McNamara Business & Property Law v Kasmeridis - [2007] SASC 90

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
MCNAMARA BUSINESS & PROPERTY LAW v KASMERIDIS & ANOR
[2007] SASC 90
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Gray and The Honourable Justice David)
16 March 2007
PROFESSIONS AND TRADES - LAWYERS - SOLICITOR AND CLIENT - RETAINER
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - JURISDICTION AND GENERALLY
Appeal from the decision of a Master rescinding a solicitor-client costs agreement on the grounds that the terms of the costs agreement were not fair or reasonable - duty of a solicitor to explain to a prospective client the meaning and practical effect of the costs agreement - content of a solicitor's duty to inform a client about costs under the Rules of Professional Conduct and Practice 2003 - discusson of history of the Court's power over costs agreements.
Held: appeal dismissed.
Legal Practitioners Conduct Act 1981 (SA) s 13(2)(d), s 42, s 42(6), s 42(7); Attorneys' and Solicitors' Act 1870 (UK) s 9; Rules of Professional Conduct and Practice 2003 r 41, referred to.
McNamara Business & Property Law v Kasmeridis (2005) 92 SASR 382; Kasmeridis v McNamara Business & Property Law [2006] SASC 200; Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589; Athanasiou v Ward Keller Pty Ltd (1998) 122 NTR 22; Clare v Joseph [1907] 2 KB 369; In Re Stuart [1893] 2 QB 201; Brown v Talbot & Olivier (1993) 9 WAR 70; Law Society of NSW v Foreman (1994) 34 NSWLR 408; Re Morris Fletcher and Cross' Bill of Costs [1997] 2 Qd R 228; New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116; Symonds v Raphael (1998) 148 FLR 171; United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1; Renton Resources Pty Ltd v Johnson Winter & Slattery [2005] SASC 231, considered.

MCNAMARA BUSINESS & PROPERTY LAW v KASMERIDIS & ANOR
[2007] SASC 90
Full Court: Doyle CJ, Gray and David JJ

DOYLE CJ. Mr and Mrs Kasmeridis (“the Kasmeridis”) applied for a taxation of costs to determine their liability to pay costs to their former solicitor, McNamara Business & Property Law (“McNamara”). McNamara lodged a bill of costs for taxation in accordance with a costs agreement (“the agreement”) between the parties. The Kasmeridis objected that the agreement relied on was not “an agreement in writing” for the purposes of s 42(6) of the Legal Practitioners Act 1981 (SA) (“the Act”). The Master decided that point in their favour, but on appeal the Full Court held that the agreement was in writing for the purposes of the Act: McNamara Business & Property Law v Kasmeridis [2005] SASC 269; (2005) 92 SASR 382. When the matter returned to the Master the Kasmeridis claimed an order rescinding the agreement under s 42(7) of the Act on the grounds that terms of the agreement were “not fair and reasonable”.
The Master found that the agreement was not fair and reasonable: Kasmeridis v McNamara Business & Property Law [2006] SASC 200. The Master decided that the appropriate order was one rescinding the agreement.
McNamara has appealed against that decision. The Court permitted the Law Society of South Australia to put submissions in exercise of the Society’s entitlement under s 13(2)(d) of the Act. The appeal raises issues relevant to costs agreements which affect the interests of members of the Law Society.
The appeal raises the issue of the duty of a solicitor to explain to a prospective client, to whom the solicitor proffers a costs agreement, the meaning and practical effect of the costs agreement. If there is such a duty, the extent of that duty must be considered. The appeal also raises for consideration the reasonableness of some of the provisions of the agreement. Some of them are provisions of a kind in common use.
The issues on appeal arise under s 42 of the Act, which relevantly provides as follows:
42    (1)     On the application -
(a)     of a person claiming to be entitled to legal costs; or
(b)     of a person who is liable to pay, or who has paid, any legal costs,
the Supreme Court may tax and settle the bill for those costs.
…
(3)     The Court may, on taxation of a bill of costs under this section -
(a)order the refund of any amount overpaid; or
(b)where the proceedings have been instituted by the person seeking recovery of the costs—order payment of legal costs in accordance with the taxed bill.
…
(6)     A legal practitioner may make an agreement in writing with a client for -
(a)payment of a specified amount by way of legal costs (which may—but need not—consist of a daily, hourly or other time-related rate for professional work carried out by the legal practitioner on the client's behalf); or
(b)payment of legal costs in accordance with a specified scale; or
(c)subject to any limitations imposed by the Society's professional conduct rules or the regulations—payment of a contingency fee to be calculated on a basis set out in the agreement on fulfilment of a condition stated in the agreement.
(7)     The Supreme Court may, in proceedings under this section, rescind or vary an agreement under subsection (6) if it considers that any term of the agreement is not fair and reasonable.
Preliminary matters
Mr Walsh QC, counsel for McNamara, submits that the Kasmeridis should not have been permitted to raise the claim under s 42(7) of the Act. He submits that the claim now made is so closely connected with the claim that the agreement is not in writing that it was unreasonable not to have raised it in the course of the earlier proceedings, thus enabling all relevant issues to be determined in the one proceeding. He relies on the decision of the High Court in Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589.
The Master was right to reject that submission. The initial objection by the Kasmeridis raised what can fairly be called a preliminary issue. If the agreement was not an agreement in writing for the purposes of s 42(6), then the power under s 42(7) to rescind or vary the agreement would not arise. Just what the determination of that objection achieved might be doubted, because on one view s 42(6) is purely permissive, and a practitioner can enter into a costs agreement with a client independently of that provision, that costs agreement then being subject to control by the court in the exercise of its inherent powers: see Athanasiou v Ward Keller Pty Ltd (1998) 122 NTR 22 at 29. However, there is no need to pursue that point.
The separate disposition of the point now raised by the Kasmeridis cannot result in conflicting judgments. The issues now raised are different from those raised before, although there is a common factual basis. For those brief reasons the two issues are not so closely connected that it is unreasonable to have them disposed of separately.
Facts
In November 2003 a company obtained a default judgment against the Kasmeridis in the Magistrates Court, for an amount of $39,175. In early February 2004 Mr Kasmeridis spoke to Mr Viscariello, an employee of McNamara.
The situation had become urgent. The judgment creditor had a warrant for the sale of the Kasmeridis’ home, and the Sheriff was threatening to execute the warrant. Mr Kasmeridis was referred to Mr Viscariello through another person, who helped the Kasmeridis in connection with a number of premises at which they conducted a picture framing business. On 5 February Mr Viscariello sent to the Kasmeridis a letter setting out the terms on which McNamara would act for them, accompanied by “Terms of Engagement” and a “Schedule of Fees”. These together constitute the agreement.
I set out below the relevant provisions of the “Terms of Engagement” and of the “Schedule of Fees”:
TERMS OF ENGAGEMENT

THE SOLICITORS

S1     We agree to provide competent legal services and advice in relation to the matter in accordance with ethical and legal standards.

…..

S3     The solicitor responsible for the conduct of the matter will act in the matter with assistance from other solicitors/staff and counsel as is required and appropriate.

S4a   Each solicitor/staff member is assigned an hourly rate determined by seniority, experience, and expertise, and is required to keep detailed records of all time spent on the matter. The present hourly rates are quoted in the attached schedule. Services charged include interviews, preparing of reading documents, correspondence, negotiations, telephone calls, meetings, attending in Court, research of other matters and other relevant work.

S4b   In addition to the fees set out above, you are required to pay any expenses we incur on your behalf in connection with your matter. Expenses include such things as court fees, Land Titles Office fees, stamp duty, company and other searches, barrister’s fees, courier charges, expert’s fees, postage and telephone charges.

S4c   The hourly rates quoted in the schedule are inclusive of GST. To the extent that expenses we incur for you are subject to GST, you must reimburse us for any GST payable in respect of those expenses.

THE CLIENT

C1     The client agrees and expressly authorises the solicitors to assign solicitors, staff members or counsel to work on the matter as and when required; to engage and obtain any reports from experts; to engage barrister/s and to incur any unusual disbursement/s the solicitors consider necessary for the proper conduct of the matter.

C2     The client is aware and has been advised that the fixed amount charged or rate payable may exceed the rates set by the relevant Court or other scale and may care to seek independent legal advice concerning this aspect or any part of this agreement.

C3     The client agrees to pay the solicitors’ accounts including interim accounts received within 14 days of presentation. The client agrees to pay or reimburse the solicitors for any GST payable in respect of the fees and disbursements. Interest at the rate of 10% per annum is payable on all accounts unpaid for 14 days or more after presentation.

…..

S5     The hourly rates are reviewed periodically and you will be advised of any changes in the rates at that time. The time recording system is presently based on a minimum recording time of six minutes and all charges will be calculated on that basis. Any change to the minimum recording time will also be advised.

S6     Any initial estimate of legal costs we give you is an estimate only and will always remain subject to review depending on the particular circumstances of the matter. It is particularly difficult to estimate costs in a litigation matter. …..

…..

…..

C6     The client is aware and has been advised that any costs received from other parties in a litigious matter (called “party/party costs”) may not cover all of the solicitors’ costs and disbursements incurred (called “solicitor/client costs”) and the client will have to meet the difference in these costs from the client’s own pocket if this occurs.

…..

SCHEDULE OF FEES
1Client: Harry Kasmeridis
2Fees for Legal Services
The current hourly rates (including GST)
Solicitors          $200.00
Paralegals        $150.00
We reserve the right to charge a premium where your matter requires particularly urgent attention or involves excessive out-of-hours work. Please note that the amount to be charged is not calculated by direct reference to court scales and may exceed the rate set by such scales.
3Expenses
In addition to the fees set out above, you are required to pay any expenses we incur on your behalf in connection with your matter. Expenses include such things as court fees, Lands Titles Office fees, stamp duty, company and other searches, barrister’s fees, courier charges, expert’s fees, postage and telephone charges.
4Goods and Services Tax (GST)
Under the terms of Engagement, our fees are inclusive of GST. To the extent that expenses we incur for you are subject to GST, you must reimburse us for any GST payable in respect of those expenses.
…..

On 9 February Mr Viscariello spoke by telephone with Mr Kasmeridis. Mr Kasmeridis acknowledged receiving the agreement, told Mr Viscariello to “go ahead” and told him to do whatever it takes to save the house. The Master was unable to resolve the question of whether, as Mr Kasmeridis claimed, he told Mr Viscariello that he had not read or understood the costs agreement. Mr Viscariello claimed in his affidavit that Mr Kasmeridis said he had read and accepted the costs agreement. In any event, there is no suggestion that Mr Viscariello gave any advice to Mr Kasmeridis about the agreement, or explained any aspect of its operation.
In fairness to Mr Viscariello it needs to be acknowledged that the situation was one of some urgency. Previous solicitors had apparently failed to prevent the warrant being issued, and Mr Viscariello had to act urgently. He says in his affidavit that he had to work over weekends and after hours. A further difficulty was that Mr Viscariello was unable to obtain the file from the Kasmeridis’ former solicitor, because they had not paid that solicitor’s account.
By 24 February 2004 an order had been obtained setting aside the default judgment. McNamara then rendered to the Kasmeridis an account for $20,613, including counsel fees and disbursements. The Kasmeridis then terminated the instructions of McNamara and retained other solicitors.
There was affidavit material before the Master to the effect that the Kasmeridis conducted a picture framing business from a number of premises. There was also evidence that between 1991 and early 2004 Mr Kasmeridis had been a party to some 35 actions in the Magistrates Court. In his affidavit Mr Viscariello asserts that the Kasmeridis were “experienced business people and experienced in legal matters including in dealing with solicitors and court processes”. The Master made no finding to that effect, and on the limited material available it was not open to him to make such a finding. It was open to him to find that the Kasmeridis conducted a picture framing business, and that Mr Kasmeridis had been a party to about 30 actions in the Magistrates Court. One could infer from that, that he had some knowledge of business matters and some knowledge of court processes. But there was no basis for going any further than that.
Mr Viscariello was admitted as a practitioner in December 2002. His affidavit establishes that before being admitted he had had substantial experience in the field of construction and property development, and in the retail trade.
The Terms of Engagement provided to the Kasmeridis are McNamara’s usual terms of retainer, and the Schedule of Fees is McNamara’s usual fee arrangement. The hourly rates specified in the Schedule were McNamara’s usual hourly rates at the time.
The Court’s power over costs agreements
There is a long history of scrutiny by courts of agreements, between a solicitor and prospective client or existing client, as to the fees the solicitor will charge the client. Such agreements were permitted, but were scrutinised with care. In 1870 the United Kingdom Parliament enacted the Attorneys’ and Solicitors’ Act 1870 (UK). It is clear that this Act was not required to enable solicitors to enter into a costs agreement with a client. The intent was to provide a procedure for the scrutiny and control of such agreements. The effect of the legislation was that an agreement for payment of costs could not be enforced until it had been determined whether or not the agreement was “in all respects fair and reasonable between the parties”: s 9.
In Clare v Joseph [1907] 2 KB 369 the history of the matter was summarised by Lord Alverstone CJ at 372 as follows:
… Agreements as to costs were often made before 1870, and, upon the application of the client, they were considered and examined by the Courts, and they were not infrequently held to be binding both on the solicitor and the client. The inquiry was always directed to the question whether the agreement was fair and reasonable, and an agreement by the solicitor to take less than the usual remuneration was not looked upon as unfair or unreasonable, but was held binding upon him. We must remember that that was the state of the law in 1870 when we are called upon to construe the Act of that year, an Act which was designed to provide fresh safeguards for the protection of the client and to give the solicitor certain rights which he did not previously possess, provided that he himself complied with the requirements of the Act. …
The attitude of the Courts to the exercise of their powers of control is summarised by Fletcher Moulton LJ at 376:
… At that date agreements between a solicitor and his client as to the terms on which the solicitor’s business was to be done were not necessarily unenforceable. They were, however, viewed with great jealousy 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. …
That was the context in which the Act of 1870 was enacted. I conclude that s 42(7) reflects that history. In exercising the power conferred by the provision, this Court should take the same approach as was taken by the English Courts to their powers.
The concept of an agreement being fair and reasonable is deceptively simple. In In Re Stuart [1893] 2 QB 201 Lord Esher MR, in a passage often cited with approval, summarised the position. He is referring to s 9 of the 1870 Act, one of the provisions to which I just referred. He said at 204-205:
… By s 9 the Court may enforce an agreement if it appears that it is in all respects fair and reasonable. With regard to the fairness of such an agreement, it appears to me that this refers to the mode of obtaining the agreement, and that if a solicitor makes an agreement with a client who fully understands and appreciates that agreement that satisfies the requirement as to fairness. But the agreement must also be reasonable, and in determining whether it is so the matters covered by the expression “fair” cannot be re‑introduced. As to this part of the requirements of the statute, I am of opinion that the meaning is that when an agreement is challenged the solicitor must not only satisfy the Court that the agreement was absolutely fair with regard to the way in which it was obtained, but must also satisfy the Court that the terms of that agreement are reasonable. If in the opinion of the Court they are not reasonable, having regard to the kind of work which the solicitor has to do under the agreement, the Court are bound to say that the solicitor, as an officer of the Court, has no right to an unreasonable payment for the work which he has done, and ought not to have made an agreement for remuneration in such a manner. …
This was the approach taken by the Master. It may be that the Court retains an inherent power to supervise costs agreements, and to set them aside, in the exercise of its power over practitioners. It is not necessary to decide that point. In the present case the only question is the proper application of the statutory provision.
Similar provisions have been adopted in other Australian jurisdictions, and by and large they have been applied in a manner that reflects the English case law. The position is conveniently summarised in Dal Pont Law of Costs (Lexis Nexis Butterworths, Australia, 2003) at [2.27]-[2.37].

The South Australian provision is expressed slightly differently from the English model and from other legislation. It requires the Court to consider not whether the agreement is fair and reasonable, but whether “any term of the agreement is not fair and reasonable”. In the present case the difference of expression is not material.
In that setting I consider that this Court should, as I have already said, follow the approach taken by the English cases, and the approach taken in other Australian jurisdictions under similar legislation. It is for the practitioner to show that the agreement is fair and reasonable, if the client raises a challenge on those grounds and those terms are to be applied in the manner indicated by Lord Esher in the passage set out above.
The factors to be taken into account when deciding whether an agreement is fair and reasonable will depend upon the circumstances of the case. It is neither practical nor desirable to try to set out a standard list of relevant matters. The relevant matters will vary according to the scope of the retainer; the terms of the agreement; the kind of legal work undertaken; the client’s knowledge and circumstances, and, no doubt, other circumstances.
However, the cases emphasise as a basic consideration the question of whether the client’s decision to agree to the terms of the costs agreement was a free and informed choice, the client having been given the advice that would give the client a fair understanding of the operation and effect of the costs agreement: see, for example, Brown v Talbot & Olivier (1993) 9 WAR 70 at 77; Law Society of NSW v Foreman (1994) 34 NSWLR 408 at 435-437 Mahoney JA.
This is not surprising, having regard to the foundation on which the Court’s inherent power over solicitors and costs agreements is based: see Clare v Joseph (above). The cases have emphasised the fiduciary nature of the solicitor and client relationship, and the importance of the solicitor dealing with a potential conflict between the solicitor’s interests and the solicitor’s duty to the client by making full disclosure to the client.
Although I do not think it helpful to attempt to state a standard list of relevant matters to be considered, some helpful guidance is to be found in the decision of Ipp J in Brown v Talbot & Olivier at 77-78 (dealing with the question of fairness) and at 80-81 (dealing with the question of reasonableness) and in the decision of Fryberg J in Re Morris Fletcher and Cross’ Bill of Costs [1997] 2 Qd R 228 at 243-244, where there is a particular focus on the costs agreement providing for time charging. However, it should be noted that in each case the legislation was different from the Act.
Different judges and different courts have expressed particular concern about costs agreements that provide for what is called time charging. No doubt this reflects the fact that such agreements have become increasingly common. The concern of the courts is based on the fact that time charging agreements are likely to result in a greater charge to the client than would result from the traditional approach to charging, based on a mix of activity and time based charging, and usually at rates that reflect or can reflect the experience of the practitioner. There is also the obvious point that time charging does nothing to discourage inefficiency, and indeed has a tendency to reward slowness and prolixity. Particular concern has been expressed by courts about agreements which provide for a flat hourly rate of charging, without regard to the experience of the practitioner or the kind of work being done. Some examples of these concerns can be found in New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116 at 126 Gleeson CJ and at 141 Kirby P; in Law Society of NSW v Foreman at 436-437 Mahoney JA and in Re Morris Fletcher and Cross’ Bill of Costs at 243-244 Fryberg J. A helpful summary of the relevant considerations can be found in Dal Pont at [2.36]-[2.37].
None of this leads to the conclusion that such agreements are not permissible. The effect of the cases is that such agreements should be scrutinised with particular care, because of their potential to work in favour of the interests of the solicitor and against the interests of the client. But all relevant circumstances have to be taken into account, and that is what the court must do in any given case. That means that it is difficult to lay down general rules.
The agreement in the present case is one that provides for time charging. It is to be noted that a single hourly rate is specified for work to be done by a solicitor, without regard to the type of work or the experience of the solicitor. It is also to be noted that there is a tension between that aspect of the “Schedule of Fees”, and clause S4a of the “Terms of Engagement”, which suggests that hourly rates would be differentiated at least on the basis of experience and expertise.
Mr Walsh, supported by Mr Howard, for the Law Society, rightly makes the point that one of the purposes of s 42(6)(a) is to enable a practitioner to nominate the practitioner’s preferred method of charging, and to disclose that method and rate to the client. There can be no presumption against such an approach. But when this is done, and when the solicitor is permitted to charge at the relevant rate without regard to the kind of work done, or the experience and expertise of the solicitor, the Court will have to give careful consideration to the question of whether such a provision is fair and reasonable. Any decision is likely to be a decision particular to the circumstances of the case.
Disposition of appeal
I agree with the Master’s conclusion that the terms of the agreement (I use this term for convenience to embrace the “Terms of Engagement” and the “Schedule of Fees”) are neither fair nor reasonable. I do not necessarily agree with every aspect of the Master’s reasons for so concluding, but I agree with his general approach.
I reject the submission by Mr Walsh to the effect that there was no duty on the part of Mr Viscariello to explain the effect and operation of the agreement to the Kasmeridis, or to give them any advice about the agreement. Mr Walsh submits that Mr Viscariello discharged any duty that he had in this respect by providing the terms of the agreement to the Kasmeridis, thus making full disclosure to them.
This submission rests on the further submission that McNamara owed no relevant fiduciary duty to give advice to the Kasmeridis or to explain the agreement, because until a contract of retainer came into being (on the making of the agreement) no fiduciary duty could arise.
That further submission must be rejected. It is contrary to the decisions cited above, and in particular to Law Society of NSW v Foreman. There is no hint in the cases that the principles differ if the costs agreement is made before the solicitor is instructed; see Re Morris Fletcher and Cross’ Bill of Costs at 242-243, as to which the same comment can be made; and Symonds v Raphael (1998) 148 FLR 171 at 186-187 where Baker and Burton JJ deny that a fiduciary relationship cannot arise until a solicitor is actually retained, relying on the decision of the High Court in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 11. In my opinion Mr Walsh takes too narrow an approach to the scope of a fiduciary duty. In any event, s 42(7) of the Act lends no support to that submission.
For those reasons I do not accept the submission that Mr Viscariello was under no obligation to provide any explanation or advice to the Kasmeridis, and that he sufficiently discharged any such obligation by giving them a copy of the agreement.
I reject a further submission by Mr Walsh to the effect that a complaint that the agreement is unfair because it permits a solicitor to charge at a rate that is unfair, is met by the fact that on a taxation of costs the Master could disallow costs claimed by the solicitor if, in the Master’s opinion, the number of hours claimed is excessive or unreasonable.
I agree that on a taxation, despite the terms of the agreement, it would be open to a Master to disallow particular claims on the basis that the hours or time claimed is unreasonable or excessive. I agree that in exercising its powers under s 42(7) of the Act the Court does so in the context of the power of the Court to tax costs, and to disallow amounts claimed. That is no answer to a claim that the terms of the agreement are not fair and reasonable. Mr Walsh’s argument does no more than identify another possible and partial remedy for a provision that is unfair or unreasonable. If the agreement is not fair and reasonable, and if the conclusion is that the agreement should be rescinded, the solicitor must prepare and lodge a bill of costs in taxable form in accordance with the relevant scale of costs. In that event the whole approach to the fixing of the costs will change. There is no reason why the solicitor should then be allowed to lodge a bill of costs drawn in accordance with the costs agreement.
I add that I am not persuaded that it is open to a taxing master to disallow a bill of costs, supported by a costs agreement, on the basis that the hourly rates (being those in the costs agreement) are not reasonable. If the agreement is enforceable, the solicitor is entitled to stipulate for those hourly rates. It is one thing to say that a Master may disallow or reduce a claim on the basis that the number of hours is unreasonable. It is another thing to say that the Master may decline to implement the agreed hourly rate.
Nor do I accept Mr Walsh’s submission that it is an answer to the claim the Kasmeridis made that there was nothing before the Master to show that they did not understand the significance and practical effect of the agreement. Mr Walsh couples this with a submission that Mr Kasmeridis at least must have been an experienced businessman, and familiar with litigation. I have already said that the only finding that can be made, on the material before the Master, is that Mr Kasmeridis had some knowledge of business matters and some knowledge of court processes. The cases emphasise that it is the solicitor’s duty to provide the client with adequate information and advice. In the present case no advice was given at all about the agreement. There are aspects of the agreement that called for explanation and advice. The material before the Master, admittedly very limited, does not support a conclusion that in the circumstances, and in particular having regard to Mr Kasmeridis’ experience, there was no need or occasion for explanation or advice to be given.
I come now to the Master’s decision.
The Master took an approach that I consider to be correct, applying the principles stated in In Re Stuart, and applying those principles to the circumstances at the time the agreement was made. That approach has the support of an earlier decision of this Court in Renton Resources Pty Ltd v Johnson Winter & Slattery [2005] SASC 231 at [45]-[46]. The manner in which the matter in hand unfolded, and how the solicitor actually charged for the work done, is not directly relevant to the question of whether the agreement is fair and reasonable. In some circumstances what later occurred might throw some light on aspects of a costs agreement. But in principle the fairness and reasonableness of the agreement is to be determined at the time at which it was made, having regard to the circumstances in which it was made, and to the retainer in connection with which it was made.
For those reasons much of the affidavit material before the Master was of no or little relevance.
I consider that the failure of Mr Viscariello to provide any explanation or advice to the Kasmeridis leads to the conclusion that the agreement was not fair. It leads to that conclusion because the Court cannot be satisfied, having regard to the terms of the agreement, that the Kasmeridis understood the operation and effect of the agreement. And the agreement contains terms beneficial to McNamara, and potentially adverse to the interests of the Kasmeridis, that call for explanation and advice, so that the Court could be satisfied that the Kasmeridis understood the operation and effect of the agreement.
The fact that the agreement provides for time charging is of particular significance in this context. The hourly rate for a solicitor of $200 is not, of itself, open to criticism. As the Master pointed out, at the relevant time under the relevant scale the hourly rate was $198 per hour, virtually the same as the rate provided by the agreement. But the Kasmeridis were not told that if the work to be done was costed according to the relevant scale, the level of charging was likely to be less, and probably significantly less; they were not told that there may be some solicitors who would charge in accordance with the scale, even though time charging at the rate charged was common, and some solicitors would charge more; they were not told that the hourly rate of charging bore no reference to the experience or seniority of the solicitor; they were not told that the hourly rate of charging did not vary according to the task performed, or the level of skill called for; they were not told that the agreement entitled McNamara to charge for all time spent on their affairs, even though according to the relevant scale some kinds of work might not be chargeable at all.
I agree that it was not necessary for McNamara to demonstrate that no other solicitor would have acted for the Kasmeridis on the basis of charging according to the relevant scale. I doubt whether the Master intended to say that this was necessary. But the Kasmeridis should have been advised about the difference between time charging and charging according to the scale, and should have been advised that there may be solicitors who would act for them and charge according to the scale.
Mr Howard, on behalf of the Law Society, submits that costs agreements in the form used by McNamara are common, and that time charging is common. Indeed, he submits that it is uncommon for solicitors to act on the basis that they will charge according to the relevant scale, other than in certain limited areas of legal work. He makes the point that the Law Society “Rules of Professional Conduct and Practice” encourage practitioners to provide clients with written advice as to the rate at which they will charge the client: see r 41.
But the fact remains that time charging has a tendency to result in a client being charged more than the client would be charged according to the scale and has a tendency to prefer the interests of the solicitor over those of the client. This leads to a conclusion that the client should be informed about the manner in which such a costs agreement will operate, and should be given the opportunity to make an informed choice whether to agree to a retainer on those terms. To say this is not to demonstrate any kind of bias against time charging. It is simply to require the solicitor to avoid any conflict between the interests of the solicitor and the duty to the client, or potential client.
In the course of his reasons the Master made the point that there was no evidence that if the Kasmeridis had been given proper advice by Mr Viscariello in relation to the agreement, they would still have entered into the agreement: Kasmeridis v McNamara Business & Property Law [2006] SASC 200 at [18]. I agree that it was not necessary for McNamara to demonstrate that. In my opinion all that will usually be required in such a case is that the solicitor has given a proper explanation and proper advice to the client, enabling the Court to conclude that the client has made a properly informed choice.
As I have already said, the fact that Mr Viscariello provided no advice at all to the Kasmeridis on the agreement, is more or less decisive of itself against the fairness of the agreement, having regard to its provisions. In saying this I have not overlooked the urgency of the circumstances in which instructions were first given. But there is nothing to suggest that adequate explanation and advice could not have been given within the next few days.
The Master relied on some other matters when considering the fairness of the agreement.
He criticised clause C6 of the “Terms of Engagement”, because clause C6 implies that there is a reasonable prospect of the Kasmeridis recovering costs from their opponent, and because clause C6 further implies that the costs recovered might well be the full costs. In fact, the Master said, as the instructions were to apply to set aside a default judgment, there was no prospect of recovering costs at all.
I agree that the Master’s approach is somewhat too strict. I understand that clause C6 is in a form commonly used in the profession. I understand the difficulty of expressing matters adequately and, at the same time, keeping the agreement as short and as simple as it can be. I do not consider the terms of clause C6 to be objectionable, apart from the fact that the assertion that the client has been advised about cost recovery will be a false one, unless advice has been given. If the Kasmeridis had been advised that they might not obtain an order for costs at all, and indeed might be ordered to pay the costs of the setting aside of the default judgment, and had been warned that even if they obtained an award for costs, it is likely that costs payable by their opponent would be a good deal less than the costs payable under the agreement, there would have been no cause for complaint. This probably leads to the conclusion that if the agreement is an agreement for time charging, at an hourly rate that makes no reference to the kind of work done and the experience of the practitioner concerned, a clause such as clause C6 should make some reference to the fact that costs payable as a result of a court order are likely to be less than costs payable under the agreement.
The Master relied on the fact that no advice was given to the Kasmeridis about the provision in clause C1 of the “Terms of Engagement” permitting McNamara “to incur any unusual disbursement/s the solicitors consider necessary for the proper conduct of the matter”. I agree with the Master in this respect. Clause C1 deprives a client of a significant protection that would otherwise be available, because but for that clause an unusual disbursement would not be recoverable by McNamara unless prior authority was obtained to incur it: Kasmeridis at [22]. That should have been explained to the Kasmeridis.
They are the matters that the Master dealt with in connection with the issue of fairness, and they are the matters canvassed on appeal. Subject to the qualifications that I have made, I agree with the Master’s approach.
The Master then turned to the issue of reasonableness. Some of these matters are also relevant to the issue of fairness. As to some of them, if adequately explained to the Kasmeridis, and accepted by the Kasmeridis, it might be said that there was nothing unreasonable about the relevant provision. I will return to this point a little later.
The Master noted, as I have already recorded, that the hourly rate of charging for a solicitor was virtually the same as the scale rate. However, he made the pertinent point that on a taxation under the scale a lesser rate might well be allowed, bearing in mind that in this case the work was to be done in the Magistrates Court, and not in the Supreme Court.
The Master criticised the fact that the rate for a paralegal was $150 an hour, compared with the scale rate for a clerk of $94.60 an hour. This was a significant difference as he said. But he did not make an express finding that in this respect the agreement is unreasonable.
The Master directed his criticism to the fact that by clause S4a McNamara could apply the hourly rate for a solicitor to the specified matters and to “research of other matters and other relevant work”. He took this to mean, rightly in my opinion, that McNamara was entitled to charge for all time spent by a solicitor on the matter, including research of any kind. Clearly enough, under the agreement McNamara was entitled to charge for work in respect of which no claim could be made under the relevant scale, or in respect of which a lower rate would be allowed.

This is no more than an aspect of time charging. But it highlights an aspect of time charging that has concerned courts, when considering the interests of clients. And it requires separate consideration, under the heading of reasonableness, because the question arises, as the Master said, of whether it is reasonable that McNamara should be entitled to charge the Kasmeridis at the rate of $200 per hour for all time spent by Mr Viscariello on the matter, without regard to the nature of the task performed, his own level of experience (he had not long been admitted), and without regard to the time that one might expect an experienced solicitor to take. At the end of the day, having regard to the hourly rate charged and the other provisions of the agreement, the Kasmeridis were likely to pay a good deal more if charged according to the agreement, than they would pay if charged according to the scale. This at least called for a clear explanation to them.
In this context the Master also correctly pointed to the tension between the provision in clause S4a of the “Terms of Engagement” to the effect that each solicitor would be assigned an hourly rate determined by “seniority, experience and expertise”, and the fact that the “Schedule of Fees” specified a single rate of charging for any solicitor.
I should add that the Master noted that Mr Viscariello had had considerable business experience in the building industry and in the retail trade. He made the point that there was no question about Mr Viscariello’s competence. The issue was the reasonableness of the hourly rate, in the context of the agreement as a whole.
The Master made the point at [31] that if McNamara was to charge for all of Mr Viscariello’s time spent in the matter, it was unreasonable to charge at the rate of $200 an hour. If that had been the rate to be charged for an experienced solicitor, the Master said that “the rate probably was reasonable”.
That led the Master to conclude that in that respect the agreement was unreasonable, and it is only in that respect that he so concluded. That is, he concluded that the rate charged was unreasonable, having regard to other provisions of the agreement. I think, without being sure, that he intended to find that the rate charged for a paralegal was unreasonable, but as I have already said he made no express finding on that point.
I agree with the Master’s conclusion. In my opinion the Court should be slow to differ from a master’s conclusion on a matter like this. A master is well placed, having regard to the master’s experience in dealing with bills of costs, to determine an issue like this. Indeed, a master is better placed than a judge usually will be. But it is important to bear in mind that, in the end, the Master’s determination that the agreement was unreasonable was tied to the particular circumstances of the case, as is inevitable.
The Master relied to some extent on the contents of the bill of costs lodged for taxation as demonstrating that the hourly rate of $200 was unreasonable. But in doing this the Master did not depart from the principle that the reasonableness of the agreement is to be determined on the basis of circumstances when it is made. He used the contents of the bill of costs only to illustrate the way in which the agreement might operate.
The Master referred in passing to the entitlement under clause 2 of the “Schedule of Fees” to charge a premium for urgent attention or for after hours work: at [11]. No such premium was charged in the present case. I make the point that the agreement purports to give McNamara an unlimited entitlement to charge a premium, provided only that the work requires urgent attention or “excessive out of hours work”. As the matter was not argued nothing need be decided, but it is appropriate that I should say that I have reservations about the fairness of that provision as it stands.
Having decided that the agreement was not fair or reasonable (in the particular respects identified by me), the Master considered whether he should exercise his power to vary the terms of the agreement. He decided not to do so, because to make the agreement fair and reasonable he would have to rewrite it: at [32]. I agree with the Master. To deal satisfactorily with the matters upon which he relied, it would be necessary to make substantial changes to the agreement, and, in effect, to make a new agreement for the parties.
For those reasons I would dismiss the appeal.
Concluding remarks
To some extent Mr Walsh and Mr Howard put their submissions to the Court on the basis that the Master’s decision meant that an agreement that allowed a solicitor to charge on the basis of time charging would be found not to be fair or reasonable, and on the basis that the Master had found that the provisions of the agreement of which he was critical were intrinsically unfair and unreasonable.
I have endeavoured to explain that the fairness of the relevant provisions of the agreement is bound up with the circumstances attending the making of the agreement, and with the explanation and advice given or not given to the Kasmeridis. The Master’s conclusion that the provision for an hourly rate of $200 for a solicitor, and possibly for the hourly rate of $150 for a paralegal, was not reasonable, was also linked to the manner in which that hourly rate could be applied under this particular agreement.
It is not right to say that the Master’s decision, or my decision, mean that time charging is not permissible.
If a proper explanation and proper advice had been given to the Kasmeridis, it may be that there would be no basis for a conclusion that the agreement was unfair. The question would remain of whether the hourly rate specified was reasonable, having regard to other provisions of the agreement. The reasonableness of other aspects of the agreement, such as the right to a premium and a right to claim unusual disbursements would still have to be considered. Against this would have to be considered the fact that practitioners are encouraged to inform clients about the manner in which they will charge clients, and the rate at which they will charge them. A court would also have to give appropriate weight to the fact of agreement on a given rate, if a client agrees after receiving proper advice and after being adequately informed about the implications of the terms of the costs agreement. The nature and complexity of the work to be done by the solicitor would be relevant. It is of some significance that in this case the work to be carried out was in the Magistrates Court.
At the end of the day my decision is that the Master rightly decided that the terms of the agreement were not fair, because the Kasmeridis did not receive adequate information, explanation and advice. I have further decided, agreeing with the Master, that the hourly rate provided for is not reasonable, mainly because it is applicable to all work done by a solicitor, whether chargeable under the scale or not, and without regard to the nature of the work or the experience of the solicitor.
It is not possible for the Court to lay down guidelines in advance determining what provisions of a costs agreement will be fair and reasonable, and what rates of charging will be reasonable. The nature of the decision which the Court makes is such that it can be made only in the light of the circumstances of the particular case.
No submissions were put to the Court relating to r 41 of the Law Society’s “Rules of Professional Conduct and Practice” (2003). This rule states in some detail the duty of a practitioner to inform a client about costs. Rule 41.2(a) requires a practitioner, unless it is “unreasonable or inappropriate” to do so, to give a client an estimate of the costs to be increased. That was not done here. But as no submissions were addressed to this point, I make no comment on that aspect.
Conclusion
I would dismiss the appeal.
GRAY J. I would dismiss this appeal. I agree with the reasons of Doyle CJ.
DAVID J. I would dismiss the appeal for the reasons given by the Chief Justice.