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What does an indemnity costs order actually get you?

On 3 October 2014, Besanko J decided in Bob Jane Corporation Pty Ltd v ACN 149 801 141 Pty Ltd [2014] FCA 1066 that an order of a fellow judge that one party pay the other’s costs on an indemnity basis, which did not specify that the costs were to be assessed by reference to the successful party’s costs agreement with its solicitors, entitled it to costs assessed on that basis.

The Federal Court is therefore a better place to get an indemnity costs order than the Supreme Court because the law in the Supreme Court, as determined by the Costs Judge,  is that the beneficiary of an indemnity costs order gets costs assessed according to the same scale as ordinary costs are assessed by reference to, but with an easier road to showing that the costs incurred ought to be paid by the other party at all: ACN 074 971 109 as trustee for the Argo Unit Trust v National Mutual Life Association of Australia Limited [2013] VSC 137.

In the Supreme Court, of course, a special costs order allowing costs to be taxed by reference to the costs agreement may still be sought, and obtained, e.g. Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 3) [2012] VSC 399.  But that is the exception rather than the default, and one which many trial counsel may not be aware of.

So badly do many trial counsel deal with the question of costs that it really would not be a bad idea if litigants got advice more often than they do from costs lawyers before costs fell to be argued in any case in which there are substantial costs and fault in the costs sense on both sides, or a number of interlocutory costs issues remaining for determination.

Mind you, according to Besanko J, it has long been thus.  His Honour pointed to Beach Petroleum NL v Johnson (1995) 57 FCR 119 at 121 (per Von Doussa J) and older cases from other jurisdictions.

This case demonstrates that ultimately what determines questions of costs is always the statutory instrument which provides for them.  Increasingly, one jurisdiction’s jurisprudence will not prove persuasive in relation to different statutory regimes.

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What orders ought follow the setting aside of a costs agreement?

BGM v Australian Lawyers Group Pty Ltd [2014] WASC 290 (S) is a decision confined to questions about what ought to follow from a Court coming to a view that a costs agreement ought to be set aside.  Three matters are of interest:

1.  The Court took the view that it followed as a matter of statutory construction that upon a costs agreement being set aside, bills rendered pursuant to it were of no force and effect, and declined to make a declaration to that effect because it was unnecessary.

2. Though the Court assumed that some form of restitutionary relief would entitle the applicant to repayment of monies paid under such bills, the Court declined to make any such order because no such relief had been pleaded in the originating process.

3.  The Court declined an application for costs by the successful applicant for the setting aside of the costs agreement.  It did so on the basis that there was a Calderbank offer to accept a sum of money in satisfaction of the lawyers’ claim to fees.  The applicant argued that it had succeeded in the application to set aside the costs agreement and that the Calderbank offer should be brought to bear in the subsequent phase of ascertaining the fees against a scale which applied in default of the costs agreement having application.  But the Court reserved the question of the costs of the application to set aside the costs agreement pending the finalisation of that second phase.

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Is solicitor-director of ILP which acted for him to be treated as self-represented?

A NSW solicitor was partially successful in a defamation suit.  But for the circumstance that he had retained an incorporated legal practice with which he was associated and for part of the time the director and the file handler, the Court was willing to order the defendant to pay his costs on an indemnity basis.  In respect of the period in which the solicitor was — the fictions of corporations law aside — substantially self-represented, his costs were ordered to be assessed on the ordinary basis.   What McCallum J said in McMahon v John Fairfax Publications Pty Ltd (No 8) [2014] NSWSC 673 is:

Continue reading “Is solicitor-director of ILP which acted for him to be treated as self-represented?”

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What does ‘pro bono’ mean? Are ‘semi-pro bono’ costs agreements legally efficacious?

Hidden away in Trkulja v Efron [2014] VSCA 76, at footnote 49, is a little dictum of the Chief Justice and Justice of Appeal Santamaria which explains their Honours’ understanding of the term ‘pro bono’:

‘In current legal practice, the expression ‘pro bono basis’ is understood to refer to the basis where a practitioner offers his or her services on a voluntary basis without any entitlement to or expectation of remuneration.’

Practitioners should, it seems to me, think carefully before describing themselves as acting ‘pro bono’ when their retainers provide for them to be paid out of the proceeds of a costs order made in favour of their client in litigation to be paid by their client’s opponent in the litigation.

There has been uncertainty in relation to the efficacy of a retainer which says ‘I will charge you $300 per hour but will seek to recover it from you only if you obtain an order that the other party pay your costs, and then I will only seek to recover my fees to the extent of the other side’s liability under the costs order’ or any variation of that concept.

The issue was that the indemnity principle requires total party-party costs to be no more than the liability of the person seeking the costs order to their own lawyers for costs.  If the liability depends on the making of a costs order, until the order is made, the liability is nil,  so that the indemnity principle precludes the making of the order in the first place (so the argument goes).   The latest important decision to endorse this reasoning, albeit in dicta, was King v King [2012] QCA 81.

Now if there is a principle which is properly described as ‘flexible’, it is the indemnity principle in costs law and it is a matter of surprise to me that the uncertainty has persisted so long given the obvious desirability from the perspective of access to justice to sanctioning such arrangements.

Happily, the Supreme Court of Queensland recently gave a decision this year which decided as a matter of ratio that an otherwise orthodox hourly rates costs agreement which included the following special condition was efficacious and did not offend against the indemnity principle:

‘No fees will be payable by you unless an order is made by the Supreme Court of Queensland in your favour for the payment of costs and those costs are recovered by us from other parties and any fees charged shall be limited to the amount of costs so recovered.’ Continue reading “What does ‘pro bono’ mean? Are ‘semi-pro bono’ costs agreements legally efficacious?”

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Application to set aside costs agreements for disclosure defaults fails

A decision of the Supreme Court of Queensland has made clear what ought to be more obvious than it appears to be, namely that costs disclosure defaults will not result in the setting aside of a costs agreement in the absence of evidence that the non-disclosures had some effect on the client’s decision to enter into the costs agreement on the terms in fact adopted between the solicitor and client. Continue reading “Application to set aside costs agreements for disclosure defaults fails”

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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?”

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Value pricing

What follows are my rambling first thoughts about value pricing, penned without having read any of the leading treatises on the question, and without having read any sophisticated value pricing-based retainers.  I am most willing to be shown the nuances and possibilities overlooked in my preliminary explorations.  I am not wedded to any of the positions.  I put them up for discussion.  I think the hourly rate as currently applied is dreadful in many ways, but I have anxieties about how fixed fees and value billing would apply in practice outside the relatively even bargaining ground of major firms and major corporations’ in-house legal teams in which it seems often to be discussed.  I have this anxiety that it is not going to do anything to remedy the most basic problem causing the cost of access to justice to be too great, the rapacity of mediocre lawyers, and may in fact exacerbate it.  I suspect that well-drafted, well-regulated fixed fees will crap on the current regime, but think the current regime might be greatly improved, narrowing the gap. And I worry about the regulation of fixed fees, given our legal system’s prima facie reluctance to interfere in fairly negotiated contractual arrangements.  In other words, I worry that the sanctity of contract will inhibit the adjustment by the courts of fees rendered by lawyers to clients.

When I think of fixed fees, I tend to think of them in very simple terms: ‘I will do your case for $100,000, including disbursements and counsel’s fees.’  There is a tendency to think of the $100,000 as a cap, but in a simple agreement like this, the lawyer will get the fee if the other side dies and the cause of action dies with him, or the other side settles a few days into the retainer, or the client stumbles across a smoking gun which renders their prospects of victory at nil.  Galling as paying anyone $550 per hour for a job which may go on and on and on may be, paying someone $100,000 for next to nothing must be even more galling.  Of course value pricing retainers may be very sophisticated, and I am guilty of myopia.

There is also, I think, a tendency to think of fixed fees as giving certainty at the outset in a way unique to this method of charging.  In Victoria (and, I think, everywhere else in Australia), solicitors must by law estimate at or near the start of a matter its total costs — their fees, witness fees to be charged as disbursements, counsel’s fees, and other disbursements such as trial and transcript fees — or, if that is not practicable a range of the possible total costs. So clients should be entitled to be placed into the same position as the solicitor in terms of knowledge of how much their matter will cost, with the advantage of fixed fee being no more than the apportioning to the client the risk of the matter turning out to be simpler than the price justifies and to the solicitor the risk of it being more complex.

Because of the poverty of solicitors’ compliance with the obligation to give a good faith considered estimate of total costs at the outset (and the almost complete non-enforcement of the obligation), fixed fees represent a great improvement to clients who fix them in their interests.  But at least some of that improvement could be achieved by fixing the current system by enforcing the requirement for good faith carefully considered estimates of total costs, rather than moving to fixed fees.  Quite a bit more could be achieved by introducing penalties for solicitors who exceed estimated total fees without justification.  More again by stamping out fraud.  And I suspect that the very real practical advantage of fixed fees begins to diminish somewhat as soon as the fixed fee becomes a series of fixed fees, and subject to scopes of work such that disputes over variations assume all the difficulties of construction law, except that one party will be a lawyer who will not have to engage lawyers to have the dispute on his behalf.  Especially is that so in the case of the ad hoc user of legal services who have no commercial relationship with the lawyers within which to negotiate.

I have this anxiety that what fixed fees are really about is allowing lawyers to sell their learning (aka ‘intellectual capital’) for fees much greater than usual rates would allow for the time involved in solving the client’s problem, or advising or representing them.  This is where ‘value’ comes in, I worry: where the value of the lawyer’s services to the client exceeds the product of the lawyer’s time multiplied by usual fees, the client should be charged more to reflect the value to the client of the services.

And I think I have a problem with the entrepreneurial professional. No doubt some people think I am an entrepeneurial professional, what with my blog and all, but from time to time prospective clients inform me of their problem, I send them a seminar paper that covers what they know, and they get what they want with a few minutes of my time at no fee.  More often, I provide advice for a few hundred dollars which a non-expert charging on time would be likely to charge substantially more for.  I think of this as the upside of time based billing, a manifestation of the proposition of the profession as a public service.  I want to make a good living, but if I can assist without spending too much time, then I feel some sort of duty to do so.  Of course there is nothing about time billing which makes it inherently favourable to giving away your intellectual capital.  Value pricers can be kind too.  But I just get the impression that value pricing as a mindset will tell lawyers that they must charge a premium whenever a good chunk of their ‘intellectual capital’ is let loose. Continue reading “Value pricing”

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Gross overcharging penalties surveyed

In Legal Profession Complaints Committee v PJO’H [2011] WASAT 95 (S), delivered on 20 February 2012 and not yet on Austlii, the Tribunal helpfully reviewed the penalties awarded in the gross overcharging cases over the years before suspending the respondent from practice for 6 months (the Committee wanted 18).  Two other things are notable about the case.  First, the Complaints Committee’s costs of the matter were $134,000 and were described as reasonable.  Second, the practitioner drafted his character witnesses’ evidence himself.  Didn’t go down well.  The decision was the work of a tribunal of three presided over by Justice Cheney.  Here’s the Tribunal’s survey:

‘In Re Veron; Ex parte Law Society (NSW) [1966] 84 WN (Pt 1) (NSW) 136, the practitioner was struck off following findings of some 65 instances of overcharging clients in respect of personal injury actions. The overcharging was found to be deliberate and there were related charges proved against the practitioner involving dishonesty or fraud in respect to the practitioner’s dealings with his clients and their money. Continue reading “Gross overcharging penalties surveyed”

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Important new case on when retainer by multiple clients will be taken to be several rather than joint

I have always been a bit dubious about the proposition to be found in the texts that in the absence of specification one way or the other, a multiple retainer is presumed to be a several retainer (so that the clients are severally responsible for their fair share of the costs) rather than a joint retainer (so that the clients are each responsible for the whole of the costs associated with acting for either or both).  The South Australian Supreme Court has gone through the authorities and said that there is no presumption, but the onus of proving a joint retainer falls on the solicitor, and the mere fact that joint instructions are given or that representation advances joint interests is not sufficient to found an inferred agreement to that effect: D A Starke Pty Ltd v Yard [2012] SASC 19.

So: if you’re one of several clients your lawyer has in relation to one matter, and you want to limit your liability to your fair share of the costs, you should stipulate for ‘several liability’, and if you’re a lawyer, and want to be able to recover all of the costs from each client, you should stipulate for ‘joint and several liability’.  And if you’re one of a number of clients against whom a lawyer is seeking to recover fees, wherever the written costs agreement is silent on the question, then so long as you believe that it was not actually agreed between you, albeit by implication rather than express communication, you should not agree to pay anything more than your fair share, which might be 50% if the work benefitted each of the clients equally (as where husband and wife conduct litigation over jointly owned matrimonial property) but which might be quite different from the other client’s/s’ faire share, as in this case.

Two things occur to me.  First, in a joint retainer, one client may well be an associated third party payer vis-a-vis the lawyer in respect of that client’s promise to pay the other client’s fair share of the lawyer’s fees.  I cannot immediately think of how this might affect the solicitor-client relation, but no doubt it might.  Secondly, in a regime such as that under the Legal Profession Acts where costs agreements must be written or evidenced in writing, all the major terms of the agreement are required to fulfil that requirement.  This case was decided by reference to the law of the one state which does not have a Legal Profession Act (South Australia).  A lawyer seeking to rely on an implied term (and therefore one very likely not evidenced in writing) might have difficulty in establishing such a term by virtue of the writing requirements.

What the Supreme Court of South Australia’s Justice Kourakis said on this subject is set out below:

Continue reading “Important new case on when retainer by multiple clients will be taken to be several rather than joint”

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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”

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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”

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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.

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Victorian Supreme Court takes relaxed approach to conditions for validity of no-win no-fee costs agreements

Legal Services Board v DF [2011] VSC 292 will be of considerable interest to those who draft and work within no-win no-fee retainers. Justice Karin Emerton found that though Victoria’s repealed Legal Practice Act, 1996 implicitly prohibited the charging of uplift fees otherwise than upon a ‘successful outcome’  it was open to parties to provide for the payment of an uplift in circumstances which could not be described, in ordinary parlance, as a ‘successful outcome’, such as where the client terminates the solicitor’s retainer.  Her Honour also found that ‘if you recover any money from your case’ was a sufficient definition of the ‘successful outcome’, finding that objectively construed, what those words meant were ‘if you recover any compensation’, as opposed to costs.  The decision will be of assistance in interpreting the similar provisions under Victoria’s Legal Profession Act, 2004 and the other states’ (South Australia excepted) equivalents.

Continue reading “Victorian Supreme Court takes relaxed approach to conditions for validity of no-win no-fee costs agreements”

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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”

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The limits on Kuek v Devflan articulated

The Court of Appeal has had the opportunity promptly to provide a decision illustrating the limits of its previous decision in Kuek v Devflan Pty Ltd [2011] VSCA 25, which I posted about here.  The opportunity arose in Shaw v Yarranova Pty Ltd [2011] VSCA 55, a unanimous decision of Justices of Appeal Redlich and Mandie.  A third party payer was principally responsible for the fees of the victorious litigant.  The vanquished litigant sought to avoid the adverse costs order by invoking the indemnity principle of legal costing by establishing that the victorious litigant had no obligation to pay its lawyers.  The Court of Appeal said that the law presumes that there is an obligation on the client to pay its lawyers even if there is evidence of an obligation on a third party to pay the lawyers as well.  It made clear that it would not sanction fishing expeditions to displace the presumption.  Here, the litigant’s parent company, which was the third party payer, did not have a costs agreement with the lawyers and neither did the litigant.  But unless lawyers agree to do work for a client for free, they are entitled to payment on scale even in the absence of a costs agreement. Continue reading “The limits on Kuek v Devflan articulated”

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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”

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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’?”

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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.

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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.

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Partly oral and partly written contracts

Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 is a case about the construction of partly written and partly oral contracts, and the application of the parol evidence rule to them.  Justice of Appeal Campbell summarised the cases in one of those beautifully crafted little numbered lists that this little newspaper regards fondly.  Truly, these little numbered lists of principles supported by authority are a labour of love and they are worth sharing.  His Honour said:

(1) When there is a document that on its face appears to be a complete contract, that provides an evidentiary basis for inferring that the document contains the whole of the express contractual terms that bind the parties: Gillespie Brothers & Co v Cheney, Eggar & Co [1896] 2 QB 59 at 62 per Lord Russell of Killowen CJ; Gordon v Macgregor [1909] HCA 26; (1909) 8 CLR 316 at 319-20 per Griffith CJ (with whom O’Connor J agreed), at 322-3 per Isaacs J; Hoyt’s Pty Ltd v Spencer [1919] HCA 64; (1919) 27 CLR 133 at 143-4 per Isaacs J (with whom Rich J agreed); Maybury v Atlantic Union Oil Co Ltd [1953] HCA 89; (1953) 89 CLR 507 at 517 per Dixon CJ, Fullagar and Taylor JJ; State Rail Authority (NSW) v Health Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191G-2C per McHugh JA (with whom Kirby P at 172G-3C and Glass JA at 180G agreed on this point); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424 (FC) at 505-6 [280]– [281], 509 [293] per Allsop J (with whom Drummond and Mansfield JJ agreed); Jessop v McInteer [2003] QCA 170 (FC) at [53] per Muir J (with whom Fryberg J agreed). Continue reading “Partly oral and partly written contracts”