Update, 21 April 2008: see the decision on appeal: McNamara Business and Property Law v Kasmeridis [2007] SASC 90.
Original post: Kesmeridis v McNamara Business and Property Law [2006] SASC 200 is a decision of a Master of the Supreme Court of South Australia. Decisions in such applications in Victoria are heard by the members of VCAT’s Legal Practice List. The decision, and several related decisions, (i) say that a costs agreement reduced in writing need not be signed by both parties to be a contract in writing as required by the relevant statute, (ii) say that whether a costs agreement is “fair and reasonable” is to be determined by reference to pre-contract conduct, (iii) say that a discretion to charge a premium over and above an hourly rate is easily severable from a costs agreement and does not require the whole agreement to be set aside, and (iv) demonstrate that the courts’ distrust of hourly rate costs agreements is not waning with time.
Though the clients had been defendants in 35 proceedings before the relevant retainer and so “were not as ignorant of the legal system as they might have claimed”, the costs agreement was set aside in part because the solicitors had not explained to their prospective clients that there were other solicitors in Adelaide who would have been willing to do the same work on scale.
The South Australian Court of Appeal had previously determined that a written offer to enter into a costs agreement and an oral acceptance amounted to a costs agreement in writing, as required by s. 42(6) of the Legal Practitioners Act, 1981 (SA): McNamara Business & Property Law v Kasmeridis [2005] SASC 269. An application for special leave to appeal that decision to the High Court failed.
Section 42(7) of the Legal Practitioners Act, 1981 (SA) provides:
“The Supreme Court may, in proceedings under this section, rescind or vary any agreement under sub-s(6) if it considers that any term of the agreement is not fair and reasonable.”
The Master, Judge Lunn, said at [4]:
“The questions of fairness and reasonableness pursuant to s 42(7) of the Act are to be determined as at the time at which the Costs Agreement was struck, ie 9 February 2004: Renton Resources Pty Ltd v Johnson Winter & Slattery … [2005] SASC 231, unreported. That means that a substantial amount of evidence put forward about what occurred after 9 February in the Lawyer acting for the Kasmeridis is not directly relevant to what I have to decide. Those events can only be used as illustrations of what might have occurred in the working out of the Costs Agreement and to show what issues on the Costs Agreement are now relevant and require determination.”
At [15], he said:
“I deal first with the fairness of the Costs Agreement for the purposes of s 42(7). (Fairness refers to the way in which the Agreement has been obtained and reasonableness to the terms of the Agreement: re Stuart [1893] 2 QB 201 at 204-5). The basic principle for the validity of such Costs Agreements was stated by the Full Court in relation to the predecessor to s 42(7) in Hargrave v Miller [1925] SASR 379 at 384, as:
… Nevertheless, the fact will remain that the Agreement is one made between the solicitor and his client and subject to the control of a Court of Equity as in other cases. The consent of the client must be a real consent, obtained without undue influence, or pressure, which may arise from the confidential relationship, and upon a full disclosure, without any breach of the duty to advise the client fairly and impartially so far as advice is given.
There is a potential conflict of interest between a solicitor seeking to maximise his profits and a client desiring not to pay more than he needs to pay to obtain the legal services.”
