The Uniform Law, effective from 1 July 2022, introduced several changes to the legal profession in Western Australia, particularly regarding costs disclosure.
This article examines the case Malvina Park Pty Ltd v Johnson [2019] NSWSC 1490, which explores disclosure obligations under the Uniform Law.
Due to the possible financial and disciplinary consequences for lawyers and law practices, ensuring compliance with these obligations is crucial.
To better understand the issues in this case, we first need to examine the relevant provisions of the Uniform Law.
The Uniform Law is outlined in Schedule 1 to the Legal Profession Uniform Law Application Act 2014 (Vic), which, through the Legal Profession Uniform Law Application Act 2022 (WA), applies in Western Australia.
Disclosure Obligations
Law practices' disclosure obligations are set out in s174 of Schedule 1.
Section 174(1), titled “main disclosure requirement,” stipulates that a law practice must provide the client with information disclosing the basis on which legal costs will be calculated in the matter and an estimate of the total legal costs as soon as practicable after instructions are initially given.
Additionally, it requires the law practice to disclose any significant changes to previously disclosed information, including changes to legal costs payable.
Section 174(2) deals with “additional information to be provided,” requiring a law practice to inform clients of their rights, such as negotiating a costs agreement, billing method, receiving a bill, requesting an itemized bill, and seeking assistance from the designated local regulatory authority in the event of a legal costs dispute.
This section also covers the information to be provided when there is a significant change in a previous disclosure and legal costs.
Section 174(3), titled “Client’s consent and understanding,” states that if a disclosure is made under subsection (1) or (2), a law practice must take all reasonable steps to satisfy itself that the client has understood and given consent to both the proposed course of action for the conduct of the matter and the proposed costs.
Malvina Park Pty Ltd v Johnson: Case Analysis
In Malvina Park Pty Ltd v Johnson[1], the Plaintiff argued that their fixed-price costs agreement should be enforced, while the Defendant contended that the agreement was void due to non-compliance with s174(3).
The Court observed that instead of making arrangements to meet with the Defendant to discuss and explain the Cost Agreement, the Plaintiff chose to send three confusing and complex letters to their client[2].
There was no evidence put forward by the Plaintiff confirming they took any steps to satisfy themselves that the Defendant understood the Cost Agreement and was providing his consent to the proposed course of action and conduct of the matter, other than simply sending it to the client and asking him to sign and return it[3].
The Court found that the Plaintiff sought to rely on Mr. Firth’s evidence in relation to his state of mind and whether he formed a “reasonable opinion” about his client’s understanding of the costs agreement[4]. However, the Court commented that such matters may be relevant for the purpose of s174(3), but the evidence of those subjective beliefs of Mr. Firth as a principal of the law practice needs to be assessed in the light of the actions taken by the law practice at the time of the disclosure under s174 and, in particular, the actual steps taken by the law practice to meet its obligations under s174(3)[5].
The Court accepted that the legislation does not prescribe how a law practice must discharge the duty under s174(3), and that this reflects the
The Court accepted that the legislation does not prescribe how a law practice must discharge the duty under s174(3), and that this reflects the reality that what will be necessary to discharge the duty will vary according to the circumstances of the case and the client[6].
The steps a law practice may need to take will be influenced by the attributes of the client and what the client communicates before and after receiving the disclosure documents[7].
The Court also accepted the Defendant’s submissions that there was no evidence that the Defendant was informed as to the risks occasioned by a fixed-price agreement[8].
The risks went both ways, but the risks for the Defendant were twofold. First, the risk that the legal practice may be incentivized to minimize the work contributed to a particular matter. Secondly, and more significantly, there was a risk that the client will pay more than a matter is objectively worth under such an agreement, even if the discounts under the costs agreement were applied[9].
The Court found that the approach taken by Mr. Firth did not constitute reasonable steps to satisfy himself that the client had understood and given consent to proposed costs when formulated on a fixed-price basis, let alone, the proposed course of action for the conduct of the matter[10].
That approach being that he had surmised the client understood and consented from the surrounding circumstances and the client’s communications and that, if asked, he would have dealt with any query in that respect.
Furthermore, no inquiry was made of the client as to his understanding or consent specifically in relation to the fixed-price component of the costs agreement and its implications in the context of the specific litigation under consideration.
Takeaways
Compliance with disclosure requirements does not only involve ensuring that you disclose to a client in writing the matters referred to in s174. A law practice is also required to take all reasonable steps to satisfy itself that the client has understood and given consent to both the proposed course of action for the conduct of the matter and the proposed costs.
The obligation applies to the “law practice.” The steps required to discharge this obligation will depend on the circumstances of the case and client, including the client’s sophistication. It will not be sufficient for a lawyer to rely on their subjective assessment from the surrounding circumstances that the client understood and consented. Active steps are required.
If this obligation is not met, the costs agreement may be rendered void under s178(1)[11].
Endnotes
Here are the endnotes for the revised article:
[1] [58].
[2] [59].
[3] [115].
[4] [50].
[5] [59].
[6] [54-57].
[7] [113].
[8] [116].
[9] [116].
[10] [116].
[11] This article does not consider or discuss the application of regulation 72A of the Legal Profession Uniform General Rules 2015 (NSW) which makes provision for the disapplication of s178(1) and (2) in certain circumstances.