The cost of not communicating

To the already stressed solicitor, not getting paid for the work they do can be demoralising. Complaints are frequently received from disgruntled clients after they receive their solicitor’s tax invoice calculated at an agreed hourly rate. It is often not the dollar value of the invoice that gives rise to a complaint. It is that the disgruntled client does not understand what their solicitor actually did for the dollar value of the tax invoice.

The presumption of undue influence

It has always been the solicitor’s responsibility to make clear to the client what is expected both of the solicitor and the client under the contract (or retainer) upon which their relationship is based. Within this relationship solicitors operate under the presumption of undue influence.

The presumption of undue influence arises whenever ‘the relation between donor and donee is such that the latter is in a position to exercise dominion over the former by reason of the trust and confidence reposed in the latter’ (per Chief Justice Latham, Johnson v Buttress (1936) 56 CLR 113 at [119]).

It is because solicitors operate under the presumption of undue influence that it has long been accepted that a solicitor should make clear to his/her client not only his/her costs but the legal effect of a step which the client is proposing to take:

‘if… a solicitor is retained generally to act in a client’s interests in relation to a transaction into which the client is proposing to enter… the solicitor is bound to go through the contractual documents… and explain to the client in terms she is likely to understand the rights and obligations to which it will subject her’ (Lederberger & Anor v Mediterranean Olives Financial Pty Ltd & Ors [2012] VSCA 262 at [100]).

Costs disclosure & Uniform Law

In July 2015 the Legal Profession Uniform Law (‘the Act’) introduced three categories of costs disclosure. No disclosure (s 174(4)), alternative disclosure (s 174(5)) and full disclosure (s 174(1)).

When a law practice provides full disclosure under s 174(1) of the Act it also triggers a statutory obligation under s 174(3) that requires a law practice to take all reasonable steps to satisfy itself that the client has:

• understood; and
• given consent to the proposed course of action for the conduct of the matter; and
• given consent to the proposed costs.

Notably, s 174(3) of the Act continues the legislative theme of constant disclosure and communication with the client regarding their matter. Importantly it integrates the necessity to discuss the proposed course of action for a matter with the disclosure obligation. This is because when full disclosure is made under s 174(1), a law practice must be satisfied that the client has consented to and understood the ‘proposed course of action’ in addition to the proposed costs.

Similarly, where there is a significant change to anything previously disclosed to the client, a further disclosure under s 174(1)(b) is required. In these circumstances s 174(3) is once again triggered regarding the changed course of action and the costs associated with the change.

Interestingly, the obligation and evidentiary burden imposed by s 174(3) of the Act strongly resembles those already imposed on solicitors by way of the solicitor/client relationship itself.

In the case of solicitor and client it will be presumed the influence that existed between them was ‘undue’ unless the dominant party (the solicitor) can prove otherwise. This would no less be the case when a client complains that he/she has not understood the ‘whys and wherefores’ of the legal services provided by the solicitor.

Section 174(3) of the Act is entitled ‘client’s consent and understanding’. It imposes the seemingly very high threshold for a law practice to take ‘all reasonable steps’. Remarkably, ‘all reasonable steps’ is not defined for the purposes of the Act.

Nonetheless, a solicitor’s responsibility to make clear to the client what is expected both of the solicitor and the client under the contract (or retainer) is encapsulated in rule 7 of the Australian Solicitors’ Conduct Rules 2015. Under Rule 7 requires solicitors to provide clear and timely advice to assist clients to understand relevant legal issues and to make informed choices about the action to be taken during the course of a matter, consistent with the terms of the engagement.

The general law duty of care

The courts have held that the extent of a solicitor’s duty to his/her client is determined by both the retainer with the client and the solicitor’s general law duty of care. For example, a solicitor’s general law duty of care requires the solicitor to take reasonable steps to avoid their client suffering foreseeable economic loss (Hawkins v Clayton [1988] HCA 15 at [20]).

No rigid explanations can be made in respect of the scope of a solicitor’s duty to provide advice on the good judgment of entering into a transaction. The scope of a particular retainer must be considered in terms of each case and the particular circumstances of each client.

If it is apparent that the legal and practical consequences to a client of entering into a transaction may be significant, but cannot be assessed without further financial information or advice, it may be necessary to advise the client about the risks in proceeding without further information or advice. In other circumstances where a client has extensive commercial experience, the same kind of advice may not be required.

Issues may still arise however, as to the precise extent of the solicitor’s obligations, particularly in relation to the commercial implications of the work carried out under the retainer. In this area evidence as to the client’s own experience and understanding may be most relevant in assessing the scope of the duty owed.

In the Queensland Supreme Court decision of Cavenham Pty Limited v Robert Bax & Associates (Cavenham) [2011] QSC 348, consideration was given to a situation where the full scope of the retainer was not appreciated.

Cavenham involved a retainer which related to various loan transactions. The solicitor argued that it was a ‘limited rather clerical type retainer’. The Chief Justice found to the contrary that the solicitor was obliged to act generally in the client’s interests, including advising about the need for legal protection against contingencies that may arise, so that the client had an adequate understanding and to protectively give advice even if not sought by the client.

Similarly, in Provident Capital Ltd v Papa [2013] NSWCA 36 the NSW Court of Appeal held that a solicitor providing legal advice to a client in respect of a mortgage transaction had a penumbral duty to the client that went beyond the scope of the solicitor’s retainer. The unanimous finding was that the solicitor had a duty to advise its client to seek independent financial advice given the circumstances of the transaction and the knowledge held by the solicitor.

Clearly, the absence of a written retainer immediately puts the solicitor at a disadvantage. In Griffiths v Evans [1953] 2 All ER 1364 Lord Denning stated that:

‘The client is ignorant and the solicitor is, or should be, learned. If the solicitor does not take the precaution of getting a written retainer, he has only himself to blame for being at variance with his client over it and must take the consequences.’

Although Lord Denning’s decree was not sanctioned by Australian courts in Meerkin and Apel v Rossett [1998] 4 VR 54 at [62], it was acknowledged that a retainer just like any other contract may also be oral and could be implied through the conduct of the parties.

With regard to documenting important solicitor/client conversations, Justice Rein delivered judgment in a dispute between a client and his former solicitor in Sewell v Zelden [2010] NSWSC 1180.

In this context Justice Rein said:

‘[The solicitor] has no diary notes of any conferences or conversations with [the client]. There is no letter from him to [the client] setting out any advice given to him pertaining to the issue of [the solicitor’s] conflict of interest or in respect of any advice given and not followed … The degree to which notes are made by solicitors … is obviously not uniform, but I think that when important advice is given orally by a legal practitioner, a failure to follow up that oral advice with a letter, or at least to note the advice by means of a file note, particularly where the subject matter of the advice is relevant to the existence of a conflict of interest or where the client has indicated that he or she does not wish to follow the express advice given, is extraordinary and sufficiently remarkable as to induce doubt whether the advice was given at all.’ (at [56])

In the outcome, the evidence of the client was preferred to that of the solicitor.

All reasonable steps

Returning to s 174(3), the fundamental questions are: (i) how strictly will the courts interpret the section; and (ii) how burdensome will compliance be for law practices? Given the recent introduction of the Act, no cases have considered the section as yet.

However, some insight into possible answers to these questions may be gleaned by reference to s 83(1) of the Fair Work Act 2009 which also includes the term ‘all reasonable steps’ with respect to a decision made by an employer.

Section 83(1) was considered by the Federal Court of Australia in Stanley v Service to Youth Council Incorporated (Stanley) [2014] FCA 643. The Court noted (at [194]-195]) that:

• the employer’s obligation imposed by
  s 83 was stringent. The employer had to take all reasonable steps. The employer would not discharge the obligation where ‘further action could reasonably be expected’;
• the nature and extent of the reasonable steps would depend on the circumstances of the case and, in particular, the ‘attitude of the effected employee’.

By reference to decisions regarding solicitors’ general law duty of care as discussed above, and extrapolating from the Court’s interpretation of s 83(1) of the Fair Work Act in Stanley’s case (at [194] and [195]) the obligations contained in s 174(3) of the Act are probably as follows:

Extensive: given ‘all’ reasonable steps need to be taken not just some;

Subjective & objective: subjective when the law practice is considering what steps need to be taken and objective when the Court or authority is considering whether all of the reasonable steps were taken for the particular case;

Client focused: the extent of the obligation will depend on the characteristics of the particular client. The more vulnerable the client the more extensive the obligation;

Evidentiary: the onus will be on the law practice to produce evidence of the reasonable steps taken together with the basis for its belief these were all the reasonable steps which were necessary; and

Temporal: the best evidence that the law practice has taken of reasonable steps will be contemporaneous. For example, file notes or letters written at the time discussions took place concerning the course of conduct of the matter and the associated cost, or notes or letters confirming what and how the client understood the proposed course of action and the costs.

The Law Society has produced a fact sheet ‘Costs Disclosure Reasonable Steps’ which provides guidance on complying with s 174(3).

lawsociety.com.au/cs/groups/public/documents/internetcontent/1041718.pdf

John Fleming (pictured) and Frances Moffitt are regulatory compliance solicitors with the Professional Support Unit of The Law Society of New South Wales.