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The empowered client

Cover Story

Cite as: August 2015 89 (8) LIJ, p.30

The Legal Profession Uniform Law has changed the lawyer/client relationship. 

By Naomi Murray and Liz Harris

One of the stated objectives of the new Legal Profession Uniform Law 2014 (LPUL) is: “Empowering clients of law practices to make informed choices about the services they access and the costs involved”.1 This clarifies what most clients know – the focus is on outcome and how much they need to spend to achieve it, that is, whether there is a reasonable return on investment. Some would argue there is no need to embody this in statute, but too many clients felt that the focus of their lawyer was on the legal outcome, rather than whether there were strategies to achieve the desired outcome at a proportionate cost.

The LPUL requires lawyers to more closely consider the client’s objectives when considering and planning the proposed course of action, and when estimating the expected costs that will be incurred by the client. This is achieved in several ways.

Obtaining the client’s consent

The law practice has a positive ongoing obligation to take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed course of action for the conduct of the matter and the proposed costs.2 What is a sufficient and reasonable amount of information will depend on factors such as the level of sophistication of the client, their knowledge of English, their previous experience of legal matters and the information previously provided.

This obligation will not always be satisfied by a mere written acknowledgement on the part of the client in the initial disclosure statement or costs agreement provided to the client.3 Accordingly, the provision of translations, attestations by translators, file notes supporting the attendance to explain, file notes regarding further work, scope or estimates etc, will be required to substantiate a solicitor’s compliance with this positive ongoing obligation.4 Lawyers working with less sophisticated clients may consider developing information packs and client liaison strategies to fully explain what is involved in a particular area of litigation or other legal work, and the factors which can impact costs, and maintain an ongoing liaison with clients as a matter progresses.

Fair, reasonable and proportionate costs

The test for what costs can be charged by a practitioner has changed. A practitioner can only charge costs that are “no more than fair and reasonable in all the circumstances”. Legal costs must be:

  • proportionately and reasonably incurred; and
  • proportionate and reasonable in amount.5
  • The LPUL makes it clear that a law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs.6

    A costs agreement is prima facie evidence that the legal costs disclosed are fair and reasonable if the agreement does not contravene the provisions of the LPUL relating to disclosure and costs agreements.7

    A contravention of the requirement to charge “no more than fair and reasonable legal costs” is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of the responsible principal/s of the legal practice or each legal practitioner associate or foreign lawyer associate who was involved in giving or authorising the bill to the client or third-party payer.8

    Obligations regarding disclosure

    Disclosure is a mandatory obligation in respect of all clients other than commercial and government clients, regardless of whether there is a costs agreement, unless the costs are likely to be less than $750.

    The LPUL significantly changes the consequences of a failure to make the required ongoing disclosure,9 the most significant being that the costs agreement is void. As is the case under the Legal Profession Act 2004 (LPA), the client or third party payer is not required to pay the legal costs, nor can the law practice commence or maintain proceedings for the recovery of any legal costs, until they have been reviewed by the Costs Court or any costs dispute is determined by the Legal Services Board.

    A contravention of the disclosure provisions is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal or any legal practitioner associate or foreign lawyer associate involved in the contravention.

    As under the LPA, a lawyer who engages another law practice (such as counsel) must disclose to the client the relevant information in relation to the second law practice, and the second law practice does not have to disclose directly to the client,10 but must disclose enough to enable the first law practice to make adequate disclosure. This positive obligation to inform also extends to the situation where the law practice wishes to take reasonable security from a client for legal costs (including interest on unpaid legal costs).11

    Extent of disclosure

    The LPUL applies a new three-step disclosure threshold:

    Lower threshold: Full disclosure will not be required12 if total legal costs are not likely to exceed $750. Alternatively, a law practice may choose to provide the uniform standard disclosure.13

    Higher threshold: The uniform standard disclosure form may be used where total legal costs are not likely to exceed $3000 (excluding gst and disbursements).

    Above threshold: Where total legal costs (excluding gst and disbursements) are likely to exceed $3000, a law practice must disclose to a client in writing14 the following:

  • the basis on which legal costs will be calculated and an estimate of total legal costs15 as soon as practicable after initial instructions:16 and
  • the client’s right to:
  • – negotiate a costs agreement;

    – negotiate a billing method (eg, by timing or task);

    – receive a bill and request an itemised bill (after receiving a lump sum or partially itemised bill) within 30 days after receipt of lump sum bill;17 and

    – seek the assistance of the Legal Services Commissioner in the event of a dispute regarding legal costs.18

    As soon as practicable after the law practice becomes aware (or ought reasonably become aware) that legal costs are likely to exceed either the lower or higher thresholds, the law practice must inform the client in writing of that expectation and make the relevant disclosure.19

    Further, any significant change to a disclosure requires the practitioner, as soon as practicable after the change, to provide reasonable and sufficient information to the client regarding the “impact of the change to legal costs that will be payable to enable the client to make informed decisions about the future conduct of the matter”.20

    The final disclosure is prior to any settlement of a litigious matter, in regard to the costs incurred, and likely costs payable or recoverable under a cost order.21

    Providing cost estimates

    The general position of many practitioners when providing an estimate of costs is “how long is a piece of string?”. The LPUL now requires an estimate of total legal costs. The reference to providing a range of costs as set out in the LPA is gone. Query whether this was a deliberate decision of the draftsmen or simply an oversight, but on simple statutory interpretation principles, it is arguably now not proper disclosure to provide a range of estimates. Given that one of the consequences of failure to give proper disclosure is that the costs agreement is void (with potentially significant reductions in chargeable costs), a prudent practitioner will give a single total estimate.

    However, in many instances this is unrealistic, and arguably unhelpful for a client. At the outset of litigation, it can be very difficult to assess the likely costs, as they will depend on factors such as the strength of the client’s case, the negotiating position adopted by the other side, and even the strategic approach adopted by an opposing lawyer. Given that an estimate is to be provided to a client at or arguably prior to the time of formal retainer, and this is often before the practitioner has obtained full instructions and documentation, and may need to research and discuss possible options with the client, the ability to give a single estimate is very difficult, and requires assumptions to be made regarding the likely conduct of the matter without a proper basis.

    One option may be to provide a range of estimates as part of the discussion with the client about the proposed course of action (which is likely to include an exploration of the alternatives), the likely costs of each alternative, with the estimate of total costs being detailed as the estimate of costs for the agreed course of conduct.

    This will require practitioners to closely monitor whether the matter varies from the proposed course of conduct, and reassess the likely costs if such variation occurs, disclosing any changed estimate to the client and obtaining consent to the new course of conduct.

    Our experience in the provision of estimates by practitioners under the LPA is that very few, if any, give accurate estimates at the outset and are compliant in updating estimates. At a recent workshop, a quick survey of those present indicated more than half of those present gave accurate estimates in less than 70 per cent of matters. Only one practitioner was compliant, and only because he worked on a fixed fee basis.

    Giving estimates is an art in itself – and the legal profession is recognising this with an increase in legal project managers and pricing professionals. Estimating requires clarification of the desired outcome, agreement as to the proposed course of conduct to achieve the outcome, and assessment of the risks to the matter. All of this ties in with the LPUL’s objective to: “Empower clients of law practices to make informed choices about the services they access and the costs involved”.

    Snapshot
  • The new Uniform Law requires lawyers to take reasonable steps to ensure their clients have understood and consent to the proposed course of action in a matter.
  • The provision of accurate estimates is of primary importance due to the consequences of failure to properly disclose.
  • The most significant consequence of failure to properly disclose is that the costs agreement is void.

    Naomi Murray is a costs lawyer with Harris Cost Lawyers, having worked exclusively in the area of costs since 1996. Liz Harris is director of Harris Cost Lawyers, chair of the Cost Law Accreditation Advisory Board and former sessional member at VCAT. 1. LPUL, s3(d). 2. Note 1 above, s174(3). 3. Note 1 above, s174(6). 4. Non-compliance of the disclosure obligations renders a costs agreement void and is capable of constituting misconduct (s178). 5. Note 1 above, s172 (1). 6. Note 1 above, s173. 7. Note 1 above, Divisions 3 and 4. 8. Note 1 above, s207. 9. Note 1 above, s178. 10. Note 1 above, s175. 11. Note 1 above, s206. 12. Note 1 above, s174(1). 13. Note 1 above, r68 and Schedule 1, Form 2 – uniform standard disclosure. 14. Note 1 above, s174(6). 15. Under s3.4.9(1)(c) of the Legal Profession Act 2004 a law practice could provide “an estimate of the total costs (or if not reasonably practicable a range of estimates of total legal costs)”. 16. Note 1 above, ss174(9), 174(1)(a). 17. Note 1 above, s187(2). 18. Note 1 above, ss174(2)(a)(i)-174(2)(a)(iv). 19. Note 1 above, s174(7)-(8). 20. Note 1 above, ss174(1)(b)-174(2)(b). 21. Note 1 above, s177.

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