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Cost Law Commentary

The Legal Profession Uniform Law Part 2:Disclosure

This is part 2 in a series reviewing the Legal Profession Uniform Law (LPUL), which is expected to take effect in Victoria and New South Wales on 1 July 2015.  The first part, considering cost agreements, can be found here. Division 3 of the LPUL deals with cost disclosure. The disclosures requirements are considerably less onerous than under the Legal Profession Acts, but the consequences of failure to disclosure are more severe.

Commercial and government clients

Section 170 (UL) provides that Part 4.3 (Legal Costs) does not apply to commercial or government clients, save for particular sections relating to conditional fee agreements and uplift fees. Commercial and government clients are defined in s 170(2) with the definitions generally being the same as the definition of sophisticated clients in the Legal Profession Act. In summary, a commercial or government client is a law practice, a public company or subsidiary of a public company, a large proprietary company or subsidiary of same (in certain circumstances), a foreign company or subsidiary, registered Australian body, liquidator, administrator or receiver, financial services licensee, joint venture proprietary company where one shareholder is a commercial or government client, unincorporated joint venture where one member is a commercial or government client, partnership carrying on the business of professional services with more than 20 members or where the partnership would be a large proprietary company, a body or person incorporated in a place outside Australia (new provision), a person who has agreed to pay costs as the result of a tender, a government authority in Australia or in a foreign country (slightly different definition). The Uniform Rules may also define classes of commercial or government client.

Required Disclosures

The disclosures required are less onerous than the disclosures in the Legal Profession Act, being:

  • The basis on which legal costs will be calculated;
  • An estimate of the total legal costs. Note that there is no provision to provide a range of estimates.
  • Client rights:
  • To negotiate a cost agreement
  • To negotiate a billing method. The provision gives examples by reference to timing or task, indicating support for a basis of charge calculated by reference to something other than time.   A further example would be pricing by reference to scale.
  • To receive a bill and request an itemised bill
  • To seek assistance of the Legal Services Commissioner in a dispute about legal costs.

Initial disclosures must be made when, or as soon as practicable after instructions are initially given.

There remains the requirement to advise a client of any significant change to anything previously disclosed[1] but there is an additional obligation, in advising of a change to an estimate, to provide a sufficient and reasonable amount of information about the impact of the changed costs to enable the client make an informed decision about the future conduct of the matter[2].  What is a sufficient and reasonable amount of information will depend on factors such as the level of sophistication of the client, their knowledge of English, their previous experience of legal matters, and the information previously provided. Lawyers working with less sophisticated clients may consider developing information packs, to fully explain what is involved in a particular area of litigation or other legal work, and the factors which can impact costs.

Section 174(3) imposes an interesting obligation on the practitioner by requiring that the practitioner take all reasonable steps to satisfy himself or herself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs. This is a significant obligation and what are reasonable steps will depend on the nature and level of sophistication of the client.

There is no requirement to provide disclosure if the lower costs are below what is now known as the ‘lower threshold’ which remains $750. The use of the standard disclosure provisions to be developed the Legal Services Commissioner now appears to only be available if the legal costs are not likely to exceed the ‘higher threshold’ which is $3,000[3].

Disclosures must be still be in writing.

As previously a first law practice must disclose to the clients the relevant information in relation to a second law practice, and the second law practice does not have to disclose directly to the client but must disclose enough information to the first law practice[4] to enable it to give disclosure to the client. Some counsel have interpreted this as simply disclosing their hourly and daily rates and advising the solicitor that he or she knows how much work counsel will be required to undertake. It is debatable as to whether this is sufficient compliance with the disclosure provisions, and given that a failure to properly disclose voids a cost agreement, counsel should consider carefully if this approach is appropriate, particularly given that a solicitor now has 12 months to review their fees. If counsel adopts this course, a solicitor would be wise to mark the backsheet to counsel as to disclosure provided to the client, and confirm that no fees beyond those disclosed will be paid without prior approval of the client.

Prior to settlement of a litigious matter a law practice who “negotiates the settlement of the litigious matter on behalf of the client” (e.g. counsel appearing on behalf of a client in a mediation) must disclose before a settlement is executed, a reasonable estimate of the legal costs payable by client if the matter settles including any costs payable to another party, and a reasonable estimate of any costs likely to be received from another party. Counsel will not be required to make that disclosure if the solicitor has done so.[5]

Consequence of failure to disclose

Section 178(1)(a) is the most significant provision for lawyers and costs lawyers. It provides that a costs agreement is void if a law practice contravenes the disclosure provisions of Part 4.3. This is a mandatory provision.

Further consequences of contravention of the disclosure obligations are:

  • The client doesn’t have to pay the legal costs until they have been assessed or any costs dispute is finalised i.e. a complaint to the Legal Services Commissioner is concluded.
  • The law practice ‘most not commence or maintain’ proceedings for the recovery of any or all of the legal costs until they have been assessed or a costs dispute is finalised.
  • The failure to comply with the disclosure provisions is capable of constituting unsatisfactory professional conduct or professional misconduct.
  • The law practice, prima facie, will bear the costs of the costs assessment if it has failed to make all disclosures, or failed to disclose in the manner required by Division 3.[6]

However, s 178(3) provides that the Uniform Rules can specify the circumstances or kinds of circumstances in which s 178 does not apply. It will be interesting to see what position is taken by the relevant bodies.  Lawyers should hope that the Law Institute and Bar Council are making appropriate submissions in relation to the form of the Uniform Rules.

[1] S 174(1)(b)

[2] s 174(2)(b)

[3] s 174 (5)

[4] s 175

[5] s 177(2)

[6] S 204(3)