“You’re Fired!” – Supreme Court recommends significant changes to the current system for lawyers claiming legal costs.

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By Maria Civisic, Associate

To put it bluntly, the Victorian courts have had enough. In October 2021, Justices Jack Forrest and Kathryn Kings were appointed by the Supreme and County Courts to conduct an overdue review of the current ‘Scale of Costs’ (Scale) system for civil litigation, which has been labelled as ‘quite inadequate in today’s legal landscape’.

The review was called in response to a Supreme Court Judge’s decision to refer a group of lawyers, who claimed an exorbitant amount in legal fees and commissions from elderly investors in what is now known as the ‘Banksia Securities’ civil class action (involving a collapsed financial lender), for criminal investigation.

The recently released Report endorses the scrapping of the Scale and its replacement with a two-step process, potentially leading to a costs model that combines the use of fixed recoverable costs and costs budgeting (if the recommendations are accepted).

Why is the Scale getting so much hate?

You might be thinking, is it really that bad? That’s a big yes according to the Report, which  describes the Scale as ineffective, opaque and powerless in facilitating proportional costs against the increasing demand for litigation.

The Scale system, which categorises fee rates that lawyers can charge for particular legal work, has been slammed for enabling lawyers to claim costs above what is reasonable and proportionate to the original claim.

The ‘new future’ for costs claiming

The Report recommends a pathway for a staged reform that is intended to occur in two stages:

  1. in the short term, the recommendation is that the Scale be replaced with a far more upfront time-costing system which clearly describes each expense, allowing litigants to better understand the basis behind those pesky bills rendered at the end of a litigated matter. The use of hourly and daily rates, as opposed to the current item-based scale, is anticipated to accommodate alternative charging practices across a majority of Victorian law firms. This process is similar to what has been successfully adopted by the Courts in New South Wales.
  2. in the medium term, we could welcome:
    1. fixed recoverable costs for matters where costs are reasonably predictable. The Report recommends that the fixed model be piloted specifically for personal injury proceedings involving WorkCover claims, where a similar approach is already underway in the common law pre-litigation phase.
    2. costs budgeting approach for the more complex matters. This budgeting model involves court approval of ‘costs budgets’ submitted by parties shortly after the commencement of a proceeding, paving the way for costs to be controlled at an early stage.

In short, the recommended two-stage model aims to do what the current Scale cannot; that is, to boost transparency, encourage certainty, and promote overall cost effectiveness and efficiency in everyday legal practice.

So, the good news for insurers and their insureds?

To cater to the current surge in litigation, the recommended changes would assist litigants to better assess their litigation prospects, strategy and any appetite for early settlement. In other words, both sides would know what they would recover if they won or what they would be liable for if they lost, ultimately protecting the loser from being ‘destroyed by costs’.

It is hoped that the two-stage model would prevent proceedings or early settlement prospects from being unnecessarily delayed, due to lawyer’s claiming over the top amounts for professional costs. Undoubtedly (if implemented) this would be welcomed by defendant lawyers, as claims reserves could be calculated with more precision, so there would be no ‘shocking surprises’ at mediation or trial, when the Plaintiff’s costs are disclosed. This could also deter some Plaintiff lawyers from issuing ‘hard to win’ cases, as their entitlement to receive costs may decrease.

Whilst the Report’s proposed changes for costs claiming are recommendations only, the Supreme and County Courts have endorsed the recommendations, and will now proceed to further consultation regarding how best to prepare the transition for each reform to be implemented.  No date has yet been decided on when this is to formally occur. For the moment then, as they say, ‘watch this space’.

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