EI}N: DI '.LM,RIIDz 28 October LEGAL PRACTITIONERS CONDUCT BOARD _V. ZUYELA LA\ryYERS. Action No: 1261of 2008

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1 EI}N: DI '.LM,RIIDz 28 Octber 2009 LEGAL PRACTITIONERS CONDUCT BOARD _V. ZUYELA LA\ryYERS Actin N: 1261f 2008 flete f Henring: 13 Octber 2009 #@ww RF'ASONS OF'.ilIIIGF'. I,IINN, MASTF'.R OT'THF' SIIPRF'MF' (IOTTRT Reasns n preliminary issues f whether retainer agreements were fair and reasnable. Cunsel fr the Plaintiff Slicitrs fr the Plaintiff Cunsel fr the Defendant : M S Cle : lægal Practitiners Cnduct Bard : Mr Zuvela in persn

2 LEGAL PRACTITIONERS CONDUCT BOARD -v- ZAVß,LA LAWYERS File 1261 f 2008 Reasns n preliminary issues f whether retainer agreements were fair and reasnable. JUDGE LUNN: The Legal Practitiners Cnduct Bard ("the Bard") seeks under s a2(a) f the Legal Practìtiners Act I98l ("the Act") a taxatin f the legal csts charged by Zuvela Lawyers ("the Lawyers") t Rbyn Griffin ("the Client"). The Lawyers maintain that these csts are t be taxed in accrdance with time-csting agreements entered int between them and the Client. The Bard maintains that such agreement shuld be rescinded under s a2q) f the Act as nt being fair and reasnable and that the taxatin shuld prceed n the applicable Curt scales. On 12 August 2009 I directed there be a determinatin f a preliminary issue under 6R272(4) f whether there are effective agreements under s a2(6) f the Act. At this stage I am nt determining any ther issue in the matter, althugh in the affidavits and argument a number f ther issues were tuched upn which are likely t arise in the taxatin f the csts. The Client and Mr Peter Zuvela, the principal f the Lawyers, were crssexamined n their respective affidavits. There is n factual issue which I need t reslve t determine the pints under s 42(7) f the Act. The main area f disagreement between them was abut the ability f the Client during the curse f the relevant litigatin t be able t pay the Lawyers' csts. It was undisputed that she was unable t pay them in full as the accunts were rendered t her. Whether she wuld have ultimately have been able t pay them is nt relevant t what nw I have t decide. Backgrund. The Lawyers carry n a small legal practice in Adelaide. That practice cnsisted f the principal, Mr Peter Zuvela, and an emplyed slicitr, Ms Jngebled, but n supprt r administrative staff ther than a receptinist wh was shared with ther tenants f the building, and whse wrk was never charged t the Client. The Client wned her hme but had n ther assets f any significance. She was emplyed by Messrs Pettingill and Ongley, wh, thrugh numerus cmpanies which they cntrlled, were engaged in varius prperty dealings. The Client brrwed $200,000 n the security f her hme and lent it t Messrs Pettingill and Ongley n sme dcumentatin which was drawn up by a slicitr, Mr McNamara. The Client became cncerned that she may nt be able t btain repayment f her lan frm Messrs Pettingill and Ongley. On 29 March 2004 she cnsulted the Lawyers and instructed them t investigate her legal psitin n the lan and

3 Judge Lunn 2 t advise her abut what she shuld d. The Lawyers gave a letter dated 29 March 2004 t the Client which set ut the terms f their retainer ("the First Agreement"). In particular, it prvided that the Lawyers fees were $200 per hur plus GST calculated n the basis f time (in multiples f 6 minute units) "spent by us in relatin t yur matter". It cnfirmed that the instructins limited the time t be spent n the matter t three hurs, and therefre the csts were initially capped at $660. The Lawyers discussed sme aspects f this letter with the Client which will be mentined later. On 30 March the Client signed First Agreement and returned it t the Lawyers. On 2 April 2004 the Lawyers sent a letter f advice t the Client. Bth befre and after that letter was sent the Client gave instructins t the Lawyers fr wrk in relatin t the recvery f the lan which were beynd the giving f the advice which was the subject f the First Agreement. When thse further instructins were received, and accepted, by the Lawyers they did nt prepare any new r supplementary retainer agreement. There is n evidence that the Lawyers discussed with the Client that the additinal wrk which they ding was beynd the scpe f the First Agreement. Bth the Lawyers and the Client apparently assumed that the fuither wrk was t be cvered by the terms f the First Agreement. On 19 April 2004 the Lawyers rendered their first accunt t the Client fr $2,503 fr wrk dne by them frm 29 March t 19 April The accunt itemised each item f wrk dne and assigned a 6-minute time unit t it. The amunt charged was shwn as being calculated at 106 f the time units at 5220 per hur (inclusive f GST) plus sme disbursements. Further accunts in similar fashin were rendered frm time t time. The Client made a few ad hc payments t the Lawyers frm time t time which ver the entire curse f the matter ttalled $ I 0,328. In June 2004 prceedings were instituted by the Lawyers n behalf f the Client against Pettingill and Ongley and sme f their cmpanies. I have nt seen the papers relating t these Curt actins and the nly infrmatin which I have abut them is what appears in the varius accunts. It is n imprtance n the present issue. The Lawyers retained the services f cunsel n behalf f the Client. On l0 December 2004 the Client gave a secnd mrtgage ver her hme t the Lawyers fr $20,000 which was t be security fr the substantial unpaid csts at that time. t0 By 13 Octber 2005 there was a balance utstanding n the csts and' disbursements billed by the Lawyers t the Client f $57,584. The Client made an applicatin t the Legal Assistance Fund fr supprt'fr her claim, but this was rejected. On 23 Nvember 2005 the Lawyers sent a letter t the Client enclsing a new fees agreement which was t perate as frm 23 Nvember 2005 ("the Secnd Agreement"). The Lawyers did nt discuss the terms f this

4 3 Judge Lunn Agreement with the Client r advise her abut it ther than by what was cntained in the accmpanying letter. The Secnd Agreement prvided an hurly rate f $330 per hur (inclusive f GST) fr all the time spent by the Lawyers n the matter. The Client signed this Secnd Agreement and returned it t the Lawyers withut query r cmment. All the accunts sent t the Client by the Lawyers fr wrk dne after 23 Nvember 2005 had their wrk charged at $330 per hur. ll On 28 July 2006 the Lawyers sent an accunt t the Client (shwing n its crrected versin) the csts charged (but apparently excluding sme Cunsel fees) f $106,482, but this des nt seem t have taken int accunt all f the small amunts which the client had paid t that date. On abut 3 August 2006 the Client accepted an ffer f settlement f 5130,000 frm ne f several defendants wh had been sued. T assist in the settlementhe Lawyers agreed t reduce their fees, including GST, t $l10,000 and cunsel agreed t reduce his fees t $11,000. Hwever, additinal charges under the Secnd Agreement were then made fr wrk dne after the settlement which resulted in an accunt n 2 September 2006 frm the Lawyers t the Client f $113,698 (which did nt include the $11,000 t cunsel). Thus almst all f the settlement mneys were apprpriated t the Lawyers' csts and cunsel fees. The Law. t2 The relevant law n unfairness fr s azq) f the Act is set ut in the fllwing passage frm the judgment f Dyle CJ in McNamara Business & Prperty Law v Kasmeridis N 2) (2007) 97 SASR 129 at[26]-1291: It is fr the practitiner t shw that the agreement is fair and reasnable, The factrs t be taken int accunt when deciding whether an agreement is fair and reasnable will depend upn the circumstances f the case. It is neither practical nr desirable t try t set ut a standard list f relevant matters the cases emphasise as a basic cnsideratin the questin f whether the client's decisin t agree t the terms f the csts agreement was a free and infrmed chice, the client having been given the advice that wuld give the client a fair understanding f the peratin and effect f the csts agreement The cases have emphasised the frduciary nature f the slicitr and client relatinship, and the imprtance f the slicitr dealing with a ptential cnflict between the slicitr's interests and the slicitr's duty t the client by making full disclsure t the client. (Authrities cited mitted). Unfairness. t3 The Client is a reasnably articulate and intelligent persn. At the relevant times she was wrking in sme clerical psitins, althugh she was nt then

5 Judge Lunn 4 emplyed as a land sales persn as she is nw. She had n prir experience f litigatin r dealing with lawyers. There was n suggestin that she had ever previusly entered int a retainer agreement with any lawyers. The recvery f the lan f $200,000 was f great imprtance t her as she risked lsing her hme, which was her nly substantial asset, if it was nt repaid. She was anxius and upset by the legal situatin in which she fund herself. She relied heavily upn the Lawyers fr advice and assistance. She was nt readily able t make an infrmed, free chice abut what was in her best interests in agreeing t the terms f charging by the Lawyers withut first having received a full and precise explanatin frm the Lawyers abut what she was cmmitting herself t in signing the tw retainer agreements. I d nt accept the Lawyers' submissins that the Client well understd each f the First and Secnd Agreements and had sufficient infrmatin t be able t make a prperly infrmed decisin abut whether t enter int each f them. The Lawyers tk imprper advantage f their pprfunity t impse cnditins which were t their persnal advantage and thus explited the Client's reliance upn them fr prper advice as t what was in her best interests. The First Agreement. l5 The issue f unfairness under s a2q) is t be determined n the circumstances which existed at the time the agreement was made: McNamara Business & Prperty Law v Kasmeridß Qtt 2) abve at [a5]. This is f sme signif,rcance in the cntext f this matter. I accept the submissins f cunsel fr the Bard that this First Agreement was unfair fr the fllwing reasns: The Client was nt infrmed f the degree t which the hurly rate f $200 (exclusive f GST) exceeded the hurly rate under the applicable Curt scale and that it was likely that there wuld be ther lawyers wh wuld perfrm the wrk at the scale rate. As at 29 March 2004 the applicable scale was the 9ú Schedule t the Supreme Curt Rules 1987 under which the highest hurly rate was $180 per hur. The Client was als nt infrmed that under that scale nt all wrk by a lawyer wuld attract the fee f $180 per hur. Under that scale wrk by a slicitr nt requiring special skills r legal knwledge was chargeable at a rate f $ I l0 per hur. As the Lawyers did nt have any para-legal r administrative staff wrk which was usually dne by clerks was dne by the Lawyers themselves and was charged at the rate f $200 per hur specified in the First Agreement. Fr instance, ne unit was charged fr attending at Curt t frle a dcument which was charged ut at $18, whereas a clerk's attendance under the scale fr such wrk was nly $ On this rate f charging there was substantial ptential as at 29 March 2004 fr the slicitrs t recver frm the Client substantially mre that wuld have been chargeable under the scale.

6 5 Judge Lunn r The First Agreement allwed the Lawyers t charge n the basis f the time spent by them n the matter. Under the 9ü Schedule sme types f wrk such as the preparatin and reading f dcuments, were chargeable nt n the basis f the time spent but per page. My experience as a taxing Master is that ther than with sme very efficient lawyers this usually results in a significantly lesser amunt being chargeable than if it had been charged at the highest time rate. Such time csting affangements, even at the time rate laid dwn by the scale, are usually t the financial disadvantage f the client. The Lawyers submitted that by charging n a time basis fr the preparatin and perusal f dcuments they were able t give mre care and cnsideratin t the wrk than if the charges were limited t a page rate. I d nt accept this. The scale reflects what the Curt has laid dwn in usual cases is the prper remuneratin fr lawyers perfrming the wrk with a prper degree f cmpetence. If the Lawyers were seeking t justiff their higher charges n this basis, it shuld have been carefully and fully explained t the Client, but it was nt. The rates allwable under the 9ú Schedule presuppse that the lawyers ding the wrk have a reasnable familiarity with the relevant law, the prcedures f the Curts and precedents fr such types f wrk. Under the 9ü Schedule lawyers cannt usually charge fr researching the law, ascertaining the requirements f the Curts r lking up precedents. Under the terms f the First Agreement the Lawyers were entitled t charge fr such wrk which was t the substantial disadvantage f the Client. The wrk fr the Client was t be partly dne by Mr Zuvela, wh was a practitiner then f abut l0 years experience, and partly by Ms Jngebled wh was then a practitiner f abut fur years experience. Under the terms f the First Agreement wrk by each f them was charged at the same rate. Usually it wuld be expected that less wuld be charged fr the services f the junir lawyer: McNamara Business & Prperty Law v Kasmeridis Q'l 2) abve atl641-[67]. The Lawyers explained t the client that their level f charges were nt the cheapest, but were nt the mst expensive, in Adelaide. While this was true it did nt g far enugh. The Lawyers als sught t justiff the rate f $200 by the urgency f the wrk they were being required t d. While a lading fr urgency may be justihed in sme circumstances, it needs t be explained as such t the Client, but it was nt. In any event, while the initial wrk needed t be dne urgently it was nt shwn that there was a similar degree f urgency fr the later wrk. Accrdingly, the First Agreement is t be rescinded under s azq) f the Act as being nt fair. It is nt necessary t cnsider the additinal requirement f reasnableness. It was nt suggested that I shuld nly vary the First Agreement rather than rescind it. r8 I d nt accept the submissin f cunsel fr the Bard that the First Agreement was limited t the first three hurs f wrk and therefre there was n

7 Judge Luru 6 agreement under s a2(6xa) f the Act fr the wrk dne frm 3 April 2004 t 22 Nvember If the First Agreement had been fund t be fair and reasnable, it prbably culd have been applied n its terms t wrk dne supplementary t the riginal instructins, althugh it may then have been als subject t rescissin fr the Client nt having been advised that any csts recvered after successful litigatin wuld be calculated n scale and nt n a time basis. Hwever, as the First Agreement has been adjudged t be unfair at its utset its rescissin als extends t its applicability t all wrk dne up until22 Nvember l9 Althugh it was nt referred t in the curse f argument, it shuld be nted that n and after 3 May 2004 the perative Curt scale became the l0* Schedule t the 1987 Rules. The tp hurly rate under that Schedule fr lawyers was $250 per hur and_a clerk's attendance fr filing dcuments was $20. After I August 2005 the l lh Schedule replaced the t0* Schedule under which the hurly rate was increased t $255 per hur. As the issue f the unfairness f the First Agreement is t be assessed at the time at which the th Schedule was perative it is irrelevant that the amunt chargeable under the scale became greater than that chargeable under the First Agreement n 3 May 2005, althugh the limitatin n the scpe f the wrk chargeable under the 9u t the I t* Schedules did nt materially vary. After 3 May 2005 the Lawyers culd recver n a scale taxatin substantially mre fr their wrk than they culd have previusly, but I am unable t say whether it wuld have been as much as was chargeable fr the wrk under the terms f the First Agreement. The Secnd Agreement. Fr the fllwing reasns I find that the Secnd Agreement is t be rescinded under s azq) f the Act fr unfairness: Fr similar reasns t the First Agreement because the degree t which the charges exceeded the highest hurly rate under the 11ù Schedule (ie $255) were nt explained prperly t the Client. Fr similar reasns t thse given fr the First Agreement because the scpe f the wrk chargeable under the Secnd Agreement was cnsiderably greater than wuld have been allwed under the I lü Schedule.. The terms f the Secnd Agreement stated that any amunts recvered frm ther parties in the litigatin "may" nt cver the full legal csts charged t the Client, whereas this was highly likely t be the case. r Althugh the Secnd Agreement and its cvering leffer referred t the right f the Client t seek independent legal advice, n explanatin was given abut what the benefit f this might be fr the Client.

8 7 Judge Lunn The Secnd Agreement cnstituted an impermissible cntingency fee agreement. In evidence and argument the Lawyers sught t justiff their charging a rate being substantially greater than the scale rate n the grunds that they were taking a substantial risk that they might never be paid their fees. I d nt need t decide if that was a realistic rssessment f the situatin as at23 Nvember This reasn, fr the increase frm $220 t $330 per hur inclusive f GST, was nt adequately explained t the Client. In any event, if it was t be a valid cntingency agreement s that the Lawyers culd recver higher fees if the claim was successful, but wuld nt recver anything if it was unsuccessful, it wuld have t cmply with Clause 42 f the Law Sciety's Prfessinal Cnduct Rules, but it did nt. Mr Zuvela said he cntemplated putting frward such an agreement the Client but did nt d s because it wuld have required him t have refunded the small amunt which he had already received n accunt f his csts if the claims were unsuccessful. zt The letter f 23 Nvember t the Client was nt a prper explanatin t her f all f the matters f which she was entitled t be aware befre entering int the new agreement. Accrdingly, the Secnd Agreement is als rescinded as being nt fair under s a2q) f the Act. There w rs n submissin that this agreement shuld be varied rather than rescinded. I have tday made the fllwing rders: I On the determinatin f the preliminary issues that the agreements f March 2004 and 23 Nvember 2005 each be rescinded pursuant t s 42(7) f the Act. 2 The csts as agreed r adjudicated f the preliminary issues are t be paid by the defendant the plaintiff. 3 Fit fr cunsel. 4 Further cnsideratin f directins fr the cntinuatin f the taxatin adjurned t 12 Nvember 2009 at 9.30 am.