Important Information
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If you have a copy of the below documents, we will have a better understanding of your situation and be able to assist you faster.
From here we will review your documents and provide our preliminary advice. This will let you know the best way to go forward, this will include sending our estimate of fees and our initial view on whether you will benefit from our service and if you will receive a reduction in your fees/ costs charged by your previous solicitor. We will always be transparent and honest with you – if we don’t believe you will benefit from us, we will not take you on as a client.
If you decide to proceed with us and we find any evidence of any non-compliance with disclosure obligations, the following consequences can be triggered:
Solicitors have many responsibilities to their clients, highlighted by the introduction of the Legal Profession Uniform Law 2015 (NSW) (the Uniform Law) which increased solicitors’ disclosure obligations, in particular by imposing an obligation on solicitors to take all reasonable steps to satisfy themselves that the client has understood and given consent to costs disclosures made: the Uniform Law s174(3).
This situation of solicitors withdrawing an invoice issued to their client and substituting it with an itemised bill of costs claiming higher fees than the original invoice often arises during costs assessments or negotiations as to costs: a client challenges an invoice issued to them on a lump sum basis and the solicitor responds with an itemised bill (including additional fees either previously discounted or not charged at all). Such an itemised bill may, for example, add attendances undertaken by paralegals or attendances undertaken after hours not previously invoiced.
This situation can arise regardless of whether or not a client has paid any fees towards the original invoice.
GENERAL RULE
The general rule at common law is that, in the absence of a court order or the consent of the client, a solicitor is not entitled to withdraw a bill of costs once issued to a client and substitute the bill for an increased amount: Loveridge v Botham 1797 ENG R 463. Bowen CJ summarised the rule in Florence Investments Pty Limited v H G Slater & Co (1975) 2 NSWLR 398 (Florence Investments) at 401:
‘If a bill of costs is sent to the client without any condition being stated, then the solicitor cannot, in the case of a taxable bill, afterwards withdraw it and send in an amended bill.’
The qualification ‘taxable bill’, or ‘assessable bill’ since deregulation, is important and is discussed later in this article.
Hoare J in Re Edwin Sutherland & Co's Bill of Costs (1971) Qd R 318 (Re Edwin) at 322 clarified the policy behind this general rule as follows:
’Undoubtedly, one of the reasons for this approach is that were it not for some such general rule, it might well be open to solicitors to act oppressively in particular circumstances.
Tadgell J made a similar observation in Redfern v Mineral Engineers Pty Ltd [1987] VR 518, at 523.
EXCEPTIONS
Most general rules have exceptions, as does this rule. Well-established case law highlights circumstances in which solicitors have been able to, and still can, withdraw an invoice (however itemised) and substitute it with a bill of costs seeking greater fees. Such circumstances arise when:
Exceptions 1 and 2: Contractual arrangement and reservation of rights
In Gorczynski v Beilby, Kirby J confirmed (at [59]) that the general rule on substitution of bills is subject to the qualification that a solicitor and their client may contractually seek to provide otherwise. However, this is subject to the court's power to strike down a condition which is unfair.
The rule accepted by the courts in Re Thompson and Florence Investments in relation to a reservation of rights clause is as follows:
‘A solicitor may, when sending in his bill of costs to his client, reserve to himself the right to withdraw or alter it on condition, provided the condition is fully and clearly stated to the client: but if the solicitor has sent in his bill without any condition, or with a condition which he could not fairly impose, he cannot afterwards withdraw it or send in an amended bill.’
The solicitor’s right to a reservation of rights clause is now protected by r74 of the new Legal Profession Uniform General Rules 2015 (NSW).
Exception 3: Clear errors or real omissions (special circumstances)
The third and the fourth exceptions cause the majority of misunderstandings in this area.
In Re Edwin and in Re Holroyde and Smith (1881) 43 LT 722 (Re Holroyde), the court said that there must be special circumstances to entitle a solicitor to withdraw one bill and substitute another: such as fraud, accident or mistake. This approach was confirmed in Bowen & Ors.
Examples of special circumstances are provided by Jessel MR in Re Holroyde:
‘…when the solicitor has been entrapped into making charges by the misrepresentations of his client or in the case of accident, where a charge or a page had been inserted [or omitted] by mistake; but special circumstances there must be.’
The importance of there being a ‘bona fide mistake’ in order to qualify as a special circumstance is explored in Re Walters (1845) 9 Beav 299; Marshall v Oxford (1832) 5 Sim 456; Re Holroyde; and Re Negus [1895] 1 Ch 73.
One costs assessor has recently determined that failure by a law firm to set up a system to capture all time spent with respect to the work carried out for a client is not a special circumstance.
A special circumstance arises when there has been a clear error or real omission or an occurrence beyond the control of the law practice exercising reasonable care.
Exception 4: Withdrawing a bill not in taxable form
The general rule as stated in Loveridge v Botham contains the qualification ‘taxable’ bill, a term appropriate to the days when bills were taxed before the Registrar. Bills are now assessed by court-appointed costs assessors and the rule is now applied to ‘assessable’ bills.
Kirby J in Gorczynski v Beilby held that costs assessors retain authority to determine whether or not a bill of costs is in assessable form, and whether or not a solicitor is entitled to withdraw one bill and reissue another in assessable form.
This can create issues for solicitors, as criteria as to whether or not their original bill is in assessable form are unclear and can vary depending on the circumstances of each matter.
What is a Bill of Costs? And is it in assessable form?
Neither the Uniform Law nor its predecessor, the Legal Profession Act 2004 (NSW) (the LPA), specify what constitutes a bill in assessable form. Section 198 of the Uniform Law (and ss350 and 352 of the LPA) permits an application to be made by either a client or a law practice for an assessment of the whole or any part of the legal costs payable or paid to the law practice. Normally this is done by annexing a bill of costs to an application for assessment of costs.
Section 186 of the Uniform Law ensures that bills may be in the form of either a lump sum bill or an itemised bill, as did its predecessor equivalent, s332 of the LPA. Regulation 5 of the General Rules defines a lump sum bill in similar terms to s302 of the LPA, as ‘a bill that describes the legal services to which it relates and specifies the total amount of the legal costs’. An itemised bill is further defined as ‘a bill that specifies in detail how the legal costs are made up in a way so as to allow costs to be assessed’.
Neither provision requires an application for assessment of costs to be made by way of a bill of costs ‘in assessable form’. Any bill, whether itemised or lump sum, will be considered assessable so long as sufficient detail is specified so as to allow costs to be assessed.
The now repealed reg111B of the Legal Profession Regulation 2005 (NSW) did prescribe the contents of an itemised bill, including the dates and amounts for each attendance and whether attendances were by letter, telephone, perusal, drafting, conference, etc. As this prescription has not been carried over into the new General Rules, the decision of Florence Investments (in relation to a solicitor’s right to substitute a bill not in assessable form) now has far less, if any, relevance.
Of course, the more detailed a bill of costs, the easier it is for the costs assessor to determine whether or not costs were reasonably incurred, carried out in a reasonable manner and were fair and reasonable, thereby increasing the chances for maximum costs recovery.
CONCLUSION
Exceptions to the general rule, permitting substitution of invoices with itemised bills in higher amounts than previously invoiced, remain important. Contractual arrangements, reservations of rights and remedies where clear omissions or errors have occurred allow solicitors to provide higher bills.
Claims that a detailed invoice is not in assessable form may not satisfy costs assessors who consider sufficient detail has been specified, when coupled with a review of the solicitor’s file in the matter, to enable an invoice to be assessed. The Florence Investments exception appears to have been superseded by an increase in costs assessors’ discretion by default, with the absence now of a prescription for the content of a bill of costs. How frequently this discretion will be exercised in the future is an open question.
Negotiating legal costs becomes important when you are concerned about being unfairly charged by your lawyer. Before your lawyer starts work, it is important to:
Ensure you know the rates you will be charged
Before you start negotiating, you need to have a clear understanding of what rates you’ll be charged. Do some research in the market to ensure you’re getting the most competitive rate. Discuss this with your lawyer before signing any document agreeing to the rates.
Ensure you’re provided with a costs agreement at the beginning of your matter
A costs agreement is a written agreement between a client (you) and your chosen law firm. It outlines the scope of work to be undertaken, the rates on which your costs will be calculated, along with an estimate of the total legal costs/fees you will have to pay your lawyer. This estimate is very important, and lawyers must ensure their fees are within this estimate, or provide any updated estimate when they believe the estimate originally provided is out of date. The costs agreement should be clear and detailed and should reflect the terms discussed during your initial consultation with your lawyer. The costs agreement should comply with ethical rules governing legal fees in your jurisdiction.
Ensure your lawyer is transparent
Your lawyer must be transparent. You need to know how rates are calculated and what services are included in your fees. If there are going to be additional costs, your lawyer must notify you of this as soon as practicable.
Ensure your expectations are met
Make sure you understand the timeline and scope of legal services to be provided by your lawyer.
Then if you lawyer fails in any of the above, for example, charges a higher rate than agreed, or charges you more than they estimated, or does not meet the agreed expectations; then you can use these to negotiate a lower fee.
Negotiating your legal costs requires preparation. By knowing your rights regarding legal fees, you can successfully negotiate your legal costs and build a strong relationship with your lawyer.
See here for 5 tips to ensure your legal fees remain reasonable.
Solicitors can only recover interest on unpaid legal costs if their bill or invoice contains a statement specifying that interest is payable and specifying the applicable rate of interest.
If the costs agreement does not contain a clause providing for charging interest on unpaid legal costs, then interest is only chargeable if the costs are unpaid 30 days or more after the law practice has given a bill.
If solicitors fail in any of their costs disclosure obligations, then legal costs (even after being invoiced) are not payable until they are assessed. Accordingly, interest is not chargeable on fees that have been invoiced but are not legally payable until they have been assessed.
MAXIMUM INTEREST CHARGEABLE
New South Wales & Victoria
The relevant regulation provides that the maximum rate of interest is the rate that is equal to the Cash Rate Target as at the date the bill was issued by the law practice, increased by two (2) percentage points.
This is much lower than the amount of interest chargeable in Queensland.
The cash rate target was increased to 3.35 per cent on 7 February 2023, and then to 3.6 per cent on 7 March 2023.
In NSW and Victoria, for a bill issued by a law practice between 7 February 2023 and 6 March 2023, the maximum rate of interest rate applicable is 5.1%. For a bill issued on 8 March 2023, the maximum rate of interest rate applicable is 5.6%.
See Legal Profession Uniform Law (NSW) s 195 and Legal Profession Uniform General Rules 2015 r 75.
Queensland
The Supreme Court of Queensland Practice Direction in relation to interest currently allows law practices to charge interest at a rate six (6) percent above the Cash Rate last published by the Reserve Bank of Australia before a 1 January to 30 June period commenced or a 1 July to 31 December period commenced in any year, depending on when the bill was issued. The cash rate target prior to 1 January 2023 and 30 June 2023 period was 3.1%.
In Queensland, for a bill issued by a law practice between 1 January 2023 and 30 June 2023, the maximum rate of interest rate applicable is 9.1%.
See Legal Profession Act 2007 (Qld) s 321; Legal Profession Regulation 2017 (Qld) s 72 ; Civil Proceedings Act 2011 (Qld) s 59 (3); Supreme Court of Queensland, Practice Direction Number 7 of 2013, Interest Rates, cl 4, https://www.courts.qld.gov.au/courts-calculator/interest-rates#money.
If you think you’ve been unfairly charged interest by your lawyer, call Law in Check today on 1800 529 462 or send us an email at kayla@lawincheck.com.au to speak with one of our specialist consultants.