Application to set aside costs agreements for disclosure defaults fails

A decision of the Supreme Court of Queensland has made clear what ought to be more obvious than it appears to be, namely that costs disclosure defaults will not result in the setting aside of a costs agreement in the absence of evidence that the non-disclosures had some effect on the client’s decision to enter into the costs agreement on the terms in fact adopted between the solicitor and client.

Section 3.4.17(3) of the Legal Profession Act 2004 says:

‘If a law practice does not disclose to a client … anything required by this Division to be disclosed and the client … has entered into a costs agreement with the law practice, the client … may also apply under section 3.4.32 for the costs agreement to be set aside.’

Section 3.4.32 says a client can apply to set aside a costs agreement if it is not fair and reasonable.

Section 3.4.17 also says that where there has been a costs disclosure default, the solicitor may not sue for fees until there has been a taxation as between solicitor and own client, and that those fees should be reduced proportionately to the seriousness of the default.

Too many applications to set aside costs agreements are made or threatened on the basis of costs disclosure defaults which were irrelevant to the client’s decision to enter into the agreement.  To the unthinking and the dim, s. 3.4.17(3) is a bit of a seductress, a flashing light which beckons towards error.  But now the Supreme Court of Queensland has laid out the law in a decision which is concise because of the short shrift given to such an argument: Barclay v McMahon Clarke (A Firm) [2014] QSC 20.

Two men, one of whom was a solicitor, instructed a Queensland firm in relation to two multi-million dollar property developments.  Companies controlled by both of them and other companies controlled by only one of them, all involved in the developments, were also clients.  It seems that the clients were severally rather than jointly or jointly and severally liable for the fees in different retainers some of which related exclusively to one company.  The firm decided to enter into one costs agreement which would encompass all work relating to the developments for all the companies.  So far so good.  But the firm also decided to give one costs disclosure for all matters.

The firm set out the hourly rates pursuant to which it proposed to charge and then estimated that its fees for acting in the very many different matters was $10,000 to $40,000 per month.  No estimate of how many months’ work would be required was given.  Nor was any estimate given in respect of any one matter or even any one client.  The scope of the costs agreement was broad and intended to encompass all work associated with the developments for any of the entities including work which might arise in the future out of circumstances not yet in contemplation.  Neither the group as a whole nor any individual clients received an estimate of its or their total legal costs.  These were objectively serious costs disclosure defaults.

But the applicants failed to establish that they would have done anything differently had they obtained proper disclosures, and that was fatal:

    1. ‘Mr Barclay and Mr Creswick were men of commercial experience, and they were accustomed to dealing with McMahon Clarke.  The firm had acted for them and entities of theirs involved in the two property developments since 2009.  Work had been done for them on more than 25 files before the August 2013 costs agreement was signed.  At least one prior costs agreement had been concluded.  Fees for a variety of work, including litigation, had been rendered; and the bills had mostly been paid.  Moreover, Mr Creswick was the person who gave McMahon Clarke instructions about the projects; and throughout the various retainers, he held a practicing certificate as an Australian legal practitioner.
    2. McMahon Clarke’s non-disclosure involved a partial failure to comply with the statutory prescriptions.  But the omitted information was, it seems, of no significance to Mr Barclay or Mr Creswick when, for themselves and their corporations, they decided to conclude the costs agreement.
    3. There is nothing to suggest that the agreement would not have been concluded on the same terms if the omitted disclosures had been made, and there is no reason to suppose that the omitted disclosures mattered to any of the applicants.
    4. No evidence was adduced from Mr Barclay, Mr Creswick or anyone else to suggest that the disclosure agreement did not provide the applicants with all the information they desired to make informed decisions whether to enter into a costs agreement and, if so, on what terms.  Nor was it suggested, in evidence or in argument, that any of the applicants could have been misled by the disclosure notice, either because of what it disclosed or else left unexpressed.
    5. The disclosure notice gave the applicants a fair understanding of the effect of the costs agreement.  They must have understood its operation.  And they made a free choice to enter into it with information sufficient for their needs.[6]

      [6]          cf McNamara Business at [28], [52].

    6. Accordingly, the omission to comply fully with the statutory prescription did not render the costs agreement unfair.’

The unspoken implication of all of this is that it was appropriate to pierce the corporate veil, and that this was two men more or less in partnership with various corporate manifestations which could fairly be looked through.  A different result might well arise in circumstances in which the different clients were not quite so cosy to one another.

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