mr Nixon followed up his inquiry by e-mails on Wednesday, 26 March and at 10.00 am on Friday, 28 March.

Mr Snell e-mailed Mr Nixon in response to this last e-mail at 10.20 am on the same day requesting that the cheque for $500,000 be made in favour of WFW and sent to his office at Mr Nixon's early convenience.

On the same day, Friday, 28 March, there occurred a telephone conversation between Mr Russo and Mr Snell. Mr Snell’s diary note records this conversation as commencing at 11.06 am and concluding at 11.14 am, after the dispatch of his e-mail to Mr Nixon. Mr Russo fixes the call at about 11.00 am. It is common ground that in the course of this conversation the receipt of the manager parties’ cheque for security for costs and its disposition and the bank guarantees were discussed. Mr Russo said he later made a note of this conversation and this was tendered in evidence. He says in his witness statement that this note was made on 28 March and later that it was made on 31 March. It emerged in evidence that neither date was correct. He said variously that note was made some days later on 7 or 8 April, or weeks after the conversation or, perhaps, in the third week of April. It appears to be a more or less contemporaneous note but it loses a good deal of value because it was made at a time when the parties were in dispute about these matters. I feel more confident in acting upon Mr Snell’s contemporaneous note of this same conversation in which he records simply that the trustee would pay the settlement sum on 3 April.

I find that in the course of this conversation Mr Snell told Mr Russo that he held the cheque for the manager parties' security and that he sought instructions as to the disposition of this cheque. Mr Russo directed him to endorse the cheque in favour of Equus and this was done. There was also discussion of the bank guarantees which had been released by the Federal Court. They discussed, too, the sum of $500,000 which was to be paid on the following Wednesday, 3 April, but I accept Mr Snell’s evidence that no specific instruction was given as to its disposition. In particular, I find that Mr Russo did not instruct Mr Snell in this conversation to deposit the money in either of the Equus bank accounts previously mentioned or in any bank account. Less than one hour previously, Mr Snell had directed Mr Nixon to draw the cheques for this sum in favour of WFW. This direction was not changed and this is what was done.

In para 6E of the Equus statement of claim it is alleged that on 31 March Mr Russo gave an oral instruction to Mr Snell that the trustee's settlement sum cheque should be endorsed in favour of Equus and that he (Russo) be advised immediately upon receipt so that he might collect it and pay it into his account. This is, of course, inconsistent with the Equus contention that, three days earlier, he had directed Mr Snell to arrange for this money to be deposited directly into the Equus bank account. There appears to be a confusion here with Mr Russo’s instruction of 28 March with respect to the manager parties' security cheque. In any event, Mr Russo gave no evidence of the pleaded instruction on that day. Mr Snell said that he visited Mr Russo in the afternoon of 31 March taking with him the cheque for the manager parties' security repayment and the bank guarantees released by the Federal Court. His diary note records that a number of Beagle matters were then discussed, but not the trustee's settlement cheque. I find that no instruction to WFW was given as alleged in para 6E of the pleading.

On the afternoon of 3 April the cheque for $500,000 arrived at the office of WFW. Mr Snell referred it to Ms Colsell, the WFW partner responsible for the Beagle matter, and she confirmed that he was to have it paid into the WFW Trust Account and to advise the client in terms of cl. 21 of the deed of costs. Mr Snell accordingly advised Mr Russo by e-mail at 3.48 pm on that day.

Mr Russo’s response by e-mail sent at 7.25 am the following day was to assert that the cheque should have been endorsed and given to Equus. I add by way of comment that he did not assert an instruction to pay it directly into any bank account as he now contends was the case. Following a response from Mr Snell, Mr Russo at 10.22 am asserted that he had given "explicit and acknowledged instructions to:

1.Arrange for the funds to paid directly into Equus’ terms deposit account; or if the Trustee’s solicitors refused to do that
2.Immediately endorse any cheques made payable to ‘Wilmoth Field Warne’ to Equus.”

I interpolate that this is yet another version of his alleged instruction. In his response of 11.04 am, Mr Snell disputed these instructions and suggested Mr Russo take the matter up with Mr Luff, the partner generally in charge of the Equus matters. Mr Russo telephoned to say that he would do so.

At this point, the matter becomes very puzzling. Even if Mr Russo had given an instruction as he now alleges, there would have been little difficulty for him to request and for WFW to draw the $500,000 from the trust account, at least as soon as the trustee cheque was cleared. Clause 21 of the deed of costs requires that this be done within 96 hours of clearance.

Mr Russo did not seek this. He sent his daughter, Katie, to WFW's office the same afternoon, Friday 4 April 2003, with a request that the trustee cheque be given to her to bank. The cheque, as everyone knew, was not then available, for it had already been banked.

When Mr Russo and Mr Luff spoke later on that night, Mr Russo demanded his money on the Monday and Mr Luff simply said that he would think about it but “I want my accounting”. And this is how things stood. And they stayed that way except for the fact that WFW on 10 April transferred the $500,000 into an interest bearing account with the Macquarie Bank in the name of Equus and WFW.

The reference by Mr Luff to “my accounting”, refers to the settlement of the priority payments under cl. 13b of the deed of costs[50]. It will be recalled that the professional costs of WFW at the normal rate ranked fourth in priority after reimbursements of various kinds to Equus for expenses of the litigation which it had incurred or paid. On 12 March 2003, when the settlement of the claim against the trustee was progressing, Mr Luff had asked Mr Russo what Equus had spent and whether Equus' legal costs had been calculated. Mr Russo responded that Mary Fugaro, an employee of Equus, was about to prepare this. Mr Snell on 17 March e-mailed Ms Fugaro enquiring when the process might be completed and she responded on the same day that she hoped to complete the task in the next couple of days. He also raised the matter with Mr Russo on 17 March and received the following day a far less encouraging response. Mr Russo spoke in terms of “it will take a couple of weeks for all matters to crystallize. Mary has a substantial job in front of her to itemise all the bills….”. In his reply, Mr Luff disputed that the task would take such a long time. He suggested that an interim payment to WFW be made on an estimate of the costs incurred. In fact Ms Fugaro completed her task by 25 March for on that day she advised Mr Snell that she had given the report to Mr Russo for his consideration, but he had asked her to obtain some further information from WFW.
[50]Set out at [21] above.

Meantime, the receipt of the $500,000 trustee settlement cheque and the consequent disposition of the cheque occurred in the first days of April. By faxes dated 6 and 7 April, WFW pressed the client for a speedy provision of the information necessary to determine their entitlement to payment under cl. 13b.

The response of Equus by letters dated 8 April was calm and measured. Mr Russo would turn his mind to these matters when he had finished another task in which he was engaged. He sought from WFW further information including an assurance “that both counsel complied with their contractual obligations as evidenced by their letter agreements signed on 11 July 2001 and 24 July 2001”. It is not clear what this is directed to.

Eventually, by letter dated 2 May 2003 Equus responded. This was the day after Equus delivered the first and second of a series of notices of default under cl. 17 of the deed of costs. Enclosed in its letter of 2 May, Equus delivered a draft seven page list of priority costs and disbursements which it claimed to have paid in the Beagle litigation. They total $2,130,047.64. On the basis of these figures the balance for distribution equally between WFW and Equus pursuant to cl. 13b(iv) was about $370,000.

I turn now to the rival contentions of the parties on this matter. The contention of Equus in paragraph 6F of its statement of claim is that the payment of the $500,000 into the WFW Trust Account, the refusal of WFW to pay the sum to Equus and its payment of the sum into the Macquarie Bank account each constituted a breach of its obligations under cl. 21 of the deed of costs[51] and its implied obligation to comply with its client's instructions. In its particulars dated 3 November 2003, Equus also makes mention of s. 174(3)(b) of the Legal Practice Act 1996.
[51]Set out at [77] above

The notice goes on to specify the following defaults by WFW. First, it is said that the task lists were not provided following the file review meeting for six specified matters. These are the file review meetings held in February and March which I have set out above[65]. I have found[66] that on that date no task lists had been delivered following these six meetings and that this amounted to a breach of cl. 12 of the deed of costs.
[65]See at [118] above.
[66]See at [127] above.

The second specified default is the failure of WFW to reconvene three file review meetings which had been scheduled for 18 February 2003. I have not found this to be a breach of any term of the deed of costs[67].
[67]See at [124] above.

The scheme of cl. 17 is that WFW should have 14 days to remedy the specified defaults. The evidence shows that task lists were provided with respect to each of the six matters on 2 and 5 May 2003. It was submitted in response that this did not remedy the default or defaults for the lists which were not provided within a reasonable time after the relevant meeting. I do not agree that the breaches were incapable of remedy. The provision of the six task lists did amount to a remedy so that no entitlement to terminate for unremedied breach arose upon the expiry of the second notice of default.

If it were necessary for me to do so, I would conclude that the failure to hold the file review meetings for the Worts file, the ANZ Cellante/Chelmaness file and the ANZ Club Resorts filed was remedied when those meetings were held on 23 May 2003. This was, of course, outside the 14 day period of the notice of default but within the further 7 day period prescribed by cl. 17a(iii).

No entitlement to terminate therefore arises from the second notice of default. It follows from this and from my conclusions with respect to the first notice of default that the allegation by Equus that the deed of costs was terminated by it on 27 May 2003 has not been made out.

Termination by Equus on 2 June 2003

This termination is predicated upon the failure of WFW to remedy breaches set out in the third Equus notice of default dated 8 May 2003 and which expired on or about 22 May. On 26 May 2003 Equus gave a third final notice pursuant to cl. 7a(iii) which expired on 2 June so that it was entitled to terminate the deed of costs on that date[68]. A further notice was given on or about 2 June. Again, the giving of these notices was not in issue and no point was taken as to their form. The points at issue on this matter were the existence of the defaults asserted in the notice of default and whether they were remedied.
[68]Equus statement of claim, para 7A(b)

The third notice of default alleges five defaults by WFW: a failure to comply with an instruction of Equus given in its e-mail of 9 December 2002 to convene file review meetings, to provide task lists and to cease work. A failure to comply with the instruction of Equus that WFW provide the information sought by the trustee in bankruptcy in the Worts matter; a failure to actively prosecute the Gilmour Nominees matter and the RMBL matter; a failure to conduct to an appropriate professional standard the work on the Sintoff lease matter and the RMBL matter; and a want of partner supervision as required by cl. 3. The third, fourth and fifth of these allegations have been referred to arbitration pursuant to cl. 24 and, as yet, no award has been published. I shall therefore concern myself only with the first and second suggested defaults.

The first alleged default is a non-compliance with the cease work e-mail of 9 December 2002[69]. This is said to contain two instructions with which WFW did not comply. I have found[70] that WFW was not in default by its failure to cease work in response to this e-mail. I do not construe the e-mail as an instruction to convene file review meetings. Likewise, while the e-mail contains a complaint that WFW was not honouring its obligations to prepare task lists, it does not amount to an independent instruction to do so. The default, if default there be, arising out of this letter, is a failure to comply with cl. 12. Task lists were provided in February and thereafter[71] and were acted upon. As at the date of this notice of default, there was no default complained of with respect to the non-provision of task lists.
[69]The text of this e-mail is set out at [109] above.
[70]See at [115] above.
[71]See at [111] and [118] above.

The second default concerns the requirement of Mr Russo that WFW respond to a letter from the trustee of the estate of Robert Worts with respect to a claim by Equus for priority in the distribution of his estate. The particular default alleged in the notice is a failure to write a letter in particular terms in response to the trustee's solicitor's letter dated 1 August 2002 addressed to Mr Russo. I have found that Mr Russo did not give the instruction in question[72]. The default is not made out.
[72]See at [139]ff above.

It follows from this that the termination for the first two defaults alleged in the third notice of default is not effective.

Termination by Equus on 25 August 2003

On 27 May 2003 Equus gave a 90 day notice of its intention to terminate the deed of costs pursuant to cl. 2. The 90 day period expired on 25 August on which date Equus gave notice that, if it had not previously been terminated, the deed of costs was at an end.

The response of WFW to this allegation is that the effectiveness of such a notice depended upon an existing entitlement to terminate under cl. 17 and that, for reasons which I have accepted, no entitlement existed on 27 May. I have rejected this submission as a matter of construction of the deed of costs. Accordingly, I conclude that the deed of costs was terminated by Equus pursuant to cl. 2 on 25 August 2003.

Termination by WFW on 3 June 2003

In paragraph 3B of its Reply, Equus offers a fifth basis for the termination of the deed of costs. This is that WFW itself terminated the deed for default by Equus pursuant to cl. 18 following a notice of default dated 12 May 2003. It is another curious aspect of this case that such a contention is advanced.

First, it is a contention which ought properly to have been included in the statement of claim rather than in reply if it is relied upon in support of a claim by Equus that the deed of costs was terminated[73]. I should add immediately that I would not see this as precluding me from dealing with the contention if it was addressed by the parties in the trial before me. Second, it is clear that WFW gave a 14 day notice of default on 12 May 2003 and followed it up with a 7 day final notice on 26 May 2003. WFW says, however, that since it took no further step to terminate; those notices remain, as it were, hanging in the air. Third, before me WFW did not seek to prove the defaults alleged in its notice of default except insofar as these allegations were otherwise part of its case and it did not allege a failure by Equus to remedy them. I doubt very much whether, by putting the plea forward, Equus would want me to take it to be admitting these defaults. Fourth, the final act of termination by WFW which is alleged in the particulars is the conduct of WFW which is said to be consistent only with the deed of costs having been terminated. This conduct must be understood against a background of WFW contending and still contending that the deed of costs remained and remains on foot and that the relationship of solicitor and client has not been dissolved. Finally, I was told by counsel on behalf of Equus that this plea, which was not made until 3 December 2003 during the trial and which was not pleaded to by WFW, was brought forward in response to an unpleaded contention by WFW that Equus itself had repudiated the deed of costs by its stated intention of using the proceeds of the Beagle litigation in a manner which was inconsistent with cl. 13. This unpleaded allegation was not pursued.
[73]See Harper v Adams [1976] VR 44.

In accordance with ordinary principles, the conduct of WFW as evincing an intention to terminate must be assessed on an objective basis. Having given a 14 day notice of default on 12 May and a 7 day final notice on 26 May, was its conduct thereafter fairly to be treated as taking the final terminating step? The conduct relied upon is the sending of letters on 29 May 2003 and 30 May 2003, the fact that no new retainer was signed by 3 June or at all, and the fact that no work was carried out by WFW after 3 June.

It should be noted that, at this time, the parties were exchanging notices under cll 16 and 17 and much contentious correspondence. On 26 May WFW sent a 7 day final notice under cl. 18b(iii) following its notice of default of 12 May. The time for remedy under this final notice would therefore expire on 2 June. On 27 May Equus sent two termination notices following the first and second notices of default and a 90 day termination notice under cl. 2. The letters from WFW which are relied on by Equus in the present context were sent at a time when WFW was not yet entitled to terminate under cl. 18. There were in fact two letters from WFW dated 29 May dealing with this matter, and a third which set out the terms under which it would perform legal services for Equus in the future. The second of these letters is expressed to be in response to a long letter from Equus sent about 1.30 pm on 29 May. It is clear from their terms that the WFW letters of 29 May were directed to the position which Equus had adopted on 27 May in response to the WFW notice of the preceding day and to the response of WFW to the notices given by Equus on or about that date.

In its first letter of 29 May, WFW disputed the validity of the first and second termination notices which were expressed to have been given under cl. 18 and the third 90 day termination notice, which was expressed to have been given under cl. 2. The letter highlights uncertainties in and inconsistencies between these notices. It concludes as follows:

"As will be obvious, we are quite uncertain as to whether, in consequence of the notices, Equus contends that the Deed has been terminated with the consequence that WFW is to cease further work on all Equus files or whether Equus contends that the Deed is on foot with the consequence that WFW is to continue to provide services for a period of 90 days from the date of the third notice.
We require you to clarify this inconsistency urgently, and to affirm which notice or notices are relied upon by Equus."

In its reply of the same date, Equus wrote this:

"Firstly, dealing with your letter of 29 May 2003, the Deed is now terminated pursuant to the first and second notices of termination. The third notice of termination has been served pursuant to Clause 2 of the Deed in the unlikely even our contention that we have properly terminated the Deed pursuant to the first and second notices is incorrect. However, our position is that the Deed is terminated pursuant to the first and second notices. Accordingly, we reject your assertion that somehow the notices are inconsistent.
You must decide whether you intend accepting our termination under the first two notices or disputing them. If you accept our termination, we should make arrangements for the files to be returned after you have complied with the requirements clause 17(c). If you dispute our termination pursuant to clause 17(b) then we expect you to continue servicing the files until the expiry of the 90 day period referred to in our third notice of termination or earlier by mutual agreement or otherwise pursuant to the deed…"

In its second 29 May letter, WFW set out its position in these terms:

"We confirm that your position is that the Deed is terminated.
We do not accept that the Deed is terminated for the reasons previously advised to you. The necessary consequence of Equus' conduct in purportedly terminating the Deed is, regardless of whether the steps taken are effective in law to terminate the Deed, that WFW is not to perform any further work for Equus under the Deed.
Any further work which this firm is to perform for Equus must be as a result of a specific retainer negotiated for it. The fact that it is this firm's contention that the Deed has not been terminated in law does not prevent Equus and this firm entering into a specific retainer for work which both parties agree stands outside the Deed.
Our Retainer Agreements, which will set out the basis upon which we are prepared to act for you, will be provided to you shortly…"

In its letter of 30 May, WFW confirmed its position:

"As stated in our letter of yesterday, a primary consequence of the effect of Equus' Termination Notice, as confirmed in your letter of yesterday, is that WFW is not to perform any further work for Equus under the Deed.
Accordingly, we have ceased all work on Equus files. Any further work can, and will, only be performed under a new retainer specific to each file.
As a consequence, we will inform all necessary parties that you have served a termination notice in respect of our services, and whilst we dispute the termination, we will advise them, in the absence of further notice to the contrary, to direct all future communications directly to you.
As indicated in our letter of 29 May 2003 we remain willing to provide legal services to you in the short term on all your matters subject to our standard retainer agreement based on our hourly rates. Should you wish to engage us on this basis, we will provide you with the details of our hourly rates and our terms upon request."

This correspondence throws once again into relief the delicacy of WFW's ambiguous position at this time. It had received notices by which Equus claimed to have terminated the retainer, but it rejected this. It had itself on 12 May and 26 May 2003 given notices preparatory to terminating the retainer but it drew back from consummating the process. It wrote to its client a letter dated 29 May asserting that it took Equus as having instructed its solicitor to cease work. This, it said, was to be inferred from the conduct of Equus in asserting that it had terminated the deed following one or other or all of the three notices of termination. This is not correct. In its letter of 29 May set out above[74], Equus gave WFW a choice; if it accepted that the termination by Equus was effective, it should deliver up the files subject to cl. 17c; if it did not, then it should continue servicing the files until the 90 day notice given on 27 May should expire. WFW responded to this by letter dated 30 May set out above asserting that it would not perform further work on the Equus files under the deed of costs but only under a new retainer in accordance with its standard retainer agreement. In the meantime, it maintained an entitlement to hold the Equus files under lien for its unpaid fees.
[74]See at [177] above.

On any fair reading of these letters of 29 and 30 May 2003, in the context in which they were sent, it is not possible to interpret them otherwise than as amounting to an act of termination pursuant to cl. 18 which was effective on or about 2 June. What WFW is here saying is that it will not perform further work, which would otherwise have been its obligation under the deed of costs, except upon a new contractual basis. It cannot avoid the consequence of adopting this position by asserting at the same time the altogether inconsistent position, that the deed of costs remained on foot.

The third act of termination is said to be the fact that no new retainer was entered into at this time. This cannot be an act of termination.

Finally, the fact that no work was done after 3 June is relied on. It is clear that non-performance by an innocent party is capable of amounting to acceptance of the other's repudiatory conduct[75]. In the circumstances of this case, especially in the light of the Equus letter of 29 May, it was for WFW to elect whether it treated the contract as determined. Its conduct is an eloquent expression of this election.
[75]Vitol SA v Norelf Ltd ("The Santa Clara") [1996] AC 800 at 811, per Lord Steyn.

I accept the contention made in paragraph 3B of the reply that WFW has terminated the deed of costs in the manner alleged.

Termination by WFW on 29 May 2003

The final basis for termination offered by Equus was that contained in the added paragraph 7AA of its statement of claim. In substance, Equus contends that, if the first and second termination notices given on 27 May were ineffective, they amounted to a common law repudiation of the deed of costs by itself. It further says in particular (c):

"[WFW] further alleges that [Equus] repudiated the deed of costs on or after 4 April 2003."

Of this particular, I observe, first, that the allegation of repudiation must be something more than an assertion that WFW makes an allegation of repudiation. Second, I read this particular as a reference to the unpleaded contention by WFW in its final submissions that it was relieved of its obligations to pay to Equus the $500,000, being the Beagle Trustee Settlement sum, by reason of the fact that Equus had intimated that it would apply this money otherwise than pursuant to cl. 13(b) of the deed of costs. In paragraph 30 of its written outline, counsel for WFW expressed themselves as follows:

"Thus Equus intimated unequivocally that Equus was not ready and willing to perform its contractual obligations and was repudiating them. In such circumstances, the innocent party is dispensed from performing its obligation for so long as the guilty party maintains its position."[76]

If particular (c) is to have any value for present purposes it must amount to an allegation by Equus, presumably in the alternative to its primary contention with respect to this matter, that it repudiated the deed of costs by this intimation.

[76]WFW submissions dated 17 March 2004, para 30.

In their further written submissions dated 28 May 2004, counsel for WFW appear to accept that the conduct of Equus which is particularised in paragraph 7AA, amounts to repudiation. I am not at all confident that this is necessarily correct[77] but I am content to proceed on this basis.
[77]See DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423 at 431, per Stephen, Mason, Jacobs JJ.

The point at which this plea is put in issue is as to the acceptance by WFW of the repudiatory conduct of Equus. This acceptance is alleged in particular (d) to paragraph 7AA to be constituted by the second WFW letter of 29 May 2003[78]. I have concluded[79] that this letter and those sent at that time amount to an act of termination by WFW under cl. 18. For similar reasons, I conclude that the second WFW letter of 29 May 2003 amounts to an acceptance of any repudiatory conduct by Equus. I therefore accept this basis of termination.
[78]Set out at [172] above.
[79]See at [175] above.

Conclusion

I summarise my conclusions on the question of termination of the deed of costs as follows:

v Termination by Equus pursuant to its first and second notices of default has not been made out
v Termination by Equus pursuant to its third notice of default has not been made out insofar as this depends upon the first and second unremedied defaults. Insofar as it depends upon the remaining unremedied defaults, these must await the arbitrator's award.
v The deed of costs was terminated, if it was not previously terminated following the third notice of default, on 25 August 2003 by the Equus 90 day notice.
v Termination by WFW pursuant to its notice of default of 12 May 2003 has been made out.
v Termination by WFW by acceptance of the repudiatory conduct of Equus has been made out.
WFW's Entitlement to Legal Fees

The conclusions which I have reached enable me to provide a short answer to the final question at this hearing: is WFW entitled to its legal fees calculated otherwise than at the discount rate?

The position of Equus is that WFW is entitled to nothing other than its legal fees for work done prior to termination calculated at the discount rate and to payment for those fees to other persons which are payable pursuant to cl. 17b(i)[80]. WFW says that it is entitled to its fees at the normal rate, alternatively on a quantum meruit basis for work done on all of the files subject to the deed, other than two which have been closed and paid for, together with its disbursements[81]. I have already summarised how the legal fees of WFW, as distinct from fees payable to others and its disbursements, were to be charged for and paid on an interim basis at the discount rate[82]. At this point I concern myself only with WFW's legal fees which were to be chargeable at an hourly rate. The entitlement of WFW to payment of these fees at the normal rate is dependent upon a successful result as this is understood in the deed. This is an entitlement which then brings into play the provisions of cl. 13b with respect to priorities.
[80]Equus statement of claim, para. 10C.
[81]WFW defence, para 10C, counterclaim, para 31.
[82]See at [3] above.

The Beagle matter

There has been a successful result in the Beagle matter, for a recovery has been made following settlement. Accordingly, WFW claims an entitlement to adjust its bills for its fees and to be paid at the normal rate for its work done. Before I turn to the Equus contention that this entitlement has been lost, it is convenient that I restate my conclusions on matters raised by Equus against this entitlement[83], for some of these conclusions bear upon the entitlement in respect of other matters.

v I have rejected the contention of Equus that the recovery from the other Beagle parties was made only in respect of the cl. 5.1(j) claim, which claim was not part of the Beagle matter so that there was no successful result in the Beagle matter.[84]
v I have rejected the contention of Equus that an entitlement to legal fees at the normal rate does not arise until the file is complete and all recoveries made[85]. It is sufficient to trigger an entitlement that some of the claimed amount has been recovered. The evidence shows this to be the fact although it is alleged in paragraph 22(a) of the Equus reply that this was only a partial recovery and that work remains to be done on the Beagle matter to bring it to completion. I make no finding as to these factual allegations which appear to be put in issue in paragraph 2 of the WFW reply to defence to counterclaim, for the matter was not the subject of evidence or argument. Whether this recovery will mean that WFW receives payment at the normal rate will depend upon the provisions of the deed of costs, notably cl. 13b.

[83]Equus reply, para 31.

[84]See at [72]ff above.

[85]See at [41]ff above.

There remain, then, a number of contentions put on behalf of Equus that would have the effect of removing the entitlement of WFW to payment of its fees at the normal rate in respect of the Beagle matter. These are the effect of cll 16 and 17, and the failure of WFW to continue to perform its obligations after 27 May 2003.

Clause 17(b)

Pursuant to cl. 17b (ii), (iii), upon termination by Equus, WFW is entitled to no more for its legal fees than payment at the discount rate. I have concluded that no such termination has occurred following the first and second notices of default. Whether termination followed the third notice of default may depend upon the outcome of the allegations of default which have been referred to arbitration.

Clause 16

Clause 16 provides as follows:

"If WFW decides to terminate this Deed for any reason, WFW thereby abandons any right to claim any future payment for the provision of the legal services save and except for fees and disbursements incurred pursuant to Clause 7 to the date of termination at the Discount Rate or for those files on which at the time of termination there has been a recovery at which time, payment shall be made by Equus to WFW in accordance with the priorities set out in Clause 13b."

In the recently added paragraph 10CA(a) of the Equus statement of claim, it was contended that this clause disentitled WFW to payment at the normal rate when the deed of costs was terminated[86] by WFW whether this termination be effected by acceptance of repudiation or otherwise. In paragraph 3B of its reply, Equus also alleges that cl. 16 came into play because WFW had terminated the deed by notices given under cl. 18 followed by its statements and conduct which were consistent only with a decision to terminate.
[86]It was not argued that this disentitlement arises at an earlier stage, when WFW made the decision to terminate.

In the present case the allegations of termination by WFW are based upon its exercise of the power to terminate under cl. 18 and its acceptance of the repudiatory conduct of Equus, both of which I have found to have occurred. The response of counsel on behalf of WFW is that cl. 16, on its true construction, operates only where "WFW pro‑actively terminates" the deed of costs[87]. This does not save the situation for WFW. Upon the basis of a termination under cl. 18, it is clear that WFW has set in train the contractual termination process and has completed it by its conduct. With respect to termination for repudiatory conduct, again, it is WFW which must take the step of accepting the other's repudiation and I have found that it has done so. Clause 16 is couched in very broad terms. Unlike cl. 17, it operates upon termination by WFW for any reason. The distinction between a party terminating pursuant to cl. 17 or cl. 18 and a right to terminate otherwise is emphasised in cl. 2 and in cl. 4. In the circumstances, I see no reason to read down cl. 16. It is said that such a course is supported by the use of the active rather than the passive voice in that clause. I think not. It is said that such a construction might produce an unreasonable outcome for WFW. This may be so; it is a very good reason for WFW not to implement its right to terminate. I bear in mind that this is a contract negotiated at arms' length by experienced commercial people. Presumably, those in WFW responsible for the drafting of cl. 16 were aware of its potential for harm.
[87]WFW supplementary submission 28 May 2004, para 15.

Waiver

In the added paragraph 10CA(b) of the Equus statement of claim, it is put in the alternative that WFW has, by its conduct, waived its right to be paid at the normal rate. The conduct relied upon is the assertions contained in the second WFW letter of 29 May 2003[88]. The asserted waiver appears to arise from the election by WFW in response to the choice offered to it by Equus in its letter of 29 May.
[88]The relevant portions are set out at [172] above.

It is not necessary for me to deal with this point given the conclusions which I have already reached. I will content myself simply with saying that I am not persuaded that Equus can, in this way, construct a situation of election. Assuming, as I must for present purposes, that the point is not relied upon as part of a termination argument, the response of WFW to the choice offered to it by Equus can have no effect upon my interpretation of the deed of costs nor upon its legal effect.

Termination under cl. 2

This point would arise only if the deed of costs had not previously been terminated under cl. 17 or cl. 18 or at common law. Accordingly, it is another question which I am not obliged to determine.

The deed of costs makes no provision, other than in cl. 4 and cl. 16, for the consequences of a contractual termination otherwise than for default under cl. 17 or cl. 18. Again, I assume for present purposes that an entitlement to payment of legal costs at the normal rate has arisen or will arise under cl. 13. In such an event, WFW's entitlement is not affected by the cl. 2 termination. I construe the deed as meaning that any existing entitlements are not destroyed upon termination under this provision. These entitlements include those which are contingent upon future events which may or may not occur, such as a successful result in terms of cl. 13(a) or a sufficient fund under cl. 13(b).

Quantum meruit

In paragraph 31 of its counterclaim, WFW seeks in the alternative payment of $619,058.60 as the balance unpaid for its legal work on the Beagle file and $29,130.14 for unpaid disbursements on that file, in each case upon the basis of a quantum meruit entitlement. In paragraph 10C of its defence, WFW asserts an entitlement to payment on a like basis for all the other files referred to in cl. 1i[89] together with the Sintoff Reinstatement Application file, to the extent that this is not included in the Sintoff Litigation file.
[89]This clause is set out at [42] above.

In the present context, where the parties have established a contractual regime for payment, the principles of restitution have no operation where, under the terms of this agreement, WFW is not entitled to payment[90].
[90]Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 at 256, per Deane J.

In the particulars given under paragraph 10C of the WFW defence, it is said that the entitlement of WFW "arises as a matter of law in consequence of [Equus'] wrongful refusal to continue to retain the services of [WFW] under the Deed". This point was not developed by counsel on behalf of WFW and it cannot be correct as a matter of law or, in this case, as a matter of fact. The entitlement sought by WFW must be for payment for work done before it stopped work on or about 29 May 2003. If Equus wrongfully refused to continue to retain its services thereafter, which I have not found to be the case, its entitlement must be for damages for breach of contract.

If it were necessary for me to determine this claim I would reject it.

Other matters

Much of what I have written in respect of the Beagle matter has application to the entitlement of WFW to its fees at the normal rate for work done on other files covered by the deed of costs. With respect to these, there is the further matter that it must be shown in respect of each file for which fees are sought, that there has been a successful result. There was no evidence addressed to this question of fact and I express no view upon it.

I conclude from all of this that WFW did terminate the deed of costs and that cl. 16 does operate to deprive it of its entitlement to payment of legal fees at the normal rate.

I express no view as to the amount of the WFW fees for its work on the Beagle matter nor on the question whether the amounts recovered are sufficient to warrant a payment to WFW, having regard to the priorities under cl. 13b.

WFW Disbursements

The deed of costs deals with disbursements in various ways:

v Disbursements which are referred to Equus for payment pursuant to cll 7 and 11.
v Disbursements which are paid by WFW and for which it is entitled to reimbursement by Equus within 30 days pursuant to cll 7 and 11.
v WFW's operating expenses which are its own responsibility pursuant to cl. 7.
v WFW's deferred disbursements which are, pursuant to cl. 5b, payable by Equus when payment at the normal rate becomes due and payable or upon termination by WFW for certain causes pursuant to cl. 4.
v WFW's disbursements of a specified kind which are payable by Equus following termination by WFW of the deed of costs for default pursuant to cl. 18.

In the event that Equus has validly terminated the deed of costs following its third notice of default, WFW is entitled to payment only of those disbursements described in cl. 17b(i). I am unable to take this matter further.

The entitlement of WFW to payment of its disbursements under cl. 7 is unaffected by the termination by Equus pursuant to its 90 day cl. 2 notice. The entitlement of WFW to deferred disbursements will depend upon the operation of cl. 13.

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[2004] VSC 164

25 June 2004