Morgan v DW Fox Tucker Pty Ltd (No 2)
[2024] SASC 56
•17 April 2024
SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
MORGAN v DW FOX TUCKER PTY LTD (No 2)
[2024] SASC 56
Decision of Judge Dart a Master of the Supreme Court
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - COSTS - TAXATION AND OTHER FORMS OF ASSESSMENT - GENERAL MATTERS - GENERALLY
Preliminary point arising on taxation - Legal Practitioners Act 1981 Schedule 3 - solicitor's obligation to make written costs disclosure - ongoing nature of the obligation - solicitors complied initially - failure to comply after circumstances changed.
Held:
1. The respondent failed to comply with its obligation to make ongoing costs disclosures.
Legal Practitioners Act 1981 (SA) ss 10, 12, 13, 17, 18, 31 and 44(b), referred to.
Morgan v DW Fox Tucker Pty Ltd [2022] SASC 3; DW Fox Tucker Pty Ltd v Morgan [2023] SASCA 11, discussed.
MORGAN v DW FOX TUCKER PTY LTD (No 2)
[2024] SASC 56
These reasons deal with some, but not all, issues arising on a taxation of costs as between solicitor and client. The principal issue is whether the respondent complied with its obligations to make the costs disclosures required by Schedule 3 of the Legal Practitioners Act 1981. It did make initial costs disclosures but thereafter failed to comply with its obligations to make ongoing disclosure.
Background
The applicant was the sole director of TS Morgan Developments Pty Ltd. The company became involved in a litigious dispute. It executed a retainer agreement with the respondent on 6 January 2016. In this proceeding, the first issue was whether it was only the company that was a client of the respondent or whether the applicant was also a client. I determined that the terms of the retainer did not make the applicant a joint client of the respondent.[1]
[1] Morgan v DW Fox Tucker Pty Ltd [2022] SASC 3.
The respondent appealed to the Court of Appeal which determined that the applicant was, together with the company, a client of the respondent.[2] The Court of Appeal remitted the matter back to deal with various issues arising on the taxation as a consequence of the applicant being one of two clients of the respondent.
[2] DW Fox Tucker Pty Ltd v Morgan [2023] SASCA 11.
The company ultimately went into liquidation. Before doing so, it paid legal fees in the amount of $202,494.44. The respondent says that in addition to that sum there remains the amount of $163,718.15 unpaid. The total amount of the legal fees billed is $366,212.59.
The obligation to make disclosure
The obligations that a solicitor has to its client were, in effect, codified and expanded by Schedule 3 of the Legal Practitioners Act which came into operation in 2014. The Schedule is consumer protection legislation. It imposes a variety of obligations on solicitors, each of which is intended to protect a consumer of legal services. In considering the operation of the Schedule, the Court should interpret the obligations on solicitors in a way that is consistent with it being consumer protection legislation.
The obligation to make costs disclosure is stated as follows:
10—Disclosure of costs to clients
(1) A law practice must disclose to a client in accordance with this Part—
(a) the basis on which legal costs will be calculated, including whether a scale of costs, or a recommendation as to the calculation of barristers' costs, applies to any of the legal costs; and
(b) if the law practice will not be calculating legal costs in accordance with an applicable scale of costs—that another law practice may calculate legal costs in accordance with the scale; and
(c) the client's right to—
(i) negotiate a costs agreement with the law practice; and
(ii) receive a bill from the law practice; and
(iii) request an itemised bill after receipt of a lump sum bill; and
(iv) be notified under clause 17 of any substantial change to the matters disclosed under this clause; and
(d) an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs; and
(e) details of the intervals (if any) at which the client will be billed; and
(f) the rate of interest (if any) that the law practice charges on overdue legal costs, whether that rate is a specific rate of interest or is a benchmark rate of interest (as referred to in subclause (2)); and
(g) if the matter is a litigious matter, an estimate of—
(i) the range of costs that may be recovered if the client is successful in the litigation; and
(ii) the range of costs the client may be ordered to pay if the client is unsuccessful; and
(h) the client's right to progress reports in accordance with clause 19; and
(i) details of the person whom the client may contact to discuss the legal costs; and
(j) the following avenues that are open to the client in the event of a dispute in relation to legal costs:
(i) raising the matter with the practice;
(ii) adjudication of costs under Part 7;
(iii) the setting aside of a costs agreement under clause 30;
(iv) if the client believes there has been overcharging—making a complaint to the Commissioner; and
(k) any time limits that apply to the taking of any action referred to in paragraph (j); and
(l) that the law of this State applies to legal costs in relation to the matter; and
(m) information about the client's right—
(i) to accept under a corresponding law a written offer to enter into an agreement with the law practice that the corresponding provisions of the corresponding law apply to the matter; or
(ii) to notify under a corresponding law (and within the time allowed by the corresponding law) the law practice in writing that the client requires the corresponding provisions of the corresponding law to apply to the matter.
(2) For the purposes of subclause (1)(f), a benchmark rate of interest is a rate of interest for the time being equal to or calculated by reference to a rate of interest that is specified or determined from time to time by an ADI or another body or organisation, or by or under other legislation, and that is publicly available.
(3) The regulations may make provision for or with respect to the use of benchmark rates of interest, and in particular for or with respect to permitting, regulating or preventing the use of particular benchmark rates or particular kinds of benchmark rates.
(4) For the purposes of subclause (1)(g), the disclosure must include—
(a) a statement that an order by a court for the payment of costs in favour of the client will not necessarily cover the whole of the client's legal costs; and
(b) if applicable, a statement that disbursements may be payable by the client even if the client enters a conditional costs agreement.
(5) A law practice is taken to have complied with the requirement to disclose the details referred to in subclause (1)(c)(i) to (iii), (h), (j), (k) and (m) if it provides a written statement in or to the effect of a form prescribed by the regulations for the purposes of this subclause at the same time as the other details are disclosed as required by this clause.
(6) A form prescribed for the purposes of subclause (5) may, instead of itself containing details of the kind referred to in that subclause, refer to publicly accessible sources of information (such as an Internet website) from which those details can be obtained.
(7) The regulations may—
(a) require the Society to develop a statement of the relevant details and to revise it as necessary to keep it up to date; and
(b) require the Society to make the statement publicly available in the prescribed manner.
It can be seen that the disclosure obligations are wide ranging. They are intended to provide a consumer of legal services with sufficient information to make informed choices about how to proceed. We are here dealing with the obligations in s 10(1)(d) and s 10(1)(g).
The Schedule also provides detail of when disclosure is made:
12—Timing of disclosure to client
(1) Disclosure under clause 10 must be made in writing before, or as soon as practicable after, the law practice is retained in the matter.
(2) Disclosure under clause 11(1) must be made in writing before, or as soon as practicable after, the other law practice is retained.
(3) Disclosure made to a person before the law practice is retained in a matter is taken to be disclosure to the person as a client for the purposes of clauses 10 and 11.
The Schedule provides exceptions to the requirement to make the costs disclosure.[3] None of the exceptions are relevant for present purposes. The disclosure must be in writing. Of particular relevance in this matter is the ongoing nature of the obligation to make disclosure. Relevant is:
[3] Section 13.
17—Ongoing obligation to disclose
A law practice must, in writing, disclose to a client any substantial change to anything included in a disclosure already made under this Part as soon as is reasonably practicable after the law practice becomes aware of that change.
As will be seen, it is primarily the obligation to make ongoing disclosure that must be considered in this matter. As the circumstances of litigation change, a new obligation in relation to costs disclosure arises. The Schedule also deals with the consequence of a failure to make the required disclosure:
18—Effect of failure to disclose
(1) If a law practice does not disclose to a client or an associated third party payer anything required by this Part to be disclosed, the client or associated third party payer need not pay the legal costs unless they have been adjudicated under Part 7.
(2) A law practice that does not disclose to a client or an associated third party payer anything required by this Part to be disclosed may not maintain proceedings against the client or associated third party payer (as the case may be) for the recovery of legal costs unless the costs have been adjudicated under Part 7.
(3) If a law practice does not disclose to a client or an associated third party payer anything required by this Part to be disclosed and the client or associated third party payer has entered a costs agreement with the law practice, the client or associated third party payer may also apply under clause 30 for the costs agreement to be set aside.
(4) If a law practice does not disclose to a client or an associated third party payer anything required by this Part to be disclosed, then, on an adjudication of the relevant legal costs, the amount of the costs may be reduced by an amount considered by the Supreme Court to be proportionate to the seriousness of the failure to disclose.
(5) If a law practice retains another law practice on behalf of a client and the first law practice fails to disclose something to the client solely because the retained law practice failed to disclose relevant information to the first law practice as required by clause 11(2), then subclauses (1) to (4)—
(a) do not apply to the legal costs owing to the first law practice on account of legal services provided by it, to the extent that the non-disclosure by the first law practice was caused by the failure of the retained law practice to disclose the relevant information; and
(b) do apply to the legal costs owing to the retained law practice.
(6) In a matter involving both a client and an associated third party payer where disclosure has been made to 1 of them but not the other—
(a) subclause (1) does not affect the liability of the one to whom disclosure was made to pay the legal costs; and
(b) subclause (2) does not prevent proceedings being maintained against the one to whom the disclosure was made for the recovery of those legal costs.
(7) Failure by a law practice to comply with this Part is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any legal practitioner or Australian-registered foreign lawyer involved in the failure.
The parties have not yet been heard on the effect of the failure to make the appropriate disclosure. In light of my findings that the respondent failed to make appropriate disclosure, it will be necessary to give consideration to that. The powers given to the Court in s 18 are broad. Although the operation of the Schedule commenced in 2014, many of the sections, including s 18, are relatively unexplored.
Although not directly relevant, there is one other issue that might ultimately arise in the dispute between the applicant and the respondent. Consistent with the Schedule being consumer protection legislation, there is a prohibition on commencing legal proceedings to recover costs until certain steps have been taken. The relevant provision is:
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.
The respondent commenced proceedings in the District Court against the applicant to recover the legal costs. That led the applicant to commence these proceedings. A taxation proceeding stays the recovery proceedings pending resolution of the taxation.[4]
[4] Section 44(b)
The consequence of the Court of Appeal’s decision is that the respondent had two clients. There is no evidence before the Court that the respondent sent any bill, at any time, to the applicant. All of the invoices in evidence before the Court are directed solely to the company. The applicant’s name is not on any bill.
It will be a matter for the District Court to deal with but it would seem that the applicant has not been given a bill and therefore the District Court proceedings should not have been commenced. Where there are two clients, it is not appropriate to send a bill to one client and sue the other which is, in effect, what has happened here.
What costs disclosures were made
The litigation commenced urgently. The company needed to take steps to obtain an order to extend the time for the removal of a caveat.
An initial written costs estimate in relation to that task was provided by letter dated 6 January 2016. The costs estimate provided a range of $15,000 to $20,000 (excluding GST). An order extending time for the removal of the caveat was obtained.
A further estimate of costs for additional work was provided by letter dated 18 January 2016. That estimate was in relation to further interlocutory steps in relation to the protection of the caveat. The estimate for the further work was $16,000 to $26,000 (excluding GST). An interlocutory extension of the time to remove the caveat was obtained on the basis that the issues between the parties be sent to an expedited trial.
By letter dated 30 May 2016, the respondent provided a third written costs estimate. It involved the costs of taking the matter to trial. The solicitor’s fees were estimated to be $74,500 to $117,000.
On 31 August 2016 a fourth and final fee estimate of $5,000 to $10,000 for the costs of a mediation was provided. The mediation did not resolve the matter.
If one takes the higher amount of each estimate, the total estimate of the solicitor’s costs to be incurred was $173,000. No further written costs estimates were given. The 30 May 2016 estimate does include in the detail, separately, an estimate of the counsel fees for junior counsel in the amount of $20,000 to $30,000. It is not clear where that fits insofar as the bills go.
The amount billed exceeded the written estimates by no later than November 2016. The respondent made a number of submissions on the argument. They include:
·The applicant knew from the accounts that he was receiving that he is already over the upper limit of the fee estimate.[5]
·The applicant was heavily involved in the decisions being made and he is receiving regular accounts, and he understands that it is only an estimate and should not, for a moment, have understood that that is the end of it.[6]
[5] Transcript of 22 February 2024, page 14, line 5.
[6] Transcript of 22 February 2024, page 23, line 8.
These points go more to the question of mitigation than whether there was compliance by the respondent with its statutory obligations. The arguments have a reverse side. In the same way that it should have been obvious to the applicant that the amount billed exceeded the upper limit of the fee estimate, it should have also been obvious to the respondent. That should have alerted the respondent to the need to update the costs estimates that had been provided.
The obligation is to disclose, in writing, to a client any substantial change as soon as a legal practitioner became aware of the change. Exceeding the current estimate is such a circumstance. It is the solicitor’s obligation to make the disclosure, not the client’s obligation to ask for an update.
The respondent complied with its obligations to make costs disclosures up to and including the disclosure made on 31 August 2016. Thereafter, the respondent failed to comply with its obligations. As mentioned, the costs estimates topped out at $173,000. The costs billed are more than double the estimate.
It was not the subject of any submission but it also appears that the respondent failed to comply, at any time, with the obligations imposed by s 10(1)(g).
I will hear the parties as to the consequence of that failure and the orders that should be made in the circumstances.
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