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Barry Lane
19 December, 2007  
Lawyers' fees: when a premium is really a discount

Law firm fee agreement said the “normal” rate of remuneration is $400 an hour for “successful” work. Otherwise it’s $66 an hour. VicAppeals finds this does not amount to an excessive uplift

imageChristmas came early for the self-styled Melbourne “boutique” law firm of Wilmoth Field Warne courtesy of the Victorian Court of Appeal (Buchanan, Ashley and Neave), which on December 10 upheld the validity of a contingency fee agreement.

The agreement was executed on September 25, 2002 with the firm’s former client, the prodigious litigator Equuscorp Pty Ltd.

The four partners of WFW will be heaving a sigh of relief, having adopted the reforms recommended by the 1994 Access to Justice, an Action Plan (the Sackville Report) and the Victorian Attorney General’s Working Party on the Legal Profession (1995).

WFW partners have been in formal dispute with Equuscorp, a litigation funder, since at least 2003 and have endured a commercial arbitration, which itself was appealed to a Supreme Court judge sitting in the practice court whose decision was appealed to the Court of Appeal plus three further trials prior to the appeal just determined.

Of course, there may be another round in the High Court.

The partner’s position appeared dire after the trial judge, Justice Byrne, found against them on February 10, 2006.

Reports of that proceeding circulated in The Age and in the NSW Law Society Journal.

Basically, the fees agreement between WFW and Equuscorp provided for …

“two rates at which WFW was to be remunerated: a ‘normal rate’ of $400 per hour and a ‘discount rate’ of $66 per hour. WFW [was] to render monthly bills showing professional costs at both rates. Payment was to be made on an interim basis at the discount rate. The normal rate was to be paid upon a ‘successful result’, which included the achievement of a settlement or judgment and the recovery of money. Certain disbursements paid by WFW were to be reimbursed with the monthly accounts; other disbursements were to be reimbursed only upon a successful result.”

Until the third trial had ended but before judgment was pronounced, Equuscorp did not dispute the legality of the agreement, but then somebody had a brainwave.

It was argued that the costs agreement breached s.98(3) of the Legal Practice Act 1996 (since repealed) in that it provided for an uplift or premium that exceeded the mandated limit of 25 percent of the costs otherwise payable on a successful outcome.

Justice Byrne accepted that contention and ruled that the agreement was void pursuant to s.102 of the Act.

Upon that finding, WFW was entitled to nothing under the agreement not even a quantum meruit.

Section 98(1) of the Act provided:

“A conditional costs agreement (i.e. one referred to in s.97(1) being a costs agreement which provides that payment of some or all of the legal costs is contingent upon the successful outcome of the case to which those costs relate) may provide for the payment of a premium on the legal costs otherwise payable under the agreement on the successful outcome of the matter in respect of which the agreement is made.”

Section 98(3) provided:

“A legal practitioner or firm must not enter into a conditional costs agreement under which a premium, other than a specified percentage not exceeding 25 percent of the costs otherwise payable, is payable on the successful outcome of any matter involving litigation.”

The Court of Appeal cut to the heart of the matter:

“Given the detail of the arrangements, the relevant characteristics of the agreement are clear enough. There was provision for charging and payment of legal costs at two rates. One applied in any case, the other only in the event of a successful outcome of proceedings. There was no provision for payment of a premium on the costs otherwise payable in the event of a successful outcome. It was not a three tier arrangement. It was an arrangement which fitted the language of s.97(1), but not the language of s.98(1). It was also an arrangement which complied with s 97(4)(a) in that, in inclusive language (clause 13a), it defined what was meant by a ‘successful result’.”

This was where the trial judge got tangled up. Byrne thought he was looking at a premium whereas what he should have found was that it was really a discount.

The Court of Appeal let him down lightly:

“What we have thus far said about the agreement means that we respectfully disagree with the conclusion of the learned trial judge that the agreement contravened s.98(3) of the Act. We think, however, reviewing the submissions which his Honour noted as having been advanced on behalf of WFW, that it seems to have been put, at best, less clearly at trial than it was in this court that the agreement was not of the s.98(1) kind because there was no provision for uplift of fees on the costs payable in the event of success.”

And if you think that WFW might have got the better of Equuscorp, think again. In relation to the negotiations leading to the agreement, the appeal judges said:

“There was no inequality of bargaining power between Equus, ‘a very experienced professional litigant’, and WFW. As the learned judge below observed, although Equus had no independent legal advice when drafting the agreement, it had been carefully negotiated over a 15 month period by Mr Russo – Equus’ then managing director, key shareholder and ‘intelligent and experienced litigant who demonstrated himself to be well able to look after his own interests’ – to reflect the financial interests which Equus sought to achieve in its capacity as a financier of litigation. Far from exposing the client to excessive costs, the learned judge below actually observed that ‘in many respects … [the agreement] operates surprisingly harshly against the interests of WFW’.”

Although the trial judge, Justice Byrne, said that Equuscorp did not obtain any independent legal advice in relation to the costs agreement, it is apparent that at least in late 1996-early 1997 Equuscorp had a number of employed lawyers attending to its business.

One can get an idea of the company’s legal department from a decision of the Industrial Relations Court of Australia in February 1997 relating to an unfair dismissal case brought by one of its lawyers, Paul Simon Jansen.

Judicial Registrar Millane observed that when Jansen commenced his employment the working conditions were particularly difficult.

“Schwarz (the former manager of the legal services division) described the office as being a shambles. This was because of the work required to set up a legal division from scratch, with numerous existing files and a very small number of legal staff and support staff as well as inadequate accommodation and equipment…

“Schwarz told the court that he had ongoing discussions with Russo about (Jansen’s) performance… Russo was a person who was prone to complaining about the staff in the litigation department not getting through enough file work.”

Sounds like Mr Russo was a pretty tough on lawyers, both inside and outside the company.


Reader Comments

Posted by: Anonymous
Date: December 18, 2007, 7:47 pm

In NSW workers comp lawyers who act for workers still get paid on a small scale even when they win and NOT AT ALL when they lose. If that is not a legislated contingency fee, what is? And why do employer's lawyers still get paid when they lose?
Posted by: Anonymous
Date: December 18, 2007, 7:47 pm

Have you noticed that a provision in a mortgage for 8% interest but 9% if a default occurs is a clog on the equity of redemption but that 9% reducible to 8% in the absence of any breach is OK. This is why all interest clauses in mortgages are worded in the latter way. The distinction between a discount and an uplift is not as clear as your article suggests.