Melamed & Hurwitz Incorporated v Goldberg (686/07) [2009] ZASCA 15 (19 March 2009)

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[2009] ZASCA 15
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Melamed & Hurwitz Incorporated v Goldberg (686/07) [2009] ZASCA 15 (19 March 2009)

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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No: 686/07
No precedential significance
MELAMED & HURWITZ INCORPORATED Appellant
and
MARLENE GOLDBERG Respondent
Neutral citation:
Melamed &
Hurwitz Inc v Goldberg
(686/2007)
[2009] ZASCA
15
(19 March 2009)
Coram:
Streicher, Mthiyane,
Lewis, Mhlantla JJA and Leach AJA
Heard:
2 March 2009
Delivered:
19 March 2009
Summary:
Appeal against order that
attorney’s fee be referred to Law Society for determination
dismissed: agreed fee found to be extortionate
and the client
overreached.
ORDER
On appeal from Johannesburg High Court (Bregman AJ sitting as a court
of first instance).
1 The appeal is dismissed with costs.
2 The order of the high court is replaced with the following:
‘
(a) The agreement between the parties as to
payment of a fee of R450 000 to the plaintiff is void.
(b) Within 45 days of the date of this order, the
plaintiff may submit its claim for fees to the Law Society of the
Northern Provinces
for it to assess the fees to which the plaintiff
is entitled.
(c) Once the Law Society has made the assessment
referred to in (b) the matter shall be referred back to the court
below to order
that the fee so determined be paid by the defendant,
and to make the appropriate order as to costs.’
JUDGMENT
LEWIS JA (STREICHER, MTHIYANE, MHLANTLA JJA and
LEACH AJA concurring)
[1] Mr Stephen Melamed is an attorney and a
director of the appellant, the firm Melamed and Hurwitz Incorporated,
Johannesburg.
He was approached in October 2004 by Mrs Marlene
Goldberg, who was being divorced by her husband. She and her husband
had signed
an agreement of settlement. Goldberg was unhappy with it.
She was not sure whether it had been made an order of court or even
whether
it was binding: she wished to enter into a different
agreement, more favourable to her.
[2]
Melamed, over a
period of some seven months, advised her on obtaining a better
settlement. In April 2005 she and her husband entered
into an
agreement more beneficial to her and a divorce was subsequently
obtained. The appellant claimed R450 000 plus VAT from
Goldberg,
alleging that this was an agreed fee. She defended the action on the
ground that she had not agreed to the fee and in
the alternative that
the agreement was invalid as the fee was excessive and amounted to an
overreaching of her. The high court
found that Melamed’s fee should
be determined by the Law Society of the Northern Provinces, and that
once the assessment was
made, either party could approach the high
court for a determination of costs in the action. The appellant
appeals against the
order that the fees be assessed by the Law
Society on the basis that there was no reason for the high court to
interfere with the
agreement reached between Melamed and Goldberg.
The appeal is with the leave of the high court.
[3] The law is clear: an attorney is entitled to
charge for services rendered in an amount agreed by him and the
client. But,
if the attorney has
overreached the client, then a court will not enforce the agreement.
In such a case the court may order that
the attorney have the bill
taxed and suspend the matter pending the determination of the taxing
master. See, for example,
Cape Law
Society v Luyt
1
where an attorney presented an excessive bill to his client and
immediately demanded that it be paid and that the client waive
any
right to a taxed bill: the court held that the attorney had taken
undue advantage of his client. And in
Law Society of the Cape of Good Hope v Tobias
2
the court stated:
‘
An
attorney is not, however, necessarily guilty of misconduct because he
chooses to put an extravagant value on his services. If
the
prospective client is a free agent, if there is neither fraud nor
duress, and no advantage taken of him, then if the client
chooses
voluntarily to agree to an extravagant fee, the
attorney
will not be guilty of misconduct. . . .
The word
“overreach” is defined, insofar as it is relevant to this matter,
as “. . . .circumvent, outwit, cheat in dealing”
(
The
Oxford English Dictionary
1961 vol 7 at 318) or “to outwit or get the better of” (
Chambers
Twentieth Century Dictionary
).
Where an attorney and his fees are concerned, the word “overreach”
may be taken as conveying the extraction by the attorney
from his
client, by the taking by the former of undue advantage in any form of
the latter, of a fee which is unconscionable, excessive
or
extortionate, and in so overreaching his client that attorney would
be guilty of unprofessional conduct.’
See also
Chapman Dyer
Miles & Moorhead Inc v Highmark Investment Holdings CC
3
and
Mnweba v Maharaj
4
where these principles are restated.
[4]
Goldberg pleaded
that she had not agreed to pay Melamed R450 000, alternatively that
the agreement sought to secure for Melamed
a special advantage to
which he was not entitled; and again in the alternative that the
amount claimed was excessive for the services
rendered and thus
amounted to overreaching. She counterclaimed for damages for
defamation since Melamed, writing to her new attorney,
asserted that
she was an unmitigated liar. The high court found that the
publication was privileged and dismissed the counterclaim.
There is
no appeal against this finding.
[5]
Bregman AJ did not
expressly find that there was in fact an agreement that Goldberg pay
Melamed the fee he claimed, but the parties
accept that such a
finding is implicit in his judgment and Goldberg does not contest the
correctness of this finding. Nor did he
find that there had been
overreaching, or that the fee claimed was excessive: indeed he
expressly left the question open. Yet,
after a very lengthy
examination of what Melamed purported to have done for Goldberg, and
his own estimate of how long it would
have taken, the learned acting
judge ordered that Melamed’s fee be assessed by the Law Society.
[6]
Without a finding
that the agreement was void, the client having been overreached, or
for another reason, the order that the fee
be referred to the Law
Society is inexplicable: there is no basis for interference with the
agreed fee absent such a finding. The
appellant’s argument on
appeal is thus that the order of the high court was wrong, and that
the agreement is enforceable.
[7]
The only question
before this court, therefore, is whether Melamed in fact overreached
Goldberg, such that the agreement was invalid.
In answering that
question it is necessary to consider, briefly, the background to the
agreement.
[8]
As I have already
mentioned, Goldberg and her husband had signed an agreement in
anticipation of a divorce. Both were represented
by attorneys. She
was nonetheless unhappy with its terms, particularly since it made no
provision for a lump-sum payment to her
after the divorce and she
regarded the maintenance payable as insufficient. She arranged a
consultation with Melamed, and asked
him to establish whether the
agreement had been made an order of court (her husband had not yet
issued summons for divorce but
Goldberg was obviously unaware of the
niceties of legal processes), and whether a new agreement could be
negotiated.
[9] During the course of this
consultation Melamed phoned Mr Goldberg’s attorney and ascertained
that the divorce proceedings had not yet commenced and the
agreement
had thus not been made an order of court. Melamed testified that at
the first consultation he had discussed with Goldberg
the question of
his fees: he advised her that he usually required a deposit of
between R30 000 and R50 000, and that his hourly
rate was R2 500.
When she said that she did not at that stage have the funds to pay,
he offered to waive the deposit and to determine
a fee after the
negotiations had run their course. She agreed. He explained the
possible courses of action that might be taken
to achieve a better
settlement for her, and their cost implications. She realized, he
said, that the process would be expensive.
She offered (he claimed
but she denied), to pay him ten per cent of the total settlement she
received. But having regard to the
extent of her husband’s assets
(or, at least, what she thought that might be), he advised her that
that might be excessive. He
would wait to see what transpired. Mrs
Santin, Melamed’s secretary, sat in on this consultation and all
others save one.
[10]
I do not consider
it necessary to discuss in any detail the work that Melamed testified
he had done for Goldberg. Suffice it to
say that he consulted her,
wrote several letters, had telephone conversations with an
accountant, and spoke to her regularly on
the telephone (she phoned
him frequently and often arrived at his office to see him, despite
having no appointment, he said). He
spent some time advising her how
best to negotiate directly a better settlement with her husband. But
he could not even estimate
how much time he had spent on the matter.
I shall revert to Melamed’s inability to estimate the number of
hours he had spent
dealing with the Goldberg settlement agreement.
[11]
Goldberg denied
that he had spent as much time as he claimed on her matter, and
insisted that she had done the work necessary to
make her husband
agree to a more generous settlement. It is impossible, on the
evidence presented to the high court, to assess
how much time Melamed
actually spent. When cross-examined, and despite asserting that he
spent ‘vast vast hours’ in her service,
he could not even say
whether he spent about 12 hours consulting with her. He did not keep
a record of all consultations, phone
calls made on her behalf or
phone calls that she made to him. No record was necessary, he said,
because they had agreed a fee (although
even this was in conflict
with his evidence that the fee had been agreed only after her husband
had signed a settlement agreement
on her terms). Santin, who
testified for the appellant, also could not say precisely what work
had been done or how much time it
had taken. She too kept no records.
[12]
On 1 April 2005 the
Goldbergs reached a further settlement agreement. This time, Mr
Goldberg undertook to pay a lump sum of R5m
to Goldberg on the
divorce, in addition to the payment of maintenance in the sum of R50
000 for Goldberg (additional maintenance
was payable for their two
daughters) and the transfer of his share of the matrimonial home to
Goldberg. Moreover, Melamed testified,
as a result of his advice to
Goldberg, she had secured an undertaking, not reflected in the
written agreement, that her husband
pay her a further R40 000 to R50
000 a month in cash. She denied that there was such an undertaking or
that she had ever received
the additional maintenance, in cash or
otherwise, but nothing turns on this.
[13]
The circumstances
under which the fee agreement was reached are significant. Melamed’s
evidence, confirmed by Santin, was to the
following effect. On 1
April Goldberg came to Melamed’s offices to sign the settlement
agreement that her husband had already
signed. Goldberg was delighted
with the settlement: she appeared to be euphoric. She exclaimed that
she loved Melamed. He asked
her what he should charge for having
helped achieve such a generous settlement.
[14]
He suggested
payment of R450 000 plus VAT. She asked if that was not ‘steep’.
He reminded her that she had initially offered
to pay 10 per cent of
what she was promised over and above that which her husband had
formerly agreed to give. (The fact that R450
000 amounts to almost 10
per cent of the additional sum that Goldberg was to be paid under the
new agreement does not seem to have
occurred to Melamed who had been
so assiduous not to claim ten per cent of a large amount.) And he
reminded her that she had paid,
over the course of seven months, only
about R14 000 and had paid no deposit. What he had done was worth
R450 000, he told her.
And she responded that he was right.
[15] Nonetheless, immediately after this
discussion, Goldberg asked Santin whether the fee was appropriate and
was told that it
was. Santin confirmed this version of events. Thus
it is clear that Goldberg had, even on the Melamed and Santin
versions, immediately
had reservations about the fee asked.
[16]
Goldberg, on the
other hand, proffered different versions of what had happened at that
meeting. She denied in court that she had
ever agreed to the fee. Yet
she had told her new attorney (the third) that she had no
recollection of any agreement. Both versions
are in conflict with her
testimony that she had subsequently stalled paying Melamed the R450
000, telling him, when he asked for
payment, that it was in a 32-day
call account. They conflict too with her evidence that she had been
shocked when Melamed asked
for such a large payment. However, as the
high court implicitly found that there was an agreement by Goldberg
to pay the fee charged
by Melamed, and as Goldberg does not appeal
against that finding, it is not necessary to determine which of her
versions is to
be accepted.
[17]
Goldberg
subsequently requested an itemised account, on the pretext that her
bank required it before making any payment to Melamed.
Since Melamed
had not kept records of all consultations or phone calls, he had to
set out the details of the work he had done from
memory. The account
he created, and which the court below was at pains to analyse, bears
no relation to reality and was but a guess
at what was done. So too,
a witness for Goldberg who testified as to usual charges for the work
alleged to have been done, had
to concede that the hours of work and
figures he suggested were speculative – a ‘thumbsuck’.
[18]
In my view it is
not possible on the evidence to determine how many hours’ work was
done and what should be charged. What is clear,
however, is that the
sum of R450 000 is grossly in excess of what a reasonable fee might
be, given that Melamed could not even
say that he had done at least
12 hours’ of consultation work. If Melamed had charged his standard
hourly rate of R2 500 he would
have had to work for some 180 hours to
reach the sum of R450 000. The calculation demonstrates that the fee
agreed is clearly
not just extravagant but excessive. While he was
not bound to charge at his usual rate, and it is open to an attorney
to agree
a fee, the agreed fee should, I consider, bear some
relationship to the work performed. Melamed’s fee clearly does not.
[19]
It remains to
consider whether Goldberg was overreached, such that the agreement
between her and Melamed must be set aside. Goldberg’s
evidence, as
I have said, was that when asked to pay R450 000 she was shocked. She
considered that Melamed had done very little
for her. The agreement
by her husband to settle a capital sum of R5m on her had been the
result of her hard work. She had negotiated
with her husband:
Melamed had not. And she had not visited or telephoned Melamed on a
constant basis. Again, it is not necessary
to determine the truth of
her testimony given that on Melamed’s own version he could not
account for the time that he had spent
on the achievement of a better
settlement for her.
[20]
In my view, the
fact that when Goldberg came to see Melamed to sign the agreement she
was in a state of euphoria, elated by winning
a substantial capital
payment, should have made Melamed wary about exacting an agreement to
pay an excessive fee without waiting
for her to calm down, and before
giving her the opportunity to consider the fee and possibly negotiate
it. She was clearly anxious
about the sum asked, to his knowledge,
for she talked to Santin about it immediately afterwards, and Santin
reported this to Melamed.
I consider that the fee was extortionate
and that Goldberg was outwitted by Melamed – overreached.
[21]
In the
circumstances, the agreement must be set aside, and the claim for
fees should be submitted to the Law Society of the Northern
Provinces
for assessment (neither of the parties contended that the matter
should have been referred to the taxing master and not
to the Law
Society). This means that the appeal must be dismissed, save for one
matter. Bregman AJ made no order that the fee
determined by the Law
Society be referred back to the court for an order that it be paid,
or for an order as to costs. The learned
judge required instead that
either party could approach the court for an order as to costs.
Counsel agree that that part of the
order requires amendment. The
amendment is of no great moment and either of the parties could have
applied to the high court to
amend the order (r 42(b)). The omission
did not warrant an appeal to this court and no cost consequences
should accordingly follow.
[22]
The following order
is made:
1 The appeal is dismissed with costs.
2 The order of the high court is replaced with the following:
‘
(a) The agreement between the parties as to
payment of a fee of R450 000 to the plaintiff is void.
(b) Within 45 days of the date of this order, the
plaintiff may submit its claim for fees to the Law Society of the
Northern Provinces
for it to assess the fees to which the plaintiff
is entitled.
(c) Once the Law Society has made the assessment
referred to in (b) the matter shall be referred back to the court
below to order
that the fee so determined be paid by the defendant,
and to make the appropriate order as to costs.’
_____________
C H Lewis
Judge of Appeal
Appearances:
For the Appellant: S P Pincus
Instructed by: Melamed & Hurwitz Incorporated
Johannesburg
Rosendorff, Reitz & Barry
Bloemfontein
For the Respondent:  L Hollander
Instructed by: Gavin Morris Attorneys
Johannesburg
Hill McHardy & Herbst Incorporated
Bloemfontein
1
1929 CPD 281
at 290.
2
1991 (1) SA 430
(C) at 434G-435C.
3
1998 (3) SA 608
(D) at 611C-612F.
4
[2001] 1 All SA 265
(C) at 274i-278h.