Resource companies operating in Queensland are required to compensate land owners for the reasonable legal costs they incur as part of negotiating or preparing a conduct and compensation agreement. But what are “reasonable legal costs” in this context?
“Reasonable legal costs” sounds like a perfect solution to a problem where one party is required to pay the legal costs of another in order to avoid any actual or perceived excess or abuse of the payment obligation.
However, while sensible in theory, there is little practical guidance about what “reasonable legal costs” means and there is often a considerable gulf between the views of the different parties about what needs to be paid.
In Queensland, resource authority holders are generally required to compensate owners and occupiers of land for, among other things, “accounting, legal or valuation costs the claimant necessarily and reasonably incurs to negotiate or prepare a conduct and compensation agreement, other than the costs of a person facilitating an ADR”.
As yet, there is no determination by the Land Court relating to the scope of “reasonable legal costs” in the context of resources legislation and so the extent of such costs remains uncertain.
However, cases in other areas of law, namely acquisition of land cases and proceeds of crime legislation cases, do offer valuable guidance where the court has been called upon to consider what amounts to reasonable legal costs in those contexts.
Such cases, together with a first principles analysis of the legislation, suggest the following factors will be considered when assessing “reasonable legal costs”:
- the need for the legal work must have been reasonable;
- the cost of doing the legal work (whether the rates involved or another basis of payment) must have been reasonable (and in this regard, issues around “care and consideration” as a component of legal fees may need to be considered);
- the time taken to do the legal work;
- the work must have been related to the issues in question (in a resources context, the work must have been related to the negotiation of the conduct and compensation agreement); and
- the merits of the position adopted or the arguments advanced must have some basis or prospects of success.
While not the subject of any cases, it is also arguable that the quality of the work done may be another relevant factor. Work that is particularly poor quality may not be within the scope of “reasonable legal costs” and may not be payable by a third party payer. This is because the client may not have been required to pay for work of that nature in the first instance.
Other issues that arise in the case law suggest that:
- what constitutes “reasonable legal costs” may not be the same as an amount that is determined by way of a costs assessment;
- there may not be a single value of an hourly rate which is reasonable as what is reasonable will depend on a number of circumstances (e.g. a larger law firm with higher overheads may have higher rates than a sole practitioner, but those rates are not necessarily unreasonable even if the standard of the work is the same);
- “reasonable legal costs” will depend on all the facts and circumstances of the case; and
- “reasonable legal costs” will be determined by the judge in the case not by a party or their legal advisers.
All of this means there is no magic number which will be considered reasonable legal costs in every situation. There is also no simple formula that can be applied as the particular circumstances in each case will determine what is reasonable. Although, it is equally true that for each particular circumstance, there will ultimately be an amount, or a range, which would be reasonable in that instance.
While the ultimate line defining “reasonable legal costs” is not black and white, knowing the factors which are relevant to what is “reasonable” will allow resources companies to arm themselves with relevant and reasonable questions when being presented with a higher than expected bill for a landowner’s legal costs.