Charging Outlays and Disbursements
5 August 2020
One of the roles of the Trust Account Investigations (TAI) team of the Queensland Law Society (the Society) is to assist and provide guidance to practitioners and law practices regarding their statutory obligations under the Legal Profession Act 2007 and Legal Profession Regulation 2017 (the Regulation). A common breach of the legislation by law practices is their non-compliance in relation to the charging of outlays and disbursements and subsequent reimbursement of the law practice.
Legal Profession Regulation 2017
Section 58(4) of the Regulation states:– The law practice may withdraw trust money if -
(a) The money is owed to the law practice by way of reimbursement of money already paid by the law practice on behalf of the person; and
(b) the practice, before withdrawing the money gives or sends to the person –
- a request for payment, referring to the proposed withdrawal; or
- a written notice of withdrawal.
Section 58(7) of the Regulation states:- “For the purposes of subsection (4), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the law practice has been debited”.
This means that the law practice general bank account or credit card has been debited. When applying this to law practices using general account cheques, the date of presentation is the date of payment rather than the date of issue. Similarly, it is not sufficient for an outlay to be incurred but the outlay must be paid.
Guidelines were first published by the Legal Services Commission (LSC) and the Society in June 2006. Since that time the Guidelines have been reviewed and amended.
The LSC outlined in the Guidelines the billing practices which are of a concern including:
- Law firms charging clients more for outlays/disbursement than the amounts they have actually expended on behalf of their clients, including the charging of surcharges or undisclosed mark-ups on the actual amounts that have been paid out.
- Law firms charging clients for and describing as costs or outlays a range of practice overheads including, for example, items described as client registration fees, file opening fees, archive fees, file retrieval fees, file closing fees, in-house stamping admin fees, CITEC administration fees, contributions to professional indemnity insurance, bank charges (as distinct from bank cheque fees) and settlement fees (when there is no agent).
- Law firms charging clients for and describing as outlays or disbursements a range of items including, for example, postage, stationery, photocopying, printing, facsimiles and email charges when the actual cost of those items has not been or cannot be accurately identified.
The Guidelines state:
- A law firm is not entitled to charge clients for practice overheads as if they were outlays or disbursements.
- Without the client’s informed consent, a law firm is only entitled to charge and recover as an outlay, or disbursement, the actual amount paid out on the client’s behalf.
- When obtaining a client’s informed consent to charge more than the amount actually paid out on the client’s behalf, a law practice must:
- Disclose to the client the amount of the proposed mark up or surcharge in either dollar terms or as a percentage of the actual amount; and
- Make that disclosure to the client in plain English and in writing prior to or at the time the client retains the practitioner; and
- Ensure the disclosure is not ‘buried in the fine print’. It may take the form, where there is no client agreement, of a notice designed specifically for the purpose or, where there is a client agreement or contract relating to the provision of the legal services in question, of a discrete schedule or annexure to the agreement or contract.
Items including ‘postage and petties’, ‘sundries’, photocopies and facsimiles have traditionally been billed to clients as outlays/disbursements when the actual cost to the client has not been or cannot be accurately identified or costed. It is the LSC and the Society’s view that such items should only be billed to clients as outlays or disbursements if they are capable of and have been accurately costed. If not, they may be billed to clients under the heading ‘professional fees’ (as ‘other professional costs’) provided the amounts are agreed with or adequately disclosed to clients prior to or at the time the clients retain the law practice to act on their behalf.
A copy of the LSC Guidelines can be found at the below website:
Law practices that conduct searches for clients, typically in conveyancing matters, commonly have an issue in the timing of when the law practice is reimbursed amounts for the outlay or disbursement of the search fee.
Many law practices use a search provider such as Infotrack or SAI Global to perform searches. The search provider then issues an invoice for those searches, sometimes on a monthly basis, and generally with a 30 day payment term.
The issue arises when the law practice has requested the search and in doing so, believe they have “incurred” the expense or outlay, as they have been billed for the search. However the law practice has not paid the search on the client’s behalf. Section 58(7) of the Regulation states that the money (outlay) is taken to have been paid when the relevant account is debited. Therefore an invoice for searches, from the search provided, must be paid prior to the law practice being reimbursed.
The requirement for reimbursement of funds is not only for searches but for any ‘outlay’ and ‘disbursement’ that a law practice is billing to the client.
Law practices are encouraged to request frequent bills from their search providers and be mindful that even if bills are issued and paid weekly those searches are unable to be reimbursed until the search has been paid for. Other strategies to ensure compliance with Section 58 of the Regulation is to ensure that outlays are paid prior to billing these outlays to clients.
For those practitioners or law practices seeking clarification regarding charging and reimbursement of outlays and disbursements, they should contact the TAI team via telephone 07 3842 5908 or email firstname.lastname@example.org