A matter where ‘matter’ mattered

A property developer who owns most of Melbourne’s theatres, including the Princess, the Regent, the Forum and the Comedy, sought to tax his lawyers’ fees for representing him in two appeals he brought. They had acted for him in litigation over a property development in Queensland, defending a claim that the developer and various of his companies owed the other side three million bucks.

It went on and on: the developer lost, then appealed successfully, lost on the remitter, and appealed unsuccessfully, though the other side only got a fraction of what they were after. (Incidentally, though the other side only got judgment for 10% of what they were after, the Court of Appeal held that Sloss J had not erred in ordering costs against the developer on the basis that costs should follow the event and that no issue-by-issue costs split was justified). It was an expensive exercise for the developer because the lawyers charged him $3M for defending the claim for $3M.

The original retainer was in May 2005, at which time the Legal Practice Act 1996 was in force. Then the Legal Profession Act 2004 came into operation on 12 December 2005. After that, some of the lawyers’ bills said that Mr Marriner could seek taxation under the Legal Profession Act 2004. (I’d say most Victorian lawyers’ bills had this problem after 12 December 2005 in relation to the many engagements which continued to be regulated by the 2004 Act after that date.)

The Costs Court threw out the developer’s summons for taxation for want of jurisdiction. The lawyers had charged throughout on an hourly rate, without demur from their client the developer. The Court found that the Legal Practice Act 1996 regulated his relations with them. And under that Act, there could be no taxation of fees charged under an hourly rates costs agreement: s. 101(2).

Which Act applied depended on (a) what a ‘matter’ was for the purposes of the transitional provisions between the 1996 Act and the 2004 Act, (a question I posted about here, but in relation to the next statute along, the LPUL) and (b) how different phases of the litigation should be characterised for that purpose.

Costs Judge Wood AsJ’s reasons for finding that it was all one matter governed by the 1996 Act (including the appeals which his Honour was clear were separate proceedings) are reported as Marriner v Meerkin & Apel [2019] VSC 36.

When the 2004 Act commenced, schedule 2, part 3.1 provided that the Act applied where ‘the client first instructed the law practice in the matter’ before 12 December 2005 and otherwise the 1996 Act continued to apply (including in relation to barristers briefed by solicitors after the commencement date, so that all members of the legal team would be governed by the same legislation in the same matter).

The developer had a fancy but unsuccessful argument, which he had noted costs counsel Sarah Cherry make for him: though there was only one costs agreement, entered into in May 2005, the underlying litigation was one matter and each of the two separate appeals from decisions made in the underlying litigation were separate matters. The first appeal in respect of which instructions were first received in 2010, he claimed, was governed by the 2004 Act, and the second by the Legal Profession Uniform Law (Vic) which commenced on 1 July 2015, because first instructions were received in the second appeal in the second half of 2015.

The developer said each appeal was a separate matter despite the fact that there was no express new retainer in either one, and even though the parties implicitly treated the original and sole costs agreement as continuing to regulate their relations.

Not only would the developer get to tax the bills charged by reference to an hourly rate if he could establish that the appeals were separate matters, but (according to the Costs Judge) there would then be no costs agreements in respect of the appeals because no one had actually bothered to enter into one, and the fees rendered in the appeals would stand to be taxed on the default basis (Supreme Court scale under the 2004 Act, and ‘fair and reasonable fees’ under the LPUL: [33]) which would have required the lawyers to draw new bills on a different and less generous basis than the costs agreement provided for, with the likely result if costs were reduced by 15% or more that the lawyers would pay the costs of the taxation. Nasty.

The Costs agreement specifically referred to the matter the costs of which it governed, actually using the word ‘matter’: ‘Claim by Australian Super Developments Pty Ltd’. At the time it was entered into, there were only letters of demand, though litigation in a court or courts unknown was anticipated. The bills were all titled ‘Claim by Australian Super Developments Pty Ltd’ though, troublingly for the lawyers, some also said ‘Court of Appeal Proceedings’ ([36]), arguably suggesting two different matters. The lawyers ran only one file for the litigation, including the appeals, but each appeal bore a different court proceeding number from the underlying proceedings. These administrative matters were not really to the point, though, said the Costs Judge: [45].

His Honour recognised that there were three separate proceedings: the litigation and the two appeals in it: [29], but it did not follow that each proceeding was a new matter. The text of the transitional provisions showed the use of both ‘proceedings’ and ‘matter’, and if parliament had intended that the 2004 Act should apply in respect of the fees for any proceeding (as opposed to matter) in respect of which instructions were first received by the lawyers after 12 December 2005, it would have said so: [48]. His Honour considered that the lawyers’ ‘protection from review’ under the law which applied when they entered into the hourly rates costs agreement was an accrued right which parliament would need to use express words to infringe on by retrospectively altering the parties’ relations so as to give the developer a right to tax.

The judge concluded at [49]:

In reality the word ‘matter’ in the relevant Transitional Provision is broad as it covers non-litigious work, work that relates to potential litigation and work in relation to actual litigation. In the circumstances of this case I take it to mean a reference to the underlying subject, controversy or situation under consideration. The Costs Agreement and breadth of the retainer is consistent with that interpretation. In this case, the underlying dispute and demands for money from the applicant and the various companies conveyed in the [letters of demand] comprises the matter. The subsequent appeals still have nexus with those matters. My conclusion is that ‘the matter’ is not to be read narrowly to mean particular litigation in a particular court.

The developer seems to have complained about the unfairness of the lawyers’ bills saying that he could seek taxation and then the lawyers taking a ‘technical point’ to say that he could not do so, but is not recorded as actually having run any estoppel argument, and the Court noted that the parties could not by agreement give to the Costs Court statutory jurisdiction which it did not have.

Neither counsel is recorded as having brought to the Court’s attention either of the two main Superior Court decisions I know of on the construction of ‘matter’ in this context, Darkinjung Local Aboriginal Land Council v Darkinjung Pty Ltd [2010] NSWSC 132 and Kliger Partners v Lotzof [2016] VSC 185.

In Darkinjung, Austin J found that:

54 Both the Legal Profession Act 2004 (NSW) (“the 2004 NSW Act”) and the Legal Profession Act 2004 (Vic) (“the 2004 Victorian Act”) define the scope of their disclosure requirements by reference to when the solicitor first received instructions in respect of a “matter”. 

55 The word “matter” is not defined in either the 2004 NSW Act or the 2004 Victorian Act. It is, of course, a frequently considered word in the constitutional context, and in other contexts such as in respect of the International Arbitration Act 1974 (Cth), where it has been said that the expression “a matter” in that legislation could not have the full connotation of the phrase in the constitutional sense: Comandate Marine Corp v Pan Australia Shipping Pty Ltd (2006) 157 FCR 45 at [235]

56 I do not regard the constitutional jurisprudence or, for that matter, case law on the International Arbitration Act, as having any direct assistance for the purpose of interpreting the legal profession legislation. Counsel for Mr Cunliffe drew the Court’s attention to the definition of “litigious matter” in s 3.4.2 of the 2004 Victorian Act, but I find that definition to be unhelpful because it assumes the concept of “matter” and explains what makes a matter a “litigious” matter. Nor do I find dictionary definitions of any assistance, because it seems to me that so much depends upon the context in which the word is used. 

57 It seems to me that in the legal profession legislation of 2004 in both States, the meaning of the words “a matter” and “the matter” is to be derived from a close consideration of the statutory context. In my opinion, those words refer to the subject matter of the solicitor’s retainer, that is the client’s cause or transaction on which the solicitor, for reward, is instructed to advise or act.

In Darkinjung there was a similar scenario to that in Marriner: a broad costs agreement dated 12 May 2006 in relation to ‘[helping to] overcome the threats to the interests of Darkinjung members that is constituted by the appointment of the administrator’ (see [50]), which everyone seems to have assumed continued to have operation as new phases of the general problems the subject of the costs agreement developed and morphed:

67 It appears that there was no written costs agreement for the Hillig Proceedings matter. In his affidavit and oral evidence Mr Cunliffe did not claim that there was any oral costs agreement for the Hillig Proceedings, or even any oral agreement that costs of that matter would be governed by the 12 May 2006 document. It appears from the invoices (for example, the detailed version of invoice No 255958, that after the 12 May 2006 costs agreement was made, all work was charged on the basis of the new agreement by invoices under the heading “Appointment of Administrator” (sometimes “Appointment of Administrator – non-litigious aspects”), even though the subject matter ranged much more widely. Mr Cunliffe said in cross-examination (T 118) that the distinction between the Validity of Trust matter and the Appointment of Administrator matter was lost sight of, and many time entries were made on the new file number which in fact related to the conduct of the Supreme Court proceedings or the Land and Environment Court matter. 

68 The detailed invoices suggest that the work on the Hillig Proceedings was seen as part of the Appointment of Administrator matter, which might suggest the implication that the 12 May 2006 document would apply, but as mentioned above, the subject matter of that costs agreement does not as a matter of construction extend to the Hillig Proceedings.

The difference between Darkinjung and Marriner in this regard seems to be that the language of the broad costs agreement simply could not be stretched to encompass the work in the Hillig Proceedings:

64 … The subject matter of the proceedings was different from the Validity of Trust matter (although issues about the validity of the Trust would arise in Mr Hillig’s proceedings) and it was different from the Appointment of Administrator matter because it was litigation initiated by Mr Hillig rather than litigation initiated by Darkinjung entities to challenge Mr Hillig’s position. 

Darkinjung would require a detailed reading which I have not engaged in before its true meaning could be discerned with confidence, since it is factually complex. But it seems generally consistent with the approach adopted by the Costs Judge in Marriner, the different outcomes probably being explicable in terms of differences in the width of the language used to describe the subject matter of the costs agreement, and in greater divergence in Darkinjung between the different phases of the general dispute (e.g. non-identity of parties, and there being both attacking and responsive proceedings between the camps).

Lotzof involved the solicitors alleging that three phases of a dispute between two parties were three separate matters:

1. a mediation which was unconnected with litigation or the imminent threat of it, which gave rise to an in principle agreement;

2. unsuccessful protracted negotiations to finalise that agreement; and

3. a termination of the contract about which the parties had been negotiating, and the referral of an allegation of breach to an arbitration under an arbitration clause in the contract.

There the costs agreement described the ‘matter’, again actually using that word, as ‘Dispute with Sportsbet’, and though the qualities and fora of the dispute changed over time, its subject matter remained essentially constant throughout the retainer. The Costs Judge at first instance found, and on appeal Justice Cavanough found at [100], that there was but one matter which encompassed each of the three phases.

In that case, the forensic significance of the analysis lay in the effects of alleged costs disclosure defaults. The more confined the original matter, the lower the reasonable estimate of total legal costs should have been, for example, so that the initial costs estimate would be either adequate, or not as wrong, compared with what was ultimately charged in respect of that matter. It is in fact this forensic context that the definition of and construction of ‘matter’ is most likely to have consequences, and explains why the somewhat arcane transitional provisions case of Marriner is worth a blogpost.

In Lotzof, the lawyers argued that notwithstanding the breadth of the costs agreement, they dealt with three matters the costs estimates in respect of which should be analysed separately, and as at the time when each new phase arose. The initial disclosure said:

We estimate that your legal costs, which include legal fees, disbursements and fees for office services, for this work will be $5,000 to $7,000 (plus GST). This estimate is not binding on us as the work required may change. This estimate is required to be given to you by the Act and is based on our understanding of the present circumstances. If this estimate or the scope of this work changes, we may need to revise this estimate. For example, this estimate is based on us providing advice, preparing and serving notice of dispute and preparing for and [attending] mediation. If the matter settles before mediation, your costs may be less than this estimate, although that may not be so.

The lawyers’ evidence was that the person who gave the costs estimate believed that it was most likely that the matter would be settled at mediation (as turned out to be the case). They argued that there was one big costs agreement with operation over the matter in respect of which it was originally entered into (the mediation) as well as over other matters which may arise within the general description ‘dispute with Sportsbet’, but disclosures were done on a matter by matter basis, the first matter being confined to the mediation. This argument was made more difficult by the fact that, the lawyers said, they omitted to give a fresh estimate at the beginning of the second matter.

Cavanough J dealt with the lawyers’ argument that the first ‘matter’ covered by the costs agreement must have been the first phase (mediation) because the estimated costs could only be an estimate of attending a mediation since litigation would obviously be much more expensive, and because costs estimates were only given up to the end of the mediation, as follows (footnotes omitted):

94. It is true that the costs estimate given in item 4 of the disclosure statement ‘for this work’ was only $5,000 to $7,000 (plus GST), whereas ultimately [the lawyers] billed Mr Lotzof for a total sum in excess of $80,000. However, item 4 proceeds to inform the reader that the estimate is not binding on [the lawyers] ‘as the work required may change’; that the estimate is based on ‘an understanding of present circumstances’; and that if ‘the scope of this work changes’, a revised estimate may be needed. Indeed, the reader is specifically informed by item 4 that the estimate is based on anticipated work up to and including a mediation. Item 4 also states that the ‘major variables’ that will affect the calculation of the costs are set out in Appendix A to the disclosure statement. Appendix A, in turn, refers to many variables, the majority of which assume that the work will be done in relation to proceedings in a court, not just in relation to a mediation.   It does appear that Appendix A was in standard form and was not fashioned specifically for the purposes of this costs agreement.  However, items 5 and 6 of the Reference Schedule also seemed to anticipate litigation in a court or tribunal and they were not entirely in standard form. 

95. What item 4 envisages in the event that the scope of the work changes is the provision of a revised estimate, not the creation of a new costs agreement.  

96. In stating that the scope of the work may change and that, if it does, a revised estimate may be needed, item 4 is clearly referring to some ‘driver’ that is not explicitly mentioned in item 4 itself.  That driver was, of course, the thing or the problem about which legal advice and assistance was being sought from [the lawyers].  That problem or thing was identifiable from Item 2A of the Reference Schedule, and thus from the costs agreement itself, as ‘Matter: Dispute with Sportsbet’.  In the disclosure statement, it was simply described as ‘Sportsbet’.  It is entirely natural and reasonable to interpret the costs agreement overall as being an agreement about the way in which [the lawyers] would calculate their costs in acting for and assisting SecurEFT in relation to the thing or problem thus identified.  

97. As indicated above, the surrounding circumstances may be taken into account in considering what the expression ‘Dispute with Sportsbet’ should be taken to comprehend. I have already described the substantive issues which, to the knowledge of all concerned, existed between SecurEFT and Sportsbet at the time when Mr Lotzof first consulted [the lawyers].  Those issues arose directly out of the commercial agreement between SecurEFT and Sportsbet which provided for any dispute arising between the parties to be referred to commercial arbitration, if not previously resolved.  The costs agreement, in turn, falls to be construed as at the time it was entered into.  …

99. I would not have accepted that the expression ‘Dispute with Sportsbet’ extends to any dispute with Sportsbet.  Rather, in my opinion, the expression refers to the general dispute as it was presented by Mr Lotzof to [the lawyers] during their original consultation.  However, the dispute as so presented, which has already been described above, was a dispute of significant dimensions.  In my view, the dispute, or at least the matters in dispute, did not change significantly after the costs agreement was entered into, albeit that Sportsbet subsequently issued a notice of breach and later acted on the notice by terminating the contract.  Those steps were expressly provided for by the contract.  Moreover, the notice of breach pursuant to which the contract was terminated was based on the very things that were originally in dispute between the parties and about which Mr Lotzof had consulted [the lawyers] on or about 9 July 2012.’

The lawyers in the Lotzof case would have argued, in relation to the point made by his Honour at [96], that the entirely boilerplate and routine reference to a revised estimate was to accommodate changes to the scope or time to be taken up by the matter of the mediation (e.g. if the mediator directed written submissions, the mediation was adjourned, or it went unexpectedly into a second day). The lawyers won the case, however, and there was no occasion for his Honour’s analysis to be challenged by them in an appeal.

The thrust of the three decisions is probably quite similar: where there is a broadly described costs agreement, and no agreement between the parties to treat, for the purposes of costs disclosure, the costs agreement as covering, or potentially covering, more than one defined ‘matter’, the identification of the ‘matter’ will usually be co-extensive with the ambit of the costs agreement. Marriner takes things further than I had appreciated, in that an appeal within a case, where the scope of the costs agreement allows for this construction, will be treated as the same matter as the underlying litigation.

That sounds alarming because it suggests that the estimate of total legal costs of ‘the matter’ required by the legislation regulating lawyers’ fees would have to extend to and include the costs of any appeals, and I would be surprised if many lawyers in Melbourne have ever voluntarily given an estimate of total legal costs of litigation to a plaintiff which includes the costs of possible appeals.

But the courts seem to tolerate estimates of the total legal costs of a matter based on an assumption that the matter will likely conclude mid-way through, or not involve an appeal. In Lotzof, the lawyers gave initial disclosure only to the end of the mediation, even though the ‘dispute with Sportsbet’ might well have (and did) proceed to arbitration, and no disclosure default was found against them in that regard. In Marriner, the lawyers were not criticised for not giving an estimate of total legal costs which included any appeals. The Costs Judge said, in this regard:

57. In oral submissions the applicant contended that to treat the appeals as part of the one matter was to make a nonsense of the disclosure regimes in the three Acts as an estimate at the start of the retainer requiring an estimate of total costs would have to involve possible appeals in every litigious matter. The answer to that submission is that an initial estimate is just that – an estimate of the total. Both the 1996 Act and 2004 Act provide (in identical terms) for an estimate of total costs and if that is not reasonably practicable a range of estimates with an explanation of the variables that will affect the calculation. The prospect of an appeal would clearly fall within such a variable. The requirement of the updating of estimates for substantial changes (eg in the event of an appeal) is also contained in both the 1996 and 2004 Acts.

I must confess, it is hard to know quite what to make of that. Did the Costs Judge find that the matter was the litigation and all appeals which might flow from the litigation, but it was ok to take a guess for the purposes of the costs estimates about when the litigation would come to its conclusion, and estimate as the total legal costs the anticipated costs to that moment? Or did he find that though the ‘matter’ in respect of which costs disclosure was to be given included any appeals, it was ok when giving an estimate of total legal costs of that matter to ignore the costs of any appeals, which would seem to me to be inconsistent with inclusion of appeals within the ‘matter’? Or did he find that the original estimate must be taken to have included the costs of the appeals?

See also:

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