Legal Services Board v Forster
[2011] VSC 292
•23 June 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 6947 of 2009
IN THE MATTER of an application by the Legal Services Board for the appointment of a receiver for the law practice of David Forster, an Australian legal practitioner trading under the name Hollows Lawyers, pursuant to s 5.5.1 of the Legal Profession Act 2004
B E T W E E N
| LEGAL SERVICES BOARD (ABN 825 189 45610) | Plaintiff |
| v | |
| DAVID FORSTER | Defendant |
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JUDGE: | EMERTON J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 28 April 2011 | |
DATE OF RULING: | 23 June 2011 | |
CASE MAY BE CITED AS: | Legal Services Board v Forster | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 292 | |
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LEGAL PRACTITIONERS – Application by receivers of a law practice for directions in the receivership – Validity of costs agreement – Conditions constituting a ‘successful outcome’ in conditional costs agreement – Whether an uplift fee can be charged on breach of conditions – Legal Practice Act 1996 (Vic) ss 97(4)(a), 98, 102(1).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | No appearance | |
| For the Defendant | Mr J. Bleechmore | Pinto Law |
| For the Receivers | Mr P. Corbett | Hall & Wilcox |
| For Mrs Forster | Mr P. Nugent | Charles Fice |
HER HONOUR:
By a summons filed 24 March 2011, the receivers seek a declaration that a conditional costs agreement that provides for payment of an uplift fee between the legal practice and Russell Charles Norrish dated 14 December 2000 is void pursuant to s 102(1) of the Legal Practice Act 1996 (Vic). The receivers also seek a direction that the costs of the legal practice in respect of a personal injury claim brought by Mr Norrish and to which the costs agreement relates be taxed by the Costs Court on a solicitor/client basis in accordance with the scale of costs applicable at the time the legal services were provided by the legal practice.
Mr Brown has sworn an affidavit[1] in support of the receivers’ application in respect of the Norrish matter, based on his review of the file. He deposes that the law practice opened Mr Norrish’s file on 15 November 2000 and that the file contains an unsigned copy of the costs agreement dated 14 December 2000 in relation to Mr Norrish’s claim for personal injuries against the Commonwealth. Mr Norrish informed Mr Brown that his first contact with the law practice was by way of a telephone conversation with Mr Forster, and that subsequently he attended the office of the law practice in Frankston and signed a costs agreement. On 31 August 2001, the law practice, on behalf of Mr Norrish, filed a statement of claim in the Supreme Court of New South Wales seeking damages against the Commonwealth. On 28 March 2007, Mr Norrish signed a document titled “Instructions to settle” and on or about 30 March 2007, terms of settlement were executed which included the agreement by the Commonwealth to pay Mr Norrish $270,000 and party/party costs. On 11 April 2007, the law practice raised a tax invoice in the amount of $398,275.14. Thereafter, payments were made by the Commonwealth and various transactions were carried out by the law practice on its trust and office accounts in relation to the payment of its fees.
[1]Sworn on 11 April 2011, filed 12 April 2011.
Mr Brown deposes that the law practice currently holds the sum of $364,785.16 in trust for Mr Norrish. A number of bills of costs have been prepared by professional costs consultants in the Norrish matter at the behest of the receivers and Mr Forster. The receivers have also obtained the advice of senior counsel in relation to the validity of Mr Norrish’s costs agreement. That advice concluded that the costs agreement was invalid, based on the relevant provisions of the applicable NSW legislation governing legal costs.
As a result, the receivers seek a direction from the Court concerning the validity of the Norrish costs agreement. If the Norrish costs agreement is void, then the law practice is not entitled to a 25% uplift fee on its costs. The receivers rightly say that they are bound to ensure that the law practice only receives those fees to which it is entitled.
In his affidavit of reply,[2] Mr Forster has supplemented this history by confirming that he spoke to Mr Norrish, by telephone, before Mr Norrish came to Melbourne to sign the costs agreement. Mr Forster deposes that at this time, he explained to Mr Norrish that he would charge him in accordance with the Victorian Supreme Court scale, with a 25% uplift. He explained that if Mr Norrish did not receive any money from his case, he would not have to pay anything other than his disbursements. Mr Forster deposes that he told Mr Norrish that Mr Norrish would need to come to Melbourne to meet with Mr Forster and that Mr Forster would explain the costs and charges in detail and take instructions.
[2]Sworn and filed 19 April 2011.
Mr Forster deposes that Mr Norrish duly came to Melbourne and signed a costs agreement in his office on 14 December 2000. Prior to signing the costs agreement, Mr Forster provided Mr Norrish with the signed document dated 14 December 2000 and headed “A1 – Legal Practice Information”. This document informed Mr Norrish that –
Our method of costing the legal services to be provided is the Supreme Court Cost Scale plus 25% No Win No Fee uplift. … You have the right to negotiate an agreement about the payment of legal costs (which must be in writing or evidenced in writing) and to receive bills of costs. If the bill you receive is not in an itemised form, you have the right to request an itemised bill within 30 days of receiving the lump sum bill.
Mr Forster deposes that at the time of signing the costs agreement, it was again explained to Mr Norrish that if Mr Norrish did not recover any monies from his case, he would not have to pay any fees other than disbursements.
Mr Forster deposes that in addition, Mr Norrish was provided with a letter, also dated 14 December 2000, entitled “B2 – Section 86(3)”. This letter confirmed, among other things, the earlier advice given to Mr Norrish that he would be charged in accordance with the Supreme Court scale with a 25% uplift. It stated that if Mr Norrish had any queries or concerns about costs, he should not hesitate to contact the law practice. It advised him that in the event he was not satisfied with the law practice’s explanation, he was entitled to raise his concern with the Victorian Lawyers RPA Limited.
Mr Forster deposes that at the time Mr Norrish signed the costs agreement, he intended Mr Norrish’s proceeding to be issued out of the Supreme Court of Victoria and he drafted a Victorian writ in the conference.
Mr Forster deposes that from time to time during the progress of the Norrish matter he further explained to Mr Norrish the arrangement in relation to costs. Mr Norrish was frequently provided with draft accounts and bills were forwarded to him on 11 occasions between June 2004 and May 2007. A number of letters (dated 9 August 2001, 18 June 2002, 23 July 2004, 7 April 2005, 8 August 2006 and 19 February 2007) were also sent to Mr Norrish, which gave him updated information in relation to fees and costs in his proceeding. In addition, he was sent general letters updating clients on the progress of the litigation and providing them with further explanations as to the legal costs in litigation. Finally, at the time of the settlement negotiations, Mr Norrish was provided with a comprehensive estimate of fees. This included an estimate of the fee uplift of $67,154. Mr Norrish signed this document.
Mr Forster has also sworn a second affidavit[3] in relation to a complaint made by Mr Norrish to the Legal Services Commissioner. Mr Forster is concerned that the receivers do not duplicate a process which is before the Commissioner and which may be heard in the Victorian Civil and Administrative Tribunal in due course. He states that he has already been charged $44,823.98 by a costs consultant for the preparation of the Norrish bill for taxation by him.[4] He is says that he is also responsible for bills of costs prepared by two other cost consultants (Mahlab and Blackstone), which means that the estimated cost of costing of the Norrish matter is likely to be over $120,000.
[3]Sworn and filed 21 April 2011.
[4]The figure of $24,823.98 is given in the affidavit is but, as counsel indicated at hearing, the correct figure as revealed in the exhibit is in fact $44,823.98 total (comprising $20,000 paid and $24,823.98 owing).
On behalf of Mr Forster, it is submitted that that the receivers have no standing to seek the declaratory orders in respect of the costs agreement signed by the law practice and Mr Norrish: there is no specific power pursuant to which the receivers may make an application for a declaration, whilst at the same time there are clear statutory procedures open to be employed or followed by a client, or a person aggrieved (such as Mr Norrish) which demonstrate that there is in the Supreme Court, and in the Victorian Civil and Administrative Tribunal, power to set aside the impugned costs agreement. Moreover, he submits that there is no utility in seeking to adjudicate the issue of whether the costs agreement is void, given provisions in the Act and Legal Profession Regulations which allow the law practice to withdraw monies from trust to pay legal costs.
In this context, Mr Forster points to the existing statutory regime for complaints or disputes about legal costs. He points in particular to the jurisdiction conferred upon the Tribunal by s 3.4.32 of the Legal Profession Act 2004 (Vic) (the ‘2004 Act’) to set aside a costs agreement if satisfied that the agreement is not fair or reasonable. In so doing, the Tribunal may have regard to whether the law practice failed to make any of the disclosures required by Division 3 of the 2004 Act. Notably, in the event that the Tribunal orders that a costs agreement be set aside, it may make an order in relation to the payment of legal costs the subject of the costs agreement and, in making that order, the Tribunal must apply the applicable scale of costs or practitioner remuneration order or, in the absence thereof, must determine the fair and reasonable legal costs. Section 3.4.9(j) of the 2004 Act sets out, in the context of the description of what must be disclosed by a practitioner, the avenues that are open to the client in the event of a dispute in relation to legal costs, namely a costs review under Division 7, the setting aside of the costs agreement under s 3.4.32 and the making of a complaint under Chapter 4. Division 7 permits a client to apply to the Costs Court for a review of the whole or any part of legal costs. Section 3.4.44A requires the Costs Court to review the amount of any disputed costs that are subject to a costs agreement by reference to the provisions of that cost agreement unless satisfied that Division 5 precludes the law practice concerned from recovering the amount of the costs. Section 3.4.31, which renders void costs agreements which contravene any provision of Division 5, is also contained within Division 5.
Mr Forster submits, therefore, that the precise issue which the receivers seek to agitate before the Court is to be raised in accordance with procedures clearly and explicitly laid down in the 2004 Act. He says that the receivers, who have no specific powers of this kind, are therefore precluded from making an application to review costs agreements and that their reliance upon incidental powers in circumstances where there are specific procedures for the determination of the questions under review is misconceived. The actions of the receivers constitute, so Mr Forster says, officious meddling in the affairs of the client, within whose power it is to make an application for a costs review which takes place before a Court clothed specifically with the power to set aside the relevant agreement on the basis that it fails to comply with Division 5.
Finally, Mr Forster refers to the Tribunal’s disciplinary jurisdiction and points out that Mr Norrish has already invoked this jurisdiction by making a complaint to the Legal Services Commissioner in February 2010. Conduct capable of constituting unsatisfactory professional conduct or professional misconduct includes conduct which contravenes the Act, the Regulations or the Legal Profession Rules or the charging of excessive legal costs in connection with the practise of law.
In my view, these submissions miss the point that a Court appointed receiver is entitled to apply to the Court for directions “in relation to any matter affecting the intervention or the intervener’s powers, duties or functions under [the] Act.”: s 5.6.5 of the Act. The Norrish file is an active matter that the receivers are bound to finalise in order to wind up the practice. The receivers’ report of 4 February 2001 exhibited an advice obtained by the receivers from Mr Derham QC as to the validity of the costs agreement in the matter of Norrish. The advice of senior counsel was that the receivers should apply to the Court for directions as to the validity of that agreement. The receivers submit that in order to finalise the matter of Norrish and wind up the law practice, they need to know how to deal with the question of costs in the Norrish matter and therefore seek a declaration that the legal services provided by the legal practice be taxed and assessed on a solicitor/client basis in accordance with the Supreme Court Scale. This will enable the matter of Norrish to be concluded and Mr Norrish to be paid the funds remaining after the deduction of legal costs.
Although there is force in Mr Forster’s submissions as to the powers of the receivers to seek to ‘unwind’ or review costs agreements, it is appropriate for the Court to give the receivers a ruling on this question because the matter of Norrish is a current matter requiring the distribution of funds pursuant to the costs agreement. The fact that the Legal Profession Act makes provision for Mr Norrish himself to make a variety of applications if he disputes the amount of the costs that the law practice has purported to charge him does not limit the jurisdiction of this Court to provide appropriate directions to receivers in order to enable them to carry out their statutory duty to finalise outstanding matters and wind up the practice.
Mr Forster further submitted that even if the Court had jurisdiction to review the Norrish costs agreement, it ought not to exercise that jurisdiction in the light of the existing statutory regime for costs disputes and the fact that Mr Norrish has already invoked a part of that regime by making a complaint to the Legal Services Commissioner. He also points out that the Norrish file has been the subject of three bills of costs provided by costs consultants, the expense of which he has had to bear.
With some reluctance, but in deference to the request by the receivers for directions as to the validity of the Norrish costs agreement, and on the basis that it will enable the Norrish matter to be finalised without further delay, I propose to determine whether that agreement complied with the relevant law.
The Norrish costs agreement
The Norrish costs agreement is headed “Fees Costs Agreement”. Relevantly, it defines solicitor/client costs as “the costs and disbursements which we are entitled to charge you for conducting your case. These costs are calculated on a particular Court scale and a premium of 25 per cent on the scale is charged.” There is a further relevant definition of “Specified scale”. This means “the cost of Solicitor/client costs specified at the beginning of this agreement. The specified scale takes into account the Solicitor’s expertise in this particular kind of case. A loading of 25% is charged on scale.”
Under the heading “Your rights/Our obligations”, paragraphs 3 and 4 provide as follows:
3.If you do not recover any money from your civil case, we agree not to charge you any Solicitor/client costs, if any, so long as you:
· at all times tell us openly and honestly everything relevant to your case;
· fully co-operate with us and do everything we reasonably ask;
· accept and follow all reasonable advice we give you;
· do not change solicitors before your case is finalised.
4.If you break any of these four conditions, even if you do not recover any money from your case, we will be entitled to charge you Solicitor/client costs in accordance with paragraph 1 of “Your obligations/Our rights”.
Under the heading “Your Obligations/Our Rights”, the following provisions are relevant:
1.If you recover any money from your case, or if you break any of the four conditions of paragraph 3 of “Your rights/Our obligations”, you agree to pay our Solicitor/client costs calculated on the specified scale.
2.If you do not receive any money from your case and you have not broken any of the four conditions of paragraph 3 of “Your rights/Our obligations”, we agree to charge you and you agree to pay us disbursements only. You are still required to pay party party costs to the other side.
It was common ground that the relevant statutory framework for the Norrish costs agreement was the Legal Practice Act 1996 (Vic) (‘the 1996 Act’). Section 96 of the 1996 Act provides that a costs agreement must be written or evidenced in writing, but it may consist of a written offer that is accepted in writing or by other conduct. Section 97 provides that a costs agreement may provide that the payment of some or all of the legal costs is contingent on the successful outcome of the matter to which those costs relate. Such an agreement is called a “conditional costs agreement”. Sub‑section (4)(a) provides that a conditional costs agreement “must set out the circumstances that constitute a successful outcome of the matter”.
It is necessary to set out s 98 in full:
(1)A conditional costs agreement may provide for the payment of a premium on the legal costs otherwise payable under the agreement on the successful outcome of the matter in respect of which the agreement is made.
(2)The premium must be a specified percentage of the legal costs otherwise payable, and must be separately identified in the agreement.
(3)A legal practitioner or firm must not enter into a conditional costs agreement under which a premium, other than a specified percentage not exceeding 25 per cent of the costs otherwise payable, is payable on the successful outcome of any matter involving litigation.
Section 102 provides that a costs agreement that contravenes any provision of this Division is void. However legal costs under a void costs agreement are recoverable in accordance with an applicable Practitioner Remuneration Order or scale of costs or according to the reasonable value of the legal services provided.
The receivers submit, as their principal argument, that the Norrish costs agreement does not set out the circumstances that constitute a successful outcome of the matter as required by s 97(4)(a) of the 1996 Act. The Norrish costs agreement merely provides that solicitor/client costs calculated on the ‘specified scale’ are to be paid “if you recover any money from your case”. Those or similar words are also used elsewhere in the Norrish costs agreement.[5] According to the receivers, this does not define what a successful outcome is. Is an offer to pay costs a successful outcome? Is an offer to walk away a successful outcome? Again, a successful outcome might be no more than one dollar, in which case Mr Norrish would be liable for all of the solicitor/client costs plus the uplift fee.
[5]“If you do not receive any money from your case and you have not broken any of the four conditions” (when the client will be charged for disbursements only), and “even if you do not recover any money from your case” (when costs will be charged for breach of the four specified conditions).
Mr Forster submits that the Norrish costs agreement, albeit in simple terms, does in fact set out the circumstances that constitute a successful outcome of the matter. This is the outcome in which the client recovers money from his case. The agreement should be interpreted by reference to its terms, and by reference to an explicitly objective approach. The aim of construction, in this case, is not to ascertain the subjective intention of the parties, but rather to determine what a reasonable person in the situation of the parties would have intended or assumed.[6] According to Mr Forster, a reasonable person in the position of the parties, and having some understanding of the background to the arrangement which is the subject of the agreement, would conclude that a successful outcome was one in which money was paid, either upon a successful verdict or upon settlement, in respect of damages by way of compensation to the plaintiff. In this case there was a successful outcome, in that an amount of $270,000 less certain payments was paid by way of settlement to the law practice on behalf of Mr Norrish. Had the payment been $100,000 or even $10,000, that would still have been a ‘successful outcome’ because no amount is specified the recovery of which constitutes a successful outcome. Further, the settlement in the Norrish matter provided that in addition to the sum paid in respect of Mr Norrish’s claim for damages, the defendant would pay his party/party costs. According to Mr Forster, a reasonable person in the position of the parties would not interpret this payment as the ‘recovery’ of any money. It is only appropriate to speak of a payment in the nature of a payment in respect of a claim for compensation as money that has been “recovered”.
[6]See Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 185 ALR 152; Toll (FGCT) Pty Ltd v Alfapharm Pty Ltd [2004] HCA 52.
Counsel for Mr Forster referred the Court to the Court of Appeal decision in Equuscorp Pty Ltd v Wilmoth Field Warne(a firm),[7] in which the Court of Appeal reviewed the decision of the primary judge that a costs agreement contravened s 98 of the 1996 Act and was void pursuant to s 102 of that Act. In the agreement there under consideration a successful outcome was defined in the following terms:
The Normal Rate would 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.[8]
[7](2007) 18 VR 250.
[8]Ibid 283.
Although it was not contended that that provision failed to comply with s 97(4)(a), the Court said as follows:
There was no provision for payment of a premium on the costs otherwise payable in the event of a successful outcome. It was not a three-tier arrangement. It was an arrangement which fitted the language of s 97(1) but not the language of s 98(1). It was also an arrangement which complied with s 97(4)(a) in that, in inclusive language (clause 13(a)), it defined what was meant by a “successful result”.
It is therefore submitted on behalf of Mr Forster that as the words “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 amount claimed in the litigation” satisfy the requirement of setting out the circumstances that constitute the successful outcome, then so do the words contained in the Norrish costs agreement.
Counsel for Mr Forster also referred to Maurice Blackburn Pty Ltd v Burmingham[9] in which a more detailed definition of a successful outcome in a costs agreement was considered and upheld by Byrne J. However, the definition was inclusive and included broad circumstances such as, “a verdict or award of money made by a court in your favour” and “an arrangement entered into by us on your behalf under which money is payable to, for or on your behalf arising out of your claim or in circumstances relating to your claim”. It was said that these were no more certain or well‑defined than the words used in the Norrish costs agreement.
[9][2009] VSC 20.
The Norrish costs agreement is a poorly drafted document. It is replete with typographical errors, poor grammar and poor sentence construction. As a result, it is imprecise and difficult to construe. Nonetheless, I am not prepared to find that it does not comply with s 97(4)(a). In my view, it sets out the circumstances that constitute a successful outcome of a matter, albeit poorly. It is not as clear as the clauses describing successful outcomes in the authorities to which counsel for Mr Forster referred me. I find, however, that the parties to the costs agreement would reasonably have understood what was contemplated by a ‘successful outcome’. The word “recovered” indicates that a successful outcome is not the payment of any money to the plaintiff, for example, pursuant to an order for costs. The payment of money is referrable to the plaintiff’s claim, and would have been understood that way by both Mr Norrish and Mr Forster at the time the agreement was entered into.
As discussed, clause 1 of “Your Obligations/Our Rights” provides for the payment of “Solicitor/client costs calculated on the specified scale” if money is recovered, “or if you break any of the four conditions of paragraph 3 of ‘Your rights/Our obligations’.” The question arises as to whether clause 1 breaches s 98 of the 1996 Act because it requires the payment of the premium otherwise than on a successful outcome.
As a preliminary matter, it is necessary to determine whether the clause does in fact require the payment of a premium if any of the conditions in clause 3 are broken.
The payment that must be made if there is a breach of one or more of the conditions is “our solicitor/client costs calculated on the specified scale.” The definition of ‘specified scale’ incorporates solicitor/client costs as previously defined (“[t]hese costs are calculated on a particular Court scale and a premium of 25 per cent on the scale is charged”) and is expressed to take into account the solicitor’s expertise in this particular kind of case. It then separately provides that a premium of 25% is charged on scale. Although it is not entirely clear whether the 25% premium forms part of the scale or part of the solicitor client costs, or whether it is a separate item that belongs to neither the scale nor to solicitor client costs, I think the better view is that solicitor client costs as defined include the premium.
In any event, clause 1 provides for the same payment upon the recovery of money (a successful outcome) and upon a breaking of any of the four conditions of clause 3 of “Your rights/Our obligations”. In order to conclude that breach of one of the conditions did not attract the obligation to pay the premium, one would have to read the same words in clause 1 differently depending on whether there was a successful outcome or a breach of condition. In my view, such a construction strains the meaning of the clause.
I must conclude that the Norrish costs agreement imposes the same liability to pay the premium if there is a successful outcome and if there is no successful outcome because one or more of the four conditions has been broken.
Section 98 of the 1996 Act allows a conditional costs agreement to impose a premium “on the successful outcome of the matter”. Although s 98(1) does not expressly provide that a premium may only be imposed on a successful outcome, its purpose is to provide for a premium to be charged in the specified circumstance and not otherwise.
However, I do not consider that s 98 should be construed as prohibiting the charging of the premium in the limited circumstances described in clause 3. Those conditions describe conduct by the client that would make it difficult if not impossible for the firm to obtain a successful outcome on the client’s behalf. The client’s undertaking not to breach any of the four conditions is an integral part of the firm obtaining a successful outcome for the client. The firm is entitled to charge the premium upon a successful outcome because it has assumed the risk of a no win/no fee arrangement. The four conditions form part of the management of that risk. To construe s 98 as prohibiting the charging of the premium when the client has effectively prevented the firm from obtaining a successful outcome by his or her own conduct would enable the client to ‘walk away’ from the firm at the eleventh hour (once all the hard preparation work for a trial had been done and the risk had been carried by the firm, in some cases for years) and have another firm harvest the fruits of that endeavour in the form of a successful outcome, without having to pay a premium for the benefit of the no win/no fee arrangement.
In the circumstances, I consider that the Norrish costs agreement does not breach the 1996 Act.
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