Winner gets indemnity costs but recovers less when loser proves winner’s costs agreement with his solicitors void

Casey v Quabba [2006] QCA 187

As reported in Lawyers Weekly, the Queensland Court of Appeal said the trial judge should have allowed the unsuccessful party in litigation to call for and challenge the validity of the successful party’s costs agreement with his solicitor in a party-party taxation of costs on an indemnity basis. Further, the judges found the successful party’s costs agreement was void for failure to specify the minimum requirements fora costs agreement, and ordered the costs to be taxed on the basis that there was no valid costs agreement (presumably by reference to the court scale). Don’t get too excited though; the case turned in part on the facts that (i) the taxing officer was directed by the rules of court to have regard, in indemnity costs taxations, to the costs agreement of the successful party, and (ii) the purpose of the Queensland provision was not only to benefit the client party to the agreement, but also to protect third parties affected, such as those against whom costs orders are made.

But I do wonder whether any thought was given by the successful party and the solicitors hastily putting together a valid agreement with retrospective operation. I can see no reason why it should not work.

Section 48(2) & (3) of the Queensland Law Society Act, 1952 provided:

“(2) Within a reasonable time after starting work for a client, a practitioner or firm must make a written agreement with the client expressed in clear plain language and specifying the following matters–

(a) the work the practitioner or firm is to perform;

(b) the fees and costs payable by the client for the work.

(3) The fees and costs payable by the client for work must specify–

(a) a lump sum amount; or

(b) the basis on which fees and costs will be calculated (whether or not including a lump sum amount).”

Section 48F said non-compliance rendered any such costs agreement void, and the Court found that void means “void” and does not mean “voidable” at the election of the party sought to be protected by the provision.
Registrars conducting party-party taxations of costs on an indemnity basis in Queensland were directed by the rules of court to have regard to the costs agreement between the successful party and its lawyers. The Court held that the Registrar had jurisdiction to determine the validity of the costs agreement, and that the unsuccessful party had standing to assert that it was void:

“[14] The next question is whether the [unsuccessful party] has standing to ask the Court for a declaration that the agreement entered into between the [successful party] and his solicitors is void. At first instance the judge was strongly influenced by the general rule that a stranger to a contract has no standing to challenge its validity or scope of operation. There is no doubting the validity of that principle as a general proposition.

[15] But there are, in my view, a number of considerations which distinguish the present situation from the usual situations in which that principle is applied. Here, the Court is concerned with a contract which is regulated in a very detailed way by statute. It is an agreement which by statute a legal practitioner must enter into with the client (with certain limited exceptions). Then the contract must specify certain matters and must not be inconsistent with other specified matters. Finally, a specified procedure must be followed before the client signs the agreement. Failure to comply with those specifications renders the agreement void in the strict sense.

[16] The law then recognises that an agreement so entered into is not limited to protecting the client. The law, namely [rules of court], provides that such an agreement may be taken into account when a costs assessor is determining the quantum of costs recoverable on an indemnity basis against a party ordered to pay such costs. In my view when the [relevant rule] so provides, it can only be referring to a valid and enforceable costs agreement. If an agreement is void because of the operation of s 48F(1) of the Act then it could not be referred to at the stage of assessing costs payable on an indemnity basis.

[17] Counsel for the respondent could not refer to any authority suggesting in that situation, or an analogous situation, a party so affected by a contract entered into between other persons could not challenge its validity as against himself.”

The final paragraph is troubling. The Court identified a general proposition and then took comfort from the inability of counsel to cite authority to the effect that an exception did not exist.

Also troubling is the proposition that the solicitors had plenty of opportunity to be heard on the question because they were there representing their client at the time when the decision was made despite not being represented at the hearing at which the decision was made. The client’s interest was not necessarily in maximising the amount it had to pay its solicitors even though there was an order that it be indemnified by the unsuccessful party. What if the unsuccessful party could not pay, or there was a long delay in satisfying the judgment? How could the solicitors put an argument against the client’s interest (if that was in fact the client’s interest) while representing the client?

It is not clear how the taxation is to proceed, though it is clear enough from the Act that a valid costs agreement is not a necessary precondition to the solicitor recovering fees from its client. Section 48I says that if there is no costs agreement, recovery may be had by reference to the court scale.

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