Ways for lawyers to cope with costs disclosure defaults

Under Victoria’s Legal Profession Act, 2004 the most apparently draconian consequences follow for the slightest non-compliance with any of the elaborate pre-retainer disclosures required to be made by solicitors. Under s. 3.4.17, if the lawyer has not disclosed something required by the relevant bit of the Act to be disclosed:

  • the client ‘need not pay the legal costs until they have’ been taxed as between solicitor-client in the Supreme Court, generally at the solicitor’s expense;
  • the solicitor ‘may not maintain proceedings … for the recovery of legal costs’ until the end of such a taxation; and
  • the client ‘may apply … to set the costs agreement aside’.

In Dennis v Cameron [2007] NSWCA 228, the New South Wales District Court and its Court of Appeal unanimously decided a case about failures to disclose various things in a bill of costs (and by operation of NSW legislation, the result was that no suit could be brought on it for recovery of fees claimed in it). If the case is followed in Victoria and extended to pre-retainer costs disclosure defaults, some balance might be introduced into the unprecedentedly strict regime introduced on 12 December 2005, which I reckon the profession is just beginning to feel the bite of. I was in VCAT’s Legal Practice List today battling over my solicitor client’s bill of costs, and she was certainly complaining. The decision suggests that:

  • the defects may be waived by the client, after which he or she will be estopped from relying on them (at [39] having cited In re Gedye (1851) S.C. 20 L.J. Ch. 410);
  • little compromises in relation to outstanding fees may amount to fresh contracts which may be sued on even if the original bills could not, so that the subsequent suit is not ‘to recover legal costs’ but is for breach of the compromise, and so is not barred by the prohibition on maintaining such suits before completion of a taxation (trial judge’s judgment, see Court of Appeal’s judgment at [22], citing Koutsourais v Metledge & Associates [2004] NSWSC 313; and
  • it is unnecessary to disclose to a client that which he already knows (at [46], citing Hogarth v Gye [2002] NSWSC 32 at [25].)

The decision is a wake up call to the profession which tends to be unable to focus on anything other than the legislation. But the legislation is not a code. A costs agreement remains a contract, and all the law that flows around contracts — including equity — can be brought to bear, to the extent not inconsistent with the legislation. There is a lot of law about retainers and costs agreements, and it can be worth looking up (undoubtedly the best place to start is Dal Pont’s Law of Costs in Australia). There is also much room for original thought by those who have a good grip on the law of obligations.The plaintiff barrister sued a solicitor for roughly $80,000 in unpaid fees. The solicitor defended on the basis that the bill did not comply with the legislative requirements for bills, and that made it void, a nullity, which the solicitor was free to disregard. He lost.

The barrister had sent some bills in the form of unsigned memoranda of fees under cover of a signed covering letter. The solicitor requested the barrister to make some alterations which resulted in lower amounts billed for. He did, and faxed amended unsigned bills to the solicitor. The decision proceeded on the basis that there was no signature on what was faxed. By February 2001, payment was well overdue. The solicitor asked the barrister to accept a further deferral of payment until the client subdivided and sold a property, saying if he accepted the request, the clients would pay interest. The solicitor said he had a mortgage over the property, which he did not. 3 months after the sale of the property, the barrister found out about it, and the absence of any mortgage. He sued for the total of the amended bills.

The court said the fact that the amended bills did not comply with a mandatory legislative requirement that they be signed by the barrister was only half the story. The original bills were signed. The alterations were made in favour of the solicitor at his request. Other than those alterations, the bills were the same. No complaint was made about the amount of the fees. Hoeben J said at [34]:

‘In those circumstances his Honour was correct in looking at the whole of the circumstances surrounding the delivery of the memoranda of fees by the barrister to the solicitor and in concluding that, taken as a whole, the memoranda of fees complied with the provisions of [the legislation].’

Defects may be waived

Anyway, his Honour said, the person who receives an unsigned bill is entitled to treat it as a nullity. If he waives the defect constituted by the lack of signature, he has made an election to that effect and is thereafter estopped from denying the validity of the bill: In re Gedye (1851) S.C. 20 L.J. Ch 410. Here, the solicitor had elected to ignore the fact that the amended bills were not signed. He did so by inviting the barrister to forebear from suing for the fees on the promise of payment with interest from a fund secured by a mortgage held by the solicitor.

Hoeben J said at [35] the purpose of the legislative requirement that a bill of costs be signed by the barrister is ‘to protect the recipient of the bill of costs by having the party claiming costs acknowledge clearly that he or she accepts responsibility for its contents.’

Suit for breach of interim compromise of indebtedness not a ‘claim to recover legal costs’

The Court of Appeal said:

‘Applying the decision of this Court in Koutsourais v Metledge & Associates [2004] NSWCA 313, [the trial judge] concluded that the agreement of February 2001 was sufficiently different to the memoranda of fees that proceedings based upon it could not be properly characterised as proceedings for the recovery of costs.’

Accordingly, the trial judge said, it was neither here nor there whether there had been some technical non-compliance with the costs disclosure regime. The Court of Appeal neither approved nor disapproved of this reasoning.

No duty to disclose what recipient already knows

The Court noted that the barrister had been regularly briefed by the solicitor for ‘some years’ before the relevant brief, which itself lasted about 3 years, during which the barrister rendered 4 bills. The Court figured it was a bit rich for the solicitor to complain about an absence of writing on the bill which complied with this requirement:

‘(h) The facts relied on to justify the costs charged by reference to the above, the practitioner’s skill, labour and responsibility, the complexity, novelty or difficulty of the matter, the quality of the work done or any other relevant matter’.

The Court said at [46]:

‘the relationship between the barrister and the solicitor was such that there was no obligation of disclosure as between them. In Hogarth v Gye [2002] NSWSC 32 at [25] Bryson J said:

“… In any event it is quite clear that, in another context, Mr Gye did disclose the relevant matters to Mr Hogarth in August 1997 in unrelated business of Ensile Pty Limited, Mr Hogarth being the channel for instructions and the controlling mind of the companies to which the bills of cost were rendered. An obligation to make a disclosure does not require the communication of any information to a person who is aware of the matter supposedly to be disclosed. Mr Hogarth was made aware of these rights in August 1997 before any costs in the Walker litigation were incurred.”’

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