Item remuneration billing

Lawyers can charge on an item remuneration or task-completed basis, which means they apply a predetermined ‘scale’ or schedule that specifies the amount of money that may be claimed for each subcategory of legal work, or task, in a larger case or transaction. Item remuneration allows lawyers to be specific about what they have done for their client and to produce a bill itemising the amount charged for each task in the case. Thus, drafting a letter may be charged to the client – say $30 per ‘folio’ (a folio = 100 words). It makes no difference how long the lawyer takes to draft the letter of 100 words, the lawyer will still be paid the same amount for the task. The actual amount charged per item usually varies upwards according to how much money is being claimed (or defended), to recognise the extra ‘skill, care and responsibility’ associated with a larger claim.¹¹11 There are different scales for different levels of courts and tribunals.

Historically, legislation governing the legal profession and legal work allowed the legal profession and the courts to set minimum fee scales for all legal work.¹²12 Michael Legg and Justine Rogers, ‘Lawyers’ Fee Arrangements and Their Wellbeing’ in M Legg, P Vines and J Chin (eds), The Impact of Technology and Innovation on the Wellbeing of the Legal Profession (Intersentia, 2020) 267; Gino Dal Pont, ‘Contextualising Lawyer Overcharging’ (2016) 42(2) Monash University Law Review 283. These scales were considered justified because they were thought to protect unsophisticated clients from being exploited by lawyers in situations where clients could not judge the quality and appropriate price for legal services. Nor would clients necessarily be able to negotiate and bargain effectively with their prospective lawyer to get the best deal. It was considered better to highly regulate lawyers’ fees by scales set for the whole profession on the assumption that the profession would act in the public interest and ensure that all lawyers conformed to the same high quality and charged fair fees. These ‘scale fees’ set by the profession were abolished in the 1990s because they were considered anticompetitive.¹³13 Trade Practices Commission, Study of the Professions: Legal (Final Report, 1994) ch 8; Christine Parker, Just Lawyers: Regulation and Access to Justice (Oxford University Press, 1999) ch 3, 38–41. A change of regulatory approach to apply competition policy to lawyer regulation is described in detail in Chapter 3. They effectively allowed the profession to set a minimum floor for their own prices and prevented clients from ‘shopping around’ for a better price. As one lawyer commented about the impact of abolition of scales:

Despite the abolition of scales as a required method of charging, the courts have continued to publish fee scales for the purposes of assessing disputes about costs in litigation. And since individual lawyers and law firms are free to set their own fees on an item remuneration basis, many lawyers use these ‘court scales’ as a basis for their own charging. Clients have the comfort of knowing that, even if the lawyer is a bit slow in completing the task, it is the lawyer not the client who carries the cost of the extra time spent. There are, however, a number of potential ethical disadvantages in item remuneration billing for clients.

This approach diminishes competition and therefore pressure for reduction of price. Lawyers set the cost of specific tasks or items performed. This cost might be set by the firm in the costs agreement with the individual client or according to the court scale. But the scale amounts are set by committees and, although those committees may be diligent and conscious of their wider responsibilities, they are dominated by lawyers rather than being comprised of a mix of lawyers and consumers. Court scales of costs generally only specify a minimum fee because the cost committees that set the scales have always leaned towards lawyers’ arguments that fees for individual items under the scales may be increased if the circumstances justify this.

Despite these concerns, the method of charging is relatively transparent and often allows a straightforward comparison with the fees charged by other lawyers providing like services. Indeed, courts determining whether a costs agreement is fair and reasonable in a dispute have pointed to these scales as a transparent benchmark of fairness.¹⁵15 See GE Dal Pont, Law of Costs (LexisNexis, 5th ed, 2021). This is to be contrasted with the predominant method of charging for legal services, which is billing for the time spent by lawyers working on the case.

Time-based billing

Time-based billing is generally thought to have been first used by law firms in the 1950s as a management tool.¹⁶16 Herbert Kritzer, ‘Lawyers’ Fees and the Holy Grail: Where Should Clients Search for Value?’ (1994) 77 Judicature 186. After that time it was eagerly adopted by the profession and remains the main method of charging legal fees despite some disruptions (described below).¹⁷17 Legg and Rogers (n 12) 271; Stuart Pardau, ‘Bill, Baby, Bill: How the Billable Hour Emerged as the Primary Method of Attorney Fee Generation and Why Early Reports of Its Demise Might Be Greatly Exaggerated’ (2013) 50(1) Idaho Law Review 1. The approach – often called the ‘billable hour’ – is based on charging according to the time spent by the lawyer on the legal task. The lawyer specifies an hourly rate – say $350¹⁸18 Choice reported median rates are between $350 and $650: Rebecca Douglas, ‘Legal Fees: How Much Should They Cost?’ CHOICE (Web Page, 1 August 2018) <https://www.choice.com.au/shopping/shopping-for-services/services/articles/legal-fees>. – and the client agrees to pay that rate multiplied by however many hours the task takes.

There are variations to this approach, such as billing according to time but postponing payment until the client secures a ‘win’ (being a legal settlement or judgment) – this is called a ‘conditional costs agreement’ and described further below. The time-based method is also often accompanied by a percentage charge on top of the calculated fee according to hours spent on the matter.¹⁹19 There are two common approaches to this: care and consideration and an ‘uplift fee’ that can apply to conditional arrangements. These are discussed in the next subsection. At the outset we warn that charging an additional percentage on top of agreed fees for time spent working on a client’s matter, even where there is complexity or significant skill, is ethically questionable. The base rate of legal fees usually already takes into account the seniority of the lawyer doing the work and the costs of them doing business (such as having an office). The minimum ethical expectation is that lawyers are competent in their area of work (ASCR r 4.1) and so charging more for doing a good job is questionable.

Time-based billing is attractive to the profession because it normally results in a higher level of fees than item remuneration. It might also reflect lawyers’ sense that they are being paid for their professional advice rather than for a product. Time-based billing is also a useful way for law firms to keep track of what individual lawyers are doing and how much they are earning for the firm. As Iain Campbell and Sara Charlesworth argue: ‘The billable hours system came to prominence as a billing method but its primary function is no longer billing; instead its primary function is as a mechanism of management control, which acts to transmit pressure on salaried solicitors.’²⁰20 Campbell and Charlesworth (n 14) 112. This aspect of lawyers’ costs as a consequence or symptom of poor organisational cultures is considered later in the chapter (and in Case study 8.3).

Time billing is not as transparent to the client as other ways of charging because it is difficult for clients to imagine the full cost of obtaining legal services at the outset and it can be hard to compare a firm’s pricing when there is considerable discretion as to how time is spent working on the matter. Time billing is also far less certain because legal work need not be as precisely itemised in the bill,²¹21 Legislators around the country have addressed this by requiring that an itemised bill be provided to the client on request (and a lawyer cannot charge for this task): Uniform Law s 187; Legal Profession Act 2006 (ACT) s 292; Legal Profession Act 2006 (NT) s 327; Legal Profession Act 2007 (Qld) s 332; Legal Practitioners Act 1981 (SA) sch 3, cl 34; Legal Profession Act 2007 (Tas) s 316. there is discretion about who performs the task at what rate, and further charges can be added to the bill on top of charging for time spent on legal work. In many cases the notion that the client is billed according to time might be somewhat arguable where the agreement specifies that a lawyer charges a minimum unit of time – typically six minutes. This means that where a task performed for a client takes less than six minutes, the client will be billed for the full cost of six minutes.

Thus, critics increasingly regard the opacity and unpredictability of time billing as both inefficient and unfair, since there is not necessarily any upper limit on the total hours appearing on the time sheet.²²22 Woolley (n 5). Further discussion of the basis on which overcharging can occur is provided below. See also Colin James, ‘Legal Practice on Time: The Ethical Risk and Inefficiency of the Six Minute Unit’ (2017) 42(1) Alternative Law Journal 61. Some critics also note that the drive to generate more billable hours reduces the time spent on developing professional skills.²³23 Legg and Rogers (n 12) 290. Former Chief Justice Spigelman went so far as to say that much of the problem with lawyers’ fees centres on time-based billing:

Time-based billing will be in a client’s interest if the lawyer completes the task quickly and so charges less than if fees were calculated on an item remuneration basis. Yet, as described in the next section, personal financial and organisational management structures might present much greater pressures to overcharge the client than to be efficient.

There are a range of ways in which time billing might lend itself to overcharging a client. Lawyers may spend more time on tasks than required, perform unnecessary tasks or even add time to their timesheet that was not spent on the client matter (often called ‘padding’).²⁵25 See, eg, Case study 8.2. Some accounts have cited the exploitation of minimum time provisions. For instance, a lawyer might wait until a time when people are unlikely to be in their office (such as lunchtime) and then make 30 (unanswered) phone calls, recording each one as a separate six-minute task, or by doing tiny tasks on a number of files in one six-minute timeslot so that work done on each file can be recorded as a separate time unit.²⁶26 See Lisa G Lerman, ‘Gross Profits? Questions About Lawyer Billing Practices’ (1994) 22(3) Hofstra Law Review 645 for reports of similar practices in the United States.

Absent unethical intention, time billing is often accused of inaccuracy. Humans being fallible, all time might not be accurately recorded to the correct client’s file. As one lawyer commented:

There are increasingly better tools to improve accuracy in recording time – for example, using time-recording software rather than writing things down on a file note. But technology does not necessarily remove overcharging. Automated billing is the norm. These systems better capture the length and purpose of phone calls, allow lawyers to swap between matters quickly and record their time spent, permit easily generated interim bills, and allow for remote recording in the cloud while lawyers are on the move. Yet, human error or poor firm practices, and outright fraud, will always be a risk. Consider Case study 8.1 (mentioned earlier), where inaccuracy in creating a bill for a client resulted in excessive charges.

Case study 8.1 concerns a case where there was an ‘uplift fee’ of 25% charged on a conditional arrangement, described next. This was accepted as lawful but it certainly added to the cost of an already inflated bill.

Conditional and contingent agreements, and uplift fees

One way in which some lawyers attempt to make justice more affordable and accessible for clients who cannot afford litigation is by charging on a conditional basis. This means the client pays only if they are successful in a case. As discussed above, this is often known as a ‘no-win, no-fee’ arrangement. It is a way of assisting litigants who cannot afford to pay lawyers’ fees in advance, and is easily understood. Conditional fees are, however, ethically ambiguous. On the one hand, these types of fees may help clients access legal and substantive justice in line with all four ethical perspectives discussed in Chapter 2. On the other hand, conditional arrangements are ethically questionable if they damage the probity and integrity of, as well as the care for, the lawyer–client relationship. They have the potential to distort the litigation or dispute resolution process by giving lawyers a personal stake or interest in the litigation, which may conflict with their ability to advise as to the clients’ best interests or even to obey their duty to the court.³⁴34 Re Robb (1996) 134 FLR 294, 300. Concerns about this billing practice leading to an increase in litigation in areas of personal injury resulted in further regulation of advertising banning promoting services as ‘no-win, no-fee’. This regulation has been largely repealed around the country (except Queensland).

Conditional costs agreements are those in which the lawyer and client agree that the lawyer will only be paid if the client is ‘successful’ (being a damages award, settlement or some other agreed outcome for the client). Conditional agreements include those that merely provide that the lawyer will charge their ordinary base fee (usually calculated on a time basis) if the client succeeds. Most conditional costs agreements, however, allow the lawyer to charge an ‘uplift’ of their fee (see below) if their case succeeds. These arrangements can promote access to justice but might also result in a temptation to charge higher fees where there is limited risk (the case is sure to succeed).

Conditional costs agreements have been accepted by the Australian courts³⁵35 Clyne v New South Wales Bar Association (1960) 104 CLR 186, 203. and are explicitly allowed under legislation around the country, with certain safeguards around express client consent and a cooling-off period.³⁶36 The Uniform Law is provided here as an example. Conditional costs are permitted in other jurisdictions: Legal Profession Act 2006 (ACT) s 283; Legal Profession Act 2006 (NT) s 318; Legal Profession Act 2007 (Qld) s 323; Legal Practitioners Act 1981 (SA) sch 3, cl 25; Legal Profession Act 2007 (Tas) s 307. This regulation seeks to ensure that clients understand the nature of the agreement, including that they may be liable to pay certain costs – such as barristers’ fees and court costs – even if they do not win their case.³⁷37 Regulators have warned lawyers not to be misleading in their advertising concerning no-win, no-fee arrangements, and there have been disciplinary prosecutions such as Legal Practitioners Complaints Committee and Browne [2006] WASAT 201 where the words ‘no compensation = no legal fees’ were found to be misleading and amounted to unprofessional conduct.

Contingent fee arrangements, in contrast, allow a lawyer to take a percentage of the actual judgment or settlement sum, if the client is successful. The more a client recovers in a judgment, the more their lawyer is paid. The terminology is confusing, as ‘conditional’ and ‘contingent’ are synonyms outside this legal context. The term ‘proportional’ fee agreements better describes contingent arrangements. Contingent or proportional fees have the advantage of certainty, as the client knows that their lawyer will never take more than a certain percentage of their ‘winnings’. However, contingent fees are prohibited in Australia and charging them will lead to professional disciplinary consequences.³⁸38 Uniform Law s 183; Legal Profession Act 2006 (ACT) s 285; Legal Profession Act 2006 (NT) s 320; Legal Profession Act 2007 (Qld) s 325; Legal Practitioners Act 1981 (SA) sch 3, cl 25; Legal Profession Act 2007 (Tas) s 309. If the agreement attempts to recover a contingency (proportional) fee, the practitioner can face criminal and disciplinary proceedings: Legal Services Commissioner v Barrett [2012] VCAT 1800. No costs can be recovered under the agreement (see later in the chapter about getting paid). The rationale for banning contingent fees is that they create an incentive for the lawyer to seek to maximise the settlement sum while minimising the amount of work they do. Accordingly, the lawyer might not advise settlement early on, even though this might be better for the client, in the hope of holding out for a higher fee. Equally the lawyer will not want to go ahead with the actual trial, even though this might give the client a better chance at a higher amount, if there is a settlement offer and there might be diminishing returns for the lawyer for the work required in going to trial. However, proportional fees are permitted in most other common law jurisdictions³⁹39 See, eg, the American Bar Association’s Model Rules of Professional Conduct r 1.5(c). More recently, contingent or ‘damages-based agreements’ have been permitted in England and Wales for litigation: Courts and Legal Services Act 1990 (UK) s 58AA (amended in 2012). and justifications for the blanket ban have been seriously questioned in a range of Australian reviews,⁴⁰40 Productivity Commission, Access to Justice Arrangements (Report No 72, 2014) recommendation 18.1; Victorian Law Reform Commission, Access to Justice: Litigation Funding and Group Proceedings (Report, March 2018) recommendation 7. including the recent recommendation by the Australian Law Reform Commission that a limited contingency billing arrangement be allowed in the interests of supporting access to justice in class actions.⁴¹41 Australian Law Reform Commission, Integrity, Fairness and Efficient: An Inquiry into Class Action Proceedings and Third Party Litigation Funders: Final Report, (Report 134, 2018). This report also considered third parties that fund the litigation who can charge the client as a percentage of their winnings, and recommended that these activities be further regulated. Lawyers cannot be funders for cases they act in as this would be a conflict of interest.

Further, there is a lawful way of charging a percentage – a modified contingency fee – in the form of an uplift fee. An uplift fee means that the practitioner charges up to 25% of their normal fee as an addition, or uplift, to their normal fee, if they are successful. An uplift fee is not based on the settlement sum, as with the contingency fee, but on the lawyer’s ordinary fee for the same work. The argument is that the lawyer should be compensated for the risk of financing a speculative ‘no-win, no-fee’ case and a bonus if they win. This creates an incentive to take on the matter in the first place.

Although no litigation is risk free, the uplift fee may often be used simply as a means of charging higher fees where there is no great risk of an action failing.⁴³43 Indeed, under the Uniform Law (s 182) and, in the Australian Capital Territory, Legal Practitioners Act 2006 (ACT) s 284, an uplift fee is only acceptable where the firm has a reasonable belief that success is reasonably likely. In some States, it is also lawful to charge for ‘care and consideration’ – another percentage top-up without a legislative cap – that might not relate to a costs agreement on a contingency basis. While legislation is silent, it would seem excessive and thereby unethical to charge a client for work performed with both a percentage charge for care and consideration and an uplift fee. Case study 8.1 appears to be an example of this. Legislation around the country requires that conditional costs agreements be signed by the client and must define the circumstances that constitute a ‘success’, but these provisions only moderate the conflict of interest between lawyer and client; they do not remove it.

The many costs of time billing within firms

Case study 8.1 illustrates how a law firm with a poor billing practice, and lack of both training for junior staff and supervision by partners, can have terrible outcomes. Many studies in Australia and other common law countries where lawyers employ similar billing practices suggest that abuses are as much related to the organisational culture as to individual ethical failings.⁵⁹59 Adrian Evans and Josephine Palermo, ‘Australian Law Students’ Perceptions of Their Values: Interim Results in the First Year – 2001 – of a Three-Year Empirical Assessment’ (2002) 5 Legal Ethics 103; Adrian Evans and Josephine Palermo, ‘Zero Impact: Are Lawyers’ Values Affected by Law School?’ (2005) 8 Legal Ethics 240. Poor firm cultures can lead to overcharging clients, no matter the billing method.

However, time billing is most implicated in overcharging for the reasons discussed earlier, such as the ease with which bills can be increased. Time-based billing also encourages its own destructive psychology inside certain firms. Most law firms set targets of numbers of hours to be billed by each lawyer each year. About six and a half hours per day is standard practice in Australia; however, eight to eight and a half hours is sometimes required. Billable hours are those that clients can be billed for. Non-billable hours include coffee and meal breaks, toilet breaks, general training sessions, administration meetings and associated paperwork. Lawyers generally need to work about 10 hours per day to generate six to eight billable hours.

Some US estimates of associates’ (the most junior employee lawyers in a firm) time-billing expectations put the number of expected annual billable hours at 2,500. This expects nine billable hours every working day of the year, which would take about 3,300 hours in the office to achieve.⁶⁰60 Legal Fees Review Panel (NSW) (n 54) 24–5 [3.7]. Another recent report indicates there might be more pressure to work long hours due to the pandemic, with one report of United States associates working 2,400 hours per year: Sindhu Sundar, ‘Junior Lawyers Share What It’s Really Like to Bill 2,400 Hours Per Year, with Normal Days from 6.30am Until Midnight’, Insider (online at 17 December 2021) <https://www.businessinsider.com/big-law-associates-what-its-like-to-bill-2400-hours-2021-12>. No surprise then, that larger law firms with high-end billing expectations can tend to employ more new graduates than they really need, because they know that up to 30% of them will leave within five years.⁶¹61 Sara Charlesworth and Iain Campbell, Scoping Study for an Attrition Study of Victorian Lawyers: Report to Victoria Law Foundation (Report, Centre for Applied Social Research, RMIT University, July 2010) 2, 9. More recent reports have confirmed this attrition trend: Law Council of Australia, National Attrition and Re-engagement Study (2014). Recent inquiries by SafeWork NSW have classified law as a high-risk profession due to the prevalence of long hours and ‘unrealistic demands’.⁶²62 Hannah Wooton, ‘Law Deemed “High-Risk” Job’ The Australian Financial Review (online at 10 June 2021) <https://www.afr.com/companies/professional-services/long-hours-high-demands-makes-law-a-high-risk-job-safework-20210607-p57yrz > (paywall). These inquiries were sparked by claims that staff were sleeping in their offices and took supplements to stay awake and keep working. It is reported that SafeWork NSW’s Director of Health and Safe Design noted particularly that ‘the requirement workers are hyper-vigilant on accounting [for] their time attached to fees for service’ added to the other demands.⁶³

As discussed elsewhere, the impact of excessive hours can have a range of negative impacts on practitioners, from disproportionately disadvantaging those with caring responsibilities⁶⁴64 Margaret Thornton and Joanne Bagust, ‘The Gender Trap: Flexible Work in Corporate Legal Practice’ (2007) 45 Osgoode Hall Law Journal 773; Law Council of Australia, National Attrition and Re-Engagement Study (2014). to mental and physical ill-health.⁶⁵65 See generally Chapter 3. It might also exacerbate the current trend of lawyers leaving the profession – what has been called the ‘great resignation’.⁶⁶66 Thomson Reuters Institute and Georgetown Law, 2022 A Report on the State of the Legal Market: A Challenging Road to Recovery <https://www.thomsonreuters.com/en-us/posts/wp-content/uploads/sites/20/2022/01/State-of-Legal-Market-Report_Final.pdf>. While billing is not the only cause of excessive expectations on lawyers to work long hours, a high billable target can require a lawyer to work for as long as it takes to meet the target, however unrealistic.

In this environment, billing can seem all-important, particularly in the many firms where a legal practitioner’s budget – that is, the number of chargeable (billable) hours per month that they must achieve if they are to retain their job (let alone be promoted) – is the ever-present personal watchdog. It can also make it extremely difficult for lawyers to spend time away from the office fostering their own relationships, interests and community involvements. One lawyer commented in a billing practices survey of large and medium firms in Queensland undertaken in 2011:

Such pressures can eat away at possibilities for trust and collegiality between lawyers. This can create a sense of being surveilled by clients and other lawyers, increasing anxiety and diminishing the quality of relationships.⁶⁸68 L Krieger and K Sheldon, ‘What Makes Lawyers Happy? A Data-Driven Prescription to Redefine Professional Success’ (2015) 83(2) George Washington Law Review 554. Some consider such organisational approaches to be unethical because of the unrealistic demands on employee lawyers – which could be perceived as a form of bullying.⁶⁹69 Joanne Bagust, ‘The Culture of Bullying in Australian Corporate Law Firms’ (2014) 17(2) Legal Ethics 177; Susan Le Mire and Rosemary Owens, ‘A Propitious Moment? Workplace Bullying and Regulation of the Legal Profession’ (2014) 37(3) University of New South Wales Law Journal 1030.

Organisational pressures can lead to unethical practices such as intentional over-billing. The pressure to simply cheat on a bill can be enormous; as one United States associate stated: ‘the 2000 billable hour requirement is an impossible task for an HONEST and hardworking attorney’.⁷⁰70 Susan Fortney, ‘The Billable Hours Derby: Empirical Data on the Problems and Pressure Point (2005) 33(1) Fordham Urban Law Journal 3, 108. In an extreme case in Australia, a lawyer who had added 914 false hours in electronic timesheet entries described himself as becoming ‘obsessed’ with overcharging to increase his profit margins.⁷¹71 Legal Services Commissioner v McDonald [2018] QCAT 82, [13].

Even those lawyers who are not padding their bills to make billable hour targets may believe that others must be, leading to a situation where everyone thinks everyone else is probably cheating, and wondering whether they may as well cheat themselves – an ‘everyone does it’ mentality. Parker and Ruschena’s analysis of lawyers’ experiences of ethics and billing practices in their firms found that lawyers in the firms that did not have clear, explicit and enforced ethical billing policies were more likely to believe that their colleagues were engaging in unethical practices such as padding bills.⁷²72 Parker and Ruschena (n 54).

In other words, the imposition of targets for number of hours billed on individual lawyers and overly profit-oriented work groups can provide incentives for lawyers to artificially increase bills. While the well-known Australian case covered in Case study 8.3 is around 30 years old, we believe it remains relevant while the conditions of practice leading to pressure to excessively bill clients continue.

Legal fees diminishing access to justice in court

While time billing has been implicated in a range of abuses, many commentators have also argued that costs abuse (on a time-based system) is a symptom rather than a cause – that it is not the billing method but an unethical culture of the firm that is the problem.⁷⁸78 Indeed, there are still advocates for time billing as an ethical approach as it allows for efficiencies: Brian Bartley, ‘Fair Trade? Why We Need to Rethink Time Billing’ (2010) 30(8) Proctor 12. In any case, the client receives a higher bill than should be the case.

One might argue that doing all you can as a lawyer to advance the client’s interests within the law ‘requires lawyers to charge their client as little as possible’, but zealous advocacy ‘also requires a lawyer to leave no stone unturned in the advancing of their client’s case’, which might increase their costs.⁷⁹79 Richard Moorhead, ‘Filthy Lucre: Lawyers’ Fees and Lawyers’ Ethics – What Is Wrong with Informed Consent?’ (2011) 31(3) Legal Studies 345, 352. This tension is usually resolved in favour of ‘no stone unturned’. While corporate clients are in a good position to control their costs, because of their greater capacity to deny ongoing work to a lawyer who is seen to be price gouging, excessive adversarial advocacy might result in excessive costs even for these clients. As described in Chapter 6, an appeal court was scathing of three major law firms’ willingness to prepare unnecessary and voluminous documents in an interlocutory matter, and substantial costs orders were made against the three firms.⁸⁰80 See Yara Australia Pty Ltd v Oswal (2013) 41 VR 302.

Costs can be inflated not only for the wealthy client. Adversarial advocacy may require a lawyer to proceed on the basis of acting in pursuit of the client’s aims, which can increase the cost for both the client and the other side, particularly in disputes. As we have seen in Chapter 6, the adversarial litigation system creates high, and unpredictable, costs, putting at risk the fundamental values of fair and equal access to justice for all.⁸¹81 See, eg, Australian Law Reform Commission, Managing Justice: A Review of the Federal Civil Justice System (Report No 89, 2000) ch 4. Firms working for defendants in litigation can delay or even completely frustrate a case by devices such as overburdening plaintiffs with documents in discovery, contesting every step of the pretrial process and then arguing every point during trial.⁸²82 This approach can be seen in cases discussed in Chapter 6. A litigant with ‘deep pockets’ thereby has the capacity ‘to increase the threat of litigation costs being paid by the other party as a result of complications and elaborations of the dispute and the procedure for deciding it’.⁸³83 Bret Walker, ‘Proportionality and Cost-Shifting’ (2004) 27(1) University of New South Wales Law Journal 214, 216–17. Where lawyers act on such instructions, or advise these forensic tactics, they assist to cripple possibilities for access to justice precisely because such tactics increase costs in unpredictable ways.

As part of the final court orders in litigation, the court will usually decide who should pay what legal costs, on the basis of what is fair and equitable between the parties.⁸⁴84 In civil tribunals, the Federal Circuit and Family Court of Australia and various Land and Environment Courts each party ordinarily pays their own costs. A client who wins a legal action is normally entitled to have costs that are reasonably incurred and are reasonable in amount⁸⁵85 See, eg, Civil Procedure Act 2005 (NSW) s 98(1); Supreme Court (General Civil Procedure) Rules 2005 (Vic) s 63.30. paid by the losing party. These costs are generally known as standard or ordinary costs. Reasonable costs are all those costs that the lawyer was justified in incurring in running the case and attending to their client’s needs for information. A successful party can also recover from the losing party all their reasonable expenses (‘disbursements’), such as court filing fees, medical report fees and barristers’ fees, provided they are reasonable in amount.

However, standard costs generally cover only 60–80% of the total costs that the winning party actually owes their lawyer, whether the total costs are calculated on an item- or time-based process.⁸⁶86 Victorian Law Reform Commission, Civil Justice Review (Report No 14, 2008) ch 11, 648 [3.2.1]. The extra 20–40% of costs cannot be recovered from the losing party, unless the court makes an ‘indemnity costs’ order. Such an order is only available in a limited range of circumstances, such as where the other party has pursued a hopeless case. In order to understand what legal fees and costs they might have to pay in relation to litigation, a client therefore needs to understand that, even if they win the case, they will also need to personally pay, say, 30% of the costs charged by their lawyer. In order to go ahead with litigation, they would need to be confident that they will win and that paying that 30% of their own costs will not unacceptably reduce their net receipts from the case.

If this is confusing for law students and lawyers, consider how clients feel when they first hear about the effect of the system of costs on what they think is their just entitlement? Figure 8.1 describes the relationship between these concepts.

It is not surprising that clients complain that the case they thought was worth $10,000 produces a meagre result. Unless the amount in dispute is substantial, having the court determine the dispute will often be uneconomic for the client and benefit only the lawyers. In many cases, even clients who are very likely to succeed in court may feel forced to agree to negotiation or mediation to resolve their disputes, regardless of how suitable their case is for mediation (see Chapter 6).⁸⁷87 An alternative would be for the trial judge to control the costs process. This happens in New Zealand where the successful party must make an application to the trial judge for a fixed, lump sum costs order as a part of the substantive judgment, and the judge makes that decision after receiving evidence from the parties as to their costs. See Deborah Vine Hall, ‘Present Difficulties with the Assessment System’ (2004) 27(1) University of New South Wales Law Journal 206. This makes the prospect of equal access to justice in the court system recede further and further and makes it more likely that matters will be settled unjustly. Access to justice, on which lawyers depend for much of their social legitimacy, is at risk even when lawyers are candid in fully apprising potential clients of the financial risks of their proposed court action, and discussing the alternatives, such as mediation.

Costs disclosure and consumer protection

In the usual time-based billing relationship, clients might have little power to negotiate the lawyers’ fees, no understanding that such negotiation is possible, or may agree to an excessively high hourly rate. Many potential plaintiffs, perhaps one-off litigants anxious to prove a point or recover what they think will be many thousands of dollars in a judgment, may be unwilling to think about the legal costs of their claim. This is not to say that the price of legal services is unimportant to consumers. Across the country, legislation assumes price competition is to be encouraged through giving consumers information to shop around. Thus, regulation seeks to address a potential lack of information about lawyers’ costs by requiring lawyers to provide an estimate of total legal costs and other information about client rights to negotiate both methods of billing and the quantum of the final bill, including disbursements, and disputing costs.⁸⁸88 It is commonly misunderstood that the costs of a legal action are only the solicitor’s fees. However, fees for a solicitor engaging a barrister on behalf of the client, paying for evidence such as medical reports or other court costs such as filing fees are payable by the client. These must be disclosed to the client at the outset. In the case of barristers engaged during the matter, the solicitor will need to negotiate an appropriate fee on behalf of the client and provide disclosure: Farrah v Julian-Armitage [2015] QCA 289. There are exceptions to disclosure obligations where the costs of the legal service are likely to be less than a prescribed amount. This varies from $750 under the Uniform Law s 174 to $1,500 in some jurisdictions such as Queensland: Legal Profession Act 2007 (Qld) s 311. Under the Uniform Law, s 170 excludes ‘commercial and government clients’ and third-party payers from the compulsory disclosure obligations. This information must be in writing and in ‘plain language’, and there is an obligation to update costs disclosure as a matter progresses.⁸⁹89 Uniform Law s 290.

Costs disclosure obligations around the country vary somewhat. For instance, the Uniform Law applying to New South Wales, Victoria and Western Australia contains a stricter requirement for the lawyer to provide a client with an accurate understanding of total costs rather than merely an estimated costs range as in other jurisdictions.⁹⁰90 Uniform Law s 174; Legal Profession Act 2006 (ACT) s 269; Legal Profession Act 2006 (NT) s 303; Legal Profession Act 2007 (Qld) s 308; Legal Profession Act 2007 (Tas) s 291. However, the Uniform Law (as below) has fewer express requirements of disclosure about a range of aspects of billing, such as rates of interest on overdue bills, intervals of bills, right to progress reports or an estimate of a range of costs at the end of a litigation, whether successful or unsuccessful.

Disclosure obligations apply to all lawyer–client relationships whether involving a barrister or a solicitor, solo practitioner or large law firm. They also provide for a diverse range of clients and demand that the lawyer ensure that each client (whatever their level of education or English proficiency) understands the agreement.⁹¹91 Uniform Law s 174 imposes an obligation on the lawyer to satisfy themselves that the client understands and consents; Legal Profession Act 2006 (ACT) s 275; Legal Profession Act 2006 (NT) s 309; Legal Profession Act 2007 (Qld) s 314(2); Legal Practitioners Act 1981 (SA) sch 3 cl 16 and Legal Profession Act 2007 (Tas) s 298(2) require translation in some instances or to read the agreement to the client. The aim is to provide clients with enough information to make good choices, as Bell J explained:

This view of legal services within a market might not match notions of law as a profession or an aspect of the justice system. However, regulators and consumers increasingly believe external restraints and accountability are necessary. As described above, the lack of information about the full cost of hiring a lawyer, particularly where it might require an understanding of the workings of the court system in awarding costs, means that some clients simply do not know what they are signing up for. The requirement to provide an estimate of total costs (even if this is not binding or must be later revised should the case become more complicated) is an effective way of addressing this.

Unfortunately, law firms can take a technical approach to these requirements, negating their protective purpose. For instance, in one case a law firm provided legal services to a client over several years. It claimed that there was an outstanding debt due to the firm of $14,823.60 in unpaid legal fees and had lodged a caveat on the property of the client for the debt.⁹³93 Frontier Law Group Pty Ltd v Robert Glenn Barkman [2016] NSWSC 1542. The caveat was said to be enforceable on the basis of an equitable lien (lawyer’s lien) for the outstanding fees.⁹⁴94 Lawyers have historically had a right to secure payment of a legitimate outstanding fee by asserting a lawyer’s lien. This legal right allows a lawyer to hold property, often the client’s file, until their costs are paid. This prevents the client from ‘in effect getting solicitors’ work done for nothing by the simply expedient of changing his solicitor as often as he choose [sic], leaving a trail of unpaid costs in his wake and demanding papers without payment when he had no just cause to complain of the conduct of the solicitors instructed and discarded’: Hughes v Hughes [1958] 3 All ER 179, 180–1. This practice is also ethical, but the ASCR provide some practical requirements around holding client documents hostage to unpaid bills: ASCR r 15. However, when the Court considered the law firm’s claim, it was not satisfied there was evidence of a valid costs agreement (described further below) or the necessary disclosure about costs to the client. The Court described the costs disclosure as ‘incomprehensible’ because it stated that the ‘total estimate of costs and disbursements’ would be ‘between $2,200 – $55,000’. The Court concluded that ‘on its face, [the disclosure is] so wide a range as to provide no guidance to any client and is not, on any rational basis to be described as an “estimate of the total legal costs” that complies with the legislation’.⁹⁵95 Frontier Law Group Pty Ltd v Robert Glenn Barkman [2016] NSWSC 1542, [38].

While this case provides some assurance that a court is looking for costs disclosure that is meaningful for clients, it also indicates that some firms might not observe the intention of the legislation, treating it as a box-ticking exercise. The onus will be on the client to take care in negotiating a costs agreement or disputing a bill when it arrives. Unfortunately, recent reports of disciplinary authorities confirm that a failure to adequately disclose costs is a common consumer complaint.⁹⁶96 See, eg, Office of the Legal Services Commissioner (NSW), Annual Report 2020–21 (Report, 2021) 12.

Costs agreements and getting paid – legislative and common law principles

Where, as is usually the case, lawyers wish to make specific arrangements with a client for the amount and method of payment, a written costs agreement must be created and delivered to the client (as regulated by the relevant jurisdiction’s legislation). The example above of a law firm that failed to ensure that a costs agreement was in place that corresponded to the legal services provided and billed for⁹⁷97 In this case there were ‘multiple retainers and costs agreements [between the law firm and the client] … as he was a regular client of the solicitor over several years’: Frontier Law Group Pty Ltd v Robert Glenn Barkman [2016] NSWSC 1542, [26]. It was asserted that there were oral and written contracts that formed the relationship. is no longer a satisfactory way to act for and charge a client. Lawyers across the country must have a written document explaining to clients how the lawyers will charge (other than billing on the default basis of scales of costs for litigation) for their services.⁹⁸98 Uniform Law s 179; Legal Profession Act 2006 (ACT) s 282(2); Legal Profession Act 2006 (NT) s 317; Legal Profession Act 2007 (Qld) s 322; Legal Practitioners Act 1981 (SA) sch 3 cl 24(1); Legal Profession Act 2007 (Tas) s 306(1). For example, the Uniform Law requires:

Legislation in each jurisdiction renders a costs agreement void if it contravenes these legislative requirements. Where contravention occurs, the lawyer cannot bill under the costs agreement and may be subject to professional discipline for doing so. However, it may still be possible for the lawyer or law firm to charge for work done, even where the costs agreement is rendered void, or there is no costs agreement at all. Legislative regimes provide that the lawyer can charge on an applicable scale (as described above) or for work performed after a costs assessment is made (described later in the chapter).⁹⁹99 Uniform Law ss 178, 194; Legal Profession Act 2006 (ACT) s 279; Legal Profession Act 2007 (Qld) s 319; Legal Practitioners Act 1981 (SA) s 41; Legal Profession Act 2007 (Tas) s 303. At common law and under legislation in some States, it is possible to claim quantum meruit for work performed under an oral contract, but common law has assumed a lawyer–client agreement is a complete contract and requires completion of work before an entitlement to be paid.¹⁰⁰100 Olympic Holdings Pty Ltd v Lochel [2004] WASC 61. As discussed later in the chapter, there are disciplinary implications associated with charging for fees when there is no entitlement to them. This might occur in a range of circumstances but is often the case where there is no costs agreement.

Barristers have traditionally had no common law right to charge for fees as they did not have a legal relationship with the client or solicitor.¹⁰¹101 Moor v Row (1629) 1 Ch Rep 38; 21 ER 501; Thornhill v Evans (1742) 2 Atk 330; 26 ER 501. Model laws introduced around the country, and the Uniform Law in New South Wales, Victoria and Western Australia now regulate their professional relationships as discussed further in Chapter 3. Barristers typically enter into a costs agreement with a solicitor and have a right to sue a solicitor for fees, while the client is usually ultimately responsible for paying these costs (described as ‘disbursements’ and the solicitor must disclose the arrangement to the client).¹⁰²102 Although High Court authority indicates that this does not impute legal liability to the client should the solicitor fail to pay the fees: Legal Services Board v Gillespie-Jones (2013) 249 CLR 493. Barristers’ fees should also be ‘fair and reasonable’ by implication of the Legal Profession Uniform Conduct (Barristers) Rules 2015 r 47: ‘A barrister must not in any dealings with a client exercise any undue influence intended to dispose the client to benefit the barrister in excess of the barrister’s fair remuneration for the legal services provided to the client.’

In most parts of Australia, legislative regimes set out a process for challenging a costs agreement, whereby a court or tribunal decide if the agreement is ‘unfair and unreasonable’.¹⁰³103 Legal Profession Act 2006 (ACT) s 288(3); Legal Profession Act 2006 (NT) s 323; Legal Profession Act 2007 (Qld) s 328; Legal Practitioners Act 1981 (SA) sch 3 cl 30; Legal Profession Act 2007 (Tas) s 312. In the Northern Territory and Tasmania a costs assessor has power to set aside a costs agreement applying similar considerations to a court or tribunal in other states. Under the Uniform Law s 199 this assessment is also made by a costs assessor (described in the last section of the chapter) as a first step in deciding the disputed bill between lawyer and client. The decision maker looks to the circumstances in which a costs agreement was made – such as whether it was made by fraud or misrepresentation. If the decision maker sets aside a costs agreement, it must then decide what would be a reasonable way to charge, any reasonable fees payable and what was reasonable work to perform. The legislation prescribes certain practical considerations such as the following:¹⁰⁴104 Uniform Law s 172(2). Similar considerations are prescribed in legislation in other jurisdictions in provisions cited in the above note. For a more in-depth discussion see Dal Pont, Law of Costs (n 15) 50–61.

Under the Uniform Law s 172 there is a proactive obligation imposed on lawyers to charge only what is fair and reasonable. A practitioner fulfils this obligation by considering matters similar to those listed above. But there is an additional aspect in the Uniform Law which requires practitioners to consider what tasks need to be performed, and to what degree, with reference to the specifics of the client matter. There is a related obligation expressed negatively – to not to act in a way that increases costs.¹⁰⁵105 Uniform Law s 173 (‘Avoidance of increased costs’). Put another way, only the Uniform Law jurisdictions expressly require that lawyers proactively consider whether the work performed and their bill reflects the value of the matter to the client. Any costs agreement is presumed to reflect this.

While the regulatory schema across the country differs, it is unclear how much substantive difference this makes to clients: aggrieved clients must generally contest a bill or complain about their agreement, or the size of their bill. It is reasonable to say that, under all regimes, lawyers and law firms may only charge what is fair and reasonable in each matter and lawyers should comply with the spirit of being a fiduciary (including when entering into a relationship with a client). The ethical rules for solicitors reinforce this legislative and common law expectation¹⁰⁶106 There is a presumption of undue influence in favour of the lawyer that will be found in any excessive gain. This legal presumption can be rebutted by full disclosure to the client. and place the temptation to overcharge a client within the context of a lawyer–client conflict.

Despite this, in many Australian jurisdictions, the question in professional discipline cases is not only whether there has been adequate costs disclosure or an unfair contract, but also whether the lawyer has deliberately charged ‘grossly excessive’ legal costs.¹⁰⁷107 Legal Profession Act 2006 (ACT) s 389(b); Legal Profession Act 2006 (NT) s 466(1)(b); Legal Profession Act 2007 (Qld) s 420(b); Legal Practitioners Act 1981 (SA) sch 3, cl 50(1); Legal Profession Act 2007 (Tas) s 422(1)(b). This replicates the common law test of ‘charging fees that grossly exceeds that which would be charged by a practitioner of good repute and competency’: D’Alessandro v Legal Practitioners Complaints Committee (1995) 15 WAR 198, 214. In contrast, the Uniform Law expressly provides that a ‘contravention of a requirement … that a law practice must not charge more than fair and reasonable legal costs is capable of constituting unsatisfactory professional conduct or professional misconduct’.¹⁰⁸108 Uniform Law s 207. While this seems to represent a different ethical standard, we contend that in any jurisdiction it would be dangerous and unethical to take a narrow reading of the law and to bill above what is genuinely believed to be fair and reasonable.

The question then is what is fair and reasonable in any particular case. Assessment of what is fair and reasonable will be dependent on the context in which the legal services were provided, as set out in the considerations listed above.¹⁰⁹109 This is reinforced in many disciplinary cases: see, eg, De Pardo v Legal Practitioners Complaints Committee (2000) 97 FCR 575, [45]. However, there are some principles that can guide us. Deceptive conduct (such as adding time not spent on the matter) or undertaking tasks that are obviously unnecessary or excessive are clearly wrongful practice. In a recent Victorian case, five lawyers were found to have engaged in a fraudulent scheme to illegitimately claim more that $19 million in legal costs associated with representation in a class action. Unsurprisingly, Dixon J found that these actions were breaches of the lawyers’ ethical duties and duties to the court, and ordered them to pay costs personally.¹¹⁰110 Bolitho v Banksia Securities Ltd (No 18) (Remitter) [2021] VSC 666. In another case, a solicitor acted for three clients in separate personal injury claims against the same defendant. It was agreed that the three matters would be heard together in the New South Wales District Court and each was successful. When the solicitor prepared bills, she charged each client for her own and a junior solicitor’s time in the court, thereby tripling the amount received for their time. This practice was found to be professional misconduct because she failed to apportion the time between each client. The NSW Court of Appeal set down the clear principle that ‘one unit of time cannot be charged more than once’.¹¹¹111 Bechara v Legal Services Commissioner (2010) 79 NSWLR 763, [138].

Other aspects of time billing might be more ethically arguable. Charging for things that are not legal costs, such as photocopying, might be acceptable if contemplated in the agreement but should be pointed out to the client and not done excessively. It seems unreasonable to charge for undertaking ‘self-education’ not required in the case,¹¹²112 Legal Services Commissioner v Challen [2009] QCAT 273. and tasks not requiring legal skill undertaken by a lawyer might need to be billed at a lower rate.¹¹³113 This was a finding by the Victorian Legal Services Commissioner in a binding determination: Commissioner Determination (Overcharging) [2018] VLSC 20. Time-based charging where the lowest unit of time charged is six minutes is also contentious. Where the client has agreed to this it may be legally enforceable.¹¹⁴114 Indeed, in Steicke v Pederick [2017] 5 SASC 98 the Court found that not only was this lawful if provided for in a costs agreement but could be regarded as ‘fair and reasonable’ because it was a ‘common method of charging’ that had been used ‘since the last century’: at [15]. However, many argue that this amounts to billing fraud where a law firm charges one six-minute unit for work that took less than six minutes.¹¹⁵115 Stephen Warne, ‘On Rapacity’ (2012) 110 (May/June) Precedent 14. See also Legal Profession Complaints Committee and O’Halloran [2013] WASAT 105 where a solicitor was suspended for only ever rounding up. Costs agreements are enforced as ordinary contracts under legislation and therefore bind the parties to their terms. This means that when clients agree to pay at a particular rate or a fixed sum, or with a minimum unit of charging, they are stuck with this, unless there is a common law principle that applies to indicate a lack of consent,¹¹⁶116 Undue influence as in Council of the Queensland Law Society Inc v Roche [2004] 2 Qd R 574. or duress, or a legislative protection applies.

Where a firm charges for work that is not legal in nature or unlikely to have been contemplated by the client, this can be unethical. In Council of the Queensland Law Society Inc v Roche¹¹⁷117 Council of the Queensland Law Society Inc v Roche [2004] 2 Qd R 574. a law firm argued that its costs agreement allowed for certain charges that were being contested by the client. The Court considered the work performed and the bill in detail and found some charges to be obviously unfair, such as charging 12 minutes (at $300 an hour) for a secretary wrapping a box of chocolates to be given to a reporting doctor’s secretary as thanks for correcting a report, and another 12 minutes discussing the purchase of the chocolates. The original disciplinary tribunal concluded of the entire file: ‘No fairminded practitioner would be justified in charging his or her client at what the Tribunal regards as an unusually high rate across the large number of hours involved, including the significant time on the mundane matters of the kind described.’¹¹⁸

As Katzmann J has observed, the key to charging ethically is to honestly reflect on the bill sent in each case:

Communicating with the client to avoid misunderstandings and disputes

Clients’ perceptions of the worth of their lawyers’ work often depend a lot on the quality of information and communication they receive from their lawyer. This means that good lawyering requires excellent communication between lawyer and client about the work to be done, the anticipated time for the work and likely fees. The written costs disclosures – often running to tens of pages – required by legislation are not clear enough for many clients to properly understand. Lawyers should sit down with their prospective clients and walk them through the way they will be charged, making sure the client understands. This is also a way of building trust between client and lawyer. An important aspect of client trust in their lawyer is confidence: ‘Can I trust my lawyer to tell me the truth in their assessment of the merits of my case and how much it will cost me?’ This trust then lends itself to important communication throughout the representation including telling the lawyer all relevant information to allow the lawyer to act competently.¹²⁰120 See Chapter 4 on confidentiality and the assumption of a relationship of trust between lawyer and client.

Communicating well about costs might require a careful consideration of the nature of the client and whether further explanation is needed for them to fully comprehend the agreement. The NSW Office of the Legal Services Commissioner reported in 2021 that costs disputes and complaints in family matters were the most prevalent (around 30%), indicating that there are certain areas of practice and clients that might require specific strategies of communication.¹²¹121 Office of Legal Services Commissioner (NSW) (n 96) 11. Lawyers could suggest that another family member or friend be present to help clarify things when a costs agreement is discussed, if they have any doubts about a client’s cognition.¹²²122 As discussed in Chapter 6, this might be an expectation for a minimal level of competency. Lawyers who want to communicate well with clients and make a fair agreement will go to much greater lengths than those required by legislation to explain as much as possible to each and every client about what must be done, the risks and associated costs.

In sum, fair costs agreements – and how they are negotiated with clients – are the linchpin of many successful legal practices and can be a powerful expression of both an ethic of care and respect for client autonomy because they depend on lawyers giving clients information and receiving informed instructions. Few problems will surface at the end of a case if the lawyer engages in the complaint prevention practices outlined in Figure 8.2.¹²³123 Law societies also provide assistance for lawyers on compliance with disclosure requirements and developing good communication approaches.

Disputing lawyers’ costs

Despite good communication, lawyers and clients might disagree about the quantum of the bill and even whether certain work should have been performed and at what cost. Clients can dispute the substance of a bill, or request an itemised bill, within 30 days of receiving a bill.¹²⁵125 Uniform Law ss 194, 272(3); Legal Profession Act 2006 (ACT) s 292 (30 days for an itemised bill); Legal Profession Act 2006 (NT) s 324(1); Legal Profession Act 2007 (Qld) ss 329, 332; Legal Practitioners Act 1981 (SA) sch 3 cl 31; Legal Profession Act 2007 (Tas) s 313. The client can ask for someone to assess the fairness of the bill through a process of costs assessment (described below). In New South Wales, Victoria and Western Australia, under the Uniform Law, complaints about ‘costs disputes’ for less than $100,000 can be made to the Legal Services Commissioner in the respective jurisdictions for informal resolution.¹²⁶126 Uniform Law ss 287–291. In New South Wales the cap for the regulator handling disputes is $128,760. Finally, clients across the country can complain about overcharging to their local regulator. The latter may result in a disciplinary prosecution on the basis of overcharging.

There is some variation between Uniform Law States and other jurisdictions around how costs disputes are handled. For instance, in New South Wales the Office of the Legal Services Commissioner will assist to resolve disputes informally. If this is not possible, the Commissioner has power to make binding determinations on costs (up to $12,880). In Victoria the regulator has similar powers; however, no matter what the quantum of the bill, the dispute can also be heard by the Costs Court for ‘taxation’ of the bill. In other jurisdictions such as South Australia, a court can decide disputes, but the regulator will also assist in mediation of costs disputes as a voluntary process.¹²⁷127 However, in this jurisdiction the Commissioner has power to make binding determinations of overcharging where the complaint is no more than $50,000: Legal Practitioners Act 1981 (SA) s 77N(7)(a). These processes of assisting informal resolution of disputes are increasingly favoured across the country to reduce the stress and cost for the client, and burden on the civil justice system. Regulators also publish case examples of costs disputes, lack of costs disclosure or overcharging to educate the profession and public, and to demonstrate how many are effectively resolved through mediation (usually by the lawyer reducing the bill).¹²⁸128 See, eg, Office of Legal Services Commissioner (NSW) (n 96) 36–40.

In most jurisdictions another regime applies to resolve costs disputes whereby an independent costs assessor (a court official or appointed lawyer) assesses the bill for its fairness and reasonableness when a client or losing party to litigation (who must pay the winner’s costs) complains. For simplicity we describe the most common form of costs assessment. The criteria for assessment of the lawyer’s bill in this scheme is the same as described above in relation to setting aside a costs agreement under s 172 of the Uniform Law.

The timing of applying for resolution of a costs dispute is set by legislation, and is generally within 12 months of the delivery of the bill or payment of any costs.¹²⁹129 Uniform Law s 198; Legal Profession Act 2006 (ACT) s 302(2); Legal Profession Act 2006 (NT) s 350(3)(b); Legal Profession Act 2007 (Qld) s 342(2); Legal Practitioners Act 1981 (SA) sch 3 cl 49; Legal Profession Act 2007 (Tas) s 331(2). In some cases where the client is unhappy with the bill, the law firm may have already issued proceedings to recover its costs.¹³⁰130 This process might be through a civil debt claim but there are statutory limitations on when this can be commenced (generally not until 30 days after the client has received the bill). However, once an application for a costs assessment is made, the law firm must not commence any court proceedings to recover the legal costs. Equally, law firms might be tempted to draw on money held in trust for a client on account of legal costs. Trust money is not the lawyer’s or law firm’s money and can only be claimed when they are entitled to be paid.¹³¹131 Trust accounting duties are briefly described in Chapter 3. Money that is intended to eventually pay the lawyer is often held by the law firm in trust for the client while the legal services are being performed. There are specific and detailed provisions in the Uniform Law and other legislation around the country about dealing with trust money and the way in which a lawyer can pay themselves from trust. For the moment, the relevant point is that it is unethical for a lawyer to draw on trust money before being entitled to it; such a breach often leads to a serious disciplinary finding.

The costs assessment process, like the regulator mediation approach, is aimed at swift and cheap resolution of disputes without the need to go through formal civil court proceedings. However, complaints usually come only after the client relationship has already been badly damaged. If a client seems ready to complain, then the smart firm will have clear processes in place to discuss the bill with their client and to mediate the final figure as soon as possible, so that they get paid promptly and avoid the delays and risk to reputation that can come with a formal costs assessment. Moreover, the assessment process is itself expensive.¹³²132 If the bill complained of is reduced by at least 15% in a costs assessment or taxation, the law practice, not the client, will ordinarily have to pay the costs of the assessment process: Uniform Law s 204; Legal Profession Act 2006 (ACT) s 294A(2); Legal Profession Act 2006 (NT) s 322(5); Legal Profession Act 2007 (Qld) s 335(5). In South Australia it must be made within six months: Legal Practitioners Act 1981 (SA) sch 3 cl 37(4). It might lead to a disciplinary result, if the lawyer is found to have significantly overcharged or failed to follow their statutory obligations in costs disclosure.

On the other side of the coin, some complaints about costs are generated by clients who seize upon a minor issue because they do not wish to pay for legal services fairly provided, or simply misunderstand the cost of legal services. It is very hard to predict which clients will fall into this category, so the best protection for both clients and lawyers is to strike a fair costs agreement and to communicate openly, including providing updates about any changes in the case that have cost consequences.