John Kahn 05 Nov 2020
Legal fees are normally calculated by time spent on the case, which is called the time charge rate. When a lawyer accepts a case, they have a duty to provide an estimate of the legal fees to their client. Failure to do so may lead to cases where legal fees cannot be claimed. However, if the client has already paid the legal fees in advance, the legal fees can be evaluated to determine if they are appropriate, with a portion being returned if required.
Normally, people prefer to choose a fixed fee structure over a time charge rate. In a fixed fee structure, the client and lawyer agree upon a fixed fee for the whole legal process. Contrary to the time charge rate, the client has the assurance of not having to pay any further premiums. Furthermore, the lawyers do not have to calculate their time spend on a 6min basis when filing their invoice, and a fixed fee avoids any future conflict over the legal fees exceeding the initial estimate. For these reasons, within legal circles, there is a continued dispute over whether a time charge rate or fixed fee agreement is better.
However, a fixed fee agreement is not without its issues. If the client has not fully explained the details of the case from the start, the legal issues change as the case progresses or if the lawyer sets a fixed fee but then continues to add additional charges, the fixed fee agreement would become problematic.
For example, in one case study Person A was prosecuted and taken to court. Person A sought the services of a lawyer and agreed on a fixed fee under a contract of $100,000 for the whole legal process until the end of the jury trial. The lawyer, after accepting the case, prepares various kinds of evidence and comments and seeks the services of a barrister. However, due to a lack of evidence, the case does not progress to the jury, and the prosecution side withdraws their case. The lawyer billed Person A $100,000, and Person A reported the lawyer to the law society.
What happens in this case? Assuming no exceptional circumstances, the fixed fee agreement may become invalid. This is because the lawyer calculated the fixed fee assuming the case would go to a jury trial, but this did not occur. In such an instance, the fixed fee agreement is not reasonable. As such, the amount should be amended to reflect the actual hours worked on the case.
Let us consider a different example. A lawyer has accepted a traffic accident case and has divided the fixed fee agreement into parts for each stage of the process. This is shown below.
1. Preliminary procedure prior to the case - $2,500
2. Compulsory conference with the other side - $3,000
3. Filing a statement of claim - $4,000
4. Submitting documents - $1,000
5. Conciliation - $2,000
6. Hearing and trial - $6,000
Stages 1 and 2 have progressed, and following the conference, the opinion is leaning towards a settlement. The case was eventually settled out of the court. However, the lawyer invoiced the client for the total of the five stages ($12,500), claiming this was correct. The client argued this was extravagant and filed a complaint with the law society.
The fixed fee agreement’s partition into parts seems to not pose an issue. However, the lawyer only completed 1, 2 and 5, yet submitted 3 and 4 to be invoiced. Similar to the prior case, the initial invoice becomes invalid and only 1, 2 and 5 should be invoiced, totaling only $7,500.
As can be seen, sometimes within a fixed fee agreement the lawyer’s legal fees may not be just or reasonable. The lawyer has a duty to explain the fees for their services to the client, and when things do not go as expected, the lawyer should not always receive the agreed initial payment. People often have the assumption that if they consult another lawyer, the lawyers will side together. Although other countries may differ, in Australia, this is not the case. A lawyer should not for their occupational benefit cover up another lawyer’s faults or even commit wrongdoings themselves since doing so would exacerbate the issues and eventually be uncovered. Only by acting conscientiously can lawyers maintain their professionalism, respect, integrity and trust with clients.