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Drew, Sharon --- "Costs column: Estimates of legal costs -" [2020] PrecedentAULA 23; (2020) 157 Precedent 48

ESTIMATES OF LEGAL COSTS

By Sharon Drew

In each Australian state and territory, legal practitioners are required to provide an estimate of total legal costs to a client.^[1] Some jurisdictions permit legal practitioners to provide an estimate range where it is not reasonably practical to provide a single estimate. Although the legislation varies slightly between jurisdictions, the main aspects are consistent.

The importance of providing an estimate of costs is explained by Professor Dal Pont as follows: ‘costs disclosure aims to empower the client vis-à-vis the lawyer, by giving the client the opportunity to make an informed choice costs-wise whether or not to retain the lawyer or to continue with the representation’.^[2]

The definition of ‘total legal costs’ includes: solicitor’s professional fees, disbursements including barrister’s fees, and GST. An estimate which omits one or more of these components will not satisfy the practitioner’s disclosure obligations.

A barrister retained by a solicitor’s firm is required to provide an estimate of costs to the solicitor in order for the solicitor to provide disclosure to the client. In circumstances where a barrister fails to provide an estimate to the solicitor, it seems likely that the solicitor would nonetheless be expected to provide some estimate of the barrister’s fees to the client.

Legal practitioners are required to inform a client if there is any substantial or significant change to the estimate of total legal costs as soon as reasonably practicable.

Disclosure must be made in writing. Verbal discussions between the practitioner and client regarding costs do not comply with the requirement for disclosure to be in writing, although they may be evidence of the client’s knowledge.

The potential repercussions for a practitioner who does not properly disclose an estimate of total legal costs to a client include:

• any costs agreement may be set aside or declared void;

• a client will not be liable to pay any costs until they have been assessed;

• the practitioner cannot bring proceedings to recover costs until they have been assessed;

• a finding of unsatisfactory professional conduct or professional misconduct may be made against the practitioner;

• the practitioner may be obliged to pay the costs of assessment/taxation; and

• in certain jurisdictions, the legal costs may be further reduced by an amount ‘proportionate to the seriousness of the failure to disclose’.^[3]

Failure to provide an initial estimate of costs is anecdotally less common than failure to provide an updated estimate, and is likely to be viewed more seriously. For example, in Smith v Lewis Blyth & Hooper,^[4] Jenkins J commented that ‘a practitioner’s failure to provide an estimate of legal costs before a costs agreement is required to be signed is likely to provide an unfair advantage to the practitioner in his or her relationship with the client’.^[5]

Providing regular invoices or making requests for money does not comply with the disclosure obligations. In the Victorian case of Johnston v Dimos Lawyers,^[6] Wood AsJ stated:

‘There is a prevalent misconception in the profession about the estimate provisions in the Act. Demands for progress payments or the delivery of regular invoices for work already completed do not satisfy the Act. Section 174(1) requires an initial estimate of total future legal costs and a regular updating of this figure when this has significantly changed and is out of date. Section 174(6) mandates these to be in writing.’^[7]

An estimate of costs should be realistic. Professor Dal Pont notes that deliberately underestimating costs could be viewed as unprofessional; may amount to misleading and deceptive conduct; and arguably is a breach of fiduciary duty as it places the lawyer’s own interests in conflict with the duty to the client.^[8]

Other principles stated in recent judicial determinations include:

• Although a costs agreement may be void, costs may nevertheless be calculated on the basis of hourly rates that have been disclosed.^[9]

• An increase in hourly rate due to a solicitor’s promotion (for example, from associate to senior associate) may not be reasonable if the nature and complexity of the matter does not warrant carriage the matter by a senior associate.^[10]

• Failure to properly disclose an estimate of total legal costs can constitute grounds on which a statutory demand based on unpaid legal costs will be set aside.^[11]

While the use of generic boilerplate estimates may be seen as a time-saving technique for practitioners, it is generally accepted that the estimate of total legal costs should reflect the particular circumstances of the client’s matter, based on the practitioner’s experience in practice. As Professor Dal Pont explains: ‘[t]he process of estimation forces lawyers to address the likely steps in the matter, and what falls within and outside these’.^[12] With the advent of automated time-recording and practice management systems, it is likely that the expectation that practitioners monitor legal costs and provide ongoing disclosure with greater accuracy will increase.

Failure to properly disclose an estimate of total legal costs makes the process of recovering costs from a client more time-consuming, complex and costly for a legal practitioner.

Sharon Drew is Principal of Blue Ribbon Legal – specialising in legal costs disputes. PHONE (02) 8599 3100 EMAIL sharon.drew@blueribbonlegal.com.au WEB www.blueribbonlegal.com.au.

^[1] Legal Profession Act 2006 (ACT), s269; Legal Profession Uniform Law (NSW), s172; Legal Profession Act 2006 (NT), s303; Legal Profession Act 2007 (Qld), s308; Legal Practitioners Act 1981 (SA), Schedule 3; Legal Profession Act 2007 (Tas), s291; Legal Profession Uniform Law (Vic), s172; Legal Profession Act 2008 (WA), s260.

^[2] G Dal Pont, Law of Costs, 4th ed, LexisNexis Australia, 2018, 2.20.

^[3] These repercussions are set out in the various legislative schemes: Legal Profession Act 2006 (ACT); Legal Profession Uniform Law (NSW); Legal Profession Act 2006 (NT); Legal Profession Act 2007 (Qld); Legal Practitioners Act 1981 (SA); Legal Profession Act 2007 (Tas); Legal Profession Uniform Law (Vic); Legal Profession Act 2008 (WA).

^[4] [2013] WASC 408.

^[5] Ibid, [108].

^[6] [2019] VSC 462 (Johnston v Dimos Lawyers).

^[7] Ibid, [19].

^[8] Dal Pont, above note 2, 2.30; referring to Burrell Solicitors Pty Ltd v Reavill Farm Pty Ltd [2016] NSWSC 303, [180] per White J.

^[9] Johnston v Dimos Lawyers, above note 6, [42].

^[10] Ibid, [23].

^[11] Rusca Bros Services Pty Ltd v Dlaw Pty Ltd, in the matter of Rusca Bros Services Pty Ltd (No 2) [2019] FCA 1865, [77].

^[12] Dal Pont, above note 2, 2.30.