The New South Wales Supreme Court has dismissed a practitioner’s application for possession of his client’s home pursuant to a registered charge to secure payment of legal fees not only by the client, but also by her sister, for whom the practitioner also acted.1
In Legal Minds Pty Ltd t/as Legal Minds v Ebsworth [2022] NSWSC 1420, the court granted relief to the client under s7(1)(a) of the Contracts Review Act by refusing to enforce the costs agreement against her.2
Background
The plaintiff acted on behalf of two sisters, Ms Ebsworth and Ms Davies. Ms Ebsworth was the guarantor of a loan that Ms Davies obtained from ANZ and was subsequently unable to repay.
Ms Davies commenced proceedings that concerned the unpaid loan and was represented by the plaintiff. ANZ sought judgement against Ms Ebsworth under the guarantee and sued Ms Davies under the loan agreement. The plaintiff then began acting for Ms Ebsworth, despite his involvement in Ms Davies’ matters where Ms Ebsworth was involved in as guarantor.
Issues considered by the court
Costs agreement
The costs disclosure and costs agreement provided to Ms Ebsworth entitled the plaintiff to obtain security over her property if she was unable to pay his fees for her matter and those incurred by Ms Davies.
Ms Ebsworth did not obtain independent legal advice on the agreement, despite the plaintiff’s suggestion for her to do so. The court inferred that there was no negotiation or explanation of the terms of the agreement, and it was not practicable for her to negotiate such terms because she lacked the ability to do so.3
Ms Ebsworth was regarded by the court as a person who was not reasonably able to protect her interests because of her age, state of health and economic circumstances. Despite this, the plaintiff sought to obtain a security over Ms Ebsworth’s property in circumstances where he knew of her limited understanding of commercial transactions and limited capacity to pay “other than by resort to the property”.4
Notwithstanding certain deficiencies in the costs agreement, it was considered sufficient to create an obligation on Ms Ebsworth to pay for legal services rendered by the plaintiff on her behalf.5
Conflict of interest
The plaintiff put himself in a position of conflict by acting for both Ms Ebsworth and Ms Davies.6 Although Ms Ebsworth knew that he was acting for herself and her sister, she was not aware of the conflict, its potential ramifications, and did not seek advice because she did realise it was necessary.7
In these circumstances, Ms Ebsworth did not give consent, much less informed consent, to the plaintiff to act for herself and her sister. The court summarised the relevant principles at [146]:
“A client can consent to his or her lawyer being jointly represented with another client having a potentially adverse interest. However, such consent must be informed consent. Thus, only a client who fully understands the nature and existence of the conflict and its potential consequences can give consent. In most, if not all, circumstances, it will be necessary for such a client to obtain independent legal advice in order to give informed consent to joint representation with another party who has potentially opposing interests.”8
The practitioner’s conduct involved a serious breach of his fiduciary duty to Ms Ebsworth. By choosing to act for Ms Ebsworth, in addition to acting for her “impecunious sister”, he sought to put himself in a significantly better financial position than if he had avoided the conflict and acted solely for Ms Davies.9
The applicant’s breach of his fiduciary duty went to the whole of the contract, and therefore, Ms Ebsworth was entitled to refuse to pay the fiduciary for the service rendered. Ms Ebsworth was accordingly entitled to judgement on the plaintiff’s claim.10
Conclusion
The court found that the costs agreement, insofar as it purported to impose on Ms Ebsworth a liability for Ms Davies’ costs and the alleged charge on her property, was an unjust contract.11
The court refused to enforce the costs agreement against Ms Ebsworth and granted relief to her under s7(1)(a) of the Contracts Review Act. The plaintiff was ordered to pay the defendant’s costs.
Sarah Millar is a law clerk at Queensland Law Society Ethics and Practice Centre. This article has been approved by Grace van Baarle, Manager and Ethics Solicitor, QLS Ethics and Practice Centre.
Footnotes
1 Legal Minds Pty Ltd t/as Legal Minds v Ebsworth [2022] NSWSC 1420 [1].
2 Ibid [167].
3 Ibid [156].
4 Ibid [143].
5 Ibid [136].
6 Ibid [143].
7 Ibid [147].
8 Ibid [146].
9 Ibid [149].
10 Ibid [149].
11 Ibid [164].
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