By Michelle Castle and Andrew Bailey -
Snapshot
- Certain conduct of a solicitor may have the unintended consequence of estopping any claim for fees.
- A conditional costs agreement may be constituted by a deed as to the payment of legal costs and in such cases must comply with the Legal Profession legislation.
- A solicitor cannot side-step the limitation period by finishing work but not invoicing it.
Calvo v Ellimark Pty Ltd [2016] NSWCA 136 is an appeal from the Supreme Court decision in Ellimark Pty Ltd v Calvo [2015] NSWCS 1240. The primary claim concerned the enforcement of contractual entitlements by a solicitor and a company who agreed to fund the continued conduct of litigation for a client upon commercial terms. The decision raises important topics which impact upon the costs assessment process: conditional costs agreements, limitation periods and estoppel.
Background to the litigation
The facts were complicated. However, a simplified version of them will suffice in order to understand the costs assessment issues. Dr Calvo controlled a company, the Australian Institute of Music Limited (’AIM’). It rented premises in Surry Hills from Ellimark Pty Ltd (’Ellimark’).
In 2004, AIM suffered financial difficulty and agreed to grant a 37.5 per cent shareholding to the landlord to obtain funding. They also agreed to allot a 37.5 per cent shareholding to a Mr Sweeney, who took up the day-to-day management of the company. Dr Calvo was left with a 25 per cent shareholding in AIM.
Dr and Mrs Calvo commenced Supreme Court proceedings seeking declaratory and other relief against Mr Sweeney (the ’Sweeney proceedings’). They were successful, but not without a lot of work undertaken by a solicitor and counsel acting on their behalf.
In 2007, the Calvos entered into separate costs agreements and a deed (the ‘2007 Deed’) where they agreed that if the Sweeney proceedings were successful, they would transfer a 32.5 per cent shareholding to the solicitor.
The Sweeney proceedings were fixed for hearing to commence on 9 February 2009. Dr and Mrs Calvo had paid a sum of $55,000 towards professional costs and disbursements incurred. Litigation funding was sought to continue the conduct of the proceedings. Ellimark was prepared to advance up to $500,000 in exchange for a further 12.5 per cent shareholding: the intent being for Dr Calvo and Ellimark to be equal shareholders in AIM.
On 10 February 2009 (the second day of the hearing where Dr Calvo was in the midst of cross-examination), Dr Calvo granted a share mortgage in favour of the solicitor acting in the proceedings. The Calvos were successful in the proceedings and an order for costs was made in their favour in July 2009.
In August 2009, the solicitor sought confirmation as to the entitlement to receive the 32.5 per cent shareholding. An assurance was given that the shareholding would be transferred within 12 months. The solicitor acted to obtain a signed share transfer in December 2009 at a point when Dr Calvo was hospitalised following a severe stroke. The solicitor was appointed a director of AIM in January 2010.
