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Legal Costs: an end to the wrangling

Legal Costs: an end to the wrangling

(published in Australasian Legal Business, Issue 5.7, 2007, page 52)

This article interviews and quotes both directors as leaders in the field of costing and considers trends in legal costing. The article can be examined at issue 5.7 of the Australian Legal business Journal. However, the link below provides a transcript of the interview.

Legal Costs, an end to the wrangling

1. Are there any particular areas/categories of the law where legal costing services are more relevant or more widely used than others?

Legal costing services in NSW may be useful across all areas of law, where the issue arises on a solicitor and client basis. Solicitor/client costs are the costs claimed by the solicitor from their client. In New South Wales this is generally calculated pursuant to a costs agreement. In recent years, with a number of amendments to disclosure requirements and the introduction of the concept of ‘sophisticated clients’ or ‘third party payer’ by the Legal Profession Further Amendment Act 2006, a costing expert can also assist with structuring compliant disclosure documents. A costing expert may also assist with reviewing and/or developing billing arrangements through providing in-house training with methods of time recording; fee setting; updates in recent changes in costing law and file management to law firms.

At the other end, a costing expert can also assist with drafting and preparing Bills of Costs for assessment (both solicitor client and party party assessments). On a party/party basis (ie costs payable by an adverse party pursuant to a Court or Tribunal order or by agreement), costing expertise is more readily utilized in court proceedings for preparing Bills of Costs for assessment in accordance with specific costs orders (for the successful party) or reviewing Bills of Costs and preparing Objections (for the unsuccessful party).

2. What are the major or more recognized criteria for considering/appraising legal costs as being fair?

The criteria for assessing legal costs in NSW are clearly set out in the Legal Profession Act 2004 – at s364 for a party/ party assessment and s363 for solicitor client assessments. The guiding consideration is what is ‘fair and reasonable’ and the criteria in the Legal Profession Act assist a costs consultant in assessing what is fair and reasonable. A number of common law authorities also provide specific examples and supplement the Legal Profession Act criteria.

Different tests apply in the High Court of Australia, Federal Court, Federal Magistrates Service, Family Court of Australia and Workers Compensation Commission (NSW). Pattison Hardman engages specialised consultants in these areas.

3. How would you rate the Legal Profession Act’s performance so far, as a regulatory tool for the overall legal industry?

The Legal Profession Act in NSW has been very effective, in our experience, in setting benchmarks (for example, for costs disclosure) for the legal industry and clear processes for resolving any costing or ethical disputes.

4. What issues or problems (if any) do you see with The Act in its current form, and do you foresee or wish for any future amendments?

A current challenge for the Legal Profession Act is through its recent introduction and acceptance of an ‘Australian Legal Practitioner’. This has opened up the NSW jurisdiction to solicitors from Queensland, Victoria and elsewhere (formerly considered ‘interstate legal practitioners’ or ‘foreign legal practitioners’). Yet from a costing viewpoint, there has been dispute over whether the costs of such practitioners should be assessed within the NSW Costs Assessment process in accordance with Legal Profession Act criteria, as the traditional case law authorities on interstate practitioners are clearly no longer appropriate – as the notion of an interstate legal practitioner no longer exists. We would welcome further guidance from the Law Society and/or amendment to the Legal Profession Act to clarify this situation.

5. Do any of the parties concerned with having to exercise The Act resent it, or see any aspects as being overkill or needless/laborious regulation?

We haven’t received any feedback of this nature in relation to the Costs Assessment process. In NSW, the Legal Profession Act encourages costs negotiations and mediations prior to and during the formal assessment by providing the Assessor with discretion (at s369) to award costs of the assessment to a specific party. The Costs Assessment process is also usually very efficient way of resolving both solicitor/client and party party costs disputes with the average assessment being resolved in a matter of months.

Practitioners have indicated that they find the increasing obligations of disclosure in relation to providing and updating costs estimates a challenge, as in many litigation and complex commercial matters this can be very difficult to predict until discovery or due diligence is undertaken.

6. Is the overall trend within the industry moving more toward or away from using a third party to appraise costs?

This hasn’t been our experience. As legal costing is a highly specialized area, many lawyers refer the matter to a Costs Consultant for an independent expert costs advice or assessment to assist in costs negotiations. Not all matters then proceed to formal assessment in the Supreme Court or federal jurisdictions.

7. What are the dangers of not having a third party involved?

There is a risk that the cost are not objectively assessed or the criteria for assessment are misapplied, resulting in under or over claiming and, accordingly, an adverse result for the lawyer or their client.