The Law Society’s Ethics Committee recently released the following Professional Conduct Ruling as guidance for the profession. For your convenience, I’ve listed the ruling below but it can also be found in our Professional Conduct Rulings Database.
Date: September 16, 2016
Cite as: 2016 SKLSPC 7
Code Chapter: 3.6-1 and 3.6-3 [Previously, 2.06(1); 2.06(3)]
Code Heading: Reasonable Fees and Disbursements; Statement of Account; Charging Disbursements as a Percentage of Fees
Practice Area: Miscellaneous
The issue before the Ethics Committee was whether it was appropriate for firms to charge disbursements as a percentage of fees, rather than specific itemized disbursements incurred by the firm in connection with a specific matter.
In a complaint investigation report, a practice advisor noted the following:
ii) Disbursements Charged:
The Retainer Agreement provides as follows:
In addition I agree to pay a disbursement of 6% of fess billed or estimated work in progress for miscellaneous disbursements and administrative charges.
I do question the appropriateness of [Lawyer X]’s charging [Client A] ‘miscellaneous disbursements and administrative charges” based on a percentage (i.e. 6%) of “…fees billed or estimated work in progress”. Lawyers are permitted to bill their clients for disbursements. For example, if a lawyer has incurred a $25.00 courier charge on a file the lawyer is entitled to charge the client a disbursement for the actual amount (i.e. the $25.00 courier charge) paid by the lawyer to the third party.
The practice advisor based the findings on rules 2.06(1), 2.06(3) [Now, Rules 3.6-1 and 3.6-3] and their accompanying commentary and made the following recommendation:
Given the above noted provisions and in particular the Commentary under 2.06(3) from the Code, it is not appropriate for [Lawyer X] to bill his clients a disbursement based on a percentage of fees billed within a Statement of Account. [Lawyer X] should only bill his clients disbursements for amount that ‘have been paid or required to be aid to a third party” by him.
In his follow-up report with Lawyer X, the practice advisor confirmed that Lawyer X no longer bills clients for disbursements based on a percentage of fees billed.
However, upon reviewing the follow-up report, the Chair of Professional Standards noted that:
It is a fairly common practice to bill regular disbursements as a percentage of fees (though not on estimated WIP). If this is a concern, I do think all our membership would benefit from advice.
In light of the PSC Chair’s comments, the issue was put to the Ethics Committee to determine whether such a practice breaches the Code of Professional Conduct.
The Ethics Committee considered the issue and determined that that the Code indicates that “a lawyer may charge as disbursements only those amounts that have been paid or are required to be paid to a third party by the lawyer on a client’s behalf” and therefore charging a percentage and calling it a disbursement would offend the Rule, as a percentage of fees bears no relation to the actual cost.
However, a lawyer can charge a general administration fee as an other charge, as long as the fee is disclosed to the client.