Applications for Security for Costs: Key Principles

In a costs appeal, Frigger v Computer Accounting & Tax Pty Ltd [2023] WASCA 152, the Western Australian Court of Appeal considered principles relating to applications for security for costs in detail.

The case has its origins in a long-running dispute involving the winding up of Computer Accounting & Tax Pty Ltd (CAT) over a decade ago. Mr and Mrs Frigger brought a substantive claim in the original winding up proceedings against CAT's liquidator, Mr Kitay, regarding certain land assets they alleged should have been transferred to their self-managed superannuation fund. They also claimed damages for lost opportunities due to Mr Kitay's delay in transferring the assets.

That substantive claim was very similar to an earlier claim brought by Mrs Frigger alone against Mr Kitay, which was struck out for lack of standing. Importantly, by the time the new claim was filed, the costs order made against Mrs Frigger personally in the earlier proceedings stood at over $28,000 and remained unpaid.

The primary judge made orders staying the new Frigger claim until they paid into court both the unpaid costs from the previous claim, and $30,000 as security for costs in anticipation of Mr Kitay's strike-out application in their latest claim. The Friggers appealed those orders. Mr Kitay and CAT applied to the appeal court for security for their costs of defending the appeal.

Examining the application, the Court of Appeal set out key established principles, referring to George 218 Pty Ltd v Bank of Queensland Limited [2016] WASCA 56 [41]–[48]:

• The discretion to order security for costs serves the interests of justice and is unfettered, provided it is exercised judicially. 'Special circumstances' do not have to be shown.

• An appellant's inability to pay a costs order if their appeal fails will generally favour ordering security. However, if the respondent caused the impecuniosity, that may weigh against requiring security.

• Impecuniosity alone does not necessarily justify ordering security if it would, overall, be contrary to the interests of justice.

• Other relevant factors the court will consider include the strength of the appellant's prospects of success, whether ordering security would effectively shut them out of prosecuting the appeal, and any delay by the respondent in applying for security.

• Each case is dependent on its own particular factual circumstances. The amount of security set for an impecunious appellant should not be more than what is reasonably necessary.

The decision illustrates the wide variety of factors courts may consider with respect to ordering security for costs.

It shows that while a proven inability to pay is significant, the overarching consideration remains serving the interests of justice.

Determining what those interests require in a given case depends very much on the context.

The Principles Relating to the Award of Costs in the State Administrative Tribunal

Section 87(2) of the State Administrative Tribunal Act 2004 (WA) (SAT Act) gives the State Administrative Tribunal (the Tribunal) a discretion to order one party to pay all or part of the legal costs of another party. This article examines the principles that apply to the exercise of that discretion, with a focus on cases involving disciplinary proceedings against legal practitioners brought by regulatory bodies such as the Legal Services and Complaints Committee.

The Discretion to Award Costs

The starting point is that parties ordinarily bear their own legal costs in proceedings in the Tribunal, unless the Tribunal orders otherwise.[1] However, under s 87(2) of the SAT Act, the Tribunal has a wide discretion to order one party to pay all or part of the legal costs incurred by another party. The rationale for such an order is to compensate or reimburse the party in whose favour the order is made, rather than to punish the unsuccessful party.[2] Even so, an order requiring one party to pay the costs of another remains the exception rather than the rule.[3]

The Onus is on the Party Seeking Costs

As the party seeking the costs order carries the onus, it must persuade the Tribunal that it is fair and reasonable in the particular circumstances to reimburse it for legal costs incurred.[4] However mere identification of some unreasonable conduct by the other party that increased costs will usually be insufficient.[5] The Tribunal generally requires a party seeking costs to show that the other party acted unreasonably in a way that unfairly caused increased costs to be incurred.[6]

A Cautious Approach in Disciplinary Proceedings

In disciplinary proceedings against legal practitioners, if the regulatory body is successful on the substantive application, it is common for the Tribunal to order the practitioner pay all or some of the regulatory body’s costs. This reflects the public policy interest in regulatory bodies performing their disciplinary functions to uphold standards in the legal profession, often with limited resources.[7]

Conversely, if the regulatory body is unsuccessful in a disciplinary proceeding, the practitioner has no entitlement to recover costs from the regulatory body. This reflects the public policy interest in not discouraging regulatory bodies from pursuing disciplinary proceedings where success cannot be guaranteed, but which should be pursued in the public interest.[8]

As summarised by President Barker in Medical Board of Western Australia and Kyi [2009] WASAT 22, the Tribunal’s usual approach is that:

"unless it can be demonstrated that an application made by a vocational regulatory body lacked any reasonable basis or was not made in good faith, costs should not be awarded against [that body] simply because the application was not successful".[9]

The Bases to Award Costs Against A Regulatory Body

The well-established bases on which the Tribunal may award costs against a regulatory body that has unsuccessfully pursued disciplinary action against a legal practitioner are therefore where the proceeding:

• lacked any reasonable basis;

• was not brought in good faith; or

• amounted to an abuse of process in the way it was conducted.[10]

Each of those arguments sets a high threshold. As explained in Legal Services and Complaints Committee and Young [2023] WASAT 108 (Young), in applying those tests the Tribunal is guided by the principles applicable to determining applications for summary dismissal of proceedings under s 47(1) of the SAT Act.[11]

To establish the lack of a reasonable basis, it needs to be apparent that the disciplinary proceeding was manifestly groundless or that the regulatory body's case was so obviously untenable that it had no prospect of success.[12] This sets an extremely high bar. It requires more than merely showing that some aspects of the case lacked substance or were misconceived. Establishing an abuse of process requires clear evidence that continuation of the proceeding would cause unacceptable injustice.[13] Showing an absence of good faith in bringing the proceeding demands compelling evidence to that effect.

Withdrawal of Proceedings and Costs Applications

Where disciplinary proceedings are withdrawn prior to a substantive hearing, it can be difficult for the Tribunal to evaluate arguments that the proceeding lacked a reasonable basis or amounted to an abuse of process. As Young illustrates, in such situations the Tribunal will undertake a broad assessment of the basis for, and conduct of, the proceeding as a whole.[14] However given the exceptional nature of ordering costs against regulatory bodies, the Tribunal's starting point remains that withdrawal of proceedings does not of itself demonstrate they lacked a reasonable basis or were maintained other than in good faith.[15]

Conclusion

In summary, while the Tribunal has a wide discretion to award costs under s 87(2) of the SAT Act, an order that an unsuccessful regulatory body pay costs remains an exceptional course confined to the clearest of cases. As demonstrated in Young, the Tribunal applies caution in evaluating allegations of no reasonable basis, absence of good faith or abuse of process, even where disciplinary proceedings are withdrawn before a substantive hearing. It remains incumbent on the legal practitioner seeking costs to persuade the Tribunal that the high threshold under the governing principles has been met.

Footnote

[1] State Administrative Tribunal Act 2004 (WA) s 87(1)

[2] See Young at [39]; Western Australian Planning Commission v Questdale Holdings Pty Ltd [2016] WASCA 32 at [51]

[3] Young at [39]

[4] Questdale at [51]; Young at [39]

[5] Medical Board of Western Australia and Kyi [2009] WASAT 22 at [74]

[6] Medical Board of Western Australia and Kyi at [74]

[7] See e.g. Roberman v Medical Board of Western Australia [2005] WASAT 81 at [30]; Young at [41]-[42]

[8] See Motor Vehicle Industry Board and Dawson (2006) 41 SR (WA) 343 at [47]; Young at [42]

[9] Medical Board of Western Australia and Kyi at [73]

[10] See Young at [43]-[44]

[11] Young at [43]-[45]

[12] Young at [45], citing Agar v Hyde [2000] HCA 41 at [57]

[13] Young at [45], citing Medical Board of Australia v Woollard [2017] WASCA 64 at [136], [145]

[14] Young at [57]

[15] Young at [46], citing Medical Board of Western Australia v Roberman at [17]

Straightforward Applications, Convoluted Costs: Lessons on Service Out from ANZ v Defendant

The case of Australia and New Zealand Banking Group Ltd v Defendant [2023] WASC 428 concerned an application by ANZ for leave to serve a writ on a defendant outside of Australia. Justice Howard initially refused the application as ANZ had not included a draft writ, making it impossible to assess if the requirements for leave were met. After several further hearings and amended applications, Justice Howard granted leave, but expressed concern about the convoluted process for what should have been a straightforward application.

Justice Howard held that without a draft writ, the Court cannot assess if the plaintiff has shown its action falls within the required heads of jurisdiction under Order 10 Rule 1(1) of the Rules of the Supreme Court 1971 (WA) (paragraph 26).

His Honour emphasised that each cause of action must fall within the head of jurisdiction relied upon in the ex parte application (paragraphs 24, 25, 76 from Micon Mining and Construction Products GMBH & Co KG v MacMahon Mining Services Pty Ltd [2022] WASCA 56). Justice Howard also held the plaintiff must identify the precise rule under which leave is sought, and the proposed method of service (paragraph 22).

On costs, Justice Howard was concerned the defendant may be prejudiced by the plaintiff's failure to prosecute its application properly from the beginning (paragraphs 41, 67). His Honour considered it inappropriate for the actual costs of the convoluted process to be visited upon the defendant, whether by court order or contractually (paragraphs 68, 69). Justice Howard fixed the plaintiff's costs at $1,600 inclusive of filing fees, on condition the plaintiff provide an undertaking not to seek to recover more than this from the defendant (paragraphs 70, 71).

The case demonstrates courts may consider potential prejudice to defendants from a convoluted process when making costs orders. Applicants must prosecute such applications properly from the outset to avoid adverse costs consequences.

Awards of Costs in Guardianship Proceedings: Exceptions to the General Rule

Introduction

In CK [2023] WASAT 84, the State Administrative Tribunal considered whether to make a costs order in a guardianship and administration matter.

CK, an elderly man with dementia, was the subject of applications by his children P and V relating to the validity of enduring powers and the appointment of an administrator and guardian.

P sought an order that V or CK pay some or all of his legal costs.

The Tribunal held that the circumstances were not sufficiently exceptional to justify a departure from the starting position that parties bear their own costs.

Legal principles

The Tribunal's primary concern in guardianship and administration proceedings is the best interests of the person concerned (CK [2023] WASAT 84 at [15], citing Guardianship and Administration Act 1990 (WA) s 4(2)).

Under s 16(4) of the Guardianship and Administration Act 1990 (WA), the Tribunal has discretion to order costs be paid to a party by the represented person if satisfied the party acted in the represented person's best interests.

However, such awards are uncommon, generally only when the applicant's actions benefit the represented person (CK [2023] WASAT 84 at [16]-[17], citing Y and CO [2020] WASAT 166 at [32] and Re WA and IA Ex parte AA and JA [2011] WASAT 33 at [59]-[60]).

The starting point is that parties bear their own costs (CK [2023] WASAT 84 at [18]-[19], citing RK [2020] WASAT 53 (S) at [22] and State Administrative Tribunal Act 2004 (WA) s 87(1)).

Under s 87(3) of the State Administrative Tribunal Act 2004 (WA), the Tribunal may order a party to compensate another party's expenses resulting from the proceeding, although not to punish (CK [2023] WASAT 84 at [20], citing Blaskiewicz and The Owners of 7 Henderson Street Fremantle (Strata Scheme 74918) [2021] WASAT 56 at [61]).

The Tribunal has discretion to award costs in any proceeding, to be exercised based on the circumstances and whether it is fair and reasonable (CK [2023] WASAT 84 at [21], citing GD [2022] WASAT 33 at [59]).

Relevant considerations include whether a party unnecessarily prolonged the hearing, acted unreasonably, or caused increased costs through unreasonable conduct (CK [2023] WASAT 84 at [21], citing GD [2022] WASAT 33 at [59]).

Analysis

In CK's case, the Tribunal held the circumstances were not sufficiently exceptional to justify departing from the starting point that parties bear their own costs.

P argued legal representation was required due to the complexity and his fraught relationship with V. He was not precluded from applying without legal advice as he was an admitted but non-practicing lawyer.

The conflict and allegations were not unusually complex for guardianship proceedings (CK [2023] WASAT 84 at [27]-[33]).

Prior cases awarding costs involved greater incapacity uncertainty, property transactions by the represented person, or applicants unreasonably pursuing applications (CK [2023] WASAT 84 at [31]-[32], citing Re IO; Ex parte VK [2008] WASAT 8 and LC and JS [2007] WASAT 127).

Regarding V paying P's costs, the Tribunal held V's irrelevant evidence about P did not warrant compensation. P incurred further expense obtaining translations unnecessarily after investigations commenced (CK [2023] WASAT 84 at [37]-[40]). The flaws in V's submissions did not cause delay or obstruction (CK [2023] WASAT 84 at [41]-[42]).

Prior cases awarding costs involved more sustained unreasonableness or inappropriate conduct (CK [2023] WASAT 84 at [43]-[45], citing Re WA and IA Ex parte AA and JA [2011] WASAT 33, PJC and RJC [2008] WASAT 224 and WD [2022] WASAT 12 (S)).

Conclusion

The circumstances did not justify departing from the starting position that parties bear their own costs. Awards of costs in guardianship and administration proceedings remain exceptional.

Keeping Clients Informed: The Obligation to Revise Cost Estimates

In Luscombe v Australasian Solicitors Pty Ltd trading as HHG Legal Group [2023] WASCA 141, a client retained lawyers for a family law matter.

The lawyers' costs agreement estimated $35,000-$95,000 if proceedings became prolonged.

A short while afterwards, the lawyers requested $50,000 from the client's daughter's estate for costs. The client argued the lawyers failed to provide a revised estimate as required when there was a substantial change to the previous disclosure.

The client argued the lawyers failed to comply with their obligation to provide a revised estimate when there was a substantial change to the previous costs disclosure. She submitted that when new issues emerged, including the request for $50,000 from her daughter's estate in July 2019, no revised estimates were provided as required under section 267 of the Legal Profession Act 2008 (WA).

The lawyers submitted in response that the client did not properly articulate what the 'substantial change' was to the previous disclosure. They argued that because the original disclosure estimated a range of $35,000 to $95,000, the request for $50,000 from the estate did not amount to a substantial change requiring further disclosure under section 267. The $50,000 fell within the range originally estimated.

Key legal principles from Luscombe on revising cost estimates:

• There was an implicit finding by the first instance Judge that by the date the $50,000 was requested, there had been a substantial change requiring a revised estimate under s267 Legal Profession Act 2008 (WA) (Mullins JA at [80]).

• The lawyers' request for payment for trust money from an external party did not constitute proper written disclosure of the substantial change as required by s267 (Mullins JA at [81]).

• Litigation lawyers should be capable of providing estimates of costs in difficult litigation along with variables affecting estimates (Vaughan JA at [7]).

• Uncertainties in predicting required work can be reflected by appropriate qualifications of estimates (Vaughan JA at [7]).

• What is required are estimates, not guaranteed predictions (Vaughan JA at [7]).

• Lawyers should explain variables potentially affecting estimates and qualify estimates for uncertainties (Vaughan JA at [7]).

• Estimates can be qualified where precise estimates are difficult due to imponderables (Vaughan JA at [7]).

• Focus should be practical estimates based on experience, not guaranteed predictions (Vaughan JA at [7]).

The 'Monumental' Costs of Large-Scale Litigation: Insights from the Santos-Fluor Dispute

A recent case in the Supreme Court of Queensland between Santos Limited and Fluor Australia Pty Ltd (Santos Limited v Fluor Australia Pty Ltd & Anor [2023] QSC 77) provides a clear picture of the financial scale associated with large-scale litigation.

The case centres around a dispute over alleged overpayments made by Santos to Fluor during a coal-seam gas project construction between 2011 and 2014.

Santos alleges overpayments to Fluor. Before initiating proceedings, Santos conducted a year-long investigation into these alleged overpayments​.

The court referred questions arising on pleadings to 3 referees. Hearings were heard before the referees between November 2021 and August 2022. The referees submitted a draft report on 7 March 2023 and allowed parties to make further written and oral submissions in April 2023​.

The sheer magnitude of this litigation is evident in the resources invested. Santos reported expending over 120,000 solicitor hours, $36.5 million in expert fees, $21 million in counsel fees, and $2.5 million in other costs. The scale of the litigation extended beyond financials, with the parties disclosing over 5.7 million documents, 14 experts producing 81 expert reports, and 90 lay witnesses providing 178 witness statements.

The Judge noted that the parties are “engaged in litigation on a monumental scale”, marked by numerous interlocutory disputes and appeals.

The Defendants applied to stay the conduct of the reference (to the Referees) until further order, presumably until the hearing and determination of the substantive application. In his reasons given for dismissing the application, the Judge stated that the costs associated with finalising the referee report were likely to be "relatively insignificant in the scheme of this litigation."

The Santos-Fluor dispute underscores the complexity and cost that can be associated with litigating large resource and infrastructure projects. As this case continues to unfold, it serves as a stark reminder of the potential financial implications of such large-scale disputes.

Song v PCL Lawyers Pty Ltd (Legal Practice) [2023] VCAT 505: The Importance of Accurate Legal Costs Estimates

As a costs lawyer, I often come across situations where disputes arise between clients and their legal practitioners over the accuracy of legal costs estimates.

A recent decision from Victoria, Australia, Song v PCL Lawyers Pty Ltd (Legal Practice) [2023] VCAT 505, highlights the importance of providing accurate legal costs estimates and the potential consequences of failing to do so.

In this blog post, I discuss the key takeaways from this decision and the importance of accurate legal costs estimates in maintaining a healthy client-lawyer relationship.

Accurate Legal Costs Estimates

In this case of Song v PCL Lawyers Pty Ltd (Legal Practice) [2023] VCAT 505, Mr. Song argued that he was provided with an inaccurate cost estimate for a brief to be prepared for an expert witness.

This, he claimed, constituted misleading and deceptive conduct under section 18 of the ACL. However, the Tribunal found that the cost estimate provided to Mr. Song was not misleading or deceptive. It was found to be a genuine and honest assessment of the costs likely to be incurred at the time it was given.

Significantly, the Tribunal determined that the initial “quote” given by the law firm was not a fixed quote but an estimate that was based on assumptions, and these assumptions were made clear to Mr. Song. The Tribunal highlighted the importance of clear communication between the legal practitioner and the client when giving cost estimates, noting that the legal practitioner had taken reasonable steps to explain that the quote was an estimate and could be subject to change.

However, the Tribunal Member stated:

“I accept that Mr Song was misled by the estimate provided and that had Mr Song been informed of the actual cost prior to engaging PCL to prepare the brief, he may not have asked them to do so. Further, he has not obtained any benefit from that brief as he ultimately engaged a different expert and briefed that expert himself.”

Despite not finding the legal practitioner or the firm guilty of misleading or deceptive conduct, the Tribunal did order the law firm to refund Mr. Song the sum of $1,000.

This was based on the Tribunal's findings that the law firm had received the sum for the preparation of the brief, but that the brief had not been used, because Mr. Song had engaged a different expert and briefed that expert himself.

Furthermore, Mr. Song claimed for 'time waste and mental damage' due to delays in obtaining an expert report. However, the Tribunal did not find any loss or damage suffered as a result of this delay, as Mr. Song had ultimately filed his own expert report.

Potential Consequences

The Australian Consumer Law (ACL) and the Legal Profession Uniform Law (LPUL) set out the standards and obligations for legal practitioners when providing legal costs estimates.

Failure to comply with these obligations may lead to disputes and potential consequences, including:

1. Refunds: In some cases, if a client has paid for a service based on misleading cost estimates, they may be entitled to a refund for the amount paid.

2. Misleading and Deceptive Conduct: Under section 18 of the ACL, legal practitioners are prohibited from engaging in misleading or deceptive conduct. Breaching this provision may lead to legal action and potential penalties.

3. Disciplinary Action: If a client believes that their legal practitioner has engaged in unsatisfactory professional conduct or professional misconduct, they may lodge a complaint with the relevant Legal Services Commissioner. Disciplinary proceedings may follow, leading to potential consequences for the legal practitioner.

Tips for Providing Accurate Legal Costs Estimates

To avoid disputes and potential consequences, legal practitioners should consider the following tips when providing legal costs estimates to their clients:

1. Be thorough and realistic: Provide a detailed and realistic estimate based on a comprehensive understanding of the client's matter and the potential work involved.

2. Communicate clearly: Ensure that the client understands the basis of the estimate and any factors that may impact the final costs, such as the complexity of the case or the possibility of additional work.

3. Update the estimate as needed: Regularly review the costs estimate and update it as necessary to reflect any changes in circumstances or new information that comes to light.

4. Keep the client informed: Maintain open communication with the client about their legal costs throughout the matter, addressing any concerns or questions they may have.

Key Take-Aways

• Providing accurate legal costs estimates is an essential aspect of the client-lawyer relationship.

• The case of Song v PCL Lawyers Pty Ltd (Legal Practice) [2023] VCAT 505 serves as a reminder of the importance of fulfilling this obligation and the potential consequences of failing to do so.

• By being thorough, realistic, and transparent in their estimates, legal practitioners can help ensure that clients are well-informed and maintain a positive working relationship throughout the course of their legal matter.

The Lifespan of Settlement Offers: A Closer Look

In the context of legal proceedings, the offer of compromise is an indispensable tool. It not only hastens the resolution of disputes but also mitigates the potential financial and emotional toll of litigation on all parties involved.

One critical aspect of these offers, however, often stokes debate: the time in which an offer should remain open.

This question has been addressed through several judicial decisions, one of them being Tonkin -v- Heilongjiang Feng Ao Agricultural & Animal Husbandry Group Co Pty Ltd [2015] WASC 378 (S).

This case concerned a Calderbank offer, a specific type of settlement offer, based on the English case Calderbank v Calderbank [1975] 3 All ER 333.

In the Tonkin case, the court underscored the pivotal role of the Calderbank offer in facilitating dispute resolution. The defendant's offer, a Calderbank offer, was open for seven days until a specified date. However, the court had to determine whether the plaintiffs' rejection of this offer was unreasonable. This evaluation involved a holistic view of the circumstances surrounding the offer.

The court's approach towards Calderbank offers has been shaped by various decisions, both within Western Australia and across the Commonwealth. In the case of Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115, the court held that the test for awarding indemnity costs against a party who rejected a Calderbank offer was whether the rejection was unreasonable under the circumstances. The burden of proof falls on the offeree to establish unreasonableness.

A similar sentiment was echoed in the New South Wales Court of Appeal in Miwa Pty Ltd v Siantan Properties Pte Ltd [No 2] [2011] NSWCA 334. The court posited that a reasonable offer could alter the court's perspective on the costs award, particularly when the party rejecting the offer fails to obtain a better result in the judgment.

When assessing the reasonableness of rejection, several factors come into play. These were elucidated in Lo Presti and further elaborated by Beech J in McKay v Commissioner of Main Roads [No 7] [2011] WASC 223 (S). These include:

• the stage of proceedings at which the offer was received;

• the time allowed to the offeree to consider the offer;

• the extent of the compromise offered;

• the offeree's prospects of success, assessed at the date of the offer;

• the clarity with which the terms of the offer were made; and

• whether the offer foreshadowed an application for indemnity costs in the event of the offeree's rejection.

In Tonkin, the court examined these factors to determine the reasonableness of the rejection.

The offer was made within six months of the commencement of proceedings, which was considered marginally in favour of the defendant. However, the court viewed the seven-day timeframe as potentially too short for careful consideration and perhaps expert advice, suggesting 28 days might have been more appropriate.

Key Take-Aways

• The time in which offers need to remain open is a nuanced issue and depends on various considerations.

• It requires a careful balance between hastening dispute resolution and allowing enough time for the parties to make informed decisions.

Malvina Park Pty Ltd v Johnson: Understanding Disclosure Obligations Under the Uniform Law

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.

A Closer Look at Bingham v Bevan [2023] NSWCA 86 Decision

A recent decision by the New South Wales Court of Appeal, Bingham v Bevan [2023] NSWCA 86, offers insights into the repercussions of not adhering to the terms set forth in a costs agreement.

Read my earlier blog post here about a previous NSWSC single judge decision in this dispute, which was about the costs estimates aspect of things

In this blog post, I analyse the NSWCA decision and explain the Court’s rationale with respect to the enforceability of costs certificates.

The Bingham v Bevan Case

The Bingham v Bevan case is centred around a dispute between a solicitor (Bingham) and a barrister (Bevan) regarding the payment of legal fees.

The dispute arose from a costs agreement between the parties that contained a clause (cl 4) specifying that the barrister's fees were contingent upon the solicitor recovering funds from the sale of the client's property or through the client's bankruptcy.

The barrister sought a costs assessment, and the costs assessor found that the costs agreement was void due to non-compliance with the disclosure requirements of the Legal Profession Uniform Law Application Act 2014 (NSW) (the Application Act).

Despite the void costs agreement, the assessor issued a certificate specifying the amount of costs to be paid by the solicitor to the barrister.

The barrister filed the certificate and obtained a judgment in the Common Law Division, which the solicitor appealed.

The main issue in the appeal was whether the barrister was entitled to recover the assessed fees, given the contingent nature of the costs agreement and the fact that the contingency had not been satisfied.

Analysis of the Decision

The Court of Appeal, in its judgment, found that the costs agreement was void due to the solicitor's non-compliance with the disclosure requirements under the Application Act.

However, the Court emphasised that the enforceability of the costs agreement was not solely dependent on compliance with these requirements.

The Court also noted that the recovery of the barrister's fees was contingent on the solicitor obtaining funds from the sale of the client's property or through the client's bankruptcy, as stated in cl 4 of the costs agreement.

Since the contingency had not been met, the Court held that the barrister was not entitled to recover the fees.

The Court allowed the appeal, set aside the judgment in the Common Law Division, and ordered the barrister to reimburse the solicitor for the amount paid pursuant to a garnishee order.

Key Takeaways:

These 2 NSWSC Bingham v Bevan decisions highlight the following:

1. Compliance with disclosure requirements: Legal practitioners must ensure they comply with the disclosure requirements set out in the Application Act, as non-compliance can render a costs agreement void.

2. Enforceability of costs agreements: The terms of a costs agreement, including any contingent fee arrangements, must be clear and enforceable. Failure to satisfy the contingencies can render the fees non-recoverable.

3. Costs assessment and judgment: Obtaining a costs assessment and judgment based on a void costs agreement can lead to complications and potential reversal of the judgment, as seen in the Bingham v Bevan case.

4. Importance of clear communication: Legal practitioners should ensure they communicate clearly with their clients and fellow professionals about the terms and conditions of a costs agreement, including any contingent fee arrangements. Proper communication can help avoid disputes and misunderstandings between the parties involved.

5. Consequences of a void costs agreement: It is essential for legal practitioners to be aware of the potential consequences of a void costs agreement, as it may impact their ability to recover fees. In the Bingham v Bevan case, the barrister was unable to recover the assessed fees due to the void costs agreement and the unsatisfied contingency.