The costs of law: a look back at the stand-out cases of 2019

During the course of the year, a number of decisions have been delivered which provide useful guidance to solicitors in their day-to-day practices. The cases considered in this article cover the entitlement of legal practitioners to recover costs of representing themselves in litigation; obtaining security (by way of mortgage or charge) for costs; assignment of the proceeds of costs judgments and the conduct of costs assessments generally.

No costs of sole practitioner self-representation

The decision of the High Court in Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29 is now widely known within the profession in Australia. An Australian legal practitioner who is relevantly self-represented will not be able to recover professional costs if successful in litigation. While its effect excludes recovery by sole practitioners, the question remains whether the incorporated legal practice (‘ILP’) will continue to be able to recover costs of its self-representation. (For greater treatment of the topic and issues involved, refer to our article ‘Chorley abolished! High Court has final say’ 60 Law Society of NSW Journal, October 2019, 68-69).

Costs disclosure

The judgment in Malvina Park Pty Ltd v Johnson [2019] NSWSC 1490 (‘Johnson‘) is the first decision in New South Wales, but not in Australia, to interpret the obligation set out in s 174(3) of the Legal Profession Uniform Law. That provision provides the following:

‘Client’s consent and understanding. If a disclosure is made under subsection (1), the law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.’

In Frigger v Madgwicks [2018] VSC 281, the Court there considered that s 174(3) did not impose a disclosure obligation. The consequence of non-compliance with the provision would be that the costs agreement was not void under s 178 and able to be enforced without a taxation (the process similar to costs assessment applying in Victoria).

This can be contrasted with Johnson in which, as a matter of statutory construction, the Court considered that s 174(3) was a disclosure obligation, non-compliance with which will mean the costs agreement is void and unenforceable without a costs assessment. Practitioners ought to be aware of both decisions in the event that the Court of Appeal is called on to consider an appeal from the decision in Johnson, but also for the reason that it seems highly unlikely that the sending of a costs agreement alone will be sufficient compliance with s 174(3). The authors consider that a checklist gone through in a conference, signed by the client and kept with the file would be one way to discharge the obligation. The evidentiary burden lies on the solicitor and evidence will need to be given that all reasonable steps were taken. This is an important decision, given that any costs agreement entered into is only as good as the compliance with this requirement. It represents a potential risk for law firms and practitioners should give it due consideration.

Restructure of a law practice and assigning certificate judgments

The decision in Burrell Solicitors Pty Ltd (in liquidation) v Reavill Farm Pty Ltd (No 2) [2019] NSWSC 67 concerned an assignment by an ILP of the benefit of its property, leases and licences to a new ILP for nil consideration, together with an assignment of the proceeds of certificate judgments (in the amount of $537,307.53) and various costs orders made in favour of the original ILP. The consideration said to support the assignment of the certificate judgments and the costs orders, took the form of the provision of legal services without immediate payment, and an indemnity in favour of the original ILP for ongoing expenses (at [60]). Garling J considered that the use of the words ‘nil consideration’ for the use of the property, leases and licences could otherwise have been expressed ‘no additional consideration’, but that the intention was clear (at [62]-[63]). Having concluded there was ample consideration travelling between new ILP and original ILP to support the assignment (at [64]), the Court rejected the submission that the assignment was an unreasonable director related transaction and voidable (at [66]). To the extent the liquidators sought to attack the assignment as voidable as an assignment of future property, the Court concluded that a significant component of the property assigned was present property taking the form of the certificate judgments – the uncertainty of recovery of the costs being irrelevant to the characterisation as present or future property (at [70], [71]). As the assignment was for certificate judgments and the benefit of costs orders, the Court also rejected a submission that the assignment was conditional and not absolute (at [76]-[80]). The failure to give notice of the assignment of part of the property was also rejected as a stand-alone reason to invalidate the assignment (at [87]).

Security for legal costs

Two cases involving the taking by solicitors of security for costs are worth noting. In Omaya Investments Pty Ltd v Project Lawyers [2019] NSWSC 1394, sums in excess of $1,000,000 were paid for legal fees, and a further sum of about $520,000 was invoiced by solicitors acting in Land & Environment Court proceedings concerning a large development at Burwood.

The solicitors’ retainer was terminated on 27 September 2019 and attempts were made to negotiate the release of the file, culminating in an application made on 10 October 2019 for orders for delivery of the file pursuant to s 472 of the Legal Profession Uniform Law in the face of an asserted possessory lien. By the time the matter returned to Court, in substitution for the possessory lien, the client was offering a first registered mortgage over property at Neutral Bay owned by another company controlled by the same principals. At issue in the proceedings was the reasonableness, or otherwise, of certain terms to be included in the mortgage (at [9]). Some of the terms sought to be included, and the reasons for their acceptance, or refusal are set out below:

• Event of default: drop in value of the property below an amount – was a reasonable term for inclusion, the solicitors contending for $1,000,000; the client contending for $600,000 – the Court adopting a middle position of $850,000, partly to ensure the solicitors’ position was protected with regard to the exigencies of interest on unpaid amounts, costs assessments, review and enforcement costs (at [11]-[14]).
• Event of default: breach of undertaking or condition required by solicitors – not included (at [15]).
• Event of default: voidness or illegality – not included, for reasons of a severance provision contained in the standard terms (at [16], [17]).
• Secured money – including the whole amount of the invoices if an assessment is not completed within a particular time – not included given various reasons why assessment might take longer than cut-off, but both parties required to undertake to court to proceed with costs assessment with expedition (at [18]-[21]).
• Rights concerning period in which mortgage unregistered – unnecessary here where interim orders made required registration subject to settling terms (at [22]).
• Rights in addition to those in Real Property Act 1900, ss 57, 58 (not specified in judgment) – included as not unreasonable (at [23]).
• Indemnity – for claims, demands or losses arising from a number of identified events – e.g. failure to pay land tax or imposts; tenant claims – included (at [24]).

Another important decision is one of the Court of Appeal in Rahme v Benjamin & Khoury Pty Ltd [2019] NSWCA 211, and to a lesser extent, the costs decision in Rahme v Benjamin & Khoury (No 2) [2019] NSWCA 239, where the dispositive orders are formally noted. Rahme arose out of a series of facts, variations of which would commonly arise in practice: a director of two companies involved in complex recovery proceedings in the Supreme Court, where at a point when the companies were both placed into administration, asked his wife to be responsible for past and future legal fees expected to be incurred, and to provide security over property owned by her. To give effect to her agreement to be liable for legal costs, the wife was given a costs agreement identifying her as a client. On appeal, the wife was successful in setting aside the costs agreements, certificate judgments entered reflecting liability for legal costs, certain costs orders and a deed of equitable charge given in favour of the solicitors. She also obtained an order requiring the solicitors to repay the sum of $302,040.30 with interest and an order for her costs of the trial and the appeal proceeding, payable on the ordinary basis. In arriving at its determination, the Court of Appeal took the view that there was no fully informed consent where:

• the transaction was entered into at the request of the husband;
• the solicitors conducting the proceeding had previously acted for the companies in administration;
• the solicitor providing the independent advice had previously undertaken work for the husband;
• the advice given by the ‘independent’ solicitor explained the effect of the transaction documents, but importantly, did not give advice as to the prospects of success of the recovery proceedings, and the wife was not in a position to inform herself about that before assuming responsibility for costs and giving the security sought by the solicitors.

Costs assessments, appeals and related matters

Finally, there have been two useful decisions relating to the recovery of costs and the conduct of costs assessments generally.

First, in Ahern v Aon Risk Services Australia Ltd [2019] NSWDC 567, the plaintiffs had registered two previous certificate judgments following a determination made by a Costs Assessor and the partial lifting of a suspension of the Costs Assessor’s determination by a Review Panel. The plaintiffs then registered a third certificate. The defendant contended the plaintiffs were estopped from appealing the determination on the basis that obtaining the certificate judgments constituted an election. Additionally, the defendant sought dismissal on the basis that the plaintiff had not served the summons within the required 28 days. The defendant sought summary dismissal of the appeal on both bases. The Court rejected the application. In relation to the election point, the Court held the filing of a Certificate of Determination does not preclude that party from later appealing the determination.

Secondly, it is sufficient to record that Boensch v Somerville Legal Pty Ltd [2019] NSWCA 249 involved an unsuccessful appeal against orders made dismissing a costs appeal relying upon UCPR, 12.7, i.e. dismissal for want of due despatch.

Costs

Although the Legal Profession Uniform Law has been in operation for four and a half years, we are only just starting to see a flow of decisions interpreting and applying its provisions. We will continue to follow developments, including whether there is any appeal in Johnson. Important issues remain unresolved, including how law practices can recover costs in circumstances where, due to a deficiency in disclosure, they cannot sue, but the 12-month time limit for assessment under ss 198(3)-(4) has expired and can’t be extended.

Michelle Castle is a barrister at 13th Floor, St James Hall Chambers. Andrew Bailey is a barrister at Frederick Jordan Chambers.