National firm fails to provide ‘accurate’ cost estimate in dispute

By Naomi Neilson|18 August 2020
National firm fails to provide ‘accurate’ costs estimate in dispute

A national law firm’s cost estimate provided to a client defending a lawsuit over a share dispute failed to comply with requirements under the Legal Profession Uniform Law.

The Supreme Court of Victoria has found Mills Oakley failed to comply with the Uniform Law requirements during discussions on its costs agreement with a client that retained the national firm to advise on a shares dispute lawsuit that spanned several years. 

The applicant Mr Shi (first name redacted) submitted that the costs agreement he was provided during the case was void as the firm had failed to comply with the mandatory disclosure obligation, had failed to disclose an accurate estimate of its legal costs and failed to disclose “any significant change to the legal costs that will be payable”. 

In its judgement, the Supreme Court wrote: “The initial disclosure included a reference to the applicant issuing legal proceedings before an estimate of total costs should have included reasonable disbursement that was expected to be incurred in foreshadowed proceedings. This was not done. Instead only limited costs disclosure was given and the scope of work and disclosed legal costs were not updated.”

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Clarification: A clarification on Venn King’s involvement in this matter has been included below.

Initial costs agreement

MO was initially retained to advise on the sale of shares in Mr Shi’s company, however the purchaser soon terminated his contract and requested a deposit to be returned. In November 2016, special counsel Venn King wrote to Mr Shi to explain that as the legal work was outside the initial scope of work it was not possible to estimate total costs. A clarification on Venn King’s involvement in this matter has been included below.

In a meeting with the firm, Mr King advised Mr Shi that the estimated costs of the case, including any potential proceedings, could cost him $100,000. Later that night, Mr Shi was provided a summary of the meeting, which included a plan of action and a request for prepayment costs. No written estimate of future legal costs was provided. 

The following day, MO emailed Mr Shi a scoping letter and separate engagement term. The document detailed the terms on which MO was prepared to act for Mr Shi and has included a document of the fees estimates and the cost agreement at that time. These scope of works and fees estimates breakdown have been included below. 

SPONSORED CONTENT

Item

Task

1

Review of current documents and recent correspondence to determine legal position

2

Preparation, discussion and finalisation of plan of action regarding matter

3

Determining position relating to repossession of physical assets to minimise losses

4

Correspondence with [purchaser] demanding performance of sale contract

5

Potential drafting, settlement and service of statement of claim

6

Correspondence, negotiations and meetings with [purchaser] and his advisers

7

Potential court appearances regarding matter

    Total fee estimate                                    $50,000 (+disbursements + GST)

The document then included a disclaimer under “fees” that an estimate of the total fees should be viewed as “tentative” and when “things become clearer”, MO claimed that it would provide a revised scope and estimate at the earliest opportunity. Later, the firm advised the total for the first account would be $26,479 and included unbilled charges.

In reply to an email, Mr King advised Mr Shi that the “law is an expensive environment” and said the firm would actively attempt to minimise the time spent on his matter as to ensure that it could keep his financial costs to a minimum. 

Clarification: A clarification on Venn King’s involvement in this matter has been included below.

In February 2018, senior associate Edwin Fah informed Mr Shi that MO had received a County Court writ from the purchaser. Mr Shi again informed the firm of his “limited” financial resources and requested the details of how much he would owe. Once more, Mr Shi was told that it would be “difficult to predict” but that it would “not be a surprise” if his legal costs approached the verbal agreement of $100,000 from initial talks. 

Estimates of new costs under new case conditions

When a mediation between Mr Shi and the purchaser failed to produce any results, he was informed by partner James Tobin that the legal costs and disbursements from the current period through to the end of the trial were likely to approximate $60,000, which included counsel’s fees and the costs for the preparation of trial. 

The firm also requested that he retain a barrister on the grounds that it would be much cheaper than retaining the firm for the services. Initially, barrister Gabi Crafti provided a costs agreement of $14,000 but this increased to $40,400 due to the trial. With MO’s “further $30,000”, this meant Mr Shi was looking at paying $70,400. 

In October 2019, after the decision on the trial was handed down, Mr Shi was advised that the total costs of the proceeding came to $267,888, consisting of a disbursements cost of $74,092, MO’s fees of $169,605 and GST. Mr Shi was told that as professional costs had been paid, the total owing at the end of the trial was $128,391. 

Mr Shi submitted that there was no valid costs agreement as MO failed to disclose the basis on which costs were to be charged as soon as practicable after commencement of the retainer and it failed to give an estimate of the total legal costs. In response, MO said Mr Shi failed to properly analyse its costs agreement and costs disclosure. 

The Supreme Court argued that the first costs disclosure should have provided further accurate costs disclosures and that when the estimate is in writing, the lawyers tended to refer back to the initial $100,000 “without reference to the costs charged to date or the substantial changes in the matter”. The court said this was inadequate. 

“Both of the later estimates of $60,000 and $70,400 do include counsel’s fees and the preparation for trial but exclude all other reasonable disbursements such as translators and interpreters, the costs of issuing and serving subpoenas and the transcript fee. In the circumstances I conclude Mr Shi was not given proper disclosure,” the Victorian Supreme Court noted in its judgement.

Changes to lawyer hourly rates during course of trial

The Supreme Court also found that Mr Shi was not informed of increases in the charge-out rates of the lawyers who acted in the matter, which included two partners, special counsel, a senior associate and a law graduate. The initial total was $2,304 an hour. 

Over the course of the case, the hourly rates of the lawyer’s work had increased. Below is a look at a partner and senior associate’s charge-out rate changed during the case. 

 

28 April 2017

30 April 2017 and June 2018

1 July 2018 to end of retainer

Partner

$560

$590

$630

Senior associate

$430

$450

$475


The Supreme Court found MO did not produce disclosures of the rate increases. When questioned, the court was told that Mr Shi would have been notified of the changes in the hourly rates considered that “there’s a possibility that the firm sends out universal mailing on the point” that do not form part of MO’s file. 

The respondent did concede, however: “If it turns out that the solicitor didn’t advise the client of the updated rates – when the bill is assessed, the original rates would apply.” 

“In my view, [MO] failed to provide a costs agreement or relevant costs disclosure for the new retainer,” the Victorian Supreme Court noted in its judgement. 

Within seven days of the judgement being delivered, the parties were asked to submit any proposed minute of consent orders in respect to the reasons and the costs of this application or, in the absence of consent, short submissions on costs. 

This case can be reviewed on Austlii under “Shi v Mills Oakley [2020] VSC 498”.

EDITORS NOTE:

Clarification: Venn King left Mills Oakley to join KHQ Lawyers in August 2017 and the carriage of the matter, when it was resurrected in February 2018 (11 months after Mr King had concluded with his involvement in it), was handed to another solicitor. Lawyers Weekly would like to clarify that Mr King was not involved in this above matter and, as far as he was aware, the matter had been concluded to the client’s satisfaction, billed and paid for without complaint.

While the initial conversation between Mr King and Mr Shi was a subject of the wider complaint, there was no wrongdoing on his part. The complaint itself came after solicitors who took over the case referred back to the initial conversation on the fees without clarifying how much had changed since.

National firm fails to provide ‘accurate’ cost estimate in dispute
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