Mark, Steve --- "Complaints About Legal Costs - Ethical Implications" [1998] ALRCRefJl 5; (1998) 72 Australian Law Reform Commission Reform Journal 23

• Reform Issue 72 Autumn 1998
• This article appeared on pages 23 – 26 of the original journal.
• By Steve Mark*

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Reform Issue 72 Autumn 1998
This article appeared on pages 23 – 26 of the original journal.

Complaints About Legal Costs: Ethical Implications

By Steve Mark*

Ethics is the glue that holds the legal profession together. Without a strong culture based on universally acknowledged, understood and applied ethics, the legal profession disintegrates into little more than a business or an industry.

While some may consider this a positive outcome, perhaps in terms of the potential for increased competition, one must wonder what the ultimate impact of such a move would be on the concept of the rule of law in a pluralist democratic society.

The Office of the Legal Services Commissioner in NSW (OLSC) receives and oversees the handling of all complaints against solicitors, barristers and licensed conveyancers in the state. In the four years of its existence the Office has experienced the greatest number of complaints in the area of legal costs. These complaints involve concerns about overcharging, overservicing, inappropriate billing procedures and the use of solicitor’s liens as well as cost associated complaints such as delay, negligence and incompetence of legal practitioners.

Complainants, mostly the clients of lawyers, consistently say they went to their lawyer for ‘help’. Most people see the legal profession as a helping profession and many think that helping people should be its own reward. This raises the first major dilemma for ethics and legal costing. When you go to a lawyer as a member of the helping profession, you may get that assistance, but the lawyer will charge you for it.

We are used to paying for services or products to achieve an outcome. You end up with a refrigerator, an orange or a service that is easy to define. The same is not true when dealing with the legal profession. When a person approaches a lawyer for assistance, they are not likely to be actually buying an outcome; such as getting access to the children of the marriage or staying out of gaol. They are actually buying expert assistance in dealing with (or gaining entry into) a process rather than an outcome. That is usually delivered by another body, such as a court.

This confusion about what is on offer when a client purchases the time of a solicitor or barrister is exacerbated by an additional problem. The legal industry is probably the only one where, contrary to the maxim, the client is almost never right. When a client is charged with a criminal offence or is on the receiving end of a civil law suit, they often instruct a lawyer to ‘get them off’, but rarely to ensure that they do it in an absolutely ethical way. Accordingly, lawyers often have to deal with clients who want them to do things that are not themselves ethical. When billing a client for advice that has been received, effectively, as ‘bad news’ the lawyer sometimes faces the dilemma of dealing with the client’s often unrealistic expectations, while still hoping to get paid.

The costs of ‘no cost’

As with most complaints that come to the OLSC, communication - or the lack of it - lies behind most costs related complaints. Most practitioners who advertise do so while also referring to costs. Expertise and specialisation may be part of the ad, but much advertising entices people with ‘no win, no pay’ arrangements in personal injury matters, ‘no cost to you’ workers’ compensation representation or ‘fixed price’ conveyancing.

An advertisement that says ‘no win, no pay’ can mean very different things to members of the public and to lawyers. A lawyer will read such an advertisement with knowledge of the complicated costs rules, involving concepts such as party/party and solicitor/client costs. Without an explanation, a client is entitled to believe that unless they win, they will not get a bill. How far does a practitioner have to go to explain exactly what a client might be up for, even if they do win? Clients may have to pay at least some of their own costs, or disbursements in, for instance, a personal injury matter. If the case is lost, they may have to pay the other side’s costs. It is indeed a balancing act for the lawyer enticing a client to explain in simple language the prospects of success and the foreseeable costs, without on the one hand promoting litigation with all its attendant costs to the community or, on the other hand, driving the potential client out the door.

On the subject of that first meeting, what about those solicitors who offer the first consultation free? What happens when the allotted half hour of free time is up and the client is still explaining their problem? Does the solicitor stop the client to let them know that the free time has expired and that they will now be charged for the solicitor’s services? This may destroy any atmosphere of trust and empathy which has been established. In the same vein, we also receive complaints from clients who attended a free first consultation and, upon deciding not to proceed with that practitioner, receive a bill based on the practitioner’s argument that the first appointment would only be free where there was a second, fully charged appointment. While we can often resolve these disputes through the complaint handling process, the real solution lies in good communication with the client from the beginning of the interview.

The requirement for legal practitioners to disclose their estimate of costs at the beginning of a matter raises many ethical issues. It is frequently very difficult to estimate the ultimate costs of, for example, a complex conveyance. The Legal Profession Act 1987 (NSW), however, requires that it be done. In trying to retain the client, is it ethical to be somewhat unclear about the potential search costs and other subsidiary disbursements associated with a conveyance that were not mentioned as part of the quotation? Should practitioners simply be bound to the cost agreement price?

How far does a lawyer have to go to warn a client of an expensive tack the opposition might take? The answer is that costs disclosure forces the profession to be as precise and detailed as possible about what a matter will cost. Disclosure was introduced as a trade off for the abolition of scale fees, which were seen to be anti-competitive. The problem is not even a majority of practitioners properly disclose in all cases. This means that unsubstantiated oral agreements are frequently the subject of fruitless argument in complaints.

The context in which information about costs is exchanged is often vitally important. Did the client understand what they signed in the solicitor’s office during that first meeting? Did the stress of recounting a traumatic marital history or a debilitating injury obscure the fact that costs were only discussed briefly and incompletely before the costs agreement (if any) was signed?

As the case progresses and new variables arise there is commonly a point where the client claims they should have been notified that costs had reached an amount exceeding their expectations. “But I told the client that costs were escalating and the case would cost much more that we originally estimated,” we often hear practitioners say. But were these altered circumstances set out in writing or just communicated in the heat of an emotional discussion on the likely outcome of the case? The evidence received in our office suggests it is wise to ensure any substantial increases in original estimates of costs are conveyed in writing. While this approach is wise, it is also a requirement of the Legal Profession Act 1987.

The $300 letters

Ethical concerns emerge when a lawyer charges for work - such as taking phone calls, preparing documents, making photocopies and sending faxes - at the solicitor’s hourly rate, which can be upwards of $200 per hour. Often the actual work is performed by a secretary, paralegal or assistant. One complaint received by the OLSC involved a solicitor who charged a client $300 for posting three letters. It transpired that a clerk had hand delivered the letters to a post office some distance away. Curiously, our investigation disclosed that a postal service was available right around the corner from this practitioner’s office and, on any analysis, the clerk’s time could not be assessed at a $100 per hour. The cost was consequently substantially reduced.

It has long been regarded that overcharging, particularly gross overcharging, is not only an ethical issue, but can amount to professional misconduct leading to disciplinary orders by the Legal Services Tribunal. Overservicing is just as insidious.

It is widely accepted that a person should be entitled to claim just payment for work performed. However, those performing professional services, particularly where that service involves a large component of professional advice, find it difficult to fix a price other than a time-based figure. This creates difficulty in a society where consumers are increasingly seeking value, rather than a simple statement of time spent. As an extension of this point, should senior practitioners with extensive experience and specialised knowledge of a particular area who can give five minutes worth of advice, which holds great value for the consumer, be required to bill only for the time spent? The time spent could, of course, be much greater should that practitioner lack the experience and specialised knowledge.

Legal practitioners must shift their focus from time costing to value costing for the future demands that consumers will place on the profession. Just how this is to be achieved and the ethical issues involved should be the matter of extensive debate within the profession - and it should involve input from consumers.

Transparency in costs

Another concern that arises through handling complaints about costs involves the inclusion of disbursements in a solicitor’s bill. Solicitors’ bills generally are made up of two distinct parts: that dealing with the actual legal work performed; and that outlining the disbursements or ‘out of pocket expenses’ incurred by the practitioner.

It seems difficult to understand the logic, or indeed legitimacy, behind charging a client for legal work performed at an hourly rate and then outlining minor disbursements such as photo-copying, faxes and phone calls as separate charges that also need be met by the client. Major disbursements, such as barristers’ fees, medical reports or other expert opinions should be the subject of direct contract between the parties involved and minor disbursements should be absorbed into the practitioner’s hourly rate. What the consumer requires is far more transparency in the costs and billing structure than currently prevails.

It might appear on the surface to be a minor point, but what invokes great agitation in consumers of legal services are photocopying charges, which appear on solicitors’ bills at $1, $2 or more per page. Commercial services will deliver such photocopying at approximately 10 or 20 cents per page. Is it ethical to argue, as some practitioners have, that the photocopying had to be done by a paralegal or even the solicitor and, therefore, the client should be paying for their time?

Not all costs dilemmas arise in the context of the solicitor and client relationship. Consider the solicitor who has been running a litigation matter and billing the client along the way on the basis of either time spent (as substantiated by a manual or computerised time recording system) or by their own (arbitrary) assessment of the value of the work done. The solicitor succeeds and a costs order is made in favour of the client. The parties to the action then try to negotiate an agreement of party/party costs, but are unable to reach agreement and the matter proceeds to either assessment or taxation (depending on jurisdiction), to determine the amount of costs.

An itemised bill of costs is drawn up meticulously listing every item of work done in relation to the matter and the charge for each. While doing this, the solicitor realises that the bill to be rendered to the paying party is going to be greater than the bills so far rendered to the client. What should the solicitor do? The answer to this dilemma may be found in the costs indemnity rule, which prohibits a receiving party (or their solicitor) recovering more costs than have actually been incurred by that party. The rule, therefore, absolutely prohibits either the receiving party or their solicitor making a ‘profit’ on costs.

Mention of the indemnity rule brings up the indemnity principle, which in part is the basis for our long held tradition that the losing party in civil litigation will pay the costs of the winning party. While this principle is both an attempt to create a degree of equality between the parties as well as a discouragement to frivolous litigation, arguments are emerging that it may have more negative effects.

With continuing cutbacks in Legal Aid and other assistance programs, does this principle now mean that many cases, which could be defined as test cases or matters of significant public interest, are not being commenced where the plaintiff lacks funds and the defendant is a well-funded corporation or government body? It may be time for a stringent review of the indemnity principle, which would involve a rethink of our Legal Aid programs as well as the extensive pro bono programs run by our various Law Societies and Bar Associations.

Abolish liens

Finally, a common problem is that of a solicitor who has performed work on behalf of a client and receives a request from that client to transfer the file to another practitioner, but claims a lien on the file, based on the fact that they have not received payment for the work already performed. Most such clients find themselves in the unenviable position of having to face litigation or other legal obligations without access to the file or essential documents. They may well consider a solicitor’s lien as no more than a form of blackmail to have a bill paid. This is particularly poignant when the client also alleges that the reason for wanting to change solicitors is based on what they considered to be the incompetence, delay or overcharging that they attribute to their present practitioner. While the Legal Services Commissioner has the power to override a solicitor’s lien in circumstances where satisfied it is necessary to do so for the ‘orderly transaction of the client’s business’, the dilemma remains between a solicitor’s ‘right’ to have their reasonable costs somehow secured, and the client’s ‘right’ to progress their matter to a hopefully successful conclusion.

It is my belief that the solicitor’s lien has the capacity to bring the profession into disrepute and may not ultimately be offering the best service for individual practitioners who still retain their ability to sue for costs in appropriate circum-stances. Accordingly, it may well be in the interests of both the profession and the consumer for solicitor’s liens to be abolished.

At the risk of sounding over simplistic, the issue which permeates all the matters raised above is that of communication. Good communication between the legal practitioner and the client - at the outset of any matter and throughout its course - is essential in both ensuring the smooth running of the case and in reducing complaints against practitioners. Communication is also central to the concept of ethics which involves the establishment of rules and standards for right conduct or practice and, most particularly, that these are universally acknowledged, accepted and practised.

* Steve Mark is the Legal Services Commissioner for NSW.