N2597

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE AT WAIGANI]

WS 211 of 2003

BETWEEN:

EDWARD MANU
trading as MANU & ASSOCIATES LAWYERS
Plaintiff

AND:

HONIRI TIMBER RESOURCES DEVELOPMENT LIMITED
Defendant

Waigani: Davani, .J
2004: 	10, 23 August

Lawyers Costs – Retainer agreement – lawyer must advise client that his bill of costs can be taxed – Lawyers bill of costs shall be in taxable form.
ss. 66, 69 of Lawyers Act.
O. 22 R. 49 of National Court Rules.

Lawyers Costs – Retainer agreement – client ceased to instruct during term of agreement – lawyer should not issue a bill of costs for work not done.
Part IV of Lawyers Act.

Practice and Procedure – Retainer agreement – costs must be taxed if client in disagreement – No cause of action if costs are not taxed.
Part IV of Lawyers Act.

Cases cited:

 Marsh v. Haye [1981] PNGLR 392
 Simon Norum Trading as Simon Norum Lawyers v Daniel Ikio and Komap Trading Pty Ltd N1593 dated 11th July 1997
 Yapao Lawyers v Yaliman Pawe and Others and Pogera River Alluvial Miners Association N1759 dated 18th September 1998
 Jack Livinai Patterson v. National Capital District Commission N2145, dated 5th October 2001 
 Sarea Soi trading as Soi and Associates v. Imawe Kewas Land Group Inc. N2560 dated 10th June 2004
 Tolom Abai and Ors v. the State N1762 

Counsel:
T. Cooper for the Plaintiff
B. Lomai for the Defendant 

DECISION
(trial)

23rd August 2004

Davani .J:	The plaintiff Edward Manu trading as Manu and Associates Lawyers, by its name, is a legal firm operating in Port Moresby. It filed a Writ of Summons and Statement of Claim on 19th February 2003 claiming the sum of K130,000.00 or alternatively the sum of K180,000.00 together with legal costs and interest at the commercial rate of 15% per annum or alternatively 8% per annum pursuant to the Judicial Proceedings (Interest on Debts and Damages) Act Chapter 52.

Evidence and pleadings

The Statement of Claim pleads that the defendant entered into a retainer agreement with the plaintiff, agreement dated 14th November 2000 (‘retainer agreement’), which agreement stipulates that the defendant shall pay a monthly retainer fee of K5,000.00 to the plaintiff over a period of 3 years, equivalent to K180,000.00 being the value of the contract.

The retainer agreement is attached to the affidavit of Edward Manu, the principal of the plaintiff law firm. This affidavit sworn on 9th July 2003 deposes at paragraph 12 that on 17th October 2000, the defendant first issued instructions to the plaintiff firm to review a logging and marketing agreement after which there followed a series of instructions. It was not until 14th November 2000, that both the plaintiff and the defendant then entered into the retainer agreement. In the retainer agreement, the plaintiff is named as the Consultant and the defendant is named as the Company.

According to Edward Manu’s affidavit, upon signing the retainer agreement, the company or defendant agreed to pay the consultant or plaintiff, the amount set out in the schedule being a retainer fee of K60,000.00 annually per year, that this payment is to continue for a period of 3 years commencing on 14th November 2000 and ending on 14th November 2003, to be paid in quarterly instalments of K15,000.00.

Mr Manu deposes in his affidavit that the defendant was sent three invoices for outstanding legal costs in February 2001 and which have been paid. Attached to Mr Manu’s affidavit are copies of memorandum of costs issued by the plaintiff firm totalling K5,611.50. There are two bills of costs dated 18th December 2000 and one dated 16th November 2000. There is also a letter addressed to the defendant dated 6th February 2001 and marked invoice no. 2038 requesting payment of K15,000.00 before the plaintiff could commence a claim against a company.

The plaintiff’s evidence also is that since 23rd July 2001, it had not been briefed or instructed by the defendant.

The defendant filed a Defence and Cross-Claim on 20th May 2003 where it raised the following defences;

1.	That the retainer agreement does not exist;
2.	That if it does exist, that its contents were not explained to the Defendants representatives prior to signing;
3.	That the agreement is in breach of s. 66 of the Lawyers Act;
4.	That the amount charged is grossly excessive considering the very minimal contentious and non-contentious work that was done by the plaintiff for the defendant;
5.	That the plaintiff’s issued bills should have been taxed by the Registrar of the National Court.

Mr Lomai for the defendant, did not pursue the Cross-Claim at the trial.

On perusing the evidence, two issues arise;

1.	That notwithstanding the existing provision in the Lawyers Act 1986 (‘Lawyers Act’) on taxation of bills of costs, that if there is an existing retainer agreement specifying the costs to be paid and when it should be paid, that should a lawyer then issue a bill of costs?

2.	That if a lawyer does not do any work during the period in the balance of the agreement, and the agreement specifically provides for payment during that period, can he or she or the firm still be paid?

I will discuss the both issues together with the evidence.

In support of its defence, Mr Lomai referred the court to clauses 1.3 and 1.4 of the 
retainer agreement which I set out in full hereunder;

"1.3	The Lawyers Conveyancing Cost Rules or any other such similar rules shall not apply in respect to this or any other matter undertaken by the Consultant and the undersigned. The Company acknowledges and agrees that the time expended by the Consultant to perform the legal services for the company in the matter will be the primary basis for determining the total fees to be paid to the Consultant. (my emphasis)

1.4	The Company acknowledges and agrees that although time expended is the major fee determining criterion, ultimately the total and final fees will be based on a more comprehensive measure of the reasonable value of the consultants services. Factors other than the amount of time required, such as the novelty and complexity of the questions involved the skill required to provide proper legal representation, familiarity with the specific area of law involved the preclusion of other engagements caused by the acceptances of the engagement, the magnitude of the matter, the results achieved, customary fees for similar legal services, the nature and length of the consultants relationship with the company, and time limitations imposed by the company or by circumstances which all have a significant bearing on the reasonable value of the services performed. Therefore, the final fees to be charged by the Consultant may be revised upward or downward from the fee amount as calculated on time only, as those listed above, as well as other considerations which may arise during the course of the representation." (my emphasis)

Relying on clauses 1.3 and 1.4 of the retainer agreement and ss. 62 and 63 of the Lawyers Act, Mr Lomai submits that the plaintiff as a lawyer must firstly provide legal services on a time-costed basis for the agreement to then take effect and to issue bills of costs. He further submits that the first part of clause 1.3 of the agreement is unreasonable because it states that the Lawyers Conveyancing Cost Rules or any other similar rules does not apply in the relationship between the plaintiff and the defendant. However, he submits that the latter part of clause 1.3 provides in no uncertain terms that the legal fees to be paid by the company will be based on the time spent by the consultant. In other words, the consultant must issue a bill showing the work done on a time-costed basis.

On my perusal of clause 1.4 of the agreement, I note the acknowledgement by the plaintiff that fees to be charged by the plaintiff company may be revised "upward or downward" calculated on time only. Clause 1.4 also stipulates clearly that the final fees to be charged will be based on other factors, to be revised "upward or downward".

Again, clause 1.4 stipulates that time expanded is the "major fee determining criterion, ultimately the total and final fees will be based on a more comprehensive measure of the reasonable value of the consultant services." The other factors referred to in clause 1.4 that determine the amount of legal fees to be charged are these that relate to the "novelty and complexity" of legal issues dealt with by the consultant which will then determine the final fees to be charged.

I can conclude that clause 1.3 and 1.4 of the retainer agreement are the primary basis on which to determine the total fees to be paid to the consultant.

However, Mr Cooper for the plaintiff submits that the plaintiff need not issue a bill of costs because the arrangement between the plaintiff and the defendant is governed by ss. 66 and 69 of the Lawyers Act. This section reads;

"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."

Mr Cooper further submits that the plaintiff’s costs need not be taxed, as is the requirement under s. 69 of the Lawyers Act which states that. This section reads.

"69.	EXCLUSION OF TAXATION BY AGREEMENT

Subject to Sections 67 and 68, the costs of a lawyer in a case where an agreement has been made under Section 66 are not subject to taxation, or to the preceding provision of this part with respect to the signing and delivery of the lawyer’s bill."

S. 69 of the Lawyers Act is clear in that it is subject to ss. 67 and 68 which are provisions relating to the death of or incapability of a lawyer and change of lawyers. Ss. 67 and 68 of the Lawyers Act reads; 

"67.	DEATH OR INCAPABILITY OF LAWYER

(1)	Subject to subsection (2), where, after business has been done under an agreement made under section 66 but before the lawyer has wholly performed it, the lawyer dies or becomes incapable of acting a party to, or the representative of a party to, the agreement may apply to the Court under this section.

(2)	In the case of an application under subsection (1), the Court has the same jurisdiction for enforcing the agreement as far as it has been performed, or for setting it aside, as it would have had if the lawyer had not died or become incapable of acting.

(3)	The Court may, notwithstanding that it is one of the opinion that the agreement is in all respect fair and reasonable, order the amount due in respect of the business done under it to be ascertained by taxation, and in that case –

(a)	the taxing officer, in ascertaining the amount, shall have regard so far as may be to the terms of the agreement; and
(b)	payment of the amount found by the taxing officer to be due may be enforced in the same manner as if the agreement had been completely performed."

"68.	CHANGE OF LAWYERS

(1)	A client is entitled to change his lawyer notwithstanding that he has made an agreement with him under section 66.

(2)	Subject to subsection (3), section n67 applies in the event of the client changing his lawyer before the conclusion of the business to which the agreement relates in the same manner as it applies if the lawyer dies or is incapacitated.

(3)	Where an order is made for the taxation of the amount due to the lawyer in respect of the business done under the agreement, the Court shall direct the taxing officer to have regard to the circumstances under which the change of lawyer has taken place.

(4)	Where a direction is given under subsection (3), unless the taxing officer is of the opinion that there has been no default, negligence, improper delay or other conduct on the part of the lawyer giving to the client responsible ground for changing his lawyer, he shall not allow to the lawyer the full amount of the remuneration agreed to be paid to him." 

Is s. 69 applicable then? S. 69 of the Lawyers Act must be read subject to ss. 67 and 68 of the same act. This takes me to Mr Cooper’s submissions that under this retainer agreement, the defendant is obliged to pay the sum of K15,000.00 each quarter in one calendar year regardless of whether bills or memorandum of costs have been issued by the plaintiff. In this case, the defendants case may fall within the ambit of s. 68 of the Lawyers Act. However, I find that clause 1.3 and 1.4 of the retainer agreement preclude the application of s. 69 in that the bills of costs, although to be paid at a prescribed rate, must be on a time-costed basis and must be the "…comprehensive measure of the reasonable value of the consultants services…and that the final fees to be charged by the consultant may be revised upward or downward from the fee amount as calculated on time only…". (my emphasis).

On questioning by the court as to whether the arrangement to pay K15,000.00 per quarter without first issuing a bill is reasonable under the circumstances, Mr Cooper submitted that the plaintiff is bound by the terms of this agreement and should pay. Should the court accept these submissions?

It appears Mr Cooper has not considered part IV of the Lawyers Act which provides for remuneration of lawyers and ss. 66, 67, 68 and 69 fall within that part. That part also describes what should be contained in a lawyers bill. 

S. 62 (2) (i) of the Lawyers Act states what should be contained in a lawyers bill of costs. It reads:

"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 the costs has been delivered in accordance with this Act.
(2)	A bill shall contain the particulars required by the Rules of Court.
…"

That provision is mandatory in its terms.

The rules of court referred to in s. 62(2) of the Lawyers Act is defined as the National Court Rules (see s. 1 of the Lawyers Act). O. 22 R. 49 of the National Court Rules being the relevant section, sets out what should be contained in a bill of costs. It reads:

"49.	Bill

(1)	A bill shall contain particulars of –

(a)	the work done by the lawyer, his servants and agents;
(b)	the disbursements made; and
(c)	the costs claimed for the work done.

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

On questioning Mr Cooper as to whether his client issued a bill or bills in taxable form for the amount the plaintiff is claiming, Mr Cooper submitted that this was not necessary because the Retainer agreement only stipulated for a lump sum payment at a given period. Is this provided for under s. 66 of the Lawyers Act? This provision is clear in that the agreement may provide for the remuneration of the lawyer by a gross sum or by commission or percentage or otherwise, etc. and that it may be made on terms that the amount of the agreed remuneration either shall or shall not include all or any disbursements made by the lawyer.

I should remind myself again that s. 66 should be read together with ss. 62 and 63 of the Lawyers Act because they all fall within part IV of the Lawyers Act which is the part on remuneration of lawyers. S. 62 states in no uncertain terms that 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. And the bill of costs must be in accordance with O. 22 R. 49 of the National Court Rules. The effect of s. 62 on s. 66 is that although there may be a retainer agreement as to how and when a lawyer’s costs will be paid by his client, that this arrangement is always subject to s. 62 of the Lawyers Act.

In Marsh v. Haye [1981] PNGLR 392 which is cited in Jack Livinai Patterson v. National Capital District Commission N2145 judgment of Kandakasi .J of 5th October 2001, his Honour Pratt .J, with reference to s. 29 of the Legal Practioners Ordinance 1954, then forerunner to the current Lawyers Act, said a client is entitled to demand, receive and have taxed a proper bill of costs in taxable form before being sued for non-payment. His Honour Pratt .J held in the Marsh (supra) that a segment of costs in a narrative form is not a bill of costs in taxable form. In this case, apart from the three bills of costs that had been paid by the defendant, the plaintiff had also issued one other bill for the first quarter of the retainer and which bill is not in the form required by O. 22 R. 49. It is just a letter requesting payment up front but which was given an invoice number. There are no other bills of costs issued by the plaintiff for the balance of the period under the retainer agreement and for the amount the defendant is being sued for.

It is settled law as decided in the Patterson (supra) case that a client is entitled to demand, receive and have taxed a proper bill of costs in taxable form before being sued for non-payment. In saying that, I remind myself of clause 1.3 and 1.4 of the retainer agreement, that bills to be issued must be on a time-costed basis. As was held in Tolom Abai and Ors v. the State N1762 judgment by Woods .J and which I relied on in Sarea Soi trading as Soi and Associates v. Imawe Kewas Land Group Inc. N2560 dated 10th June 2004:

"O. 22 R. 25 by making reference to the concept of unreasonable amount is clearly giving the authority to a taxing officer and the court to consider reasonable debt of amounts charged when the costs come to a taxation. Where it is submitted that the client has agreed to an unreasonable amount it must still be open to the taxing officer and an officer of the court or to the court itself to look at the agreement with the client and ascertain the reasonableness of the amount charged under ordinary taxation principles. And further where the client is not himself going to pay the amount but the third party is, for whatever reason, going to pay the amount then it must be incumbent on the court and officers of the court to consider the reasonableness of the amount in the bill…." 

Another case on point is Yapao Lawyers v Yaliman Pawe and Others and Pogera River Alluvial Miners Association N1759 judgment of Kapi DCJ as he then was, handed down on 18th September 1998. In that case, the plaintiff, a legal firm, filed a Writ of Summons and Statement of Claim against the defendant, for legal fees for legal work performed in connection with compensation claims against the Pogera Joint Venture companies in relation to environmental damage done to the Pogera River system as a result of the operation of the Pogera Gold Mine. The plaintiff obtained a default judgment for costs to be assessed. The matter went before the Deputy Chief Justice for assessment of costs where the court had to consider whether the amount claimed was proper. The amount claimed was in accordance with the terms of agreement entered into between the plaintiff and each of the landowners in the defendants association. The court in that case set out extracts of the agreement a part of which reads:

"I agree that, unless the legal fees for Messers Yapao Lawyers are further negotiated they will be paid 10%, of once only compensation package, at settlement which shall be calculated from backdated payment including, the initial lump sum payments as agreed by the Pogera River Alluvial Miners Association."

In that case, the plaintiff claimed 10% of K15,243,415.00 in accordance with the agreement. His Honour held that lawyers may claim legal fees in accordance with the terms of the agreement as provided under s. 66 of the Lawyers Act. The court said:

"It is clear from s. 66(2)(a) that it is permissible to enter into a contingency fee arrangement in an agreement. Such a fee is subject to the supervisory power of a judge who may inquire into whether the fees are unfair or unreasonable (s. 66 (3)). A client may by motion bring the matter before a judge to determine this issue. In the present case, the defendants have not made such an application.

Is it open to this court in assessing the costs to make the enquiry under s. 66 (3) of the Act? Counsel for the plaintiff submits that the court may enquire into the unreasonableness of the fee in assessing the costs. In Simon Norum Trading as Simon Norum Lawyers v Daniel Ikio and Komap Trading Pty Ltd (Unreported Judgment of the National Court dated 11 July 1997, N1593) Lenalia AJ applied the provisions of s. 66 (3) in a case where a lawyer instituted action in the National Court to recover legal costs pursuant to a legal fee agreement.

Under s. 66 (3) the court may reduce the amount agreed to or direct that the costs of the business provided be ascertained by taxation. In order to determine whether or not the fee which has been agreed to is unfair or unreasonable, there must be some evidence of the nature of the business conducted by the lawyer and the amount of fees charged."

The court held in that case that the fees were not itemized in detail and that the proper costs of the business conducted should be accurately assessed. The court found 10% of the total compensation package to be unreasonable. The court in that case held further that in those circumstances, the costs should be taxed to indicate the proper costs to which the plaintiff should be entitled. The court then directed that costs incurred by the plaintiff be taxed in accordance with s. 66 (3) (b) of the Lawyers Act.

S. 62 (1) (2) and s. 63 of the Lawyers Act are clear in that proceeding shall not be brought by a lawyer to recover costs due to him until after the lapse of 1 month after the bill of costs has been delivered in accordance with the Lawyers Act.

The court in Patterson (supra) held that it was unfair for a lawyer to raise ss. 62(1) and 63 (2) of the Lawyers Act without first notifying a client of his right to ask for taxation of his costs and to have them presented in taxable form. The court found that in those circumstances, the requirement of s. 62 (2) of the Lawyers Act had not been met and that Mr Patterson was not entitled to bring proceedings. In this case, the plaintiff is seeking payment under a written agreement. However, although this written agreement makes reference to the assessment of work done on a time-costed basis as in a bill of costs, the plaintiff has only issued three accounts totalling K5,611.50. None have been issued for the K180,000.00 being claimed. Furthermore, the plaintiff has also not advised the defendant that the amount he now claims in legal costs together with the three accounts issued could be taxed. I find that this is contrary to ss. 62 and 63 of the Lawyers Act.

I should also remind myself that s. 66 of the Lawyers Act provides that the written agreement will be in respect of contentious or non-contentious business to be done by the lawyer. The common law makes a distinction between non-contentious and contentious business. Halsburys provides this distinction in its 4th edition, Vol. 44 at para. 141. There are clear distinctions as to how agreements relating to non-contentious and contentious business can be enforced (See Halsburys 4th Edition Vol. 44 paras. 153 to 159). However, s. 66 (2) (a) (b) (3) (4) of the Lawyers Act provides for both contentious and non-contentious work. It provides the mechanism by which a court can deal with and interpret a written agreement that refers to both contentious or non-contentious business. I also remind myself at this time that the retainer agreement is for work to be done that is both contentious and non-contentious, i.e "…legal, consultative and administration services in areas relating to corporate, commercial and environmental law" (see clause 2.B. of retainer agreement).

As to its enforceability, that is clearly provided for in part IV of the Lawyers Act, that a bill must be issued, that it must be in taxable form and that it must go to taxation. As in the Sarea Soi (supra) case, nowhere in the agreement does the plaintiff refer to the defendant’s option to have his costs taxed if he is not in agreement. Under the circumstances, that is unfair. (see Tolom Abai and Ors (supra)).

I share the same views as the former Deputy Chief Justice in Yapao Lawyers v. Yaliman Pawe and Ors and Pogera River Alluvial Miners Association (supra) and find that it is open to this court to make enquiry under s. 66 (3) of the Lawyers Act. This section reads:

"66.	REMUNERATION BY AGREEMENT
…

(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."

In that case, the court directed that the costs of the business be ascertained by taxation.

Conclusion

In the cases, Yapao Lawyers v Yaliman Pawe and Others and Porgera River Alluvial Miners Association (supra), Patterson (supra) and Tolom Abai (supra), the courts did not discuss the consequences arising from a scenario where a lawyer issues a bill of costs under a retainer agreement where he or she had not done any work; the effects of ss. 62 and 63 on s. 66 and s. 69 of the Lawyers Act and vice versa. I have attempted to do this in this judgment with a view to clarifying the false expectations a lawyer may have, that upon the signing of a retainer agreement, that a client is obliged to pay the periodical payments due under that agreement. That is a misconception. It is also clearly unprofessional and unethical in that a lawyer should not under any circumstances issue a bill if he or she has not done work for that period.

In conducting the enquiry as to the reasonableness or not of the bill issued and the amount being claimed in the writ, I find that the plaintiff has not complied with the first mandatory step and that is to advise his client that he is entitled to have his bills of costs taxed, that secondly, he as the lawyer must issue bills of costs for the amount claimed in the writ, in accordance with s. 62 of the Lawyers Act and for this case, in accordance with clauses 1.3 and 1.4 of the retainer agreement. Only then will the court be able to determine the reasonableness of the bill and either reduce the amount charged or refer the bill to taxation.

Therefore, as decided in Patterson (supra) and Sarea Soi (supra), there is nothing on which the court can order that the bills for the amount claimed, be taxed. In other words, there is no cause of action on which to proceed because the plaintiff has not issued bills of costs and the bills, if any, have not been taxed. Hence, there is no cause of action on which to pursue recovery of the amounts outstanding under the agreement.

Lastly, I reiterate and emphasize that it is most improper for a lawyer to issue a bill for work that has not been done. In this case, the retainer is for a period of three years. The only work the plaintiff did was set out in the three bills of costs the defendant has paid for. The evidence is that the plaintiff has not done any work for the balance of the three years. So it cannot ask for the balance without first issuing a bill of costs.

I make the following conclusions as a summary of my discussions and findings. These conclusions apply to a lawyer/client relationship where there is a written agreement on payment of bills and one without a written agreement. These are:

1.	A lawyer must always advise his client that he is entitled to have his bills of costs taxed, if he is not in agreement;

2.	That after taxation, if the client still refuses to pay, that the lawyer can then file court action seeking recovery of the taxed costs;

3.	Where there is a retainer agreement, that the lawyer must always advise his or her client that his costs can be taxed if he is not in agreement and that will then follow by the issuing of bills of costs. If the client is aggrieved by it, then he can refer the bill to taxation;

4.	That it is advisable to include a clause on taxation of costs in the retainer agreement.

5.	If the client ceases to instruct midway during the term of the agreement, that a lawyer cannot issue a bill for the remainder of the period of the agreement, if he or she, has not done any work for the client.

Orders

On that basis and relying on the conclusions reached above, I order the following:

1.	That the memorandum of costs issued by the plaintiff firm, invoice no. 2038 dated 6th February 2001 for K15,000.00 be referred to the Registrar of the National Court for taxation;

2.	That this action be dismissed in its entirety;

3.	That the plaintiff shall pay the costs of the proceedings, to be taxed if not agreed.
____________________________________________________________________
Lawyer for the Plaintiff/Respondent		: Manu and Associates
Lawyer for the Defendant/Applicant		: Lomai and Lomai Lawyers