You really, really don’t want to hire a lawyer, but have no choice!
In this Room 228 Newsletter we give some ‘top tips’ to have in mind when engaging a lawyer and let’s face it, unless you need a lawyer to help sell your start-up tech business to a Silicon Valley powerhouse for billions of dollars (pretty unlikely), it’s usually a bad news story which means you have no choice but to hire a lawyer to help solve a personal or business problem. These tips should help lessen the pain!
There’s just no escaping it. Lawyers (the blood-sucking, shark-tank, sharp-suited, wallet-emptying kind) have a bad reputation, so it’s no wonder that the prospect of engaging a lawyer can be quite daunting and even intimidating – it’s not easy to speak to someone you don’t know and immediately have to entrust with private personal or confidential business issues at the same time as handing over great wads of cash! These ‘top tips’ should help you pick the right lawyer for you or your business and to communicate more effectively with your lawyer so as to make the process of engaging, instructing, and working with your lawyer as efficient and cost-effective as possible at the same time as maximizing the prospects of you and your lawyer working well together to achieve the desired outcome for your important personal or business issue.
Engaging the ‘right’ lawyer (if there is such a thing)!
Make sure that you check the law firm’s website and the professional profile of the individual lawyers who will be responsible for supervising and handling your case to make sure that the firm and the individual lawyers have the sufficient experience and skill-set in the specific practice area related to your particular issue. You really don’t want a shipping lawyer handling your shareholder or employment dispute! Try to meet (or at least speak to) the lawyer who will be running your case or handling your transaction before engaging his/her firm as it’s important that you ‘gel’ and get on with someone who you may have never met before, but who will be handling an important issue for you or your business.
Conflict of Interests
These crop up all the time (especially in a small village like Hong Kong), so you must check that your lawyer has carried out a thorough and effective confidential internal conflict search before the start of the engagement (not afterwards) and that it covers not just any existing conflict of interests, but also any potential conflict which may arise in the future. You must also insist that you are notified the moment that any potential or actual conflict of interests arises during the course of the engagement, as having to swap horses (lawyers) in the middle of a case or transaction is an expensive, stressful and usually damaging exercise.
The law firm you engage should be able to provide you with information relating to the level of its professional indemnity insurance cover in case of any negligence. You should ask for information about the firm’s mandatory insurance cover (usually imposed and policed by the local legal regulator) and its voluntary excess layer (top-up) insurance cover. Outsourcing risk is a big reason for many high-net-worth individuals and large corporations instructing external lawyers in the first place.
An engagement (retainer) letter is the contract between you and the law firm, so is vital to providing certainty to the terms of the engagement and to defining your rights and interests as the client in the contractual relationship between you and the law firm which should provide you with an engagement letter setting out its standard terms of business, the most important of which should include:
- identity of the firm’s client (be exact)
- scope of work (make sure this is tightly drafted)
- team members (supervising partner, associate, trainee, paralegal etc)
- fee arrangement / payment terms / expenses (see below)
- conflict of interests
- regulation by local Law Society
- disputes process
- limitation of liability
Fees (every lawyer’s favourite subject)!
Lawyers in different jurisdictions charge in different ways. In Hong Kong, contingency fees (no win no fee) and success fees are generally illegal and litigation funding is limited to insolvency, arbitration and (bizarrely) mediation cases due to ancient anachronistic (equally bizarre) rules concerning ‘champerty and maintenance’ (don’t get us started on this)! Here are the main types of legal fee arrangements:
- Hourly rates: This is the most common traditional way in which law firms charge their clients and if you are paying on the basis of hourly rates (and to minimize the risk of receiving mystery bills containing mystery lawyers and mystery charges at random times), make sure that the engagement letter sets out (i) the identity / post-qualification experience (PQE) of the individual lawyers who will be working on your case (ii) individual charge-out rates for each individual lawyer (not to be increased during the engagement without your agreement) (iii) a tightly drafted (not general or open-ended) scope of work (iv) a detailed fee estimate (v) a provision that you will be notified when it looks like the fee estimate will be exceeded (not uncommon) and will be provided with an up-to-date replacement fee estimate (vi) payment of ‘disbursements’ (another word only really used and loved by lawyers) aka expenses such as photocopying / printing charges (price per page), travel expenses (is your lawyer charging you for business or economy class air travel and for his/her time working on the flight whilst watching a James Bond movie?), expert witness / barrister fees etc. (vii) whether you’ll be paying for lawyers reading emails, WhatsApp, Wechat messages etc. and (viii) the regularity of the legal bills – monthly, milestone dates etc. Also ask whether your ‘funds on account’ of fees are being held by the law firm in an interest-bearing or other type of client bank account.
- Capped fees: Make sure that the engagement letter includes a term that you are notified as soon as it looks like the fee cap will be reached and when it has actually been exceeded, as you’ll have to agree a new replacement fee cap.
- Fixed fees: For a fixed fee arrangement to be effective, the scope of work must be tightly drafted so that both you and the law firm know exactly where you stand and what work is covered by the agreed fixed fee.
- Staged fees: Again, agree a tightly drafted scope of work for each stage of work and usually only agree one or two stages in advance so as not to stray into unknown areas whether neither you nor the law firm can accurately agree a staged fee for an uncertain scope of work. The same goes for fee arrangements with payments on agreed ‘milestone dates’.
- Retainer fees: If you engage a law firm on a retainer basis, the engagement letter should clearly set out the calculation of the regular fee – whether it’s based on a fixed monthly fee or a regular fee based on an agreed formula (e.g. price per written advice).
Legal fees are what cause lawyers and their clients to fall out the most, so establishing tight clear rules for the fee arrangement right at the start of the engagement is essential for securing and maintaining a conflict-free lawyer / client working relationship and for the provision of legal services in return for certain and value-added fees.
When first instructing a lawyer and to maximize efficiency and cost-effectiveness, we recommend:
- providing a list of relevant issues (as you see them)
- collating the relevant background papers
- having a list of questions
- setting achievable targets / goals
- agreeing a working method (e.g. verbal or written advice)
- establishing which lawyers will be doing what tasks (so that the appropriate PQE lawyer is doing the appropriate level of work for their individual qualification and skill level)
- agreeing lines of communication (who will be reporting to who, how and when)?
- agreeing the terms of the engagement letter / terms and conditions of business (read the small print)!
When first engaging a law firm, you should try to be open and transparent (warts and all) as your lawyer really can’t fight for you and protect / enforce your rights and interests if he/she doesn’t know the full ‘back story’. Especially in disputes, there’s often (really always) an ‘X Factor’ behind the conflict, which means that the row over a breach of contract say, is not about the performance of that contract at all, but is about something completely different – often a personal issue even in a business context. If so, do try to confide in your lawyer, otherwise you’ll almost certainly never achieve your desired result of overcoming the ‘X Factor’!
Most importantly, make sure that you’ve instructed a lawyer confident in their own experience and ability to use the legal tools available to him/her to advise you commercially and practically so as to help you achieve your goals in an efficient and cost-effective working relationship – because that’s what a lawyer / client engagement is (or should be) – a close trusting relationship in which your lawyer uses his/her legal tools and experience to help you navigate your way on what is often (usually these days) a twisting and convoluted path through an increasingly difficult and complex (and now pretty chaotic) world.
Hopefully, with more transparent, certain and value-added fee arrangements and less opaque working practices, lawyers can improve their (well-deserved) reputation! By the way, bowers.law is a supporter of the Hong Kong Shark Foundation (http://hksharkfoundation.org/) and a Shark-Free Company. All lawyer – shark jokes on a postcard please!
This Newsletter is not intended to be and should not be relied on as legal advice. You should seek professional legal advice before taking any action in relation to the subject-matter of this Newsletter.