Here’s why you should comply with the costs disclosure regime

Quaresmini v Crouch & Lindon (a firm) [2010] FMCA 750 is a salutary tale. The lawyers did some work back in 2007. They sued the client for their unpaid fees and in 2009 got a default judgment having applied successfully for substituted service. Then in 2010, they bankrupted the client. 3 weeks out of time, without any adequate explanation for his delay, the client applied for a review of the decision to bankrupt him, saying that he wanted to apply to set aside the default judgment of which (along with the suit for fees) he had been unaware.

Because the pre-requisites to a suit for fees were not pleaded by the lawyers in the suit for fees, and because they put on no evidence in response to the application for an extension of time that those prerequisites had been satisfied, the Federal Magistrate considered that the client had a sufficiently arguable defence to set aside the bankruptcy to enable him to apply to set aside the judgment.  The prerequisites not pleaded or deposed to included the obligation to provide a written notice together with a bill outlining the methods and time limits for challenging it, and identification of the basis (whether in the bill or in the statement of claim) of the claim for the fees — costs agreement, scale or a fair and reasonable charge.  It may well be that the solicitors are back to square one, the provision of a lump sum bill which complied with the Legal Profession Act, 2007 (Qld).  There are similar provisions in Victoria.  The Federal Magistrate said:

’17. … Section 331 of the Act provides that a bill must include or be accompanied by a written statement that sets out certain matters. There is no evidence before me that the bill in this case was accompanied by a statement under s.331.

18. It is clear from s.329(1) that a law practice’s entitlement to sue is dependent upon the law practice giving to the person said to be liable on the bill, a bill “under sections 330 and 331.” There is reason then to suspect, although I make no finding about it, that the solicitor’s right to sue in respect of the second tax invoice, may not have been made out because the relevant tax invoice could not be said to be “a billunder sections 330 and 331.”

19. There is another issue that arises in respect of the second tax invoice. Section 319 of the LPA provides that, subject to Division 2, legal costs are recoverable on one of three bases. The first is under a costs agreement between the law practice and the client and made under Division 5 of the Act. The second, if there is no costs agreement between the law practice and the client, is according to an applicable scale of costs. And third, if there is neither a client agreement nor an applicable scale of costs, then the recoverable costs are calculated according to the fair and reasonable value of the legal services provided.

20. The second tax invoice in this case does not disclose the basis upon which it has been calculated.  The statement of claim that was issued in the Queensland Magistrates Court to sue on the bill, does not disclose the basis upon which the costs have been calculated.  In fact, not only does the statement of claim not set out the basis upon which the costs have been calculated, it does not plead, as a fact, the necessary elements entitling the solicitors to sue under s.329(1).  That such a pleading point is significant is demonstrated by the judgment of Wilson FM in Chadwick Lawyers v McMullan (2009) FMCA 992, particularly at paragraphs [25] – [27].

24. In those circumstances it seems to me arguable that there is reason to be concerned that there is in truth, a debt due and owing to the petitioning creditor.  The solicitors’ entitlement to sue for the value of each of the tax invoices is, on the material before me, indeed on their own material, in doubt.’

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