Fiduciary duties and the sophisticated client

Gee do plaintiffs adore sprinkling a bit of fiduciary duty action into their pleadings against solicitors. Their counsel see it as moon dust. A sophisiticated plaintiff (who had been party to separate litigation which eventually culminated in a High Court case about contractual certainty) tried it on in a somewhat novel way in Equuscorp Pty Ltd v Wilmoth Field Warne (No 3) [2004] VSC 164 but bombed out before Justice Byrne.

The plaintiff was a professional litigant with recourse to in-house lawyers. The solicitors agreed to accept $66 per hour unless on behalf of the plaintiff, they recovered money from the defendants in the litigation they were to run.  If they did, then they were entitled to 50% of the recoveries until they had recovered the equivalent of an extra $334 per hour. The client got the other half, and any surplus. Disbursements were borne by the plaintiff. Unlike most retainers, the deed was vigorously negotiated. Like most retainers, however, it was poorly drafted [8]. It contained an entire agreement provision. Justice Byrne said:

“8 The deed is, as I have mentioned, couched in formal legal terms. It contains in Recital C an entire agreement provision. It is apparent that the parties executing this document intended that it should be the repository of their agreement. It follows from this that, subject to well known exceptions, the intent of the parties is to be had from a construction of the words which they have adopted in the document rather than from their pre-contract communications and superseded drafts.

9 The deed of costs is a complex and, in many respects, an obscure document. Notwithstanding that it bears the hallmarks of having been prepared by a person or persons with legal knowledge, if not legal training, it contains a great many drafting deficiencies and inconsistencies. The evidence shows that it was the product of a series of drafts prepared and exchanged between the parties between about July 2001 and September 2002. The drafting on behalf of WFW, at least, was by trained lawyers; that on behalf of Equus to some extent at least, by Mr Russo himself. He is not a qualified lawyer.

10 In construing this document, it was put on behalf of Equus that I should approach the document contra-proferentem so that any ambiguity should be resolved in favour of the client. This was said to arise from the fact that a solicitor is a fiduciary vis-à-vis their client. When preparing costs agreements with the client they have a direct financial interest in the terms of the agreement and, therefore, a potential conflict of interest. The client in this case had no independent legal advice. Consistent with the heavy responsibilities which the law imposes upon a fiduciary in such circumstances, the court should resolve any ambiguity in favour of the client. Reliance was placed upon the following passage from the judgment of Fletcher Moulton LJ in Clare v Joseph:

‘[Agreements between a client and his solicitor as to the terms on which the solicitor’s business was to be done] were, however, viewed with great jealously by the Courts, because they were agreements between a man and his legal adviser as to the terms of the latter’s remuneration, and there was so great an opportunity for the exercise of undue influence, that the Courts were very slow to enforce such agreements where they were favourable to the solicitor unless they were satisfied that they were made under circumstances that precluded any suspicion of an improper attempt on the solicitor’s part to benefit himself at his client’s expense.’

With the greatest respect, his Lordship’s views are as apposite today as they were a century ago – perhaps even more so in the modern environment where fees agreements, including provisions for contingency fees are more common. Nevertheless, there is in this case no allegation of undue influence and no relief is sought based on any breach of the solicitors’ duty with respect to the preparation of the deed. And this is not surprising. The lay party in this case is an intelligent and experienced litigant who demonstrated himself to be well able to look after his own interests. Indeed, as will be seen, in many respects a document operates surprisingly harshly against the interests of WFW. In the circumstances of this case, I decline to construe the document contra proferentem.”

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