13/08/2019
The Cost of Legal Services
I am often asked why legal services are so expensive.
Recently the Legal Practice Council requested submissions regarding ways to limit the costs of legal services and I copy my response to that question hereunder, which speaks for itself:
“Dear Sir,
We refer to the invitation to make comments regarding the investigation into legal fees initiated by the South African Law Reform Commission.
We are of the view that you may find the most legal practitioners of very alive to the fact that legal fees are for the biggest part of the community unaffordable and have a lot of sympathy for members of the public that require legal services, but are unable to afford them.
Most practitioners, including the writer hereof has during the years given extensive discounts, wrote of debts, allowed clients to pay off the fee accounts out of sympathy and generally charged less than what they were entitled to, for the same reason.
During years of practice the writer had many discussions regarding the issue of legal fees with clients, both corporate and individual.
The writer is respectfully of the view that over regulating fees will force smaller legal practices out of business, which if it would be detrimental to both access to justice and the transformation of the legal profession.
The main argument regarding the current state of legal fees are as follows:
1 The practice of law is not a scalable business, in that the attorney taking instructions remains responsible for the matter to the client and/or the court wherefor the scope for delegation severely limited.
a. Even when work is given to candidate attorneys and junior associates, the work must still be monitored and signed off by the responsible practitioner.
b. Accordingly, our business is not:
i. a manufacturing business where nuts are for instance made by feeding raw material into machine and an identical product is repeatedly manufactured.
ii. a purely service industry where one can employ many staff members to answer telephone calls and give rote advice, such as a call centre, or;
iii. a purely sales industry where a number of clerks can be employed to sell for instance shoes.
c. The only way to effectively charge for legal services would be on a time based model, unless certain standard products such as wills, companies or trusts are supplied, which work has already been taken over by other service providers who are not bound by the rules of the Law Society's for the Legal Practice Council. Such work is to some extent scalable.
d. Furthermore, most work on behalf of the public are conducted as an interface between the public and certain branches of government, be it the police, courts or the Master of the High Court.
i. These branches of Government are usually understaffed, under resourced and overwhelmed, which inevitably leads to delays, which are not always foreseeable.
ii. Accordingly, it is also almost impossible to provide an accurate assessment of projected costs to clients.
iii. If one is busy with a litigious matter, it becomes even worse, as one would then be interfacing with a colleague whose instructions from his or her client is very often to be as dilatory as possible, which causes the incursion of additional costs in interlocutory applications to enforce compliance with the rules of the relevant court.
2 In light of the above, the capacity to earn income is limited by the hours available to ourselves, and most of the work charged for has to be conducted by ourselves.
a. Medical practitioners for instance have a similar hourly rate, but can, and do consult with up to 4 patients per hour and then send them off to a dispensary to pay for and obtain their prescriptions.
b. In most instances, clients must pay their doctor upfront for the consultation, unless there are on a medical aid, in which case the consultation fees are guaranteed.
c. There is no fund or viable insurance available to clients for legal services, mostly because the need for legal services are not as regular as the need for medical services.
3 The running of a legal practice is also by its very nature more expensive than most other businesses, and for good reason namely:
a. Most attorneys are entrusted with huge sums of clients’ funds, which has to be properly administered.
i. As an attorney has a fiduciary duty towards his clients, the administrative functions regarding their funds has to be personally monitored by the attorney and cannot be delegated to a bookkeeper, as may happen in an audit firm or medical practice.
ii. The costs of paying for proper accounting systems that can deal with client and practice funds are on its own equal to the salary of approximately one staff member per month.
iii. The time and costs spent managing accounts, payments audits and bookkeeping can also not be charged to the client but has to be absorbed in the hourly rate of the attorneys writing fees in the practice.
b. Most of the other costs resulting out of the running of the legal practice are similar to that of any other professional practice, yet those costs are also quite high, as one has to make provision for clients to consult face-to-face with their attorney at his offices, where issues like space, safety and the maintenance of respectable facilities are necessary requirements.
c. The confidentiality and retention of clients’ personal information is also a factor giving rise to costs that most clients who are businessmen in other fields do not understand, as they do not have such stringent requirements in retaining and safeguarding documents and electronic information.
4 Contingency fee agreements are one way of facilitating the provision of legal services to clients without requiring an extensive outlay of funds by the client, but the scope of the use and implementation of such agreements are very limited, as they are only viable in instances where the third party or defendant is insured via a statutory mechanism such as the RAF or professional indemnity insurance, such as found in medical negligence claims.
As none of the obligations and requirements mentioned above can be viably ameliorated or mitigated, the only way to be able to fulfil the obligations innate in the practice of law and provide a professional service is by growing practices, in which more attorneys can bear some of the costs required to create the facilities and infrastructure necessary together.
Most practices, the writers’ included already runs very efficiently and leanly, and limiting the costs that attorneys may charge for their services will only force smaller practices out of business.
Most attorneys, other than those at partner level in large firms also do not earn salaries comparable to similarly qualified employees in government service, and in fact the writer is aware of a number of attorneys who were conducting smaller practices and rather opted to take up positions as magistrates in order to earn an income which is constant and at a reasonable level, with pension benefits.
Legal fees are in any event limited by what the market can bear, and most junior attorneys in private practice do not charge much more than the Magistrate's Court tariffs.
The writer can see no reason why an attorney who has spent the time an effort to gain the required skills and experience should be penalised and forced to charge less than what the market would bear. Should this happen, the incentive to grow and learn will also be diminished and the profession will surely lose its most qualified and brightest minds.
The public must also accept that in some instances it is better to make use of a younger attorney who charges a lower fee for some of the work undertaken, rather than insisting on instructing the more established firms.
It may also perhaps be worthwhile to increase the earnings limit for legal aid and the university law clinics so that fewer individuals “fall through the gap”, and as the income of the individual increase, a pro rata portion of the fees may then be recoverable from them.
Kind Regards
Gerhard van der Merwe”
