Smith v Lewis Blyth & Hooper
[2013] WASC 408
•14 NOVEMBER 2013
SMITH -v- LEWIS BLYTH & HOOPER [2013] WASC 408
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 408 | |
| Case No: | CIV:2390/2011 | 12 MARCH 2013 | |
| Coram: | JENKINS J | 14/11/13 | |
| 49 | Judgment Part: | 1 of 1 | |
| Result: | Application for declaration that South Perth costs agreement is unreasonable, refused Probate Action costs agreement cancelled Family Trust Action costs agreement cancelled | ||
| B | |||
| PDF Version |
| Parties: | ROBERT JOHN SMITH LEWIS BLYTH & HOOPER |
Catchwords: | Solicitors' costs agreement Whether unreasonable Discretionary considerations Delay in bringing application for review Failure of solicitor to give estimate of costs Flat rate time unit billing |
Legislation: | Legal Practice Act 2003 (WA), s 221, s 222, s 232, s 235 Legal Practitioners (Supreme Court) (Contentious Business) Determination 2006 Legal Practitioners (Supreme Court) (Contentious Business) Determination 2008 Legal Practitioners Act 1893 (WA), s 59 Legal Profession Act 2008 (WA), s 598, s 616 Limitation Act 2005 (WA) |
Case References: | Alman v Macdonald Rudder (A Firm) [2001] WASCA 375 Alman v Macdonald Rudder [2001] WASC 65 Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 Brown v Talbot & Olivier (1993) 9 WAR 70 Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [2009] WASC 171 Harrison v Hocking [2000] WASC 188 Jovetic v Stoddart & Co (1992) 7 WAR 208 McNamara Business & Property Law v Kasmeridis [2007] SASC 90; (2007) 97 SASR 129 New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116 Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103 Stoddart & Co v Jovetic (1993) 8 WAR 420 Webb v Malcolm J Bateman & Co (Unreported, WASC, Library No 6305, 27 May 1986) |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- CIV 3315 of 2011
CIV 3316 of 2011
- Plaintiff
AND
LEWIS BLYTH & HOOPER
Defendant
Catchwords:
Solicitors' costs agreement - Whether unreasonable - Discretionary considerations - Delay in bringing application for review - Failure of solicitor to give estimate of costs - Flat rate time unit billing
Legislation:
Legal Practice Act 2003 (WA), s 221, s 222, s 232, s 235
Legal Practitioners (Supreme Court) (Contentious Business) Determination 2006
Legal Practitioners (Supreme Court) (Contentious Business) Determination 2008
Legal Practitioners Act 1893 (WA), s 59
Legal Profession Act 2008 (WA), s 598, s 616
Limitation Act 2005 (WA)
Result:
Application for declaration that South Perth costs agreement is unreasonable, refused
Probate Action costs agreement cancelled
Family Trust Action costs agreement cancelled
Category: B
Representation:
Counsel:
Plaintiff : Mr D J Garnsworthy
Defendant : Mr S V Forbes
Amicus Curiae : Mr K J Mony De Kerloy & Mr B W Ashdown
Solicitors:
Plaintiff : George Papamihail
Defendant : Lewis Blyth & Hooper
Amicus Curiae : The Law Society of Western Australia
Case(s) referred to in judgment(s):
Alman v Macdonald Rudder (A Firm) [2001] WASCA 375
Alman v Macdonald Rudder [2001] WASC 65
Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256
Brown v Talbot & Olivier (1993) 9 WAR 70
Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [2009] WASC 171
Harrison v Hocking [2000] WASC 188
Jovetic v Stoddart & Co (1992) 7 WAR 208
McNamara Business & Property Law v Kasmeridis [2007] SASC 90; (2007) 97 SASR 129
New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116
Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103
Stoddart & Co v Jovetic (1993) 8 WAR 420
Webb v Malcolm J Bateman & Co (Unreported, WASC, Library No 6305, 27 May 1986)
1 JENKINS J: Mr Smith, the client, and the defendant, a firm of legal practitioners, made three costs agreements. Two of the costs agreements are dated 13 March 2007 and the third agreement is dated 26 March 2008. Each costs agreement relates to a different set of instructions. These are my reasons for decision in respect of three applications by Mr Smith each for a declaration that one of the costs agreements is unreasonable as against him. The applications invoke the jurisdiction of the Supreme Court to review a costs agreement and if, in the opinion of the court, it is unreasonable, to reduce the amount payable or cancel the costs agreement; Legal Practice Act 2003 (WA) (repealed) (the Act) s 222.
2 The applications were ordered to be heard together. The Law Society of Western Australia was given leave to intervene as amicus curiae.
3 Mr Smith relies on four affidavits sworn by him in support of his applications. They are dated 28 July 2011, 8 September 2011, 5 December 2011 and 2 April 2012, respectively. The defendant relies upon two affidavits sworn by Thomas Mark Hobday. The first is dated 27 October 2011 and the second is dated 10 February 2012.
4 Neither party sought to adduce oral evidence or to cross-examine the deponents of the affidavits. There are considerable differences between the factual accounts given by the two deponents. As I have not heard oral evidence, it has been difficult for me to make findings of fact where the accounts differ. In some situations I have been able to make findings by relying on other known matters which support a particular version of the facts. In other situations common sense and my knowledge of legal practice have enabled me to make findings of facts. However, there remain a number of areas, particularly discussions between Mr Smith and Mr Hobday, where I am simply unable to make findings based on the disputed affidavit material. I say this knowing that Mr Smith has a credibility problem because in his first two affidavits he denied that he had entered into costs agreements with the defendant, other than that dated 26 March 2008. Despite that, it does not seem to me that I can wholly discount his account of conversations which are in dispute.
The law
5 The Act s 222 stated that:
222. Review of costs agreement
(1) A costs agreement may be reviewed by the Supreme Court upon application by summons or on a reference under section 235(2).
(2) If, in the opinion of the Supreme Court, the costs agreement is unreasonable -
(a) the Supreme Court may reduce the amount payable or cancel the costs agreement; and
(b) the costs may be taxed in the ordinary way.
(3) The Supreme Court may make such order as to the costs of and relating to the review, and the proceedings on the review, as the Court thinks fit.
6 Despite the repeal of the Act in 2009, the applications have been properly brought under the Act s 222: Legal Profession Act 2008 (WA) (the 2008 Act) s 598, s 616. The parties agree that although s 222 is not identical to its predecessor, the Legal Practitioners Act 1893 (WA) (the 1893 Act) s 59, it is to the same effect. They agree that the authorities relating to the interpretation of the 1893 Act s 59 remain relevant to the interpretation of the Act s 222.
7 Mr Smith carries the burden of satisfying me that a particular costs agreement is unreasonable against him: Jovetic v Stoddart & Co (1992) 7 WAR 208, 220, 222, referred to in Stoddart & Co v Jovetic (1993) 8 WAR 420, 429.
8 If the court finds that a costs agreement is unreasonable, the court may, but does not have to, cancel the costs agreement or reduce the amount payable under it: Alman v Macdonald Rudder [2001] WASC 65 [18] which was referred to without adverse comment in Alman v Macdonald Rudder (A Firm) [2001] WASCA 375 [23].
9 The parties agree that the circumstances in which the court may find that a costs agreement is unreasonable were summarised by Murphy J (as he then was) in Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [2009] WASC 171, where his Honour said:
For the purposes of s 222, an agreement may be unreasonable because of the circumstances under which it came into being, or because its terms are unreasonable, or because the effect on the client is unreasonable. Consideration of whether an agreement is unreasonable or not is not confined to those three categories. Also, it may be in a given case, that, if each of the three categories is looked at in isolation, none independently leads to a conclusion of unreasonableness, however when looked at as a whole, or in combination with other circumstances, the agreement might be regarded as unreasonable. Similarly, even if in one of those three categories, the agreement appeared unreasonable, it may nevertheless be regarded as not unreasonable when all the circumstances are considered as a whole. See Jovetic v Stoddart & Co (1992) 7 WAR 208; Stoddart & Co v Jovetic (1993) 8 WAR 420; Brown v Talbot & Olivier (1993) 9 WAR 70, 75; and Duckworth v Chopra [2001] WASC 146 [29] - [30].
In relation to the first of the three categories referred to above, ie the circumstances under which the agreement came into being, particular attention is paid to the solicitor's position as a fiduciary.
The solicitor is 'classically' a fiduciary to the client and, as such, owes fiduciary duties to the client: Maguire v Makaronis (1997) 188 CLR 449, 463.
Solicitor's obligations ordinarily or at least frequently involve:
1. ensuring that the client, because of independent advice or otherwise, does not enter into an agreement with the solicitor in reliance upon the trust or confidence arising from the relationship between the solicitor and client;
2. full and frank disclosure to the client of all information known to the solicitor which the client should know;
3. if there be aspects of a contract in respect of which the solicitor may be in a position of advantage vis-à-vis the client, those must be clearly brought to the client's attention so that the client can properly decide, in an informed way, whether to enter into the contract [83] - [86].
10 Murphy J also set out other matters which may be taken into account in determining the content and scope of disclosure required by a practitioner. His Honour said:
For example, the sophistication or business experience of the client may be relevant to the content and scope of disclosure by the solicitor: Cerini v McLeods [37]; Bradley West Clarke List v Keeman [1998] ANZ ConvR 77, 79 - 80. Similarly, if the client were, for example, a solicitor himself or herself, the content and scope of disclosure would, in my view, ordinarily be different from that required for an ordinary lay client.
Also, the client's personal knowledge and experience of litigation and what it entails, and of the bases upon which solicitors commonly charge fees, and of the existence, nature and purpose of court scales in relation to fees, and of the nature and purpose of taxation of costs, and the recency and currency of the client's knowledge and experience of such matters, may, depending on all the circumstances, be relevant to a consideration of the scope and content of disclosure required in a particular case in order for the client to exercise an independent and informed judgment about whether to enter a costs agreement [95] - [96].
11 In Brown v Talbot & Olivier (1993) 9 WAR 70, Ipp J said that in his opinion, 'ordinarily' the material circumstances which should expressly be disclosed to the client before a costs agreement was entered into include the following:
(a) The fact that the remuneration of solicitors was governed by statutory scales which limited the amount of solicitors' and counsel's fees which could be recovered, irrespective of the amount of time devoted by the solicitors to the proceedings.
(b) The fact that the scales limited both the costs which the client could recover from the opposing party to the proceedings (if the client were to succeed in the case), and the costs recoverable from the client by the client's solicitors.
(c) The principles underlying the charging of fees under the scales, and also the basis of the proposed charging under the contemplated agreement.
(d) Estimates, if they could reasonably be made, of the approximate amount of the solicitors' fees and counsel's fees (as between solicitor and client) which would be recovered on taxation under those scales, and the approximate amount recoverable under those scales from the opposing party - if the client were to be successful.
(e) An estimate, if that were reasonably possible, of the amount which the client would have to pay the solicitors under the proposed agreement if the litigation were to prove successful (and costs were to be recovered from the opposition) and, also, the amount which the client would have to pay if the litigation were to be unsuccessful.
(f) Whether (if it were not reasonable possibly to give estimates of the kind referred to in subpars (d) and (e) above) there was a real risk of the costs under proposed agreement being more - and significantly more, if that there the case - than the appropriate scale (77 - 78).
The facts
12 At the times the costs agreements were made, Mr Smith was a mature man and an experienced businessman. Over the course of his business career he had instructed lawyers on numerous occasions to deal with a variety of legal issues. As a consequence, he had experience in receiving and paying lawyers' accounts.
13 In late 2005, Mr Smith was represented by a lawyer (not the defendant) who was acting for him in respect of inheritance and related property disputes.
14 In November 2005, Mr Smith had a meeting with Mr Hobday, a legal practitioner employed by the defendant, and others. Mr Hobday was an experienced practitioner having been admitted to practice in 1990. Mr Smith provided some information about a number of his then legal issues. Mr Smith did not provide instructions to the defendant to act on his behalf. Neither did he respond to follow up correspondence from Mr Hobday, which enclosed a Costs Disclosure document, a Retainer Agreement and a Trust Authority. The Retainer Agreement provided that if Mr Smith did not advise the defendant within 7 days that he did not wish to retain the defendant on the terms stated in the letter, he would be taken to have agreed to the terms of the Retainer. Despite this provision, on 20 March 2006, Mr Hobday wrote to Mr Smith advising him that his file had been closed.
15 On 6 June 2006, Mr Smith attended the defendant's office and spoke to Mr Hobday. Mr Smith told Mr Hobday that orders had recently been made in this court to appoint trustees for a number of associated family trusts (the Appointment Action). Mr Hobday has deposed that Mr Smith advised him that his legal representation in the Appointment Action had withdrawn part way through the case and he felt he had not received adequate representation. Mr Hobday also says that Mr Smith advised that the reason his legal representatives had withdrawn was that he (Mr Smith) had been unable to comply with their costs agreement. Mr Smith denies that he had a written costs agreement with his then lawyers. I cannot make a finding as to whether Mr Smith had or did not have a costs agreement with his then lawyers. Mr Smith also told Mr Hobday that he had a matter which was listed for trial to commence on 31 July 2006 (the Probate Action) and he wished the defendant to provide him with advice in relation to the Appointment Action and the Probate Action.
16 Mr Hobday told Mr Smith that he would need to provide the sum of $10,000 to be placed into the defendant's trust account on account of costs. On 13 June 2006, Mr Hobday forwarded a Retainer Agreement and Costs Disclosure document to Mr Smith. These documents and their terms are not in evidence. Mr Smith did not sign the Retainer Agreement.
17 On 14 June 2006, Mr Smith provided $2,000 on account of costs.
18 Mr Hobday advised Mr Smith in the Appointment Action which resulted in no immediate action being taken in it.
19 Mr Smith told Mr Hobday that the Probate Action was listed for a 10-day trial in July 2006. Mr Smith said that he was instructing another lawyer and counsel but he was not happy with the negotiation strategy for settlement that they were pursuing. Mr Hobday had a lengthy conference call with Mr and Mrs Smith and with Mr Smith's then lawyer and counsel.
20 On 24 July 2006, Mr Smith paid to the defendant a further $3,000 into trust on account of costs. On the same date Mr Smith's then lawyers obtained an order in the Probate Action that they cease to be the solicitors acting for Mr Smith.
21 Mr Smith instructed the defendant to apply for an adjournment of the trial in the Probate Action. On 27 July 2006, Mr Hobday appeared for Mr Smith at the hearing of the application for an adjournment. The application was opposed but his Honour Justice Templeman adjourned the trial and referred the Probate Action to mediation. His Honour's reasons for decision record that Mr Smith had not instructed the defendant in relation to the Probate Action, generally. It was further noted that Mr Smith's predicament, of being unrepresented, arose because his former lawyers were permitted to get off the record because Mr Smith had not paid a number of outstanding accounts and had not put them into funds for the trial and for payment of counsel.
22 Mr Hobday has deposed that he considered that once Mr Smith had received a Retainer Agreement and Costs Disclosure document and had subsequently provided instructions, that the relevant costs agreement was in place. He says that it was to avoid doubt that Mr Smith was required to sign the agreements which are the subject of each of these applications.
23 The defendant rendered an account to Mr Smith on 28 July 2006. The $5,000 then held in trust was used in part payment of the account.
24 The defendant continued to perform legal work for Mr Smith and another account was rendered on 25 August 2006. Mr Smith paid the account.
25 Mr Smith was beneficially entitled to a one third interest in a property at 60 Elizabeth Street, South Perth (the South Perth property). In about August 2006, Mr Smith instructed the defendant to act on his behalf in relation to the sale of the South Perth property. The South Perth property sold prior to auction and settlement was due to occur on 11 December 2006. The defendant continued to act for Mr Smith in the expectation that its costs would be paid from the settlement moneys. On settlement, $519,718.48 was paid into the defendant's trust account.
26 On 18 December 2006, after settlement, the defendant wrote to Mr Smith advising that a total of $22,620.05 was outstanding in legal fees. The letter confirmed Mr Smith's advice (which he does not dispute giving) that the defendant was to take payment of this amount from the proceeds of the sale of the South Perth property, which were still held in trust. A receipt was enclosed for payment of the same.
27 The balance of the proceeds from the sale of the South Perth property remained in the defendant's trust account. Mr Smith was aware that these funds were being used to pay the defendant's accounts. The defendant advised him on a number of occasions that the moneys, whilst in the trust account, would not earn interest. The defendant advised Mr Smith to put a substantial portion of the funds into an interest bearing account, but Mr Smith did not provide instructions for this to occur.
28 There is a dispute between Mr Smith on the one hand and Mr Hobday on behalf of the defendant on the other, as to the conversations that took place between them as to future legal costs and the amount of them. Mr Hobday says that there were discussions to the effect that costs would be 'substantial' and were 'hard to estimate' but he agrees that no estimation of legal costs was given to Mr Smith. Mr Hobday says that he told Mr Smith that the settlement proceeds from the South Perth property would be more than enough to cover the costs of the Probate Action.
29 On 13 March 2007, Mr Smith signed two written Retainer Agreements. One related to the South Perth property and the other related to the Probate Action.
30 Unlike the retainer sent to Mr Smith in November 2005, these retainers were specifically headed '60 Elizabeth Street, South Perth' (the South Perth costs agreement) and 'Property Dispute, Will of Florence Roberta Smith and Trust Issues' (the Probate Action costs agreement), respectively. Although the Probate Action costs agreement states that it relates to 'Trust Issues' it is accepted by the parties that it relates to the proceedings on foot concerning Mr Smith's mother's estate, that is, the Probate Action.
31 Each agreement states that it regulates the amount of and payment for, the whole or part or parts of any past, or future services, fees, charges and/or disbursements in respect of business done or to be done by the defendant, without qualification. Each retainer also states that signing the Retainer Agreement, payment of $1,000 on account of fees or the provision of instructions constituted acceptance by Mr Smith of the retainer (cl 11).
32 Each agreement states that Mr Smith would be charged in six minute increments or part thereof on the basis of certain hourly rates dependent on who performed the relevant work. The comparison of those hourly dollar rates with the then Supreme Court Scales of Costs in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2006 (the 2006 costs scale), which applied at the time, is as follows:
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Solicitor 220 - 297 Mr Hobday 297 |
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34 Mr Hobday has deposed that although settlement of the South Perth property occurred in December 2006, Mr Smith continued to instruct the defendant in relation to issues to do with outstanding rent entitlements. Consequently, he says that the South Perth costs agreement covered all instructions relating to the South Perth property, even after the settlement. I have no reason to disbelieve this.
35 Over the course of the Probate Action, the defendant rendered the following additional accounts, which were accompanied by receipts indicating that they had been paid from funds held in trust from the sale of the South Perth property:
(1) 31/10/2006 $6,760.60;
(2) 30/01/2007 $14,259.70;
(3) 27/02/2007 $10,631.22;
(4) 31/03/2007 $20,112.10;
(5) 30/04/2007 $14,309.98;
(6) 08/05/2007 $4,851.00;
(7) 29/05/2007 $34,175.61;
(8) 21/06/2007 $220.00;
(9) 24/07/2007 $1,377.00;
(10) 28/09/2007 $1,895.30; and
(11) 31/10/2007 $1,122.00.
The total of these accounts was $109,714.51, including $14,206.50 of counsel fees.
36 The total amount of legal fees and disbursements which the defendant charged on the South Perth property file was $5,046.80 made up of the following accounts:
(1) 25/08/2006 $2,809.40;
(2) 31/10/2006 $1,273.80;
(3) 13/12/2006 $631.40; and
(4) 30/04/2006(7?) $332.20.
37 The Probate Action concerned competing claims to the validity of certain wills signed by Mr Smith's mother and whether she had testamentary capacity at the time she made them. In an opinion dated 26 March 2007, Mr Smith's counsel in the Probate Action advised him that he (Mr Smith) had significant difficulties in defending the claim to the validity of a certain will and succeeding in his counterclaim propounding the validity of certain other wills. Counsel recommended that Mr Smith ought to pursue the best settlement option.
38 On 20 April 2007, counsel advised that the above view had been confirmed after he had spoken to other potential witnesses. Counsel also advised that if Mr Smith continued his counterclaim there was a significant likelihood that he would be required to pay the plaintiffs' party/party costs in defending Mr Smith's counterclaim. Counsel advised Mr Smith that the plaintiffs' costs of the trial of the Probate Action (Mr Smith being the defendant) would be approximately $100,000 per week of trial for a two-week trial and that similar costs would be incurred for a week of trial preparation.
39 The Probate Action was settled shortly after this advice but the defendant continued to provide advice in respect of stamp duty implications of the deed of settlement.
40 Mr Smith also spoke to Mr Hobday about his claim to assets held in various trusts connected to his family (the Family Trust Action). On the basis of what Mr Smith told him was the value of the family trust assets, Mr Hobday contemplated that Mr Smith's claim to 75% - 100% of the total value of the trust assets was worth between $12 million - $24 million. The opposing position was that Mr Smith was entitled to only 33% of the trust assets. Mr Smith ultimately settled the Family Trust Action for 50% of the value of the trust assets.
41 After the Probate Action was settled, Mr Smith advised the defendant that he intended to provide instructions to commence the Family Trust Action. However, he only provided instructions after the trustees of the family trust commenced proceedings by originating summons CIV 1961 of 2007 in late September 2007 (the originating summons proceedings) for orders that all the trust properties, including Mr Smith's long term residence, be sold.
42 Mr Smith instructed the defendant to defend the originating summons proceedings. A memorandum of appearance was filed on 3 October 2007 and on 17 October 2007 Mr Hobday sent a brief to an experienced junior counsel to review the originating summons. On 30 October 2007, Mr Hobday sent Mr Smith a Retainer Agreement which stated that it related to the 'Originating Summons' and a Costs Disclosure document. Mr Smith did not immediately sign the agreement.
43 The first return date for the originating summons proceedings was 8 November 2007. Mr Hobday appeared for Mr Smith. The proceedings were adjourned to allow Mr Smith to commence proceedings to assert his claim to the trust assets. Because Mr Smith had not instructed the defendant until October 2007 and because the trustees were seeking a quick resolution of the originating summons proceedings, the defendant was under time pressure to commence an action to prosecute Mr Smith's claim.
44 Counsel only had limited time to spend on the matter and so junior counsel was also briefed to act for Mr Smith. On 13 December 2007, the defendant sent Mr Smith a report on a conference held in counsel's chambers on 12 December 2007. It enclosed a copy of a letter from Mr Hobday to counsel setting out the steps that were to be taken over the December and January period.
45 The defendant issued a writ of summons on behalf of Mr Smith on 18 January 2008 in CIV 1064 of 2008 seeking declaratory relief (the declaratory relief proceedings). The originating summons proceedings and the declaratory relief proceedings make up the Family Trust Action.
46 Mr Smith's claim was that:
(1) all of the trust properties had been acquired through his endeavours from the 1960s through to the early 1980s;
(2) the properties had initially been held in a company;
(3) the shareholding in this company recorded as held by his brother and sister were not properly held by them;
(4) when the properties were transferred to the family trust pursuant to a 'bottom of the harbour scheme' in the early 1980s, Mr Smith was told by his brother that he (Mr Smith) would retain ownership of the properties; and
(5) Mr Smith's relatives had conspired to deprive him of his property from the early 1970s to that date.
47 In early 2008, Mr Hobday noted that Mr Smith had not returned the signed Retainer Agreement. He has deposed that he spoke to Mr Smith and reminded him about the agreement. He says that at no time did Mr Smith request him to explain any of the terms of the Retainer Agreement, and neither did he request any further information.
48 Mr Smith has deposed that when Mr Hobday asked him to sign the agreement in March 2008, he (Mr Smith) asked him what his options were and Mr Hobday replied 'none, there is nowhere else to go. The work has been done and it needs to be paid for'. Later in the same affidavit, Mr Smith says that when Mr Hobday presented him with a costs agreement in early 2008, he asked Mr Hobday what he could do about 'it' and Mr Hobday replied 'nothing, just sign it' and smiled (affidavit 5 December 2011, pars 24, 38). Mr Smith says that he accepted the arrangement because 'in Mr Hobday's words there was nothing else I could do'.
49 I do not accept that Mr Smith did not know that he could terminate his instructions to the defendant and seek alternative representation. He had done this in the Appointment Action and the Probate Action when he was represented by other lawyers and they ceased to act because of disputes with Mr Smith.
50 Mr Hobday has deposed that at a meeting in March 2008, he told Mr Smith that he did not have the signed Retainer Agreement and asked him if there was any issue with it. In the above paragraph I have referred to Mr Smith's version of what I believe to be this conversation. Mr Hobday says that Mr Smith told him that there was not and he (Mr Hobday) asked Mr Smith to sign it then and there. I am not able to determine whose version of the conversation is accurate.
51 Mr Smith signed and dated a Retainer Agreement on 26 March 2008 (the Family Trust Action costs agreement). Mr Hobday does not recall printing another copy of the agreement and believes that Mr Smith brought in a copy and signed it. The Family Trust Action Retainer Agreement has a printed date of 30 October 2007 and it is in identical terms to the earlier two costs agreements except that the hourly rates have increased and the scope of the work is different. The agreement said that the work covered by the agreement 'only relate to legal advice and representation with regards to [Mr Smith's] claim for properties held by his siblings on trust'.
52 The comparison of the hourly rates in the Family Trust Action costs agreement and the then Supreme Court Scale of Costs in the Legal Practitioners (Supreme Court) (Contentious Business) Determination 2008 (the 2008 costs scale) is as follows:
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Solicitor 275 - 355 Mr Hobday 352 |
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(1) that if he did not sign the agreement his fees would be governed by a relevant costs scale;
(2) the amount of fees he might have to pay according to the agreement;
(3) the range of costs he might recover if successful or have to pay if not successful;
(4) that the fees in the agreement for counsel were above the 2008 costs scale allowance for counsel;
(5) that time unit costing favoured the lawyer not the client;
(6) that he had the right to reject any proposed increase in the fee rates in the agreement;
(7) what fee rate applied if a lawyer employed by the defendant acted as counsel;
(8) that although the agreement mentions the Local Court, it was abolished in 2005;
(9) that the only test for the validity of a costs agreement was whether it was unreasonable;
(10) that even though the agreement mentions the 1893 Act, it had been repealed by the time he was asked to sign the agreement;
(11) that Mr Hobday had obtained from counsel an estimate of their fees; and
(12) who he should contact if a dispute arose about the defendant's costs.
54 Mr Hobday has deposed that he and Mr Smith had a number of discussions about costs before March 2008. In respect of the specific matters raised by Mr Smith he says:
(1) lawyers were entitled to charge by the relevant costs scale or by the terms of a costs agreement and that the defendant would not take instructions to act in the matter unless Mr Smith entered into the costs agreement;
(2) he was unable to accurately estimate what fees would be payable as the work to be undertaken was very substantial. Mr Hobday says that before the declaratory relief proceedings were commenced he discussed with Mr Smith using the [balance of the] proceeds from the sale of the South Perth property and the funds from his mother's estate after settlement of the Probate Action to pay the legal fees and that those sums should be enough [to pay the defendant's fees];
(3) the exact amount of costs was not discussed with Mr Smith as it was not possible for him (Mr Hobday) to make any realistic estimate of the costs of the Family Trust Action;
(4) Mr Smith was told that counsel's fees were $440 per hour and that junior counsel's fees were $275 per hour, but he did not discuss the scale rate with Mr Smith;
(5) he did not tell Mr Smith that time unit costing favoured the lawyer and not the client as he did not believe that to be a fact;
(6) Mr Smith was advised that it was in his interests to obtain independent legal advice in relation to the retainer before entering into it;
(7) Mr Smith was not told that he had the right to reject any proposed increases in the rate of fees proposed but he knew that he had the right to terminate the agreement if he did not agree to an increase;
(8) the rate that applied if a lawyer acted as counsel was not discussed because Mr Smith specifically requested that a named counsel be retained;
(9) the abolition of the Local Court was not discussed because he (Mr Hobday) did not regard it as being relevant;
(10) the test for validity of a costs agreement was never discussed because he (Mr Hobday) did not regard it as relevant;
(11) the repeal of the 1893 Act was never discussed;
(12) when the defendant obtained an estimate of counsel's fees, Mr Smith was told of it; and
(13) it was not necessary to tell Mr Smith about who to contact if a dispute arose about costs. Mr Smith was aware that he (Mr Hobday) was responsible for the matter and that he (Mr Smith) could contact him about costs.
55 Up until November 2008, the defendant rendered accounts in the Family Trust Action on a regular basis and these were paid out of moneys which were still held in trust from the sale of the South Perth property. The details of these accounts are as follows:
(1) 31/10/2007 - $14,074.50;
(2) 30/11/2007 - $9,125.00;
(3) 18/12/2007 - $3,684.45;
(4) 20/12/2007 - $4,115.98;
(5) 22/01/2008 - $6,385.20;
(6) 11/02/2008 - $18,934.80;
(7) 26/02/2008 - $6,072.00;
(8) 31/03/2008 - $13,008.05;
(9) 30/04/2008 - $18,291.60;
(10) 30/05/2008 - $12,726.45;
(11) 04/07/2008 - $18,577.90;
(12) 28/07/2008 - $22,383.60;
(13) 31/08/2008 - $24,561.68;
(14) 30/09/2008 - $25,069.10;
(15) 31/10/2008 - $38,174.20;
(16) 24/11/2008 - $3,300.00; and
(17) 27/11/2008 - $116.16.
The total of these accounts was $238,600.67, including $27,600.45 of counsel fees.
56 I accept Mr Hobday's assessment that the Family Trust Action was complex and included factual matters relating to family businesses, trusts, corporations, property and equitable claims dating back to 1961. The statement of claim filed on 17 April 2008, ran to 78 pages.
57 On 23 July 2008, the hourly rates charged by the defendant increased and Mr Smith was advised in writing of the changes.
58 There is a factual dispute between the parties as to the information which Mr Smith was given and gave regarding the defendant's accounts. Mr Smith has deposed that no estimate of legal fees was given to him until late 2008 when the trust moneys held by the defendant, to his 'surprise', ran out. He says that he was very worried about the high bills that he received from the defendant and at no stage prior to this was he informed of the balance of his moneys held on trust. In this respect, I note that none of the defendant's bills which are in evidence state the remaining or, in other words, the running balance of the trust moneys before or after payment of any of the bills. However, if Mr Smith had noted the amounts of the defendant's accounts and kept his own running balance of the funds held in trust he would have been aware how rapidly they were being depleted.
59 Mr Hobday has deposed that prior to October 2008, it became clear that there was insufficient money held in trust to fund the trial of the Family Trust Action. From the preceding list of accounts, by then the defendant had billed over $200,000 in that action, excluding counsel's fees. Mr Hobday does not dispute that an estimate of costs had not been given before that date. Mr Hobday said he then spoke to Mr Smith about how the defendant was prepared to continue to act and render updates of work in progress on a monthly basis so that Mr Smith would be fully aware of the ongoing costs but that the defendant would wait to receive payment until after the completion of the Family Trust Action. Mr Hobday said that he advised Mr Smith that approval of such an arrangement was up to the defendant's partners. He said that he was instructed by Mr Smith to approach counsel to see if they would be prepared to await final payment of their fees until after the hearing of the action. Mr Hobday said that these discussions took place over a period of several weeks and eventually the defendant wrote to Mr Smith by letter of 12 November 2008, outlining his current financial position and a proposal from the defendant as to how it would be prepared to continue acting for him given that he was unable to pay regular accounts.
60 It is not possible for me to make findings in respect of a number of related issues between the parties. However, the objective evidence of the letter from the defendant to Mr Smith dated 12 November 2008, establishes that on that date the defendant confirmed Mr Hobday's oral advice to Mr Smith that the defendant held $83,000 in trust for him but that this amount was not sufficient to fund the trial preparation or the trial of the Family Trust Action. The letter did not contain an estimate of the defendant's costs in the Family Trust Action and no estimate had been given earlier. The letter confirmed that the defendant acted pursuant to the Family Trust Action costs agreement. The defendant proposed that:
(1) it would cease to render monthly accounts for its legal costs but would instead provide 'monthly pre-billing guides' stating the amount of legal costs and disbursements due for that month;
(2) it would only render accounts for disbursements and would hold $23,000 of the money then held in trust for paying these disbursements, other than counsels' fees;
(3) the outstanding amounts specified in the monthly pre-billing guides would not be billed until finalisation of the Family Trust Action but would accrue interest until payment was made;
(4) it would hold $60,000 of the trust moneys (ie the balance of the proceeds from the sale of the South Perth property) to use in part payment of counsels' fees;
(5) it would ask counsel to agree that upon rendering their accounts they would only be paid a total of $60,000, that on any outstanding amount they would be entitled to charge interest at an agreed rate and that they would be paid their outstanding fees on finalisation of the Family Trust Action; and
(6) that any party could give 30 days written notice of an intention to bring the agreement to an end.
There were other terms to the proposal which I do not need to detail.
61 Mr Hobday has deposed that prior to 24 November 2008, Mr Smith orally confirmed that the defendant was to act on this basis and instructed the defendant to write to counsel with the proposal. The fact that Mr Hobday wrote to counsel on that date and stated that the defendant was instructed to approach both counsel to determine whether delay in payment arrangements could be made for counsels' fees in the Family Trust Action satisfies me that Mr Smith provided instructions to the defendant to put the proposal to counsel.
62 The terms of the letter also satisfy me that at that time the defendant believed that Mr Smith had almost no assets in his own name, but that he had a beneficial entitlement to trust assets regardless of his success in the Family Trust Action.
63 On 9 December 2008, the defendant wrote to Mr Smith and told him that counsel were not prepared to agree to the terms proposed in the defendant's letter dated 12 November 2008. The letter of 9 December 2008, advised Mr Smith that counsels' combined expected fees for the trial would be approximately $340,000.
64 This was the first, and only, time that Mr Smith was given an estimate of his legal costs in the Family Trust Action, albeit it was only an estimate of counsels' fees of trial. It was given 14 months after the defendant was formally instructed and some 12 months after counsel were briefed in the Family Trust Action.
65 The letter advised that counsel had stated that they expected sufficient money to cover their fees to be in the defendant's trust account or some commitment to put the money into the trust account by 15 January 2009 and for the money to be in the trust account by 1 February 2009. Mr Smith was requested to sign the letters of 12 November 2008 and 9 December 2008 and the note of fees attached to these letters to indicate his acceptance of the proposal in the letter dated 12 November 2008, the amendment contained in the letter of 9 December 2008 and the original note of fees, together with interest running from that date. The letter advised that if Mr Smith was unable to provide the funds to retain counsel, the defendant was not in a position to provide in-house representation at the trial. Lastly, Mr Smith was advised to obtain independent legal advice as to the effect of the proposals.
66 Thus, four months before trial and when he had already paid nearly $240,000 in costs, Mr Smith was told he had to raise another $300,000 within two months to pay counsels' newly estimated fees of $340,000, otherwise he would have no counsel at trial. He was still in the dark as to what the defendant's total costs would be.
67 The defendant sent Mr Smith pre-billing guides dated 9 December 2008, 5 January 2009, 2 February 2009 and 3 March 2009. The defendant also rendered accounts for disbursements, including counsels' fees.
68 The letters attached to each of the pre-billing guides contained a space for Mr Smith to agree to the terms of the letter by signing and dating it. Mr Hobday said that he frequently asked Mr Smith to sign the letters. He said that when he did so Mr Smith said he agreed with the letters and was happy with the arrangement. However, Mr Smith left the letters sent to him at home when he went to appointments. The defendant's records indicate that Mr Smith only signed the 12 December 2008 and 3 March 2009 letters, both of which were signed on 3 March 2009.
69 Mr Smith has deposed that when he received the letter of 9 December 2008 from the defendant, it informed him that the defendant's fees for the Family Trust Action, including the fees of counsel would require an additional $400,000. In fact, the letter advised Mr Smith that the defendant required him to place $300,000 in trust, in addition to the $83,000 already held in trust, to meet counsels' fees and disbursements.
70 Mr Smith then entered into a loan agreement for $400,000 with a third party so as to enable him to pay counsels' estimated fees and the disbursements for the Family Trust Action. The defendant, through a different practitioner within the firm, acted for Mr Smith in respect of this loan. There was no costs agreement signed by Mr Smith in relation to the work done to finalise the loan and the legal costs in respect of it totalled $6,886. The borrowed moneys were paid into the defendant's trust account in or about March 2009.
71 The Family Trust Action was listed for a four-week trial commencing on 6 April 2009. It commenced on that date but was stood down on 7 April 2009 to allow settlement negotiations to proceed. Mr Smith was represented by his original counsel and junior counsel, with Mr Hobday as instructing solicitor. The Family Trust Action was settled on 8 April 2009. Mr Hobday has deposed, and I accept, that the matter only took a day and a half because settlement negotiations led to a settlement of the action.
72 Mr Smith has deposed that he has been told by counsel (unidentified) and believes it to be true that in the absence of a costs agreement the total cost of a one and a half day trial, run as an action, ought not to exceed $82,400 as a generous maximum. However, my opinion is that the costs involved in preparing for and running a one and a half day trial cannot be equated to the costs of preparing for and commencing a trial which was estimated to take three to four weeks and which only took one and a half days because it settled. The costs of the latter scenario would be expected to far exceed the former scenario. Counsels' fees were $107,955.45 in the Family Trust Action.
73 On 28 April 2009, the defendant rendered an account for work done to that date, excluding $114,901.60 which was the total of the pre-billing guides that it had given from December 2008 up until the end of March 2009. The total of the costs and disbursements included in that bill were $110,000 and the defendant took payment in this amount from the moneys held in trust. The letter of 29 April 2009 advised that the defendant was then calculating interest on $114,901.60 and that the trust account balance was $218,641.49. Mr Hobday has deposed that in conversations with Mr Smith, he (Mr Smith) agreed that the defendant could take payment of the $110,000 from the moneys held in trust but that he was concerned about when he would receive further funds. Mr Smith thought he would need to continue to fund future disputes about the sale of assets. Thus, he did not authorise the defendant to take payment of $114,901.60 from the trust funds.
74 On 30 July 2009, the defendant gave written notice to Mr Smith that their hourly rates had increased and the amounts thereof.
75 The broad terms of settlement of the Family Trust Action were that the assets held in the family trust would be sold and the proceeds distributed with 50% going to Mr Smith and 25% to each of his brother and sister. Mr Smith wished to negotiate the purchase of some of the trust assets. The defendant continued to act for Mr Smith in this respect as part of the same file. The family trust assets were later sold in a depressed market and Mr Smith was 'due' to receive approximately $9 million. I do not know exactly how much he received.
76 In September 2009, Mr Smith instructed the defendant to use the moneys held in trust for payment of all outstanding legal fees and to pay the balance to him. The defendant rendered an account which was provided to him with a pre-billing guide and a trust receipt on 10 September 2009. The remaining funds held in trust, being $72,042.68, were paid to Mr Smith.
77 Mr Smith continued to provide the defendant with instructions in relation to negotiating with the trustees, acting to preserve his right to reside in trust premises prior to their sale and in respect of various other matters to do with the trust assets. In respect of this work further accounts were rendered by the defendant in October 2009, December 2009, January 2010 and February 2010.
78 On 20 March 2010, Mr Smith made a part payment on the outstanding accounts in the sum of $10,000. Further accounts were rendered on 31 March 2010 and 31 August 2010. In August 2010, Mr Smith was advised of an increase in the hourly rate charges. Accounts were rendered on 30 September 2010 and 24 October 2010.
79 By about October 2010, the defendant had almost ceased to act for Mr Smith. Mr Smith sought some additional advice in December 2010 which the defendant provided but it did not render any accounts after 29 October 2010.
80 In February 2011, Mr Hobday wrote to Mr Smith requesting full payment of outstanding amounts. Mr Hobday agrees that since October 2010 Mr Smith had spoken to him about how he had paid a lot of legal fees. Mr Hobday says that he agreed and invited Mr Smith to put an offer in writing which Mr Hobday could take to the defendant's partners. Mr Smith did not make such an offer.
81 On 3 March 2011, Mr Hobday wrote to Mr Smith and referred to a conversation held on 1 March 2011, in which Mr Hobday had asked for payment of the outstanding accounts and Mr Smith had said that he wished to have the accounts taxed. Mr Hobday confirmed that the defendant had provided Mr Smith with itemised accounts as and when the accounts were rendered and as they were rendered more than 30 days earlier and no previous request for taxation had been made, Mr Smith would need to apply to this court for leave for an extension of time within which to ask for the bills of costs to be taxed.
82 The letter invited Mr Smith, if he had an issue with any of the accounts that had been rendered, to direct attention to a specific item which he believed to be inappropriate and the defendant would consider it. On the other hand, the letter said that unless payment was made within seven days the defendant would commence proceedings to recover the amounts due.
83 On 10 March 2011, Mr Smith responded by stating that from the defendant's previous conversations he believed that Mr Hobday had consented to supply timesheets and to have the accounts taxed. Mr Smith insisted that this be done. Mr Smith has deposed that he was referring to all the accounts, not just the unpaid bills.
84 By letter dated 17 March 2011, Mr Hobday advised Mr Smith that despite the fact that he was out of time to request that the accounts be taxed, the defendant had agreed to consent to proceeding to a taxation of the unpaid accounts. Mr Hobday advised Mr Smith that one of the accounts had been rendered under the 2008 Act in respect of work done for the purchase of a property. Therefore, if Mr Smith wanted to have that account taxed he needed to lodge it for taxation. Mr Smith has not paid, lodged for taxation or taken any further steps in respect of that account.
85 The defendant's bill of unpaid costs in respect of other matters covered by the Family Trust Action costs agreement was lodged for taxation on 25 March 2011. This bill was in the sum of $24,618 plus $484.50 disbursements.
86 On 28 July 2011, Mr Smith filed the originating summons in CIV 2390 of 2011 seeking a declaration that the Family Trust Action costs agreement is unreasonable against him. On 5 December 2011, he filed originating summonses in CIV 3315 and 3316 each of 2011 seeking the same declaration in respect of the Probate Action costs agreement and the South Perth costs agreement, respectively.
Plaintiff's grounds for relief
87 Mr Smith submits that each costs agreement is unreasonable for the following reasons:
(1) the defendant did not disclose the estimated costs of the matter the subject of each agreement;
(2) each agreement provided a range of charge-out rates for legal practitioners of different seniority;
(3) he was not given an option to accept or reject any increase in fees;
(4) each agreement gave the defendant the right to seek payment in advance at any time;
(5) he was required to provide security for costs owing, on demand, and all or any of his property was charged with payment of any moneys that were outstanding to the defendant;
(6) the rate of 10% interest payable on outstanding fees is higher than the Supreme Court default rate then applying;
(7) the defendant was given sole discretion to retain counsel;
(8) the agreements are stated to apply to claims within the jurisdiction of the Local Court, even though the Local Court had been abolished by the date of each agreement;
(9) each agreement stated that if any part of it is void, voidable or unenforceable it is to be read and construed as if that part had been severed from the retainer; and
(10) each agreement provided for flat hourly rates and the defendant billed in six minute units.
88 In my view, the determination of these applications turns on the defendant's failure to provide an estimate of costs. I will consider that issue first.
89 Each of the three costs agreements stated:
We shall endeavour to provide you, within 14 days, an estimate of costs likely to be incurred by you.
90 In respect of the South Perth costs agreement, no estimate of costs was given. In respect of the Probate Action, the defendant did not provide an estimate of its costs.
91 The only estimate of any Probate Action costs was given to Mr Smith in counsel's written opinion dated 20 April 2007. It was in that opinion that counsel stated that in his view if Mr Smith continued with his counterclaim, there was a significant likelihood that he would be required to pay the plaintiffs' party/party costs in defending Mr Smith's counterclaim. Counsel estimated that these costs were likely to be regarded as occupying 70% - 80% of the trial and would be $100,000 per week of trial and for a week of trial preparation. Thus, counsel said that in his opinion there was a significant risk of Mr Smith being personally liable for 70% - 80% of about $300,000. Counsel qualified that opinion by saying that the figures were rough estimates and there may be considerable variation in the ultimate costs liability, depending upon the nature of the costs order made.
92 In respect of the Family Trust Action, the defendant never gave an estimate of its costs. On 9 December 2008, Mr Smith was told that counsels' fees for the trial would be $340,000.
Failure to disclose an estimate of costs - the South Perth costs agreement
93 When the South Perth costs agreement was signed on 13 March 2007, Mr Smith had already been billed $4,714.60 of the eventual total costs of $5,046.80 in that matter. Thus, at the time the South Perth costs agreement was entered into, Mr Smith had knowledge of 93% of the total costs. Given this fact, taking into account the additional fees charged after the costs agreement was signed were only $332.20 and after considering the delay in commencing proceedings for review of the South Perth costs agreement, I am not prepared to exercise my discretion to find that the South Perth costs agreement was unreasonable as against Mr Smith and to declare that it be cancelled because no estimate of costs was given, or for any other reason.
94 In respect of delay, depending on the view I take of the evidence, the last account under the South Perth costs agreement was rendered in December 2006 or April 2007. Mr Hobday's affidavit of 27 October 2011 [56] states that the last account was rendered on 30 April 2006, but I suspect that this is an error and that it should read '2007'. If I accept, in favour of Mr Smith, that the last account was rendered in April 2007, there is still a delay of well over four years in commencing proceedings seeking the review of the South Perth costs agreement.
Failure to provide an estimate of costs - the Probate Action costs agreement
95 In the Probate Action, contrary to Ipp J's stipules in Brown v Talbot & Olivier, the defendant did not provide Mr Smith with an estimate of:
(1) the approximate amounts of the defendant's fees payable (as between solicitor and client) under the Probate Action costs agreement and the relevant scale, irrespective of Mr Smith's success in the action;
(2) the approximate amount of the defendant's fees (as between solicitor and client) which would be recovered on taxation under the relevant costs scale from the opposing side if Mr Smith was successful; or
(3) the approximate amount which Mr Smith would have to pay the defendant under the costs agreement if the litigation was successful and costs were recovered from the opposing parties.
96 The only estimate that was provided was the amount which Mr Smith would have to pay to the opposing parties if the litigation were to be unsuccessful. That estimate was given by counsel at least six months after the defendant commenced to act for Mr Smith in the Probate Action and five weeks after Mr Smith signed the Probate Action costs agreement.
97 The defendant says that it was not possible to provide an estimate of its costs in the Probate Action. Ipp J in Brown v Talbot & Olivier (78) said if it were not reasonably possible to give estimates of these kinds then, in order to provide disclosure of the material circumstances which might influence a client in deciding whether or not to enter into an agreement entitling solicitors to depart from the statutory costs scale, disclosure should include whether there was a real risk of the costs under the proposed agreement being more 'and significantly more, if that were the case' than under the appropriate costs scale.
98 The Probate Action costs agreement stated (as did the other two costs agreements):
We draw your attention to the fact that our charges are different to and may exceed the scale of fees payable by you if the Retainer did not apply. To that extent your acceptance of the Retainer may be contrary to your interests and shall constitute a waiver of your right to be charged in accordance with scale charges.
If you obtain the benefit of a costs order, the quantum of costs recovered by you will be pursuant to the scale applicable to the Court in which the action is taken and not in accordance with our rate. Therefore, any recovery of costs may be a partial recovery only. If the Court orders another party to pay to you costs which are in excess of costs actually incurred by you, you may only recover costs to the value of costs actually incurred.
99 The agreements each state that it is in Mr Smith's interest to obtain independent legal advice in relation to the terms of the retainer before he enter into it.
100 This portion of the costs agreement did not tell Mr Smith that there was a 'real risk' of the costs under the costs agreement being more than under the scale. It only advised him that they 'may' be more and that with the benefit of a costs order his recovery of costs 'may be a partial recovery only'.
101 Mr Hobday has deposed that he did not believe that there was a real risk that legal costs would be more under the costs agreement than the relevant costs scale. He has not said why he held that opinion. I could surmise that he holds the view, at least in part, because the hourly rates for work done under the costs agreement, are not more, generally, than the top of the range of hourly rates provided for in the 2006 costs scale. However, that analysis ignores cl 9 which is identical in both the 2006 costs scale and 2008 costs scale. It provides that in the absence of a costs agreement, the costs payable by a party to that party's legal practitioner shall not exceed the amounts stipulated in the table to the clause. The table limits the number of hours of work that a practitioner may charge in respect of types of matters and for doing specific types of work. The Probate Action costs agreement did not contain any such limits. It is true that item 32 of the table to cl 9 provides for an hourly rate for the work of a practitioner not covered by any other item. Clause 9(2) provides that allowances under item 32 are only to be awarded between a legal practitioner and a client for time reasonably spent on work not covered by any other item in the scale. There was no certainty that if a costs agreement had not been signed and the defendant's costs had been taxed, allowances under item 32 would have been made to cover all or most of the costs charged by the defendant. Further, the Probate Action costs agreement did not make it clear that costs would not be allowed under item 32 on a party/party basis, without an order of the court.
102 In any event, it is not up to me to determine whether costs under the costs agreement would have been more than under the relevant scale. Having determined that an estimate of costs was not given in the Probate Action, I must decide whether it was reasonably possible to do so. In my judgment it was.
103 The Probate Action was a contest between parties contending that different wills made by Mr Smith's mother should be entered into probate. In deciding this issue questions about Mrs Smith's testamentary capacity at the time she made the conflicting wills had to be determined. It was an example of a common type of action heard and determined in this court. The legal principles to be applied are well established. This is reflected in counsel's opinions of 26 March 2007 and 20 April 2007 respectively. Counsel's advice to settle the Probate Action was based on his concern about factual, rather than legal issues. Even acknowledging that the Probate Action may have been a complex form of such an action (given counsel's high estimate of the opposing parties' costs), I see no reason why the defendant could not have provided an estimate of its costs under the relevant scale and the costs agreement, well before Mr Smith signed the Probate Action costs agreement, and at least within a short period after he did so. This is particularly as the Probate Action had not only commenced but was due to go to trial at the time the defendant accepted instructions from Mr Smith in respect of it.
104 The situation which the defendant was in can be contrasted to the challenge of giving an estimate of legal costs before legal proceedings have been commenced where the nature of, and thus the costs of, the proceedings may be less certain. But this was not such a case. By the time the Probate Action costs agreement was signed the defendant should have known enough about the Probate Action to provide an estimate of its costs.
105 My finding is that the defendant should have provided an estimate of its costs prior to Mr Smith signing the Probate Action costs agreement. It was unreasonable for it not to do so and to instead undertake to 'endeavour' to provide an estimate within 14 days. In any event, the defendant did not comply with this undertaking.
106 Except in difficult cases where it is impracticable to do so, the client should have the benefit of the estimate of legal costs prior to entering into a costs agreement. Otherwise, the client runs a substantial risk of incurring and (over) committing to payment of future costs to the practitioner without a fair idea of what those costs may be. That may result in the client instructing the practitioner to do work which the client would not have instructed to be done if the client had been aware of the estimated total cost of the proceedings. The longer the practitioner client relationship continues without an estimate being given the more difficult it may be for the client to withdraw instructions once the client either receives an estimate of costs or appreciates through other means what the costs are likely to be.
107 Further, without an estimate of legal costs, it is difficult for a client to exercise the right to seek independent legal advice on the nature and effect of the costs agreement or to seek a more economical legal service.
108 Thus, a practitioner's failure to provide an estimate of legal costs before a costs agreement is required to be signed is likely to provide an unfair advantage to the practitioner in his or her relationship with the client.
109 Having regard to the above matters, the Probate Action costs agreement, which was entered into without disclosure of an estimate of legal fees, is unreasonable and will invoke the exercise of one of the powers in the Act s 222(2) unless there are circumstances which affect Mr Smith's ability to exercise 'an independent and informed judgment about whether to enter a costs agreement': Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [95] - [96]. In the same case, Murphy J listed a number of matters which may affect such determination.
110 The defendant relies on Mr Smith's familiarity with instructing solicitors and receiving and paying legal accounts as reasons why he was able to independently exercise informed judgment to enter into the Probate Action costs agreement without disclosure of an estimate of legal costs.
111 I accept that Mr Smith has extensive experience in business which has been gained over a long period of time. He had previously instructed legal practitioners to deal with business and personal affairs. However, there is no evidence that Mr Smith was familiar with the conduct of, or the amount of legal costs which were likely to be incurred in, an action such as the Probate Action. The evidence is that he largely left issues concerning his father's estate to his brother who is a legal practitioner. In any event, Mr Smith's father died in 1974 and probate was granted in 1977. Knowledge of legal work and legal costs associated with a probate action in the 1970s would not have provided Mr Smith with relevant knowledge about the Probate Action which was conducted some 30 years later.
112 Another matter relied on by the defendant is that by the time the Probate Action costs agreement was signed accounts totalling $31,651.52 had been rendered for work done in it. The defendant submits that these bills, together with those Mr Smith had received in respect of the South Perth property, meant that Mr Smith was aware of the nature of the costs likely to be charged in the Probate Action. I do not agree. Mr Smith had no way of estimating or ascertaining the defendant's total costs from this information. The difficulty Mr Smith would have had in estimating costs by this method can be ascertained by comparing the bills rendered up to the date the Probate Action costs agreement was signed (a period of over six months since Mr Smith first instructed the defendant), which totalled approximately $31,000, with the bills rendered in the four months after the costs agreement was signed, which totalled approximately $74,500.
113 The defendant also relies on delay as being a discretionary consideration disentitling Mr Smith to relief under s 222. In Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [98] - [111], Murphy J discussed the relevance of delay and particularly the factors to be taken into account when determining whether relief ought to be refused under the Act s 222 because of delay. His Honour also mentioned the differing views as to whether delay is a matter to be considered when reviewing a costs agreement (see Alman v Macdonald Rudder(A Firm) [9] - [10] (Murray J)) or whether it is a factor which entitles the court to refuse relief under the Act s 222, even if the court finds the costs agreement to be unreasonable: Harrison v Hocking [2000] WASC 188 [80] (Hasluck J); Alman v Macdonald Rudder [18] (Wheeler J) (as she then was); Alman v Macdonald Rudder (A Firm) [23] (Steytler J, Anderson J agreeing).
114 As the parties did not make submissions about the time at which delay is to be considered, I am prepared only to express the tentative view that as a matter of logic, it would be an unusual case in which delay in bringing an application for review of a costs agreement turned what would otherwise be an unreasonable costs agreement into a reasonable costs agreement. That view means that if, as the cases overwhelmingly accept, delay is always a relevant consideration in deciding whether to grant relief under the Act s 222, it must be considered after the court has found a costs agreement to be unreasonable and during the process of deciding whether an unreasonable costs agreement should be cancelled or the amount payable under it reduced. However, I agree with Murphy J that in practical terms whenever the question of delay is taken into account the outcome is likely to be the same.
115 Turning to the facts relevant to delay in bringing the application to review the Probate Action costs agreement, I note the following:
(1) the Probate Action costs agreement was signed on 13 March 2007;
(2) after the Probate Action costs agreement was signed eight accounts were presented and paid immediately from funds held in trust by the defendant;
(3) the Probate Action was settled in April/May 2007 and the last bill was presented on 31 October 2007;
(4) Mr Smith instructed the defendant in the Family Trust Action after he was aware of the amount of costs charged by the defendant in the Probate Action;
(5) in the latter half of 2010, Mr Smith complained to Mr Hobday about the amount of fees he had paid to the defendant;
(6) it was not until the beginning of March 2011, that Mr Smith asked for any of the defendant's bills to be taxed; and
(7) on 5 December 2011, some four years and one month after the last bill was presented, Mr Smith applied to have the Probate Action costs agreement set aside.
116 Mr Smith acknowledges that delay is a factor to be taken into account. However, he says that it is not the only factor nor the principle factor to be taken into account in deciding whether a costs agreement is unreasonable.
117 Mr Smith is not explicit in his reason for the delay in commencing this application. He may have understood from what Mr Hobday said to him that his legal costs in the Probate Action and the Family Trust Action would be covered by the proceeds of the sale of the South Perth property (affidavit 28 July 2011, par 31). It was only when it became apparent that the proceeds fell significantly short of covering those combined costs that he commenced these proceedings.
118 In submissions, Mr Smith says that the starting point from which to assess the extent of delay should be the date on which he knew that 'his rights had been violated', relying on the commentary in Meagher RP, Heydon JD and Leeming MJ, Meagher, Gummow & Lehane's Equity: Doctrines and Remedies (4th ed, 2002). He submits that if this date is used the delay is less than 12 months. This submission is based on the proposition that time should also only run against Mr Smith from after the last date an account was rendered by the defendant in respect of any matter with Mr Smith or from when his relationship with the defendant broke down. This is on the basis that it is unreasonable to have expected him to bring these applications whilst the solicitor/client relationship was on going.
119 Despite this submission, it is not apparent to me what evidentiary foundation exists for selecting a date in late 2010 or early 2011, as being the date on which Mr Smith first knew that the Probate Action costs agreement was unreasonable.
120 The defendant submits that Mr Smith has given no explanation for delaying for over four years from 31 October 2007 until 5 December 2011 before bringing the application in respect of the Probate Action costs agreement.
121 In Harrison v Hocking, Hasluck J said that he was prepared to assume that in the context of a review of a costs agreement, the criteria for assessing any question of delay will resemble those enunciated by Franklin J in Webb v Malcolm J Bateman & Co (Unreported, WASC, Library No 6305, 27 May 1986). The criteria identified by Franklin J related to delay in the context of what in 1986 was an application to enlarge time for the taxation of a practitioner's bill beyond the 30 days provided for by the 1893 Act. Hasluck J's assumption was agreed to by Wheeler J in Alman v Macdonald Rudder [18]. In Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky, Murphy J noted that the parties proceeded on the basis that the court had a discretion to decline to cancel a costs agreement where there had been inordinate delay, in accordance with the principles summarised by Hasluck J in Harrison v Hocking. His Honour then appeared to apply those principles in deciding the case.
122 Thus, it seems to have been accepted in previous cases decided by single judges in this court that not only is delay a relevant factor in deciding whether or not to grant relief under the Act s 222, but that delay should be considered in the context of the principles stated by Franklin J in Webb v Malcolm J Bateman & Co and summarised by Hasluck J in Harrison v Hocking.
123 In Harrison v Hocking, Hasluck J said that a consideration of the various factors relevant to delay commenced with the apparent purpose of the provisions of the Legal Practitioners Act to provide:
[M]achinery to protect a client against excessive charges by a practitioner, and to enable a client to be satisfied that bills of costs are not excessive, whilst imposing time limits (which in a proper case may be extended) to prevent a client unfairly taking advantage of the provisions to delay the obligation to pay proper costs, and to avoid frivolous objections. Other factors to be taken into account were the reasons for the delay in question, whether they were valid reasons for believing that a refusal to enlarge time might result in injustice to the client, whether there was evidence suggesting that the bill might be excessive, the nature and degree of prejudice to the practitioner, the practitioner's reasons for opposing the enlargement (if he does so), it being of importance that as an officer of the court the practitioner be seen to be acting honestly, ethically, and with proper motives, and that he not be acting merely to prevent taxation of the bill taking place [65].
124 For the sake of comity I will apply these principles. However, I do so tempering them with the following considerations. First, the Act does not provide a time limit for making an application under s 222. I do not agree that the court should apply the principles relevant to granting an enlargement of time to tax a practitioner's bill of costs to an application under s 222 in a way that places an onus on the applicant to justify delay where the statutory time limit for bringing such an application has not been breached. The relevant time limit for bringing an application under the Act s 222 is six years under the Limitation Act 2005 (WA).
125 Neither should the issue of delay be considered as if the defendant had alleged that the applications for review were an abuse of process because of delay: cf Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 [64] - [65], [69] - [71]. Although a defendant could allege that an application was an abuse of process, that is not the allegation in this case.
126 Secondly, Hasluck J appears to have been of the view that the principles should be applied to ensure that if, after review, a taxing officer was required to decide whether an extension of time for taxation of a relevant bill of costs should be granted, the decision of the taxing officer did not make the relief, granted under the equivalent of s 222, futile. Under the 2008 Act the equivalent decision would be whether the Supreme Court ought to extend time for an assessment of costs.
127 As was pointed out by Murphy J in Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [106], if a costs agreement is cancelled under s 222 the foundation for the recovery of costs by the practitioner pursuant to the accounts previously rendered has been removed. In that event, it will not be until a fresh account has been submitted to the client that time will begin to run against the client to have it taxed. In those circumstances it is unlikely that the client will request a taxation of the new bill out of time. Even if the request for taxation was made out of time, there may well be good grounds for the taxing officer to refuse to enlarge time, even though such a decision may appear to render the decision of the court under s 222, to cancel the costs agreement, futile. Such a refusal could legitimately be made on the basis that a further delay in requesting a taxation would be compounding any delay considered on the application under s 222. This analysis appears to me to undermine one of Hasluck J's reasons for deciding that the principles relevant to the consideration of delay in the context of an application to enlarge time for taxation of a bill of costs apply similarly to a review of a costs agreement under s 222.
128 Taking the above matters into account, I conclude that delay is not as an important factor in an application under s 222 as it is in respect of an application to enlarge time for the taxation of a bill of costs, especially in a case such as this where the bills have been paid and no allegation of abuse of process is made.
129 A factor which the authorities state is relevant to the granting of relief under s 222 is whether the applicant has provided an explanation for any delay: Harrison v Hocking [81]; Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [101]. I do not decide this application on the basis that Mr Smith has an obligation to provide an explanation for the delay in making it. However, given that the onus is on him to establish that he is entitled to relief under s 222, the absence of an explanation or an adequate explanation is something which I must take into account in deciding whether I should exercise my discretion to grant relief.
130 The fact is that Mr Smith has not provided an explanation for his delay in bringing the application to have the Probate Action costs agreement set aside. It is not for me to infer some explanation from the facts. However, I would not refuse Mr Smith relief on the grounds of delay unless there was evidence that the delay had resulted in significant prejudice or unfairness to the defendant.
131 I have found that the Probate Action costs agreement was unreasonable because it did not provide an estimate of legal costs. This is in the sense that it did not provide an estimate of the defendant's costs under the costs agreement or the relevant scale and neither did it provide an estimate of the costs which Mr Smith might recover from the opposing side if he was successful in the action. Despite this, the fact remains that the Probate Action had been settled and all bills paid under the costs agreement within seven months of the agreement being signed. Indeed, by the end of May 2007, a mere six weeks after the costs agreement was signed, over 95% of the costs of the Probate Action had been billed and paid. By this time the Family Trust Action had not commenced, although it was being discussed by Mr Smith and Mr Hobday.
132 Whatever dissatisfaction Mr Smith felt with the Probate Action costs agreement, it did not stop him from instructing the defendant in respect of the Family Trust Action and from subsequently signing a similar costs agreement in that action.
133 Further, in the absence of an application being made by Mr Smith to set aside the Probate Action costs agreement, the defendant continued to act for Mr Smith and take instructions from him in the Family Trust Action. These matters militate against me excusing Mr Smith's delay and cancelling the Probate Action costs agreement.
134 On the other hand, the defendant does not allege any particular prejudice that it has suffered by the delay. Its written submissions in respect of delay and the Probate Action costs agreement point to the length of the delay and the failure of Mr Smith to give an explanation for the lengthy delay. The defendant submits that it should not have to show prejudice until Mr Smith has justified his delay, which it says he has not done.
135 For the reasons I have given, I do not accept that prejudice only becomes relevant after the client has justified any delay. All relevant matters must be considered in deciding whether the discretion to cancel a costs agreement should be exercised.
136 However, the defendant submits, in general terms, that by the delay it has lost the opportunity to apply to the court for an order lifting the limits in the relevant costs scale as between it and Mr Smith. Mr Smith queries whether, in any event, there is power to do so between a solicitor and client. He also says that if there is such power, given the unusual circumstances, the defendant may be able to obtain an extension of time within to make such application. The defendant also says that there will be added cost and difficulty for it in preparing new bills based on the costs scale.
137 If this were an application to extend time and the onus was on Mr Smith to justify an extension of time, he would not have done so. However, this is not such a case. The six-year general limitation period for bringing an action applies to an application under s 222. Mr Smith is within that time. The defendant does not assert that the delay in bringing the application is so burdensome that a fair taxation or assessment of costs is now not possible. All the costs of the Probate Action were paid at the time the bills were rendered. So Mr Smith cannot be accused of using this process to delay paying the defendant's costs. I do not believe that the defendant will be denied any costs to which it is entitled if I cancel the Probate Action costs agreement. Having found that the Probate Action costs agreement is unreasonable and there being no evidence that the defendant has suffered any unfairness or prejudice other than what may be generally accepted as being necessarily a result of such delay, I am of the view that Mr Smith is entitled to relief under s 222 in respect of the Probate Action costs agreement. There is insufficient evidence to enable me to determine what the defendant's costs are under the relevant scale and to reduce the amount payable to the defendant to that amount. Therefore I cancel the agreement.
Failure to disclose an estimate of costs - the Family Trust Action costs agreement
138 In the Family Trust Action, contrary to Ipp J's stipules in Brown v Talbot & Olivier, the defendant did not provide Mr Smith with an estimate of:
(1) the approximate amounts of the defendant's fees payable (as between solicitor and client) under the Family Trust Action costs agreement and the relevant scale, irrespective of Mr Smith's success in the action;
(2) the approximate amount of the defendant's fees (as between solicitor and client) which would be recovered on taxation under the relevant costs scale from the opposing side if Mr Smith was successful; or
(3) the approximate amount which Mr Smith would have to pay the defendant under the costs agreement if the litigation was successful and costs were recovered from the opposing parties.
139 The only estimate that was provided was the amount Mr Smith would have to pay in counsels' fees. This estimate was given on 9 December 2008, over 12 months after Mr Smith had first given instructions to Mr Hobday.
140 Given that the Family Trust Action costs agreement was not signed until 26 March 2008 (some five months after Mr Smith gave instructions to the defendant in respect of it), I am of the view that it was unreasonable for the defendant not to provide estimates of its legal costs to Mr Smith under the costs agreement and the relevant costs scale in respect of the Family Trust Action before Mr Smith signed the costs agreement. By then some $50,000 of fees had been charged and the defendant should, despite the complexity of the Family Trust Action, have had a reasonable idea of the work which was required in the action.
141 For the reasons which I have given in respect of the Probate Action costs agreement, I find that the failure of the defendant to include an estimate of its costs in the Family Trust Action costs agreement or to provide an estimate prior to the signing of the costs agreement was unreasonable.
142 There are then two issues which affect the question of whether Mr Smith should have relief in respect of the Family Trust Action costs agreement. They are delay and the effect of his request to have some of the accounts in respect of the costs agreement taxed. I will deal with the second issue first.
143 As I have stated, the defendant's bill lodged for taxation in accordance with the Family Trust Action costs agreement was in the sum of $24,618.00. This is all that Mr Smith owes under the Family Trust Action costs agreement. The affidavits do not say what has occurred in the taxation since the bill was lodged but I was told by counsel that the taxation stands adjourned.
144 The defendant submits that on a proper construction of the Act, a client who received an itemised bill of costs prepared in accordance with a costs agreement and who gave notice requiring it to be taxed under the Act s 232(3) and who had, pursuant to that request, been served with a bill of costs which had been lodged for taxation, may not seek a review under s 222 other than by referral from the taxing officer under the Act s 235(2).
145 The parties have made submissions on the basis that the Act, and not the 2008 Act, applies to the taxation. I will deal with this issue on the same basis although I doubt the correctness of the assumption given the terms of the 2008 Act s 616(3). The inference from that provision is that if the bill of costs was lodged for taxation after the 2008 Act commenced, as this bill was, the provisions of the 2008 Act apply to it.
146 The Act s 235 stated:
(1) When taxing an itemised bill of costs a taxing officer must give effect to any costs agreement made as to the costs specified in the bill.
(2) A taxing officer, at the request of the party charged with a bill of costs, may refer any costs agreement made as to the costs specified in the bill to the Supreme Court for review of the agreement under section 222.
147 The difference between an application for a review under s 222 and the process in s 235(2) is that in the former, the client has a right to bring an application for review whereas under s 235(2) the client may only request the taxing officer to exercise a discretion to refer the costs agreement to the court for review under s 222.
148 The relationship between the Act s 222 and s 235 was discussed by Murphy J in Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky [102] - [111].
149 I agree with Murphy J, for the reasons he states, that general law doctrines do not apply directly to prevent a client from seeking review under s 222 where the client, with knowledge of their rights under s 222, has nevertheless served notice to have a bill taxed under a subsisting costs agreement.
150 It is to be noted though, that that conclusion applies to situations in which the client has knowledge of their rights under s 222. There is no evidence before me that when Mr Smith requested his bills to be taxed he had knowledge of his rights under s 222.
151 Murphy J said there may be a question as to whether, if the taxation has reached the stage of a bill of costs being lodged for taxation, a client could seek a review under s 222 other than by referral from the taxing officer under s 235(2). Murphy J said that because the point was not argued before him he would assume that in the case before him the client was entitled to apply for review by summons under s 222, even after that party had commenced a taxation process.
152 Therefore, Murphy J distinguished between the situation where the client had served notice to have a bill taxed under the Act s 232(3)(a), in which case general law doctrines did not apply to prevent the client from seeking the review under s 222, and the situation where a notice to have a bill taxed had been served and the bill of costs had been lodged for taxation. In the latter situation Murphy J left open the question as to whether on a proper construction of the Act (as opposed to on the basis of general legal doctrines) the client may not be able to seek a review under s 222. It is this latter point that Murphy J left open which is now being propounded by the defendant.
153 The defendant submits that the application under s 222 for a review of the Family Trust Action costs agreement constitutes an attack on the defendant's charges which is collateral to the taxation proceedings. It submits that the application is an abuse of process and should be dismissed on this ground alone.
154 I disagree that the application constitutes an attack on the defendant's charges per se. The grounds of the application for review are not based on the amount of the defendant's charges. They challenge the reasonableness of the costs agreement itself, regardless of the charges. There may be cases where it can be discerned that an application for review under s 222 is no more than a means by which the client is attempting to dispute the lawyer's fees. I do not discern that this is such a case.
155 As to the proper construction of s 222 and s 235(2), I am not persuaded that once a bill was lodged for taxation, the client could not seek a review under s 222. The time limit of 30 days within which the client had to serve on his or her lawyer a written notice of intention to have the bill taxed was such that there would be many cases where such a notice had to be given prior to the client becoming aware of his or her rights to have a costs agreement reviewed pursuant to s 222. Once such a notice had been given, the statutory requirement was for the lawyer to lodge the bill for taxation. In my view, it may have worked an injustice if after that occurred a client could only have a costs agreement reviewed at the discretion of the taxing officer.
156 There is nothing unjust or inherently wrong with a client on the one hand saying that a costs agreement is unreasonable and also saying that if the court does not agree that it is unreasonable, they wish to have the costs charged pursuant to it taxed. In my view, it is unreasonable to interpret s 222 and s 235 of the Act in such a way as to preclude a client from exercising a right of review and preserving their right to have the bill taxed if the costs agreement is not found to be unreasonable. Rather, I prefer the view that s 235(2) was simply another means of obtaining a review of a costs agreement to that available under s 222.
157 The defendant does not submit that any general law doctrine mentioned by Murphy J in Computer Accounting & Tax Pty Ltd v Bowen Buchbinder Vilensky operates so as to make it inappropriate to grant Mr Smith relief. It matters not whether this is because the defendant is unable to point to evidence that Mr Smith had knowledge of his rights under s 222 or whether the defendant is unable to point to substantial prejudice to it. These are matters for the defendant to raise and as it has not done so I am absolved from the necessity of considering them.
158 Finally, I turn to the issue of delay which is relied upon by the defendant. For the reasons which I have articulated in relation to the Probate Action costs agreement, I am not prepared to refuse Mr Smith relief on the basis of delay.
159 In saying this, I appreciate that there is some additional prejudice to the defendant in the delay in making the application to cancel the Family Trust Action costs agreement in that Mr Smith has not paid some $24,000 of the defendant's costs. However, this sum has to be balanced against the $400,000 which Mr Smith has paid under the Family Trust Action costs agreement. Having done so, the outstanding amounts do not cause me to determine that Mr Smith should be denied relief. Consequently, I would also cancel the Family Trust Action costs agreement.
Plaintiff's remaining grounds
160 As I have found the Probate Action and Family Trust Action costs agreements unreasonable and decided to cancel them, and given the grounds on which I have declined to cancel the South Perth costs agreement, it is unnecessary for me to consider the other grounds relied on by Mr Smith. It is sufficient for me to say that none of them, either considered alone or together, would render any of the costs agreements unreasonable in the absence of the failure to provide an estimate of the defendant's costs.
161 However, in deference to the submissions of the parties and the Law Society on the issue of six minute unit billing, I will make some observations on that ground.
Six minute unit billing
162 Subject to different hourly billing rates, each of the defendant's costs disclosure statements, which were provided to Mr Smith along with the retainer agreements, said:
1.Basis of Calculating Professional Fees
We charge an hourly rate for our services. Our current rates, inclusive of GST are:
Partner $363.00 - $395.00 per hour
Solicitors $275.00 - $355.00 per hour
Articled Clerks, Law Clerks &
Clerical Staff $165.00 per hour
The actual rate charged depends in part upon the person undertaking the work, and its legal and factual complexity.
With respect to each individual task we perform, we charge a minimum unit of 6 minutes, irrespective of the actual time spent on that task.
163 Mr Smith submits that a key issue in a review of a costs agreement is whether the terms of the agreement appropriately reflect the fiduciary duty that a practitioner owes to a client. He submits that an element of that duty is that a practitioner may not prefer the practitioner's interests over the interests of the client. He submits that the adoption of a time unit billing regime favours the interests of the practitioner over that of the client, without any warning to the client to that effect.
164 Mr Smith relies upon various judicial and extra judicial statements which contain criticisms of time unit billing. For example, Mr Smith cites Rogers CJ Comm D Singleton v Macquarie Broadcasting Holdings Ltd (1991) 24 NSWLR 103, 109 where his Honour said:
However, quite apart from any other feature, time cost charges may have conspicuous elements of unfairness. Most obviously it rewards the inefficient and the incompetent. The same item of work may quite obviously take a half an hour in the hands of a highly skilled practitioner and two hours in the hands of someone of considerably lesser ability. To some extent of course, this will be compensated for by the fact that the charge out rate for the less skilled is likely to be much lower than for the highly skilled practitioner. However this is not necessarily so, and, in any event, the lower charge out rate may not sufficiently compensate for the greater amount of time occupied. As well, time cost charging loses the incentive to avoid unnecessary work or inefficient practices. Most importantly it does not discriminate according to whether the practitioner is engaged in the highly skilled task of preparing a statement of evidence, or the more mundane task of making a telephone report to the client of what may have passed in court fixing the date for hearing. There is nothing in a time cost agreement which provides a discrimen between the two situations and this may argue for the proposition that such an agreement is so unfair, or unreasonable, that the court ought not to give effect to it.
165 In New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116, 126 Gleeson CJ and Kirby P (141) agreed with these comments, albeit in different factual circumstances.
166 Gleeson CJ repeated these sentiments in a paper he gave entitled Commentary on Paper by Lord Browne-Wilkinson at the Supreme Court of New South Wales on 11 September 1998. His Honour said:
Charging for professional legal services on the basis of the time taken to render those services rewards delay, inefficiency, and slow thinking. Time costing is an appropriate mechanism, in-house, for checking upon the efficiency of a lawyer's operations. It is not, I believe, an appropriate basis for charging for professional services.
The results of time charging are obvious and inevitable. They have particular importance in relation to proposals for case management. Insofar as case management involves judges directing lawyers to do things, judges need to bear in mind that most work lawyers do is now charged for on a time basis.
Time charging is of particular significance in a process, such as litigation, which is a good example of Parkinson's Law! Work expands to fill the available time. When people are being paid on the basis of time spent, why wouldn't it?
167 The Law Reform Commission of Western Australia in its report on the Review of the Criminal and Civil Justice System, Final Report (1999) 329 - 330 said:
Timesheets are now kept in almost every legal firm. Two of the main performance indicators of solicitors are 'fees rendered to budget' and 'fees recovered to budget'. In Western Australia most costs agreements entered into between solicitor and client require the client to pay for the time spent on the case by the solicitor. These costs agreements are based on the premise that the fees allowed in the scales of costs are insufficient.
Time based agreements:
• are likely to involve a conflict between the duty of solicitors to their clients and their own self-interest;
• are apt to reward the inefficient;
• lack anything that shows the appropriateness of the person for the work
- for example, a more junior practitioner may well have been able to adequately complete the task; and
• may encourage lawyers to 'over-lawyer'.
The obvious concern with a system based on billable hours is that it provides an incentive to undertake unnecessary work and to maintain inefficient ways of doing necessary work. Reducing the focus on time-costing is consistent with our recommendations, in Chapter 16, to have capped costs and lump sum costs awards.
168 Mr Smith says that given these considerations, even if a costs agreement which provides for six minute unit billing at a flat hourly rate is not of itself unreasonable, the fact that such a billing regime favours the interests of the practitioner over that of the client and given the fiduciary duty of the practitioner to the client, if such a regime is used in a costs agreement the practitioner must disclose to the client the advantage to the practitioner conferred by such a billing regime. It is said that the defendant failed to do so in this case.
169 I turn first to consider the question whether a costs agreement which provides for six minute unit billing at a flat hourly rate of charging, without regard to the kind of work being done, is of itself unreasonable. The defendant and the Law Society submit that it is not. I agree with their submissions for the following reasons:
(1) As the Law Reform Commission acknowledged, time-based charging has been a feature of legal practice in Western Australia for the last 30 years.
(2) The Act s 221(1) provides that a legal practitioner may make a written costs agreement with a client either by a gross sum 'or otherwise'. 'Otherwise' is a term of wide import and I agree with the Law Society and the defendant that it is permissive of a billing regime such as charging in time units of six minutes at a flat hourly rate.
(3) On 1 March 2009, the 2008 Act commenced, and the Act was repealed. The 2008 Act has substantial provisions regulating costs agreements. It is notable that the definition of a costs agreement in the 2008 Act is wider than that contained in the Act and that the 2008 Act does not provide that a costs agreement based on charging in six minute units and at flat hourly rates is void, unfair or unreasonable, per se.
(4) Whilst many of the arguments against charging in time units and at flat hourly rates are valid, Mr Smith has not proposed an alternative system which would be free of other or similar flaws. In the absence of legislative prohibition, it is the court's obligation on an application under s 222 to review a particular costs agreement and if it is found to be unreasonable to grant the applicant relief in respect of it. As has been held in other cases, the role of the court is to look at the terms of the costs agreement under review, as a whole, in the context of the background to the making of the costs agreement, the nature of the client and other relevant factors to decide the question of unreasonableness. However, it is not the role of the court to make a blanket rule that it is inherently unreasonable for a costs agreement to provide for charging in time units at a flat hourly rate, irrespective of the background to the costs agreement the subject of the application.
(5) Both the 2006 and 2008 costs scales provide for flat hourly rates of charging depending upon broad categories of seniority of practitioners and one broad category of unqualified workers which is consistent with the billing regime in these costs agreements.
170 Next I consider whether the three costs agreements under review disclosed to Mr Smith the advantages to the defendant in the unit billing system. In McNamara Business & Property Law v Kasmeridis [2007] SASC 90; (2007) 97 SASR 129 the Full Court of the Supreme Court of South Australia considered this issue. Doyle CJ said:
The fact that the agreement provides for time charging is of particular significance in this context. The hourly rate for a solicitor of $200 is not, of itself, open to criticism. As the Master pointed out, at the relevant time under the relevant scale the hourly rate was $198 per hour, virtually the same as the rate provided by the agreement. But the Kasmeridis were not told that if the work to be done was costed according to the relevant scale, the level of charging was likely to be less, and probably significantly less; they were not told that there may be some solicitors who would charge in accordance with the scale, even though time charging at the rate charged was common, and some solicitors would charge more; they were not told that the hourly rate of charging bore no reference to the experience or seniority of the solicitor; they were not told that the hourly rate of charging did not vary according to the task performed, or the level of skill called for; they were not told that the agreement entitled McNamara to charge for all time spent on their affairs, even though according to the relevant scale some kinds of work might not be chargeable at all [48].
171 The Law Society submits that the true issue is whether the client's decision to agree to the terms of the costs agreement was a free and informed choice based on information which gave the client a fair understanding of the operation and effect of the costs agreement. I do not quibble with the Society's submission. However, the omission of the information referred to by the Chief Justice in McNamara Business & Property Law will often result in a court concluding that the client's decision to agree to the terms of the costs agreement was not a free and informed choice based on relevant information.
172 Each of the costs agreement in this case stated:
We draw your attention to the fact that our charges are different to and may exceed the scale of fees payable by you if the Retainer did not apply. Scale fees are legislatively prescribed solicitor fees that limit the amount of solicitor and counsel fees which can be recovered. To the extent that our charges are different to and may exceed the scale of fees, your acceptance of this Retainer may be contrary to your interest and shall constitute a waiver of your right to be charged in accordance with the scale charges.
173 Each of the costs disclosure statements which Mr Smith received prior to entering into the costs agreements also stated:
You should also be aware that:
(i) there may be other solicitors willing to act for you at a lower cost or who may not require a written costs agreement;
(ii) for some areas of law, the Legal Costs Committee publishes a scale of costs that legal practitioners may charge for professional services without entering into a costs agreement. The fees charged by us will usually be higher than that chargeable under the applicable scale (if any);
(iii) you have the right to seek independent legal or financial advice concerning the meaning of the terms of any proposed written costs agreement.
- Later in the same document it states:
If litigation is unsuccessful, the successful party will usually be entitled to an order for costs against the unsuccessful party. We draw your attention to the fact that our charges are different to and may exceed the scale of fees payable by you if the Retainer did not apply. Scale fees are legislatively prescribed solicitor fees that limit the amount of solicitor and counsel fees which can be recovered, irrespective of time spent by solicitor in proceedings. To the extent that our charges are different to and may exceed the scale of fees, your acceptance of this Retainer may be contrary to your interests and shall constitute a waiver of your right to be charged in accordance with the scale charges.
175 Appropriately, the costs disclosure statements said that the defendant charged a minimum unit of six minutes, irrespective of the actual time spent on a task.
176 The costs agreements also advised Mr Smith that it was in his interests to obtain independent legal advice in relation to the terms of the agreement before he entered into it. It advised him that, for ethical reasons, the defendant was unable to advise him in relation to the retainer and that the Law Society would advise him of the names of firms who may independently advise him in that regard.
177 Thus, the written material provided to Mr Smith went a considerable way to meet the disclosure which the Chief Justice of South Australia in McNamara Business & Property Law suggested was appropriate. But there were unsatisfactory aspects of it. For example, the costs disclosure statement said that the fees charged by the defendant 'will usually be higher than that chargeable under the applicable scale (if any)'. Despite this, Mr Smith was given a mixed message in that later in the same document and in the retainer agreement themselves it was said that the defendant's charges 'may exceed the scale of fees'.
178 Also, Mr Smith was only told that there may be an applicable costs scale. He should have been told that there was one.
179 As to whether it was necessary for the costs agreements or the costs disclosure statements to state that the hourly rate of charging bore no reference to the experience or seniority of the solicitor performing the work or the nature of the work, the costs disclosure statements specifically stated:
The actual rate charged depends in part upon the person undertaking the work, and its legal and factual complexities.
180 The above sentence from the costs disclosure statements implied that there would be variation in the rate charged depending not only upon who was undertaking the work but also the legal and factual complexity of the work undertaken. On the other hand, the costs agreements did not contain that sentence and stated that the solicitor having the primary conduct of Mr Smith's matters would be Mr Hobday. A flat hourly rate for his work was stipulated. The documents given to Mr Smith should have been clear one way or another as to whether different rates would be charged depending not only on who was doing the work but also on the complexity of the work.
181 The Law Society submits that if a flat hourly rate is charged it results in swings and roundabouts. A client who is told that there will be a flat rate of charging knows that even if the factual and legal complexity of the work is high and it is required to be done out of hours and on an urgent basis, he or she will still be charged the same flat rate as if the work is simple and done within office hours. That advantage has to be balanced against the disadvantage of knowing that whatever work is to be completed will be done at the same flat rate, even if the work is very simple. I accept this analysis as long as the costs agreement is clear about how the client will be charged and that time billing is likely to result in higher charges. The added difficulty in this case is that the costs agreements were not clear as to whether Mr Smith was to be charged a flat hourly rate for Mr Hobday's work or not, regardless of its complexity. There was also mixed information given to Mr Smith about whether the costs agreements would or may result in higher costs.
182 It was submitted on behalf of Mr Smith that the costs documents provided to him should have expressly stated that time billing prefers the interest of the solicitors to that of the client. I have not found anything in the authorities and I do not think, as a matter of principle, that it is necessary for that express information to be provided to the client. With respect, I agree with Doyle CJ that it is adequate disclosure for the client to be told that time unit billing will probably result in higher charges than charging under the relevant costs scale. Mr Smith was told this in one place in the documents but it is unfortunate that disclosure was watered down by other statements, as I have explained above.
183 It is also unfortunate that although the defendant advised Mr Smith that the hourly rate of charging varied according to the task performed or the skills called for by the solicitor, the advice was so vague as to be meaningless. The costs disclosure statements provided that the actual rate charged would depend 'in part' upon both the person undertaking the work and the legal and factual complexity of the work. To tell a client that the rate charged will vary but only 'in part' upon such matters means that it will be left up to the discretion of the practitioner as to whether there is any such variation. The variation may be so minor or so seldom employed that the client could be quite misled by the statement.
184 Finally, nowhere in the documents that Mr Smith was given was it stated that the defendant was entitled to charge for all time spent on Mr Smith's affairs, even though if the relevant costs scale applied some kinds of work might not be chargeable at all.
185 The above analysis shows that Mr Smith was told most, but not all, the information suggested by the Chief Justice of South Australia and at least in one respect the information he was provided with could have been misleading. This analysis reinforces my conclusion that the Family Trusts Action costs agreement and Probate Action costs agreements are unreasonable and ought to be cancelled.
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