By Russell Cocks, Solicitor
First published in the Law Institute Journal
Receipt of a rescission notice is often a time of great stress in a conveyancing transaction. Such a notice is issued when a party defaults in performance of a contractual obligation (usually settlement) and gives the defaulting party 14 days to remedy the default. The party issuing the notice is entitled to claim costs (including legal costs) arising out of the default. What do you do if the legal costs claimed appear to be excessive?
Some practitioners appear to regard the opportunity to issue a rescission notice on behalf of their client as the legal equivalent to winning Tattslotto; however the right to claim costs in respect of rescission is subject to the normal rules governing costs generally, and so the defaulting party will only be liable to pay to the vendor a reasonable amount in respect of cost arising from the default and issue of the rescission notice.
The assessment of these costs commences at the point of default, when the solicitor for the non-defaulting party begins to take action that would not have been required if the matter had have proceeded in the normal manner. Costs must be calculated on an item remuneration basis (unless otherwise agreed), and thus there is an objective yardstick. These additional costs might be expected to include:
- attendance/letter upon/from defaulting party to be informed of default;
- attendance/letter upon/to client informing of default and seeking instructions;
- issue of rescission notice and service; and
- attendance/letter upon/to client to advise that default remedied.
The defaulting party is obliged to pay for the costs of the other party that result from the transaction ‘running off the rails’ and any costs associated with getting it back ‘on the rails’, but not for those matters that comprise the normal steps taken by the parties in a conveyancing transaction. Once the default is remedied the parties organise settlement in the normal way and these attendances are a normal part of the conveyancing transaction.
The above scenario envisages a quick ‘return to the rails’ and, on an item remuneration basis, it would be difficult to imagine the additional work required as a result of the default adding up to more than $200 or so. However, the process is rarely as smooth as this. Generally there are a number of additional attendances after issue of the rescission notice and before return to normality that cannot be strictly costed at the time the rescission notice is issued as they have not yet been incurred. For this reason there is a generally accepted allowance of $400 for costs on a rescission notice that allows for a reasonable level of consultation with the client before issue of the notice and a reasonable level of attendances after issue of the notice and before final settlement. There is not much science involved in this rule of thumb, but it does provide a good practical solution to a situation that often needs to be resolved in a stressful, time-poor environment.
No doubt there are particular cases where an amount in excess of $400 is justified. If the defaulting party vacillated before default, resulting in additional attendances by the nondefaulting party’s solicitor or if the
‘re-railing’ process involves many additional attendances, then the non-defaulting party might claim a higher amount. However the guiding principle must always be item remuneration, and it is not just a matter of plucking a figure from the sky. The client is entitled to be consulted and kept informed, but a client who rings every hour on the hour to inquire about progress cannot expect to have the costs arising from those attendances reimbursed. Likewise, a solicitor who rushes off to counsel for advice and draws documents that end up being superfluous may not be entitled to claim those costs.
If a claim for costs is made in a fairly typical scenario that the defaulting party believes to be excessive, it is recommended that the defaulting party offer to pay the generally accepted figure of $400 (or such other amount that may appear reasonable) without the need for more than a lump sum bill. However, if this offer is not accepted, the defaulting party cannot allow the issue of costs to further delay settlement and ought to settle by paying the amount claimed and, at the same time, request an itemised bill in accordance with Legal Profession Act s 3.4.36 and indicate that an application to review the bill will be made to the Taxing Master after settlement, in accordance with s 3.4.38.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.