Value Pricing and Regulation of the Legal Profession - How Do They Work Together?
Many practitioners who are considering adopting value pricing fear that they will somehow be in breach of the relevant Legal Profession Act or Professional Conduct Rules. Let’s look at some of the concerns.
I have to keep time sheets
There is no provision of the LPA, the new Uniform Law or Professional Conduct Rules which requires a lawyer to keep time sheets. However, if a lawyer enters into an agreement to charge by reference to time (i.e. hourly billing), then that agreement of itself requires the practitioner to keep records of the time they have spent, in order to discharge their onus to prove the work they have done, and the time spent.
However, if a practitioner agrees a fixed fee with a client, there is no provision that requires that a record of time spent is to be kept.
What is required is that the practitioner be able to prove that the agreed fee is fair and reasonable, and therefore it is important to be able to demonstrate that the client understood the fee that was being proposed, the other pricing options available to the client (e.g hourly billing, scale or Practitioners’ Remuneration Order), and that the fee is fair and reasonable having regard to the work undertaken and the value delivered.
The new Uniform Law supports fixed fees, by providing that prima facie, the fee disclosed in a cost agreement is fair and reasonable. Further, the Uniform Law requires that a practitioner advise the client of different pricing options, with charging by task or phase given as examples.
What if the client asks for an itemised bill?
Again, there is no caselaw or legislative provision which says that, where the charge is by reference to a fixed fee, that an itemised bill has to set out the work undertaken by reference to time. The caselaw on itemised bills relates to matters where the law firm was charging on an hourly rate basis, or by reference to the scale of costs. In both of these circumstances, the itemised bill must set out charge made for each separate task, and where the pricing arrangement is time based, the itemised bill must also set out the time spent on each task, because that is the agreement.
If the client asks for an itemised bill, you do have to provide one. Where you are charging a fixed fee, this means you would provide a bill detailing the work that you did, setting out the documents you prepared (perhaps detailing the various drafts), letters and emails sent and received, telephone calls and other attendances, and any other work. It would be preferable to be able to detail the length of each attendance.
What if the retainer is terminated part way through the work?
Your agreement with the client should have clear provisions as to how the price will be calculated if the retainer is terminated prior to the conclusion of the matter.
The Courts look at time as the basis of what is fair and reasonable
No they don’t – well not entirely. The Victorian Costs Court tends to have regard to the relevant scale of costs or Practitioners’ Remuneration Order as a measure of whether a fee is fair and reasonable. At this point, there is no caselaw to give guidance to the Court as to how to assess whether a fixed fee is fair and reasonable. As previously, noted the new Uniform Law provides that the fee disclosed in a cost agreement will, prima facie, be considered to be fair and reasonable.
It is vital that a practitioner be able to demonstrate that the client gave informed agreement to be fee. It would also be preferable to demonstrate how the fee was calculated and whether or not this was explained to the client.
Of course, it’s important to remember that contingency fees are banned in litigious work. In other words, the fee cannot be calculated by reference to the amount recovered or paid in litigation.
The Uniform Law and fixed fees
The Uniform Law replaces the Legal Profession Act in regulating the arrangements between lawyers and their clients. Whilst it has been passed by the Victorian Parliament, it will not come into effect until the relevant rules are giving effect to be Uniform Law are finalised. At this stage it is anticipated that it will take effect from 1 July 2015.
There is one provision of the Uniform Law which of itself should give pause to all lawyers and promotes fixed fee value pricing arrangements. Under the Uniform Law, if lawyers fail to comply with the disclosure provisions (including providing accurate estimates of the total legal costs and updating those estimates), the cost agreement will be void.
This is a very good reason to enter into a fixed fee agreement with the client at the outset and therefore not worry about updating any estimates of costs.
How does my client recover party/party costs?
The Federal Court recognises that practitioners may charge on a basis other than time and the scale of costs specifically allows the Court to fix the fees recoverable by one party from another by reference to a non-time based agreement.
In other jurisdictions, the scale of costs include items allowed by reference to time, and other work which is generally calculated by reference to the length and number of documents. These types of scale have been in effect for decades, well before the almost universal adoption by lawyers of time costing.
For those litigators who entered into value pricing arrangements with their clients, the simple solution is to record the length of attendances on file notes. Entering into a value pricing arrangement doesn’t mean that you shouldn’t be keeping file notes to evidence the work undertaken, both from a risk management perspective in the event that there is a dispute with the client about instructions given, or as good practice to ensure the file can be transferred to another solicitor within your practice in the event that you go on holiday, become too busy to continue to conduct the matter of some other reason.