The Elephant in the Court Room

Guidelines on Itemised Bills

Following on from my previous post on itemisation of counsels' fee memos, my attention has been drawn to draft guidelines on itemised bills, published by the Queensland Legal Services Commission.

The Commission's website states that it:

"develops and publishes two kinds of policies and guidelines - policies and guidelines we develop and publish for the benefit of the profession to assist practitioners to better understand their professional obligations in areas that have proved problematic, and policies and guidelines we develop for use in-house and that we publish in the interests of transparency."

I applaud the Commission in publishing such guidelines.  Often practitioners are unaware of their duties and obligations, and the ethical issues surrounding the practitioner/client relationship.  A recent discussion in our office centred around how frequently we see solicitors charging their clients for preparing their bills to their clients, dealing with the client when the client queries bills, and the like.

The test is always - did the work benefit the client?  If it was only to the lawyer's benefit, it is rarely (if ever) chargeable to the client.

Other guidelines published by the Queensland LSC relating to charging for outlays and disbursements, charging fees in speculative personal injury matters, and aspects of advertising.  I recommend all practitioners visit the site, whether they are Queensland based, or not.  

How detailed do Barristers' fee memos need to be?

This question was in issue in a taxation in the Victorian Costs Court last year.  Counsel for the party seeking to review counsel's fees  submitted that entries in the fee memo detailing  "Reading and preparation" were not sufficiently particularised to allow the lawyer and client to determine what documents were read or what was prepared and whether the time claimed for that work was reasonable.  This was despite the fact that the solicitors seeking to review the fees were present at most if not all of the conferences claimed by counsel.  Counsel's costs agreement distinguished between "Reading brief and advising" and "Preparation and conferences", and it was argued that the fee memorandum should also provide a breakdown of time spent "Reading brief", "Advising", "Preparation" and "Conferences".  It was not sufficient to have global fees for "Reading and Preparation".    

The cases of  Clayton Utz Lawyers v P & W Enterprises [2011] QDC 5 and Bartex Fabrics Pty Ltd v Phillips Fox (1994) 13 ACSR 667 were relied on as authority for the proposition that an itemised bill must contain such detail as will enable the client, or those advising him, to determine whether to seek a review of the costs claimed, and that general statements as to time spent reading documents are not sufficiently itemised.

Counsel for the barrister sought to distinguish these cases on the basis they relate to solicitors rendering invoices to clients whereas counsel was rendering fees  to his instructing solicitor in circumstances where the solicitor was aware of the nature and volume of material contained in the brief, and was present at the conferences claimed by counsel.  In those circumstances, the memorandum of fees was sufficiently itemised to allow the solicitor to determine whether the time claimed by counsel for reading and preparation was reasonable or whether to seek a review and to advise the clients accordingly.

His Honour Associate Justice Wood held that the memorandum was not sufficiently itemised.  In the context of the costs agreement, the time spent by counsel reading and preparing should not be lumped together and notes of conferences  should refer to the parties in attendance.

We see many fee memoranda from counsel which, in light of His Honour's comments, would not be held to be sufficiently particularised.  This is an issue for both solicitors and counsel, particularly in light of the rulings in Feesty v Henty Jepson & Kelly that clients cannot review counsel's fees unless there is a direct retainer between counsel and the client.

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.

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).

Padding of time records is Theft

A US disciplinary body has described the recording of personal phone calls as billable to a client as "simple thievery".  And so it is.  Charging time to a client for work which was either not undertaken, or took less time than that recorded ("padding"), results in the client paying for a service which wasn't actually undertaken.  If the fee arrangement with a client provides that the lawyer is charging in accordance with time spent, then that says it all.  Is seeking payment for time not actually spent that much different to Visyboard and Amcor entering into a price fixing arrangement?

I recently gave a seminar on "The Ethics of Time Based Billing".  This is a topic which some lawyers would rather ignore.  However, it is likely to be of increasing interest to Australian disciplinary bodies and to courts reviewing legal fees, with the continuing impacts of the Legal Profession Acts.  There are many other ethical aspects of time billing other than time padding.  I will look at these in future posts.

KPIs as a Marketing Tool for Law Firms?

The Harris Cost Lawyers/Mahlab Recruitment survey of Corporate Counsel/Law Firm Relationships found that 51% of corporations use panel firms, but only 23% of Corporate lawyers had procedures in place to formally review the performance of their lawyers, even if a panel was used.

Formal KPIs provide a non-threatening environment in which a client can express their concerns and desires. It is an interesting marketing tool for a law firm to propose their own set of KPIs, if the client does not do so. This assists the client, but also sets the ground rules and parameters within which the parties are operating. Identifying appropriate KPIs will require identifying the client's expectations - which is the base starting point for delivering value to the client.

We all should know that we are fortunate if a client expresses dissatisfaction, because at least we then have the opportunity to remedy the situation. 95% of clients keep quite if they are unhappy and simply never come back, or worse still, we both lose the business and end up in a dispute over costs.

Formal KPIs help avoid this.

Will Your Law Firm Service Company have to Repay Clients?

Thanks to Simon Lewis (http://www.sinch.com.au/seminfor) for referring me to the release from the Queensland Legal Services Commissioner regarding charges for outlays and disbursements. Any markup on these will now have to be disclosed to clients and the client's consent obtained. This ruling also applies to service companies. In that instance, the law firm will be required to disclose the interest in the service company or other entity which is charging marked up disbursements.

Not only that but firms will need to refund markups from 1 July 2004 to avoid prosecution. It will be interesting to see if the ruling is followed up in other states. Certainly, in Victoria, markups on disbursements will not be recoverable other than in accordance with specific provision in a Cost Agreement. Some years ago the Law Institute of Victoria alerted practitioners to the difficulties of charging file management and file opening charges. The full release is at http://www.lsc.qld.gov.au/policies/guidelines.pdf