Applicant v Respondent

3 In September 2017 the applicant retained the services of the respondent to represent her in her family law dispute involving issues of matrimonial property and child matters. At the time of giving her instructions the applicant advised the respondent that she was a lawyer. On 19 September 2017 the respondent gave the applicant a costs agreement and costs disclosure documents. The documents included an estimate of fees and disbursements and requested that the applicant sign and return the signed documents to indicate her consent to the terms of engagement proposed. During the retainer respondent gave the applicant bills of costs on 19 January 2018, 6 April 2018, 3 July 2018, 6 August 2018 and 13 August 2018 totalling $86,411.37. All these invoices were given in a lump sum format. On 24 September 2018, in response to the applicant's request for itemised bills, an itemised bill detailing the work billed in the two August bills and covering the period 13 June 2018 to 3 August 2018 was given to the applicant. The respondent refused to itemise the work of the three earlier bills as the request was made out of time.

4 The applicant was given a costs agreement and costs disclosure documents said to be pursuant to Division 3 & 4 of Part 4.3 of the Legal Profession Uniform Law[2] (the LPUL) by the respondent.

5 At the call-over on 3 September 2019 the respondent's counsel advised the Court that the respondent disputed that the applicant had standing to proceed with her costs review application as she is, and was at the time of the retainer, a commercial or government client and consequently precluded from the provisions of Part 4.3 of the LPUL. Section 170 of the LPUL defines Commercial or government clients and states**:**

(1) This Part does not apply to -

(a) a commercial or government client; or

(b) a third party payer who would be a commercial or government client if the third party payer were a client of the law practice concerned -

but this section and sections 181(1), (7) and (8), 182, 183 and 185(3), (4) and (5) do apply to a commercial or government client referred to in paragraph (a) or a third party payer referred to in paragraph (b).

(2) For the purposes of this Law, a commercial or government client is a client of a law practice where the client is -

(a) a law practice;[3]

6 Essentially, section 170 prevents a commercial or government client, including a law practice, from applying, pursuant to Division 7 of Part 4.3, for a review of legal costs payable on a solicitor-client basis by the Costs Court. Sections 181(1), (7) and (8), 182, and 183 of Part 4.3 are excluded from any prohibitions. Those sections concern conditional costs agreements and contingency fees and include sanctions against a law practice who enters into that type of costs agreements. For the purposes of these reasons neither party submitted that the costs agreement was a conditional or contingency costs agreement.

7 The respondent submitted that the applicant did not have standing and that the Costs Court did not have jurisdiction to hear this matter as, at the time the applicant first gave instructions, during all times of the retainer and through to the present time the applicant was a commercial or government client who is precluded by section 170 from applying for a costs review. The applicant was ordered to file and serve an affidavit deposing to her practising certificate status, and exhibiting copies of any practising certificates, applications for a practising certificate and applications for professional indemnity insurance which might disclose statements of her knowledge of whether she engaged in legal practice. The order was for the period of the retainer and at present. The affidavit was sworn and filed on 24 September 2019. In response the respondent filed an affidavit without leave on the day before the hearing. At the hearing both Counsel handed up brief outlines of submissions and made oral submissions which are referred to in these reasons.

8 In these reasons it is necessary to refer to a number of definitions contained in Section 6 of the LPUL including:

(a) Engage in legal practice includes practise law or provide legal services, but does not include engage in policy work (which, without limitation, includes developing and commenting on legal policy);

(b) A principal is an Australian legal practitioner who -

(a) in the case of a sole practitioner - is the sole practitioner; or

(b) in the case of a law firm - is a partner in the firm; or.................

(c) A sole practitioner is an Australian legal practitioner who engages in legal practice on his or her own account.

(d) A law practice includes

(a) a sole practitioner; or

(b) a law firm; or

(c) a community legal service; or

(d) an incorporated legal practice; or

(e) an unincorporated legal practice;

(e) An entity includes an individual, an incorporated body and an unincorporated body or other organisation;

(f) legal services means work done, or business transacted, in the ordinary course of legal practice

(a) Australian legal practitioner means an Australian lawyer who holds a current Australian practising certificate;

9 The applicant's affidavit states that on 31 October 2016, she left her employment with a law firm where she had held an employee practising certificate,[4] and from 1 November 2016 became one of two executive directors of a new business which was incorporated as a proprietary limited company.[5] She goes on to swear that:

17. Soon after leaving (her then employment), I contacted the Legal Services Board (LSB) to inform them that I had resigned as an employee solicitor. I told them that I was not intending to practice law but that I wanted to retain a practising certificate. I was informed that I could hold a practising certificate as a principal but that my certificate had to be assigned to an entity.

18. My practising certificate was assigned by the LSB to applicant's name as the relevant "entity". I now appear on the LSB registrar as a law practice -"applicant's name. [6]

10 The applicant swears that since 2017 she has held a principal's practising certificate and exhibits her practising certificates for the years 2017-18, 2018-19, and 2019-20. She does not exhibit a practising certificate for the year 2016-2017. Of these practising certificates the one for the period from 17 July 2017 to 30 June 2018 states that the applicant is authorised to engage in legal practice as an employee of a law practice. In contrast the practising certificates for the following two years state that the applicant is authorised to engage in legal practice as a principal of a law practice.

11 The applicant has also exhibited her application forms to the Legal Services Board ("LSB") for practising certificates for the years 2017-2020 in her affidavit. The first 2017-2018 form is an application for an employee certificate as an employee of the applicant's former employer. This was declared by the applicant on 30 April 2017. A second 2017-2018 form is an application for a variation of a practising certificate which states that the applicant left her former employment on 30 July 2017 and commenced practice as a sole practitioner on 31 July 2017. That form is not dated. The applicant does not produce the practising certificate evidencing the variation to principal in her affidavit. Both the 2018-2019 and 2019-2020 year applications forms and practising certificates exhibited state that the applicant is the principal of a law practice which bears her name. There is no evidence of the date on which the entity (law practice) in the applicant's name was established by the LSB.

12 Only the year 2019-2020 application asks questions as to days usually spent by the applicant practising law with the question How many days a week do you usually work as a legal practitioner?[7] The applicant's answer to the question is one day a week. The 2019-2020 year application was made prior to the issue date of the Summons for Taxation being filed, but after the termination of the retainer of the respondent which was from 19 September 2017 to 30 July 2018.

13 Prior to the hearing the respondent had requested the applicant attend the hearing for the purpose of cross-examination. However the applicant's counsel advised the Court that she was unavailable to attend the hearing when listed due to a work commitment. Without her presence to explain the discrepancies between the affidavit and exhibits filed the deficiencies in her evidence are clearly against her interests.

14 Her counsel, at the commencement of the hearing, made two applications both of which I refused. Firstly the applicant sought an order referring the question of standing to a Judge of the Court pursuant to Rule 63.51 of the Civil Procedure Rules 2015 and, secondly, that the hearing be adjourned to a date when the applicant was able to attend the hearing. Both applications were refused as it is the Costs Court which should decide any questions of standing to review costs and the application of section 170 and secondly, as the matter had been listed for some time it was contrary to the proper management of Court resources to adjourn the hearing.

15 The applicant asserts that the Costs Court has jurisdiction to hear the matter. Counsel for the applicant in his written submission states that:

The applicant apprehends that the respondent will contends (sic) that the applicant is a "law practice" within the meaning of S170(2) of the Legal Profession Uniform Law 2014 (UPUL) and according a "commercial" client within the meaning of S170I(1)(a). If that be found, the applicant apprehends the respondent will contend that the consumer protection provisions of the UPUL - which permit a client of a law practice to have their costs assessed or reviewed - do not apply to the applicant so that she is not able to proceed with her summons and therefore unable to challenge the fees charged to her by the respondent in respect of her matrimonial and property dispute.

The applicant submits that on a proper construction, when considered in context and against the purpose of the UPUL - and the mischief that it seeks to address - the applicant is not a "law practice" and even if it be found that she was, the legislation does not operate to prevent her from reviewing the costs charged to her by the respondent in connection with a personal family dispute matter.

The applicant will rely of orthodox principles of statutory interpretation, commencing with what the High Court said in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 at [78], as informed by s35 of the Interpretation of Legislation Act 1984 (Vic) and those authorities referred to by Daly AsJ in Jubay Pty Ltd v Sailoman Pty Ltd [2019] VSC 620.[8]

16 In oral submissions he went on to expand the argument as follows:[9]

Now, as I said earlier, my overarching submission is that it is critical to take into account the legislative intent of part 4.3, and, in particular, s.170, and in my submission, the evident intent was to prevent large commercial operators, government entities and repeat users of legal services from having the benefit of the consumer protection provisions.

In my submission, on the proper interpretation of the section, it was never designed and does not prevent an individual who might happen to be a lawyer availing themselves of the consumer protection provisions. A moment's pause would, I think, show the force of that proposition.

If it were the intention Parliament to prevent any lawyer from ever challenging another lawyer's costs where they were the client of that legal practice, the clearest words would need to have been used. The fact that they weren't is, in my submission, compelling reason why s.170 has to be read down, so that where it refers to legal practice, it means a legal practice undertaking the services that a legal practice would normally provide, and where the legal practice itself, in its own capacity, engages another legal practice.

It makes no sense to read the section as prohibiting a sole practitioner, who happens to hold a practising certificate, from challenging a bill in relation to personal services. So - and I say that because the prime purpose or the prime thing to be taken into account in statutory interpretation is the purpose of the legislation, the mischief it seeks to address and, yes, you have to look at the words and it's only when there's ambiguity that other rules of interpretation might be brought to account.

But in relation to the principles to be applied, whilst Your Honour - whilst the Registrar would be clear with what the High Court has said in Project Blue Sky, I think the most help I can provide to you is to give you an extract of a decision of Justice Riordan in the matter of R v Lyons - a decision of Justice Lyons - Justice Riordan - (2018) VSC 256, and His Honour helpfully distils the principles of statutory interpretation, commencing at paragraph 24.

And further:[10]

Now, as with contractual interpretation or construction, statutory interpretation context is critical. So the provision must be considered in the context which is to be assessed against, relevantly, the mischief which the statute was intended to remedy or deal with, and in my submission, it is patently clear from a reading of section - of the plain words in s.170, that the mischief sought to be addressed was to prevent - to use an older phrase - sophisticated clients from having the entitlement to avail themselves of the consumer protection provisions.

Where there's conflict between the literal meaning and the legislative purpose, where a literal meaning is inconsistent with the purpose or incapable of a practical application or would result in an absurd, unreasonable or anomalous position, it's permissible to depart from the literal meaning.

And I direct your attention to paragraph 29 of what His Honour - where His Honour makes that point. And as I said, in my submission, it would be absurd, if not unreasonable and anomalous, to prevent a party in the position of my client, the right to challenge legal costs charged to her in a personal matter.

(a) The obligation is on the applicant to demonstrate that the Court has jurisdiction as she is not a 'Law Practice' within the meaning of the LPUL and that she has not, or did not, engage in legal practice on her own account as a sole practitioner.

(b) There are multiple indicia that she is a 'sole practitioner' including that:

(i) she is registered by the LSB as a 'Law Practice', she is the holder of a principal's practising certificate and was so registered at the time she first gave instructions to the respondent;

(ii) she described her occupation when giving instructions to the respondent and her counsel as a 'solicitor' or a 'lawyer';

(iii) she prepared draft affidavits for the Family Law applications describing her occupation as a 'lawyer' rather than as a company director or similar description;[11]

(iv) she does not positively swear that at the time of giving instructions through to the present time she did not practise law or provide legal services to her clients;

(v) in her application for her current practising certificate she declares that she works one day a week as a legal practitioner; and that

(vi) she does not positively swear that her work has changed such that in the 2019-2020 she now engages in legal practice one day a week so that she can make that declaration.

18 The respondent submitted that, for the sake of simplicity, Section 170 applies to any client who is a law practice and does not distinguish between sole practitioners who are engaged in legal practice their own account or any other form of law practice. The section does not carve out an exemption for a sole practitioner when they are a client in respect of their own individual private interests as opposed to when they have instructed a law practice to act on behalf of the law practice. The respondent submitted that it is a nonsense to argue that a sole practitioner has the capacity to wear two hats and act as both an individual and a law practice. In the respondent's written submissions counsel submits that:

1. The proper construction of the LPUL is not that the drafters intended to give operation to part 4.3 to human beings who fell within the definition of 'law practice' when they were not acting wearing their law practice hat. It simply does not say so. There is no absurdity of outcome of a literal construction which would justify reading the words which are not there.
2. Nor does an examination of the statutory context suggest any such interpretation. The objectives of Part 4.3 are stated in s. 169. They do not assist the interpretation task; s. 170 is a provision which gives rise to an exception to the general purposes state for Part 4.3.
3. The explanatory memorandum associated with the Legal Profession Uniform Law Application Bill 2013 does assist the construction task. It says at p 97:

Part 4.3 also seeks to ensure that consumer protections are targeted at those consumers who need them (by excluding commercial or government clients from the majority of provisions...'

1. That is consistent with common sense inference as to the drafters purpose. Lawyers who are certificated ........... and engaged in the provision of legal services or ready to do so are, as a class vis-a-vis the provisions in Part 4.3, not consumers 'who need them'.

19 The court's task in this proceeding is to decide if the applicant is prevented from applying for a review of the respondent's bills of costs in this Court by reason of the operation of section 170. If I find that the applicant is a law practice and cannot have a separate entity in respect of her Family Law dispute then the operation of Part 4.3 of the LPUL is such as to exclude her from applying for a review of the costs. In my view it is clear that section 170 applies to the applicant and her Summons for Taxation must be dismissed.

20 The section does not include an exemption for sole practitioners who engage lawyers to act in personal matters. Whether or not the exclusion of a sole practitioner who engage another law practice to act in a personal matter from relying on Part 4.3 of the LPUL is undesirable and should be changed is a matter for the legislature to act on. Section 170 clearly excludes all commercial and government clients from the provisions of Part 4.3 (including the right to review legal costs as a client), save for those sections that govern conditional costs agreements and costs agreements that seek to charge a contingency fee for the provision of legal services by a law practice.[12] Section 170 differs from section 3.4.12 of the Legal Profession Act 2004 (LPA) which defines a sophisticated client as including both a law practice and an Australian legal practitioner.[13] Section 3.4.12 applies to exclude the requirement to give sections 3.4.9 and 3.4.10(1) costs disclosures to clients referred to in that section. I assume that the change was considered by the drafters of the LPUL and that the legislature intended to exclude all law practices as not to require the consumer protection provisions of Part 4.3, including the ability to have review legal costs in this Court, if they are the client of another law practice. That is, they are able, due to undertaking legal education and practice, to defend debt recovery actions are which have been issued in the Courts. As mentioned at paragraph 2 above, Magistrates Court proceedings for the recovery of unpaid legal fees are already on foot.

21 There is no evidence in this matter that shows, either in the course of the retainer or at the time the Summons for Taxation was issued, that the applicant was not a sole practitioner and therefore a law practice. The applicant's evidence is that shortly after leaving her employment with another law firm she obtained a principal's practising certificate. In order to obtain that type of practising certificate she was required by the LSB to establish a law practice as a sole practitioner as there was no other law firm of which she was a principal. A principal's practising certificate is issued by the LSB to those lawyers who apply for the same and advise the LSB that they intend to practise as a principal on their own account or as part of a legal practice.

22 The LSB grants a practising certificate to Australian lawyers who during the currency of the certificate reasonably expects to be engaged in legal practice solely or principally in Victoria.[14] In applying for a practising certificate the applicant must have had the expectation of being engaged in legal practice and in her 2019-2020 application she made a declaration to that effect. There is no evidence that she has altered her manner of employment in the 2019-2020 period even though she swears that since 1 January 2019 she is a full time salaried employee of the company as its managing director which required her to provide legal services to her clients.

23 Had she chosen to the applicant could have initiated a costs complaint to the Legal Services Commissioner pursuant to Part 5.2 of the LPUL. Although time limits apply to disputing bills of costs under Part 5.2 the amount in dispute, of $86,411.37 is less than the $100,000 limit and Part 5.2 does not exclude commercial or government clients from making complaints.

24 The proceeding will be dismissed as the applicant does not have standing to apply for a costs review. I will hear the parties in respect of the costs of the proceeding.

[1] Paragraph 9 Affidavit of Dominic Esposito sworn 23 October 2019.

[2] The documents were filed with the Court on 6 August 2019 by the applicant.

[3] Further categories are also included but are irrelevant for these reasons.

[6] Names substituted to prevent identification of the applicant.

[7] The application forms for previous years do not include this question and do not require any declaration as to hours or days of legal practice.

[8] More correctly cited as Joybay Pty Ltd & Anor: In the matter of an Application under Section 68 of the Domestic Building Contracts Act 1995 (Vic).

[9] Transcript page 19 line 30 - page 21 line 9.

[10] Transcript page 21 lines 16 - page 21 line 7.

[11] In her affidavit filed in this proceeding she describes her occupation as Company Director.

[12] Sections 181(1), (7) and (8), 182, and 185(3), (4) and (5).

[13] An Australian legal practitioner in the LPA is a holder a current local or an inter-state practising certificate.

[14] LSB webpage advising lawyers on the LSB processes for applying and holding practising certificates.