Frost v Miller[2015] QSC 206

SUPREME COURT OF QUEENSLAND

[1] THE CHIEF JUSTICE: The applicant filed an originating application on 14 October 2014 with the Queensland Supreme Court for a declaration under s 327(1) of the Legal Profession Act 2007 (Qld) (the “LPA”) that the conditional costs agreement executed by the applicant and respondent in July 2011 is void.  The applicant claims that the conditional costs agreement is void by reason of violating the formality requirements prescribed under ss 323(3)(d)-(e) of the LPA, which requires the conditional costs agreement to contain a statement that the client has been informed of their right to seek independent legal advice before entering the agreement[1] and to contain a five clear business day cooling-off period within which the client may terminate the agreement by written notice.[2]

[2] The respondent resists the application, claiming that the contract substantially complied with the prescribed formality requirements.  The respondent asserts that s 323(3)(d) of the LPA is satisfied by the contract containing a notification clause informing the client of their right to seek independent legal advice.  The respondent further claims that s 323(3)(e), properly construed, is a deeming provision which subjects conditional costs agreements to a five day cooling-off period, and does not require the cooling-off period to be expressly incorporated into the contract. 

[3] This application raises four main issues for consideration:

1. whether the formality requirements prescribed under s 323 of the LPA are mandatory or recommendatory;
2. whether s 323(3)(d) of the LPA, properly construed, may be satisfied by the mere incorporation into the conditional costs agreement of a notification that the client possesses a right to obtain independent legal advice;
3. whether s 323(3)(e) of the LPA, properly construed, operates as a deeming provision or prescriptive formal requirement; and
4. whether a breach of the formality requirements under s 323 renders the conditional costs agreement void or voidable.

[4] Before embarking on an analysis of the issues joining the parties, it is convenient to examine the factual matrix giving rise to this application, discuss the nature of conditional costs agreements, and briefly summarise the contemporary principles governing the interpretation of statutory instruments. 

Factual Matrix

[5] On 17 June 2011 the applicant sustained personal injuries to her cervical and lumbar spine as a result of a motor vehicle collision.  The following month, the applicant’s husband, Mr Leslie Richard Frost, attended the defendant’s law firm to enquire into the viability of a claim against the driver of the other vehicle involved in the collision.  The precise nature of the enquiry and information exchanged is a matter disputed among the parties.  For present purposes, I am satisfied that the enquiry related to the pursuit of a legal action on a “no win, no fee” basis.

[6] On 27 July 2011 the applicant received correspondence by postal service which attached a costs disclosure notice and costs agreement. The costs agreement appeared to be a standard form contract, with an attached schedule specifying the particulars of the agreement between the parties. 

[7] The attached schedule specified that an uplift was applicable, which was further described in the standard form costs agreement.  The costs agreement, under clause 19, titled “Independent Advice”, provided that:

(a)The Client has the right to seek independent legal or other advice in relation to this Agreement, prior to execution;

(b)If the Client proceeds to instruct the Firm to commence/continue the Firm’s retainer on the Client’s behalf, the Client acknowledges that the Client has satisfied its rights to independent advice and is satisfied with the terms, covenants and conditions of this Agreement.

[8] The submissions of the respondent do not assert that the applicant was given oral or written advice, prior to the execution of the costs agreement, that the applicant was entitled to obtain independent legal advice.  Indeed, neither the respondent nor applicant has adduced substantial evidence to this effect.  The respondent has, however, indicated that she discussed the conditional costs agreement seriatim with the applicant, which at least implicitly suggests the respondent informed the applicant of her right to obtain independent legal advice. 

[9] On 10 July 2014 a compulsory conference was conducted under the Motor Accident Insurance Act 1994 (Qld).  The compulsory conference, which related to quantum, failed to achieve a settlement.  There remains some dispute between the parties regarding whether a costs statement had been previously submitted to the applicant.  The respondent claims that a costs statement had been sent to the applicant on 1 July 2014.  The applicant claims that she had been informed that the costs amounted to $84,000 at the time of the meeting.  In any event, at this stage legal costs appear to have accrued to $117,708.36.

[10] The applicant instructed the respondent to settle the action in a manner which would provide her with no less than $100,000 “in-hand”.  On the instructions of the applicant, the respondent compromised the applicant’s claim on 1 August 2014 for $180,000.  Applying sections 345-347 of the LPA, the respondent’s legal fees were reduced to $74,000, leaving the applicant to recover in effect $106,000. 

[11] The applicant, ostensibly dissatisfied with this outcome, contacted the respondent on 28 July 2014 advising that she wished to seek independent legal advice because she did not understand the settlement “well enough”.  On 29 July 2014 the respondent wrote to the applicant advising that the engagement of alternative legal representatives terminated the costs agreement and that a costs’ assessment would be prepared in accordance with the costs agreement in the required time frame.

[12] The applicant now seeks relief in the form of a declaration that the costs agreement is void, or an order that the costs agreement is set aside, because:

1.The costs agreement did not include a statement that the applicant had been informed of her right to seek independent legal advice in respect of the agreement.

2.The costs agreement did not contain an express five business day cooling-off period within which the applicant could terminate the agreement.

Nature of Conditional Costs Agreements

[13] A “costs agreement” refers to “an agreement about the payment of legal costs,”[3] which takes effect as a standard contract.[4] In contrast, a “conditional costs agreement” is a costs agreement providing that the payment of some or all of the legal costs is conditional on the successful outcome of the relevant matter.[5] “Conditional costs agreements” are distinguished from “contingency agreements”, which are costs agreements which prescribe that the amount payable to the legal practice is calculated by reference to the amount of any award or settlement, or any property which may be recovered, as a result of the legal proceedings.[6] 

[14] Unlike contingency agreements,[7] conditional costs agreements are not prohibited in Queensland.[8] The proscription against contingency fees is explicable by the grave ethical and professional concerns associated with such agreements, including the erosion of compensation, the creation of intractable conflicts of interest, and risks associated with encouraging legal practitioners to enter premature settlements to maximise the quantum of remuneration relative to effort invested.  Such practices are likely to undermine public confidence in the administration of justice, and impugn the efficiency and reliability of judicial proceedings. 

[15] Conditional costs agreements possess reduced risks relative to contingency agreements, as the uplift fee is calculated by reference to the accrued legal costs rather than any monetary award from the Court.  Accordingly, there is less incentive to enter into premature settlements to distort the effort-reward quotient, and the decoupling of remuneration from the monetary award mitigates risks associated with eroding compensation.  Similarly, to avoid exorbitant costs agreements bearing no ostensible relationship to the quantity or quality of legal services delivered, the LPA limits the uplift fee to 25% of total legal costs, excluding disbursements.[9] 

[16] Conditional costs agreements also discharge an important utilitarian function in facilitating access to justice.  Many potential litigants are deterred from enforcing their legal rights and entitlements due to inadequate economic resources.  Conditional costs agreements allow for the reallocation of risk among the litigant and the legal practitioner.  In exchange, the legal practitioner is entitled to a modest uplift fee reflecting their assumption of a proportion of the risk by conducting the matter on a speculative basis. 

[17] In many respects, conditional costs agreements promote an economically efficient reallocation of risk.  The provision of preliminary legal advice regarding the initiation of legal proceedings involves a significant information asymmetry.  Legal practitioners, possessing special knowledge, skills and experience, are better positioned than the client to determine the sustainability of a proposed legal action. Furthermore, unsophisticated clients, being placed in a position of vulnerability, are likely to rely on the advice provided by their legal practitioner.  Therefore, where the remuneration of a particular legal practitioner is detached from the probability of success of the relevant claim, the unaligned interests and information asymmetry between the lawyer and client creates substantial risks of moral hazard. 

[18] As legal practitioners are better equipped to evaluate the efficacy of the proposed claim, they constitute more efficient risk-bearers.  Through connecting remuneration with probability of success, conditional costs agreements promote alignment between the economic interests of legal practitioners and their clients. This also enhances efficiency in the administration of justice, as legal practitioners are unlikely to pursue futile, speculative or spurious claims if an adverse outcome will result in significant economic expenditure without a commensurate return.  Accordingly, conditional costs agreements assist in removing dubious claims from the judicial system, avoiding unnecessary waste of public time and resources.      

[19] Despite this, conditional costs agreements create special risks for legal practitioners.  The common caption “No Win, No Fee” may prove enticing to unsophisticated consumers of legal services.  Setting to one side the potentially misleading nature of such descriptions, the negotiations surrounding conditional costs agreements place the interests of clients in conflict with the interests of the legal practitioner in determining the scale and terms of the uplift fee.  Similarly, clients may not anticipate the scale of the uplift fee common within the relevant sector of legal services or perceive the risks associated with substantially eroding their entitlement to compensatory damages.  Unsophisticated clients may also fail to appreciate the definition of a “successful” outcome, meaning that claims settled for relatively meagre amounts may nevertheless attract substantially inflated legal fees under the conditional costs agreement.

[20] The risks posed by conditional costs agreements are exacerbated by the fact that lawyers tend to occupy a position of superiority relative to their client.  Legal practitioners possess special knowledge, skills and experience impacting on the negotiation and formation of the contract.  Often clients are vulnerable insofar as they lack an awareness of the judicial process or the rules governing solicitor-client relations.  Clients are also frequently less experienced in negotiation than their solicitors, and may simply act on the advice of their legal practitioner.  Accordingly, the risks associated with conditional costs agreements justify a more rigorous and restrictive legal framework to protect the client’s economic and personal interests.

Exposition of Select Principles of Statutory Interpretation

The Meaning of Meaning: the Relationship between Text and Parliamentary Intention in Statutory Interpretation

[21] The general rule of statutory interpretation is that legislation should be construed in accordance with its natural, ordinary and current meaning.[10] However, the Court is not bound by the natural and ordinary meaning of the statute where that meaning would be absurd, or where the relevant context of the legislation, including all available intrinsic and extrinsic materials, and having regard to the function and purpose of the statute, compels an alternative interpretation. 

[22] The respondent has, at various points during her submissions, made reference to the “intention” of Parliament.  The vocabulary of “intention” is frequently used in this Court, appellate courts, and, on occasion, within the High Court.  Although the notion of “intention” often illuminates the enquiry of the Court in interpreting legislation, caution must be exercised in its deployment. 

[23] Firstly, the concept signified by the noun “intention” refers to a mental state directed towards a particular outcome.[11] As an advanced mental power, ability or faculty, the descriptor of “intention” is generally reserved for persons or entities possessing relatively sophisticated cognitive processes. Ascribing intentionality to a political institution comprised of a group of individuals possessing diverse and divergent mental states appears to distort the essential meaning of the concept and conjure incongruous images of a unified and disembodied mind of Parliament.

[24] Secondly, assuming that it is semantically coherent and sensible to impute a constructive “intention” to Parliament, the process remains a treacherous endeavour.  Parliament is an institution comprised of diverse individuals with divergent interests and objectives. Furthermore, the legislative process is often influenced by special interests groups lobbying to ensure their interests are appropriately acknowledged and recognised.  Accordingly, statutes promulgated by Parliament often constitute legislative compromises seeking to reconcile and integrate competing and conflicting socio-political interests.  Therefore, it is difficult to be epistemically certain of the content of such intentionality, and any search for the intention of Parliament would be unlikely to produce a consistent and intelligible finding.

[25] For as surely as Parliament possesses no unified and disembodied mind within which intentions might be formed, the individuals comprising of Parliament can hardly be said to have converged in an aggregate consensus ad idem. As has been stated by Justice Nye Perram writing extra-judicially:

The only thing which may be said with absolute certainty about a statute is that Parliament intended to pass it in the form in which it was eventually passed.[12]

[26] However, recognising the force of the abovementioned arguments, where the Court refers to the “intention of Parliament”, it does not deploy the phrase in a literal sense.  The Court does not refer to the existence of an abstract and artificial mind formulating intentions which crystallise in the form of a statutory instrument.  Nor does the Court assume that all parliamentarians converge on uniform intentions in respect of each provision within an Act, such that one might reasonably state that Parliament expressed a collective intention.  Rather, the “intention of Parliament” is invoked as a form of symbolic shorthand describing a more complex phenomenon.

[27] In truth, the Court does not really examine the intention of Parliament, but the intention manifested by the legislation.  As held by French CJ, Gummow, Hayne, Crennan and Kiefel JJ in Saeed v Minister for Immigration and Citizenship:

[I]t is necessary to keep in mind that when it is said the legislative "intention" is to be ascertained, "what is involved is the 'intention manifested' by the legislation.”... Statements as to legislative intention made in explanatory memoranda or by Ministers, however clear or emphatic, cannot overcome the need to carefully consider the words of the statute to ascertain its meaning.[13]

[28] Examining the “intention manifested by the legislation” may appear, at first blush, to be a circuitous method of referring to the intention of legislature, for the author of the statutory text is often presumed to be the Parliament.  However, in the case of government bills, and some private member bills, the relevant statute has generally been composed by a parliamentary draftsperson.  This has significant implications for the exercise of statutory interpretation.  As held by Lord Simon of Glaisdale in Stock v Frank Jones (Tipton) Ltd:

[T]he final task of construction is still, as always, to ascertain the meaning of what the draftsman has said…[14]

[29] Similarly, in Wentworth Securities Ltd Lord Diplock refers to the implication of “words that would have been inserted by the draftsman and approved by Parliament”.[15]   In the English jurisprudence on statutory interpretation, the courts appear to assign appropriate significance to the role of the draftsperson.

[30] Conservative jurists may object that the draftsperson does not create the law, and therefore it cannot be their intention which is material in interpreting legislation.  However, as is made clear by Lord Diplock, Parliament approves the intention of the draftsperson, as expressed in the text of the instrument, through the legislative process.  In this respect, when the Court refers to the “intention of Parliament”, it really means the intention of the parliamentary draftsperson, manifested in the text of the statutory instrument, as endorsed by Parliament.  Through the legislative process, Parliament affirms the intention of the draftsperson expressed in the text of the statute such that it becomes, in practical effect, the “intention of Parliament”.[16] 

[31] Having regard to the complexity of parliamentary intention, one might be forgiven for seeking to abandon the concept.  However, the concept of “intention” still remains central to the ascertainment of the meaning of a text.   The lexemic verb “mean” is defined by the Oxford English Dictionary as “to intend”, and the etymological relation between intention and meaning is well established.[17]  Indeed, even Lewis Carroll’s Humpty Dumpty and Alice in Through the Looking Glass ruminated on the significance of subjective intention in deriving meaning.[18]

[32] Despite this, the meaning of a text cannot be controlled exclusively by the author’s subjective intentions, even if such intentions are authentically maintained. If one were to attribute an orange to the term “apple”, another might rightly respond that is not what “apple” means.  Notwithstanding the intention to describe an orange as an “apple”, it is clear the meaning of the term is unaligned with the referent.[19]  This is because language is a structured and coherent system of grammar which is utilised to signify shared meaning.  Words are assigned specific definitional criteria, and the rules of grammar govern the interpretation of phrases.  The objective foundation of the grammatical system is essential to its efficacy, otherwise the subject language would be poorly adapted to communicating complex and sophisticated information or concepts within a social context. 

[33] The reconciliation of the objective and subjective conceptions of “meaning” resides at the core of statutory interpretation.  Primacy is assigned to the text of the statute as opposed to the subjective intentions of Parliament.  The intentions of Parliament are, at least at first instance, only relevant to the extent that they are evinced in the language of the statute.  Indeed, the text of the statute is the best inductive evidence from which the intentions of Parliament may be inferred.  Accordingly, statutory interpretation is a synthetic process. The Court seeks to ascertain both the grammatical meaning of the legislation and the intentions of Parliament through the structure, content, form and substance of the relevant text. 

[34] Primary reliance on the text of the statute achieves two primary objectives.  Firstly, any system of language would be deprived of its efficacy and coherence if the subjective intentions of the communicator overrode the grammatical meaning of the language employed.  This is because the terms used could no longer reliably signify shared concepts or meaning.  Secondly, if persons are to be held legally responsible for the violation of laws of which they are ignorant, they must be afforded a reasonable opportunity to become knowledgeable about the law. There is a strong public interest in ensuring that the law is practically accessible to members of the community.  Legal practitioners and laypersons should be able to access, and read, the language of a statute pertinent to their affairs and understand its basic content and meaning.  They should not be required to look beyond the text of the statute, and review volumes of extrinsic material, to ensure the intention of Parliament conformed to the natural and ordinary grammatical meaning of the statute. 

[35] In this respect, the role of the Court at first instance is to look to the intentions of Parliament as disclosed by the text of the statute.  Where the text of the statute permits of only one clear and transparent meaning, the Court is bound by that construction, despite the fact that extrinsic materials may signal to the contrary.  Where the text of the statute permits multiple potential meanings, such that a legitimate ambiguity exists, the Court may look to the intention of Parliament as evinced through available extrinsic materials.  These principles were eloquently expressed by Lord Simon of Glaisdale in Stock v Frank Jones (Tipton) Ltd in the following manner:

But it is essential to bear in mind what the court is doing. It is not declaring “Parliament has said X: but it obviously meant Y; so we will take Y to be the effect of the Statute”. Nor is it declaring “Parliament has said X, having situation A in mind: but if Parliament had had our own forensic situation, B, in mind, the legislative objective indicates that it would have said Y; so we will take Y as the effect of the Statute as regards B.” What the court is declaring is “Parliament has used words which are capable of meaning either X or Y: although X may be the primary, natural and ordinary meaning of the words, the purpose of the provision shows that the secondary sense, Y, should be given to the words”.[20]

The Purpose of Purposivism in Statutory Interpretation

[36] Purpose discharges a critical function in statutory interpretation.  This function was described by the High Court in CIC Insurance Ltd: 

the modern approach to statutory interpretation (a) insists that the context be considered in the first instance, not merely at some later stage when ambiguity might be thought to arise, and (b) uses “context” in its widest sense to include such things as the existing state of the law and the mischief which, by legitimate means such as those just mentioned, one may discern the statute was intended to remedy.[21]

[37] Indeed, s 14A of the Acts Interpretation Act 1954 (Qld) provides that:

In the interpretation of a provision of an Act, the interpretation that will best achieve the purpose of the Act is to be preferred over any other interpretation. 

[38] Accordingly, Queensland Courts are required, by statute and the common law, to prefer an interpretation which advances the objectives of the legislation. The Court is not to merely adopt the literal interpretation of a statute, and hold that the purposes of Parliament have not been achieved. As expressed by Lord Diplock writing extra-judicially:

[i]f … the Courts can identify the target of Parliamentary legislation their proper function is to see that it is hit: not merely to record that it has been missed.[22]

[39] This methodology – frequently described as the “purposive” approach to statutory interpretation – is grounded in statute[23] and the common law.[24]  It draws the interpreter’s attention to the text, context and purpose of the relevant legislation, both as a whole and in respect of the specific provision being construed.  The purpose of the statute is deployed to resolve ambiguities and select between competing interpretations of an uncertain legislative provision.

[40] The purpose of a statute is less conceptually problematic than the intention of Parliament. An inanimate object, concept, document or statute may clearly possess a “purpose”, although it cannot possess an “intention”. “Purpose”, unlike “intention”, is not mental faculty, power or capability that presupposes the existence of a sophisticated “mind”. Rather, the “purpose” of a thing is the reason for its existence or eventuation.  In respect of objects or instruments, “purpose” is often externally inferred through examining the properties or qualities of the subject, and the circumstances of its origination. Although “purpose” and “intention” may frequently be coincident, the concepts are discrete and separable. 

[41] In statutory interpretation, purpose discharges a primary and secondary function.  The primary function is that purpose is directly relevant to the grammatical meaning of the text.  Often a grammatical ambiguity may be resolved by reference to the purpose of the statute.  The secondary function is that the purpose of the statute may be inductive evidence of the intention of Parliament.  The intention of Parliament may thereupon be invoked to shed light on the meaning of the text.

[42] However, when relying on the purposive method of interpretation, the Court should be cognisant of its limits.  The Court cannot override the otherwise plain and perspicuous meaning of a statute, however inconvenient or harsh, by citing an ostensibly inconsistent purpose.  The noun “interpretation” is derived from the verb “interpret” which is defined by the Oxford English Dictionary as “to expound the meaning of… to render… clear or explicit; to elucidate; to explain”.  Interpret further derives from the Latin term interpretārī, which means to explain, translate, understand or expound.  Consistent with the definition and etymology of “interpret”, the fundamental object of statutory interpretation – as a process of interpretation, not reinterpretation or reconstruction – is to ascertain the meaning of the relevant text, not to impose a creative colour of meaning.[25] 

[43] The Court must also acknowledge that the legislative process often involves the integration and balancing of multiple conflicting and competing interests.  To mitigate the impact of conflicting purposes, the Court should give primary significance to the specific function of the clause under consideration.  Despite this, the various purposes of a statute, or even a particular clause, may not always prove internally consistent or transparent.  Accordingly, particularly within controversial or politically-charged legislation, the Court must recognise the challenges associated with extracting a salient purpose.

[44] Finally, the Court must resist the temptation to utilise purposive construction as a means to promulgate or implement judicial policy. It is trite law that the separation of powers means that the legislature enacts the law, the executive implements the law, and the courts interpret and apply the law. To preserve judicial independence, judges are the beneficiaries of judicial tenure and cannot be removed except for misbehaviour or incapacity. Thus, the judiciary is not held responsible to the population through ordinary democratic processes, nor is it necessarily representative of the diversity of the community. As the courts possess no lawful mandate to engage in policy-making and cannot be regularly made to account to the constituency, judicial officers must avoid projecting their idiosyncratic personal values and beliefs into the process of statutory interpretation.  Otherwise, the Courts risk becoming an unaccountable and overcentralised repository of political and legal authority which may undermine the separation and balance of governmental powers.

[45] Notwithstanding the limits of purposive interpretation, the Court must not be timid in utilising the purpose of a statute to dispel textual ambiguity.  Where the purpose of the statute and the relevant clause can be clearly identified, it should be incorporated into the interpretative process to ensure that the objectives of Parliament are properly attained, without distorting the language of the statute. 

Legislative Framework Governing Conditional Costs Agreements

[46] As the main issues in dispute among the parties involve the construction of the LPA, the Court must examine the legislative framework regulating costs agreements as a whole. The special protections applying generally to conditional costs agreements are provided for under Division 5 of Part 3.4 of Chapter 3 of the LPA. 

[47] Section 3(a) of the LPA provides that a purpose of the legislation is:

to provide for the regulation of legal practice in this jurisdiction in the interests of the administration of justice and for the protection of consumers of the services of the legal profession and the public generally. (emphasis added)

[48] During the Second Reading debates, Mr Moorehead made clear reference to the consumer protection objectives of the framework governing costs under the LPA:

[T]he provisions on legal costs of this bill will provide greater consumer protection.  The important safeguards with respect to costs contained in the bill include stricter disclosure requirements, provision for the setting aside of unfair costs agreements, prohibition of contingency fees, capping of uplift fees, better billing practices and costs assessments under the rules of court.

The issue of regulation of legal costs is an important question not only to fair trade practices but of access to justice.  The reality for many in our community is that the major barrier to accessing our courts of justice is the cost of legal representation.  People who seek legal advice to vindicate their legal rights need the opportunity to be very clear about what it is they will end up paying for their legal representation. People need to make an informed consideration of their prospects when they instruct lawyers.[26]

[49] The need for consumer protection emanates from the imbalance of power between a legal practitioner and client.[27] Furthermore, it promotes public confidence in the judicial system, and facilitates improved access to justice. As held by Bell J in Russells (A Firm) v McCardel:

People engaged in legal proceedings and seeking legal services are typically in a position of unequal bargaining power when negotiating with and choosing a lawyer. While some clients are relatively sophisticated, most have limited knowledge of the law and legal procedures and may be emotionally involved in the case. By contrast, lawyers possess legal expertise as well as the detachment and objectivity which comes from professional training and experience.

That being so, most clients are in a position of vulnerability when it comes to reaching agreement about the fees and disbursements that might be charged under any retainer. Without information expressed in clear and plain language about the extent of their monetary liability, they may find it very difficult to make informed decisions about engaging a particular lawyer or choosing between competing lawyers. All too often the legal costs charged are unexpectedly high; time-consuming and expensive disputes are the unhappy consequence.

Clarity, freedom of informed choice and proportionate legal expenses are important not only for the relationship between lawyer and client but also for the operation of the system of justice. Remembering that lawyers enjoy a statutory monopoly that can only be justified in the public interest, excessive legal costs undermine public confidence in the legal system and present a significant barrier to obtaining access to justice, which is a fundamental human right.

Nationally, the model for the legislative regulation of the legal profession reflects these enduring concerns about the need to protect clients as consumers and to enhance the efficiency of the provision of legal services as a market. Mandatory prescription for cost disclosure and for costs agreements to be in writing, as well as other requirements, are constitutive elements of the regulatory scheme, with some exceptions in the case of sophisticated clients. The respondents in the present case were not sophisticated clients (see below).

…

The protective policy of requiring disclosure by lawyers and enhancing freedom of informed choice by clients underpins this legislation, reflecting the modern conception that clients are not just clients but also consumers who are typically in a position of negotiating disadvantage, that lawyers are not just professionals but also suppliers of legal services and that the provision of legal services is not just an indispensable ingredient of the system of justice but also a (national) market in which information and bargaining power are imperfectly distributed. In response to increasing concerns about the level of legal costs and disputes about this subject, the legislative expression of this policy has evolved over recent years such that the requirements of the Victorian legislation, and its national counterparts, are stronger now than they have previously been.

The regulatory scheme is implemented in the Act through a hierarchy of provisions which impose increasingly intensive levels of regulation upon ordinary retainers, costs agreements, conditional costs agreements and conditional costs agreements involving uplift fees, in that order.[28]

[50] In the context of conditional costs agreements, specific risks emerge from the circumstances within which the obligation to pay legal costs may be activated, and the complex provisions governing the applicable uplift fee.[29] Accordingly, this Court should give appropriate weight to the clear consumer protection objectives of the conditional costs agreement regime prescribed under the LPA. 

[51] The primary operative provisions for conditional costs agreements are ss 323-327.  Section 323(1)-(2) permits conditional costs agreements in respect of all matters, except for criminal matters or matters under the Family Law Act 1975 (Cth).  The exclusion of criminal and family law matters from conditional costs agreements reflects the special vulnerability of the parties involved in such proceedings, and the public interest in avoiding the maintenance of spurious or speculative criminal and family law proceedings. 

[52] Section 323(3) prescribes certain formal requirements for conditional costs agreements.  These formal requirements are that the conditional costs agreement:

1.must describe the circumstances which constitute a “successful outcome” of the matter;

2.may provide for the payment of disbursements regardless of the outcome of the matter;

3.must be in writing and clear plain language, and signed by the client;

4.must contain a statement that the client has been informed of their right to seek legal advice before entering into the agreement; and

5.must contain a cooling-off period of not less than five clear business days during which the client may terminate the agreement by written notice.

[53] The prescribed requirements of ss 323(3)(d)-(e) do not apply in respect of sophisticated clients,[30] which is further suggestive of the fact that the statement regarding independent legal advice and the cooling-off period is intended to correct a power imbalance between the client and the legal practitioner. 

[54] Section 324 of the LPA regulates the use of an uplift fee in conditional costs agreements.  Although uplift fees are permissible, the basis of the calculation of the fee must be separately identified in the agreement, and provide an estimate of the uplift fee, or a range of estimates for the fee and an explanation of the major variables which will affect the fee.  To avoid exorbitant uplift fees and protect consumers of legal services, the fee is capped at 25% of the legal costs, excluding disbursements, otherwise payable.  Section 325 distinguishes contingency fees from conditional costs agreements, and prohibits their use.

[55] The LPA provides for separate consequences regarding the status of costs agreements which are in violation of the prescribed regulatory framework.  As a general rule, a costs agreement which contravenes Division 5 of Part 3.4 of Chapter 3 of the LPA is void.[31] Legal costs under a void costs agreement, however, are generally recoverable under the applicable scale of costs or at a fair and reasonable value.[32]  However, where the contravention relates to s 324, which governs the imposition and calculation of uplift fees, the law practice may not recover the whole or any part of the uplift fee.[33]  Where the contravention relates to s 325, which prohibits the imposition of contingency fees, the law practice is not entitled to recover any amount relating to the provision of legal services, and must repay any amount received from delivering those services.[34] If the relevant costs agreement is not in direct or indirect contravention of Division 5 of Part 3.4 of Chapter 3 of the LPA, the Supreme Court or QCAT may set aside the costs agreement if satisfied that it is nevertheless not fair or reasonable.[35]

Characterisation of the Formal Requirements prescribed under s 323 of the LPA

[56] Having examined the statutory regime governing the relationship between the applicant and respondent, it is possible to turn to the issues in dispute. The applicant and respondent appear to agree that the relevant costs agreement is a “conditional costs agreement” attracting the obligations prescribed under s 323(3) of the LPA. The applicant, however, contends that the violation of ss 323(3)(d) or (e) renders the costs agreement void. This necessitates a conclusion that the prescribed formality requirements are of a mandatory, rather than permissive, nature.

[57] As indicated by [52], s 323(3) of the LPA employs differential use of the terms “may” and “must”.[36]  “May” and “must”, when utilised as auxiliary verbs, are used to express modal force.  As the subject of the statements relate to directed conduct, the terms signify deontic modality, which is the degree of freedom attached to behaviour or actions.[37]  Whilst the term “may” signals that the subject behaviours are permissive or possible, “must” instructs that they are mandatory or compulsory. 

[58] The fact that s 323(3) of the LPA utilises “may” and “must” to qualify separable and distinct statements requires a conclusion that the content of such statements are subject to different modality corresponding with the qualifying auxiliary verb.  Accordingly, although s 323(3)(b) is permissive (that is, law practices may, but are not required, to recover disbursements despite the unsuccessful outcome of a matter the subject of a conditional costs agreement), ss 323(3)(d)-(e) are mandatory (that is, conditional costs agreements must, as an essential and indispensable component of the agreement, include a five day cooling-off period and a statement that the client has been informed of their right to seek independent legal advice). 

[59] Although courts may properly import alternative semantic content to the terms “may” and “must” relative to their ordinary grammatical meaning, such reconstruction should only occur where the unconventional meaning is necessary, obvious or plainly transparent in light of the text, context and purpose of the statute.  The differential utilisation of “may” and “must” in each paragraph of s 323(3) signals that the provision was carefully drafted by the legislature to attach different modal force to each statement.  This is further supported by the fact that the protective provisions of s 323(3) are subject to mandatory duties, which is consistent with the broad consumer protection purposes of the LPA, and the specific objectives of s 323. 

[60] Accordingly, the differential use of the modal verbs “may” and “must”, interpreted in light of the consumer protection objectives of the relevant provisions, indicates that the requirements prescribed under ss 323(3)(d)-(e) are of a mandatory, not permissive nature.  Therefore, any failure to comply with such provisions will void the conditional costs agreement in accordance with s 327(1) of the LPA. 

Construction of the Mandatory Duties Prescribed under Sections 323(3)(d)-(e) of the Legal Profession Act 2007 (Qld)

[61] The applicant and respondent advance alternative constructions of ss 323(3)(d)-(e) of the LPA.  The relevant statutory provision is as follows:

(3) A conditional costs agreement—

…

(d) must contain a statement that the client has been informed of the client’s right to seek independent legal advice before entering into the agreement; and

(e) must contain a cooling-off period of not less than 5 clear business days during which the client, by written notice, may terminate the agreement.

Section 323(3)(d): A Conditional Costs Agreement Must Contain a Statement that the Client has been informed of their Right to Seek Independent Legal Advice before Entering the Agreement

[62] On the respondent’s argument, the objectives of s 323(3)(d) may be satisfied by ensuring that the agreement makes the consumer’s rights sufficiently clear.  The respondent contends that this was adequately satisfied by cl 19(a) of the conditional costs agreement, which provided that:

The Client has the right to seek independent legal or other advice in relation to this Agreement, prior to execution

[63] The respondent appears to claim that any interpretation of s 323(3)(d) insisting on the incorporation of a statement that the client has been advised of their right to seek independent legal advice prior to entering the agreement is mere pedantry.

[64] The respondent’s argument is, with respect, misconceived.  Section 323(3)(d) does not require, on its terms, the client to be advised of their right to seek independent legal advice before entering into the conditional costs agreement.  Rather, it requires a statement to be included into the agreement specifying that the client has been advised of their right to seek independent legal advice.  Adopting the interpretation advanced by the respondent is fundamentally inconsistent with the natural and ordinary meaning of the text of the statute. 

[65] Contrary to the respondent’s argument, this is neither a pedantic or unreasonable conclusion.  The formality requirements prescribed under s 323(3) exist by reason of the special risks associated with conditional costs agreements, including that clients may not understand the nature or implications of the contract.  If it was sufficient to incorporate a notification of the right to obtain independent legal advice in the contract, the client may not have read or understood the notification before executing the conditional costs agreement. Furthermore, the notification may not be sufficient to draw the client’s attention to the special risks associated with conditional costs agreements before executing the contract. Therefore, to optimally protect the consumer’s interests, it is preferable to ensure that the clients are expressly informed of their right to seek independent legal advice prior to executing conditional costs agreements, and that the provision of that information is properly recorded in the contract executed by the client.

[66] This statement also serves the function of activating the professional and ethical responsibilities of the legal practitioner.  As the relevant clause requires the legal practitioner to make a written representation that such advice had been provided by the client, any material falsity in the statement would likely constitute serious unprofessional conduct or professional misconduct under ss 419 and 420 of the LPA.  Through activating the professional and ethical responsibilities of the legal practitioner, s 323(3)(d) draws the lawyers’ attention to the importance of informing the client of their right to seek independent legal advice in relation to the agreement. This mitigates the risk of minimal or formal compliance through the incorporation of bare notifications into standard form conditional costs agreements. 

[67] Finally, the statement protects the legal practitioner and the client by recording a “meeting of the minds” that both parties properly understood that information regarding the right to obtain independent legal advice had been exchanged.  As the client is taken to have agreed to this statement, it constitutes strong evidence in subsequent proceedings that the relevant information had been supplied.  If the client were to contend that the information had not been provided contrary to the statement contained within the contract, they would need to furnish cogent evidence of that allegation insofar as it would implicitly contain an imputation that the legal practitioner had engaged in gravely unethical and unprofessional conduct.

[68] Accordingly, construing s 323(3)(d) as requiring the incorporation of a statement that the client had been informed of their right to seek independent legal advice before entering into a costs agreement is consistent with the natural and ordinary meaning of the text of the statute, and best achieves the consumer protection objectives of both the LPA and the regulatory framework governing conditional costs agreements.  Therefore, through failing to include such a statement into the conditional costs agreement, despite the notification contained in cl 19(a) of the conditional costs agreement, the respondent contravened s 323(3)(d) of the LPA.  

[69] Although this construction may operate harshly in limited circumstances, legal practitioners are in the advantageous position of possessing special legal knowledge, skills and training, and having the experience of regularly entering into costs agreements.  Therefore, the risk of the statutory provision operating strictly is better sustained by the legal practitioner, rather than by artificially diluting the protection legislatively granted to vulnerable consumers of legal services.   

Section 323(3)(e): A Conditional Costs Agreement Must Contain a Cooling-Off Period of Not Less than Five Clear Business Days within which the Client may Terminate the Agreement by Written Notice

[70] The respondent has argued that s 323(3)(e) of the LPA operates to deem the existence of a five clear business day cooling-off period within conditional costs agreements, and does not require the express incorporation of the cooling-off period into the contract.  To hold to the contrary, according to the respondent, would require the implication of the words “a statement that the client has the benefit of”.

[71] Section 323(3)(e) of the LPA provides that “conditional costs agreements… must contain a cooling-off period of not less than 5 clear business days during which the client, by written notice, may terminate the agreement”.

[72] The word “must”, when deployed as an auxiliary verb, may broadly be categorised as reflecting deontic, epistemic or dynamic modality.  Deontic modality, discussed at [57], refers to the degree of freedom attached to the subject action (e.g., one must have a drivers licence to drive a motor vehicle on a public road). Epistemic modality refers to the degree of knowledge attached to the relevant subject (e.g., it must be problematic to drive a motor vehicle without a drivers licence on a public road).  Dynamic modality, however, relates to the internal attributes of the subject (e.g., she can really speak eloquently).[38] In the context of s 323(3)(e), which prescribes formal requirements for conditional costs agreements, the word “must” is evidently intended to express deontic modality.  Accordingly, the use of “must” as a deontic modal verb presumes the subjection of the main verb “contain” to a duty.

[73] The nature of the auxiliary verb qualifying the main verb has significance for the colour of meaning which should be attributed to the latter.  The primary definition of “contain” prescribed in the Oxford English Dictionary is “to have in it, to hold; to comprise, enclose”.  The definition prescribed in the Collins Dictionary, advanced by the respondent, is “to be capable of holding; to have capacity for”.   The respondent claims, based on the Collins Dictionary definition, that the word contain is manifestly inappropriate if it seeks to impose an obligation to incorporate a statement outlining the prescribed cooling-off period into the contract. However, if the Oxford English Dictionary definition were adopted, the term “contain” would be apt, when qualified by the deontic modal verb “must”, to impose precisely such an obligation.

[74] The Collins Dictionary definition of “contain” advanced by the respondent would be nonsensical when qualified by the deontic modal verb “must”.  It would be absurd and meaningless to state that there was a “duty” for the conditional costs agreement to be “capable of holding” or “have capacity for” a cooling-off period.  This is because any agreement, regardless of its nature and terms, has “capacity” for “holding” a cooling-off period.  Indeed, the interpretation urged by the respondent would be poorly adapted to operate as a deeming provision which applies a five day cooling-off period to conditional costs agreements, without the incorporation of additional terms into the statute. The incongruous consequences caused by the definition of “contain” proposed by the respondent indicates that a different meaning should be attributed to “contain” in the context of s 323(3)(e). 

[75] Accordingly, having regard to the deontic modal verb “must” qualifying “contain”, the word “contain” should be interpreted as meaning “to have in it, to hold; to comprise, to enclose”.  On this basis, the preferable interpretation of s 323(3)(e) of the LPA is that the conditional costs agreement must expressly include a five clear business day cooling-off period within which the client may terminate the contract by written notice.  Provided the cooling-off period prescribed under s 323(3)(e) is incorporated into the contract, it requires no specific lexical formulation.  Contrary to the claims of the respondent, this does not require the implication of any additional terms into the statute.  It merely requires s 323(3)(e) of the LPA to be interpreted in accordance with its natural and ordinary meaning. 

[76] Furthermore, in light of the consumer protection objectives of s 323(3), it is unclear how an unsophisticated consumer of legal services would independently discover the existence of the cooling-off period if not expressly incorporated into the contract.  Although they might be advised by their legal practitioner, the respondent does not argue that any such obligation is implied under s 323(3)(e).  Accordingly, the interpretation advanced by the applicant, which this Court has reached independently, is consistent with the consumer protection objectives of the LPA, and the regulatory framework governing conditional costs agreements.  Accordingly, the failure of the respondent to include a cooling-off period into the conditional costs agreement contravened s 323(3)(e) of the LPA. Contrary to the claims of the respondent, this conclusion is neither capricious nor unjust. 

[77] The applicant and respondent have separately referred to purportedly analogous illustrative provisions in various statutes in Queensland and other jurisdictions.  Although each have been considered carefully, none has been particularly helpful.  The intentions of Parliament in respect of the meaning of a specific provision within a particular statute are not ordinarily discoverable by comparison with other ostensibly unrelated legislation.  The focus of the inquiry should be on the text of the statute, illuminated by its context and purpose. 

Consequences of Contravening s 323(3) of the LPA

[78] Section 327(1) of the LPA provides that:

A costs agreement that contravenes, or is entered into in contravention of, any provision of this division is void.

[79] By failing to comply with 323(3)(d)-(e), Division 5 of Part 3.4 of Chapter 3 of the LPA has been breached, which attracts the consequences prescribed under s 327(1).

[80] The natural and ordinary meaning of “void”, in the context of legal instruments, means invalid, or having no legal force.  A void instrument, as distinct from a voidable instrument, has no legal effect, and is deemed not to have existed ab initio.  Where a contract is “void”, it requires no election from the aggrieved party to terminate or avoid the contract. The consequences of an instrument being “void” rather than “voidable” are of a different nature and degree.[39] Accordingly, this Court must commence at the reasonable presumption that Parliament intended a conditional costs agreement executed in violation of Division 5 of Part 3.4 of Chapter 3 to be rendered void, not merely voidable. 

[81] As discussed at [55], Division 5 establishes a sophisticated system providing for different legal consequences depending on the nature of the alleged breach.  If a provision of Division 5 has been contravened, the conditional costs agreement is deemed “void”.[40]  If, however, the costs agreement complies with Division 5, but is nonetheless unfair or unreasonable, it is liable to be set aside.[41]  The existence of a sophisticated and coherent system prescribing different consequences for various categories of conduct strongly militates in favour of interpreting “void” in accordance with its natural and ordinary meaning. 

[82] Although one might argue that the “consumer protection” objectives of Division 5 might be better served by rendering the conditional costs agreement voidable at the election of the aggrieved client, this would be incompatible with the natural and ordinary meaning of the text of the statute.[42]  Furthermore, the primary risk associated with voiding a conditional costs agreement is that the taxation of costs according to the ordinary applicable scale may exceed the costs which would otherwise have been payable under the contract.  This is addressed by s 327(3) of the LPA, which provides that a law practice may not recover any amount in excess of the amount the law practice would have received if the costs agreement were not rendered void.  Accordingly, making the conditional costs agreement voidable is unlikely to better serve the consumer protection objectives of Division 5 in comparison with simply voiding the contract. 

[83] Accordingly, the conditional costs agreement executed by the applicant and respondent is void for violating ss 323(3)(d)-(e) of the LPA.  This does not produce an unduly harsh or oppressive outcome, as the respondent may recover reasonable legal costs under the void costs agreement calculated in accordance with the applicable scale or at a fair and reasonable value.[43]

Orders

[84] The order of the Court is that the conditional costs agreement executed by the applicant and respondent is declared void under s 327(1) of the LPA for contravening ss 323(3)(d)-(e) of that Act.