Plaintiffs v Defendant

1 This is an application by the plaintiffs for a determination that their application for costs review by the Costs Court[1] be dealt with after the 12 month period in which an application for costs review can be made pursuant to s 3.4.38(5) of the Legal Profession Act 2004 (Vic).

2 Section 3.4.38(6) of the Legal Profession Act provides that an application for costs review made out of time may be dealt with by the Costs Court if, relevantly, a Judge of the Court determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for review to be dealt with after the 12 month period.

3 In issue are four bills of costs rendered by the defendant, who is the applicants' former solicitor, the last of which is dated 28 April 2011, and three invoices from the barrister retained on behalf of the applicants, the last of which is dated 22 March 2011.

4 The plaintiffs rely on the affidavits sworn by their new solicitor, Mr Boris Pogoriller, on 24 December 2012 and 29 April 2013, and on the affidavit of the second plaintiff sworn on 27 February 2013.

5 The defendant has made an affidavit in reply dated 10 April 2013.

6 The background to the plaintiffs' application is as follows:

(a) The defendant acted for the first plaintiff and a company previously controlled by the first plaintiff (now deregistered) in a lease dispute over a period of months in 2011;

(b) The first plaintiff, the second plaintiff and the company were parties to a costs agreement with the defendant;

(c) The defendant rendered bills on 27 January 2011, 16 February 2011, 13 April 2011 and 28 April 2011 totalling $31,026.00. Counsel's fees amounted to a further $5,280.00;

(d) The plaintiffs paid less than half the defendant's fees. The defendant paid the amounts owing to counsel from his own pocket;

(e) In about May 2011, the defendant brought proceedings under s 108 of the Fair Trading Act 1999 (Vic) in the Victorian Civil and Administrative Tribunal (the 'Tribunal') to recover the outstanding fees (the 'recovery proceeding');[2]

(f) The recovery proceeding was initially determined by the Tribunal in February 2012. The plaintiffs did not appear and the defendant obtained a judgment in default. However, in April 2012, the order was set aside and the proceeding reinstated upon application by the second plaintiff, subject to the payment of part of the outstanding fees;

(g) In response to the recovery proceeding, the plaintiffs made their own application to the Tribunal under s 3.4.32 of the Legal Profession Act to set aside the costs agreement;

(g) The two proceedings were consolidated and, in September 2012, the Tribunal heard the defendant's claim under the Fair Trading Act and the plaintiffs' application under s 3.4.32 of the Legal Profession Act to set aside the costs agreement;

(g) The second plaintiff represented herself and the other plaintiffs before the Tribunal, although she is not a lawyer;

(h) The Tribunal made an order that the plaintiffs pay the defendant the sum of $19,015.57, being the amount of the outstanding fees (the 'Tribunal's order'). The plaintiffs' application to set aside the costs agreement was dismissed.

7 The defendant has since registered the Tribunal's order in the Magistrates' Court of Victoria and has taken steps to recover the amount of the judgment debt.

8 In an application under s 3.4.38(6) of the Legal Profession Act for what is in effect an extension of time to make an application for costs review in the Costs Court, the applicant must explain the reasons for the delay in making the application. In this case, the plaintiffs submit:

(a) the real delay occurred from the reinstatement of the Tribunal proceeding in April 2012 until the summons for taxation was issued on 24 December 2012; and

(b) the delay occurred as a result of a bona fide mistake on their part.

9 The mistake in question is said to have arisen from the statement made by the Tribunal member in the reinstatement application in April 2012 that both the Tribunal and the Costs Court 'have jurisdiction'. The statement was made in the course of an exchange that took place towards the end of that hearing when the Tribunal member noted that the costs consultant retained by the plaintiffs, Ms Dealehr, had expressed the view in her affidavit made on 27 March 2012 that the matter should be before the Costs Court, rather than before the Tribunal. He then said:

Now, VCAT has jurisdiction. The Costs Court would also have jurisdiction.[3]

10 The Tribunal member observed that s 77 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) gave the Tribunal power to transfer the proceeding to a more appropriate forum. He told the second plaintiff that if she agreed with Ms Dealehr, the more appropriate forum would be the Costs Court and explained that the proceeding before him would need to be adjourned if it was to be transferred to the Costs Court. However, if the plaintiffs wished to abandon 'that application', he would make directions for the further hearing of the proceeding before him. The Tribunal member then asked for the second plaintiff's view. She responded:

Your Honour, my view on this is that certainly in a court of law, in the Costs Court they will look at the itemised bill and they will go into the nitty gritty of every single dollar charged for the work done, for every minute done. Now, my concern is that I'm not sure whether in a Costs Court they will look at conduct, and breach of instructions. For instance, my instruction not to go over $20,000. However, the applicant has charged $30,000. I'm not confident that they will look at that and ...[4]

11 There followed a number of half formed (that is, interrupted) sentences. The Tribunal member pointed out that it was not for him to determine, but if the proceeding did go on and the plaintiffs were not successful, they might have a costs order made against them. The exchange then continued:

SECOND PLAINTIFF: Yes, and obviously the discrepancies between the barrister's memorandum of fees and the applicant's fees, so based on that, purely based on the conduct of this whole case, I think it will be more than [indistinct] if there is a hearing before the Tribunal.

SENIOR MEMBER: Okay, well, you don't pursue the application to have it referred to the Costs Court?

SECOND PLAINTIFF: Not if there's going to be [indistinct].[5]

The second plaintiff has deposed that the missing words in her response are 'a rehearing'.[6]

12 At the time of the exchange, as I understand it, the plaintiffs complained that the second plaintiff was not, or ought not to have been, a party to the costs agreement and that the costs agreement should be set aside because the defendant had exceeded his authority in incurring costs over $20,000. The plaintiffs also sought to resist the defendant's suit for his costs under the Fair Trading Act on the basis that the costs were not incurred or were not properly or reasonably incurred. In other words, they challenged the quantum of the defendant's costs.

13 The affidavit of Ms Dealehr[7] (which prompted the Tribunal member to ask whether the plaintiffs intended to apply to have the proceeding transferred to the Costs Court) identified 'difficulties' with the defendant's fees in relation to the work done by him, based on the invoices with which she had been provided. Ms Dealehr noted that it was open to the plaintiffs to issue a summons for review pursuant to Division 7 of Part 3.4 of the Legal Profession Act to have the defendant's costs and disbursements assessed by a costs judge or judicial registrar of the Costs Court. Although the plaintiffs were out of time in relation to two of the four invoices, they could seek leave to enable the invoices to be reviewed outside the 12 month period. Ms Dealehr concluded:

In my opinion the Costs Court would be able to best deal with the issues raised above and any other matters pertaining to a costs dispute as they are a specialist court in this area of law in Victoria. Furthermore, the Costs Court would usually order that the solicitor prepare itemised bills of costs to enable the court to determine the reasonableness or not of the claims for work done by the applicant [defendant].[8]

14 Notwithstanding her youth and lack of legal qualifications, it is difficult to see how the second plaintiff made a bona fide mistake in the circumstances described. The plaintiffs' own expert had recommended that the plaintiffs make an application for costs review to the Costs Court in order to pursue the 'difficulties' with the defendant's charging that she had identified in her affidavit. This was well before the Tribunal proceeding was actually heard and the plaintiffs had ample opportunity to reflect on how best to advance their case that they should not be required to pay all of the fees or the full amount of the fees claimed. Even if the second plaintiff was put on the spot when the Tribunal member asked whether she wished to apply to have the proceeding transferred to the Costs Court, some months elapsed before the proceeding was heard and determined by the Tribunal. It was open to the plaintiffs to take advice and to approach the Tribunal to have the proceeding transferred in the interim.

15 The exchange between the Tribunal member and the second plaintiff reveals that the plaintiffs made a considered decision; they wished to base their challenge to the defendant's fees on his conduct in making the second plaintiff a party to the costs agreement and in exceeding the cap they said they had imposed on legal costs. The plaintiffs' believed that the Tribunal would be better able to consider the conduct of the defendant of which they complained and chose not to have the proceeding transferred to the Costs Court.

16 I do not accept that the plaintiffs were misled by the Tribunal into foregoing their rights to costs review under the Legal Profession Act. The reason they have given for the delay is not a good one.

17 In considering whether it would be fair and just to allow the taxation to proceed, regard must also be had to the position of the defendant. The defendant submits that his bills of costs were subject to extensive challenge in the Tribunal proceeding. He was cross-examined at length by the second plaintiff about his costs and the Tribunal considered whether he had overcharged. He contends that it would be unfair and unjust to expose him again to these attacks, which were roundly rejected by the Tribunal.

18 The defendant also complains about the conduct of the plaintiffs in resisting his demands for payment. He says that he had an order in his favour from the Tribunal which was set aside when the second plaintiff pleaded illness and that he then had to deal with repeated changes of position from the plaintiffs as to why they should not be required to pay for the services that he provided. Moreover, he now has the benefit of the Tribunal's order, which has not been challenged and which has been registered in the Magistrates' Court in order to permit its enforcement. Enforcement proceedings have been commenced.

19 I accept that the defendant will suffer prejudice if he loses the benefit of the Tribunal's order and the steps that he has taken to enforce it. The plaintiffs do not dispute that they owe the defendant further amounts for his costs, and the defendant has therefore been out of pocket for a significant period of time. He has already successfully repelled attacks on his costs in the Tribunal proceeding. A taxation will result in further delay and expense and expose him to a 're-run' of the complaints made against him. The plaintiffs' offer to pay monies into the Court fund as a condition of the grant of leave does not remove or alleviate this prejudice.

20 The defendant further submitted that the Tribunal's order gave rise to a res judicata and that the plaintiffs could not now seek to have the costs taxed so as to re-open the question of the amount of costs owed by them to the defendant. That question, so he contends, has been settled by the Tribunal once and for all.

21 There is substance to this submission. In the Tribunal, the defendant obtained a final order for the payment of an amount representing his outstanding fees based on the invoices rendered to the plaintiffs. Mr Pogoriller, the current solicitor for the plaintiffs who appeared on their behalf in this court, agreed that a conflict might well arise between the Tribunal's order and an order made by the Costs Court following a costs review. If the Costs Court were to reduce the amount of costs payable pursuant to the defendant's invoices, the plaintiffs would seek to satisfy their obligation to pay the defendant's fees by reference to the order of the Costs Court rather than in accordance with the Tribunal's order. Mr Pogoriller was unable to explain satisfactorily what would be the status of the Tribunal's order if the Costs Court determined that a different amount of costs was payable by the plaintiffs pursuant to the costs agreement. He agreed that something would have to be done about the Tribunal's order but he could not say exactly what.

22 It is unnecessary in the circumstances to determine this issue.[9] However, the fact that the plaintiffs have had the benefit of a full hearing in which the Tribunal scrutinised the defendant's claims for his costs and the defendant has an order for the payment of an amount representing his outstanding costs, is relevant to the question of whether it would be fair and just to allow the taxation to go forward.

23 While the Tribunal did not carry out a taxation of costs of precisely the kind contemplated by the Legal Profession Act, it did hear and determine the plaintiffs' challenge to the quantum of the defendant's costs. It determined the amount of costs that were owing and payable, having regard to the terms of the costs agreement, the invoices rendered and the matters raised by the plaintiffs. The plaintiffs did not appeal or seek a stay of the Tribunal's order. However, they now seek an indulgence well after the Tribunal's determination to permit them to re-open the question of the costs that are owed to the defendant.

24 In the circumstances, it would not be just or fair to permit the plaintiffs' application for taxation to proceed.

25 The application must be refused, having regard to:

(b) the unconvincing reason for the delay and the fact that the plaintiffs apparently ignored the advice of their own costs consultant about the most appropriate forum in which to air their grievances;

(c) the fact that the plaintiffs have had ample opportunity to ventilate their complaints about the quantum of costs in the Tribunal proceeding, including by cross-examination of the defendant; and

(e) the fact that the defendant will suffer the prejudice of having to meet the same challenge to his costs a second time and suffer the further delay that would be involved in a taxation.

26 The plaintiffs' summons for taxation dated 24 December 2012 is dismissed. The plaintiffs' application to file and serve an amended summons in the form of the document dated 29 April 2013 is refused.

[1] Made by summons dated 24 December 2012.

[2] Although the Fair Trading Act was repealed by s 233 of the Australian Consumer Law and Fair Trading Act 2012 on 1 July 2012, the latter provided that s 108 of the Fair Trading Act was to be taken to have been re-enacted.

[3] Transcript of Proceedings, In the Matter of Chaim Geron Lawyers v Valentina Gavriliuc, Alexandrer Gavriliuc and Melbourne Home Development (Victorian Civil and Administrative Tribunal, No J71/2011, Senior Member Davis, 10 April 2012) ('April VCAT Proceeding') 25.

[4] Transcript of Proceedings, April VCAT Proceeding, 25 - 26.

[6] Affidavit of Valentina Gavriliuc filed 3 April 2013 [47].

[7] Affidavit of Catherine Mary Dealehr made on 27 March 2012. Ms Dealehr identified herself as an accredited costs law specialist and the principal of Compucost - The Australian Legal Consulting Group, Lawyers and Consultants. She deposed to having been engaged by the second plaintiff to provide advice on the reasonableness of the defendant's claim for costs for work done pursuant to the costs agreement.

[9] This matter was brought on in the Practice Court and submissions on the question of res judicata were apparently prepared by counsel for the defendant well after the defendant's affidavit had been filed. The defendant's application to the Tribunal and most of the relevant supporting material filed by him in the Tribunal was not before the Court.