Australia: Recovery of unpaid legal fees – Complete guide for lawyers in Queensland

Article Summary

This article on the recovery unpaid legal fees is a detailed resource aimed at solicitors and Australian Legal Practitioners in Queensland, on the procedures and legal prerequisites necessary for the recovery of unpaid legal fees from clients.

It underscores the necessity of adhering to a specific set of steps to qualify for fee recovery without undergoing a costs assessment. These steps include the mandatory disclosure of costs, the establishment of a signed client retainer and costs agreement or evidence of such documentation being sent to and accepted by the client, and ensuring that all billing complies with the Legal Profession Act 2007 (Qld) (LPA).

The guide meticulously outlines the minimum requirements that should be included in pleadings when initiating legal actions for the recovery of unpaid professional fees. It stresses the importance of detailing any applicable costs agreement, the procedure of serving the legal costs bill, ensuring compliance with the LPA, and the necessity of serving a 'Notification of client's rights'.

Furthermore, this article on recovery unpaid legal fees discusses the significant implications of the High Court decision in Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29, which delineates that self-represented lawyers or law firms are not entitled to recover their own legal costs.

Additionally, the guide advises on best practices for solicitors in terms of client engagement, the imperative of costs disclosure, the duty of ongoing disclosure, and the formulation of costs agreements to facilitate the seamless recovery of unpaid fees. It also emphasises the critical role of client identification and risk management in the initial stages of engagement to mitigate potential issues in fee recovery. Detailed legal and billing requirements under the LPA are provided, highlighting the need to serve a bill at least 30 days prior to commencing legal proceedings for fee recovery.

Lastly, the guide explores the avenues for commencing debt recovery proceedings in Queensland, offering insight into the options available, including litigation in courts and the Queensland Civil and Administrative Tribunal (QCAT), their respective jurisdictions, and the advantages and disadvantages associated with each route.

This comprehensive guide serves as an essential tool for legal professionals navigating the complexities of recovery unpaid legal fees, offering a clear framework of legal procedures and best practices to ensure a favourable outcome.

Table of Contents

Recovery of unpaid legal fees in Queensland

Are you a solicitor or an Australia Legal Practitioner in Queensland who is owed money from clients and looking at the recovery unpaid legal fees?

To be entitled to the recovery of unpaid legal fees (without a costs assessment having been undertaken), the following steps should have been taken:

1. If applicable, costs disclosure must be made; and
2. Either a client retainer and a costs agreement will have been signed; or if you do not have a signed agreement, proof that a client retainer and costs agreement was sent, and then evidence that acceptance was conveyed; and
3. The bills adhere to ss 329, 330 and 331 of the Legal Profession Act 2007 (Qld) ("LPA").

In an action between a legal practitioner and a client for unpaid professional fees, the following should be pleaded as a minimum:

1. Details of any applicable costs agreement, or the relevant scale of costs, or the basis for calculation of fair and reasonable costs; and
2. Date and means by which a legal costs bill was served, confirming that at least 30 days have passed; and
3. Details of the legal costs bill, which complies with ss 329 and 330 of the LPA; and
4. That a 'Notification of client's rights' has been served (s 331 of the LPA).

If all of these requirements have been adhered to, then an Australian Legal Practitioner must still remember the High Court decision of Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29. Based on this case, a self-represented lawyer or a law firm will not be able to seek to recover their own legal costs.

This is not an article on client engagement generally, nor is it an article on complying with all the sections of the Legal Profession Act 2007, but an article in relation to matters related to the recovery of unpaid legal fees, and the best practices for solicitors.

I am sure most lawyers have been in this situation; a client does not want to pay their bill for legal work performed, and after protracted negotiations a lawyer is at the point where they have to decide whether to write-off the outstanding amount or to start proceedings for recovery of unpaid legal fees.

If a lawyer decides to start legal proceedings, then it is vital that they have followed the correct steps right from the start – from when they were initially engaged by the client, through to every bill sent to the client – otherwise they may have trouble recovering all of their outstanding legal fees.

In this article, our debt recovery lawyers provide detailed information as to the best practices for client engagement and billing in relation to the recovery of unpaid legal fees in relation to:

1. Client identification.
2. Disclosure notices.
3. Making costs disclosure.
4. Duty of ongoing disclosure.
5. Client retainer & costs agreements.
6. Applicable scale of costs.
7. Billing and requirements under the LPA.
8. Commencing legal proceedings; and
9. The enforcement of money orders.

Bell Lawyers Pty Ltd v Pentelow

In relation to the recovery of unpaid legal fees, the High Court of Australia in Bell Lawyers Pty Ltd v Pentelow considered two key issues:

1. Whether the Chorley exception, which allows self-represented solicitors to recover their professional costs, should be recognised as good law in Australia.
2. Whether the Chorley exception should be extended to barristers who represent themselves.

The majority of the High Court held that the Chorley exception should not be recognised as part of the common law in Australia. It followed that the Chorley exception was not extended to barristers.

The Chorley exception is based on the principle that solicitors have a unique skill set that allows them to provide legal services to themselves in a way that is equivalent to the services they would provide to a client. It derived from the English decision of London Scottish Benefit Society v Chorley (1884) 13 QBD 872.

The majority of the High Court held that the Chorley exception could not be justified in modern Australia. The High Court noted that the cost of legal services has increased significantly in recent years, and that many people cannot afford to hire lawyers. The High Court also noted that the Chorley exception can create a conflict of interest for solicitors, as they may be incentivised to represent themselves even when it is not in their best interests to do so.

The High Court's decision in Bell Lawyers Pty Ltd v Pentelow has significant implications for self-represented litigants and for the legal profession. Self-represented solicitors will no longer be able to recover their professional costs if they are successful in litigation for the recovery of unpaid legal fees.

The legal profession will also need to be aware of the potential conflicts of interest that can arise when solicitors represent themselves.

Client Identification

Like with all contracts it is important to clearly identify the contracting party / parties. Whether contracting with a person or a corporate entity, best practice dictates ensuring that as much due diligence as possible is performed prior to engagement.

Risk management is a key part of the client engagement process. The more information you can get in relation to your client, the better it will be if you need to recover your unpaid professional fees.

Check the current status of your client/potential client in your matter, to ensure they are not deregistered, under administration or insolvent/bankrupt. In circumstances where you act for a corporate client, confirm who has authority to provide instructions.

Best Practice – Take the time at the beginning of the engagement process to ensure that you have identified the correct entity. Get copies of their driving licence, passport, title search, ASIC Organisational Extract, bankruptcy search, insolvency search, etc. (if required). You do not want to commence proceedings for recovery of unpaid legal fees against the incorrect party.

Disclosure Notices

There are some serious consequences in relation to the recovery of unpaid legal fees if a legal practitioner fails to give disclosure on costs.

Section 316(2) of the LPA states:

The client or associated third party payer may also apply for the costs agreement to be set aside under s 328 of the LPA. Section 316(4) of the LPA provides that on an assessment of the relevant legal costs, the amount of the costs may be reduced by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose.

If an assessment is made under section 341 of the LPA, the costs of an assessment in these circumstances are generally payable by the law practice.

Section 311 of the LPA sets out exemptions with respect to the requirement to give costs disclosure. There are two (2) main scenarios where costs disclosure may not be needed, they are:

1. If the client is a 'sophisticated client' – s 311(c)&(d) of the LPA;
2. If the total legal costs, excluding disbursements, are not likely to exceed the prescribed amount (currently $1,500.00) – s 311(1)(a) of the LPA and s 70 of the Legal Profession Regulation 2017 (Qld) ("Regulation").

These are the two (2) main reasons, but please read all of the exemptions in section 311 of the LPA.

Best Practice – If you are unsure whether the exemptions under s 311 of the LPA apply, then provide scope (included / excluded with warning of consequences) and costs disclosure.

Making Costs Disclosure

If a law practice is thinking about the recovery of unpaid legal fees, it is important to remember that costs disclosure is required to be made pursuant to s 308 of the LPA. This requires that:

1. Costs disclosure contain all of the relevant information listed at s 308 of the LPA if applicable; and
2. Costs disclosure be made in writing before, or as soon as practicable after, the law practice is retained in the matter – s 310(1) of the LPA; and
3. Costs disclosure be in clear and plain language – s 314(1) of the LPA.

Best Practice – Be mindful of future potential pleadings for the recovery of unpaid legal fees. If disclosure is to be made prior to receiving a signed retainer, email a copy of the compliant disclosure notice before emailing your client agreement. Then this may be pleaded and copies annexed to your affidavit.

Duty of Ongoing Disclosure

Section 315 of the LPA states that a law practice must, in writing, disclose to a client any substantial change to anything included in a disclosure already made under this division as soon as is reasonably practicable after the law practice becomes aware of that change.

The effect of non-disclosure under this section is the same as under s 308, being the triggering of s 316. The Court in Connollys Lawyers Pty Ltd v Davis [2013] QCA 231 found that if the fees for WIP are likely to exceed the estimate in a costs agreement, the solicitor has to give a written update to the client. They found that simply issuing monthly account statements did not constitute disclosure.

This can be seen in Taylor v Kolev [2014] QCAT 50. Ms Taylor charged $3,000.00 but the initial estimate of costs was only $2,000.00. The client only paid the $2,000.00 and Ms Taylor commenced proceedings to recover the remaining $1,000.00. The Tribunal held that the application should be dismissed as there was no further disclosure to the client that would justify fees beyond the original $2,000.00.

Risk – before commencing proceedings for the recovery of unpaid legal fees, you must ensure that the law firm has been compliant with the above regarding disclosure. Failure to do so may trigger 316(2) of the LPA and the debt recovery matter may be dismissed with costs awarded against the law practice or the Australian legal professional; and may also apply under section 328 of the LPA for the costs agreement to be set aside.

Best Practice – At the time each bill is issued, check whether you are approaching the costs estimate provided to the client. Set a bring-up in every matter to provide further disclosure prior to reaching the estimate. This will enable you to correspond with your client in relation to disclosure of ongoing fees, provide a further written estimate of costs, and it means that you do not do additional work that you may not get paid for, or are able to recover.

Client Retainer & Costs Agreements

As a bare minimum, the client agreement should:

1. Be in writing;
2. State that it is an offer to enter into a costs agreement;
3. State that the offer can be accepted in writing or by other conduct; and
4. Set out the type of conduct that will constitute acceptance.

Section 326 of the LPA states that a costs agreement may be enforced in the same way as any other contract. Therefore, your client agreement is the contract you intend to rely on in the event that your client breaches their obligation to pay your professional fees.

As well as the legal requirements under the LPA, when thinking about the recovery of unpaid legal fees, it is important to include debt recovery clauses in your client agreement that may help to facilitate a speedy and problem-free recovery of those outstanding fees and costs.

We recommend that your costs agreement include the following clauses:

1. Payment clause – amount, rate, how charged, what scale etc; and
2. Default clause – define what constitutes a default and the consequences of a default; and
3. Costs clause – in the event of a default under the contract, define recoverable costs; and
4. Interest clause – define the amount of interest claimable upon default.

What if there is no signed costs agreement? What can I recover and how?

In relation to recovery of unpaid legal fees, if there is no signed costs agreement or client agreement then a solicitor's ability to recover costs depends upon the specific circumstances.

If there is evidence that a costs agreement was sent but it was not signed

If you have evidence that you sent a costs agreement but you did not receive an executed copy in return, acceptance of that offer may be inferred by conduct.

Best Practice – add a clause in the costs agreement that acceptance of the offer can be by conduct and define the types of conduct that will constitute acceptance – e.g. giving instructions after receiving the costs agreement.

If there is no evidence that a costs agreement was sent

If there is no valid costs agreement or client agreement; or you are unable to produce evidence to prove the existence of a written costs agreement then a law firm may recover pursuant to s 319(1)(b) and (c) of the LPA.

Section 319 of the LPA states:

Applicable Scale of Costs

Each Court has its own scale of costs, including the state courts and the federal courts.

Magistrates Court, District Court, and Supreme Court Scale

If the jurisdiction of the work performed is the Magistrates Court, District Court or Supreme Court then the scale of costs in Schedule 1 and Schedule 2 in the Uniform Civil Procedure Rules 1999 (QLD) ("the UCPR") will apply. For more on this, read:

1. Bannerot v Waddington [2008] QDC 332.
2. Franklin v Barry & Nilsson Lawyers (No 2) [2011] QDC 55.
3. Paroz v Clifford Gouldson Lawyers [2012] QDC 151; and
4. Turner v Mitchells Solicitors and Business Advisers Qld [2011] QDC 61.

Federal Court Scale

The applicable scale of costs in the Federal Court are allowed under Schedule 3 of the Federal Court Rules 2011 (Cth).

In the Federal Circuit Court, the costs are to be assessed on a fair and reasonable value for the legal services provided. The Federal Court scale of fees in the Federal Court Rules may not apply between your firm and client. Federal Circuit Court Rules 2001 – Rule 21.09 section 3 states:

Fair and Reasonable Value

In relation to the recovery of unpaid legal fees, the criteria for assessment are set out in section 341 of the LPA. This provides:

In considering what is a fair and reasonable amount of legal costs, the costs assessor may have regard to a number of matters mentioned above, including any disclosures made by the law practice, the complexity, novelty and difficulty of the matter, the quality of the work, and the time within which the work was required to be done.

Therefore, in order for the costs to be assessed as closely to the actual amount of work billed, it is vitally important that you keep good filing records for evidence of actual work done.

In Woolf v Willis [1911] HCA 51 Griffith CJ said:

In Gregg Lawyers Pty Ltd & Anor v Farrar (formerly Sweeney) [2014] QDC 194, Judge C. F. Wall QC said:

Best Practice – An assessment of what is fair and reasonable in made on the facts of each matter. To ensure you are able to claim your fees (or as close to the actual fees as possible) it is vital that you keep immaculate records. Who did the work, why the work was done, what was the work done, and details of exactly what work was carried out. This will be vital in Court proceedings for the recovery of unpaid legal fees.

Keep emails, correspondence, detailed file notes, receipts for all disbursements, correspondence in relation to difficulties that arise which may push the costs up.

Billing and Requirements under the LPA

The LPA requires certain billing requirements which if not complied with, may prevent you from recovering all, or part of the outstanding sum.

Section 329 of the LPA provides:

A bill must be given to the client "at least 30 days" before a recovery action can be commenced as per 329 of the LPA.

Best Practice – as your client is entitled to an itemised bill pursuant to s 332 of the LPA within 30 days of receiving a lump-sum bill, it is good practice to send them an itemised bill, with the recovery of unpaid legal fees, you can start the 30 day countdown immediately. Preparation in relation to the commencement of proceedings is vital to maximise your chances of success. This can be done alongside the open letter of demand and the offer of compromise (if any).

A bill must comply with s 330 of the LPA. This provides:

To summarise, a bill must be:

1. Lump sum or itemised;
2. Signed by lawyer or employee at your firm, or enclosed with a letter signed by lawyer or employee at your firm;
3. Given to the person, pursuant to s 330(5) of the LPA unless the client requests the bill be given electronically (which is permissible if your client agreement includes a clause where your client expressly consents to being billed electronically).

A bill must also comply with s 331 of the LPA. This provides:

Included on the bill, or as a separate statement accompanying your bill, you must provide a written statement as described above.

Commencing Debt Recovery Proceedings

There are two main options in Queensland for the recovery of unpaid legal fees, they are:

1. Suing in the Court with jurisdiction; and
2. Suing in the Queensland Civil and Administrative Tribunal("QCAT").

The jurisdiction of these courts and tribunals are:

1. QCAT– small claims of up to $25,000.00
2. Magistrates Court– claims up to $150,000.00
3. District Court– claims up to $750,000.00
4. Supreme Court– claims over $750,000.00

There are pros and cons for commencing proceedings for the recovery of unpaid legal fees in a Tribunal or commencing proceedings in the Court.

Advantages and Disadvantages of Commencing Proceedings in QCAT

The advantages of commencing proceedings in QCAT are:

1. It is a lot less expensive than commencing in the Court; and
2. The process can be a lot quicker than the Court; and
3. QCAT is designed for self-represented people.

The disadvantages of commencing proceedings in QCAT are:

1. The minor debt jurisdiction is mostly a no costs jurisdiction. This means that you will not be able to recover your costs save for a few designated items; and
2. Legal representatives do not have an automatic right of appearance. This means that if you want debt recovery solicitors to appear at a QCAT hearing, you will need the leave of the tribunal, which is not always given; and
3. The minor debt jurisdiction is capped at $25,000.00.

Because of the costs issue stemming from Bell Lawyers Pty Ltd v Pentelow, if a law practice were going to seek the recovery of unpaid legal fees then it may be a better option to commence proceedings in QCAT.

However, if the law practice is going to pay a third party solicitor or law firm, then it may be a better option to commence in Court.

Advantages and Disadvantages of Commencing Proceedings in the Court

The advantages of commencing proceedings for the recovery of unpaid legal fees in the Court are:

1. It is a legal process, with judicial officers who understand the law. It is less likely that you will get a non-typical result (as can happen in QCAT).
2. You can use debt recovery lawyers to maximise your chances of successfully obtaining your desired outcome.
3. You are able to claim costs, either standard costs or indemnity costs of commencing the proceeding.

The disadvantages of commencing proceedings in the Court are:

1. It can be more expensive than QCAT;
2. It can take longer to reach your desired outcome if they defend proceedings.

If you were going to engage debt recovery lawyers, then proceeding in the Court may be a better option because you can claim some legal costs.

Read more here – Debt Recovery Solicitors.

Getting an Enforceable Money Order

The purpose of legal proceedings for the recovery of unpaid legal fees is to obtain an enforceable money order.

Rule 793 of the UCPR says:

Section 131 of the Queensland Civil and Administrative Tribunal Act 2009 (Qld) says:

So, if you have an enforceable judgment or money order from the Court, or you have registered your QCAT decision in the Court with jurisdiction, and your debtor still will not pay, then you can commence enforcement proceedings to enforce the money order. Our debt recovery solicitors can do all of this for you.

Enforcement of money orders – what are my options?

In relation to the recovery of unpaid legal fees, if you get an enforceable money order in your favour then you can take steps to enforce that judgment / order.

Steps that may be taken to enforce a judgment against a debtor include:

1. Enforcement hearing to attempt to extract from the debtor information regarding its financial position; or
2. Apply to the Court for the issue of one of the various types of enforcement warrant; or
3. Serve the debtor with a statutory demand or bankruptcy notice.

We will explain a little more in detail below.

Attempting to Extract Information Regarding the Debtor's Financial Position

This enforcement option is strictly an information gathering exercise. If the debtor provides documents showing any assets they own, the equity in those assets, and details of any debts owed to them, this method of enforcement has achieved its purpose.

The first step is to give the debtor a written notice requiring them to complete a sworn statement of financial position pursuant to rule 807 of the UCPR.

The debtor will have fourteen (14) days from receiving the notice to complete and return it. If the debtor is a person, then it will be directed at them personally, or if it is a company then it will be directed at the company director(s).

If you are not satisfied with the contents of the completed statement of financial position, or the debtor does not return one at all, you can then apply to the Court for an enforcement hearing summons order pursuant to rule 808 of the UCPR.

An enforcement hearing summons order is a Court order requiring a debtor (or a director of the company debtor) to complete a statement of financial position (if they have not done so), produce substantial documents regarding their financial position, and appear in Court for the purpose of being cross examined about their financial position.

The enforcement hearing can proceed no earlier than fourteen (14) days after the enforcement hearing summons order is served.

An enforcement hearing summons may be directed to:

1. an enforcement debtor; or
2. if an enforcement debtor is a corporation—an officer of the corporation; or
3. if an enforcement debtor is a partnership—a partner or a person who has or had the control or management of the partnership business in Queensland.

An enforcement hearing summons may be served on the person to whom it is directed personally or by prepaid ordinary post.

If a debtor is served with an enforcement hearing summons order at least fourteen (14) days before the date set for the enforcement hearing, but does not attend the hearing, the Court may issue a warrant for their arrest.

In Remely v. Vandenberg & Ors [2010] QCA 214, Otto Remely (the appellant) appealed against an order of a judge in the trial division, which found him guilty of contempt of court and sentenced him to imprisonment for six months. The contempt of court was based on the appellant's failure to comply with an order to appear at an enforcement hearing and produce certain documents, as well as his refusal to answer relevant questions during the hearing.

The appeal was dismissed on all grounds, including the challenge to the appellant's sentence and the validity of the enforcement hearing and related orders, with the court emphasising the importance of complying with court orders and the serious nature of contempt of court.

Issuing an Enforcement Warrant

The three (3) main types of enforcement warrants that can be issued to enforce a judgment are:

1. Enforcement warrants for seizure and sale of property; and
2. Enforcement warrants for redirection of debts.

If the enforcement debtor is a natural person, then also:

1. Enforcement warrants for redirection of earnings.

Enforcement Warrant for Seizure and Sale of Property

To issue a warrant for seizure and sale of property for the recovery of unpaid legal fees, the Court will need evidence showing what property is owned by this debtor and the equity in that property.

Searches of the online records of the Queensland land titles registry will reveal if the debtor owns real property in Queensland.

The steps needed for a warrant for seizure and sale of property include:

1. A creditor will need an enforceable money order;
2. The creditor must complete an application – Form 9;
3. The creditor must complete the draft warrant – Form 75;
4. The creditor must complete a statement in support of the application – Form 74;
5. The creditor will then need to provide the warrant to the enforcement officer for enforcement by one of the various enforcement options.

Read more here – Enforcement Warrant for Seizure and Sale of Property.

You can apply for this enforcement warrant requiring the enforcement officer to visit this debtor's home or principal place of business to make enquiries about whether there are any assets owned by the debtor that can be seized and sold. However, in our experience, debtors rarely voluntarily reveal to the Court's enforcement officer what assets they own that can be seized.

Enforcement Warrant for Redirection of Debts

Rule 840(1) of the UCPR says:

For the Court to issue an enforcement warrant for redirection of debts for the recovery of unpaid legal fees, the creditor will need:

1. An enforceable money order;
2. An application – Form 9;
3. A draft warrant – Form 76;
4. A statement in support of the application – Form 74; and
5. To serve the debtor and the third person.

Once issued, the warrant must be served on the third person who owes the debt to the judgment debtor. The warrant is valid for one year after issuance.

If the third person does not comply with the warrant, the creditor has the same rights to enforce the debt as the debtor had.

Read more here – Enforcement Warrant for Redirection of Debts.

If your debtor client is a natural person then you can also apply for an enforcement warrant for redirection of earnings.

Enforcement Warrant for Redirection of Earnings

Rule 855(1) of the UCPR says:

For the Court to issue an enforcement warrant for redirection of earnings for the recovery of unpaid legal fees, the creditor will need:

1. An enforceable money order;
2. An application – Form 9;
3. A draft warrant – Form 78;
4. A statement in support of the application – Form 74;
5. A notice to employer for redirection of earnings – Form 79;
6. A notice that debtor is not an employee – Form 80; and
7. To serve the debtor and the debtor's employer.

The court has discretion in issuing the warrant. It considers factors like the debtor's employment status, ability to satisfy the debt, and the impact of the warrant on the debtor's living expenses and liabilities.

This statement must provide evidence required by the court to issue the warrant, including details of the money order, payments made, costs incurred, and interest due, and the debtor's employment details.

The warrant must be served on both the debtor and the employer. The employer is given instructions on how to comply with the warrant.

Read more here – Enforcement Warrant for Redirection of Earnings.

Serving the Debtor with a Statutory Demand

In relation to the recovery of unpaid legal fees, and as outlined above, if your debtor is a company which owes a debt of $4,000.00 or more, then you have the option to serve this debtor with a statutory demand for payment of the debt under section 459E of the Corporations Act 2001 (Cth).

If this debtor is served with a statutory demand, it will have twenty one days to:

1. Comply with the demand (pay, secure, or compound for the debt); or
2. Apply to the Court for an order setting the demand aside.

If the statutory demand is not set aside and the debtor does not comply with it, then the debtor is presumed to be insolvent for three (3) months. While the debtor is presumed to be insolvent, you may apply to wind it up on the grounds of insolvency.

If the debtor is forced into liquidation, its liquidator(s) will sell all of its assets to raise money in an attempt to make a distribution to creditors.

The costs of an application to wind up a debtor company on the grounds of insolvency are recoverable from the pool of funds realised in the liquidation in priority to the liquidator's fees.

Read more here – Statutory Demand – Complete Guide

Serving the debtor with a Bankruptcy Notice

In relation to a judgment for the recovery of unpaid legal fees, if a debtor is a human (not a company) and owes a judgment debt of over $10,000.00 then a creditor can may be able to apply to bankrupt the debtor. This requires establishing that debtor has committed an act of bankruptcy.

The most common act of bankruptcy is failing to comply with a bankruptcy notice. This notice is issued by the Australian Financial Security Authority ("AFSA") and then served on the debtor.

Once served, the debtor will have 21 days to do any of the following:

1. pay to the creditor the amount of the debt claimed; or
2. make arrangements to the creditor's satisfaction for settlement of the debt; or
3. apply to set aside the bankruptcy notice.

If the judgment debtor does not do any of these things, then they will commit "an act of bankruptcy". Using this act of bankruptcy, the creditor can apply for a sequestration order (making the debtor bankrupt).

Read more here – What is a Bankruptcy Notice?

Key Takeaways

In relation to the recovery of unpaid legal fees, following best practice guidelines in relation to client engagement, contract formation and billing will greatly increase your chances in recovering unpaid professional fees.

Keeping good records and accounts will increase your chances of being paid as close to your actual fees as possible in the event that your claim is disputed or the costs are assessed.

Of course, prevention is better than cure – and getting your client to transfer funds into your trust account on account of professional fees and disbursements will prevent the need to sue your clients.

Finally, it is important to remember that following Bell Lawyers Pty Ltd v Pentelow the lawyer or law firm will only be able to seek costs if they engage debt recovery solicitors to recover these debts.

Recovery of Unpaid Legal Fees – FAQ

This FAQ section provides insights into the complexities of legal billing, pleadings, and the recovery of solicitors' professional fees in Australia. It addresses common queries related to the process, legal requirements, and best practices for solicitors in managing and recovering unpaid legal fees.

What are the prerequisites for a solicitor to recover legal fees?

To recover legal fees, a solicitor must first ensure proper costs disclosure to the client. This involves having a signed client retainer and costs agreement, or evidence of acceptance if no signed agreement exists. The bills must adhere to sections 329, 330, and 331 of the Legal Profession Act 2007 (Qld). These steps are crucial to establish the solicitor's entitlement to the fees and to comply with legal standards.

What should be pleaded in an action for the recovery of unpaid legal fees?

In legal actions for unpaid fees, solicitors must include specific details in their pleadings. These include the nature of any costs agreement, the date and method of serving the legal costs bill, and confirmation that at least 30 days have passed since service. Additionally, details of the legal costs bill and evidence of serving a 'Notification of client's rights' under section 331 of the LPA are required. This ensures transparency and adherence to legal protocols.

How does the Bell Lawyers Pty Ltd v Pentelow decision impact solicitors?

The Bell Lawyers Pty Ltd v Pentelow decision is a significant High Court ruling that affects self-represented lawyers and law firms. It states that self-represented lawyers cannot recover their own legal costs in litigation. This decision marks a departure from the previously accepted Chorley exception and has major implications for solicitors representing themselves. It underscores the need for solicitors to be aware of potential conflicts of interest and the cost implications of self-representation.

What is the importance of client identification in legal billing?

Proper client identification is a critical step in the legal billing process. It involves conducting due diligence to verify the client's legal status and authority, especially in cases involving corporate entities. This process helps in risk management and is vital for the successful recovery of unpaid fees. Failure to accurately identify clients can lead to complications in enforcing payment agreements.

What are the consequences of failing to give costs disclosure?

Failing to provide proper costs disclosure can have serious legal consequences. Under section 316(2) of the LPA, a law practice that fails in this regard may not be able to maintain proceedings against the client for the recovery of legal costs, unless the costs have been assessed under division 7. This underscores the importance of transparency and adherence to legal requirements in the billing process.

What are the exemptions from the requirement to give costs disclosure?

There are specific scenarios where costs disclosure may not be necessary. These include cases where the client is considered a 'sophisticated client' or when the total legal costs, excluding disbursements, are unlikely to exceed $1,500.00. However, solicitors should carefully consider these exemptions and err on the side of providing disclosure to avoid legal complications.

What constitutes effective ongoing disclosure?

Ongoing disclosure involves informing the client of any substantial changes to previously made disclosures as soon as practicable. This is a legal requirement and a key aspect of maintaining transparency in the solicitor-client relationship. Failure to provide ongoing disclosure can lead to legal challenges in recovering fees and may damage the solicitor's credibility.

What are the essentials of a client retainer and costs agreements?

A client retainer and costs agreement should be in writing and clearly state that it is an offer to enter into a costs agreement. It should specify how the offer can be accepted, either in writing or by other conduct, and outline the type of conduct that constitutes acceptance. These agreements form the contractual basis for the solicitor-client relationship and are crucial for enforcing payment of fees.

What if there is no signed costs agreement?

In the absence of a signed costs agreement, a solicitor's ability to recover costs depends on the specific circumstances. If there is evidence that a costs agreement was sent but not signed, acceptance may be inferred by the client's conduct. However, if no evidence of a sent costs agreement exists, recovery may proceed under section 319(1)(b) and (c) of the LPA, based on the fair and reasonable value of the legal services provided.

How are legal costs assessed?

Legal costs are assessed based on several criteria, including the reasonableness of carrying out the work, the manner in which the work was carried out, and the fairness and reasonableness of the costs in relation to the work. The assessment also considers compliance with the LPA, the complexity of the matter, and the quality of the work done. This process ensures that the fees charged are justifiable and in line with legal standards.

What are the billing requirements under the LPA?

The LPA mandates specific requirements for billing, including providing a lump sum or itemised bill, ensuring the bill is signed by a lawyer or employee of the law firm, and including a notification of the client's rights. Compliance with these requirements is essential for the lawful recovery of fees and to avoid legal challenges in the billing process.

What steps should be taken before commencing proceedings for recovery of unpaid legal fees?

Before initiating debt recovery proceedings, it is crucial to ensure compliance with all disclosure and billing requirements under the LPA. This includes providing proper costs disclosure, issuing compliant bills, and preparing for potential legal challenges. Adherence to these steps maximises the chances of successful fee recovery and minimises legal risks.

What are the options for enforcing money orders?

To enforce money orders, solicitors can attempt to extract financial information from the debtor, apply for various types of enforcement warrants, or serve the debtor with a statutory demand or bankruptcy notice. These steps are part of the enforcement process and are aimed at securing payment of the owed fees.

What is the significance of the Chorley exception in Australian law?

The Chorley exception, which previously allowed self-represented solicitors to recover professional costs, is no longer recognised in Australian law. This change, established by the Bell Lawyers Pty Ltd v Pentelow decision, reflects the evolving legal landscape and the need for fairness and transparency in legal billing practices.

How can solicitors ensure compliance with legal billing and debt recovery regulations?

To ensure compliance, solicitors should adhere to best practices in client engagement, maintain detailed records, and stay informed about legal precedents and changes in law. They should also ensure strict adherence to LPA requirements in billing and client communication. This proactive approach helps in effective debt recovery and upholds professional standards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.