Liability for Counsel’s Fees

In this month’s Blackstone Brief our of our Melbourne senior associates, Dipal Prasad, considers recent authorities examining who really retains the liability for paying Counsel’s fees – the lawyer or the client.

When a barrister is engaged by a solicitor, the usual position is that the solicitor is liable for the counsel’s fee, and then the client becomes liable to indemnify the solicitor for those fees (assuming the barrister was briefed on the client’s instructions).This position is stated in the case of Dimos v Hanos & Elgaln [2001] VSC 173:

‘In the absence of any contrary evidence, the retention of the barrister would result in a contract between the barrister and the solicitor.’[1]

Decisions of the Supreme Court of Victoria in the past few months highlight the need for barristers to be aware of the small steps that can be taken to ensure a litigating client, as opposed to their instructing solicitor, becomes liable for their fees. These decisions not only highlight potential problems in costs recovery, but also illustrate the risks that counsel can be exposed to in being sued by the ‘ultimate’ client in relation to costs. They also make clear that barristers are able to sue clients for costs recovery despite the fact that they were engaged by another party (their instructing solicitor).

Counsel’s responsibility

Liability for fees pursuant to a counsel’s retainer can arise only if counsel complies with their disclosure obligations. In New South Wales and Victoria these obligations are straightforward.

In a situation where a solicitor retains a barrister to act on behalf of a client, it is the solicitor who ‘must disclose to the clients the details specified in section 174(1)’: s175 of the Legal Profession Uniform Law (LPUL).[2]
While counsel is not required to make costs disclosures directly to the client, the LPUL prescribes that counsel must disclose to the instructing solicitor information necessary for the solicitor to comply with subsection 1.

Details that must be disclosed by the barrister to the instructing solicitor before, or as soon as practicable after, being engaged to undertake legal work are:

• the basis on which legal costs will be calculated in the matter (eg, hourly rates and daily rates, and when they apply); and
• an estimate of total legal costs to be charged by the barrister.

If there are any significant changes to the basis of charging or the estimate of total legal costs, counsel must provide, as soon as practicable, information disclosing the change.

While there is no appropriate form for disclosure, all costs disclosures must be made in writing. A letter providing the required information will suffice.

Disclosure of costs is the first and most basic step to ensure fee recoverability. Without appropriate disclosure counsel is usually limited to fee recovery on a quantum meruit basis, relying on the costs assessor’s or taxing registrar’s assessment of fair and reasonable costs.

Recent cases

Holloway v Madgwicks [2018] VSC 773

On 13 December 2018, the Supreme Court of Victoria delivered an important decision pertaining to a solicitor/client dispute heard in the Costs Court, which went to a preliminary hearing before Associate Justice Wood.

One of the issues in dispute at the preliminary hearing regarded whether the applicant client briefed counsel directly and, if so, what impact this would have on the applicant’s summons. The respondent law firm sought a declaration that counsel’s fees did not form part of the retainer with the solicitor, and therefore were not to be included in any solicitor/client bill of costs.

Two of the counsel involved were briefed prior to 1 July 2015 and one counsel was briefed in 2016. Fees in dispute amounted to more than $500,000, with counsel’s fees totalling approximately $350,000.

The usual position as stated in Dimos was considered by the Court. However, the respondent law firm tendered documents containing the following noteworthy paragraphs:

• First costs agreement:

‘you will be responsible for all fees and charges made and expenses incurred by any barristers’

• Second costs agreement:

‘we will charge you at cost for any disbursements we incur on your behalf’

‘you will be responsible for all the fees and charges made and expenses incurred by any barrister’

• Counsel’s backsheets:

‘In this matter we engage you only as agents for the above client. Please ensure that you issue your fee slips in the name of the client on your tax invoice. While we will take all reasonable steps to ensure your fees are paid we accept no personal liability for payment of Counsel fees’

The fee slips of counsel were addressed to the law firm, and they were paid by the law firm from funds provided by the client (excluding one invoice paid directly by the client).

The law firm issued invoices to the client and noted counsel’s fees as ‘expenses’ rather than disbursements.

The Court found that, when considering all of these documents collectively, they amount to ‘contrary evidence’ as described in Dimos , which alleviated the liability for payment of counsel’s fees by the law practice. There being no obligation on the law firm to pay counsel’s fees, these fees were not to be included in the bill of costs which was the subject of the review.

Petselis v Tatarka [2019] VSC 8

On 23 January 2019, just over a month after the decision was handed down in Holloway, the Supreme Court of Victoria issued a judgment in the case of Petselis v Tatarka [2019] VSC 8.

Petselis dealt with the issue of whether a barrister can sue a client directly for non-payment of legal costs.

In this matter Mr George Petselis, the appellant client, engaged Evans Ellis, a firm of solicitors. Evans Ellis engaged Mr Tatarka, the respondent barrister, to appear for the client on three separate occasions.

The barrister’s fee for the third appearance was not paid. As a result, counsel issued proceedings against the client in the Magistrates’ Court of Victoria seeking debt recovery of his fees. A magistrate found for the barrister and ordered that the client pay him the amount of the claim plus interest and costs.

Mr Petselis, the client, appealed the order on following grounds:

• it was not open to find that there was a contractual relationship between the client and the barrister;
• it was not open to find for the barrister in the absence of a contractual relationship between the parties; and
• if the magistrate found a contractual relationship, he erred by failing to find that the contract was void because the barrister did not comply with provisions of the LPUL.

The appellant client submitted that, because the barrister was retained and briefed by his solicitors and not directly by him, there was no contract between him and the barrister.

The following documents and facts were put to the Court:

• There were discussions a day before the hearing scheduled on 14 February 2017 to arrange for the barrister to appear for the client the following day. The client was a party to those discussions and was aware of the fees the barrister would charge.
• Email dated 13 February 2017 from the solicitor to the barrister:

‘We confirm our client has engaged you directly relation your [sic] briefing to appear tomorrow, with payment due within 30 days.’

• Email dated 13 February 2017 from the barrister to the solicitor:

‘I confirm that you will brief me at a fee of $3500 (if finished by 1) or $5000 if the case extends beyond 1 payable in 30 days.

I will not look to Evans Ellis if George fails to pay you for my legal fees and you will do what you can to ensure that he honours his obligations.’

• Email dated 14 February 2017 from the barrister to the solicitor and the client:

‘I confirm that George has agreed to a fee of $5,000 and that I have asked my clerk to send you a fee slip in that amount. George has indicated his intention to pay the account directly to my clerk and when that happens I will advise you.’

• The fee slip issued by the barrister’s clerk was issued to the solicitor.
• Upon non-payment of the invoice within 30 days, the barrister followed up the client for payment of the outstanding sum.

Judge Keogh rejected the appellant client’s submission that there was no contract between the appellant and respondent, as His Honour found it to be ‘inconsistent with the observation of Gillard J in Dimos that “persons can contract to do anything”.’[3]

Consistent with the provisions in <ahref=”http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSC/2001/173.html” taregt=”_blank”>Dimos, Judge Keogh found that the appellant client entered into a tripartite agreement with his solicitor and the respondent barrister – ‘an agreement in which the solicitor retains and briefs the barrister, but the contractual obligation to pay the barrister’s fee is borne solely by the client’.[4]

It was also noted that s180(1)(b) of the LPUL permits a costs agreement to be made between a client and a barrister or ‘a law practice retained on behalf of the client by another law practice’.

As to the issue pertaining to the respondent barrister’s non-compliance with the LPUL, the Court made the following observations:

58… Mr Petselis did not argue at first instance that Mr Tatarka failed to comply with disclosure requirements in cls 174(2), (3) and (6), or that these matters were not disclosed to him

Mr Petselis did not argue that the costs agreement was void because of a contravention of disclosure requirements or because of non-compliance with cls 180(2) and (3) of the LPUL. I agree with Mr Tatarka ’s submission that, had these arguments been made, he would have had the opportunity to call evidence to meet the case put against him. It would offend well-established principles if Mr Petselis were permitted to run a case on appeal which he did not seek to run at first instance.[15]

59 Mr Petselis entered a tripartite agreement with Evans Ellis and Mr Tatarka. When he did so he was aware of Mr Tatarka’s fees. There is little doubt he understood and gave consent to the proposed course of action for the conduct of the property dispute proceedings. In the circumstances of this case there is no reason why it should be Mr Tatarka, rather than Evan Ellis, who had to disclose the additional information under cl 174(2).’

Accordingly, the appeal was dismissed.

Concluding remarks

Recent cases provide valuable reminders that counsel must be vigilant about the terms of their retainers (including costs agreements and backsheets). Failure to comply with disclosure obligations risks confusion about the party ultimately liable for counsel’s fees.

If it turns out that the ultimate client (as opposed to the instructing solicitor) is liable for the counsel’s fee, counsel must ensure that it has complied with its minimal disclosure requirements and the following points before commencing debt recovery proceedings against the client for outstanding fees:

• there is a costs agreement between a client and a barrister (s180(1)(b));
• the costs agreement is written or evidenced in writing (s180(2)); and
• the costs agreement consists of a written offer that is accepted in writing or (except in the case of a conditional costs agreement) by other conduct (s180(3)).

The following points are also noteworthy:

• A costs agreement may be enforced in the same way as any other contract <ahref=”http://classic.austlii.edu.au/au/legis/nsw/consol_act/lpul333/s184.html” target=”_blank”>(s184).
• Addressing or providing an invoice to the instructing solicitor does not make the solicitor liable for counsel’s fee.
• Section 178(1)(c) (bar on commencing or maintaining proceedings) applies only if there has been a contravention of disclosure requirements, and will require consideration only to the extent that compliance of a law practice with disclosure obligations is put in issue.
• Even in circumstances where a law practice retains a barrister but the obligation to pay the barrister falls directly on client, disclosure obligations under s174 still fall on the law practice – the barrister is only required to make limited disclosure to the law practice under s175(2).

Additionally, solicitors intending to opt-out of being liable for counsel’s fees must ensure that both counsel and the client are on board with the tripartite agreement. Solicitors should also accept the risk that barristers may refuse a brief due to higher credit risks associated with individual debtors.

At Blackstone Legal Costing we guide you through the labyrinth that is cost law to achieve optimum recovery for both you and your clients.

Dipal Prasad A senior associate with us at Blackstone Legal Costing, Dipal’s experience ranges across New South Wales, Queensland, the ACT and Victoria. Frequently an advocate in Victoria’s Costs Court, Dipal’s skills focus on resolution of commercial costs disputes.