Cost and Fee Disclosures under the
Legal Profession Act 2004
Blood from a Stone: Compelling Solicitors to pay Counselís costs
Philippe Doyle Gray
Dated 27 July 2006
1. The most effective way to compel solicitors to pay counselís costs is as follows:
2. At the time of engagement, counsel makes disclosures in accordance with the legislation.
3. At the time of engagement, counsel enters into a costs agreement in accordance with the legislation.
4. Counsel renders tax invoices in accordance with the legislation.
5. Counsel waits 30 days from the date of rendering the last tax invoice.
6. Counsel prepares a bill of costs in assessable form and an application for the assessment of costs in draft form, as if counsel were to proceed to assessment of costs in accordance with the legislation.
7. Counsel serves the bill of costs and draft application on the instructing solicitor.
8. Counsel makes a complaint to the Office of the Legal Services Commissioner against the solicitor, for non payment of fees, attaches the draft assessment application and bill of costs in assessable form to the complaint form, and particularises in the complaint that the draft application for assessment and bill of costs has been served in accordance with the legislation.
9. Counsel refrains from filing the application for assessment until being contacted by the investigating delegate of the Law Council. On contact, a payment plan is negotiated with the Law Council delegate, who in turn enforces the payment plan on the instructing solicitor.
10. When payment is received from the instructing solicitor, the complaint to the Office of the Legal Services Commissioner is dismissed with the consent of counsel.
What this paper is about
11. The National Legal Profession Model Laws Project aimed to achieve greater consistency and uniformity in legal profession regulation and legal trade, and resulted in the release of model provisions developed through the Standing Committee of Attorneys-General. The model provisions are of 3 types:
(a) Core Uniform (CU)óthese are core provisions that are to be adopted in each State and Territory, using the same wording as far as practicable
(b) Core Non Uniform (CNU)óthese are core provisions that are to be adopted in each State and Territory, but the wording of the model provisions need not be adopted
(c) Non Uniform (NU)óStates and Territories can choose the extent to which they will follow these provisions.
12. In July 2004, the Commonwealth, States and Territories agreed to implement all the CU and CNU provisions in their respective jurisdictions, and established the Legal Profession Joint Working Group to maintain uniformity and monitor implementation. The Joint Working Group has representatives from the Commonwealth, States and Territories and also from the Law Council of Australia. The model provisions were designed to ensure that clients and practitioners in all States and Territories have similar rights and responsibilities, and to provide for the regulation of the legal profession on a consistent national basis (including nationwide recognition of admission as a lawyer in any jurisdiction and of the grant of a practising certificate in any jurisdiction to practise as a legal practitioner).
13. The Legal Profession Act 2004 seeks to incorporate the CU and CNU provisions mentioned above. Most of the NU provisions have also been included. As the model provisions address only those aspects of legal profession regulation where national uniformity is essential, parts of the current Legal Profession Act 1987 (the Old Act) are retained (e.g. regulatory bodies and legal authorities, and the distinction between barristers and solicitors). The new Act also implements a number of amendments to the provisions of the Old Act, including certain amendments proposed by:
(a) The Law Reform Commission in Report 99 (Complaints against lawyers: an interim report) April 2001;
(b) The Attorney Generalís Department in a review conducted by it (A further review of complaints against lawyers) November 2002; and
(c) Legal profession regulators.
14. On 1 October 2005, the Legal Profession Act 2004 as amended (referred to as ďthe New ActĒ in this paper) came into force. It cannot be said that the New Act is succinct. It was amended before coming into operation. It has been subsequently amended several times. An opportunity to revise difficulties with the parochial regulation of costs in
New South Wales
presented itself, but disappointingly much of the legislation has been transcribed verbatim from the Old Act mutatis mutandis, and accordingly the opportunity to remove these difficulties has been lost.
Table 1: Law Reform or Over Regulation?
The Lordís Prayer
The 10 Commandments
Legal Profession Act 2004 (NSW)
15. The effect of the New Act is to replace the Old Act. While the primary purpose of the New Act is to implement the conclusions of the National Legal Professional Model Laws Project, the opportunity has been taken to revise and re-cast provisions of the Old Act that dealt with legal practice in
New South Wales
. The review has extended to the regime for the disclosure of information relating to costs to clients of legal practitioners (or ďlaw practicesĒ as they are known under the New Act), and also the regulation of agreements about costs between clients and law practices.
16. Insofar as costs are concerned, the effect of the New Act will be to force law practices to re-draft their costs agreements and disclosure documents, and will also affect the way in which costs can be recovered by law practices from clients.
17. Law practices are, broadly speaking, made up of solicitors on the one hand and barristers on the other. The legislative (and commercial) requirements for agreement and disclosure by solicitors to non-lawyer clients is significantly different to that for barristers who are retained by solicitors.
18. The effect of the New Act on the practice of barristers who are instructed by solicitors is the subject of 2 papers under the banner ďCost and Fee Disclosures under the Legal Profession Act 2004Ē, of which this paper is the second. This paper is designed to be read in conjunction with the paper written by Mark Brabazon. While that paper focuses upon the new legislative environment in which counsel find themselves, this paper focuses upon the practical question of how it is that barristers should recoup their costs from solicitors after negotiations have broken down and a barrister is forced to compel a solicitor to pay outstanding fees.
Structure of this paper
19. This paper is divided into 2 parts.
20. The first part considers the strategies available to counsel to compel solicitors to pay counselís costs. An overview, analysis and comparison the 3 strategies available to counsel is undertaken.
21. The second part examines the legislative effect on each of these 3 strategies by the New Act, and concludes that the legislation provides for variables which influence counselís decision as to which strategy to adopt.
22. The paper ends with a recommendation as to the most effective strategy to adopt by counsel to compel solicitors to pay counselís costs. That recommendation is contained in the Executive Summary.
23. The law is as 30 May 2006.
24. There are 3 strategies to compel solicitors to pay counselís costs. They are for counsel:
(a) to sue the instructing solicitor in a Court of competent jurisdiction; and
(b) to have counselís costs assessed pursuant to the scheme provided for by the New Act; and
(c) to complain about the solicitorís conduct in order to provoke a disciplinary investigation and consequently (lawfully) coerce the solicitor to make a payment.
25. Counsel faced with the problem of compelling solicitors to pay counselís costs bear 3 factors in mind in determining a strategy to achieve that end:
(a) Counsel wishes to recoup the maximum amount of costs. A corollary of this proposition is to minimise the expenses associated with recouping costs. In other words, counsel wishes to minimise the costs of recouping costs.
(b) The amount time spent by counsel recovering costs. An hour spent recouping costs is an hour lost that could otherwise be spent on work generating fees. There is no utility in spending time in recouping costs that is disproportionate to either the quantum of costs themselves, or disproportionate to the opportunity cost (i.e. the potential fees counsel could generate by attending to other work). Accordingly, counsel wants to spend as little time as possible in recouping costs from a solicitor.
(c) The effort exerted by counsel recovering costs. Counsel are, like all business people, generally best off by doing what they do best, while leaving other matters to other people. However, it is impossible to outsource everything. Whatever approach counsel takes to recouping outstanding fees, a greater or lesser amount of individual effort will need to be applied depending upon the approach taken. A more complex approach may be more intellectually challenging, and accordingly requires time to be spent by counsel when he or she is at their best. This is in itself a disincentive to begin to take the steps to recoup outstanding fees, which in turns leads to a longer time period in which fees are outstanding, and a consequent deleterious impact on counselís cash flow. An undemanding approach is less unattractive (no approach is ever attractive), and accordingly counsel is more likely to adopt an undemanding approach, which will accordingly have a positive impact on counselís cash flow. Thus, counsel is looking for an approach that is the least demanding on his or her capabilities.
26. Before passing to the consideration of the 3 strategies, one important general observation needs to be made. As is made clear in Figure 1, of the 3 strategies that can be adopted, only that of complaint is comprised of a process that ordinarily includes the actual payment of money. The end goal to recoup costs is to receive a payment of money. This may be obvious but needs to be remembered. Irrespective of how inexpensive, quick and easy any strategy is, an approach that at its end provides for the payment of money is clearly preferable to an approach that is merely an interim step on the path to receiving payment of money. In this respect, of the 3 approaches taken, the strategy of complaint is therefore preferable.
27. When a solicitor retains counsel, counsel performs work which usually confers some sort of benefit on the solicitor. That benefit is obviously conferred on the solicitor at the request of the solicitor. Accordingly, on those bare facts alone, counsel would be entitled to a claim against a solicitor for unjust enrichment, in precisely the same way that any person who conferred a benefit on another, at the request of that other, can claim unjust enrichment. There is nothing exceptional about the relationship of counsel and instructing solicitor. Accordingly, a straightforward approach to compelling a solicitor to pay counselís costs is for counsel to sue the instructing solicitor. The claim is straightforward. The process of litigation is one with which counsel is intimately familiar. On its face this appears to be an attractive option.
28. I have acted for both solicitors and barristers in costs disputes in the courts. My experience has revealed several characteristics of this strategy:
(a) Notwithstanding that counsel are intimately familiar with litigation per se, litigation is inherently complex. Accordingly a great deal of time and effort needs to be devoting to prosecuting proceedings properly. Costs disputes are over comparatively small sums of money, at least between solicitors and barristers, and costs of litigation can escalate uncontrollably very quickly. There is accordingly always the clear and present danger of a recovery action being uneconomical.
(b) A lawyer who acts for himself has a fool for a client. It may be attractive for a barrister to undertake part or all of the litigation on his or her own behalf. Experience has demonstrated that this invariably leads to litigation being improperly prosecuted, which in turn results in either an escalation of costs, a delay in obtaining judgment, an adverse impact on the measure of damages, or a combination of all these outcomes.
(c) Suing for professional services rendered and unpaid for invites an allegation of professional negligence in the provision of those services. Such allegations may ultimately fail, but they must be challenged. This is time consuming and expensive. It usually affects the barristerís professional indemnity insurance, even if no claim is made, by imposing an obligation on the barrister to comply with the duty of disclosure when the time for renewal comes around. If a claim is made, then a barristerís claims history may be adversely affected.
(d) The majority of barrister-solicitor costs litigation will be conducted in the Local Courts with a jurisdictional limit of $60,000 (or $72,000 by consent). In my experience, magistrates are completely uninterested in adjudicating over these disputes, and typically adopt one of 2 styles:
(1) Perpetually adjourning the matter in the hope that the proceedings will settle and the presiding Magistrate will be saved the discomfort of having to give judgment on the matter. This approach invariably leads to an escalation of costs of the litigation; or
(2) Undertaking a pedantic hyper-analysis of the disclosure and agreement documentation, in the hope of finding non-compliance with the legislation which in turn affords a basis for dismissing the Plaintiffís claim as soon as the first element of non-compliance is identified.
(e) Before judgment is handed down, the Defendant (debtor) may opt to initiate assessment of costs. This will almost invariably stay the recovery proceedings, and force the practitioner to expend further money in participating in assessment. This approach will also add considerably to the delay in recouping costs.
29. Even if a practitioner obtains judgment in his or her favour, that does not of itself compel payment. The judgment itself needs to be enforced. This is itself time consuming, costly and reasonably slow.
30. In my opinion, litigation is the most expensive strategy, that requires the most effort on the part of counsel to recover fees, and usually takes longer than either of the other 2 strategies. It is a strategy of last resort.
31. Assessment pursuant to the legislative scheme for the determination of legal costs is on its face unattractive, for the simple reason that it appears to most practitioners as a type of quasi-litigation with which they are unfamiliar. Accordingly, it has all the unattractive features of litigation that are well known to practitioners, combined with esoteric characteristics that are apt to trigger a xenophobic reaction.
32. From counselís perspective, at least insofar as he or she wishes to recoup costs from an instructing solicitor, these initial adverse impressions should be put to one side. While solicitors may be burdened with 100 page itemised bills that resemble the most dull Scott Schedules, the nature of a barristers practice is such that counselís tax invoices should already be in itemised form, and should contain relatively few items. The scale of the particulars confronted by solicitors is therefore absent from counselís fees.
33. As far as the bill of costs in assessable form is concerned, the only part of this document that would not already have been generated by counsel in the usual course of his or her practice, will be the narrative. The narrative is nothing more than a few paragraphs telling the story of how it was that counsel came to be involved, and what it was that counsel did that led to fees being charged. Counsel briefed in a matter should have little difficulty in dictating a satisfactory narrative in less than 20 minutes. The remaining components of the bill of costs can merely be collated from the barristers other accounting records.
34. The bill of costs needs to be formatted into assessable form, and initially this may appear to be daunting. Similarly, the preparation of the forms necessary to initiate an assessment of costs may appear unpalatable. Counsel can retain costs consultants to prepare the forms and the bill of costs in assessable form for a fee. Particularly in relation to very small bills under $5,000, this may not be economically viable for the costs consultant, and accordingly counsel may be faced with having to pay an artificially high fee to a cost consultant for the creation of the necessary documents.
35. Perhaps the best approach to take would be a middle course, in which one matter which is relatively simple is outsourced to a costs consultant, and the uneconomic fee charged by the consultant for that work is simply absorbed as a business operating cost. Once the consultant has done his or her work, then counsel will have a precedent of forms and a bill of costs in assessable form which can be easily copied. All future assessments can simply be modelled upon these documents.
36. As filing fees for assessment are relatively modest, and as the assessment process is essentially paper driven (and remains so under the New Act), there is far less complexity in proceeding through assessment than there is in litigation. Accordingly there is less risk of an escalation of costs. There is no need for the expenditure of a significant amount of effort on the part of counsel in obtaining a certificate of determination as to costs. Given the less complex arena in which the dispute is resolved, this in turn usually leads to a resolution faster than that obtained through litigation.
37. There is no opportunity in assessment for the recalcitrant solicitor to allege professional negligence.
38. However, assessment suffers ultimately the same problem suffered by litigation, in that even if resolution is ultimately reached in a figure favourable to counsel, that does not of itself compel the payment of any money. Under the Old Act and the New Act, the best that can be said is that at the end of an assessment, counsel has a certificate of determination, which needs to be registered (usually in a Local Court) as a judgment. There then arises the difficulties with enforcing the judgment. These are precisely the same difficulties that are faced with litigation.
39. Accordingly, whilst the strategy of assessment is more attractive than that of litigation, I cannot recommend that assessment be pursued in preference to both litigation and complaint as a method by which counsel may recoup costs from their instructing solicitor. Leaving aside the issue of the enforcement of any judgment, if a dispute between counsel and solicitor is one which is generally in respect of the quantum of costs, and counsel is confident that once the quantum of costs is adjudicated, payment will be forthcoming voluntarily, then given that assessment is faster than either of the other 2 strategies, assessment would be the strategy of choice in those circumstances.
40. The reviewed Professional Conduct and Practice Rules 1995 for solicitors (the Solicitors Rules) relevantly include Rule 32:
Contracting for Services
A practitioner who deals with a Third Party on behalf of a client for the purposes of obtaining some service in respect of the clientís business, must inform the Third Party when the service is requested, that the practitioner will accept personal liability for payment of the fees to be charged for the service or, if the practitioner is not to accept a personal liability, the practitioner must inform the Third Party of the arrangements intended to be made for payment of the fees.
41. If one substitutes ďbarristerĒ for ďThird PartyĒ and ďsolicitorĒ for ďpractitionerĒ, the immediate relevance to the payment of counselís fees is clear.
42. The potential for a solicitor to be found guilty of professional misconduct arising out of a failure to pay counselís fees has already been explored in the
Australian Capital Territory
. In Re Robb & Anor (1996) FLR 294 the solicitor was found guilty of professional misconduct. At 307 the
ďÖSolicitors are under an obligation to pay counsel regardless of whether they are put in funds by their clients, unless they have some particular and special arrangement with counsel. The fact that a solicitor pays counsel out of an office account does not or should not occasion the slightest surprise in ordinary circumstances. When, however, the office account is credited with an amount transferred from the solicitorís trust fund, which amount is paid by the client for the purpose of the solicitor paying counsel, then any delay on the part of the solicitor in paying counsel once the transfer is effected, must mean that the solicitor is in breach of the solicitorís fiduciary duty to the client. The solicitor is, during the period of delay, treating what is essentially clientís money as the solicitorís own money.
Insofar as [counsel for the solicitor] submission implies that there is no obligation to pay counsel or it is impractical to do so unless the solicitor is using clientís funds which have been transferred from trust account to office account, it must be rejected.Ē
43. On appeal to the Federal Court before a bench of 5, the reasons for judgment quoted above were not criticised: see Robb & Anor v Law Society of the ACT (1997) 72 FCR 225 per Jenkinson J at 229 and Kiefel J at 259 (with whom Black CJ, Merkel and Sackville JJ agreed). Indeed, Jenkinson J elaborated at 244:
ďDelay or failure by a solicitor to pay counsel is of course not a new phenomenon and will probably occur from time to time so long as there is a divided procession, as there is to some extent in this Territory. There will no doubt often be reasons advanced in order to justify such delay or failure. But where the solicitor holds a clientís funds for the very purpose and uses them for the solicitorís own ends, then the solicitorís conduct is such that the Court must take steps to ensure that the solicitor concerned and other members of the profession who might act likewise, whether through indifference or ignorance, understand the seriousness of their breach of duty. The breach was condemned in round terms over a century ago by Manisty J in Re Farman (1883) L Jo 352, cited in Re M, a Solicitor (1938) St R Qd 454 at 462 and is still worth repeating:
Ď...and then the solicitor went on to say that [the clients] no doubt were aware that even large firms left counselís fees for long periods after having received the moneys from their clients - sometimes for years. This he appeared to consider a sort of excuse for his conduct. But if there were any in the profession who considered that they were justified in receiving money for the payment of counselís fees and keeping it in their pockets, the sooner those persons were disabused of that notion the better for themselves and their clients.í
It is necessary then that the order of the Court, although not punitive in character, deliver the message that no matter how efficient, eminent or popular the practitioner, conduct like that in the present case must be understood by all practitioners to amount to professional misconduct. It is unacceptable to the Court that those who are guilty of it put at jeopardy the privilege conferred upon them of conducting litigation for profit within the Court, and within any other Court in the Territory. In the case of Mr Robb, the only appropriate order of the Court is that he forfeit his privilege of practice. In the case of Mr Rees we take the view that it is appropriate to impose a substantial fine.Ē
44. This appears to have replaced an older view illustrated by Carver v The Legal Profession Disciplinary Tribunal and Anor judgment  NSWLST 5 in which Clarke JA held:
ďThe first argument which was advanced in its support was that while a failure to pay counsel's fees might expose the solicitor to the rigours of the black list it could not constitute professional misconduct on his behalf. The submission again misconceives the complaint but putting that to one side I do not think it can be upheld. It is not possible, in my opinion, to make a statement of principle of universal application that a failure by a solicitor to pay counsel's fees does, or does not, constitute professional misconduct. As it seems to me there may be cases in which failure to pay counsel's fees may be regarded as professional misconduct.
If, for instance, a solicitor admitted that the fees claimed were due but refused to pay them because of an argument he had had with counsel about another matter it would, in my opinion, be open to a tribunal to hold that the refusal constituted professional misconduct. On the other hand, one could conceive of situations in which failure to pay counsel's fees may not amount to professional misconduct.Ē
45. See also: Keefe v Law Society of NSW (1998) 44 NSWLR 451.
46. If a solicitor is found to be guilty of professional misconduct, then a variety of penalties are open under both the Old Act and the New Act, which include the imposition of conditions on a solicitorís practicing certificate, suspension or cancellation of the practicing certificate, and striking off of the role.
47. Consequently, if a complaint is made that leads to a disciplinary investigation of a solicitor for the failure to pay counselís fees, the potential exists for the solicitorís professional livelihood to be threatened. Threatening a solicitorís livelihood is an effective tool to persuade solicitors to pay outstanding counselís fees.
48. Disciplinary investigations are commenced after receipt of a complaint by the Office of the Legal Services Commissioner. Because the complaint system is specifically designed to address the concerns of non-lawyers, initiating a complaint is simple, inexpensive and quick. There is a prescribed form of complaint, which can be downloaded from http://tinyurl.com/9s8tg
49. Complaints about solicitors are investigated by the Law Council. There is, however, no utility in sending a complaint form to the Law Society, because investigations into complaints are initiated by the Office of the Legal Services Commissioner. Accordingly, if a complaint is sent direct to the Law Society, it will merely be sent to the Office of the Legal Services Commissioner, who will in turn direct the Law Council to undertake an investigation, and send a copy of the complaint back to the Law Society. The complaint form should therefore be submitted to the Office of the Legal Services Commissioner in the first instance.
50. Investigations into allegations of professional misconduct proceed through a variety of phases. First, the complaint is particularised and often re-cast in more precise terms. Particulars are sought of the complainant, a response from the practitioner under investigation is then sought, after the practitioner has been provided with details of both the complaint and any additional particulars, and an interim conclusion is reached by the investigating official (usually a delegate of the Law Counsel) who reduces the interim position to a written report. That report will include draft recommendations. Draft recommendations fall into 2 types. Either the complaint is dismissed, or the complaint is to be upheld.
51. Insofar as the recovery of costs is concerned by counsel from solicitors, if a complaint is made by counsel in relation to the non-payment of fees and the complaint is dismissed, then counsel is no closer to recouping outstanding fees. On the other hand, if the interim report upholds a complaint, to accord the practitioner under investigation procedural fairness, a copy of the complaint needs to be sent to the practitioner for a response, known as
Submissions. Typically, in a dispute between counsel and solicitor in respect of outstanding costs, at this juncture an opportunity arises for the practitioner under investigation to reconsider his or her decision not to pay counsel. The seriousness of the complaint will be affected depending on whether or not, after investigation and expression of the Law Councilís preliminary view to the practitioner under investigation, the practitioner continues to refuse to pay counsel. This is a consideration that in my experience is glaringly obvious to the most dull witted of solicitors. This stage in the investigation typically provokes the solicitor to pay counselís outstanding fees.
52. Assume for the moment however, that notwithstanding an interim view taken by Law Council to uphold the complaint, if a solicitor under investigation declines to make any further payment, then a final report is produced. In circumstances that concern the non-payment of counselís fees, this would result in an Information being laid to the Administrative Decisions Tribunal, which in turn would lead to the prosecution by the Law Council of the solicitor under investigation. The Tribunal would hear the matter, and if the Tribunal found the Information proved, would then find against the solicitor and impose a penalty. However, notwithstanding the publication of a final report by the Law Council, or the finding of professional misconduct by the Administrative Decisions Tribunal, counsel would not be in any better position to obtain payment of his or her outstanding fees.
53. What sets the complaint strategy apart from litigation and assessment, is that it is the only strategy which, at some point during its course, provides for the possibility of payment to be made of counselís fees. In my experience, once the investigating delegate of the Law Council is satisfied that counselís fees are properly due and outstanding, the matter does not proceed to interim report, but instead the delegate informally contacts the solicitor under investigation and outlines the consequences of the solicitorís continuing failure to pay outstanding counselís fees. Usually, an instalment regime is negotiated, which in turn is offered via the investigating delegate to counsel. The instalment regime is usually quite generous in counselís favour. If counsel agrees to it, then further investigation is suspended whilst the solicitorís compliance with the instalment regime is monitored by the investigating delegate.
54. In my experience, solicitors always adhere to the instalment regime. If a solicitor adheres to the regime, then the approach taken by the investigating delegate will then be to request counsel to the withdrawal of the complaint. If counsel wishes to utilise the authority of Law Council in resolving subsequent costs disputes with instructing solicitors in future, counsel is well advised to agree to withdraw the complaint. Accordingly, the complaint is then deemed to be withdrawn, no further investigation takes place, and no disciplinary action is brought against the solicitor under investigation.
55. In my experience, this is the most effective strategy for recouping outstanding fees from solicitors. The procedure is simple, inexpensive and quick. Almost the entire burden of reaching a satisfactory resolution falls on someone other than counsel. I have experienced a 100% success rate with this technique. The one disadvantage to adopting this strategy is that an apparently unreasonable amount of time is taken up shuffling paper between the Office of the Legal Services Commissioner, the Law Council, the investigating delegate, the complainant and the practitioner under investigation. Also, some time may be taken up in recouping all outstanding fees because of an instalment regime being imposed. Accordingly, final payment of all fees usually takes longer adopting this strategy than would be the case if counsel proceeded to assessment, provided of course that payment by the instructing solicitor was made on the issue of a certificate of determination, which, as canvassed above, may be an unwarranted assumption.
56. It has been my experience, that the best way to persuade the investigating delegate that counselís fees are legitimately and properly claimed, both in a particular amount, and in respect of the fact that they are outstanding, is to prepare a bill of costs in assessable form, and a draft application for the assessment of costs. This compilation of documents appears to provide both the necessary information for the investigating delegate to reach a firm conclusion that guides his or her behaviour, and also seems to persuade the investigating delegate that the barrister cannot easily be fobbed off. The fact that the draft application and bill of costs has already been served on the solicitor indicates that the time period for the commencement of assessment proceedings is already running, and in my experience this has a positive influence on the priority given to the investigation of this complaint. In turn, this minimises the time between initiation of the complaint, and the receipt of fees by counsel.
57. It is my recommendation that the best strategy to adopt by counsel to compel their instructing solicitors to pay outstanding fees is to prepare a draft application for assessment and a bill of costs in assessable form, to serve those documents on the instructing solicitor, and to initiate a complaint direct with the Office of the Legal Services Commissioner in respect of the unpaid fees, ensuring that accompanying the complaint are copies of the draft application for assessment, bill of costs, and a note confirming that the documents have been served in accordance with the Act.
Table 2: Comparison of Strategies by cost, effort & time
Figure 1: Comparison of Strategies by outcomes
See the PDF download for the figure.
The effect of legislation
58. One of the purposes of the New Act to protect clients of law practices and the public generally: see section 3(a) of the New Act. Insofar as costs are concerned, the approach adopted by Parliament has been to follow the fashion of comprehensive written disclosure, and to provide for penalty provisions in the absence of disclosure. Whilst disclosure was a feature under the Old Act, the extent of disclosure has been significantly expanded under the New. In addition, the regulation of agreements as to costs has been reviewed, and there is greater statutory interference in the right of parties to contract as they see fit. The penalty provisions have been modelled upon restricting the basis upon which legal practices may recover their fees. Whilst it is beyond the scope of this paper to examine these provisions in detail, for present purposes it is sufficient to say that the disclosure and agreement regime created by the New Act is one that makes it far more difficult for a law practice to recover fees in the event of failing to adhere to the statutory requirements.
59. Against that background, when counsel considers how to compel an instructing solicitor to pay counselís fees, there are 2 main variables that affect the strategies which counsel may adopt. These are:
(a) the extent of disclosure that has previously been made; and
(b) the agreement (if any) that has previously been reached between counsel and the instructing solicitor as to costs.
60. There are 4 possibilities:
(a) Disclosure has been made, and an agreement has been reached, both of which accord with the legislation; or
(b) Disclosures has been made which accords with the legislation, but there has been no agreement as to fees; or
(c) There has been agreement as to fees which accords with the legislation, but there has not been disclosure in accordance with the legislation; or
(d) There has been neither disclosure nor agreement in accordance with the legislation.
61. Each of these possibilities will be canvassed in great detail below. Before passing to that consideration however, 2 differences in the New Act ought to be recognised:
(a) First, either disclosure has been made or it has not. There is a lengthy and comprehensive list of the items that need to be disclosed, and there are detailed provisions as to how those matters ought to be disclosed. If there is any departure from the regime, whether by the omission of a perhaps otherwise unnecessary minor detail, or disclosure has been made in a form that does not strictly accord with the terms of the legislation, then for practical purposes disclosure has not been made.
(b) Second, under the Old Act, provisions existed as to what should be done, for example by way of disclosure. The New Act includes provisions prescribing what should be done, but also prescribe provisions for what should not be done. It is therefore not enough to include in counselís fees all documentation that needs to be included. Rather, counsel needs to consider the document as a whole, to ensure that it does not in any way operate or include items that should be excluded.
Disclosure with Agreement
62. This is the ideal. Litigation, assessment and complaint are all available.
63. There are no obstacles to recovery of fees.
64. The measure of costs that are recoverable are governed by sections 319(1)(b) and 361, that provide as follows:
319. On what basis are legal costs recoverable?
(1) Subject to the provisions of this part, legal costs are recoverable:
(a) in accordance with an applicable fixed costs provision, or
(b) if paragraph (a) does not apply, under a costs agreement made in accordance with Division 5 or with the corresponding provisions of a corresponding law; or
(c) if neither (a) nor (b) applies [sic] according to the fair and reasonable value of the legal services provided.
(2) However, the following kinds of costs are not recoverable:
(a) the costs associated with the preparation of a bill for a client,
(b) the costs associated with the making of disclosures for the purposes of Division 3;
(c) the costs associated with the making of a costs agreement with a client.
361. Assessment of complying costs agreements
(1) A costs assessor must assess any disputed costs that are subject to a costs agreement by reference to the provisions of the costs agreement if:
(a) the agreement complies with Division 5 (costs agreement) and, in particular, nothing in that Division precludes the law practice concerned from recovering the amount of the costs, and
(b) a relevant provision of the costs of the costs agreement specifies the amount, or a rate or other means to calculate the means, of the costs, and
(c) the costs assessor is satisfied that the agreement, or the relevant provision of the agreement, should not be set aside under section 328.
(2) Nothing in this section limits the operation of section 365.Ē
65. In respect to the references to sections 328 and 365, section 328 relates to the setting aside of costs agreements that are not fair or reasonable, and section 365 is concerned with the assessment costs ordered by a Court or tribunal, both of which are not within the scope of this paper.
66. Obviously, if only fixed costs may be charged, only fixed costs may be recovered. What costs are fixed? Section 329 prescribes that regulations are to provide for fixed costs, and these are by and large the same categories of matters that existed under the Old Act, namely: Workersí Compensation and Personal Injury proceedings, debt recovery proceedings, probate and other matters, and ancillary costs such as witness attendance fees.
67. Assuming then, that the relevant costs are not fixed by statute, section 319(1)(b) entitles, as a maximum, counsel to recover costs from an instructing solicitor in accordance with a costs agreement. That section combined with section 361 would operate on an assessment between counsel and an instructing solicitor to apply the costs agreement, ensuring that, subject to consideration of over-servicing, in the usual course the measure of costs that counsel can recover from an instructing solicitor will be equal to the maximum costs provided under the costs agreement.
Disclosure without Agreement
68. This is the second best situation. The strategy of assessment is clearly open to counsel, but it is less clear whether the strategies of litigation and complaint are effectively available to counsel. The reason for this that while on their face both litigation and complaint are available when disclosure has been made, a difficulty arises in measuring the amount of costs to which counsel is entitled. This is the major obstacle with this possibility.
69. Again the starting point is section 319 of the Act, but as there is no costs agreement, section 319(1)(b) cannot apply. Accordingly the relevant provision is section 319(1)(c). This creates the concept of the fair and reasonable value of the legal services provided.
70. As there is no complying costs agreement, section 361 does not apply. The way in which a fair and reasonable value can be calculated is done by section 363:
363 Criteria for assessment
(1) In conducting an assessment of legal costs, the costs assessor 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, and
(c) the fairness and reasonableness of the amount of legal costs in relation to the work.
(2) In considering what is a fair and reasonable amount of legal costs, the costs assessor may have regard to any or all of the following matters:
(a) whether the law practice and any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf complied with any relevant legislation or legal profession rules,
(b) any disclosures made by the law practice under Division 3 (Costs disclosure), or the failure to make any disclosures required under that Division,
(c) any relevant advertisement as to:
(i) the law practiceís costs, or
(ii) the skills of the law practice or of any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf,
(d) any relevant costs agreement,
(e) the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter,
(f) the retainer and whether the work done was within the scope of the retainer,
(g) the complexity, novelty or difficulty of the matter,
(h) the quality of the work done,
(i) the place where, and circumstances in which, the legal services were provided,
(j) the time within which the work was required to be done,
(k) any other relevant matter.
71. An interesting question arises with this possibility, if in respect of any charge, it was both reasonable to carry out the work to which the legal costs relate, and the work was carried out in a reasonable manner. The question is this: in those circumstances, is the fairness and reasonableness of the amount of legal costs in relation to the work (section 363) the same as the fair and reasonable value of the legal services provided (section 319(1)(c))? It is this question that raises a potential obstacle for counsel attempting to pursue the litigation or complaint to recoup their fees. I suspect that if counsel proceeds by way of assessment, then an assessor will treat the 2 concepts as equivalent. Whilst this perhaps provides some practical guidance, it is not a definitive answer to the question. It remains an issue for judicial interpretation.
Agreement without Disclosure
72. This is the third best option. It is an unlikely scenario, and as will be shown below, even if agreement has been reached without disclosure, it is quite possible that the facts of the matter will be deemed to be an instance where neither disclosure nor agreement has been reached.
73. As to strategies to be adopted, assessment is once again open to counsel. Litigation is however not an option. Section 317 provides:
317 Effect of failure to disclose
(1) If a law practice does not disclose to a client anything required by this Division to be disclosed, the client need not pay the legal costs unless they have been assessed under Division 11.
(2) If a law practice does not disclose to a client anything required by this Division to be disclosed and the client has entered a costs agreement with the law practice, the client may also apply under section 328 for the costs agreement to be set aside.
(3) A law practice that does not disclose to a client anything required by this Division to be disclosed may not maintain proceedings for the recovery of legal costs unless the costs have been assessed under Division 11.
(4) Failure by a law practice to comply with this Division is capable of being unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian-registered foreign lawyer involved in the failure.
74. The breadth of section 317(3) appears to prohibit any type of litigation from taking place, regardless of how the cause of action is framed. Under the Old Act, in the absence of disclosure, a claim could always be made by a practitioner on a cause of unjust enrichment. That appears to be prohibited by section 317(3).
75. In any event, even if there is a way to bring claim beyond the operation of section 317(3), section 317(1) would appear to provide a statutory Defence. The door to the courts has therefore effectively been closed.
76. The question then arises as to whether or not complaint is an available strategy. To make a complaint cannot reasonably be said to be maintaining proceedings for the recovery of legal costs. Accordingly, section 317(3) does not apply. Whilst section 317(1) provides a statutory Defence, it appears to go beyond a mere Defence, and may operate beyond that field of operation. An interesting question arises whether or not if complaint is made, and proved, notwithstanding any order by the Administrative Decisions Tribunal for payment of compensation, or some other order, does section 317(1) absolve a solicitor from the obligation to pay outstanding counselís costs in circumstances where counsel has failed to disclose in accordance with the New Act? This is another moot question open to judicial consideration. As a practical matter, I personally doubt whether the investigating delegate of the Law Council would be favourably disposed to following the usual practice in the resolution of costs disputes between counsel and instructing solicitors in the case of non-disclosure. However my view remains untested.
77. In addition to preventing strategies from being adopted, a failure to disclose presents its own additional obstacles. Notwithstanding that there may be an otherwise lawful costs agreement, the mere fact the disclosure has not been made entitles an instructing solicitor by operation of section 317(2) to make an application pursuant to section 328 for the costs agreement to be set aside on the basis that it is not fair and reasonable. Such an application can of course be made during the course of an assessment, at no cost and little trouble to a recalcitrant instructing solicitor. An interesting question then arises as to whether or not, for example, the hourly rate or daily rate provided for in the costs agreement is not fair and not reasonable if it is above market rates, notwithstanding that an otherwise valid contract has been reached. Arguably, the fairness and reasonableness of a costs agreement is to be determined amongst other things by the daily and hourly rates that counsel purports to charge. In circumstances such as these where a recalcitrant solicitor can question the underlying fairness or reasonableness, the invitation to an assessor to set aside the costs agreement is plainly open. Were this to occur, then counsel passes from being in a position of having reached agreement without making disclosure, to have neither made an agreement nor disclosure. In respect of what then occurs, see the next section below.
78. What is the measure of recoverable costs? Mercifully, notwithstanding that disclosure has not been made, section 319(1)(b) continues to operate unaffected, and accordingly the maximum amount of costs recoverable are those prescribed by the costs agreement. Assuming then, that a recalcitrant solicitor does not make an application under section 328, or alternatively makes an application that is unsuccessful, then the maximum costs recoverable will be those provided in the costs agreement. Just like in the case of making both disclosure and agreement, section 361 will apply, which, subject to over-servicing considerations, will result in recoverable costs being close or equal to the maximum costs provided under the agreement.
79. There is however, an additional cost to be incurred in this scenario, which does not necessarily arise in the previous 2 scenarios. A failure to disclose results in the costs of the assessment having to be borne by counsel. So much flows from section 369(3)(a). Accordingly, irrespective of how fair and reasonable counselís costs are, and how reasonable counsel has been in attempting to negotiate this costs dispute, ultimately in the absence of a disclosure being made, counsel will incur the substantial costs of assessment.
Neither Disclosure nor Agreement
80. This is the worst of the 4 possibilities.
81. Because disclosure has not been made, the strategies available to counsel are the same as for the third possibility, namely agreement without disclosure. Litigation is not an option. Assessment (paid for by counsel) is an option. The position in respect of complaint is unclear, for the reasons advanced above.
82. Because no agreement has been reached, the maximum costs that can be recovered are for the same as for the second scenario, namely disclosure without agreement. Precisely the same considerations apply.
83. Finally, whatever costs are ultimately assessed as being fair and reasonable, counsel will be forced to pay the costs of the assessment pursuant to section 369(3)(a) of the Act.