1 October 2015
This important recent decision concerned the termination of a “no win no fee” retainer with the respondent, the respondent then claiming an entitlement to recovery for work done and services rendered.
The applicant’s former de facto spouse, a passenger on flight MH17, was killed in July 2014. . He retained Shine Lawyers in relation to his compensation claim for her loss. . He subsequently terminated the retainer and, in so doing, provided authority to the respondent to transfer his file to another firm. .
In August 2015 the new firm asked the respondent to make the applicant’s file available. . The respondent refused on the basis that it was entitled a possessory lien over the file until its professional fees, amounting to $20,643.50 plus GST, were paid. .
In response, the applicant sought:
- A declaration that the retainer was terminated by the applicant on 4 August 2015
- A declaration that the respondent was not entitled to retain the applicant’s file pursuant to the retainer; and
- An order that all files, documents, correspondence or other material prepared by or on behalf of the applicant and all copies be delivered up to the applicant. .
Did Shine Lawyers have a right to payment from the applicant?
Shine’s retainer was a conditional costs agreement within the meaning of s 323 of the Legal Profession Act 2007. . However, it was non-compliant with s 323(3) in various respects, and therefore void pursuant to s 327(1). . It followed that the respondent’s legal costs were recoverable “according to the fair and reasonable value of the legal services provided” (see s.319(1)(c)), but it was not entitled to recover any amount “in excess of the amount [it] would have been entitled to recover if the costs agreement had not been void” (see s 327(3)).
The relevant issue for his Honour’s consideration was what the respondent’s rights would have been “on the hypothesis that the Act had not rendered the costs agreement void”. . The respondent submitted that it would have had a contractual right to payment (either from an implied term or as a matter of construction)  which survived the termination of the retainer; or in the alternative a restitutionary claim to recover as on a quantum meruit for the fair value of the work done. .
His Honour dismissed the argument that a term ought be implied into the retainer outright, finding that the proposed term did not satisfy two limbs of the test prescribed in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283, namely that it was not necessary to give business efficacy to the contract; nor so obvious that "it goes without saying”.  In his Honour’s assessment, from the respondent’s point of view, those conditions were “insurmountable hurdles”. .
His Honour also rejected the construction argument, explaining as follows:
“Shine acknowledged that the contract should be regarded as an ‘entire’ contract, such that prima facie, it would not be entitled to charge fees until the matter was completed and then only if the applicant was successful. That acknowledgement was significant for the analysis of Shine’s rights because it meant that, even if the cap and the condition were to be construed in the way for which Shine contends, there would still be no mechanism by which a contractual right to payment could be regarded to have accrued due prior to termination. And after termination, … the retainer, viewed as a source of enforceable rights and obligations, has ceased to exist. That conclusion is fatal to this part of the applicant’s argument.” –.
Turning to the respondent’s alternative argument that had the costs agreement not been void, it would have had an entitlement to be paid as on a quantum meruit, his Honour noted that as a general proposition, in circumstances where a contract for work or services is terminated by the client, the provider of same would have a restitutionary claim to recover as on a quantum meruit for work done and services provided up to the date of termination: see Legal Services Commissioner v Baker (No 2)  2 Qd R 249 at  and . However, the terms of the terminated contract remain directly relevant to the scope of the restitutionary claim: see Lumbers v W Cook Builders Pty Ltd (2008) 232 CLR 635. The question for the court was how the claim reconciled with the contract between the parties. –.
Observing that the retainer in question contained an implied term that the applicant could withdraw from it at any time without reasons , and further provided that the entitlement to be paid was contingent on recovery , his Honour formed the view that the “critical questions” for consideration as to this aspect were:
(a) whether the applicant, as a reasonable person, should have realised that if he exercised his right to terminate the retainer without cause and prior to any recovery, Shine would expect to be paid in full without waiting for any recovery to be obtained; and
(b) whether it would be unjust for the applicant to take the benefit of the services Shine provided without paying a reasonable sum for them, and notwithstanding that no recovery had yet been obtained. .
The respondent submitted that it should not be regarded as having knowingly putting its fees at risk in litigation conducted by a stranger to the agreement. . In circumstances where there was an implied term that the applicant could withdraw from the retainer at any time; the retainer made no provision for what should happen in relation to fees should the applicant exercise his right to withdraw; the only promise to pay was qualified; and there was a clear statement that if there was no recovery then the client would not have to pay; , his Honour concluded that a reasonable person in the applicant’s position “would have appreciated that Shine would expect to be paid, but would not have appreciated that if the contractual right to withdraw from the retainer was exercised Shine would expect to be paid in full for the services it had provided and without waiting for any recovery to be obtained. Such a person would think that Shine was prepared to wait for payment until recovery was obtained, so that the person could pay, having then been put in funds”. .
Accordingly, finding that there was no injustice for the applicant to take the benefit of the services provided without paying a reasonable sum for them, his Honour answered his critical questions in the negative. . He dismissed Shine’s contention that had the costs agreement not been void, it would have had the right to payment, as on a quantum meruit. . His Honour concluded that Shine’s legal costs were recoverable “according to the fair and reasonable value of the legal services provided” (see s 319(1)(c) of the Act), but Shine was not entitled to recover any amount in excess of the amount it would have been entitled to had the costs agreement not been void (see s 327(3) of the Act). . Shine had a statutory right to payment contingent upon certain events happening – which remained unfulfilled  – and thus no present entitlement to recovery.
In the result, his Honour held that Shine did not have any effective possessory lien. .