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Blackstone Brief – Volume 4

Taking over a matter from another firm? Here’s why you should always put your terms in your own writing.

When your firm takes over a matter from another firm, you should never start work without first signing a new costs agreement.

One of the most common disclosure problems we encounter happens when a client leaves one firm and takes their matter to a new firm. Often the new firm will rely solely on the previous firm’s costs agreement and costs disclosure..

That may be understandable, given that lawyers always need to balance their fiduciary duties to their clients with the financial imperative which comes from the need to turn their labour into profit. Asking a client to agree to an extensive, detailed and, often, overwhelming disclosure at the very moment they’re considering the merits of engaging you, seems like a recipe for scaring them away..

However, relying on an existing costs agreement with a former firm exposes your firm to a costly costs assessment and even exposes you, as the responsible practitioner, to a risk of professional disciplinary proceedings as a recent case makes clear. One of our costs lawyers based in Blackstone’s Sydney office, Kate Chan, takes a closer look..

The costs agreement

In Council of the Law Society of the ACT v Legal Practitioner 12 (Occupational Discipline) [2017] ACAT 52, a Canberra-based legal practice took over a client’s motor accident claim from another firm.

As part of the negotiation process to take on the client’s file, the solicitor wrote to the client and told him that they would continue to prosecute his claim on the same basis as his previous legal advisers. This included advising him that, “your matter will be handled on a no-win no-fee basis and your liability to pay our legal costs will only arise if your matter is successful”.

The solicitor’s covering letter also stated:
“We confirm that we will continue to prosecute your matters on the same basis as [the outgoing firm]. Enclosed is a copy of the costs agreement which you signed with [the outgoing firm] on 9 February 2009. We hereby adopt the terms and conditions of the above retainer.”
As is the case in many State and Territories, charging on a contingency basis was expressly forbidden by s 285 (1) of the Legal Profession Act 2006 (ACT) (the Act).

The Client’s Complaint

In June 2011, the new solicitors settled all of the client’s claims for him, on the basis the payment was inclusive of legal costs basis or on a costs agreed basis. Following this, the settlement funds were deposited into the firm’s trust account. From this money, the firm paid the previous solicitors’ legal costs after that firm reduced their claim for costs. The new firm also paid their own legal costs out of the trust account.

The client subsequently filed a complaint, which was referred to the Council of the Law Society of the Australian Capital Territory. He claimed he was charged more than he agreed to pay.

The Law Society then also brought disciplinary proceedings against the solicitor in charge of the matter under s 419 of the Act. In doing so, it raised five separate misconduct allegations. These related to entering into a contingency fee agreement, disbursing money including trust money in breach of the client’s direction, and misappropriating funds from their trust account.
The matter was heard in the ACT Civil and Administrative Tribunal on 2 March 2017.

Contingency Fees

At the hearing, the Law Society argued that the practitioner had illegally entered into a costs agreement with the client on a contingency basis.

In response the solicitor, somewhat paradoxically, argued that its agreement hadn’t complied with s 283(3)(c) of the Act because it was not in writing and the basis of charging was conditional.

A two-member panel agreed with this submission and dismissed the charge regarding the contingency fee arrangement, describing it as “not easy to interpret”. It ultimately found that the Law Society’s evidence was not capable of being proven.

A hearing date is yet to be set for the charges regarding disbursing trust money in breach of the client’s direction and misappropriating money from the trust account. Both relate to s 223 of the Act.

Implications for Law Firms

Despite this finding, the decision has three main implications for law firms who try to incorporate a previous firm’s costs agreement into their new costs agreement.

1. When a conditional costs agreement isn’t in writing, no agreement exists

First, it’s clear that an undertaking to accept all terms of a former firm’s costs agreement won’t satisfy the requirement that conditional costs agreements be made in writing, even where the undertaking is given in writing.

Instead, a court is likely to find that no written agreement exists. This means the terms of the outgoing firm’s agreement won’t be enforceable and, in the case of NSW motor vehicle accident and workers personal injury compensation claims, a firm will be forced to revert to regulated fees. This will usually be significantly lower than those charged by most firms on an hourly basis.

2. Costs agreements, conditional or not, should be evidenced in writing

There are also, arguably, broader implications that concern the evidencing of costs agreements generally.

It is entirely conceivable that a disgruntled client could assert that their agreement with the new firm was never evidenced in writing. This could happen regardless of whether the basis of charging is conditional or not.
Under s 174(3) of the Legal Profession Uniform Law (NSW), s 308 of the Legal Profession Act 2007 (QLD) and s 174 of the Legal Profession Uniform Law Application Act 2014 (VIC), legal practitioners must disclose details of its costs before, or as soon as practicable, about how much their services are likely to cost and the basis of calculating the costs.

They must disclose this in writing and present the information in a concise and clear format. If there is likely to be a significant increase in the estimated cost originally quoted, the client must be notified as soon as reasonably possible after the law practice becomes aware of the change, and notified in writing. Further, legal practitioners are obliged take all reasonable steps to ensure they are reasonably satisfied that the client understands the costs disclosure given, particularly relevant when clients are from culturally and linguistically diverse backgrounds.

  1. Adopting the same terms as the client’s former solicitors can be risky

    Lastly, and most importantly, when a practitioner seeks to subsume the terms of an outgoing firm’s costs agreement, there is very real risk. This includes reputational risk, financial risk and also the risk that a governing law society will prosecute them for seeking to contract on an illegal basis.

    Want more?
    If you’d like to discuss how this decision applies to your costs agreements, get in touch.