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Costing: Costs under review

Every Issue

Cite as: March 2011 85(3) LIJ, p.73

A law practice must not only charge fair costs for work performed, but also be able to prove its entitlement to those costs.

Division 7 of the Legal Profession Act 2004 (the Act) provides a mechanism for the Costs Court to review legal costs. It is therefore imperative that a law practice be able to justify the legal costs it has charged if a dispute arises.

Under sub-ss3.4.38(1) and (2) of the Act, a client or third party payer can apply to the Costs Court for a review of the whole or any part of the legal costs.1 An application can be made even if the legal costs have been wholly or partly paid, even without a bill.

An application for review must be made within 12 months after the bill was given, a request for payment was made or the costs were paid if neither a bill was given nor a request made. There is, however, provision for the Costs Court to deal with applications made out of time if a judge of the Supreme Court determines that it is just and fair to do so after having regard to the delay and reasons for delay.2

Under s3.4.39 of the Act, a law practice can apply to review the whole or any part of the legal costs charged by another law practice it has retained. An application can be made even if the costs have been paid, but must be within 60 days after the bill was given or a request for payment was made, or the costs were paid if neither a bill was given nor a request made. Accordingly, it is essential that law practices exercise care and control over the legal charges of retained law practices (such as barristers or city agents).

A failure to initiate an application under s3.4.39 could result in a law practice being “out of pocket” if the Costs Court, on the application of a client or third party payer, reduces the amount payable by the client or third party payer in respect of that charge.

If a law practice is unable to recover its legal costs, s3.4.40 allows the practice to apply for a review of its own bill of costs. Such an application cannot be made until at least 30 days after the bill was given or a request for payment was made, or the costs were paid if neither a bill was given nor a request made.3

A law practice cannot start recovery proceedings if an application for review is made and any recovery proceedings on foot should be stayed. If, before giving an itemised bill, a law practice had rendered a lump sum bill, it is no longer bound by the amount of the lump sum bill on an application for review.

In conducting a review, the Costs Court must consider whether it was reasonable for the work to be done, whether the work was performed in a reasonable manner and the fairness and reasonableness of the amount of legal costs being charged. Factors that may be considered by the Costs Court in determining fair and reasonable legal costs include:

  • any disclosure made by the law practice under Division 3 of the Act;
  • any relevant advertisements as to the law practice’s costs or skills;
  • the skill, labour and responsibility displayed by the law practice; and
  • the complexity and quality of the work performed.

Where costs are claimed by reference to a costs agreement, the Costs Court must review those costs by reference to the terms of that costs agreement, unless the parties otherwise agree or the Court is satisfied that the agreement does not comply “. . . in a material respect . . .” with any of the disclosure requirements under Division 3 of the Act or is void under Division 5 of the Act.

The costs of the review process will usually depend on the outcome. Generally, if the costs are reduced by 15 per cent or more, the law practice will be liable for the costs of the review. Otherwise, the applicant will be liable. The law practice will also bear the costs of the review if the Costs Court is satisfied that it failed to comply with the disclosure requirements under Division 3 of the Act.

It is important to note that the Costs Court can refer a matter to the Legal Services Commissioner if it considers that the legal costs charged are grossly excessive or any other matter arises that it considers might constitute unsatisfactory professional conduct or professional misconduct.

It is not enough for a law practice to charge fair and reasonable legal costs for work competently and professionally performed. On a costs review it must be able to prove its entitlement to the legal costs being charged.



ROGER WALTON is a costs lawyer with LIV Legal Costing. For more information on Legal Costing’s services see www.liv.asn.au/costing or ph 9607 9403. If you have a topic for a future article, email costingcolumn@liv.asn.au or ph 9607 9403.

1. See s3.4.2A for the definitions of “associated” and “non-associated” third party payers. The definitions of “client” and “third party payer” are further expanded by s3.4.38.

2. Sub-s3.4.38(6) – the “out of time” provisions do not apply to sophisticated clients or third party payers who would be sophisticated clients if they were a client of the law practice.

3. Or at least 30 days after an application was made under Division 7 of the Act by another person – see sub-s3.4.40(3).

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