A SOLICITOR'S GUIDE TO THE LAW SOCIETY PRECEDENT CLIENT RETAINER AGREEMENTS

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1 A SOLICITOR'S GUIDE TO THE LAW SOCIETY PRECEDENT CLIENT RETAINER AGREEMENTS Introduction This purpose of this paper is to act as an introduction to, and guide to the new precedent retainer agreements being launched by the Law Society. It does not deal with the detail of how variables in the precedent should be completed, which task is dealt with in the accompanying notes, but rather seeks to give a general understanding of the purpose of the precedent to enable solicitors to better understand how it should be used and adapted. Possible Changes to Precedent Pending Regulations One important qualification which must be made to the new precedent retainer agreements is that they have had to be prepared in an environment where although the amending legislation itself has been enacted (and a copy is enclosed with these materials) regulations under the amended Legal Practitioners Act have not been proclaimed although draft regulations have been made available for comment. Clause 10(5) of Schedule 3 provides that the law practice is taken to have complied with its retainer disclosure obligations under subclauses 10(1)(c)(i) to (iii), and 10(1)(h), (j), (k) and (m) if it provides a statement in or to the effect of a form prescribed by the regulations. Clause 33(4) provides the law practice is taken to have complied with the disclosure requirements required in its bills if it provides a statement in the form provided by regulations. The draft regulations adopt a procedure of disclosure by reference to fact sheets to be produced by the Law Society for such disclosure.

2 2 The Law Society has proposed draft fact sheets (which are supplied) but obviously these will have to change if the regulations are amended prior to gazettal, and thus anyone intending to use the precedents should check with the Law Society to see if this has occurred prior to 1 July Need for the Precedents As explained in the previous paper, A Solicitor's Guide to the Costs Provisions of the Legal Practitioners (Miscellaneous) Amendment Act 2013, the recent amendments to the Legal Practitioners Act have greatly increased the disclosure which must be made to those clients who do not fall within any of the various exceptions provided for by clause 13 of the new Schedule 3 to the Legal Practitioners Act (hereinafter called "unsophisticated clients"). Accordingly, when dealing with such unsophisticated clients, as set out in the previous paper, the retainer agreements previously used by law firms will not be compliant with the new legislation, with the result that if they are continued to be used, law practices using them will not be able to sue for their fees and if they wish to recover any costs at all against client opposition must engage in a Supreme Court taxation and prima facie pay the client's costs of that taxation. Accordingly in order to assist compliance with the somewhat more onerous disclosure obligations provided by the new legislation, the Law Society has provided a draft precedent agreement for use with such unsophisticated clients. Obviously the extent to which this agreement will be used by practitioners would vary. A law firm doing criminal law, Family Court and plaintiff personal injury work will need to use the retainer on almost every

3 3 occasion. A firm doing mainly large commercial work might use it less, but even the most commercially oriented firm is likely to do conveyancing and wills for personal clients, and act in partnership disputes and other matters which will require compliance with the disclosure to unsophisticated client rules. Accordingly, this will be a matter of concern to virtually every lawyer in private practice. Limited Application of the Precedent Retainer There are some things that the precedent retainer does not deal with. It does not have any provision for obtaining security for legal costs. Whilst a law practice may take reasonable security for legal costs under clause 22 of Schedule 3, the nature of the security will vary from case to case and in some cases may be as complex as a full mortgage over land. A solicitor seeking such security should draft their own documents, but should be aware of the overriding requirement that the security taken must be reasonable. Thus, for example, a normal commercial mortgage which is drafted heavily in favour of the creditor may be open to attack, and it may be necessary to use a special form of balanced mortgage. It does not provide for interest on unpaid bills. Solicitors wishing to include an interest clause are referred to regulation 59 of the current draft regulations, which provide for a maximum interest rate of 2% plus the Reserve Bank Cash Target rate. Obviously, it will be necessary to check whether the draft regulations are changed before gazettal before drafting an interest clause.

4 4 Obviously, the precedent assumes that South Australian law applies to the retainer. A retainer governed by foreign law may have to take a very different form. It does not purport to cover uplift fee agreements by which a solicitor charges more on success in return for not charging if the client fails, which have their own separate rules. A solicitor considering preparing such a retainer is recommended to obtain a copy of the writer s paper given for the Law Society CPD scheme on 16 October 2013 entitled No Win/No Fee Retainers. That paper discusses the special requirements for such retainers, and sets out precedent clauses which could be added to this precedent retainer to meet such requirements. It is drawn as a single client agreement, and will require adaption to cover multiple clients. It clearly does not deal with the complex issues involved in acting for a lead plaintiff in a representative action, which again involve special considerations which cannot be dealt with here. The precedent retainer agreement assumes that the client is literate in English. Under clause 16(2) of Schedule 3 if the client is unable to read then the law practice is to arrange for the information required to be given to the client under this subdivision to be communicated orally to the client in addition to providing the written disclosure. Accordingly, it would seem that the appropriate way of proceeding would be in addition to giving the written document to the client, to arrange for the document to be read over to the client. Clause 16(1)(b) provides that written disclosure may be in a language other than English if the client is more familiar with that language. In that case, it might well be appropriate to have the retainer translated. It should be noted however that this is a dangerous process and if it is to be approached, a very good translator must be hired, as if due to translation errors the effect

5 5 of the document is different in the translated language than in English, there is a considerable risk that the change in meaning may lead to a non-disclosure with all the undesirable consequences flowing therefrom. The retainer agreement obviously assumes that it is legally possible for the client to agree to above scale fees. It is thus not appropriate for matters where there is a statutorily nonexcludable scale, such as Guardianship Board and Criminal Injury Compensation matters. Nor will it be appropriate in most cases to use it to claim above scale costs in workers compensation matters, having regard to the provision of Rule 31 of the Workers' Compensation Tribunal Rules. Nor is it appropriate for matters where one is dealing with a disabled client, who does not have the legal capacity to enter into a contract to pay above scale fees. In such a case the agreement would have to be made with a litigation guardian of the disabled litigant, and again special considerations are involved. The retainer is primarily directed towards non-litigious work and to litigation in the Supreme and District Courts (and in High Court appeals therefrom). It can be adapted to cover Magistrates Court litigation, but in that event, the client should be specifically warned of the very limited recovery of party/party costs under those rules, and there will be a need to comply with Rule 27 of the Magistrates Court (Civil) Rules which requires that A legal practitioner acting for a party must give its client a copy of Rules inclusive, Rule 106 and the costs scale application to the action. Given that solicitor/client costs under Family Court retainers entered into since 1 July 2008 are prima facie subject to the Supreme Court scale and are taxed in the Supreme Court, the

6 6 retainer could be adopted for use in Family Court matters, but would require some alteration to deal with the different position as to the party/party costs in that Court, in which there is no presumption that a winning party will obtain costs. Similarly, it can be adapted for use as a retainer for Federal Court litigation (with the main change here being the greater party/party costs recovery which may be obtained under the Federal Court scale). It is not practical, given the time available to conduct an analysis of the appropriateness of the retainer for use in litigation before all of the multitudinous statutory Tribunals; some of which have their own costs provisions and some of which do not. Any solicitor entering into a retainer to litigate before such a Tribunal should examine its costs rules and see if they require amendments to be made to the precedent. It is obviously impossible to use the precedent for the special case of a lawyer agreeing to act as executor in a Will, and inserting a charging clause in the Will to enable recovery of fees. There are also special issues involved when a solicitor is retained to act for an executor, some of which are discussed in Costs in Deceased Estates Law Society Bulletin, October 2013, page 30, by Sue Bishop, Richard Croft and Jo Mercer. If it is used in a plaintiff personal injury claim arising out of a motor vehicle accident, it may require adaptation to advise the client of the restrictions on the ability to recover party/party costs, imposed by section 127C of the Motor Vehicles Act. When entering into a retainer with a sophisticated client, obviously not all of the disclosures made to an unsophisticated client are required. A solicitor could well prepare a sophisticated

7 7 client retainer agreement from the precedent provided by going through it and deleting all the elements not required for sophisticated clients. The Costs Committee has undertaken this exercise and a draft sophisticated client retainer agreement is included in the materials, and is briefly discussed at the end of this paper It should be noted that some large sophisticated clients have their own retainer agreements which they require their solicitors to sign, in which event they will need to be scrutinised to see that they do not present any problems. General Principles 1. Fairness and Reasonableness Although the precedent retainer seeks to provide as much compliance with the costs disclosure requirements as is possible in a precedent agreement, it is necessary to understand that there remains an overriding obligation that a fee agreement be both fair and reasonable, and notwithstanding any full technical compliance with the costs disclosure provision, if ultimately the Court judges it not to be fair and reasonable, then the agreement will be set aside under clause 30(1) of Schedule 3 to the Legal Practitioners Act. The old common law and the position under the previous statutory definition was that the onus of proof lay on the solicitor to show that their fee agreement was both fair and reasonable (see McNamara v Kasmeridis (2007) 97 SASR 129). It is unclear if the wording of the new legislation may have changed this onus of proof, but until the Supreme Court rules on this point it will be safer to assume that the onus will remain on the solicitor.

8 8 As to the general concepts of fairness and reasonableness at common law and under the old provisions, see the writer's article in the February and March 2012 Law Society Bulletins. Putting aside this overriding fairness and reasonableness requirement, there are some general principles with regard to retainer agreements which should be understood by solicitors, so that in particular, if they are seeking to adapt the precedent agreement to particular circumstances, they can be aware of whether they are complying with these principles. 2. Agreement in Writing The first is the formal requirement that an agreement be in writing. Under the old legislation it was held that this did not require a written acceptance, so that if a solicitor provided a client with a complete written fee agreement the client could validly accept it orally or by conduct (see McNamara v Kasmeridis (2005) 92 SASR 382). The position has changed slightly under clause 24 of schedule 3 of the new legislation. Clause 24(2) provides "a costs agreement must be written or evidenced in writing" and clause 24(3) provides "a costs agreement may consist of a written offer in accordance with subclause (4) that it is accepted in writing or by other conduct". Subclause24(4) provides "the offer must clearly state - (a) that it is an offer to enter into a costs agreement; and (b) that the offer can be accepted in writing or by other conduct; and (c) the type of conduct that will constitute acceptance". Clearly as before a signed written agreement will be valid. It is less clear

9 9 what is meant by "evidenced in writing". It is unclear, for example, whether if there is a purely oral costs agreement, and the solicitor made detailed notes recording all terms of the costs agreement whether this could be regarded as being "evidenced in writing". In practice however, it will be extremely unwise to rely upon an oral agreement evidenced in writing. Given the onerous disclosures required any oral agreement covering them, even if this was possible, would have to be very extensive, and there would have to have been extremely detailed notes of the agreement in order for it to be arguably evidenced in writing. It is suggested that law practises proceed on the basis that they either need a signed costs agreement or a written offer containing the full retainer terms accepted by writing or other conduct. However, if this acceptance by conduct is to be relied upon, the offer must, under clause 24(4) state that it is an offer to enter into a costs agreement that can be accepted by writing or other conduct and the type of conduct that will constitute acceptance. The type of conduct which will constitute acceptance might be defined, for example, as paying a bill charged under the agreement, or providing instructions after the offer has been received. It should be noted that if the type of conduct that will constitute acceptance is not defined, then it seems implicit that acceptance by conduct cannot occur. Thus if one writes to the client saying acceptance is to be constituted by signing and returning the costs agreement and that if they do not do so, under the new legislation it may well be that even if for years thereafter they give you instructions and pay bills calculated under the agreement, there may not be a binding agreement. It is strongly recommended that solicitors require a signed agreement and diarise to chase up with the client if the agreement is not signed and returned. It has been my

10 10 experience that clients who do not sign and return costs agreements are very likely to be the very clients who will later dispute costs with the solicitor. Further, if the agreement is not signed and returned, there may even be an argument as to whether it was received by the client at all. It would be undesirable to be in a position for example where the client denies that they received the letter, in which case you may have a difficult argument as to whether the inference is that it was received by the client and they forgot about it or it went astray in the post. Further, if the matter does not arise until several years after the event, it may be difficult even to prove the posting. For example, many large firms have all their posting done by a posting clerk. If that posting clerk leaves the firm in between the posting and the dispute, it may be difficult to even prove that the letter was posted to the client. 3. Certainty of Charges The third important principle, after fairness/reasonableness and writing, is that there is a requirement of certainty. This appears to have been the case at common law (see Chamberlain v Boodle & King [1982] 3 All ER 188), in which the United Kingdom Court of Appeal struck down for uncertainty, an agreement by which a solicitor has purported to charge 60 to 80 per hour for partners and 30 to 45 per hour for solicitors, holding that the mere stating of a range did not sufficiently fix the fees. This was clearly the case under the old provisions, which required there be an agreement to pay (putting aside the rare case of uplift fees) either a specified amount or an amount under a specified scale. It is probable that this requirement carries through under the new amendments as clause 47(1) provides "The Supreme Court must adjudicate the amount of

11 11 any disputed costs subject to a costs agreement by reference to the provisions of the costs agreement if (a) the relevant provision in the costs agreement specifies the amount or a rate or other means of calculating the amount of the costs; and (b) the agreement has not been set aside under clause 30". In a case where for example there is only a range of fees provided or in a case where for example the solicitor reserves to themselves the right to unilaterally fix the fees, it is probable that it will be held that the costs agreement does not specify an amount or rate or other means for calculating the amount of the costs and accordingly the Supreme Court is not therefore required to adjudicate the amount of disputed costs with regard to it. In my view this provision prevents there being valid agreements for ranges and also prevents the validity of those clauses which the writer has sometimes seen in costs agreements providing that the solicitor has a unilateral discretion to charge more than the agreed if they think the work that was done was particularly difficult or done in circumstances of urgency or the like. Whilst I have seen these provisions in many fee agreements, it seems to be extremely rare for anyone to actually charge an extra amount under them, and given that they are likely to be invalid, they are probably more trouble than they are worth. It is possible that a Court might simply sever such a clause so as to make the agreement a valid agreement for the payment of a straight hourly rate, but there is also the possibility the Court might decline to sever and hold that the existence of the clause invalidates the entire costing agreement.

12 12 4. Fee Increases Probably of greater commercial importance is the fact that, in my view, clause 47(1) (and probably also the fairness and reasonableness requirements) prevent there being a valid agreement whereby the fees are fixed at an initial amount, but either at any time or after the elapsing of a specific time, the solicitor is given the right to unilaterally increase them in the solicitor's discretion. This certainly appears to be the case under the old legislation (see the statement of Master Lunn in Catto v Hampton (2007) 251 LSJS 164, that a solicitor cannot reserve to himself or herself the right to unilaterally increase his or her fees). This obviously causes problems with matters which are likely to last several years, as in the case of complex litigation. In such a case, the solicitor is not unable to unilaterally give themselves the right to increase fees, but would not be wished to be locked into the initial fee, as subsequent inflation may then mean that they will suffer a loss on the matter. There are two ways in which this problem can be overcome and these options are given in the precedent. The first is to set an objective means by which fees will increase. For example, there would seem to be no objection under clause 47 to a provision that fees should increase every year by the amount of the consumer price increase for the previous year.

13 13 If this is felt to give insufficient flexibility to the agreement, the alternative option can be taken, namely to provide that fees are fixed for the current calendar or financial year and then provide that at the end of that year the solicitor may suggest new fee rates to the client, which the client is not obliged to accept, but which it is agreed will entitle the solicitor to cease acting if the client does not accept them. 5. Minimum Unit Charges A fifth major issue which one should give detailed consideration to is the issue of minimum units. Most firms charge by a minimum of six minute units, so that if a discrete task only takes say 30 seconds or one minute (eg, dictating a brief cover letter saying please find enclosed a certain document) then a full six minute fee is charged. Thus, although the hourly rate might be stated to be in the bill say $ per hour, if a one unit task is charged as a six minute unit, in effect for that one minute the solicitor is receiving a rate of $2, per hour. Accordingly, the mere stating of an hourly rate in the bill would not authorise the rounding up to a six minute unit. Nor, it is submitted, would the mere statement that the time is recorded in six minute units. This does not clearly indicate to the client that they will be charged for a full six minutes even if the task only took 30 seconds, and given the fairness and reasonableness requirement and the onus of proof on the solicitor, it is likely this will be held to be insufficient disclosure. It is thus necessary to expressly advise that tasks performed for part of a six minute unit will be rounded up to a charge of a full six minute unit.

14 14 Further, given the fiduciary duty which lies upon solicitors, if a minimum six minute unit is agreed, the solicitor must conduct their work in such a way as to not take unfair advantage of this. It would, for example, be inappropriate to immediately send every document received separately to the client with a one-line covering letter in order to take advantage of the ability to charge six minutes of time for thirty seconds worth of dictation. Retainer Agreement Kit The Law Society precedent comprises three parts. The first and shortest is the cover letter. This is not statutorily required, but its use is suggested because the length of the agreement may cause concern to some unsophisticated clients. The letter is designed to reassure them that the length is largely due to disclosures which are legislatively required for their benefit, that they will not be paying for the drafting of the agreement and that they are free to seek independent legal advice. As to charging for the agreement, the common law position is that as the retainer agreement is for the benefit of the solicitor and not the client (eg, by providing for above scale costs), the solicitor cannot charge the client for it. Whether an express clause providing for the solicitor to charge for the agreement would be struck down as unfair or unreasonable, is not a matter which has been the subject of any judicial decision known to the writer, but he strongly suspects that the Court would hold it to be unreasonable to require a client to pay for the drafting of a document designed to reduce client rights. Further, under the amended

15 15 legislation, given that much of the agreement will consist of mandated statutory disclosures, the client will also be able to call on the general principle of statutory interpretation that a person upon whom a specific statutory duty is imposed is prima facie not entitled to charge for the performance of that duty. The second part is the bill disclosure notice which is required by clause 33 in any bill sent to an unsophisticated client. This is not discussed separately in any detail because the bill disclosures are only a sub-set of the retainer disclosures required by clause 10(1). Under clause 33(3) a solicitor is deemed to have complied with the requirements if he or she uses the form prescribed by the regulations. A form complying with the draft regulations is provided, but obviously solicitors will need to check whether these regulations are changed before they are gazetted. It should be noted that a failure to include the notice with the bill means that by reason of clause 31(1), the solicitor cannot sue for his or her fees unless and until a bill complying with clause 33 is delivered and 30 days have elapsed from the delivery of that corrected bill, with any proceedings brought in breach of this requirement being liable to be stayed pursuant to clause 31(3). The third part is the retainer agreement itself. The unsophisticated client retainer agreement is discussed first and in detail, but a cut down sophisticated client agreement is also attached and briefly considered.

16 16 We have also provided draft Law Society webpages to which reference will be made if the government ultimately adopts this form of disclosure. Of course if it does not these documents will never come into force. Specific Provisions of the Unsophisticated Client Retainer Turning to the retainer agreement itself, we now track the specific provisions of the retainer and seeing how they line up against the new disclosure requirements. (a) Introduction (clause 1) The first clause of the retainer headed "Introduction" in effect ties the retainer into the acceptance of instructions. This is not statutorily mandated but it is very useful in the event that there is later a dispute as to the extent of the retainer. If a client has received and signed a retainer agreement stating that the instructions came from a particular letter or or telephone attendance, it would then be difficult for the client to deny that they have instructed in the terms of that letter, or telephone attendance. (b) Scope of Work and Instructions (clause 2) The second clause defines the scope of the legal work to be performed. Again, this is not a statutory requirement but in practise it is very important to define them. Apart from the obvious issue that a careful definition of the scope of the work may avoid disputes as to whether the solicitor was entitled to undertake and charge for a certain

17 17 item of work, a careful definition of the scope is now necessary with regard to the mandatory estimation of legal costs. It is not possible to reasonably estimate the costs for legal work, unless one has carefully considered its scope. In many cases, it may be necessary to determine when one does the initial retainer, whether one does a limited retainer as to initial exploratory work or a retainer covering the possible larger work which might flow on from it. The classic case of this would be when one is taking instructions from a client to explore the possibility of issuing litigation. It may very well be that at the stage that initial instructions are taken, you have very little idea of the scope of the possible litigation and would find it very hard to give a reasonable estimate as to how much it might cost. It might in those circumstances be more advisable to give an estimate for the costs of the exploratory work and indicate that a fresh advice will be given estimating the costs of the substantive litigation down the track. Of course, if this is done, you must be careful to see that you do give that subsequent costs advice. One matter which should be noted is that the common law presumption is that a retainer to conduct litigation does not include the costs of appeals from that litigation, even interlocutory appeals. Clause 2.2 specifies from whom instructions will be accepted. This is again not statutorily mandated, but it is highly desirable, particularly in the case where you will be accepting instructions from someone other than the party to litigation, or when you

18 18 are being instructed by a large corporation it is desirable to specify who in that corporation will instruct you. (c) Overall Conduct (clause 3) Clause 3 as to doing the work specifies who at the solicitor's firm will have the overall control of the matter. This is not actually statutorily mandated, but it is desirable. However, clause 10(1)(j) requires that there must be disclosure of "details of the person whom the client may contact to discuss the legal costs". This disclosure has been built into the section by providing that the person who has the overall supervision is the person who may be contacted in the event of a dispute in relation to legal costs. Of course, if you have a different administrative arrangement, there is no reason why this provision cannot be changed. (d) Basis of Charging (clause 4) Turning to clause 4 as to fees, this is the core of the agreement where most of the substantive disclosures have to be made. Looking at the time costing option, as this is the one which probably will be used by most solicitors, the requirement of stating "the basis on which legal costs will be calculated" can be met by stating specific hourly rates either for individual solicitors, or for classes of solicitors or a combination thereof. In a small matter you can say A, B and C will work on the matter. A will charge $ per hour, B will charge $ per hour and C will charge $ per hour. On a large matter which may last a long time and have many people from the firm acting, you

19 19 would probably wish to have a default provision specifying rates in terms of positions in the firm. Thus you might provide that partner A will charge $ per hour and any other partner used will charge $ per hour, that associate B will charge $ per hour and any other associates used will charge $ per hour. The requirement that there be advice as to "whether a scale of costs applies to any of the legal costs" appears to be a statutory recognition of the common law principle that if you are going to validly charge more than an applicable scale, the client must be advised of this. One of the time costing options contains a statement which is likely to be true in most cases, that the time charges are likely to be more than scale costs. It should be pointed out that even if the hourly rates are charged under a time costing agreement are roughly similar for a personal attendance under the relevant scale, the time costing agreement is still likely to lead to higher charges, as it will allow the charging of much time which is not claimable under scale, eg research and internal conferences (see in this regard Master Lunn in McNamara v Kasmeridis at first instance). It is important to realise that if it is likely that your time charges are going to exceed scale, a retainer that merely says they "may" exceed scale is not sufficient. It has been held that a retainer which causes the client to be believe they have a reasonable prospect that they may effect a full recovery of their solicitor's time charges under a scale costs order when there is no reasonable prospect of this, is misleading and invalid. Accordingly the other versions of the clause should only be used where you are certain that exceeding the scale is not on the cards.

20 20 In South Australia the Supreme Court scale applies to most matters. There are a few where it does not, but in most such cases the precedent retainer agreement would not be applicable, because there is a fixed fee scale which cannot be contracted out of, such as for example guardianship work, criminal injuries compensation work and workers compensation work. The most notable exception is Federal Court work in which the very generous Federal Court scale applies. Given the considerable generosity of that scale, it may well be the case that a solicitor time charging agreement may not have to say it is likely that their charges will exceed Federal Court scale charges and may be able to say that this is only a possibility, although of course this depends on the precise charge out rate. It should be noted that the precedent agreement can be used for Magistrates Court work, as Magistrates Court solicitor/client costs are governed by the Supreme Court scale (although, as noted at the commencement of the paper, a warning as to the very limited party/party costs recovery under the Magistrates Court scale may be required). It should be noted that the rates have been expressed as being GST inclusive. There is nothing in the Legal Practitioners Act which requires this, but there is a school of thought that section 48 of the Australian Consumer Law requires this. It should be noted that section 48 does not apply to representations to bodies corporate, even if they are unsophisticated clients (see section 48(4)), and is limited to the supply of services ordinarily acquired for personal, domestic or household use or consumption (so that it will not extend to many commercial legal services). The precedent has however, in the interests of caution, adopted a GST inclusive wording. Any solicitor planning on using GST exclusive wording should examine the law in this area carefully.

21 21 (e) Disbursements (clause 5) Clause 5 deals with disbursements properly so called (ie, actual out of pocket expenses) as opposed to charges for administrative services which are dealt with in clause 7. The precedent provides that these are charged at cost. Some firms charge a loading on things such as STD calls. If this is to be done, it should be expressly drawn to the client's attention, as otherwise it may be argued that the solicitor is in breach of their fiduciary duty to the client by making a secret profit at the client's expense. In accord with local practice, the precedent does not charge for local phone calls. It is open for a solicitor to stipulate that he or she charges for these. However, as they are not generally recoverable on a party/party taxation, in litigious matters there would need to be a warning to this effect. Clause 5.3 in effect restates the rule in Re Blyth (1887) 10 QBD 207 that unusual expenses (in effect those that are unlikely to be recoverable on a party/party taxation), should not be charged unless the client has expressly agreed to incur them knowing that they will not be recoverable. Clause 5.4 accommodates the fact that whilst GST is generally chargeable on disbursements, there are some disbursements (eg, Court fees) which do not attract GST. It should be noted that if a solicitor pays GST on such a disbursement by mistake (as has happened), it is unlikely to be recoverable either from an opposing party on a

22 22 party/party taxation (as the writer has successfully argued) or from the client on a solicitor/client taxation. Whether such a mistaken payment can be recovered from the Australian Taxation Office lies beyond the scope of this paper. (f) GST (clause 6) This clause is unremarkable, save for the advice as to recoverability of the GST, which follows the principles set out in the Supreme, District and Magistrates Courts that GST is recoverable by a successful litigant who will not obtain an input tax credit. It is unclear if the requirement in clause 10(1)(g)(i) to estimate the range of "costs" which may be recovered if the client is successful extends to GST on costs, but the precedent provides such disclosure in the interests of safety. If the matter is being litigated in a Court or Tribunal which has different rules as to GST recovery, the precedent will have to be altered. (g) Administrative Services (clause 7) Clause 7 as to "Administrative Services" is short but necessary. Technically these services are not technically disbursements, as they are charges for work done by the firm. Further, some of the work charged for under administrative services, such as facsimile transmissions and photocopying, are matters which are strictly legal costs within the Supreme Court scale. Accordingly, it is strongly arguable that with administrative services, as with more general legal costs, it is necessary to advise in the event that these services are higher than scale that this is the case, and that other solicitors might

23 23 provide them for less. Failure to do this may lead to an argument that even if the general costs charges are valid, the charges for administrative services are not. (h) Rights Disclosure (clause 8) Clause 8 contains a disclosure of rights as required by clauses 10(1)(c)(i), (ii) and (iii), 10(1)(h), 10(1)(j), 10(1)(k) and 10(1)(m) of the 3 rd Schedule to the amended Legal Practitioners Act. It is noted that under clause 10(5) a law practice is taken to comply with their disclosure obligations as to the above subsection "if it provides a written statement in or to the effect of the form prescribed by the regulations for the purposes of this subsection at the same time as the other details are disclosed as required by this section". As discussed at the commencement of this paper, whilst the Law Society is hopeful that the draft regulations will be gazetted largely as they stand, there can be no guarantee of this. Solicitors are advised to independently check the wording of the regulations once they commence, and to amend this provision accordingly if the regulations depart from the precedent wording. The approach taken by the draft regulations is not to have detailed disclosures set out in the retainer agreement itself, but to have fairly brief disclosures in the agreement itself but for the agreement to point the client towards a more detailed statement of their rights on a Law Society website. Clause 10(6) of the Legal Practitioners (Miscellaneous) Amendment Act 2013 provides A form prescribed for the reasons of subparagraph (5) may, instead of itself contain any details of the kind referred to in subclause 10 (c) (i) to (iii) (h), (j), (k) and (m) referred to publicly accessible source of information (such as an Internet website) in

24 24 which those details can be obtained and clause 10(7) provides the regulations may (a) require the Society to provide a statement of the relevant details and to review it as necessary to keep up-to-date; and (b) require the Society to make the statement publicly available in the prescribed manner. A draft Law Society Statement as required is supplied, but it may have to be amended if the draft regulations are changed before gazettal. The Law Society Statement once finalised will need to be obtained by solicitors, as under the legislation solicitors will bare an obligation to supply it to clients on request. If you make the disclosure in the precise form provided by the regulations and reflected in the precedent retainer, you are deemed to have complied with your obligations in this regard. The precise words on the form need not be followed, as it is sufficient if you make a statement "to the effect" of the form. However, it is strongly recommended that you not amend these parts of the precedent agreement (once it is finalised) because once you depart from the strict wording of the regulations, as set out in it, then it is obviously a question open to debate of whether the departure is such that the disclosure is no longer "to the effect" of the form. Given that there is an automatic deemed compliance if the wording of the form is followed literally, there would seem to be no point in seeking to paraphrase the wording, as at best you will achieve the same effect and at worst you would be regarded as departing from the effect of the form, so that you lose the protection of clause 10(5) and a client can seek to argue that you have not complied with the disclosure requirements in this regard.

25 25 (i) Costs Estimate (clause 9) There always has been an ethical duty to give, if practical, an estimate of legal costs (see Australian Solicitors Conduct Rule 16B.2). However, the obligation under clause 10(1)(e) is somewhat more onerous. The clause requires "an estimate of the total legal costs if reasonably practical and if that is not reasonably practical a range of estimates of the total legal costs and an explanation of the major variables that affect the calculation of those costs". Accordingly, it does not appear, unlike the ethics rules, to contemplate a situation in which neither a fixed single estimate nor a range is provided. One should provide a single estimate if practicable or in the absence of that a range and an explanation of the major variables that affect the calculation of those costs. It would accordingly seem that a retainer that merely stated it was not possible to give any estimate and gave no range (not even the broadest one), would be non-compliant with the disclosure obligations with the usual consequences as to being unable to sue for fees and having to pay for the costs of a taxation. Further, it is not sufficient that there be a range given, and there must now be an explanation of the major variables that affect the calculation of those costs. Merely giving a range without an estimation of the variables, again will be non-compliant. Obviously it is not possible to list all the major variables which might apply in any matter, and this is an area in which the solicitor will have to give some thought to the individual circumstances of the client and the matter. The notes to the retainer do

26 26 however contain a series of precedents for the most common major variables. There may well be others unique to the particular retainer. Finally, in order to be an "estimate" of legal costs as required by clause 10(1)(b), the range of figures must be the result of a bona fide application of your mind to the particular matter at hand. If a solicitor was to, in every retainer, state that he or she estimated legal costs would be in a range from $1.00 to $10 million, the Court would be likely to hold that there was non-compliance, as the standard figure was not an actual estimation of the costs of any particular matter. (j) Advice Updates (clause 10) Clause 10 as to updating of advice is mandated by clause 17. It is not lumped together with the other statutory disclosures in clause 8, because clause 8 contains those disclosure obligations which may be conclusively satisfied by providing a statement in a form prescribed by the regulations, and for some unknown reason this disclosure obligation was not brought within this rule. (k) Litigation Matters (clause 11) This contains the disclosure mandated by clause 10(1)(g) which requires "If the matter is a litigious matter an estimate of - (1) the range of costs that may be recovered if the client is successful in litigation; and (2) the range of costs the client may be ordered to pay if the client is unsuccessful". The notes contain a number of general precedents for use in various types

27 27 of Court. Again this is a matter which requires attention to the individual circumstances of the client s case. It can be deleted if the retainer relates solely to a nonlitigious matter. The retainer expresses the ability to recover in percentage terms. The percentages have deliberately not been filled in, as they will differ between firms (depending on their charge out rates) and between jurisdictions (with, for example, recovery being much lower in the Magistrates Court than the Supreme and District Courts, but somewhat higher in the Federal Court than the Supreme or District Court). (l) Legal Agent's Fees (clause 12) Clause 12 contains the disclosure required under clause 10 if another law practice is to be retained. This is applicable where the primary solicitor is engaging a barrister, and interstate or a country agent, or a costs consultant, and that second law practice will bill them but do work which is ultimately for the benefit of the client. Whilst this has been included in the general retainer, and it may on occasion find its way there, as when a barrister is engaged at the time that a matter commences, often this will be a separate disclosure undertaken at a time subsequent to the initial retainer when the second law practice is hired. This is acknowledged by clause 11(2) which provides a disclosure under clause 10(1) "must be made in writing before or as soon as practical after, the other law practice is retained". You should, in litigious matters, if a barrister or other legal agent, is charging a higher rate than is likely to be recoverable under a party/party costs order, make sure you comply with the rule in Re Blyth and advise the client of this, and obtain

28 28 their consent to incurring such expenses. A failure to do this may lead to the solicitor being liable to the barrister, but not being able to recover from the client the gap between the barrister s contractual fees and party/party fees. Further, you should be aware that a general advice that legal agents fees are likely to exceed scale will not suffice (see Legal Practitioners Conduct Board v McNamara Business & Property Law). Each time a new legal agent whose fees exceed party/party costs is engaged, the warning should be given and an express client consent obtained. (m) Interim Billing (clause 13) Clause 13.1 provides for the right to interim bill. It should be noted that clause 10(1)(e) requires you provide "details of the intervals (if any) in which the client will be billed". It is unclear whether a failure to state any interval would be regarded as a breach of a duty of disclosure, or merely mean that one is not entitled to interim bill. Given that there is a risk that a failure to deal with the issue at all might amount to a non-disclosure (as it might be, for example, argued that there was a limited right to interim bill in some circumstances at common law where there was a significant break in the matter, and that failing to advise of this was therefore a non-disclosure under clause 10(1)(e)), it is strongly recommended that such a provision be inserted. If it is not intended to interim bill, it is suggested that there be an express provision providing that the matter will not be billed until its conclusion. This might be appropriate for example where a solicitor is acting for an impecunious plaintiff in a personal injury case. It should also be noted that under clause 33 of Schedule 3, bills to an unsophisticated client must include or be

29 29 accompanied by a written statement setting out notification of the rights of the client specified in clause 33(1) or referring to a publicly accessible source of information which sets out those rights. (n) Joint and Several Liability (clause 14) This clause is not mandatory, but it serves two useful purposes. Firstly, it makes it clear to multiple clients that they are each responsible for the entire bill. Secondly, it makes it clear that liability under the retainer is joint and several whereas at common law the liability of joint contractors was joint only. This has some procedural advantages if for example, it is desired to settle with or obtain judgment against one client without releasing the other. (o) Trust Money (clause 15) This provision is not mandatory but in its absence a solicitor would not be entitled to require a client to put money into trust to cover anticipated fees and disbursements, and would be limited to interim billing fees as they were incurred. Whilst there appears to be a common law right to be put in funds for anticipated disbursements, there is no common law right to be put in funds for anticipated future legal costs. The limitation to "reasonably anticipated" fees and disbursements is important. Without that limitation, it could be argued that the clause was unreasonable and invalid, since it would enable the solicitor to require payment into trust of funds greater than those needed to secure his costs, and could potentially serve as a means for a solicitor to withdraw from an action

30 30 without proper cause. Clause 15.2 is not strictly necessary but it does put the client on specific notice that trial costs will need to be secured before trial. (p) Termination (clause 16) It should be noted that the right of the solicitor to terminate the retainer is limited to where there is good cause. This follows Rule of the Australian Solicitors Conduct Rules. The addendum restricting the ability to withdraw in a serious criminal matter follows Australian Solicitors Conduct Rule Whilst a withdrawal contrary to the ethics rules might still be legally effective, it would amount to unprofessional conduct to do so. It might even be arguable that it is unprofessional conduct to have a retainer agreement that purports to reserve to the solicitor the right to act unprofessionally. (q) Conflict of Interest (clause 17) This clause is probably not strictly necessary as it essentially restates the common law position. However, it is useful, in the event that a conflict forces a solicitor to withdraw, to be able to point to a specific retainer clause authorising this.

31 31 (r) Storage of Records (clause 18) The seven year period is traditional, and comprises the six year limitation period for bringing proceedings for non-personal injuries in tort or contract, plus one year being the longest period for serving proceedings generally allowed by Court Rules. If no proceedings have been issued or threatened within that time and the file is then destroyed, the solicitor is well positioned to defend any subsequent application to extend the limitation period on the ground that they have been prejudiced by the destruction of the file. Solicitors should also be aware of Australian Solicitors Conduct Rule 16.1 which provides that a solicitor may not charge for the storage of documents or the retrieval of documents from storage unless the client has agreed to this in writing. Accordingly, no fees can be charged in the absence of a clause to this effect. The precedent follows the usual practise of not charging for storage but charging for retrieval. The rationale behind this is that storage is probably as much for the solicitor's benefit as the client's. If a charge is made for storage, you should be aware that there is authority that if you refuse a client request to give them documents on the basis of an unpaid solicitor s lien, you can thereafter no longer charge storage fees, as you are no longer holding the documents for the client but for your own benefit as security.