The legendary foundation author of Quick on Costs, Roger Quick, has asked me to put this old workmanlike paper on my blog so that he can cite it and link to it in the second edition of that monumental text which he is kindly working on for all our benefits.
What follows does not deal with any developments in the law since 2010, or indeed anything I have learnt since 2010, when I delivered the paper, and so it is out of date, but it might still be of use in some jurisdictions which have not adopted the Legal Profession Uniform Law or by analogy in some cases which are governed by that law. Sorry about the formatting, which is the product of copying and pasting a Word document into WordPress.
This paper does not deal with contingent, or no-win no-fee retainers. In relation to all other matters, the take-home points are these:
The Legal Practice Act, 1996 continues to apply to matters in which the lawyer was retained after 1 January 1997 and first instructions were taken before 12 December 2005. Matters in which first instructions were taken after that are dealt with under the Legal Profession Act, 2004, regardless of when the retainer or costs agreement were entered into.
The Family Law Act, 1975 provided a disclosure regime for costs of Family Court litigation, and gave jurisdiction to the Family Court to decide costs disputes. It covered the field and impliedly repealed the state legislation. By virtue of legislative amendment, however, the Legal Profession Act, 2004 has applied to fees for work after 1 July 2008.
The provisions of the 2004 Act are not a code; the onerous pre-existing obligations arising at common law and equity remain: Nicholson v Behan & Speed  VLPT 28 (see my blog here). In other words, ticking the boxes of the disclosures mandated by legislation may not be enough, especially in the case of hourly rate costs agreements providing for charges well in excess of scale / PRO.
Solicitors have disclosure obligations to ‘clients’ and ‘third party payers’ alike in all matters in which the estimated total costs (including disbursements) are $750 or more, unless certain exceptions are applicable.
There are two separate disclosure regimes: costs disclosure, and disclosure requirements associated with bills. Non-compliance with each has different consequences.
1.1 Costs disclosures
Solicitors have obligations to give costs estimates and other information before being retained, or, if that’s not possible, as soon as reasonably practicable afterwards.
They have obligations to make disclosures relating to fees during the retainer too, for example upon briefing counsel, and at settlement.
They have obligations to give estimates of counsel’s fees, but if counsel do not provide them with the information to enable them to pass it on, the consequences of non-disclosure will not be visited on the solicitor’s own professional fees or on disbursements other than the affected fees of the counsel in question.
Solicitors have obligations to give written updates of matters disclosed should they change.
All the disclosures except those upon settlement of litigation must be given in writing, and be given in clear language.
There are numerous exceptions to the obligation to give costs disclosures some of which rely on complicated definitions within the Corporations Act, 2001. Many lawyers make the mistake of thinking that there is no need for a formal costs agreement in those cases where costs disclosure is unnecessary, but that is not so.
If there is any breach of any of the costs disclosure obligations (as opposed to the billing disclosures):
- any lawyer ‘involved in’ the failure may be investigated for unsatisfactory professional conduct or professional misconduct, and then reprimanded (in which case the Legal Services Commissioner’s discretion to go easy on him or her next time within the next 5 years will be limited) or charged in disciplinary proceedings at VCAT, where any loss carries an obligation to pay the Commissioner’s costs of the proceeding, and publication on Austlii and on the Register of Disciplinary Action;
- the partners of the firm may also be deemed to have engaged in unsatisfactory professional conduct or professional misconduct by virtue of being ‘principals’, subject to limited defences in relation to which they bear the onus of proof, and so may be investigated and reprimanded or prosecuted as well;
- the client ‘need not pay the legal costs’, and the firm may not ‘maintain proceedings for recovery of the legal costs’ unless and until (i) they have first been taxed in a solicitor-client taxation (generally, in such circumstances, at the firm’s expense) or (ii) been the subject of a ‘costs dispute’ in the Office of the Legal Services Commissioner and possibly after that in VCAT;
- at taxation the Supreme Court’s Costs Court (formerly known as the Taxing Master) may reduce the taxed costs as a penalty for non-compliance;
- in non-2004 Act matters in VCAT, decision makers have used unconscionability provisions to penalize lawyers for non-compliance by reducing the fees allowed;
- the amount of costs may probably be reduced as well in a civil complaint about fees and disbursements of $25,000 or less per matter, (commonly known as a ‘costs dispute’) in VCAT via the office of the Legal Services Commissioner;
- non-compliance is one of the factors VCAT is directed to take into account in an application to set aside a costs agreement; and
- significant non-compliance may result in the Costs Court exercising its (relatively new) jurisdiction to conduct a taxation on scale / PRO rather than against a costs agreement, even where no application has been made to set aside the costs agreement (in which case the taxed costs may be further reduced by the penalty for non-compliance).
1.2 Bill disclosures
The firm may not commence proceedings to recover fees until 65 days after a bill conforming with the Act’s requirements has been ‘given’. Proceedings brought in contravention of that prohibition will be stayed.
The disclosures required to be part of a bill are about the options for challenging the fees to which the bill relates. The time limits for exercising the options have been varied by amendment, as have the rules relating to interest, and lawyers’ bills frequently get things wrong. The errors are unnecessary because there is a prescribed form which may be used, avoiding the problems.
If the bill disclosures are not given properly, then at least arguably, the various time limits which are counted from the ‘giving’ of the bill will not have started. A year down the track, when you finally decide to sue for fees, you might find you have to re-render a conforming bill. Not only would you then have to wait another 65 days to sue, but you would give the client an opportunity they would not otherwise by then have had to seek what used to be called a bill of costs in taxable form (now ‘itemised bill’) or apply for taxation.
Additionally, bills are required to contain a statement as to the interest which will be charged if they are paid late. If they do not, the firm may not charge any interest at all.
2. The Legislation
We have had costs disclosure obligations mandated by legislation for a long time now. The Legal Practice Act, 1996 came into operation on 1 January 1997, and applied to matters in which the solicitor was retained after that date, and to costs agreements made after that date: cl 18, Schedule 2. There is a similar regime under the Legal Profession Act, 2004, which came into force on 12 December 2005 but, as we will see, the differences are kickers. The Legal Profession Regulations, 2005 contain provisions relevant to about the costs disclosure and bill disclosure regimes alike.
The 1996 Act continues to apply to all matters in which the lawyer was retained in or after 1997 and instructions were first received before 12 December 2005, regardless of when the costs agreement was entered into.
Where counsel were first briefed after 12 December 2005: the 1996 Act continues to apply both to the solicitors’ retainer and the barrister’s brief. See cl. 3.1 of Schedule 2 of the 2004 Act. (A similar transitional provision was to be found in the 1996 Act.)
The Fair Trading Act, 1999 has a relevance too. Even in those cases where the Legal Profession Act, 2004 does not specify consequences of non-compliance as having application, VCAT has proved creative in fashioning remedies under the Fair Trading Act for such non-compliance, as we will see below.
3. Who must give disclosures?
Obviously, solicitors must give disclosures to their clients, and barristers engaged directly by clients on a direct access basis stand in the same position vis-à-vis their clients. But so too must barristers give disclosures to solicitors, as must other lawyers who are retained by the client’s principal solicitors, like town agents and costs consultants. In fact, the obligation to give disclosures is cast on ‘law practices’. So it is cast on the company in the case of an incorporated practitioner, and on the partners in the case of a firm.
4. To whom must disclosures be given?
Costs disclosures must be given to ‘clients’ (s. 3.4.19) and, to the extent relevant to ‘associated third party payers’, to them as well (s. 3.4.18A). The former are defined as follows:
‘client includes a person to whom or for whom legal services are provided’ (s. 1.2.1).
I cannot envisage any other person who might be a client so as to justify the inclusive definition. Evidently, though, disclosures are to be given to a broader class of person than those law firms have either a retainer and/or costs agreement with.
‘Third party payers’ are non-clients who are under a legal obligation to pay some or all of the legal costs for legal services provided by the client: s. 3.4.2A. The obligation may arise under contract, pursuant to legislation, or ‘otherwise’ (perhaps pursuant to Court order): sub-s. (2). All third party payers may apply for taxation of a bill, but the disclosure obligations to clients are extended only to ‘associated third party payers’. They are third party payers who owe an obligation to the lawyers directly to pay their fees, as opposed to owing an obligation to the client to indemnify the client’s liability to the lawyers for fees (a ‘non-associated third party payer’). Examples, depending on the parties’ contractual relationships, may include:
- litigation funders;
- liability insurers who hire lawyers to conduct insureds’ defences;
- a brother who hires a lawyer to get his sister out of jail.
5. To whom need disclosures not be given?
Some but not all of the costs disclosure requirements need not be given in certain circumstances. The exceptions do not apply to disclosure requirements upon settling litigation, to the provision of progress reports, or to bill disclosures. The Act speaks of all clients’ ‘right to obtain reasonable information’ in relation to the matters which are required to be disclosed by s. 3.4.9 (that is, the principal costs disclosures required to be made by solicitors at the start of the retainer), even if the law firm is not excepted from the obligation voluntarily to disclose it: s. 3.4.12(5)(b).
The class of persons to whom costs disclosures need not be given is not the same as the class of ‘sophisticated clients’; it is wider. ‘Sophisticated client’ is defined by s. 3.4.2 to mean the class of person described in ss. 3.4.12(1)(c) and (d), two of the provisions specifying classes of person to whom disclosures need not be given. They are described under sub-headings 5.3 and 5.5 below ‘Tenders’ and ‘Classes of client’. In addition to them, disclosures need not be made to clients who have agreed to waive their rights to disclosure, pro bono clients, and certain classes of clients prescribed by regulation.
Bill disclosures must accompany all bills (s. 3.4.35), except those addressed to sophisticated clients: sub-section (2). People often forget to put the disclosures on bills of costs in taxable form, and I have seen it argued that such bills are not ‘given’ if they do not have disclosures accompany them any more than a lump sum bill given at first instance is given if unaccompanied by the disclosures.
When pleading an allegation of non-disclosure, I plead out the facts which take the solicitor-client relationship outside the classes of excepted relationship.
The paragraph numbering below in this section 5 of the paper is to sub-paragraphs of s. 3.4.12(1), and what follows are the cases where costs disclosure need not be given.
5.1 Fees less than $750
No costs disclosures have to be given for so long as the estimated total legal costs of the matter, excluding disbursements, are $750 or less: s. 3.4.12(1)(a) and sub-section (2).
‘Legal costs’ are defined to mean:
‘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.’ (s. 1.2.1)
Whether counsel’s fees are disbursements or not for the purposes of various provisions has been a surprisingly vexed topic over time. I remain unsure, but would err on the side of assuming that likely counsel’s fees are counted towards the $750 limit.
5.2 Client waiver
Law firms need not make costs disclosures to existing clients who have been given disclosures within the last year and who have agreed in writing to waive their rights to further disclosures. But only if a partner ‘decides on reasonable grounds that, having regard to the nature of the previous disclosures and the relevant circumstances, the further disclosure is not warranted’: s. 3.4.12(1)(b). A written record of such a decision must be made and placed on the solicitor’s file, and the Act goes out of its way to say that the reaching of a decision that further disclosure is not warranted on grounds other than reasonable grounds may amount to unsatisfactory professional conduct or professional misconduct: sub-ss. (3) and (4).
I am unaware of any law on this provision, and so I would use it only in those situations where to give disclosure after disclosure to the same person within the same client in relation to essentially the same recurring matter to be conducted by the same person at the same rates and much the same cost would be to succumb to nonsensical bureaucracy. Why buy into the issue of the reasonableness of derogation from the Act where getting it wrong may have disciplinary consequences for the person concerned and the partners, and when compliance with the Act is easy enough?
Costs disclosures need not be given
(d) if the legal costs or the basis on which they will be calculated have or has been agreed as a result of a tender process.
5.4 Pro bono etc.
Costs disclosures need not be given
(e) if the client will not be required to pay the legal costs or they will not otherwise be recovered by the law practice.
Note that ‘legal costs’ includes disbursements: s. 1.2.1. Many modern pro bono retainers used by large firms require the client to pay hard disbursements, so that the exception may be inapplicable.
I would suggest that by virtue of the second limb of this exception, it would not be available in that species of pro bono retainer in which the law firm is entitled to recover fees if the client is entitled to recover from the other side in litigation pursuant to the rules of the court (e.g. of and incidental to amendment) or pursuant to a court order, and only to the extent of such recovery. (In relation to this kind of retainer, incidentally, see Wentworth v Rogers  NSWCA 145; (2006) 66 NSWLR 474.)
5.5 Classes of clients
By virtue of s. 3.4.12(1)(c), and of sub-section (f) read with r. 3.4.2 of the Legal Profession Regulations 2005, in the case of costs disclosures only, they need not be made to clients who are:
(c)(i) A law practice or an Australian legal practitioner. ‘Australian legal practitioners’ are lawyers who hold an Australian practising certificate: s. 1.2.1. A ‘law practice’ is:
(a) such a lawyer in sole practice as a solicitor or a barrister;
(b) a law firm (that is, a partnership of Australian practising certificate holders, certain foreign lawyers, and/or incorporated legal practices);
(c) a multi-disciplinary partnership (a partnership of lawyers and others provided for by the 2004 Act);
(d) an incorporated legal practice (such as Slater & Gordon Ltd); or
(e) a community legal centre (such as the Fitzroy Legal Service).
(f) An overseas-registered foreign lawyer or a foreign law practice.
(c)(ii) A public company within the meaning of the Corporations Act, 2001. Section 9 of that Act is its definitions section. That says ‘“public company” means a company other than a proprietary company,’ and ‘“proprietary company” has the meaning given by subsection 45A(1)’. That section provides:
Note 2: A proprietary company must:
* have no more than 50 non‑employee shareholders
* not do anything that would require disclosure to investors under Chapter 6D (except in limited circumstances). (see section 113).
(c)(ii) A subsidiary of a public company within the meaning of the Corporations Act, 2001. By s. 9, it defines ‘subsidiary’ to mean ‘in relation to a body corporate, … a body corporate that is a subsidiary of the first-mentioned body by virtue of Division 6 [of Part 1.2].’ Division 6 comprises ss. 46 – 50AA. Section 46 (‘What is a subsidiary?’) says:
(a) the other body:
(iii) holds more than one‑half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or
(c)(ii) A large proprietary company within the meaning of the Corporations Act. A company may vary between large and small proprietary company status from financial year to financial year. Presumably it is the financial year in which the disclosure is given that is determinative. It may not be possible, with some companies, accurately to predict whether the company will be a small proprietary company in the relevant financial year. The Corporations Act’s definition is in s. 45A(3):
(a) the consolidated revenue for the financial year of the company and the entities it controls (if any) is $25 million, or any other amount prescribed by the regulations for the purposes of paragraph (2)(a), or more;
(b) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million, or any other amount prescribed by the regulations for the purposes of paragraph (2)(b), or more;
(c) the company and the entities it controls (if any) have 50, or any other number prescribed by the regulations for the purposes of paragraph (2)(c), or more employees at the end of the financial year.’
(c)(ii) A foreign company within the meaning of the Corporations Act. The definition is in that Act’s s. 9:
(i) a corporation sole; or
(b) an unincorporated body that:
(c)(ii) A subsidiary of a foreign company within the meaning of the Corporations Act. See above for the definition of ‘subsidiary’.
(c)(ii) A registered Australian body within the meaning of the Corporations Act. Section 9’s definition is ‘a registrable Australian body that is registered under Division 1 of Part 5B.2.’ ASIC’s website says:
‘These are bodies not registered under the Corporations Act 2001. They can be either:
- a registered body that is not a company, recognised company, exempt public authority or corporation sole, or
- an unregistered body having certain rights and obligations (may sue or be sued, or may hold property in the name of its secretary or of an officer of the body duly appointed for that purpose). Examples include trading co-operatives and incorporated associations.
Registrable Australian bodies carrying on or wishing to carry on business outside their state of registration are registered on a national basis and each is allotted an Australian Registered Body Number (ARBN).
Registrable Australian bodies do not include foreign companies.’
(c)(iii) A financial services licensee within the meaning of the Corporations Act. Apart from certain exempt persons (see s. 911A(2)), ‘a person who carries on a financial services business in this jurisdiction must hold an Australian financial services licence covering the provision of the financial services’: s. 911A. Division 4 of Part 7.1 deals with financial services. It commences at s. 766A, which says that a person provides a financial service if they provide financial product advice, deal in a financial product, make a market for a financial product, operate a registered scheme, provide a custodial or depository service, or engage in conduct prescribed by regulation, the meaning of which concepts is set out in ss. 766B – 766E.
(c)(iv) A liquidator, administrator or receiver ‘as referred to in’ the Corporations Act.
(c)(v) A partnership that carries on the business of providing professional services if the partnership consists of more than 20 members or if the partnership would be a large proprietary company (within the meaning of the Corporations Act) if it were a company. ‘Partnership’ is not defined by the 2004 Act, but see s. 5, Partnership Act, 1958 and Fletcher, The Law of Partnership in Australia (Thomson, 9th ed., 2007), ch. 2.
(c)(vi) A proprietary company within the meaning of the Corporations Act formed for the purpose of carrying out a joint venture, if any shareholder of the company is a person to whom disclosure of costs is not required. See above for the definition of ‘proprietary company’.
(c)(vii) An unincorporated group of participants in a joint venture, if any member of the group is a person to whom disclosure of costs is not required and if any other members of the group who are not such persons have indicated that they waive their right to disclosure.
(c)(viii) A Minister of the Crown in right of a jurisdiction or the Commonwealth acting in his or her capacity as such, or a government department or public authority of a jurisdiction or the Commonwealth. ‘Public authority’ is not defined in the 2004 Act.
(f) A corporation that has a share capital and whose shares or the majority of whose shares are held beneficially for an Australian government.
6. What must be disclosed?
6.1 Costs disclosures
(a) The costs estimates
Section 3.4.9(1)(c) requires the provision of:
‘an estimate of the total legal costs or, if that is not reasonably practicable-
(i) a range of estimates of the total legal costs; and
(ii) an explanation of the major variables that will affect the calculation of those costs’.
There is not a lot of law on this provision, but in Casey v Quabba  QSC 356, the statement ‘it is estimated the possible range of fees and costs recoverable will be between nil and $250,000 (approximately)’ did not satisfy the NSW correlate of s. 3.4.9(1)(c) as not being a ‘genuine attempt to inform the client as required by the [correlate provision].’ The case was reversed on appeal on a different point.
Also relatively unexplored is the extent to which it is permissible to limit retainers to stages of a ‘matter’. So, for example, a retainer may define the work to be done as that necessary to achieve post-discovery mediation, or just the work necessary to draft, file, and serve originating process. Absent such a consensual limitation, the estimate ought contemplate both the best and worst case scenarios for the ‘matter’ the subject of the retainer, i.e. the costs of arriving at a point where settlement might be achieved because the solicitor knows enough about the case to be able to provide advice as to settlement (best reasonable case) and to the end of a contested trial with as many joined parties and counterclaims as may be in contemplation as possibilities (worst reasonable case).
(b) The principal initial disclosures
Section 3.4.9(1) requires the following disclosures in all matters:
(b) The client’s right to-
(i) negotiate a costs agreement with the law practice; and
(ia) receive a bill from the law practice; and
(ii) request an itemised bill within 30 days after receipt of a lump sum bill.
(h) The client’s right to written progress reports upon reasonable request in relation to the progress of the matter and in relation to the costs to date of the matter;
(j) The availability of, and the time limits applicable to: what used to be called taxation, applications to set aside costs agreements, and making complaints to the Legal Services Commissioner (e.g. disciplinary complaints for gross overcharging and that species of civil complaints that used to be called costs disputes);
(m) Information about the client’s right to choose a different law [principally applicable, presumably, where the client is interstate].
The disclosures above, under this sub-heading are taken to have been made if disclosures in the following form are made, but use of the form is not mandatory (and is, for some reason, uncommon):
‘Legal Profession Act 2004 Legal costs-your right to know
You have the right to-
- Negotiate a costs agreement with us
- Receive a bill of costs from us
- Request an itemised bill of costs within 30 days after you receive a lump sum bill from us
- Request written reports about the progress of your matter and the costs incurred in your matter
- Apply for costs to be assessed within 12 months if you are unhappy with our costs
- Apply for the costs agreement to be set aside
- Make a complaint to the Legal Services Commissioner. This includes making a complaint that involves a civil dispute to the Legal Services Commissioner within 60 days after the legal costs were payable or, if an itemised bill was requested in respect of those costs, within 30 days after the request was complied with
- Accept or reject any offer we make for an interstate costs law to apply to your matter
- Notify us that you require an interstate costs law to apply to your matter
For more information about your rights, please read the fact sheet entitled Legal Costs-Your Right to Know. You can ask us for a copy, or obtain it from the Legal Services Commissioner (or download it from their website).’
The following disclosures are required in all matters as well, but there is no form prescribed in respect of them:
(a) The basis on which legal costs will be calculated, including
(a) whether a practitioner remuneration order [e.g. the Practitioners Remuneration Order (PRO), formerly known as the SRO] or scale of costs [e.g. the County Court scale of costs appended to the Rules of Civil Procedure] applies to any of the legal costs.
(b)(iii) The client’s right to be notified of any substantial change to the matters disclosed under section 3.4.9.
(e) Details of the intervals (if any) at which the client will be billed.
(f) The rate of interest (if any) that the law practice charges on overdue legal costs, whether that rate is a specific rate of interest or is a benchmark rate of interest [the maximum interest chargeable is a benchmark rate plus 2%, namely the Reserve Bank’s Cash Target Rate; as to interest more generally, see below].
(i) Details of the person whom the client may contact to discuss the legal costs.
(l) That the law of Victoria applies.
Section 3.4.9(1)(g) additionally requires disclosure in all ‘litigious matters’ of an estimate of:
(i) The range of costs that may be recovered if the client is successful in the litigation.
(ii) The range of costs the client may be ordered to pay if the client is unsuccessful.
(c) Legal Aid
Rule 39.2(b) of the Solicitors’ Professional Conduct and Practice Rules 2005 provides that a solicitor must:
‘when taking instructions from a client, or as soon as possible thereafter, inform the client of any rights the client may have to apply for legal aid unless there is no real possibility that the client is eligible to receive legal aid.’
(It is convenient to note this obligation here, since it is a disclosure to be provided at the outset, but because it is not an obligation under the 2004 Act, the only one of the consequences of not complying with it discussed below is the disciplinary consequence.)
(d) Counsel’s fees
Section 3.4.10 deals with disclosures of counsel’s fees, and the fees of other lawyers retained by the principal solicitor. A note in the legislation summarises it as follows:
‘An example of the operation of this section is where a barrister is retained by a firm of solicitors on behalf of a client of the firm. The barrister must disclose to the firm details of the barrister’s legal costs and billing arrangements, and the firm must disclose details to the client. The barrister is not required to make a disclosure directly to the client.’
I am not sure how this section would be interpreted in the case where solicitors briefed counsel, but the barrister made a fee agreement direct with the client. It would all depend on whether a brief is a ‘retainer’ if unaccompanied by a promise to pay.
(e) Upon settlement
Section 3.4.13 requires that if a firm 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 reasonable estimate of the amount of legal costs payable by the client if the matter is settled, including any costs payable to any other party; and
- A reasonable estimate of any contributions towards those costs likely to be received from another party (i.e. any party party costs payable by another party and, I would suggest, the prospects of executing successfully on any such costs order).
The idea is that the client should know how much he will get in his pocket if he accepts a settlement offer.
Note that there is no express requirement of writing.
(Note also that rule 39.2(a) of the Solicitors’ Professional Conduct and Practice Rules 2005 provides that solicitors must:
‘When it is practicable to do so, prior to the settlement of a litigious matter, provide to the client a written estimate of the net amount that the client will receive should the matter be settled in accordance with the proposed settlement.’
Once again, non-compliance with this conduct rule may only result in the disciplinary consequence below.)
(f) Updates when things change
Section 3.4.16 says:
‘A law practice must, in writing, disclose to a client 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.’
This is an obligation observed in the breach, and it causes problems for lawyers regularly. Telling a client that the fees have already exceeded the estimate by the difference between the estimate and the total billed to date, which is what often passes for compliance, is unlikely to amount to compliance with the obligation.
(g) Progress Reports
Section 3.4.18 requires firms upon reasonable request to give a written report of the progress of the matter and of the costs incurred by the client to date, or since the last bill. Barristers need not respond to such a request from a client, but must provide solicitors with sufficient information to allow them to respond to a client request.
6.2 Bill disclosures
Bills are required to make disclosures about options for challenging the legal fees billed, and about the interest which will be charged in the event of late-payment. Both the time limits for exercising the avenues to dispute fees and the permissible rate of interest chargeable on unpaid fees have changed since the 2004 Act came into force. Many solicitors’ billing practices have failed to keep up with these developments with sometimes disastrous consequences for them.
(a) Options for challenging bill
Section 3.4.35(1) provides:
‘A bill must include or be accompanied by a written statement setting out-
(a) the following avenues that are open to the client in the event of a dispute in relation to legal costs-
(i) costs review under Division 7;
(ii) the setting aside of a costs agreement under section 3.4.32;
(iii) making a complaint under Chapter 4; and
(b) any time limits that apply to the taking of any action referred to in paragraph (a).’
‘Costs review’ under Division 7 of Part 3.4 of the 2004 Act is what used to be known as solicitor-client taxation. Whereas before, the Supreme Court’s Taxing Master conducted them, now the Costs Judges or Costs Registrars of the Costs Court of the Supreme Court conducts them. According to the Legal Services Commissioner’s fact sheet ‘Your Right to Challenge Legal Costs’, the situation is as follows for matters caught by the 2004 Act:
‘If you received the bill before 9 May 2007, an application for costs review must be made within 60 days of receiving the bill. If you received the bill on or after 9 May 2007, an application for costs review must be made within 12 months after –
- the bill was given or the request for payment was made to you; or
- the costs were paid if neither a bill was given nor a request was made.’
The conditions for extending the time vary. Under the latest regime, ‘sophisticated clients’ may not have the time extended.
Costs agreements may be set aside, on application by a client, if they are not ‘fair or reasonable’ according to a myriad of matters VCAT is to have regard to. Where a costs agreement is set aside, bills may have to be re-drawn on scale and the difference between the amounts billed and paid, and the scale allowances, refunded. According to the Legal Services Commissioner, there is no time limit for applying to have a costs agreement set aside.
Complaints under Part 4 of the Act encompass disciplinary and civil complaints. One species of civil complaint is the ‘costs dispute’. Such a civil complaint may be brought only where the costs of the entire matter are $25,000 or less. Disclosure only ever seems to be given of the availability of costs disputes, despite the potential for disciplinary complaints about costs. This appears to be acceptable to the Legal Services Commissioner. The time limit for bringing a costs dispute is:
60 days after the legal costs were payable or, if an itemised bill was requested in respect of those costs, within 30 days after the request was complied with.
‘Legal Profession Act 2004 Your rights in relation to legal costs
The following avenues are available to you if you are not happy with this bill-
- requesting an itemised bill
- discussing your concerns with us
- having our costs assessed
- making a complaint to the Legal Services Commissioner
- applying to set aside our costs agreement
There may be other avenues available in your State or Territory (such as mediation). Time limits apply to the avenues for resolving costs disputes. For more information about your rights, please read the fact sheet titled Your Right to Challenge Legal Costs. You can ask us for a copy, or obtain it from the Legal Services Commissioner (or download it from their website).’
Surprisingly few lawyers use it. They should, because errors in bills are manna from heaven to costs lawyers retained by disgruntled clients.
Section 3.4.21(3) provides:
‘A law practice must not charge interest … on unpaid legal costs unless the bill for those costs contains a statement that interest is payable if the costs are not paid and of the rate of interest.’
Lawyers are no longer entitled to charge interest at the penalty rate provided for by the Penalty Interest Rate Act, 1983 on unpaid bills. Lawyers are free to negotiate any interest regime they like, so long as the rate does not exceed the rate 2% greater than the Cash Rate Target specified by the Reserve Bank which was applicable on the day the bill was ‘given’. See s. 3.4.21. That means that unlike the former regime, where the rate applicable varied in respect of any one bill over time, depending on the rate applicable during each subsequent period of arrears, now each bill will carry interest at the same rate for the entire period of arrears, though bills rendered at different times may carry interest at different rates from each other.
These legislative amendments are treated in some detail on my blog here.
7 When must disclosures be given?
Costs disclosures to clients must be given before or as soon as reasonably practicable after being retained: s. 3.4.11.
Disclosures to third party payers must be given at the same time unless the law firm was unaware of the third party’s obligation to pay, in which case the disclosure is to be made as soon as reasonably practicable after it becomes aware: s. 3.4.18A.
A question which often arises is to what extent a second or subsequent solicitor can take the benefit of disclosures made by a previous solicitor. The answer is apparently not at all; in JDRL Pty Ltd v Vintrix International Pty Ltd  VCAT 985, where a solicitor joined a new firm and the new firm did not reiterate the disclosures given originally by the solicitor who worked on the matter throughout. See my blog here.
A useful costs disclosure may often not be able to be provided until the client has been interviewed, and the papers read. I think the courts will recognize that. I suggest entering into a costs agreement and providing the disclosures which can be provided at the outset, as well as an estimate of the total costs of reading into the matter to be able to provide an estimate of the whole matter, and then providing an estimate of the total costs later. Camillins Solicitors Pty Ltd v Yu  VCAT 984 supports my belief that, in appropriate cases, ‘as soon as reasonably practicable’ may be relatively liberally interpreted:
‘A legal practitioner is obliged to update a costs estimate “as soon as reasonably practicable” after becoming aware of a change: s.3.4.16 Legal Profession Act 2004.
This matter [which was the subject of the retainer] had been neglected by [the clients], and they were confronted with entry of judgment for $68,000 unless the matter was given the attention it deserved. In the space of seven working days, [the solicitor] endeavoured to become familiar with the background to the Magistrates’ Court proceedings, prepared an affidavit in opposition to the application, drafted an amended defence and the proposed counter-claim, drafted an affidavit of documents, prepared a brief to counsel, attended a lengthy conference with counsel out of hours, attended the hearing to instruct counsel, and participated in settlement negotiations. [The solicitor] was hindered by the fact that [one of the clients] failed to provide him with all relevant documents.
Bearing the above circumstances in mind, particularly the short period of time that [the solicitors] acted for [the clients], I find that it was not “reasonably practicable” in terms of time to update the estimate in writing prior to the tax invoice being rendered on 25 September 2007. [The solicitors] did not contravene s.3.4.16 of the Act, and I reject the defence based upon that section.’
Bill disclosures must be given with the bill. If they are given later, I suspect the result would be that the whole bill would be taken to have been given properly, for the first time, when the disclosures which should have been on the bill in the first place are given.
The costs disclosures must be given in ‘clear plain language’, in writing. For the illiterate they must be given orally as well. For those whose first language is not English, they may be in another language. See s. 3.4.15.
In Smirnios v Byrne (No 2)  VSC 86, the Costs Judge diminished the fees payable to the respondent barrister by 30% on account of inadequate explanation of a fee agreement drafted and executed in English entered into by a Greek man with limited English. As we will see below, the discount was halved to 15% on appeal.
The service provisions of the 2004 Act should be noted, in particular s. 7.2.3. Neither email nor fax transmission constitutes good service under the Act, though as usual in the law, this is only an issue if the client does not admit receipt of the notice. So should the specific service provision applicable to bills be noted: s. 3.4.34(4). Note that the only agents to whom bills may be delivered on behalf of clients are ‘an agent, law practice or Australian legal practitioner who has authority to accept service of legal process on behalf of the [client]’: sub-section (6).
Section 3.4.17 is headed ‘Effect of failure to disclose’. But the consequences of not following the disclosure regime are not limited to the effects there provided for:
- For a start, the provision appears to relate only to failures to disclose, as opposed to misleading disclosures. The law of misleading and deceptive conduct may be relevant where a disclosure is inaccurate in circumstances where the law firm cannot establish a reasonable basis for the representation, which is necessarily as to future matters.
- And as we will see, VCAT is enthusiastic about using the unconscionability provisions in the Fair Trading Act, 1999 to fashion remedies where they are not provided for in the 2004 Act.
- Finally, 3.4.44A is undoubtedly a consequence of serious non-disclosure, and the likely reason it is not included in s. 3.4.17 is that it was introduced by amendment after s. 3.4.17 was drafted. In cases of substantial non-disclosure, it allows the Costs Court to disregard a costs agreement, and tax a bill against scale, even where the costs agreement has not been set aside by VCAT, the tribunal charged with deciding such applications brought pursuant to s. 3.4.32.
What s. 3.4.17 states as consequences are:
- client need not pay until after taxation;
- law firm may not sue until after taxation (these first two I refer to as the ‘two kicker provisions’);
- client may apply for setting aside of costs agreement;
- costs allowed on taxation may be reduced proportionately to the seriousness of the non-disclosure; and
- disciplinary consequences.
Before we examine the consequences, there are a couple of circumstances in which they do not have operation.
(a) Costs disputes at VCAT via LSC’s office
The two kicker provisions do not have operation where the costs have been the subject of a costs dispute civil complaint. Taxation is not available in respect of legal costs that are or have been the subject of a civil complaint, i.e. a costs dispute in VCAT via the office of the Legal Services Commissioner (s. 3.4.48). So where the quasi-taxation afforded by VCAT’s costs dispute jurisdiction has been invoked, the 2004 Act recognizes that there is no need for the further step of taxation before lawyers who have failed to disclose may recover what they are entitled to under the law. Note that the exception is apparently dependent on the historical fact of the initiation of a dispute, not on its resolution by VCAT. See s. 3.4.17(7).
(b) Solicitors not penalized by barrister’s non-disclosure
Section 3.4.17(5)(a) is a provision designed to save law firms from being affected by non-disclosures by barristers (and other lawyers retained on behalf of the client, e.g. interstate agents and costs consultants). Paraphrased, it says:
If a firm briefs a barrister on behalf of a client but fails to disclose something to the client solely because the barrister failed to disclose relevant information to the firm as required by s. 3.4.10(2), then the four principal effects of non-disclosure (client need not pay fees and firm may not sue for fees until taxation, client may apply to set aside costs agreement, and costs may be reduced on taxation) do not apply to the legal costs owing to the firm on account of legal services provided by it, to the extent that the non-disclosure was so caused.
Sub-section (b) makes clear that those consequences do apply to the barrister’s fee.
(c) Third party payers
Section 3.4.17(5A) provides that where there was non-disclosure to a third party payer but disclosure was made to the client who is also liable to pay the fees, then the adverse consequences flow only in favour of the third party payer. And vice-versa, and so on.
Where there is non-disclosure of anything required to be disclosed by Division 3 of Part 3.4 (‘Costs disclosure’), then until the fees have been the subject of a solicitor-client taxation, the client ‘need not pay’ the fees, and the firm ‘may not maintain proceedings for the recovery of legal costs’. See ss. 3.4.17(1) and (2).
The disclosures required by Division 3 definitely include:
- The basis for charging, and the estimated total fees for the matter, estimated recoverability of those fees if litigation successful, and estimated fees payable to other side if litigation unsuccessful (s. 3.4.9);
- The rights of the client to various things, such as an itemized bill, progress reports, and to challenge legal fees (s. 3.4.9);
- Formal matters such as what law applies, who will do the work, who to complain to, billing intervals, and interest on arrears of fees (s. 3.4.9);
- Barristers’ fees (s. 3.4.10);
- What the client will get in his pocket if a proposed settlement is accepted (s. 3.4.13);
- Any substantial change to anything initially disclosed (s. 3.4.16).
Arguably, the information required to be provided by progress reports upon reasonable request (s. 3.4.18) is also within the class of things ‘required to be disclosed’ by Division 3.
I have seen hundreds of solicitors’ files and could probably count on one hand the number in which there was unarguably full compliance with all of these obligations. Of course I tend to see the problematic ones. Even those solicitors who are punctilious about these things at the time of retainer do not observe the obligations in relation to barristers’ fees or updating estimates in writing along the way. In other words, many solicitors’ fees are amenable to substantial attack by a skilled lawyer for a client.
Deferral of payment pending taxation is a terrible consequence. Taxation takes a long time: many months at least. Most firms need to hire costs consultants to appear. Their fees are high: often between 7 and 10% of the bill of costs in taxable form as drawn (not a percentage of the fees allowed on taxation, i.e. of the bill as taxed). Each taxation involves several appearances. The Costs Court can be very tough on fees for attendances the duration of which are not marked on the file (records exclusively in a time costing system are not looked upon favourably). So too on attendances of which a proper file note as to the matters attended to justifying the time taken is not kept. In these cases, solicitors tend to have to give evidence that they did the work, or about the subject matter of a conference, and risk being cross-examined. To the extent their memory has faded, it is their bad luck.
Section 3.4.45(2)(b) gives rise to a presumption that the firm will pay the client’s costs of the taxation even where it ‘wins’ it in the traditional sense of justifying at least 85% of the fees claimed. It says:
‘Unless the Costs Court otherwise orders … the law practice to which the legal costs are payable or were paid must pay the costs of the review if … (b) the Costs Court is satisfied that the law practice failed to comply with Division 3 [i.e. the ‘costs disclosure’ provisions].’
But what is even worse, as noted below under heading ‘Costs Court’s Discretion to Disregard Costs Agreement’, the Costs Court has a discretion to disregard entirely a costs agreement where it is associated with substantial non-compliance with the costs disclosure regime.
(a) Is the client indebted to the solicitor pending taxation?
There is competing authority as to whether a solicitor is entitled to maintain a lien over documents where there has been a costs disclosure default. See Dal Pont, Law of Costs (2nd ed., Lexis Nexis, 2009) [2.31], fn 114, citing Patterson v Cohen  NSWSC 635 at -; Kelly v Hogan  NSWSC 238 at ; and Reynolds v Whittens  NSWSC 155; (2002) 57 NSWLR 271 at .
The 2004 Act goes out of its way to remind clients that disclosure defaults are one of the matters the Act directs VCAT to take into account in any application by a client to set aside a costs agreement on the basis that it was not fairly entered into, or that its terms were not objectively reasonable. The reminder is in s. 3.4.17(3) and the provision about setting aside costs agreements is in s. 3.4.32. It should not be thought that where there is non-disclosure, even substantial non-disclosure, the drastic step of setting aside the costs agreement will tend to follow; it is just one matter to be considered. On the other hand Bariamis v Coadys  VCAT 645 is a case where VCAT cancelled a costs agreement in part because no re-estimate of costs was given where it was practicable to do so and they exceeded the $5,000 estimate by $13,000.
If you do not give the disclosures required by Division 3, then on taxation the Costs Court is entitled to ‘reduce the amount of the costs’ allowed ‘by an amount considered by the Costs Court to be proportionate to the seriousness of the failure to disclose’ (s. 3.4.17(4)). As we will see, the reduction is specifically provided for only in the case of taxation. But VCAT at least has proved willing to use unconscionability provisions in the Fair Trading Act, 1999 to achieve the same result in VCAT cases.
A 15% reduction seems relatively standard in cases of non-disclosures which are not trifling. I have heard of reductions in the realm of 50% in gross cases. In Smirnios v Byrne (No 2)  VSC 86 Justice Lasry said, in halving the reduction applied by the Taxing Master to 15%:
‘35 A reduction of the amount of costs by a Master pursuant to s 3.4.44(2)(b), as permitted by s 3.4.17(4), is directed at what is fair and reasonable in all the circumstances, not at disciplining a solicitor.’
(b) Other instances
Solicitor-client taxations are conducted by the Costs Court, a division of the Supreme Court. Many cases about legal fees are heard in VCAT’s Legal Practice List, either under the costs dispute provisions of the civil complaint scheme under Part 4.3 Division 1 of the 2004 Act (ss. 4.3.1 and following), or under the Fair Trading Act, 1999’s ‘consumer and trader disputes’ jurisdiction (ss. 107 and following).
VCAT, and the Legal Profession Tribunal before it, was accustomed to exercising a power to reduce the costs allowed in costs disputes under s. 91 of the 1996 Act, which is not replicated in the 2004 Act. For example:
- In Ieremia v Salinger Bown Pty  VCAT 1419, VCAT knocked 15% off a bill where the solicitor gave no estimate of the total cost or ranges of total costs at all in a no-win no-fee personal injuries case.
- In Robert J Lawyers v Kirby  VCAT 2609, VCAT knocked 15% off a bill of $7,000 where the costs disclosure had estimated total fees at $6,250 plus however much it cost to draw a lease. The hourly rates quoted were $375 to $390 for partners, $250 to $325 for senior associates and $100 per hour for support staff. The rate in fact charged was $200. The 15% was knocked off on the basis that there had been no estimate of the total costs of the matter by virtue of there having been no estimate of the cost of the lease. See my blog here.
The Legal Practice List has found a way to reduce the amount of fees allowed to lawyers who breach the costs disclosure provisions in VCAT cases, notwithstanding that a correlate of the s. 91 power is not to be found in the 2004 Act.
- In Wilkins v Johanssen Solicitors  VCAT 2199, VCAT’s Legal Practice List said, in knocking about 7.5% off a bill:
‘There should have been more extensive advice given by [the solicitor] in relation to legal fees. It was practicable to do so. The failure to give this advice is unconscionable.’
‘7 The ultimate account which was rendered some three months later [than an estimate of $11,305] is in the order of $7,000 greater than that estimate. The continuing by the [solicitors] to incur fees for the [client] in that amount without giving an adequate disclosure is in my view unconscionable conduct and therefore falls within the ambit of the Fair Trading Act 1999. The estimate … is a total of $11,305. The client … has paid to the [solicitors] $10,205. There is therefore a discrepancy of $1,100. In all the circumstances it is the order of the Tribunal that the [solicitors’] account be appropriately reduced in order that the sum of $1,100 is outstanding and I order that the [client] is to pay to the [solicitors] the sum of $1,100 forthwith in full satisfaction of the account rendered by [them].’
In the summary, I suggested that a reduction in fees allowed, by virtue of non-disclosures, is probably available when VCAT hears that species of civil complaint under the 2004 Act known as costs disputes. When they do so, they exercise exclusively Legal Profession Act, 2004 jurisdiction unless someone takes the initiative to invoke the Fair Trading Act, 1999. I said the reduction is probably available simply on the basis that if VCAT is enthusiastic enough to use the Fair Trading Act, 1999’s unconscionability provisions in Fair Trading Act matters, its enthusiasm will probably get over the hurdle of having resort to the Fair Trading Act.
Non-compliance with the 2004 Act is the paradigm example of both professional misconduct and unsatisfactory professional conduct (s. 4.4.4(a)). Deliberate non-compliance would theoretically be regarded seriously (and constitute professional misconduct) because of the contempt for the law it would evince, and would likely be characterized as professional misconduct. Disciplinary consequences await not only any lawyer ‘involved in’ the non-compliance (s. 3.4.17(6)), but, by virtue of s. 7.2.12, a deeming provision providing for a particularly strict version of vicarious liability, every partner of the firm. (In practice, however, what the Legal Services Commissioner seems to look for is one partner who is willing to take responsibility, in which case, he leaves the other partners alone.)
I am not aware of anyone having been prosecuted for disciplinary wrongs comprised exclusively of non-compliance with the costs disclosure provisions, but no doubt there have been plenty of reprimands and cautions, limiting the Legal Services Commissioner’s discretion to go easy on further disciplinary infractions made out within the next five years (see s. 4.4.13(3)(c)(ii)). And where the Commissioner does prosecute, the costs disclosure defaults may be thrown in for good measure. No doubt too, the threat of disciplinary sanction, whether or not expressly articulated by a client or third party payer, has put solicitors on the back foot in many a cost dispute, since VCAT’s decisions in disciplinary prosecutions are published on Austlii, and if the solicitor loses, disciplinary orders are published on the Register of Disciplinary Action (see s. 4.4.26).
Finally, in circumstances of a costs agreement’s ‘non-compliance in a material respect’ with a costs disclosure obligation, the Costs Court has a discretion to disregard a costs agreement, with the result pursuant to s. 3.4.19 that the taxation would proceed against scale, an applicable Practitioner Remuneration Order, or in the event neither applied, what is fair and reasonable: s. 3.4.44A.
The provision is poorly drafted, since it is not readily apparent that costs agreements are required to comply with any costs disclosure obligations; the costs agreement, and the costs disclosures which should ideally precede the retainer, are different things.
Nevertheless, the Costs Court has exercised the discretion at least once: Schirmer v Ledermans, (unreported, Supreme Court of Victoria, Costs Court, Wood AsJ, 26 Mary 2009; this was the first occasion of the exercise) where no estimates of the likely total costs were given, misleading statements were made in relation to other mandatory costs disclosures, and an attempt was made to obtain a waiver of entitlement to further disclosures under s. 3.4.12(1)(b) on the basis that it was burdensome and expensive for the solicitor to keep on complying with the Act.
The entitlement to sue for fees is predicated on the provision of a conforming bill more than 65 days earlier: s. 3.4.33(1). Proceedings brought in breach of are stayed. Clients often then set in train the process of taxation. Once the taxation has come to a conclusion there will almost always be an order that the client pay the firm a sum of money, by which point the suit for fees in VCAT or the Court will serve no purpose, and the costs of bringing the suit will not be recovered. In such a case, the client must have a reasonable claim to costs of the proceedings incurred by him.
Furthermore, until a conforming bill is given, other times counted from the date of giving the bill, such as the times within which to lodge a costs dispute with the Legal Services Commissioner, or seek taxation of the bill do not commence to be counted. The client may tie the firm up in taxation, or even just the provision of an itemized bill, regaining the initiative.
The consequences of not including a notice as to the interest rate to be charged are also unfortunate: the firm is not entitled to charge any interest at all. Whether this consequence will be visited on firms which do provide notice, but get the details wrong (e.g. specify interest under the Penalty Interest Rate Act) is a matter that remains to be authoritatively worked out so far as I know.
 In fact, the section headed ‘Classes of client’ describes a slightly larger class, in that it includes persons to whom disclosure need not be given by virtue of sub-para (f), which says disclosure need not be given to classes of person prescribed by regulation.
 See Bhalla v Wisewoulds, unreported, Legal Profession Tribunal, T1010 of 1999; Dimos v Hanos  VSC 173; Coady’s v Getzler  VCC 1838; Equuscorp Pty Ltd v Wilmoth Field Warne  VSC 28, .
 The 1996’s Act’s provision was s. 86. Research may be conducted against the following correlates in other states: Legal Profession Act, 2006 (ACT) s. 269, Legal Profession Act, 2004 s. 309 (formerly Legal Profession Act, 1987 (NSW) s. 175), Legal Profession Act, 2006 (NT) s. 303, Legal Profession Act, 2007 (Qld) s. 308, Legal Profession Act, 2007 (Tas) s. 291, Legal Profession Act, 2008 (WA) s. 260. Links to these statutes are at my blog, here.
 This makes obvious why the disclosure statement and costs agreement should be two separate things.
 Note that it is permissible to contract out of obligations under Division 7 of Part 3.4 of the 2004 Act, which deals with what used to be called taxation, with sophisticated clients and associated third party payers who would be sophisticated clients if they were clients: s. 3.4.48A. Should that have occurred, then it is obviously undesirable to advise them of the availability of rights which they have contracted out of.
 Why the disclosure is limited to the right to be notified of changes to matters disclosed under s. 3.4.9 is puzzling given that s. 3.4.16 (the notification of changes provision) does not appear to be limited to disclosures under s. 3.4.9.
 The term is undefined.
- Costs disclosure obligations and consequences of not complying: part 1
- Costs disclosure obligations and consequences of not complying: part 2
- Two costs disclosure default cases in VCAT
- Application to set aside costs agreements for disclosure defaults fails
- Costs disclosure obligations and consequences of not complying: part 4