Mann up! High Court holds innocent party to a repudiated contract and bins alternative quantum meruit claims

For at least 115 years it has been the law in Australia that where a contract is repudiated the innocent party can recover damages either in accordance with that contract or upon a quantum meruit. Predictably, such claimants have always asked for whichever was the higher of the two available measures and this has sometimes involved shrugging off the contract price as irrelevant.

That all changed yesterday when the High Court delivered its decision in Peter Mann v Paterson Constructions [2019] HCA 32.

The seven judges delivered three judgments spanning 99 pages. In a nutshell, they  agreed that the contractual measure of damages should be the ceiling on damages and that the former long-standing position is, in the words of Keifel CJ, Bell and Keane JJ, based on “fallacious reasoning … which may give rise to serious mischief”.

In Peter Mann v Paterson Constructions, property owners contracted with a builder for the construction of two townhouses in Blackburn, Victoria. The contract price for the development was $971,000. The work was largely completed and $946,000 of the contract price had been paid before the relationship ended in acrimony with each party accusing the other of repudiation and purporting to accept such repudiation.

Their dispute then went to VCAT where Senior Member Walker held that the owners had wrongfully repudiated the contract, the builder had accepted that repudiation, the contract was at an end, and that the builder as the innocent party was entitled to recover damages calculated by reference to the market value of the building work and labour delivered to the owners. He assessed that value at $1.6 m.

After allowance for the $946,000 already paid, he held that the builder was entitled to damages from the owners of $660,000. Hence the bottom line financially at VCAT was that the owners were liable to  the builder for about 165 per cent of the original contract price because of their repudiation of that contract.

The owners appealed unsuccessfully to a single judge of the Supreme Court and then to the Court of Appeal before winning seven judges to nil in the High Court.

Following  yesterday’s decision, where a building contract in Australia (or other contract for work and labour done) is terminated for repudiation or breach, damages for breach of that contract will generally be the sole remedy.

What now? The High Court has remitted  Mann  back to VCAT for its recomputation of the builder’s damages. More than three years after he first heard the matter, that recalculation might be done by Senior Member Walker as the owners’ submission to the High Court that he should not hear the remitter was rejected.

The wash-up? Three thoughts occur to me.

First, the High Court’s decision will be big news for building and construction lawyers,  as it overturns a century of established law. But it won’t be a big surprise to those who remember Sopov v Kane [2009] VSCA 141 in which Victoria’s Court of Appeal unanimously expressed sympathy for the owners’ predicament in a similar case but nevertheless found for the builder on the basis that treating repudiated contracts as a ceiling on quantum meruit claims was “a step which the High Court alone can take”.

Second, until yesterday builders and others stuck in unprofitable contracts had a powerful financial incentive to terminate for breach by their counterparty in the expectation that they would be able to reprice their work retrospectively with a quantum meruit claim in the subsequent litigation. That financial escape route has just been soundly shut by the High Court.

Third, the decision is also bad news for quantity surveyors. Demand for their expert evidence as to the ‘as built’ value of construction works is likely to take a hit.

High Court refuses to order escaped legal professional privilege cat back into the bag

Legal professional privilege is a legal immunity but it is not an independent cause of action. So ruled the full bench of the High Court last week in a joint judgment in Glencore International AG v Commissioner of Taxation [2019] HCA 26.

Does the distinction matter?

It was probably crucial for the disappointed plaintiff, vast Swiss-British miner Glencore in its continuing tussle with the Australian Taxation Office.

As you might recall from global media coverage at the time, in 2017 millions of documents were leaked from the Caribbean-based law firm Appleby in an episode that became known as ‘the Paradise Papers.’ Appleby specialises in tax minimisation involving tax havens. Its recent clients include Glencore.

Some of Appleby’s Glencore advice and related documentation leaked its way to the ATO which took a very deep interest in it.

This ATO attention was sufficiently embarrassing for Glencore  to invoke the High Court’s original jurisdiction and seek an injunction against the ATO retaining, relying upon or referring to any of the stolen Appleby documents relating to Glencore.

The High Court noted that there was no issue that the documents stolen from Glencore’s lawyers were  subject to legal professional privilege. But the seven judges unanimously found that this meant only that the documents were exempt from production by court process (eg discovery or subpoena) – it did not necessarily mean that the ATO could be injuncted from using documents which had come into its possession independently of such court processes.

The Court stated [at paras 12 – 13]

Fundamentally [Glencore’s application] rests upon an incorrect premise, namely that legal professional privilege is a legal right which is capable of being enforced, which is to say that it may found a cause of action. The privilege is only an immunity from the exercise of powers which would otherwise compel the disclosure of privileged communications…

It is not sufficient to warrant a new remedy to say that the public interest which supports the privilege is furthered because communications between client and lawyer will be perceived to be even more secure. The development of the law can only proceed from settled principles and be conformable with them. The plaintiffs’ case seeks to do more than that. It seeks to transform the nature of the privilege from an immunity into an ill-defined cause of action which may be brought against anyone with respect to documents which may be in the public domain.

Apart from there not being a cause of action, there was the further difficulty that the cat was already well and truly out of the bag in any event. Para 33:

The relief sought by the plaintiffs points to further difficulties….[including] the fact that the information the subject of the claimed privilege is now in the public domain. In the latter respect the circumstances of this case identify a particular problem were an injunction to be granted. It is that the defendants would be required to assess Australian entities within the Glencore group to income tax on a basis which may be known to bear no real relationship to the true facts.

Ouch. That sounds like there might be a nasty revised tax bill in the pipeline to Glencore.

Swiss bank accounts, Australian commercial litigation and the privilege against self-incrimination revisited

Switzerland pic 310817

In happier times the De Lutis brothers built up a Melbourne property empire worth (according to this Age story) $500 million. But now the pair has fallen out.

Younger brother Paul wants his share of the financial pie and is suing older brother Colin in the Victorian Supreme Court. It seems that the pie includes $18 million which has sloshed through various bank accounts in Switzerland, Singapore, the British Virgin Islands and Hong Kong since the 1980’s.

As plaintiff, Paul wants to detail these funds and transactions to the judge now trying the matter but is apparently concerned that his evidence might attract some unwelcome scrutiny from the Australian Taxation Office.

What to do?

Section 128 of the Evidence Act permits a court to issue a certificate which will prevent a witness’s evidence being directly or indirectly used against that witness in a subsequent criminal prosecution. The section is predicated (see s. 128(1)) upon the witness objecting to giving evidence on the ground that such evidence might tend to prove that the witness has herself committed an offence or be liable to a civil penalty.

Paul has already received one s. 128 certificate about an unrelated matter in this litigation. Last week he sought another concerning the itinerant $18 mil.

This week, the trial judge Justice James Elliott refused that application.

In a pithy ruling (De Lutis v De Lutis & Ors [2017] VSC 505) Elliott J observed that in civil litigation a plaintiff is free to prosecute his own case if and how he chooses. As there is no element of legal compulsion in the evidence Paul might choose to give in chief, he can scarcely choose to give evidence of a particular matter and simultaneously object to doing so.

Absent a valid objection to the giving of evidence, a witness has no entitlement to a s. 128 certificate. Hence no s. 128 certificate for Paul concerning his proposed evidence in chief.

Elliott J also observed that the cat was arguably out of the bag anyway. The $18 million had already been referred to in evidence earlier in the proceeding and “… where so much of the subject matter had [already] been disclosed voluntarily, it is difficult to see how this further [proposed potentially self-incriminating] evidence would materially alter Paul’s position.”

The lessons from this? Several occur to me:

  1. Prospective civil litigants in commercial litigation should weigh up the potential longer term ramifications of their evidence. In particular, will they be embarrassed (or worse) if the transcript from a civil trial finds its way into the tax man’s hands? If so, steering clear of commercial litigation might be a prudent way to minimise the risk of a later criminal prosecution.
  2. The risks of having an application for a s.128 certificate refused apply to both prospective plaintiffs and defendants but are probably more pronounced for plaintiffs who are almost by definition volunteering from the very outset to give their evidence. Similarly, different considerations are likely to apply to evidence given by a witness under cross-examination rather than during evidence in chief.
  3. If your client might need a s. 128 certificate, seek it early. Don’t run the risk of having the judge rule that the self-incrimination horse has already bolted. (Also, even an early failed128 certificate application might have forensic advantages given the possibility of such failed objections being retrospectively upheld – see 128(6) of the Evidence Act.)
  4. Finally, any family that has had $18 million lying idle in its various Swiss and Caribbean bank accounts for decades is clearly long overdue for a holiday together skiing in Zermatt or sailing off Barbados. Inter alia, both destinations are likely to be much more entertaining and much less expensive than a protracted intra-family dispute in the Supreme Court.

When winners are not grinners – who gets paid first when the winning litigant goes bust?

Commercial litigation is often ultimately uncommercial. And when things turn really sour solicitors will often have a personal stake in the question of who is to miss out financially.

This issue arose in an insolvency context last week in a Supreme Court tussle between mega firm DLA Piper and the liquidators of their former client Windemac Pte Ltd.

Back in 2013 Windemac won a Supreme Court judgment for $312,000 plus interest and costs. It was perhaps a Pyrrhic victory as DLA’s bills to Windemac totalled almost $360,000. Windemac went bust two years later still owing DLA Piper more than $100,000.

After Windemac went into liquidation there still remained a costs order for almost $98,000 in Windemac’s favour to be enforced against the defendants. Was that money to go to Windemac’s liquidators or to the short-paid solicitors?

Associate Justice Derham held that the solicitors were entitled to an equitable lien over the proceeds of the costs order on established ‘fruits of the action’ principles and that the solicitors’ rights had priority over the claims of Windemac’s other creditors in the insolvency.

The decision contains a useful extract on solicitor’s liens for costs extracted from Elliot J’s decision in Oakley Thompson & Co v Maisano (No 2) [2015] VSC 210 at 77. Here (with citations omitted) is Elliot J’s summary:

(1)     At common law, a solicitor has a general possessory lien for all professional costs due by her or his client.  This entitles the solicitor to keep in her or his possession all property of the client which comes into the solicitor’s possession during the course of her or his professional employment until the solicitor’s costs have been paid.

(2)     A solicitor has no lien for costs over any property which has not come into her or his possession.

(3)    If a client obtains a judgment for the payment of money (including a judgment for costs),  the solicitor acquires a right to have her or his costs paid out of the money payable, such right being an equitable right to be paid.  This right is not dependent upon an order having been made to recognise the right, or upon a taxation having occurred.

(4)    If the solicitor gives notice of the right to the person who is liable to pay the money, only the solicitor, and not the client, can give a good discharge to that person for an amount of the money equivalent to the solicitor’s costs.

(5)    If the person liable to pay has notice of the solicitor’s right, but refuses to pay the solicitor, the solicitor may obtain a “rule of court” directing that the costs be paid to the solicitor and not to the client.  (In this context, a rule of court is a reference to an order or a direction of the court.)

(6)    If the client and a judgment debtor make a collusive arrangement in order to defeat the solicitor’s right, the court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor’s claim has been given to the judgment debtor prior to the arrangement.

Associate Justice Derham’s decision is DLA Piper Australia v Official Receiver of Singapore (as liquidators of Windemac Pte Ltd) [2017] VSC 216.

The lesson from this? Solicitors’ liens are good and can trump a liquidator. But solicitors getting their money into trust up-front on account of fees is even better. After all, the solicitors here might have chalked up a win but they still took a haircut on the fees which had been outstanding to them for over four years.

What do Linda Evangelista and Dale Boucher have in common?

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Dale B narrow 3 020916

What do Linda Evangelista and Dale Boucher have in common?

Slightly more than you think. They are both recognized authorities within their fields on costs disclosure.

The supermodel famously said, “I don’t get out of bed for less than $10,000 a day”.

Less famously, the Commissioner for Uniform Legal Services Regulation and CEO of the Legal Services Council in March this year signed into operation (see s 407 of the Uniform Law) his pronouncements on the need for single figure costs estimates under the Uniform Law. (See the Legal Services Council’s Guideline and Direction – Costs Estimate – LSC 01/2016 and its almost identical CULSR twin, Guideline and Direction – Costs Estimate – CULSR 01/2016.)

Ms Evangelista was succinct and presumably did not need to elaborate.

Mr Boucher was less concise. And, as if the Uniform Law jigsaw needed still more pieces, he accompanied his pronouncements with three “worked examples” of how lawyers are required to provide “single figure” estimates to their clients for the purposes of the Uniform Law.

Look at the examples closely. Identifying a “single figure estimate” in any of them is like identifying a snowflake in a blizzard. Easy. And meaningless.

Nevertheless it seems that Mr Boucher considers single figure estimates are compulsory, even if they are as a consequence contrived, almost certain to be superseded, or premised upon tenuous guesses about the likely course of litigation.

Note particularly paragraph 8 of both Guidelines and Directions. Estimates may be provided as a “range of figures PROVIDED [original emphasis] that the law practice … always gives the single figure estimate of the total legal costs in the matter that section 174(1)(a) requires” [my underlining].

My copy of the Uniform Law contains the following version of s 174(1)(a):

A law practice—

(a)       must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs…

I will give a prize to the first reader who can find in s174(1)(a) the requirement for a “single figure estimate” to which Mr Boucher is referring in his Guidelines and Directions. And not just any prize. It will be a colour, A4-sized photo portrait of either Ms Evangelista or Mr Boucher – your choice.

I have blogged about this silliness before but I was reminded of it at a seminar yesterday on the Uniform Law. Three speakers. Engaged audience. Useful discussion. But beyond the single slide of Linda Evangelista on display, not much clarity.

 

Client complaints – a tool kit for solicitors

Some lawyers have never received a complaint from a client.

Or so they say.

Such prodigies, liars and recent arrivals to the profession are vastly outnumbered by the rest of us.

This might explain the big audience of solicitors who turned out this week at a seminar Gordon & Jackson hosted on the twin topics of client complaints and recent cases dealing with the Civil Procedure Act.

I delivered a paper on the first topic. The paper’s section headings will give you the flavour of its content:

  1. Complaints are inevitable;
  2. Try not to take complaints personally (and get help, of whatever variety);
  3. Categories of complaint under the Uniform Law;
  4. Categories of complaint beyond the Uniform Law;
  5. Your LPLC insurance – the good news and the bad;
  6. Avoiding complaints in the first place; and
  7. Professional standards scheme – you are a participant, aren’t you?

My colleague Monika Paszkiewicz spoke on the Civil Procedure Act. Her paper includes reference to Judd J’s recent observations (in ACN 005 490 540 Pty Ltd v Robert Frederick James Pty Ltd [2016] VSC 217 at paras 18 -19) that solicitors who threaten each other too willingly with personal costs applications under the Civil Procedure Act might themselves be breaching the very statute they are invoking.

Client complaints and the Civil Procedure Act have obvious potential overlap for litigation solicitors. Download the two papers (combined as a single document) here and file them away with your Civil Procedure Act resources.

Enough already? The LSC’s new guidelines on estimating legal costs for disclosure purposes

Precisely what costs estimate does the Uniform Law require of lawyers? The Legal Services Council’s first official guideline and direction attempts to answer this question.

It has an almost identical twin (here) issued the same day by the Commissioner for Uniform Legal Services Regulation. The two guidelines and directions are accompanied on the Legal Services Council website by a document containing three “worked examples” of what our regulators consider to be acceptable costs disclosure.

Together these three documents are intended to give guidance to the costs disclosure obligations imposed on Victorian and NSW lawyers by s 174(1) of the Uniform Law. The documents might improve your estimates but they are unlikely to improve your estimation of the new Uniform Law regime.

First, a quick refresher on the Uniform Law itself. It requires lawyers’ costs to be fair and reasonable (s 172) and voids lawyers’ costs agreements wherever, inter alia, costs have not been properly disclosed to the client (s 178(1)). The starting point for that requirement is the much-maligned s 174 –

174  Disclosure obligations of law practice regarding clients

(1)  Main disclosure requirement

A law practice—

(a)  must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and

(b)  must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client —

together with the information referred to in subsection (2).

The two new guidelines and directions are substantively identical with the effect that their shortcomings and the demands on the reader’s time are duplicated but their meaning is not.

Both guidelines and directions state that –

  • the estimate required by s 174 “is a reasonable approximation of the total costs a client is likely to have to pay in the matter for which instructions have been given, expressed as a single figure, from time to time…”[emphasis added]
  • the provision of additional information to clients beyond that required by s 174 “should be encouraged” and that further information about likely costs might be “expressed as a single figure or as a range of figures, PROVIDED [original emphasis] the law practice always gives the single figure estimate of the total legal costs in the matter that s 174(1)(a) requires.”
  • “It is permissible and may be desirable to preface a single figure estimate with the word ‘about’ to reflect the fact that the figure is an estimate and is not a fixed fee.”

Note the brave but dubious assertion that s 174(1)(a) of the Uniform Law requires “a single figure estimate.” Now turn to the “worked examples” which accompany the guidelines and see how the three examples illustrate how the “single figure estimate” concept can (and it seems should) be routinely subverted.

The first example is a debt recovery matter. It begins with instructions to the lawyer only to issue a letter of demand (for which a single figure estimate is given) and culminates (after a series of presumably ascending single figure estimates) in litigation including a crossclaim whereupon the “lawyer indicates that the [most recent] estimated figure might vary by +/- 10 per cent”.

This is surely incongruous. It seems that the Legal Services Council believes that the pro-active lawyer who advised her client on day one that a debt claim might resolve quickly after a letter of demand or might run all the way to the conclusion of complex litigation and therefore cost in the range of, say, $500 – $15,000 depending on those variables will have comprehensively breached her disclosure obligations under s 174 of the Uniform Law. On the other hand, the dullard solicitor who plods blindly down the road towards litigation,giving his client only a series of single-figure cost estimates to the conclusion of the very next step, is supposedly satisfying the obligations of s 174.

There is more. Each of the three “worked examples” published with the guidelines and directions includes an estimate with a stated percentage deviation range. There is something ridiculous about lawyers being prohibited from estimating costs to clients as a range (e.g. $850 to $1150) while being simultaneously encouraged to provide precisely the same information expressed as a mathematical formula (e.g. $1000 +/- 15 per cent).

There is a warning that the percentage deviation figures are “an illustration only and do not alter the obligation to provide a single figure estimate nor is it intended to encourage an unreasonably broad estimate”. This invites the question of what percentage deviation is “unreasonably broad.” It seems from one of the examples that “plus or minus 15 per cent” might be reasonable. What about plus or minus 30 per cent? Or 50 per cent?  Or 100 per cent? As judged by whom? When?

Alas, for the moment we can only guess.

Finally, a word about the legal status of these official pronouncements. Under s 407 of the Uniform Law, the Legal Services Council and the Commissioner for Uniform Legal Services may each issue “guidelines or directions”. Local regulatory authorities (eg the Victorian Legal Services Commissioner and Victorian Legal Services Board) must comply with such directions (s 407(1)) and hence the directions have the status of subordinate legislation. But the status of the guidelines incorporated in the same documents is less clear. Presumably the guidelines and the worked examples will have persuasive effect at least with the various costs assessors required to adjudicate on the adequacy of lawyers’ costs disclosure.

For more on the costs provisions of the Uniform Law see this introductory paper and these blog posts: