Russells v McCardel
[2014] VSC 287
•23 JUNE 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. S CI 2013 00055
| RUSSELLS (A FIRM) | Appellant |
| v | |
| SAMUEL LEWIS McCARDEL & OTHERS | Respondents |
---
JUDGE: | BELL J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 11 DECEMBER 2013 | |
DATE OF JUDGMENT: | 23 JUNE 2014 | |
CASE MAY BE CITED AS: | Russells v McCardel | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 287 | Revised 7 August 2014 |
---
COSTS – appeal from associate judge constituting Costs Court – conditional costs agreement involving uplift fee – non-sophisticated clients – whether agreement void – whether contained estimate of uplift fee – whether signed by client – whether signed by electronic communication – whether expressed in clear and plain language – disclosure and other provisions regulating costs agreements – principles and purposes – ‘estimate of the uplift fee’, ‘clear plain language’, ‘signed by the client’ – Legal Profession Act 2004 (Vic), pt 3.4, ss 3.4.27 and 28, Electronic Transactions (Victoria) Act 2000 (Vic), s 9(1).
---
APPEARANCES: | Counsel | Solicitors |
| For the appellant | Mr N Green QC with Mr S Tatarka | K & L Gates as agents for Russells Solicitors |
| For the respondents | Ms S F Cherry | The Australian Legal Costing Group |
HIS HONOUR:
Introduction
Russells, a legal practice, took over the conduct of complex litigation in this court for the respondents to this appeal, being Samuel Lewis McCardel and seven others. After the proceeding was settled, it presented them with an itemised bill in the sum of $617,912.10. Its original estimate was about $200,000.
The bill was prepared upon the basis that Russells and the respondents were parties to a conditional costs agreement involving an uplift fee under s 3.4.28 of the Legal Profession Act 2004 (Vic), that it contained an estimate of the uplift fee as required by s 3.4.28(3), that it was signed by the client are required by s 3.4.27(3)(c)(iii) and that it was in clear and plain language as required by s 3.4.27(3)(ii). Disputing each of those propositions, the respondents sought review of the costs claimed by Russells under s 3.4.38. They contended that the agreement was void and that Russells was only entitled to the lesser costs that were available under the applicable scale of costs.
The Costs Court, constituted by Woods AsJ, upheld the claim of the respondents and ordered Russells to file and serve an itemised bill according to the scale and made other orders for its taxation. The litigation was a high‑stakes affair involving substantial legal costs. There is a large monetary difference between what Russells would have obtained under the agreement and what it will obtain under taxation.
Appealing against those orders, Russells contend that the associate judge erred in interpreting and applying the provisions of the Act in a way that allowed form and technicality to triumph over substance and reason. In response, the respondents contend that his Honour simply applied the disclosure and other requirements of the Act according to the terms of the relevant provisions so as to afford the respondents the statutory protection that was due.
Disclosure in regulation of legal costs
People engaged in legal proceedings and seeking legal services are typically in a position of unequal bargaining power when negotiating with and choosing a lawyer. While some clients are relatively sophisticated, most have limited knowledge of the law and legal procedures and may be emotionally involved in the case. By contrast, lawyers possess legal expertise as well as the detachment and objectivity which comes from professional training and experience.
That being so, most clients are in a position of vulnerability when it comes to reaching agreement about the fees and disbursements that might be charged under any retainer. Without information expressed in clear and plain language about the extent of their monetary liability, they may find it very difficult to make informed decisions about engaging a particular lawyer or choosing between competing lawyers. All too often the legal costs charged are unexpectedly high; time-consuming and expensive disputes are the unhappy consequence.
Clarity, freedom of informed choice and proportionate legal expenses are important not only for the relationship between lawyer and client but also for the operation of the system of justice. Remembering that lawyers enjoy a statutory monopoly that can only be justified in the public interest, excessive legal costs undermine public confidence in the legal system and present a significant barrier to obtaining access to justice, which is a fundamental human right.
Nationally, the model for the legislative regulation of the legal profession reflects these enduring concerns about the need to protect clients as consumers and to enhance the efficiency of the provision of legal services as a market. Mandatory prescription for cost disclosure and for costs agreements to be in writing, as well as other requirements, are constitutive elements of the regulatory scheme, with some exceptions in the case of sophisticated clients. The respondents in the present case were not sophisticated clients (see below).
The legislation in Victoria follows the national model. The scheme here is to be found in the provisions of pt 3.4 of the Act, whose purposes reflect the same enduring concerns.[1] Part 3.4 is in ch 3, whose aims also do so.[2]
[1]As specified in s 3.4.1, the purposes of pt 3.4 are:
(a) to provide for law practices to make disclosures to clients regarding legal costs;
(b)to regulate the making of costs agreements in respect of legal services, including conditional costs agreements;
(c) to regulate the billing of costs for legal services;
(d)to provide a mechanism for the review of legal costs and the setting aside of certain costs agreements.
[2]Section 3.1.1(1) specifies that ch 3 ‘contains provisions regulating various aspects of the legal profession with the aim of ensuring that law practices and legal practitioners operate effectively in the interests of justice, their clients and the public interest’.
The protective policy of requiring disclosure by lawyers and enhancing freedom of informed choice by clients underpins this legislation, reflecting the modern conception that clients are not just clients but also consumers who are typically in a position of negotiating disadvantage, that lawyers are not just professionals but also suppliers of legal services and that the provision of legal services is not just an indispensible ingredient of the system of justice but also a (national) market in which information and bargaining power are imperfectly distributed. In response to increasing concerns about the level of legal costs and disputes about this subject, the legislative expression of this policy has evolved over recent years such that the requirements of the Victorian legislation, and its national counterparts, are stronger now than they have previously been.
The regulatory scheme is implemented in the Act through a hierarchy of provisions which impose increasingly intensive levels of regulation upon ordinary retainers,[3] costs agreements,[4] conditional costs agreements[5] and conditional costs agreements involving uplift fees,[6] in that order.
[3]By ordinary retainer I mean the simple engagement of a lawyer by a client without a costs agreement as contemplated by div 3 of pt 3.4.
[4]By the definition in s 3.4.2, a ‘costs agreement’ is an agreement about the payment of legal costs. Costs agreements are typically entered into when it is agreed between the lawyer and the client that the professional fees to be charged may be greater than that allowed in the applicable practitioner remuneration order or scale of costs (see below).
[5]By the definition in s 3.4.2, a ‘conditional costs agreement’ is a costs agreement providing that the payment of some or all of the legal costs is conditional upon the successful outcome of the matter.
[6]By s 3.4.2, an ‘uplift fee’ is the amount of additional legal costs (excluding disbursements) payable under a costs agreement on the successful outcome of the matter.
At the base we have the requirements applying to an ordinary retainer. Where a client engages a lawyer under such a retainer and the work is covered by a practitioner remuneration order[7] or a scale of costs,[8] as it usually will be, the legal costs[9] payable by the client will be determined by reference to that order or scale (s 3.4.19(b)). Unless the client is sophisticated,[10] s 3.4.9 requires the lawyer to disclose to the client the basis upon which legal costs will be calculated (para (a)), the client’s right to negotiate a costs agreement, receive a lump sum bill and request an itemised bill (para (b)) and an estimate of the total legal costs or, if not practicable, a range of estimates and the major variables (para (c)). The precise form of the disclosure is not prescribed, but it must be in writing and be made before or as soon as practicable after the lawyer is retained in the matter (s 3.4.11(1)). While the disclosure has to be in writing, the retainer does not have to be in writing and therefore the disclosure does not have to be in a written retainer. It is typically in a separate document. Importantly, the disclosure also must be in ‘clear plain language’ (s 3.4.15(1)(a)).
[7]A ‘practitioner remuneration order’ is an order with respect to the costs that might be charged for legal services in non-litigious matters: ss 3.4.2 (definition) and 3.4.22.
[8]A ‘scale of costs’ means a scale of costs in the jurisdiction of Victoria: ss 1.2.1(1) (definition of ‘this jurisdiction’) and 3.4.2 (definition of ‘scale of costs).
[9]By the definition in s 1.2.1(1), ‘legal costs’ means amounts that a person may be charged by or be liable to pay to a law practice for the provision of legal services, including disbursements but not interest. That disbursements are included in legal costs will later assume relevance.
[10]‘Sophisticated client’ is defined in s 3.4.2 to mean a client who, because of s 3.4.12(1(c) (or (d)), disclosure under s 3.4.9 (and 3.4.10(1)) is not required. Section 3.4.12(1)(c) provides that such disclosure is not required where the client is (for example) a law practice or lawyer, a public company, a substantial partnership, a joint-venture proprietary company or a government department.
Next we have the requirements of div 5 applying to costs agreements. Where the client engages the lawyer under a such an agreement, the legal costs payable by the client may be determined by reference to the agreement and may be higher than those specified in the applicable practitioner remuneration order or scale of costs (s 3.4.19(a)). Clients and lawyers are not required to enter into a costs agreement but, where they do, it must be ‘written or evidenced in writing’ (s 3.4.26(2)). The precise form of the agreement is not prescribed. Entry into the agreement is permitted by certain stipulated means, including by conduct (s 3.4.26(4)). Compliance with the particular requirements relating to costs agreements is in addition to the lawyer’s disclosure and other obligations in relation to an ordinary retainer.
The strongest degree of regulation, especially with respect to disclosure and the requirements for a concluded agreeing in writing, is applied to conditional costs agreements and conditional costs agreements involving uplift fees. Conditional costs agreements must be ‘in writing’, ‘in clear plain language’ and ‘signed by the client’ (s 3.4.27(3)(c)(i)(ii) and (iii)[11]). Such agreements must contain a statement that the client has been informed of his or her right to seek independent legal advice before entering into the agreement (s 3.4.27(3)(d)) and also contain a cooling‑off period of not less than five clear business days (s 3.4.27(3)(e)). A conditional costs agreement involving an uplift fee must also separately specify the basis of the calculation of that fee (s 3.4.28(2)) and contain an estimate of its amount, unless this is not reasonably practicable, in which case a range of estimates and the major variables must be given and explained (s 3.4.28(3)(a) and (b)). These are penal provisions: it is an offence punishable by fine for a law practice to enter into a conditional costs agreement involving an uplift fee in contravention of these requirements (s 3.4.28(5)). With both standard conditional costs agreements and those involving uplift fees, the lawyer must also comply with the requirements applying in relation to ordinary retainers and costs agreements.
[11]Section 3.4.27(4A) provides that the requirements of s 3.4.27(3)(c)(iii) do not apply to a conditional costs agreement made with a sophisticated client.
The provisions of div 5 relating to disclosure, the content and form of and the manner of entering into costs agreements, conditional costs agreements and conditional costs agreements involving uplift fees impose a higher level of regulation and protection because such agreements might provide for the payment of legal costs in amounts that would not otherwise be payable under the applicable practitioner remuneration order or scale of costs, or not payable at all, depending on the terms of the agreement. The policy of the statutory scheme is that all clients need disclosure and other protections in order to exercise informed freedom of choice and implement the other purposes of the Act; clients entering into agreements involving greater than ordinary and potentially significant financial exposure need disclosure and protections of a more extensive kind.
The legislature has emphatically signified the importance of compliance by lawyers with the additional disclosure and other requirements of div 5 regarding costs agreements, conditional costs agreements and conditional costs agreements involving uplift fees: when entered into in contravention of those requirements, such agreements are void (s 3.4.31(1)). As s 3.4.31(1) applies when a costs agreement contravenes, or is entered into in contravention of, ‘any provision’ of div 5, contravention of even one of the mandatory provisions of the division is enough to render the agreement void and limit the amount of recoverable legal costs to the default position (s 3.4.31(2)). Moreover, entering into a conditional costs agreement involving an uplift fee in contravention of s 3.4.28 is a criminal offence (s 3.4.28(5)).
Where the agreement is void under these provisions, legal costs are not contractually recoverable, as they would have been (s 3.4.30(1)), and the lawyer is entitled only to the (likely) lesser costs that are available under the applicable practitioner remuneration order or scale of costs or according to the fair and reasonable value of the legal services provided (ss 3.4.31(2) (subject to div 7 of pt 3.4) and 3.4.19(b)(c)). The non-recoverable amount may be substantial and represents, in effect, a cost for non-compliance which the lawyer must bear. As non-compliance is capable of constituting unsatisfactory professional conduct or professional misconduct (s 4.4.4), it may be have disciplinary consequences as well (pt 4.4).
In the present case, the respondents challenged the validity of their (purported) conditional costs agreement involving an uplift fee with Russells under s 3.4.31(1) upon the ground that it contravened, or was entered into in contravention, of several of the provisions of div 5 of pt 3.4. As submitted for Russells, the onus of establishing that the agreement was void by reason of such contraventions rested upon the respondents.
The associate judge held that the agreement was void because:
(a)it did not contain an ‘estimate of the uplift fee’ as required by s 3.4.28(3);
(b)it was not ‘signed by the client’ as required by s 3.4.27(3)(c)(iii); and
(c)it was not in ‘clear plain language’ as required by s 3.4.27(3)(c)(ii);
In my view, his Honour did not err in so deciding and the appeal must be dismissed, for the following reasons.
Did the agreement contain an estimate of the uplift fee?
Russells gave the respondents both a ‘Conditional Professional Services Agreement’ and a ‘Disclosure Notice for Conditional Professional Services Agreement’. Reading the two documents together, as Russells would, assists their submissions that they complied with the provisions of ss 3.4.27 and 3.4.28. The respondents contend that the documents cannot be so read and that the agreement was constituted only by the first mentioned document.
The significance of this issue is that the disclosure of an estimate of the uplift fee which the lawyer must make to clients who are parties to a conditional costs agreement involving such a fee must be contained in the agreement itself (s 3.4.28(3)). By contrast, the disclosure of the estimate of total legal costs which is required in respect of clients who are not parties to a costs agreement (s 3.4.9(1)(c)) must be made ‘in writing before, or as soon as practicable after, the law practice is retained in the matter’ (s 3.4.11(1)). As we have seen, an ordinary retainer need not be in writing and the disclosure is typically in a separate document.
As submitted by Russells, a (valid) conditional costs agreement, including one involving an uplift fee, is a contract and, subject to compliance with the regulatory requirements, may be constituted by one or more documents in writing. Whether it is constituted by more than one such documents is essentially a question of interpretation of the terms of the agreement in the context of the objective facts.
Here, those facts were that Russells sent to Mr McCardel and his mother, Cherry McCardel, on behalf of the respondents a letter enclosing the ‘Professional Services Agreement with attached Disclosure Notice in according with … the Legal Profession Act 2004 (Vic)’. The letter explains the two documents and invites the respondents carefully to consider both and then return them signed to Russells. The documents were also sent to Mr McCardel by e-mail.
As to the terms of the agreement, cl 1 is headed ‘Disclosure’ and its terms refer to Russells’ disclosure obligations under the Act (cl 1.1) and to the notice which ‘accompanies this Agreement’ (cl 1.2). The agreement states that, by ‘signing this Agreement, or otherwise accepting the Firm’s offer’, the client acknowledges receiving and reading the notice (cl 1.2(a) and (b)). The agreement does not thereafter refer to the notice.
Clause 13 is headed ‘Speculative Retainer Provision’ and is obviously intended to comply with Russells’ disclosure obligations under s 3.4.28. In relation to the estimate of the uplift fee, cl 13.4 provides:
In the event that the Client’s claim succeeds, the Firm will charge to the Client, and the Client must pay, the Professional Fees charged and calculated at the Firm’s usual rates, plus an uplift fee of 20% plus GST.
It is to be noted that this clause refers to the firm’s ‘Professional Fees’. This expression is not defined in the agreement but is clearly intended to call up the ‘Professional Fees’ for which cl 6 makes provision. Clause 7 is headed ‘Other Charges’ and makes provision for the payment by the client of various charges and disbursements quite separately to professional fees. These provisions reflect the statutory distinction between ‘legal costs’ on the one hand and ‘disbursements’ on the other, for an ‘uplift fee’ is defined as ‘additional legal costs (excluding disbursements) payable under a costs agreement’ on a successful outcome (definition in s 3.4.2) and any uplift fee must not exceed ‘25% of the legal costs (excluding disbursements) otherwise payable’ (s 3.4.28(4)(b)).[12]
[12]The distinction is also inherent in the definition of ‘legal costs’ which, expressly, is not confined to disbursements (s 1.2.1(1)) and in s 3.4.27(3)(b) which allows a conditional costs agreement to provide for disbursements to be paid irrespective of the outcome of the matter.
Although cl 6 does identify the rate at which professional fees may be charged, the agreement does not identify the total amount of those fees against which the 20% uplift fee might be applied pursuant to cl 13.4. Russells contend that this amount is specified in the disclosure notice.
The notice contains many provisions making statements and providing information pursuant to Russells’ disclosure obligations under pt 3.4 that are clearly not intended to be contractual in nature. For example, cl 1.1 specifies the client’s statutory rights in relation to a range of matters, cl 6.1 specifies the billing arrangements and cl 10 provides information in relation to costs in court proceedings. While not contractual in nature, such clauses support Russells’ submissions that the agreement and the notice were intended to be read together.
Other clauses of the notice have a more direct relationship with the agreement and would seem to be contractual. For example, cl 1.2 provides that the ‘law of Victoria will apply to the proposed Professional Services Agreement’.
In relation to estimating the amount of the uplift fee, Russells rely on cl 3 of the notice, which is headed ‘Estimate of the Client’s Costs’. Under this heading is to be found cl 3.1, which provides:
The Firm estimates that the total of the professional fees and disbursements to discharge the retainer set out in Clause 5.1 of the Professional Services Agreement is $200,000.00. Our estimate depends upon the amount of paper with which it will be necessary to deal, the number of interlocutory or other applications to the Court which will be involved, whether the matter proceeds to a mediation/and or trial, the amount of fees payable to Counsel and other external consultants who may be retained (exclusive of GST). The GST payable on the supply and rendering of the Firm’s professional fees should be added to this estimate.
It can be seen that this clause estimates the total amount of ‘professional fees and disbursements‘ (emphasis added) that may be payable by the respondents. That disbursements are included in the estimate is made clear by the items referred to, which include ‘fees payable to Counsel’. The clause also draws an explicit distinction between disbursements and professional fees. For example, it refers to ‘GST payable on …. professional fees’. Disbursements do not incur GST as between lawyer and client.
It appears that cl 3.1 is meant to satisfy Russells’ obligations under s 3.4.9(1)(c) which requires disclosure of ‘an estimate of the total legal costs’, not just professional fees. As we have seen, the definition of ‘legal costs’ in s 1.2.1(1) is not confined to but does include disbursements. This would seem to explain why the clause includes both professional fees and disbursements in the estimate of $200,000.
Clause 4 is headed ‘Conditional Costs Agreement’ and contains cl 4.2 which deals with the charging of ‘Client Professional Fees (calculated in according with the terms of the Professional Services Agreement) as follows…’. Then sub‑cl 4.2(a), (b) and (c) are set out. Only sub‑cl 4.2(a) is relevant. It provides:
In the event that the Client’s claim succeeds, the Firm will charge to the Client, and the Client must pay, the Professional Fees charged and calculated at the Firm’s usual rates, plus an uplift of 20% plus GST; …
It can be seen that this sub‑clause refers only to ‘Professional Fees’, not disbursements. In the same terms as cl 13.4 of the agreement, it does not assist in the resolution of the controversy.
Clause 5 of the notice is headed ‘Uplift Fee’ and contains cl 5.1 which deals with the charging of that fee. It states that ‘[u]pon the successful outcome of the matter an uplift fee of 20% on the professional fees charged is payable’. However, neither the notice nor the agreement provides an estimate of the amount of professional fees that might be payable.
Like the associate judge, I have my doubts that the agreement and the notice together constitute the agreement. I think the arguments either way are finely balanced. For the purposes of the appeal, however, I am prepared to assume that cl 13.4 of the agreement must be read with cl 3.1 of the notice such that a relevant disclosure (if any) made in the latter is to be treated as having been made in the agreement as required by s 3.4.28(3).
On that assumption, the question is whether the statement in cl 13.4 of the agreement that the uplift fee will be 20% (plus GST) of the professional fees charged, read with the statement in cl 3.1 of the notice that professional fees and disbursements are estimated to be $200,000, constitutes an estimate of the uplift fee as required by s 3.4.28(3).
Sub-sections 3.4.28(2) and (3) have an important connection with the general purposes of pt 3.4, which are to enhance the capacity of the client to exercise informed freedom of choice, to assist in controlling of the level of legal costs by encouraging pre-engagement negotiations between client and lawyer and to assist in reducing post‑engagement disputes about legal costs, thereby enhancing the relationship between lawyers and clients, the effective operation of the market for legal services and public confidence in the system of justice. Section 3.4.28(2) of the Act requires disclosure in the agreement of the basis of the calculation of the uplift fee and s 3.4.28(3) requires disclosure in the agreement of an estimate of the uplift fee. A basis of calculation is different to an estimate. Lawyers are required to make disclosure to the client in the agreement both of the basis of the calculation of the uplift fee and the fee itself (unless that is not practicable).
The estimate of the uplift fee, being legal costs (excluding disbursements),[13] that is required by s 3.4.28(3) must be an amount. This requirement is inherent in the concept of an uplift fee. A percentage is a basis of calculation, not an amount. Without a base figure against which to apply it, a percentage is not an estimate of an amount. Therefore, as properly conceded by Russells, cl 13.4 on its own does not disclose an estimate.
[13]See the definition of ‘uplift fee’ in s 3.4.2.
The associate judge decided that reading cl 13.4 of the agreement with cl 3.1 of the notice did not supply a base figure by which the amount of the estimate could be worked out because the estimate of $200,000 in cl 3.1 of the notice included disbursements. In his Honour’s view, it was not possible to know how much of that amount was estimated to be professional fees and how much was estimated to be disbursements. As an uplift fee could only be based on professional fees, the inclusion of disbursements in the estimate in cl 3.1 prevented it from being used as a base for the estimation of the uplift fee.
It was submitted for Russells that, reading the two clauses together, his Honour should have concluded that disclosure had been made in the agreement of an estimate of the uplift fee of no more than $40,000, being 20% of $200,000. An estimate of no more than $40,000 was a valid estimate and it matters not that both professional fees and disbursements were included in the base figure. The clients were given information that was sufficient for them to decide how much the uplift fee might be on a worst case scenario basis. An estimate is a ball-park figure and such was given.
Russells also placed reliance upon the latter provision to the plaintiff in a separate document of a more detailed estimate of the total legal costs of $915,715.94, including an uplift fee of $75,638.50. However, this estimate was never included in the agreement and cannot count as an estimate satisfying the disclosure requirements in s 3.4.28(3). Moreover, in the appeal, Russells did not and could not rely upon it not being reasonably practicable to give an estimate as the agreement contained neither a range of estimates nor an explanation of the major variables (s 3.4.28(3)(a)(b)).
The ordinary meaning of the word ‘estimate’ is ‘an approximate judgment or opinion regarding the value [or] amount’ of something.[14] I think the ordinary meaning of the word should be adopted in the interpretation of s 3.4.28(3). The meaning of the word in this provision is not ambiguous. Acknowledging both the protective purposes of the legislation (see above) and the penal nature of these provisions (s 3.4.28(5)), it is not necessary or appropriate to consider adopting any extended or restricted meaning. The relevant ordinary meaning of the word ‘estimate’ in sub-s (3) relates to the amount of the uplift fee. Therefore, the lawyer must include in the agreement an approximate judgment or opinion of the amount by which the total legal costs (excluding disbursements)[15] might be uplifted on the successful outcome of the matter, taking into account the 25% cap in s 3.4.28(4)(b).
[14]Macquarie English Dictionary (Macquarie Dictionary Publishers Pty Ltd, 2nd ed, 2010) 416.
[15]See definition of ‘uplift fee’ in s 3.4.2.
The mere fact that an estimate turns out to be incorrect does not of itself ‘produce the result that the estimate ceases to be an estimate’.[16] The estimate does not have to be hard and fast. Recognising that further information or changed circumstances may require an estimate to be updated, s 3.4.16 imposes on lawyers a continuing obligation to make disclosure as soon as practicable after becoming aware of any substantial change to anything included in a disclosure already made. However, s 3.4.28(3) requires the lawyer to disclose in the agreement an approximate judgment or opinion as to the amount by which the total legal costs (excluding disbursements) may be uplifted in the event of a successful outcome. Making such a judgment or forming such an opinion requires a proper consideration in which the estimated legal costs (excluding disbursements), not something else, such as the total professional fees and disbursements, must be the focus.
[16]Jezer Constructions Group Pty Ltd v Conomos [2004] QSC 440 (14 December 2004) [11] (Fryberg J); approved in Casey v Quabba [2005] QSC 356 (1 December 2005) [41] (Jones J).
In the present case, the agreement, even read with the notice, did not disclose an estimate of that kind. If Russells ever made such an estimate, it is not disclosed in those documents. It came closest to disclosing such an estimate in cl 3.1 of the notice where we find the estimate that total professional fees and disbursements will be $200,000. Self-evidently, that is not an estimate of total legal costs (excluding disbursements) that can be used as a base from which an uplift fee might be calculated. The ‘estimate’ given by Russells must also be read in the context of the object of the agreement: here the lawyer was engaged by the client in the latter stages of complex litigation; the disbursements component of the estimate might be relatively large and certainly not nominal.
I think the associate judge was right to reject the submissions made for Russells that, reading cl 13.4 of the agreement with cl 3.1 of the notice, the amount of the uplift was properly estimated to be a maximum of $40,000, being 20% of $200,000. Clause 13.4 of the agreement and cl 3.1 of the notice deal with discrete subjects that cannot be aggregated or assimilated for the purposes of interpretation. The former discloses an estimate of the uplift fee of 20% of unspecified professional fees, in purported compliance with s 3.4.28(3). The latter discloses an estimate of the total professional fees and disbursements of $200,000, in apparent compliance with s 3.4.9(1)(c). Knowing that total professional fees and disbursements are estimated at $200,000 does not tell a client what the professional fees are estimated to be or, more strictly, what the legal costs (excluding disbursements) are estimated to be. Therefore, it is not possible to use cl 3.1 of the notice to work out an estimate of the uplift fee under cl 13.4 of the agreement.
Moreover, s 3.4.28(3) requires the lawyer to disclose an estimate of the actual amount, not the maximum amount, of the uplift fee. The lawyer is required to disclose an estimate of the actual amount of the uplift fee so that the client can exercise effectively his or her capacity for informed freedom of choice and understand what is being agreed. All lawyers competing for the work must make disclosure in those terms so that clients can compare apples with apples. The estimate of the amount of the uplift fee fulfils the function of a competitive common denominator. Making disclosure only of a estimate of the maximum amount of the uplift fee not only fails to fulfil but actually subverts that purpose.
In the present case, even accepting that cl 13.4 of the agreement and cl 3.1 of the notice can be read together, the client cannot sensibly work out the lawyer’s estimate of the actual amount of the uplift fee. Under cl 3.4.28(3), it is the mandatory responsibility of the lawyer to apply his or her mind to the likely actual amount of that fee and disclose in the agreement an estimate that reflects an approximate judgment or opinion on that subject. Whether or not Russells ever did the former, it did not do the latter. The associate judge did not err, indeed was correct, in so deciding.
Was the agreement signed by the client?
As we have seen, an ordinary retainer between lawyer and client need not be in writing, although the lawyer must make disclosure in writing (ss 3.4.9 and 3.4.11). A costs agreement must be written or evidenced in writing (s 3.4.26(2)). A conditional costs agreement must actually be in writing (s 3.4.27(3)(c)(i)). Of course, a conditional costs agreement involving an uplift fee is a kind of conditional costs agreement. The form of such agreements is not prescribed.
There are differences in the requirements for entering into a costs agreement as against a conditional costs agreement. Under s 3.4.26(3), a costs agreement may consist of a written offer that is accepted in writing or by other conduct. Section 3.4.26(4) requires the offer clearly to state that the ‘client may accept it in writing or by other conduct’ (para (b)) and also state ‘the type of conduct that will constitute acceptance’ (para (c)). By contrast, under s 3.4.27(3)(c), a conditional costs agreement must be ‘signed by the client’ (sub-para (iii)) and cannot be accepted by other conduct.[17]
[17]The note under s 3.4.26(3) states: ‘Acceptance by other conduct is not permitted for conditional costs agreements – see section 3.4.27(3)(c)’. This note forms part of the Act: Interpretation of Legislation Act 1984 (Vic), s 36(3A)(a).
The agreement in writing proposed by Russells was a conditional costs agreement (involving an uplift fee). Therefore, under s 3.4.27(3)(c)(iii), the agreement itself had to be signed by the respondents. But the proposed agreement contained provisions in relation to methods of acceptance that were only suitable for a costs agreement that was not a conditional costs agreement. Under the heading ‘Acceptance of Offer’, cl 2.1 provided that this ‘document constitutes an offer by the Firm to the Client to enter into a Professional Services Agreement’. Clause 2.2 provided:
The Client may accept this offer and enter into the Agreement by:-
(a)signing and returning this Agreement to the Firm;
(b)paying money to the Firm;
(c)instructing the Firm to act; or
(d)signing (in handwriting, digitally, electronically or otherwise) and giving to the Firm any document whereby the Client asks or instructs the Firm to proceed with the work set out in Clause 5.1.
I am puzzled by the presence of this clause in the agreement. What is required by s 3.4.27(3)(c)(iii) is signing by the client of the agreement itself. This is a statutory concept. Whether an agreement is ‘signed by the client’ is a mixed question of law and fact which turns on the proper interpretation and application of this provision in the context of the found facts. A lawyer and client cannot contract out of the provision by making compliance depend upon the terms of an agreement signed otherwise than in the prescribed manner. Because the statute required the agreement itself to be signed by the client, the methods specified in cl 2.2(b) and (c) were not relevant. Paying money to Russells (para (b)) and instructing it to act (para (c)) is not signing the agreement itself. Clause 2.2(d) is problematic because it purports to allow signing the agreement by permissible (‘handwriting’), possibly permissible (‘digitally, electronically’) and impermissible (‘otherwise’) means and adds the need for the client to give Russells ‘any document’ asking or instructing it to proceed when such a document has no apparent place in the scheme relating to conditional costs agreements.
It appears that the whole of clause cl 2.2 (and certainly sub-cll (b) and (c)) contain statements about the ‘other conduct’ by which offers to enter costs agreements that are not conditional costs agreements may be accepted. But accepting an offer to enter, and entering into, a conditional costs agreement can only be effected by the client signing the agreement, which includes signing by electronic communication where the statutory conditions are established (see below).
In the present case, the plaintiffs never physically signed the agreement or a copy thereof. However, relevant email communications passed between Russells and Mr McCardel on behalf of the respondents. Before the associate justice, Russells submitted that, under the provisions of the Electronic Transactions (Victoria) Act 2000 (Vic), these communications constituted signing by the client for the purposes of s 3.4.27(3)(c)(iii). In the appeal, Russells contended that his Honour erred in rejecting those submissions.
A purpose of the Electronic Transactions (Victoria) Act is ‘to provide for the meeting of certain legal requirements as to writing and signatures by electronic communication’ (s 1(b)). The object of that Act is to provide a regulatory framework that (among other things) ‘(b) facilitates the use of electronic communications; and (c) promotes business and community confidence in the use of electronic transactions’ (s 4). As explained in the outline in the Act, its provisions generally allow a requirement under a law of Victoria for a signature to be provided to be met in electronic form (s 5(1)(b)(ii)).
Accordingly, s 9(1) makes provision for giving a signature electronically. It provides:
If, by or under a law of this jurisdiction, the signature of a person is required, that requirement is taken to have been met in relation to an electronic communication if –
(a)a method is used to identify the person and to indicate the person’s intention in respect of the information communicated; and
(b)the method used was either –
(i)as reliable as appropriate for the purpose for which the electronic communication was generated or communicated, in the light of all the circumstances, including any relevant agreement; or
(ii)proven in fact to have fulfilled the functions described in paragraph (a), by itself or together with further evidence; and
(c)the person to whom the signature is required to be given consents to that requirement being met by way of the use of the methods mentioned in paragraph (a).
It can be seen that s 9(1) makes provision in relation to the meeting electronically of a requirement of ‘a law of this jurisdiction’[18] for the ‘signature of a person’. This applies to the mandatory requirement in s 3.4.27(3)(c)(iii) of the Legal Profession Act that a conditional costs agreement be ‘signed by the client’. Therefore, where the conditions in s 9(1) of the Electronic Transactions (Victoria) Act are satisfied in a case involving a conditional cost agreement, the requirement in s 3.4.27(3)(c)(iii) of the Legal Profession Act is taken to have been met.
[18]By the definition in s 3(1), ‘law of this jurisdiction’ means ‘any law in force in this jurisdiction, whether written or unwritten, but does not include a law of the Commonwealth’.
There are three general conditions in s 9(1) of the Electronic Transactions (Victoria) Act: (a) the electronic communication must use a method to identify the person and indicate their relevant intention; (b) the method must be as reliable as appropriate in the circumstances and be proved to have fulfilled the functions of identifying the person and indicating their intention; and (c) the person to whom the signature must be given consent to the method used for doing so. The onus of proving that these conditions were satisfied rests upon the party seeking to establish that a signature was supplied by an electronic communication. Here that is Russells.
In the present case, I would accept Russells’ submissions that the conditions in paras (b)(i) and (c) of s 9(1) were satisfied. As to para (b)(i), the method relied upon by Russells was ‘signing’ the agreement by an email which bore, at the end, the printed first name of Mr McCardel (‘Sam’). In the circumstances of the present case, in my view this was as reliable as appropriate for the purpose of signing the agreement.
As to para (c), the consent of the person might be explicit or implicit.[19] In an appropriate case, the existence of the consent might be inferred as a fact from the totality of the circumstances. In the totality of the circumstances in the present case, I think the inference is irresistible that Russells would have consented to the respondents signing the agreement by means of Mr McCardel’s email if the respondents had actually indicated their intention to use this method for doing so.
[19]In s 3(1), ‘consent’ is defined to include ‘consent that can reasonably be inferred from the conduct of the person concerned, but does not include consent given subject to conditions unless the conditions are complied with’.
In finding that Russells did not consent to such an electronic signing, I think that the associate judge clearly mistook the facts. I accept the submissions made for Russells in this respect. While the evidence shows that Russells wanted to have the agreement itself signed and returned, this is not inconsistent with consent being given by Russells to other legally available means of signing. The real issue with respect to the signing of the agreement is whether the content of Mr McCardel’s email satisfied the condition in para (a).
Having regard to the facilitative[20] purposes of the Electronic Transactions (Victoria) Act, a practical approach should be adopted to the interpretation and application of s 9(1)(a). The question whether a person has, in an electronic communication, used a method to identify himself or herself in a document and to indicate a relevant intention is essentially one of fact. The relevant intention is that the electronic communication constitute the person’s signature in the document.
[20]As explained in the second reading speech (Victoria, Parliamentary Debates, Legislative Assembly, 6 April 2000, 779 (John Brumby, Treasurer)), the objectives of the Act are:
to facilitate and promote business and community confidence in the use of electronic transactions. It will enable business, the community and government to deal with each other via electronic means, with the clear support of the law. It will enable contractual dealings, such as offers, acceptances and invitations to be conducted electronically.
Such identification and intention can, for example, be given by sending an email containing the printed signature of the person at the end of the message[21] or by typing a name into the relevant document and confirming by email that it should stand as the person’s signature.[22] But I would not wish to be prescriptive about the methods that may be adopted except to emphasise that the identity of the person and the relevant intention must be demonstrated in fact.
[21]Faulks v Cameron (2004) 32 Fam LR 417, 426 [64] (Acting Master Young, Supreme Court of the Northern Territory); Austral-Asia Freight Pty Ltd v Turner [2013] FCCA 298 (17 May 2013) [30] (Judge Hartnett).
[22]Legal Services Board v Foster (2010) 29 VR 277, 289 [42] (Emerton J).
The submissions made for Russells relied primarily on the email dated 15 October 2012 which Mr McCardel sent on behalf of the respondents to Stephen Russell on behalf of Russells. I here set out that email, virtually in full:
From: Sam McCardel …
Sent: Monday, 15 October 2012 12:26PM
To: ‘Stephen Russell’Subject: RE: McCardel & Ors v Fredersdoff & Anor – S CI 2006 9707
Dear Steve
As per our conversation just now, I confirm our discussion and agreement to sign the cost retainer with clause 13.6 amended from $650 to $1.5m to just cover all costs to date (ODS ~ $300k, plus MB ~ $160k, plus Russells ~ $977k as per your cost estimate/budget, a min success fee to cover all cost to date). As discussed, we regard a minimum successful settlement in this matter, post your recommended final undue influence amendment, to be north of $4.5m gross, where such costs to date are then covered, replacing the ~ $3m of capital lost 10 years ago. Stephen, we feel we lack the rational legal commercial skills for this kind of complex decision, other than to say we trust you and that you will do the right thing by our family. I will arrange for the disbursements to be paid today.
Kind regards,
Sam
…
The associate judge carefully reviewed the facts and circumstances relating to the sending of this email and concluded that it was not intended by Mr McCardel to represent an electronic signature or signing of the agreement. In my view, his Honour did not err, indeed was correct, in so concluding.
As a matter of language and text, the email does not indicate that the message was intended to represent an electronic signature. The closest that it comes to so indicating is by confirming the discussions between Mr McCardel and Mr Russell about the respondents’ ‘agreement to sign the cost retainer’ with the specified amendments. As I read that statement, it represents a confirmation of the respondents’ agreement to sign the retainer (that is, the conditional costs agreement involving the uplift fee) when so amended rather than as indicating an intention that, by those words, the retainer should be treated as signed.
However, as submitted by Russells, I think it is legitimate to go beyond the language and text of the email message. The question whether s 9(1)(a) of the Electronic Transactions (Victoria) Act is satisfied is a question of fact. It is therefore relevant to consider evidence of the general context and surrounding circumstances in which the email was sent and the course of the negotiations.
The evidence reveals that, by a letter dated 18 July 2012 and posted that day and also by email dated 19 July 2012, the agreement and notice were sent by Russells to Mr McCardel. The letter asked Mr McCardel to sign and return both the agreement and the notice, a request confirmed in a yellow sticker attached to the agreement.
Being a conditional costs agreement, s 3.4.27(3)(a) of the Legal Profession Act required the agreement to set out the circumstances that were to constitute the successful outcome upon which payment of Russells’ legal costs would depend. Clause 13.6 of the agreement specified those circumstances in the following way:
the Client is deemed to have succeeded in the Client’s claim the subject of this Agreement, if the Client recovers a sum of $650,000.00 (gross).
According to cl 14.1, this specification of successful outcome could only ‘be amended in writing signed by the Firm and the Client’. This clause is consistent with s 3.4.27(3)(c)(iii) which requires conditional costs agreements, and therefore amendments to such agreements, to be signed by the client.
The agreement and notice were not signed and returned by the respondents. Never-the-less, Russells took over the conduct of the litigation on their behalf, performing a great deal of urgent work and incurring liability for disbursements. The trial of the proceeding, which had an estimated duration of 15 days, was scheduled to commence on 17 November 2012.
It will be recalled that cl 3.1 of the notice had estimated the total professional fees and disbursements to be $200,000, depending on a number of matters referred to in the clause (see above). The letter dated 18 July 2012 from Russells to Mr McCardel stated that this estimate would be revised as soon as possible. Russells sent a revised estimate to Mr McCardel on 28 September 2012. As already noted, the estimate given for the total legal costs at that stage was $915,715.94 and for the uplift fee was $75,638.50. Russells and Mr McCardel then went into dispute about this estimate and the terms of the retainer, including the specification of the circumstances that would constitute a successful outcome.
According to Mr Russell’s evidence, by 11 October 2012 the dispute was resolved and Mr McCardel had agreed on behalf of the respondents that the agreement and notice would be signed and returned and that the outstanding disbursements (which were then considerable) would be paid. As Mr McCardel did not do so, Mr Russell told him that Russells would do no further work until this was done. The disbursements were paid on 16 October 2012 but the agreement and notice were not signed and returned then or ever. Mr Russell deposes to having a conversation with Mr McCardel in mid-October while Mr Russell was on holiday. It was agreed that the successful outcome figure would be increased to $1.5 million. He states that it was also agreed that the figure of $650,000 in cll 13.6 and 13.7 of the agreement would be struck out by Mr McCardel and replaced with the figure of $1.5 million and the agreement and notice would then be returned. Even though the agreement and notice were not in fact signed and returned, Russells continued to conduct the litigation on behalf of the respondents until it was settled.
Mr McCardel gives a different account of some of the relevant events and explains why, over a long period, the agreement and notice were not signed and returned. He places emphasis on the dispute over legal costs and the definition of successful outcome. In relation to the conversation with Mr Russell while he was on holiday, Mr Cardel’s account was that agreement was reached on an upward revision of the outcome figure to $1.5 million. However, Mr McCardel did not know how to amend the retainer document and did not think it was appropriate for him to do so. He expected Russells to reissue the document, which never happened.
It is not necessary to resolve the differences in the accounts given by Mr Russell and Mr McCardel. Even Mr Russell’s account does not supply a sufficient foundation in the context and circumstances for concluding that Mr McCardel’s email message of 15 October 2012 was intended to stand as his signature to the agreement on behalf of the respondents or otherwise a signing thereof. Mr Russell’s professed expectation was that the agreement and notice would be signed and returned by Mr McCardel in amended form. Mr McCardel’s failure to do so does not suggest that his email message was intended to perform that function. The message simply means what it says: the respondents agreed to the signing of the agreement in amended form.
No amended agreement was ever produced by Russells or the respondents. No amended agreement was ever signed.
In my view, the associate judge did not err in concluding, and was right to conclude, that the conditional costs agreement was never signed by the client as required by s 3.4.27(3)(c)(iii) of the Legal Profession Act and, in particular, was not so signed by the operation of s 9(1)(a) of the Electronic Transactions (Victoria) Act in the facts and circumstances of the case. Two operational principles inform this legislation: ‘functional equivalence’ and ‘technology neutrality’.[23] This conclusion is consistent with those principles. On the facts, the respondents did not intend to enter into the conditional costs agreement by signing it by the functionally equivalent means of Mr McCardel’s email communication. As submitted for them, treating that communication as an electronic signature to the agreement would elevate the message above its intended status. It would amount to agreement-making by attribution of intention which, unsurprisingly, the Electronic Transactions (Victoria) Act does not permit. Signatures can be given by the technologically neutral means of an electronic communication only where the conditions in the Act are satisfied, including that giving the signature by such means was actually intended by the party concerned.
Was the agreement in clear and plain language
[23]The principles were explained in the second reading speech (Victoria, Parliamentary Debates, Legislative Assembly, 6 April 2000, 779 (John Brumby, Treasurer)) as follows:
Two principles inform this legislation. The first of these is the principle of functional equivalence, meaning that a transaction should not be discriminated against or held invalid simply because it was made using electronic media, a most important principle. The second principle, again extremely important, is technology neutrality, meaning that the law should not provide advantage to or favour any particular kind of technology.
What is ‘clear plain language’?
The setting in which s 3.4.27(3)(c)(ii) falls to be applied is a client and a lawyer negotiating over a conditional costs agreement.[24] The purpose of the requirement for the agreement to be expressed in clear and plain language is to enhance the capacity of the client to make a freely informed choice about engaging the lawyer and to understand the terms and conditions on which that might be done. As discussed, the client will typically be in a position of negotiating disadvantage vis-à-vis the lawyer because he or she will probably have limited legal knowledge and a personal stake in the case whereas the lawyer will have legal qualifications and expertise as well as professional objectivity. The requirement is intended to assist in ensuring that this imbalance is redressed as far as possible by (among other things) casting upon the lawyer the obligation to make disclosure in the specified terms.
[24]The setting in which the cognate requirement in s 3.4.15(1)(a) falls to be applied is a client and lawyer negotiating over a retainer under div 3 of pt 3.4.
As I read s 3.4.27(3)(c)(ii), considered in the context of the whole of that section and pt 3.4 generally, the requirement for the agreement to be in clear plain language goes to how the language of the agreement is expressed. The requirements in paras (a), (d) and (e) make provision with respect to the substantive content of the agreement and para (b) is a permissive provision which also goes to that content. By contrast, para (c) deals with the form and language of the agreement and how it is to be executed. It must be in writing (sub-para (i)), in clear plain language (sub-para (ii)) and signed by the client (sub-para (iii)). These requirements are different in character to the others in s 3.4.27(3).
The ordinary meaning of the word ‘clear’ is ‘distinctly perceptible to the mind … free from confusion, uncertainty or doubt … easily understood … in plain language …’[25] The ordinary meaning of the word ‘plain’ is ‘clear to the mind; evident, manifest or obvious … conveying the meaning clearly or simply; easily understood … free from ambiguity …’[26] In reference to the language in which a document such as a costs agreement is expressed, there is considerable overlap between the meaning of the two words. Taking into account the protective purposes of pt 3.4 and the focus on disclosure in the regulatory scheme, perhaps the expression ‘clear plain language’ is best understood as a compound adjective or cognate concept encapsulating a requirement that the language of the agreement is clear and plain in the sense that it can easily be understood by the ordinary reader after applying reasonable effort. I would therefore agree with the statement of Lasry J in Smirnios v Byrne (No 2)[27] that ‘the intention of the legislation is that there be a comprehensible disclosure’. In this connection, I do not think that the expression ‘clear plain’ means anything different to the expression ‘clear and plain’, although I prefer the latter because it has the advantage of being grammatically correct.
[25]Macquarie English Dictionary (Macquarie Dictionary Publishers Pty Ltd, 2nd ed, 2010) 235.
[26]Ibid 954.
[27][2009] VSC 86, (17 March 2009) [46].
Must the information be ‘accurate and legal’?
The associate judge held, as a matter of interpretation, that it was implicit in the expression ‘clear plain language’ in s 3.4.27(3)(c)(ii) that the language of the agreement had to convey information that was ‘both accurate and legal’. This conclusion, which permeates his Honour’s reasoning, was attacked by Russells and defended by the respondents.
While inaccuracies and legal errors in an agreement may inform a consideration of whether it is expressed in clear and plain language, the associate judge appears to have concluded that an agreement which is not ‘accurate and legal’ is for that reason alone not so expressed. I cannot accept that interpretation because it would convert the requirement in s 3.4.27(3)(c)(ii) into something that it is not. The requirement in the provision concerns the way in which the language of the agreement is expressed, not its substantive content as such. The provision does not, for example, prohibit the inclusion of misleading and deceptive statements or information in an agreement. If the legislature had intended to impose an obligation on lawyers to ensure that their costs agreements were accurate and free from legal error in terms of substantive content, different language to that found in the provision would have been used.
That a requirement for language to be clear and plain is different to a requirement for to language to be accurate and free from legal error can be demonstrated by reference to the provisions of the conditional costs agreement between Russells and the respondents. On the view I take of cl 2.2 in relation to the acceptance of the offer, paras (b) and (c) (and perhaps (d)) are neither accurate nor free from error because they stipulate methods of acceptance that are not available under cl 3.4.27(3)(c)(iii). Yet the language of these sub-clauses (see above) is such as would easily be understood by the ordinary reader, after applying reasonable effort. A provision of an agreement may be inaccurate or legally erroneous yet be expressed in clear and plain language. Inaccuracy or legal error may support a conclusion that the agreement is not so expressed, but more is needed than that. In my view, the associate judge erred in concluding to the contrary. His Honour’s conclusion that cl 2.2 of the agreement offended the requirements of s 3.4.27(3)(c)(ii) was therefore erroneous.
Considering the agreement as a whole
As we have seen, s 3.4.27(3)(c) imposes requirements with respect to a ‘conditional costs agreement’. Under sub-para (i), the agreement must be ‘in writing’. Under sub-para (ii), it must be in ‘clear plain language’. Under sub-para (iii), it must be ‘signed by the client’. It is the agreement that must satisfy these requirements. When determining whether an agreement is expressed in clear and plain language, it seems to me to follow that the agreement as a whole must be considered. By contrast, the associate judge appears to have proceeded upon the basis that s 3.4.27(3)(c)(ii) is to be interpreted and applied such that the presence of even a single clause that is not in clear and plain language would render the agreement as a whole in contravention of that provision. I cannot find support for that interpretation in the provisions of sub-para (ii) or elsewhere.
When considering whether the agreement as a whole complies with s 3.4.27(3)(c)(ii), it may be that a provision in relation to a matter of significant importance is expressed in language that is not clear and plain. In my view, provisions that are statutorily mandatory fall into this category. Where a provision of that kind is not in clear and plain language, I think it may be concluded on that ground alone that the agreement is not compliant. But it may be that a provision or provisions in relation to matters that are not of such importance are not in clear and plain language or it may be that the case falls somewhere in the middle of the extremes. In such situations, whether the agreement as a whole can fairly be described as not expressed in clear and plain language is essentially a matter for judgment, having regard to the provision or provisions in question, considered in the context of the whole agreement and all of the facts and circumstances.
Date of commencement of cooling-off period
I think the associate judge did identify particular provisions of the agreement in relation to matters of significant importance in which the language was not clear and plain. His examination of the relationship between cll 2.2 and 13.2 falls into this category. Clause 2.2(a)-(d) (see above) identifies four methods for accepting the offer and thereby entering into the agreement. Clause 13.2[28] makes provision in relation to the cooling-off period of five clear business days, as required by s 3.4.27(3)(e). The clause makes the period run from, and only from, the day ‘after the firm receives the signed Agreement from the Client’.
[28]Clause 13.2 provides:
This Agreement is subject to a cooling off period of five clear business days after the Firm receives the signed agreement from the Client, during which the Client may, by written notice to the Firm, terminate the Agreement. Should the Client so terminate this Agreement, the Firm is still entitled to charge the client for legal services performed on the Client’s instructions before that termination.
A cooling-off period of not less than five clear business days is a mandatory requirement under s 3.4.27(3)(e). It is open to the parties to agree upon a longer period. The provision does not expressly state the day from which the period begins to run. From the context of s 3.4.27 as a whole and especially the provisions of para (3)(c), we start by paying attention to the day of the commencement of the agreement, which will be the day on which the client signs it, for other means of entering into a conditional costs agreement are not available (see above). Pursuant to s 44(1) of the Interpretation of Legislation Act 1984 (Vic), the day of the signing of the agreement would not be counted in the reckoning and the (minimum of) five days would commence on the day after that. There is a question whether the commencement of the cooling-off period can be contractually deferred to the client’s advantage, which cll 2.2(a) and 13.2 of the agreement in the present case appear to bring about. As noted, these clauses provide that the period begins to run from the day after Russells receives the signed agreement from the respondents, not from the day upon which it was signed by them. This is not a question that needs to be resolved in this case because I am prepared to assume the validity of these clauses in this respect.
Remembering the inequality of bargaining power between most clients and lawyers, the cooling-off period is a matter of significant importance in the implementation of the protective purposes of the regulatory scheme. The legal context to the operation of this protective provision is that, by signing the agreement, the client would usually be taken as a matter of law to have represented that he or she had ‘read and approved the contents of the document or [was] willing to take the chance of being bound by those contents.’[29] Absent fraud and other exceptional legal remedies,[30] it is only the statutory cooling-off period that affords relief from the otherwise legally binding nature of valid costs agreements once signed. The cooling-off period is intended to give the client adequate time for mature reflection, for seeking professional advice and for discussing the matter with family and friends, as the client’s free election. The protection afforded by the cooling-off period requires certainty about the commencement date of the agreement because the client has only the window of (a minimum of) five days after that date to terminate the agreement as of right after engaging in that process of consideration.
[29]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 178 [45] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[30]Section 3.4.32 confers jurisdiction on the Victorian Civil and Administrative Tribunal to set aside a costs agreement if satisfied that it is not fair or reasonable.
The language of cll 2.2 and 13.2 is confused and unclear with respect to the identification of that date. Clause 2.2 supplies four possibilities of which only one (para (a) (assuming it is valid)) is signing and returning the agreement. Clause 13.2 (assuming it is valid) picks that possibility up, but is silent as to the others. An ordinary reader, after applying reasonable effort, could not easily understand from these provisions how the agreement is to operate with respect to the commencement of the cooling-off period where one of the methods of commencement specified in cl 2.2(b) or (c) (or perhaps (d)) was adopted. On the basis of this single instance of lack of clarity and plainness of language, I would hold that the whole agreement was not compliant with s 3.4.27(3)(c)(ii). It is not the inaccurate and legally erroneous nature of cl 2.2(b) or (c) (or perhaps (d)) that alone produces that result. It is the textual lack of clarity and plainness with respect to the commencement of the cooling-off period, which is a mandatory and important aspect of the protection afforded to clients by the regulatory scheme.
Estimate of amount of uplift fee
Assuming that the agreement is to be interpreted with the notice, the provisions of the agreement in relation to the estimate of the amount of the uplift fee fall into the same category. This too is a mandatory and important aspect of the protection afforded to clients by the regulatory scheme. As we have seen, cl 13.4 of the agreement states that the uplift fee will be ‘20% plus GST’. The base figure is not specified. The client can read the rest of the agreement, but the figure is not there to be found. The client is expected to read the notice (see cl 1.2 of the agreement) and, when doing so, will find that cl 5.1 states that the uplift fee is to be ‘20% on the professional fees charged’. The client will look in vain in the agreement and the notice for any estimate of the professional fees but will find the estimate of the total ‘professional fees and disbursements’ of $200,000 in cl 3.1 of the notice. It will not be possible for the client to identify the amount of the professional fees from that provision (see above).
The language of these provisions is certainly not clear and plain. An ordinary reader, after applying reasonable effort, could not easily understand how the amount of the uplift fee was estimated. This subject is left in a confused and uncertain state by the provisions of the agreement and the notice. The associate judge decided (correctly) that these provisions were not compliant with s 3.4.28(3). I think they were not compliant with s 3.4.27(3)(c)(ii) as well.
Internal inconsistencies in agreement
His Honour noted that the agreement (and the notice) variously used the phrases ‘Conditional Costs Agreement’ and ‘Professional Services Agreement’ to describe the same document, being the agreement. He held that, of itself, this was ‘not clear plain language as the document is internally consistent’.
I cannot agree that his Honour has, as a matter of law, correctly interpreted and applied the requirement of s 3.4.27(3)(c)(ii) in this respect. From the context of a document, it may be quite clear and plain that two descriptions were being used in reference to the same documents. Where that occurs, there may be no internal consistency. More is needed to justify a contrary conclusion than the mere identification of two different descriptions. In this case, there was nothing more.
Entitlement to post-termination uplift fee
The associate judge decided that the agreement was not expressed in clear and plain language in relation to Russells’ entitlement to an uplift fee in the event of termination by the client or the firm respectively. In relation to termination by the client, cl 15.1(a) provided that such termination did not affect ‘any of the Client’s obligations or any of the Firm’s rights or authority under this Agreement’. In relation to termination by the firm, cl 16.3 made provision in the different terms that such termination did not affect ‘the Firm’s rights to be paid its fees and disbursements in accordance with this Agreement, nor its rights under this Agreement’.
Responding to Russells’ submission that these provisions preserved its (potential)[31] entitlement to an uplift fee even where the conduct of the litigation was taken over by other lawyers, his Honour held that such an interpretation was ‘not readily apparent’ from the terms of the agreement. He stated that, in his experience, ‘most costs agreements provide that costs are payable for work done up until the termination of the retainer but the uplift fee is not recoverable as the success was not achieved by that firm’. He also stated that costs agreements ‘should state clearly that the success or uplift fee is still payable … in the event that another firm takes over and achieves the successful outcome’. His honour held that the agreement was not expressed in clear and plain language because it was ‘not sufficiently clear [that] the success or uplift fee [was] payable’ in the circumstances under consideration.
[31]No uplift fee was in fact payable in the present case because the litigation was settled on monetary terms that were less favourable than the definition of successful outcome in the agreement. Therefore the itemised bill of $617,912.10 did not include such a fee.
I agree that it is prudent and proper for conditional costs agreements involving uplift fees expressly to specify that costs are payable for work done up until termination of the agreement and whether an uplift fee will be payable after termination in the event that success is obtained by other lawyers. However, I cannot accept that the agreement between Russells and the respondents was not expressed in clear and plain language because Russells failed to do the latter or because a question of interpretation arises with respect to the provisions of the agreement in these respects.
Section 3.4.27(3), like s 3.4.28(2) and (3), has an important connection with the general purposes of pt 3.4, which I have explained. But neither the language of s 3.4.27(3)(c)(ii) nor those purposes imply that a function of that provision, operating with s 3.4.32(1), is to render void an agreement merely because it contains a clause that calls for legal interpretation. I do not think that s 3.4.27(3)(c)(ii) should be so interpreted. It is important to avoid the wisdom of hindsight when making a judgment about whether a clause of an agreement is expressed in clear and plain language. On proper consideration, a clause of an agreement may be expressed in clear and plain language yet give rise to a legitimate question of interpretation. That a question of interpretation arises as to the meaning of a clause may inform the judgment that must be made as to whether it is so expressed, but more is required than that. Moreover, close examination of a clause said to give rise to a question of interpretation may reveal that the question has really been put forward for the strategic purpose of demonstrating that the language of the agreement is deficient when, in fact, it is clearly and plainly expressed.
In the present case, the starting point for interpreting the agreement in relation to this issue is that, without provision for the payment of a post-termination uplift fee, Russells would not be entitled to such a fee. I think the agreement, properly interpreted, did not extend Russell’s entitlement to be paid an uplift fee such that it would be so entitled even where a successful outcome was obtained by other lawyers after termination. The general words of cll 15.1(a) and 16.3 do not express agreement of that kind. Indeed, in my view, the agreement does not deal with this subject at all. This is a much weaker case for Russells than one cited in argument where the presence of certain clauses in the definition of ‘successful outcome’ in the agreement made a judge of this court hesitate before ultimately holding for the client.[32] As held by the associate judge, the terms of the agreement regulate the relationship between Russells as lawyers and the respondents as clients with respect to costs and related matters. If Russells were to have an entitlement to an uplift fee after the termination of this relationship, express provision to this effect would be expected.
[32]Maurice Blackburn v Burmingham [2009] VSC 20 (20 March 2009) [112], [139]-[144] (Byrne J).
After considering the competing submissions on this issue I have concluded that, in this case, there was no more than the existence of a legitimate question of interpretation to suggest that the language of cll 15.1(a) and 16.3 of the agreement was not clear and plain. Absent that question, it could not sensibly be contended that these clauses were not expressed in clear and plain language. An ordinary reader, after applying reasonable effort, would easily understand from the language of the clauses that a post-termination uplift fee was not payable where the successful outcome was obtained by other lawyers. It does not affect the outcome of this appeal but I think the associate judge erred in concluding otherwise.
Other submissions advanced by the parties do not require determination.
CONCLUSION
The provisions of pt 3.4 of the Legal Profession Act regulating costs agreements have important purposes relating to the protection of clients and the preservation of public confidence in the legal system. In this appeal, the provisions in issue were those governing the disclosure of information to clients, the manner of entering into a costs agreement and the expression of both the disclosure and the agreement in clear and plain language.
Although I do not agree with all aspects of the reasoning of the associate judge, I have substantially upheld his Honour’s decision. I do not accept Russells’ general contention that his Honour interpreted and applied the provisions of the Act in a way that allowed form and technicality to triumph over substance and reason. I substantially accept the respondents’ contention that his Honour applied the disclosure and other requirements of the Act according to the terms of the relevant provisions so as to afford the respondents the statutory protection that was due.
As decided by the associate judge, the conditional costs agreement involving an uplift fee between Russells and the respondents did not contain an estimate of the uplift fee as required by s 3.4.28(3), was not signed by the client as required by s 3.4.27(3)(c)(iii) and was not expressed in clear and plain language as required by s 3.4.27(3)(c)(ii). This conclusion is consistent with the proper interpretation of the applicable provisions taking into due account the protective purposes of the Act and the penal nature of the provisions of s 3.4.28. Under s 3.4.31(1), the agreement is therefore void. Russells will still be able to recover legal costs but, under ss 3.4.31(2) and 3.4.19(b), the costs will be confined to those specified in the applicable scale and will be substantially less than those available under the agreement.
Accordingly, the appeal will be dismissed with costs.
32
8
0