Costs must be fair and reasonable

9.72 Discovery costs can be limited by requiring law practices to charge only costs for discovery that are fair and reasonable. Under legal profession legislation in most jurisdictions, lawyers are under various obligations to provide to the client a written disclosure of costs containing, among other things, an estimate of the total legal costs and, in litigious matters, the range of costs the client may be ordered to pay, if unsuccessful.^[76] Legislation across jurisdictions also provides that professional misconduct includes ‘charging of excessive legal costs in connection with the practice of law’.^[77] As noted above, courts have jurisdiction to supervise legal costs charged by lawyers to their clients, as well as to supervise the ethical conduct of lawyers.^[78] However, existing legal professional legislation does not require expressly that the fees be reasonable. In many jurisdictions where there is no costs agreement or applicable scale of costs legal costs are only recoverable according to the ‘fair and reasonable value of the legal services provided’.^[79] However, mandatory criteria included for determining what is fair and reasonable only apply to costs assessors making a costs assessment.^[80]

9.73 Although, generally, professional rules do not explicitly require that lawyers charge their clients reasonable fees, jurisdictions vary in relation to the obligations owed by lawyers with respect to costs. In Victoria, for example, the overarching obligations of the Civil Procedure Act 2010 (Vic) include the obligation to ensure that costs are reasonable and proportionate.^[81]

9.74 In Western Australia, under the Legal Profession Conduct Rules 2010 (WA):

A practitioner must not charge costs which are more than is reasonable for the practitioner’s services having regard to the following—

(a) the complexity of the matter;

(b) the time and skill involved in dealing with the matter;

(c) any scale of costs that might be applicable to the matter;

(d) any agreement as to costs between the practitioner and the client.

9.75 In Queensland, commentary included in the professional rules states that, in agreeing to act for a client, a lawyer ‘should not take steps or perform work in such a manner as to unnecessarily increase costs to the client’.^[82] In South Australia, the professional rules provide that, in relation to contingency fees:

A practitioner or firm of practitioners shall not charge fees which are unfair or unreasonable or enter into a costs agreement the terms of which are unfair or unreasonable.^[83]

9.76 In considering whether the fees or the terms of a costs agreement are unfair or unreasonable, the South Australian professional rules provide that regard must be had to a range of matters, including: the nature of the matter; the amount at stake; jurisdiction; the client; and the experience and reputation of the lawyer.^[84]

9.77 In its report, Managing Justice: A Review of the Civil Justice System Report 89 (2000) (Managing Justice), the ALRC said that the fairness and reasonableness of costs

will be affected by factors such as size of the firm, the resources available, the value lawyers place on their skill and expertise and the urgency of the client’s needs. Fee scales can provide an appropriate, objective starting point as to whether fees charged are reasonable. Evidence of fees charged by other practitioners in the jurisdiction is also relevant.^[85]

Draft National Law

9.78 Under the Legal Profession National Law (Draft National Law),^[86] a law practice must ‘charge costs that are not more than fair and reasonable in all the circumstances’ and that, in particular, are ‘proportionately and reasonably incurred’ and ‘proportionate and reasonable in amount’.^[87] In considering whether legal costs are fair and reasonable, regard must be had, among other things, to whether the legal costs:

• reasonably reflect the ‘level of skill, experience, specialisation and seniority of the lawyers concerned’;

• reasonably reflect ‘the level of complexity, novelty or difficulty of the issues involved, and the extent to which the matter involved a matter of public interest’; and

• conform to any applicable requirements of pt 4.3 of the National Laws (which concern legal costs), the National Rules and fixed costs legislative provisions.^[88]

9.79 The Draft National Law also imposes an obligation on law practices to avoid increased legal costs. Specifically, a ‘law practice must not act in a way that unnecessarily results in increased legal costs payable by a client, and in particular must act reasonably to avoid unnecessary delay resulting in increased legal costs’.^[89]

Submissions and consultations

9.80 In the Consultation Paper, the ALRC proposed that legal profession legislation or professional conduct rules should provide that a law practice can only charge costs for discovery that are fair and reasonable.^[90] The ALRC also asked how lawyers should determine what are fair and reasonable costs in the context of discovery.^[91]

9.81 Some submissions that addressed this proposal expressed similar concerns to those they expressed in relation to a new court power to limit costs to actual costs, noted above.^[92] Allens Arthur Robinson, for example, submitted that:

Provided the costs of discovery are reasonable, there is no reason why the traditional loser-pays rule should not continue to apply. The costs assessment process ensures the reasonableness of party-party costs.^[93]

9.82 The Law Society of WA supported ‘the legal profession legislation and/or professional conduct rules providing that a law practice can only charge costs which are reasonable’, but argued that this limit should ‘not be linked to any particular activity’ such as discovery, because there was no evidence that discovery ‘is more susceptible to overcharging’.^[94]

9.83 The NSW Law Society also submitted that it

does not support a proposal which would require the legal profession to cap or limit legal costs associated with discovery. The Committee considers that provided the legal costs of discovery are reasonable there is no reason why the ordinary rules should not apply to the recovery of those legal costs.^[95]

9.84 The Law Council submitted that ‘lawyers should be entitled to recover the legitimate cost of the work properly and reasonably undertaken in relation to discovery’:

lawyers are well placed to determine what are fair and reasonable costs and they are obliged to make disclosures about the proposed course of action in the client’s matter and the likely costs involved, as part of the retainer negotiations with clients. Adequate legislative and disciplinary provisions exist to address and sanction acts of overcharging.^[96]

9.85 If the cost of discovery were high, NSW Young Lawyers submitted, this was ‘a product of the time-intensive nature of the process which is a result of the onerous obligations placed on both parties and practitioners to discover all relevant documents’. Reforms should therefore be directed at ‘reducing the scope of the obligations on parties rather than the practitioner-client relationship’.^[97]

ALRC’s views

9.86 The ALRC considers that overcharging should be capable of constituting unsatisfactory professional conduct or professional misconduct. This accords with recommendations made in Managing Justice and subsequently incorporated into professional rules.^[98]

9.87 The ALRC also supports the move to include in the National Law a provision to the effect that a law practice must ‘charge costs that are not more than fair and reasonable in all the circumstances’. The success of such a provision might largely turn on what, in practice, is considered reasonable. Submissions did not address how lawyers, regulators and others should determine what is fair and reasonable. Standard practice among law firms may not be a useful guide in this regard, but suggested indicators in the Draft National Law appear to provide useful guidance. One indicator that has an obvious application to discovery is whether the costs reasonably reflect the level of skill, experience, specialisation and seniority of the lawyers concerned.