Module 1 – always involve the client in the cost setting process

Our value is a conversation

In order to avoid disputes and build client value recognition, Helix Humans must always involve the client in a costs setting conversation and seek to gain a genuine agreement upfront while avoiding simply telling the client how much it is all going to cost.

Unfortunately, the term ‘disclosure’ in the LPA had resulted in a habit of lawyers assuming all the responsibility for setting costs, which reduces client control and increases the risk of client dissatisfaction.

“With costs agreements, there is often no agreement because there is no understanding – it is often simply another poorly understood ‘take it or leave it’ offer. While clients might reluctantly agree to pay the figure mentioned in the costs agreement, they are rarely agreeing that this represents good value (that might or might not come later). Legal practices which value client relationships recognise that such costs agreements are inadequate; true agreement requires a much fuller understanding and acceptance of related costs and benefits.”  Queensland Law Society.

Helix Humans can give clients greater control over costs by:

• discussing value and costs in as much detail as possible before any file is open;
• asking the client what their budget is and what they can and cannot afford – explaining what can be done for them within their budget;
• preparing a project plan with the scope of work proposed and the costs of each phase of the scope;
• explaining cost variables and how different developments might affect costs;
• explaining the rates and experience of team members and asking if the client has preferences as to who does the work; and
• providing an example of what the bill might look like at the end of the matter – and asking the client if they would be happy with such a bill.

“Collaborating on costs means that the solicitor also has to collaborate with the client on scoping the work. The aim here would be to only do work that the client values – which requires educating the client about the value of different tasks or activities that they don’t initially understand or appreciate. Scoping also means clarity as to what is to be done. The dangers of not having that conversation can result in the solicitor and/or the firm being exposed to potential civil claims. Queensland Law Society.

Scope of Work

Just as your client’s construction project has a scope of work, so too does the legal project you are about to embark upon for them.  Scoping requires that we talk with the client about the extent of the risk that client is prepared to accept, having the client understand the extent of the risk involved in the work. Our conversation also requires that we test the client’s understanding of the work to be done, its commercial aims and the degree of risk. This conversation allows both the client and the solicitor to better understand the likely costs to the client for the work the client wants to engage the solicitor for.¹

Back End Team:  If the scope of work you are to perform is limited and the client does not want to adopt the full scope recommended by you please have regard to the following guidance”  No. 7 Limited Scope Representation in dispute resolution.

Robert Bax & Associates v Cavenham Pty Ltd [2013] 1 QdR 476

The Queensland Court of Appeal has upheld a decision finding a solicitor liable for failing to advise on the risks of a transaction that took place prior to his engagement.

In the case Robert Bax & Associates v Cavenham Pty Ltd [2012] QCA 177, the plaintiff was a trustee of a family trust who made various loans to three borrowers for the purchase of properties.

The plaintiff made the first loan on the understanding that the borrower would arrange a first registered mortgage over the property that was being purchased, but this did not occur. National Australia Bank obtained a first registered mortgage over the property. The plaintiff held no security for the loan.

The plaintiff’s bank manager arranged for a solicitor to act for the plaintiff after the first loan transaction was complete. The bank made two further loans to the plaintiff on the condition that the plaintiff would take first registered mortgages over the properties in relation to all three loans. The solicitor prepared the loan agreements and registered mortgages in relation to the second and third loans.

The solicitor also prepared a mortgage in relation to the first loan, but there was some difficulty registering that mortgage. The plaintiff said not to worry about it, under the mistaken belief that the mortgages in relation to the second and third loans would provide sufficient security.

When the first loan period expired, the plaintiff had received no repayments of the principal loan amount from the borrower; only interest payments had been made. At the plaintiff’s request the solicitor prepared an agreement providing a three year extension for repayment of the principal.

The plaintiff later sued the solicitor for his losses when the borrowers defaulted on the loans.

The plaintiff alleged that the retainer obliged the solicitor to protect the plaintiff’s commercial interests as a money lender. The solicitor argued that his retainer was limited to preparing loan agreements and arranging first registered mortgages for loans two and three, and arranging a second registered mortgage for loan one.

The trial judge found that the retainer extended to a duty to act generally in the plaintiff’s interests, and awarded the plaintiff almost $1.5 million plus costs.

This decision has recently been upheld on appeal. Justice Muir concluded that the solicitor’s duty could not be exercised without ‘ascertaining the extent of the risk his client wished to assume in the transactions, evaluating the extent of the risks involved in the transactions and advising in that regard’.

The proper discharge of the defendant’s retainer did not depend on the plaintiff actively seeking advice. Of significance was the plaintiff’s lack of experience in these sorts of transactions, giving rise to the need for proactive explanations by the solicitor.

Justice Muir ultimately found the solicitor in breach of the retainer through his failure to question why the first loan had not been secured by a first mortgage and his failure to recommend securing each loan by mortgage.

This case demonstrates the extent to which solicitors might be held liable for failing to advise clients on matters that may appear to fall outside the scope of a specific engagement.

“Currently, too many solicitors fail to fully collaborate with clients on scoping and costs discussions with the result that either:

• unnecessary work is undertaken – leading to poor value recognition and costs resentment;

• all the work undertaken is necessary and of value to the client but the client doesn’t understand or recognise this – leading to similar costs resentment; and

• the solicitor fails to identify and undertake either necessary work (negligence risk) or fails to identify potential additional work that would be both profitable and highly valued by the client.”

Collaboration and partnering on both costs and the scoping of work builds value recognition, boosts costs consciousness and ultimately leads to happier clients and higher profits.