Morgan v DW Fox Tucker Pty Ltd
[2022] SASC 3
•17 January 2022
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MORGAN v DW FOX TUCKER PTY LTD
[2022] SASC 3
Judgment of Judge Dart a Master of the Supreme Court
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - TAXATION AND OTHER FORMS OF ASSESSMENT
Applicant has commenced solicitor/client taxation against respondent - applicant was Director of a company - the company was a client of the respondent - company went into voluntary administration - respondent says the applicant was also a client - terms of the retainer - applicant seeks a declaration that he was never a client of the respondent.
Held: Applicant not a client of the respondent.
Real Property Act 1886 (SA) s 191(f), (k); Legal Practitioners Act 1981 (SA) Schedule 3, clause 31, clause 44(b), referred to.
Toll (FGCT Pty Ltd) v Alpha Pharm Pty Ltd (2004) 219 CLR 165; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; Carr v Blade Repairs Australia Pty Ltd (No 2) [2010] FCA 688, considered.
MORGAN v DW FOX TUCKER PTY LTD
[2022] SASC 3
These reasons deal with an issue arising in a taxation of costs. The applicant asserts that he was never personally a client of the respondent and asks the Court to make a declaration to that effect. The applicant is entitled to the declaration sought.
Background
It is not in dispute that the respondents acted for TS Morgan Developments Pty Ltd (“the Company”) in 2016 and 2017. The Company got in to a dispute with Morgan Residential Developments Pty Ltd (“Morgan Residential”) about the companies’ respective involvement in the sub-division of land at Happy Valley. The applicant was a director of the Company. His father was a director of Morgan Residential.
The matter came before the Court on short notice. The Company had lodged a caveat on the land at Happy Valley. Morgan Residential warned the caveat. The Company sought urgent advice from the respondent about obtaining an order to extend time for removal of the caveat. Such matters are always urgent. The Real Property Act 1886[1] requires a Court order to be obtained and lodged at the Lands Titles Office within 21 days. If that does not occur, the caveat is removed. It is not possible to lodge a further caveat unless the Court gives permission to do so.[2]
[1] Real Property Act 1886, s 191(f).
[2] Real Property Act 1886, s 191(k).
An order extending time for removal of the caveat was obtained. The dispute between the Company and Morgan Developments then became a normal civil dispute. The matter progressed over a period and the respondent continued to act for the Company.
The Company went into voluntary administration in March 2017. Since that time, the respondent has been seeking to recover unpaid legal costs from the applicant personally. On 20 December 2018 the respondent issued proceedings against the applicant in the District Court. A default judgment was obtained in the amount of $193,392.78 on or about 11 February 2019. Shortly thereafter, a bankruptcy notice was served on the applicant. Late in 2019 an application was filed by the applicant seeking to set aside the default judgment. A Master of the District Court set aside the judgment on 13 February 2020. A defence was then filed in those proceedings.
The institution of the application to tax costs has the effect of staying the District Court proceedings. [3]
[3] Legal Practitioners Act 1981 – Schedule 3 Clause 44(b)
The legal issue
This is a slightly unusual application. Normally, applications to tax costs concern issues such as whether a retainer was fair and reasonable, or simply fixing the quantum of the costs. Here, the applicant seeks to establish that he was not personally liable to pay the costs of the respondent.
The issue is set out in the originating application as follows:
1. A declaration pursuant to clause 30(8) of Schedule 3 of the Act that no costs agreement exists between the plaintiff and the defendant in respect of the legal assistance provided by the defendant to TS Morgan Developments Pty Ltd (TSMD) in around 2016 and 2017 in relation to a dispute between Morgan Residential Developments Pty Ltd and TSMD regarding the purchase and development of land at 203 Chandlers Hill Road, Happy Valley SA 5159 (TSMD Engagement).
There are a number of legal principles to which reference needs to be made for the purpose of resolving this dispute. The matter ultimately turns on the proper construction of the letter of retainer sent by the respondent to the Company. It was sent after the initial meeting at the solicitors’ office in relation to the caveat.
The construction of contractual documents proceeds on an objective basis. The leading authority remains Toll (FGCT Pty Ltd) v Alpha Pharm Pty Ltd.[4] The Court said:
[40] This court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
[4] (2004) 219 CLR 165 at 179.
This is a contract that arises in a commercial setting. It may be argued that there is a slight nuance in respect of commercial contracts, although they are still to be construed on an objective basis. In Electricity Generation Corporation v Woodside Energy Ltd it was noted in the majority judgment as follows: [5]
The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption “that the parties … intended to produce a commercial result”. A commercial contract is to be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”. [Footnotes omitted.]
[5] (2014) 251 CLR 640 at [35].
There are situations where the objective reading of a document may lead to more than one possible meaning. In such circumstances, the contra proferentem rule may have application. The issue was succinctly put in Carr v Blade Repairs Australia Pty Ltd (No 2) by Tracey J who said: [6]
It is also to be borne in mind that the agreement which Mr Carr was invited to sign was given to him by Mr Van Kempen. Mr Van Kempen had based the agreement on a precedent which had been prepared by solicitors. In such cases, where ambiguity exists, an agreement will normally be interpreted contra proferentem, that is, against the party who formulated the document: see Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 at 26–7; Wesoky v Village Cinemas International Pty Ltd [2001] FCA 32 at [47].
[6] [2010] FCA 688 at [45].
The retainer document was prepared by the respondent and given to the Company. If there is ambiguity, it will be interpreted against the respondent.
The letter of retainer
The matter turns on whether the letter of retainer, properly understood, provides for two clients. That is, the Company and also the applicant as the sole director of the Company. The letter of retainer was dated 5 January 2016. That is the date on which the applicant met with lawyers at the respondents’ office for the purpose of instructing them to seek to extend time for removal of the caveat. The two solicitors who met with the applicant on that day have not filed any affidavits in this action. The applicant says he always understood that it was only the Company that was the client. There is no evidence from the respondent as to what was discussed at the initial meeting in that regard. I accept the evidence of the applicant.
The letter of retainer was emailed to the applicant after the initial meeting. The letter itself was not discussed at the initial meeting, although some matters contained in the letter were discussed. The applicant says he never opened the email. The respondent does not have a signed copy of the letter. That raises the question of acceptance, assuming the letter to be an offer to act on the terms contained in the letter. That issue can be parked for the moment.
The issue I propose to deal with is a consideration of the terms of the letter. The question is, what would a reasonable person understand by the language used in the retainer letter? Would that person understand that there were two clients?
There are a number of aspects of the letter which require consideration. The first is the basis on which the letter is addressed. It is addressed to the applicant, above the name of the company and the postal address of the company. I regard that as a neutral matter. When writing to a company, it is normal to address a letter to a person in the company. That does not mean the person to whom the letter is addressed was a client.
The next matter is the header on the letter:[7]
CLIENT AGREEMENT: TS MORGAN DEVELOPMENTS PTY LTD
PROCEEDINGS TO EXTEND CAVEAT & JOINT VENTURE DISPUTE – MORGAN RESIDENTIAL DEVELOPMENTS PTY LTD
[7] Letter from DW Fox Tucker dated 6 January 2016 (Trial Book, page 11).
That provision could only be read as indicating that the sole client was the Company. It refers to the “client agreement” and then names the Company and the dispute in relation to which the lawyers were to act for the Company. There is no mention of the applicant.
The next relevant part of the letter is the following paragraph:[8]
1.1.The purpose of this letter is for us to advise you of the terms on which we will be acting, and of our charges. (In this letter “you” and “your” includes each person or company giving us instructions to act). Please feel free to contact me or any of our practitioners or staff at any time if you require any information about the matter or the firm.
[8] Letter from DW Fox Tucker dated 6 January 2016 (Trial Book, page 11).
Generally speaking, I regard this provision as neutral. The provision in brackets is a little unclear. It cannot literally mean what it says, as it appears to suggest that any person giving instructions on behalf of a company, which is a client of the law firm, also becomes a client of the firm. The Court would not easily jump to that conclusion.
The next relevant paragraph is:[9]
2.1.The work to be carried out by us in this matter consists of acting for TS Morgan Developments Pty Ltd in relation to its dispute with Morgan Residential Developments Pty Ltd concerning the joint venture for the land located at Chandlers Hill Road, Happy Valley SA, including (in the first instance) preparing an urgent application (and accompanying affidavit) to the Supreme Court of South Australia seeking orders to prevent the removal of Caveat 12348652.
[9] Letter from DW Fox Tucker dated 6 January 2016 (Trial Book, page 11).
Like the header in the letter, this provision only refers to acting for the Company in relation to the nominated dispute. It does not reference the applicant. It is consistent with the Company being the only client.
The final relevant provision is on the last page of the letter:[10]
I have read and confirm the above terms of engagement and acknowledge receipt of the named Schedules.
Acknowledged and accepted this day of 2016.
……………………………………
Tom Morgan
In my own right and for and on behalf of TS Morgan Developments Pty Ltd.[10] Letter from DW Fox Tucker dated 6 January 2016 (Trial Book, page 15).
The document was never signed and returned to the respondent. The suggestion the applicant signed in his own right and on behalf of the Company could indicate that he was to be a client, together with the Company. It think it is a little unclear. The signature is to acknowledge that the terms of engagement and schedules have been received and confirmed. But if the letter of retainer does not otherwise suggest that Mr Morgan is personally liable, I do not think the signing clause, even if it had been executed, would necessarily make him a client.
I find that, on an objective reading of the letter, the applicant was not intended to be a client of the respondent.
Even if I am wrong about that conclusion, there is at least ambiguity about the position. Law firms are well able to protect their own position and draft clear and articulate documents. If they have not done so, the contra proferentem rule should be applied. On that basis, the letter should be read in the way suggested by the applicant.
That is sufficient to deal with these proceedings. I would, however, note another matter. There is no evidence of the applicant ever being sent an invoice. All of the invoices were addressed to the Company and do not include the applicant’s name. That also indicates that only the Company was the client.
It also gives rise to an issue in relation to the District Court proceedings issued against the applicant by the respondent. Since 2014 costs issues between solicitors and clients have been governed by Schedule 3 of the Legal Practitioners Act 1981. Of particular relevance is clause 31 of Schedule 3, which provides as follows:
31—Legal costs cannot be recovered unless bill has been served
(1) A law practice must not commence legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person in accordance with clauses 32 and 33.
(2) A court of competent jurisdiction may make an order authorising a law practice to commence legal proceedings against a person sooner if satisfied that—
(a)the law practice has given a bill to the person in accordance with clauses 32 and 33; and
(b) the person is about to leave this State.
(3) A court or tribunal before which any proceedings are brought in contravention of subclause (1) must stay those proceedings on the application of a party, or on its own initiative.
(4) This clause applies whether or not the legal costs are the subject of a costs agreement.
It is not in dispute that no bill was ever served on the applicant by the respondent. It would appear that the respondent therefore acted in breach of the requirements of clause 31 when issuing proceedings. The consequences of that are a matter for the District Court to deal with. I simply note it for completeness sake.
The applicant raises a number of other issues but, in the circumstances, there is no utility in dealing with those issues. The applicant is entitled to the orders sought in the application. I will hear the parties as to the form of the order.
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