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Making a costs agreement
A ‘costs agreement’ forms part of your costs disclosure obligations to your client. It is the formal agreement between your law practice and your client covering how you will structure the costs for your work.
For every legal matter, no matter the value, you must have a costs agreement with your client. Even if the matter is likely to be below $750 and you don’t have to provide a full costs disclosure statement, you must still have a costs agreement.
Your client has the right to negotiate the way costs are charged to them by you; and you may make them a written offer as part of costs agreement.
You can only charge costs that are fair and reasonable for the work involved in the legal matter. Your costs must also be reasonable and proportionate to the work involved.
The Legal Services Council has produced an information sheet on costs agreements which is available on their website.
How can your client accept your offer?
You cannot bill your client if they have not accepted your costs agreement. Some cost agreements can be accepted either in writing or by some other way that clearly indicates they accept it. If you are offering a ‘conditional costs agreement’ (such as no win no fee agreement), this can only be accepted in writing.
There are strict rules around how you must deal with costs agreements. If you don’t follow those rules, the agreement may become void, even if your client has accepted it.
Who can a cost agreement be between?
A costs agreement may be between:
- your client and your law practice;
- your client and another law practice that you have engaged on their behalf;
- your law practice and another law practice that you will do work for your client; or
- your law practice and a third-party, such as a guarantor or a litigation funder, who will be liable for your client’s legal fees.
Conditional costs agreements
You can put a condition in your cost agreement that you will only be paid for your work if you reach a successful outcome. An example of this is a ‘no win no-fee’ agreement.
These ‘conditional costs agreements’ must be made in writing, and be in plain language. They must include all the conditions that you define as a successful outcome, and they must be accepted in writing or they cannot be enforced.
If you believe that your client has a good chance of success, you may also include a condition to be paid an ‘uplift fee’. This is an additional payment for a successful outcome that cannot exceed 25% of the legal costs (excluding disbursements). Your costs agreement must be clear on how the fee will be calculated, what you expect the fee to be, and what factors may change the final fee calculation.
You can’t have a conditional costs agreement in a criminal or a family law matter.
Victorian law does not currently allow you to bill your client a ‘contingency fee’. This is where your fees are calculated based on how much money you might get for your client from a payout or a settlement.