Termination of a no-win no-fee retainer

Mr Burmingham is the subject of three posts already.  They dealt with three discrete aspects of his case, Maurice B Pty Ltd v Burmingham [2009] VSC 20: a titillating detail, advocates’ immunity, and the nature of the suit for fees.  But his case was really mostly about what happens when a no-win no-fee costs agreement is terminated before the end of the case.  Of course, it all depends on what the costs agreement says, and this costs agreement was presumably the result of many years’ honing by one of Australia’s foremost plaintiff firms.  Justice Byrne was not complimentary of the draftsmen (nor of the court book’s reverse chronological order, a bugbear of my own).  But in the end, the lawyers got their fees even though they did not obtain a successful result for Mr Burmingham.In 1992, the client Mr Burmingham suffered a set back which he said left him unable to work with chronic fatigue syndrome.  He claimed on his income protection insurer, AXA.  It paid benefits for a couple of years, then cut them off, having decided he could do some work.  Two and a half years later, he retained the solicitors.  They negotiated on his behalf with AXA for more than three years.  Then he decided to sue AXA.  At that point, he and the solicitors entered into a new costs agreement, for the litigation.  Another 3 years or so went by, until the client’s peccadillos became too much for the solicitors and senior counsel retained by them.  Justice Byrne said of one conference ‘Counsel in fairly forthright terms – terms which might not have been consistent with the dignity of his office – advised the client that the consequential loss claim was factually and legally unsound.’

In mid-2003, there was a conference with senior counsel.  The client was urged to make an offer immediately.  A problem with his case had been discovered.  He was running other litigation up in Queensland, claiming damages for injuries he suffered in a fall at Officeworks.  There were documents in that litigation in which the client and his doctors alike referred to his recovery from the chronic fatigue at about the time AXA cut off payment under his income protection.  At this point, the client had already made discovery in the AXA proceedings.  Once they found out about the Officeworks documents, his barristers and his solicitors, it seems, were pressing him to give instructions immediately to make an offer so as to settle the case before complying with his ongoing obligation of discovery.  Justice Byrne commented:

‘Counsel then suggested that Mr Burmingham make a further offer of $570,000 to $580,000 and that this be done immediately. Counsel pointed out that if this was not done, “the process of discovery will take over”. I take this to mean that the recently available embarrassing documents from the Officeworks litigation in Queensland and the trademarks appeal would have to be disclosed to AXA and that this would lead it to harden its position.’

The solicitors’ position in their suit for fees was that that was their advice too: [97].  The advice was to take the best offer then received, $360,000, unless a better offer could be extracted immediately.  Obviously, if a settlement could be achieved by the lawyers, it would have counted as a win for the purposes of the costs agreement, and the lawyers would have been paid their fees, plus a 25% bonus for taking the risk of non-payment if the client lost.  If they could not do so, the risk was that the Officeworks documents would have to be discovered, and the client would lose with the result that the lawyers would get nothing.

The case was not about the propriety of this course, and it is not clear from the judgment what special facts made it appropriate.  Compare Legal Services Commissioner v M [2006] LPT 012.  Justice Byrne made no adverse comment about this litigation strategy.

Anyway, the lawyers decided to get off the record and a month after the conference, they achieved it.  All this talk about settlement had prompted the client to enquire what his fees would be if he did decide to settle.  The response was a bill for about $100,000 in professional fees and $40,000 in disbursements (i.e. the straight fees, calculated on scale according to the costs agreement, without the 25% bonus).  The bill demanded payment within 14 days, contrary to the promise in the costs agreement that no fees would be rendered until the end of the matter.  The client sought and was promptly provided with an itemised bill.  The solicitors contended in their suit for fees that following the giving of the bill, the client was indebted to the firm: [93].

The client continued on unrepresented for 6 months.  Christmas shopping must have prompted the client to contemplate letting AXA off lightly, because a week before Christmas he offered to accept just $1 million, and naturally AXA accepted.  Of course it was not that simple, and a lot of weird stuff happened, including the client turning up to AXA’s offices with one of those oversized cheques presented to charities which arrange horse-riding for kids with cancer at the end of gala dinners.  He demanded AXA sign it.  He got physically removed.  In the end, though, the result was that, fantastically, the client managed to screw another $12,500 out of AXA.  He received $812,500 in cash, and $200,000 was put into a trust account pending resolution of his dispute with the solicitors about whether they had had a ‘win’ for him for the purposes of the no-win no-fee costs agreement.  (Even more fantastically, the client tried unsuccessfully to set aside the settlement on the basis that he entered into it without mental capacity.)

The solicitors claimed that the client had breached his promise in the no-win no-fee costs agreement to give full and frank instructions. Justice Byrne agreed:

‘101 … [The file handler] feared that material in the Officeworks litigation might be discoverable and might be potentially harmful to his client’s case in the AXA litigation. He pressed Mr Burmingham to provide it for many months prior to 8 April when it was finally released. Mr Berrill’s apprehensions were well-founded. Mr Burmingham’s resistance to the disclosure was unjustified and unreasonable. This want of cooperation was a cause of much of the difficulty in the settlement negotiations of May 2003 and a cause for urgency in their resolution. The second breach has been made out.’

His Honour disagreed with the proposition that the client had breached his promise to accept his solictors’ reasonable advice.  In his state of health, it was not unreasonable in the circumstances to refuse to give instructions ‘within the very short time frame which counsel required’.

The solicitors said they were entitled to their fees:

  • under the costs agreement, on the basis that the ‘win’ which the client obtained for himself after their retainer was a win for the purposes of the no-win no-fee agreement; and
  • by way of damages for the client’s repudiation of the costs agreement.

They succeeded on the first ground, and failed on the second.  Justice Byrne held that the client had breached the costs agreement, with consequences under the costs agreement, but that it was not a repudiatory breach.

The costs agreement said the solicitors would charge on the Supreme Court scale, but not ‘until the end of the matter’.  Then it said:

‘(1) On the basis that you have not breached the conditions of engagement set out herein and in the event that your case is not successfully completed, we will not render a bill for our professional charges.’

In the event of a successful outcome, the solicitors were entitled to an extra 25%. A “successful outcome” was:

‘(a) a verdict or award of money made by a Court in your favour;

(b) an arrangement entered into by us on your behalf under which money is payable to, for or on your behalf arising out of your claim or in circumstances relating to your claim;

(c) we obtain on your behalf from any other party to the claim or any other party concerned with the claim an offer of settlement which can be recommended to you to accept and which represents the appropriate conclusion in our reasonable opinion to the claim or proceedings brought by you;

(d) settlement or resolution of the claim in accordance with your instructions, whereby moneys will become payable to you for you or on your behalf arising out of the circumstances relating to your claim.’

Justice Byrne commented on the difficulties in construing this drafting at [136] to [138].  His Honour decided what the costs agreement meant, however.  He said:

‘127 Notwithstanding its drafting deficiencies, the intent of this costs agreement is clear enough. I construe it to mean that the client may be required to pay disbursements as and when they are incurred prior to the completion of the litigation. The client, however, may not be called upon to pay professional charges unless, in breach of the agreement, or unless and until successful completion. At this stage, the matter will have been ended. Upon successful completion, by which I understand that the litigation has achieved a successful outcome in terms of cl 8, the client may be called upon to pay MBC’s professional costs and the uplift fee, as well as its disbursements.’

His Honour also held that read together, these statements in three different clauses:

‘(1) On the basis that you have not breached the conditions of engagement set out herein and in the event that your case is not successfully completed, we will not render a bill for our professional charges.’

‘(3) If you breach any of the conditions of engagement set out in this Agreement, we reserve the right to render an account for legal costs for services rendered in the matter.’

‘(4) We will not bill you for any costs until the end of the matter.’

meant that the solicitors were entitled to send a bill for their professional fees (but not the 25% bonus) if the client breached his promise to give full and frank instructions, even if the matter was not yet over and regardless of the eventual outcome of the case.  In the event of a successful outcome down the track, the 25% bonus could then be billed, and sued on after the statutory waiting period after giving a bill had elapsed ([135]).

So the bill given by the solicitors was not given prematurely, even though it was given long before the end of the litigation, and it was not impermissible even though (as we are about to see) there was no successful outcome as defined by the costs agreement.

Justice Byrne held that the client’s post-retainer settlement was not within the definition of ‘successful outcome’ under the no-win no-fee costs agreement, and so the first basis of claim for the solicitors’ fees failed, with the result that it was not entitled to any 25% bonus on its fees.

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