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How do legal costs work?


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Here at Andersons Solicitors, we spend time explaining to our clients how legal fees work in litigation. The topic of fees seems to be a bit of a mystery and this blog is aimed at trying to clear up some of the confusion.
 

Andersons Solicitors' fees 

The fees which Andersons Solicitors charge you, the client, are essentially at a contract rate. In other words, we discuss and negotiate a fee (or a basis for calculating our fees) which you are prepared to pay and we are prepared to accept.
 
Usually, that fee is expressed as either:
 
  • a hourly rate 
  • a task based rate: for example, a rate per activity or per word count or some variation of that
  • a fixed fee: where the price we set is the final price for a set piece of work. 
We consider our fees to be competitive and fair in the industry, and before agreeing to them, you have the right to obtain your own advice in respect of those fees and all other aspects of the contract which we intend to agree between us.
 

Fees in litigation matters

It is usually the case (although there are some clear exceptions) that the loser in litigation has to pay the legal fees of the winner. However, your opponent has not had the opportunity to negotiate fees with us in the same way that you have. That means that your opponent ordinarily would have to pay based on what you have negotiated with us. The Courts’ position on that is it leads to an unfair result. The loser’s legal costs as payable to the winner should not depend on the winner’s choice of lawyer. In order to fix that issue, each of the State’s Court sets what is known as a Scale of Costs.
 

What is Scale of Costs?

The Scale of Costs is what, in ordinary circumstances, the loser must pay to the winner for legal costs, rather than the legal costs actually incurred by the winner as a result of their negotiated contract with their own lawyer.
 
The District Court and the Supreme Court have a Scale of Costs which attaches a rate to activity. For instance, the Supreme Court Scale of Costs says that for every hour of work which your lawyer does for the case, you are entitled to recover a set hourly rate as determined by the Scale of Costs.
 
Every year, that Scale of Costs changes somewhat. It should be noted that not all activity costs will be compensated. If your lawyer does work which is just for your benefit rather than the advancement of the case, then those works just for you may not be claimable.
 

What costs are claimable if you win?

If you spend 10 hours with your lawyer getting advice because you want to be entirely clear on an issue and are nervous about your case, then that is not usually repayable. These costs are called “Solicitor and Client Costs” because they are incurred between just the solicitor and their client.
 
By contrast, a letter by your lawyer to your opponent’s lawyer is almost always claimable if you win in the litigation, assuming it is appropriate and has merit. The costs such as lawyer’s letters and Court attendances are called Party and Party costs, because they are costs incurred in addressing the dispute between the parties and progressing it.
 

The "gap" explained

The effect of the above principles is that there will almost always be a “gap” between what your lawyer charges you, and what you end up recovering from your opponent for legal costs if you are successful in your litigation. The first cause of the gap is the difference between solicitor and client costs versus party and party costs. The second cause of the gap is that the Scale of Costs is usually less than what your lawyer will charge you for the work described in the Scale of Costs. For example, the Sales of Costs might say that you are entitled to recover $360.00 per hour for work done by your lawyer whereas your lawyer and you have contracted to allow that lawyer to charge you $400 per hour. That gap of $40 per hour will not be recoverable even on party and party costs.
 
The recoverability of legal costs is considerably different in some of South Australia’s other Courts and Tribunals.
 

Scale of Costs in the Magistrates Court

The Magistrates Court has its own Scale of Costs. The Magistrates Court Scale of Costs does not award the winner legal cost in the same way as the District Court or the Supreme Court. The Magistrates Court instead allows for costs to be claimed as a percentage of the amount recovered in the litigation.
 
Say for instance that you sue someone for $80,000.00 and you succeed to the tune of $60,000.00. In that case, the cost you are entitled to recover are based on the judgment in your favour or $60,000.00. The Magistrates Court then allows for a percentage of that sum to be claimed for costs. For example, for the costs of preparing and filing a general claim, the Magistrates Court allows 3% of the claim amount if the claim is for a dollar amount. So, if you are suing for an unpaid debt of $20,000.00, then the amount you will recover for your legal fess of having a lawyer prepare and file the claim for you would be $600.00. It does not matter what your lawyer’s hourly rate as agreed is, or how simple or complicated the claim itself is. In our experience, the most you will likely recover in the Magistrates Court is 30% of the claim amount leading up to trial and then no more than approximately 3% of the claim amount for the trial itself (irrespective of how long that trial takes or how complicated it may be).
  

How to increase the amount of costs you are entitled to recover?

There are some strategic methods for increasing the amount of costs which you are entitled to recover in legal proceedings, irrespective of which Court your litigation is in. Primarily, the use of offers to settle which is the topic of our earlier blog here is recommended reading.
 
We strongly suggest that you speak with your lawyer if you have any concerned about legal costs and how they are calculated and recovered. Here at Andersons, we try to be as transparent as possible on costs but it is area of legal practice which often causes confusion.

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Get in touch with today's blog writer :
Felix Hoelscher 

Partner in Commercial Law and Business Law  and  Wills and Estates

Please note, this Blog is posted in Adelaide, South Australia by Andersons Solicitors. It relates to South Australian legislation. Andersons Solicitors is a medium sized law firm servicing metropolitan Adelaide and regional South Australia across all areas of law for individuals and businesses.