Chapter 5: Costs and charges

Lawyers are required to inform their clients, in writing, how they are going to charge, before they begin work. They must give an estimate and the basis on which costs are to be calculated. These requirements are subject to an exception where the total legal costs in the matter (excluding costs and disbursements) are unlikely to exceed $750. There are also avenues for having a bill assessed if you believe you have been overcharged.

How are costs calculated?

The way legal costs are calculated varies according to the type of legal service which is provided. Charges can be calculated in a number of ways, including:

• lump sum or fixed rate fee (common for wills or conveyancing)
• item-by-item charges for specific tasks
• hourly or daily rate, including phone calls, meetings with the client or court appearances. This rate may depend on the experience of the lawyer.

In some areas, there is a regulated scale of costs which solicitors must charge. This is the case in worker’s compensation, victim’s compensation and some aspects of probate. Costs due to lawyers in personal injury matters may also be limited.

Solicitors sometimes ask for a portion of a payment in advance to cover costs and disbursements. This money must be placed in a trust account until the work is done and a proper bill of costs is given to the client. The costs agreement between a solicitor and client may, however, allow for payment of disbursements (see below) or for periodic payments on account of costs where agreed by the client. Alternatively, some lawyers will enter into an agreement with their client as to the best way to pay their bills.

What are legal costs?

There is sometimes confusion about what is meant by the term ‘legal costs’. There are two types of legal costs.

1. Solicitor/client costs– the costs which you agree to pay a lawyer for legal services, including all costs which have been incurred by the lawyer in providing the legal services.
2. Party/party costs – the costs which arise as the result of a court ordering one side in a dispute to pay the costs of the other side.

Solicitor/client costs are costs paid by clients to their own lawyers. They are charged by the lawyer to the client for all of the work done for the client. Party/party costs are costs paid by another party, usually the opponent in litigation, because the client has won the case or the case has been settled and part of the settlement agreement is that the other party will pay costs.

Solicitor/client costs are almost always higher than party/party costs. This is not because of overcharging but because party/party costs only cover costs relating directly to court proceedings.

Party/party costs will not cover all of the costs the client has to pay. This is like the situation where a patient claims the cost of a doctor’s services from Medicare and receives a payment which is less than the amount charged by the doctor. The patient then has to pay the difference. Negotiation of party/party costs is conducted by the solicitors and can take some time. It may also be necessary to have the costs assessed.

Does my lawyer have to give me a quote?

Under the LPUL, solicitors must indicate to their clients how much their services are likely to cost. This information (called costs disclosure or fee disclosure) must be given in writing and before the work has begun. The lawyer must give you:

• an estimate of how much it is likely to cost, and
• the basis of calculating the costs (for example, an hourly rate).

It is an estimate of costs, not a quotation. The lawyer must also provide information about the client's rights:

• to negotiate a costs agreement with the law practice
• to negotiate the billing method
• to receive a bill from the law practice and to request an itemised bill after receiving a bill that is not itemised
• to seek the assistance of the Office of the Legal Services Commission in the event of a dispute about legal costs (LPUL, section 174).

Your lawyer must be satisfied you understand the costs disclosure (section 174(3)).

Exceptions to this requirement to disclose costs are in situations where:

• a lawyer receives instructions from someone who needs legal services immediately, or soon after instructions are given, and it is not possible to disclose the costs in writing before the lawyer begins work but costs must be disclosed later
• the total cost to be charged (excluding GST and disbursements) is expected to be below $750 and the lawyer has informed you of this, and
• the calculation or estimate of the total costs is dependent on factors which can’t be determined; in which case the lawyer must still give you a range of estimates on an ongoing basis and estimate the total cost as soon as possible.

Legal transactions can be unpredictable. The legal costs for some matters are easier to predict than others. Your lawyer may explain that the cost could go up as things progress if more work is involved. If there is likely to be a significant increase in the estimated cost originally quoted, the lawyer must provide an update, in writing, of any increase in charges (section 174(1)(b)).

Costs agreements

Lawyers and clients can make written agreements about costs. This is called a costs agreement. A costs agreement may specify exactly how much the lawyer is going to charge or the rate of charging (for example, on an hourly basis). While lawyers must disclose costs, costs agreements are optional. Costs agreements must be in writing (section 180).

A conditional costs agreement is when the payment of all the lawyer’s costs is conditional on a successful outcome. This means that a lawyer takes on your case on the basis that you will only pay their costs if you are successful. (If you are uncertain what ‘successful’ means in relation to your case, you should discuss it with your lawyer.) A conditional costs agreement does not apply to criminal proceedings or family law matters (section 181(7)). If your legal action succeeds, your lawyer is allowed to charge you a premium of up to 25 per cent above normal fees (an ‘uplift fee’) (section 182), which you pay out of whatever money you have obtained from the judgment. A law practice cannot enter into a costs agreement under which the amount payable to the law practice is calculated by reference to the amount of any judgment or settlement that may be recovered (section 183).

This, of course, means that you will need to have a very strong case before a lawyer will agree to take on a conditional costs agreement. It is important to be aware that if you lose the case, while you may not have to pay your own lawyer, you may be required to pay the legal costs of the other side. You may also have to pay disbursements, which the solicitor needs to pay on your behalf, for example doctor’s fees or ‘expert’ fees. It is wise to discuss with your solicitor how their fees and costs are to be paid in the circumstances where your matter is settled.

Costs assessment

If you believe the costs you have been charged are unreasonable, you can have the bill mediated or assessed by the Costs Assessment Scheme, administered by the Supreme Court. An independent costs assessor will decide whether the bill is ‘fair and reasonable’.

To approach a costs assessor, you will need to make an application to the Manager, Costs Assessment in the Supreme Court (section 68 of the Legal Profession Uniform Law Application Act 2014) and pay an application fee (at least $100, although this can be waived in cases of serious hardship). A costs assessor can assess bills, taking into account a range of factors, including:

• the fairness and reasonableness of carrying out the work
• the level of skill, experience, specialisation and seniority of the lawyers concerned
• the level of complexity, novelty or difficulty of the issues involved
• the quality of the work done (section 172 of the LPUL).

A costs assessor can reduce a bill of costs or set it aside.

If the amount in dispute is less than $10,000, it may be referred to the Office of the Legal Services Commissioner (OLSC) or the Law Society for mediation. Costs assessors must refer cases of misconduct to the OLSC if they consider that there has been gross overcharging or other conduct that may amount to unsatisfactory professional conduct or professional misconduct. (See Complaints.)

However, a costs assessor will assess a bill of costs in accordance with the costs agreement and costs disclosure, unless the requirements for providing the costs disclosure, and entering into the costs agreement, were not otherwise complied with (section 172(4) of the LPUL).

Solicitors cannot sue their clients for non-payment of fees if they have not properly disclosed their costs, unless the solicitor applies for and pays for an assessment of the costs. It is a good idea to talk to the Office of the Legal Services Commissioner if this is the case.

If you are dissatisfied with the determination of a costs assessor, you can have the decision reviewed by a panel, which comprises two experienced costs assessors. The panel can set aside the original determination and issue a different one. In the limited circumstances where a question of law is involved, appeals may be made to the District Court of New South Wales (section 205). An application for a review must be lodged within 30 days of the certificate being forwarded to the parties.

Hot Tip: What are disbursements?

Disbursements are the expenses which solicitors have to pay out on behalf of the client and include payments made to apply for official records or documents, stamp duty, court filing fees and barrister’s fees.

Liens

A solicitor’s lien is the right to retain the documents or other personal property of a client until they have paid the outstanding costs. The lien includes all deeds, papers or other personal property belonging to the client. Liens cannot be held over passports, because they remain the property of the government which issued the passport or over wills.

There are two types of liens which solicitors have:

• retaining liens
• ‘fruits of the action’ liens.

A retaining lien is based on possession and gives the solicitor the right to retain your property until you pay all the costs you owe. A fruits of the action lien is limited to the costs of a particular action and is not based on possession. A fruits of the action lien can mean that the solicitor has the right to be paid out of the money which you are awarded in a case.

If a lawyer ceases to act for a client during litigation and claims a lien for unpaid costs, they may be required to hand over the documents on certain conditions.

Case study - Overcharging

Ms Bechara acted on behalf of three plaintiffs in circumstances where the court had ordered that the matters be heard together and that evidence in one case be used as evidence in the other. However, the lawyer charged each client for each day spent in court.

The Administrative Decisions Tribunal found that Ms Bechara was guilty of professional misconduct and ordered that she be publicly reprimanded, fined the sum of $6500 and pay the costs of the Legal Services Commissioner. Ms Bechara was unsuccessful in an appeal against the decision which was heard by the Supreme Court of NSW Court of Appeal in 2010. She subsequently sought special leave to appeal to the High Court. Her application was unsuccessful.

Legal Services Commissioner v Bechara [2009] NSWADT 145; Bechara v Legal Services Commissioner [2010] NSWCA 369

The Office of the Legal Services Commissioner, Annual Report 2009-2010