It is without question that unpaid legal costs are a constant thorn in the side of law firms, and while it is not uncommon for bills to sit idle because of ongoing client relationships, lack of resources, or simply falling through the cracks, it is in a firm’s utmost interest to ensure that those costs, and the assessment of those costs, are addressed prior to the expiration of 12 months from the date the bill is given to a client.

Why should I act within 12 months?

On 1 July 2015, the Legal Profession Uniform Law (NSW) (“LPUL”) was introduced, and with it, changes to how firms assess and recover unpaid legal costs.  Specifically, s198 prescribes the application for assessment of legal costs and the limitations on those applications, with the latter being as follows: 

(3) An application under this section must be made within 12 months after—

1. the bill was given to, or the request for payment was made to, the client, third party payer or other law practice; or

2. the legal costs were paid if neither a bill nor a request was made.

(4) However, an application that is made out of time may be dealt with by the costs assessor if the designated tribunal, on application by the costs assessor or the client or third party payer who made the application for assessment, determines, after having regard to the delay and the reasons for the delay, that it is just and fair for the application for assessment to be dealt with after the 12-month period.

What we see from 198(4) is that any application for costs assessment, outside the 12 month period, may only be made by “the client or third party payer” with no provisions for an extension being available to a firm.  The presumption therefore is that a firm becomes statute barred, beyond the expiration of 12 months, to have its costs assessed irrespective of the reason.

In determining when the limitation period commences, courts have held that time starts from the issuing of the initial bill (lump sum or otherwise) and does not restart upon the issuing of an itemised bill, if requested at a later date¹. 

Can I still recover my costs if I am outside 12 months?

A firm is always entitled to commence recovery action for unpaid and overdue legal costs; however, if those costs have not been assessed, the firm ought to be wary of the possible risks and consequences of its inaction.

The most common risk is that a client alleges that the firm failed in its disclosure obligations.  For example; the estimated fees or type of work changed significantly; the engaging of a third party, such as a barrister, was done without complete disclosure; or the schedule of rates were incorrect.

In circumstances where a firm has not complied with its disclosure obligations, the firm exposes itself to those non-compliance consequences set out in s178 of the LPUL, specifically: 

(1) If a law practice contravenes the disclosure obligations of this Part—

1. the costs agreement concerned (if any) is void; and

2. the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and

3. the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and

4. the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

Putting aside matters of professional conduct, in the event a firm has breached its disclosure obligations and is now out of time for assessment of its costs, it is subsequently barred from prosecuting a claim for its unpaid legal costs and runs the very real risk that any claim will be dismissed, with the costs of that claim being payable by the firm.

Summary

Ultimately, the combination of disclosure breaches and expiration of limitation periods may result in a client being released from its obligations to pay and any costs agreement, together with those rights beyond statute, may become void.

Tips: 

1. Keep on top of your outstanding bills.

2. Don’t delay when it comes to the recovery or assessment of legal costs.

3. Ensure all disclosure obligations are complied with.

*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*

¹ QLD Law Group – A New Direction Pty Ltd v Crisp [2018] QCA 245.