Russo v Desiatnik (No 2)

The defendant (to whom I shall refer as “the barrister”) sued the plaintiff (“the solicitor”) in the Local Court for legal fees. In her Honour’s judgment, Magistrate Wahlquist rejected various submissions raised by the solicitor and found for the barrister on much of his substantive claim. However, her Honour disallowed a claim for interest up until the date of the commencement of proceedings by the barrister (“the interest”).

The solicitor appealed to this Court pursuant to s 39(1) of the Local Court Act 2007 (NSW). The appeal was founded on asserted errors of law, and accordingly leave was neither sought nor required.

By the end of the hearing before me, the appeal ground was highly focused: it was asserted that her Honour had misinterpreted the requirements of Pt 11 of the Legal Profession Act 1987 (NSW) (“the Act”) and of the Legal Profession Regulation 2002 made pursuant to a section of that Act contained within that Part (“the Regulation”), thereby committing an error of law.

In response, the barrister submitted that there was no error of law in the analysis of her Honour. In the alternative, he submitted by way of a notice of contention that, if such an error were established, the verdict could be maintained in his favour on other bases.

Separately, the barrister, by way of a cross-appeal, submitted that her Honour had made an error of law in refusing to order the interest in favour of the barrister. The solicitor submitted in response that her Honour had made the right decision in refusing the interest, albeit for the wrong reasons, and that that part of the verdict should not be the subject of interference by me.

In short, four issues may require determination by me: has the Magistrate committed an error of law with regard to the Act and Regulation? If so, can the verdict in favour of the barrister be maintained on other grounds? Has the Magistrate committed an error of law in refusing to order the interest in favour of the barrister? If so, can that refusal be justified on other grounds?

The entirety of the evidence, documentary and oral, that was before her Honour was placed before me. That was appropriate; nevertheless, due to the focused nature of the issues requiring resolution, only a brief background need be sketched in this instance.

On 12 July 2004, the parties entered into a costs agreement for the provision of legal services. The document that formed the basis of the agreement is at page 71 of Exhibit SR2 to the affidavit of the solicitor of 26 March 2014 which was placed before me.

An attribute of the document that is immediately noteworthy is that it was not signed by the solicitor. Nevertheless, at page 5 of the judgment at first instance, her Honour found that the terms of the costs agreement had been accepted by the solicitor. That finding was based upon an analysis of a number of aspects of the evidence, and was not called into question by the solicitor before me.

Between 13 January 2006 and 24 August 2006, nine bills for legal fees were rendered by the barrister upon the solicitor. They followed a standard format. A typical example was the bill of 16 February 2006, which appears at page 18 of the exhibit to the affidavit of the barrister of 16 April 2014. The upper part of the bill includes, in typed cursive script, a telephone number, DX address, Australian Business Number, street address, and thereafter the title “Memorandum of Fees due to Dr R J Desiatnik”. Below that in handwriting are a number of charges, including charges for typing in the sum of $35. The bill concludes by inviting the attention of the solicitor and providing the name of his firm and its post box address.

Before me, neither party submitted that her Honour was in error in determining that the Act (since repealed) applied, as opposed to any subsequent statute. Without demur on the part of the barrister, I was taken by the solicitor to that version of the Act that pertained on the date of its repeal; namely, 1 October 2005.

Three bills were disallowed against the barrister by her Honour on the basis of s 14(1) of the Limitation Act 1969 (NSW). As I have said, having rejected a number of submissions of the solicitor at first instance, her Honour found that six bills were valid, and entered a verdict in favour of the barrister founded upon them.

It is convenient to set out the entirety of the portion of the judgment of her Honour that the solicitor submitted before me contains the asserted errors of law:

To state things succinctly, the solicitor submitted before me that her Honour erred in not finding that the failure of the barrister to comply with the Regulation disentitled the barrister from reliance upon the invoices. In particular, it was said that that her Honour was in error at the penultimate paragraph extracted of the judgment in the references to regs 45(1)(d)(i), 45(1)(g) and 45(2)(b).

The Regulation in its entirety is as follows:

The barrister submitted that, for a number of reasons, the Magistrate had not committed an error of law in her Honour’s approach to the Regulation.

In order to resolve the primary dispute, it is first necessary to resolve two ancillary disputes.

The first is whether the Regulation has any application to a bill of costs rendered by a barrister upon a solicitor. The barrister submitted that it did not; the solicitor that it did.

I mean no disrespect to the submissions made on behalf of the barrister on this question by resolving the issue concisely. To my mind, the structure of reg 45(1)(d)(i) and (ii) extracted above shows that the Regulation is, at that point, adopting the bifurcated structure that appears in other sections contained within the Part, and which draw a distinction between costs between a lawyer and a layperson and costs between a lawyer and another lawyer: see, for example, ss 175 and 176, and ss 184(1) and (2) of the Act. That bifurcation shows that, to my mind, the Regulation in its general provisions is extending not only to bills provided by lawyers to lay clients but also to bills provided by one lawyer to another. So does the fact that, having drawn that distinction within reg 45(1)(d), the Regulation does not proceed to do so at any other point.

It follows that, as a matter of construction of the statutory instrument, seen in the general context of the Act that creates it and in the particular context of the pertinent Part of that Act, I accept the submission of the solicitor that the Regulation extends to the situation that pertains here of a barrister having served bills of costs upon a solicitor.

The second subsidiary issue is whether, in referring to reg 45(1)(d)(i), her Honour made a slip, and in truth that must have been a reference to reg 45(1)(d)(ii). The question is an important one, because it can be seen that reg 45(1)(d)(i) is speaking of bills given to lay clients, and both parties accepted before me that that clause can have no application to the parties here.

I respectfully reject the submission of the solicitor that her Honour made a slip, or there has been some typographical error, or any like phenomenon. The pleadings in the Local Court demonstrate that, for whatever reason, the solicitor focused his pleaded contentions upon reg 45(1)(d)(i), and not 45(1)(d)(ii): see the further amended defence of 14 June 2013 of the solicitor in the Local Court, and the reference thereto on behalf of the barrister at page 54 line 12 and following of the Local Court transcript of 22 August 2013. To my mind, in the portion of the judgment under discussion, her Honour was merely responding to the pleaded contentions that had been placed before her by the solicitor.

It follows that I shall approach the resolution of the appeal on the basis that the reference by her Honour to reg 45(1)(d)(i) was not a slip, but rather a response to the issue that had been placed before her Honour by the solicitor.

Having said that, it is true that, in his oral submissions at page 54 of the same Local Court transcript, counsel then appearing for the solicitor sought to address upon reg 45(1)(d)(ii). As against the possibility that my answer to the second preliminary question is wrong, I shall provide a contingent analysis.

Having determined the two preliminary issues, I now turn to determine whether any error of law is demonstrated in her Honour’s failure to reject reliance upon any bill of costs rendered by the barrister to the solicitor on the basis of regs 45(1)(d)(ii), 45(1)(g) or 45(2)(b).

Turning to reg 45(1)(g) first, all of the bills in question were headed “Memorandum of Fees due to Dr R J Desiatnik.”

The solicitor submitted before me that that was not sufficient compliance with the Regulation. The submission was that, to the extent that any bill showed that typing had also been undertaken and was the subject of invoice, if it be the case that the person who did the typing was not identified, then that bill could not be sued upon, because it was invalid for failing to comply with the requirements of the Regulation: see page 15 line 20 of the transcript of proceedings before me on 7 October 2014. It was also submitted that, if it be the case that the typist was not identified by name, then the whole of the bill of costs was invalidated, including that portion that reflected work done by the barrister. That was said to be the case even if the proportion of the total bill that pertained to typing was only quite small: see the same transcript at page 16 line 5.

I respectfully reject the submission of the solicitor that her Honour fell into legal error in approaching this question. Each and every invoice clearly identified that it was the barrister who was charging for legal fees. I do not accept the proposition that reg 45(1)(g) is to be interpreted as requiring explicit identification of the person who undertook such relatively mechanistic tasks as typing.

Reading the Part and indeed the Act as a whole, it is true that it can be said that one of its purposes is the regulation of the legal profession in the interests of the community. But as a matter of statutory interpretation, I respectfully consider that the approach contended for by the solicitor before me is erroneously punctilious. I do not accept that it was the intention of Parliament that the Regulation in question was to be seen as so demanding, and as having so draconian an effect. And that is especially the case in the context of the provision of a bill of costs provided to a solicitor by a barrister, and which had been preceded by a costs agreement that was accepted by the solicitor.

There is authority of this Court to that effect: see the judgment of Hoeben J (with whom McColl JA and Handley AJA agreed) in Dennis v Cameron [2007] NSWCA 228. Furthermore, the judgment of Johnson J in Maloney v Collins [2011] NSWSC 628, to very similar effect, whilst not hierarchically binding on me, I consider to be powerfully persuasive.

In short, I am not persuaded by the solicitor that her Honour fell into legal error with regard to reg 45(1)(g). That is because I do not accept that, if a bill of costs that clearly sets out the name of a barrister is rendered upon a solicitor, and the bill does not name typists and those who have done other ancillary work, then the whole bill is contrary to the Regulation and thereby invalidated.

Turning to reg 45(1)(d)(i), I respectfully consider that the reliance placed upon that clause by the solicitor at first instance was misconceived. That was because, as I have said, the solicitor was not a lay client of the barrister. It follows that it did not constitute an error of law for her Honour to determine that that clause of the Regulation did not stand in the way of the barrister relying upon the bills of costs against the solicitor.

As against the possibility that I have been erroneously prescriptive in the analysis immediately above, I turn briefly to consider the ancillary question of whether reg 45(1)(d)(ii) should have stood in the way of reliance on the bills by the barrister.

In that regard, it is to be recalled that the bills were preceded by a costs agreement that her Honour found had been the subject of acceptance by the solicitor.

It is also the case that there is authority that, as a matter of statutory interpretation, the provisions of the Regulation are “directory” rather than “mandatory”: see Kulevska v Coshott [2006] NSWSC 963 at [15] (Lloyd AJ). In other words, failure to comply with the Regulation on the part of a barrister who renders a defective bill upon a solicitor does not prohibit reliance upon the bill as a basis for a statement of claim.

Thirdly, it may also be said that, if Parliament had intended that non-compliance with any provision of the Regulation would have the consequence that a bill of costs could not found a claim for payment of that bill, it would have been a simple matter for Parliament to have explicitly said so, either within the Act or the Regulation itself. And yet Parliament refrained from doing so.

Thirdly, to my mind what was said by the Court of Appeal in Dennis v Cameron and by Johnson J in Maloney v Collins applies here as well. In particular, one would have thought that even a very junior solicitor admitted to private practice in New South Wales would have a sound understanding of the statutory provisions relating to disputes about costs between solicitors and barristers.

It is true, as the solicitor submitted, that, in a long line of cases, s 192 of the Act has been held to be mandatory, in that it is an essential pre-condition of suing for legal costs that a bill of costs was served upon the asserted debtor 30 days before any statement of claim is filed: see Zizza v Seymour [1976] 2 NSWLR 135 at 137 (Moffitt P); Conder v Silkbard [1999] NSWCA 459 at [27] (Beazley JA, with whom Meagher JA agreed.) (In saying that compliance with that section is mandatory, I do not mean to assert that it is incapable of being the subject of waiver or estoppel: see the discussion to that effect from as long ago as 1851 that was referred to with approval in the judgment of Hoeben J in Dennis v Cameron at [38].)

But it is one thing to say that a central provision of the Act with long statutory antecedents is to be interpreted strictly. It is quite another to find that all of the provisions of a regulation designed primarily to protect members of the public is to be interpreted in that way.

In short, even if I be wrong in focusing my analysis upon reg 45(1)(d)(i), and consideration should in truth be given to reg 45(1)(d)(ii), I would nevertheless not find that there was an error of law in the Magistrate failing to come to the view that that latter clause disentitled reliance by the barrister upon the bills of costs.

The third asserted error of law was said to be the analysis by her Honour of reg 45(2)(b). But it can be seen that reg 45(2) cannot operate to avail the solicitor. To the contrary, reg 45(2) sets out a mechanism whereby the barrister could overcome any failings in his bills of costs that pertained to reg 45(1)(e) to (i) inclusive. It follows that the approach of the Magistrate to that clause cannot avail the solicitor on this appeal.

As against the possibility that I am wrong in the whole of the above analysis, I consider that I should very briefly deal with the ancillary submissions of the barrister about estoppel and waiver. The submissions were also advanced by the barrister in the Local Court, but her Honour did not deal with them in the judgment, presumably because the barrister had succeeded on his primary ground. Her Honour did find, however, the following facts at [10] of the judgment:

I was told at the end of the hearing, without demur on behalf of the solicitor, that those actions included with regard to the bills that are the subject of this appeal. In other words, it was not disputed before me on behalf of the solicitor that his appeal asserting errors of law related to fees of a barrister for which the solicitor had invoiced the lay client, on the basis that they were amongst the disbursements of the solicitor.

It is true that s 189 of the Act is as follows:

But that section cannot avail the solicitor: it is speaking of waiver by agreement, not by unilateral conduct. In any event, the fact that the Court of Appeal has confirmed the availability of waiver in Dennis v Cameron in the face of that section demonstrates that it does not have the effect for which the solicitor contended before me.

In those circumstances, I consider that one can say without the need for intricate analysis that a solicitor should be prohibited, whether by way of the doctrine of waiver or of estoppel, from denying his indebtedness to a barrister with regard to legal fees that the solicitor has charged to a lay client on the basis that they are disbursements for which the solicitor is responsible to the barrister. To paraphrase the words of Mason CJ in The Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 at 407, the solicitor has so conducted himself as to be prohibited from raising a particular defence or objection that may (for the purposes of this contingent analysis) otherwise have been available to him.

In other words, even if the entirety of my foregoing analysis of the Act and Regulation is misconceived, I would not permit the solicitor to deny his indebtedness to the barrister, the Magistrate having found that the solicitor had billed the lay client for the very fees of counsel that were in dispute in the Local Court and before me.

In short, I do not consider that any of the asserted errors of law on the part of the learned Magistrate have been made out by the solicitor. It follows that his appeal must be dismissed.

As I have said, the cross-appeal by the barrister is founded upon the refusal of the Magistrate to order the interest claimed. Again, it is convenient to set out the entirety of the judgment in that regard:

It can be seen from the judgment at [14] that, at first instance, the barrister relied upon s 190 of the Act in its entirety.

For completeness, clause 11 of the costs agreement reads as follows:

In her Honour’s analysis, interest was refused on the basis that, in short, reg 45(1)(c) had not been the subject of compliance. So much may be accepted, in that the bills of costs rendered by the barrister did not refer to interest: see Exhibit RDJ-1. But it is clear that the barrister also relied upon s 190(3) of the Act.

It is noteworthy that the Magistrate did not deal in the judgment with this separate basis upon which the interest could be claimed.

In short, the barrister submitted before me that his right to the interest was not founded on the bills, pursuant to s 190(1) and (2) of the Act. Rather, it was founded upon the costs agreement, pursuant to s 190(3). It was said that, in failing to deal with and uphold that submission, the Magistrate had made an error of law.

The solicitor submitted that the bills of costs did not comply with the Regulation with regard to interest on unpaid bills. In light of that, the barrister could not claim the interest in question.

I respectfully reject that submission of the solicitor. That is because, to my mind, the use of the word “also” within s 190(3) makes it clear that that subsection provides a separate mechanism whereby a lawyer may charge the kind of interest in question, even if he or she has not referred to interest in a bill of costs. The use of that word within the section to my mind commands such a reading.

I also consider that that interpretation makes sound sense, in that once a costs agreement has been the subject of acceptance, it would be onerous and unnecessary for each and every bill to need to remind its recipient of the possibility of interest being charged on unpaid costs.

Finally, to my mind the provisions of the Regulation, properly interpreted, are speaking of what a bill of costs must contain for one to be able claim interest based upon the bill. They say nothing about the pre-conditions for claiming interest when that claim is founded upon a costs agreement that explicitly refers to such interest.

In short, I consider that the barrister was entitled to charge and claim the interest in accordance with the costs agreement that her Honour found had been the subject of acceptance by the solicitor. In focusing only upon the bills of costs, and not also (to use the word contained in the relevant subsection) upon the costs agreement, I consider that her Honour made an error of law. That error, I respectfully consider, was founded upon a misapprehension as to the structure of s 190 of the Act, and in particular the interrelationship between subsections 190 (1) and (2) and subsection 190 (3). It follows that the cross-appeal should be upheld.

In short, I have determined that the solicitor has not established that the Magistrate fell into any error of law in entering a verdict for the barrister. In doing so, I have provided a number of contingent analyses in case my primary analysis is wrong.

I have also determined that the Magistrate committed an error of law in finding that the barrister was not entitled to interest up to the date of commencement of proceedings. In doing so, I have determined that there is no basis upon which the solicitor can resist the success of the cross-appeal in that regard.

Before me, the parties agreed that costs should be reserved. I am content to accept that joint submission. The parties should have liberty to approach my Associate within two (2) weeks of today to set a convenient date for a succinct debate about costs.

I would have thought that, assisted by written submissions of no more than four pages on behalf of each party, such a debate should take no more than thirty minutes.

Without making formal orders, I would be obliged if the submissions of the barrister were filed and served one week before the hearing date, and the submissions of the solicitor two days before the same date.

I would also be obliged if, on the next occasion, counsel for the barrister were to provide me with the precise orders, including in terms of quantum, that she submits I should make to give effect to my foregoing analysis.