Nicholson v B&S — the first important Victorian decision about setting aside costs agreements

Nicholson v B&S [2000] VLPT 28 was the first decision to deal in detail with the principles which govern the extremely wide discretions granted by s. 103 of the old Legal Practice Act, 1996. Registrar Howell cancelled a costs agreement, and ordered that one of the bills the client challenged — the only one she had really jumped up and down about — be taxed by the Taxing Master of the Supreme Court.  Mr Howell did so in the following circumstances:

First, the solicitors breached the obligations to provide the information required by 86(3)(b) and (c) of the Legal Practice Act, 1996, namely an estimate of total legal costs or a range of estimates and an explanation of the major variables that will affect the calculation of those costs, and this amounted to unsatisfactory conduct.

Secondly, it was not ‘fair’ because:

(a) it was complex, vague, confusing and contradictory and written in a form that would make it impossible for almost all clients to understand its effect;

(b) in this particular case, the client read the agreement, did not understand “a lot of it”, and signed it without fully understanding it;

(b) the costs agreement and the costs disclosure statements were precedents used in all litigious matters, which were not tailored (save for the addition of the name and address of the client) to deal with the client’s particular matter to be handled for the client, resulting in an accumulation of irrelevant information in the agreement;

(c) the client was handed the agreement at the lawyers’ offices, informed in substance that no work would be performed until the agreement was signed, immediately read it and signed it, so that though she was informed by the lawyers that she could obtain independent legal advice, it must have been apparent to the lawyers that she had not done so;

(d) there was a breach of a fiduciary duty in the lawyers (according to authority apparently to be found in Brown v Talbot & Oliver (1993) 9 WAR 70, Re Morris Fletcher & Cross’ Bill of Costs [1997] 2 Qd 228, and Law Society of NSW v Foreman (1994) 34 NSWLR 408) to tell the client that:

  • costs were to be charged other than in accordance with a statutory scale of costs;
  • the costs to be charged might exceed the statutory scale of costs by a large margin;
  • the party/party costs she would be entitled to recover from the other side if she succeeded in her litigation would be restricted to the statutory scale of costs, with the result that she might be required to bear a larger part of her own costs than she would be required to bear if she was charged in accordance with the scale;
  • the costs agreement contained a provision which said that ‘the lawyers “shall not be bound by any … laws”’;
  • the costs agreement contained a provision which said that the lawyers could vary the costs agreement but Ms Nicholson could not;
  • the costs agreement contained a provision which said that the same charges would apply to any work carried out for Ms Nicholson irrespective of the nature of the work.

(e) that the clause to the effect that Behan & Speed Pty will not be bound by any laws (clause 1.8 G) appears to be an attempt to contract out of Divisions 1 & 2 of Part 4 of the Legal Practice Act 1996 relating to the provision of information to clients and the making of costs agreements.

Thirdly, it was not ‘reasonable’ because:

(a) interest on costs was payable seven days after the rendering of an account, compared with the 30 days pursuant to section 95 of the Legal Practice Act 1996;

(b) the lawyers could ‘charge a fee for the administrative processes associated with the opening and running of [a] file”, apparently over and above the hourly rate of $200 payable to legal assistants’;

(c) the lawyers could increase their charges unilaterally “as and when [they] may find it necessary to do so”;

(d) the lawyers could charge a loading of 10% of their fees to cover “basic administrative and secretarial time, maintenance of computer records and systems, provision of microfilming and storage of files”, apparently over and above the hourly rate of $200 payable to legal assistants;

(e) the lawyers could require that any dispute about costs be arbitrated by an independent costing service, a clause which appears to be designed to oust the right of a client to have a dispute about costs resolved in accordance with either Division 5 of Part 4 or Division 1 of Part 5 of the Legal Practice Act 1996;

(f) the client was liable for “Counsel fees actually incurred” by the lawyers at their discretion, a clause which appeared to be designed to overcome the decision in In re Blythe & Fanshaw; ex parte Wells (1882) 10 QBFD 207 to the effect that, unless the client has given an informed consent prior to the disbursement being incurred, a legal practitioner is not entitled to recover from his or her client any disbursement which will not be allowed on a taxation between party and party;

(g) the lawyers were entitled to cease acting for Ms Nicholson “for whatever reason”; a clause which appeared to be designed to avoid the usual contractual obligation (which may depend upon whether the retainer is an entire contract) that a retainer can be terminated by a legal practitioner only for good cause and upon reasonable notice: see Cordery on Solicitors (looseleaf) binder 1 division E section 4 parts B, C & D;

(h) the lawyers were entitled at any time to require the client to provide a guarantor, a clause which might impose a future obligation which she might not be able to meet because she could not find a guarantor, especially when the costs agreement charged unencumbered properties owned by her worth more than $1 million;

(i) the legal practitioner might not be liable for breach of its retainer or negligence, a clause the Tribunal could only find ‘might be void’ because of section 442(2) & (3) of the Legal Practice Act, 1996 because it was almost incomprehensible;

(j) the scale of charges included time based charges for each attendance of a partner, solicitor and legal assistant and also included charges for remuneration for various items of work, thereby including an extensive element of duplication;

(k) the lawyers were entitled to levy a ‘supplementary charge of between 30% and 50%’ for ‘care, skill and attention’. A similar loading can be levied under a statutory scale of charges but, where costs are charged on an hourly rate, the loading usually is not charged separately but is incorporated into the hourly rate.

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