Coulson, Maria-Luisa --- "Costs agreements and disclosure" [2014] PrecedentAULA 39; (2014) 123 Precedent 47

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COSTS AGREEMENTS AND DISCLOSURE

By Maria-Luisa Coulson

There comes a time when all solicitors must review their costs disclosure and costs agreements, to minimise the risk of potential solicitor and client disputes. This article provides an overview of the essentials concerning disclosure and costs agreements, to help solicitors assess their law practice’s precedents, and decide whether revision is necessary.

Recently, there has been an increase in the number of instructions my law practice receives concerning costs disputes between solicitor and client. Many of my colleagues who undertake work in relation to legal costs in the eastern states, have described similar increases. It may be that the increase in solicitor and client costs disputes is a result of the wide interpretation that has been given to the meaning of ‘final accounts’ in the applicable legislation. All states now allow a client to assess accounts extending back for an indeterminate period, provided that the application for assessment is brought within 12 months of the final account and the earlier accounts are interim accounts related to the final account.^[1] Given this, it is timely to review costs disclosure and costs agreements.

FIDUCIARY RELATIONSHIP

Why is the legal profession more regulated than any other in terms of charges? Quite simply because the solicitor and client relationship is one of the strongest fiduciary relationships known to the law. The position is that:

‘[T]here is no relation known to society, of the duties of which it is more incumbent upon a court of justice strictly to require a faithful and honourable observance, than the relation between solicitor and client... a solicitor shall not in any way whatever in respect of the subject of any transactions in the relations between him and his client make gain to himself at the expense of his client, beyond the amount of the just and fair professional remuneration to which he is entitled’.^[2]

This article discusses Part 10 of the Legal Profession Act 2008 (WA) (the LPA), with endnote references to the equivalent provisions in the Legal Profession Act 2004 (NSW) (the NSW LPA) and the Legal Profession Act 2004 (Vic) (the Vic LPA).

COSTS DISCLOSURE

The aims of disclosure

In summary, the disclosure obligations outlined in the LPA, are intended to ensure that a client is fully informed of the legal costs aspects of the litigious or non-litigious matter, and to regulate a lawyer’s position of influence and power over a client. Lack of adequate disclosure is often the cause of costs disputes between solicitor and client. In my experience, disputes often arise from a lack of communication regarding costs, resulting in uncertainty as to the client’s exposure to legal costs. Good disclosure minimises uncertainty.

Current disclosure obligations

The LPA addresses disclosure in ss260 to 270 inclusive (Division 3). In comparison to previous legislation, the LPA deals with the issue of disclosure very comprehensively.

The specific matters that a law practice must disclose are detailed in s260(1).^[3] For example, in relation to a litigious matter, giving adequate disclosure would involve explaining the following, at the very least, to the client:

• the basis on which legal costs will be calculated, billing intervals, interest rate, and rights to assess/set aside a costs agreement or to make a complaint;

• how the legal costs determination (the scale) applies, preferably providing a copy;

• that the scale has limits that apply to recovery;

• that unless there is a valid and enforceable costs agreement, lawyers are limited to those scale rates and limits; and

• estimates as to likely costs to trial, likely recoverable costs, likely adverse costs, and the major variables that will affect those estimates.

Costs disclosure must be made in writing before, or as soon as practicable after, the law practice is retained (s262 of the LPA).^[4] The 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. The disclosure must be conveyed orally to the client if the client is unable to read (s266).^[5]

Section 261 of the LPA addresses disclosure if another law practice is to be retained.^[6] For example, if a solicitor engages a barrister, the barrister must disclose sufficient information to enable the solicitor to comply with his or her obligations under ss260(1)(a), (c) and (d); that is, the basis on which legal costs will be calculated, an estimate of total legal costs or a range of estimates and explanation of the variables, and details of the billing intervals.

The law practice is obliged to give the client a written report of the progress of the matter and a written report of the legal costs incurred, if requested by the client (s269).^[7]

Additional disclosure is required under s264 if the law practice negotiates the settlement of a litigious matter;^[8] and under s265 if a costs agreement involves an uplift fee.^[9]

Section 270 addresses disclosure to associated third party payers. Put simply, a person is a third party payer if the person is not the client and is under a legal obligation to pay all or any part of the legal costs or has already paid those costs.^[10]

Exceptions to the disclosure requirements

Section 263 of the LPA describes when disclosure is not required.^[11] Under s263(2), the exceptions include:

• where total costs are not likely to exceed $1,500 excluding disbursements and GST;

• subject to certain conditions, where the client has received one or more disclosures under s260 or s261(1) in the last 12 months;

• when the client will not be required to pay the legal costs or they will not otherwise be recovered by the law practice;

• in any other circumstances prescribed by the regulations;

• where the client is a ‘sophisticated client’, including (but not limited to) another law practice or an Australian legal practitioner; or a public company, a subsidiary of a public company, a large proprietary company, a foreign company, a financial services licensee; or a liquidator, administrator or receiver, or a Minister of the Crown, a government department, public authority or the Commonwealth.

However, s263(6) provides that nothing in s263 affects the client’s right to progress reports in accordance with s269, to obtain reasonable information from the law practice regarding any of the matters in s260, or to negotiate a costs agreement with the law practice and to obtain a bill.

Consequences of failure to disclose

If there is a failure to disclose, there may be substantial consequences (pursuant to s268),^[12] including:

• The legal costs need not be paid unless they have been assessed;

• The law practice may not maintain proceedings for the recovery of legal costs unless the costs have been assessed;

• The costs agreement (if any) may be set aside;

• On assessment, the costs may be reduced by an amount considered by the taxing officer to be proportionate to the seriousness of the failure to disclose; and

• The failure may constitute unsatisfactory professional conduct or professional misconduct.

COSTS AGREEMENTS

The charging of legal costs

The Legal Costs Committee (the LCC), makes scales regarding legal work for contentious and non-contentious matters (s275). A law practice may charge pursuant to these scales (s280). Alternatively, a law practice may charge pursuant to a costs agreement. The LPA addresses costs agreements at ss282 to 288 inclusive (Division 6).

Terms and conditions

The costs agreement must be in writing, but it may be accepted by conduct (s282).^[13] A costs agreement may include the retainer and disclosure all in one, taking into account the applicable provisions of the LPA. I invariably recommend that the retainer and disclosure be all in one, to simplify matters as much as possible, and to avoid any confusion and/or procedural or file management issues.

A costs agreement should be specific to the matter instructed upon. Accordingly, a new costs agreement should be entered into for each particular set of instructions or retainer (unless the client is a sophisticated client, in which case a master costs agreement is a better option).

Conditional

A costs agreement may be conditional; that is, it may provide that the payment of some or all of the legal costs is conditional on the successful outcome of the matter to which the costs relate (s283).^[14] There are, however, certain legal matters where it is not permissible to enter into a conditional costs agreement (s283),^[15] and a conditional costs agreement may provide for the payment of an uplift fee (s284).^[16] Contingency fees are expressly prohibited (s285).^[17]

Meeting with the client

It is not only the terms of the costs agreement that are important, but also the circumstances in which it comes into being. The law practice must take all reasonable steps to explain the costs agreement to the client, and its impact on the client, to ensure that the client understands it and appreciates the obligations being imposed.

There should be a meeting with the client to discuss the costs agreement. In particular, the professional costs and disbursement charges, estimates, and party and party costs, should be explained to the client. The degree of explanation required will vary depending on the level of sophistication of the client.

Ongoing obligations

It is essential to keep the client informed about costs as the matter progresses. The law practice should inform the client in writing of any substantial change to anything included in the costs agreement, as soon as reasonably practicable after the law practice becomes aware of that change.

It is the duty of the law practice to inform the client about any unusual expense, the need for it and that such an expense may not be allowed on a party and party taxation. The law practice should obtain express authority from the client regarding each unusual expense. A costs agreement does not provide a general authority to incur all expenses associated with the matter.

Setting aside

Section 288 of the LPA deals with the setting aside of costs agreements.^[18] In particular, a client may make an application to the Supreme Court that a costs agreement be set aside and the Court may do so if satisfied that the costs agreement is not fair or reasonable (s288(2)). If the costs agreement is set aside, the Court may apply the scale or, if there is not one, the Court must determine the fair and reasonable amount (ss288(5) and (6)). Lastly, the Court may determine if a costs agreement exists (s288(9)).

CONCLUSION

The issues of costs agreements and costs disclosure are comprehensively dealt with under the LPA, particularly when compared with previous legislation. It is imperative that law practices establish precedents that comply with the provisions outlined above and establish processes to ensure that adequate explanations are provided to the client, and recorded on the file. Although the statutory obligations are onerous, once those precedents and processes are established, it merely becomes a matter of maintaining them. In my experience, doing so will minimise disputes between solicitor and client.

Maria-Luisa Coulson is the Managing Director of Coulson Legal, a specialist law costs practice offering services nationally in relation to legal costs between solicitor and client, and party and party. She has practised almost exclusively in the area of legal costs since 2003, and exclusively in the area of legal costs since 2011, when she established Coulson Legal. PHONE [phone] EMAIL [e-mail].

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^[1] See, for example: McDonald Pynt Lawyers v Hakuna Matata Corporation Pty Ltd [2013] WASC 223; Collection Point Pty Ltd v Cornwalls Lawyers Pty Ltd [2012] VSC 492; Tabtill No.2 Pty Ltd & Ors v DLA Phillips Fox (a firm) & Anor [2012] QSC 115.

^[2] Tyrrell v Bank of London (1862) 10 HL Case 26 at 39-44, cited with approval in Harrison v Schipp [2002] NSWCA 78; (2002) 54 NSWLR 612 at [127].

^[3] Section 309 of the NSW LPA; and s3.4.9 of the Vic LPA.

^[4] Section 311 of the NSW LPA; and s3.4.11 of the Vic LPA.

^[5] Section 315 of the NSW LPA; and s3.4.15 of the Vic LPA.

^[6] Section 310 of the NSW LPA; and s3.4.10 of the Vic LPA.

^[7] Section 318 of the NSW LPA; and s3.4.18 of the Vic LPA.

^[8] Section 313 of the NSW LPA; and s3.4.13 of the Vic LPA.

^[9] Section 314 of the NSW LPA; and s3.4.14 of the Vic LPA.

^[10] See: s253 of the LPA; s302A of the NSW LPA; and s3.4.2A of the Vic LPA for the detailed definition.

^[11] Section 312 of the NSW LPA; and s3.4.12 of the Vic LPA.

^[12] Section 317 of the NSW LPA; and s3.4.17 of the Vic LPA.

^[13] Section 322 of the NSW LPA; and s3.4.26 of the Vic LPA.

^[14] Section 323 of the NSW LPA; and s3.4.27 of the Vic LPA.

^[15] Section 323 of the NSW LPA; and s3.4.27 of the Vic LPA.

^[16] Section 324 of the NSW LPA; and s3.4.28 of the Vic LPA.

^[17] Section 325 of the NSW LPA; and s3.4.29 of the Vic LPA.

^[18] Section 328 of the NSW LPA; and s3.4.32 of the Vic LPA.