Federal Court sets aside bankruptcy notice used for debt collection against solvent individuals as abuse of process

Without first formally demanding payment of a debt, creditors served a bankruptcy notice.  The debtors were insolvency practitioners and there was no suggestion that they were insolvent.  Federal Magistrate Raphael set aside the notice on the basis it was an abuse of process, issued with a purpose not of making the respondents bankrupt but of embarrassing them. His Honour said:

‘The proper purpose of seeking a sequestration order against the estate of a debtor is so that a debtor, who is unable to pay his debts as and when they fall due, should have his affairs controlled for the benefit of all his creditors and not just specific ones.  Allied to this purpose is the prevention of the debtor incurring further obligations which he will not be able to meet. It is a public purpose. The bankruptcy process is not to be used for private ends.’

On appeal, the decision was confirmed by the Federal Court’s Justice Marshall.  In Lord v Rankine [2011] FMCA 668, at [20] – [34] (despite the numbering below) his Honour said:

Continue reading “Federal Court sets aside bankruptcy notice used for debt collection against solvent individuals as abuse of process”

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”

Letter of demand for fees found to be professional misconduct

A solicitor represented himself unsuccessfully before Western Australia’s State Administrative Tribunal in Legal Profession Complaints Committee v MLS [2010] WASAT 135, being found guilty of three counts of professional misconduct and three of unsatisfactory professional conduct.  The Tribunal’s summary of its own findings is reproduced at the end of this post. The solicitor told a Magistrate on an ex parte application for an intervention order against his client that the client had a criminal record, which the solicitor knew the client did not have.  Hardly surprising that that conduct was found to be misconduct.  More interesting, perhaps, is the finding that an unduly aggressive demand for fees was found to amount to professional misconduct.  It said, in effect — If you do not pay me $2,000, I will sue you, get default judgment, and bankrupt you for 5 years.  The problem was that the client had a rather good defence: the solicitor had not sent him a bill for the $2,000 disbursement.  The Tribunal found misconduct, explaining at [53]ff: Continue reading “Letter of demand for fees found to be professional misconduct”

Solicitors’ retainers have implied term of efficiency

In Michaels v Daley [2010] VCAT 1205, Senior Member Howell advised that:

’12    It usually is an implied term of the engagement of a legal practitioner, at hourly rates, that the work will be performed efficiently. It is an implied term of the kind that “goes without saying”, to adopt the phrase used by the Privy Council in B.P. Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 @ 26. It goes without saying that a client does not agree to a practitioner acting inefficiently, by spending an excessive amount of time performing legal work, only to be rewarded for every hour of inefficiency.’

Who knew?  Breach of the implied duty no doubt carries an entitlement to damages, and every suit for fees can be turned into a taxation, so long as ‘efficiently’ means the same as the concept of ‘necessary or proper’ in the law of taxation.

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’?”

What is a ‘lump sum bill’?

In the law of legal costs, there has long been a distinction between a lump sum bill, of the kind generally given in the first instance by solicitors to clients with whom they have an ongoing working relationship, and an itemized bill which is usually given if a client wants a bit more detail in relation to how the hell legal costs could possibly have blown out to the amount stated in the lump sum bill.  Where the solicitor-client relationship is under a fair bit of strain, or has broken down, itemized bills are sometimes given in the first instance.  They were, and sometimes still are, known also as bills of costs in taxable form.  There is quite a bit of law on what is necessary for a bill to qualify as an itemized bill, but not all that much about what is necessary to qualify as a lump sum bill.  The difficulty is exacerbated by the lack of definition of ‘lump sum bill’ in s. 61 of the Supreme Court Act, 1986 or its successors the Legal Practice Act, 1996 or the Legal Profession Act, 2004.

My friend Richard Antill gave me an old decision of the Supreme Court of Victoria on the question, Stevens v Keogh, unreported, 3 December 1996, Justice McDonald.  Contact me if you would like a copy. A solicitor sued his client for fees. The client defended, called no evidence at trial, and successfully contended that the solicitor’s evidence disclosed no case to answer.  The letter under cover of which the controversial bills was given said:

‘I confirm that at our first meeting I stated that my charge would be at the rate of $150 per hour or pro rata per part.  Accordingly my account simply lists the times spent on the work for you’.

The bill itself said:

Continue reading “What is a ‘lump sum bill’?”

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.

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 M [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”

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.

Termination of a no-win no-fee retainer

Mr Burmingham is the subject of three posts already.  They dealt with three discrete aspects of his case, Maurice B Pty Ltd v Burmingham [2009] VSC 20: a titillating detail, advocates’ immunity, and the nature of the suit for fees.  But his case was really mostly about what happens when a no-win no-fee costs agreement is terminated before the end of the case.  Of course, it all depends on what the costs agreement says, and this costs agreement was presumably the result of many years’ honing by one of Australia’s foremost plaintiff firms.  Justice Byrne was not complimentary of the draftsmen (nor of the court book’s reverse chronological order, a bugbear of my own).  But in the end, the lawyers got their fees even though they did not obtain a successful result for Mr Burmingham. Continue reading “Termination of a no-win no-fee retainer”

The suit for fees

One might imagine the suit for fees to be the simplest legal claim there is.  But there seems to be great confusion about what the elements of the claim are,  what defences are available, and the relationship of the suit with a taxation, or the failure to exercise a right of taxation. If anyone has any contributions to the mysteries referred to below, I would be happy to hear them. Continue reading “The suit for fees”