QCAT scraps ‘not fair and reasonable’ costs agreement

In the recent case of Stewart v Stephens & Tozer Solicitors,¹ the Queensland Civil and Administrative Tribunal ordered the costs agreement between the applicant and the respondent be set aside on the basis that it was not fair and reasonable.

Background

The applicant entered into an agreement with Mr Sahay (the respondent) of Stephens & Tozer Solicitors on two separate applications regarding the termination of her employment. The respondent took instructions from the applicant, but occasionally was in communication with her husband with matters relevant to the claim.

The applicant sought to have one of the costs agreements set aside on the basis that it was not fair and reasonable on nine grounds:

1. The agreement was induced by a misrepresentation relating to the outcome of the claim.
2. The applicant was not given the legally required time of at least five business days to consider the agreement.
3. The charges made by the law practice were not fair and reasonable.
4. There was no disclosure of certain fees and invoices.
5. The agreement included an uplift fee which required the practice to provide estimates.
6. The agreement was void as it was not signed by the applicant.
7. The agreement failed to comply with the cooling-off period.
8. The agreement made a provision for a costs assessor charged to the applicant.
9. The law practice did not disclose that the matter was settled.

The tribunal considered the application grounds separately. The tribunal noted that seven of the nine grounds referred to different sections of the Legal Profession Act 2007 (LPA) and, while recognising that the applicant had merits for these grounds, the tribunal concluded that these grounds were not established.

However, the tribunal found that Grounds 1 and 9 were sufficient to establish that the agreement entered into between the two parties was not fair and not reasonable.

Issues considered

Ground 1

The applicant submitted that they were induced to enter into the agreement with the advised figure she could recover against her former employer.

Referring to the applicant’s and her husband’s affidavit, the tribunal noted that the respondent had reasonable grounds to hold the view that the applicant might recover a sum over $300,000.

The tribunal found no direct evident to suggest that the applicant was induced to sign the costs agreement. However, in consideration of the applicant’s evidence, the tribunal was satisfied that the respondent’s statement induced the applicant to pursue the claim.

The tribunal was of the view that a person in the applicant’s position was unlikely to pursue uncertain litigation, unless they were likely to recover a large sum of money.

Ground 9

Under the LPA, the respondent had an obligation to disclose legal costs payable and contributions towards those costs to their client before settling the matter.

In this case, the respondent failed to seek instructions from the applicant prior to settling the matter for $47,000. This was done so on the basis that the respondent received instructions from the applicant’s husband that the applicant would be satisfied if she were to receive $18,000 in settlement monies.

The tribunal emphasised that the respondent’s client was the applicant, not her husband, and the respondent went beyond the applicant’s instructions to benefit himself without materially advancing the applicant’s interests.²

Conclusion

The tribunal said:

“The respondent achieved a settlement of the applicant’s claim without the applicant’s instructions… and did not disclose to the applicant the fees she would have to pay, before he agreed to the settlement sum, to avoid having a reduction of fees. Some pressure was exerted on the applicant to sign the Deed of Release… In my view, the conduct of the respondent has the effect that the agreement was no longer fair and reasonable.”³

The tribunal ordered for the FCC costs agreement to be set aside.

Key takeaways

The case demonstrates the risk when a solicitor relies on instructions not provided by their client⁴ and highlights the consequences when the solicitor’s interest conflicts with their client’s.⁵

Janelle Linato is a law student in the Queensland Law Society Ethics and Practice Centre. This article has been approved by Grace van Baarle, Manager, Ethics Solicitor, QLS Ethics and Practice Centre.

Footnotes
¹ [2022] QCAT 182.
² Ibid 90.
³ Ibid 90.
⁴ Australian Solicitors Conduct Rules 2012 r8.
⁵ Ibid rr4, 12.1.