Legal costs

Last updated

1 July 2020

Lawyers must disclose their costs

Unless the total legal costs in your matter are not likely to be more than $750 (excluding GST and disbursements), your lawyer must give you a written costs disclosure document as soon as practicable after you first give them instructions.

The costs disclosure document must:

  • disclose how they will calculate legal costs for your matter (see ‘How a solicitor charges’, below) 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 or otherwise);
    • to receive a bill and to request an itemised bill (see ‘How a solicitor charges’, below); 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.

Before you settle any litigation matter, your lawyer must give you a reasonable estimate of the total legal costs you will have to pay. This should include any legal costs of another party, and/or any payments you should receive from another party.

Consent and understanding

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 to the proposed costs.

Fair and reasonable costs

Lawyers must not charge more than fair and reasonable legal costs. The law sets out the factors that must be considered when determining whether costs are fair and reasonable. Broadly, costs must be proportionately and reasonably incurred, as well as proportionate and reasonable in amount.

How solicitors charge

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 fee is known as the solicitor’s professional 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 calculated in a number of ways, including item-by-item, fixed fees, time costing, or conditional fees.

Item-by-item

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.

Fixed fees

In the fixed fee method of charging, fees are 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 lawyer and client, with set amounts for each stage of the matter – this is sometimes called ‘value-based costing’. This method is becoming more popular with both lawyers and consumers.

Time costing

Lawyers can charge according to how much time they spend working on your matter. Where a lawyer agrees to charge an hourly rate, they must disclose what that rate is and how they will apply it. The amount charged can depend on the seniority and experience of the lawyer (e.g. a junior lawyer may charge less per hour than a principal lawyer).

An hourly rate is charged in ‘units’. Usually, each unit is six minutes. This means that a lawyer can charge for the full six minutes, even if the piece of work took three minutes.

Conditional fees payment schemes (including no-win, no-fee)

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 you must sign it for it to be accepted. 

Conditional payment schemes vary between lawyers. For example, if you lose, you may pay nothing or you may have to pay disbursements only. However, 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. 

Contingency fees and group costs orders

A lawyer cannot enter an agreement with you in which the lawyer is to be paid an agreed percentage of the total amount awarded to you. Such fee arrangements (known as ‘contingency fees’) are not lawful in Victoria, other than in the following circumstances.

From 1 July 2020, the Supreme Court has been able to make what are known as ‘group costs orders’ in class actions. These orders allow plaintiff lawyers to receive a percentage of any amount recovered in the proceedings as payment for legal costs, with all class members to share liability for the payment of those costs. The percentage to be received by a plaintiff lawyer is set by the court and may be varied at any time during the proceedings.

Costs in court proceedings

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’ at the end of this chapter.)

Paying your lawyer’s bill

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, within 30 days, you can ask your lawyer to give you an itemised bill; your lawyer must then 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 (0.25 per cent at the time of writing (1 July 2020)), plus two per cent;
  • if you have asked for an itemised bill within 30 days of receiving your lump sum 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 VLSB+C and your dispute has not been resolved.
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