Conditional Costs Agreements – Uplift Fee Essentials.

In this article one of our Melbourne Associates, Chris Grisenti, reviews two cases relating to the specific requirements of a law practice relating to charging an uplift fee when entering into a conditional costs agreement.

Conditional costs agreements are the most common agreements between a client and a personal injury firm. These agreements are routinely entered into in matters relating to traffic accidents, WorkCover disputes and medical negligence claims, to name a few practice areas.

Under the Uniform Law, as was the case under the Legal Profession Acts in NSW and Victoria, firms are able to offer costs agreements pursuant to which clients are only liable to pay professional fees, disbursements, or both, on the basis of a successful outcome.

The definition of a successful outcome varies from firm to firm. However, a common requirement is that the Plaintiff client receives or is awarded monetary damages from the Defendant.

Incentivising law practices to enter into conditional costs agreements, such agreements entitle firms to charge an “uplift” on the solicitor/client professional fees. This uplift is an additional percentage of between 0% to 25%, calculated on professional fees only. It cannot be applied to disbursements.

Compliant conditional costs agreements come with special provisions, meaning law practices must comply with additional requirements when entering into conditional costs agreements not necessary for costs agreements charging no uplift fee, typically referred to as “standard” costs agreements.

Requirements relating to uplift fees are found within section 3.4.28 of the Legal Profession Act 2004 (Vic), and section 182 of the Uniform Law.

Russells v McCardel [2014] VSC 287 (23 June 2014)

This matter came before Justice Bell in the Supreme Court of Victoria following an appeal from the decision by Associate Justice Wood in the Costs Court.

Russells, a legal practice, acted on behalf of the Respondents in complex Supreme Court proceedings. Following resolution of the substantive proceeding, the Respondents were provided with an itemised bill totalling $617,912.10. This bill was drawn pursuant to a conditional costs agreement, which had contained an estimate of the uplift fee in percentage terms, as well as an estimate of the total costs.

The Respondents sought a review of the costs claimed by the Applicant, and contended the agreement was void. This review was made under section 3.4.38 of the LPA.

In the first instance, Associate Justice Wood upheld the claim by the Respondents, and ordered the Applicant to file and serve a bill on the applicable scale of costs.

One of the Respondents’ contentions was that the agreement did not contain a proper estimate of the uplift fee.

Pursuant to section 3.4.28 (3) of the LPA, “The agreement must contain an estimate of the uplift fee…or a range of estimates”. This section is also included in the Uniform Law at section 182 (3).

Justice Bell stated (at [39]):

“The estimate of the uplift fee…must be an amount. This requirement is inherent in the concept of an uplift fee. A percentage is a basis of calculation, not an amount”

The particular difficulty faced by the Applicant was that the estimated amount provided to the client in their disclosure statement was an amount for both professional fees and disbursements.

It was found that, as the estimate of total legal costs provided included both professional fees and disbursements, it was not possible to use the percentage of the uplift to work out an estimate of the uplift fee.

His Honour dismissed the firm’s appeal and further stated:

“it is the mandatory responsibility of the lawyer to apply his or her mind to the likely actual amount of that fee and disclosure in the agreement an estimate that reflects an approximate judgment or opinion on that subject”.

Michael Rafati v Robinson Gill Lawyers (unreported)

This proceeding, governed by provisions of the Legal Profession Act, came before Associate Justice Wood of the Costs Court in 2017. The Applicant had engaged the Respondent firm to act for him in relation to his WorkCover claim.

The Respondent acted in relation to the Applicant’s impairment benefits claim, weekly benefits claim, appeal to the Supreme Court from a medical panel decision, and a County Court damages writ.

The Applicant terminated the conditional agreement he had entered into with the firm and, following production of an itemised bill calculated pursuant to the conditional costs agreement, a review application was filed in the Costs Court.

The proceeding was listed for a preliminary hearing as to the validity of the Respondent law firm’s conditional costs agreement.

The estimates of costs provided by the Respondent in the conditional costs agreement did not expressly state whether they were inclusive or exclusive of disbursements. Further, the disclosure statement made reference to the uplift being calculated on “total costs to be charged, excluding paid disbursements”. The Court considered whether this offended the LPA, as it may have conveyed an impression the uplift would be charged on unpaid disbursements, but ultimately made no ruling on this issue (at [8]).

The Respondent attempted to distinguish this matter from McCardel, on the basis that the estimate did not refer to disbursements, and, by implication, only related to professional fees. It was argued that, as there was a base figure in the estimate upon which to calculate the uplift, the agreement did comply with the relevant conditional costs agreement provisions of the LPA.

The Court did not accept these submissions, and stated:

“The estimates are to be assessed objectively from a client’s perspective. They are expressed in such a way as to convey that the estimates are for total legal costs, and therefore contain both professional costs and disbursements”.

The Take-Home Message

It is clear from these cases that, if a firm wishes to charge a client an uplift fee, then they must provide not only an estimate of total legal costs but also an estimate in a monetary amount for the uplift.

Whilst these two cases both relate to provisions in the LPA, the Uniform Law contains almost identical provisions. It is therefore likely the Costs Court and costs assessors in New South Wales will continue to apply these principles to agreements entered into under the new legislation.

Firms which enter into conditional costs agreements with clients should review their current agreements to ensure they do not offend these principles, as there can be significant penalties for non-compliance.

For assistance in reviewing your costs agreements, and all other costs-related needs, contact the experts at Blackstone Legal Costing – Your Costs are Our Priority.

An before we finish this month’s edition, a further note from our editor:

Check out how costs are assessed in your state here…

http://www.bstone.com.au/blackstone-brief-volume-8/