Supreme Court sets aside default judgment in Magistrates’ Court and refers the fees to taxation instead of remitting suit for fees

Davey v Costanzo Lawyers Ltd [2021] VSC 449 is episode # c. 898 in my series  about suits for fees, ‘Many a Slip Twixt Cup and Lip’.

A family law firm whose website modestly explains that they are the ‘best family lawyers’ sued its former client for professional costs and barristers’ fees for work done in 2018.  They got default judgment for about $40,000 in June 2019, but they forgot to plead that they did the work set out in the bill, that being left to be inferred from the fact that they gave a bill.

In July 2019, a judicial registrar refused an application to set the default judgment aside.  A Magistrate at Heidelberg, reviewing that decision, came to the same conclusion in August 2019.  Then the plaintiff hired counsel and applied again to the same Magistrate to set aside the judgment, and she said no, again, in February 2020.

The lawyers had thrice claimed successfully that there was no merit at all in the client’s defence.  But the client got a barrister, sought judicial review in the Supreme Court and jumped the arguable defence hurdle on the fourth attempt, clearing House v R in the same leap though it was strictly unnecessary to do so, and won on the basis that the complaint had been so badly pleaded that it did not make out a cause of action in debt, so that the default judgment was irregular and should have been set aside ex debito justitiae.  Then she got costs.

The decision is also of interest in relation to the circumstances in which a second application to set aside a default judgment might succeed.  Quigley J observed in dicta:

’36 The new or additional material argued before her Honour is set out above at [16]. Her Honour was sceptical that the matters identified were new or different. However, insofar as it is necessary to make any observation in this regard, it is apparent that a more cogent formulation of the basis of the potential defence(s) [was] articulated in this second application before her Honour. In my view, this may be sufficient to provide a change in circumstances from the situation which pertained before the Court on the first occasion.’

In other words, if you’re represented competently the second time and you self-represented the first time, that might be enough.

The lawyers cannily obtained orders from the judge extending the time for taxation and convinced her to refer the matter to the Costs Court for taxation, rather than remitting the matter to the Magistrates’ Court to have a fourth go at getting it right.  That’s the kind of thing I might advise the law firm to do if they secretly felt that the client’s defences may not be quite as meritless as they claimed to, especially if one of those defences meant that there could be no judgment until there had first been a taxation, or the suit had been brought prematurely as the client claimed, before satisfaction of her request for an itemised bill.  Because then, out of time, they would be stuck with a difficult path to get before the Costs Court on their own application: DLA Piper Australia v Triclops Technologies Pty Ltd [2020] VSC 93.

A superior court seized of a dispute about lawyers’ fees to refer the dispute to the taxing officer of the jurisdiction is explained by Sir Owen Dixon in Woolf v Snipe (1933) 48 CLR 677 at 678.  But in this case, by consent orders it was  deemed that the client had applied for taxation and applied for leave to seek taxation out of time, and Quigley J then granted that leave.

With the benefit of hindsight, in view of how meritless it claims the client’s defence is, it is tempting to wonder whether the firm might not have been better advised to consent to the setting aside of the judgment and get on with winning the case on the merits which would have been a lot cheaper than defending the Magistrate’s second decision on appeal.  On the other hand, the taxpayers of Victoria will be paying the law firm’s costs, because the Supreme Court granted a certificate under the Appeal Costs Act.

In relation to the pleading point, the lawyers seem not to have done themselves any favours by having their counsel describe the criticism of the pleadings as a ‘cute pleadings point’.  Quigley J found (and this is the ratio of the case):

’56 On its face, the statement of claim sets out the material facts as identified as required by the plaintiff’s submissions, save that it does not plead directly that work was done. That work was done would need to be implied by the pleading that a bill was rendered.

57 The pleading sets out amongst the terms of the retainer that the plaintiff would be charged by the first defendant for the first defendant’s services, the first defendant would render bills for its services and that the bills were due and payable in accordance with the terms and conditions of the written retainer. It pleads that on or about 29 August 2018, a memorandum of professional fees and disbursements was rendered to Ms Davey for the total sum of $12,370 and that interest had accrued in the sum of $721.87. It was pleaded that it was a term of the retainer that pursuant to s 2 of the Penalty Interest Rate Act 1983, interest was chargeable on all monies outstanding beyond 30 days at the rate specified from time to time under that Act.

58 It was also pleaded that pursuant to the terms of engagement and retainer, barrister’s fees had been incurred for the benefit of the plaintiff and at her request, and the specific amounts in total owing to counsel were set out.

59 Whilst the first defendant has criticised this argument as being ‘a cute pleading point’, setting out the material facts so that the essential elements of a cause of action are pleaded is essential. This cannot be ignored.

60 On my review of the pleadings, I am not satisfied that performance of the contract has been pleaded, nor the terms of the contract sufficiently identified to allow the calculation of the debt to be established.’

It seems that the decision might have been based on expanded grounds.  The full criticism of the pleading and of why the judgment was entered irregularly and should have been set aside ex debito justitiae was recorded by her Honour as follows:

’49 It was claimed that the complaint filed in the proceeding was clearly deficient as:

(a) it failed to plead when work was carried out, or even that work was done. It was argued that this omission goes to the very heart of the cause of action without which there is no debt;

(b) the complaint did not contain sufficient information to enable the plaintiff to know the case she was expected to answer. It was not possible from the pleading to identify exactly for what work payment was being claimed. Some money had already been drawn down from the trust account, but knowing what payment was being sought for what work was said to be important as the plaintiff had told the defendant she did not have money to continue with the litigation;

(c) the complaint did not plead how the quantum was arrived at by reference to an hourly rate and the complaint failed to plead the claimed amount was reasonable as required by section 172(1) of the LPUL;

(d) the defendant claimed interest at the Penalty Interest Rate of 10% and not interest in accordance with section 195(4) of the LPUL and Legal Profession Uniform General Rules 2015, which caps interest payable on unpaid bills to 2 percentage points above the Cash Rate; and

(e) the defendant sought and received legal costs where the defendant was the solicitor on the record in its own matter and not entitled to receive legal costs contrary to the authority in Bell Lawyers Pty Ltd v Pentelow.’

Then her Honour effectively found at [62] – [68] that the Magistrate, though paying lip service to the propositions that ‘she is not called on to assess the merits or make a finding about the credibility of a witness or the evidence overall’, and the ‘defendant should be given an opportunity to defend a claim, even if their defence identified is only a weak one’, had in fact rolled up her sleeves and tried the case summarily. At [84], her Honour summarised it thus: the Magistrate had ‘formed an adverse view of Ms Davey’s credit, candour and motivation. Her Honour has also gone beyond an assessment of whether there is a defence articulated that might be valid when tested at trial. Both of these findings go beyond the task required.’


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