September 2019


Costs agreements increasingly litigated

by Resolve Editor, Kate Tilley

There is an increased trend to litigate over costs and costs agreements, plaintiff lawyer Travis Schultz, principal of Travis Schultz Law, told the AILA Qld Insurance Law Intensive.

“That’s perhaps because the commerciality of [plaintiffs’] disputes has increased as a consequence of a handful of firms sending out accounts with totals that look like phone numbers,” he said.

“Sadly, there are too many cases where costs are high and out of proportion with what’s in dispute.”

The courts had taken a stricter view on cost agreements and several had been set aside, with the courts only allowing charges in accordance with the court scale.

“If there’s a fatal flaw in a costs agreement, insurers’ liability will be significantly reduced if costs are only assessable on the court scale,” Mr Schultz said.

More than 50% of non-specialist plaintiff firms’ agreements were likely to be non-complying, he said.

He cited Frost v Miller [2015] QSC 206, in which former Chief Justice Tim Carmody declared a conditional costs agreement void.

Mr Schultz said the dispute was over “a basic CTP matter” but costs included $117,000 for a compulsory conference.

Christina Sophia Frost argued non-compliance with section 323(3) of the Legal Profession Act 2007, which said:

A conditional costs agreement:  

  1. must set out the circumstances that constitute the successful outcome of the matter to which it relates; and
  2. may provide for disbursements to be paid irrespective of the outcome of the matter; and
  3. must be:   
    (i)     in writing;
    (ii)    in clear plain language;
    (iii)   signed by the client; and
  4. must contain a statement the client has been informed of the client’s right to seek independent legal advice before entering into the agreement; and
  5. must contain a cooling-off period of not less than five clear business days during which the client, by written notice, may terminate the agreement.

Ms Frost’s costs agreement said: The client has the right to seek independent legal or other advice [about] this agreement, prior to execution.

But it did not contain a statement in precisely the terms of section 323(3)(d).

CJ Carmody said: “This statement also serves the function of activating the professional and ethical responsibilities of the legal practitioner. As the relevant clause requires the legal practitioner to make a written representation that such advice had been provided by the client, any material falsity in the statement would likely constitute serious unprofessional conduct or professional misconduct under ss419 and 420 of the LPA.

“Through activating the professional and ethical responsibilities of the legal practitioner, s 323(3)(d) draws the lawyers’ attention to the importance of informing the client of their right to seek independent legal advice [about] the agreement. This mitigates the risk of minimal or formal compliance through the incorporation of bare notifications into standard form conditional costs agreements.”

The agreement also failed to have a cooling-off period, so was set aside.

In Clift & Ors v Carter Capner Law [2019] QSC 78, delivered by Justice John Bond on 29 March 2019, the cost agreement did not have an uplift fee (normally up to 25%) but had a clause worded like an uplift fee. 

Mr Schultz said that decision was under appeal.

The law firm had argued it no longer had to provide an itemised account because Mr Clift and four other former clients were no longer clients, but that argument “got short shrift”.

Justice Bond found the costs agreement did not comply with s324 of the Act because there was no estimate or range of possible amounts for the uplift fee. “That might seem harsh, but the law’s the law,” Mr Schultz said.

“A lot of cost agreements can and will be thrown out until plaintiff lawyers sort out their paperwork.”

Justice Bond ordered Carter Capner Law to provide itemised bills identifying the legal costs it claimed should be paid to it if each applicant’s personal injuries claim were successful.

He declared all five costs agreements were void.

Judge Douglas McGill was “very vocal” about costs in Bethscheider v CMC Lawyers Pty Ltd [2018] QDC 133.

He said: “Show me the costs agreement. This is a matter of principle. It’s a matter on which I feel strongly and I have for many years… Legal costs are based on the complexity of legal issues in your claim, the level of skill required by lawyers, and relate directly to the time spent by lawyers and support staff on your file. Costs are calculated in hourly rates billed in six-minute increments in accordance with the following schedule – which is so much per hour.

“Now, why doesn’t that mean from the time you start work on a file until the time you finish work on a file, it’s the length of time you’re on the file in six-minute increments? It’s the number of units you spend on the file on that occasion, regardless of how many bits of work you do during that period.

“You charge five units whether you do five pieces of work or 50 pieces of work during that half hour. You charge five units. So it’s a question of how much time did [this person] spend on this file on this day?” Judge McGill said. 

“I don’t have a problem with the notion that it’s six minutes or part thereof, but [if] you get an email which you spend 30 seconds reading and then you send a reply which is another 30 seconds, and then you charge 12 minutes work for that when, in fact, it’s six minutes.

“And, you know, it’s the same sort of thing, charging separately for all these letters. How long does it take you to produce 10 letters? Not six minutes per letter. This is the problem, time costing is not, in fact, being charged on a time basis. It’s being charged on a unit-of-work basis and it’s a fundamental mistake, the way costs are charged.”

Mr Schultz said Judge McGill “got another opportunity” to comment on costs calculations in Chapman v Harris [2019] QDC 47.

“The costs agreement provided for charging for the work done on the basis of the time taken at a particular rate, calculated on a minimum unit of six minutes, but there was nothing in the costs agreement to justify interpreting it as meaning the clock is restarted for every separate item of work,” he said.

“What has been done here in effect is to prepare an itemised bill under a costs agreement, which provides for time costing, as if it were an itemised bill under a system where the solicitor was entitled to a scale charge for each item of work undertaken. That in my opinion is clearly wrong,” Judge McGill said.

“The true construction of the costs agreement is that the solicitor is entitled to charge in accordance with the method of calculation specified in the agreement from the time she starts work on the file till the time she stops work on the file whether, during that period, she does one item of work or 50.

“Accordingly, where obviously two items of work were done together, the entitlement to charge is based on the total time taken for the items. There would have been no possible justification for spending more than 12 minutes in total on those two items; if in fact the solicitor spent more than 12 minutes, the work was not done in a reasonable way and was properly disallowed in part. Accordingly, I entirely agree with the costs assessor’s decision .”

The cost assessor had reduced costs by 50%.

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