McNamara Business & Property Law v Kasmeridis & Anor

[2007] HCATrans 425

[2007] HCATrans 425

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A12 of 2007

B e t w e e n -

McNAMARA BUSINESS & PROPERTY LAW

Applicant

and

HARRY KASMERIDIS AND VICKY KASMERIDIS

Respondents

GLEESON CJ
CALLINAN J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 9 AUGUST 2007, AT 9.39 AM

Copyright in the High Court of Australia

MR R.W. SALLIS:   If the Court pleases, I appear for the applicant.  (instructed by McNamara Business & Property Law)

MR K. TREDREA:   May it please the Court, I appear for the respondents.  (instructed by EZRA Legal)

GLEESON CJ:   Yes, Mr Sallis.

MR SALLIS:   If the Court pleases, before I commence my submissions on the main principles of law that arise from this application I would just like to take a moment to highlight some of the main facts and to put the facts and the principles of law that arise from those facts into some perspective.  Can I ask the Court to turn to page 2 of the application book, at the bottom of page 2, paragraph 5, and I wish to bring to the Court’s attention paragraphs 5 to 8 which are part of the judgment of the learned Master before whom the matter was initially before.

The facts are fairly straightforward and I do not think there are any important facts in dispute in this matter.  Very briefly, on 19 November 2003 the plaintiff in the original action, Sandhurst, obtained a default judgment in the Adelaide Magistrates Court against the respondents in this matter for a sum of about $39,175.  The respondents engaged a very well known and a very reputable, if you like, tier one firm in this State, Thomson Playford, to act for them in relation to that default judgment and it seems that on the instructions given by the respondents to that firm there was no arguable defence on the merits that was raised.

In late January 2004 Sandhurst proceeded to seek to execute its judgment by a warrant for the sale of the home of the respondents.  Now, it is important, in my respectful submission, that the reality of the situation was that there was a judgment against the respondents and a warrant for the sale of their home, and I do distinguish the sale of the home from the sale perhaps of an investment property or a commercial property.  This was the home of the respondents and from their point of view it was urgent to do everything that could be done to save their home.

On or about 30 January 2004 the respondents contacted the solicitor who really is the subject of this application and in about early February 2004 that solicitor had his first conversations with the respondents.  It is common ground that the respondents instructed the solicitor to do all that was necessary to save their home.  That is the background to the situation in which the solicitor and the respondents become involved.

Then on 5 February the solicitor sent to the respondents a letter setting out the terms on which the solicitor would act for them and that letter contained two pages of terms of engagement and a schedule of the fees.  The terms of engagement and the schedule of the fees appear in the judgment of the Full Court.  The solicitor took the case on urgently.  In the judgment of the Full Court there is mention of the fact that he worked on weekends and worked after hours, there was a lot at stake and the matter was urgent and he had to get up to speed very, very quickly and deal with the matter.  He did that successfully, your Honours, and he in fact had the default judgment set aside and he also had the warrant for the sale of the home set aside.

The solicitor had reduced the entire proposed – I will call it if I may the proposed retainer agreement – the solicitor had reduced the entire proposed retainer agreement in writing and posted it out to the respondents on 5 February 2004.  I do not think there is any dispute that the proposed terms of the proposed retainer agreement were all contained in the documents that were sent.  The written retainer agreement stated that the solicitor would charge on an hourly rate basis and the rate that was nominated was $200.  If you turn to page 39 of the application book at paragraph 48 the learned Chief Justice with whom the other two justices agreed, and I will refer to his judgment as the judgment of the Full Court, pointed out that the hourly rate for the solicitor was $200 and of itself was not open to criticism because – and the Chief Justice says in the third sentence in paragraph 48 on page 39 of the application book:

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.

GLEESON CJ:   Sometimes it is not a question of the hourly rate, it is a question of who counts the hours.

MR SALLIS:   I understand that, your Honour, I understand that, but I suppose what I am really doing is setting the scene and putting to you what has the practitioner really done wrong, and that is really what I am working up to, and once I cover those facts, and I will be finished very shortly, I will then address the principles that arise.

GLEESON CJ:   Whether it is a sufficient answer or not, the answer to your rhetorical question is given by the Chief Justice on page 39 at line 40 in paragraph 49, is it not?

MR SALLIS:   Yes, and that strikes at the heart of whether the Full Court has confused two very separate duties.  The Full Court has said in its judgment – and it is common ground, we do not disagree with that – that where there is a conflict of interests, and there certainly is in this case, a conflict of interests, the fiduciary, in this case a solicitor, has a duty to make full and frank disclosure of the conflict of interests.  There is no question about that, we do not contest that and, in fact, we say that the solicitor did that by sending off, by posting off to the prospective client the entire proposed retainer agreement, that is, disclosing the entire agreement.

I am now jumping to the principles of law and I am happy to do that, your Honour, to answer your question but then I would like to come back to the sequence of facts that I am dealing with.

GLEESON CJ:   What you really need to explain to us is what is the special leave point.

MR SALLIS:   The special leave point – can I do that just in a few moments when I have ‑ ‑ ‑

GLEESON CJ:   Yes, certainly.

MR SALLIS:   Thank you.  Just to foreshadow, the special leave point is that the Full Court has confused two separate principles but treated them the same.  In other words, they have treated the duty of a fiduciary who is in a conflict situation to make full and frank disclosure of that conflict and we do not have any problem with that.  They have confused that with a totally separate issue, a totally separate duty, that is, does the fiduciary who finds himself or herself in an actual conflict of interests therefore have a further duty to explain the conflict, as the Chief Justice uses the words, the operation and effect – sometimes the words nature and effect are used – the operation and effect of the actual conflict?

Our point, and this is really the heart of the special leave point, a fiduciary who is in an actual conflict position not only does not have a duty to explain the conflict but is or should be prohibited from doing so, and that is the principle that I will come to and then I will attempt to give the Court, if you like, the intrinsic reasoning as to why a fiduciary should in fact be prohibited from giving that sort of advice.  In all of my research I am not aware of any decision, other than the decisions in the lower courts in this matter, that deal with this point that has arisen.

From my reading of my learned friend’s outline and the judgments of the learned Master and the Full Court no authorities are quoted that deal with this topic directly on point.  That is the special leave issue.  There are very severe consequences that may not be readily apparent that flow from the reasoning of the Full Court and when I come to the principles of law I will highlight to this Court the numerous paragraphs wherein the learned Chief Justice sets out his reasoning and therefore the reasoning of the Full Court as to why the respondent succeeded before the Full Court and, really, in a nutshell it can be summed up this way.

The foundation of the Full Court’s judgment is that there is a positive duty on the fiduciary not only to disclose the conflict of interests but also to give a full and proper explanation of the operation and effect of that conflict.  In this case that amounts to the solicitor having had the duty, so the Full Court said, of explaining to the prospective client the full nature, operation and effect of the proposed retainer agreement.  Our point is, how could the law possibly impose that duty on the solicitor when he was in an actual conflict of interests at the time?

In fact, the facts that I want to develop is the solicitor is confronted with an urgent application, he discloses by way of a letter and schedules, that is, in writing the entire proposed retainer agreement, posts it to the prospective client.  So the entire proposed retainer agreement is given to the prospective client.  The proposed retainer agreement is the Law Society form of retainers.  So he is not composing his own tailor made for his own benefit type retainer agreement, he uses the standard Law Society form.  He then puts in an hourly rate that is $2 different from the Supreme Court scale, and even though this is a Magistrates Court matter, that in one sense is very incidental in that the application to set aside the warrant, the default judgment of the warrant, would be the procedural law and the substantive law are almost identical, whether it was the Magistrates Court, the District Court or the Supreme Court.

What was at stake here was not a trifling small Magistrates Court matter, it was saving the respondent’s home, not to mention that there was a fair amount of money, namely, $39,000-odd involved in any event and offered in those matters the costs awarded in the Magistrates Court are a percentage of the Supreme Court scale, in any event, and where there is a serious matter before the Magistrates Court often the costs awarded will be something like 80, 90 or 100 per cent of the Supreme Court scale.

So the solicitor is confronted with an urgent matter, deals with it successfully, does not try to be sharp with the prospective client in the sense of just a verbal explanation of what his terms or proposed terms of retainer are, he actually posts out the entire proposed retainer agreement, it is in the form of the Law Society form.  Both the learned Master and the Full Court acknowledge the time costing is a very common method of charging.  In fact, Mr David Howard appeared on behalf of the Law Society before the Full Court and made that submission and that was never contested.  It was not challenged by the respondents nor by the court.

The practitioner rightly or wrongly, and that will be decided in this Court, rightly or wrongly thinks he has done everything right and then when he has posted out the proposed retainer agreement he deliberately does not attempt to explain the terms of the proposed retainer agreement to the client.  That was a very deliberate decision because he took the view, rightly or wrongly, that he was prohibited from doing so because of an actual conflict of interests.  So he thought he is doing the right thing.  Being a fiduciary he was of the view that, well, the law on the duties and obligations of a fiduciary prevent me, the fiduciary, from attempting to explain to the prospective client the terms and conditions of the proposed retainer because there is an actual conflict.

The next thing I wanted to take this honourable Court to in terms of the chronology of the facts are parts of the retainer agreement.  If the Court could turn to page 31 of the application book, I just want to highlight two portions, C2 in the terms of engagement – I will not read it out to the Court but I would invite the Court to read it some half a dozen lines.  That is part of the disclosure that the solicitor makes, realising there is an actual conflict, realising he has a duty as a fiduciary to disclose the conflict of interests and states that the amount charged may exceed the relevant court scales, and not only does he do that but he says that the prospective clients “may care to seek independent legal advice concerning this aspect or any part of this agreement”.

Now, the cases on the duties and obligations of fiduciaries and, in particular, where you are dealing with solicitors and clients, whilst they do not deal directly with the facts of this case they do stress that where there is an actual conflict the fiduciary, ie, the solicitor, should advise the prospective client or the client to go and seek separate and independent legal advice.  That is exactly what the practitioner is doing here in a very non-controversial way, that is, by putting it in the terms of engagement and sending it to the client.

CRENNAN J:   But the consequences of that argument are that you – you seem to be contending you can have a fair agreement where a solicitor does not give any advice at all and the clients do not understand the operation and effect of the agreement.

MR SALLIS:   If your Honour pleases, I say that is not so because the client receives this, the client reads it.  It is not hard for a lay person to understand the words “may care to seek independent legal advice concerning this aspect or any part of this agreement”.  It is not hard for the client to read and understand that the amount to be charged may exceed the rates prescribed by the scale.  It is not hard for a lay person to read and understand that.  The lay person may say, well, I do not fully understand the legal effect of this, I will go and get some legal advice, or the client may say, well, I do not care.

As your Honours would know, clients come in all shapes and sizes, some will be concerned and will go and seek separate and independent legal

advice.  Others will just say, I do not care, I want my house saved.  Now, that is the choice of the client.  So the client is put in a position where he or she has the choice.  There is no sharp practice or trickery here.  You see, the converse, the other side of that coin is if the Full Court is right, then you have fiduciaries, not just solicitors but financial advisers, medicos, lawyers, all sorts of professionals who then even though they are in a fiduciary relationship there is an actual conflict of interests.

This Full Court judgment says, well, they are permitted to explain the operation and the effect of the conflict to the person to whom the fiduciary duty is owed.  Now, that can lead to enormous dangers in this sense.  I will take the more benign situation first.  It could be that the client or the patient or the person being advised by the financial adviser is in awe of the professional ‑ ‑ ‑

GLEESON CJ:   Yes, thank you, Mr Sallis, your time is up.

MR SALLIS:   Thank you, your Honour.  I rely on the remainder of the written submissions.

GLEESON CJ:   Yes, we have looked at those, thank you.

GLEESON CJ:   We do not need to hear you, Mr Tredrea.  We are of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave in this matter and the application is dismissed with costs.

We are going to adjourn for a short time to enable preparations to be made for the next matter.

AT 10.01 AM THE MATTER WAS CONCLUDED