New South Wales Supreme Court CITATION : Savings Factory Pty Ltd v Daniel & Ors [2007] NSWSC 1343 HEARING DATE(S) : 22 November 2007 JUDGMENT DATE : 23 November 2007 JURISDICTION : Equity Division JUDGMENT OF : Palmer J EX TEMPORE JUDGMENT DATE : 22 November 2007 DECISION : Amended Summons dismissed. CATCHWORDS : COSTS – ASSESSMENT – APPEAL – Whether costs agreement precluded recovery of fees charged above estimate stated. LEGISLATION CITED : - Legal Profession Act 1987 (NSW) – s.175, s.177, s.182, s.208A - Legal Profession Act 2004 (NSW) – s.384 Savings Factory Pty Ltd – Plaintiff PARTIES : Michael Francis Paul Daniel & Partners t/as PricewaterhouseCoopers Legal – First Defendant Christopher O'Brien – Second Defendant FILE NUMBER(S) : SC 1603/06 G.T.W. Miller QC, D.A. Moujalli – Plaintiff COUNSEL : Ms V.A. McWilliam – First Defendant Submitting appearance filed 23.03.06 – Second Defendant Riley Gray-Spencer – Plaintiff SOLICITORS : PricewaterhouseCoopers Legal – First Defendant I.V. Knight, Crown Solicitor – Second Defendant PALMER J. 1603/06 Savings Factory Pty Ltd v Daniel & Ors JUDGMENT 23 November, 2007 1 The Plaintiff appeals against a costs assessment in respect of costs for legal services charged by the First Defendant. The facts are very brief and are not disputed. The issue is one of construction of a costs agreement. 2 On about 6 December 2000, Mr Rumble, on behalf of the Plaintiff ("Savings") engaged the First Defendant ("PwC") to provide legal services in connection with Savings' conversion to a public company. 3 By letter dated 13 March 2001 to Savings, PwC set out the information as to its costs required by s.175 of the Legal Profession Act 1987 (NSW), which was the Act then in force. The terms of the letter were accepted by Savings so that the letter constituted a contract between the parties ("the Costs Agreement"). 4 The Costs Agreement relevantly provided as follows: " Scope of Services You have asked us to assist with various legal issues affecting iSF. Our professional legal services are intended to cover the following (though non-exhaustive) areas in respect of iSF: corporate status – conversion to a public company; corporate governance – shareholder agreements, confidentiality agreements, employment agreements, appointment of directors and officeholders; ASIC licensing requirements; "keyman" service agreement etc. capital structuring – employee and/or shareholder option agreements; investor subscription agreements; private capital raisings; terms and issue of preference shares; general intellectual property assistance/advice; drafting of initial public offering documents; and general advice that may arise from time to time. We may add to this from time to time. We might also provide additional legal services for iSF such as material to be published on the iSF website or as material available for users of iSF's services. Professional Fees and Staffing If there are discrete projects or stages of projects to be undertaken, we would be pleased to discuss with you alternative fee arrangements such as fixed fees. If we do not make any special arrangements, we will charge on a time basis." Then followed a statement of the hourly rates charged by the partner and the junior solicitor who would be undertaking the work. The Costs Agreement continued: " Estimates We estimate that the GST-inclusive fees for conversion to public company will be $2,500. However, since we will be undertaking many tasks simultaneously we will keep you informed of our time costs on a regular basis. Our professional fees and expenses are based on the currently applicable GST rate (except where we have assessed that the services to be provided are GST-free). If this GST rate changes, our professional fees and expenses will be adjusted to reflect the change. The amounts stated for likely professional fees and expenses are our best estimates at this time, not a cap on what you will be charged. The actual amount may be less or more than the estimate. We will give you a revised estimate if any significant increase seems likely." 5 On 31 May 2001, PwC issued to Savings a tax invoice for legal services provided from 12 December 2000 to 28 May 2001. The total amount charged was $88,856.90. 6 On 28 June 2001, Mr Rumble sent an e-mail to PwC stating that he was "surprised at the size of the bill". Savings did not then terminate PwC's retainer in accordance with the Costs Agreement. 7 On 1 July 2001, the junior solicitor's hourly charge rate was increased. 8 On 30 September 2001, PwC issued to Savings a tax invoice for legal services provided from 30 May 2001 to 29 August 2001. The total amount charged was $22,821.94. Shortly afterwards, Savings terminated PwC's retainer in accordance with the Costs Agreement. 9 PwC had not provided any estimate of legal costs since the date of the Costs Agreement, 13 March 2001. It had not advised Savings of the increase in the junior solicitor's hourly rates which was brought into effect on 1 July 2001. 10 Savings refused to pay the amounts claimed by PwC, which total $111,678.84. 11 On about 27 May 2005, Savings filed an application in the Supreme Court for assessment of PwC's costs under the Legal Profession Act 1987 (NSW). The assessment was assigned to the Second Defendant, Mr O'Brien 12 On 24 November 2005, Mr O'Brien issued his Determination. He assessed the fair and reasonable costs payable by Savings in respect of the May and September invoices at $83,350.48. Amongst other deductions, he deducted the increase in the junior solicitor's hourly charge rate which had been effected on 1 July 2001 and incorporated in the 30 September invoice without prior notification to Savings. 13 Savings now appeals to this Court as of right from that decision on a matter of law under s.384 of the Legal Profession Act 2004 (NSW), which commenced on 1 October 2005. 14 After a little discussion between the Bench and Counsel, it emerged that there is only one issue: did Mr O'Brien err in failing to construe the Costs Agreement either as: – limiting the costs to be charged for all work to be done at $2,500; or – providing that no costs exceeding $2,500 could be charged unless a further estimate in writing of such costs had been provided to Savings. 15 Sections 175 and 177 of the Legal Profession Act 1987 provided what matters were to be disclosed in a costs agreement. Mr Miller QC, who appears with Mr Moujalli of Counsel for Savings, does not dispute that the Costs Agreement complied with s.175 at the date that it was issued. Section 177(3) provided that after a disclosure of an estimate of costs had been made, a legal practitioner was obliged to disclose "any significant increase in that estimate". Ms McWilliam of Counsel, who appears for PwC, does not dispute that PwC did not comply with s.177(3). 16 Section 182 relevantly provided that if a legal practitioner failed to make disclosure as required by the Act: – the client need not pay the costs claimed unless the costs had been assessed under the Act; – the legal practitioner could not sue for recovery of the costs unless they had been so assessed; – the costs of the assessment must be paid by the legal practitioner. 17 Section 208A provided what matters an assessor must take into account in carrying out an assessment. 18 Mr Miller QC accepts that non-compliance with the costs disclosure requirements of the Act did not, under the Act, render such costs totally irrecoverable. He submits, however, that Mr O'Brien, in making a determination under s.208A, erred in failing to appreciate that it was the Costs Agreement in this case, not the Act, which made the costs above $2,500 irrecoverable as a matter of contract. 19 I do not accept that O'Brien made any error in this case. His Determination – which is brief, as such Determinations should be – shows that he had considered the terms of the Costs Agreement. He acknowledged that no revised estimate of costs had been given after 13 March 2001. He acknowledged the submission of Savings that, by reason of PwC's failure to give subsequent disclosure, it was not entitled to charge more than $2,500. Mr O'Brien's Determination continued: "What is clear is that there was no revised assessment of costs ever provided by the solicitors to the Applicant. While this is unfortunate, it does not in my view mean that the solicitors are disentitled from recovering the fair and reasonable costs that were incurred by them in acting for the Applicant." 20 I think that Mr O'Brien was saying, in a shorthand way, that neither the terms of the Costs Agreement nor the provisions of the Act made PwC's costs above $2,500 irrecoverable. On that basis, he proceeded to assess the costs in accordance with the requirements of s.208A. In my view, Mr O'Brien was correct in that approach. 21 Mr Miller places emphasis on the statement in the Costs Agreement: "We estimate that the GST-inclusive fees for conversion to public company will be $2,500." He says that all of the activities earlier referred to in the Costs Agreement under the heading "Scope of Services" must be understood as falling within the description "conversion to public company" , so that the costs of all of those activities were fixed at $2,500. 22 I am unable to accept this construction. First, the sum of $2,500 is an estimate, not a fixed price. Second, the work described under the heading "Scope of Services" goes far beyond conversion of Savings from a proprietary limited company to a public company, which is a fairly straightforward process of adopting a new constitution and complying with filing requirements. Clearly, the figure of $2,500 in the "estimates" section of the Costs Agreement was referable just to the costs of the straightforward documentary process of adopting a new constitution and to none of the "many tasks simultaneously" to be performed by PwC, as made plain in the following sentence. This construction is reinforced in the final paragraph under the hearing "Estimates" which states that $2,500 is not to be regarded as a cap on the fees to be charged. 23 Mr Miller's second submission is that the promise "we will give you a revised estimate if any significant increase seems likely" is to be construed as a condition of liability to pay, i.e., unless a revised estimate is given and accepted, Savings will have no obligation to pay the fees charged. 24 I am unable to accept this submission. The provision of a revised estimate is not expressly stated in the Costs Agreement to be a condition of liability to pay, and the sentence upon which Mr Miller relies does not naturally convey that meaning. Where the Act itself did not condition liability to pay upon the provision of revised estimates, I cannot see how such a term could be construed out of the words of the Costs Agreement, implied by law or implied as the common intention of the parties. 25 Mr O'Brien's Determination of a fair and reasonable charge under s.208A has not been challenged. Mr O'Brien deducted the costs of carrying out his assessment from the final amount payable, as he was required to do by s.182(3). It follows that I affirm the assessor's decision and dismiss the Plaintiff's Amended Summons. I will hear the parties as to costs. – oOo – DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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