When retained by a client, legal practitioners and law practices must adhere to the requirements and procedures under the Legal Profession Act 2004 (Vic) (“the Act”) in relation to legal costs.
A costs agreement is a formal arrangement between a law practice and client in relation to costs, which details the costs which will be incurred by the client in order for the law practice to act on the client’s behalf.
There are strict requirements relating to legal costs agreements.
Who can enter into a costs agreement?
A costs agreement may be made between:
- a client and a law practice retained by the client;
- a client and a law practice retained on behalf of the client by another law practice;
- a law practice and another law practice that retained that law practice on behalf of a client;
- a law practice and an associated third party payer (a person who is not the client of the law practice but is under a legal obligation to pay for legal services provided to the client).
What form should a costs agreement take?
A costs agreement must be in writing.
It may consist of a written offer which clearly states:
- that it is an offer to enter a costs agreement; and
- that the client may accept it in writing or by other conduct (except for conditional costs agreements); and
- what type of conduct constitutes acceptance.
Making a costs disclosure to a client
A law practice must disclose prescribed information relating to legal costs in writing before, or as soon as practicable after, the practice has been retained by a client. The disclosure must be in clear plain language, and may be in a language other than English if the client prefers.
Conditional costs agreements
A costs agreement may include a provision that the payment of some or all of the legal costs is conditional on a successful outcome. A conditional costs agreement may relate to any matter except criminal proceedings or proceedings under the Family Law Act 1975 (Cth). A conditional costs agreement may provide for the payment of a reasonable premium on the legal costs (excluding unpaid disbursements) on the successful outcome of the matter. The law practice must have a reasonable belief that a successful outcome of the matter is reasonably likely.
Uplift fees in a costs agreement
Uplift fees are additional legal costs (excluding disbursements) payable under a costs agreement on the successful outcome of the matter to which the agreement relates. If a costs agreement involves an uplift fee, the law practice must disclose to the client in writing, before entering the agreement, the law practice’s usual fees, the uplift fee or the basis of the calculation of the uplift fee and reasons why the uplift fee is warranted.
The above disclosure is not required to be made by a law practice to a “sophisticated client”. “Sophisticated client” is defined in the Act and includes, for example, a law practice, Australian legal practitioner, public company or large proprietary company. See further information about sophisticated clients.
If a conditional costs agreement relates to a litigious matter, the premium must not exceed 25% of the legal costs (excluding unpaid disbursements) otherwise payable.
A law practice that has entered into a costs agreement in contravention of the provisions of the Act is not entitled to recover the whole or any part of the uplift fee and must repay the uplift fee to the client.
Contingency fees are prohibited
A law practice must not enter in a costs agreement under which the amount payable, or any part of that amount, is calculated by reference to the amount of any award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates.
This does not apply to any applicable practitioner remuneration order or scale of costs. This does not apply to any applicable practitioner remuneration order or scale of costs. A law practice that has entered into a costs agreement in contravention of the Act’s contingency fee provisions is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related and must repay any amount received in respect of those services to the person from whom they were received.
Setting aside costs agreement
A client can apply to VCAT for an order that a costs agreement be set aside. VCAT may order the setting aside of the costs agreement if it is satisfied that the agreement is not fair, just or reasonable.
Visit the VCAT website.