Dromana Estate Limited v Wilmoth Field Warne

2 Four of the bills totalling $175,095.36 were dated more than 12 months prior to the filing of the Review and it was not disputed these four bills were provided by the defendant to the plaintiff contemporaneously with the dates on the bills.

3 On 15 December 2009 an order was made inter alia for the parties to attend mediation by 12 March 2010. At a mention on 30 March 2010 the mediation deadline was extended to 19 April 2010. The mediation was adjourned by consent pending the determination of a preliminary question which had been framed by the parties.

"Is the client entitled to seek a costs review under Division 7 of the Legal Profession Act 2004 of the bills which were given more than 12 months before the date of the application for review?"

4 The matter was heard on 1 July 2010 and the question was answered in the negative on that day. The parties requested written reasons and I now publish those reasons.

5 In summary the plaintiff argued that ss.3.4.37 and 3.4.38 of the Act can be read side by side, and if an application to review a final bill is issued within 12 months of receipt of that bill, then the client can review all earlier interim bills irrespective of any lapse of time from when they were issued. In theory this would allow a review going back to all previous interim bills regardless of how many years had elapsed.

6 In summary the defendant submitted that an application to review any bills (whether interim or final) must be initiated within 12 months of receipt of the bill.

7 As an alternative argument, in the event that the plaintiff's argument was accepted, the defendant's position was that the bills delivered prior to the 12 months were final bills and not interim bills within the meaning of 3.4.37 of the Act and as such could not be reviewed in any event.

8 Section 3.4.38 of the Act appears under "Division 7 - Costs review by Costs Court" and the heading to the section is "Application by clients or third party payers for costs review". Sub-paragraph (1) states:

A client may apply to the Costs Court for a review of the whole or any part of legal costs.

An application by a client or third party payer for a costs review under this section must be made within 12 months after -

(a) the bill was given or the request for payment was made to the client or third party payer; or

(b) the costs were paid if neither a bill was given nor a request was made.

9 Prior to the 9 May 2007 amendment to the Act, the time limit specified in s.3.4.38(5) was 60 days and in the regime prior to December 2005 under the Legal Practice Act 1996 it was two months (s.115(2)(a)). Under the present Act therefore there was a significant shift in favour of the client in relation to the time limit for review. The Explanatory Memorandum for the 2007 amendments makes it clear that the intention of the amendment to the time limit in 3.4.38 was to conform with the "national model provisions".

10 Of note is the use of the term "bill" in s.3.4.38(5).

11 In Division 6 in the Act (which has the heading "Billing") the following provision appears :

3.4.37 Interim bills

(1) A law practice may give a person an interim bill covering part only of the legal services the law practice was retained to provide.

(2) Legal costs that are the subject of an interim bill may be reviewed under Division 7, either at the time of the interim bill or at the time of the final bill, whether or not the interim bill has previously been reviewed or paid.

12 Both the terms "interim bill" and "final bill" first appear in s.3.4.37, that is, the section immediately before s.3.4.38 of the Act. Neither of these terms is defined in the Act but it is clear that the legislation recognises these two concepts. In my view the use of the word "bill" in the next section without differentiation between interim or final must as a matter of logic mean that the term bill used in 3.4.38 includes both an interim bill and a final bill. In other words the time limit for review for either is 12 months.

13 This approach is consistent with the disclosure obligations relating to bills to be found in s.3.4.35(1)(a)(i) of the Act which provides that a bill must advise of avenues open in the event of a costs dispute under Division 7 and any time limits.

14 This is echoed in the disclosure obligations in relation to the commencement of the retainer in s.3.4.9(1) of the Act which provides that:

(1) A law practice must disclose to a client in accordance with this Division -

...

(j) the following avenues that are open to the client in the event of a dispute in relation to legal costs -

(i) costs review under Division 7;

...

(k) any time limits that apply to the taking of any action referred to in paragraph (j).

15 Section 3.4.35 provides that a bill must include the details of the review options under Division 7 including time limits in the same terms as 3.4.9. Section 3.4.34 provides the solicitor with the option of delivering a lump sum or an itemised bill. In other words all bills whether lump sum, itemised, interim or final must include details of the review option under Division 7 and the time limit of 12 months.

16 These disclosure obligations do not apply if the client is a "sophisticated client " as defined in the Act (see ss.3.4.2 and 3.4.12(1)(c) or (d)). There is no dispute that the plaintiff is such a client. A sophisticated client cannot seek an extension of the 12 month period (see 3.4.38(6) of the Act). The issue to be determined in this case therefore has particular significance for the plaintiff because bills totalling $175,095.36 out of the gross total of $199,303.21 of bills were issued and paid without challenge more than 12 months prior to the filing of the application to review.

17 On the plaintiff's argument there is no time limit to reviewing any interim bill provided the review of the final bill is sought within 12 months. This scenario was referred to in argument as the "piggy back" concept. There is no obligation in the Act to advise a client of this right if it exists. The obligation is confined to Division 7 review and any time limits.

18 A significant portion of the Act is in the nature of consumer protection legislation and one would expect the Act to contain an obligation to advise the client of all their rights and for those rights to be made clear. The absence of any obligation to advise of this "piggy back" scenario is conceded by the plaintiff - see paragraph (b) on page 11 of their written submission which states "There is no disclosure requirement that the client be advised of the ability to piggy back interim bills to the review of the final bill".

19 The absence of a requirement to advise of any "piggy back" option in my view lends support to the argument that the 12 months' limitation applies to the review of interim and final bills and that 3.4.37 should be given a restrictive interpretation subordinate to 3.4.38, particularly when the review option and 12 month limit are required to be included in interim bills. It would be nonsensical to have to advise a client of a 12 month limit on seeking a review of any bill (interim or final) but keep silent about a more significant right which is an almost unrestricted avenue to review any interim bill out of time (apart from the requirement that the final bill be reviewed within 12 months). The obvious answer to this is there is no such unrestricted right and 3.4.37 has limited application.

20 The plaintiff relies on the recent decision of Retemu Pty Ltd v Joe Ryan (unreported decision of Coorey DCJ, District Court of NSW, 16 April 2010). In that case it was determined that there was no conflict between s.334 of the Legal Profession Act (NSW) (the equivalent to 3.4.37) and s.350(4) of the NSW Act (the equivalent of 3.4.38(5)). The Judge states at page 14 in paragraph 3(iii):

Section 334 simply allows a client to make an application for an assessment of the interim bills and the final bill at the time of the final bill; the application for assessment is bound by the limitation period of 12 months in s350. The application for assessment of the final bill must be made with the 12 month limitation.

21 The problem I see with this ruling is that it assumes that the word "bill" in 3.4.38(5) only means "final" bill. In my view the language in 3.4.38 (5) is clear and "bill" must mean interim or final bill as specifically outlined in paragraph 12 above.

22 Having come to that conclusion, what does 3.4.37 mean, what work does it do and what rights does it confer? Would this construction of 3.4.38 render 3.4.37 nonsensical?

23 Subparagraph 3.4.37(1) gives the solicitor the right to render interim bills, notwithstanding that the work they were retained for has not been completed. This creates a benefit for the client allowing them to monitor and review bills as the retainer proceeds with any previous costs estimates in mind. It confers a benefit on the solicitor as it enables them to be put in funds in the manner of progress payments without carrying all costs until completion of the retainer.

24 Sub-paragraph 3.4.37(2) enables an interim bill to be reviewed at the time it is delivered and also at the time the final bill is reviewed, even if the interim bill has been paid or if it has been previously reviewed. This is all subject, however, to the application to review both the interim bill and the final bill being filed within 12 months of the bills being received. In practice this might be a small opportunity and convey a small right but the section can still sit with 3.4.38.

25 It is conceded by the plaintiff that 3.4.37 is a "non core" provision (see paragraph (c) on page 11 of their written submission). In my view 3.4.37, which is a non core provision in the national scheme, cannot be interpreted in such a way to undermine a core provision that is intended to achieve national consistency in the balance between the interests of clients and interests of solicitors. In other words, the tail (a non core provision) should not wag the dog (the core cornerstone review provision).

26 Section 3.4.37 is subject to the overarching effect of 3.4.38 and cannot be interpreted to mean that provided a final bill is filed within 12 months, all interim bills in a given matter going back an unlimited number of years can be reviewed. If this is intended then the legislation should have made such meaning clear, the disclosure of this right should be mandated and the word "final" should have been inserted in 3.4.38.

27 Much has been made of the need to recognise the necessity to preserve the relationship with the solicitor by allowing the client the option to exercise their rights at the end of the retainer and not to jeopardise the relationship by querying a bill when it arises. In my view the extension of the time limit by a factor of six to 12 months provides some comfort in this regard.

28 Further, in the case of a "sophisticated client" the general comment could be made that the solicitor is more dependant or vulnerable in that relationship with the client. By contrast in the case of an individual the general comment could be made that this is reversed, that is to say, the client is the relatively less powerful party. The restriction for a "sophisticated client" to be able to review only within 12 months makes sense when viewed in this light. Equally, the fact that an individual has the option of applying to extend the time beyond the 12 months also makes sense. Any reluctance to seek review within the 12 months based on for example, the imminent trial of the matter may well provide a justification for an extension in the case of an individual.

29 It is also worthy of comment that the prescribed Form 3B produced by the Legal Services Commissioner under auspices of the Legal Profession Regulations 2005 also makes no reference to any unrestricted right to tax old interim bills irrespective of when they were delivered at the time of taxation of the final bill. This is consistent with the disclosure obligations in the Act and the view that any rights conferred by 3.4.37 are so insignificant that they do not warrant communication or disclosure.

30 The plaintiff referred to the fact that the previous incarnations of 3.4.37 can be traced back through the Legal Practice Act 1996 and to the Supreme Court Act 1986. Reference was made to an unreported decision of Gobbo J in 1992 (Algama v Wainwright Ryan[1]). This case dealt with an examination of the power to order an itemised bill. There was no reference to the equivalent section to 3.4.37.

31 In relation to the second or alternative argument that the defendant identified (see paragraph 7 above), it is put that if a ruling were made that an application to review an interim bill did not have to be initiated within 12 months if the review of the final one was initiated within 12 months, then the bills marked interim were in effect final and could therefore not be reviewed out of time. The issue of what does or does not constitute an interim or final bill is not clear cut. Neither term is defined in the Act. The defendant cited a number of Canadian cases on the basis that there was said to be no Australian or UK authorities dealing with the issue (see Hawkins & Hawkins v Bartlett & Co[2], Olsson v Morin[3] both Supreme Court of British Columbia and Robertson, Ward, Suderman & Bowes v British Columbia Transit[4] (British Columbia Court of Appeal).

32 Assuming the Canadian authorities accurately describe the legal position as to what prevents a bill marked interim from being regarded as interim, there remains the issue of what constitutes a final bill. Is it the last one before a retainer is terminated? Is it the last one rendered when the solicitor refuses to provide a final one after a reasonable time? It is undesirable for a client's rights to review a bill to be determined by the timing of when a bill is rendered by a solicitor. If the "piggy back" scenario is open to a client then a solicitor might refuse to render a final bill in order to avoid this scenario. The last "interim" bill might then conceivably be out of time for review by the time it is then construed to be final.

33 The rights of a client ought to be clear and a regime that enables a solicitor to attempt to manipulate the rights of a client by timing the delivery of a bill to their own advantage does not satisfy the basic tenet of consumer protection legislation. A solicitor who delivers a bill marked "interim" is representing it to be just that. The Canadian cases reach the conclusion that how the bill is marked is not definitive and that the answer is to be determined by substance not form. A solicitor ought not to be able to avoid the consequences of legislation by arguing at the time of the review of a bill that a bill marked "interim" (consistent with a term in the Act) had a completely different character at the time the client seeks to review it.

34 This point has become moot however because I have determined that the 12 month period applies to all bills. The question of whether the bills predating 17 November 2008 are interim or final would only be an issue if the plaintiff's "piggy back" argument was accepted.

35 The plaintiff is out of time to seek review of the bills dated more than 12 months prior to the date of filing of the review on 17 November 2009. The legislation may need amendment to make it clearer to clients and lawyers what time limits apply to the review of bills and what constitutes a final or interim bill if the distinction between these bills is to be retained for the purposes of review.

36 For completeness, the Law Institute of Victoria sought to appear as amicus curiae. Leave to appear was refused as it was clear that the Institute was seeking to support the defendant and hence take the role of protagonist. Leave was refused consistent with the principles in Quinn v Law Institute of Victoria Limited[5] and Zanca v Tisher, ex parte LIV.[6]

1. The preliminary question "Is the client entitled to seek a costs review under Division 7 of the Legal Profession Act 2004 of bills of costs which were given more than 12 months before the application for review?" is answered "No".
2. The Summons for taxation is amended to include a bill of costs dated 30 November 2009.
3. The Summons for taxation insofar as it relates to the bills issued prior to 17 November 2009 is dismissed.
4. The plaintiff pay the costs of the defendant in relation to the determination of the preliminary question.

[2] 1996 CanLII 1297 (BCSC) (Master Horn) or [1996] BCJ No 784 Nanaimo Registry No 11731 (Quick Law).

[3] 1994 CanLII 3008 (BCSC) (Hood J) or [1994] BCJ No 2526 (Quicklaw) or (1994) 37 CPC (3d) 130.

[4] (1987) 19 BCLR(2d) 1.

[5] (No 2) (2007) VSCA 132 (26 June 2007).

[6] (1999) VSC 349 (21 September 1999).