Cost Law Commentary

The Legal Profession Uniform Law - Part 1: Cost Agreements

2015 will be an interesting year for NSW and Victoria lawyers.  Finally, they will see the outcome of 7 years of COAG negotiations regarding the regulation of lawyers, with the introduction of the Legal Profession Uniform Law (LPUL). As at the time of writing, the commencement date has not been confirmed, nor have the rules to be promulgated under the LPUL been finalised. The LPUL is Schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic).  It is implemented in  NSW through the Legal Profession Uniform Law Application Act 2014 (NSW).

This is the first of series of posts considering the impact of the LPUL on practitioners.  In the series I will cover:

  • Cost Agreements
  • Disclosure
  • Cost Assessment

The LPUL philosophy is that agreements between informed, consenting clients and their lawyers should be supported.  This is achieved in a number of ways:

  • A valid cost agreement is prima facie evidence that the costs are fair and reasonable.[9] This has particular impact on fixed fee agreements, as it makes it particularly difficult for challenges to be mounted to the terms of the cost agreement, and to the amount of such agreed fees, if all the work has been undertaken.
  • The legal practitioner to satisfy himself or herself that the client has understood and agreed to the course of action and the costs to be incurred.

However, there are significant impacts for a lawyer who doesn't give proper disclosure to the client, both at initial retainer, and throughout the matter, the main being that failure to comply with the disclosure provisions voids the cost agreement.

With 9 years experience of practitioners making disclosure under the Legal Profession Act 2004, I think this will be an enormous challenge for practitioners.  I doubt there is a single practitioner who gives proper disclosure in 100% of matters.  In particular, barristers will need to revisit both their cost agreements and how they provide cost estimates.

If the cost agreement is voided, the costs are recoverable on a quantum merit basis as fair and reasonable costs.  There is no equivalent to s 3.44.44 of the Victorian Legal Profession Act, which provided that an applicable scale or remuneration order as the default basis of charge.  However, it is arguable that a scale or remuneration order is a measure of fair and reasonable costs.

In relation to cost agreements, two of the most striking aspects of the LPUL are what has been omitted. Firstly, there is no requirement that a cost agreement be fair or reasonable. Therefore, the common law will apply.

Secondly, there are no provisions in the LPUL regarding applications to set aside cost agreements. Such applications would be made to the court under its inherent jurisdiction.  However, the cost assessor must determine whether or not a valid cost agreement exists[1], and therefore arguably there is no additional need to deal with applications to set aside the cost agreement. In the absence of criteria as to validity, the determination of validity may be a difficult task for cost assessors, particularly those in NSW.  The LPUL requires that costs must be fair, reasonable and proportionate and requires the legal practitioner to satisfy himself or herself that the client has understood and agreed to the course of action and the costs to be incurred.  These matters would be relevant as to whether the agreement was valid.

For Victorian practitioners, VCAT no longer has jurisdiction in relation to validity of cost agreements, this now being a matter for the Costs Court [2], because the cost assessor must determine whether or not the cost agreement is valid, and in Victoria, the Costs Court is the cost assessor.[3]

The third change is the most significant for practitioners (both solicitors and counsel). Failure to make proper disclosure voids a cost agreement.[8] Therefore, failure to make proper initial disclosure, or to update disclosure during the conduct of a matter (e.g. fee estimates), has the mandatory effect of voiding the agreement. The costs remain recoverable, but on a quantum meruit basis.

The provisions in relation to the making of a cost agreement, who can be party to the cost agreement[4], the requirement that the cost agreement be in writing or evidenced in writing[5], and acceptance in writing or by other conduct[6] have not changed.

The provisions in relation to conditional cost agreements between practitioner and client have not changed.[10] However, there is a significant change in relation to conditional cost agreements between practitioner and practitioner (e.g. between counsel and solicitor, on behalf of client). Previously, such agreements did not have to be in writing, or signed by the client, contain the statement regarding the client’s right to seek independent legal advice or contain a cooling-off period. Those exceptions no longer apply and the same provisions apply to conditional cost agreements between practitioner and client and practitioner and practitioner.

As previously, uplift fees in litigious matters are limited to 25%[11] and the provisions regarding disclosure of estimates of the uplift fee, the basis of calculation, and an explanation of variables which affect the calculation of the uplift remain the same.

Contingency fees in litigious work remain prohibited.[12]

A cost agreement which contravenes the Division is void[13] and a law practice can’t recover more than it would have been entitled to recover if the cost agreement had not been voided, and cannot recover the uplift fee.[14] A law practice which enters into a prohibited contingency fee agreement is not entitled to recover any fee.[15]

[1] LPUL S 199 (2)

[2] LPUL S 199

[3] S 16 Legal Profession Uniform Law Application Act 2014 (Vic)

[4] LPUL S 180(1)

[5] LPUL S 180(2)

[6] LPUL S 180(3)

[7] LPUL S 180(4).

[8] LPUL S 178 (1) (a)

[9] LPUL S 172(4)

[10] LPUL s 181

[11] LPUL s 182 (2)(a)

[12] LPUL s 183

[13] LPUL s 185

[14] LPUL s 185(2)

[15] LPUL s 185(4)