B and Associates (a Firm of Solicitors) & Bloomfield

[2003] FamCA 420

[2003] FamCA 420

FAMILY LAW ACT 1975

IN THE FULL COURT

OF THE FAMILY COURT OF AUSTRALIA             Appeal No. EA 96 of 2001

File No. SY 8194 of 1999

AT SYDNEY

BETWEEN:

B and Associates (a firm of solicitors)

Appellant

- and -

PATRICIA ANNE BLOOMFIELD

Respondent

REASONS FOR JUDGMENT

CORAM:  KAY, HOLDEN, O’RYAN JJ
DATE OF HEARING:         28 May 2002
DATE OF JUDGMENT:     6 June 2003

APPEARANCES:               Mr Hyde of Counsel, instructed by B & Associates, Solicitors, appeared on behalf of the Appellant.

Mr Knox of Counsel, instructed by Watts McCray, Solicitors, Level 5, The Chambers, 370 Pitt Street, Sydney, NSW, 2000 appeared on behalf of the Respondent.

This report contains a summary of the salient points of the judgment.

• This was an appeal against the refusal of Faulks J to vary a taxation of a bill of costs. The appellants were a firm of solicitors who had been engaged by the respondent to act on her behalf in relation to family law proceedings.  

• The Respondent disputed a bill of costs presented to her by the Appellant in the sum of $39,173.75. After a taxation before Deputy Registrar Cain a certificate of taxation issued for the sum of $16,706.25. 

• The Appellant appealed to the Full Court seeking to set aside Faulks J’s dismissal of its review application and to have the matter remitted for a fresh taxation.

• In June 1999 the Respondent instructed the Appellant to act for her in family law proceedings for residence, contact, property settlement and spousal maintenance.  Mr K., solicitor had carriage of the matter.  The Appellant acted for the Respondent for approximately 3 months until September 1999.

• On 25 June 1999 the parties entered into a costs agreement. The costs agreement was accepted by the Respondent as the basis of the terms of the retainer between the Appellant and the Respondent. It permitted the Appellant to charge in units of three minutes at the rate of $200.00 per hour.

• The costs agreement provided:

  “Time engaged on your work covers not only time that is necessary for us to spend on your matter but also for other time which you ask us to spend on your behalf” 

• Even though the work charged for was carried out at the clear request of the client, Faulks J  and the Full Court upheld the taxation.

Judgment of the Trial Judge

1. His Honour observed that “on its face, the amount claimed seems to be significantly greater than would the work normally necessarily incurred in such matters would justify”.  It was common ground that the Deputy Registrar dealt with the items in the bill of costs and made determinations as to the proper time that might have been spent in relation to various items claimed in the bill.

1. At trial Mr K. submitted that all work undertaken had been requested by the Respondent and that accordingly he was entitled to charge for it, irrespective of whether or not it was necessary or excessive for the work that might reasonably be required.  His Honour found that there seemed to be little doubt that Mr K. undertook a lot of work and the question was whether it was work that should have been undertaken in the circumstances of the matter.  ….

1. His Honour then said that it was a matter in which the costs escalated at an alarming and immediate rate and the total period of retainer was a few months only and that during this period, while it was clear that it may have been unreasonable to require a solicitor to render interim accounts and require their payment, or even to justify their payment, it was a case that the solicitor in conformity with his fiduciary obligations must keep the client informed of what would be an unreasonable or unusual escalation of costs.

1. … His Honour said:

   “23. In such circumstances, in my opinion, it is incumbent upon the solicitor who has carriage of the matter, (if the costs appear to be to that solicitor, in his professional view, or in what an ordinary and objective solicitor would assume to be the case), [who is] incurring fees which are high and above those that would normally be incurred, to ensure that the client is both aware of that fact and moreover, is aware as to why that is the case.  And in particular, if that solicitor seeks to rely upon a provision in the costs agreement which is that fees are being incurred as a result of the specific request of his client, it is necessary that there should be specific information given about that, either generally or specifically.

Grounds of Appeal - Ground 4 – The Costs Agreement

1. This ground, described by counsel for the Appellant as the “substantive ground”, was recast in the outline of submissions as follows:

“That the Registrar at first instance and subsequently Faulks J on Review failed to have sufficient regard to the terms of the Costs Agreement validly entered into with the Appellant.” 

1. In Weiss v Barker Gosling (No 2) (1994) FLC 92-474 Fogarty J said at 80,928-80,929:

“Clauses 3 and 4 are presumably intended to negative the impact of what is frequently referred to as the rule in In Re Blyth and Fanshawe (1882) 10 QBD 207. At p 210, Baggallay LJ stated the rule as follows:

‘I take it to be the general rule of law, and an important rule which is to be observed in almost all cases, that if an unusual expense is about to be incurred in the course of an action it is the duty of the solicitor to inform his client fully of it, and not to be satisfied simply by taking his authority to incur the additional expense, but to point out to him that such expense will or may not be allowed on taxation between party and party whatever may be the result of the trial.’ 

…

It may be possible for costs agreements to contain clauses which clearly negative the rule in Re Blyth (supra) but as the cases referred to above and other similar cases demonstrate, the requirement is quite strict.  The requirement is to ‘‘inform his client fully of it’’ and this is a particularly important issue at the present time where counsel’s fees can amount to very significant sums (often far beyond what an ordinary person in the community could anticipate or expect) and may represent a significant portion of the overall account.”

1. In Schiliro v Gadens Ridgeway (1995) FLC 92-608 the Full Court at 82,067 referred to the discussion by Fogarty J of the “unnecessary expenses” rule in Weiss v Barker Gosling (No 2) (supra).  In Quick on Costs, Volume 1, Law Book Company, it is said at p 3-6551:

“[3.1860] In contentious and non-contentious business alike a solicitor has a duty to advise a client that particular work or expense is unusual and obtain authority to do the work or incur the expense, failing which the work or expense will be disallowed on a taxation between the solicitor and the client: Cordery on Solicitors (9th ed, 1996)(Looseleaf Service, Butterworths), para f [8]; Oliver, The Law of Costs (1960), pp 53-55, esp p 54.  A solicitor has a duty to advise and protect a client against unnecessary expense: Alsop v Lord Oxford (1833) 1 My & K 564 at 566; 39 ER 194 at 795; Re Blyth and Fanshawe (1882) 10 QBD 207 at 212; Re Windeyer Fawl and Co; Ex parte Foley (1930) 31 SR (NSW) 145 at 151. That duty complements the further requirement that before a charge can be made for particular work it must have been of value to the client; a solicitor cannot charge for work which is useless to the client whether it is done through inadvertence, inexperience or the design of imposing upon the client; a solicitor’s remuneration, as the word remuneration suggests, is a reward for useful labour: Hill v Featherstonhaugh (1831) 7 Bing 570 at 571, 572; 131 ER 220 at 221 although the rule as to unusual expenses does not depend for its existence on a statutory provision or a rule of court

…

[3.1870] Where the work or expense occurs in the course of litigation the solicitor must also be able to show in addition the client’s authority that the client when giving the authority was not under the impression that if he or she succeeded in the action success would result in recovery of the work or expense from an opponent in the proceedings: Re Lamrock, Brown & Hall; Ex parte Black (1908) VLR 238 at 252, 255. The case is like that of a trustee who may think, unless he or she is expressly warned, that the costs will come out of the trust estate: Re Lamrock, Brown & Hall; Ex parte Black (1908) VLR 238 at 255. Usually the only way of proving that the client knew of this is to be able to prove a warning to the client that the costs in question would not or might not be allowed on a party and party taxation if the client was successful or, in other words, a warning that the client might have to bear the costs in question whatever the result of the litigation: Re Blyth & Fanshawe (1882) 10 QBD 207 at 212; Re Lamrock, Brown & Hall; Ex parte Black.”

1. In Australian Family Law & Practice, Vol 2, CCH Australia Limited at [61-510] it is said that the traditional approach has been that to recover the costs of unnecessary work on a lawyer-client taxation three conditions should have been fulfilled:

1. The additional apparently unnecessary costs must be incurred only after express instructions from the client to incur them. The client should be warned that if he or she succeeds he or she may not be able to recover the costs of the unnecessary work from the other side. If the particular work for which the client is to be charged by the lawyer was not the subject of specific instructions from the client or a warning from the lawyer that they were unnecessary, then the costs must be necessary in the circumstances to carry out the instructions the client has given.

1. In Re Felton (1942) 60 WN (NSW) 16 at 21 Maxwell J said:

   “The essence of the rule is that the client must be protected; he is embarking upon a field which – it can invariably be assumed – is completely strange to him, and which is or must be taken to be familiar to the solicitor.  It is therefore the duty of the solicitor to place his client in a position where he can so far as possible be able to fully appreciate the nature and extent of his financial liabilities in the course of litigation.  The use of the words ‘unusual expense’ would in many cases be meaningless and of no value in warning the client; a full explanation of the possibility that part or whole of a contemplated expense may not be recovered from an unsuccessful opponent will be a complete protection to the client – without describing it as ‘unusual.’  In other words, if a client is to be asked to authorise expenditure he must be placed in a position to properly exercise his own judgment in authorising it.  There is, therefore, no magic in any form of words, and I apprehend that the caution or warning will vary with the client, with the relations between the solicitor and the client, with the particular litigation, and with the particular expense.  It needs hardly to be added that it is proper to examine the caution in the light of the position at the time of the warning should be given.”

2. Division 3 of Order 38 Family Law Rules deals with lawyers fees and disbursements.  The combined effect of O38 r7 and O38 r8 is that unless a lawyer has entered into a costs agreement with a client, which has not been set aside, and subject to an order of the court, then the lawyer may charge fees not more than the amount provided by the scale of fees in Part 1 of Schedule 2 to the Rules together with disbursements properly incurred for the proceedings.  Order 38 rule 9 provides for an additional charge in certain circumstances being the complexity of the proceedings, the difficulty or novelty of the matters raised and other reasons.  Order 38 rule 10 provides:

“(1)    A lawyer must not charge costs for:

(a)a kind, or amount, of work not reasonably required to be done for a proceeding; or 

(b)work done for the administration of the lawyer’s office; or 

(c) preparing documents not reasonably required for the conduct of the proceeding.

(2) However, a lawyer may charge for work, or recover the cost of a disbursement, if: 

a client instructs the lawyer to:
         do work for a proceeding; or
         incur a disbursement of a particular kind or amount; and 
         the lawyer advises the client that:

the work is not reasonably required to be done; or

the disbursement is not reasonably required to be incurred; and 

in accordance with the client’s instruction, the lawyer does the work, or incurs the disbursement.

1. The common law position regarding the recoverability of charges for unnecessary work is largely restated in O38 r10.  The rule sets out the limits for work for which a lawyer may charge but provides for charging beyond those limits if the lawyer has instructions and after advice to the client that the work or disbursement is not reasonably required.

1. Division 5 of Order 38 deals with costs agreements and specifically O38 r26(1) provides that a lawyer may enter into an agreement with a client of the lawyer relating to the costs to be charged by the lawyer for work done for proceedings.  The purpose of the rule is to make provision for lawyers and clients to contract out of the scale of costs provided in the rules.  Order 38 rule 28 provides that a lawyer must not charge an amount for costs that exceeds the amount charged under a costs agreement. 

1. Order 38 rule 7 in Division 3 provides:

   “Subject to rule 10, 15 and 21, this Division does not apply to a charge, as between lawyer and client, that a lawyer may make for work done for a proceeding if:

   the lawyer has entered into a costs agreement with the client; and 
   the costs agreement has not been set aside.”

2. This rule provides that the provisions of the Rules in relation to the rate of professional charges do not apply to lawyer and client charges if there is a costs agreement between the lawyer and the client and it has not been set aside.  However, rule 7 is subject to rules 10, 15 and 21 and in our view this has the consequence that the unnecessary or unusual expenses rule embodied in O38 r10 applies to lawyer-client charges made in accordance with a costs agreement. 

1. In this case it is conceded that a significant number of the charges specified in the bill were for work that was not necessary however it was submitted that the lawyer can charge for such unnecessary work because it was authorised by the clause in the costs agreement that provided that time engaged on the work included “…for other time which you ask us to spend on your behalf.”  In our view, this clause of the costs agreement is subject to O38 r10 and thus the lawyer could not charge costs for work not reasonably required to be done or for preparing documents not reasonably required for the conduct of the proceedings unless the client instructed the lawyer to do the work and the lawyer advised the client that the work was not reasonably required.

1. We would therefore answer the question posed in the outline of submissions of the Appellant as follows.  “A demanding client who has requested work to be carried out which is beyond that which is necessary is not required to pay the extra costs unless the client has instructed the lawyer to do the work and the lawyer has advised the client that the work was not reasonably required

…

1. Division 9 of Order 38 deals with taxing a bill and rule 47 sets out the obligations of the taxing officer during and at the conclusion of a taxation hearing.  Order 38 rule 48 sets out the powers of the taxing officer in taxation proceedings.  Order 38 rule 49 provides:

“Subject to rule 50, a taxing officer must tax a bill in accordance with:
this Order; and
any relevant costs agreement; and
any relevant orders of a court or a Registrar.”

1. Order 38 rule 51 provides:

   “(1)  This rule is subject to rules 49 and 50,
   A lawyers’ bill for the amount due under a costs agreement that has not been set aside must be taxed in accordance with the costs agreement as varied by any order under rule 27,
   A taxing officer must allow all fees, disbursements, charges and expenses that, in the opinion of the taxing officer, appear reasonable in seeking a fair and equitable outcome in the proceedings,
   In taxing costs as between party and party, the taxing officer must not allow costs that were incurred as a result of:
   improper, negligent, unnecessary or unreasonable conduct by the lawyer or a party; or
   payment of any other unusual expense.”

2. If there is a costs agreement then the taxing officer must adhere to the rate of charge specified in the agreement.  However, this does not mean that the taxing officer must allow for all charges made.  The agreement is subject to the unnecessary work rule in O38 r10.  The charges must be for work that is necessary and reasonable  …

1. In conclusion, in our view, in the circumstances of this case, his Honour was entitled to come to the conclusion that the Deputy Registrar had not acted on a wrong principle or that her decision was outside the range of reasonable exercise of discretion and thus this ground must fail. 

1. As the grounds of appeal have failed we propose to dismiss the appeal.

Costs

1. …In our view, the Appellant should pay the Respondent’s costs as we propose to dismiss the appeal.  However, we are not persuaded that there are circumstances “…of an exceptional kind” (Munday v Bowman (1997) FLC 92-784) that would justify departure from the ordinary rules relating to costs between party and party. We propose to assess the costs in the sum of $3,500 and this allows for the time spent in preparation that ultimately was not necessary.

Orders

1. That the appeal be dismissed.

2. That the Appellant pay $3,500 towards the Respondent’s costs of the appeal within 28 days of the date of this order.

I certify that the 22 preceding
 paragraphs
are a true copy of the reasons
for judgment delivered by this
Honourable Full Court.

Elizabeth Hore
Associate