[1997] PNGLR 200

PAPUA NEW GUINEA

[national court of justice]

SIMON NORUM trading as SIMON NORUM & CO. LAWYERS

v

DANIEL IKIO; and

KOMAIP TRADING PTY LTD

mount hagen: lenalia aj
1, 11 July 1997

Civil Law - Contract - Champerty - Agreement between client and lawyer that lawyer should receive a specific portion of money recovered is champerty at common law.

Civil Law - Contract - Remuneration by agreement - Contingency fees or conditional fee agreements - Whether contingency fees allowable by the Lawyers Act - Contingency fees provided for under s 66 (1) (2) of the Lawyers Act - Contingency fees ought to be reasonable - Must not be unfair or unreasonable s 66 (3).

Civil Law - Contract - Contingency fees calculated at twenty-five percent - (25%) plus interest to be for the lawyer - Unfair and unreasonable in all the circumstances of the case as regards complexity, time and skill involved.

Facts

The plaintiff a lawyer and the first defendant acting for himself and the second defendant entered into an agreement whereby it was agreed that the plaintiff would act for the defendants for a contingency fee at 25% of the total award to be recovered by the plaintiff from the defendants from monies won as a result of the litigation.

The plaintiff successfully prosecuted the case and the court awarded K396,000.00 with interest to the defendants. The plaintiff tried to recover his fees from the defendants but they refused to pay him. The defendants claimed that the legal costs were excessive.

Held

1.	Contingency fee agreements between lawyers and their clients are valid under the Lawyer’s Act 1986 (s 66).

2.	A contingency fee agreement must be fair under the circumstances in which they are concluded and be reasonable.

3.	Where lawyers share excessive contingency fees against their clients the court has a duty to intervene to ensure fairness to both parties.

Cases cited

Ex Parte Cathcart [1893] 2 Q.B. 201.
Haseldine v Hosken [1933] 1 K.B. 822.
Trans Trust S.P.R.L. v Danubian Trading Co. [1952] 2 QB 297.

11 July, 1997

Lenalia aj. The plaintiff, a lawyer by profession commenced proceedings by a Writ of Summons against the two defendants for failure to comply with the terms of an agreement in contract entered into between the plaintiff and the 1st defendant. The contract was that if the plaintiff won the case, he would retain 25 percent of the award plus the interest and costs. The agreement was made on 27th August 1994 and was reduced into writing and signed between the parties on 18th August 1995, almost a year later. The matter was listed for hearing on 1st of July 1997. Mr Peraki appeared for the plaintiff. There was no lawyer for the Defendants. Since the Notice of Trial had been served, the matter was proceeded by ex-parte pursuant to O 10 r 12 of the National Court Rules. I noted from the file that there had been about three notices of trial. On the second notice, it was set down for 8th of September 1997. The latest notice of trial filed on 13th June 1997, sets the hearing date on 1st of July. This latest notice would seem to supersede the one filed on 30th May 1997.

The evidence of this matter is fully stated in the only affidavit of the plaintiff. In early 1994, the plaintiff received instructions from a Senior Police Constable Jacob Kamiak of C.I.D. office in Mount Hagen requesting the plaintiff to take over the defendant’s case file from Joseph Mek Teine Lawyers because the former solicitor had not done any constructive work on their claim. That case involved a police raid conducted by police on the defendant’s premises on 20th of October 1991 at Laiagam District in Enga Province. During which time policemen being agents of the State looted and destroyed the premises of a trading company known as Kamiak Trading, which dealt in substantial retail and wholesale shopping business in Laiagam. Destruction included a Kai bar, a fuel and tyre service.

Upon instructions, the plaintiff noticed that all documents constituting instructions were quite bulky. The plaintiff estimated that it would require considerable work load including engagement of an independent valuation report and a private accountant was to be engaged to do a cash flow data information, drafting of affidavit evidences and so on. These reports were to be obtained within some six months. On the basis of such valuation the plaintiff requested the defendants to make a deposit of an amount of between K25,000.00 to K35,000.00 before he could proceed to do any actual work.

Apparently, the first defendant’s reply to the plaintiff was that the only source of income for the defendant company had gone up in flames. The first defendant made an undertaking on behalf of the second defendant that if the plaintiff took up their case; the two defendants were to pay him some money. Having learnt of non-availability of funds, the plaintiff informed the first defendant in the presence of Senior Constable Jacob Kamiak that he (plaintiff) agreed to be charged with carriage of the defendant’s claim and in the event that the plaintiff won the case, the plaintiff would retain twenty-five percent (25%) of the total award. The plaintiff also included in the contract a proviso specifying that any interest would also be retained by the plaintiff himself as well as costs.

The plaintiff explains at paragraph (10) of his affidavit how he explained the terms of the contingency fee agreement to the first defendant in the following terms----

"The term 25% was then explained to the First Defendant by his nephew, Jacob Kamiak in Enga Language (although he knew what we were talking about) i.e. if the court awarded K10,000.00 then, I will retain K2,500.00 plus interest and costs or if the amount was K500,000.00 I will retain K175,000.00 plus interest and costs. That was on the 27th of August 1994 and I made a note of same at the back of the file I was working on. Annexed hereto and marked with the letter "A" is a copy of the same".

The following notations appear on annexure "A" as referred to in paragraph (10) of the plaintiff’s affidavit----

"On the 27/6/94 we agreed that I will retain 25% of the proceeds of the case since there won’t be any deposits made on the matter. Same to be reduced to writing later on and to be signed by the parties".

Signed (by plaintiff)".

The short notation above was reduced into writing and signed by the plaintiff and the first defendant. I assume that the authority and direction to commence working on the defendant’s claim was drafted by the plaintiff himself. It is on the terms of the authority and the purported agreement contained therein that the plaintiff had sued the two defendants for non-compliance with the terms of the agreement. The contract is in the following terms:

"AUTHORITY AND DIRECTION TO WORK ON FILE

To:	Simon Norum & Co.,

	Lawyers

	P.O. Box 1421

	MOUNT HAGEN

	Western Highlands Province

From:	Daniel Ikio of Komaip Trading P/L, Laiagam, Enga Province

Re:	POLICE RAID - KOMAIP TRADING - 20TH OCTOBER, 1991

I, DANIEL IKO of Komaip Trading Pty Limited, Managing Director of Laiagam, Enga Province hereby authorise and direct Simon Norum & Co., Lawyers to work on the company’s file against the State and I do acknowledge on behalf of the company the fact that I have made no deposit to cover the costs involved and in the event that the case is won, the lawyer Simon Norum will retain 25% (percentage) of our claim plus interest as costs and pay us the other 75% (percentage). 

If we loose the case, then Simon Norum & Co., Lawyers will not bill me for the work in progress done to date ie write off the bill in the sum of K35,000.00.

This AUTHORITY and DIRECTION is given for VALUABLE CONSIDERATION and is irrevocable without the written consent of Simon Norum & Co., Lawyers.

Dated: the 18th day of August 1995.

..........................	...............................

Simon Norum for	Claimant (signed)

Simon Norum & Co.,

Lawyers". (signed)

The plaintiff pursued the claim by trial and the Court found in favour of the second defendant. The Court made an award of K398,000.00 and an interest from the date of issue of the writ amounting to K35,940.00. The total award made to the two defendants was an amount of K433,940.00. The plaintiff after the award was made, gave notice by a covering letter and a copy of the order to the Solicitor General’s Office in December 1995. A cheque was drawn by the Department of Finance (No. 491912) and made payable to the second defendant. The first defendant picked the cheque up from Finance without notifying the Solicitor General’s Office and paid it into his account on 12th of January 1996.

From the agreement and by calculation of 25% the total due to the plaintiff would have been K99,500. On top of that the agreement also provided that the interest plus costs also to be retained by the plaintiff. The interest ordered in that case was K35,940. What was due to the plaintiff was a sum total of K139,440.00 plus costs. 

This claim would have been a hard fought case, however, unfortunate as it was, Ray Vaea Lawyers did not appear and the case was heard ex parte in the absence of the defendants despite a defence being filed. Although the defendants’ defence was not argued, I think there is no rule of law saying that I should not mention in passing what the defence say generally. In any event this is a court of law and I am required by law to consider the evidence as presented to me. The defence in general as contained in the defence filed on 29th March 1996, is that the first defendant was illiterate and he did not fully understand the terms of the contract in particular the terms about 25%. What the first defendant understood was a sum of K25,000.00 orally agreed to in 1994.

The issue really is whether or not the agreement was fair and reasonable having regard to the complexity of the matter, the time and skill involved and the scale of costs that might be applicable. What is obvious is that the plaintiff is a lawyer claiming for a contingency fee agreement purportedly entered into between him and the first defendant. The lawyer claims damages for professional services rendered to his client way back in 1995. The first requisite of a contract is that the parties should have reached an agreement. It is often said that an agreement is made when one party accepts an offer made by the other. When the terms of a contract are agreed upon, a contract is created.

The plaintiff in the current case claims that the contract he entered into between the two defendants had been breached. A breach of a contract is committed when a party without lawful excuse fails or refuses to perform, or performs defectively or incapacitates himself from performing the contract. Thus, failure or refusal to perform a contractual promise when performance has become due is prima facie a breach. Two points worth mentioning. First, is whether the party alleged to be in breach has indeed made any promise to perform? In a case of a unilateral contract where a party promises to perform, but has not kept his promise. The second point is that in a unilateral contract failure to perform is not a breach if that condition agreed upon has not occurred: Trans Trust S.P.R.L. v Danubian Trading Co. [1952] 2 QB 297: see also G.H. Treitel "The Law of Contract" (5th ed) 628.

The plaintiff is a lawyer and conduct of his services is governed by the Lawyers Act of 1986 as amended to date. His conduct is also governed and regulated by the Professional Conduct Rules of 1989. A lawyer is allowed to recover costs in an action where a client has not paid the lawyer’s remunerations. The practice of taking a percentage of a sum recovered, or to be recovered from contentious or non-contentious business if successful is usually known as "champerty" in common law. In UK the old crimes and torts of maintenance and champerty were abolished by statute in 1967, but a champertous agreement may still be treated as contrary to public policy and so unlawful: Oxford Reference "A Dictionary of Law" 240. In terms of an agreement by a solicitor with a client that the lawyer should receive a specified portion of the money recovered is defined as an agreement by a lawyer to receive payment in the form of a share in the event that the contentious business is successful is regarded as champertous: Haseldine v Hosken [1833] 1 KB 822.

The Constitution makes the operation of common law subject to, or subordinate to an Act of Parliament (see Schedule 2.2 of the Constitution). In other words where common law is inconsistent with an Act of Parliament, the Act of Parliament prevails. Section 62 of the Lawyers Act provides that a lawyer may recover in action costs due to him if a client has defaulted in payment. The above section is in the following terms:

"62.	ACTION TO RECOVER COSTS

(1)	A lawyer shall not bring proceedings to recover costs due to him until the end of a period of one month after a bill of costs has been delivered in accordance with this Act.

(2)	A bill shall contain the particulars required by the Rules of Court.

(3)	.............

(4)	The bill of costs shall: ---

(a)	be signed-

(ii)	by the lawyer, or, if the costs are due to a firm, by one of the members of the firm, in his own name or in the name of the firm; or

(ii)	for or on behalf of the lawyer, or if the costs are due to a firm for or on behalf of the firm, by a lawyer employed by the lawyer or by the firm, as the case may be, or be enclosed in, or accompanied by, a letter that is so signed and refers to the bill; and

(b)	be delivered to the party charged personally, by sending it to him by registered post to, or by leaving it for him at, his place of business, dwelling house or last known place of abode".

The Lawyers Act unequivocally also provides for a lawyer to enter into a written agreement with his client for contentious or non-contentious business done or to be done by a lawyer. This is clear from the terms of s 66 of the Act. It says: ---

"66.	REMUNERATION BY AGREEMENT.

(1)	A lawyer may make a written agreement with his client as to his remuneration in respect of contentious or non-contentious business done or to be done by him.

(2)	An agreement referred to in Subsection (1) - 

(a)	may provide for the remuneration of the lawyer by a gross sum, or by commission or percentage, or otherwise, and at a greater or a lesser rate than that at which he would otherwise have been entitled to be remunerated; and

(b)	may be made on the terms that the amount of the agreed remuneration either shall or shall not include all or any disbursements made by the lawyer.

(3)	If on motion by the client it appears to a Judge that the agreement is unfair or unreasonable, he may---

(a)	reduce the amount agreed to be payable under the agreement; or

(b)	direct that the costs of the business done by the lawyer be ascertained by taxation.

(4)	An agreement -

(a)	subject to Subsection (5), does not affect the amount of, or any rights or remedies for the recovery of, costs payable by the client to, or to the client by, a person other than the lawyer; and

(b)	excludes any claim by the lawyer in respect of the business to which it relates, other than-

(i)	a claim for the agreed costs; or

(ii)	a claim for such costs as is expressly excepted from the agreement".

Apparently by the terms of s 66 of the Act, the plaintiff was entitled to enter into a contract by a gross sum, or by commission or percentage or otherwise. What is not clear is that there is no specific percentage set by the Act. I think it would be unjust for the Act to set a specific percentage because no difference would be placed between a contentious or non-contentious business and obviously no consideration would be had to factors such as the complexity of the matter, the time taken to complete it, and skills involved in the carriage of a matter. I conclude that the plaintiff had the right as he did to enter into a fee agreement contingent on the outcome of the case, but only after a bill of costs has been given to a client and where he refuses to pay.

The next issue I must address and look at is the terms of the contract and ask myself if the terms agreed upon were reasonable and fair in the circumstances of the case conducted by the plaintiff. The parties in this case have expressed their intentions in a purported agreement and which the defendants have denied by their defence filed. There is no way the court can look into the minds of contracting parties, but to look at their intentions by looking at their evidence and their course of dealings and circumstances surrounding an alleged breach. Generally speaking, the parties are bound by whatever representation they make and which they intend to bind them: The Law of Contract by W.T. Major 45-46. Where there are no intentions to be legally bound, the parties are not bound. In this connection, there is no motion before me pursuant to s 66 (3) of the Lawyers Act which requires that on a motion by a client if it appears to a Judge that the agreement entered into was "unfair or unreasonable", I could reduce the amount agreed to be payable under the agreement.

I inspected file WS No. 641 of 1994 to give me an idea of how much work was done by the plaintiff to justify the amount he claims. I must say with respect that the amount claimed is unfair and unreasonable having regard to the nature and complexity of that case. There was no bill of costs presented to this court as required by s 62 (2) of the Lawyers Act which bill should contain particulars as required by the Rules of Court. The "Rules of Court" is interpreted in the Lawyers Act to mean the National Court Rules. Order 22 r 49 of the National Court Rules provides as follows:

"(1)	A bill shall contain particulars of---

(a)	the work done by the lawyer his servants and agents; and

(b)	the disbursement made; and

(c)	the cost claim for the work done

(2)	In every bill the professional charges shall be entered in a separate column from the disbursements and every column shall be cost before the bill is left for taxation".

I am of the view that notwithstanding the provisions of s 66 (1) (2) of the Lawyers Act which seems to me to allow for contingency fee agreements payable to a lawyer as remuneration for either contentious or non-contentious business, my reading of the Lawyers Act, the Professional Conduct Rules and the National Court Rules and the Lawyers Statutory Committee provided for under s 48 of the Lawyers Act, I’m convinced that the Courts are given overriding or supervisory roles to ensure that agreements entered into between lawyers and their clients are "fair and reasonable". That is to say the agreement must be fair in the manner under which such agreement was made. Reasonable, in respect of the amount charged having regard to the usual criteria such as the complexity of the matter, the amount of work involved, the time, the importance of the issues to the client and the normal scale of charges: Ex parte Cathcart [1893] 2 QB 201 per Lord Esher. The concept of charging "fair and reasonable" fees is also embodied in the Professional Conduct Rules of 1986. Clause 18 sub clause (1) (2) (4) and (5) say:

"(1)	A lawyer shall comply with the provisions of the Act with respect to costs and to the operation and maintenance of trust accounts.

(2)	A lawyer shall not claim his costs in a letter of demand for debt or damages or other relief written on behalf of a client unless his client has a right to recover such costs.

(3)	.............................

(4)	A lawyer shall, within a reasonable time after being requested by his client, render a bill of costs covering all work performed for that client to which the request relates.

(5)	A lawyer shall charge no more than is reasonable by way of costs for his services having regard to---

(a)	the complexity of the matter, the time and skill involved; and

(b)	any scale of costs that might be applicable; and

(c)	any agreement as to costs between the lawyer and his client (emphasis added)".

There is I think an unjustified assumption by some lawyers that s 66 (1) (2) of the Lawyers Act would give them the right to enter into contingency agreements. They are allowed to engage and enter into contracts involving percentages that are more than what is reasonable. I do not think the Parliament intended s 66 of the Act to be interpreted that way. I assume that when the 25% was agreed on by the plaintiff and the first defendant, the estimated value of the property and cash damaged were already indicated to the plaintiff. The explanation given by the plaintiff at paragraph (10) of his affidavit is unexplainable and contradicted by paragraph 9. How is the plaintiff going to write off a bill for K25,000.00 or K35,000.00 if the award expected was only in the vicinity of K10,000.00 or K20,000.00? To this court this would be nothing less than unjust enrichment. The contract entered into between the plaintiff and the defendants required that the plaintiff was to retain 25% of the amount to be awarded. By calculation of the award the total due to the plaintiff was some K99,500. The award itself without interest was K398,000. To subtract K99,500.00 from the award would have left the defendants an amount of K298,500. It is not only this, the terms of the contract also provided that the plaintiff was to retain the "interest plus costs". The interest calculated on the award as shown on page 4 of the judgement was K35,940. By construction of the terms of the purported contract, the plaintiff is claiming a total sum of K125,440.00 plus costs. In my view this amount is unfair and unreasonable in all the circumstances of this case. Or to put it another way, was the contract entered into by the plaintiff and his client fair and reasonable? The terms of 25%, the interest plus the costs are quite unfair and unreasonable. Had the first defendant been fully alert and picked up the trick about the three components, he would certainly have refused representation by the plaintiff. The dealings of the plaintiff being a lawyer also borders on a possible referral to the Law Society. I must therefore, refuse this claim and direct that the costs of the business done by the plaintiff be ascertained by taxation. Cost shall follow the event.

Lawyer for plaintiff: Messrs Peraki Lawyers.