Taxation of costs of litigious matters where there is no valid costs agreement at all or where the costs agreement is void

In this post, I look at the law governing taxations of costs between lawyers and their clients, charged in litigation.  It used to be that where the costs agreement was void, or it was disregarded for the purposes of the taxation because of material costs disclosure defaults, or there was no costs agreement which covered the relevant work, the taxation would proceed according to the relevant court scale.

In two cases (Shi and Re Jabe), the Court has found that scale is the appropriate basis for taxing costs in this situation.  In others, where the Court considers that the client would not have done anything much differently had they obtained proper costs disclosure, and the costs charged were much the same as scale, or in accordance with what was being charged in a well-worked out market for a common kind of work, the Court has at an interlocutory stage told the lawyers that they can draw the bill of costs in taxable form by reference to the hourly rates in the void costs agreement, but that at the end of the day, the enquiry is what is fair and reasonable according to the criteria in s. 172 of the Legal Profession Uniform Law, noting also the considerations which may be taken into account in s. 200.

In other words, though the bill need not necessarily be drawn on scale anymore, nor is there the comfort that the lawyers will get at least scale.  They might get significantly less than scale.  Indeed, though I don’t know of it having been argued yet, they might get nothing, because, had the client been given proper disclosure they would never have embarked on the expensive exercise from which they gained no advantage.

Another thought: if the costs agreement is void, then though the hourly rate might still be able to be used for the purposes of the bill of costs in taxable form, the pernicious rounding up provisions in many costs agreements will be unavailable.  A bill where many one, two or three minute attendances are charged at one ‘unit’ of 6 minutes or part thereof, would only be able to claim a fraction of the fees which were actually billed. 

Lawyers in Victoria and NSW are prohibited from charging clients other than commercial or government clients costs which are not fair and reasonable in a statutory sense.  Section 172(1) of the Legal Profession Unform Law says:

‘A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are–

(a) proportionately and reasonably incurred; and

(b) proportionate and reasonable in amount.’

In civil cases, lawyers have a similar obligation under s. 24 of the Civil Procedure Act 2010 which requires them to:

‘use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—

(a)     the complexity or importance of the issues in dispute; and

(b)     the amount in dispute.’

Section 173 says:

‘A law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs.’

Section 174(3) says:

‘If a [costs] disclosure is made …, the law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.’

Section 172(3) says that in determining fairness and reasonableness, regard must also be had to any fixed costs legislative provision.  What this means is considered by Costs Judge Wood in Johnston v Dimos Lawyers, referred to below at [29] – [33].  The Family Court Scale is particularly loose, inviting taxing officers for example to ‘consider the rates ordinarily payable to lawyers in other cases.’  His Honour suggested, but did not find, that the Family Court Scale might not

Section 172(4) says that a costs agreement is prima facie evidence that ‘the legal costs disclosed in the agreement are fair and reasonable if’ there were no costs disclosure defaults and it conforms with the statutory requirements for costs agreements.  I am unaware of authority on the question of what ‘the legal costs disclosed in the agreement’ refer to: the disclosed costs estimates, or the disclosed rates of charge.

Section 200 says that in a taxation under the Uniform Law (as opposed to a party-party taxation), the Costs Court must consider the s. 172 factors ‘to the extent that they are applicable’, and may have regard to the s. 200 factors.  The s. 172 factors additional to those in sub-ss. (1) and (4) referred to above are:

‘whether the legal costs reasonably reflect–

(a) the level of skill, experience, specialisation and seniority of the lawyers concerned; and

(b) the level of complexity, novelty or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest; and

(c) the labour and responsibility involved; and

(d) the circumstances in acting on the matter, including (for example) any or all of the following–

(i) the urgency of the matter;

(ii) the time spent on the matter;

(iii) the time when business was transacted in the matter;

(iv) the place where business was transacted in the matter;

(v) the number and importance of any documents involved; and

(e) the quality of the work done; and

(f) the retainer and the instructions (express or implied) given in the matter.’

The s. 200 factors are:

‘(a) whether the law practice and any legal practitioner associate … involved in the work complied with this Law and the Uniform Rules;

(b) any disclosures made, including whether it would have been reasonably practicable for the law practice to disclose the total costs of the work at the outset (rather than simply disclosing charging rates);

(c) any relevant advertisement as to the law practice’s costs or the skills of the law practice or any legal practitioner associate … involved in the work;

(d) any other relevant matter.’

So: when conducting a taxation as between solicitor and own client under the Legal Profession Uniform Law (as opposed to as between party and party, i.e. where a winning party is taxing the value of a costs order against the losing party), the Costs Court must consider the s. 172 factors, one of which is that a costs agreement is prima facie evidence of fairness and reasonableness, and may have regard to the s. 200 factors.  This is different from how taxations of costs charged according to costs agreements governed by the Legal Profession Act 2004 worked, which was explained in Mathieson Nominees Pty Ltd v AJH Lawyers [2013] VSC 325. The 2004 Act gave greater primacy to valid costs agreements.

Johnston v Dimos Lawyers

In Johnston v Dimos Lawyers [2019] VSC 462, (2019) VR 16, the lawyers charged Mr Johnston about a quarter of a million dollars for his family law case. In early 2016 the lawyers gave a written costs estimate of $20,000, though orally Mr Dimos said costs could blow out to $150,000 or $250,000 (or $100,000 to $200,000 according to his file note).

The costs agreement said Jessica Montgommery, an associate, would do most of the work at $440 per hour, and she did.  Other lawyers would do some work at $550 and $660 per hour, and paralegals would be charged at $275 per hour.    There was no provision for increasing the rates over time.  Mid-retainer, however, Dimos Lawyers just started charging her out without notice to or permission of the client at $550 per hour on the basis that she had been promoted.

What the scale rate was at the time was not included in the Court’s reasons.  Court scales provide for item based remuneration (e.g. $23 per 100 words for letters) and have an hourly rate for anything which does not fit into the list of item based remuneration.  So there can be no casual comparison between fees charged on an hourly rate and scale rates.  But it is nevertheless relevant to note that the hourly rates for skilled and unskilled attendances which did not fit into the list of item based remuneration in the 2016 Family Court Scale were  $154 and $238 per hour, and that in the Family Law context, many lawyers charged much more than that.

After billing $70,000, the lawyers got around to telling their client that it might cost another $75,000.  Then they charged a further $110,000. But in June 2017, Mr Dimos had orally advised, and file noted that costs might reach $230,000 to $240,000 if the case went to trial.

Costs Judge Wood observed:

’18.  In the circumstances of this case a casual observer might conclude that an argument to avoid the provisions of the Family Law Cost Agreement was opportunistic given that an accurate total estimate was given at the first meeting and there would have been no reason to provide any update at all if it had been given in writing.  At the hearing the respondent submitted ‘This case, from start to finish, smacks of a client after the event with an eye on a potential windfall’.  In the context of the numerous  complimentary emails in relation to the respondent’s professionalism and the applicant’s gratitude sent in the course of the retainer this comment is not devoid of merit.’


’19. There is a prevalent misconception in the profession about the estimate provisions in the Act.  Demands for progress payments or the delivery of regular invoices for work already completed do not satisfy the Act.  Section 174(1) requires an initial estimate of total future legal costs and a regular updating of this figure when this has significantly changed and is out of date.  Section 174(6) mandates these to be in writing.

20. Any failure to comply with any of the provisions in relation to disclosure in Part 4.3 of the Act renders the costs agreement void. Non-compliance therefore equals void. There is no discretion to be exercised around ‘substantial’ compliance. If there was, I would have exercised it given the accurate oral estimate given at the outset. Failure to comply is no longer a matter that merely amounts to a potential ground for a discount of costs at the conclusion of the taxation as was the case under the former regime in the Legal Profession Act 2004. The limited future estimates that were provided in writing in this matter were insufficient to satisfy s 174(1)(b) of the Act. The Family Law Cost Agreement is therefore void.’

The Court  ruled at [42] that ‘Although the Family Law Cost Agreement is technically void, as a general principle the costs are to be assessed on the basis of the hourly rates specified in that agreement.’

But it is important to understand that a few paragraphs earlier, Costs Judge Wood had said:

’39. The respondent submitted that the criteria in s 172 are also considered when assessing whether the total costs are fair and reasonable.  Logically, that must occur at the conclusion of the taxation.  The applicant submitted that the Court should make the determination now as to what a fair and reasonable rate or basis is.  However, these matters can, and should, be addressed later and will emerge in the taxation when the work itself is examined, and the quantum for individual items, and for overall costs, are assessed against them.  All that is being determined at this point is the basis under which the itemised bills should be drawn and then the costs charged are assessed against that at taxation.’ (emphasis added)

In other words, though the Court was content for the bill to be drawn by reference to the hourly rates in the costs agreement, once the bill was taxed, the rate allowed for various bits of work might end up significantly below scale.

Essentially, the Court came to its ruling because:

    • Mr Johnston conceded, through his non-lawyer costs consultant, that $440 to $550 per hour was not unusual for family law work, so that there was no need for expert evidence on that question;
    • In MG v WJG (2005) Fam CA 1381 at [58], the Family Court had observed ‘that market rates at that time for experienced Family Law specialists could exceed [$495]‘; and
    • ’36. The wording in the Family Law Costs Agreement was clear and the respondent’s non-compliance could hardly be described as flagrant given the surprisingly accurate oral estimate that was provided to the applicant at the outset.  It is clear from emails from the applicant in the course of the retainer that he was mindful of the escalation of costs and displayed good insights.’

Bennett v Farrar Gesini Dunn Pty Ltd 

Costs Judge Wood came to a similar conclusion in Bennett v Farrar Gesini Dunn Pty Ltd [2019] VSC 744 (12 December 2019).

The lawyers charged their client nearly half a million dollars in family law and intervention order proceedings.  There was a child, four corporate or trust entities, and what was thought to be $20 million to $50 million in assets.

The client sought taxation of the fees and disbursements charged by the lawyers.  This judgment arises from a preliminary hearing like that in Dimos Lawyers.  A leading Melbourne costs lawyer, Antonella Terranova of Castra Legal Costing, gave expert evidence as to the rates being charged by family lawyers in Melbourne.  She was not cross-examined, and the client called no such evidence.

The more senior lawyer charged at $583 per hour which increased at one stage to $653 per hour.  The more junior lawyer charged at $462 per hour which was increased to $499 per hour.  Senior counsel charged $660 per hour and junior counsel, the only female lawyer, $220 per hour.  Costs Judge Wood was prompted to comment:

’25. It is worth noting here that the hourly rate for [junior counsel] is considerably less than [the more junior solicitor], even though she has been admitted for longer. Section 173 of the Uniform Law mandates that ‘a law practice must not act in a way that necessarily results in increased legal costs payable by the client’. This may be a live issue for the taxation but given the discrepancy in hourly rates between junior solicitor and junior counsel employed, it might have been preferable to utilise, and delegate more work to [junior counsel] and less to [the more junior solicitor].  I express no concluded view about this as it will be a matter for the taxation.’

The costs agreements were void for disclosure defaults.  The client argued that the costs should be taxed against a court scale.  Innovatively, she suggested that maybe some court’s scale other than the Family Court’s scale could be specified, perhaps tacitly recognising that the Family Court scale is notoriously low if applied to high value difficult cases.

Alternatively, she said, ‘the hourly rate should be “capped” at some lower figure than those in the Costs Agreements because of the non-compliant disclosure.’  Costs Judge Wood gave that submission short shrift:

’47. … section 172(2) includes a number of matters that need to be considered in addition to failures identified in section 172(3) and they will only emerge on taxation. Capping hourly rates at this point at some arbitrary figure is not appropriate.’

The Court ruled:

’61.  There are a number of factors outlined in section 172 of the Uniform Law to be considered when determining fair and reasonable charging.  Some of these involve considerations that might only become clear in the assessment proper.  For example, urgency, time and place where the work was performed, the number and importance of documents and the quality of the work. [fn: Section 172(2)(d)(i),(iii),(iv),(v) and (e) of the Uniform Law.]  Logically a final determination cannot be made until the conclusion of the assessment.  These matters will emerge in the taxation when the work itself is examined, and the quantum for individual items and overall costs, are assessed against them.  All that is being determined at this point is the basis upon which the bills are drawn and assessed against.

62. Although both the First Costs Agreement and the Deferred Costs Agreement are void, as a general principle the respondent’s costs are to be assessed on the basis of the hourly rates specified in them and counsel fees are to be assessed on the basis that they were rendered.

63. This finding should not be seen as ‘rewarding’ the respondent in spite of breaching the Uniform Law, just as applying a lower rate should not be done as a mode of ‘punishment’ for non-compliant disclosure.  The Uniform Law is a scheme which already sets out a myriad of consequences for breaches of the Uniform Law. In addition to the Costs Agreement being void (s 178(1)), there is a loss of the prima facie presumption that the costs in the Costs Agreement are fair and reasonable (s 172(4)(a)), the breach can amount to unsatisfactory professional conduct (s 178(1)(d)), the law practice is prima facie liable for costs of the proceedings (s 204(2)(a)), and the non-compliance can be one of the factors considered in the assessment (s 172(3)).

64. Irrespective of whether there is no Costs Agreement, or there is a valid Costs Agreement, or there is a void one, the obligation on the Costs Court remains the same, namely to assess what is fair and reasonable (ss 172(1) and 200(1)).’

Cameron v Thomson Geer

The lawyers had acted for the applicants in defending an ACCC prosecution (see ACCC v Geowash (No 3) [2019] FCA 72) in the Federal Court at Perth which resulted after a 9 day trial in findings of misrepresentation, significant fines and periods of disqualification.  The applicant clients sought taxation of bills totalling about $190,000 dated between June 2017 and April 2018. The more senior solicitor charged at $682 per hour and the more junior lawyer at $638.  Federal Court scale allowed $638 per hour for skilled attendances not covered by item based remuneration.

Costs Judge Wood found no disclosure defaults in Cameron v Thomson Geer [2020] VSC 75 (2 March 2020) so the costs agreement was not void.  But his Honour said:

’21. Even if that conclusion was wrong, the assessment of costs would still be undertaken on the hourly rate for Mr Hannan in the Cost Agreement given its close alignment to the raw figure in the Federal Court scale rate, and the additional option under that scale to add a percentage (commonly up to 15%) for discretionary factors. Comments made in Johnston v Dimos Lawyers and Bennett (a pseudonym) v Farrar Gesini Dunn … would also be apposite in this regard and provide sufficient justification to assess costs on the rates in the Cost Agreement even if it was void.

22. The applicants came to the hearing prepared to argue for the Federal Court scale to apply but did not come armed with the necessary information to address the question of whether this was a worthwhile argument or not in relation to [the more senior lawyer]. In fact it is unlikely the applicants would be better off even if the Federal Court scale applied and the applicants’ counsel acknowledged at the hearing that there may not be a great disparity. It is surprising that the argument was run without adequate consideration of the potential impact of the argument being successful.’

Shi v Mills Oakley

Shi v Mills Oakley [2020] VSC 75 is a decision given on 17 August 2020 of Judicial Registrar Gourlay, who recently retired.

Mr Shi sold a business to Mr Wu, who sued him in the County Court in February 2018, lost, and got a costs order against him which was untaxed at the time of this hearing.  See Wu v Shi [2019] VCC 858. Mills Oakley represented Mr Shi in that litigation.

The lawyers acted for the client in relation to the dispute between vendor and purchaser for a substantial period prior to the litigation. In November 2016, the lawyers wrote to the client saying:

‘There is one thing I should bring to your attention, however – we are outside the Scope of work and fee estimate I previously gave you.  It isn’t possible to determine what work will be necessary to do in relation to this dispute, and therefore how much it will cost.  As a result, I will be charging my usual hourly rate in working for you, which is $475 per hour.’

They told him in conference that the litigation could cost him $100,000 but did not record that estimate in writing until 5 March 2018.  The formal written costs disclosures and proposal for a costs agreement in November 2016 provided for the following hourly rates: ‘Mr Warren Scott (Partner) at $620, Mr Venn King (Special Counsel) at $475, Ms Ellen Rattray (Law Graduate) at $220, Mr James Tobin (Partner) at $560 and Mr Edwin Fah (Senior Associate) at $430.’

In the formal written estimate, the lawyers specified that they had used a blended hourly rate of $350 per hour in formulating it, and the client suggested that the costs could be taxed against that hourly rate for all solicitors’ work.  In April 2018, the client authorised the lawyers to brief Gabi Crafti of counsel at $400 per hour.

The lawyers ended up charging more than $265,000.  Judicial Registrar Gourlay ruled:

’38. In this matter the respondent’s position was that it had made reasonable and appropriate cost disclosures and that the costs agreement was not void.  The respondent argued that, at every stage in the retainer, it was always open to the applicant to question the costs disclosures given to him and if he was not satisfied with the charges being made he could go elsewhere and utilise the services of another law firm.  The respondent submitted that, using the words of Associate Justice Wood in Johnston v Dimos Lawyers, the application was opportunistic.  However, in my view the first costs disclosure is limited to the described scope of work and once the County Court Writ had been issued the solicitors should have given further and accurate costs disclosures.  The estimates relied on by respondent that the costs would approach or be in excess of $100,000 come from the 10 November 2016 conference prior to receipt of initial instructions to act.  There does not appear to have been any further consideration of the substantial change caused by the Writ being issued.  In both cases where the estimate is in writing the lawyers refer back to the initial verbal estimate without reference to the costs charged to date or the substantial changes in the matter.  They are inadequate, particularly if taken to include the likely disbursements, including counsel’s fees, up to the end of the trial.  Both of the later estimates of $60,000 and $70,400 do include counsel’s fees and preparation for trial, but exclude all other reasonable disbursements such as translators/interpreters, the costs of issuing and serving subpoenas, and transcript fees.   In the circumstances I conclude that the applicant was not given proper disclosure of the anticipated legal costs.  These estimates cannot be described as “accurate”.’

Gourlay JR found at [40] that when the purchaser unexpectedly commenced proceedings, things changed so much that there was really a new matter, calling for fresh disclosure, but if it was the same matter, it didn’t really matter, because there was then a breach of the obligation to update previous disclosures where there was a substantial change.

At [48], Gourlay JR specified the consequences of the voidness of the costs agreement:

It seems that the applicant initially knew and understood the hourly rates charged for the work undertaken by the respondent prior to 9 November 2016. The respondent terminated that retainer on 9 November 2016 as the new instructions were outside the previous scope of work. The respondent then sent a new cost agreement on 11 November 2016. That the same step was not undertaken in or around February 2018 [when the County Court proceedings were commenced by the purchaser] is difficult to understand. Therefore, in my view it is reasonable to conduct the taxation of costs for the work undertaken in 2016 and 2017 on the rates of the costs agreement as those rates had been agreed to by the applicant on 11 November 2016. After that date, no new and reasonable costs estimates were given that can be said to comply with s 174(1)(a) or (b). So that in respect of the bills given after 5 March 2018 the legal costs should be taxed on the County Court scale of costs as the only relevant basis that can be applied. In my view the respondent failed to provide a new costs agreement or relevant costs disclosure for the new retainer. This scale reflects the Court’s view of reasonable costs at a reasonable rate for work undertaken in the County Court. It will be necessary for the respondent to prepare bills drawn on the scale before the taxation can be conducted.’

Re Jabe; Kennedy v Schwarz

Re Jabe; Kennedy v Schwarz [2021] VSC 106 is the subject of this blog post.

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