Holy moly! VCAT finds costs agreement void for ambiguous disclosure then orders solicitors to content themselves with original estimate

VCAT has published reasons, the first I’ve come across, dealing with the allowance of costs under a costs agreement void for disclosure defaults: Sleath v RGL [2017] VCAT 1998.  Though they do not say so, it seems that the principal logic of the determination, under the same principles as the Costs Court is required to have regard to in taxations, was to keep the practitioners to their original written estimate notwithstanding subsequent oral updates. Scary stuff for lawyers if other decision makers reason similarly.  Whether the Costs Court will reason similarly is an interesting question.  It may be more likely that the Legal Services Commissioner will feel compelled to adopt similar reasoning in those costs disputes which it determines itself rather than referring off to VCAT.  Good news for clients and third party payers if so.

Mr Sleath retained the practitioner and then sacked them four days before a conciliation conference.  At the outset, the practitioner estimated its fees at $9,500 plus GST ‘should the matter conclude after a Final Hearing’.  The estimate was broken down between reviewing the file and taking instructions ($2,000), preparing for the conciliation ($5,000) and attending it ($2,500).  You can see the problem: one estimate to the end of the case was $9,500 plus GST and another $9,500 (whether with GST or not was not stated) to the end of the conciliation conference.  Conciliation conferences are an alternative dispute resolution event at which the parties try to settle, quite different from, and usually long before the actual trial (‘final hearing’) and much trial preparation is done.

More than a fortnight before the conciliation conference, the practitioner billed about $16,500.  The practitioner said it had given oral updates, but none in writing.  Whether this was accepted or not by the Tribunal is not clear.  Part of the work billed for was for a different but related matter in respect of which the practitioner had given no estimate of total legal costs.

This costs dispute must have come before VCAT via a civil complaint made to the Legal Services Commissioner, because the Tribunal made its order pursuant to s. 99 of the Legal Profession Uniform Law Application Act 2014, a jurisdiction parallel to the Costs Court’s jurisdiction, in cases where the amount in dispute is $25,000 or less and it has first travelled through the Legal Services Commissioner’s office.

Mr Sleath asked VCAT to waive his obligation to pay the practitioner’s bill.

The ‘imprecision’ of the estimate of total legal costs meant that it did not comply with LPUL s. 174(1)(a).  Consequently, the Tribunal ‘declared’ the costs agreement void, citing s. 178.  Whether the Tribunal meant that it was recognising the voidness ab initio of the costs agreement or deciding that a voidable costs agreement should be declared to be void is not clear.

Section 99(4) of the Application Act allowed  VCAT to make an order specifying the ‘fair and reasonable’ amount payable as legal costs after having regard to s. 200 of the LPUL which in turn requires consideration of the matters in s. 172.  The Tribunal was required to consider the same matters as the Costs Court would be required to in the same circumstance.  If the Costs Court were to reason similarly by reference to the same provisions in similar circumstsances, it would be alarming news for practitioners, since what has usually happened in this situation is that the work done by the solicitors are assessed by reference to the applicable court scale and then diminished by 5% or so as a kind of punishment for disclosure defaults.

The Tribunal did not publish any reasons for its conclusion that the fair and reasonable amount payable to the practitioner was $9,500 plus GST (the Costs Court is obliged to do so: LPUL s. 201).  How the s. 172 and s. 200 factors were assessed is therefore not disclosed.  But unless it is a coincidence, it is notable that that amount is the amount of the original estimate to (on one interpretation) the conclusion of the conciliation, and includes no allowance for the work in the other matter in which no costs disclosure was given.  It seems like the lawyers may have been kept to their estimate and allowed nothing in the matter in which there was no written estimate.

On the other hand, the lawyers were sacked 18 days before the end of the conciliation which on one view was the date to which the original estimate extended.  Arguably, if the logic was to keep the practitioner to its estimate, they might have been allowed only a proportion of the $9,500 plus GST commensurate with the proportion of work the subject of the estimate which they in fact completed.

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