Applications to set aside costs agreements

This post has been sitting around as a draft waiting to be finished.  There is little chance of that for a long time.  So here is my incomplete annotation to s. 103 of the Legal Practice Act, 1996.  That is the provision which gives VCAT (formerly the Legal Profession Tribunal) jurisdiction to set aside costs agreements on a statutory basis peculiar to that species of contracts.  All costs agreements in all matters in which first instructions were taken prior to 12 December 2005, regardless of when the costs agreements were entered into, may be argued to be governed by the old Act.  So there is some life left in the old s. 103 yet.

There are three bases on which costs agreements governed by the now-repealed Legal Practice Act, 1996 could be set aside:

  • that the client was induced to enter into the agreement by the fraud or misrepresentation of the lawyers;
  • that the lawyers had been guilty of misconduct or unsatisfactory conduct in relation to the provision of legal services to which the agreement relates;
  • that the agreement was not fair or reasonable.

Possible outcomes

In Nicholson v B&S [2000] VLPT 28, Senior Member Howell canvassed five potential outcomes:

  1. Dismiss the application;
  2. Grant the application and make no order for the payment by the client for the legal services provided by the lawyers;
  3. Grant the application and order a taxation by the Taxing Master of the Supreme Court;
  4. Grant the application and summarily fix a lump sum to be paid by the client to the lawyers; and
  5. Grant the application and reinstate the costs agreement, with the offending bits excised (but not where ‘a complete redrafting of the agreement would be required’ as opposed to ‘reinstatement with amendments’.

Misconduct or unsatisfactory conduct In Naylor v Oakley Thompson and Co Pty Ltd [2007] VCAT 958, Judge Bowman decided that under the Legal Practice Act, 1996, a client may effectively run a private misconduct prosecution against a lawyer as the foundation for an application to set aside a costs agreement. See this post.

Tribunal not bound by applicant’s particulars

The failure of a client in the articulation of the application to complain about a particular aspect of a costs agreement did not apparently disentitle the Tribunal from considering it. Registrar Howell said in Nicholson v B&S [2000] VLPT 28:

‘The response of [the lawyer] when these aspects of the agreement were put to him during the hearing was, … that [the client] had not complained about all of these aspects of the agreement. However, the reasonableness of the costs agreement does not depend upon … the exact particulars of [her] complaint, but upon the objective test of whether the agreement as a whole is reasonable: D’Alessandro v Legal Practitioners Complaints Committee (1995) 15 WAR 198 @ 202.’

Not fair or reasonable

In the same decision, Senior Member Howell explained these concepts:

‘“Fair” and “reasonable” are different concepts: In re Stuart; Ex Parte Cathcart [1893] 2 QB 201 @ 204-205. There is a requirement at common law that a costs agreement between a client and his or her solicitor be both fair and reasonable: Weiss v Barker Gosling (1992-93) 16 Fam LR 728, where the following passage appears @ 758:

“… there is, in my view, a requirement at common law that a costs agreement between a solicitor and client be fair and reasonable. Although that expression may be a composite one, it appears generally to have been approached in the cases on the basis that “fairness” relates to the point of entry into the agreement whilst “reasonableness” relates to the terms of the agreement itself.”

The position at common law is similar to various equitable obligations owed by a solicitor to a client, as appears from the following passage in Law Society of NSW v Foreman (1994) 34 NSWLR 408 @ 435:

“But if costs agreements of this kind are to be obtained from clients, it is necessary that the solicitor obtaining them consider carefully her fiduciary and other duties, that she be conscious of the extent to which the agreements contain provisions which put her in a position of advantage and/or conflict of interest, and that she take care that, by explanation, independent advice or otherwise, the client exercises an independent and informed judgment in entering into them.”

The decision in Re Morris Fletcher & Cross’ Bill of Costs [1997] 2 Qd 228 is to much the same effect, although it also makes the important point that the information to be disclosed in order to satisfy a fiduciary obligation will vary from case to case. The type of matter, the likely amount of the costs, and the client’s experience of litigation are but a few of the factors likely to affect the extent of a solicitor’s fiduciary obligation to make disclosure about a proposed costs agreement.’

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