Costs agreement learnings

In Waller Family Lawyers Pty Ltd v AB [2022] QCAT 362, the issues before the court concerned:

• liability of a former client for professional costs
• the timeliness of professional costs disclosure
• existence or validity of a ‘do and charge’ costs agreement, and
• whether, if any, sufficient costs estimate updates were provided to the client.¹

Facts

The respondent was a former client (who was also a commercial lawyer), who had instructed the applicant to act for him in a family law dispute.

The applicant sent a letter, costs disclosure notice (the first disclosure) and client services agreement to the respondent on 31 July 2018. The disclosure notice estimated maximum prospective costs exclusive of GST at $10,000 and included a scope of work.

The client services agreement provided that the work the client had instructed be performed was “the provision of legal services as requested from time to time throughout the duration of this Agreement” and that “…additional legal services may be confirmed by signing and returning to us any additional Disclosure Notices we send you”.

A second costs disclosure notice was sent dated 21 March 2019 (the second disclosure) estimating costs of $15,000 plus GST and including a further scope of work. The second disclosure advised the respondent that “the Law of Queensland would apply to ‘the proposed Agreement we have offered to enter into with you’.”² No additional costs agreement was provided.

The respondent terminated the applicant’s services on 30 August 2019 as he could no longer afford legal representation.

The applicant billed the respondent a total of:

• $16,344.83 from initial instructions to 21 March 2019, $5344.83 over the initial costs estimate in the first disclosure.
• $20,713.00 between 21 March 2019 (the date of the second disclosure notice) and termination of the applicant’s services on 30 August 2019, $4213.00 over the cost estimate in the second disclosure.

The respondent paid all but $12,469 of the applicant’s invoices. The applicant subsequently applied to recover $12,468 from the respondent for legal costs as a minor debt.

Jurisdiction

Adjudicator Walsh addressed the jurisdictional limits of Queensland Civil and Administrative Act 2009 in dealing with minor debt claims and noted that the provisions of the Legal Profession Act 2007 (LPA) do not confer additional jurisdiction on the tribunal.

The tribunal could not:

• set aside the cost agreement for unreasonableness
• make a declaration that the client services agreement was void
• assess the reasonableness or otherwise of the solicitor’s costs claimed.

The adjudicator was limited to the following options:

• dismissing the application
• ordering a party to pay a stated amount to a stated person, or
• ordering that a stated amount was not due and owing by the applicant to a stated person or by any party to the proceeding to the applicant.

Issues considered

1 Whether the respondent was a sophisticated client

The applicant had originally contended that the respondent was a sophisticated client, thus exempting it from costs disclosure under s311(1)(c) of the LPA.

The tribunal noted:

• that under s311(1) of the LPA, there is no prohibition against a solicitor giving a costs disclosure to a sophisticated client³
• an Australian legal practitioner who becomes a client of a specialist family law practice is no less a consumer of legal services on that account. Consumer protection under the LPA is not, and cannot be, displaced in this way.

2 Whether the applicant had complied with the statutory requirements of the LPA in relation to costs disclosure

The adjudicator considered that strict compliance with the LPA was required.

The adjudicator noted that the first disclosure complied with s308 and s310 LPA.

In response to the applicant’s submissions, the tribunal noted that a costs disclosure notice is not a retainer document or an offer to enter into an agreement. The terms of a disclosure notice are not, without more, automatically incorporated into the costs agreement in a contractual sense.⁴ A suggestion otherwise would erroneously conflate disclosure with contract.⁵

s310(1) LPA requires the disclosure to have been made in writing before the commencement of a new stage, or as soon as practicable thereafter.⁶ s315 LPA only requires that a law practice disclose to a client “any substantial change to anything included in a disclosure already made”. Notices pursuant to s308 and s315 are “fundamentally different species, in character and effect”.⁷

3 What expressly or by implication must be contained in a costs agreement for it to be enforceable?

The adjudicator considered the client service agreement was in accordance with the requirements of s322 LPA. A question arose, however, as to whether the agreement covered the services referred to in the second disclosure as well as the first disclosure.

The adjudicator noted that the LPA does not require only one cost agreement be entered into between legal practice and client. There may be more than one agreement, particularly where instructions were initially given for a limited purpose, and a client subsequently asks the solicitor to undertake additional legal work. There is no express prohibition in the LPA of “do and charge retainers” (or master contracts), where the scope of the work is determined only by reference to instructions given from time to time.

However, the statutory context of the LPA as consumer protection must be considered and “a costs disclosure as well as a costs agreement [must] each state with some particularly the scope of work by reference to each and all reasonably foreseeable stages of the work to be undertaken”.⁸

The tribunal considered a general “do and charge” agreement which lacks particularity could not have been envisaged by the legislature between a solicitor and private individual client when one considers the stringent costs disclosure obligations and consumer protection purposes; the solicitor’s ethical duty of honesty and candour and a solicitor’s fiduciary duty of the utmost good faith.⁹ The adjudicator considered there was “a material power imbalance between”  the applicant and respondent.¹⁰

The adjudicator considered the applicant’s cost agreement was void for contravening Part 3.4, LPA in the absence of salient terms or specificity in scope.¹¹

4 Was there a costs agreement for the scope of work stated in the second costs disclosure notice?

The applicant gave the second disclosure in addition to the first disclosure, not to replace, or update it. The second disclosure was not, and did not purport to be a notice of substantial change to the disclosure already made.¹²

The second disclosure disclosed a different scope or new phase of work which was not identified in the pre-existing client services agreement. The tribunal found that the second disclosure was not, and could not be incorporated in the pre-existing client services agreement. The applicant was obliged by the combination of sections 308 and 322 LPA to offer the respondent a new costs agreement for the next stage of the work, and it did not. Therefore, no costs agreement for the second stage came into existence as required.

The applicant’s claim for legal costs, if any, lay only in quantum meruit pursuant to s319(1)(b) of the LPA subject to assessment. Until assessed, the applicant had no cause of action for any of the outstanding invoices.

5 Did the billed costs materially exceed the costs estimates? If so, what is the consequence?

The costs billed exceeded both the first disclosure and the second disclosure estimates.

Despite the applicant’s submission to the contrary, the tribunal found that the excess of costs billed over the estimates provided was material and substantial.

The applicant did not give the second disclosure of updated costs estimates in a timely way as required by s315 LPA (some four months after the practitioner ought to have been aware of the additional scope of work).

The tribunal considered the applicant had frustrated the consumer protection purpose of the LPA; breached his statutory duty under s315 LPA; and his fiduciary duty in delivering the professional services for which it was retained.

The applicant was unable to claim for unpaid legal costs unless and until the costs had been assessed.¹³

Guidance

The tribunal considered the application an opportunity for therapeutic jurisprudence. The adjudicator suggested that problems such as those arising in this application may be avoided in the future if a solicitor:

• ascertains all reasonably foreseeable stages of the entire litigation process at the first conference
• explains them at the first conference in a way that ensures a client’s understanding of broadly what the services could ultimately cost the client, in addition to the client’s possible costs liability to others
• estimates at the outset the foreseeable costs of performing the work for each stage
• gives the client comprehensive disclosure in writing pursuant to section 308 before contract
• refers specifically to the scope of works by reference comprehensively to each of the stages in both the costs disclosure notice and the proposed client services agreement, thus satisfying the LPA consumer protection purpose
• avoids conflating costs disclosure with contract
• avoids conflating costs disclosure with costs estimate updates
• is vigilant in reviewing and monitoring the value of work in progress against prior cost estimates to ensure prompt and timely notification of substantial costs increases in the costs of any stage, as required by section 315 of the LPA.¹⁴

Order

The tribunal ordered that the application be dismissed.

Editor’s note: This matter is subject to appeal.

Footnotes
¹ Waller Family Lawyers Pty Ltd v AB [2022] QCAT 362 (Waller).
² Waller [29].
³ LPA s311(1).
⁴ LPA s310.
⁵ Waller [78].
⁶ Ibid [90].
⁷ Waller [21].
⁸ Waller [85].
⁹ Ibid.
¹⁰ Waller [87].
¹¹ Waller [79].
¹² s315 LPA; Waller [90].
¹³ Waller [94] and s316(2) LPA.
¹⁴ Ibid [103].