McLaren v Wiltshire Lawyers Pty Ltd

In this significant case, Martin J was asked to consider whether a costs agreement was not reasonable, and thus liable to be set aside under the Legal Profession Act 2007. His Honour determined that two aspects of the costs agreement were not reasonable. The first issue was a clause allowing the solicitors, at their discretion, to refer their costs to an assessor before issuing their bill and charging the assessor's costs to the client. The second issue that arose was whether an estimate range for the matter of $10,000 to $250,000 was reasonable. In the event, as neither element was found to be reasonable the costs agreement was set aside.

Martin J

13 December 2019

Ms McLaren was involved in a property dispute in the Family Court of Australia. [1]. After becoming dissatisfied with her original lawyers due to what she considered their excessive fees, she engaged the respondent in October 2018. [1]–[2]. After the respondent acted for her in a mediation and performed other work for her, the respondent and Ms McLaren “fell out... over the level of their fees”. [2]. As a sequel to this falling out, the respondent sought to secure their fees on 28 May 2019 by trying to lodge a caveat over Ms McLaren’s property. [3]. This “prevented her from using the property as security for a loan to enable her to pay money to her former husband in accordance with an order of the Family Court”. [3].

Accordingly, Ms McLaren commenced proceedings in the Supreme Court, seeking that the costs agreement between her and the respondent be set aside, that the caveat be removed and that proceedings commenced by the respondent in the Magistrates Court be stayed. [4]. As it transpired, the Department of Natural Resources and Mines rejected the respondent's caveat, rendering the application to set it aside unnecessary. [6]. Nevertheless, the proceedings continued in relation to the other two questions. [7].

Ms McLaren contended that the costs agreement should be set aside under s 328 Legal Profession Act 2007 (“LPA”) as it is not fair or reasonable. [17].

The first reason discussed by Martin J for why the costs agreement might not be reasonable arose from the following clauses in the costs agreement: [26]

“2.7  All work undertaken by us may, in our discretion, be assessed by an independent legal costs consultant and our bills (tax invoices) will be issued in accordance with independent costs assessment.

2.8  In the event that we elect to engage a legal costs consultant as set out in Clause 2.7, a copy of the independent certificate of assessment will be sent with each bill (tax invoice) to you.

2.9  You agree to reimburse us for the fees charged by the legal costs consultant and these fees will be charged to you as a disbursement.”

In considering whether these clauses were not fair or reasonable, Martin J first noted that the use of “fair or reasonable” in the LPA “has picked up the common law test”. [18]. Thus, the agreement must be fair, in that the client must fully appreciate and understand the agreement, and it must also be reasonable, having regard to the kind of work to be undertaken. [18]. His Honour made particular reference to Brown v Talbot & Oliver (1993) 9 WAR 70, where Ipp J found that a term in a costs agreement was unreasonable where the client was put in a position of uncertainty by it, as the solicitors had the discretion to determine the hourly rate which would be charged. [20]–[23]. In such cases, the significance of such terms must be brought to the client's attention. [24]. This is particularly important because solicitors have fiduciary obligations to their clients, including an obligation to bring aspects of a costs agreement in respect of which they are in a position of advantage over their clients to the clients’ attention. [32].

Martin J noted that neither cll 2.7–2.9 nor their effect were brought to Ms McLaren’s attention. [33]. The respondent sought to argue that paying for an assessment of costs is not the same as paying for the preparation of a bill, and that this was done for the benefit of both parties. [36]. In Martin J’s view, the difficulty with this argument was twofold. First, as a fiduciary, the respondent was always limited to billing a fair and reasonable amount. [36]. Secondly, the engagement of an assessor was solely at the discretion of the respondent; the client need not even be told that an assessor had been engaged. [37]. The client also had no say in either who is appointed as the assessor or what fees they are charged for the assessment. [37]. Thus, it could hardly have been said that the procedure in cll 2.7–2.9 would give a client peace of mind, as the respondent sought to argue. [37]. Ultimately, Martin J found that these clauses “allow the solicitor to escape the cost of preparing a bill... and transfer that cost to the client”. [38]. Because it puts the solicitor in a position of advantage, these clauses and their contents should have been brought to Ms McLaren’s attention. [38]. As they were not, the costs agreement was unreasonable. [39].

Next, Martin J considered whether Ms McLaren was induced to enter into the costs agreement by a misrepresentation made over the phone by an employee of the respondent. [40]. Ultimately, after considering the evidence of both Ms McLaren and of the respondent’s employee, his Honour found that Ms McLaren was mistaken in her recollection of the conversation, and thus that no misrepresentation had been made. [47].

Finally, Martin J turned to whether or not the respondent failed to disclose “an estimate of the total legal costs... or... a range of estimates”, as required by s 308(1)(c) LPA. [48]. In analysing this question, his Honour noted that a costs estimate is not a quotation, but “an approximation which is based upon a number of matters which will change according to the type of legal issue involved”. [50]. This typically includes: [50]

(a)  the general nature of the matter;

(b)  the practitioner's knowledge of the client's circumstances; and

(c)  the practitioner's reasonable expectation, informed by their experience, of what might be required to undertake the work they are instructed to undertake.

At cl 3.1, the respondent gave two estimates: $1,500 to $10,000 to prepare for and attend a mediation or settlement/case assessment conference, and $10,000 to $250,000 to take the matter from the first mention or interim hearing to trial. [53]–[54]. Martin J considered the giving of a range of possible costs in relation to the mediation to have been appropriate in the circumstances of the case. [58].

The second estimate, of “$10,000.00 to $250,000.00”, was different. What is required is an estimate in the ordinary meaning of that word. [60]. An estimate which is ultimately inadequate does not mean that there has not been compliance with s 308(1)(c) LPA. [60]. However, where the estimate will not provide any guidance for the client to determine their liability and instead covers the extreme possibilities for the conduct of the claim, it will not be a true estimate, and so will not be in compliance with the LPA. [62]. Here, Martin J found that the “estimate ... did not provide any guidance for a client in the position of this plaintiff”. [63]. Thus, the required disclosures were not made, rendering the agreement not reasonable within the meaning of s 328 LPA. [63].

In the event, the costs agreement was set aside as it was not reasonable. [64]. 

M Paterson