Costs disclosure defaults and solicitors’ creditors statutory demands addressed to clients for unpaid fees

In AMI Australia Holdings Pty Ltd v PHD Networks Pty Ltd [2011] NSWSC 161, the NSW Supreme Court’s Associate Justice Macready noted another decision, which illustrates the potential for costs disclosure defaults to be raised as a foundation for a genuine dispute such as to warrant the setting aside of a creditors’ statutory demand for unpaid legal fees.  The decision of Santow J in Callite Pty Ltd v Adams [2001] NSWSC 52 was described as follows:

‘There, a solicitor served a statutory demand demanding payment of an amount of unpaid legal costs. One of the grounds of challenge to the demand was that the solicitor had failed to make the disclosure required by section 175 of the Legal Profession Act 1987 (NSW). Santow J (as his Honour then was) held that this ground of challenge was not available because no facts were deposed to from which one could infer that there was no fee disclosure and the costs agreement. However, the affidavit did deposed to the receipt of accounts and those accounts were annexed. Santow J held (at [10]) that a perusal of the accounts showed that they lacked the prescribed statutory content as required by section 192 of the Legal Profession Act and a regulation 22A of the Legal Profession Regulations 1994 (NSW). Section 192 of the Act precluded any action being taken for recovery of costs until 30 days had passed after the provision of a bill of costs which complied with the Act. Santow J held (at [12]) that the legal consequences which flowed from the form in which the accounts were rendered were not required to be pleaded in the affidavit. His Honour set aside the statutory demand on the basis that public policy precluded a statutory demand being used to bypass the safeguards of the Legal Profession Act.’

Costs disclosure obligations and consequences of not complying: part 4

This is part 4 of a serialisation of a paper I gave on about costs disclosure obligations and the consequences of not complying.  Parts 1, 2, and 3 are here, here, and here.  This post begins to answer the question ‘What must be disclosed’.  The balance of the answers to that question is to be found in instalments yet to come. Continue reading “Costs disclosure obligations and consequences of not complying: part 4”

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”

The prudent way to plead a suit for fees

The case which was the subject of the previous post, Quaresmini v Crouch & Lindon (a firm) [2010] FMCA 750, and Chadwick Lawyers v McMullen [2009] FMCA 992, decisions of Federal Magistrates Wilson and Jarrett sitting in Brisbane suggest what I have long suspected: that it is dangerous to use traditional precedents for suing for legal fees.  The relevant bit from Quaresmini is set out in the previous post, and that from McMullen is set out at the end of this post.  Although Federal Magistrates’ views on pleadings may not necessarily be listened to by state courts, the endgame of your suit for fees, bankruptcy, may well be played out there.  Quaresmini is an illustration of how things can go wrong in the endgame.

Before a Victorian solicitor can sue for fees, she must show that 65 days have elapsed since service conforming with the Legal Profession Act, 2004 (Vic.)’s s. 3.4.34(5) of a bill conforming with ss. 3.4.34 and 3.4.35: so says s. 3.4.33. The requirements for clients other than ‘sophisticated clients’ are:

  • the bill must be signed appropriately (generally, by a lawyer);
  • it must be served properly (by post, in person, or delivered to the address of the client or his agent authorised to accept legal process, or left with a person who looks at least 16, apparently living or working at the client or agent’s usual or last known residential or business address, but not by fax or email); and
  • it must include or be accompanied by a written notice (presumably correctly) setting out the options and time limits for challenging it.

These two decisions suggest that at least these matters ought to be pleaded, along with the basis for the claim for fees.  If the basis is a costs agreement, then of course that is a contract which ought to be pleaded like any other contract.  If the basis is a scale, then it may be necessary to plead facts which attract the scale to the work.  If the basis is the fair and reasonable basis, then the fact that there was no costs agreement and no scale applicable would need to be pleaded, at least.

Is anyone else aware of any other authority on this point, or does anyone have experience of this point having been taken?

Continue reading “The prudent way to plead a suit for fees”

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: Continue reading “Here’s why you should comply with the costs disclosure regime”

Costs disclosure obligations and consequences of not complying: part 3

This is part 3 of a serialisation of a paper I gave on about costs disclosure obligations and the consequences of not complying.  Parts 1 and 2 are here and here.  This post continues the answers to the question ‘To whom need disclosures not be given?’  Anyone who has any insights into the interpretation of the various definitions which refer back to the Corporations Law is invited to provide them by commenting on this post. Continue reading “Costs disclosure obligations and consequences of not complying: part 3”

Costs disclosure obligations and consequences of not complying: part 2

This is part 2 of a serialisation of a paper I gave on costs disclosure obligations under the Legal Profession Act, 2004 and the consequences of not complying.  Part 1 is here.  This post is not exhaustive of the answers to the question ‘To whom need disclosures not be given?’  For more answers to that question, see subsequent posts. Continue reading “Costs disclosure obligations and consequences of not complying: part 2”

Lodging a civil complaint with the Legal Services Commissioner limits you to compensation of $25,000 per complaint

First of all, happy new year!

The take-home point of this post is that if you lodge a civil complaint (e.g. a pecuniary loss dispute or a costs dispute) with the Legal Services Commissioner, you limit the amount of compensation you can get in VCAT to $25,000 because of s. 4.3.2(1)(c) of the Legal Profession Act, 2004. That prevents the commencement of proceedings in relation to the subject matter of the complaint until the complaint has been finally determined, or dismissed, by which time it will often be res judicata, at least in those cases where the final determination is by VCAT or the Supreme Court or the Court of Appeal (subject, perhaps, to (i) the operation of s. 4.2.14(2), which is what the Court of Appeal calls the ‘two bites of the cherry’ provision, and (ii) the possibility of adding a Fair Trading Act, 1999 cause of action to a proceeding originally instituted in VCAT under the Legal Profession Act, 2004, discussed below).  In this touchy feely win win alternative dispute resolution Civil Procedure Act, 2010 world, it is apparently anomalous that those who choose to travel to VCAT’s Legal Practice List via the obvious alternative dispute resolution channel (i.e. via a civil complaint to the Commissioner’s dispute resolution jurisdiction) are penalised so severely in comparison with those who proceed immediately to litigation in that List by invoking the parallel jurisdiction of the Fair Trading Act, 1999. Continue reading “Lodging a civil complaint with the Legal Services Commissioner limits you to compensation of $25,000 per complaint”

Costs disclosure obligations and consequences of not complying: part 1

Here begins a series of posts on costs disclosure obligations under the Legal Profession Act, 2004, and the consequences of not complying with them.  It is a work in process, and I would be grateful for any experiences of this area of the law you might have, and any authorities of interest which I have not included.

*   *   *

The legislation
We have had costs disclosure obligations mandated by legislation for a long time now.  The Legal Practice Act, 1996 came into operation on 1 January 1997, and applied to matters in which the solicitor was retained after that date, and to costs agreements made after that date: cl 18, Schedule 2.  There is a similar regime under the Legal Profession Act, 2004, which came into force on 12 December 2005 but, as we will see, the differences are kickers. The Legal Profession Regulations, 2005 contain provisions relevant to about the costs disclosure and bill disclosure regimes alike. Continue reading “Costs disclosure obligations and consequences of not complying: part 1”

On the desirability of requesting a written progress report

I deal with clients who have been economically raped by rapacious lawyers.  How these crimes  manage to be perpetrated is a source of constant amazement to me.  Of course these evildoers never provide written advice.  They would be incapable of giving it, and would never tie themselves down like that. Most Australian clients have a statutory right to written progress reports: Section 3.4.18 Legal Profession Act, 2004 (Vic), and see the other jurisdictions’ provisions below.  That says:

‘A law practice must give a client, on reasonable request — (a) a written report of the progress of the matter in which the law practice is retained’.

Many clients would be well advised to exercise this right.  A request might say:

‘Dear Madam,

I would be grateful if you would provide me with a written report of the progress of this matter, under s. 3.4.18 of the Legal Profession Act, 2004.  In particular, I would be interested to know [specify].

Yours etc.’

The consequences for the lawyer of not complying are probably spelt out in s. 3.4.17, and are very significant: Continue reading “On the desirability of requesting a written progress report”

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’?”

The consequences of substituting lawyers responsible for client matters

My experience of working in and representing big firms is that they consider they have an entitlement to swap lawyers in and out of files, even if that involves the loss of accumulated knowledge and a need to spend time on (and therefore charge fees for) the newbie coming up to speed.  One of the things solicitors whose retainers are governed by the Legal Practice Act, 1996 are required to disclose before, or as soon as reasonably practicable after, being retained, is the name of the person who will be principally responsible for the matter (s. 86(3)(a)).  Under the Legal Profession Act, 2004 there is no such requirement, but I often see disclosures and costs agreements which specify who is going to work on a matter, and at what rate.  In Fitzroy Robinson Ltd v Mentmore Towers Ltd [2009] EWHC 1552 (TCC), the Queen’s Bench Division of the English High Court considered an alleged breach of a promise in a professional services contract that a certain person would work on an engagement. I will link to CMS Cameron McKenna’s excellent Law Now service’s helpful case note rather than reinventing the wheel.

How to deal with a Legal Services Commissioner complaint

In the 2007-08 financial year, the Legal Services Commissioner (aka the Bureau de Spank on this blog) received 2033 complaints (801 civil complaints, and 1584 disciplinary complaints).  That’s one for every 7 of the 13,837 lawyers who worked in Victoria as at the end of March 2008.  17% of them were characterised as mixed civil and disciplinary complaints.  One in 12 complaints was referred to the Law Institute for investigation.  Comparatively few prosecutions were brought.  In fact in only 1 in 25 complaints was the trigger for a prosecution arrived at, and a small fraction of those were or will be prosecuted.  Only 32 reprimands or cautions were issued by the Commissioner.  I take all this from the latest annual reports of the Commissioner (see my posts on the two previous annual reports here and here) and the Legal Service Board.  It makes me realise that mine is a skewed perspective, and that solicitors hire barristers to represent them in the complaints which are more complicated, more serious, or more anxiety-provoking.  Accordingly, much of what follows must be taken as advice in relation to the more serious end of the complaints spectrum.

Most of my clients want to avoid, above everything else, prosecution in VCAT.  Fair enough too.  All other outcomes remain hidden from public scrutiny.  Successfully defending a prosecution is a hollow victory: the allegations against you still get published in the reasons on Austlii, and the prospect of a costs order in your favour is virtually nil: Clause 46D, Schedule 1, Victorian Civil & Administrative Tribunal Act 1998.  It is the lawyers who do not do a good job of responding to the complaint who get prosecuted, rather than those who do the worst things. There is of course a limit to that proposition: do something bad enough (especially in relation to trust accounts) and you will be prosecuted, assuming that the Commissioner thinks she can prove it, regardless of how cooperative you are in the investigation.  The Commissioner has recently published guidelines in relation to her prosecutorial discretion: here and here.  Some of the factors she considers are:

  • whether the practitioner acknowledges his or her error and/or has shown remorse;
  • whether the practitioner made a mistake and is unlikely to repeat the conduct;
  • whether the practitioner cooperated during the investigation;
  • whether a guilty finding may entitle the complainant or others who may have been adversely affected to compensation.

Not doing a good job during the investigation phase manifests in two ways:

  • failing to take legitimate and forensically useful technical points; and
  • (where there are none) failing to realise that demonstrating a current understanding of the relevant law, admitting the error, expressing contrition, and taking the rap is always a better policy than being uncooperative.

Continue reading “How to deal with a Legal Services Commissioner complaint”

Applications to set aside costs agreements

This post has been sitting around as a draft waiting to be finished.  There is little chance of that for a long time.  So here is my incomplete annotation to s. 103 of the Legal Practice Act, 1996.  That is the provision which gives VCAT (formerly the Legal Profession Tribunal) jurisdiction to set aside costs agreements on a statutory basis peculiar to that species of contracts.  All costs agreements in all matters in which first instructions were taken prior to 12 December 2005, regardless of when the costs agreements were entered into, may be argued to be governed by the old Act.  So there is some life left in the old s. 103 yet. Continue reading “Applications to set aside costs agreements”

Nicholson v B&S — the first important Victorian decision about setting aside costs agreements

Nicholson v B&S [2000] VLPT 28 was the first decision to deal in detail with the principles which govern the extremely wide discretions granted by s. 103 of the old Legal Practice Act, 1996. Registrar Howell cancelled a costs agreement, and ordered that one of the bills the client challenged — the only one she had really jumped up and down about — be taxed by the Taxing Master of the Supreme Court.  Mr Howell did so in the following circumstances: Continue reading “Nicholson v B&S — the first important Victorian decision about setting aside costs agreements”

The costs disclosure provisions in statutes regulating the profession are not codes

In Nicholson v B&S [2000] VLPT 28, the Legal Profession Tribunal’s Registrar Howell considered whether the costs disclosure provisions of the Legal Practice Act, 1996 constituted a code which demonstrated an intention of the parliament to displace the common law. ‘Nope’, he said:

‘I have considered whether the provisions of Division 1 of Part 4 of the Legal Practice Act 1996 created a code for the provision of information to clients and thus relieved legal practitioners from their previous obligations to provide information. I have concluded that Division 1 is not a code because there is nothing in Division 1 which indicates to me that the legislature intended to change the position at common law or to relieve practitioners of their fiduciary obligations.’

Continue reading “The costs disclosure provisions in statutes regulating the profession are not codes”

Two costs disclosure default cases in VCAT

In retainers governed by the Legal Profession Act, 2004, failures to disclose matters which the Act requires to be disclosed about future legal costs can have the result that the solicitors may not recover their fees whether by proceedings or otherwise until they have been the subject of a solicitor-client taxation in the Supreme Court, generally at the solicitors’ expense regardless of who ‘wins’ the taxation (i.e. regardless of whether the Supreme Court affirms the solicitors’ bill or substantially discounts it). The draconian provision which says so, s. 3.4.17, and the provision which says one of the things non-disclosure of will trigger s. 3.4.17 is a change to the original estimate (s. 3.4.16) are set out at the end of this post.

In the first case, a file handler changed firms. The new firm did not reiterate the old firm’s estimate of fees and they were told to go off and have a Supreme Court taxation over a bill for $2,500 before coming back and continuing their proceeding. Unless the solicitor is found not to be entitled to any fees, a Supreme Court taxation ends with a Supreme Court order to the client to pay the amount found to be appropriate. The solicitor would presumably go back to the Tribunal only if there were defences which the Taxing Master did not have power to deal with and which VCAT’s Legal Practice List would.

In the second, the failure of a solicitor to update his fee estimate for the first 10 days of a retainer in which the original estimate blew out by over 50%, was found not to have breached s. 3.4.16 because in the context of the retainer over 10 days, it was not reasonably practicable to give the update. The decision must mean that there is no absolute duty on a solicitor to keep track of costs as they are accruing and to advise the client when the original estimate is exceeded. Continue reading “Two costs disclosure default cases in VCAT”

Chakera v Kuzamanovic [2003] VSC 92

Chakera v Kuzamanovic [2003] VSC 92 is a decision of the Supreme Court of Victoria’s Justice Nettle in relation to the effect of a default under the costs disclosure regime under the Legal Practice Act, 1996. It stands for the proposition that in the case of complete non-compliance with the costs disclosure regime, the solicitor is still entitled to recover legal costs, albeit possibly on a reduced basis. The consequences of non-disclosure were spelt out in s. 91 of the Act. That section made it clear that costs were recoverable on a quantum meruit basis even where there was no valid costs agreement. All sounds pretty obvious now, but a Magistrate, tactfully unnamed, was adamant that non-compliance with s. 86 of the Legal Practice Act, 1996 meant that no fees for work done in a retainer could be recovered. ‘Nonsense!’, Justice Nettle said.

Today, the correlate of s. 86 of the old Act is s. 3.4.9,and the correlate of s. 91 is the rather more complicated s. 3.4.17.

VCAT runs out of patience with serial adjourner

I was drinking beer at The Peacock the other afternoon, and a VCAT member was muttering about the Supreme Court overturning VCAT decisions on the basis that applications for adjournment were not granted when they could have been cured by an order for costs. The suggestion was that the Court may have overlooked the fact that no costs are awardable in certain classes of cases. The other point was that in many lists, like the civil list, members are expected to churn through a case an hour, without the assistance of counsel on which decision makers generally rely on so heavily.

My conversation came back to me while reading HL v Fahey [2007] VCAT 2400, a case about Ms Fahey’s dissatisfaction with a bill for $1,199. Ms Fahey successfully sought 2 adjournments. The first time, she had to go to Norway for a qualifying competition for the Olympics. Her game is dressage. The second time, she simply wrote in sick. The third time, she attached a sick note from a doctor. VCAT told her that administrative adjournments were over and told her to come to the hearing and make her application there, and to be ready to proceed if she failed. She did not turn up, and so an order was made against her. She sought a review, akin to an application to set aside a default judgment. She sent a fax to VCAT at 9.36 a.m. before the 10 a.m. hearing in which she said she was ‘unable to attend today’s review hearing due to extreme illness’, and concluded ‘I will contact you again in the future to arrange a new review date.’ That attempt to direct the Tribunal to adjourn failed, and Senior Member Howell heard the case in her absence, saying: Continue reading “VCAT runs out of patience with serial adjourner”

VCAT cancels bill and leaves solicitor wholly unremunerated for sloppy work

Praag v W & T Lawyers [2008] VCAT 307 was a rare thing: a case in VCAT’s Legal Practice List actually prosecuted pursuant to the Legal Profession Act, 2004. Mr Praag was his late mother’s executor. Before her death, she lived in Canberra. Her assets were a house in Canberra and $50,000 cash. Mr Praag went to the respondent solicitors who said they would get probate of the will for $2,800. The scale cost for doing so was $499. They did not otherwise comply with the costs disclosure regime in the Legal Profession Act, 2004. In fact it was unnecessary to get probate in Victoria, and it would have been better to have got it in the ACT. Though Mr Praag was able to withdraw the cash from the Bank with the Victorian parchment, he was unable to deal with the house unless he resealed the probate in ACT, which cost a bit extra on top of the cost of getting probate. Member Butcher mentioned several ‘concerns’ he had before concluding: Continue reading “VCAT cancels bill and leaves solicitor wholly unremunerated for sloppy work”