Legalese P/L v Russo & Russo - [2005] SADC 96

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
LEGALESE P/L v RUSSO & RUSSO
Reasons for Ruling of His Honour Judge Chivell
3 August 2005
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION
ESTOPPEL - ESTOPPEL IN PAIS - THE REPRESENTATION - BY CONDUCT - WAIVER
PROFESSIONS AND TRADES - LAWYERS - REMUNERATION - BILLS OF COSTS - ACTIONS TO RECOVER COSTS
Action by incorporated legal practice to recover costs and disbursements alleging defendants verbally indemnified client for payment of costs – whether compliance with s 41(1) of the Legal Practitioners Act 1981 (SA) – failure to send bill to defendants detailing amount claimed and describing legal work to which costs relate – submission of no case to answer – whether action statute – barred – whether protection of statute waived by defendants – whether defendants estopped from denying liability to pay.
Held – action statute – barred.
Legal Practitioners Act 1981 (SA) s 41; Limitation of Actions Act 1936 (SA) s 50, referred to.
Costello v The Law Society of South Australia (1979) 83 LSJS 304; Residues Treatment & Trading Co Ltd & Anor v Southern Resources Ltd & Ors (1989) 52 SASR 54; Zizza v Seymour (1976) 2 NSWLR 135; Dodd v Gillis (1989) 16 NSWLR 623; Udovenko & Ors v Mitchell (1997) 160 ALR 161; Conder v Silkbard [1999] NSWCA 459; Warren v Cunningham (1819) 171 ER 842; Vincent & Slaymaker (1810) 104 ER 146; Nagy v Ryan (2003) 225 LSJS 432; Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387; Foran v Wight (1989) 168 CLR 385; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235; Thompson v Palmer (1933) 49 CLR 507; Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 ; Commonwealth v Verwayen (1990) 170 CLR 394, considered.

LEGALESE P/L v RUSSO & RUSSO
[2005] SADC 96

This is an action, commenced on 2 November 2004, by Legalese Pty Ltd, an incorporated legal practice, which carries on the business Peter Scragg and Associates. Mr Peter Scragg is a director and shareholder of the company.
The plaintiff’s claim was originally for legal fees and disbursements in the sums of $38,088.01 and $49,686.39 respectively, a total of $87,774.40. This was amended to $37,103.55 and $4,742.00 respectively, a total of $41,845.55 (see Exhibit P2).
The fees claimed were for legal services provided by Mr Scragg to Dragni Encheff in relation to murder charges against him. Mr Encheff was eventually convicted of murder.
The plaintiff alleges that the defendants, who are the daughter and son-in-law of Dragni Encheff, gave “verbal undertakings to the plaintiff that they would indemnify (Mr Encheff)” for those fees and disbursements. (Statement of Claim para 5.)
The plaintiff says that the indemnity constitutes a “collateral contract” between the plaintiff and the defendants. Alternatively, because the plaintiff asserts that it continued to act for Mr Encheff in reliance upon those undertakings, to its detriment, it says that the defendants are “estopped from denying that they agreed to provide an indemnity” in those terms. (Statement of Claim para 8.)
I doubt that the description of the alleged indemnity as a collateral contract is apt (see Carter and Harland, “Contract Law in Australia”, 4^th Edition, paras 611 – 614), because the contract with Mr Encheff was entered into long before the alleged contract of indemnity with the defendants. I will leave that issue to one side for the purposes of this ruling.
The plaintiff sent bills to Mr Encheff in October and November 2002 and then monthly from January 2003. Details were given of fees and disbursements charged, and the legal work was described therein. Money was transferred from the plaintiff’s trust account to pay those fees (see Exhibit P1).
The money in the trust account had been paid by Mr Encheff ($50,000 on 10 January 2003), and by the defendants ($30,000 on 9 November 2004, $70,000 on 20 January 2004, both of which sums were lodged with the Sheriff as a cash surety, and later paid to the plaintiff when Mr Encheff was convicted. A further $50,000 was paid by the defendants on 6 February 2004, and another $200 on 30 April 2004).
Mr Abbott, counsel for the defendants, has submitted that there is no case for his clients to answer. He relies upon s 41(1) of the Legal Practitioners Act 1981, which provides:
41. (1) A person cannot bring an action for the recovery of legal costs or appropriate money in or towards satisfaction of a claim for legal costs unless a bill specifying the total amount of those costs, and describing the legal work to which the costs relate, has been delivered to the person liable to the costs either personally, or by post addressed to the person at the person’s last known place of business or residence.
The evidence is clear that the bills referred to above were all addressed to Mr Encheff, to “PO Box 179 Virginia SA 5120”, and from May 2003 to “C/- 5 Greig Court Paralowie”, which was the address of the defendants.
It is common ground that prior to his arrest in October 2003 Mr Encheff resided at Virginia, and that he was in custody until 21 January 2004 when he was released on bail with a condition that he reside at 2 Rostrevor Avenue, Rostrevor.
There was a document addressed to the defendants which was appended to a letter to Mrs Russo dated 13 September 2004. That document was in the form of a statement which referred to previous invoices, and which detailed amounts alleged to be outstanding both in relation to the plaintiff’s fees, and those of others including counsel at the trial and various expert witnesses (see Exhibit P1, document no. 44).
That document does not qualify as a “bill specifying the total amount of those costs and describing the legal work to which the costs relate” as required by s 41 (see Costello v The Law Society of South Australia (1979) 83 LSJS 304 at 307).
Mr Abbott argued that the only time the plaintiff has supplied the information required by s 41 to the defendants was after this action was commenced. Copies of the bills were supplied as part of the discovery process.
Mr Scragg accepted that proposition. He said when describing his dealings with the family generally:
I had an ongoing relationship with these people which I regarded as satisfactory, and I confess, I never turned my mind to the question of compliance with the rules in relation to their matter because I assumed it was an ongoing thing, they were satisfied with what I was doing. I had never turned my mind to the distinction between the other members of the family and Mr Encheff. I’m sorry, I overlooked it, and the matter arose in an emergency. (T98-99)
No Case to Answer
In Residues Treatment & Trading Co Ltd & Anor v Southern Resources Ltd & Ors (1989) 52 SASR 54 at 68, Perry J, after a close analysis of the authorities, said:
As to that aspect of the matter it seems to me that there are primarily four situations in which a submission of no case to answer may be made. They are:
1. Where no reference at all to the evidence is required.
2.Where a reference to the evidence is required only to establish that there is an evidentiary hiatus or failure to adduce any evidence as to an essential element in the cause of action.
3.Where it is argued that on a consideration of the evidence adduced by the plaintiff taken at its highest from the plaintiff’s point of view, the evidence could not support the causes of action pleaded.
4.The situation where it is contended that although there is some evidence to support the plaintiff’s claim, it is so weak and unreliable that it should be dismissed without calling upon the defendant.
In the criminal jurisdiction, category 4 would be met by following the course referred to in R v Prasad (1979) 23 SASR 161: see in particular per White J at 172.
As to category 1, this should normally be argued on the pleadings, preferably before the trial commences. No question of election arises in that situation. Likewise, consideration of a submission of no case to answer in category 2 should not involve an election.
As to categories 3 and 4, these situations should normally be met by the application of what I have referred to as the general rule that counsel should be called upon to elect.
(See also Rasomen Pty Ltd v The Shell Company of Aust Ltd (1996) 71 FCR 540, (1997) 75 FCR 216, Popovic & Ors v Tanasijevic & Ors(No 3) [1999] SASC 339).
Mr Abbott submitted that this case fell into the second category described by Perry J. Mr Scragg accepted that, as do I. I therefore did not call upon the defendants to elect whether to call evidence or not.
The effect of Section 41
The language of s 41 is very clear. The words “cannot bring an action for the recovery of legal costs unless” the conditions expressed are satisfied clearly create a statutory condition precedent to the bringing of the action (the English equivalent was described as such by Scrutton LJ in Joseph Evans & Co Ltd v Heathcote [1918] 1 KB 418 at 435).
In Zizza v Seymour [1976] 2 NSWLR 135; Moffitt P. said at p 137 that the respondent solicitor before him was correct to concede that:
The defect in his case, by reason of the absence of a proper bill, could not be corrected by delivery of a proper bill after the commencement of the proceedings. The client or party to be charged is entitled to have the proper bill before proceedings against him are commenced, as the express words of s. 21 (1) show.
His Honour went on to point out at p 139:
A solicitor occupies a special position in relation to the Court, so that the Court is entitled to expect of him an observance of provisions such as s. 21 in his relations with this client or those who retain him. … The relevant provisions are designed to make the client, or person to be charged, properly aware of, and have time to consider, the amount of the solicitor’s charges. He is then better able to make decisions as to payment of the bill, or having it taxed.
…
I do not think the circumstance that the appellant did not claim that the bill was excessive, and sought simply to contend he owed nothing, should affect this Court’s conclusion. The defence under s. 21 does not depend upon the client claiming the solicitor’s charges are excessive. The requirements of the section are designed to provide the client with the material and the time to enable him to form an opinion, with or without advice, whether the bill is excessive before he is faced with legal proceedings.
(My underlining.)
Hutley JA agreed with Moffitt P that the appeal should be upheld. Mahoney JA disagreed, but on the basis that the defence was not raised at trial (see p 140).
Waiver
The question then arises whether strict compliance with s 41 can be waived. In Dodd v Gillis (1989) 16 NSWLR 623, Yeldham J held that the protection given to the client by s 21 of the New South Wales Legal Practitioners Act, which was not materially different from s 41, may be waived by the client by, for example, an agreement to pay a lump sum (p 627). His Honour also found that a “legally binding” contract to pay a lump sum for fees would not attract the provisions of s 21 (ibid).
In Udovenko & Ors v Mitchell (1997) 160 ALR 161, the Full Federal Court distinguished Dodd v Gillis on the basis that there had been specific acceptance by the defendant that the charges were reasonable and that he would pay them. In Udovenko, the clients did not dispute that they were indebted to the solicitor, rather, they disputed that the solicitor should have been permitted to obtain judgment against them, which was being used in bankruptcy proceedings against them, when a breach of s 198 of the Legal Profession Act 1987 (NSW) had occurred. One of the clients had even filed an affidavit in other proceedings which evinced an intention to pay the solicitor’s fees, although he was still waiting for a properly itemised bill.
Carr J, with whom Davies and Foster JJ agreed, held that failure to serve a properly drawn bill was fatal to the solicitor’s action. His Honour said at p 172:
It is trite law that there can be no waiver without full awareness of the circumstances. I find it difficult to see how the appellants, in the context of their repeated insistence that Mr Mitchell was not entitled to judgment for his fees until be complied with s 198 of the Legal Profession Act, could be taken to have waived any objections which they might otherwise have wished to make to Mr Mitchell’s itemised bill of costs, before even having been served with such a bill.
In Conder v Silkbard [1999] NSWCA 459, the New South Wales Court of Appeal applied the abovementioned authorities. Beazley JA, with whom Meagher JA agreed, said, at para 32 of the judgment:
The defence that no bill of costs was given to the respondent as required under s 192(1) was pleaded in the proceedings and should have been, and still should be, dealt with by that Court. Indeed, as those proceedings are presently pleaded, the claim must fail, unless the appellants plead in reply and succeed in establishing that the respondent has waived its entitlement to a bill.
There are other examples in the cases where a client has been held to have waived strict compliance with such legislation.
In Warren v Cunningham (1819) 171 ER 842, Dallas CJ held that delivery of the solicitors bill to the clients attorney was sufficient compliance with legislation which required it to be delivered “unto the party or parties to be charged therewith, or left for him, her or them at his, her or their dwelling-house or last place of abode.”
In Vincent & Slaymaker (1810) 104 ER 146, Grose J, with whom Le Blanc J and Bayley J agreed, held that delivery to the client’s attorney or agent was sufficient (p 148).
It should be noted that in both of the above cases, the section of the statute did not include the word “personally”, as s 41 does.
In Nagy v Ryan (2003) 225 LSJS 432, Gray J did not consider the issue in terms of waiver. His Honour said:
For the purposes of this case, delivery to Mr Nagy’s solicitor was adequate. Whatever the circumstances of the delivery of the accounts, it was accepted that Mr Nagy received notice. There is no substance to this ground of appeal.
It would appear that his Honour did not have the benefit of argument on the cases cited here. However, the remarks quoted above do not help the plaintiff. There is no evidence that the defendants had nominated a solicitor or agent to receive the bills on their behalf.
What is clear from the authorities is that unless there has been a waiver or an estoppel, strict compliance with s 41 is still necessary before a solicitor may bring an action to recover his fees.
The plaintiff in this case, has not pleaded waiver, although this was raised during his reply to the submission of Mr Abbott without objection, so I will deal with it for the purposes of this ruling. In my opinion, there is no evidence at all that the defendants have waived their protection under s 41. There is no evidence that they ever had knowledge of any such protection. Such knowledge is necessary before a waiver can arise (Udovenko, supra). There is evidence that Mrs Russo complained about certain charges made by the plaintiff, (see the evidence of Mr Vagenas at T195-6) but this is, in my opinion, insufficient to constitute waiver.
Estoppel
Fitzgerald JA in Conder v Silkbard (supra) said, at para 42, that the clients might also have been “estopped from insisting on a bill”. As I have already mentioned, estoppel is pleaded in this action by the plaintiff. Paragraph 8 of the Settlement of Claim states:
Further, the plaintiff relied on the defendants’ undertakings to its detriment, in that it continued to act for Dragni notwithstanding his inability to make further payment for fees and disbursements in reliance on those undertakings, such that the defendants are now estopped from denying that they agreed to provide an indemnity in the terms set out above.
On the basis that this is a plea of equitable or promissory estoppel, the formulation by Brennan J in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428 – 9 sets out the relevant principles:
[I]t is necessary for the plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation; (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled; and (6) the defendant has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise. For the purposes of the second element, a defendant who has not actively induced the plaintiff to adopt an assumption or expectation will nevertheless be held to have done so if the assumption or expectation can be fulfilled only by a transfer of the defendant’s property, a diminution of his rights or an increase in his obligations and he, knowing that the plaintiff’s reliance on the assumption or expectation may cause detriment to the plaintiff if it is not fulfilled, fails to deny to the plaintiff the correctness of the assumption or expectation on which the plaintiff is conducting his affairs.
In Foran v Wight (1989) 168 CLR 385 at 410 – 11, Mason CJ referred to the judgment of Dixon CJ in Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, and said:
Although his Honour did not speak explicitly of estoppel, his insistence on looking for clear evidence of waiver is characteristic of the traditional insistence on a clear and unambiguous representation as a necessary foundation for an estoppel: see Legione v. Hateley (1983) 152 CLR 406 at 435 – 7.
The plaintiff’s assumption that the defendants would pay his fees must have been reasonably induced by a representation made by the defendants (Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 506).
The learned authors of Meagher Gummow and Lehane’s “Equity – Doctrines and Remedies”, 4^th Edition, also point out at p 551:
It is not settled whether, before an estoppel may run against him, the representor must have appreciated the nature and extent, or even the existence of his legal rights: Bremer Handelsgesellschaft mbH v C Mackprang Jr [1979] 1 Lloyd’s Rep 221; Cerealmangimi SpA v Toepfer (The Eurometal) [1981] 3 All ER 533. The better view must be that if he ought to have appreciated his position, the estoppel may arise: Horn v Cole 51 NH 287 (1868); 12 Am Rep 111, and see [17 – 105].
As to “detriment” the same authors state at p 571:
[17 – 130] It is now accepted in the High Court of Australia that in a case of equitable estoppel by conduct or (if such an institution exists) in a case of the new generalised estoppel advocated by Mason CJ and Deane J, the party relying upon the estoppel must show that there has flowed from the assumption or representation not merely reliance but “detriment”. As earlier pointed out in this chapter (see [17 – 050]), the detriment must be of sufficient weight to attract intervention by the court and various phrases have been used to describe what is sufficient.
They were there referring to phrases such as “material disadvantage” (Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547), “material detriment” (Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 at 734), and “significant disadvantage” (Deane J in Commonwealth v Verwayen (1990) 170 CLR 394 at 444).

There is no evidence before me that the plaintiff acted to its detriment in reliance upon “undertakings by the defendants”. Mr Scragg presented the defendants with a letter dated 16 April 2004 (Exhibit P1, document no. 28) and asked them to sign it. It read:
We confirm that we guaranteed to pay the abovenamed’s legal fees in relation to his trial which is presently being conducted in the South Australian Supreme Court. That includes the fees of Queen’s Counsel. We undertake to pay your reasonable disbursements.
Mr Scragg said that the letter fairly represented the oral undertaking given earlier. Accepting that for the purpose of this ruling, the evidence must also be read in light of Mr Scragg’s evidence of the nature of the underaking:
QDo you concede that you did not have an agreement with my clients for an open-ended payment of all your trial fees.
AYes, I agree with that.
QDo you concede that.
AYes, I do.
(T66)
He agreed that the passage in the Settlement of Claim which asserted that the undertaking covered all charges “to the conclusion of his (Mr Encheff’s) trial” was wrong (T67). He asserted that the undertaking was open-ended, and that the defendants could have “pulled the pin” at any time, and he would then consult with counsel and advise that there was a problem (T68).
Mr Scragg said he gave the defendants an ultimatum that if they did not sign the letter he would not continue to act for them. The trial had already started by then. The defendants refused to sign it. When asked by Mrs Russo, in a later conversation, why he continued to act despite the ultimatum, Mr Scragg recorded in a file note that he said:
Jeannette raised the fact that PS had indicated to her that unless she signed the letter dated May sometime that PS would withdraw from the matter and that she had said well go ahead and do it if you like. She said why did you continue to act. PS said out of compassion given their situation, the mother had just died etc. She was put off by that remark, didn’t expect it. (Exhibit P3, para 2.)
In evidence, Mr Scragg said:
What I meant by that file note is I would continue to act and I didn’t insist on the enforcement of my ultimatum because I felt sorry for them. That’s what I meant by those remarks. (T157)
On the basis of the whole of the evidence tendered by the plaintiff, I reject the plea of estoppel. There is no evidence that the defendants ever knew of the protection offered to them by s 41, in order that they might be held to have induced the plaintiff to assume that they would not rely on it. There is no reason to think that they ought to have been aware of it at any relevant time.
There is no evidence that the plaintiff relied on any such assumption. He expressly abandoned any such assertion, saying instead that he acted out of compassion. There is no evidence that the defendants knew or intended that the plaintiff would reply on any such assumption. The best that can be said for the plaintiff’s case is that it is quite unclear what the level of understanding was by the various parties. It was a vague and ambiguous arrangement that should not give rise to an equity.
Finally, there is no evidence, in my opinion, that the plaintiff suffered a detriment, of sufficient weight to attract the attention of the Court, as a result of his reliance on any alleged undertaking to pay its costs. Mr Scragg said he acted out of compassion, not because he relied on the defendants’ conduct.
Accordingly, I conclude that the plaintiff has not complied with the provisions of s 41 of the Legal Practitioners Act 1981, in that a bill in proper form was never delivered personally to the defendants, nor was it delivered by post addressed to them at their last known place of business or residence. There has been no waiver of these requirements by the defendants, nor are they estopped from denying their liability to pay the plaintiff’s bills.
One further matter is that Mr Scragg has, since I reserved my ruling, drawn my attention to s 50 of the Limitation of Actions Act 1936. That section states:
50—Dispensation with requirement of notice before action
Where any provision of an Act, regulation, rule or by-law requires a person to give notice of his intention to bring an action, or of any claim that he intends to prosecute in an action, before the action is instituted in a court, the court may, if the justice of the case so requires, at any time before or after the close of pleadings, dispense with that requirement.
I have now received a letter from Mr Abbott, counsel for the defendants. I think that he is correct when he says that s 41 does not require notice before action, and that s 50 is therefore irrelevant.
Alternatively, if I am wrong about that, having regard to the protections in s 41, and the special position of a legal practitioner who should know and understand the law and act appropriately towards his client, I would decline to dispense with the requirements of s 41. Even if I had the power to do so, I do not consider that the justice of this case would require it.
Accordingly, I uphold the submission that a statutory condition precedent to the bringing of this action has not been met, and that the defendants therefore have no case to answer.
I will hear the parties as to the orders to be made in light of my ruling.