ZKP Group Ltd v Connell - [2019] SASC 27

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
ZKP GROUP LTD v CONNELL
[2019] SASC 27
Judgment of Judge Dart a Master of the Supreme Court
28 February 2019
PROFESSIONS AND TRADES - LAWYERS - SOLICITOR AND CLIENT - RETAINER
STATUTES - ACTS OF PARLIAMENT - INTERPRETATION
EQUITY - GENERAL PRINCIPLES - FIDUCIARY OBLIGATIONS - GENERAL PRINCIPLES
Costs agreement - whether accepted by the client - Legal Practitioners Act 1981 (SA) - Schedule 3 - conduct amounting to acceptance - whether costs agreement should be set aside as not being fair and reasonable - obligations of disclosure contained in Schedule 3 - plaintiff sophisticated client - no obligation to make disclosure in respect of Supreme Court Scale - solicitors' fiduciary duties - fiduciary duty cannot modify or override a statutory provision.
Held:
1. Terms of costs agreement accepted by plaintiff.
2. No basis to set aside the costs agreement established.
Legal Practitioners Act 1981 (SA) Schedule 3, referred to.
Brooks & Anor v Young & Ors [2018] SASCFC 81, applied.
McNamara Business & Property Law v Kasmeridis & Anor (2005) 92 SASR 382; McNamara Business & Property Law v Kasmeridis & Anor (2007) 97 SASR 129, considered.

ZKP GROUP LTD v CONNELL
[2019] SASC 27
JUDGE DART:

This matter concerns a dispute about legal costs. The plaintiff is a public company. It retained the defendant, as its solicitor, for the purpose of obtaining a listing on the Australian Stock Exchange.
On 20 March 2017 the defendant provided a written letter of engagement (“the costs agreement”) addressed to Mr Lu Lijian, the Chairman of the plaintiff (“the Chairman”). It set out the scope of the work to be undertaken, which was considerable. The defendant operates on an agreed fee basis. The costs agreement set out the agreed fee in the amount of $250,000 plus GST. There was also an allowance for certain expenses. The agreed fee was to be paid in five equal payments at various milestones in the process.
The plaintiff in this proceeding simply seeks to set aside the costs agreement. There is a related proceeding between the parties, action SCCIV-18-133, which is an application to fix legal costs. In that action the plaintiff seeks to have three particular tax invoices adjudicated on the Supreme Court Scale. The invoices are each in the milestone amount of $55,000. The adjudication application has been put to one side until the Court determines whether the costs agreement should be set aside. At some time there was a falling out between the parties and the costs agreement was terminated by the plaintiff.
On the argument the Court had before it two affidavits. The first was from Mr Andrew Martin, a director of the plaintiff.[1] It contains a number of assertions. The first is that the costs agreement is unenforceable and that the invoices should be taxed on the Supreme Court Scale. It also asserts that the plaintiff never accepted the costs agreement. No issue was taken about the affidavit, but assertions are not evidence.
[1] Affidavit of Andrew David Martin sworn 8 February 2018, FDN2.
The defendant also filed an affidavit containing details of how the costs agreement was entered into with the plaintiff.[2] The defendant’s affidavit is uncontradicted. No affidavit was filed by the Chairman of the plaintiff. The defendant deposes to the fact that he provided the costs agreement to the Chairman of the plaintiff. He also deposes to the fact that he was told by the Chairman that the costs agreement had been signed on behalf of the plaintiff. He notes that the terms of the costs agreement requested the plaintiff to contact him if any of its terms were unacceptable. At no time was any complaint made to him about the terms of the costs agreement. He further deposes to the fact that, after he was told the costs agreement had been signed, he was also told to proceed with the work. The defendant was provided with substantial information by the plaintiff to allow work to proceed. Under the terms of the costs agreement the first payment was due upon execution of the costs agreement. The plaintiff complied with that obligation.
[2] Affidavit of Brendan Peter Connell sworn 15 March 2018, FDN4.
The defendant has detailed the work carried out in respect of the process of obtaining the plaintiff’s listing on the Australian Stock Exchange. It is not necessary to fully set out the extent of the work which is deposed to in the defendant’s affidavit. Suffice to say that the defendant deposes to the fact that he and another solicitor in his office worked largely full-time on the matter for a number of months.
The legal issues
The plaintiff has filed points of claim and points of defence have been filed in response. The points of claim and defence disclose two issues which the parties require the Court to determine. They are:
1Whether the costs agreement was accepted by the plaintiff.
2Whether the costs agreement should be set aside on the basis that it is not fair and reasonable.
In 2013 Parliament enacted significant amendments to the Legal Practitioners Act 1981 (“LPA”). The amendments came in to effect from 1 July 2014 and apply in the present case. For present purposes the relevant amendment was the enacting of Schedule 3 (“the schedule”) which deals with the obligations of solicitors, and the rights of clients, in respect of costs. The schedule is very detailed and consists of 53 clauses.
The plaintiff’s argument in respect of the first issue was that the costs agreement was not accepted by the plaintiff. Counsel for the plaintiff, Mr Ericson, stated that, whilst the Full Court in McNamara Business & Property Law v Kasmeridis & Anor[3] found that a costs agreement evidenced in writing could be orally accepted, the position was now different. McNamara was decided under the provisions of s 42(6) of the LPA which were repealed as part of the 2013 amendments.
[3] (2005) 92 SASR 382.
The relevant provisions of the schedule are found in clause 24:
24—Making costs agreements
(1)A costs agreement may be made—
(a)between a client and a law practice retained by the client; or
(b)between a client and a law practice retained on behalf of the client by another law practice; or
(c)between a law practice and another law practice that retained that law practice on behalf of a client; or
(d)between a law practice and an associated third party payer.
(2)A costs agreement must be written or evidenced in writing.
(3)A costs agreement may consist of a written offer in accordance with subclause (4) that is accepted in writing or by other conduct.
Note—
Acceptance by other conduct is not permitted for conditional costs agreements—see clause 25.
(4)The offer must clearly state—
(a)that it is an offer to enter into a costs agreement; and
(b)that the offer can be accepted in writing or by other conduct; and
(c)the type of conduct that will constitute acceptance.
(5)Except as provided by clause 51, a costs agreement cannot provide that the legal costs to which it relates are not subject to adjudication of costs under Part 7.
Note—
If it attempts to do so, the costs agreement will be void—see clause 29(1).
(6)A reference in clause 30 and in prescribed provisions of this Schedule to a client is, in relation to a costs agreement that is entered into between a law practice and an associated third party payer as referred to in subclause (1)(d) and to which a client of the law practice is not a party, a reference to the associated third party payer.
The argument of the plaintiff is that clause 24 has changed the common law position. Sub-clause (3) provides that a costs agreement consist of a written offer that may be accepted in writing or by other conduct. Sub-clause (4) indicates, amongst other things, the written offer must state the type of conduct that will constitute acceptance. The argument is that the costs agreement indicates that it is to be accepted by signing the agreement and returning a copy to the defendant. The evidence before the Court is that it was signed. It was not returned, or at least that appears to be the case. The defendant accepts he has been unable to find a signed copy.
To give the matter context, it is necessary to set out what the costs agreement says:[4]
This letter forms our offer to undertake a Client Agreement (including a costs agreement) with you.
Please read the terms of this letter carefully.
If they are acceptable to you, please sign and return a copy of this letter.
If they are not acceptable to you, please contact us immediately.
For us to act on your behalf a copy of this Agreement will need to be signed by you or by a director on your behalf.
[4] Trial book, p 21.
Counsel for the defendant, Mr Rau SC, submitted that the plaintiff was being opportunistic, in that it was attempting to use its own failure to return the signed agreement to its advantage. He also submitted that the totality of the evidence was such as to leave no scope to argue that the costs agreement was not accepted by the plaintiff.
The answer to the question depends partly on the construction of clause 24 and partly a consideration of the facts. The plaintiff says the relevant conduct that will constitute acceptance of the costs agreement was signing and returning. I do not regard returning the signed document as an integral part of the conduct necessary for acceptance. The costs agreement itself makes clear that the solicitors could not act until the agreement was signed on behalf of the plaintiff. That occurred.
The other relevant conduct of the plaintiff was the making of the first payment. The costs agreement required payment of the sum of $55,000 upon the signing of the costs agreement. That payment was made. I regard that as relevant conduct by the plaintiff, indicating acceptance. There was no requirement to make a payment of $55,000, other than in accordance with the requirements of the costs agreement. It is simply not possible to determine on the facts of this matter that the costs agreement was not accepted.
The second issue is whether, the costs agreement having been accepted by the plaintiff, it should nonetheless be set aside as being not fair and reasonable. The sole basis advanced is that the defendant did not explain to the plaintiff that there was a Supreme Court Scale and the costs being charged were greater than the scale.
The argument is premised on the decision in McNamara Business & Property Law v Kasmeridis & Anor[5] (the second Full Court matter between those parties) in which the Full Court noted the obligation to make full disclosure to a client in order to avoid any potential conflict between the interests of a solicitor and the solicitor’s duty to the client. The plaintiff says that it is a basic obligation arising from the fiduciary relationship between solicitor and client. It says that the failure of the defendant to explain the cost scale to the plaintiff means that the costs agreement should be set aside as not fair and reasonable.
[5] (2007) 97 SASR 129.
The latter McNamara decision was made with respect to the repealed provisions of the LPA. It was not a decision in respect of the obligations arising under the schedule. Nonetheless, the relationship between solicitor and client remains fiduciary.
The schedule gives the court an express power to set aside the costs agreement. It provides as follows:
30—Setting aside costs agreements
(1)On application by a client, the Supreme Court may order that a costs agreement be set aside if satisfied that the agreement is not fair and reasonable.
(2)In determining whether or not a costs agreement is fair and reasonable, and without limiting the matters to which the Supreme Court can have regard, the Court may have regard to any or all of the following matters:
(a)whether the client was induced to enter into the agreement by the fraud or misrepresentation of the law practice or of any representative of the law practice;
(b)whether any legal practitioner acting on behalf of the law practice has been found guilty of unsatisfactory professional conduct or professional misconduct in relation to the provision of legal services to which the agreement relates;
(c)whether the law practice failed to make any of the disclosures required under Part 3;
(d)the circumstances and the conduct of the parties before and when the agreement was made;
(e)the circumstances and the conduct of the parties in the matters after the agreement was made;
(f)whether and how the agreement addresses the effect on costs of matters and changed circumstances that might foreseeably arise and affect the extent and nature of legal services provided under the agreement;
(g)whether and how billing under the agreement addresses changed circumstances affecting the extent and nature of legal services provided under the agreement.
(3)The Supreme Court may adjourn the hearing of an application under this clause pending the completion of any investigation or determination of any charge in relation to the conduct of any legal practitioner.
(4)If the Supreme Court orders that a costs agreement be set aside, it may make an order in relation to the payment of legal costs the subject of the agreement.
Relevant for present purposes is clause 30(2)(c). The complaint is that there was a failure to disclose the existence of the Supreme Court Scale. It should be noted that the defendant does not accept that he was charging greater than the Supreme Court Scale. The costs agreement is for an agreed or fixed fee. This is not the usual case where the costs agreement specifies an hourly rate greater than that provided for in the Supreme Court Scale and the position is clear. I proceed on the basis that the costs may exceed the Supreme Court Scale.
The schedule is intended to be consumer protection and it should be read to best achieve that purpose. The schedule sets out in great detail the obligations of solicitors in respect of disclosure about legal costs. It also sets out in great detail the rights of clients in respect of legal costs matters.
A legal practitioner must make disclosure of specified issues in respect of costs. Those matters are set out in great detail in clause 10 of the schedule:
10—Disclosure of costs to clients
(1)A law practice must disclose to a client in accordance with this Part—
(a)the basis on which legal costs will be calculated, including whether a scale of costs, or a recommendation as to the calculation of barristers' costs, applies to any of the legal costs; and
(b)if the law practice will not be calculating legal costs in accordance with an applicable scale of costs—that another law practice may calculate legal costs in accordance with the scale; and
(c)the client's right to—
(i)negotiate a costs agreement with the law practice; and
(ii)receive a bill from the law practice; and
(iii)request an itemised bill after receipt of a lump sum bill; and
(iv)be notified under clause 17 of any substantial change to the matters disclosed under this clause; and
(d)an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs; and
(e)details of the intervals (if any) at which the client will be billed; and
(f)the rate of interest (if any) that the law practice charges on overdue legal costs, whether that rate is a specific rate of interest or is a benchmark rate of interest (as referred to in subclause (2)); and
(g)if the matter is a litigious matter, an estimate of—
(i)the range of costs that may be recovered if the client is successful in the litigation; and
(ii)the range of costs the client may be ordered to pay if the client is unsuccessful; and
(h)the client's right to progress reports in accordance with clause 19; and
(i)details of the person whom the client may contact to discuss the legal costs; and
(j)the following avenues that are open to the client in the event of a dispute in relation to legal costs:
(i)raising the matter with the practice;
(ii)adjudication of costs under Part 7;
(iii)the setting aside of a costs agreement under clause 30;
(iv)if the client believes there has been overcharging—making a complaint to the Commissioner; and
(k)any time limits that apply to the taking of any action referred to in paragraph (j); and
(l)that the law of this State applies to legal costs in relation to the matter; and
(m)information about the client's right—
(i)to accept under a corresponding law a written offer to enter into an agreement with the law practice that the corresponding provisions of the corresponding law apply to the matter; or
(ii)to notify under a corresponding law (and within the time allowed by the corresponding law) the law practice in writing that the client requires the corresponding provisions of the corresponding law to apply to the matter.
(2)For the purposes of subclause (1)(f), a benchmark rate of interest is a rate of interest for the time being equal to or calculated by reference to a rate of interest that is specified or determined from time to time by an ADI or another body or organisation, or by or under other legislation, and that is publicly available.
(3)The regulations may make provision for or with respect to the use of benchmark rates of interest, and in particular for or with respect to permitting, regulating or preventing the use of particular benchmark rates or particular kinds of benchmark rates.
(4)For the purposes of subclause (1)(g), the disclosure must include—
(a)a statement that an order by a court for the payment of costs in favour of the client will not necessarily cover the whole of the client's legal costs; and
(b)if applicable, a statement that disbursements may be payable by the client even if the client enters a conditional costs agreement.
(5)A law practice is taken to have complied with the requirement to disclose the details referred to in subclause (1)(c)(i) to (iii), (h), (j), (k) and (m) if it provides a written statement in or to the effect of a form prescribed by the regulations for the purposes of this subclause at the same time as the other details are disclosed as required by this clause.
(6)A form prescribed for the purposes of subclause (5) may, instead of itself containing details of the kind referred to in that subclause, refer to publicly accessible sources of information (such as an Internet website) from which those details can be obtained.
(7)The regulations may—
(a)require the Society to develop a statement of the relevant details and to revise it as necessary to keep it up to date; and
(b)require the Society to make the statement publicly available in the prescribed manner.
The complaint of the plaintiff relates to clause 10(1)(a) and (b). Clause 10 imposes obligations on a legal practitioner to advise a client where a scale of costs is applicable. Relevantly here, that would be the Supreme Court Scale. A solicitor is also obliged to advise whether another legal practitioner may calculate legal costs in accordance with the Supreme Court Scale.

The difficulty for the plaintiff arises from clause 13 which provides as follows:
13—Exceptions to requirement for disclosure
(1)Disclosure under clause 10 or 11(1) is not required to be made in any of the following circumstances:
(a)if the total legal costs in the matter, excluding disbursements, are not likely to exceed $1 500 (exclusive of GST) or the prescribed amount (whichever is higher);
(b)if—
(i)the client has received 1 or more disclosures under clause 10 or 11(1) from the law practice in the previous 12 months; and
(ii)the client has agreed in writing to waive the right to disclosure; and
(iii)a principal of the law practice decides on reasonable grounds that, having regard to the nature of the previous disclosures and the relevant circumstances, the further disclosure is not warranted;
(c)if the client is—
(i)a law practice or a legal practitioner; or
(ii)a public company, a subsidiary of a public company, a large proprietary company, a foreign company, a subsidiary of a foreign company or a registered Australian body (each within the meaning of the Corporations Act 2001 of the Commonwealth); or
(iii)a financial services licensee (within the meaning of that Act); or
(iv)a liquidator, administrator or receiver (as respectively referred to in that Act); or
(v)a partnership that carries on the business of providing professional services if the partnership consists of more than 20 members or if the partnership would be a large proprietary company (within the meaning of that Act) if it were a company; or
(vi)a proprietary company (within the meaning of that Act) formed for the purpose of carrying out a joint venture, if any shareholder of the company is a person to whom disclosure of costs is not required; or
(vii)an unincorporated group of participants in a joint venture, if any member of the group is a person to whom disclosure of costs is not required and if any other members of the group who are not such persons have indicated that they waive their right to disclosure; or
(viii)a Minister of the Crown in right of a jurisdiction or the Commonwealth acting in his or her capacity as such, or a government department or public authority of a jurisdiction or the Commonwealth;
(d)if the legal costs or the basis on which they will be calculated have or has been agreed as a result of a tender process;
(e)if the client will not be required to pay the legal costs or they will not otherwise be recovered by the law practice;
Note—
For instance, disclosure would not be required where the law practice acts in the matter on a pro bono basis.
The defendant says he was not required to make disclosure of the matters referred to in clause 10 of the schedule by reason of the operation of clause 13(1)(c)(ii). The plaintiff is a public company. There is a definition in clause 1 of the schedule which refers to a client to whom disclosure is not required as being a sophisticated client. The concept of sophisticated client is carried through into various parts of the schedule.
The plaintiff alleges that, notwithstanding the provisions of clause 13(1)(c)(ii), the defendant, as a fiduciary, was still obliged to disclose the fact that there is a Supreme Court Scale and that the fees being charged were greater than the Supreme Court Scale. In most circumstances if equity imposed an additional but not inconsistent duty, no problem would be occasioned. Here there is a direct conflict.
In the recent Full Court case of Brooks & Anor v Young & Ors[6] the Court was dealing with the interplay between the fiduciary duties of an executor and the provisions of the Inheritance (Family Provision) Act 1972 (SA).
[6] [2018] SASCFC 81.
Doyle J, with whom Kelly and Bampton JJ agreed, said as follows:
Finally, it is relevant that any fiduciary duties must accommodate themselves to the terms of any applicable statutory scheme. In particular, fiduciary duties cannot modify the operation or effect of statute. To hold otherwise would be to give equity impermissible supremacy over the sovereignty of Parliament.
I respectfully adopt the same approach. To impose a fiduciary duty on a solicitor to make disclosure of the type contended for by the plaintiff would be to disregard or modify the provisions of the schedule. The plaintiff is a client to whom disclosure about the Supreme Court Scale was not required.
I find the costs agreement was accepted by the plaintiff. There is no basis to set aside the costs agreement as not fair and reasonable. I will hear the parties as to the form of the orders and other consequential matters.