Drew, Sharon; Jones, Gareth --- "Costly ethical issues in legal practice" [2014] PrecedentAULA 38; (2014) 123 Precedent 44

• Undertaking any work that is not ‘necessary to resolve or determine the dispute’ also applies to solicitor/client costs. The judicial authority on this point also comes from the orders made in Yara.
• The Court ordered the solicitors to provide their clients with a copy of the orders and the reasons, in addition to the specific orders for payment of costs made, 18 so it must be considered that the Court was ensuring that the client, ultimately responsible for payment of the legal costs incurred, should not pay for any excessive or unnecessary costs incurred in the proceedings.
• CONCLUSION
• In our experience, every file has a maximum amount of recoverable legal costs referenced to the nature and complexity of the proceedings. Courts will no longer tolerate over-servicing and unnecessarily costly applications. Legal practitioners will need to make careful decisions informed by intimate knowledge of the proceedings and their client’s interest.
• Furthermore, the ethical practitioner will manage the client’s expectations throughout the case, and not shy away from difficult conversations with the client challenging a proposed course of action if the practitioner believes it is not appropriate.
• The alternative may be your practice’s name, or yours, enshrined in Australian case law or in a disciplinary register for all the wrong reasons.
• Sharon Drew is the principal of Blue Ribbon Legal, and has specialised in legal costing for 15 years after practising in personal injury litigation for ten years. EMAIL [e-mail] PHONE [phone].
• Gareth Jones is a costs solicitor at Blue Ribbon Legal. He worked in general litigation practice in the UK for five years before emigrating to Australia in 2012. EMAIL [e-mail] PHONE [phone].

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COSTLY ETHICAL ISSUES IN LEGAL PRACTICE

By Sharon Drew and Gareth Jones

‘A lawyer with his briefcase can steal more than a hundred men with guns.’

– Mario Puzo, The Godfather (1972)

The recent approach of Australian courts indicates that anything other than an ethical approach to costs may result in loss to your practice, and possibly even the loss of your practising certificate.

On 19 March 2014 in the NSW Supreme Court, his Honour Justice Hoeben, Chief Justice at Common Law, considered an application for costs in circumstances where the plaintiff had successfully argued only one of eight grounds.^[1] Following judgment on the costs application, His Honour commented:

‘The final matter concerns the costs of this application. The order of the Court was quite explicit. The parties were to restrict their submissions to three pages. While the plaintiff initially did so, it felt obliged to provide a further three pages by way of "reply". Such a reply was not requested or required. The first defendant, despite the Court's order, provided written submissions of six pages in length. In those circumstances, each party should pay its own costs of this application.’^[2]

These comments closely followed the judgment delivered by the High Court of Australia in Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited.^[3]

In this case, their Honours French CJ, Kiefel, Bell, Gageler and Keane JJ were asked to determine firstly, whether mistaken discovery and provision for inspection of obviously privileged documents could amount to a waiver; and, secondly, the appropriate procedure for a court to adopt where a privileged document had been inadvertently discovered. The Court, as part of its unanimous judgment, took the opportunity to remind solicitors of their professional and ethical obligations in such circumstances.

In the judgment, their Honours looked overseas to England and Wales and considered the role of the judiciary as active ‘case managers’,^[4] culminating in their quasi direction to the judiciary in NSW that:

‘Whatever be the position in England, the courts of New South Wales should actively engage in case management in order to achieve the purposes of the CPA.’^[5]

Their Honours then continued with a consideration of the Civil Procedure Act 2005 (NSW) (CPA):

‘The evident intention and the expectation of the CPA is that the court use these broad powers to facilitate the overriding purpose. Parties continue to have the right to bring, pursue and defend proceedings in the court, but the conduct of those proceedings is firmly in the hands of the court. It is the duty of the parties and their lawyers to assist the court in furthering the overriding purpose.

That purpose may require a more robust and proactive approach on the part of the courts. Unduly technical and costly disputes about non-essential issues are clearly to be avoided. However, the powers of the court are not at large and are not to be exercised according to a judge's individualistic idea of what is fair in a given circumstance. Rather, the dictates of justice referred to in s58 require that in determining what directions or orders to make in the conduct of the proceedings, regard is to be had in the first place to how the overriding purpose of the CPA can be furthered, together with other relevant matters, including those referred to in s58(2). The focus is upon facilitating a just, quick and cheap resolution of the real issues in the proceedings, although not at all costs. The terms of the CPA assume that its purpose, to a large extent, will coincide with the dictates of justice.^[6]

The Court was critical of the course the interlocutory proceedings had taken, stating:

‘It could hardly be suggested that the pursuit of satellite interlocutory proceedings of the kind here in question in any way fulfils the overriding purpose of the CPA. To the contrary, it is the very kind of conduct which should be avoided if those purposes are to be achieved. It involved a relatively minor issue relating to discovery, the resolution of which appears to have offered little advantage to the Armstrong parties. Its determination went no way towards the resolution of the real issues in dispute between the parties. Instead, it has distracted them from taking steps to a final hearing, encouraged the outlay of considerable expense and squandered the resources of the Court.’^[7]

This approach to costs is not confined to NSW nor the High Court. In Victoria, the Court of Appeal’s first appellate decision concerning the Civil Procedure Act 2010 (Vic) looked not only at the substance of the application, but also whether the legal costs incurred were ‘reasonable and proportionate’.^[8]

The issue before their Honours in this case (Yara Australia Pty Ltd & Ors v Oswal) was an application for leave to appeal in relation to security of costs. Following the determination of the substantive appeal, the Court requested submissions in relation to the conduct of the case, succinctly set out in the unanimous decision of the Court:

‘[We] requested the parties to address the question whether in the conduct of the leave application there had been a breach by any party of their overarching obligation under the Civil Procedure Act 2010 (‘the Act’) to use reasonable endeavours to ensure that the costs incurred in the proceeding were reasonable and proportionate to the complexity and importance of the issues and the sums in dispute. These reasons are concerned with that question. It has been necessary to consider the nature and extent of that obligation within the structure and purposes of the Act and the sanctions available to the Court in the event of non-compliance. Two factual questions have been addressed in order to determine whether the obligation was breached by any party or their legal practitioners. First, whether there was any over representation of a party by counsel and second, whether the material produced on the hearing of the application for leave to appeal was unnecessary or excessive.’^[9]

Following submissions, the Court of Appeal held that the use of three senior and four junior barristers in all the circumstances was not a ‘breach of the overarching obligation in that regard’.^[10] However, after detailing the material filed, which amounted to ‘six application folders, comprising submissions, affidavit material, transcript and authorities running to over 2700 pages [much of which] was either peripheral to the application or entirely unnecessary’,^[11] the Court confirmed that litigation costs would be scrutinised:

‘The Act’s objective is the reform of the culture of unnecessary expenditure on civil litigation. Parliament has intended that this reform can only be achieved by holding parties to account for undesirable civil litigation practices that are unfortunately too common.’^[12]

These judicial comments demonstrate that the approach of the courts is changing; they will no longer leave the question of costs as an ancillary matter to be dealt with after the event, but will use the powers available to them to manage costs as in other jurisdictions as the case progresses.

In addition, courts in various jurisdictions have directed legal practitioners to provide their clients with a copy of the court’s decisions, complete with any negative comments regarding the manner in which the litigation has progressed. Adverse findings or comments made by a judge regarding the manner in which a practitioner has conducted proceedings might open a dispute between the practitioner and their client regarding whether the work has been undertaken in a reasonable manner.

The natural progression from this point, we contend, is that practitioners may be referred to their relevant Law Society by the courts or their clients in relation to overcharging and, potentially, professional misconduct.

All legal practitioners should ask themselves: Is the work I am undertaking necessary and proportionate for the matter in hand, and is it ethical that I charge for this item of work?

All jurisdictions in Australia have similar provisions in their Legal Profession Acts or professional conduct rules outlining that charging excessive costs in connection with the practice of law may amount to professional misconduct.^[13]

The recent Victorian decision of Legal Services Commissioner v Bektas (Legal Practice)^[14] is a clear example.

In the case of Bektas, the Victorian Civil and Administrative Tribunal held that the practitioner had engaged in professional misconduct by charging ‘grossly excessive costs’.^[15] Among other charges, the Tribunal detailed the hours of work claimed in one specific matter:

‘The itemised bill was grossly excessive for a number of reasons, principally that it included a claim for about 240 hours (over a period of three years) of legal research in the sum of about $43,520 plus a 65% loading for skill and care and a 25% uplift, a total of about $89,760, for which the practice was not entitled to charge.’^[16]

Granted, the issues raised in the cases of Allianz and Yara are subtly different to a case of ‘clear overcharging’ as in the case of Bektas. However, if the court specifically restricts submissions, as it did in Allianz, is any work over that limit recoverable from the client? Further, is it ethical to seek the payment from the client when an order to the contrary has been made by the court?

The judgment of their Honours in the case of Yara clearly show that they believe it is not:

‘The overarching obligations apply to any person who is a party, any legal practitioner, legal representative or law practice acting for or on behalf of a party. The overarching obligations do not override any duty or obligation of a legal practitioner arising under common law or statute to the extent that such duties and obligations and the overarching obligations can operate consistently. But a legal practitioner or law practice engaged by or on behalf of a client in connection with a civil proceeding “must comply with the overarching obligations despite any obligation ... to act in accordance with the instructions or wishes of the client”. A legal practitioner is not required to comply with any instruction or wish of a client which is inconsistent with the overarching obligations, and must not cause the client to contravene the overarching obligations. To the extent that there is an inconsistency between a legal practitioner’s duty to a client and their overarching obligations, the obligation prevails.

Part 2.3 outlines the overarching obligations. The duty stated in s16 is that each person to whom the overarching obligations apply has a paramount duty to further the administration of justice. The overarching obligations include the obligation to only take steps that are considered to be necessary to resolve or determine the dispute.’^[17]

Undertaking any work that is not ‘necessary to resolve or determine the dispute’ also applies to solicitor/client costs. The judicial authority on this point also comes from the orders made in Yara.
The Court ordered the solicitors to provide their clients with a copy of the orders and the reasons, in addition to the specific orders for payment of costs made, ^[18] so it must be considered that the Court was ensuring that the client, ultimately responsible for payment of the legal costs incurred, should not pay for any excessive or unnecessary costs incurred in the proceedings.
CONCLUSION
In our experience, every file has a maximum amount of recoverable legal costs referenced to the nature and complexity of the proceedings. Courts will no longer tolerate over-servicing and unnecessarily costly applications. Legal practitioners will need to make careful decisions informed by intimate knowledge of the proceedings and their client’s interest.
Furthermore, the ethical practitioner will manage the client’s expectations throughout the case, and not shy away from difficult conversations with the client challenging a proposed course of action if the practitioner believes it is not appropriate.
The alternative may be your practice’s name, or yours, enshrined in Australian case law or in a disciplinary register for all the wrong reasons.
Sharon Drew is the principal of Blue Ribbon Legal, and has specialised in legal costing for 15 years after practising in personal injury litigation for ten years. EMAIL [e-mail] PHONE [phone].
Gareth Jones is a costs solicitor at Blue Ribbon Legal. He worked in general litigation practice in the UK for five years before emigrating to Australia in 2012. EMAIL [e-mail] PHONE [phone].

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^[1] Allianz Australia Insurance Limited v Mackenzie & Ors (No. 2) [2014] NSWSC 254.

^[2] Ibid at [13].

^[3] [2013] HCA 46.

^[4] Ibid at [36] – [42].

^[5] Ibid at [42].

^[6] Ibid at [56] – [57].

^[7] Ibid at [59].

^[8] Yara Australia Pty Ltd & Ors v Oswal, [2013] VSCA 337.

^[9] Ibid at [1].

^[10] Ibid at [39].

^[11] Ibid at [40].

^[12] Ibid at [52].

^[13] See, s4.4.4(b) Legal Profession Act 2004 (Vic); s420(1)(b) Legal Profession Act 2007 (Qld); s498(1)(b) Legal Profession Act 2004 (NSW); s389(b) Legal Profession Act 2006 (ACT); s466(1)(b) Legal Profession Act (NT); s422(1)(b) Legal Profession Act 2007 (Tas); s404(b) Legal Profession Act 2008 (WA).Although there is no corresponding provision in the Legal Practitioners Act 1981 (SA), the definitions of ‘unsatisfactory conduct’ and ‘unprofessional conduct’ in s5 permit a finding against a practitioner where the conduct ‘involves a failure to meet the standard of conduct observed by competent legal practitioners of good repute’. The Legal Practitioners Conduct Board of South Australia website notes that ‘Where the Board finds gross overcharging, your lawyer may be subject to disciplinary proceedings for misconduct’.

^[14] Legal Services Commissioner v Bektas (Legal Practice) [2013] VCAT 2142.

^[15] Ibid at [18].

^[16] Ibid at [24].

^[17] Yara, n8 above, [10] – [11].

^[18] Ibid at [61].