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Cost Law Commentary

Legal Profession Uniform Law: Part 5 - Costs

This is the final of 5 parts  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 considers cost agreements.  The second part deals with disclosure.  The third part deals with bills of costs. The fourth part deals with cost disputes.

  • Test for Recovery of Legal Costs

The test[1] for recovery of legal costs has changed and is now costs which are:

    1. Fair and reasonable in all the circumstances;
    2. Proportionately and reasonably incurred; and
    3. Proportionate and reasonable in amount.

Thus, the concept of proportionality is introduced. This is a significant change, and it will be interesting to see how the Costs Court approaches this concept. Looking to the UK, where the proportionality test is in the process of review, a primary issue is whether the test is applied globally, on an item by item basis, or both. Previously, the approach taken in the UK was to assess the costs first for reasonableness, and then look at the total amount as to whether it was proportionate. The new position is to consider each cost for both reasonableness and proportionality. Using scale costs for discovery as an example highlight the possible issues with the different approaches. In another example, one charge by counsel for preparation may be disproportionate, but when looked at it total, counsel’s fees may be proportionate.

The factors to be considered in allowing costs are set out in s 172 (2) and are similar to the factors in the Legal Profession Act. Section 200 also sets out the factors to be taken into account by a costs assessor in considering whether the legal costs are fair and reasonable. Again these are similar to the factors in the Legal Profession Act.

Compliance with disclosure provisions becomes important in the context of considering whether the costs are fair and reasonable, by reference to section 172(3), which provides that conformity with the other provisions of Part 4.3, the Uniform Rules and “any fixed costs legislative provisions” is a relevant factor in considering whether the legal costs are fair and reasonable.

Section 172 (4) provides that a costs agreement is prima facie evidence that the legal costs disclosed in the agreement are fair and reasonable, if all disclosure provisions have been complied with and the costs agreement does not contravene any other provision of Division 4. This supports fixed fee agreements.

Basis of Charge

Neither the Act nor the Uniform Law includes an equivalent of s 3.4.19 of the Legal Profession Act 2004 which provided:

Subject to Division 2, legal costs are recoverable—

  • under a costs agreement made in accordance with Division 5 or the corresponding provisions of a corresponding law; or
  • if paragraph (a) does not apply, in accordance with an applicable practitioner remuneration order or scale of costs; or
  • if neither paragraph (a) nor (b) applies, according to the fair and reasonable value of the legal services provided.

 

It is unfortunate that there is no equivalent of s 3.4.19 to establish that a cost agreement overrides a scale or the PRO. However, s 172(3) brings scales and the PRO in as a factor in considering whether the costs are fair and reasonable, in that conformity with a “fixed costs legislative provision” is a factor to be considered. “Fixed costs legislative provision” is defined as “a determination, scale, arrangement or other provision fixing the costs or maximum costs of any legal services that is made by or under the Uniform Rules or any other legislation”.

Reference also needs to be had to both the PRO and relevant Court Rules as these may apply the scale as the default basis of charge.

S 94 of the Act provides that the PRO may determine how a law practice can charge, and at present Clause 5 of each PRO provides that the various schedules will apply to non-contentious work. Order 63.62 of the Supreme Court Rules relates to contentious work where no proceedings are issues, and provides that the relevant court scale will apply. However, there is no provision in the Supreme Court Rules which clearly provides that the scale applies as between practitioner and client where proceedings have been issued, unless Order 63.34 can be read in this way.

In other jurisdictions, such as VCAT, the Federal and the Family Courts, there is no provision establishing the relevant scale of costs as the basis of charge between solicitor and own client. However, it can be assumed that these scales will be one reference point as to what are fair and reasonable costs.

The lack of specific reference to a scale could be seen as support for charging on a non-time basis. The provisions regarding the client’s rights to negotiate the billing method, and a cost agreement being prima facie evidence of that the costs disclosed in the agreement are fair and reasonable, help practitioners to gain some certainty in entering into fixed fee agreements.

Manner of conduct of a matter

S 173 imposes an obligation on a law practice to not act in a way that unnecessarily results in increased legal costs, and to act reasonably to avoid unnecessary delay resulting in increased costs. Thus, a practitioner who advises a client to amend a pleading, resulting in costs associated with an adjournment, would have to establish that such advice was reasonable. A practitioner who undertakes work, where it would have been cheaper to outsource the work, can be said to have acted in a way that unnecessarily results in increased costs.   The section really reflects the common law, but when considered with s 174((2)(b) and (3), which requires the lawyers to ensure the client understands and consents to the proposed course of action for the conduct of the matter, it is clear that the client must play a role in agreeing strategy and giving instructions as to how a matter will be conducted.

[1] S 172 (UL)

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