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FAQ: Costs Disclosure & Assessment

Legal ProfessionRunning a Law FirmCosts Disclosure & Assessment FAQ

When does the Legal Profession Act 2008 (the Act) become operative?

The Act, together with the Legal Profession Regulations 2009 (the Regulations), the Legal Profession Rules 2009 (the Rules), and the Legal Profession (Admission) Rules 2009 (the Admission Rules) became operative on 1 March 2009.

What are my costs disclosure requirements?

Section 260 sets out the matters that must be disclosed to a client. If the practice is itself retaining another law practice on behalf of the client, it is obliged to provide the information specified in section 260(1)(a), (c) and (d) in relation to the other law practice to the client: section 261.

Disclosure is to be made either before being retained or as soon as possible after being retained by the client: section 262.

Disclosure of the legal costs incurred or payable by a client is also required when settlement of a litigious matter is negotiated and prior to actual settlement: section 264.

Where the costs agreement includes an uplift fee, the client must prior to entering into the agreement disclose the practice's legal costs, the uplift fee and the reasons why the uplift fee is warranted: section 265.

The disclosure obligations are continuing obligations, requiring practitioners to disclose substantial changes to a client, whenever such occur: section 267.

What are the consequences of failure to disclose?

A failure to make the necessary disclosures required by the Act results in the client not being liable for the legal fees unless and until those costs are assessed by the Court under section 288, and prevents the law firm from taking action to recover its fees: section 268.

When is disclosure NOT required?

Disclosure under sections 260 and 261 is not required when:

  • The total legal costs, excluding disbursements, are not likely to exceed $1500 (exclusive of GST) or the prescribed amount (no amount is currently prescribed in the regulations): section 263(2)(a);
  • The client has already received the disclosure in the preceding 12 months, and the client has agreed to waive the right to disclosure, and a principal of the practice decides on reasonable grounds that further disclosure is not warranted: section 263(2)(b);
  • If the client is:
    • a law practice or an Australian legal practitioner;
    • a public company or a subsidiary of a public company, a large proprietary company, a foreign company or registered Australian body;
    • a financial services licensee;
    • a liquidator, administrator or receiver;
    • a partnership that provides on professional services and has more than 20 members or would be a large proprietary company if it were a company;
    • a proprietary company formed for the purposes of carrying out a joint venture, if any shareholder would be a person to whom disclosure was not required;
    • an unincorporated group of participants in a joint venture, if any shareholder would be a person to whom disclosure was not required and the remainder have waived their right to disclosure;
    • a Minister of the Crown in right of a state or the Commonwealth, a government department or public authority of a state or the Commonwealth; Section 262(2)(c).
  • If the legal costs to be paid or the basis for their calculation have been agreed as a result of a tender process: section 263(2)(d);
  • If the client will not be required to pay legal costs (i.e. pro bono work) section 263(2)(e) ;
  • In any other circumstances prescribed by the regulations: section 263(2)(f).

Regulation 81 has prescribed as further exceptions to the disclosure requirements a client that is an overseas registered foreign lawyer or practice, or a client that is a corporation with a share capital where those shares are held beneficially for a state, Territory or the Commonwealth.

What are Conditional Costs Agreements?

The Act permits Conditional Costs Agreements, whereby the legal costs payable are conditional on the successful outcome of the matter to which the costs relate: section 283.

Conditional Costs Agreements are not permitted for:

  • criminal proceedings,
  • proceedings that relate to child protection, custody, guardianship or adoption,
  • proceedings under the Family Court Act 1997,
  • proceedings under the Children and Community Services Act 2004;
  • proceedings under the Family Law Act 1975, Migration Act 1958 or Child Support (Assessment) Act 1989;
  • proceedings prescribed by the regulations (none are currently prescribed).

Conditional Costs Agreements have to contain the details set out in section 283(3) of the Act. Such agreements must have a 5 business day "cooling off" period.

Are Contingency Fees Permitted?

Contingency fees (where the amount payable by way of legal costs is calculated by reference to the value of the subject matter of any proceedings) are still prohibited by the Act: section 285.

Can Costs Agreements be set aside?

The Supreme Court retains its power to set aside any costs agreement if it forms the view that the costs agreement is not fair or reasonable: section 288.

What must be included in a bill?

Section 291 of the Act sets out what must be included in every bill rendered by a practice to a client other than a "sophisticated client".

A "sophisticated client" is defined in section 252 as a client to whom, because of section 263(2)(c) or (d), disclosure under sections 260 or 261(1) is not required.

The costs assessment provisions in Part 10, Division 8 provide for a taxing officer of the Supreme Court to assess client bills and determine what legal costs are recoverable from and payable by a client: section 295.

An application for costs to be assessed can be made any time within 12 months after the bill was rendered. Bills may be assessed out of time for clients other than sophisticated clients: section 295(7).

What transitional provisions are in place for costs disclosure and costs agreements?

Due to the fact that the Act, Rules and Regulations all came into operation on 1 March 2009, and in the case of the Rules and Regulations, the profession had little time to become familiar with and comply with the same, the Government decided to defer the operation of provisions relating to trust money and accounts, and costs disclosure and cost agreements.

The trust account obligations under the 2003 Act will continue to apply until 30 June 2009: regulation 120.

The transitional provisions, amended by the Legal Profession Amendment Regulations 2009, provide that a practice does not have to comply with sections 260, 261 or 264 of the Act (dealing with costs disclosure requirements) when retained by a client during the period 1 March to 30 June 2009 or when settling a matter during this period: regulation 122(1) or (2).

As a consequence, section 268 (dealing with the effect of a failure to make the necessary disclosures) does not apply if regulation 122(1) or (2) applies.

However, if during the period 1 March to 30 June 2009 the practice and client make a costs agreement under the Act, then the costs disclosure provisions will apply from the date of that costs agreement.

Alternatively, during the period 1 March to 30 June 2009 a client and practice can make a costs agreement under section 221 of the 2003 Act, with the effect that the disclosure and cost provisions in the Act will not apply until 1 July 2009: regulation 123A.

The obligation to provide progress reports to a client when requested to do so will operate from 1 March 2009: section 269.