McCredie v Zigouras
[2015] VCC 1374
•7 October 2015
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-15-03784
| MCCREDIE | Plaintiff |
| v. | |
| ZIGOURAS | Defendant |
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JUDICIAL REGISTRAR: | Judicial Registrar Tran | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 8 September 2015 | |
DATE OF JUDGMENT: | 7 October 2015 | |
CASE MAY BE CITED AS: | McCredie v. Zigouras | |
MEDIUM NEUTRAL CITATION: | [2015] VCC 1374 | |
REASONS FOR JUDGMENT
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Subject:COSTS
Catchwords: COSTS – Barrister’s fees – Conditional fee agreement – When payable – Whether void for containing contingency fee
Legislation Cited: Civil Procedure Act 2010 (Vic), s.24; Legal Profession Act 2004 (Vic), ss.3.4.2A, 3.4.16, 3.4.17(2), 3.4.31, 3.4.33, 3.4.34, 3.4.35; Legal Practice Act 1996 (Vic), s.99
Cases cited:Coadys (A Firm) v Getzler (2007) 18 VR 288; Legal Services Board v Gillespie-Jones (2013) 249 CLR 493
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | John Dunne & Associates | |
| For the Defendant | Mr G Rice | S. V. Winter & Co |
JUDICIAL REGISTRAR:
1 The Plaintiff is a barrister. By Writ filed 7 August 2015, he sued the Defendant, a Solicitor, for unpaid fees of $123,940. On or about 12 August 2015, the Defendant paid the amount of $123,940 to the Plaintiff’s clerk. Accordingly, the questions remaining to be determined in the proceeding are:
a. whether interest should be payable on the unpaid fees and from what date; and
b. whether the Defendant should pay the Plaintiff’s costs of the proceeding.
2 As at 8 September 2015, the total of interest and costs claimed by the Plaintiff was less than $10,000.
The parties cooperate to have the proceedings determined expeditiously
3 On 8 September 2015, the Defendant’s application to strike out the statement of claim came on for hearing before me. That application was supported by affidavit material which went beyond evidence which would normally be considered on a strike-out application.
4 In order to finally determine the questions in issue as expeditiously as possible, the parties sought a direction that the trial of the proceeding be heard by me immediately on the basis of the affidavit material filed to date. In seeking these orders, both parties were conscious of their obligations under the Civil Procedure Act 2010 (Vic), particularly the obligation under s.24 to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute; and the amount in dispute. They are to be commended for their willingness to cooperate in order to comply with their obligations rather than rely upon strict procedural compliance.
5 Her Honour Judge Kennedy, the Judge in Charge of the Commercial Division, directed that the trial in the proceeding be heard by me on 8 September 2015. I directed that the trial be by affidavit. The following affidavits were tendered in evidence:
a. Affidavit of John Nicholas Zigouras affirmed 26 August 2015, together with exhibits JNZ1-JNZ8.
b. Affidavit of Stephen Robert McCredie affirmed 8 September 2015.
c. Affidavit of Stuart Victor Winter sworn 7 September 2015, together with exhibits SVW1-SVW2.
d. Affidavit of John Daniel Dunne sworn 7 September 2015, together with exhibits JD1-JD3.
Arguments raised by Defendant
6 The trial proceeded on the basis of the following undisputed facts:
a. The Plaintiff had been retained to perform work as a barrister for the Defendant’s client, Chunneaug Min (“the client”).
b. A document headed “Conditional Costs Agreement and Disclosure Statement Between a Barrister and a Solicitor” (Exhibit JNZ3) (“the Costs Agreement”) had been executed by the parties. That Costs Agreement provided that legal costs would be payable “ONLY if there is a successful outcome in this Matter” and provided for a 25% uplift fee for work performed after entry into the Costs Agreement. The Costs Agreement also included an estimate of the legal costs of $70,980 + 25% uplift of $17,745 plus costs already incurred of $9,240 (total $97,965).
c. Fee slips had been rendered by the Plaintiff to the Defendant for $9,240 on 4 February 2013 and for $114,700 on 23 September 2014 for work performed by him as a barrister for the client.
d. Judgment in favour of the client was delivered on 3 October 2014 (Zigouras affidavit, para 5; McCredie affidavit, para 2).
e. The Plaintiff demanded payment of his fees in a letter dated 5 August 2015 which enclosed the fee slips.
f. The proceedings were commenced on 7 August 2015.
g. The Defendant paid the sum of $123,940 to the Plaintiff’s clerk on or about 12 August 2015.
7 The Defendant contended that he nevertheless ought not be liable for interest and costs as:
a. Under the terms of the Costs Agreement, the Plaintiff’s fees only became payable when the Defendant had actually received funds pursuant to a judgment or settlement. This did not occur until 30 July 2015.
b. The proceedings were premature as the first time a valid bill of costs and demand for payment was sent was 5 August 2015. These proceedings were commenced two days later on 7 August 2015.
c. The costs agreement was void as it contained a contingency fee and therefore infringed s. 3.4.29 of the Legal Profession Act 2004 (Vic) (“the LPA”).
d. The Plaintiff had breached his obligation of ongoing disclosure under s. 3.4.16 of the LPA and therefore, pursuant to 3.4.17(2), proceedings against the Defendant were not maintainable unless reviewed under Division 7.
When did the Plaintiff’s fees become payable?
8 The Defendant contended that the costs were intended to be payable by the client rather than the solicitor. He contended that the agreement was a “no win, no fee” agreement and that “win” entailed not only a judgment or settlement in favour of the client but the actual payment of the judgment or settlement amount. It was submitted that it was the objective intention of the parties that the liability to pay fees only arose when there was in existence a fund out of which those fees could be paid.
9 The Costs Agreement was headed “Conditional Costs Agreement and Disclosure Statement Between a Barrister and a Solicitor”. It commenced “This Conditional Costs Agreement is made between Stephen Robert McCredie and J.N.Zigouras & Co…”. The objective intention of the parties was thus plainly to create the conventional contractual relationship between barrister and solicitor, pursuant to which the solicitor is liable for the fees of the barrister. I do not accept the Defendant’s submission that the Plaintiff ought to have sued the client for his fees.
10 The Costs Agreement further stated that:
“My legal costs will be payable in the manner as set out in this agreement ONLY if there is a successful outcome of this Matter. In this agreement “successful outcome” of the Matter means, after the conclusion of any appeal:
(a) there is a judgment in favour of the client in respect of his [sic] application for an extension of time; and
(b) there is a judgment in favour of the client in respect of proceedings for damages brought pursuant to the application for extension of time; or
(c) the matter has settled on terms whereby the client is entitled to payment of a sum of money by way of damages and/or costs (“the settlement sum”).”
11 The Costs Agreement does not anywhere use the term “no win no fee”. It uses the term “successful outcome” and that term is defined as including a judgment in favour of the client in respect of his application for an extension of time and a judgment in favour of the client in respect of proceedings for damages brought pursuant to the application for extension of time. The definition of “successful outcome” is quite clear. Nowhere does that definition require payment of the judgment or settlement sum to be actually received by the Defendant or his client. There are no grounds upon which such a requirement could be read into the express words of the Costs Agreement, particularly given the agreement is made between two legal practitioners who can be assumed to understand the meaning and ramifications of a “judgment”. The liability to pay fees was contingent upon there being a “successful outcome”. That successful outcome was obtained upon entry of judgment (and perhaps, although it does not appear to be presently relevant, the passing of the time to appeal) and was not conditional upon actual recovery.
12 The evidence before me is that judgment in favour of the Plaintiff was given on 3 October 2014 (Zigouras affidavit, para 5, McCredie affidavit, para 2). Accordingly, the Defendant could not be liable to pay the Plaintiff’s fees until at least 3 October 2014.
Were the proceedings nevertheless premature?
13 However, my rejection of the Defendant’s interpretation of the Costs Agreement does not necessarily lead to the complete rejection of his defence that the proceedings were premature.
14 The Plaintiff’s fee slips were sent on 4 February 2013 and 23 September 2014, before the date of the judgment in favour of the Plaintiff. They were not sent again until the letter of demand of 5 August 2015.
15 Section 3.4.33 of the LPA provides that:
“(1) A law practice must not commence legal proceedings to recover legal costs from a person until at least 65 days after the law practice has given a bill to the person in accordance with sections 3.4.34 and 3.4.35
…
(3) A court or tribunal before which any proceedings are brought in contravention of subsection (1) must stay those proceedings on the application of a party, or on its own initiative…
16 The Plaintiff contends that its fee slips, sent on 4 February 2013 and on 23 September 2014, were bills given in accordance with these requirements. However, at the time the bills were sent, the judgment of 3 October 2014 had not yet been given. There was not yet a “successful outcome” for the purposes of the Costs Agreement. The liability to pay fees was still conditional. Accordingly, no fees were yet accruing. There was no debt. In my view, a valid “bill of costs” for the purposes of the LPA cannot be sent before a debt comes into existence. This view is reinforced by the fact that strict time limits are imposed upon solicitors to apply for a review of a bill delivered by a barrister and these time limits commence from the day the bill is given (s. 3.4.39(3))[1]. It is difficult to see how an effective review could be conducted at a time when the amount payable was not yet a certain sum.
[1]Legal Profession Act 2004 (Vic)
17 The fee slips were sent again by the Plaintiff to the Defendant under cover of a letter dated 5 August 2015. This appears to be the first time a formal demand for payment was sent after 3 October 2014. By this time there had been a “successful outcome” and accordingly there was a debt in relation to which a bill of costs could be sent. However, the proceedings were commenced only 2 days later, in contravention of the requirement in s. 3.4.33 of the LPA that they be commenced at least 65 days after the law practice has given a bill in accordance with sections 3.4.34 and 3.4.35.[2]
[2]Legal Profession Act 2004 (Vic)
18 The proceedings were commenced prematurely and ought to be stayed under s. 3.4.33(3)[3].
[3] Ibid.
Entitlement to interest
19 The Plaintiff claims interest from 23 October 2014, being 30 days after the date of the second fee slip. Clause 6 of the Costs Agreement provided that interest was payable from the day 30 days after a demand is sent until the legal costs are paid. A valid demand for payment could not be sent until at least 3 October 2014. No such demand was sent until 5 August 2015. The fees were paid on 12 August 2015, within the 30 day period. Accordingly, no interest is payable pursuant to the terms of the Costs Agreement. Further, the commencement of the proceedings only two days after demand for payment was premature.
Was the Costs Agreement void?
20 Recital E of the Costs Agreement provided that “…when [the matter has settled on terms whereby the client is entitled to payment of a sum of money by way of damages and/or costs], and the settlement sum is insufficient to pay my fees and the solicitor’s costs and/or disbursements in full, my fees will be fixed at ¼ the settlement sum, irrespective of that amount”.
21 The Defendant contended that this rendered the Costs Agreement void under s. 3.4.31 of the LPA as it amounted to a contingency fee in contravention of s. 3.4.29. In light of my previous findings it is not necessary to decide this issue, however, for the sake of completeness I make the following findings.
22 In my view, Recital E, properly interpreted, constitutes a cap on the amount of the fees which can be charged by the Plaintiff rather than a contingency fee which contravenes s. 3.4.31. The use of the word “capped” would perhaps have been clearer than “fixed”. However, the intention of Recital E, objectively assessed, was to reduce the fees payable in circumstances which technically met the definition of ‘successful outcome’ but where the amount recovered was insufficient to cover the legal costs of the Plaintiff and Defendant in their entirety.
23 The validity of a cap on legal fees was considered in the Court of Appeal decision of Coadys (A Firm) v Getzler (2007) 18 VR 288. In that case the relevant agreement provided that “The Firm also agrees that liability for payment at the increased rate extends only to the extent of funds recovered in the proceedings”. The Court of Appeal held that this amounted to a cap on the fees payable rather than a contingency fee which breached s.99 of the Legal Practice Act 1996 (Vic). In Coadys the cap was 100% of the amount recovered. In the present case the cap is 25% of the settlement sum. However, in my view, the same principles apply and the clause does not contravene s. 3.4.31 of the LPA. This is particularly so given that the consequence of a breach of s. 3.4.31 is that fees in respect of the provision of legal services in the matter to which the costs agreement relate are not recoverable at all and must be repaid in their entirety (s. 3.4.31(5))[4]. A provision with such drastic consequences should not be interpreted so as to preclude what is after all a reduction in the fees to be ultimately charged.
[4]Legal Profession Act 2004 (Vic)
Was a review required under Division 7 before proceedings were maintained?
24 Again, in light of my previous findings it is not necessary to decide this issue, however for the sake of completeness I make the following findings.
25 The estimate provided by the Plaintiff in the Costs Agreement was $97,965. This was based on an hourly rate of $420 per hour and $4200 per day. The trial was heard in 2013. On 28 August 2014, the Plaintiff wrote to the Defendant and informed him that his fees had increased. The Defendant contended that s. 3.4.16 of the LPA required the Plaintiff to disclose any substantial change to the estimate given in the Costs Agreement as soon as is reasonably practicable. As the Plaintiff had failed to disclose the increase in its fees until 28 August 2014, the Defendant contended that legal costs were not payable under s. 3.4.17 unless reviewed under Division 7.
26 The Plaintiff did not deny that no disclosure of the increase in fees had been given until August 2014, but said that no objection had been made by the Defendant to this lack of disclosure on receipt of the 28 August 2014 letter or on receipt of his second fee slip.
27 Section 3.4.16 of the LPA concerns disclosure by a law practice to a client. In my view, it does not apply directly to a barrister who has been retained by a solicitor. A barrister’s obligation of disclosure is dealt with in s. 3.4.10(2) and is more limited in its scope. Section 3.4.17 also does not apply to proceedings between a barrister and a solicitor, but only to proceedings against “the client or associated third party payer”. Section 3.4.2A(3) provides that “A law practice that retains another law practice on behalf of a client is not on that account a third party payer in relation to that client”. Whilst the late disclosure in the present case would seem to well fall short of what might reasonably be expected of a barrister, it does not lead to the application of s.3.4.17. Accordingly, it was not necessary for the costs to be reviewed under Division 7 before the proceedings were commenced.
Application to rely upon further evidence
28 On 11 September 2015, my associate received an email application from the Defendant for leave to file a further affidavit. The application was opposed by the Plaintiff and the matter was listed for hearing on 22 September 2015. At the hearing I was informed that paragraph 15 of the Zigouras affidavit, which stated that “the client had been advised that the full amount of $123,940 for Mr McCredie’s fees had been recovered from the other side”, was incorrect and that the Defendant sought leave to tender a further affidavit correcting this paragraph. The Plaintiff opposed leave being granted and said that it would require the Defendant to attend for cross-examination if leave was granted.
29 The relevant paragraph had been relied upon by the Plaintiff at trial as founding a Quistclose trust over the funds received. The Plaintiff acknowledged that this argument only became relevant if I concluded that the costs agreement was void or that the proceedings were not maintainable for failure to comply with the disclosure obligations. The parties consented to me leaving the question of whether this additional evidence ought to be admitted until I had reached a decision on these defences. As I have found against the Defendant on these defences, the additional evidence is not relevant and I refuse leave to reopen the Defendant’s case for the purpose of admitting it into evidence. In any event, in my view, the specific provisions of the LPA would prevail to the exclusion of any such trust, particularly the provisions which enable costs to be recovered even if paid (see Legal Services Board v Gillespie-Jones (2013) 249 CLR 493). The Plaintiff would thus not be able to establish the existence of a Quistclose trust even had the evidence been admitted.
Costs
30 I have held that the proceedings were commenced prematurely and ought to be stayed. I have further held that interest was not payable until 30 days after the demand of 5 August 2015. Further and in any event, in my view, it was not reasonable to send a demand on 5 August 2015 and commence proceedings two days later, particularly in view of the obligations on the Plaintiff under the Civil Procedure Act 2010. The undue haste with which the proceedings were commenced is illustrated by the incorrect description of the parties’ names in the statement of claim.
31 On 4 September 2015, the Defendant sent an open offer to the Plaintiff to settle the proceeding on the basis that each party bear their own costs and the Writ be withdrawn. That offer was rejected by the Plaintiff on 4 September 2015. In my view it was unreasonable of the Plaintiff to reject that offer in the circumstances. The Plaintiff should pay the Defendant’s costs of the proceeding, on the standard basis until 4 September 2015 and on an indemnity basis from 5 September 2015.
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Certificate
I certify that these 11 pages are a true copy of the reasons for decision of Judicial Registrar Tran delivered on 7 October 2015.
Dated: 7 October 2015
Simon Bobko
Associate to Judicial Registrar Tran
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