AustLII Home | Databases | WorldLII | Search | Feedback

Precedent (Australian Lawyers Alliance)

You are here:  AustLII >> Databases >> Precedent (Australian Lawyers Alliance) >> 2016 >> [2016] PrecedentAULA 72

Database Search | Name Search | Recent Articles | Noteup | LawCite | Author Info | Download | Help

Alexander, Phillipa --- "Costs disclosure under the Legal Profession Uniform Law (NSW)" [2016] PrecedentAULA 72; (2016) 137 Precedent 7


COSTS DISCLOSURE UNDER THE LEGAL PROFESSION UNIFORM LAW (NSW)

By Phillipa Alexander

Part 4.3 of the Legal Profession Uniform Law (NSW) (LPUL) deals with legal costs and div 3 of that part deals with costs disclosure.

Two of the objectives of pt 4.3 are to ensure that clients of law practices are able to make informed choices about their legal options and the costs associated with pursuing those options; and to ensure that law practices do not charge more than fair and reasonable amounts for legal work.

Part 4.3 does not apply to commercial or government clients as defined in s170 LPUL, so disclosure under div 3 is not legally required for such clients. Included in the definition of ‘commercial or government client’ is ‘a law practice’, where the law practice itself is a client of the law practice undertaking the work.

LEGAL COSTS MUST BE FAIR AND REASONABLE

One of the fundamental precepts of pt 4.3 is contained in s171 LPUL, which provides that a law practice must charge costs that are no more than fair and reasonable in all the circumstances and that, in particular, are:

(a) proportionately and reasonably incurred; and

(b) proportionate and reasonable in amount.

Section 171(4) provides that a costs agreement is prima facie evidence that legal costs disclosed in the agreement are fair and reasonable if:

(a) the provisions of div 3 relating to costs disclosure have been complied with; and

(b) the costs agreement does not contravene, and was not entered into in contravention of, any provision of div 4.

TIMING OF DISCLOSURE

Written disclosure must be made ‘when or as soon as practicable after instructions are initially given in a matter’.[1] What constitutes ‘as soon as practicable’ will depend on the circumstances; however, to avoid dispute and the consequences of non-disclosure, disclosure should be made as soon as possible after instructions are received to act in a matter, and before substantive work on the matter is undertaken.

Disclosure made by letter dated five days after the client first instructed the solicitor was held to comply with s3.4.11 of the Legal Profession Act 2004 (Vic) in Best Hooper v Christie (Legal Practice),[2] with Senior Member Howell finding:

‘The provision of information about costs does not take place in a vacuum. It is necessary for a lawyer to ascertain what work might be required before giving information about costs, particular an estimate of the amount of the fees likely to be charged. Having conferred with Mr Christie, and then made enquiries as agreed, Best Hooper immediately provided information about costs. I find that it provided that information as soon as practicable.’

Written disclosure made seven days after the client sought urgent advice in conference was also held to comply with s3.4.11 of the Legal Profession Act 2004 (Vic) in Greene v Lewis Holdway Pty Ltd (Legal Practice).[3] However, disclosure made only 10 days after the initial conference at which the law practice was retained was held not to comply with s3.4.11 of the Legal Profession Act 2004 (Vic) in Mazoski v Rennick and Gaynor (Legal Practice).[4]

Disclosure made approximately six weeks after the retainer commenced was also held not to comply with s3.4.11 of the Legal Profession Act 2004 (Vic) in Smitzis v Slater & Gordon (Legal Practice),[5] with the Victorian Civil and Administrative Tribunal (VCAT) finding that the estimate could have been given at the commencement of the retainer notwithstanding the solicitor's submission that further information was required to enable an estimate to be given.

While parties can contract for a costs agreement to have retrospective effect, it cannot operate to render compliant non-compliance with a law practice's disclosure obligations.[6] The authorities are consistent that where disclosure is made many months after the retainer commenced, there is non-compliance with the requirement to make disclosure ‘as soon as practicable’.[7]

The timing of disclosure assumes additional importance under the LPUL, as s178(1)(a) provides that a costs agreement is void if a law practice contravenes the disclosure obligations of Part 4.3. However, in certain circumstances, r72A of the Legal Profession Uniform General Rules 2015 (NSW) (LPUGR), discussed further below, may operate to enable rectification of non-compliant disclosure.

INFORMATION TO BE DISCLOSED

The likely amount of the total legal costs will determine the nature of disclosure:

1. Where the total legal costs in the matter (excluding GST and disbursements) are not likely to exceed a lower threshold, which is currently $750, disclosure is not required to be made under s174(1) LPUL although the law practice may nevertheless choose to provide the client with the uniform standard disclosure form referred to in s174(5). If the law practice becomes aware (or ought reasonably to become aware) that the total legal costs (excluding GST and disbursements) are likely to exceed the lower threshold, the law practice must inform the client in writing of that expectation and make disclosure in accordance with s174(1) or s174(5) where the costs are not likely to exceed a higher threshold.[8]

2. Where the total legal costs in the matter (excluding GST and disbursements) are not likely to exceed a higher threshold, which is currently $3,000, full disclosure may be made under s174(1) LPUL, or disclosure may be made by providing the client with the uniform standard disclosure form. The form for solicitors and other law practices (except barristers) is Form 1 in sch 1 to the LPUGR,[9] with the prescribed form for barristers being Form 2 in Schedule 1. Similarly, if the law practice becomes aware (or ought reasonably to become aware) that the total legal costs (excluding GST and disbursements) are likely to exceed the higher threshold, the law practice must inform the client in writing of that expectation and make disclosure in accordance with s174(1) of the LPUL.

3. Where the total legal costs in the matter (excluding GST and disbursements) are likely to exceed the higher threshold, disclosure must be made in accordance with s174(1)(a), s174(2)(a) and s174(3).

The main disclosure requirement is found in s174(1)(a), namely:

‘A law practice must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs’

and the information referred to in s174(2).

“legal costs" means-

(a) amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services; or

(b) without limitation, amounts that a person has been or may be charged, or is or may become liable to pay, as a third party payer in respect of the provision of legal services by a law practice to another person-

including disbursements but not including interest.’[10]

‘Total legal costs’ are no longer defined in the LPUL.[11]

The basis on which costs can be calculated appears relatively straightforward; usually on an hourly rate basis or a lump sum basis. One of the issues that may arise is where the disclosure names practitioners and their various charge-out rates, and new practitioners or support staff who are not named in the disclosure then undertake some of the work without the disclosure having been updated. To overcome this issue, disclosure of rates according to position rather than name may be appropriate.

ESTIMATE OF COSTS

The estimate of costs gives rise to disputes as to the fairness and reasonableness of the costs and also to the question of proper disclosure. Section 174(1) requires disclosure of ‘an estimate of the total legal costs’. In contrast to the former Legal Profession Act 2004 (NSW) (LPA), the LPUL does not provide for a range of estimates to be given.

The Macquarie Dictionary[12] defines 'estimate' as 'an approximate judgement or calculation, as of the value, amount, etc, of something' or 'an approximate statement of what would be charged for certain work to be done, submitted by one ready to undertake the work'.

While there may be some argument that an 'estimate' constituted by a range would fall within this definition, the Legal Services Council has expressed its view as follows:[13]

‘... an estimate of the total legal costs in a matter, as required by section 174(1)(a) of the LPUL, is a reasonable approximation of the total costs that a client is likely to have to pay in the matter for which instructions have been given, expressed as a single figure, from time to time (the estimate). The definition of total legal costs in this context includes professional fees, any disbursements and GST, which should be separately identified, but not interest: LPUL section 6. It should be noted that where a costs agreement includes an uplift fee, that fee should be included as part of the estimate of total legal costs and the circumstances in which it would be payable explained to the client.’ (emphasis added).

The Legal Services Council Guideline also provides:[14]

‘The provision of an estimate or estimates from time to time does not preclude the provision of other information to a client about the steps or stages in a matter and the provision of such information to a client should be encouraged. It will not be inconsistent with section 174(1)(a) to provide estimates for each of the stages that the matter might reach, whether individual stage estimates are expressed as a single figure or as a range of figures, PROVIDED the law practice, having considered all the circumstances and the most likely outcome, always gives the single figure estimate of the total legal costs in the matter that section 174(1)(a) requires. It is permissible and may be desirable to preface a single figure estimate with the word “about” to reflect the fact that the figure is an estimate and is not a fixed fee.’

ADDITIONAL INFORMATION

The additional information to be provided under to s174(2)(a) LPUL includes information about the client's rights:

‘(i) to negotiate a costs agreement with the law practice; and

(ii) to negotiate the billing method (for example, by reference to timing or task); and

(iii) to receive a bill from the law practice and to request an itemised bill after receiving a bill that is not itemised or is only partially itemised; and

(iv) to seek the assistance of the designated local regulatory authority in the event of a dispute about legal costs.’

In contrast to the LPA under which no time limit to request an itemised bill was specified, a request for an itemised bill under the LPUL must be made within 30 days after the date on which the legal costs become payable.[15] There is an inconsistency between s174(2)(iii) LPUL, which refers to a bill which is not itemised or is only partially itemised and the entitlement to request an itemised bill under s187 LPUL, which appears to operate only where a 'lump sum bill' is given and does not address directly the client's entitlement to request an itemised bill where a 'partially itemised' bill is given.

Whether a bill is a lump sum bill or an itemised bill was recently considered by the Supreme Court of Victoria in Smoel & Wooster v Piper Alderman (No. 2),[16] with the court rejecting Piper Alderman's claim that their tax invoices were lump sum bills, holding that the tax invoices with their attached attendance schedules were itemised bills specifying with sufficient detail how the legal costs were made up in a way that would allow them to be reviewed by the Costs Court.[17]

RETENTION OF A SECOND LAW PRACTICE

A second law practice – for example, an agent or counsel, to be retained by a first law practice on behalf of a client – must disclose the information necessary to enable the first law practice to comply with its disclosure obligations to the client under s174(1) LPUL in respect of the second law practice.[18] While the second law practice must disclose to the first law practice the basis on which legal costs will be calculated, the question of whether it is required to disclose an estimate of fees is open. In Autore t/as Autore & Associate Solicitors & Barristers v Folino-Gallo,[19], Harrison AsJ indicated that he considered counsel had disclosed sufficient information to his retaining solicitors under s310 LPA, the precursor to s175 LPUL, notwithstanding that counsel had not disclosed an estimate of fees. His Honour noted that the retaining solicitors had not requested any additional information from counsel to enable them to comply with their disclosure obligations to the client.[20]

If an estimate is not provided by a second law practice, it would seem prudent for the first law practice to request an estimate which can then be disclosed to the client.

It is noted that s200(2)(b) LPUL provides that the costs assessor may have regard to ‘any disclosures made, including whether it would have been reasonably practicable for the law practice to disclose the total costs of the work at the outset (rather than simply disclosing charging rates)’. This appears to reinforce the view that there may be no obligation under s175 LPUL for an agent or counsel to disclose an estimate of their total fees to the retaining law practice.

When there is a significant change to the second law practice's basis of charging, this must be disclosed to the first law practice so that it can comply with its obligations under s174(1)(b) LPUL.

DISCLOSURE TO ASSOCIATED THIRD-PARTY PAYERS

Disclosure required to be made to a client of the law practice under s174 or s175 must also be made in writing to an associated third-party payer[21] at the time the disclosure to the client is required, or as soon as practicable after the law practice becomes aware of the legal obligation of the associated third-party payer.[22]

LITIGIOUS MATTERS

If a law practice negotiates the settlement of a 'litigious matter'[23] before the settlement is executed, the law practice must disclose a reasonable estimate of the amount of legal costs payable by the client if the matter is settled (including any legal costs of another party that the client is to pay); and a reasonable estimate of any contributions towards those costs likely to be received from another party.[24]

UPLIFT FEES

The LPUL no longer prohibits an 'uplift fee'[25] in a conditional costs agreement in respect of a claim for damages (however, the prohibition remains in relation to contracting out under the Motor Accidents Compensation Regulation 2005 (NSW)[26] and the uplift is restricted to 10 per cent under the Workers Compensation Regulation 2016 (NSW)).[27] If the conditional costs agreement relates to a non-litigious matter, the uplift fee is unrestricted. If the conditional costs agreement relates to a litigious matter, the uplift must not exceed 25 per cent of the legal costs (excluding disbursements) and:

• the law practice must have a reasonable belief that a successful outcome is reasonably likely;

• the costs agreement must identify the basis upon which the uplift fee is calculated; and

• an estimate of the uplift fee or a range of estimates must be provided. If a range of estimates for the uplift fee is provided, there must be an explanation of the major variables that may affect the calculation of the uplift fee.[28]

UPDATING OF DISCLOSURE

Subsection 174(1)(b) LPUL provides:

‘A law practice must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client.’

A failure to update an estimate amounts to non-disclosure and attracts the consequences of non-disclosure.[29]

Notification of the change must include a sufficient and reasonable amount of information about the impact of the change on the legal costs that will be payable to allow the client to make informed decisions about the future conduct of the matter.[30]

An increase in charge-out rates may require disclosure as to its impact on the total legal costs, including the recoverability of costs from an opposing party, if the client is to understand fully the impact of the change. The level of sophistication of the client may also require different levels of disclosure.

CONSENT AND UNDERSTANDING

Subsection 174(3) LPUL provides:

‘If a disclosure is made under subsection (1), the law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.’

The law practice is therefore under a significant obligation to obtain the consent of the client to the costs and the proposed conduct of the matter. The mere fact that the disclosure is provided in writing does not affect the law practice's obligation under ss174(3).[31] In contrast to the LPA, the LPUL does not contain specific requirements that written disclosure must be expressed in clear, plain language and may be in a language other than English if the client is more familiar with that language. However, this would seem to be implicit in s174(3).

Neither the LPUL nor the LPUGR contain a definition of ‘all reasonable steps’. The NSW Law Society's website contains some ‘Reasonable steps suggestions for non-commercial or government clients’.[32]

DISCLOSURE OF TIME LIMITS

The LPUL does not require that the law practice specify time limits for each of the client's rights in the event of a dispute as part of its disclosure obligations under s174 LPUL.

However, s192 provides that:

‘A law practice must ensure that a bill includes or is accompanied by a written statement setting out —

(a) the avenues that are open to the client in the event of a dispute in relation to legal costs; and

(b) any time limits that apply to the taking of any action referred to in paragraph (a).’

CONSEQUENCES OF NON-DISCLOSURE

Subject to r72A LPUGR discussed below, if a law practice contravenes the disclosure obligations of pt 4.3, s178 LPUL provides that the costs agreement (if any) is void. This has serious consequences, in that the costs will be recoverable only in accordance with a determination of fair and reasonable costs by a costs assessor, rather than in accordance with the costs agreement.[33] Such determined costs cannot exceed the amount that would have been payable under the costs agreement.[34]

A client may claim that a costs agreement is void where a law practice has failed to meet strictly its disclosure obligations, including the disclosure of updated estimates of the total legal costs. Clients no longer have to apply to ‘set aside’ a costs agreement, as it will be void upon the client establishing contravention of the law practice's disclosure obligations under pt 4.3.

In addition, the client or associated third-party payer is not required to pay the legal costs until they have been assessed; and the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until the costs have been assessed, or any costs dispute has been determined by the designated local regulatory authority.

Contravention of a law practice's disclosure obligations may also constitute unsatisfactory professional conduct or professional misconduct.[35]

RECTIFYING NON-COMPLIANT DISCLOSURE

Rule 72A LPUGR was introduced on 22 April 2016 to address the concern of some law practices that their entire costs agreements could be void for relatively minor or inadvertent infringements of their disclosure obligations.

Rule 72A applies where a law practice has contravened the disclosure obligations of pt 4.3 LPUL in relation to a particular matter. The consequences of non-disclosure prescribed by s178 LPUL do not apply in relation to the law practice (so far as they would otherwise apply to the matter concerned) in circumstances where the relevant authority, a costs assessor, a court or a tribunal is satisfied that:

(a) the law practice took reasonable steps to comply with the disclosure obligations of pt 4.3 LPUL before becoming aware of the contravention, and

(b) the law practice, no later than 14 days after the date on which it became aware of the contravention, rectified the contravention, as far as practicable, by providing the client with the necessary information required to be disclosed under div 3 of pt 4.3 LPUL (including, where relevant, an estimate or revised estimate of the costs); and

(c) the contravention was not substantial and it would not be reasonable to expect that the client would have made a different decision in any relevant respect.

The Rule will cover cases where non-compliance is rectified in a timely manner and the law practice can satisfy the costs assessor that the client would not have made a relevantly different decision.[36] The Rule itself is yet to receive judicial consideration.

Phillipa Alexander is a specialist in legal costs with Costs Partners. PHONE (02) 9006 1033 EMAIL Phillipa@costspartners.com.au.


[1] LPUL, s174(1)(a).

[2] [2008] VCAT 2641 (28 November 2008).

[3] [2015] VCAT 1802 (13 November 2015).

[4] [2007] VCAT 212 (7 February 2007).

[5] [2013] VCAT 1944 (19 November 2013).

[6] Paroz v Clifford Gouldson Lawyers [2012] QDC 151 (McGill DCJ),[40]-[41].

[7] See, for example, Gregg Lawyers Pty Ltd & Anor v Farrar (formerly Sweeney) [2014] QDC 194 (11 September 2014); Senior t/a CPL Corporate and Property Lawyers v Miles [2013] QMC 22 (26 February 2013).

[8] LPUL, s174(7).

[9] LPUGR, cl72.

[10] LPUL, s6.

[11] LPUL, s174(9), as initially enacted provided that ‘total legal costs’ for the purpose of s174 did not include GST and disbursements. However, this subsection was repealed by virtue of the Legal Profession Uniform Law Application Amendment Act 2015 (Vic) effective from 22 April 2015.

[12] The Macquarie Dictionary Sixth Edition (2013)

[13] Legal Services Council Guideline and Direction – Costs Estimates issued by the Legal Services Council on 11 March 2016 at para 3.

[14] Ibid at para 8.

[15] Section 187(2) LPUL.

[16] Smoel & Wooster v Piper Alderman (No 2) [2016] VSC 237 (13 May 2016).

[17] Ibid at [15].

[18] LPUL, s175.

[19] Autore t/as Autore & Associate Solicitors & Barristers v Folino-Gallo [2014] NSWSC 777.

[20] Ibid, [27].

[21] 'Associated third-party payer' is defined at s171 LPUL.

[22] LPUL, s176.

[23] 'Litigious matter' is defined at s6 LPUL.

[24] LPUL, s177.

[25] 'Uplift fee' is defined at s6 LPUL.

[26] See Motor Accidents Compensation Regulation 2005 (NSW), r11(1)(b).

[27] See Workers Compensation Regulation 2016 (NSW), r93.

[28] LPUL, s182.

[29] Burrell Solicitors Pty Ltd & Anor v Reavill Farm Pty Ltd & Ors [2016] NSWSC 303; Campbell v Campbell Paton & Taylor [2009] NSWSC 121 at [58].

[30] LPUL, s174(1)(b).

[31] LPUL, s174(6).

[32] See http://www.lawsociety.com.au/cs/groups/public/documents/internetcontent/1022365.pdf.

[33] LPUL, s199.

[34] LPUL, s185(2).

[35] LPUL, s178(1)(d).

[36] See Burrell Solicitors Pty Ltd & Anor v Reavill Farm Pty Ltd & Ors [2016] NSWSC 303 (24 March 2016) for a discussion as to the client’s non-reliance on the estimates given.


AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/PrecedentAULA/2016/72.html