Tag Archives: solicitors

When winners are not grinners – who gets paid first when the winning litigant goes bust?

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Commercial litigation is often ultimately uncommercial. And when things turn really sour solicitors will often have a personal stake in the question of who is to miss out financially.

This issue arose in an insolvency context last week in a Supreme Court tussle between mega firm DLA Piper and the liquidators of their former client Windemac Pte Ltd.

Back in 2013 Windemac won a Supreme Court judgment for $312,000 plus interest and costs. It was perhaps a Pyrrhic victory as DLA’s bills to Windemac totalled almost $360,000. Windemac went bust two years later still owing DLA Piper more than $100,000.

After Windemac went into liquidation there still remained a costs order for almost $98,000 in Windemac’s favour to be enforced against the defendants. Was that money to go to Windemac’s liquidators or to the short-paid solicitors?

Associate Justice Derham held that the solicitors were entitled to an equitable lien over the proceeds of the costs order on established ‘fruits of the action’ principles and that the solicitors’ rights had priority over the claims of Windemac’s other creditors in the insolvency.

The decision contains a useful extract on solicitor’s liens for costs extracted from Elliot J’s decision in Oakley Thompson & Co v Maisano (No 2) [2015] VSC 210 at 77. Here (with citations omitted) is Elliot J’s summary:

(1)     At common law, a solicitor has a general possessory lien for all professional costs due by her or his client.  This entitles the solicitor to keep in her or his possession all property of the client which comes into the solicitor’s possession during the course of her or his professional employment until the solicitor’s costs have been paid.

(2)     A solicitor has no lien for costs over any property which has not come into her or his possession.

(3)    If a client obtains a judgment for the payment of money (including a judgment for costs),  the solicitor acquires a right to have her or his costs paid out of the money payable, such right being an equitable right to be paid.  This right is not dependent upon an order having been made to recognise the right, or upon a taxation having occurred.

(4)    If the solicitor gives notice of the right to the person who is liable to pay the money, only the solicitor, and not the client, can give a good discharge to that person for an amount of the money equivalent to the solicitor’s costs.

(5)    If the person liable to pay has notice of the solicitor’s right, but refuses to pay the solicitor, the solicitor may obtain a “rule of court” directing that the costs be paid to the solicitor and not to the client.  (In this context, a rule of court is a reference to an order or a direction of the court.)

(6)    If the client and a judgment debtor make a collusive arrangement in order to defeat the solicitor’s right, the court will enforce that right against the judgment debtor notwithstanding the arrangement and notwithstanding that no notice of the solicitor’s claim has been given to the judgment debtor prior to the arrangement.

Associate Justice Derham’s decision is DLA Piper Australia v Official Receiver of Singapore (as liquidators of Windemac Pte Ltd) [2017] VSC 216.

The lesson from this? Solicitors’ liens are good and can trump a liquidator. But solicitors getting their money into trust up-front on account of fees is even better. After all, the solicitors here might have chalked up a win but they still took a haircut on the fees which had been outstanding to them for over four years.

Our dishevelled new Uniform Law

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What a shambolic creature is the new Legal Profession Uniform Law.

I attempted to translate its provisions relating to costs disclosure and recovery in a presentation for the Goulburn Valley Law Association this week. I reckon I did a reasonably accurate job. I could tell this because my attentive audience seemed to be suitably irritated and confused by the end.

Anybody who claims an entirely confident understanding of the Uniform Law has obviously not read it properly.

By itself, the Uniform Law is frequently unintelligible without reference to the local (ie state) law which adopts it.Because of this, the Uniform Law in Victoria is actually a schedule to the zippily-named Legal Profession Uniform Law Application Act 2014.

This unattractive combination adds up to a combined total of approximately 570 pages and 120,000 words. And that’s before you reach for a third necessary document, the Legal Profession Uniform General Rules 2015 (and disregard other related subordinate legislation).

Between them, these three documents are ostensibly organised into various chapters, parts, divisions and schedules. Indeed, they seem to have more chapters than the Freemasons, more parts than Shakespeare, more divisions than Stalin and more schedules than V/Line. But you can’t be entirely sure because the centrepiece document, the Uniform Law itself, has no index whatsoever and the pagination doesn’t help.

That is bizarre in any legislation but particularly in something that presumably is meant to be accessible to, among others, disgruntled clients looking as lay people to the law for guidance about their rights and obligations vis-a-via their lawyers.

But given the sheer bulk of the Uniform Law package, it must be extraordinarily precise, right?

Wrong again.The mandarins responsible for administering it (for Victorians that means a combination of the Sydney-based Legal Services Council and the Melbourne-based Victorian Legal Services Board and Commissioner) have separate websites, each featuring information sheets for clients and for legal practitioners.

Alas, some of the Victorian Legal Services Board and Commissioner’s info appears to relate to superseded legislation and not to the Uniform Law at all.

And at least one of the Legal Services Council’s flyers makes the confident assertion that the Uniform Law “does not permit” lawyers to express estimated future costs to their clients as a range.

This “cost-estimates-must-not-be-expressed-as-a-range” view is an urban myth also gaining currency at high levels in Victoria.

But it is wrong. (Look, at least, at s 182(3) of the Uniform Law regarding conditional costs agreements and then look (in vain) for any prohibition on cost estimates being expressed as a range in other contexts.)

In August 2015, the Victorian Law Institute Journal breathlessly introduced the Uniform Law to its readers with a cover story entitled “Empowering Clients”. What nonsense. If any lay client can navigate the Uniform Law without professional assistance (which seems improbable) he/she would almost certainly have found (substantially) the same answers much faster under the now-repealed Legal Profession Act.

How did we get lumbered with the Uniform Law? It seemed a good idea to the Council of Australian Governments back in 2009 to have uniform nationwide legislation for the various jurisdictions’ barristers and solicitors. This might have made sense if most of our lawyers and clients were dealing with each other on a nation-wide basis.

But in the real world only substantial commercial and government clients generally operate on that basis. So guess which class of clients is largely excluded from the “protections” offered to clients by the costs provisions of the Uniform Law? You guessed it. Commercial and government clients.

What a mess. Little wonder that since the idea’s inception in 2009 every jurisdiction except Victoria and New South Wales has slipped off the Uniform Law bandwagon.

But enough venting from me.

I ended my Goulburn Valley Law Association presentation this week with what I hope are four practical observations:

  • As ever, costs are only recoverable by solicitors to the extent those costs are fair and reasonable. Costs agreements are prima facie evidence only as to what is fair and reasonable – see s 172(4).
  • Solicitors’ enforcement of costs agreements against clients hinge first and foremost on adequate costs disclosure at the front end. Position yourself to be able to demonstrate this. Employing the LIV’s template disclosure and costs agreement document will be a good start.
  • Even perfect front-end written costs disclosure of itself might still not be sufficient. For the purposes of s 174 of the Uniform Law, solicitors should ideally verify and document the client’s receipt and apparent comprehension of that written disclosure. (The Law Society of NSW suggests a short (and documented) Q & A exchange with the client about the client’s expectations as to costs and strategy following delivery of the written material as one mode of evidencing the client’s apparent understanding of that material.)
  • Perfect disclosure should ensure a valid costs agreement but even a perfect costs agreement isn’t bullet-proof either – see s 199 and s 200. Because of this, there will probably be situations where it will be fastest and cheapest for solicitors to grasp the nettle and initiate a costs assessment (aka a taxation) of their own bills rather than to sue for fees only to have their proceeding stayed pending an assessment anyway. But don’t think about this idea  too long if you are a solicitor because you might be statute-barred by s 198(4) if you wait more than 12 months from the date of your bill before seeking the costs assessment.

Need further clarification? Then reach for the Uniform Law with trepidation.