Victorian Supreme Court takes relaxed approach to conditions for validity of no-win no-fee costs agreements

Legal Services Board v DF [2011] VSC 292 will be of considerable interest to those who draft and work within no-win no-fee retainers. Justice Karin Emerton found that though Victoria’s repealed Legal Practice Act, 1996 implicitly prohibited the charging of uplift fees otherwise than upon a ‘successful outcome’  it was open to parties to provide for the payment of an uplift in circumstances which could not be described, in ordinary parlance, as a ‘successful outcome’, such as where the client terminates the solicitor’s retainer.  Her Honour also found that ‘if you recover any money from your case’ was a sufficient definition of the ‘successful outcome’, finding that objectively construed, what those words meant were ‘if you recover any compensation’, as opposed to costs.  The decision will be of assistance in interpreting the similar provisions under Victoria’s Legal Profession Act, 2004 and the other states’ (South Australia excepted) equivalents.

The question was the validity of a costs agreement which said that the client had to pay Supreme Court scale plus 25% if the client recovered anything in their litigation or they breached any of the following conditions of the no-win no-fee retainer:

·    at all times tell us openly and honestly everything relevant to your case;

·     fully co-operate with us and do everything we reasonably ask;

·     accept and follow all reasonable advice we give you;

·     do not change solicitors before your case is finalised.

Receivers appointed to a former practice of the defendant unsuccessfully argued that:

(a)  the costs agreement was void pursuant to s. 102 for breach of s. 97(4)(a) of the Legal Practice Act, 1996 in failing adequately to set out the circumstances that constituted a successful outcome in the matter such as to justify the charging of fees, and the charging of a 25% uplift; and

(b)  the costs agreement was void pursuant to the same provision for breach of s. 98(1) which implicitly prohibited the charging of an uplift fee otherwise than upon a successful outcome in the case.

In relation to the first point about the definition of a successful outcome, the receivers asked rhetorically:

Is an offer to pay costs a successful outcome?  Is an offer to walk away a successful outcome? Again, a successful outcome might be no more than one dollar, in which case Mr Norrish would be liable for all of the solicitor/client costs plus the uplift fee.

At [32] Justice Emerton found that:

the parties to the costs agreement would reasonably have understood what was contemplated by a ‘successful outcome’.  The word “recovered” indicates that a successful outcome is not the payment of any money to the plaintiff, for example, pursuant to an order for costs.  The payment of money is referrable to the plaintiff’s claim, and would have been understood that way by both [the client] and [the solicitor] at the time the agreement was entered into.

Justice Emerton’s findings on the second point, about the charging of an uplift otherwise than upon a successful outcome, at [38] to [40] were:

‘Section 98 of the 1996 Act allows a conditional costs agreement to impose a premium “on the successful outcome of the matter”.  Although s 98(1) does not expressly provide that a premium may only be imposed on a successful outcome, its purpose is to provide for a premium to be charged in the specified circumstance and not otherwise.

However, I do not consider that s 98 should be construed as prohibiting the charging of the premium in the [event of breach of one of the four conditions].  Those conditions describe conduct by the client that would make it difficult if not impossible for the firm to obtain a successful outcome on the client’s behalf.  The client’s undertaking not to breach any of the four conditions is an integral part of the firm obtaining a successful outcome for the client.  The firm is entitled to charge the premium upon a successful outcome because it has assumed the risk of a no win/no fee arrangement.  The four conditions form part of the management of that risk.  To construe s 98 as prohibiting the charging of the premium when the client has effectively prevented the firm from obtaining a successful outcome by his or her own conduct would enable the client to ‘walk away’ from the firm at the eleventh hour (once all the hard preparation work for a trial had been done and the risk had been carried by the firm, in some cases for years) and have another firm harvest the fruits of that endeavour in the form of a successful outcome, without having to pay a premium for the benefit of the no win/no fee arrangement.

In the circumstances, I consider that [the costs agreement] does not breach the 1996 Act.’

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