Passey v Bandarage t/as City First Solicitors [2002] ACTSC 105 (28 October 2002)

Last Updated: 28 October 2002

JERRY STEPHEN PASSEY and NITA IMOGENE PASSEY v CHANAKA BANDARAGE t/as CITY FIRST SOLICITORS [2002] ACTSC 105 (28 OCTOBER 2002)

CATCHWORDS

LEGAL PRACTITIONERS - solicitor - costs agreement - action seeking declaration that costs agreement not fair and reasonable - facts admitted but allegation that costs agreement not fair and reasonable disputed - overcharging - lack of independent legal advice in relation to the proposed costs agreement - agreements unfair due to lack of informed consent and unreasonable due to their effect in producing a grossly excessive fee - agreements not binding in the circumstances - sums properly payable declared.

Legal Practitioners Act 1970 (ACT), s 190, s 191

Law Society of NSW v Foreman (1994) 34 NSWLR 408

Re Blyth & Fanshawe; ex parte Wells (1882) 10 QBD 207

Athanasiou v Ward Keller (6) Pty Ltd [1998] NTSC 27; (1998) 122 NTR 22

Cordery's Law Relating to Solicitors, Frederic T Horne (7^th edn, 1981, Butterworths, London)

No. SC 627 and 628 of 2001

Judge: Higgins J

Supreme Court of the ACT

Date: 28 October 2002

IN THE SUPREME COURT OF THE )

) No. SC 627 and 628 of 2001

AUSTRALIAN CAPITAL TERRITORY )

BETWEEN: JERRY STEPHEN PASSEY and

NITA IMOGENE PASSEY

Plaintiffs

AND: CHANAKA BANDARAGE t/as

CITY FIRST SOLICITORS

Defendant

ORDER

Judge: Higgins J

Date: 28 October 2002

Place: Canberra

THE COURT DECLARES THAT:

1. The Agreements entered into between the plaintiffs and the defendant are not fair and reasonable.

THE COURT ORDERS THAT:

1. In lieu of the sums claimed pursuant to the Agreements, the sum payable to the defendant for legal costs by Jerry Stephen Passey be fixed at $1,334.69 and by Nita Imogene Passey at $2,371.80.

2. The parties will be heard as to costs.

1. This action concerns costs agreements entered into between the plaintiffs and the defendant. The defendant is a solicitor practising in the Australian Capital Territory under the name "City First Solicitors".

2. The plaintiffs, in December 1999, engaged the defendant to act for them in a claim for damages for personal injuries each had arising out of a motor vehicle accident. Costs agreements were entered into between the parties in December 1999.

3. In June 2001, the plaintiffs transferred their instructions to Ms Geraldine Blanch of pappas, j. - attorney, another firm of solicitors. The defendant then rendered a memorandum of costs and disbursements drawn in accordance with the fee agreements.

4. These actions seek declarations that the agreements are not fair and reasonable and an order, pursuant to s 191 of the Legal Practitioners Act 1970 (ACT) (LP Act), setting those agreements aside with a consequential order that the costs be calculated and taxed by reference to the Supreme Court Scale (the Scale) or, alternatively, fixed by the court. That, of course, would be a sum deemed "fair and reasonable" by the court.

5. It is not disputed that the agreements formally comply with s 190 of the LP Act. Section 191 then provides (relevantly):

"(1) Where, on an application by a person who had made an agreement with a solicitor under section 190, the court is satisfied that the agreement is not fair and reasonable, the court may, by order -

(a) direct that the amount payable under the agreement be reduced to an amount specified in the order; or

(b) declare that the agreement is not binding on the parties to the agreement."

6. If s 191 (1)(b) of the LP Act is found applicable, then s 191 (3) applies:

"(3) Where, under subsection (1), the court declares that an agreement is not binding on the parties to the agreement -

(a) the court may make such further orders as it thinks necessary to restore the parties to the agreement to the position in which they would have been if the agreement had not been made; and

(b) this Part (other than section 190) applies as if the agreement had not been made."

7. On 19 July 2001, the defendant forwarded a detailed account to Mr Passey in accordance with the fee agreement. It claimed $9,282.90 plus disbursements of $1,064.00, a total of $10,346.90.

8. The fees sought in respect of Mrs Passey totalled $10,175.00 plus disbursements of $2,788.50, a total of $12,963.50.

9. On 23 July 2001, purportedly pursuant to s 180 of the LP Act, Ms Blanch referred the memoranda of costs and disbursements to the Registrar of this Court (Mrs Circosta) with a request that she conduct a taxation of costs.

10. In forwarding his "reasonable final accounts", the defendant had referred to the "Costs Agreements" the plaintiffs had entered into. Ms Blanch sought a copy of the "Costs Agreements". The Agreements were in the same form in each case. I will set out only one of them:

"Conditional Costs Agreement

Between Solicitor And Client

To: Mr Jerry Stephen Passey, [address omitted]

From: Chanaka Bandarage, City First Solicitors, 2, Mort Street. CANBERRA CITY ACT 2612.

We thank you for your instructions to act for you in the Motor Vehicle Injury matter. We are required by the Legal Practitioners Act 1980 [sic - 1970] to set out the terms of our engagement which are as follows:

The work

The work you require us to do is as follows:

To receive instructions, advise you generally in relation to your Motor vehicle injury, prepare documents and correspondence, attend meetings/conferences and general attendance on you and others (including your son), travel to appropriate places as and when required, negotiate and mediate attendances at conferences and receive you and your son's compensation payment and then pay them to you after recovering our fees and disbursements, to act until completionn [sic] including any represenations [sic] in courts.

Practitioner responsible for the work

The name of practitioner responsible for conduct of the matter is Chanaka Bandarage.

Charges & Expenses (Costs)

We shall not charge you professional fees from you [sic] until your compensation claim is settled. You will authorise us to receive, on your behalf, any compensation money you may receive from your Motor Vehicle Injury claim. You will authorise that this money is to be paid to our trust account until our legal costs and disbursements are paid.

We shall charge you at the rate of $225.00 per hour for each hour engaged on your work, to the completion of your matter/s. All professional time shall be charged in units of 6 minutes, and will be charged at a minimum of one unit (one unit = 6 minutes).

You shall be required to pay into our trust account for the disbursements (the expenses that we will have to incur on your behalf) in advance (eg: medical/police reports, photocopying charges, STD/ISD calls, facsimiles, searches, other enquiries and courier fees).

You agree that you shall have sufficient funds available for our disbursements to be paid when they are due.

We will charge you $2.00 per each photocopy, $2.00 per each out going fax and $2.00 per incoming fax message. We will charge you at the above Solicitor rate for both incoming and outgoing phone calls, depending on the amount of time spent on each call.

For local outgoing telephone calls and transmitting outwards facsimile messages we will charge an additional $2.00 per each minute of call/fax. For outgoing mobile, interstate telephone calls/facsimile messages our charge will be $5 per minute.

We may engage the services of a counsel, on your behalf, to assist in the carriage of your matter. Such counsel fees may approximately be at the rate of $250.00-$300.00 per hour. We assume you have given us the authority to brief counsel at any stage of your matter, including prelimiery [sic] stage.

If required we shall undertake travel on your matter. For all necessary intra-ACT and interstate travel done by road we will charge you at the rate of $2.50 per km. In cases where we have to travel by air we will charge you for such air travel depending on the cost of the airline fare and other associated expenses.

We will advise you of any additional work required beyond the point indicated and their cost.

Authoristy [sic] to disburse trust monies

Receipt of any payment into our trust account assumes that you have given your authority to draw on the money paid for the necessary legal costs and disbursements, as they become due.

Basis upon which you are to pay costs

In the event we decide that you are in a position to pay our fees on a regular basis before the offer of settlement is reached we shall then ask you to pay our costs on a regular basis, eg. on a monthly basis. Your failure to pay us shall give grounds for us to terminate the retainer.

In [a] case where payments have been outstanding for more than fourteen (14) days, you will be liable to pay the prevailing interest rate as specified by ACT Supreme Court.

Billing Arrangements

We shall send you an itemised account for our charges when the work is completed.

Termination

Your [sic] may terminate this agreement in writing at any time. If you do so you will pay our charges and expenses incurred up to the time of termination.

We may terminate this agreement in writing at any time, without giving reasons. You will be required to pay our fees for work done, and for disbursements (expenses incurred) up to the date of termination.

Our grounds for termination of this agreement may include, but [are] not confined to:

* failure to provide us with adequate instructions;

* withdrawal of your instructions from us;

* failure to make a full disclosure of information to us;

* misleading us in anyway [sic];

* it becomes obvious that likelihood of success of your matter is negligible;

* you do not wish to conduct the matter as per our advice, including refusal to accept our advice on the prospects of settlement;

* failure to pay our bills (fees, and/or disbursements); and

* your indication to us that we have lost your confidence.

Action for recovery of legal action

The Act provides that a legal practitioner cannot take action for recovery of legal costs until thirty (30) days after a bill of costs has been given to the person charged with their payment.

Right to have bill reviewed (assessed)

The Act gives you the right to have the charges made in a bill assessed for their fairness and reasonableness by an Assessor appointed by the Supreme Court. That right is not available to you in certain circumstances where there is a costs agreement which complies with the Act, unless the Agreement is determined by a Costs Assessor to be unjust.

Our lien over your documents

We are entitled to retain possession of your papers and documents while there is money owing to us for our charges.

Retention of documents

We will, on completion of the work, retain all papers in our possession (except documents deposited in safe custody) for no more than seven (7) years and on the undertaking that we have your authority to destroy the file seven years after the date of the final bill rendered by us in this matter.

Confidentiality

All information disclosed to us is confidential.

Acceptance of this Offer

Your acceptance of this offer is to be in writing. An original and one copy are enclosed. You must sign both copies and return the duplicate for us to commence work on your matter/s.

We accept the above terms.

[Signed] [Signed]

Chanaka Bandarage Jerry Stephen Passey

Solicitor Client

13/12/99 13/12/99"

11. Following unsuccessful attempts to negotiate a settlement of the defendant's claim for costs, these actions were commenced on 18 September 2001.

12. The plaintiffs claimed that the Agreements were not fair and reasonable because (per par [5] Statement of Claim):

"(a) the charges are above the scale of fees as set by the Supreme Court of the ACT from time to time ("the scale");

(b) the legal costs recoverable from the defendant to the claim would be in accordance with the scale;

(c) the costs agreement would involve the plaintiff paying more in legal costs than would otherwise be the case;

(d) there are other solicitors who might take the case on the basis of scale charges;

(e) the plaintiff ought to obtain, or consider obtaining, independent legal advice in relation to the proposed costs agreement."

13. The defence filed a defence generally admitted the facts alleged but disputed the allegation that the agreement was not fair and reasonable.

14. By par [7] of the defence, the defendant offered (in the alternative) to forgo any costs in excess of the Scale.

15. It is unnecessary to detail the correspondence between the parties. Suffice to say that the present action became necessary because, unless the Agreements are set aside, the Registrar has no authority to tax the defendant's Bills of Costs, even if re-drawn according to the Scale. Bills of Costs purporting to be drawn to the Scale were received on 22 March 2002. For Mr Passey the sum claimed pursuant to that Bill was $3,440.69 plus disbursements of $506.00, a total of $3,946.69. For Mrs Passey the claim was for $4,663.40 plus disbursements of $1,704.50, a total of $6,367.90.

16. The first Bill was in fact taxed by the Registrar and allowed at $1,334.69. That figure was arrived at after deducting the costs of taxation as the figure claimed had been reduced by more than one-sixth. That reduction was purportedly made pursuant to s 184 of the LP Act.

17. Mrs Passey's account was similarly assessed pursuant to a direction of the Court. The sum of $2,082.10 was disallowed. That was more than one-sixth of the Bill as drawn. Thus, the costs of taxation payable by the defendant (had it been a taxation pursuant to the LP Act) were reduced, on that basis, to $2,371.80.

18. The hearing proceeded on 23 July 2002. The defendant appeared for himself. The plaintiffs were represented by Mr Crowe of counsel.

19. The defendant, as he had done in correspondence with the plaintiffs' solicitors, fixed upon the reasonableness or otherwise of attempts he had made to settle the claim. The real issue, in fact, was whether his Costs Agreements were fair and reasonable. He did not seem to understand that the reasonableness or otherwise of his proposal or rejection of settlement terms was not the main issue.

20. Nor did the defendant's affidavit evidence address that issue. Indeed, the defence had conceded each of the particulars of the respects in which the Agreements were alleged to be not fair and reasonable save for particular (d) (incorrectly referred to as "(e)") where the defendant pleaded that the particular in question was not admitted. The defendant asserted by that particular that he did not know if other solicitors would accept instructions on a "speculative basis" (sometimes called "no win - no fee") and charge only on the Scale.

21. That is the kind of fact, relating as it does to the practice of the law, of which the Court itself can rely on judicial notice. I am aware of a number of firms of solicitors who accept instructions in personal injury cases on that very basis.

22. The defendant was asked, in the course of his cross-examination by Mr Crowe, what explanation he had given of his proposed costs agreement to the plaintiffs. His response was:

"Mr Passey was very curious, very intelligent, educated person. He asked me so many questions and I may have, during the course of my discussions, may have told him why I was charging him at a higher rate."

23. He conceded lack of any definite recollection of any such discussion and agreed he had no documentary evidence of what advice he had given Mr Passey (or Mrs Passey for that matter).

24. It is, of course, obvious on its face that the Agreements permitted charges for work done at $225.00 per hour, chargeable on six minute units. However, the Agreements do not disclose that that rate, as the defendant applied it, would produce a result more than four times that which would be allowed if, instead, the Scale had been applied to the work done.

25. The defendant did not claim to have referred at all to the level of recoverable costs nor to any difference between the quantum of such costs and fees payable pursuant to the Agreements. Indeed, had he done so, he would also have had to advise that less than 25% of the fees he would charge would be recoverable from the proposed defendant if the action succeeded.

26. Nor is it suggested that advice was given that, before accepting the Agreements, the plaintiffs should obtain independent advice. The Agreements themselves contained no such advice.

27. In those circumstances, Mr Crowe submitted that the Agreements, given the significant overcharging relative to the Scale that they produced, should be found not to be fair and reasonable.

Are the Agreements fair and reasonable?

28. The first point that should be made is that solicitors owe a fiduciary duty to their clients. That duty extends to the making of any retainer agreement and the terms of it.

29. The client is entitled to advice as to the terms of any such retainer agreement. In any case in which the retainer agreement contains any unusual terms, where those terms favour the solicitor's interests, the client not only should be frankly and fully so advised by the solicitor, but should be urged to take competent independent advice (see Law Society of NSW v Foreman (1994) 34 NSWLR 408). That is not a new obligation (see Re Blyth & Fanshawe; ex parte Wells (1882) 10 QBD 207). It applies to costs as well as disbursements.

30. Mildren J considered this issue in Athanasiou v Ward Keller (6) Pty Ltd [1998] NTSC 27; (1998) 122 NTR 22. The solicitors in that matter had entered into a fee agreement with their client. At 29, his Honour noted:

"At common law, a costs agreement is enforceable if it is made to appear to the court that the agreement is `fair and reasonable', the burden of proof resting on the solicitor seeking to uphold the agreement...

[Further] ... the court has an inherent power as part of its general disciplinary function in relation to legal practitioners to supervise such agreements ..."

31. His Honour, therefore, concluded that, even if the Northern Territory equivalent of s 190 of the LP Act was complied with, the onus of establishing that the costs agreement was fair and reasonable rested upon the solicitor.

32. In relation to the concept of what is "fair and reasonable", his Honour, at 30, commented:

"The concept of `fairness' deals with the circumstances under which the agreement was entered. Thus an agreement has been held to be unfair if the solicitor used undue pressure on his client to sign it, or if the solicitor did not explain the agreement to his client ... The concept of `reasonableness', on the other hand relates to the terms of the agreement itself. So if the fees to be charged under the agreement are excessive the agreement is not reasonable..."

33. At 31, his Honour referred to a passage from Cordery's Law Relating to Solicitors, Frederic T Horne (7^th edn, 1981, Butterworths, London) p 9:

"In his dealings with his client the solicitor must exercise the utmost good faith, and in any financial transaction with his client (save as to costs for work done) there will be a presumption that such transaction should not be upheld unless the solicitor can establish that it was effected by the free exercise of the client's will without any influence on the part of the solicitor [emphasis added]."

34. As to the supposed exception, his Honour said:

"In principle, I do not see why a costs agreement should be subject to the exception suggested. Obviously, if the costs agreement reflects the appropriate scale, and no unusual benefit is conferred upon the solicitor, the solicitor will have no difficulty in establishing that the agreement was reasonable. But a costs agreement may go a lot further than merely providing for the payment of fees; it potentially could confer considerable benefits on a solicitor in addition to his remuneration. I consider that there is no basis for drawing the distinction suggested. In my opinion the result is that the burden of proof rests upon the solicitor in respect of both fairness and reasonableness."

35. His Honour's comments were, as he acknowledged, obiter. However, I agree with them. They are consistent with the duty the law imposes on solicitors to deal honestly and fairly with their clients.

36. In Athanasiou (supra), it appeared that the hourly rate had been drawn to the clients' attention, but "little else". The client was not told of the difference between recoverable costs and those he was to be charged. He was not told that he would lose the right to have the bill taxed on the Scale.

37. That was, in his Honour's view, fatal to the agreement's validity, particularly as no independent advice was suggested.

38. In the present case, the defendant urges upon me that Mr Passey, in particular, was a knowledgeable and intelligent man. He, unlike Mr Athanasiou, was capable of reading and understanding the Agreement. I have no doubt that he could and probably did. Very probably, so did Mrs Passey.

39. However, that did not relieve the defendant of his duty to explain:

* that the flat rate charge of $225.00 per hour would result in a significant overcharge relative to the Scale;

* that the costs recoverable would be significantly less than those they would be charged;

* that other solicitors, competent in the relevant field of practice, might well charge significantly less.

40. The Agreements did contain unusual provisions benefiting the solicitor. The very magnitude of the overcharge, as revealed on taxation, establishes that. At the very least, before the Agreements were signed, the defendant should have urged his clients to obtain independent advice. I am satisfied that he did not adequately explain the terms of his fee agreements.

41. The defendant pointed to the fact that he was prepared to assume the risk of going unpaid if the actions for damages failed. However, he did, pursuant to the Agreements, reserve the right to charge if he considered the client could afford it, in advance of settlement.

42. Even if his usual practice was "no win, no fee", whilst that circumstance might justify some modest "uplift" in fees otherwise payable, it must be said that there was nothing in the nature of the litigation being pursued by the plaintiffs which was extraordinary or complex. Counsel had been retained to advise. In any event, "care, skill and attention" may properly be, and I am satisfied was, taken into account in the taxations of costs performed by the Registrar.

43. I am satisfied that these Agreements are demonstrably unfair, due to lack of informed consent, and unreasonable, due to their effect in producing a grossly excessive fee. They are declared not to be binding accordingly. That is not to say that a costs agreement that produces a charge above the Scale, will, for that reason alone, not be fair and reasonable.

44. It seems to me that, costs having, effectively, been already taxed, it is convenient simply to declare the sums properly payable in these matters. In lieu of the sums claimed pursuant to the Agreements, I fix the sum payable to the defendant for legal costs by Mr Passey at $1,334.69 and by Mrs Passey at $2,371.80.

45. I will hear the parties as to costs.

I certify that the preceding forty-five (45) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Higgins.

Associate:

Date: 28 October 2002

Counsel for the Plaintiffs: Mr R L Crowe

Solicitor for the Plaintiffs: pappas, j. - attorney

Counsel for the Defendant: Litigant in person

Date of Hearing: 23 July 2002

Date of Judgment: 28 October 2002