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Assessing and Redressing Imbalance in Consumer Costs Disputes under the Uniform Laws

Charles Galayini | Monday, June 05, 2017
Assessing and Redressing Imbalance in Consumer Costs Disputes under the Uniform Laws

Legal practice in New South Wales has always imposed heavy regulatory burdens on lawyers. Historically, the legal profession is amongst the most highly regulated profession in Australia, and in strong contrast to the freedoms afforded to most other business services. ii This extensive regulation means that engaging in modern and ethical legal practice not only requires a vast and highly tuned knowledge of the professional discipline in which a lawyer engages, but also compels: acceptance and discharge of duties extending to protecting your reputation and livelihood, vigorously promoting the needs of your client within ethical boundaries, acting in the best interests of your client and discharging your multifarious duties to your client, the profession and administration of justice. This is where the profession deviates vastly from many business services and we rarely measure the backend costs and losses caused by the extensive number of hours involved in complying with these duties.iii

In 2015, New South Wales and Victoria adopted a much-anticipated overhaul and potential simplification of the regulatory framework governing these duties. The changes introduced by this overhaul were expected, at the time, to provide an opportunity for simplification, reduction and synchronisation of the varied and cumbersome regulations between state jurisdictions. There had been many years of discussions and false starts between NSW and Victoria (in which approximately 75 per cent of the nation’s legal practitioners are based) and now the pair and agreed to become uniform. Thus, from 1 July 2015, the Legal Profession Act 2004 (NSW), the Legal Profession Regulation 2005 (NSW) and the New South Wales Barristers’ Rules 2014 were replaced with the “Uniform Laws” comprising:

  1. Legal Professional Uniform Law Application Act, 2014,
  2. Legal Profession Uniform Act 2015 & Regulations, 2015,
  3. Legal Profession Uniform General Rules, 2015,
  4. Legal Profession Uniform Solicitor's Conduct Rules 2015 and Legal Profession Uniform Conduct (Barristers) Rules 2015; and
  5. Legal Profession Uniform Continuing Professional Development (Barristers) Rules 2015

In short, three pieces of regulation were ‘simplified’ with the introduction of seven pieces of legislation. However, not many in the profession in 2015 foresaw that the introduction of uniformity would also bring additional burdens to legal practitioners already struggling under the weight of massive regulation, considerable legal overheads, weighty administrative burdens and, inter alia, voluntarily backfilling an underfunded community justice sector.

For legal practitioners in NSW the most significant impact of the Uniform Laws has thus come from the increased and unapologetic focus on consumer protection, notwithstanding that the previous regulatory regime already offered clients significant rights and protections in relation to costs disclosure, costs assessment and professional conduct. Three of the stated purposes of the Uniform Laws, unlike any other previous regulation of the legal profession in NSW, now have an express consumer focus including:

  1. Ensuring lawyers are competent and maintain high ethical and professional standards in the provision of legal services; and
  2. Enhancing the protection of clients of law practices and the protection of the public generally; and
  3. Empowering clients of law practices to make informed choices about the services they access and the costs

This overriding consumer protection focus is then extended and reinforced throughout the legislation by the introduction of a small but explicate and powerful range of provisions including reinforcement of the stated purpose of the Uniform Laws in the costs disclosure provisions to give clients the ability to make “informed choices about legal options and costs.viiRather than simplifying the regulatory burden on lawyers the Uniform Laws have therefore substantially increased the duties imposed on lawyers in relation to legal costs and impose a significant threat to lawyer profitability and previous models of disclosure, costs estimates and legal practice. This threat is extended through the manifestation of the consumer protection purposes throughout the revised ‘legal costs’ tests and disclosure requirements applicable to matters where first instructions (or proceedings) commenced after 1 July 2015.

The new two-tiered test to assess the reasonable of legal costs under the Uniform Laws requires a modern legal practice to ‘… charge costs that are no more than fair and reasonable in all the circumstances and:

  1. Proportionately and reasonably incurred; and
  2. Proportionate and reasonable in amountviii

Further, a law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and must act reasonably to avoid unnecessary delay resulting in increased legal costs. The massive range of disclosure obligations set out from Section 174-185 also expressly extend and reinforce clients’ rights in relation to legal costs including ensuring that an estimate of future legal costs is ‘meaningful’ and the client’s consent is ‘informed’. x

The difficulty with ever-increasing regulation of legal costs is that even the most prudent legal practitioner intent on engaging in ethical and fair and reasonable billing can inadvertently find themselves in a cost dispute as defined by the Uniform Laws:

This means that even a legal practitioner who does not contravene the Uniform Laws or any disclosure provisions relating to retainers, estimates of legal costs and the new two-tiered test, can lose months to a consumer dispute under the Uniform Laws and the formal costs assessment process. In addition to the lost time from legal practice the practitioner will accrue other costs including costs assessment fees, disbursements and hundreds (or thousands) of hours of time to lost personnel preparing submissions, responding to objections and requisitions and preparing documents in support of the time claimed on behalf of your former client. Worse still, even a legal practitioner who has complied with the strict regulatory minefield will rarely recover any costs incurred throughout the Costs Assessment. For instance, an Assessor only has a very limited discretion to award costs of an assessment under the uniform laws as follows:

(1) On making a determination of costs, a costs assessor will separately determine:

  1. the amount of the costs incurred by the costs assessor and the Manager, Costs Assessment, and
  2. the costs related to the remuneration of the costs assessor, and
  3. by whom those costs are payable and the extent to which they are so payable.

For a legal practitioner who contravene the Uniform Laws, even inadvertently, the consequences include all the foregoing factors plus additional losses. Consequences for a legal practitioner who breaches their disclosure obligations under the Uniform Laws include:

  1. Removal of any obligation on a client to pay legal costs until such costs have been assessed or determined;
  2. A cost agreement (if any) is void; and
  3. Contravention of the costs disclosure obligations can constitute unsatisfactory professional conduct or professional misconduct by a principal, legal practitioner, or foreign lawyer involved.xiii

There is no doubt that a regulatory regime with such great emphasis on client rights and few safeguards for legal practitioners can be subject to misuse and abuse. Applications for Assessment of solicitor/client costs where the costs of diligent and efficient practitioners are, after rigorous scrutiny, ultimately proven fair and reasonable in a formal Assessment of Costs are not uncommon. Yet, under a consumer protection regime, vexatious claims are often afforded undue protection by a system that is not subject to the usual rules of evidence, the typical litigation rule that costs follow the event, or even open and public reporting of Costs Determinations, notwithstanding that such Determinations, when registered, carry the same force of any other legal judgment.xviii The balance of fairness in these circumstances is weighted in favour of the client at significant personal, professional and pecuniary expense to the legal practitioner.

So, how can a lawyer redress this imbalance and protect their livelihood and legal practice under the Uniform Laws?

The introduction of a new product to the legal market aims to redress this imbalance. The insurance product, known as ‘Costs Cover’ will protect and indemnify lawyers for any loss incurred in solicitor/client costs disputes arising during the insurance period. Costs Cover extends to claims arising from the types of breaches of disclosure described above, and includes coverage for the costs of defending claims by clients whether or not there has been a breach of disclosure provisions. This is a valuable tool for any legal practice in the current highly regulated market. From both a commercial and academic viewpoint, Costs Cover also takes a major step toward redressing imbalances in procedural fairness created by the Uniform Laws and Costs Assessment regime. It also potentially ensures a level playing field will be restored for legal practitioners where unreasonable Applications for Solicitor/Client Costs Assessments are lodged, as a solicitor will no longer be required to invest immeasurable and unprofitable time in defending such claims where they hold insurance from Costs Cover.

  1. By Suzanne Ward, Former Director and current Senior Lawyer Pattison Hardman Pty Ltd, Mentor at Melbourne Law School and Part-Time Lecturer at La Trobe University in Legal Practice and Conduct.
  2. The Changing Face of Lawyer Regulation, John Britton, Legal services Commissioner, 47th ANNUAL VINCENTS’ QLS SYMPOSIUM 2009, page 2.
  3. Above, also page 2.
  4. For a succinct summary of the history of regulation and the background to the Legal Profession Uniform Laws, see An Overview of The Legal Profession Uniform Law, David Robertson [2015] (Summer) Bar News 41, from page 37.
  5. Above, page 41
  6. Legal Profession Uniform Law Application Act, Section 3. Emphasis added.
  7. Legal Profession Uniform Law Application Act, section 169.
  8. Above, Section 173. For consideration of recent judgments that have considered the reasonableness of costs under the Uniform Laws see: James v Phillips (No 2) [2017] NSWSC 257 (16 March 2017), Frontier Law Group Pty Limited v Robert Glenn Barkman [2016] NSWSC 1542, Castlereagh Street Pty Limited v Skybloo Holdings Pty Limited [2017] NSWCATAP 29 (13 February 2017), Le v Brydens Lawyers Pty Limited [2017] NSWSC 180 (6 March 2017) and Actrol Parts v Coppi [2015] VSC 758.
  9. Above, Section 174.
  10. Above, See section 174(2)(b).
  11. Above, See s269(2).
  12. Uniform General Rules, See s71(1)(a)-(c).
  13. Legal Profession Uniform Laws, Section 178. For a useful overview of these obligations, also see Legal Services Council, Legal Costs and Costs Disclosure Obligations: Legal Profession Uniform Laws, October 2016.
  14. Above n6, Section 69 (2) expressly provides that “In considering an application, a costs assessor is not bound by the rules of evidence and may inform himself or herself on any matter in the manner he or she thinks fit.” (Emphasis Added).
  15. The usual order in civil disputes is for costs to be payable by the unsuccessful party based on the principle that costs “follow the event”: Laguillo v Haden Engineering Pty Ltd [1978] 1 NSWLR 306, both for interlocutory applications and hearings. This Rule does not apply in solicitor/client costs assessments.
  16. When a formal Costs Assessment is complete, a Costs Assessor writes to the parties advising that the determination has been forwards the certificates of determination and statement of reasons to the Manager, Costs Assessment. These Determinations are not made available to parties privately and not subject to the same public and procedural scrutiny as judgments of the Supreme Court of NSW.
  17. A Certificate of Determination is taken to be a judgment of the Supreme Court of New South Wales under section 71 of the Legal Profession Uniform Law Application Act 2014 when filed in accordance with Rule 36.10 of the Uniform Civil Procedure Rules 2005 (NSW).
  18. The author has no financial, professional or personal relationship with Costs Cover or any entities connected with Costs Cover of XL Catlin.
  19. Legal Practitioners should review the Terms & Conditions of their own Policy with Costs Cover, underwritten by XL Catlin. This article does not purport to provide advice on general conditions or specific exclusions.
  20. A typical general clause in the Costs Cover policy reviewed by the author expressly includes coverage for legal practitioners extending to ‘…defence costs as and when they are incurred by the insurer or by the insured with the prior written consent of the insurer’.

Costs Cover