Welcome to the inaugural Blackstone’s Brief – our monthly eNewsletter. We hope you gain some valuable insights from our experience in legal costing, which we will share each month with contributions from key personnel at Blackstone Legal Costing. Acknowledgements for this edition go to one of our associate solicitors, Chris Grisenti, part of our commercial team in our Melbourne office.
If you want to recover costs from a client, it matters whether your invoices are itemised or lump sum. And yet, the distinction between the two isn’t always as clear cut as you might think.
If you’re looking to recover costs from a client, whether you use a lump sum invoice or itemised invoice matters a lot more than you might imagine. That’s because how a court or tribunal treats an itemised bill differs from how they deal with a lump sum bill.
But what constitutes a lump sum bill and what constitutes an itemised one isn’t always straightforward, as one long-running case proved.
The decision: Smoel & Wooster v Piper Alderman
This case was ultimately decided in early March 2017 after three hearings.
The hearings centred around two trustees of a family superannuation fund, Ms Smoel and Ms Wooster. The two women had taken over from other trustees who had been receiving legal advice from Piper Alderman about obtaining a binding death benefit determination.
Piper Alderman charged the superannuation fund costs of $329,605.22 for their professional advice. They spread across 22 tax invoices with attendant schedules. In 15 of these invoices, Piper Alderman had discounted its professional fees by 50%.
On being appointed, Small and Wooster sought a review of Piper Alderman’s costs under s3.4.38 of the Legal Profession Act 2004 (Vic) (the Act).
Section 3.4.38 allowed either a client or ‘third party payer’ apply to the Costs Court in Victoria to review all, or even part of, a firm’s legal costs.
Did Smoel and Wooster have standing to dispute costs?
Piper Alderman challenged Smoel and Wooster’s right to bring the claim (Smoel & Wooster v Piper Alderman; Smoel & Wooster v DLA Piper  VSC 256 (5 June 2015)). In doing so, it argued it was the former trustees – and not the two news ones – who were its clients for the purposes of s 3.4.38.
McMillan J accepted this argument. However, her Honour found that the claim could still proceed as the trustees were third party payers under the Act because it was the super fund they were responsible for that would be paying Piper Alderman’s legal costs.
Was the bill lump sum or itemised?
This decision was followed by another claim, also heard by McMillan J. This time, Piper Alderman contended that the invoices it had issued to the super fund were lump sum bills under the Act (Smoel & Wooster v Piper Alderman (No. 2)  VSC 237 (12 May 2016)). This meant that before the fees could be reviewed they would need to draw up new, itemised bills of costs.
This distinction was important, because Piper Alderman wanted to charge more professionals fees than they had already billed.
Whether or not they would be successful, depended on how McMillan J interpreted s3.4.2 of the Act, which stated that:
- A lump sum bill means ‘a bill that describes the legal services to which it relates and specifies the total amount of the legal costs’, and
- An itemised bill means ‘a bill that specifies in detail how the legal costs are made up in a way that would allow them to be reviewed under Division 7 of Part 3.4 of the Act’.
This section was also supplemented by the Supreme Court Rules (Supreme Court (General Civil Procedure) Rules 2015 (Vic)), which states that, for itemised bills:
- Charges and disbursements shall be set out in separate columns, and the amounts shall be totalled at the foot of each page and carried to the top of the next page.
- The bill shall contain:
- Items numbered in chronological order describing the work done and stating the amount claimed for the work
- At the conclusion of the chronological description, a description having regard to the matters referred to in Rule 63.48 justifying an allowance under Appendix A of the amount claimed beside that item
- Disclosure of the hourly rates
- The name and position of clerks who performed work.
McMillan J noted that Piper Alderman hadn’t complied with these requirements for an itemised bill. However, her Honour also noted that s17D(3) of the Supreme Court Act 1986 required the court to exercise its discretion with as little formality and technicality as it could.
In light of this, McMillan J reasoned that Piper Alderman’s failure to comply with the requirements of an itemised invoice didn’t automatically mean they had issued a lump sum bill. Instead, failing to comply with the section was an irregularity rather than a nullity.
Her Honour then examined the decisions handed down in Clayton Utz Lawyers v P&W Enterprises Pty Ltd (Clayton Utz Lawyers v P&W Enterprises Pty Ltd  WDC 5) and Ralph Hume Garry v Gwillim (Ralph Hume Garry v Gwillim (CA)  EWCA Civ 1500; (2003) 1 WLR 510). These established that a bill would be considered itemised if there was enough detail in the invoices to enable a client to make an informed decision as to whether they wanted a taxation.
Piper Alderman’s invoices met this threshold. That, in turn, meant the firm was limited to charging for the amounts and matters already set out in its invoices.
Context matters when determining whether a bill is itemised
Not happy with this decision, Piper Alderman appealed to the Victorian Court of Appeal (the VCA). In doing so, it argued that McMillian J:
- Had confused the term ‘itemised bill’ by conflating it’s meaning with procedural requirements, and by construing any bill with more detail than a lump sum bill to be itemised
- Had erred in finding that the attendance schedules to the invoices had sufficient detail to be reviewed, and
- Should have found the invoices were lump sum bills.
Piper Alderman also argued that that the authorities didn’t identify any distinction between the general description of legal services in a lump sum bill, and the detailed information required for an itemised bill.
The firm argued that, in light of this ambiguity, Young J’s statement in Bartex Fabrics v Fox (Bartex Fabrics Pty Ltd v Phillips Fox  13 ACSR 667) should apply. Young J had stated that, “[a] schedule which shows a solicitor spent one hour forty minutes perusing some pieces of paper without identifying the pieces of paper…tells the client absolutely nothing”. (Ibid at 66)
But the VCA bench, Beach and Ferguson JJA and Cameron AJA, disagreed with Piper Alderman’s submissions and dismissed its appeal.
In doing so, the VCA found that McMillian J had correctly considered the definition of a lump sum bill and an itemised bill. The VCA also found that her Honour had also not concluded that any invoice containing more information than a lump sum bill was automatically an itemised one.
The VCA agreed with McMillian J’s view that the Costs Court should take an informal approach and that failing to comply with rule 63.42 was an irregularity, not a nullity.
Importantly, the VCA noted that no court could assess whether there was sufficient detail ‘in a vacuum’. Instead, it needed to take into account how much the invoice recipient knew about the context surrounding the fees charged.
Some final advice on invoicing from the VCA
Finally, the VCA found that “nothing that we have said should be taken as suggesting that a bill in the form delivered by Piper Alderman would always constitute an itemised bill”. (Piper Alderman v Smoel & Wooster  VSCA 42 at 53)
In other words, when it comes to determining whether a bill is itemised or lump sum, every case should be determined subjectively and a court will look at the fullness of the relationship between the parties as well as the circumstances in which any invoices were issued.
Whether a bill is itemised or lump sum matters and yet, it’s not always straightforward. Knowing your options means get expert opinion as early as you can.
Get in touch if you’d like to understand your current situation when it comes to costs.