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Costing: No signature no deal

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Cite as: April 2014 88 (04) LIJ, p.79

A finding that a costs agreement is void invariably results in a serious reduction in professional fees recoverable.

Lawyers are at the forefront of taking calculated financial risks with conditional costs agreements. However, the greatest risk is not whether a lawyer will obtain success or not for the client, but whether the agreement will withstand the rigours of careful examination and scrutiny by the Victorian Costs Court when a client seeks to later review legal fees incurred.

In a recent decision of the Costs Court1, Wood AsJ held that the conditional costs agreement must be signed by the client. No signature resulted in the agreement being held to be void. The lawyers’ inclusion in their agreement of acceptance of a written offer by conduct was held to be an impermissible mode of acceptance in a conditional costs agreement. This meant the agreement failed the clear plain language requirement and was therefore another reason why it was held to be void.

The client/s had not signed the conditional costs agreement but were still negotiating with the lawyers on the question of what constituted “success” and required more details relating to estimates of total legal costs. The agreement sought the lawyers’ normal hourly fees and an uplift fee of 20 per cent on professional fees if settlement of $650,000 was reached (with a cap on the lawyers’ fees not to exceed the settlement figure). Ten weeks into the retainer, the lawyers and client agreed that the uplift fee would become payable if settlement reached $1.5 million or more. The costs agreement was not amended or signed but reference was made to the finalised agreement in an email from the client to the lawyers. Three weeks later the case settled for less than the defined success.

The law firm also relied on s9 of the Electronic Transaction Act (Vic) 2000 and on an email sent by the client as evidence of his signature. The costs judge found s9 was not satisfied on the basis that using an electronic signature required the consent of both parties and that the signatory intended his electronic communication to constitute his signature.

Under s3.4.31(4) of the Legal Profession Act 2004 (the Act), a void conditional costs agreement results in no success fee being payable but allows a lawyer to charge pursuant to scale or practitioner remuneration order or where no scale applicable for a fair and reasonable value (s3.4.31(2)). Given most law practices do not charge scale, a finding that the costs agreement is void invariably results in a serious reduction in professional fees recoverable. This is firstly by loss of the uplift fee of up to 25 per cent of professional fees and secondly by the reduction of professional fees from hourly rates that invariably exceed scale. The Costs Court will order the lawyers to prepare an itemised bill calculated on a different basis than the earlier invoicing resulting in further fees for the lawyers which may ultimately not be recoverable from the client.

The essential requirements of a conditional costs agreement are set out in s3.4.27 (3) of the Act. A conditional costs agreement must:

1. set out the circumstances that constitute a successful outcome in the particular matter to which it relates;

2. be in writing;

3. be in clear plain language;

4. be signed by the client;

5. contain a statement that the client has been informed of the client’s right to seek independent legal advice before entering the agreement;

6. contain a cooling-off period of not less than five clear business days to terminate the agreement in writing.

Where a law practice wishes to charge an uplift fee on success, s3.4.28 sets out further requirements. A conditional costs agreement must also:

1. separately identify the basis of calculation of the uplift fee;

2. contain an estimate of the uplift fee or if not reasonably practicable, a range of estimates and explanation of the major variables that will affect the calculation of the uplift fee;

3. where the matter is litigious, the law firm must have a reasonable belief in the successful outcome;

4. have an uplift fee that does not exceed 25 per cent of the legal costs excluding disbursements.

Wood AsJ found that the conditional costs agreement contravened s3.4.27(c)(ii) & (iii) and 3.4.28(3)(a) & (b) of the Act and was void for any one of these contraventions. He ordered that itemised bills of costs on scale/s be drawn.

The lawyers appealed the decision arguing any internal inconsistency in the provisions of the agreement could be reconciled and that it was not open for the court to take a line-by-line approach to interpretation of the costs agreements. The appeal was heard by Justice Bell of the Victorian Supreme Court in December 2013 with judgment currently reserved.

CATE DEALEHR is an accredited costs law specialist and principal, The Australian Legal Costing Group.

1. McCardel & Ors v Russells, unreported decision of Costs Court, 20 August 2013.


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