Opinion

Withdrawing and substituting issued bills of costs: can it be done?

16th Mar 2017

Solicitors have many responsibilities to their clients, highlighted by the introduction of the Legal Profession Uniform Law 2015 (NSW) (the Uniform Law) which increased solicitors’ disclosure obligations, in particular by imposing an obligation on solicitors to take all reasonable steps to satisfy themselves that the client has understood and given consent to costs disclosures made: the Uniform Law s174(3).

This article focuses on the rights of solicitors. In particular, whether or not solicitors have the right to withdraw an invoice issued to their client and substitute it with an itemised bill of costs claiming higher fees than the original invoice.

This situation often arises during costs assessments or negotiations as to costs: a client challenges an invoice issued to them on a lump sum basis and the solicitor responds with an itemised bill (including additional fees either previously discounted or not charged at all). Such an itemised bill may, for example, add attendances undertaken by paralegals or attendances undertaken after hours not previously invoiced.

This situation can arise regardless of whether or not a client has paid any fees towards the original invoice.

GENERAL RULE

The general rule at common law is that, in the absence of a court order or the consent of the client, a solicitor is not entitled to withdraw a bill of costs once issued to a client and substitute the bill for an increased amount: Loveridge v Botham 1797 ENG R 463. Bowen CJ summarised the rule in Florence Investments Pty Limited v H G Slater & Co (1975) 2 NSWLR 398 (Florence Investments) at 401:

‘If a bill of costs is sent to the client without any condition being stated, then the solicitor cannot, in the case of a taxable bill, afterwards withdraw it and send in an amended bill.’

The qualification ‘taxable bill’, or ‘assessable bill’ since deregulation, is important and is  discussed later in this article.

Hoare J in Re Edwin Sutherland & Co's Bill of Costs (1971) Qd R 318 (Re Edwin) at 322 clarified the policy behind this general rule as follows:

’Undoubtedly, one of the reasons for this approach is that were it not for some such general rule, it might well be open to solicitors to act oppressively in particular circumstances.

Tadgell J made a similar observation in Redfern v Mineral Engineers Pty Ltd [1987] VR 518, at 523.

EXCEPTIONS

Most general rules have exceptions, as does this rule. Well-established case law highlights circumstances in which solicitors have been able to, and still can, withdraw an invoice (however itemised) and substitute it with a bill of costs seeking greater fees. Such circumstances arise when:

  1. there is a contractual arrangement between the parties entitling the solicitor to withdraw the bill of costs and substitute a larger Bill of Costs: Re Thompson (1885) 30 Ch D 441 (Re Thompson); Gorczynski v Beilby (2005) NSWSC 884 (Gorczynski v Beilby);
  2. a reservation is made by the solicitor in the lump sum bill that if the client requires an itemised bill the solicitor shall be entitled to withdraw the bill of costs and substitute a larger taxable bill of costs: Florence Investments; Gorczynski v AWM Dickinson & Son (2005) NSWSC 277; Legal Profession Uniform General Rules 2015 (the General Rules) (NSW) r74;
  3. there are clear errors or real omissions as a result of, for example, fraud: Re Thompson; Bowen & Ors v Campbell & Ors (unreported, Master Malpass, 2 December 1997) (Bowen & Ors);
  4. a bill is not in taxable form, thus entitling the solicitor to withdraw that bill and replace it with a bill in taxable form: Florence Investments.

Exceptions 1 and 2: Contractual arrangement and reservation of rights

In Gorczynski v Beilby, Kirby J confirmed (at [59]) that the general rule on substitution of bills is subject to the qualification that a solicitor and their client may contractually seek to provide otherwise. However, this is subject to the court's power to strike down a condition which is unfair.

The rule accepted by the courts in Re Thompson and Florence Investments in relation to a reservation of rights clause is as follows:

‘A solicitor may, when sending in his bill of costs to his client, reserve to himself the right to withdraw or alter it on condition, provided the condition is fully and clearly stated to the client: but if the solicitor has sent in his bill without any condition, or with a condition which he could not fairly impose, he cannot afterwards withdraw it or send in an amended bill.’

The solicitor’s right to a reservation of rights clause is now protected by r74 of the new Legal Profession Uniform General Rules 2015 (NSW).

Exception 3: Clear errors or real omissions (special circumstances)

The third and the fourth exceptions   cause the majority of misunderstandings in this area.

In Re Edwin and in Re Holroyde and Smith (1881) 43 LT 722 (Re Holroyde), the court said that there must be special circumstances to entitle a solicitor to withdraw one bill and substitute another: such as fraud, accident or mistake. This approach was confirmed in Bowen & Ors.  

Examples of special circumstances are provided by Jessel MR in Re Holroyde  :

‘…when the solicitor has been entrapped into making charges by the misrepresentations of his client or in the case of accident, where a charge or a page had been inserted [or omitted] by mistake; but special circumstances there must be.’

The importance of there being a ‘bona fide mistake’ in order to qualify as a special circumstance is explored in Re Walters (1845) 9 Beav 299; Marshall v Oxford (1832) 5 Sim 456; Re Holroyde; and Re Negus [1895] 1 Ch 73.

One costs assessor has recently determined that failure by a law firm to set up a system to capture all time spent with respect to the work carried out for a client is not a special circumstance.

A special circumstance arises when there has been a clear error or real omission or an occurrence beyond the control of the law practice exercising reasonable care.

Exception 4: Withdrawing a bill not in taxable form

The general rule as stated in Loveridge v Botham contains the qualification ‘taxable’ bill, a term appropriate to the days when bills were taxed before the Registrar. Bills are now assessed by court-appointed costs assessors and the rule is now applied to ‘assessable’ bills.

Kirby J in Gorczynski v Beilby held that costs assessors retain authority to determine whether or not a bill of costs is in assessable form, and whether or not a solicitor is entitled to withdraw one bill and reissue another in assessable form.

This can create issues for solicitors, as criteria as to whether or not their original bill is in assessable form are unclear and can vary depending on the circumstances of each matter.

What is a Bill of Costs? And is it in assessable form?

Neither the Uniform Law nor its predecessor, the Legal Profession Act 2004 (NSW) (the LPA), specify what constitutes a bill in assessable form. Section 198 of the Uniform Law (and ss350 and 352 of the LPA) permits an application to be made by either a client or a law practice for an assessment of the whole or any part of the legal costs payable or paid to the law practice. Normally this is done by annexing a bill of costs to an application for assessment of costs.

Section 186 of the Uniform Law ensures that bills may be in the form of either a lump sum bill or an itemised bill, as did its predecessor equivalent, s332 of the LPA. Regulation 5 of the General Rules defines a lump sum bill in similar terms to s302 of the LPA, as ‘a bill that describes the legal services to which it relates and specifies the total amount of the legal costs’. An itemised bill is further defined as ‘a bill that specifies in detail how the legal costs are made up in a way so as to allow costs to be assessed’.

Neither provision requires an application for assessment of costs to be made by way of a bill of costs ‘in assessable form’. Any bill, whether itemised or lump sum, will be considered assessable so long as sufficient detail is specified so as to allow costs to be assessed.

The now repealed reg111B of the Legal Profession Regulation 2005 (NSW) did prescribe the contents of an itemised bill, including the dates and amounts for each attendance and whether attendances were by letter, telephone, perusal, drafting, conference, etc. As this prescription has not been carried over into the new General Rules, the decision of Florence Investments (in relation to a solicitor’s right to substitute a bill not in assessable form) now has far less, if any, relevance.

Of course, the more detailed a bill of costs, the easier it is for the costs assessor to determine whether or not costs were reasonably incurred, carried out in a reasonable manner and were fair and reasonable, thereby increasing the chances for maximum costs recovery.

CONCLUSION

Exceptions to the general rule, permitting substitution of invoices with itemised bills in higher amounts than previously invoiced, remain important. Contractual arrangements, reservations of rights and remedies where clear omissions or errors have occurred assist the solicitor to ensure full fee recovery.

Claims that a detailed invoice is not in assessable form may not satisfy costs assessors who consider sufficient detail has been specified, when coupled with a review of the solicitor’s file in the matter, to enable an invoice to be assessed.

The Florence Investments exception appears to have been superseded by an increase in costs assessors’ discretion by default, with the absence now of a prescription for the content of a bill of costs. How frequently this discretion will be exercised in the future is an open question.

 

Dipal Prasad is an associate at Blackstone Legal Costing, one of the largest legal costing firms in Australia with experienced costs lawyers and consultants in Sydney, Melbourne and Brisbane. Dipal is committed to maximising costs recovery for successful parties in litigation and minimising costs liability for unsuccessful parties.

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