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Drew, Sharon --- "Challenges facing legal practitioners under the LPUL" [2016] PrecedentAULA 77; (2016) 137 Precedent 28


CHALLENGES FACING LEGAL PRACTITIONERS UNDER THE LPUL

By Sharon Drew

‘Concepts of justice must have hands and feet to carry out justice in every case in the shortest possible time and the lowest possible cost. This is the challenge to every lawyer and judge ...’

Warren E Burger, 15th Chief Justice of the United States (1969-1986).

The Legal Profession Uniform Law[1] (LPUL) came into effect in Victoria and NSW from 1 July 2015, covering approximately 70 per cent of Australia’s legal profession. The LPUL poses new challenges for the legal profession, particularly in the area of costs: while the concepts may seem familiar, the objectives have a new focus, and non-compliance may prove extremely costly for law practices.

One of the stated objectives of the LPUL is:

‘empowering clients of law practices to make informed choices about the services they access and the costs involved...’[2]

The provisions are clearly designed to protect a client’s consumer rights and ensure that the amount of costs charged by a practitioner is central to the practitioner/client relationship.

THE LEGISLATION

Identifying the relevant provisions may be challenging – for example, 11 Acts and Regulations have been passed to date embodying the principles applicable in NSW. There are additional guidelines and directions issued by the Legal Services Council and Commissioner for Uniform Legal Services Regulation. The role of the Council and Commissioner is to oversee the implementation of the LPUL.

The importance of the Council’s guidelines is demonstrated in the area of costs estimates. In light of debate within the legal profession regarding whether the LPUL required an estimate to be a single figure or whether a range of figures (permitted under the previous schemes) would comply, the Council’s guideline[3] expresses the view that the estimate should be a single figure which includes professional fees, disbursements and GST.

At the time of writing, there are no reported decisions in either Victoria or NSW regarding the LPUL. However, judgments in both jurisdictions will be relevant and provide guidance in interpreting the LPUL’s provisions.

MATTERS GOVERNED

The practitioner must identify those matters governed by the LPUL – the LPUL applies to a matter if the client first instructs the law practice on or after 1 July 2015.[4] For barristers or other law practices retained by the principal practice, the date the client first instructed the principal practice will determine whether or not the LPUL applies.

Is there a distinction between obtaining instructions to make a claim, to commence proceedings and to defend an appeal? Although it is clear that an updated estimate of costs will be required for each of these stages, arguably each proceeding arises from the same circumstances and should be considered as one ‘matter’, following the judgment of Justice Austin in Darkinjung Local Aboriginal Land Council v Darkinjung Pty Ltd & Ors,[5] where he found that ‘those words refer to the subject matter of the solicitor's retainer, that is the client's cause or transaction on which the solicitor, for reward, is instructed to advise or act’.[6] Justice Cavanough, in the matter of Kliger Partners (a firm) v Lotzof,[7] characterised the retainer there as relating to a single matter with three phases. In contrast, the High Court heard argument in the matter of Certain Lloyd's Underwriters Subscribing to Contract No IH00AAQS v Cross[8] that a claim for party/party costs was a different ‘matter’ to the substantive claim for damages; however, the issue did not require determination in those proceedings.[9] The practitioner in doubt would best be protected by providing a costs agreement and disclosure compliant with both the Legal Profession Act 2004 (NSW) and the LPUL.

None of Part 4.3 – including disclosure, costs agreements, billing and assessment – applies to commercial or government clients. Previously, these clients were entitled to progress reports, reasonable information on disclosure, to negotiate a costs agreement and to be provided with a bill, although exempt from formal disclosure requirements. If a costs agreement is entered into with a commercial or government client, it must comply with the provisions relating to conditional agreements, uplift fees and contingency agreements.[10]

RIGHT TO NEGOTIATE

The LPUL specifically provides that a client has the right to have a negotiated costs agreement,[11] and the client’s right to negotiate the billing method must be disclosed.[12]

The value of the right to negotiate has been questioned,[13] as neither a law practice nor a client can force the other to enter into an agreement. Law practice precedents commonly have few variables and are not designed to be substantially altered. While a ‘take it or leave it’ approach by law practices does not accord with the objectives of the LPUL, it may be impractical to attempt to accommodate many alternatives within one costs agreement and case-by-case modifications could be one solution. It must be remembered that any negotiations regarding the content of a costs agreement must not render it void under the LPUL – a client will not be able to negotiate a contingency fee agreement, for example, nor an agreement that waives the right to an assessment.[14]

Does the client’s right to negotiate the costs agreement and billing method give rise to a corresponding obligation on the law practice to offer alternatives, or provide advice as to alternatives offered by other law practices? One solution would be to require all law practices to publicise their standard costs agreement and details of billing methods offered. In the UK, the Legal Services Consumer Panel supports an obligation on lawyers to publish their rates and ‘average prices’, stating ‘Consumers are not empowered with the information they need to shop around or choose the most appropriate legal service provider for their needs’.[15]

ENTERING INTO AN AGREEMENT

A costs agreement (which must be written or evidenced in writing),[16] may be a written offer from the law practice,[17] which can be accepted by the client in writing or (except for a conditional agreement) by other conduct. There is no longer a requirement for the ‘other conduct’ to be set out in the costs agreement.[18]

Under general contract law, acceptance must be unequivocal and must be communicated to the offeror; it can be oral, in writing or by conduct. The burden of establishing that a client’s conduct was intended to be acceptance of a costs agreement will lie with the law practice seeking to enforce the contract.

In situations where a client’s signature is required, is a digitally encoded signature required, or will an electronic signature suffice? Will an email from a client confirming receipt and acceptance of a costs agreement comply with the LPUL? As business practices shift further towards a paperless base, it is more likely that courts will accept an electronic signature as valid in a commercial transaction, such as a retainer of a law practice.[19]

CONTRACTING-OUT EXCEPTIONS

In NSW, solicitor/client costs for certain motor accident claims and work injury damages claims are restricted.[20] It is possible to contract out of those provisions by agreement with the client. However, the contracting-out provisions for motor accident claims do not permit a conditional costs agreement with uplift;[21] and the provisions for work injury damages claims permit a conditional costs agreement with an uplift of up to only 10 per cent.[22] In these two situations, a costs agreement which is fully compliant with the LPUL will not necessarily be sufficient to contract out of regulated legal costs.

INITIAL DISCLOSURE

Disclosure is not required where the total legal costs (excluding disbursements and GST) are less than $750; abbreviated disclosure is required for total legal costs between $750 and $3,000 using the prescribed disclosure form; full disclosure is required for total legal costs exceeding $3,000.[23] All disclosure must be made in writing, and full disclosure must be provided when or as soon as practicable after instructions are initially received in a matter. The estimate of total legal costs required to be disclosed includes professional fees, any uplift fee, disbursements and GST, all separately identified.[24]

Compliance with disclosure obligations requires a law practice to have not only provided a disclosure document which sets out the necessary information – the basis on which costs will be calculated, the estimate and notification of clients’ rights – but also practice management tools to ensure that any variable factors are appropriate for a particular matter (including the estimate), and to ensure that the law practice has taken reasonable steps to satisfy itself that the client understands and consents to the proposal.

UPDATED DISCLOSURE

When there is ‘any significant change’ to the basis on which costs will be calculated or to the estimate of total legal costs, updated disclosure is required when or as soon as practicable after the change has occurred.[25] The client must be advised of the change, the updated legal costs payable and ‘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’.[26]

What constitutes a ‘significant change’ will depend on the circumstances of the individual matter. Examples of situations where updated disclosure will be required include an increase in hourly rates, the addition of further parties to the proceedings, and the introduction of issues or steps not previously foreseen. Law practices should utilise practice management tools such as electronic billing and budget-tracking where available, as well as regular file-monitoring to assess the impact of certain events during the life of a matter. Senior practitioners should provide guidance to junior lawyers and support staff regarding these issues.

Additional disclosure will be required where another law practice is retained; for example, a barrister.[27] The barrister or retained practice must provide necessary information to the instructing practitioner, who is required to make full disclosure to the client.

Prior to settlement of a litigious matter, the law practice must disclose to the client an estimate of the legal costs payable by the client (including the costs of any other party) and any contributions likely to be received from another party.[28] There is no requirement that this disclosure be made in writing.

CLIENT’S UNDERSTANDING AND CONSENT

The requirement that disclosure must be in clear plain language has been replaced with a requirement that where full disclosure is made:

‘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’.[29]

What constitutes ‘reasonable steps’ will depend on each client’s circumstances – the steps may range from a file note by the practitioner, to verification by an interpreter where the client’s first language is not English, or an independent person who has read and explained the documents to an illiterate client.

Informed consent requires several elements: competence, adequate disclosure, adequate understanding and voluntary decision. It is recommended that law practices ensure that each of these factors are present.

FAILURE TO DISCLOSE

If a law practice does not comply with its disclosure obligations:

• any costs agreement is void;

• the client is not required to pay costs until assessed or a costs dispute determined;

• the law practice cannot commence or maintain proceedings for recovery of costs; and

• the principal of the law practice or any legal practitioner involved may be guilty of unsatisfactory professional conduct or professional misconduct.[30]

The automatic voiding of any costs agreement, which also removes the ability of the law practice to rely on the costs agreement as prima facie evidence of the reasonableness of the costs charged, has to date been the focus of these provisions. The Legal Services Council described r72A as an ‘anti-voiding rule’,[31] as it applies equally to all consequences of failure to disclose.

Rule 72A provides that where a local regulatory authority, costs assessor, court or tribunal is satisfied that the law practice (i) took reasonable steps to comply with its disclosure obligations before becoming aware of non-disclosure and (ii) no later than 14 days after becoming aware of non-disclosure provided the client with disclosure and the non-disclosure was not substantial and it would not be reasonable to expect that the client would have made a different decision in any relevant respect, s178 of the LPUL does not apply. The r72A exception will not apply in any circumstances of the failure to disclose.

COSTS ESTIMATES

The LPUL requires law practices to provide ‘estimates’ in three different respects: an estimate of the total legal costs,[32] a reasonable estimate of legal costs payable by a client or contribution likely to be received from another party,[33] and an estimate or range of estimates for an uplift fee.[34] Notably, the LPUL no longer permits an estimate of legal costs to be a given as a ‘range’.

The LPUL embodies society’s and, most importantly, clients’ expectations that legal practitioners will give greater consideration to legal costs before they are incurred. Professor Dal Pont, in his text Law of Costs, states: ‘Any costs estimate, including an estimate of its increase, must therefore be realistic, requiring due and detailed consideration’.[35] He continues, ‘the process of estimation forces the lawyers to address the likely steps in the matter, and what falls within and outside those steps’.

These considerations are at the heart of the LPUL and are reinforced by the Legal Services Council’s guidelines and worked examples. In each scenario provided in the worked example, the lawyer explains various options available to the client and the costs implications for each option; a single figure estimate of total legal costs of the option either chosen by the client or considered most likely is provided; the lawyer indicates that the estimate might vary to some extent (a variance of 10 to 15 per cent up or down is demonstrated).

No one expects a legal practitioner to provide a 100 per cent accurate estimate of costs, but it is necessary to give proper consideration to the matter at hand rather than plucking a figure out of thin air or using a standard estimate which is of little relevance to the particular matter. The LPUL appears to require more than informing a client what is likely to happen in general terms; it requires that the client be able to make informed choices about the available options and the costs associated with those options.

It is possible that practices offering a fixed-fee service will have an advantage over those offering time-billing in terms of disclosure, given that a fixed fee provides a client with certainty, which is likely to be viewed as a strongly empowering aspect of the decision-making process. However, providing one fixed fee for every motor accident claim (for example) is likely to raise issues of reasonableness in terms of proportionality, having regard to the particular circumstances of a client’s claim.

FAIR AND REASONABLE LEGAL COSTS

The LPUL requires a law practice to charge costs ‘that are no more than fair and reasonable in all the circumstances’,[36] must not ‘act in a way that unnecessarily results in increased legal costs’ and must ‘act reasonably to avoid unnecessary delay resulting in increased legal costs’.[37]

A valid costs agreement will be prima facie evidence that the costs disclosed are fair and reasonable – further incentive for law practices to ensure that they comply with obligations regarding disclosure and costs agreements. Whether a client has provided instructions to undertake any work which is questionably not reasonable or proportionate may not be a complete answer, given the legal practitioner’s fiduciary duty to a client and overriding duty to the court.[38]

CONCLUSION

The LPUL places a stronger emphasis on the law practice’s role in ensuring that a client is provided with the facts necessary to make an informed decision about retaining a lawyer and the costs involved, with various incentives and penalties involved. The issues of disclosure and content of costs agreements cannot be ignored, and a ‘one size fits all’ approach is likely to be found wanting.

While the advantages to clients are readily apparent, there are benefits to law practices improving client relationships by monitoring expectations and ensuring that they are met. By investing time and effort creating and implementing practice management techniques and monitoring ongoing disclosure requirements, the benefits should be reflected in a healthier practitioner/client relationship, quicker recovery of costs in line with estimates provided and fewer costs disputes.

Sharon Drew is principal of Blue Ribbon Legal, Sydney. PHONE: (02) 8599 3100 EMAIL: sharon.drew@blueribbonlegal.com.au.


[1] Legal Profession Uniform Law Application Act 2014 (Vic); Legal Profession Uniform Law (NSW).

[2] LPUL, s3.

[3] LSC Guideline and Direction – Costs Estimates – LSC 01-2016 issued 11 March 2016.

[4] Clause 18(1), schedule 4, LPUL.

[5] [2010] NSWSC 132.

[6] Darkinjung Local Aboriginal Land Council v Darkinjung Pty Ltd & Ors [2010] NSWSC 132, 57.

[7] [2016] VSC 185.

[8] [2012] HCA 56.

[9] At para 21. The submissions in support of separate matters rely on there being no entitlement to party/party costs until a determination in the substantive proceedings is made. However, they also refer to there being “a number of ‘matters’ for which legal services would be provided at different times” in the course of a claim for damages, including joining an additional party or commencing fresh proceedings.

[10] LPUL, s170.

[11] LPUL, s179.

[12] LPUL, s174.

[13] M L Brabazon SC, ‘Barrister’s Fees: Law and Practice 2016’, 13 February 2016, NSW Bar Association Bar Practice Course.

[14] LPUL, s180(4).

[15] Legal Services Consumer Panel response to Competition and Markets Authority Interim Report on the Legal Services Market, 19 August 2016, available at http://www.legalservicesconsumerpanel.org.uk/.

[16] LPUL, s180(2).

[17] An alternative would be an oral agreement between the law practice and client subsequently detailed in writing.

[18] Cf. Legal Profession Act 2004 (Vic), s3.4.26(4) and Legal Profession Act 2004 (NSW), s322(4).

[19] See, for example, Attorney-General (SA) v Corporation of the City of Adelaide [2013] HCA 3 (27 February 2013) where the High Court upheld local council by-laws which required a certificate ‘signed’ by a legal practitioner, where the certificate itself stated the name and address of the practitioner and was sent by email; Curtis v Singtel Optus Pty Ltd & Anor [2014] FCCA 1286 (19 June 2014) – validity of bankruptcy notice by email rather than hard copy – and Robles & Moser v Pigg [2014] VCC 1127 (1 August 2014) – contract for sale of land held to have been adopted by email.

[20] Workers Compensation Regulation 2010, reg 102; Motor Accidents Compensation Regulation 2015, reg 6.

[21] Motor Accidents Compensation Regulation 2015, reg 8.

[22] Workers Compensation Regulation 2010, reg 103.

[23] LPUL, s174.

[24] LSC Guideline and Direction – Costs Estimates – LSC 01-2016, issued 11 March 2016.

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

[26] Ibid s174(2)(b).

[27] Ibid, s175.

[28] Ibid, s177.

[29] Ibid, s174(3).

[30] Ibid, s178(1).

[31] Legal Services Council media release 22 April 2016, ‘Clients Kept In The Know By Uniform Law’.

[32] LPUL, s174.

[33] Ibid, s177.

[34] Ibid, s182.

[35] Gino Dal Pont, Law of Costs, 3rd edition (LexisNexis Butterworths, 2013) at 2.26.

[36] LPUL, s172(1).

[37] Ibid, 173.

[38] The concept of ‘reasonable and proportionate’ costs is discussed in greater detail by Mr Peter Rosier in his article [Insert XREF].


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