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Costs in Family Law

By July 5, 2021 No Comments

Costs in the family law jurisdiction differ from costs in other civil jurisdictions where costs follow the event. Section 117(1) of the Family Law Act 1975 (Cth) requires that parties to proceedings under the Act bear their own costs, subject to a few exceptions:

  1. Section 117AA, empowering the court to order costs in proceedings under Part XIIIAA – International Conventions, International Agreements and International Enforcement;
  2. Section 45A, empowering the court to make costs orders it considers just when making a summary decree; and
  3. Section 70NFB(1), requiring the court to order costs in proceedings relating to contraventions against orders affecting children without reasonable excuse.

The main exception, and the focus of my discussion, is s 117(2) and the factors in s 117(2A). 117(2) allows the court to make what orders it considers just if justified, in the court’s opinion, by the circumstances. The orders may be final or interim and for costs or security for costs. 117(2A) contains matters the court must have regard to when considering the order:

  • The financial circumstances of the parties;
  • Whether any party receives legal aid assistance and the terms of that assistance;
  • The conduct of the parties to the proceedings;
  • Whether a party’s failure to comply with previous orders necessitated the proceedings;
  • Whether any party has been wholly unsuccessful;
  • Any written offers to settle the proceedings made by the parties and the terms of such offers; and
  • Such other matters the court considers relevant.

Each matter must be considered, as a rule none carry more weight than the others.[1] That said, of course each carries different significance in the circumstances of each case.

The normal order under s 117(2) is, of course, costs on a party to party basis. There is also scope in exceptional cases for indemnity costs to be ordered. However, in Sfakianakis & Sfakianakis [2019] FamCAFC 54, the Full Court of the Family Court of Australia discussed a peculiar breed of costs, “special costs”. Doing so, they demonstrated both the flexibility of s 117(2) and, once again, how high the bar for indemnity costs is.

The judgment considered whether the husband should pay costs after his appeal was dismissed, and on what basis. As Their Honours noted at [15]-[16], “the [husband’s] appeal was wholly unsuccessful (s 117(2A)(e) and the [husband] abandoned much of his case on the day of the appeal (s 117(2A)(c) and (g)). […] These matters comfortably [justified] an order for costs.”

He discussed the Family Court as “a place where the law of fraud does not apply [… and] the law of justice and equity is somehow devoid of a meaning […] it has nowhere else [sic]” [18]. He claimed the jurisdiction to exercise discretion under s 79 did not exist [18].

The Full Court noted the wife’s reply was “correct and commendably restrained” [20]. A summation of her position was the husband’s views were contrary to authority and the scheme of the Act [19] and addressing it required costs which were not reasonably necessary.

The Court considered the discussion of costs in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. They noted Sheppard J’s summation of the authorities supporting indemnity costs included:

  • Where proceedings continued in wilful disregard of known facts or clearly established law; and
  • Involve the undue prolongation of a case by groundless contentions.

They considered these aptly applied to the husband’s conduct, dubbing his allegations “outlandish, indefensible, reckless and doomed to fail” [30]. On top of his allegations, the husband refused reasonable offers to compromise.

The Court found his conduct justified costs exceeding party to party costs. However, they did not consider it met the bar for indemnity costs. They ordered special costs; a bespoke remedy.

In discussing special costs, Their Honours relied on the breadth of the phrase “such order as to costs […] as the court considers just” in s 117(2). Noting this allows them to “fashion an order […] apt to the circumstances” [10].  They discussed the Court’s history of doing so, ordering costs on a trustee basis, being a full indemnity limited to costs reasonably incurred and reasonably in amount, orders for a partial indemnity and costs fixed to a particular sum. The Court dubbed all these orders which are neither party to party costs nor indemnity costs, special costs orders. They noted that the categories for these orders are not closed. Costs are within the Court’s discretion and may be moulded to the facts and circumstances of any case.

Section 117(2) affords the Court great flexibility in ordering costs. But the presumption in s 117(1) has stamped courts exercising the Act’s discretion with reluctance to order a full indemnity.

Another reluctance emerging is that when a trial judge does take the step of ordering indemnity costs, the Full Court is reluctant to interfere. In SCVG and KLD and Anor [2017] FamCAFC 95 Thackray ACJ and Ryan JJ and May J reached that conclusion from different reasoning.

The appellant husband in that case argued a number of matters both the joint judgment and May J found meritless. Relevantly, that the trial judge, Cronin J, ought not have deviated from s 117(1).

On this topic, the joint-judgment noted the burden of establishing Cronin J erred was “a heavy one” [54]. Citing Harris & Harris (1991) FLC 92-254 to say, “it is only in the rarest cases that the Full Court should interfere”.

Regarding the husband’s position, they noted Cronin J’s extensive examination of authority. He recognised the extraordinary step he was taking. He examined the husband’s conduct, making allegations which ought never be made and unduly prolonging the proceedings. Considering the authorities and the husband’s conduct, His Honour decided all indemnity costs required was “for the Court to be satisfied of particular [circumstances] that warrant an order other than on a party- party basis” [57]. Their Honours did not disagree.

Again, the joint judgment did not disagree. They did not discuss special costs orders or any other intermediary step between party-party costs and indemnity costs. They allowed Cronin J’s comment that if more than party-party costs was justified, indemnity costs were justified. So, Sfakianakis could be a step away from the position expressed in SCVG.

Alternatively, Cronin J’s order might itself be a special costs order. He only ordered the husband to pay 50% of the wife’s costs on an indemnity basis. Perhaps Sfakianakis is less a new step in the authorities or a deviation from the norm, so much as a case in which the Full Court named a class of order that the Court was already making.

Why do we have costs agreements and disclosure notices?

The legal profession has highly regulated obligations to clients.

I refer you to section 299 under Part 3.4 Costs Disclosure and Assessment.

We are informed that the main purpose of Part 3.4 is:

  • to provide for law practices to make disclosures to clients regarding legal costs;
  • to regulate the making of costs agreements relating to legal services including conditional costs agreements;
  • to regulate the billing of costs for legal services;
  • to provide a mechanism for the assessment of legal costs and the setting aside of particular costs agreements;
  • to provide for the maximum payment for law practice conduct of a speculative personal injuries claim other than practice as in the manner of a barrister.

There are definitions found at section 300.

Section 308 deals with cost disclosures. It is absolutely imperative that your disclosure notices are issued to clients promptly after you are retained. The disclosure must satisfy the following:

  • The basis on which legal costs will be calculated, including whether a scale of costs applies to any of the legal costs; and
  • information about the client’s rights to:
    • negotiate a costs agreement with the law practice; and
    • receive a bill from the law practice; and
    • request an itemised bill after receipt of a lump sum bill and be notified under section 315 of any substantial change to the matters disclosed; and
  • an estimate of the total legal costs if reasonably practical or if that’s not legally practical, a range of estimates for the total legal costs and an explanation of the major variables that will affect the calculation of these costs; and
  • details of the intervals, if any at which a client will be billed; and
  • the rate of interest, if any, that the law practice charges for overdue legal fees; and
  • if the matter is litigious, an estimate of:
    • the range of costs that may be recovered if the client is successful; and
    • the range of costs the client may be ordered to pay if the client is unsuccessful; and
  • the client’s rights to progress reports under section 317; and
  • details of the person who the client may contact to discuss the costs; and
  • information that are open in the event of a dispute.

Please read section 308 carefully. I have inserted the whole of that section into this paper.

Disclosures should be made even to town agents. Section 310 tells us that the disclosure must be made in writing before or as soon as practical after the law practice is retained.

In Family Law matters, we do not have a right to enter into a speculative agreement.

You do not have to make disclosure if the total legal fees, including disbursements, but exclusive of GST, are not likely to exceed $750.

Family lawyers do not and cannot enter into uplift fees which are dealt with at section 313.

The written disclosures are to be expressed in clear plain language and must be translated into a language other than English if the client is more familiar with that language. If the practice is aware the client is unable to read, the law practice must arrange for the information to be given to a client orally in addition to the written disclosure.

Section 315 – it is an ongoing obligation.

Disclosure already made must be constantly updated.

You will note that the obligations are protective of clients, not practitioners.

I have extracted in full section 316 which sets out the effect of failure to disclose.

316       Effect of failure to disclose

  • If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, the client or associated third party payer, as the case may be, need not pay the legal costs unless they have been assessed under division 7.

Note—

Under section 341, the costs of an assessment in these circumstances are generally payable by the law practice.

(2)     A law practice that does not disclose to a client or an associated third party payer anything required by this division to be disclosed may not maintain proceedings against the client or associated third party payer, as the case may be, for the recovery of legal costs unless the costs have been assessed under division 7.

(3)     If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed and the client or associated third party payer has entered into a costs agreement with the law practice, the client or associated third party payer may also apply under section 328 for the costs agreement to be set aside.

(4)     If a law practice does not disclose to a client or an associated third party payer anything required by this division to be disclosed, then, on an assessment of the relevant legal costs, the amount of the costs may be reduced by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose.

(5)     If a law practice retains another law practice on behalf of a client and the first law practice fails to disclose something to the client solely because the retained law practice failed to disclose relevant information to the first law practice as required by section 309(2), then subsections (1) to (4)—

(a)      do not apply to the legal costs owing to the first law practice on account of legal services provided by it, to the extent that the non-disclosure by the first law practice was caused by the failure of the retained law practice to disclose the relevant information; and

(b)      do apply to the legal costs owing to the retained law practice.

(6)     In a matter involving both a client and an associated third party payer if disclosure has been made to 1 of them but not the other—

(a)      subsection (1) does not affect the liability of the 1 to whom disclosure was made to pay the legal costs; and

(b)      subsection (2) does not prevent proceedings being maintained against the 1 to whom the disclosure was made for the recovery of those legal costs.

(7)     Failure by a law practice to comply with this division is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner, or Australian-registered foreign lawyer, involved in the failure.

It is required by section 317 to provide progress reports.  I would anticipate that from time-to-time as a matter of practice, you do so.

Disclosure is one obligation and there are consequences as a result of a failure to adequately meet the disclosure obligation.

A law practice may seek security for legal costs (s.320).

A law practice may charge interest (s.321).

Costs agreements are a completely different obligation to the disclosure obligation. Disclosure obligations exist if the quantum is going to be more than $750.

Costs agreements may be made.

Disclosure must be made. A client must know how the legal costs are going to be calculated.

A costs agreement must be written or evidenced in writing and it in fact consists of a written offer that is accepted in writing or by other conduct.

It is an offer to the client as to the terms upon which the legal services will be provided.  The offer must clearly state:

  1. that it is an offer to enter into a costs agreement;
  2. that it can be accepted in writing or other conduct; and
  3. the type of conduct that will constitute acceptance.

There is such a thing as a conditional costs agreement, but as I have already said, and pursuant to section 323, a conditional costs agreement cannot involve criminal proceedings or proceedings under the Family Law Act.

A costs agreement is a contract.  Section 326 reminds us that it may be enforced in the same way as any other contract subject to this Division and Division 7.

Beware sections 327 and 328.

Costs agreements that contravene the provisions of this Division of the Legal Profession Act are void. If you’ve entered into a costs agreement that contravenes section 324 or 325, the uplift and contingency fees, those are not enforceable.

Please be aware of section 328. The Supreme Court or QCAT, on an application by a client, can set aside a costs agreement if it is not fair and unreasonable.

I have extracted all of section 328 into this paper.

328       Setting aside costs agreements

(1)     On application by a client, the Supreme Court or the tribunal may order that a costs agreement be set aside if satisfied the agreement is not fair or reasonable.

(1A)   An application under subsection (1) to the tribunal must be made as provided under the QCAT Act.

(2)     In deciding whether or not a costs agreement is fair or reasonable, and without limiting the matters to which the Supreme Court or tribunal can have regard, the Supreme Court or tribunal may have regard to any or all of the following matters—

(a)      whether the client was induced to enter into the agreement by the fraud or misrepresentation of the law practice or of any representative of the law practice;

(b)      whether any Australian legal practitioner or Australian-registered foreign lawyer acting on behalf of the law practice has been found guilty of unsatisfactory professional conduct or professional misconduct in relation to the provision of legal services to which the agreement relates;

(c)      whether the law practice failed to make any of the disclosures required under division 3;

(d)      the circumstances and conduct of the parties before and when the agreement was made;

(e)      the circumstances and the conduct of the parties in the matters after the agreement was made;

(f)      whether and how the agreement addresses the effect on costs of matters and changed circumstances that might foreseeably arise and affect the extent and nature of legal services provided under the agreement;

(g)      whether and how billing under the agreement addresses changed circumstances affecting the extent and nature of legal services provided under the agreement.

(3)     The Supreme Court or tribunal may adjourn the hearing of an application under this section pending the completion of any investigation or decision concerning a complaint or investigation matter about the conduct of any Australian legal practitioner or Australian-registered foreign lawyer.

(4)     If the Supreme Court or tribunal orders a costs agreement be set aside, it may make an order as it considers appropriate in relation to the payment of legal costs the subject of the agreement.

(5)     Without limiting subsection (4), in making an order under that subsection, the Supreme Court or tribunal may—

(a)      apply the applicable scale of costs, if any; or

(b)      decide the fair and reasonable legal costs in relation to the work to which the agreement related, taking into account—

(i)      the seriousness of the conduct of the law practice or any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf; and

(ii)     whether or not it was reasonable to carry out the work; and

(iii)    whether or not the work was carried out in a reasonable manner.

(6)     However, in making an order under subsection (4), the Supreme Court or tribunal may not order the payment of an amount in excess of the amount the law practice would have been entitled to recover if the costs agreement had not been set aside.

(7)     For subsection (5)(b), the Supreme Court or tribunal may have regard to any or all of the following matters—

(a)      whether the law practice and any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf complied with this Act;

(b)      any disclosures made by the law practice under division 3, or the failure to make a disclosure required under that division;

(c)      any relevant advertisement as to—

(i)      the law practice’s costs; or

(ii)     the skills of the law practice or of any Australian legal practitioner or Australian-registered foreign lawyer acting on its behalf;

(d)      the skill, labour and responsibility displayed on the part of the Australian legal practitioner or Australian-registered foreign lawyer responsible for the matter;

(e)      the retainer and whether the work done was within the scope of the retainer;

(f)      the complexity, novelty or difficulty of the matter;

(g)      the quality of the work done;

(h)      the place where, and circumstances in which, the work was done;

(i)      the time within which the work was required to be done;

(j)      any other relevant matter.

(8)     The Supreme Court or tribunal may decide whether or not a costs agreement exists.

(9)     The Supreme Court may order the payment of the costs of and incidental to a hearing under this section.

(9A)   The tribunal may make a costs order under the QCAT Act in relation to a hearing under this section.

(10)    In this section— client means a person to whom or for whom legal services are or have been provided.

Note—

See also section 322(6) which extends the application of this section to associated third parties.

It may be obvious that costs can’t be recovered unless a bill has been delivered, but section 329 reminds us that we can’t start legal proceedings to recover legal costs from a person until at least 30 days after the law practice has given a bill to the person under sections 330 and 331.

A law practice may be authorised by a court of competent jurisdiction to start legal proceedings sooner if a person is about to leave the jurisdiction.

Section 329 applies whether or not the legal costs are subject to a costs agreement.

Section 330 sets out the form of a bill and again, I have set that section out in full.

330       Bills

(1)     A bill may be in the form of a lump sum bill or an itemised bill.

(2)     A bill must be signed on behalf of a law practice by an Australian legal practitioner or an employee of the law practice.

(3)     It is sufficient compliance with subsection (2) if a letter signed on behalf of a law practice by an Australian legal practitioner or an employee of the law practice is attached to, or enclosed with, the bill.

(4)     A bill or letter is taken to have been signed by a law practice that is an incorporated legal practice if it—

(a)      has the practice’s seal affixed to it; or

(b)      is signed by a legal practitioner director of the practice or an officer or employee of the practice who is an Australian legal practitioner.

(5)     A bill is to be given to a person—

(a)      by delivering it personally to the person or to an agent of the person; or

(b)      by sending it by post to the person or agent at—

(i)      the usual or last known business or residential address of the person or agent; or

(ii)     an address nominated for the purpose by the person or agent; or

(c)      by leaving it for the person or agent at—

(i)      the usual or last known business or residential address of the person or agent; or

(ii)     an address nominated for the purpose by the person or agent; with a person on the premises who is apparently at least 16 years old and apparently employed or residing there; or

(d)      if the legal costs or the basis on which they have been calculated have or has been agreed as a result of a tender process—in a way provided as part of the tender process or by later agreement between the client and the law practice.

(6)     A reference in subsection (5) to a way of giving a bill to a person includes a reference to arranging for the bill to be given to that person by that way, including, for example, by delivery by courier.

(7)     Despite anything in subsections (2) to (6), a bill may be given to a client electronically if the client requests the bill to be given electronically.

(8)     In this section— agent, of a person, means an agent, law practice or Australian legal practitioner who has authority to accept service of legal process on behalf of the person.

In addition to the bill, there must be a written notification of a client’s rights.

In my firm, I have my files assessed by a professional costs assessor. I periodically ask for advice to ensure that my disclosure notices and costs agreements are compliant with any current cases or updates to the legislation. I consider that the area of costs and costings is an area of expertise and like any area of expertise, it is helpful to seek advice from an expert. Even if you do not wish to engage a costs assessor and rely on time costing, I would suggest to you that periodically, it would be prudent to seek information about the current law from an expert in the area.

What are the types of costs?

I refer you to Fact Sheet 3 from the Office of the Legal Services Commissioner.

Their description in relation to party/ party costs is this.

How do party party costs work?

Party Costs are intended to reimburse one party, usually the successful party, the legal costs which they have paid or owe to their solicitor where these costs have been agreed or assessed as being fair and reasonable. However, party party costs normally provide only partial reimbursement of a client’s total legal costs. It is like the gap between a doctor’s actual charge and the amount paid by Medicare. A solicitor who charges a client more than the client receives from the other party is not necessarily overcharging. If costs are awarded to you, you cannot claim from the other party more than you’ve paid or paid to your own solicitor. In some cases, mostly motor vehicle accident claims, the maximum costs payable by the other party is fixed by legislation.

Usually you would expect that the party /party costs represent about 40% of your actual out of costs.

Estimates

In the case of Setschnjak v Derek Geddes Pty Ltd (2017) QCAT 2009, QCAT considered a costs agreement.

In this case, the Applicants applied to have two costs agreements entered into with the Respondent’s set aside.

The case in QCAT was considered by then President Justice DG Thomas.

In this case there is a bolded heading called “The Law” and the court set out the matters that the tribunal could have regard to.  The references were all from the Legal Profession Act.

If a costs agreement is set aside, the Tribunal, without limitation, can apply an applicable scale of costs or decide the fair and reasonable costs.

Worth reading both this case and Wiltshire which is discussed below.

Between the client and the firms, anticipate the versions of events are quite different.

The court set out a helpful table headed “Disclosure” and provided a factual background.  The law firm had set out detailed fees and detailed outlays and provided a second disclosure notice setting out stages, ranges of fees and outlays.

The scope of work with respect to the first estimate was “acting on your behalf in relation to winding up the company, CCTV Direct Pty Ltd”.

The scope of work for the second estimate was described as “acting on your behalf in relation to Supreme Court action 2653/10 and to do all matters and things necessary to obtain the most favourable outcome for you”.

There is  helpful discussion in the case that starts at paragraph 130.

There was a concern that there was a template used for the disclosure.

Importantly, at 141, the court said:

“There is no reason why this cannot be done by way of a more generic or templated disclosure as long as the contents are prepared by reference to and specifically based upon the matter to which the retainer relates.”

At 145:

“[145]    The conclusions which I have reached regarding the estimate flow very clearly from the contents of the documents. The law practice decided to provide an estimate by reference to steps. That is evident from the documents which were exhibited to Ms Derek’s affidavit. The nature of the stages are clear from the disclosure notices and those stages, on their face, do not relate to the stages which are applicable in the litigation to which the instructions related.

[146]      I therefore find that the law practice did not disclose an estimate as was required by section 308(c) LPA.”

Paragraph 162 begins a section of the Decision headed “Consequences”.

The agreements were set aside.

If you update your estimate, you have to be able to provide an explanation to a client as to why.

Unfortunately, for practitioners and clients, it is very difficult to predict.

Two recent Decisions are helpful to practitioners in ensuring that they deal with their requirement as set out for them under the Legal Profession Act of providing estimates.  Rhonda Gay McLaren v Wiltshire Lawyers Pty Ltd [2019] QSC 305 is informative.

The retainer deals with Family Court proceedings. In 2017, Ms McLaren engaged the firm. She was dissatisfied by fees and sought different representation. She eventually engaged the Respondent who provided her with a disclosure statement and a costs agreement.

Ms McLaren engaged Wiltshires and she was given a disclosure statement and a costs agreement.  They then acted for her in a mediation and performed other work before she fell out with them over the level of their fees.

The firm then moved to secure their fees by lodging a caveat over property owned by her.

It prevented her from using the property as security for a loan to enable her to pay money to her former husband in accordance with an order of the Family Court. She applied to have the costs agreement set aside, the caveat be removed, and the proceedings brought by the Respondent firm in the Magistrates Court be stayed.

The matter was commenced in the Supreme Court rather than QCAT because of the relief sought with respect to the caveat.

The case takes us to the Legal Profession Act and section 308, section 310, 311, 322 and 328. Section 332 is also considered.

The  case considers what is fair or reasonable within the meaning of section 328.

The court referred to that definition saying:

“…it has picked up the common law test which was described by Lord Esher MR in the frequently cited case of Re Stuart; Ex parte Cathcart [1893] 2 QB 201 at [204]-[205] where his Lordship said:

‘… the Court may enforce an agreement if it appears that it is in all respects fair and reasonable. With regard to the fairness of such an agreement, it appears to me that this refers to the mode of obtaining the agreement, and that if a solicitor makes an agreement with a client who fully understands and appreciates that agreement that satisfies the requirement as to fairness. But the agreement must also be reasonable, and in determining whether it is so the matters covered by the expression ‘fair’ cannot be reintroduced. As to this part of the requirements of the statute, I am of opinion that the meaning is that when an agreement is challenged the solicitor must not only satisfy the Court that the agreement was absolutely fair with regard to the way in which it was obtained, but must also satisfy the Court that the terms of that agreement are reasonable. If in the opinion of the Court they are not reasonable, having regard to the kind of work which the solicitor has to do under the agreement, the Court are bound to say that the solicitor, as an officer of the Court, has no right to an unreasonable payment for the work which he has done, and ought not to have made an agreement for remuneration in such a manner.” (emphasis added)’”

The case then sets out other Decisions that considered relevant principles about agreement, informed consent to the offer, which is the basis of a costs agreement.

The concern is of course the client’s vulnerability.

The agreement provided:

“2.7        All work undertaken by us may, in our discretion, be assessed by an independent legal costs consultant and our bills (tax invoices) will be issued in accordance with independent costs assessment.

2.8          In the event that we elect to engage a legal costs consultant as set out in Clause 2.7, a copy of the independent certificate of assessment will be sent with each bill (tax invoice) to you.

2.9          You agree to reimburse us for the fees charged by the legal costs consultant and these fees will be charged to you as a disbursement.”

The third component, 2.9, is a difficulty, I would say, for the firm.

The court considers the fact that they were just sent to the client without further explanation as a consideration in deciding whether they are reasonable or unreasonable.

The Respondent was said to have obligations to the client of a fiduciary nature.

Quoting from Law Society of NSW v Foreman [1994] 34 NSWLR 408 at [435]-[436], the Mahoney JA set out some propositions, which are:

“(a)    the obligations to a client exist not merely in the carrying out of an agreement already made between a solicitor and client but also in the respect of the making of it;

(b)     the contents of the obligations that is what is necessary to be done in order to discharge them varies with the circumstance of the particular case;

(c)      such obligations ordinarily at least frequently involve that the client because of the independent advice or otherwise be seen not to have entered into the agreement in reliance upon the relationship with or trust of the solicitor: that there be full and frank disclosure to the client of all information known to the solicitor which the client should know and that if there be aspects of the contract in respect of which the solicitor may be in a position of advantage with respect to the client that those matters be brought to the client’s attention so the client can decide whether or not to enter into the contract.

The court was concerned because the firm had the capacity to incur a fee which the client had to pay but was essentially to the advantage of the solicitor.

The effect of the clauses as to “pass onto the client a cost which the client should not be required to pay”.

If you think back to the matters that the LSC was concerned about, one was that when a client exercised a right to ask for a detailed assessment that returned a higher amount, that firms habitually replaced the lower amount with the higher amount as if there was a penalty to exercising the right to seek the detailed assessment. That is in fact not prohibited, but as you could see, the LSC is not comfortable with it. In terms of this case, the requirement at the election of the law firm whether to use an assessment or not but which the client then paid for was not considered to be reasonable.

The suggestion was that the work was done for both the benefit of the solicitor and the client to ensure the client is billed a fair and reasonable amount. The court said:

“It might be said that as a fiduciary a solicitor should only bill the client a fair and reasonable amount but it does not seem to have crossed the respondent’s corporate mind.”

Next the court considered was whether she was induced to enter into the costs agreement by misrepresentation.

The court then considered whether the Respondent failed to make disclosures as required under the Legal Profession Act.  The focus here was on estimates. There were broad ranges.  An example of these were to prepare and attend mediation, $1,500 to $10,000; first mention – interim hearing to trial $10,000 – $250,000.

The issue then became when an estimate was revised the Applicant submitted that the Respondent had failed to provide timely notice to her of a substantial increase above the estimate in clear breach of section 315 of the Legal Profession Act.

The court referred to estimate in this way:

The ordinary meaning of the word “estimate” is “an approximate judgment or opinion regarding the value [or] amount’ of something” and should be adopted in the interpretation of this legislation. The nature of an “estimate” in these circumstances was considered by Fryberg J in Jezer Construction Group Pty Ltd & Ors v Conomos where he applied s 48 of the Queensland Law Society Act 1952.

In essence, just because an estimate is wrong doesn’t mean it’s not an estimate.

The Wiltshire  the costs agreement was not reasonable. It was set aside.

LSC

Most solicitors when complained about, are complained about by clients to the Legal Services Commissioner about legal costs.

Because of the importance, I have set out the information the Legal Services Commissioner sets out on their website.  They say that the most common enquiries and complaints concern:

  1. failure to give adequate upfront costs disclosure;
  2. failure to give adequate ongoing costs disclosure during the course of the matter;
  3. a final bill grossly exceeding the original estimates;
  4. failure to provide an itemised bill on request;
  5. improper exercise of a lien;
  6. unduly aggressive debt recovery practices.

All of the above can really be described as a mismanagement of expectations and the loss of a relationship.

The LSC  has identified billing practices that caused the LSC concern. They are:

  1. the practice of substituting an itemised bill in a higher amount for an earlier lump sum bill after a client has exercised his or her entitlement to request the lump sum bill be itemised;
  2. the practice of billing clients in 6 minute units of time or part thereof and proceeding to bill for many such units of time over the life of a file for work that took much less than 6 minutes and perhaps no more than 30 seconds thereby significantly inflating the lawyer’s stated hourly rate;
  3. the practice of lawyers charging a care and consideration component on top of their standard hourly rate often at the lawyer’s absolute discretion;
  4. the practice of charging out paralegals at rates which approximate the charge out rates for lawyers; and
  5. the practice of barristers arguably double-dipping by charging clients cancellation fees for time set aside in matters that settle early when they also charge other clients for work they performed in the time that was set aside but subsequently freed up.

I refer you to some of the disciplinary decisions in relation to costs:

  1. Legal Services Commissioner v Urban (2013) QCAT 521.

The Respondent was removed from the local roll required to pay the Applicant’s costs in the amount of $2,500 and to pay compensation in the sum of $6,185.

Please notice the compensation sum in relation to the impact on the practitioner.

Urban had been admitted in 1997 and had not sought to hold a practising certificate after June 2011. In November 2012, the LSC brought disciplinary charges against her.

Urban had not filed a response, appeared at directions hearing, informed the Commissioner nor the QLS of her address and correspondence to her last address had been returned.  An order for substituted service of the discipline application had been made and a notice was advertised in the Courier Mail.

The charges first related to a client where Urban purported to charge the client almost $120,000 for legal costs.

The client insisted on an assessment and the costs were assessed at $54,000.

The relevant parts are these:

“13.   Gross overcharging of the kind alleged in count 2 will constitute professional misconduct if the prevailing circumstances and the degree of overcharging warrant a finding to that effect (rather than the lesser offence of unsatisfactory professional conduct under section 418 of the Legal Profession Act).

The offending here involved an attempt to charge more than double the amount subsequently found to be fair and reasonable after a proper assessment and to take those monies from an injured client.”

In the case of Legal Services Commissioner and Diane Marie Wright, a 2009 case, the firm had acted for a party to a de facto relationship action under Part 19 of the Property Law Act.

A property was to be sold, the firm was nominated to act on the sale and charge $7,179.76 for legal fees associated with the sale. The client sought an itemised bill of costs pursuant to section 332 of the Legal Profession Act.  This was refused on the basis that Ms Anderson was not the client nor a third party payer. She lodged a complaint with the Legal Services Commission.

The Commissioner filed an Originating Application seeking declarations that Ms Anderson was a client of the Respondent or a third party payer in relation to Mr Anderson or otherwise entitled to apply for an assessment of the costs. The case turned on the issue as to whether Ms Anderson was a client when in fact the firm had acted for Mr, but the order required the firm to act in the conveyance.

For the purpose of the case, client was defined to mean a person to whom or for whom legal services are or have been provided.  The Commissioner asked the court to consider the definition as something to be construed widely.

The firm resisted any implied retainer.

Mr Conrick for Ms Wright pointed out the circumstance that one person benefits from the provision of legal services directly to another does not of itself make that first person a client of the solicitor.

The concept of an implied retainer arose if the parties “intended it to arise, in other words, if Ms Anderson and the Respondent should be taken to have intended as much”. Whether they did, depends on what may objective be ascertained as their intentions.

An important paragraph in this case is:

 “A consideration which runs strongly against implying this retainer is the provision in the consent order that the respondent’s firm would be acting on Mr Anderson’s behalf in “the conveyance of the sale of the property”. That property was Mr Anderson’s property. It is hardly surprising to hear that his solicitors would be acting in the sale. But that the parties dealt expressly with that implies that the respondent’s firm were not to be taken to be acting for anyone else. If “the conveyance of the sale of the property” extends to the distribution of the proceeds of sale, which would ordinarily be the case, then the provision would not sit comfortably with a view that following the sale proper, and during the distribution phase, the respondent’s firm would also be acting for Ms Anderson.”

And also important:

“Another consideration telling against a view that the respondent also acted for Ms Anderson following the sale and during the distribution phase is that Ms Anderson was, at the time of the consent order, separately represented by other solicitors, with no suggestion that they were to cease to act.

A further negative consideration is the prospect of conflict of interest were the respondent’s firm to be acting for both parties…. Then again, the dispute over this bill shows that in this case it was not.”

The application was dismissed, and the court determined that Ms Anderson was not at material times a client of the firm. The court then considered whether she was a third party payer as defined in section 301 of the Act.

The court determined that Ms Anderson undertook no legal obligation vis-à-vis the Respondent and that the court determined was the sort of obligation which section 301 has in mind.

The Application was dismissed.  The important thing here is that it’s not unusual for one firm to take on the sale and/or distribution of sale proceeds but the warning of this is to beware an implied retainer. See Apple v Wily [2002] NSWSC 855, paragraphs 7 and 11.

The case involving the firm of Diane Marie Wright was taken on appeal.

The appeal court determined that Ms Anderson was a third party payer under section 301(1) of the Legal Profession Act and that sufficed under section 335(2) to entitle her to apply for an assessment of the costs payable by her.

The facts were the same. Ms Wright charged $7,179.76 for work which she paid to herself from the balance of the proceeds of sale held in her trust account. Most of the burden of her fees fell upon someone who had not retained her.

The case turns on section 335 dealing with third party payers.

The term Third party payers in defined in section 301.

The obligation of Ms A to cause the proceeds of sale to be paid in various ways according to an order was enforceable against her. Because of that legal obligation to cause the proceeds of sale to be applied in accordance with the order, the relationship  has its basis and thereby its enforceability primarily from the force of the order itself as well as its contractual force.  It was an obligation enforceable not only by a money claim but by proceedings to compel compliance with the order. It follows that because of that obligation, she ought to succeed. The appeal was allowed. She was determined to be a third party payer who was entitled of such to apply for an assessment of the legal costs.

The 2007 discipline case involving Stephen Joseph Houlihan is also about costs.

This is a case where, because of the Respondent’s inaction, personal injuries claims became statute barred.

One client was Mr Clark. In this case, the ninth charge concerned the efforts of Mr Clark’s new solicitors, Travis Schultz, to extract from the Respondent a bill of costs covering unpaid work and delivery up of Mr Clark’s client file. The account and the file were requested in late July 2004. It was not until 11 October 2004 the Respondent delivered any of the material to the new solicitors. At no time did he deliver an itemised bill of costs. It became necessary for Mr Schultz to file an application in the court for an order for the delivery up of the files.

This was characterised as unsatisfactory professional conduct.

Another charge again dealt with a request for an itemised account. The Respondent failed to render an itemised bill of costs for all unpaid work and he also failed to pay out the balance of funds.  His name was removed from the solicitor’s roll.

The case of Kerry Joseph O’Neill (trading as O’Neills Business Lawyers) v Robyn Lynette Wilson is another helpful case. It’s a 2011 Decision (O’Neill v Wilson [2011] QSC 220)

The Application was dismissed by Atkinson J.

The firm provided the client with a costs agreement. An application was made to the court that the Defendant be ordered to pay the Plaintiff the sum of $34,364.46 together with costs and interest and that there be a declaration that by clause 13 of each of the costs agreements made between the Plaintiff and the Defendant, the Defendant granted to the Plaintiff an equitable mortgage, the land be charged with the payment of all amounts and that otherwise there are applications for the appointment of a trustee for sale.

The court said it seems to me too major and insuperable problems for the Applicant and they both arise from the fact that the Application is relying upon unsigned documents entitled costs agreements. These unsigned documents purport to create the equitable mortgage and charge over the Respondent’s real property.

An unsigned document will not support an equitable mortgage in spite of section 11 of the Property Law Act as it was at the time. The second problem which arises from the fact that there is no signature of the Respondent who is the solicitor’s client on the document is found in the argument that nevertheless, it may be considered a costs agreement under section 322 of the Legal Profession Act.

The solicitor relies upon subsection 322(4) which provides that a written offer for a costs agreement must clearly state it is an offer to enter into a costs agreement and the offer can be accepted in writing or some other conduct and the type of conduct will constitute acceptance. The problem for the solicitor in this case is found in the letter which accompanied the offer.  The offer, if read alone, might suffice.

Clause 2 provides if the client accepts the offer, the client will be regarded as having entered into a costs agreement. It includes that the way in which acceptance might take place, including by signing and returning a copy of it or giving the firm instructions after receiving the document of contacting the firm and advising of the client’s acceptance. However, these offers in the two matters in which the solicitor dealt with are enclosed undercover of  a letter which must be read with the offer means that at the very least it’s far from clear that the offer can be accepted in any other way than by signing and returning it.

The firm made it clear in their covering letter they would not do any work unless the disclosure notice and costs agreement was signed and returned.  Since then, it must be read with the offer “the court must not be assured that the offer clearly states that it can be accepted other than by signing and returning it”.

Again, this provides a cautionary tale for practitioners.

Costs Jurisdiction  

The Supreme Court has exclusive jurisdiction in relation to the assessment of all solicitor and client costs.  Most applications are now dealt with in QCAT.

It is important to note that on 1 July 2008 the Family Court withdrew from its role in regulating lawyer and client costs for fresh applications commenced after 30 June or where a lawyer was first retained by a client after 30 June 2008 or where the client and solicitor entered into a new costs agreement and/or retainer after 30 June 2008 in respect of applications commenced prior to that date. After that time, lawyer and client costs matters in cases under the Family Law Act became regulated by state or territory legislation governing the legal profession in the state or territory where the lawyer practices.

In the CCH textbook, the Australian Master Family Law Guide, at page 1143 also provides information you might find helpful.

Managing the client

Client management is about the management of expectations and the relationship itself.

Sometimes, that relationship, no matter what you do, will break down. That does not mean that an appropriate response on your part is to become defensive and aggressive.

In the climate of consumer rights in which we operate, it is never appropriate for you to do more than exercise your rights.

Step 1:

If you are asked for an assessment, then you have to provide the assessment and you cannot pass the costs of obtaining such an assessment to the client.  If, however, you can invite them to provide you with their concerns, you may be able to contain the dispute to the level where you can make (tape ended).

Sit down and work out the cost of the assessment versus a discount to the client. That’s simply pragmatic.  If you haven’t been paid, then you may seek to recover in a civil debt recovery process your fees. The other method is what I call a Form 60, where you apply to the court and a neutral costs assessor is appointed. If your bills are discounted by more than 15%, you pay for the costs of the neutral costs assessor. If your bills aren’t discounted by more than 15%, then the other party pays. Again, you have to have confidence in your own bills and when you use a Form 60 process, it’s not possible for them to cross-apply for other orders to complicate the process.

You can issue an equitable lien letter. You can join the proceedings as a third party creditor. Personally, I always issue an equitable lien letter and I am currently adopting the practice of joining the proceedings as a creditor.  That means the trial judge can’t make orders without reference to your rights as a creditor.

Exercise your rights, but don’t exercise them aggressively. Exercise them promptly and efficiently. If you are unable to act without being defensive and without being aggressive, contemplate hiring a filter. That might mean having Counsel settle your application to intervene in the proceedings as a creditor, or having a commercial firm act as your debt collector, entering judgment and moving to bankruptcy as required.

My attitude to cost management is that I am at my best use, highest and best value in the language of valuations, doing new work, managing current work and not looking backwards and doing debt recovery.

When you hire third parties such as a costs assessor or another firm, those are deductible costs. Your own time and energy is not available for a deduction. Also, don’t get yourself into a situation where you are stewing and not being paid is impacting on your wellbeing. Family lawyers usually give of their best to their clients and it is simply hurtful when they appear to be willing to chisel you on your fees. It can’t be helped; they’re human beings; they have no concept of anybody but themselves during these processes and you’re best to just protect yourself from your own reactions as much as you can.

Don’t become defensive. Don’t become aggressive. Add the filter if you need to.

Stay well yourself and keep working, is my advice in terms of client management.

Clients also know if they’ve sort of ‘got you’. If they think they’ve got you and they are getting a one-upmanship on you by your own reaction, then you might be feeding their own need. Beware the high conflict clients who fight each other and then turn on you and they each then turn on their own solicitors as in their pendulum they come back together as a unit.

 

Dealing with Solicitor and Client Costs Issues

A client can request an itemised bill. That is set out in section 332 of the Legal Profession Act.  If a bill is delivered as a lump sum bill, any person who is entitled to apply for an assessment of legal costs to which the bill relates, may request the law practice to give the person an itemised bill. The practice has to comply within 28 days.

A person can request the itemised bill only in relation to those costs the person is liable to pay and the law practice must not commence legal proceedings until at least 30 days after the date on which the person is given the bill.

If the person makes a request for an itemised bill within 30 days after receiving the lump sum bill, the law practice must not commence proceedings to recover costs until 30 days after complying with the request.

Currently, the law practice is not entitled to charge a person for the preparation of an itemised bill requested under this section. That could be a significant cost to a practice. Be aware that the preparation of itemised bills is a detailed exercise undertaken by a costs assessor. It is possible for you to prepare your own itemised bill, but remember that if you engage a costs assessor to do it, it is a tax deduction and your own time is simply time not then available to you in the undertaking of other paying work.

Solicitors can issue interim bills.

My suggestion is that you provide frequent interim bills. If a matter is a busy or high velocity matter, it may be prudent to bill more regularly than monthly. The circumstances of your own practice will inform that but a client’s capacity to retain an appreciation of the work done matched to an invoice issued is likely to be over a shorter rather than a longer time period.

If you are upfront with your client about your view as to what their desired action might cost, they may not proceed. That, however, is an appropriate outcome for them and do not become defensive when you seek to recover costs.

[1] I and I (No 2) (1995) FLC 92-625, P 82,277.