Costs disclosure before settlement: a nightmare with a dream solution
16th Nov 2017
Too many lawyers wrongly believe the time to disclose their professional fees occurs near an engagement’s beginning – and may then be forgotten. And too many lawyers wrongly believe clients are interested in estoppel, foreseeability and other esoteric legal concepts, when they actually care about two things only: time and money. Let’s focus on money.
In 2016 and again earlier this year, the High Court was called upon to consider the professional negligence of barristers and solicitors when advising on settlement of litigation. In the 2016 decision of Attwells & Anor v Jackson Lalic Lawyers Pty Ltd  HCA 16, and again in the 2017 decision of Kendirjian v Lepore & Anor  HCA 13, the court held that advocates’ immunity from suit did not extend to the advice given about a settlement offer because the advice did not affect the judicial determination of the case. In other words, lawyers can be sued by their unhappy clients for legal advice hastily given during morning tea in response to settlement negotiations during trial.
These High Court decisions should surprise no one. Experienced solicitors and counsel all know the importance of documenting advice given to clients and getting their client to sign the documents. Even before these High Court cases, professional conduct committees regularly considered disciplinary complaints from aggrieved clients about settling cases for less than they were worth, and the allegedly nefarious role played by their legal advisers.
Since 1 July 2015, about 90% of Australian lawyers – those in New South Wales and Victoria – are regulated by the Legal Profession Uniform Law (LPUL) and associated enabling legislation. The LPUL legislation includes a web of statutes, rules and regulations that make identification of professional obligations difficult.
The LPUL requires costs disclosure before settlement: s177 LPUL. Section 177, properly construed, means clients must know how much money will be put in their pocket, or taken from it, if the matter settles.
Litigation proceeding under old legislation not resolved by 1 July 2015 (when the LPUL started) contains similar obligations: s313 Legal Profession Act 2004 (NSW) and s3.4.13 Legal Profession Act 2004 (Vic).
Lawyers subject to LPUL local regulations in New South Wales are subject to another obligation which reinforces s177 and expands the advice which must be given when a client receives an offer of compromise on a claim for personal injury damages. Lawyers must disclose certain matters and convey certain opinions: cl29 Legal Profession Uniform Law Application Regulation 2015 (NSW).
‘Disclosure’ is a term of art which includes the requirement of writing. Failure to disclose occurs when lawyers fail to meet all statutory requirements. Failure to disclose has four consequences for lawyers: (1) your costs agreement is void; (2) the client does not have to pay your legal costs until they have been assessed at your cost; (3) you must not commence or maintain proceedings to recover any of the legal costs until they have been assessed at your cost; and (4) your failure may constitute unsatisfactory professional conduct or professional misconduct – and in the case of solicitors, by any principal of the law practice. I previously wrote about how I can represent you and ameliorate these nasty consequences, but you have only days to act.
Before and since the introduction of LPUL, I made and keep making the observations set out above. In lawyer and client disputes, the extent of overlap between breach of duty, unsatisfactory professional conduct and a failure to comply with legislation concerning costs and fees is remarkable. I have observed this terrible trifecta so often I decided there had to be a better way for lawyers to discharge their obligations when negotiating a settlement of litigation. Then, a brief fortuitously arrived in my inbox: to advise on settlement of an appeal on damages, and a cross-appeal on costs, after the trial judge failed to order indemnity costs of trial notwithstanding the successful plaintiff obtained judgment greater than his offer of compromise. The advice was required after receipt of an offer of compromise from the losing side after they commenced the appeal but before it had been heard. The calculations were a nightmare: each side’s costs at trial, on appeal, on the ordinary basis, and on the indemnity basis had to be reconciled with a likelihood (to be calculated) of damages being unchanged or reduced by some amount.
To formulate an opinion, I initially considered applying the Denuto principle, made famous by the fictional solicitor Denis Denuto in the motion picture The Castle when addressing the High Court: “In summing up, it’s the constitution, it’s Mabo, it’s justice, it’s law, it’s the vibe and aah no that’s it, it’s the vibe. I rest my case.” But, in this case, I was briefed without enough vibe. So, equipped with a pre-law background as an industrial chemist specialising in quantum mechanics, a person comfortable with mathematics and technology, and someone who recognised human imperfection was universal (especially my own), I created the costs disclosure settlement computer.
My costs disclosure settlement computer is an intuitive electronic spreadsheet designed to make identification of, and compliance with, professional obligations easy. It automates just about everything dull and mathematical. Lawyers must know only two things: (1) their own costs, and (2) their own experience of ‘costs assessment’, also known as ‘taxation of costs’. The consequences of incorrect or non-disclosure of costs are significant. My costs disclosure settlement tool can simplify the task of disclosure and help you to comply with the confusing laws surrounding the obligation.
Download a free copy for your own use.
Please read instructions for using my costs disclosure settlement computer here.
Philippe Doyle Gray is a barrister at 8 Wentworth Chambers in Sydney. He advises and represents barristers, solicitors, and clients in disputes over legal fees as one part of his civil litigation practice in which allegations are made of criminality, fraud, or serious misconduct, including professional negligence and professional discipline. He was the first lawyer practising outside North America to be appointed a councillor of the American Bar Association’s Law Practice Division, which is charged with responsibility for technology in the practice of law, a position he still holds. He is also the only Australian ever to teach at the Division’s annual technology-in-law conference, TECHSHOW, held each March in Chicago. PHONE (02) 9232 3953 EMAIL Philippe@PhilippeDoyleGray.com.
The views and opinions expressed in these articles are the authors' and do not necessarily represent the views and opinions of the Australian Lawyers Alliance (ALA).