A lawyer will generally disclose the estimated costs and expenses of providing a legal service. The legal service may be charged in a lump sum or according to the amount of time required to work on the case and you may request an itemised tax invoice.
Lawyers must disclose their costs
Unless the total legal costs in your matter are unlikely to exceed $750 (excluding GST and disbursements), your lawyer must give you a written costs disclosure document as soon as practicable after you first give the lawyer instructions.
The costs disclosure document must:
• disclose the basis on which legal costs will be calculated in your matter (see “How a solicitor charges”) and provide you with an estimate of the total legal costs (including GST and disbursements);
• include information about your rights:
– to negotiate a costs agreement with your lawyer;
– to negotiate a billing method (e.g. by reference to timing or task);
– to receive a bill and to request an itemised bill (see “How a solicitor charges”); and
– to seek the assistance of the Commissioner if you dispute the costs charged by your lawyer.
If there is any significant change to the information your lawyer has disclosed to you, your lawyer must provide you with updated information in writing.
If your lawyer negotiated the settlement of a litigious matter on your behalf, before settlement is finalised your lawyer must give you a reasonable estimate of the amount of legal costs payable by you if the matter is settled (including any legal costs of another party), and a reasonable estimate of any contributions towards those costs likely to be received from another party.
In addition to providing you with a written costs disclosure, your lawyer must take all reasonable steps to satisfy themselves that you have understood and consented to the proposed course of conduct for your matter and the proposed costs.
Lawyers must not charge more than fair and reasonable legal costs. The law sets out the factors that can be considered in determining whether costs are fair and reasonable. Broadly, costs must be proportionately and reasonably incurred, as well as proportionate and reasonable in amount.
A solicitor’s bill is in two parts. First, there is the fee for the solicitor’s professional services in performing the particular work. This is known as the solicitor’s professional costs or profit costs. Second, there are expenses called “disbursements”, which are costs the solicitor has paid to third parties on your behalf (e.g. the cost of obtaining a rates certificate).
The professional costs charged by a solicitor can be worked out in a number of ways, including item-by-item remuneration, fixed fees, time costing, or conditional fees.
In this method of charging (also known as “charging on scale”), a fee is charged for each item of work performed (e.g. issuing a summons, preparing an affidavit, making a photocopy). These amounts are added together to make up the total amount charged. This way of charging is common in court cases. The amount that can be charged for each item is set out in a court’s scale of costs, and varies according to which court your case is heard in.
In the fixed fee method of charging, the fee charged is based on the entire matter in which work is performed (as opposed to each item of work carried out). For example, a fixed fee is charged for lodging divorce applications in the Federal Circuit Court. Fixed fees are becoming more common in cases involving litigation. Depending on the legal matter, fees may be fixed by the court, or by government. Fees can also be fixed by agreement between the parties, with set amounts for each stage of the matter.
In the time costing payment scheme, a solicitor is paid according to how much time they have spent working on your particular matter. The amount charged per hour varies according to the seniority and experience of the solicitor (e.g. a junior solicitor’s hourly rate is cheaper than that of a partner). Such costs are usually charged in units of six minutes. This means that even if a piece of work (e.g. a telephone call) only takes three minutes, the solicitor can charge one six minute unit.
In the conditional fees payment scheme (known as “conditional costs agreements”), you and your lawyer can agree on the conditions under which you will pay your lawyer’s costs (e.g. you will pay them only if the action is successful). A conditional costs agreement must be in writing and must be signed by you. Conditional payment schemes vary between lawyers. For example, if you lose, you may pay nothing or you may have to refund disbursements only. However, if your case is unsuccessful you may have to pay the legal costs of the other party. Your lawyer must ensure you understand these variables.
Alternatively, if the case succeeds, the conditional costs agreement may allow the lawyer to charge you up to 25 per cent more than their normal fee. Be aware, this does not allow the lawyer to take any percentage of the money recovered in the case, only an extra percentage of the fees. The lawyer cannot be paid an agreed percentage of the total amount awarded to a successful client; such fee arrangements (known as “contingency fees”) are not lawful in Victoria.
If you are successful in a matter that involves litigation in a court or tribunal, the court or tribunal may order the other party to pay some of your lawyer’s costs. How much these costs are depends on which court or tribunal makes the order.
In the Supreme Court, County Court and the Magistrates’ Court, costs are usually calculated on a “standard” basis. That is, only costs reasonably incurred and of a reasonable amount are allowed.
In the Victorian Civil and Administrative Tribunal (VCAT) parties are generally expected to pay their own legal costs, unless VCAT orders otherwise. VCAT may award costs if a party fails to comply with a direction issued by VCAT (e.g. a direction limiting the length of submissions) or acts in a way that unnecessarily disadvantages another party. (For VCAT’s contact details, see “Contacts”.)
The bill you receive from your lawyer may have one total amount of legal costs, which covers all the work to which the bill relates (a lump-sum bill), or it could provide a detailed list of the legal costs associated with every task to which the bill relates (an itemised bill). The bill must include, or be accompanied by, a written statement setting out:
• the options available to you to dispute the legal costs in the bill; and
• any time limits that apply to those options.
You should be aware that:
• a lawyer who charges more than a fair and reasonable amount may be guilty of unsatisfactory professional conduct or professional misconduct;
• if you are given a lump sum bill you can, within 30 days, ask your lawyer to give you an itemised bill; your lawyer must give you that itemised bill within 21 days of your request;
• your lawyer cannot sue you to recover legal costs until at least 30 days after you have been given their bill;
• in certain circumstances, a lawyer can charge interest on an unpaid bill; however, the interest rate they can charge must be no more than the Reserve Bank cash rate (1.5 per cent at the time of writing (30 June 2017)), plus 2 per cent;
• if you have asked for an itemised bill, your lawyer cannot sue you to recover legal costs until at least 30 days after you have been given the itemised account; and
• your lawyer cannot sue you to recover legal costs if you have made a complaint to the Victorian Legal Services Commissioner and the Commissioner has not closed or resolved the dispute.