Breaches of Legal Profession Act leads to void costs agreement

_{< Go back to Class Actions Landscape Australia}

This decision concerned an application for the approval of legal costs incurred in the prosecution of a class action. Justice Charlesworth made significant deductions to the costs assessed by the costs consultant, on the basis of inter alia breaches by Adero Law of their professional obligations in relation to costs disclosure and inappropriate charging of costs.

The proceeding related to a claim by Mr Schoneweiss that the respondent, a supermarket chain trading as “Drakes”, contravened provisions of the Fair Work Act 2009 (Cth) including by failing to comply with the applicable Award in relation to breaks, additional duties, and excessive work. The matter had not progressed substantially, no case management hearing had been held and no discovery orders yet made.

The matter settled for $2.045 million, with $537,132.86 sought in legal costs. Her Honour approved the settlement sum and administration costs at an earlier date. Her Honour ultimately approved $365,357 in legal costs and a further $95,634 in administration costs.

Her Honour made a number of concerning findings in relation to Adero Law’s failure to fulfil their professional obligations:

• Providing for a 25% contingency uplift fee in the costs agreement, in breach of ss 283-284 of the Legal Profession Act (ACT), s 285 (LP Act), rendering the agreement void.
• Failure to provide an estimate of legal costs in the costs agreement, which would have rendered it invalid in any case (LP Act, Div 3.2.3).
• Failure to disclose an estimate of legal costs prior to entry into the settlement deed impeding the applicant’s assessment of whether the settlement was in his interests and the interests of class members (LP Act, Div 3.2.3).
• Failure to manage the conflict between Adero Law’s fiduciary obligations to the applicant and its financial interests in obtaining costs, including in its submissions during the hearing which were directed toward the firm’s interests.
• Failure to properly advise the applicant of how his interests were affected by issues raised by the costs consultant’s assessment of legal costs and arrange independent advice.
• Billing for the cost of the preparation of a costs consultant report in circumstances where the deductions were more than 15% (LP Act, s 302(2)).
• Failure to provide an appropriate itemised bill to the applicant (and the costs consultant) from which the amount of time expended on certain tasks was readily identifiable (LP Act, s 292).
• Billing the applicant for the cost of preparing an itemised bill (LP Act, s 292(8)).
• Charging unreasonable fees including for duplicated work across similar proceedings.

As a result of the costs agreement being void, the Court inquired into the reasonableness of costs on the basis of the principles set out in the LP Act, ss 266-277. Her Honour held that whether or not that legislation directly applied, it was within the discretion of the Court under Pt IVA to apply and/or have regard to it.

Disclosures to the Applicant

As set out above, the applicant was not provided with an estimate of legal costs in writing or with an estimate prior to entry into the settlement deed. Adero Law further did not advise him on the fact, or implications flowing from, the findings set out above, many of which were observed by the costs consultant. Ultimately, the Court was not satisfied that Mr Schoneweiss had appropriate legal advice as to the above matters and how they may impact the assessment and placed no weight on Mr Schoneweiss’ support of the application for legal costs.

It is worth noting that after the issues related to costs were deferred to a second hearing, the Court made the extraordinary order to require Adero Law to file and serve on the applicant an affidavit to: (1) disclose the outcome of a review of its time entries and annexing those records; (2) provide a description of, and justification for, tasks undertaken prior to entry into the costs agreement; (3) identify any costs said to be chargeable for obtaining the costs consultant’s opinion; (4) provide a detailed description and explanation of the work undertaken in preparing the pleadings; and (5) disclose the extent to which certain work was duplicative of work produced in relation to other proceedings and explaining why it is claimed against the applicant.

Pleadings Deductions

Her Honour noted that the bills provided to the costs consultant were insufficient to permit her to discern the time expended on certain tasks, resulting in inter alia her failure to identify the full extent of time expended on drafting the pleadings. Her Honour accepted Adero Law’s evidence that it was 120 hours, and assessed the rate chargeable for drafting the pleadings with reference to Schedule 3 of the Federal Court Rules 2011 (Cth) (Rules) for item-based costing and allowed $7,800 ($59.00 per 100 words), a discount of $47,753.50.

Other Deductions

The Court made further deductions including, but not limited to:

• 12 hours of Principal time anticipated in preparation for the settlement approval hearing which involved a review of the whole file was deducted;
• hours billed for drafting documents based on the item-based costing scale in Sch 3 to the Rules;
• any expense related to the preparation of the costs consultant’s report;
• no uplift was included, due to, among other things, the fact that the proceedings were at an early stage and there had not been any undue complexity that required particular care or skill above the pre-existing duties owed by solicitors; and
• a 10% deduction was made for the failures to disclose costs estimates both in the costs agreement and prior to entry into the settlement deed pursuant to s 22 of the LP Act.

The costs consultant, Ms Catherine Dealehr, had already calculated deductions for various identified issues in her reports, including removing costs associated with preparing costs agreements and bills in the itemised bill provided to her.

The Court further reduced costs by $171,775.86, approximately one third of the costs sought and assessed by the costs consultant.

Schoneweiss v The Fourth Force Pty Ltd (No 2) [2022] FCA 1489

Federal Court of Australia, Charlesworth J,
12 December 2022

Applicant’s Solicitors: Adero Law
Respondents’ Solicitors: Respondent did not appear
Applicant’s Funder: N/A

Austlii Link: Available here

_{< Go back to Class Actions Landscape Australia}