Often enough, lawyers would love to avoid having their costs taxed. Under the repealed but still operative Legal Profession Act 2004, lawyers could contract out in advance of the obligation to have their fees reviewed by taxation with ‘sophisticated clients’, but I do not recall ever having seen anyone attempt to do so.
When lawyers have not complied perfectly, vis-a-vis unsophisticated clients, with the costs disclosure regime under the repealed but still relevant Legal Profession Act 2004, they could not recover their fees unless there had been a taxation: s. 3.4.17.
It was clear that unsophisticated clients could not validly agree to waive in advance of the fees being incurred their right to tax their lawyers’ charges. But what about if the solicitors entered into a compromise of a dispute about their already rendered fees with their client?
How did the law of accord and satisfaction apply? (Accord and satisfaction is the litigation estoppel equivalent to res judicata when a dispute is compromised or ‘settled’ rather than adjudicated upon.)
Can lawyers get certainty and avoid further disputation (including taxation) in return for a discount on their fees? Can they get around the s. 3.4.17 prohibition on recovering fees in cases of disclosure defaults unless they have been taxed? If a taxation is commenced and then compromised, I would think there was no doubt that the fees have been ‘taxed’ for the purposes of this rule, especially if the compromise were embodied in orders finalising the taxation. But what if the compromise occurs without any summons for taxation having been issued? Need the compromise comply with the formal requirements for costs agreements on the basis that they are agreements about the payment of legal costs which have been which have been charged for the provision of legal services? Does the accord have to state expressly that the client waives the right to taxation?
It seemed until recently, that lawyers could not preclude taxation by compromising a dispute with a client or associated third party payer about fees, because such agreements would amount to a ‘costs agreement’ under the Legal Profession Act 2004. Costs agreements were defined, after all, to mean ‘an agreement about the payment of legal costs’: s. 3.4.2, where ‘legal costs’ were defined by s. 1.2.1 to mean, amongst other things, ‘amounts that a person has been … charged by … a law practice for the provision of legal services…’). And the Act prohibited unsophisticated clients from contracting out of their right to taxation. Attempts to do so were void: ss. 3.4.26(5), 3.4.31.
The cases in this blog post (Amirbeaggi (NSWSC, 2008) and Jaha (SCV, 2012) explain why unsophisticated clients were apparently equally unable validly to waive their right to taxation after the fees had been incurred as they were unable to do so in advance, by virtue of the breadth of the definition of ‘costs agreement’.
Subsequent blog posts will consider what the Court of Appeal has had to say in a case indirectly on point, and explain the true state of the law in Victoria, as declared by the Supreme Court. It seems now that Victorian lawyers in dispute with their clients can buy their way out of taxation by giving clients a bit of a discount, and that this can occur without any writing or other formalities associated with ‘costs agreements’, and without any express reference to the future unavailability of taxation. The client need not even be aware that they are giving up their right to taxation. And that is so because agreements about how much a lawyer will accept in full and final satisfaction of their claim for fees already rendered for work already done are not ‘costs agreements’ governed by the Act after all. Continue reading “When can lawyers contract out of taxation? (part 1)”