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Snapshot

  • This is the second part of a two-part article which identifies four pitfalls in the Legal Profession Uniform Law 2014 (‘Uniform Law’) regime for costs assessment.
  • Pitfall no. 3 is that legal practitioners do not have a right to apply for an extension of time to seek an assessment of their costs where they have not done so within 12 months of the issue of their final tax invoice at the end of their retainer.
  • Pitfall no. 4 is the difficulty recovering costs where the costs agreement has been ‘voided’ by the automatic operation of the Uniform Law due to a contravention.

This is the second part of a two-part article which identifies four pitfalls in the Legal Profession Uniform Law 2014 (‘Uniform Law’) regime for costs assessment.

Pitfall No. 3 – Inability of a law practice to extend time to seek an assessment after 12 months

Pitfall No. 3 is the lack of any right to seek an extension of time to apply for assessment by a legal practitioner notwithstanding the existence of such a right for a client and third-party payer.

Section 198(1) of the Uniform Law gives the right to apply for assessment of ‘Uniform Law costs’ to ‘the client, a third-party payer’ (see s 171 of the Uniform Law defining ‘third-party payers’), ‘the law practice’ and ‘another law practice’ (meaning the ‘retained law practice’).

However, s 198(3) mandates the making of the application for assessment within 12 months of the date after ‘the bill was given to… the client’ and, if there was no bill issued to the client, then within 12 months of the payment of the costs being made by the client or the third party payer.

Section 198(4) gives the Manager, Costs Assessment power to extend the time to apply for assessment, as the ‘designated tribunal’ empowered to extend the time under the Legal Profession Uniform Law Application Act 2014 (NSW) (‘Application Act’) (see s 11 of the Application Act, Table 2 item 6).

However, the categories of applicant permitted to seek the extension of time within s 198(4) of the Uniform Law are limited to the client and the third-party payer. There is no right to apply to extend the time given to the law practice or the other law practice, as they are not mentioned in s 198(4).

Accordingly, legal practitioners have no right to apply for an extension of time in which to seek an assessment of their costs where they have not done so within 12 months of the issue of their final tax invoice at the end of their retainer (as ‘bill’ in s 198(3) means the final bill issued to the client).

The result of this inability to extend the time for seeking an assessment of the practitioner’s costs is that the billing practitioner must sue in contract for the recovery of their costs if they have not sought an assessment within this 12-month limitation period.

Pitfall No. 4 – Problems for the recovery of costs where the costs agreement has been ‘voided’ by the automatic operation of the Uniform Law due to a contravention of the law

Pitfall No. 4 starts with the introductory proviso to s 184, preserving the common right to sue in contract, ‘subject to this Law’. If a practitioner fails to give any proper disclosure of their costs, particularly a failure to give a reliable estimate of future costs in the costs agreement, including total costs of the retainer, the costs agreement is arguably rendered void ab initio by the operation of s 185(1), because the agreement contravenes Division 4 of Part 4.3.

If a practitioner fails to give an updated reliable estimate of future costs, having given a reliable initial estimate when entering into the costs agreement, or in a contemporaneous disclosure document, the costs agreement is also rendered void, albeit on this occasion pursuant to s 178(1)(a) of the Uniform Law. The reason is that the failure to give proper disclosure is a contravention of Division 3 of Part 4.3.

In the experience of this author, many costs assessors (including the senior assessors who constitute Review Panels) interpret s 178(1)(a) as voiding the costs agreement ab initio in an identical manner to the voiding occurring pursuant to s 185(1) (because of a defect in the terms of the costs agreement or the circumstances surrounding entry into the costs agreement which constitutes a contravention of Division 4 of Part 4.3 of the Uniform Law).

Assessment of costs after costs agreement voided

Once a costs agreement has been voided, whether it be by force of the operation of s 178(1)(a), for a post-contractual nondisclosure of costs, or of s 185(1), for a breach of the costs agreement provisions (including a defective disclosure term in a costs agreement), the costs assessor must assess the costs on a quantum meruit (see Pavey & Matthews v Paul (1986) 162 CLR 221; [1987] HCA 5 at 227-228, 250-251, 255-257, 263-269) and do so without paying any regard to the terms of the voided costs agreement, i.e. without having regard to the rates of costs and scope of work required to perform the retainer, as agreed by the client at the very get-go in the costs agreement.

Designated local regulatory authority

Following a contravention of the disclosure regime in Division 3 of Part 4.3, which occurs the moment the practitioner bills costs in excess of the estimated costs – a date readily determined by costs assessors by calculating the amount billed up to a certain date in order to determine the date when the costs as billed exceed the estimated costs as disclosed – ‘the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority’ (see s 178(1)(c) of the Uniform Law). This provision constitutes a bar to bringing any action at general law upon the costs agreement to recover the outstanding costs.

Furthermore, where a costs agreement is voided by s 178(1)(a) for nondisclosure of costs, ‘the client… is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority’ (see s 178(1)(b) of the Uniform Law).

If the law practice is out of time to seek an assessment of costs, it is caught between a rock and a hard place if it cannot sue on the costs agreement because of a voiding of the costs agreement by the Uniform Law.

Section 178(1)(c) of the Uniform Law provides an unsatisfactory solution to this problem. It provides that, in addition to the alternative of seeking an assessment of the costs where the costs agreement has been voided, the law practice can have its ‘costs dispute determined by the designated local regulatory authority or under jurisdictional legislation’.

The ‘designated local regulatory authority’ in NSW, for the purposes of resolving costs disputes where the costs agreement has been voided by s 178(1)(a) of the Uniform Law, is the Legal Services Commissioner of NSW (see s 11 of the Application Act, Table 1 item 13).

The statutory criteria for determination of a costs dispute where a costs agreement has been voided by s 178(1)(a) are those specified in general terms in s 412(2) of the Uniform Law:

‘A local regulatory authority and its delegates must exercise their functions under this Law in accordance with applicable provisions of this Law, the Uniform Regulations and the Uniform Rules and applicable guidelines and directions under this Chapter.’

The Uniform Law, Uniform Regulations and the Uniform Rules contain no provisions that specifically address the resolution of costs disputes arising under voided costs agreements by the Legal Services Commissioner as this State’s ‘designated local regulatory authority’. This, therefore, leaves the Legal Services Commissioner with a relatively unfettered discretion to determine the practitioner’s claim for disputed costs under ss 178(1)(b) and (1)(c) of the Uniform Law.

Accordingly, the ‘rock bottom’ of the mineshaft following this fourth pitfall is an unknown, untested and unpredictable exercise in justifying the practitioner’s rates of costs, scope of work performed, and total costs billed without the benefit of any costs agreement before a statutory officer whose principal task – and principal day-to-day experience – is the determination of complaints about misconduct or unsatisfactory conduct made by clients against legal practitioners.

Voiding pursuant to s 185 of the Uniform Law

A further problem arising with the voiding of costs agreements concerns the consequences of a voiding pursuant to s 185(1) of the Uniform Law. Section 185(1) voids the costs agreement where it ‘contravenes, or is entered into in contravention of, any provision of this Division [4].’ The voiding pursuant to s 185(1) is informed by a consumer protection policy. Section 185(1) is directed at the terms of the agreement and circumstances surrounding entry into it.

The voiding of the costs agreement pursuant to s 185(1) occurs because of the contravention of a provision of Division 4 of Part 4.3 of the Uniform Law. For example, s 180, specifying the statutory criteria for making a valid costs agreement. However, voiding of a costs agreement under s 185(1) has nothing to do with the nondisclosure of costs unless nondisclosure occurs within the costs agreement. The disclosure obligations on practitioners are specified in Division 3. But it is the work of s 178(1)(a) where material nondisclosure of costs is the contravention.

Examining the cause of the issue

The problem arises because the draughtsman of the Uniform Law assumes that every voiding of a costs agreement under s 185(1) engages the costs assessment regime by quantum meruit provided for in s 178(1)(b) (first limb) or a resolution of the costs dispute by the Legal Services Commissioner which is provided for in ss 178(1)(b) and (1)(c) (second limb). The existence of that assumption is established by the marginal note to s 185(1), which is in these terms:

Note – If a costs agreement is void due to the failure to comply with the disclosure obligations of this Part, the costs must be assessed before the law practice can seek to recover them (see s 178(1)).’

This marginal note made is, in all probability, wrong on two grounds. First, it ignores the right to apply to the Legal Services Commissioner to determine the costs dispute under ss 178(1)(b) and (1)(c), assuming that those provisions are engaged for any voiding occurring pursuant to s 185(1) as well as for a voiding pursuant to s 178(1)(a) of the Uniform Law (which is doubtful for the reason given in the second ground for questioning the correctness of this marginal note).

Second, and more importantly, it assumes that a voiding (due to a contravention of the costs agreement-making provisions of Division 4 of Part 4.3) under s 185(1) engages the assessment regime in ss 178(1)(b) and (1)(c). However, s 185(1) does not engage s 178(1) whatsoever.

Section 178(1)(a) voids the costs agreement because, and only because, ‘a law practice contravenes the disclosure obligations of this Part.’ Those disclosure obligations are exhaustively stated in Division 3. Sections 204(2)(b) and (2)(c) support that interpretation.

Section 178(1)(a) does not void the costs agreement because the costs agreement-making rules in Division 4 have been contravened. That is the exclusive work of s 185(1). The quantum meruit procedure specified in ss 178(1)(b) and (1)(c) (first limb) for costs assessment, and the costs dispute resolution procedure (second limb) (the only alternative specified in those same provisions), are the statutory consequences of a voiding of the costs agreement pursuant to s 178(1)(a) for a contravention of the disclosure obligations imposed by Division 3 of Part 4.3.

Extrinsic materials

Although a marginal note has a role to play as an extrinsic aid to the interpretation of ss 178(1) and 185(1) – see s 34(2)(a) of the Interpretation Act 1987 –  it is not part of those two provisions because it is not part of their text (see s 35(2)(c) of the Interpretation Act 1987).

The text, context and purpose of a provision inform its meaning, rather than extrinsic materials surrounding its enactment (such as a marginal note). Extrinsic materials cannot be allowed to alter the plain, ordinary meaning of the text of the provision. (See Project Blue Sky Inc. v ABA (1998) 194 CLR 335; [1998] HCA 28 at 381-382; [69]-[71]) Section 185(1) rises or falls on its text and context.

Where does this leave the practitioner whose costs agreement has been voided pursuant to s 185(1)? The only statutory assistance given here is in s 185(2), which provides as follows:

‘A law practice is not entitled to recover any amount in excess of the amount that the law practice would have been entitled to recover if the costs agreement had not been voided and must repay any excess received.’

Section 185(2), like the marginal note to s 185(1), appears to assume that the practitioner whose costs agreement has been voided by s 185(1) will be entitled to apply to have those costs assessed if the application for assessment is made within time, pursuant to s 198(1) of the Uniform Law. There is no problem with such an approach for an application for assessment, because the practitioner would be within their strict rights to apply for an assessment, if made in a timely manner.

Timing is everything

But a problem for the practitioner arises if an application for assessment is not made by the practitioner within the 12-month limitation period specified in s 198(3)(a).

In light of the non-application of the regime for seeking an extension of time from the Manager, Costs Assessment, as the designated tribunal for the purposes of s 198(4) (for the reasons given above), the practitioner who does not apply for an assessment within the 12-month period provided for in s 198(3)(a), and whose costs agreement is voided pursuant to s 185(1), must fall back on his or her common law rights under the doctrine of restitution for unjust enrichment and seek recovery on a quantum meruit (see Pavey & Matthews v Paul (1986) 162 CLR 221; [1987] HCA 5 at 227-228, 250-251, 255-257, 263-269 for a statement of the principles of quantum meruit).



Christopher Bevan
is a barrister at Eight Wentworth Chambers.