Too broad a range of estimates of total costs causes NSW solicitor great grief

Frontier Law Group Pty Ltd v Barkman [2016] NSWSC 1542 is an ex tempore decision of Justice Slattery in an urgent application to extend the operation of a caveat lodged by solicitors over their client’s property.  The application failed in part because the solicitors did not prove, even to the prima facie level required in such an application, that the money said to be owing and secured by the equitable charge which was the subject of the caveat was in respect of fees invoiced under the costs agreement referred to in the caveat.  That is not particularly interesting except as schadenfreude.

Two things are interesting though, given that the costs agreement was probably entered into in 2012 and so the Legal Profession Act 2004 (NSW) almost certainly applied (even though the Court looked also at the situation under the Legal Profession Uniform Law (NSW)):

  • First, the Court found that the range of estimates of total legal costs was so wide as not to comply with the relevant disclosure obligation.
  • Secondly, the Court appears to have treated the extension application as the commencement of proceedings for the recovery of legal costs, such that the statutory preconditions to such proceedings needed to be, but were not, proven to be satisfied by the lawyers.

I cannot think of another authority which states so plainly that some estimates are so imprecise as to render them non-compliant with the obligation to give a range of estimates of total legal costs.  But now we have it: a decision of the Supreme Court of NSW under a legislative scheme of which Victoria is also a part and which is likely to be followed as a matter of comity in Victoria.

What the Court said is: Continue reading “Too broad a range of estimates of total costs causes NSW solicitor great grief”

NSWCA surveys fines in NSW lawyers’ discipline decisions over a decade

Russo v Legal Services Commissioner [2016] NSWCA 306 was the subject of my previous post. The Court engaged in a comparatively sophisticated review of disciplinary outcomes in like cases.  The purposes of this post is to reproduce that review and comment on the variables which ought to be taken into account in any proper survey of past outcomes.

To survey penalties in like cases has always been an important part of sentencing and should be an important part in imposing disciplinary sanctions.  Barbaro  (2014) 253 CLR 58; [2014] HCA 2 and Cth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476 do not suggest to the contrary.  They say that the purpose of a survey of like sanctions is to promote consistency in penalties but not the establishment of a range of available sanctions deviation from which is appellable.  Buchanan JA observed in R v Macneil-Brown [2008] VSCA 190, (2008) 20 VR 677 at [130]:

‘counsel can best assist a sentencing judge, not by advancing what they consider to be sentences at the lower or upper limits of a sound sentencing discretion, but by making submissions as to the existence and nature of aggravating and mitigating circumstances and providing some guide to the manner in which other judges have approached like cases by supplying sentencing statistics and citing passages from decided cases which bear upon aspects of the instant case.’

I would submit that any survey of fines as a disciplinary sanction must take into account, as an important aspect of the analysis, the financial situation of the person or persons liable to pay it.  The specific deterrence of a fine will vary greatly from one practitioner to another.  Practitioners who struggle, for personal reasons, are more likely to get themselves into trouble in the first place, and to exacerbate it by less than perfect intercourse with the Legal Services Commissioner.  Their financial situations often deteriorate too.  Specific deterrence may be achieved by imposition of a fine much smaller than would be imposed on a flourishing practitioner raking it in.  General deterrence will also be achieved if the Tribunal is transparent in taking account of financial circumstance.  In such a case, the Tribunal might indicate the kind of fine which might have been imposed had the practitioner enjoyed an average post-tax income.

Furthermore, the costs burden borne by the practitioner ought also to be taken into consideration.  Costs and fine are inter-related in this way: Environment Protection Authority v Barnes [2006] NSWCCA 246 at [88] (Kirby J speaking for the Court) applied by analogy in LSC v Bechara [2009] NSWADT 313. The extraordinary costs practitioners are liable to in Victoria following disciplinary prosecutions would very often be more than adequate to achieve specific and general deterrence.  If you are prosecuted and reprimanded, made the subject of an editorial on the front page of the Commissioner’s website, and have to cough up $40,000 in unrecoverable solicitor-client costs reasonably incurred and costs liability to the Legal Services Commissioner, that is going to make you think just as hard about doing it again as any comparatively trivial fine you might cop.

Finally, one must be astute to inflation.  In my experience, people tend to exaggerate the effect of inflation when considering older fines.  Here is a calculator which assists in measuring in today’s dollars a fine imposed some years ago.

For some reason, notwithstanding that NSW is now a part of the legal profession uniform law, the other participant in which is Victoria, no Victorian fines were part of the survey.  That strikes me as unusual, since there is a whole statutory office the purpose of which is to promote interstate uniformity in the application of the Uniform Law: the Commissioner for Uniform Legal Services Regulation.  Russo’s Case was decided under the old legislation which the LPUL replaced, and which legislation in fact governed the prosecution was one of the issues on appeal.  Interestingly, apparently because it was thought that there were no relevant differences between the two regimes, that question was not decided.

This is what the NSWCA said about its survey of fines, and about the appropriate fine in this case: Continue reading “NSWCA surveys fines in NSW lawyers’ discipline decisions over a decade”

Third party payer taxations where client bankrupt: WASCA

In Iron Mountain Mining Ltd v K & L Gates [2016] WASCA 166, the appellant, a listed company, had indemnified one of its directors against the legal costs of lawyers defending the director in criminal charges.  Companies can do this on the basis that the director must repay the costs if he pleads or is found guilty, since it is illegal to indemnify a costs liability incurred as an officer of the company if the costs are incurred in defending or resisting criminal proceedings in which the person is found guilty: ss. 199A-C Corporations Act 2001Note Printing Australia Ltd v Leckenby [2015] VSCA 105; (2015) 106 ACSR 147 [65]. The company paid more than $500,000 in respect of the fees prior to the guilty plea.

The director went bankrupt.  The company applied for taxation of the director’s solicitors’ fees.  By that time, the director had pleaded guilty to some of the charges.  The company was a non-associated third party payer; it promised to pay the lawyers’ fees, but its promise was made to the director and not to the lawyers. The Court found that the right given to third party payers to seek taxation did not adjust the interests of the client and the lawyers; it only adjusted the interests between the third party payer and the client: Continue reading “Third party payer taxations where client bankrupt: WASCA”

Unqualified costs consultants

There has been another challenge to the legality of the work done by non-lawyer costs consultants.  It did not go anywhere because of deficiencies in the way the client (himself a lawyer) went about trying to prove in the Magistrates’ Court that the costs consultant in question (a struck off lawyer) had engaged in unqualified practice, and because of the limited nature of an appeal from a Magistrate. The Supreme Court’s judges also emphasised the exactness of proof necessary to establish a breach of s. 2.2.2 Legal Profession Act 2004‘s prohibition on unqualified practice, given that it sets up an indictable criminal offence punishable by up to 2 years’ jail.  Such exactness is needed even in civil proceedings which obviously do not carry criminal consequences.

But as three judges of the Supreme Court made clear, all this means is that this was not the vehicle to decide just how much non-lawyers are permitted to do in the realm of costs law, and subject to what level of supervision by a lawyer, and there is little solace for unqualified costs consultants in the judgments.

The reasons of the Court of Appeal for not granting leave to appeal the Supreme Court’s dismissal of an appeal from a Magistrate are: Defteros v JS [2014] VSCA 154.  They are interesting for three reasons:

1.  They endorse comments made by the Costs Judge in a June 2010 decision as to the need for consideration of reform of the ‘mini-industry’ of costs consultants (Kaye J did so at [2014] VSC 205 at [85] and Santamaria JA (with whom Neave JA agreed) did so at [2014] VSCA 154 at [21]);

2.  They record an interesting submission of counsel, namely that the solicitor client was relying on his own contempt of the Supreme Court by asserting as a defence to a suit for fees a statutory prohibition on the recovery of money charged for the provision of legal services in contravention of the prohibition on unqualified practice — the contempt arose, so the argument ran, because the solicitor well knew at all relevant times that the costs consultant was not a practising certificate holder, and so had permitted the costs consultant to engage in unqualified practice if it had occurred, contrary to s. 2.2.10 of the Legal Profession Act 2004; and

3.  They emphasise the modern trend of leaving to the Costs Court questions which have traditionally been dealt with by certificates of the trial judge (e.g. certification for two counsel).

It will not be too long before someone takes a grip of this issue and runs a test case carefully.  An alternative battle ground might be found if the unqualified costs lawyers seek to influence the makers of the forthcoming Uniform Rules of professional conduct so as to provide an exemption for unqualified costs lawyers from the prohibition on unqualified practice: see s. 10(3), Legal Profession Uniform Law (Vic).  That seems to me to be the most efficient means of resolving the question.  In my books, if there is to be a place for the continued operation of unqualified practitioners there may be a case for restricting the exemption from unqualified practice to existing practitioners and closely defining the permissible ambit of their activities, perhaps to party-party disputes. Continue reading “Unqualified costs consultants”

Free tickets to a great seminar

I’m chairing what should be a great seminar for litigators at Melbourne’s RACV Club on 28 August 2013.  Judicial Registrar Meg Gourlay who is one of the two decision makers who is handling most of the solicitor-client taxations in the State at the moment is the lead singer, talking about the changes to Order 63 of the Supreme Court Rules and the new Supreme Court scale which is no doubt the harbinger of new scales in other courts too.  Despite my complete failure as a blogger to bring them to your attention, these are big changes: so big I have never quite got around to writing a post about them, a bit like the post about the decision in Fritsch v Goddard Elliott.  So it is well worth finding out what the Costs Court figures they mean.  Apart from anything else the more mysterious bits have been chopped out of the scale which means that lay lawyers uninitiated in the dark arts of that most mysterious of cabals — the costs lawyers — might actually be able to draw bills themselves with a bit of orthodox education, a spot of which the Judicial Registrar is going to engage in.

The band is pretty hot too.  Anna Sango has bravely taken on the task of speaking about a strange new concept getting a workout at the salons of the most elegant cost lawyers: ‘proportionality’, absolutely all the rage I’m told amongst aristocrats in England whose favourite pastime seems to be inventing more rules for that greatest of all English board games, litigation.  Frankly, it seems like a dangerously French concept to me, a sly limit on the individual’s right to litigate matters of principle and bugger the expense, but Sango will no doubt tell us that it’s more nuanced than that.  Then, after all that esoterica, Paul Linsdell, one of the head honchos of the behemothic Blackstone Legal Costing will speak on tips and traps when arguing costs in litigation.  The traps are newly refreshed thanks to the subject matter of Judicial Registrar Gourlay’s talk, and so this hoary old chestnut of a topic will be worth a listen.  And then Debra Paver, who has given evidence in a few security for costs applications in her time, will speak on the inherently useful subject of how to argue for and against such applications.

I have two otherwise unbelievably expensive tickets available for enticing supplicants.

Limit on the unrecoverability of unusual expenses principle in Victoria

I had to read Abrahams v Wainwright Ryan [1998] VSC 335; [1999] 1 VR 102 from start to finish recently.  I noticed the paragraph the subject of this post which, it seems to me, might be useful in arguing in Victoria against a submission in a solicitor-client taxation that an expense should not be allowed because it was unusual and the unusualness not brought to the attention of the client before it was incurred.  The paragraph suggests that a failure to warn itself is insufficient to require its disallowance, at least where the lawyer suggests that even had the warning been given the client would have authorised the incurring of the cost. Continue reading “Limit on the unrecoverability of unusual expenses principle in Victoria”

Must a creditor obey debtor’s direction as to which of several debts a payment is to be put towards?

(Amended on 31 May 2012) Except that I had a feeling creditors were obliged to apply debtors’ payments to the oldest outstanding debt, I have never known until recently what the law was exactly in relation to a creditor’s obligations and entitlements where a debtor makes a payment which could be applied to one of several debts.  I suspect many lawyers are in the same situation. Experience teaches that allocations of payments against debts can have many ramifications, the most obvious of which are in relation to interest, and the application of statutes of limitations.  This statement was recently re-stated as good law in Victoria:

‘When a debtor is making a payment to his creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly. If the debtor does not make any appropriation at the time when he makes the payment the right of application devolves on the creditor.’

It is a statement of Lord McNaughten in Cory Brothers & Company v Owners of Turkish Steamship ‘Mecca’ [1897] AC 286 at 293 and Deeley v Lloyds Bank Limited [1912] AC 756, 783 is apparently to like effect.  In response to the original version of this post, two readers, fellow barrister blogger in Melbourne Paul Duggan and Brian Lambert of Brisbane’s Birch & Co, alerted me to an additional proposition, being the one I had had a vague undertanding of.  Namely that where neither creditor nor debtor makes any conscious appropriation (as will frequently be the case), the default position is that the payment will be applied to the oldest debts first: Devaynes v Noble (‘Clayton’s Case‘) (1816) 1 Mer 572.

The rule was re-asserted by Mason CJ and Dawson, Toohey and Gaudron JJ in Sibbles v Highfern Pty Ltd (1987) 164 CLR 214; [1987] HCA 66 at [11], and was neatly summarised by Lockhart J in Re Walsh; Ex Parte: Deputy Commissioner of Taxation (1982) 60 FLR 355; [1982] FCA 88 in a passage which also explains what is meant by the debtor making an appropriation. His Honour said:

‘A debtor who owes two debts to a creditor is entitled to appropriate a payment which he makes to his creditor to one debt rather than to the other. If he omits to do so, the creditor may make the appropriation. If neither makes any appropriation, the law appropriates the payment to the earlier debt. If there is specific appropriation by the debtor cadit quaestio. In the absence of a specific appropriation it is a question of fact whether there was any appropriation by the debtor. To constitute an appropriation there must be more than an intention to appropriate by the debtor. I respectfully adopt the following passage from the judgment of Greene L.J. in Leeson v. Leeson (1936) 2 K.B. 156 at pp. 162-163:-

“When, however, he does not notify the creditor of his intention, and when the circumstances are such that the creditor receives the payment merely in satisfaction of the debts and the payment is not more appropriate to the payment of the one debt than to that of the other the creditor is entitled to make the appropriation. When it is said that there need not be an express appropriation of a payment, but that the appropriation can be inferred, that does not mean that appropriation of a payment can be inferred from some undisclosed intention in the mind of the debtor. It is to be inferred from the circumstances of the case as known to both parties. Any other view might lead to injustice, as the creditor’s right to appropriate a payment would be defeated. When the matter is examined upon principle it will be found that an undisclosed intention in the mind of the debtor is not sufficient to support an appropriation. If authority is needed for that proposition it can be found in the judgment of Lush J. in Parker v. Guinness 27 Times L.R. 129, 130 where he said: ‘What is to be considered is this. Is the true inference to be drawn from all the circumstances of the case that the debtor paid the moneys generally on account, leaving the creditor to apply them as he thought fit, or is the true inference that he paid them on account of special portions of the debt for the purpose and with a view to wipe these out of the account? His undisclosed intention so to do would, of course, not benefit him. It is what he did in fact, and not what he meant to do that is to be regarded.’ A debtor’s undisclosed intention to appropriate a payment to one of two debts owed by him to a creditor cannot benefit him.”‘

 

What do you need to plead in a suit for fees?

I have posted before about what needs to be pleaded in a modern suit for fees: see this post and the posts linked to within it.  Today I have come across a decision in which the failure to plead that which many people think need not be pleaded resulted in a semi-successful application to set aside a default judgment entered by a solicitor against a former client: Wiley v Ross Lawyers (14 February 2012) [2012] QCATA 22, a decision of Queensland’s equivalent of VCAT.  The lawyers had not pleaded a valid costs agreement or other basis for charging fees on the basis they were in fact charged, that there had been good service of a valid bill, or that there had been good service of a notice of rights.  Apart from these defects in the pleading, the evidence in support of the application to set aside the default judgment was not compelling.

The tribunal ordered that the application to set aside the default judgment was to succeed or fail depending on whether the lawyers filed an affidavit verifying compliance with chapter 3 of Part 3.4 of the Legal Profession Act 2007 (Qld), the part which deals with costs disclosure defaults.  I can only imagine that there are very many clients against whom lawyers have entered default judgments who are likely to be able to have them set aside as irregular, even years after the event, though the Queensland tribunal cases might be distinguished on the basis of the need to establish for jurisdictional reasons that what was being sued for was a debt or liquidated demand.  The member relied on a previous decision of the same tribunal (Morales v Murray Lyons Solicitors (a firm) [2010] QCATA 87) where the Deputy President, Judge Kingham agreed with the reasons of Member Mandikos, who said: Continue reading “What do you need to plead in a suit for fees?”

Accord and satisfaction as a defence to a suit for taxation

[Edited and updated 13.2.12] I have two taxations at the moment where accord and satisfaction is pleaded as a defence, in proceedings governed by the Legal Profession Act 2004 (Vic).  In the first, the client and the solicitor cut a deal in relation to costs, and the client subsequently sought to tax the costs.  In the second, a non-associated third party payer and the client cut a deal in relation to the amount the former was obliged to pay the latter pursuant to a loan agreement, and the third party payer has now brought an application against the client’s solicitors for taxation.

Accord and satisfaction is a litigation estoppel.  It serves a similar function to res judicata where the original dispute is quelled by contractual agreement (i.e. a ‘settlement’) rather than by judicial determination. It is what stops a party who settles a pre-litigious dispute from suing on it, and, depending on how the proceeding is disposed of (withdrawn, discontinued, struck out, dismissed, judgment for one party), may also be what stops a party to litigation who settles it from re-instituting it (res judicata flowing from the Court’s orders disposing of the proceeding is the other possibility).

Helpfully, the NSW Court of Appeal recently drew the authorities on accord and satisfaction together in El-Mir v Risk [2005] NSWCA 215 and provided a cute little restatement of the law, which is reproduced below.  There seems to be little authority on accord and satisfaction preventing taxation where disputes in relation to the quantification of liability for legal fees are settled before the institution of taxation proceedings. Certainly, the US Court of Appeals for the Third Circuit had no difficulty with the application of accord and satisfaction as a bar to taxation: Michael J Benenson Associates, Inc v Orthopedic Network of New Jersey 2002 U.S. App. LEXIS 23559; 54 Fed. Appx. 33, and the Federal Court seems to have assumed the possibility in Amos v Monsour Pty Ltd (formerly Monsour Legal Costs Pty Ltd) [2010] FCA 741, but in neither case was the question argued. Does anyone know of any other useful authorities? Continue reading “Accord and satisfaction as a defence to a suit for taxation”

Incorporated legal practitioners required to give consumers itemised bills within 7 days

From the latest newsletter of Queensland’s Legal Services Commissioner, we learn that he is tentatively of the view that incorporated legal practices are required to give itemised bills within 7 days of a ‘consumer’ client’s request.  Certain others may be in other situations as well, by virtue of the extended operation of the Australian Consumer Law as a law of the Commonwealth provided for by s. 6 of the Competition and Consumer Act 2010 (Cth) (good luck working out what that provision means in a hurry). I raised this possibility back here, and have been meaning to get around to working out exactly how s. 161A of the Fair Trading Act 1999 (Vic) operates ever since.  Section 161A is the Victorian analogue of the Queensland provision s. 55 referred to below.  Kudos to the Commissioner for putting out for comment a discussion draft of a future regulatory guide ‘The Application of the Australian Consumer Law to Lawyers’.  See also the ACCC’s publication ‘The Professions and the Australian Consumer Law’.  The Commissioner’s tentative analysis is reproduced below.  What I want to know next is what the consequences are if s. 101 of the Australian Consumer Law is breached. Continue reading “Incorporated legal practitioners required to give consumers itemised bills within 7 days”

The Keddies overcharging civil case no. 1

Liu v Barakat, unreported, District Court of NSW, Curtis J, 8 November 2011 is the latest in an ongoing scandal in NSW in relation to overcharging by a prominent personal injuries practice which traded as Keddies, but has subsequently been gobbled up by a publicly listed company.  Many are unhappy at the strike rate of the NSW Legal Services Commissioner in the whole affair (the sole remaining disciplinary prosecution is two and a half years old and not heading to hearing until April next year), but now the District Court has given judgment in a case finding what appears to amount to fraudulent misrepresentation in relation to the billing of about $69,000 (reduced on a ‘but say’ basis to about $64,000) in a personal injuries case where liability was admitted before Keddies got in the harness, and where the proper charge was about $21,000.  Justinian‘s Richard Ackland has the background and latest here.

The partnership apparently bungled the settlement of a taxation allowing the claim to slip through to judgment, and Judge Curtis of the NSW District Court ended up ordering Keddies to repay to the client the difference between what they charged and what they were entitled to charge.  The reasons provide food for thought for those out of time to commence taxation because the judge found that the bills had within them implied representations that the amounts billed were properly chargeable at law.  He reduced the fees chargeable by Keddies to the amount in fact properly chargeable at law, something which would ordinarily be achieved in a taxation.  Such logic might be employed in many cases in the 5 years after a bill during which the client is out of time for taxation but within the 6 year limitation period for prosecuting a misleading and deceptive conduct claim.

The case will be seized on by opponents of hourly billing, and perhaps properly so (the first 6 minutes or part thereof charged for sending a pro forma welcome letter which required only the insertion of the client’s name is an example of why minimum charges of 6 minutes are abhorrent when applied literally, for example).  But it really appears to be a case about simple dishonesty (by whom is not made clear), because in the main this was not a case where the clients were billed outrageously albeit according to the terms of a contractual agreement which bound them.  I say that because if there was any innocent explanation advanced by the Keddies partners for the conduct the most obvious explanation for which was someone’s dishonesty, it was not recorded in the judgment.  This was a case where, in the main, work was charged for which was not done (most likely as in the case of the second 6 minutes or part thereof billed for the welcome letter), or not done by a person whose contractually agreed rate warranted the charge for the time spent.  For example:

  • A secretary was impermissibly charged at partners’ rates ($460 per hour).
  • One hour’s work was charged on 4 October 2005 for drafting the costs agreement which had been signed on 30 September 2005, and an associated explanatory document at  senior litigation lawyer rates, when in fact all that was required was the insertion of the client’s name.  The Court held that the rate which would have been properly chargeable under the costs agreement had that been the appropriate method of billing was 6 minutes of a secretary’s time at secretaries’ rates. No argument appears to have been advanced that this was not work done for the client, but the lawyers’ own costs of entering into a contract to which they were a party and which they wished to propose the terms of.  There is no record of any evidence having been given that the time entry was a mistake, and it is hard to see how the recording of time beyond (at most) one block of 6 minutes or part thereof could have been anything other than outright dishonesty on at least someone’s part within Keddies, even if this activity was properly taken to be work engaged in by the solicitors on the client’s behalf.
  • A charge for two blocks of 6 minutes or part thereof was charged at the secretaries’ rate for reading a letter advising the time, date and place of a medical appointment, a further charge of two such blocks for ‘considering’ that letter, and a further charge of two such blocks for advising the plaintiff by letter of that information.  The total bill for work which it is hard to see taking 5 minutes of a secretary’s time was $108 (for which incidentally, just to keep this real, you can currently have a linguine with fresh sardines, pine nuts, currants and saffron, a gravlax, three glasses of Italian prosecco, a chocolate pudding with peanut butter ice cream and a strawberry mousse with jelly and meringues at Gill’s Diner).
  • The plaintiff was charged $184 (4 blocks of 6 minutes or part thereof at partner rates) for reading, then considering, a letter which said ‘We enclose authority for execution by your client to enable us to obtain documentation from the Department of Immigration and multicultural and indigenous affairs.  Please have your client sign the authority and returned to us as soon as possible.’
  • The plaintiff was charged $131 (3 blocks of 6 minutes or part thereof at partner rates) for reading an email the non-formal parts of which read ‘Rcv’d’.  (What a freaking joke!) She was charged the same amount for reading the email to which that was a reply, the non-formal part of which read ‘I refer to our telephone call this morning.  I have been directed by Assessor J Snell, to inform CARS: 1.  The CARS hearing date on 14 September 2005 has been vacated — please cancel the interpreter arranged by CARS. The CARS hearing date has been rebooked for 17 November 2006 at 10 am — please rebook a Mandarin interpreter.’

It will be interesting to see the response of the police, the NSW Legal Services Commissioner and the Council of the NSW Law Society to the judgment, especially in light of the fact that the plaintiff’s complaint to the Commissioner was officially withdrawn, a fact which did not of course prevent the Commissioner from continuing to investigate it: s. 512 Legal Profession Act 2004 (NSW).  Somewhat surprisingly, I learn from that section, that the withdrawal of the complaint also does not prevent the complainant from re-lodging it: sub-s. (5). Continue reading “The Keddies overcharging civil case no. 1”

Solicitors’ exposure to falling between two stools in solicitor-client taxations revealed

Update, 16.2.12: See now Ipex ITG Pty Ltd v McGarvie [2011] VSC 675.

Original post: A recent decision of the Supreme Court’s Costs Court means that solicitors have only a non-extendable 60 days in which to seek taxation of counsel’s fees, even though clients and third party payers have an extendable 12 months in which to seek taxation of the solicitors’ fees, including disbursements such as counsel’s fees: Kong v Henty Jepson & Kelly Pty Ltd, unreported, Associate Justice Wood, 4 April 2011.  The same result was reached in I.J.R. Homes v MDM Legal Services SCI, unreported, Associate Justice Wood, 12 September 2011, and the Costs Judge’s comments in that order are reproduced at the end of this post too.  Unless the barrister may be joined to and bound as against the solicitor to the outcome of the taxation of the solicitors’ fees initiated after the expiry of the time allowed to the solicitor for seeking taxation of the counsel’s fees, the solicitors run the risk of the client being liable to them only for the taxed down amount of counsel’s fees while the solicitors remain liable to the barrister for the full whack.

And the solicitor cannot get around the problem by seeking to procure their client to seek taxation of the counsel’s fees directly against counsel, because, the Supreme Court says, clients have no standing to do so.  Though the Court has a discretion under s. 3.4.42 to join ‘concerned law practices’ and order that they be bound by the outcome, it did not make such orders in the Kong Case joining the barrister, though for reasons peculiar to that case, the Court’s reluctance to do so may not be as great in future. All of that applies where the traditional relations between client, solicitor and counsel are entered into; where the client has a costs agreement with the barrister, things are different, and less problematic for solicitors.

But for the fact that solicitors tend to disregard the law of costs and carry on as they always have, no matter what the law is and how it is changed, four reactions might be expected in Victoria and the many other states with analogous statutory provisions:

1.   Solicitors will commence prophylactic applications for taxation of counsel’s fees within 60 days after service on them of the fee slip, in case the client later seeks to tax the solicitors’ bills (but they may well have to pay the costs of doing so out of their own pockets);

2.  Solicitors will require counsel to contract directly with clients in relation to fees, which many counsel will not be prepared to do;

3.  Solicitors might seek to contract out of clients’ rights to review counsel’s fees as disbursements on their bills, or to contract out of their rights to review counsel’s fees as disbursements on their bills, once their right to seek review of counsel’s fees has expired, but that is likely to be effective only where the clients and third party payers are ‘sophisticated’ within the s. 3.4.2 meaning of that term, since agreements about costs which purport to contract out of normal (as opposed to ‘sophisticated’) clients’ and/or third party payers’ rights to taxation are void: see ss. 3.4.26(5) and 3.4.31; or

4.  Solicitors might make it a term of their costs agreement with counsel that counsel indemnify the solicitors against any difference between the amount paid by the solicitors to the barrister and the amount payable by the client to the solicitors in respect of those same fees, but any such agreement would have to have a degree of sophistication, to avoid counsel taking the rap for a solicitor’s default (such as where counsel provide adequate information for the solicitor to provide disclosure of counsel’s fees to the client, but the solicitor fails to do so, with the result that the solicitor’s taxed costs, including disbursements such as counsel’s fees, are reduced under s. 3.4.17(4).

How are similar problems treated in other states’ and territories’ taxing and review jurisdictions?

Continue reading “Solicitors’ exposure to falling between two stools in solicitor-client taxations revealed”

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.

More on the indemnity principle

Up in NSW, the system of reviewing legal costs is very different from here in Victoria.  It is done on the papers by non-judges.  As District Court Judge Peter Johnstone said in Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55:

‘the costs assessment process is a statutory process that is neither wholly judicial, nor wholly adversarial, as there are strong elements of an inquisitorial nature involved. These features of the process are important to understand when evaluating decisions as to a matter of law made in the course of the assessment.’

A costs assessor was assessing the party party costs payable by one party to a more successful party in litigation.  He satisifed himself that the indemnity principle was not breached by perusing the costs agreement which regulated the solicitor-client costs payable by the more successful party to its own lawyers, and was ‘satisfied that the amount claimed by the costs applicant is no greater than the amount for which the costs applicant would be liable pursuant to those agreements’.

Judge Johnstone said, applying Shaw v Yarranova Pty Ltd [2011] VSCA 55, that a costs assessor need not take evidence of the actual amount charged by the more successful party’s lawyers in every case, but must do so when there is evidence casting doubt on the proposition that the claim for party party costs was no greater in total — not per item — than the solicitor-client costs.  Here there was sufficient evidence to cast such doubt, and the costs assessor was wrong not to have insisted on evidence as to the amount payable on a solicitor-client basis.

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”

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”