A costs agreement is a formal arrangement between a law practice and client in relation to costs. The agreement details the costs that will be incurred by the client so the law practice can act on the client’s behalf. There are strict requirements relating to legal costs agreements.
Client’s right to costs agreement
A client of a law practice has the right to require and to have a negotiated costs agreement with the law practice.
Who can enter into a costs agreement?
A costs agreement may be made between:
- a client and a law practice retained by the client;
- a client and a law practice retained on behalf of the client by another law practice;
- a law practice and another law practice that retained that law practice on behalf of a client; or
- a law practice and an associated third party payer (a person who is not the client of the law practice, but is under a legal obligation to pay for legal services provided to the client).
What form should a costs agreement take?
A costs agreement must be written or evidenced in writing. It may consist of a written offer which clearly states that it is an offer to enter into a costs agreement, and that the client may accept the offer either in writing or by some other conduct (except in the case of a conditional costs agreement). The offer must also explain what other type of conduct can be taken as accepting the offer.
Conditional costs agreements
A costs agreement may include a provision that the payment of some or all of the legal costs is conditional on a successful outcome. A conditional costs agreement may relate to any matter except criminal proceedings or proceedings under the Family Law Act 1975 (Cth). A conditional costs agreement must be in writing and in plain language. It must also set out the circumstances that constitute the successful outcome of the matter to which it relates.
Uplift fees in a costs agreement
Uplift fees are additional legal costs (excluding disbursements) which may be payable under a costs agreement on the successful outcome of the matter. Section 182 of the Uniform Law allows for a conditional costs agreement to provide for the payment of an uplift fee. There are however specific requirements that apply to such an agreement which must be met. A civil penalty of 100 penalty units applies where a law practice enters into a costs agreement in contravention of s182.
Contingency fees are prohibited
Section 183 of the Uniform Law provides that a law practice must not enter in a costs agreement under which the amount payable, or any part of that amount, is calculated based on the amount of any award or settlement or the value of any property that may be recovered in any proceedings. This does not apply to the extent that the costs agreement adopts an applicable fixed costs legislative provision. A civil penalty of 100 units applies to a contravention of s183, which may also have disciplinary consequences.
Certain costs agreements void
A costs agreement is void and of no effect if it contravenes any of these strict legal requirements.
For more information about legal costs, please see the following pages: