Alexander, Phillipa --- "Costs update: Disclosure of estimates: Traps and pitfalls" [2015] PrecedentAULA 29; (2015) 127 Precedent 60

• DISCLOSURE OF ESTIMATES
• TRAPS AND PITFALLS
• By Phillipa Alexander

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DISCLOSURE OF ESTIMATES
TRAPS AND PITFALLS
By Phillipa Alexander

Disclosure of estimates remains a major issue in solicitor:client disputes as to costs. In medical negligence proceedings, disclosing an estimate of costs to be payable by the client can be particularly difficult, as can disclosing an estimate of the costs a successful plaintiff is likely to recover from a defendant.

MANDATORY DISCLOSURES

The following disclosures are mandatory under ss309(1)(a) and (f), s309(2) and s316 of the Legal Profession Act 2004 (NSW) (LPA):

Section 309(1)(c): an estimate of the total legal costs if reasonably practicable or, if that is not reasonably practicable, a range of estimates of the total legal costs and an explanation of the major variables that will affect the calculation of those costs.

Section 309(1)(f): if the matter is a litigious matter, an estimate of:

(i) the range of costs that may be recovered if the client is successful in the litigation; and

(ii) the range of costs the client may be ordered to pay if the client is unsuccessful.

Section 309(2): For the purposes of subsection (1) (f), the disclosure must include:

(a) a statement that an order by a court for the payment of costs in favour of the client will not necessarily cover the whole of the client’s legal costs; and

(b) if applicable, a statement that disbursements may be payable by the client even if the client enters a conditional costs agreement.

Section 316: A law practice must disclose to a client, in writing, any substantial change to anything included in a disclosure already made under this Division as soon as is reasonably practicable after the law practice becomes aware of that change.

Defining ‘costs’

Having reviewed hundreds of disclosures over the last 24 years, I can recall very few which completely met the above requirements. Some practitioners appear to be unaware of the definition of ‘legal costs’ in s5 of the LPA, namely:

‘Legal costs’ means amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest.

In s302 dealing with Part 3.2 - Costs Disclosure and Assessment, the definition of ‘costs’ includes fees, charges, disbursements, expenses and remuneration.

DISCLOSURE

Therefore, under the LPA, the practitioner is required to disclose disbursements which are likely to include counsel's fees and experts' reports as part of the ‘total legal costs’ estimate under s309(1)(c). This disclosure needs to be made in writing before, or as soon as practicable after, the law practice is retained in the matter: s311 LPA. Disclosure of counsel's fees needs to be made once there is an intention to retain counsel: s310 LPA.

This will change with the commencement of the Legal Profession Uniform Law (NSW) (LPUL) in mid-2015. Section 174(1) of the LPUL provides as follows:

‘174 Disclosure obligations of law practice regarding clients

(1) Main disclosure requirement

A law practice –

(a) must, when or as soon as practicable after instructions are initially given in a matter, provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs; and

(b) must, when or as soon as practicable after there is any significant change to anything previously disclosed under this subsection, provide the client with information disclosing the change, including information about any significant change to the legal costs that will be payable by the client –

together with the information referred to in subsection (2).’

While the definition of ‘legal costs’ in s6 in the LPUL includes disbursements, ss174(9) provides: ‘For the purposes of this section, the total legal costs in a matter do not include GST and disbursements.’ Therefore, the initial disclosure of an estimate of the total legal costs will no longer need to include disbursements, such as expert report fees.

Although as a matter of convention, counsel's fees are billed as disbursements, in my view the obligation to disclose an estimate of counsel's fees as a component of the ‘total legal costs’ is not removed by s174(9).

A law practice has an obligation under s174(1) to disclose an estimate of the total legal costs. Section 6 defines a ‘law practice’ as including a sole practitioner. ‘Sole practitioner’ is defined as meaning an Australian legal practitioner who engages in legal practice on his or her own account and ‘Australian legal practitioner’ means an Australian lawyer who holds a current Australian practising certificate. Accordingly, barristers are required to disclose an estimate of their costs under s174(1) where instructed directly by a client or to disclose this estimate to a retaining law practice by virtue of s175,so that the retaining law practice can passon the estimate to their client.

Unfortunately, the legislation also leaves open to possible argument that where counsel's fees are disbursements to a retaining law practice's bill, s174(9) of the LPUL excludes these fees from disclosure of an estimate of the total legal costs so, therefore, the only information counsel is required to disclose under s175 is the basis on which the fees will be calculated as required by s174(1). However, it is difficult to read this intention from the legislation.

The removal of disbursements from the disclosure of the estimate also raises another issue, given that the first requirement of s174(1) of the LPUL is to disclose the basis on which 'legal costs' will be calculated. As 'legal costs' includes disbursements, a client may argue that where a practitioner has not disclosed the basis on which disbursements will be calculated, disclosure has not been made in accordance with the LPUL. While this has not been the practice of solicitors to date in making disclosure under the LPA, it may require reconsideration in light of the inclusion of s174(9) of the LPUL.

Section 177 of the LPUL requires additional disclosure prior to settlement of a litigious matter and provides:

‘(1) If a law practice negotiates the settlement of a litigious matter on behalf of a client, the law practice must disclose to the client, before the settlement is executed –

(a) a reasonable estimate of the amount of legal costs payable by the client if the matter is settled (including any legal costs of another party that the client is to pay); and

(b) a reasonable estimate of any contributions towards those costs likely to be received from another party.’

Disbursements are not excluded from this estimate, however, it is assumed that at this point, a law practice would be aware of the incurred disbursements, except perhaps for disbursements which had not yet been invoiced to the law practice or cancellation fees to be claimed by experts, witnesses or counsel, which would have to be ascertained prior to provision of this estimate.

COMMENCEMENT

Clause 18 in Schedule 4 to the LPUL provides that the provisions of the old legislation relating to legal costs (that is, the LPA) continue to apply to a matter if the client first instructed the law practice in the matter before the commencement date of the LPUL.

CONSEQUENCES

The consequences of non-disclosure can be relatively harsh under s317 of the LPA, involving an assessment of costs at the practitioner's expense; a possible reduction of costs by an amount considered by the costs assessor to be proportionate to the seriousness of the failure to disclose; and the right of the client to apply to set aside any costs agreement. However, added significant consequences will apply with the introduction of the LPUL in mid-2015. Section 178(1)(a) of the LPUL provides that:

‘If a law practice contravenes the disclosure obligations of this Part – (a) the costs agreement concerned (if any) is void.’

The law practice would not therefore necessarily be able to rely on the hourly rates provided by the costs agreement, if those rates exceeded rates regarded by the costs assessor as fair and reasonable in all the circumstances, proportionately and reasonably incurred and proportionate and reasonable in amount.^[1]

Section 178(1)(d) of the LPUL also provides that the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

At the date of writing, the Uniform Rules were not available, however, s178(3) of the LPUL does provide that:

‘The Uniform Rules may provide that subsections (1) and (2)

(a) do not apply; or

(b) apply with specified modifications

– in specified circumstances or kinds of circumstances.’

The Consultation draft of the General Rules made available by the Legal Services Council in November 2014 did not include any modification of s178. The public consultation period ended in January 2015. The Legal Services Council has advised that it is working to a timetable that will enable the Rules to be made ahead of the Uniform Law's anticipated commencement in mid-2015.

COUNSEL’S FEES

One of the major areas of dissension in relation to costs in medical negligence matters on both a solicitor:client or a party:party assessment usually relates to counsel's fees. The practitioner should ensure that proper estimates are obtained from counsel in compliance with s310 of the LPA and that these estimates are actually passed on to the client. In Hughes v Geraldine Daley trading as Colin Daley Quinn Solicitors And Barristers,^[2] Davies J held that the failure of the solicitor to passon counsel's estimates amounted to non-disclosure for the purpose of contracting out of regulated costs in a motor accidents matter.

Counsel's cancellation fees can also prove problematic in calculating a proper estimate. In Levy v Bergseng,^[3] cancellation fees of $90,000 were allowed for senior counsel. It is recommended that, where applicable, cancellation fees be factored into an estimate as a variable that will affect the estimate range.

As an aside, consider obtaining certification of senior counsel's fees in respect of a party:party costs order to ensure that the recovery of party:party costs is maximised for your client. While certification is seen lessfrequently since the introduction of deregulated costs, the court retains power to make such an order and did so in the 2014 decision of McLennan v Antonios.^[4]

Phillipa Alexander is a specialist in legal costs with Costs Partners. PHONE [phone] EMAIL [e-mail].

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^[1] See ss172, 199 and 200 Legal Profession Uniform Law (NSW).

^[2] [2013] NSWSC 806 (25 July 2013)

^[3] [2008] NSWSC 294 (4 April 2008).

^[4] (No. 2) [2014] NSWDC 38 (10 April 2014).