Alternative options for reasonable legal costs in compensation negotiations and potential disclosure protocols

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9 October 2014

At the end of negotiations for a conduct and compensation agreement, resource companies often find themselves presented with a higher than anticipated bill for the landowner’s legal costs. This demonstrates the gulf between a landowner’s expectations and those of a resource company, and begs the question - is there a better way for dealing with reasonable legal costs?

Resource companies operating in Queensland are required to compensate landowners for the reasonable legal costs they incur as part of negotiating or preparing a conduct and compensation agreement. While factors constituting “reasonable legal costs” in this context are becoming clearer, much uncertainty still exists.

Uncertainty in a legal context can be damaging to industry and to landowners. Having clarity from the outset around payable legal costs would be beneficial to all parties.

So, is there a better way to assess, and deal with, ‘reasonable’ legal costs such that parties share a common understanding from the outset? Should the existing regime be changed, or could protocols be introduced to provide more certainty? We consider some options below.

Each Party Pays Own Costs

One of the more obvious solutions to higher than expected legal bills being presented to resource companies is for each party to pay their own legal costs.

There has long been a concern among resource companies that if the landowner isn’t paying their own costs, they have little incentive to manage their legal costs or to settle the matter quickly or on commercial terms, and thus may try to hold out as long as possible for a better deal.

On the flip side, a common argument against each party paying their own legal fees is that resources companies are often (but not always) better resourced and have deeper pockets than landowners. Thus they would have a superior bargaining position if each party bore their own costs.

But having an equal bargaining position is rare in any commercial negotiation and would seem insufficient justification for having resource companies pay for the reasonable legal costs of landowners in all situations. If equal bargaining position was the desired negotiating position, then well resourced landowners would have to pay the legal costs of cash strapped explorers.

In any event it seems unlikely the government will change the position on resources companies paying the reasonable legal costs of landowners, so other options may need to be considered.

Capped Legal Costs

Part of the concern of resource companies in paying reasonable legal costs is that the costs are potentially indefinite if the matter becomes long and drawn out. This uncertainty could be managed by setting a cap on the legal costs to which a landowner is entitled from a resource company in compensation negotiations.

Capping costs would cover at least some of the landowner’s legal costs, and would also address resource companies’ concerns about a lack of incentive for landowners to act commercially or in a timely fashion.

Scale of Costs

While courts in previous cases dealing with reasonable legal costs have said that there is no set hourly rate that could be considered reasonable in every circumstance, Parliament has the option of legislating otherwise.

This is not without precedent as litigation proceedings have a scale of costs which are to be paid when a court orders one party to pay the costs of the other. There is no legal reason that would prevent Parliament from introducing a scale of costs for landowner-resource company negotiations. This option would also provide some certainty around costs.

Legal Fees as a Percentage of Compensation

Compensation for mining leases in Queensland includes many of the same compensable matters as for other resource authorities. One unique element for mining leases is that the compensation is to include an amount of not less than 10% of the other compensation for “the compulsory nature of action taken” in relation to the mining lease. There is no specific head of compensation for mining leases relating to reasonable legal costs.

As a general principle, it is a reasonable proposition that the amount of legal fees for a conduct and compensation agreement should be proportional to the amount of compensation. It would be a fairly rare situation for legal fees to be the same or greater than the compensation itself, though in theory it could happen.

That being the case, an option for reasonable legal costs could be to have a percentage of the other compensation paid in lieu of a separate payment for reasonable legal costs. This additional percentage would cover legal fees (and perhaps other things) and may be a useful option to provide greater certainty around legal fees.

A Separate Right to Recover Reasonable Legal Costs

While the general position may be that the reasonable legal costs are likely to be proportional to the amount of compensation, there may well be situations where this is not the case. For example, where extensive negotiations are needed around very specific access conditions but the amount of compensation is small.

If legal fees were to be capped or covered by a percentage payment on top of the other compensation, a further option may be to allow landowners to seek to recover reasonable legal costs in excess of the cap or the fixed percentage by proceedings in the Land Court.

This would allow cases where genuine reasonable legal costs that are higher than the capped amount or fixed percentage to be recovered by landowners.

Any costs of any Land Court proceedings for the determination of reasonable legal costs would be determined by the Land Court according to its rules.

Disclosure around Landowner Legal Costs

Part of the concern around landowner legal costs lies in the fact that resources companies often only receive information about these costs at the very end of negotiations; often after the other compensation and terms are agreed.

Under the Legal Profession Act 2007 (Qld), a resources company would be considered to be a non-associated third party payer of the legal fees of a landowner. As a non-associated third party payer, a resources company has some rights, for example to obtain an itemised bill and to request a costs assessment, but they are not entitled to receive a copy of the costs agreement which sets out how the landowner’s legal fees are to be assessed nor the basis of that assessment (e.g. hourly rates or something else).

If the costs agreement, or at least the parts of it relating to how costs are to be assessed, were disclosed to a resources company, this would give them some understanding of the likely costs they may have to pay.

While there may be no legal obligation on a landowner to disclose details of a costs agreement in advance of negotiations, if a dispute were to arise around the legal costs, it is likely that such details would need to be disclosed in any litigation. In addition, as part of any negotiation, the parties need to discuss and disclose the potential compensation such as the potential impacts of the resource activities on the land. As the reasonable legal costs are an aspect of the compensation that is payable, some measure of disclosure around those costs ought to be made during negotiations.

If some form of disclosure was being made about legal costs, that disclosure could potentially go slightly further than disclosure of only the costs agreement especially as these are details that the resources company would be entitled to in a dispute about the costs. Other information relating to a landowner’s legal costs that could be provided by the landowner include:

  • fee estimates (both the initial estimate and subsequent revisions as the negotiations progress);
  • regular updates of costs that are actually incurred (rather than only disclosing the total at the end); and
  • confirmation that the rates being charged by the landowner’s solicitor are the same as the rates charged in other (ie non resource company and landowner negotiation) matters, or if there is a difference, the reason for the disparity.

Disclosure of this nature would help avoid surprises around a landowner’s legal bill at the end of negotiations and give comfort to resources companies that the legal fees being sought are indeed reasonable.

Conclusion

While there remains uncertainty around reasonable legal costs, at least some of this uncertainty could be removed by changing the regime for payment of legal costs. Some of these options would also address concerns about timely resolution of negotiations, concerns about ensuring legal costs are properly managed throughout negotiations and concerns about avoiding excessive costs.

Alternatively, if the regime for the payment of reasonable legal costs is to stay in its current form, then a protocol for the disclosure of certain information by the landowner would beneficially provide at least some detail of what legal costs may ultimately be sought.




The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.


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