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When can lawyers contract out of taxation? (part 2)

This is part 2 of a post about in what circumstances lawyers can avoid having their fees scrutinised by the Supreme Court by the process traditionally known as ‘taxation’, but more recently also described in statutes as ‘costs review’ and ‘costs assessment’.  Part 1 is here. First, a disclosure: I argued Beba at first instance, for the lawyers, and advised in the appeals.

In Beba Enterprises Limited v Gadens Lawyers [2013] VSCA 136, a borrower promised the lender to pay the lender’s legal costs if they defaulted.  Of course, they did default, and the lender demanded a sum which included an allowance for the lender’s legal fees occasioned by the default. The borrower and lender compromised their dispute, including in relation to the legal fees payable.  Nevertheless, the borrower sought taxation of the lender’s legal fees by issuing a summons for taxation addressed to Gadens Lawyers, the lender’s solicitors. Continue reading “When can lawyers contract out of taxation? (part 2)”

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When can lawyers contract out of taxation? (part 1)

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  Under the repealed but still operative Legal Profession Act 2004, lawyers could contract out in advance of the obligation to have their fees reviewed by taxation with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When lawyers have not complied perfectly, vis-a-vis unsophisticated clients, with the costs disclosure regime under the repealed but still relevant Legal Profession Act 2004, they could not recover their fees unless there had been a taxation: s. 3.4.17.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)”

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Unqualified costs consultants

There has been another challenge to the legality of the work done by non-lawyer costs consultants.  It did not go anywhere because of deficiencies in the way the client (himself a lawyer) went about trying to prove in the Magistrates’ Court that the costs consultant in question (a struck off lawyer) had engaged in unqualified practice, and because of the limited nature of an appeal from a Magistrate. The Supreme Court’s judges also emphasised the exactness of proof necessary to establish a breach of s. 2.2.2 Legal Profession Act 2004‘s prohibition on unqualified practice, given that it sets up an indictable criminal offence punishable by up to 2 years’ jail.  Such exactness is needed even in civil proceedings which obviously do not carry criminal consequences.

But as three judges of the Supreme Court made clear, all this means is that this was not the vehicle to decide just how much non-lawyers are permitted to do in the realm of costs law, and subject to what level of supervision by a lawyer, and there is little solace for unqualified costs consultants in the judgments.

The reasons of the Court of Appeal for not granting leave to appeal the Supreme Court’s dismissal of an appeal from a Magistrate are: Defteros v JS [2014] VSCA 154.  They are interesting for three reasons:

1.  They endorse comments made by the Costs Judge in a June 2010 decision as to the need for consideration of reform of the ‘mini-industry’ of costs consultants (Kaye J did so at [2014] VSC 205 at [85] and Santamaria JA (with whom Neave JA agreed) did so at [2014] VSCA 154 at [21]);

2.  They record an interesting submission of counsel, namely that the solicitor client was relying on his own contempt of the Supreme Court by asserting as a defence to a suit for fees a statutory prohibition on the recovery of money charged for the provision of legal services in contravention of the prohibition on unqualified practice — the contempt arose, so the argument ran, because the solicitor well knew at all relevant times that the costs consultant was not a practising certificate holder, and so had permitted the costs consultant to engage in unqualified practice if it had occurred, contrary to s. 2.2.10 of the Legal Profession Act 2004; and

3.  They emphasise the modern trend of leaving to the Costs Court questions which have traditionally been dealt with by certificates of the trial judge (e.g. certification for two counsel).

It will not be too long before someone takes a grip of this issue and runs a test case carefully.  An alternative battle ground might be found if the unqualified costs lawyers seek to influence the makers of the forthcoming Uniform Rules of professional conduct so as to provide an exemption for unqualified costs lawyers from the prohibition on unqualified practice: see s. 10(3), Legal Profession Uniform Law (Vic).  That seems to me to be the most efficient means of resolving the question.  In my books, if there is to be a place for the continued operation of unqualified practitioners there may be a case for restricting the exemption from unqualified practice to existing practitioners and closely defining the permissible ambit of their activities, perhaps to party-party disputes. Continue reading “Unqualified costs consultants”

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Reviews of decisions of the Costs Court’s Judicial Registrar

The Costs Judge recently clarified the procedure for seeking review of a decision of a Judicial Registrar on a preliminary point of law in a taxation of costs in the Costs Court.  Essentially, his Honour said, the procedure in r. 63.56.2, mutatis mutandis, will generally be appropriate, including the 14 day time limit referred to in it.  In relation to this kind of decision of a Judicial Registrar, the review goes straight to the Costs Judge, unlike in the case of rulings upon items in a bill of costs during the taxation proper, where there is a bizarre requirement for the Judicial Registrar to reconsider her own decision before it may be appealed to the Costs Judge. Continue reading “Reviews of decisions of the Costs Court’s Judicial Registrar”

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Free tickets to a great seminar

I’m chairing what should be a great seminar for litigators at Melbourne’s RACV Club on 28 August 2013.  Judicial Registrar Meg Gourlay who is one of the two decision makers who is handling most of the solicitor-client taxations in the State at the moment is the lead singer, talking about the changes to Order 63 of the Supreme Court Rules and the new Supreme Court scale which is no doubt the harbinger of new scales in other courts too.  Despite my complete failure as a blogger to bring them to your attention, these are big changes: so big I have never quite got around to writing a post about them, a bit like the post about the decision in Fritsch v Goddard Elliott.  So it is well worth finding out what the Costs Court figures they mean.  Apart from anything else the more mysterious bits have been chopped out of the scale which means that lay lawyers uninitiated in the dark arts of that most mysterious of cabals — the costs lawyers — might actually be able to draw bills themselves with a bit of orthodox education, a spot of which the Judicial Registrar is going to engage in.

The band is pretty hot too.  Anna Sango has bravely taken on the task of speaking about a strange new concept getting a workout at the salons of the most elegant cost lawyers: ‘proportionality’, absolutely all the rage I’m told amongst aristocrats in England whose favourite pastime seems to be inventing more rules for that greatest of all English board games, litigation.  Frankly, it seems like a dangerously French concept to me, a sly limit on the individual’s right to litigate matters of principle and bugger the expense, but Sango will no doubt tell us that it’s more nuanced than that.  Then, after all that esoterica, Paul Linsdell, one of the head honchos of the behemothic Blackstone Legal Costing will speak on tips and traps when arguing costs in litigation.  The traps are newly refreshed thanks to the subject matter of Judicial Registrar Gourlay’s talk, and so this hoary old chestnut of a topic will be worth a listen.  And then Debra Paver, who has given evidence in a few security for costs applications in her time, will speak on the inherently useful subject of how to argue for and against such applications.

I have two otherwise unbelievably expensive tickets available for enticing supplicants.

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Limit on the unrecoverability of unusual expenses principle in Victoria

I had to read Abrahams v Wainwright Ryan [1998] VSC 335; [1999] 1 VR 102 from start to finish recently.  I noticed the paragraph the subject of this post which, it seems to me, might be useful in arguing in Victoria against a submission in a solicitor-client taxation that an expense should not be allowed because it was unusual and the unusualness not brought to the attention of the client before it was incurred.  The paragraph suggests that a failure to warn itself is insufficient to require its disallowance, at least where the lawyer suggests that even had the warning been given the client would have authorised the incurring of the cost. Continue reading “Limit on the unrecoverability of unusual expenses principle in Victoria”

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When does the 12 months in which to seek taxation commence?

In Victoria, solicitors have only a non-extendable 60 days in which to seek taxation of counsel’s fees, but clients have 12 months in which to seek taxation of solicitors’ fees, and clients other than ‘sophisticated clients’ as defined may seek an extension of time in which to apply.  Where the greatest uncertainty exists, in my mind at least, is in the case of suits for taxation by third party payers — non-clients who promise to pay others’ legal fees, and most particularly non-associated third party payers — non-clients whose promise to pay others’ fees is made to the client rather than to the lawyers.  I imagine that solicitors do not generally give bills to non-associated third party payers, such as the mortgagors to whom their clients lend money under documents which require the mortgagor to pay the mortgagees’ costs.  Rather, I imagine that the mortgagees generally just demand a sum from the mortgagor as an adjustment at settlement, and hand over the bill from their lawyers only upon demand.  Yet non-associated third party payers are entitled to seek taxation, and the question is — when does the time in which such a taxation may be applied for begin to run?

I must warn you that the rest of this post is likely to be extremely boring for most people, and understanding it, despite my attempt to state it as clearly as I can, is likely to involve considerable mental effort.

In Viscariello v Oakley Thompson [2012] VSC 351, Justice Ferguson decided a dispute between an individual who guaranteed his company’s obligation to pay the company’s legal fees, and the company’s lawyers.  The individual was presumed for the purpose of argument to be an associated third party payer, which seems like a very reasonable assumption to me. The dispute was about when the time limits commenced.  But the judgment does not resolve many mysteries, because it seems that the company and the director received the bills simultaneously, and though no bills were addressed to the guarantor qua guarantor, since he in fact received the bills at the time the company received them, time started to run from then. Continue reading “When does the 12 months in which to seek taxation commence?”

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Party-party recovery of pre-proceedings costs

Her Honour Davies J considered the recoverability of pre-action costs in the context of an application for security for costs.  The defendant sought security for $1 million already expended prior to the commencement of the proceedings against it, but after the plaintiffs gave media publicity to their intention to proceed them.  Her Honour decided that such costs could form part of the costs in respect of which security for costs may be ordered, and did include an allowance for such costs in her grant of security in the sum of $6 million.  My fellow blogger Liz Harris of Harris Costs Lawyers’ expert opinion as to the NAB’s likely costs was largely accepted. The decision is Pathway Investments Pty Ltd v National Australia Bank Limited [2012] VSC 97. In relation to the basic principle relating to the recoverability of pre-action costs, more usually claimed by plaintiffs, her Honour said: Continue reading “Party-party recovery of pre-proceedings costs”

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Accord and satisfaction as a defence to a suit for taxation

[Edited and updated 13.2.12] I have two taxations at the moment where accord and satisfaction is pleaded as a defence, in proceedings governed by the Legal Profession Act 2004 (Vic).  In the first, the client and the solicitor cut a deal in relation to costs, and the client subsequently sought to tax the costs.  In the second, a non-associated third party payer and the client cut a deal in relation to the amount the former was obliged to pay the latter pursuant to a loan agreement, and the third party payer has now brought an application against the client’s solicitors for taxation.

Accord and satisfaction is a litigation estoppel.  It serves a similar function to res judicata where the original dispute is quelled by contractual agreement (i.e. a ‘settlement’) rather than by judicial determination. It is what stops a party who settles a pre-litigious dispute from suing on it, and, depending on how the proceeding is disposed of (withdrawn, discontinued, struck out, dismissed, judgment for one party), may also be what stops a party to litigation who settles it from re-instituting it (res judicata flowing from the Court’s orders disposing of the proceeding is the other possibility).

Helpfully, the NSW Court of Appeal recently drew the authorities on accord and satisfaction together in El-Mir v Risk [2005] NSWCA 215 and provided a cute little restatement of the law, which is reproduced below.  There seems to be little authority on accord and satisfaction preventing taxation where disputes in relation to the quantification of liability for legal fees are settled before the institution of taxation proceedings. Certainly, the US Court of Appeals for the Third Circuit had no difficulty with the application of accord and satisfaction as a bar to taxation: Michael J Benenson Associates, Inc v Orthopedic Network of New Jersey 2002 U.S. App. LEXIS 23559; 54 Fed. Appx. 33, and the Federal Court seems to have assumed the possibility in Amos v Monsour Pty Ltd (formerly Monsour Legal Costs Pty Ltd) [2010] FCA 741, but in neither case was the question argued. Does anyone know of any other useful authorities? Continue reading “Accord and satisfaction as a defence to a suit for taxation”

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The Keddies overcharging civil case no. 1

Liu v Barakat, unreported, District Court of NSW, Curtis J, 8 November 2011 is the latest in an ongoing scandal in NSW in relation to overcharging by a prominent personal injuries practice which traded as Keddies, but has subsequently been gobbled up by a publicly listed company.  Many are unhappy at the strike rate of the NSW Legal Services Commissioner in the whole affair (the sole remaining disciplinary prosecution is two and a half years old and not heading to hearing until April next year), but now the District Court has given judgment in a case finding what appears to amount to fraudulent misrepresentation in relation to the billing of about $69,000 (reduced on a ‘but say’ basis to about $64,000) in a personal injuries case where liability was admitted before Keddies got in the harness, and where the proper charge was about $21,000.  Justinian‘s Richard Ackland has the background and latest here.

The partnership apparently bungled the settlement of a taxation allowing the claim to slip through to judgment, and Judge Curtis of the NSW District Court ended up ordering Keddies to repay to the client the difference between what they charged and what they were entitled to charge.  The reasons provide food for thought for those out of time to commence taxation because the judge found that the bills had within them implied representations that the amounts billed were properly chargeable at law.  He reduced the fees chargeable by Keddies to the amount in fact properly chargeable at law, something which would ordinarily be achieved in a taxation.  Such logic might be employed in many cases in the 5 years after a bill during which the client is out of time for taxation but within the 6 year limitation period for prosecuting a misleading and deceptive conduct claim.

The case will be seized on by opponents of hourly billing, and perhaps properly so (the first 6 minutes or part thereof charged for sending a pro forma welcome letter which required only the insertion of the client’s name is an example of why minimum charges of 6 minutes are abhorrent when applied literally, for example).  But it really appears to be a case about simple dishonesty (by whom is not made clear), because in the main this was not a case where the clients were billed outrageously albeit according to the terms of a contractual agreement which bound them.  I say that because if there was any innocent explanation advanced by the Keddies partners for the conduct the most obvious explanation for which was someone’s dishonesty, it was not recorded in the judgment.  This was a case where, in the main, work was charged for which was not done (most likely as in the case of the second 6 minutes or part thereof billed for the welcome letter), or not done by a person whose contractually agreed rate warranted the charge for the time spent.  For example:

  • A secretary was impermissibly charged at partners’ rates ($460 per hour).
  • One hour’s work was charged on 4 October 2005 for drafting the costs agreement which had been signed on 30 September 2005, and an associated explanatory document at  senior litigation lawyer rates, when in fact all that was required was the insertion of the client’s name.  The Court held that the rate which would have been properly chargeable under the costs agreement had that been the appropriate method of billing was 6 minutes of a secretary’s time at secretaries’ rates. No argument appears to have been advanced that this was not work done for the client, but the lawyers’ own costs of entering into a contract to which they were a party and which they wished to propose the terms of.  There is no record of any evidence having been given that the time entry was a mistake, and it is hard to see how the recording of time beyond (at most) one block of 6 minutes or part thereof could have been anything other than outright dishonesty on at least someone’s part within Keddies, even if this activity was properly taken to be work engaged in by the solicitors on the client’s behalf.
  • A charge for two blocks of 6 minutes or part thereof was charged at the secretaries’ rate for reading a letter advising the time, date and place of a medical appointment, a further charge of two such blocks for ‘considering’ that letter, and a further charge of two such blocks for advising the plaintiff by letter of that information.  The total bill for work which it is hard to see taking 5 minutes of a secretary’s time was $108 (for which incidentally, just to keep this real, you can currently have a linguine with fresh sardines, pine nuts, currants and saffron, a gravlax, three glasses of Italian prosecco, a chocolate pudding with peanut butter ice cream and a strawberry mousse with jelly and meringues at Gill’s Diner).
  • The plaintiff was charged $184 (4 blocks of 6 minutes or part thereof at partner rates) for reading, then considering, a letter which said ‘We enclose authority for execution by your client to enable us to obtain documentation from the Department of Immigration and multicultural and indigenous affairs.  Please have your client sign the authority and returned to us as soon as possible.’
  • The plaintiff was charged $131 (3 blocks of 6 minutes or part thereof at partner rates) for reading an email the non-formal parts of which read ‘Rcv’d’.  (What a freaking joke!) She was charged the same amount for reading the email to which that was a reply, the non-formal part of which read ‘I refer to our telephone call this morning.  I have been directed by Assessor J Snell, to inform CARS: 1.  The CARS hearing date on 14 September 2005 has been vacated — please cancel the interpreter arranged by CARS. The CARS hearing date has been rebooked for 17 November 2006 at 10 am — please rebook a Mandarin interpreter.’

It will be interesting to see the response of the police, the NSW Legal Services Commissioner and the Council of the NSW Law Society to the judgment, especially in light of the fact that the plaintiff’s complaint to the Commissioner was officially withdrawn, a fact which did not of course prevent the Commissioner from continuing to investigate it: s. 512 Legal Profession Act 2004 (NSW).  Somewhat surprisingly, I learn from that section, that the withdrawal of the complaint also does not prevent the complainant from re-lodging it: sub-s. (5). Continue reading “The Keddies overcharging civil case no. 1”

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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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More on the indemnity principle

Up in NSW, the system of reviewing legal costs is very different from here in Victoria.  It is done on the papers by non-judges.  As District Court Judge Peter Johnstone said in Bellevarde Constructions Pty Ltd v CPC Energy Pty Ltd [2011] NSWDC 55:

‘the costs assessment process is a statutory process that is neither wholly judicial, nor wholly adversarial, as there are strong elements of an inquisitorial nature involved. These features of the process are important to understand when evaluating decisions as to a matter of law made in the course of the assessment.’

A costs assessor was assessing the party party costs payable by one party to a more successful party in litigation.  He satisifed himself that the indemnity principle was not breached by perusing the costs agreement which regulated the solicitor-client costs payable by the more successful party to its own lawyers, and was ‘satisfied that the amount claimed by the costs applicant is no greater than the amount for which the costs applicant would be liable pursuant to those agreements’.

Judge Johnstone said, applying Shaw v Yarranova Pty Ltd [2011] VSCA 55, that a costs assessor need not take evidence of the actual amount charged by the more successful party’s lawyers in every case, but must do so when there is evidence casting doubt on the proposition that the claim for party party costs was no greater in total — not per item — than the solicitor-client costs.  Here there was sufficient evidence to cast such doubt, and the costs assessor was wrong not to have insisted on evidence as to the amount payable on a solicitor-client basis.

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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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Problems abound when one spouse’s solicitor conveys matrimonial property by order of the Court

Update, 6 June 2011: A reader has helpfully pointed out that the decision digested below has been overturned by a unanimous Court of Appeal, the principal judgment having been given by Justice McMurdo.  See Legal Services Commissioner v Wright [2010] QCA 321.

Original post: The Family Court likes to order that one spouse’s solicitor act for both spouses in the conveyance of matrimonial property which it orders be sold.  That this may occur exemplifies the principle that it is not enough that clients’ interests conflict for a conflict of duties to proscribe a multiple client retainer; what is necessary is that they conflict materially in relation to the matter which is the subject of the retainer.  But I have acted in three matters where such an order has resulted in problems, and that suggests to me that there are many more such matters which have run into problems.  Generally, the problems arise from the solicitor ignoring in some way the interests of the spouse for whom he or she had previously been acting exclusively, or at least the perception that that is so.

Legal Services Commissioner v Wright [2010] QSC 168 is a variation on the theme.  It arose out of a de facto property adjustment case in Queensland’s District Court.  The Court ordered that the de facto husband’s solicitor ‘will act on [his] behalf in the conveyance of the sale of the property’, which was in the de facto husband’s name.  The de facto husband and wife were then ordered to cooperate in paying out costs of the sale (including the legal fees) and creditors before the balance was to be divided 75% to the de facto wife and 25% to the de facto husband.  The Chief Justice of Queensland wasted little ink in concluding that the wife was neither the solicitor’s client nor a third party payer, and so was not even entitled to an itemised bill when the husband’s solicitor charged over $7,000 for the conveyance, directly diminishing the amount reaching her pocket by three-quarters of $7,000.

Where one spouse agrees on the other spouse’s solicitor conducting a conveyance otherwise than expressly for both of them, this case suggests that they would be well advised either to provide for an obligation to pay the solicitor’s fees of a kind which brings them within the definition of ‘third party payer’, or fix the fee payable for the conveyance, or contract for an entitlement to an itemised bill, and thereafter to be deemed by agreement to be a third party payer. Continue reading “Problems abound when one spouse’s solicitor conveys matrimonial property by order of the Court”

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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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Will clients be entitled to seek itemised bills within 7 days under the Australian Consumer Law, 2010?

Patrick Oliver, the head honcho at a cool little Melbourne-based consultancy to incorporated legal practices called Lexcel, has drawn my attention to s. 101 of the Consumer Law, 2010.  It provides for ‘consumers’ to request itemised bills from service providers, and requires that they be provided within 7 days, in default of which a pecuniary penalty may be levied.  Sub-section (5) says ‘The supplier must ensure that the itemised bill is transparent.’

There is no carve-out for lawyers. I would not be surprised if the double-regulation is fixed by legislative amendment.  Meanwhile, however, the full text of s. 101, which commences on 1 January 2011, is as follows: Continue reading “Will clients be entitled to seek itemised bills within 7 days under the Australian Consumer Law, 2010?”

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New cases

Legal Services Commissioner v Dempsey [2010] QCA 197 is an unsuccessful appeal from a disciplinary prosecution in which findings of dishonesty were made.

Dye v Fisher Cartwright Berriman Pty Ltd [2010] NSWSC 895 is a case in which an application for a costs assessment (NSW version of taxation) outside the allotted 12 month period succeeded.

Young v Masselos & Co [2010] NSWDC 169 is one of those cases where a solicitor negligently let a limitation period go by and damages had to be assessed based on the plaintiff’s prospects of winning the case foregone.

Council of the Law Society of New South Wales v Harrison [2010] NSWADT 201 is a decision about the Law Society’s successful application to amend a charge against the respondent solicitor.  It reviews a lot of NSW law about the requirements for pleading disciplinary charges, and considers the application of Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 to disciplinary hearings.