Costs disclosure in personal injury matters where damages are less than $100,000 in light of the recent decision of Todorovska v Brydens Lawyers Pty Ltd [2022] NSW NSWCA 47.
Schedule 1, clause 2 of the Legal Profession Uniform Law Application Act 2014 (the Act), provides that if the amount received for personal injury damages does not exceed $100,000, the maximum costs for legal services provided is to be capped at 20% of the amount recovered or $10,000, whichever is the greater (‘the statutory cap’).
Schedule 1, clause 4 of the Act permits solicitors and clients to contract out of this statutory cap through a costs agreement that complies with Division 4, Part 4.3 of the Legal Profession Uniform Law (NSW) (‘Uniform Law’).
Relevantly, clause 28 of the Legal Profession Uniform Law Application Regulation 2015 (NSW) (the Regulation), specifies the disclosure requirements regarding costs agreements entered into in accordance with Schedule 1, clause 4 of the Act. These requirements include:
- a statement that Schedule 1 of the Act would (but for the costs agreement) limit the maximum costs for legal services provided to the client or prospective client in connection with the claim,
- particulars as to how those maximum costs are calculated,
- a statement that the costs agreement would have the effect of excluding the operation of that Schedule,
- particulars as to how the costs would be calculated under the costs agreement,
- a statement that the costs agreement relates only to the costs payable as between the law practice and the client or prospective client, so that, in the event that costs are recoverable against the other party, the maximum costs so recoverable will be provided by Schedule 1 to the Act.
In the recent case of Todorovska v Brydens Lawyers Pty Ltd [2022] NSWCA 47 (‘Todorovska’) involving a personal injury matter, the NSW Court of Appeal found that the conditional costs agreement provided by the lawyer to their client was ineffective to contact out of the statutory cap under Schedule 1, clause 2 of the Act.
In Todorovska, Basten JA (with whom the Justices Leeming and White concurred) stated that whether a costs disclosure was effective was to be determined by the context in which it occurred.
Their Honours found that the disclosure was ineffective due to several factors, including:
- Disclosure itself was unclear and imprecise,
- The documents gave the impression that the client had no choice but to enter into a costs agreement,
- The law practice provided the client with a large bundle of documents which would have been confusing,
- The client was not given a meaningful explanation of her right to negotiate a costs agreement and seek independent legal advice.
Practitioners should remember that it is the obligation of the solicitor and the law practice to “take all reasonable steps to satisfy itself that the client has understood and given consent to the proposed…costs” (714(3) of the Uniform Law).
Disclosing costs must be meaningful and the obligation to disclose is not necessarily discharged just by sending out forms to the client.
Solicitors who act for clients in personal injury matters where damages are not likely to exceed $100,000 should provide clients with certainty about costs including:
- A clear explanation that entering into the agreement means that the costs will not be capped in accordance with the Act at $20,000, but will be greater than that,
- That the client may want to seek independent legal advice on the meaning and effect of the agreement,
- An estimate of the costs that may be incurred if the costs agreement is entered into, and
- A statement that the client may negotiate the terms of the costs agreement.
The above advice should ideally be provided separately to the costs agreement itself. The disclosure must be real and meaningful.
