“Legal firms to change hourly billing system”, says litigation support expert Walter Soriano

Litigation support and crisis management expert Walter Soriano of USG Security Limited has seen his share of legal cases go sour due to the hourly billing method currently used by legal firms. A lack of transparency and an inherent conflict of interest make it hard for clients to make informed decisions and for legal representatives to properly communicate with their clients. But is that about to change?

Between January-March 2019, County Court claims in the UK increased by 1% to 538,000. Of these, 435,000 were specified money claims (up 2% on the same period in 2018).
Many of these cases will go on for years, amassing legal costs and causing confusion to the litigating parties.

According to Walter Soriano, longtime security expert and crisis management consultant, even straight-forward commercial disputes can cost the represented parties between £500,000-1,000,000 and take around 24 months. Soriano, who has been working with both clients and legal firms, providing litigation support, says that in most cases, the resources put into such litigation could be disproportional to the outcome. Awarding parties with legal costs isn’t the solution, either; the winning party will probably be awarded just 10-30% of their accumulated legal costs.

Many experts believe this situation is a result of a historic mistake in the way the legal market is set up. Legal firms bill clients by the hour, making it difficult for clients to foresee their final costs. Hourly billing can be misleading and confusing and could lead parties into an adventure that is worse than the original dispute. It is no wonder, then, that initiatives to change said system are already underway.

“Different people have different skills and work at different capacities,” says Soriano. “How can I know what performance I can expect from a lawyer for one hour of work? How can I assign it proper value, or quantify it? And how can an individual estimate the cost-benefit ratio of a lawsuit to resolve a dispute?”

Needless to say, the human factor can also be an issue. Not all lawyers billing by the hour will have a motivation to finish a case faster. While most law practitioners would behave ethically, it is troubling that a service provider is their own regulator and supervisor. Naturally, all of these handicaps are an issue not just for clients, but also for lawyers.

“Many times, a client will be presented with a bill which would seem too high to them. This would cause disgruntlement; because they were not able to foresee the end costs, they would end up upset with their counsel. Changing the billing system will also improve the image of the legal profession in the eyes of the public and be much more sensible, equalling the parties involved. Some of these misunderstandings between client and counsel over billing can even turn into new disputes, and I've seen it a lot,” says Soriano.

The UK has already implemented a fixed-budget system, demanding that both parties present a predicted budget when a trial is set to begin. This has helped achieve more transparency for the clients and the courts. If the court lets the parties continue, both are aware of the consequences in case of adverse results.

This problem may seem trifle but could go as far as preventing people from pursuing justice and protecting their rights. “In a lot of cases a victim of fraud or breach of contract cannot do anything because the loss and damage afflicted are not enough to justify legal proceedings,” says Soriano. “For example, a loss of £50,000-100000 is just in that gap - too high for small claims but too low for a real commercial case. It works against the application of justice.”

This is why many legal experts, including Walter Soriano, are now pushing for a change to the billing system, moving into a model which will be based on a fee for the work done and a percentage of the outcome, which is sometimes called ‘contingency’ or ‘success fee’. In many industries, that formula has been proven to put the client and the service provider in a levelled playing field - both take on a partial risk but will also aim to conclude the case positively and efficiently.

There are also regulatory solutions, such as mandating counsels to present a budget for the client to take into account at the beginning of a trial (as done in the UK), or making any particular component at any stage of the litigation quotable as a product, and not hourly. The latter would obligate lawyers to put a price tag on their individual services, such as letters, pleadings, etc.

“Very few things in the commercial world are unregulated,” concludes Soriano. “The legal system is obliged to comply with ethics rules, but the main factor of the billing is not supervised per se. In most cases when the client receives the bill there's little to do in terms of appealing to protect his consumers rights.”

This article does not necessarily reflect the opinions of the editors or management of EconoTimes