Barristers should be good with words. Most (not all) are competent speakers. Many reckon they can write too but are frightened of active verbs, simple expression and short sentences. Only occasionally is a barrister strong enough with text to shrug off the law completely and find fame as a writer rather than as a barrister.
Charles Bean, Australia’s official historian of World War 1 was one such ex-barrister. Another is John Bryson, whose Azaria Chamberlain book ‘Evil Angels’ elevated a tabloided tragedy into serious long form journalism. A third is my friend and former roommate Justin “Jock” Serong.
As a barrister at the Victorian Bar, Jock had a wide and very solid practice. He ranged from native title work in outback Queensland and immigration work (both for and against the Commonwealth) through to high profile murder trials in Melbourne. But after hours, he started penning words for a surf mag too.
Things snowballed and eventually the writing won. To the dismay of his clerk, Jock upped stumps, left the bar and moved to Port Fairy. A decade and five published novels later, he is still there.
Jock has always loved a Quixotic adventure. At the bar, when he wasn’t defending or prosecuting the consequences of other people’s adventures, he was planning his own (although Jock’s enterprises were typically far more benign than those of his punters).
Inevitably, not all of Jock’s quests succeeded. One particularly ambitious scheme, with some mates, involved launching a large-format magazine they called the Great Ocean Quarterly. It was a highbrow fusion of salt water literature, photography, surfing, science, history and anything else that they could thematically tie back to the sea. They launched it in colour and on old-style heavy stock paper in 2013 in defiance of a booming internet and a languishing print advertising market.
But the doomsayers were right. After seven issues, GOQ was swamped by commercial reality and sank without trace in 2015.
Or so it seemed.
Could anything be more Quixotic?
Actually, yes. Jock and his team recently had a lightbulb moment and now they’re getting the band back together.
When GOQ closed its doors there was one issue still in utero. Now they’ve chosen this pandemic as an opportune moment to print that “Lost Eighth” edition as a one-off. According to Jock’s promo email, they’re doing it “to honour some hard work from some years ago, and bring something lovely into a riven world.”
“There’s not much that can be guaranteed in print media, but this much stands: it’s the best issue we never made.”
Is Covid-19 a frustrating event? To almost anyone but a contract lawyer that is a stupid question deserving a terse and emphatic response.
But any decent contract lawyer’s answer is unlikely to be short or sweeping.
In contract law, ‘frustration’ is the discharge of a contract as a consequence of some supervening and unanticipated event rendering some or all of the agreement’s obligations incapable of performance. The reported ‘frustration’ cases involve a litany of catastrophic surprises ranging from the appendicitis-induced postponement of King Edward VII’s coronation in 1903, through various wars to (most familiar to Australian lawyers) the legal consequences of a contractor being injuncted from working 24/7 to build Sydney’s Eastern Suburbs Railway line in circumstances where the construction contract was effectively predicated on ‘round the clock’ work.
The Covid-19 coronavirus is plainly a supervening and unanticipated event. It has already caused history’s first postponement of the Olympic games. It has closed all of your local gyms and eateries. It has largely shut down Victoria’s court system. And just when we lawyers thought things could not get worse, it is even causing surprise outbreaks of law and order. But none of these extraordinary developments alone answers the question of whether the current crisis is a frustrating event for the purposes of any particular contract.
Here is a quick refresher on the frustration of contracts:
When looking at whether a contract has been frustrated, don’t be too distracted by the macro picture. Focus on the specific contract in question. Has the contract become largely or completely incapable of performance because of the Covid-19 crisis? (Obvious casualties would be, say, the catering contract for a large wedding party that would now be contrary to the Public Health and Wellbeing Act 2008, or the contract for the screening of TV advertisements during the telecast of the now-postponed Tokyo Olympics.) Or has the contract’s subject matter simply become less attractive or more onerous to one of the parties? (Examples in this twilight zone might include the marriage celebrant’s booking for that same large wedding — after all, the wedding itself is still permitted even if the attendance of more than 2 guests is prohibited — or the screening of TV commercials (themselves still clearly legal and feasible) promoting, say, holiday packages that are neither legal nor feasible in the current circumstances.)
Frustration is a binary concept. Some contracts will be discharged entirely for frustration. Some will be held not to have been frustrated at all and thus will survive the supervening event entirely unscathed. There is no legal middle ground in between which allows contracts to be amended but otherwise upheld on the basis that they were semi-frustrated.
Extreme pessimists (and possibly also those negotiating contracts very recently) might have had the foresight to address specifically the consequences of global pandemics in their agreements. They will have no need for the doctrine of frustration and will instead be governed by the force majeure clauses (aka ‘Act of God’ clauses) to which they have agreed. As frustration applies only where the supervening event is not anticipated by the contracting parties, frustration and force majeure clauses are best thought of as alternatives to each other.
Frustration ends a contract as a consequence of the supervening event. By contrast, force majeure clauses are bespoke provisions. They might end the contract but will commonly suspend rather than terminate the contract or reduce rather than eliminate a party’s entitlement to payment.
Frustration operates independently of the parties’ acts and intentions. Force majeure clauses are authored by the parties and as such will often require action or communication for invocation.
Consequences of frustration
Let’s suppose a given contract is frustrated by Covid-19. What next?
Melbourne’s Formula 1 Grand Prix last month is a high profile example. Armies of large and small contractors and sub-contractors were involved in setting up for the race and its various satellite events. The race was then cancelled at the last minute because of Covid-19 concerns. Myriad contracts must then have become incapable of performance. In each instance, the question arises of who should carry the cost of the food/ entertainment/equipment that was arranged and (mainly) delivered but ultimately wasted as a consequence of Covid-19?
There is no quick and confident across-the-board answer.
And don’t expect much help from the the frustrated contracts provisions of Part 3.2 of the Australian Consumer Law and Fair Trading Act 2012. In very crude summary, it provides that money paid or payable under a frustrated contract ceases to be payable and, if paid, is recoverable by the recipient EXCEPT where a court or VCAT considers it just to order otherwise.
Note that pandemic-sized exception.
Put another way, the answer as to who is to carry the losses of a frustrated contract is ‘black’ except when a court or VCAT considers that it should be ‘white’ or some shade of grey (or perhaps some chequered-flag pattern for Grand Prix-related events).
In Foley v Afonso a landowner paid a builder a $10,000 deposit on a domestic building contract. It then transpired that the building permit necessary for the project was unobtainable. The owner wanted her deposit back. The builder refused as it was not his fault that the building permit didn’t issue. So the parties went to VCAT.
Senior Member Walker concluded that the contract had been frustrated by the impossibility of getting the essential building permit. He ordered that the owner was entitled to have most (but not all) of her deposit refunded. The builder was permitted to retain the $1800 he had spent on preliminary work (such as drawings and soil tests) but not the $8000 commission he paid the agent who had secured the contract.
The decision is short. It doesn’t mention any authorities or the word ‘restitution’ but the restitutionary flavour is unmistakable.
Presumably Covid-19 will soon ensure that Foley v Afonso is superseded by many more authorities on the consequences of frustrated contracts in Victoria.
Covid-19’s frustrations are suffocatingly obvious to most of us. But that doesn’t mean contracts affected by the virus will necessarily be themselves frustrated.
And whatever the answer on first principles to your particular frustration query, beware of the continuing cascade of government announcements and promised regulatory changes that might take your client’s situation beyond a ‘first principles’ analysis anyway.
In these extraordinary times, remember that your clients’ best Covid-19 solutions might not be in the legal textbooks at all.
The unexpected and supervening event of Covid-19 might, for example, trigger the business interruption insurance that your client has forgotten it holds and make the entire frustration discussion unnecessary. Check that insurance.
 Compare Krell v Henry  2 KB 740 and Hearne Bay Steam Boat Co v Hutton  2 KB 683. Both cases involved sightseers disappointed by the coronation’s postponement. In the former case the contract was held to have been frustrated by the postponement; in the latter the contract was held not to have been.
 See for example Fibrosia Spolka Akcjyna v Fairbairn Lawson Combe Barbour Ltd  AC 32 where a pre-war contract that required an English company to deliver machinery into Poland was rendered illegal and frustrated by the outbreak of World War 2.
Codelfa Construction Pty Ltd v State Railway Authority of NSW (1982) 149 CLR 337.
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.
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  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.
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.
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  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:
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.
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.
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.)
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.
Since last year’s failed coup attempt against Turkish president Recep Tayyip Erdogan (pictured), his regime has ousted 4,238 judges and prosecutors, purged 95,000 public servants, jailed at least 81 journalists and sought to remove one sitting member from a VCAT domestic building case.
VCAT is currently 25 hearing days (!) into a domestic building dispute. Another 10 hearing days are anticipated. In it, a builder is claiming payment for constructing a house in Toorak Road, Toorak, for the Turkish government. The Republic of Turkey has counterclaimed and also joined the project’s architect to the action.
Things cannot be going well for the Turks because, together with the architect, they used a long adjournment last month to seek an order from VCAT’s president to have the VCAT senior member hearing the case removed from it.
That senior member is not identified in yesterday’s decision. His removal was sought on two alternative grounds.
Evidence in support of the reconstitution application was by affidavit derived, among other things, from approximately 2,000 pages of transcript. The complaints against the member included, among much else, his own statement during the hearing that he had “little experience” in construction law, his apparent unfamiliarity with some building concepts and terminology (such as the difference between a civil engineer and a structural engineer), and a comment during the litigation describing it as “a nightmare”.
Apprehension of bias
The second limb of the reconstitution application was that the member had created a reasonable apprehension that he was biased in favour of the builder.
Evidence in support of this contention was said to include some stern words from the member to the architect’s principal witness about the architect’s repeated failure to give responsive answers in cross-examination, the poor success rate by the architect and Republic’s respective counsel in making objections to evidence when compared to the builder’s counsel’s equivalent run rate, and the member’s solicitude for the health and comfort of the builder’s 74 year-old, laryngitis-suffering witness while giving vive voce evidence.
All of these complaints were in support of a contention that a fresh member should replace the incumbent for the remainder of the hearing. It seems that the architect (who made the formal application) and the Republic (which supported it) were hoping that the current hearing would then trundle on, with the new VCAT member relying for his/her decision in large part on a truckload of transcript and no direct memory of what was said in evidence during the marathon hearing.
Decision – unsuitability
VCAT President Justice Greg Garde’s decision is unlikely to improve President Erdogan’s view of the rule of law as administered by a securely-tenured and independent judiciary.
Garde J dismissed the argument that the member was ill-suited. Among other things, he stated that cherry-picking certain remarks by the member from 25 days’ worth of transcript was not persuasive about the competency of the member when it was conceded that no single remark was, of itself, demonstrative of the member’s alleged unsuitability.
As to the member’s professed inexperience, Garde J stated a VCAT member is entitled to be unfamiliar with industry jargon and concepts. Indeed, members in such a situation should not be bashful about it – they are under a duty to speak up and seek assistance from counsel as appropriate.
Decision – apprehended bias
Applying the High Court’s two-step test in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337, Garde J dismissed the bias argument too.
He stated that VCAT members are entitled to take up issues with counsel and the parties “and express robust views and opinions without prejudgment” and that in this case there was not sufficient evidence that the member did not “apply the same standards to all witnesses or act appropriately to progress the hearing and the determination of the proceeding…. I hold that if a fair-minded lay observer were asked whether he or she might reasonably apprehend that the senior member might not bring an impartial mind to the resolution of the issues and the questions which arise in the proceeding, the answer would be ‘no’.”
Garde J dismissed the application and ordered that the hearing resume next Monday before the same senior member who has heard it to date.
Four thoughts occur to me on this:
VCAT members can be removed under s.108 of the VCAT Act during the running of a case but neither professed unfamiliarity with the subject matter nor a robust approach from the bench will of themselves be sufficient grounds for a successful application.
If you are going to make a s.108 application best make it early. An application too far into the hearing is much more likely to expose the applicant to failure (and potentially grave costs consequences too).
Isn’t it cheering to live under the rule of law where humble builders can take on foreign governments secure in the knowledge that the tribunals of law and fact won’t be distracted in their deliberations by the prospect of mass (or even targeted) judicial sackings?
VCAT Senior Member Robert Davis delivered his decision in the substantive litigation on 25 August 2017. The decision is Mackie v Republic of Turkey & Tectura  VCAT 129. The Republic of Turkey was ordered to pay the builder $693,824.58 and its counterclaim against the builder was dismissed. The Turks did have a win against the architect. It was ordered to pay the Republic of Turkey $119,664.65.
(Presumably the next issue for the builder will be actually collecting on the judgment. Some successful VCAT litigants find this a problematic exercise against even Victorian residents. Registering and enforcing a VCAT decision against a distant authoritarian sovereign state with an elastic approach to the rule of law is likely to prove a challenge indeed.)
ADDENDUM # 2
Boris Johnson has also survived President Erdogan’s displeasure. The limerick master became the UK’s prime minister in July 2019 and was resoundingly returned as prime minister at the British general election in December 2019.
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.
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:
Complaints are inevitable;
Try not to take complaints personally (and get help, of whatever variety);
Categories of complaint under the Uniform Law;
Categories of complaint beyond the Uniform Law;
Your LPLC insurance – the good news and the bad;
Avoiding complaints in the first place; and
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  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.
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.
The lawyer who acts for himself is commonly thought to have a fool for a client. But what about the lawyer who acts for the company of which he is a director and shareholder?
A Melbourne solicitor who acted in several capacities for a private company must now be pondering this question following the non-party indemnity costs order made against him personally in 1165 Stud Road Pty Ltd v Power & Ors (no 2)  VSC 735. (The case was decided just before Christmas but somehow was published on Jade only this week).
The solicitor was (indirectly) one of the main shareholders in 1165 Stud Road Pty Ltd (“Stud Rd”). He was also its company secretary and one of its two directors. He dealt on its behalf in several controversial transactions and also acted as its solicitor in both litigation and conveyancing contexts.
In 2007, Stud Rd bought a block of land in Rowville. The block’s only road access was via an easement. But two years earlier a neighbour had built a Chinese restaurant on that easement.
In 2012, Stud Rd sold its landlocked block for $2.3 million. Its s 32 statement neglected to mention the slight issue of the obstructed easement. That sale then fell over before settlement and Stud Rd sued the purchaser and also the owner of the offending restaurant (“Palms”).
Early in the litigation, Palms demanded security for costs from Stud Rd. Stud Rd’s solicitor/company director/company secretary/etc. wrote back refusing and saying that Stud Rd had ample equity in the Rowville land and could afford to meet any likely costs order against it. That much was true.
But things changed when Stud Rd subsequently sold the land afresh. The new sale wasn’t disclosed to the other litigants nor was the new contract of sale discovered pursuant to Stud Rd’s continuing discovery obligations. Stud Rd also omitted to mention to the other parties its distribution of the net sale proceeds to various of its own related interests.
As the trial loomed closer, Stud Rd went into voluntary liquidation. The proceeding was discontinued before trial as a consequence.Palms had nevertheless spent over $300,000 preparing for the trial. There being no prospect of recovering those costs from the liquidated company, Palms applied instead for non-party costs orders against Stud Rd’s solicitors and its two directors personally.
Palms succeeded – but only against the director who had also acted as the company’s solicitor. His multi-faceted role as the company’s director, shareholder AND external solicitor was said by Vickery J to constitute “exceptional circumstances”.
Here is a taste:
138. It is clear that [the solicitor], in conducting the Proceeding as a solicitor on behalf of the Plaintiff, in respect of which he was not only a director but also, through a corporate vehicle, a shareholder, was in breach of paragraphs 9.2 and 13.4 of the Professional Conduct and Practice Rules 2005 and placed himself at serious risk of being in breach of paragraph 13.1 of the rules. As a solicitor in active practice, [the solicitor] ought to have been aware of the effect of these Rules.
139. This placed [the solicitor] in a conflict of interest and rendered his conduct of the litigation on behalf of the Plaintiff improper.
140. This was so despite the fact that, during the life of the Proceeding, neither Palms nor its solicitors … ever once raised the issue of conflict of interest or demand that [the solicitor], or any of the firms at which he worked, cease to act in the Proceeding due to his conflict.
141. Reference is made to paragraphs 9.2, 13.1 and 13.4 of the Professional Conduct and Practice Rules 2005 published by the Law Institute of Victoria, which was tendered in evidence:
9.2 A practitioner must not accept instructions to act or continue to act for a person in any matter when the practitioner is, or becomes, aware that the person’s interest in the matter is, or would be, in conflict with the practitioner’s own interest or the interest of an associate.
13.1 A practitioner must not act as the mere mouthpiece of the client or of the instructing practitioner and must exercise the forensic judgments called for during the case independently, after appropriate consideration of the client’s and any instructing practitioner’s wishes where practicable.
13.4 A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner’s considered opinion:
13.4.1 appear for a client at any hearing, or
13.4.2 continue to act for a client,
in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court.
142. It is likely that [the solicitor] was not able to bring an independent mind to decisions made on behalf of the Plaintiff in the conduct of the Proceeding by reason of his conflict of interest and it is likely that a number of the decisions he made were infected with this conflict.
143. An order for costs against a non-party is not dependent upon, but can take into account, any improper conduct by the non-party….
The upshot was that the solicitor personally [cf the firm that employed him] was ordered to pay Palms’ cost of the proceeding on a standard basis until the date of the undisclosed sale and on an indemnity basis thereafter.
A final point is worth noting. Palms’ application was brought partly in reliance upon s 29 of the Civil Procedure Act [as discussed in Yara v Oswal blogged here] but that limb of the application was held to be statute-barred as it had not been made before the proceeding was “finalised” as required by s 30. However, this missed deadline did not matter for Palms as the Court held that it had power to order the costs against the solicitor under s 24 of the Supreme Court Act and/or in its inherent jurisdiction.
The lessons from this case? Four occur to me.
Acting for yourself and/or interests close to you is perilous.
A lawyer and client with apparently aligned commercial interests might still have a conflict of interest if the lawyer’s forensic judgment is thought to be compromised as a result of that close association.
Lawyers should not act in matters in which they are likely to be material witnesses.
And finally, never be too reassured by the fact that no conflict of interest is suggested by your opponents.