Stephen Warne on professional negligence, regulation and discipline around the world

The Australian Professional Liability Blog random header image

When does the 12 months in which to seek taxation commence?

August 23rd, 2012 · No Comments

In Victoria, solicitors have only a non-extendable 60 days in which to seek taxation of counsel’s fees, but clients have 12 months in which to seek taxation of solicitors’ fees, and clients other than ‘sophisticated clients’ as defined may seek an extension of time in which to apply.  Where the greatest uncertainty exists, in my mind at least, is in the case of suits for taxation by third party payers — non-clients who promise to pay others’ legal fees, and most particularly non-associated third party payers — non-clients whose promise to pay others’ fees is made to the client rather than to the lawyers.  I imagine that solicitors do not generally give bills to non-associated third party payers, such as the mortgagors to whom their clients lend money under documents which require the mortgagor to pay the mortgagees’ costs.  Rather, I imagine that the mortgagees generally just demand a sum from the mortgagor as an adjustment at settlement, and hand over the bill from their lawyers only upon demand.  Yet non-associated third party payers are entitled to seek taxation, and the question is — when does the time in which such a taxation may be applied for begin to run?

I must warn you that the rest of this post is likely to be extremely boring for most people, and understanding it, despite my attempt to state it as clearly as I can, is likely to involve considerable mental effort.

In Viscariello v Oakley Thompson [2012] VSC 351, Justice Ferguson decided a dispute between an individual who guaranteed his company’s obligation to pay the company’s legal fees, and the company’s lawyers.  The individual was presumed for the purpose of argument to be an associated third party payer, which seems like a very reasonable assumption to me. The dispute was about when the time limits commenced.  But the judgment does not resolve many mysteries, because it seems that the company and the director received the bills simultaneously, and though no bills were addressed to the guarantor qua guarantor, since he in fact received the bills at the time the company received them, time started to run from then.

These were the facts. A company retained lawyers.  They rendered bills to the company, which were received by the director. Later, he ceased to be a director and personally guaranteed the company’s obligation to pay the fees, and apparently acted as the company’s solicitor. (Here it is possible to get confused. It seems the company had two solicitors acting: its former director, who was a South Australian solicitor, and the Victorian solicitors whom the company engaged through the agency of the South Australian solicitor.)  The lawyers rendered more bills to the company, which it seems were still received by the director, possibly in his capacity as solicitor for the company.

Section 3.4.38 of the Legal Profession Act 2004 says:

‘(2)        A third party payer may apply to the Costs Court for a review of the whole or any part of legal costs payable by the third party payer.

(5)        An application by a client or third party payer for a costs review under this section must be made within 12 months after—

(a)        the bill was given or the request for payment was made to the client or third party payer; or

(b)        the costs were paid if neither a bill was given nor a request was made.’

The guarantor argued that the 12 months did not commence until both a bill was given and a request for payment was made.  It seems that the argument was put on the basis that the 12 months does not commence until both things are done by the lawyers to the associated third party payer, which required the word ‘or’ in sub-section (5)(a) to be read to mean ‘and’.  Another argument might have been that  where the bill is given to the client but not to the associated third party payer, but a demand is made on the third party payer for payment of the bill given to the client (e.g. by the issue of a writ, as in this case), the 12 months in which the associated third party payer has in which to seek taxation does not commence until the demand is made, which would sound fairly reasonable.  Given the construction given to the word ‘given’ in sub-section (5)(a), though, the distinction probably did not matter in this case, since the man and the company were found to have been ‘given’ the bills at the same time.  ‘Given’ is Legal Profession Act-speak for ‘served’ by the way.

Her Honour held that it was not necessary for the purposes of the running of time in which to seek taxation for the lawyers to have given the bills to or to have demanded payment from the guarantor in his capacity as guarantor.  Some of the bills the guarantor sought to have taxed had been given by the solicitors to the company and paid by it before he agreed to guarantee the company’s legal fees.

The interesting question of whether his receipt of the bills qua director of the company amounted to service on him for the purposes of starting the time in which, qua guarantor, he had to seek taxation, was not resolved because the company had paid the bills more than twelve months before the guarantor sought to tax them, so that sub-section (5)(b) meant that the time for taxation had expired.  Two things follow from this logic:

1.  Upon the first, as opposed to the last, to occur of the events described in sub-sections (5)(a) and (5)(b), the time in which to seek taxation begins to run.

2.  The ‘payment’ referred to in sub-section (5)(b) need not be payment by the applicant for taxation.  Here, it was payment by the client. If the same logic were applied to non-associated third party payers, it could give rise to harsh results. A solicitor might render a series of bills in a lengthy transaction to her client, and the client might pay them promptly. At the end of the transaction, 13 months later, the client might seek reimbursement from the non-associated third party payer with whom it had been transacting. The associated third party payer might consider the bills and the payments outrageous, as they might well be because the client believed it was not ultimately responsible for them.  On this logic, the non-associated third party payer might be deprived of the right to seek taxation of some of the bills before it even knew of them.

Her Honour stated her conclusion in this way:

‘Section 3.4.38(5)(a) does not require that a third party payer be given a bill and be asked to pay before the 12 month time limit for seeking a costs review will start to run.  Rather, time starts to run when either of those events occurs.  It is not necessary for the law practice to give the bills to a third party payer in any particular capacity.  If the bills are given to that person, then time starts to run.’

For the purposes of precedent, the last sentence ought to be read as if it said ‘If the bills are given to that person by the law practice, then time starts to run,’ since the case where the client rather than the lawyers gives the third party payer a bill did not fall for determination.

See also:

Tags: Professional fees and disbursements · Taxations