Posts Tagged ‘Legal Profession Uniform Law’

Estimates – Ranges or Not under the LPUL?

The Australian Legal Services Commissioner, Mr Dale Boucher, and the Victorian Legal Services Commissioner, Mr Michael McGarvie, have both spoken today at the Law Institute of Victoria seminar on the Legal Profession Uniform Law.

Two issues of concern for practitioners are:

  • Can practitioners still give a range of estimates?
  • What is the meaning of “total legal costs” for the purpose of providing an estimate of same?

Mr McGarvie made it quite clear that it was no longer acceptable to give a range – the Law requires a single estimate to be given.

It was put to the Commissioner that “total legal costs” should reflect the costs for the proposed course of conduct, for which the clients consent is required to be obtained.  A proposed course of conduct may be to a particular point in a matter.  The example given was proposed course of conduct to settle the matter at or before mediation, rather than run the matter to judgment.

Mr McGarvie and one of the members of his office, explained the purpose of an estimate of total legal costs in the matter (for example to the end of litigation), rather than simply of stages (for example to the end of mediation).  One of the complaints clients currently make is that they were told the costs to the end of mediation would be $X, whereas the matter didn’t settle at mediation and the actual costs were $X + $Y.  The client complains that they would not have proceeded with the matter if they had realised what the actual costs might be for the whole of the matter.

It would appear that the expectation is that practitioner will be regularly updating the original estimate to reflect developments on the matter.  Mr McGarvie suggested that it would appropriate for practitioners to be providing estimates for different stages of a matter, as well as an overall estimate of the total costs.  This is certainly a better option than simply telling a client that their total costs might be $500,000, even though it is highly unlikely the matter will even get to trial, but if it does, this is the likely total costs.

The clear message is that practitioners are under an obligation to proactively and on an ongoing basis, engage with their clients about the conduct of the matter and the costs likely to be incurred by the client.  For some years, the Federal and NSW Governments have had platforms of Informed Purchasers of Legal Services in place.  The expectations for lawyer providing services to government in relation to obtaining informed consent align with expectations under the LPUL.  Practitioners will need to improve their estimating and project planning and management skills.

Since 2010, we have provided training to NSW, Queensland and Federal Government departments under the Informed Purchaser platforms, as well as to law practices across the Eastern seaboard, often to enable them to address legal project management and estimating requirements imposed as part of legal panel arrangements.

On 5 August 2015, we are running a workshop on estimating, project planning and providing options regarding proposed on course of conduct.  Further details to follow.

Costs and the Legal Profession Uniform Law

A review of the LPUL: This paper is a comprehensive review of the costs provisions of the Legal Profession Uniform Law and Rules.

Issues in the Legal Profession Uniform Law

My Queen’s Birthday weekend has largely been spent in undertaking a further review of the Legal Profession Uniform Law and Rules, which in turn has highlighted a number of issues.

Commercial or government clients

At first blush, it appears that commercial or government clients have no rights, pursuant to the law, if they are unhappy about legal costs. The explanatory memorandum stated that

“the majority of the consumer protection provisions in Part 4.3 do not apply to commercial or government clients (as defined in the section) or a third party payer who would be a commercial or government client if the third party payer were a client of the law practice concerned. The entities falling within the definition of commercial or government client are generally large commercial operators or government entities and are likely to be repeat purchasers of legal services.”

However it is still open to a commercial or government client to make a costs complaint to the Victorian Legal Services Commissioner pursuant to Part 5.2 of the act. Admittedly, such complaints are limited to matters where the total costs are less than $100,000, or where the amount in dispute is less than $10,000, and the total costs are greater than $100,000. Such clients can also apply to VCAT, as I explain further below.

Provision of a range of estimates

One of the principal concerns for practitioners is s 174(1)(a) which, unlike the equivalent provision in the legal profession act, requires disclosure of an estimate of the total legal costs. There is no longer a reference to the ability to provide a range of estimates. However, s 182(3)(b) allows the practitioner to give a range of estimates of an uplift fee (when uplift fees being charged as part of the conditional cost agreement). Given that uplift fees are generally calculated as a percentage of the usual legal costs, this appears to be inconsistent with the requirement to provide a single estimate of total costs.

Impact on solicitors of failure by counsel to properly disclose

S 3.4.17(5) of the Legal Profession Act protected solicitors from the consequences of counsel’s failure to provide sufficient information to enable the solicitor to make proper disclosure to the client about counsel’s fees, or where counsel’s fees exceeded the amount in counsel’s estimate of likely fees.

In other words, if counsel underestimated his or her fees, and the solicitor rendered an invoice to the client including counsel’s fees higher than had originally been estimated, or if counsel failed to provide any disclosure and the solicitor included counsel’s fees and in invoice to the client, the solicitor was protected from the consequences of failure to disclose in relation to his or her own fees.

There is no equivalent provision in the Uniform Law. This may be an oversight, as originally the definition of total legal costs excluded GST and disbursements, and the main disclosure requirement in s 174(1)(a) required disclosure of an estimate of total legal costs, which, on the basis of the original definition in s 174(9) would have effectively meant just the solicitor’s fees.

However, s 174(9) has been repealed, and the definition of legal costs in s 6 specifically includes disbursements.
Therefore the solicitor must now disclose an estimate of total legal costs which includes counsel’s fees. Given that a contravention of the disclosure obligations results in a cost agreement being void (s 178(1)(a)), there is now a significant obligation on the solicitor to ensure that counsel makes proper disclosure, and that the fees rendered by counsel do not exceed the estimate of total legal costs in any disclosures made by counsel.

Notice of rights on the invoice

S 192 requires that a bill must include all be accompanied by statement setting out the clients rights in the event of a dispute in relation to the legal costs and the time limits applying. This obviously would include the right to seek a cost assessment and the right to make a costs complaint to the relevant state Commissioner.

Given that one of the principal objectives of the Uniform Law is to provide consistency across the participating states and territories, it was to be expected that such a notice could be certain sufficiently general to apply to all matters, irrespective of where the work was being undertaken.

However, section 99 of the legal profession Uniform Law Application Act 2014 (Victoria) provides that VCAT can determine cost disputes if the total amount in dispute is no more than $25,000. There is no equivalent provision in the New South Wales legislation.
Query whether the notice of this avenue of dispute is required to be provided, given that the right only arises after a costs complaint has been made to the Victorian Commissioner, which dispute cannot be dealt with by the Commissioner, and the Commissioner has advised the parties of their right to make application to vacate. In other words, it appears that the right to make application to fee cat only arises after a costs complaint has been made to the Commissioner.

The Victorian Commissioner has jurisdiction:
1. Where the total bill is less than $100,000; and
2. Where the total bill is equal to or more than $100,000 but the total amount in dispute is less than $10,000.
The Commissioner can only determine disputes where the total amount in dispute is less than $10,000. VCAT’s jurisdiction is where the total amount in dispute is not more than $25,000. Therefore, if a client is disputing a bill greater than $100,000 and the amount of dispute is greater than $10,000 but less than $25,000, it will be necessary for the client to lodge a costs complaint with the Victorian Commissioner, the Victorian Commissioner to process this complaint and identify that he does not have jurisdiction because the amount in dispute is greater than $10,000, and then give notice to the client of their right to apply to VCAT to determine the dispute.

Query if the notice of rights needs to specifically address this.

It is be hoped that these issues will be addressed in the next couple of weeks before the Law takes effect. The Legal Services Commissioner and state Commissioners could provide direction in relation to matters such as the notice on the bill, and the ability to provide a range of estimates. Other matters will require legislative amendment.

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)

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)