Charging clients at the wrong interest rate?

October 24, 2012

In discussions with the Costs Court and VCAT it has been noted that there are 2 very common errors in solicitors’ costs disclosure documents and solicitors’ bills.  Anecdotally, it is estimated that of the documents seen by the Costs Court and VCAT, half of solicitors are getting this wrong.  These are:

• The interest rate on unpaid costs can be no more than the Cash Target Rate plus 2%.  Many solicitors still wrongly claim interest pursuant to the Penalty Interest Rates Act 1983.
• The period of time in which the client can approach the Costs Court is now 12 months.  Many solicitors still wrongly state 60 days.

Prior to November 2007, the Legal Profession Regulations 2005 permitted interest to be charged on unpaid legal costs pursuant to the Penalty Interest Rates Act 1983.  From November 2007 however, interest on unpaid legal costs can be no more than the Cash Target Rate plus 2% (section 3.4.21 of the Legal Profession Act 2004 and regulation 3.4.3).  

• Any solicitor or firm who has actually charged interest at the wrong rate is urged to make every effort to contact the affected client to rectify the situation.

Prior to 9 May 2007, an application for review of legal costs to the Costs Court must have been made within 60 days. Since then that period has been extended to 12 months.  See section 3.4.38(5) of the Legal Profession Act 2004. 

• All solicitors and firms are urged to check their disclosure documents, costs agreements and bills.