Client joy to abound in draft national profession legislation’s costs provisions

For a long time after the new national profession legislation is introduced, if it is introduced in its present form, many lawyers are likely to find themselves restricted to charging scale, and not being able to recover their costs until there has been a taxation in the Costs Court, even when they have negotiated a costs agreement.

Reproduced below is that part of the proposed national law regulating lawyers that relates to legal costs.  The whole draft law may be downloaded here, and it is hoped that this will be the final version to be adopted by Victoria, New South Wales, Queensland and the Northern Territory, home to about 85% of Australia’s lawyers.  Truly scary stuff:

  1. There is an obligation that all legal costs be ‘no more than fair and reasonable in all the circumstances’ and that ‘in particular’, they be ‘(a) proportionately and reasonably incurred; and (b) proportionate and reasonable in amount’: s. 4.3.4(1);
  2. A costs agreement will be only ‘prima facie’ evidence that costs disclosed in it are fair and reasonable in that sense: s. 4.3.4(4); and
  3. Non-compliance with any of the costs disclosure obligations will render the costs agreement void: s. 4.3.9(1)(a) and the client need not pay them [on scale…] until they have been taxed as between solicitor and own client.

The first point really introduces into the Act fairness and reasonableness requirements as to the amount billed which presently only apply expressly at the moment of taxation, and which are found in r. 63.61 of the Supreme Court Rules, which says ‘(1) On a taxation of the costs payable to a solicitor by the solicitor’s client all costs reasonably incurred and of reasonable amount shall be allowed.’ The present s. 3.4.44 of the Legal Profession Act, 2004 is more limited in its restraint of billing, in the case of negotiated costs agreements. It says ‘(1) In conducting a review of legal costs, the Costs Court must consider- (a) whether or not it was reasonable to carry out the work to which the legal costs relate; and (b) whether or not the work was carried out in a reasonable manner’: nothing about the reasonableness of the amount billed per se.

Since virtually no lawyers I have anything to do with manage to comply to the letter with the existing not dissimilar costs disclosure obligations, it seems very likely that there will be a lot of retainers in which the client will be able to establish the voidness of the costs agreements.  Lawyers will then be left to seek recovery of their costs on scale, but may not have recorded the information necessary to prepare a scale bill in taxable form which will do justice to the work they have done.  Fun times ahead for costs lawyers!

Compare the situation presently in Victoria where non-compliance with the costs disclosure obligations only [I never thought I would say ‘only’] means that the client need not pay the fees until they have been taxed as between solicitor and own client, and on that taxation, the solicitor is presumptively liable to pay its costs, and the taxed costs are to be discounted by a proportion that reflects the seriousness of the non-disclosure.  Presently, the costs agreement will be disregarded only when it is set aside by VCAT (a jurisdiction which looks to fall away), or where by virtue of a material non-disclosure, it is disregarded pursuant to s. 3.4.44A of the Legal Profession Act, 2004, which has rarely happened. Continue reading “Client joy to abound in draft national profession legislation’s costs provisions”

Misconduct and Costs

I’m giving a seminar on Wednesday: see http://bit.ly/npDJVY.  I’m talking about Misconduct and Costs. The Supreme Court of Victoria’s Costs Judge, Associate Justice Jamie Wood, is talking about best practice in taxations of costs, and Liz Harris, the founder of Harris Costs Lawyers, is talking about costs agreements and risk management.  I think it’s going to be a really good seminar.  Now, I have an offer and a request.  I have two free tickets to give away.  If you would like one, let me know.

As to the request: foolishly, I have promised to tell those attending the answers to the following questions:

  • Is it charging by the hour that stinks or the abuse of charging by the hour?
  • Will fixed fees be any less problematic?
  • For what activities is it permissible to charge time-based fees?
  • Can you charge two clients for one piece of work?
  • When does overcharging become gross overcharging?

There is no clear answer to the third question, except perhaps in the heads of taxing officers, and little commentary that I can find.  If you have any experiences of what is allowed and disallowed in taxations between solicitor and own client (as opposed to taxations between parties on a solicitor-client basis) which are conducted by reference to a costs agreement specifying charges at an hourly rate,  I would be interested to hear them.

Similarly any experiences of costs disputes involving fixed fees.

Victorian Supreme Court takes relaxed approach to conditions for validity of no-win no-fee costs agreements

Legal Services Board v DF [2011] VSC 292 will be of considerable interest to those who draft and work within no-win no-fee retainers. Justice Karin Emerton found that though Victoria’s repealed Legal Practice Act, 1996 implicitly prohibited the charging of uplift fees otherwise than upon a ‘successful outcome’  it was open to parties to provide for the payment of an uplift in circumstances which could not be described, in ordinary parlance, as a ‘successful outcome’, such as where the client terminates the solicitor’s retainer.  Her Honour also found that ‘if you recover any money from your case’ was a sufficient definition of the ‘successful outcome’, finding that objectively construed, what those words meant were ‘if you recover any compensation’, as opposed to costs.  The decision will be of assistance in interpreting the similar provisions under Victoria’s Legal Profession Act, 2004 and the other states’ (South Australia excepted) equivalents.

Continue reading “Victorian Supreme Court takes relaxed approach to conditions for validity of no-win no-fee costs agreements”

Federal Court says Jarndyce v Jarndyce is to be kept front of mind by Costs Courts

For some reason I have agreed to give a seminar on the ethics of billing by the hour, one of those topics so big that I have until now avoided tinkering around the edges of it.  My distinguished collaborators, who will give separate papers at the 7 September 2011 seminar in Melbourne, will be Costs Judge Jamie Wood and Liz Harris, head honcho at Harris Costs Lawyers.  My researches begin here, today, with a look at a recent decision of Justice John Logan of the Federal Court in Queensland who has a few days ago delivered a leviathan costs judgment (Wide Bay Conservation Council Inc v Burnett Water Pty Ltd (No 9) [2011] FCA 661) in which he awarded solicitor-client costs against the applicant in respect of failed allegations of misconduct and said:

‘Some of the language employed in [the scale] in respect of particular items is indeed redolent of a 19th century legal office – “engross” and “folio”, for example. This acknowledged, to approach the subject of how much reasonably to allow in respect of legal costs by recalling the works of Charles Dickens may not, with respect, necessarily be a bad thing.’

His Honour then went on to catalogue judicial diatribes against the billable hour, via a reference to Bleak House: Continue reading “Federal Court says Jarndyce v Jarndyce is to be kept front of mind by Costs Courts”

The limits on Kuek v Devflan articulated

The Court of Appeal has had the opportunity promptly to provide a decision illustrating the limits of its previous decision in Kuek v Devflan Pty Ltd [2011] VSCA 25, which I posted about here.  The opportunity arose in Shaw v Yarranova Pty Ltd [2011] VSCA 55, a unanimous decision of Justices of Appeal Redlich and Mandie.  A third party payer was principally responsible for the fees of the victorious litigant.  The vanquished litigant sought to avoid the adverse costs order by invoking the indemnity principle of legal costing by establishing that the victorious litigant had no obligation to pay its lawyers.  The Court of Appeal said that the law presumes that there is an obligation on the client to pay its lawyers even if there is evidence of an obligation on a third party to pay the lawyers as well.  It made clear that it would not sanction fishing expeditions to displace the presumption.  Here, the litigant’s parent company, which was the third party payer, did not have a costs agreement with the lawyers and neither did the litigant.  But unless lawyers agree to do work for a client for free, they are entitled to payment on scale even in the absence of a costs agreement. Continue reading “The limits on Kuek v Devflan articulated”

Applicants for taxation can call for other side’s costs agreement and bills

Update: for the incredible backstory to this latest piece in the litigation over $705 in repairs to Mr Kuek’s Toyota Camry, see this story at Justinian.  You will have to subscribe for $22.

The indemnity principle in costs law says that an award of party party costs must never exceed the beneficiary’s liability to his or her own lawyers.  That is, party party costs must not exceed solicitor-client costs.  Traditionally, however, those ordered to pay costs by a court have not been allowed to look at the costs agreement or bills between the party whose costs they have been ordered to pay.  Kuek v Devflan Pty Ltd [2011] VSCA 25 says that at least where there is some reason to believe that the indemnity principle might be infringed, the costs disclosure letters, costs agreement, and, probably, solicitor client bills may be inspected by the party ordered to pay the costs, and used to argue the application of the indemnity principle.

Justice of Appeal Hansen, with whom Justices of Appeal Neave and Harper agreed, said that the Taxing Master’s view that ‘the course proposed [requiring production of the costs agreement and costs disclosures, and having regard to them in the taxation] will lead to the taxation of two different bills with additional delay, expense and inconvenience … is a floodgates type argument which is no answer to a taxing officer’s fundamental duty to conduct each taxation on its own merits in accordance with law.’  His Honour continued:

‘This type of issue will not often arise because, in the ordinary case, party / party costs fall well short of the receiving party’s actual liability to its lawyers.  But, as I have noted, here the material is sufficient to suggest that the position may be otherwise.  It follows that the taxing officer must be satisfied that, as a question of fact, the party / party costs do not exceed the respondents’ liability to their lawyers.  Both the Taxing Master and the judge seemed to assume that the consequence of such a factual exercise would be the (inconvenient) step of requiring the respondents to produce a solicitor / client bill, and that there was nothing in the authorities to require a solicitor / client bill.  However it does not follow that the factual question posed can only be determined by reference to a solicitor / client bill.  It may be readily apparent on the face of the lawyers’ accounts that the receiving party has actually paid its lawyers more than the amount of the party / party bill.’

Many lawyers do not enter into proper costs agreements with their clients, because they trust them to pay the bills.  Most lawyers, for a variety of reasons, do not comply perfectly with the costs disclosure regime, but get away with it because their clients are happy with their services and charges, or are ignorant of the consequences of costs disclosure defaults.  This decision constitutes a reason why it is important to have a valid costs agreement and to comply with the costs disclosure obligations: otherwise the party may recover less on a party party costs award than he or she otherwise would.  The decision whether to do things properly is no longer just a decision about whether to take the risk that the client will unexpectedly take advantage of the law, but must be taken in the context of the lawyer’s duty of care to avoid foreseeable economic loss to the client.

Continue reading “Applicants for taxation can call for other side’s costs agreement and bills”

What are ‘legal proceedings to recover legal costs’?

A barrister rang me the other day in relation to what he probably thought was a simple question: if a lawyer settles a dispute about legal costs and then sues for specific performance, is it a ‘proceeding to recover legal costs’?  No, I said, but I could not find, on my blog, or anywhere else where I store things for later use, authority for the proposition.  Now I have come across the authority I had in the back of my mind and have forgotten who asked the question.  So here it is, for the whole world to enjoy: Koutsourais & v Metledge & Associates [2004] NSWCA 313.  In fact, it is not authority for the proposition I had in my mind, since one judge held in favour of the proposition, one against, and one abstained from deciding the case on that issue.  Its investigation of previous cases is nonetheless useful, and it and those cases provide a useful jumping off point for anyone who needs to research the issue.  It has been considered subsequently, in cases published on Austlii, in these cases.  The ones I have looked at suggest that the proposition is a good one, at least where the character of the settlement agreement is sufficiently removed conceptually from the original indebtedness, but don’t quote me on that tentative conclusion.  Anyone know of any Victorian authority on the question? Continue reading “What are ‘legal proceedings to recover legal costs’?”

No taxations of old-Act hourly rates costs agreements

The Legal Practice Act, 1996 still governs costs agreements in matters where instructions were first given prior to 12 December 2005 and bills rendered pursuant to them, even after that date, which was the commencement date for the Legal Profession Act, 2004: see cl.  3.1(1) of the second schedule to the Legal Profession Act, 2004.  A curiosity of the old Act is that bills rendered pursuant to costs agreements which provided for fees to be charged at hourly rates were not amenable to solicitor-client taxations by the Taxing Master.  Disputes in relation to fees where the total fees (rather than the disputed fees) did not exceed $15,000 could be dealt with by VCAT, but otherwise, clients were left to dispute the bills in a suit for fees.  Though all competent costs lawyers are aware of this proposition, authority published online for it is surprisingly scant.  Only last year did VCAT’s Legal Practice List say squarely (but in respect of the old Act):

‘the Taxing Master cannot assess costs that have been charged pursuant to a costs agreement with time-based charges.’

It was Senior Member Vassie who said so in Leong v Sesto [2009] VCAT 99 in that part of his decision headed ‘The Law: What Costs Agreements are Subject to Assessment’ at [105]ff, drawing support from Justice Beach’s decision in Gaweda v Shaw [1999] VSC 474.

Solicitor secretly records client then sues them for ‘consultancy fees’ under 6 year old oral agreement over dinner

A well-known Melbourne solicitor sued his clients for $165,000 in fees for helping them buy a car dealership.  Six years after a dinner with the clients in St Kilda, he sued his dinner companions, claiming to have entered at the dinner into an oral agreement that he would receive 1% of the purchase price of a Cairns car dealership upon settlement.  Oral costs agreements under the Legal Practice Act, 1996 were void, but the solicitor claimed that he was not doing legal work, but was engaged as a business consultant.  He had not rendered a bill for the fees before suing.  These problems with his claims were not decided, because Justice Hollingworth found the alleged agreement not to have been made out.  There was no document which recorded the alleged oral agreement, and none which corroborated it in any meaningful way. More than one hundred times he had acted for the clients on an orthodox basis, but this, he claimed, was the third percentage based fees agreement. Justice Hollingworth found that the two previous such agreements claimed by the solicitor had not in fact been made, so the question was whether this fee agreement was the odd one out, and described aspects of his evidence as ‘unsatisfactory’.  After it was apparent he and the clients disagreed about whether there was a 1% fee agreement, the solicitor secretly recorded a conversation in which he ‘repeatedly tried to get [one of the clients] to admit the existence of the 1% agreement’.  Though on her Honour’s construction of the recording, he failed in that endeavour, he nonetheless tendered the recorded evidence at trial.  The solicitor lost; he had grabbed a tiger by the tail.  The decision is EV v King [2010] VSC 80.

Partly oral and partly written contracts

Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 is a case about the construction of partly written and partly oral contracts, and the application of the parol evidence rule to them.  Justice of Appeal Campbell summarised the cases in one of those beautifully crafted little numbered lists that this little newspaper regards fondly.  Truly, these little numbered lists of principles supported by authority are a labour of love and they are worth sharing.  His Honour said:

(1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties: Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 QB 59 at 62 per Lord Russell of Killowen CJ; Gordon v Macgregor [1909] HCA 26; (1909) 8 CLR 316 at 319-20 per Griffith CJ (with whom O’Connor J agreed), at 322-3 per Isaacs J; Hoyt’s Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 143-4 per Isaacs J (with whom Rich J agreed); Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507 at 517 per Dixon CJ, Fullagar and Taylor JJ; State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191G-2C per McHugh JA (with whom Kirby P at 172G-3C and Glass JA at 180G agreed on this point); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (FC) at 505-6 [280][281], 509 [293] per Allsop J (with whom Drummond and Mansfield JJ agreed); Jessop v McInteer [2003] QCA 170 (FC) at [53] per Muir J (with whom Fryberg J agreed). Continue reading “Partly oral and partly written contracts”

How not to sue for fees

Update, 8 March 2010: See also Pancarci v CVK & Co [1998] VLPT 10, a decision of Registrar Howell.  The barrister who is now Judge Jane Campton appeared, and referred Mr Howell to a decision of Justice O’Bryan in Carroll v Young (delivered 16 January 1990 in Supreme Court proceedings numbered OR 108/89), which came to the same conclusion in relation to solicitors’ reliance on the ‘evidenced in writing’ requirement for costs agreements. Registrar Howell followed Justice O’Bryan’s decision, as well as a previous decision of his own which he did not name, in which he had followed In re a Solicitor [1956] 1 QB 155 on the same point.

Update, 23 February 2010: Sydney Morning Herald article here.

Original post: Najem v Maatouk [2010] NSWSC 20 is a great read.  It is a text book example of how not to sue for fees. It also progresses the resolution of the question on which two justices of appeal had previously divided, the third helpfully not deciding, in a previous decision.  The question is whether a solicitor may use the rule that oral costs agreements are void against a client relying on a costs agreement favourable to the client.  No, said Justice McCallum.  The decision also provides an insight into what does and does not amount to ‘evidenced in writing’, the minimum condition for enforceability of costs agreements. Continue reading “How not to sue for fees”

Solicitor’s equitable charge to secure fees declared void

The plaintiff in Brott v Shtrambrandt [2009] VSC 467 is not having much luck.  First of all, he cut what he thought was a plea bargain in a professional misconduct prosecution only to have VCAT’s Legal Practice List increase by 50% the penalty he and the Law Insitute had agreed jointly to contend was appropriate, so that his practising certificate was cancelled and he was prohibited from applying for a new one for 9 months: Law Institute of Victoria v Brott [2008] VCAT 1998.  But the extra penalty all became a bit academic when he was prohibited from applying for a new practising certificate until 2014 in a professional misconduct prosecution he contested and lost disastrously (Legal Services Commissioner v Brott [2008] VCAT 2399, and then lost on appeal ([2009] VSCA 55), paying the Commissioner’s costs all the way and suffering withering criticism.  Then, in a suit by the solicitor for fees charged back in the day when he was allowed to charge them, Justice Beach has inconveniently declared that what sounded like a pretty kick-arse charge fell foul of the Consumer Credit Code and was void.  Section 40 of the Code voids any mortgages (including equitable charges) governed by the Code which do not describe or identify the charged property.  ‘[A]ll estates or interests in real estate which I now have or may hereafter acquire’ did not cut the mustard as a description.

Not all costs agreements will be credit contracts governed by the Code.  I bet there are a lot of solicitors out there with void equitable charges, however.  They will need to proceed with great care in fixing the problem.  Unless they procure the amelioration of the position with retrospective effect with the utmost probity, the ‘fix’ may in fact be challenged in the various jurisdictions which give expression to the law’s tenderness towards clients in their dealings with solicitors.  It would be sensible to obtain advice if the amount secured by the questionable charge is of sufficient significance to them. Continue reading “Solicitor’s equitable charge to secure fees declared void”

Weiss v Barker Gosling

Weiss v Barker Gosling (1993) 16 Fam LR 728; [1993] FamCA 58 is a decision of Fogarty J about an application to set aside a costs agreement and have the client’s debt to his solicitor for representing him in the Family Court quantified by a taxation on the Family Court Scale.  It really comes in two parts, the second being reported as Weiss v Barker Gosling (No. 2) (1993) 17 Fam LR 626. The client argued there had been a failure to follow the costs disclosure requirements in the Family Law Rules, that the costs agreement was ‘unreasonable’, that it was void for uncertainty, and that undue influence by the solicitor caused the agreement.  The application was made under a provision in the Family Law Rules (r. 8A) which permitted a client to apply for a determination of any question as to the validity of a costs agreement.  Upon such an application, the Family Court might ‘confirm, vary or set aside the costs agreement and make any other order the judge considers necessary or appropriate.’ Continue reading “Weiss v Barker Gosling”

Procedure in applications to set aside costs agreements

It costs about $290 to file an application to set aside a costs agreement under s. 3.4.32 of the Legal Profession Act, 2004 in VCAT.  It is not a step lightly to be taken.  Moreso than much of what goes on in VCAT, such applications are treated like litigation in a court.  Costs will be awarded against the unsuccessful party much more often than in other kinds of proceedings in VCAT; indeed, it is more or less true that costs follow the event, that is, the loser generally has to pay the winner’s costs calculated according to an appropriate County Court scale.  See the page on VCAT’s website about these kinds of applications, which includes the correct form for initiating these kinds of proceedings.

Following filing, VCAT generally sets down a directions hearing of its own motion. There is a standard form of orders which is often made.  They are reproduced below.  To avoid a directions hearing, applicants would be well-advised to include the details (‘particulars’ in legal lingo) the usual orders require in the application itself.  The applicant should then ask the respondent whether it will consent to doing what the usual orders generally require within, say, 2 weeks.  Alternatively, if that was not done at the outset, the parties might consider submitting the orders they would each be happy with (‘a minute of consent orders’ in legal lingo) in the terms of the usual orders to VCAT in advance, saving the need for a trip to VCAT if the decision maker who would otherwise preside at the directions hearing is content to make the orders on the papers.  Of course, a directions hearing may be necessary anyway.  Directions made at directions hearings are not necessarily limited to those found in the usual orders.  Nor are the usual orders always made.

The usual orders are:

Continue reading “Procedure in applications to set aside costs agreements”

Giant solicitors’ lien case

The Supreme Court of NSW recently delivered a giant decision about a solicitor’s costs agreement and a fight over the right to possession of the solicitor’s file.  Acting Justice Debelle’s reasons in PM Sulcs & Associates Pty Ltd v Oliveri [2009] NSWSC 456 exceed 33,333 words.  Ultimately, his Honour found there was no costs agreements, with the result that legal costs, though still payable, were payable only on a quantum meruit basis at common law.  Though what those fees amounted to on a quantum meruit basis was unascertained, no bills having been given on that basis, it was still enough to support the solicitor’s assertion of a lien for unpaid costs as justification for refusing to deliver up the file.  I have not read the decision, but though an argument that there was a retrospecive costs agreement failed, it seems to have failed on the facts rather than on any legal difficulty with the concept of a retrospective costs agreement.