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Costs Cover – The foundation of your risk management strategy

Charles Galayini | Monday, June 19, 2017
Costs Cover – The foundation of your risk management strategy

Law Practices, like any business in a service industry, rely on charging fees for services performed. However, unlike other professions, law practices are subject to strict regulatory and legislative requirements with respect to how services are billed.

Differing client requirements mean you are required to provide a wide-ranging level of service. Every case is dealt with on an adversarial basis and you must respect that your opposition is a well-financed, highly motivated and knowledgeable adversary. Although it is true that many cases settle, they will only settle positively for your client if you have gathered the evidence exhaustively so your opponent knows the strength of your case.

In any event, you are continuously under extreme scrutiny in respect of the Solicitor client costs you incur. You should not compromise your professionalism and understanding of your requirements as a Lawyer so as to reduce costs. In fact, you are encouraged to vigorously prepare every matter with unrelenting dedication to protect your clients interests from the day they entrust you with their instructions.

The truth of the matter is that litigation is expensive and lawyers are expected to appreciate that taking every point in hard fought litigation may have consequences as to whether the costs are fair and reasonable and proportionate. While there are some differences between the States with respect to the forums for a costs dispute and/or costs assessment there are two common features no matter which State you practice from;

1. Every single bill you issue is at risk of a Costs Dispute.

2. Every single Costs Dispute will cost you time and money.

Take a moment to think about how many bills your practice has issued in the last week, last month and last year. Now consider if 10% of your bills are disputed and think about the hours, resources and funding required to defend your work. Regardless of whether the claim is defensible or indefensible, the impact of a claim includes the loss of otherwise productive time now allocated to the investigation, defense and conduct of the claim as productive fee earning time is eroded.

Where the claim is then referred for a Costs Assessment the legislation is very broad with respect to the adopted procedure as the rules of evidence are excluded. There are no rules to the number of submissions or their content, for new factual claims to be introduced during the assessment process, there is no standard form for any document by way of a bill in assessable form, objections, or replies to objections.

From a financial perspective, without considering the emotional and psychological stress associated with defending a costs dispute, let’s assume that you are required to defend a bill issued in the amount of $15,000.00 at a Costs Assessment. The following is an estimate of the costs to a seasoned practitioner who would normally bill at $400.00 per hour:

Assessment Preparation Estimated Costs

* Preparation of an itemised bill for a total of $15,000.00 - Minimum 4 hours - $1,600.00

* Reading the assessment application and submissions - Minimum 3 hours - $1,200.00

* Preparation of objections - Minimum 3 hours - $1,200.00

* Responding to Assessors Requisitions - Minimum 3 hours - $1,200.00

* Assessors Fee (In the event the bill is reduced) - $2,000.00

TOTAL $7,200.00

As can be seen from the above example, any form of a costs dispute can pose a significant risk to a practice’s cash flow and possibly livelihood depending on size of the dispute. In more serious matters, practitioners may also need to instruct a costs lawyer or barrister to represent them during the proceedings, which will incur further expenses. As with any business risk, prevention is always better than cure, however, in some instances a dispute with a disgruntled client over costs cannot be avoided despite your best efforts and fulfilment of the legislative requirements.

Where a business risk cannot be completely avoided, then the next best option is to mitigate that risk. Mitigating the risks associated with conducting any business through insurance is not a novel idea. Babylonian traders first implemented methods of transferring risk by developing a system practiced by early Mediterranean sailing merchants. Merchants would receive loans to fund their shipments and pay the lender an additional sum in exchange for a guarantee to cancel the loan should the shipment be lost or stolen at sea.

Protecting lawyer’s fees for the services performed is as important as the merchant insuring the goods being transported. Costs Cover provides solicitors and barristers with an insurance solution to mitigate the risk of losses associated with claims against professional fees. The product is designed to fit seamlessly within the established risk management strategy of a practice by providing a clear solution to what has become an increasing issue for lawyers.

By John Andriano – Andriano & Associates, Accredited Specialist Personal Injury Law


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