The Importance of Costs Agreements in Evidencing a Client’s Liability for Costs
In the complex world of legal costs, understanding the nuances of a client’s liability is crucial for both legal practitioners and their clients. This insight, prepared by Kieran Pulley, Legal Costs Consultant at Rose Legal, delves into a recent case that highlights the critical role of well-drafted costs agreements in determining a client’s costs liability. Kieran, who also specialises in costs disputes arising from jurisdictions with scales of costs, including Victoria, Queensland, and the Federal Court, sheds light on this important aspect of legal practice.
Rose Legal was recently instructed by PSD Lawyers to file a solicitor/client Application for Assessment for 2 outstanding invoices totalling $112,322.25 including GST, of which the client had only paid $20,500.00. The liability of the client for the costs claimed became a salient issue throughout the assessment because PSD Lawyers was acting for 11 other defendants. During the assessment, the client submitted that he should only be liable for 1/12th of the costs charged, after the assessor raised queries as to the liability of the other 11 defendants of PSD Lawyers’ costs. The assessor reduced the amount payable by the client to $7,652.33 on the basis that the client was liable for 1/12th of the costs.
Rose Legal advised PSD Lawyers that there were clear merits of reviewing this determination on various grounds, the most significant of which being that the assessor failed to properly consider the scope of the signed costs agreement between PSD Lawyers and the client, which was clear evidence of the agreement between the parties that the client would bear the totality of the costs. Rose Legal put this forth as one of several grounds of review in their Application for Review filed on behalf of PSD Lawyers. Ultimately, the Review Panel found in favour of PSD Lawyers and assessed the total amount payable by the client to be $82,561.76, improving upon the assessor’s initial determination by $74,909.43.
Background to assessment
PSD Lawyers acted for 12 defendants in particularly complex proceedings brought by the plaintiff in Eva Joy Ambrus v Lee Ellen Buchanan [2022] NSWSC 1628. However, the costs agreement was only entered into by the client Mr Donkin, being the Seventh Defendant in the proceedings.
The plaintiff and all 12 defendants owned a property as tenants-in-common. The plaintiff, pursuant to s 66G Conveyancing Act 1919 (NSW), sought to appoint trustees to hold the whole of the property on statutory trust for sale.
Importantly, it was verbally agreed between PSD Lawyers and the 12 defendants that while PSD Lawyers would represent all defendants in the proceedings, the client would solely bear the costs of the proceedings. As mentioned above, this was reflected in the costs agreement which the client signed, as well as in the conduct of the client throughout the proceedings including making payments towards an invoice addressed solely to the client.
Owing to the complexity of the matter and the novelty of the defences that were relied upon, significant work had to be undertaken by PSD Lawyers.
The Assessment
A primary submission put forward by Rose Legal on behalf of PSD Lawyers regarded the scope of the costs agreement signed by the client (and not the other 11 defendants), which stated that it would encompass the following work:
“… taking your instructions and instructions from other defendants, briefing Barristers and other experts, drafting and sending correspondence, drafting and filing responses to applications, preparing and drafting affidavits and exhibits, preparation and drafting other court document [sic], provide advice on the proceedings and any other work incidental to the conduct of the matter.”
The scope of the costs agreement, which is a contract between PSD Lawyers and the client and subject to the same rules, clearly set out, without ambiguity, that the client was liable for the costs for the entirety of the work required in the matter. Notwithstanding this, and in contradiction to the parol evidence rule, the assessor concluded that, owing to oral discussions between the parties (which were disputed), the costs agreement was “not clear as to who bears liability for the complete costs of the proceedings”.
The Review
Rose Legal advised PSD Lawyers to file an Application for Review of the assessor’s determination, principally as to the construction of the costs agreement between PSD Lawyers and the client. Rose Legal put forward multiple grounds of review on behalf of PSD Lawyers, including the following:
a. Failure to correctly interpret the costs of the costs agreement.
b. Failure to apply the parol evidence rule.
c. Conduct of the parties.
d. Costs disclosure.
e. Joint and several liability.
f. Incorrect finding in respect of liability for the costs of assessment.
The Review Panel agreed with the bulk of the grounds put forward, noting as follows:
“The Costs Agreement clearly sets forth the terms by which the Practitioner was to perform legal services for the Client. Whether any other Defendant got any benefit from the legal services provided to the Client is immaterial in determining the contract that was entered.”
“The Practitioner undertook to provide legal services to the Client, and the Client was well aware of the nature of the relationship and understood his liability for the services provided to the Client by the Practitioner.”
“The Costs Agreement is clearly between the Practitioner and the Client for the provision of legal services to the Client and no-one else.”
“[T]he Client did not agree to be liable for only 12th of the costs, or for any percentage of the fees payable.”
Ultimately, the Review Panel assessed the fair and reasonable costs payable by the client to PSD Lawyers at $82,561.76 and ordered the client to bear the costs of the review.
Implications
This case notes the importance of costs agreements and the need to ensure that the scope clearly and accurately sets out the extent of the legal services. Similarly, if there are multiple clients or parties to the proceedings, be sure that your costs agreement is unambiguous as to who the costs agreement is with. If you require any advice or assistance with costs agreements, or a costs assessment, get in touch with Kieran today.
At Rose Legal, we specialise in navigating complex legal costs issues in Sydney, Melbourne, and across Australia. Our team of expert costs consultants are here to help you achieve fair and transparent resolutions in all matters related to legal costs.