Cost Agreement, Disclosure and Assessment

Updated: Mar 11, 2020

From the practitioner’s point of view, the provision of an accurate estimate forms only part of the consideration for agreeing to representation.

Agreement regarding fees between a solicitor and their client forms a critical aspect of the engagement. The client of a lawyer cannot be expected to make an informed decision to proceed without an accurate disclosure of the likely costs and the basis on which they will be charged. From the practitioner’s point of view, the provision of an accurate estimate forms only part of the consideration for agreeing to representation; they must also have the ability and resources to undertake the matter, be able to meet client expectations regarding communication, avoid conflicts of interest and judge that their client understands the basis of the engagement.

Every State and Territory in Australia is governed by a costs regime with broad similarities in terms of disclosure. However, the cost assessment process differs markedly.

For brevity, this article will focus on regulations applicable to New South Wales. Exemptions from disclosure exist where a lawyer acts for a ‘sophisticated client’: which includes legal practices, government departments, public companies and financial institutions.

Cost determinations are based on one of two primary relationships: solicitor/client and party/party.

‘Solicitor / Client’ costs are easily understood as the fees agreed to between the solicitor and their client. Disputes may arise for a number of reasons: the solicitor may fail to disclose costs or provide a reasonable estimate; the solicitor may fail to update a previous disclosure or fail to provide any cost agreement whatsoever.

‘Party / Party’ refers to the two opposing litigants to court proceedings (noting either side can be joined by multiple other litigants). In proceedings, a court may order that one side should pay the other side’s costs for various reasons including overall success in proceedings or the actions of the parties. Those costs are known as party/party costs and are to act as an indemnity to cover the winning party’s solicitor/client costs incurred. Party/party costs can never exceed those costs paid by the party to their own solicitor. The intention is not to punish the other side with additional cost, but to acknowledge that proceeding further should not disadvantage the indemnified party.

Legal costs must be fair and reasonable

Practitioners may not charge costs that are unreasonable or do not reflect “the level of skill, experience, specialization and seniority” of the lawyers who delivered the services. Factors that inform the reasonableness of costs may include “the urgency of the matter; time spent; place where business was transacted, and number and importance of any documents involved.” The primary duty of a costs assessor is the determination of what is fair and reasonable in the circumstances: Legal Profession Uniform Law Application Act 2014 (NSW) s76.

In acting, practitioners must not cause unnecessary delays or other actions that cause an increase in costs. They are not entitled to charge for work where they are held to be negligent.

Cost Agreement and Disclosure

As soon as practicable after the receipt of instructions, clients must be provided with information disclosing the basis of costs and an estimate of those costs. If either changes during the representation, the change must be disclosed and at a minimum, a file note created. There is also a requirement to provide information about a client’s right to negotiate costs, the billing method, the right to receive an itemized bill and assistance from a regulator in the event of a dispute. The law practice must be satisfied their client understands the conditions of engagement and is capable of consent.

A cost agreement between a practitioner and their client must be written or evidenced in writing. It may be accepted in writing or by other conduct (for example, the receipt of continued verbal instruction from client to lawyer). The agreement cannot exclude the requirement for an independent cost assessment at a later stage.

Conditional costs agreements may provide that some or all legal costs are conditional upon a successful outcome.

Conditional agreements must be written in plain language, set out the circumstances of a successful outcome, be signed by the client and be subject to a five-business day cooling off period. Conditional agreements cannot be made in criminal or family law matters.

For the lawyer, the maximum uplift available must not exceed 25% of legal costs (excluding disbursements). It is important to understand the difference between ‘conditional’ and ‘contingency’ fees. The former represents an uplift on the estimated legal fees agreed between solicitor and client. The latter are calculated by reference to the resulting settlement achieved – and are expressly prohibited under the LPUL.

CASE STUDY: Steele v Marshan (2012) NSWCA141

Form of Bill

A lawyer may invoice their client by way of lump sum bill or itemized account. Any person entitled to apply for an assessment of legal cost may request an itemized bill. A practitioner cannot charge a client for costs associated with the preparation of an invoice.

Costs Assessment

Whether privately sought and engaged by a client or enforced as a result of court proceedings, assessments of legal costs are to be conducted by costs assessors. Their first task in solicitor/client matters is to determine whether or not a valid cost agreement exists. The primary role of assessment is to ascertain if legal costs are fair and reasonable and where not, determine the actual legal costs that are payable.

A costs assessor has discretionary powers to determine who is liable to pay the costs of costs assessment. The costs of assessment, in solicitor/client matters, may be payable by the law practice, particularly if the practice has failed to disclose a matter or if the costs have been reduced by at least 15% on assessment. Costs in party/party matters are ordinarily payable by the successful party however a costs assessor has discretion to apply the costs to either party.

In Conclusion

Lawyers bear a fiduciary relationship to their clients, requiring them to act in a client’s best interests and to deliver legal services competently and diligently. The intersection of this relationship on commercial terms is marked by a requirement for costs disclosure – the provision of a clear understanding of the fees to be charged and the basis on which they will be calculated. The assessment process exists in order to provide resolution to the solicitor/client dispute and quantification of party/party costs.

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