Posts Tagged ‘LPUL’

Non compliance with 21 day period for itemised bill earns slap on the wrist

Thanks to Stephen Warne and his excellent blog for pointing out that the Victorian Legal Services Commissioner is publishing some cost determinations here.  Having briefly looked through a couple, I noted one where the practitioner had failed to provide an itemised bill within 21 days of the request, providing the bill 44 days after the request.  The failure to comply with the time limit in the LPUL resulted in an order that the practitioner attend professional development in costs.

Admittedly, the amount of the lump sum bill was quite low ($2,200) and therefore the work involved in preparing the itemised bill was not necessarily substantial, but 21 days is a very short period.  Query if the Commissioner would take the same view if the bill was $25,000 or $100,000.

So don’t sit on your hands ignoring a request for an itemised bill!  Be aware of the time limits.

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.

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)

Proportionality and Costs – A Rising Issue?

Proportionality comes into play in a number of respects in relation to both costs payable by a client to a practitioner, and costs between parties in litigation.

The Legal Profession Uniform Law (LPUL)[1] specifically includes proportionality as a factor in assessing what costs are to be paid by a client to their practitioner.  The test[2] for recovery of legal costs in the LPUL is

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.

Both the LPUL and the Legal Profession Act 2004 (Vic) provide that, where a practitioner has failed to make the disclosures required by the relevant Act, a Taxing Officer may reduce the costs payable to the practitioner by an amount proportionate to the failure to disclose.

S 24 of the Civil Procedure Act  2010 (Vic) provides:

A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—

(a)     the complexity or importance of the issues in dispute; and

(b)     the amount in dispute.

The Cost Court members have referred to this provision when considering what allowances should be made in party/party taxations, and also when considering the costs of the taxation itself.

The approach to proportionate costs

Looking to the UK, where proportionality has been a factor in cost assessment for some decades, a primary issue is whether the test is applied globally, on an item by item basis, or both.  Previously, the approach taken was to assess the costs first for reasonableness, and then look at the total amount as to whether it was proportionate.  The new position[3] is to consider each cost for both reasonableness and proportionality.  Therefore, costs which are disproportionate may be disallowed or reduced even if they were reasonably or necessarily incurred.

What are the factors which are considered in determining proportionality?  The UK approach is that costs incurred by a party are proportionate if they bear a reasonable relationship to:

  • the sums in issue in the proceedings;
  • the value of any non-monetary relief in issue in the proceedings;
  • the complexity of the litigation;
  • any additional work generated by the conduct of the paying party; and
  • any wider factors involved in the proceedings, such as reputation or public importance.

Proportionality and the Civil Procedure Act 2010

Proportionality was considered in Yara Australia Pty Ltd v Oswal[4], where the Court of Appeal emphasised that practitioners have an overarching obligation to conduct litigation in a manner proportionate to the matters in issue, and that “it will be no answer that the practitioner acted upon the explicit and informed instructions of the client”, if there is failure by the practitioner to use reasonable endeavours to comply with the overarching obligation to ensure costs are reasonable and proportionate.

The Court expressed concern as to the proportionality of representation and material, given the amounts in issue and the nature of the application, and of its own volition sought submissions from the parties as to whether there had been a failure to meet the CPA obligations to use reasonable endeavours to ensure the costs incurred were reasonable and proportionate.

The Court noted that the concept of costs being proportionate is at the core of the legal reforms introduced by the CPA, and that section 24 imposes a positive obligation on both solicitors and counsel to take steps to ensure that costs are not excessive.  One aspect of the overarching purpose, which is the focus of the court, is “cost effective resolution of the real issues in dispute”, and this involves the court dealing with a matter in a manner proportionate to the “complexity and importance of the issues and amount in dispute”.

An objective evaluation of the steps taken by a legal practitioner involves weighing the legal costs expended “against the complexity and importance of the issues and the amount in dispute, in order to determine whether the parties used reasonable endeavours to ensure that costs were proportionate”.

The Court’s powers, where there is a contravention of obligations, include sanctions and cost orders.  Such powers are not confined to cases of incompetence or improper conduct, but extend to breaches of the overarching obligations.  Cost orders can include orders that the practitioners bear some or all of the costs of the opposing party, or an order restricting the costs which the practitioner can charge to their own client.

The first aspect of the particular case considered was whether the level of representation by counsel was reasonable and proportionate.  The factors relevant include the complexity or importance of the issues, the likely costs of the proceedings, the amount in dispute, the benefits achieved by the level of representation and the manner in which the hearing was conducted.  The Court found that oral submissions of the lead senior counsel narrowed the focus of the application.  It was also noted that the overall litigation is likely to be “immensely complex and expensive”, and this was grounds for separate representation of parties.

The costs must be proportionate to the specific application, and it was not an answer that the overall costs in the litigation would be very substantial.  The Court found that there had been a breach of the overarching obligation to ensure costs were reasonable and proportionate. It refused to make an order for indemnity costs, and has invited further submissions on the appropriate costs orders.

Proportionality and Cost Orders

The CPA provisions were considered, in the context of the award of costs, in Hansen v Hennessy (No 2)[5].  Lansdowne AsJ noted the obligation to use reasonable endeavours to keep costs reasonable and proportionate.  She had regard to what claims made in the matter could objectively be said to have been arguable on the evidence, and the conduct of the defendant.  She also considered the overall likely costs, as being disproportionate with the amount in issue.  Finally, she considered particular work, including steps taken beyond what would normally be required, and an affidavit of the plaintiff, as to whether this particular work was proportionate and should be allowed.

The Court apportioned costs in Fitzpatrick v Cheal[6], having regard to proportionality, on the grounds that the ultimate outcome obtained by the plaintiffs was disproportionate to the overall costs of the litigation.  Regard was also had to the fact that the defendant has succeeded on some factual matters.

Ward J considered the obligation on parties to take reasonable steps to resolve or narrow disputes and to assist the court in furthering its overriding purpose of facilitating the just, quick and cheap resolution of the real issues in dispute.  He observed that “the ultimate touchstone in exercising the discretion as to costs is that of fairness between the parties”.

Proportionality was considered in the context of an awards of costs in Agar v McCabe[7]  and Agar v McCabe (No 2)[8].  The proceedings involved a review of review of an application for release of subpoenaed documents and associated costs order, in a proceeding challenging a speeding fine.  T Forrest J noted the decision of Hobson Bay City Council v Viking Group Holdings Pty Ltd[9] and observed that proportionality in an award of costs has an additional dimension in criminal proceedings, in that it must be considered in the context of achieving a just outcome, with the punishment being proportionate to the offence.  It is therefore appropriate to consider the total outcome of fines and costs, in considering the proportionality of the costs sought to be awarded.  It can be assumed that, were there is simply an order for costs to be taxed, the Taxing Officer must take this overall outcome into account in taxing costs.  His Honour considered that proportionality and consistency were mandatory matters to be considered when awarding costs in criminal matter.  Whilst he upheld the Magistrate’s cost order, he declined to order costs against the appellant, finding that the effect of such an award, where an on the spot fine was approximately $180, would make the total pecuniary outcome of the whole proceeding, disproportionate to the seriousness of the offence.

In Bleyer v Google Inc[10], McCallum J observed that disproportionality was a species of abuse of process. She ordered that the proceedings be permanently stayed having regard to the complexity of the matters in issue and evidence adduced by the defendant as to its likely costs of the proceedings. She also had regard to the fact that the plaintiff was unlikely to be able to enforce any award of damages given that any judgement would not be able to be enforced in the United States.

In Freeburn v The Cake Decorators Association of NSW Inc. (No 2)[11], an application was made to stay proceedings on the basis that the likely costs would be disproportionate to the matters in issue. The proceedings involved a claim of defamation where any damages awarded were likely to be nominal, the claim against the defendants was weak, and the court found that the costs of the proceedings was beyond the means of all of the party’s. In addition a number of cost orders had already been made against the plaintiff.

The court dismissed the proceedings, finding that they were an abuse of process on the grounds that the legal costs of the court resources required to determine the claim would be out of proportion to the interest at stake.

Whilst the decision is a New South Wales District Court decision, it includes a useful analysis of recent superior court decisions which suggest that the concept of proportionality is relevant in current litigation, referring to obiter comments in the recent High Court decisions of Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd[12]; Tajjour v New South Wales[13] regarding case management and the use of resources.

Proportionality and Disclosure under the LPA

Palese v Malouf[14] deals with a reduction in costs proportionate to the failure to disclose information to a client, as required by the Legal Profession Act.  The proper approach is to consider the seriousness of the breach, and then turn to the question of proportionality.  The assessment of the seriousness of the breach is considered in the context of the policy behind the duty to disclose, which, in relation to disclosure about costs, is to enable a client to understand what the ultimate costs might be.



[1] Legal Profession Uniform Law Application Act 2014 (Vic)

[2] S 172 (UL)

[3][3] Adopted as a result of Lord Justice Jackson’s Review Of Civil Costs

[4] [2013] VSCA 337

[5] [2014] VSC 115

[6] [2012] NSWSC 932

[7] [2014] VSC 309

[8]  [2014] VSC 333

[9] [2010] VSC 386

[10] [2014] NSW SC 897

[11] [2014] NSWDC 173

[12]  (2013) 250 CLR 303 at [39]

[13] [2014] HCA 35

[14] [2014] NSWDC 65