The death of the billable hour
Iberian lawyers’ continue to assess the relative merits of “alternative-based” billing
grupo de expertos de
Iberian Lawyer se pone
de manifiesto la división
de opiniones respecto a
los recientes cambios en
España sobre el pacto
de «cuota litis»,
potestad de los
abogados de facturar en
función del éxito del
caso ya que ello puede
traer consecuencias en
el volumen de pleitos
que emane de la crisis
económica actual. En
cualquier caso, muchos
afirman que esto tendrá
un impacto mínimo en
los litigios más
importantes y
complejos.
A survey of Iberian Lawyer's Group of Experts finds that experts are divided on
whether recent changes in Spain to the ability of lawyers to charge on a “no
win no fee” basis may have an impact on the volume of litigation likely to
now emanate from the economic crisis. In any event, say many, it will only have a
minimal impact on the highest value, most complex, disputes.
The recent acceptance of contingency fees (quota litis) by the Administrative
Division of the Spanish Supreme Court may bring Spain into line with the position
already held by the Portuguese Bar, but it is in direct opposition of Spanish lawyers
own Deontological Code, say lawyers.
Nonetheless, many have welcomed the ruling, saying that “no-win no fee”
arrangements will help open up the judicial process to those that might not otherwise
have access to the courts, lower up-front litigation costs, and further incentivise law
firms to get the best results for their clients.
Others take the opposite view, that such arrangements inevitably raise questions
about the independence of lawyers and present even greater potential for
client–lawyer conflicts of interest.
Nonetheless, such developments, say the Group of Experts, are indicative of the
increasing pressure on law firms to offer greater flexibility in the ways in which they
price and bill for their services. The prevailing economic climate is in any event
prompting an upturn in litigation and that the move towards mass and class litigation
processes, such as has surrounded the collapse of the Madoff Fund, may increase if
claimants are able to enter into such “alternative billing” arrangements.
“In Portugal it has long been a common practice to set litigation fees on alternative
billing methods. The reason for this relates to the fact that in Portugal justice is very
slow and court cases tend to be very time consuming. Traditionally, clients are not
willing to cope with the risk of paying litigators by the hour,” says Joao de Macedo Vitorino of Macedo Vitorino & Associados.
Is the wider acceptance of contingency fees, along with the current economic crisis,
helping to encourage a move away from the billable hour as the benchmark law firm
fee measure towards more “alternative-based” billing?
“The success fee concept has since long been accepted by the Portuguese Bar if
agreed in advance with the client. An expected increase in litigation work deriving
from the current recession brings the issue back and firms will have to balance
between higher fixed retainers that cover all costs and lower retainers combined
with contingency fees with inherent risks – which clients are now more willing to
accept as they are forced to reduce ongoing costs.”
Joao de Macedo Vitorino, Macedo Vitorino & Associados
“Law firms will need to offer
and concentrate more on tailor
making fee structures such as
retainers, fixed fees, resultsbased
billing – flexible nonhourly
billing arrangements
will be fundamental going
forward.”
Jorge Santiago Neves,
Barrocas Sarmento Neves
“I do not expect a significant
increase in the number of
litigation matters after the
Supreme Court decision on
quota litis. There is no culture
in Spain for this kind of
arrangements, big law firms
do not consider those kinds of proposals, they
are too risky and take too long.”
José Antonio Cainzos, Clifford Chance
“I do not believe that billing on a pure contingency basis, as it
is now permitted, will affect the number or the types of
litigation in Spain. It may have an impact on the low or midmarket
litigation, but complex litigation and added value cases
will still be referred to the same litigation teams which, I
believe, will not offer this possibility.”
David Arias, Pérez-Llorca
“The current crisis is forcing firms to offer alternative fee structures to attract business, for example, flat fees
based on the value of the service with premium fees for achieving a defined successful outcome. However, I
believe that the 'billable hour' will still play a role to value the relevant service. To be otherwise, clients need to
be aware that a genuine effective and efficient alternative fee arrangement would require a lot of work on their
part also.”
Javier Villasante, Cuatrecasas
“I believe that the recent developments and the
current economic crisis are not quite 'helping to
encourage' a move away from the 'billable hour' as
the benchmark law firm fee measure towards more
'alternative-based' billing, but may be actually
'forcing' firms to do so in a number of cases.”
Pedro Guimaraes, F Castelo Branco
“Where everyone seems to agree is that quota litis is
a double-edged sword, because on one hand a priori
the non-fixing of fees may encourage litigation, but
on the other hand, if successful, fees could rise
considerably. Accordingly, restraint seems to be a
key in making any decision.”
Luis Vericat, Cremades & Calvo-Sotelo
“In my opinion, the ruling of the Supreme Court formally opens the possibility that clients
and counsel can enter into quota litis arrangements where both are interested. A clear
example of this may be the recent banking litigation that have arisen from the financial
crisis, Lehman and Madoff are obvious examples.”
Antonio Hierro, Cuatrecasas
The issue, say many, is however that quota litis
arrangements may not be appropriate for all clients or
for all types of matters.
“With quota litis you charge a percentage of what is
received, which means that the lawyer becomes an
interested party in the process or negotiation. In other
words, the lawyer is less independent. With success
fees you only 'receive a bonus if successful, that is to
say it is an extra for reaching a good outcome, but you
don't work for a percentage. In my view, in one case
you lose your independence and in the other case you
are rewarded for doing a good job,” says Alfredo
Guerrero of SJ Berwin.
There is though a divergence of opinion among
many Portuguese and Spanish lawyers about how
much of a role such developments are playing in
helping to push firms away from their traditional
emphasis on the billable hour.
For Jorge Santiago Neves of Barrocas Sarmento
Neves: “Law firms will need to be more flexible to meet
client demands to find a combination of predictable
legal spend and the highest quality advice. Both clients
and law firms need billing structures that recognise the
importance of managing costs, rewarding results and
ensuring that the most appropriate level of legal
adviser is allocated to work on each matter.”
Others, such as Pedro Guimaraes at F Castelo
Branco, note that law firms like their clients need to be
able to plan for regular costs and expenditure but that
their income is generated entirely from the fees they
charge.
“Legal advice is a service and like any other should
be remunerated as such. Whilst a move towards more
alternative-based billing is often more than just
acceptable, and quite appropriate, there are a
significant number of cases when it is not. We must not
forget that as lawyers do not share in the profit of their
clients, and rightly so, they must also not be made to
share in their risk.”
Many lawyers note that success fees have long
existed in practice but accept that firms should perhaps
be more accepting of alternative-based billing systems.
But also that the income lawyers generate must be
appropriate, predictable and paid for as promptly as
for any other service provider.
“While it is clear the current economic crisis is
pushing law firms to meet clients demands for greater
flexibility in the way we bill for our services, it is my
opinion that, at least, concerning business law firms,
the 'billable hour' will continue to work to an
important extent as the benchmark fee measure,” says
Javier Villasante of Cuatrecasas.
For law firms to move away from such a model,
clients must first become more disciplined and efficient
in the way they manage their own legal operations, say
lawyers – to improve their own response times, ensure
legal briefs contain all that is required, and to demand
immediate answers only when it is truly necessary.
“I do not believe the Supreme Court ruling has any
real bearing on this process. Clients need reassurance
as to how much lawyers will cost and that the fees will
be reasonable, even more so in times of economic crisis.
This obliges us to be particularly efficient in our
deployment of resources,” says Rafael Murillo at
Freshfields.
For others however, the Spanish Supreme Court has
opened a new way of understanding the economic
relationship between lawyers and clients, and who say
that open-minded lawyers who do not mind taking
risks, have competitive attitudes and are conscious that
flexible fees are the best way to operate in the current
market, will be able to offer the appropriate alternative
billing methods to their clients without breaking any
legal or ethical rules.
