The Elephant in the Court Room

Legal Profession Act or Legal Practice Act?

The recent decision of Baldsing v Voitin Walker Davies is an interesting one, albeit possibly somewhat limited in its application.  This was an appeal from a decision of a Magistrate arising out of a claim by solicitors for unpaid fees. The solicitors were initially retained in March 2005, prior to the commencement of the Legal Profession Act 2004.  The principle defence to the debt proceedings was a denial that any fees were owing, on the grounds of negligence, failure to make proper cost disclosure as required by the Legal Practice Act 1996.  Alternativelythe client sought a reduction of costs pursuant to s 91 of the 1996 Act. Finally there was an allegation of misleading and deceptive conduct in that the solicitors represented that the Legal Profession Act 2004 applied to all bills of costs.

 The Magistrate considered whether the Legal Practice Act or the Legal Profession Act was the applicable legislation. He found that the 1996 Act applied to bills sent from May 2005 until July 2008and that the 2004 Act applied from 22 July 2008, when a cost agreement was entered into between the parties. 

He also found that, even if the solicitors had represented the 2004 Act applied to all bills rendered, this did not cause the 2004 Act to apply.   The client appealed this finding.  Macaulay J found no error of law in the Magistrate's finding that the alleged representation that the 2004 Act applied, could not be relied upon to invoke section 3.4 .17 of the Act to prevent the solicitors recovering costs of the period up to 22 July 2008.

In relation to the s 91 argument, the Magistrate found that he did not have power under section 91  to reduce the bills of costs if satisfied that the solicitors had not given disclosure as required by section 86 of the Act. He concluded that this power was only vested in the Taxing Master of the Supreme Court, being the person who could undertake the assessment referred to in this section. On appeal,Macaulay J upheld the magistrate's decision and found no error of law.

Bills in taxable form

I have recently been looking at the circumstances in which a party can be required to provide a bill in taxable form.  The decision in Pacific Indemnity Underwriting Agency Pty Ltd v Maclaw No 651 Pty Ltd & Anor  is a decision of the Court of Appeal which, whilst its principal focus was the meaning of "reasonable costs" in the context of litigation arising out of an insurance policy, one of the subsidiary issues was the circumstances in which a bill of costs in taxable form should be required.

The case was an appeal from a VCAT decision, where the award of "reasonable" costs had been held to mean the costs which the party was actually paying to its lawyers.  No bill in taxable form had been delivered, but simply a schedule detailing the time recorded.  At first instance, the Member had refused an application seeking a bill in taxable form.

The Court of Appeal took a different approach to the interpretation of the costs order, but in any event, in considering the circumstances in which a bill of taxable form should be provided stated as follows (per Ormiston J) at paragraph 86: 

"Generally speaking, moreover, even where costs are to be assessed or taxed on a solicitor/client or indemnity basis, that is no excuse for refusing to deliver a bill, unless the parties agree to the contrary or unless court or tribunal directs to the contrary. Every form of taxation may require consideration of items of detail, although the basis of taxation may qualify the kind of bills that should be delivered, as may specific rules or regulations on that subject.

In ordinary litigation, whether or not conducted in a tribunal, prima facie a bill should be delivered for consideration by opposing party and by court or tribunal. Even in the case of costs taxed on an indemnity basis, it is open to the unsuccessful party to object that particular items are unreasonable, just as on a solicitor/client basis it is for the judgment creditor to establish that items are reasonable, howsoever that may be achieved in particular circumstances... What is more important is that in considering costs below there was a failure to distinguish between the reasonableness of the rate charged per hour or the like, and the reasonableness of the items of work performed and the extent of time taken to perform them, to touch only on matters affected by hourly rates of payment. A bill is ordinarily required so that the parties and the court or tribunal can properly ascertain what properly has been done in the necessary enforcement of a party’s rights, so that particular items may be taxed off if they do not satisfy the relevant criterion. It is sufficient to say that a bill should have been directed in the present case." 

The decision is important in the context of indemnity cost orders, where occasionally a party will simply seek to rely on a printout of time charged (as was the case in Maclaw).  The issue really becomes one of whether a time printout is a sufficiently itemised to constitute a taxable bill.

The following passage (per Mann J) in Mallesons Stewart, Stawell and Nankivell v Williams  is often cited with approval in cases considering the delivery of itemised bills .

Courts have repeatedly held that a bill of costs must contain such details as will enable the client to make up his mind on the subject of taxation, and will enable those advising him to advise and effectively as to whether taxation is desirable or not." 

The adequacy of a bill must be considered in light of the level of the client's sophistication and commercial experience and would it include "any agreement reached between the parties as to the basis of charge."  - Re Walsh Halligan Douglas's Bill of Costs (1990) QDR 288 at p 294.

Further, the client or party seeking further particulars in the bill must show that there is not a sufficient information, not simply on the face of the bill, but also the other information available to him, to enable those advising him to provide proper advice.  in other words, if the client or party had available to him through other means sufficient information to take an informed view on the bill, it will not be sufficient that an uninformed person would find the bill was not sufficiently particularised.  Ralph Hume Gary v Gwillim  (CA) [2002] EWCA Civ 1500; (2003) 1 WLR 510.

In the context of a practitioner/client dispute this question was considered in Clayton Utz Lawyers v P & W Enterprises Pty Ltd [2010] QDC 508.

In the Clayton Utz case, the proceedings before the court were an application by Clayton Utz under the Legal Profession Act 2007 (Qld) for assessment of its own legal costs.  The question for the court was whether the bills of costs, which appear to be detailed to the extent that they set out the individual time records, constituted "itemised bills" the purpose of the Legal Profession Act.   The defendant argued that many items charged in the bills were grouped items of work with a single lump sum charge and in respect of those it was not possible for the defendant to assess whether or not the charges for the individual items were proper.  The defendant argued that a bill must be sufficiently particularised to enable a client to "know the grounds on which it disputes the amount or liability to pay any particular item of costs".

Many of the descriptions in the bills of costs with very generalised with examples being given such as "various activities including letter to Dibbs Barker re Mitchell Brandtman report; prepare response to show cause notice; peruse affidavits and email to counsel re same."

Reid DC J held that such generalised descriptions would not enable "a reasonably experienced litigation solicitor" with the benefit of input from the client, to form an opinion as to the reasonableness of the work performed.  His Honour ordered the delivery of properly particularised bills.

Dangers of separate components in Calderbank offers

A recent Federal Court decision considered the reasonableness of rejecting offers made.  Nothing unusual about that, but the unusual aspect of the decision was the consideration of the reasonableness of rejecting the individual components of an offer.

The proceedings involved claim under the Fair Work Act, the claimant seeking damages arising from contravention of the Act.  Under the Fair Work Act, costs are generally not awarded.  The applicant sought costs, relying on the respondents rejection of a series of without prejudice offers as evidence of unreasonable behaviour.  The court looked at the individual components of the offers, and considered the outcome against each of those individual components.  It found that, although the applicants' offers were less than the compensation awarded, some of the individual components were greater than what was awarded and in those circumstances it was reasonable for the respondent to decline that component of the settlement offer.

The particular component considered in this case was costs which have been thrown away.  The case highlights the difficulty of seeking a fixed amount for costs, are a cost order has been made and a party is seeking to compromise that order as part of an offer of settlement.  It would be necessary to establish the reasonableness of the amount of the offer relating to that cost component.

Third party payers - a warning to commercial lawyers!

The Legal Profession Acts now enacted in the majority of Australian states, have the concept of "third party payers", of which there are two types, associated and non-associated.

 

Associated third party payers are those who are not the client of the law practice, but have a direct responsibility to the law practice to pay the client's costs.  Examples are insurers, companies paying the costs of an employee or director, a father paying the costs of a child.

 

Non-associated third party payers, do not owe a responsibility to the law firm, but rather have a responsibility to the client to pay part or all of the client's legal costs.  Commonly, this liability to pay costs arises out of contractual obligation, examples being mortgages, leases, and other commercial documentation.

 

Yet it appears that the draftspersons of such documentation fail to take the provisions of the Legal Profession Acts into account when drafting the costs clauses.  This is highlighted in the decision of Boyce v McIntyre, a decision affirmed by the NSW Court of Appeal

 

The simple facts were that Boyce (law firm) was seeking to recover legal costs from McIntyre (non-assocaited third party payer) who was responsible for payment of Boyce's client's "reasonable legal costs" pursuant to the terms of a lease between client and McIntyre.

 

There was a cost agreement between Boyce and client which provided for paymet of a fixed fee of $3000, and Boyce advised McIntyre that the estimated legal fees were $3000.

 

McIntyre sought to have the fees assessed and on assessment, the cost assessor held that, as there was no cost agreement between Boyce and McIntyre, the costs should be assessed on the basis of what was "fair and reasonable" and not by reference to the provisions of the cost agreement.  This approach was affirmed both by the Costs Review Panel and by a single judge of the NSW Supreme Court. 

 

In jurisdictions where there are scales of costs (i.e. all other States and Territories other than NSW), the costs would be assessed by reference to the relevant scale of costs or remuneration order.  This is something which needs to be addressed by the draftspersons of commercial contracts.  It may be necessary to have the third party payer enter into a cost agreement with the law firm, but this then makes them an associated third party payer, with all the associated rights of a client to disclosure, to negotiate a cost agreement and to challenge costs.

 

Many clients could be substantially out of pocket due to the differential between actual costs and what would be recoverable on a fair and reasonable, or scale basis.

Perfection is an aspiration not a goal

Perfection is an aspiration not a goal - should be a standard direction for many clients to their lawyers. Yet many lawyers, particularly young lawyers would not understand what it means.  To put it another way, "you don't need a Rolls-Royce when a bicycle will do", a quote from Rio Tinto's General Counsel.

It's all about proportionality - whilst in a perfect world, you would interview every potential witness, review every document, not matter how limited the relevance, and conduct endless interlocutory applications to compel the other party to also produce every shred of evidence, it is a rare matter where this level of work is proportional to the the issues involved.

In Australia, this statement is also now the mantra of the judicial system.  Judges and other judicial administrators have recognised that the system cannot support a perfect world.  Courts do not have the resources to allow every case to be run as the "perfect" case.  Discovery is becoming so enormous, that judges must intervene and limit the categories of documents to be produced.  In the Federal Court, the "rocket docket" recognises that parties can't have unlimited time to get their acts together in compiling and examining evidence.  The combined goals of ensuring parties get a fair hearing, whilst also ensuring disputes are finalised in a speedy fashion, mean that no case will be conducted as the perfect case.

So, it's a matter of focusing on what it most important and for clients, on where there money is best spent. Unless you plan how you are going to conduct the matter, and therefore what work you will focus on, you are in danger of doing the following:

• Reinventing the wheel (a recent example - I was asked to advise on cost orders to be sought, and pointed out that I had given exactly the same advice, on the same matter, about 18 months ago)
• Chasing rabbits down burrows but not the rabbit who is the target (example - researching a point of law that is not in issue)
• Finding the weakness in the evidence or the law too close to trial and only after very considerable costs have been incurred  

Case planning and early case assessment, when undertaken which a clear understanding of what the client sees as necessary for the case, are what is required. 

Certainty has a Premium

A front page article in today's Australian Financial Review does not predict the death of the billable hour, but certainly shows its waning in favour.  As Telstra's Will Irving is quoted "Certainty has a premium it didn't have before the global financial crisis".

The clients I advise about alternatives to hourly billing are looking for one of two things:

• The lawyer to have some skin in the game

• Certainty of costs

With the former, there needs to be some value component in the arrangement and agreement about what triggers any value payment.  But the arrangements I see proposed by lawyers tend to be the same old hourly rates with a premium for "success".  Lawyers and clients need to be a bit more creative.  What is the value actually being delivered by the law firm?  For transactional work it may be preparing documents that are approved quickly by a regulator.  For litigation, it may be the accuracy of the initial advice on liability and quantum.  The value payment can be tied to that.

Then there is the true value billing arrangement - not tied in any way to time but solely relating to what the client perceives as the value of the lawyer's work.  The basic question is "how much would you pay me to achieve X?"

This is where there is a real problem for lawyers, as it involves dealing in intangibles - what the client wants and needs, and what their perception of value is, (a complex psychological and sociological question).  Until lawyers can break their thinking of tying value to time spent, they will never develop true value billing arrangements. 

But then we come to certainty of costs.  Generally this is achieved through some form of fixed fee billing, sometimes with a value component.  Fixed fees take work on the part of the lawyer.  The work needs to be clearly scoped.  Project management techniques and costing strategies used by other industries should be utilised to plan the matter and work out fees.  But this work has additional benefits - developing a matter plan enables both lawyer and client to see if the matter is going off track and address this quickly.  Secondly, other options and alternative approaches are often identified during the planning process and these can be explored.

But all alternatives require lawyers to take the leap of faith into the uncertain world of abandoning the hourly rate.  It takes courage, but in these uncertain financial times, clients are looking for lawyers who are prepared to be brave.

Direct Briefing of Barristers

I recently presented at a conference of In-House Counsel and in one session the question came up about whether in-house counsel would be personally liable for barrister's fees, if they direct briefed.  But what do we mean by "direct briefing" anyway?  Simply, it means that in-house counsel send a brief to a barrister directly, and not involve a solicitor as a middle-man.

The concern was, that unless barrister's cost agreement was with the in-house counsel, and thereby making him or her personally responsible for payment of the barrister's fees, the Bar Ethics Rules preventing direct briefing by a client would be breached.

I am a great proponent of direct briefing as a way of controlling costs.  I will post separately on the dos and don'ts of direct briefing but suffice to say, in-house counsel will not be potentially liable for payment of barrister's fees, nor is there is a breach of either the Legal Profession Act or the Bar ethic rules when there is a direct brief, if done properly.

This is easiest to understand if you keep in mind there are two different aspects to engaging the barrister -  firstly, who is briefing the barrister and secondly, who is agreeing to be responsible for his/her fees.

In-house counsel would brief the barrister, so the direct briefing rule is not breached as the barrister is not accepting a brief or instructions directly from a client (the definition of direct access in the Bar Rules).

However, the company itself (the client) would agree to be responsible for the barrister's fees and therefore the cost agreement would be between the barrister and the client. This arrangement is envisaged by s 3.4.26 of the Legal Profession Act (Victoria) (and equivalent provisions in other state Acts)

s. 3.4.26

(1) A costs agreement may be made:

(b) between a client and a law practice retained on behalf of the client by another law practice;

In this instance, the barrister only has to give the disclosure normally required to be given to a solicitor retaining them on behalf of a client (i.e. details of how the barrister is charging, when he/she is going to bill, and an estimate of fees to be incurred).

To clarify a couple of points:

• Unless the barrister is charging in accordance with scale, a cost agreement is always required.

• Disclosure is not required where the client is a sophisticated client (as defined by the Act), (most commonly publicly listed companies and the Government).

• Only conditional cost agreements need to be signed - for all other agreements it is possible to specify what conduct will constitute acceptance (most commonly continued instructions).

To power dress or not to power dress

Two reports with contrasting views about power dressing for lawyers.  The American Bar Association Journal reports that the downturn in the economy is causing lawyers to turn away from casual dressing and back to "Gordon Gecko" power dressing, presumably as a way of reinforcing credibility?  The comment from one lawyer in the story is "I think people expect high-powered lawyers to look like high-powered lawyers".

In contrast, Patrick Lamb tells a delightful story about a lawyer attending on his client at their waste station premises, and how incongruous his power dressing (and attitude) were.

For years, I have heard comments from in-house counsel and other legal clients about the marble foyers and offices of their large legal firms.  The vast majority were throw away comments along the lines of "so this is where my legal fees are going".  Perception is important.  It's like the American and British banks who, having received huge hand outs, are now paying bonuses which are beyond the comprehension of the average man in the street.

It seems to me that in the present economic client, power dressing is not the way to go.  I understand that maybe it is time to pull back a little from the casual jeans and tee shirt (or green bermuda shorts!), but if my lawyer was wearing new clothes that put him straight onto the "Wall Street" set and echoing Gordon Gecko, I would query if my legal fees were being well spent.

For those doubting Thomases

One for all those doubting Thomases who tell me that no large firm will move away from the billable hour, no matter what their clients want.  Law.com reports that the British company ITV has entirely phased out hourly billing for its legal work.  The firms involved are Slaughter and May, Lovells, Addleshaw Goddard, DLA Piper, Olswang, Charles Russell and Goodman Derrick - not exactly lightweights.  Of interest is that Freshfields have not been reappointed to the panel.

The article reports:

Garard told Legal Week: "None of the firms will bill us with reference to a measure of time on any matters. The pledge forms part of the agreement we have with the firms selected. As far as I am aware, we are the U.K.'s first major corporation to have such a panel. Hopefully people will sit up and take notice and other companies will follow suit."

Lovells ITV relationship partner Peter Watts said: "We always work with our clients to find new ways of working and new ways of thinking about our relationship. ITV is a very exciting client to work with and we hope to do much more with them in the future." 

From an earlier report it appears ITV were looking to use fixed fees, caps and floors, with the rate based on deal completion.  

Earlier this year, Freehills were recruiting a pricing analyst.  All the top tier Australian firms offer fixed fees in certain types of work and on particular matters.  But the billable hour remains the most comforting means of billing for law firms - it's what they are familiar with.

My advice to all clients is to ask.  Until you ask you don't know what the answer will be.  But look at how and what you are asking for.  When I am working with client assisting in managing their legal costs, we put suggestions to the law firms about possible alternative billing arrangements, rather than simply asking the open ended question of "what can you do for us?"  The answer to this question is often "we are interested in exploring alternative billing arrangments with you" with no solid proposals being put.

Clearly ITV put a lot of work into their RFP and were proactive in making suggestions about alternatives.  It may well be that they were also proactive in the whole tender process, with feedback about level of work and possible alternatives.  If your proposal has any element of "success fee" you will need to define what "success" means.  You may need to look at how the law firm contributes to that success.

But the payoffs in certainty of fees make the process very worthwhile.

Jim Calloway recommended Allocatur

I am incredibly honoured that Jim Calloway has recommended this blog to readers of his Law PracticeTips Blog.  Jim is co-author of the book Winning Alternatives to the Billable Hour (2nd ed.) (2002 ABA.),  He is the Director of the Oklahoma Bar Association's Management Assistance Program and a member of the Council of the ABA's Law Practice Management Section and chair of its Practice Management Advisors Committee.

In other words, he is a guru on law practice management which is why I a so honoured that he recommends this blog!

Jim's blog is on my list of "must reads" as are his articles in the ABA Law Practice Management Journal, to which I subscribe.  Whilst there are many differences in the practice of law in Australia and the US, including fee arrangement restrictions on Australian lawyers that don't apply to many US lawyers, the trends in the US often eventuate here.  And no matter where you practice, Jim's commonsense approach to client service is relevant. 

For those of you interested in non-billable fee arrangements, Winning Alternatives to the Billable Hour is must and can be purchased from the ABA bookshop or Amazon and through selected sources in Australia (I believe the LIV bookshop has copies).  I have both first and second editions and they are an important resource.

Thanks Jim!