Ipex Itg Pty Ltd v McGarvie

[2011] VSC 675

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COSTS COURT

S CI  2011 3626
IPEX ITG PTY LTD (ACN 007 433 623) (In liquidation) (Receivers appointed) & Anor	Applicants
v
RICHARD W. Mc GARVIE SC	Respondent
S CI  2011 4338
IPEX ITG PTY LTD (ACN 007 433 623) (In liquidation) (Receivers appointed) & Anor	Applicants
v
AJH LAWYERS	Respondent

ASSOCIATE JUDGE:	Associate Justice Wood
WHERE HELD:	Melbourne
DATE OF RULINGS:	31 October 2011
DATE OF REASONS:	9 November 2011
CASE MAY BE CITED AS:	Ipex Itg Pty Ltd v McGarvie
MEDIUM NEUTRAL CITATION:	[2011] VSC 675

REASONS FOR RULINGS

Section 3.4.38 Legal Profession Act 2004 – Standing of client to name counsel as respondent in review of fees – Section 1.2.1 - Definition of legal costs – Exercise of discretion under Section 3.4.42(2)(c) – Sufficiency of detail in relation to counsel fees.

APPEARANCES:	Counsel	Solicitors
For the applicants	Mr. I. Upjohn	Armytage Corporate Lawyers
For the respondent in S CI 2011 3626	Mr. P. Trimbos	Mc Kean Park
For the respondent in SCI 2011 4338	Ms. P. Tiwari	AJH Lawyers

BACKGROUND

1. The applicants (or “clients”) instructed AJH Lawyers (“the solicitors “) to act for them in legal proceedings against the State of Victoria. The solicitors engaged Mr McGarvie SC (“counsel”) to act for the applicants in that litigation. The costs agreement in relation to counsel fees was between the solicitors and counsel. The applicants filed a summons for taxation on 12 July 2011 pursuant to the Legal Profession Act2004 (“the Act”) with counsel as the respondent (S CI 2011 3626 – “first proceeding”) and on 16 August 2011 the applicants filed another summons in relation to the same counsel fees with the solicitor as the respondent (S CI 2011 4338 – “second proceeding”).

1. An affidavit of David Michael Brett sworn 10 October 2011 on behalf of counsel in the first proceeding identified two preliminary issues. First, whether the clients have standing to bring an application against counsel. Secondly, whether counsel’s invoices were sufficient to constitute itemised bills within the meaning of the Act.

1. At the hearing on 31 October 2011, the applicants relied upon written submissions which identified two preliminary issues in slightly different terms. First, whether counsel has failed to provide an itemisation of his bill under s 3.4.36 of the Act and second, as to the effect of the time limits in s 3.4.38 and s 3.4.39 of the Act. Within these issues, considerations said to be relevant were ; whether counsel’s tax invoices can be reviewed at all, whether the solicitor should be substituted for counsel as a respondent, and whether counsel provided an itemised bill and the effect of time limits.

1. The second proceeding was initiated as a precaution after it was flagged on behalf of counsel that he was not be the appropriate respondent; the 12 month limit for review was about to expire in relation to reviewing costs including counsel’s fees as a disbursement of the solicitors; and there was opposition to the applicants’ suggestion to substitute the solicitors in lieu of counsel as the respondent.

1. Rulings were made on 31 October 2001 in both matters and I now publish my reasons.

ITEMISED BILLS

1. The Act defines an itemised bill to be “a bill that specifies in detail how the legal costs are made up in a way that would allow them to be reviewed under Division 7” (see s 3.4.2). Section 3.4.36 provides that a request for an itemised bill can be made within 30 days of receipt of a lump sum bill and the request must be complied with within 21 days of the request.

1. Section 3.4.34(1) states that “a bill may be in the form of a lump sum bill or an itemised bill”. Section 3.4.38 (5) provides that the review must be made within 12 months after the “bill was given”. There is no distinction drawn between a lump sum or itemised bill. There is nothing in the Act to say what occurs if an itemised bill is not provided within 21 days. What occurs in practice is that an application to review a bill is filed within time notwithstanding the fact that an itemised bill request is not complied with, and a direction is sought from the Court for the production of an itemised bill as part of the review. An argument was put that time under the Act does not run against the client (s 3.4.38) or the solicitors (s 3.4.39) until an itemised bill is provided after a request is made. This argument is not well founded.

1. Subsequent to the provision of invoices, a memorandum of fees was produced by counsel in response to the request dated 26 August 2010.  This is exhibited at “RWM 2” to the affidavit of Richard Wallace Mc Garvie sworn 5 October 2011.

1. The applicants rely on a number of cases for the proposition that the memorandum does not constitute an itemised bill. The case of Clayton Utz Lawyers v P & W Enterprises,[1] dealt with the equivalent definition of “itemised bill” in section to s 3.4.2 of the Act. At [32] Reid DCJ was critical of the bills then being considered and stated “the description of the work performed in the various invoices is little more than a recitation of the hours of work performed and a brief and wholly inadequate explanation of the work actually performed”.

   [1][2011] QDC 5.

1. Reference is also made in that same case at [25] to the decision of Mann J in Malleson Stewart and Nankivell v Williams[2] where his Honour stated that a bill “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 him effectively as to whether taxation is desirable or not”.  

   [2](1930) VLR 410.

1. The applicants also rely on Bartex Fabrics Pty Ltd v Phillips Fox[3] where Young J observed that “A schedule which shows that a solicitor spent one hour forty minutes perusing some pieces of paper without identifying the pieces of paper or indicating why she should stare at them for so long, tells the client absolutely nothing.”

   [3][1994] 13 ACSR 667 at 678.

1. The principles enunciated in these cases lead me to conclude that an itemised bill has not been provided by counsel. The memorandum refers to conferences with no information as to whether they were with the solicitors, junior counsel, representatives of the clients or witnesses or a combination thereof.  Further, the costs agreement (exhibited at “RWM 1”) breaks up work with hour and dollar estimates into separate blocks of discrete work described as “reading” and “preparation”. The memorandum produced merely lumps these two together with a gross number of hours for both without any further detail. This is not sufficient itemisation.

STANDING OF THE APPLICANTS TO NAME COUNSEL AS A RESPONDENT

1. There is no dispute that the arrangement in this case as between solicitor and counsel is the conventional one. Namely, that the costs agreement is between counsel and solicitors. The costs agreement between the applicants and the solicitors was not put into evidence but the arguments proceeded on the basis that the applicants had merely agreed to indemnify the solicitors for any liability the solicitors had to counsel for his fees.

1. Legal costs are defined in s 1.2.1 of the Act as “amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements…”. These words have to be given their natural meaning. Counsel fees are disbursements of the solicitors (see Re Federal Deposit BankLtd(in liquidation)[4] and cases cited in Oliver “Law of Costs”.[5]  Even if the client pays counsel direct, the fees are still classified as a disbursement (see Re Osborn & Osborn).[6] There is no direct contractual relationship between counsel and the client for the payment of fees. In the current arrangements the law practice that the applicants are, “or may become liable to pay....”, is the solicitors not counsel.

   [4](1937) QWN 38.

   [5]The Law Book Co, 1960 at page 179.

   [6](1913) 3 KB 662.

1. The applicants relied on Dimos v Hanos & Egan[7] to establish that the applicants are liable to pay counsel at common law. However, paragraph 73 of the judgment states “However, the question of who is liable depends upon who contracted with the barrister or, in the case of quantum meruit claim, who requested the provision of the service”. The answer in the present case is the solicitors on both scenarios. Further, the applicants relied upon the “Good Conduct Guide” for counsel.  However, at paragraph 6.70 reference is made to Bar Rule 192 which is quoted as stating that counsel cannot look to the client for fees where the solicitor has assumed liability for payment, unless the Ethics Committee agrees. The agreement of the Committee can only occur in four very limited circumstances (none of which apply here).

   [7][2001] VSC 173.

1. A further important practical point can be made which underscores the separate contractual arrangements. The applicants (clients) are liable to pay the solicitors not counsel. The extent of liability for costs (including counsel fees as disbursements) that the client is assessed to pay to the solicitors on a review initiated against the solicitors by the client, can be reduced as a result of conduct by the solicitors in relation to failures to disclose (both initially in compliance with s 3.4.9 and on an ongoing basis in compliance with s 3.4.16 of the Act). Counsel has more limited obligations to disclose but even then only to the solicitors (see s 3.4.10).

1. It would not be uncommon for a client to be liable to pay the solicitors a different sum to that owed by the solicitors to counsel as a result of reductions for the conduct of the solicitors on review. In other words, there can be a gap between what the solicitors can recover from the client in respect of counsel fees and what the solicitors are liable to pay  counsel.

1. A review of counsel fees initiated by the client where the respondent is the counsel, cannot determine the liability of the client to the solicitors, as the counsel/respondent is not privy to the extent of compliance in relation to disclosure by the solicitors. The counsel/respondent would be at a disadvantage. Similarly, the client is at a disadvantage to review the solicitors’ liability to counsel as they were not privy to discussions or the agreement between counsel and the solicitors. In any event, the review cannot determine the liability between client and counsel as there is no direct liability or contractual arrangements between them. There are real problems arising from these scenarios. This is why there is a separate section in the Act for solicitors to review counsel fees (within 60 days in s 3.4.39) and a separate section for the client to review the solicitors’ bill which includes counsel fees (with 12 months in s 3.4.38). A proper construction of the provisions in the Act leads to a conclusion that the applicants have no standing to review counsel fees with counsel named as the respondent.

THE EFFECT OF SECTION 3.4.42 OF THE ACT

1. Section 3.4.42 provides as follows:

3.4.42Persons to be notified of application

(1)An applicant for costs review must cause a copy of the application to be given to any law practice or client concerned or any other person whom the Costs Court thinks it appropriate to notify.

(2)A person who is notified by the applicant under subsection (1)—

(a)is entitled to participate in the costs review process; and

(b)is taken to be a party to the review; and

(c)if the Costs Court so determines, is bound by the review.

1. To a large extent this is a machinery provision for notice of a review application to be given. The reference in sub-paragraph (1)  to “any other person” could encompass for example, a third party payer where the law practice initiates a review with the client as the respondent where there is a third party payer, and notifying the third party payer would prevent the third party seeking to review the legal fees in a second hearing. In other words, to prevent duplication of proceedings.

1. The effect of sub-paragraph (2) is to deem a person who is notified to be a party and give them an entitlement to participate in the review. Sub paragraph 2(c) however makes it clear that a discretion needs to be exercised in order to make the other person notified bound by the result.

1. In the special circumstances of the present case, I am prepared to exercise the discretion in relation to counsel. The following factors are relevant :

·     The Court was informed that there are proceedings on foot for recovery of counsel fees in the Magistrates’ Court initiated by counsel against the solicitors.

·      Secondly, and more importantly, the Court was advised that there were no allegations made now or to be made in the future by the applicants in respect of non-compliance with disclosure provisions by either the solicitors or counsel. The issues identified in paragraphs 16 to 18 above therefore would not arise.

·     Thirdly, if counsel’s entitlement to costs from the solicitors will be determined in the same hearing that determines the applicants’ liability to the solicitors then there will be co-operation between solicitors and counsel to give the applicants a properly itemised bill in relation to the work done by counsel.

· Fourthly, the costs to be reviewed are exclusively those of counsel. If there is no allegation of non-compliance with disclosure provisions in the Act, the result of a review of the applicants’ liability to the solicitors in the second proceedings will also determine the solicitors’ liability to counsel as they will be dealing with the same question – namely, whether the fees for the work performed by counsel are reasonable. The ambit of the hearing in the Costs Court will therefore be on all fours with the Magistrates’ Court proceeding to an extent, and the result would avoid the issue of a duplicated hearing in the Magistrates’ Court in relation to the solicitors’ liability to the counsel. In other words, the hearing in the Costs Court can determine both the applicants’ liability to the solicitor and the solicitor’s liability to counsel, whereas the Magistrates’ Court hearing can only determine the solicitors’ liability to counsel.

1. For these reasons a direction is appropriate under s 3.4.42(2)(c) of the Act.

CONCLUSIONS

·     The first proceeding ought to be struck out as counsel is not the appropriate respondent.

·     The appropriate respondent for the review of counsel fees by the applicants in the circumstances is the solicitor, that is, the parties named in the second proceedings.

·     The affidavits filed in the first proceeding should stand as affidavits in the second proceeding.

· The memo of counsel fees exhibited as “RMW 2”to the affidavit of Richard Wallace Mc Garvie is not an itemised bill within the Act.

· Although counsel has notice of the second proceeding by virtue of the affidavits filed in the first proceeding, counsel should be formally notified pursuant to s 3.4.42(1) of the Act.

· A direction that counsel be bound by the result of the review in the second proceeding is appropriate pursuant to s 3.4.42(2)(c) of the Act.

THE COURT MADE THE FOLLOWING ORDERS ON 31 OCTOBER 2011 IN THE FIRST PROCEEDING (S CI 2011 3626)

1.        The Summons be struck out.

2.The applicants pay the costs of the respondent up to and including the call over on 2 August 2011.

3.The costs of the affidavits and of today be costs in the review in proceeding S CI 2011 4338.

THE COURT MADE THE FOLLOWING ORDERS ON 31 OCTOBER 2011 IN THE SECOND PROCEEDING (S CI 2011 4338)

1.        The affidavits in S CI 2011 3626 be deemed to be affidavits in this proceeding.

2.        The respondent file and serve an itemised bill by 9 December 2011.

3.Pursuant to section 3.4.42(1) Legal Profession Act 2004 the applicants give a copy of the summons and bills attached to Richard Mc Garvie SC forthwith.

4.Pursuant to section 3.4.42(2)(c) of the Legal Profession Act 2004 Richard McGarvie SC be bound by the review.

5.Pursuant to the slip rule the applicants file and serve any notice of objection to the bill by 27 January 2012.

6.        The review of the bill of costs be fixed for hearing on 2 February 2012 at 10am.

7.The costs of the affidavits in proceeding S CI 2011 3626 and of today be costs in the review.