FEDERAL COURT OF AUSTRALIA

Carr v Commins Hendriks Pty Limited [2016] FCA 1282

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 33N of the Federal Court of Australia Act 1976 (Cth), these proceedings no longer continue as representative proceedings under Part IVA.

2.    The proceedings be stood over to Monday, 26 September 2016.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    Rodney Carr commenced these proceedings as representative proceedings against his former solicitors, Commins Hendriks Pty Limited, on 18 February 2016 by filing an originating application under Pt IVA of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act). Mr Carr claimed damages, aggravated damages and exemplary damages or, alternatively, equitable compensation or statutory compensation pursuant to s 82 of the Trade Practices Act 1974 (Cth) and s 236 of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth) that renamed the Trade Practices Act. The issue is whether an order should be made pursuant to s 33N of the Federal Court Act that the proceedings not continue as representative proceedings.

The legislative scheme

2    Relevantly, ss 33N(1) and 33P in Pt IVA of the Federal Court Act provide:

33N    Order that proceeding not continue as representative proceeding where costs excessive etc.

(1)    The Court may, on application by the respondent or of its own motion, order that a proceeding no longer continue under this Part where it is satisfied that it is in the interests of justice to do so because:

(a)    the costs that would be incurred if the proceeding were to continue as a representative proceeding are likely to exceed the costs that would be incurred if each group member conducted a separate proceeding; or

(b)    all the relief sought can be obtained by means of a proceeding other than a representative proceeding under this Part; or

(c)    the representative proceeding will not provide an efficient and effective means of dealing with the claims of group members; or

(d)    it is otherwise inappropriate that the claims be pursued by means of a representative proceeding.

….

33P    Consequences of order that proceeding not continue under this Part

Where the Court makes an order under section 33L, 33M or 33N that a proceeding no longer continue under this Part:

(a)    the proceeding may be continued as a proceeding by the representative party on his or her own behalf against the respondent;

…

Background

3    The originating application identified three common questions of fact or law that would affect all group members. The subject matter of the claim, in essence, is based on Mr Carr’s concern about the effect of cl 7 in the two costs agreements into which he entered with Commins Hendriks, initially on 15 April 2009, and later on 20 September 2011 (that included, relevantly, only an increase in the amount of the fees), that in the earlier version was in the following terms:

7.    Costs-how calculated

7.1    Professional Fees

We will charge you professional fees for the work we do

7.1.2    (a)    an hourly rate for a partner:    $395.00 (plus 10% GST)

(b)    an hourly rate for a senior solicitor:    $320.00 (plus 10% GST)

(c)    an hourly rate for a junior solicitor:    $290.00 (plus 10% GST)

(d)    an hourly rate for a paralegal:    $225.00 (plus 10% GST)

(e)    an hourly rate for a clerk:    $200.00 (plus 10% GST)

(f)    an hourly rate for secretarial services:    $200.00 (plus 10% GST)

(g)    travelling time at the rate of:    $150.00 (plus 10% GST)

    These rates will be proportionately charged for work involving shorter periods less than an hour. Our time charging is structured in 6 minutes units. For example, the time charged for an attendance of up to 6 minutes will be 6 minutes. The time charged for an attendance between 6 and 12 minutes will be 12 minutes. (emphasis added)

4    Commins Hendriks acted for Mr Carr under the costs agreements on the basis of a no-win no-fee provision so that, if Mr Carr’s claim for personal injuries ultimately failed, the solicitors would be entitled to nothing, including in respect of their disbursements made on his behalf.

5    Mr Carr, through his present solicitor, has pleaded three different versions of a statement of claim, including a draft further amended statement of claim for which he seeks leave to amend today. In essence, he asserts that cl 7.1 entitled Commins Hendriks to charge him “excessive fees” by use of six minute units for their professional attendances even if the solicitor, paralegal, clerk or secretary, in fact, took less time to perform than the six minutes charged.

6    Each version of the statement of claim alleged (in par 1(e)) that the fees:

(e)    were charged and billed “Excessive Fees” by the respondent pursuant to the costs agreement(s) as a result of the respondent implementing “the six minute minimum unit” clause resulting in a charged and billed total amount of legal fees in excess of the actual time taken by the respondent for the legal services and advice pursuant to the hourly rate as agreed in the costs agreement(s). (original emphasis)

7    The originating application and statements of claim contended that it is possible that Mr Carr, or a group member, might be charged more than a total of 10 six-minute units for any particular block of 60 minutes, or one hour. Mr Carr alleged that there had been an overcharging for each occasion where he, or a group member, was charged on the basis of a charge of one-tenth of the hourly fee, being the charge for a six-minute unit for an attendance that actually took less than six minutes. He argued that he had been overcharged to the extent that a charge for the full six-minute unit did not fairly reflect the proportion of the actual time (in minutes or parts of minutes) spent of the total hour for which the professional performing the work was entitled to charge at his or her hourly rate specified in the costs agreement(s).

8    This argument would appear to raise a construction of the costs agreement that, if accepted, would lead to a very unusual, if not unreasonable, result. For example, despite the solicitors having a contractual right under cl 7.1 to charge an hourly fee of $395, nonetheless by applying the six-unit minimum fee where more than 10 six-minute units of work was performed within the same hour, the solicitor could charge a total exceeding the agreed rate of $395 for the same hour.

Mr Carr’s claims

9    Mr Carr alleged that there were a variety of bases on which the operation of cl 7.1 and, the costs agreements as a whole, could be attacked, namely, as follows. First, he claimed that, cl 7.1 might amount to an unfair term within the meaning of s 24 of the Australian Consumer Law. However, in the course of argument, his solicitor was unable to identify a basis on which cl 7.1 could be described in terms of any of the examples of unfair terms in s 25(1) other than under s 25(1)(d), being “a term that permits or has the effect of permitting one party (but not another party) to vary the terms of the contract”. Mr Carr contended that, if the costs agreements could be construed so as to allow the solicitors to charge, for any particular hour of work, a total that exceeded the professional’s agreed hourly rate based on six-minute unit charges, then any instance of exceeding the hourly charge would attract the operation of s 25(1)(d). I am of opinion that such a construction is one that would produce a commercially unreasonable result and that, on the limited material before me, it is unlikely that, at a full trial, it would succeed: cf Zhu v Treasurer of NSW (2004) 218 CLR 530 at 559 [82] per Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ. However, I am not able to, and have not, come to any final view because the matter has not been fully argued and, of course, the whole of the facts are not before me.

10    Secondly, Mr Carr argued that he was in a position of disadvantage, because at the time he first instructed Commins Hendriks and entered into the cost agreement dated 15 April 2009 he was suffering depression and the ill effects of personal injuries, and that he was not a person trained in the law or familiar with how six-minute unit charging operated and that, so he contended, others were in similar positions within the potential group of whose cases his would be representative. Mr Carr did not advance any recognisable category of disadvantage, that he claimed arose from those merely asserted facts, of the kind giving rise to the well-known head of equity that applies to protect a person who enters into a transaction under a special disadvantage. Kitto J explained the principle in Blomley v Ryan (1956) 99 CLR 362 at 415, in terms adopted by Mason J in Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 at 462, as follows:

… whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests and the other party, unconscientiously takes advantage of the opportunity thus placed in his hands. (emphasis added)

11    The draft statements of claim do not plead any facts that suggest that Mr Carr had been the subject of any identifiable species of unconscientious behaviour by Commins Hendriks in the sense that is explained both in Amadio 151 CLR 447 and in Tanwar Enterprises Pty Limited v Cauchi (2003) 217 CLR 315.

12    Thirdly, Mr Carr argued that the solicitors were in a fiduciary position in presenting him with, and asking him to sign, the costs agreement(s). He contended that they had not received his fully informed consent to any profit they might make from the application of the six-minute unit rule, either in the terms explained in the costs agreement(s) themselves, or in its potentially more expansive operation the subject of his argument that I have described above. Once again, the circumstances in which such an argument could be propounded are not pleaded with any particularity in the statements of claim.

13    It is a truism to say that the subject matter over which fiduciary obligations extend must be determined by the character of the relationship between the parties. The principle applicable where a contract provides the foundation of the relationship is that stated by Mason J in Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 97, as French CJ, Gummow, Hayne, Heydon and Kiefel JJ recognised in John Alexander’s Tennis Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at 36 [91], namely:

In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. (emphasis added)

14    Of course, the relationship between a solicitor and client is within the accepted categories of fiduciary relationships, being one in which the solicitor fiduciary undertakes or agrees to act for or on behalf or in the interests of his or her client in the exercise of a power or discretion that will affect the client in a legal or practical sense: John Alexander’s 241 CLR at 34-35 [87] applying Hospital Products 156 CLR at 96-97 per Mason J. A fiduciary is under an obligation, without informed consent, first, not to obtain an unauthorised benefit from the relationship and, secondly, not to promote the personal interests of the fiduciary by making or pursuing a gain or otherwise acting in circumstances in which there is a conflict or a real and sensible possibility of a conflict between the fiduciary’s personal interests or duties and those of the person (here the solicitors’ client) to whom the fiduciary owes the duty: Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165 at 198 [74], 199 [78]-[79] per McHugh, Gummow, Hayne and Callinan JJ. However, the terms of a contract can modify or extinguish a fiduciary obligation that one party to the contract would otherwise owe to the other because of their relationship: John Alexander’s 241 CLR at 36 [91]-[92]; Wingecarribee Shire Council v Lehman Bros Australia Ltd (In Liq) (2012) 301 ALR 1 at 195 [729], 196 [732], 199-200 [742] per Rares J.

Subsequent events

15    After Mr Carr commenced the proceedings, Commins Hendriks served him with an itemised bill of costs for their professional work in conducting his case to its successful resolution in the Court of Appeal of the Supreme Court of New South Wales. The bill itemised those costs, it appears, on the basis of time costing, rather than using the six minute unit scale. This resulted in a solicitor-client charge of about $15,000 less than had been deducted from the verdict moneys to which Mr Carr had been entitled under the consent judgment in the Court of Appeal.

16    The parties are agreed that, in New South Wales, a client is entitled, at no expense to himself or herself, to have a costs assessor review a solicitor-client bill for the purposes of determining its reasonableness and amount.

Should the proceedings continue under Pt IVA?

17    It is safe to infer that Commins Hendriks will have entered into cost agreements in reasonably similar form, and in particular with a clause similar to cl 7.1, with many hundreds, if not thousands, of their clients over the years of conducting their practice. Accordingly, if these proceedings remain constituted as representative proceedings under Pt IVA, the size of any group may be large. Commins Hendriks argued that the way in which statements of claim are pleaded makes it difficult, if not impossible, to identify any feature or features that identify:

    the persons who are appropriately to be included as members of the group other than, in effect, all their clients, other than those who might be lawyers, or others who could understand, as lawyers might, what a contract might mean, or not mean; or

    the particular circumstances on which Mr Carr relies to establish that he was in a position of special disadvantage, or of not having given his fully informed consent to his solicitors making a profit from charging for provision of their services under the terms of the clauses like cl 7.1.

Mr Carr’s submissions

18    Mr Carr argued that these proceedings should be allowed to continue as representative proceedings because of the potentially large number of persons who will constitute the group or class represented. He submitted that it is in the interests of justice that the proceedings be allowed to remain in their currently constituted form and that he be allowed to continue as the representative party. He contended that he should be allowed to amend the statement of claim in the form currently proposed as a further amended statement of claim. He argued that where, in general, the situation is that there is an asymmetry of information between a client or, prospective client, and the solicitor, when the two come to negotiate the terms of the solicitor’s retainer and that there will be many people who have not had a sufficient degree of disclosure to enable them properly to understand how the six-minute unit charge works and to assent to its operation in relation to their relationship.

19    Mr Carr contended that cl 7.1 was not fair because of the overlay that the parties were in a fiduciary relationship. He argued that the client could be charged, on the basis of cl 7.1, without him or her knowing its true effect or operation and that the solicitor would be able to make a profit on that portion of the six-minute unit for which the client was charged, but in which the solicitor did not do work for that client, and may have done work for other clients charging them also on a six-minute unit billing retainer.

20    Mr Carr argued that one remedy to which he would be entitled would be an order setting aside the costs agreement(s) on the basis of it containing an unfair term or terms, and a finding that he should have been charged only for what the fair and reasonable costs for the work done were. (I note that s 23 of the Australian Consumer Law makes an unfair term void but otherwise continues the contract in force as binding the parties.)

Consideration

21    In my opinion, these proceedings are ones that, in the interests of justice, should no longer continue as representative proceedings. First, the costs that would be incurred, if the proceedings were to continue as a representative proceeding, are likely to exceed significantly the costs that would be incurred if each group member conducted a separate proceeding.

22    Moreover, Mr Carr is entitled to have his own costs assessed on a solicitor-client basis, and to have that done at no cost, as are each of those clients of Commins Hendriks who might fall within the asserted group and who have rights to a costs assessment of the kind I have described for work or bills rendered in New South Wales.

23    Secondly, if it be the fact, as on the evidence it appears to be, that the difference between the costs actually paid by Mr Carr and those which might be assessed are in the order of $15,000, the costs of running a representative proceeding involving the highly complex issues that I have described would by far exceed anything that was reasonable.

24    Thirdly, I am not satisfied that there is a sufficient degree of likelihood that a class of the kind vaguely described in the originating application and statements of claim ultimately would be identified so as to give rise to relevant common questions. In my opinion, the nature of the relationship between a solicitor and a client is, in a case like the present, better assessed by reference to the particular situation pertaining between those two individual parties.

25    In this case, Mr Carr’s particular circumstances at the time that each of the two costs agreements was entered into, and the circumstances of the solicitors in acting for him on, among others, a no-win no-fee basis, are all factors to be taken into account in arriving at an overall evaluation of what the particular relationship was at the time each contract was made and what the duties, obligations and rights of each of the parties were when that occurred. Those factors include whether there was any unfairness in the terms of the costs agreements, what, if any disadvantage Mr Carr (or any particular client) may have been under at the time he entered into each costs agreement and any misuse of a fiduciary or other position.

26    Fourthly, all the relief sought by Mr Carr here can be sought in an ordinary inter partes proceeding, of the kind envisaged in s 33P(a) of the Federal Court Act, between him and his former solicitors to the extent that a costs assessment as between solicitor and client is not able to resolve any of the outstanding issues.

27    Fifthly, I am of opinion that a representative proceeding will not provide an efficient and effective means of dealing with the claims of group members. The fact that Mr Carr alone is put forward as a representative party suggests that the facts of his particular situation will not be sufficiently illustrative of the wide variety of potential factual situations that may affect relations between the solicitors and their other clients, including those in personal injuries actions, where solicitors often undertake work on the basis of no win no fee arrangement, albeit often with uplifts of fees in cases where they are able, ultimately, to charge based on legislation giving such rights. These factors suggest that these proceedings would not be a convenient or appropriate vehicle to determine wider issues than those that arise between Mr Carr and Commins Hendriks.

28    For these reasons, I am satisfied that it is inappropriate that Mr Carr’s particular claims be pursued by means of a representative proceeding (s 33N(1)(d)).

29    During the course of argument, I made a number of suggestions that, hopefully, the parties will be able to consider, for the purposes of identifying a way to bring about an overall resolution of an unfortunate breakdown in their relationship.

Conclusion

30    In all the circumstances, I am of opinion that it is appropriate to order that, pursuant to s 33N(1)(d), these proceedings no longer continue as representive proceedings under Pt IVA of the Federal Court Act.

Associate:

Dated:    1 November 2016