National Court of Papua New Guinea

A. K A. Kwimberi for the Plaintiff/Respondent

J. Naipet for the Defendant/Applicant

RULING

(Application to dismiss proceedings)

10th June 2004

Davani .J: This is an application by way of notice of motion filed by the defendant/applicant’s (‘applicant’) lawyers on 2nd February, 2004, seeking orders that the plaintiff’s claim be struck out pursuant to O. 12 R. 40 (1) of the National Court Rules (‘NCR’), that the claim be dismissed for disclosing no reasonable cause of action. The application is supported by the affidavit of Judy Naipet, of Posman Kua Aisi Lawyers, sworn on 31st March, 2004. The plaintiff opposes the application.

Although the defendant seeks that the proceedings be dismissed pursuant to O. 12 R. 40 (1) of the NCR, in her written submissions, Ms Naipet refers to a dismissal of the proceedings relying on O. 12 R. 40 of the NCR. In argument presented by both counsel, I note that both in opposing and in seeking orders, that arguments were focused on a dismissal of the action for proceedings being frivolous and vexatious, for there being no cause of action and for being an abuse of the court’s process. I find that neither party has been misled in this application and will consider this application based on submissions by both counsel that proceedings be dismissed pursuant to O. 12 R. 40 of the NCR.

Cause of Action

The plaintiff commenced the action by way of Writ of Summons and Statement of Claim where he sought payment of his outstanding legal costs in the amount of K491,644.00 together with interest at 8% per annum. In making that claim, the plaintiff relies on a written agreement between the applicants and him for the applicants to pay his legal fees at K250.00 per hour and because the plaintiff failed to honour that agreement, that the defendant now seeks relief from the court for an order that the defendants pay him his outstanding legal costs, bills he had issued for work done during the period 24th October, 1995 to 18th October, 2000.

The applicants in their Defence plead that the plaintiffs several memorandum of costs are not in taxable form as required by s. 62 of the Lawyers Act of 1986 and O.22 of the NCR and that on that basis, the plaintiff’s claim does not disclose a cause of action and should be dismissed.

The motion

The plaintiff submits that by written agreement of 9th February, 2004, between the defendant and him, the defendant agreed to pay his outstanding legal costs of K491,644.00. The plaintiff submits that this was agreed to and a resolution reached at a meeting of the defendant incorporated land group on 2nd September, 2003.

The applicant, relying amongst others, on the case Jack Livinai Patterson v. National Capital District Commission N2145, judgment of Kandakasi .J of 5th October, 2001, submits that the requirement of s. 62 (2) of the Lawyers Act had not been met in that the lawyer must firstly submit his costs in taxable form and to notify his client of the client’s right to ask for taxation of the bill of costs. In the Patterson (supra) case, the court dismissed the plaintiff’s claim as disclosing no cause of action, because he had not presented his bill of costs in taxable form and had not notified his client of his right to ask for taxation of the bills of costs.

S. 62 (1) (2) of the Lawyers Act states;

"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."

S. 1 of the Lawyers Act defines the "Rules of Court" to mean the Rules of the National Court. It follows that a lawyer's bill of cost should contain particulars required by the National Court Rules.

O. 22 of the NCR deals with costs. It provides how a bill of costs should be prepared and taxed. O. 22 R. 49 provides that a bill of costs must contain particulars of the work done by the lawyer whose bill it is, his servant or agent together with disbursements and the amount of costs of claim of each item. O. 22 R. 49 (2) of the NCR provides that each item of costs or disbursement must be set out separately in separate columns with provisions for taxed off and allowed items.

Mr Kwimberi for the plaintiff submits that pursuant to s. 11 (1) (2) of the Frauds and Limitations Act of 1988 that if part-payment is made in respect of a debt or other liquidated pecuniary claim, that it binds all persons liable in respect of that debt or liquidated pecuniary claim. But the Frauds and Limitations Act relates only to transactions that must be or be evidenced in writing and the limitation period for the bringing of actions or for related purposes. These transactions are land transactions, Guarantees, Part-payments, Acknowledgements, Endorsements, etc. There is no reference to bills of costs in that act. In any event, a lawyers bill of cost is unique in that its drafting and issuance is governed by the Lawyers Act and the NCR, a very prominent characteristic being its ability to be taxed, a major difference from the transactions referred to in the Frauds and Limitations Act. I find that Mr Kwimberi’s submissions are misconceived in that respect.

Ms Naipet further submits that the plaintiff should have advised the defendants that they were entitled to have their bill of costs taxed. The plaintiff did not do that. Mr Kwimberi however submits that the defendants are familiar with the functions of a legal firm in that they have been involved in negotiations with lawyers and various companies ever since their incorporation and that this goes back several years. However, all lawyers have a responsibility and a duty in ensuring that their clients, regardless of how sophisticated or educated they are, must be informed of this avenue and possibility at all times. His Honour Kanadakasi .J referred to the case of Marsh v Haye [1981] PNGLR 392 in the Patterson (supra) case, where His Honour Pratt .J in reference to s. 29 of the Legal Practitioners 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) case that a segment of costs in a narrative form is not a bill of costs in taxable form. Having said that, I refer to the bills of costs submitted by the plaintiff to the defendants for payment which are attached to his affidavit sworn on 23rd January 2004. His bill to the defendant of 9th April 1999 refers, amongst others, to receiving instructions on the 24, 25, 26, 27 October 1995 where he spent 1 hour, 8, hours, 9 hours and 9 hours respectively "to our receiving instructions" and to which he charged K250.00, K2,000.00, K2,250.00, K2250.00, and K2250.00 respectively. I find on perusal of those 4 items that the plaintiff has not specified the kind of work he undertook notwithstanding his description of that work to be "to receiving instructions", which is very vague. In fact he continues with a similar narrative for the next 8 pages at the end of which he charges K236,410.00. It is the same for the next 2 bills he issued where he charges K692,041.00 and K836,950.10.

Mr Soi’s affidavit sworn on 29th April 2004, deposes to the history of his legal representation of the defendant. He deposes that the agreement to pay legal costs is a "remuneration by agreement" which is provided in s. 66 of the Lawyers Act. This provision states;

"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.

..."

Even if there is an agreement to pay, should the client still pay where the lawyer has not yet issued a bill in taxable form or where the client was not advised by his lawyer that his bill can be taxed and that this avenue is available to him? S. 66 (3) (b) of the Lawyers Act is on point in that it provides that if it appears to a judge that the agreement is unfair or unreasonable, he may direct that the costs of the business done by the lawyer be ascertained by taxation.

I refer to the agreement to pay of 9th February, 2004 which states that the balance of the legal costs outstanding of K491,644.00 shall be settled by the client by payment of 10% instalment payments from its 5% share royalty and equity benefits from Gobe Petroleum Project from Mineral Resources Development Corporation at every payout by Mineral Resource Development Corporation throughout the duration of the project until the full and complete settlement of the outstanding balance (see clause 5 and 6 of the agreement). The agreement states further that it will not be terminated without the Solicitor’s consent and that the agreement is to take effect immediately upon execution. (see clause 9 and 11 of the agreement). The agreement states further that it will be interpreted according to the laws of the Independent State of Papua New Guinea and that parties will submit to the exclusive jurisdiction of the Courts of the Independent State of Papua New Guinea for adjudication of any matters arising out of their relationship. (see clause 10 of the agreement). The agreement also states that the client or the defendant has agreed to settle the sum of K868,000.00 being the plaintiff’s costs and disbursement. (see clause 4 of the agreement). I should also state that the plaintiff is aware that the defendant is entitled to 5% share of the equity and royalty benefits from the Gobe Petroleum Project pursuant to a ministerial determination published in the National Gazette No. G102 dated 24 June 2002 (see clause 3 of the agreement).

Nowhere in the agreement does the plaintiff refer to the defendant’s option to have his costs taxed if he is not in agreement. I consider that to be most unfair under the circumstances. As was held in Tolom Abai and Others v the State N1762, Woods .J said;

"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 on 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. A client cannot agree to unreasonable or unnecessary costs where the client knows that a third party is to bear those costs."

In this case, the agreement is to the effect that MRDC will pay the plaintiff directly. But it must firstly be the role of the court and the officers of the court to consider the reasonableness of the amounts charged (see Tolom Abai (supra)). In this case, the defendant has signed an agreement to pay bills of costs, which he now considers to be excessive. As held in Tolom Abai (supra), a client cannot agree to unreasonable or unnecessary costs where the client knows that a third party is to bear those costs.

Another case on point is the matter 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 read;

"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."

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."

In that case, the court held 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 (K1.52m) 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.

In the Patterson (supra) case, there was no agreement to pay legal costs as in this case and the Yapao Lawyers (supra) case. However, because the bill of costs were not taxed in accordance with s. 62 of the Lawyers Act, the court found that Mr Patterson had no cause of action. The court held that "a client is entitled to know from time to time how his costs are running on a regular basis, to avoid sudden suspension or termination of such a relationship, because of a build up in costs that might not be paid. This in my view, as of necessity requires the need to advise the client in fairness of a client’s right to ask for taxation of the lawyer’s cost. In order for that right to be meaningfully exercised by a client, it would also be necessary for a lawyer to put his costs in taxable form, hence the requirement in s. 62 (2) and the cases on it." (pg. 25 of Patterson (supra)).

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 a 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 that written agreement does not make reference to taxation of bills of costs, which is contrary to s. 63 of the Lawyers Act.

I too am in agreement with His Honour DCJ (as he then was) and find that although s. 66 (3) (b) of the Lawyers Act provides that the court can order that costs be taxed, I am of the view that there must firstly be a cause of action. That notwithstanding that this action is filed pursuant to a retainer agreement, that the retainer agreement, in its reference to bills of costs to be paid, must also make specific reference to taxation of the bills of costs to satisfy the requirement that clients must be advised of their right to have their bills of costs taxed. In this case, the written agreement is silent on that aspect.

Because the plaintiff filed an action without first issuing the bills in taxable form and without advising the Defendant that his bills could be taxed, I find, that there is no cause of action on which the claim is based.

Orders

These are the orders I make;

1. That the plaintiff’s action be dismissed in its entirety;

2. That the legal costs incurred by the defendants be taxed in accordance with s. 66 (3) (b) of the Lawyers Act;
   
3. The plaintiff shall pay the costs of the proceedings to be taxed if not agreed.

_________________________________________________________________

Lawyer for the Plaintiff/Respondent : Kwimberi Lawyers

Lawyer for the Defendant/Applicant : Posman Kua Aisi Lawyers