259.brett Davies Lawyers 4u5o6i

Brett Davies L A W Y E R S Tax Lawyers Australia Pty Ltd ACN 126 959 206 201 Adelaide Terrace Perth Western Australia 6000 Phone (08) 9325 7999 Facsimile 0893255999 www:TaxLawyers.com.au

Sure, no one likes time billing – but what are the alternatives? Law Council of Australia, 36th Australian Legal Convention Perth - September 2009 Brett Davies FTIA, B Juris, LLB, LLM, BA(Hons), DipEd, MBA, Principal, Brett Davies Lawyers Katherine Dunmill B.Com Practice Manager, Brett Davies Lawyers

Our Reference: bkd:6226: Brett’s mobile: 041 998 0972 Email: [email protected]

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Sure, no one likes time billing – but what are the alternatives? Introduction I have been practicing law for over 20 years. When I started I was instructed by my mentor to charge in 6 minute units. He had already been practicing for 20 years and he said that it was what he was told to do. Therefore, I know that time billing has been around for over 40 years. Is it the “cockroach of the legal world”? Should it be about ‘quality’ of time spent on a client, not ‘quantity’? If all that is true, are there viable alternatives that: 1. compensate lawyers fairly 2. satisfy the partners’ “cost ing” mentality (the need to make sure your lawyers are working productively) 3. create efficiency 4. make the clients happy (or at least like us a bit) and feel a bit more in control (for time billing clients feel they have no control, they see little correlation between cost and quality) 5. make the fee-earners happy as many lawyers don’t like filling out time sheets for everything they do

One reason that dollars times hours continues to prevail is because it’s hard to devise a fair alternative. I am not suggesting that we get rid of hourly rates. They always will be one way of charging a client. However, I am suggesting in this paper that there are other ways – and they shouldn’t reduce your revenue flow. From my MBA days they told me that an essential element of the marketing mix was pricing. Our profession is experiencing greater competition – from within our own ranks and from other professions (e.g. shelf company manufacturers, conveyancers, on line documentation systems such as www.lawcentral.com.au). Law firms that want to be around in 20 years need to look at additional ways of billing to keep up. ‘The Times They Are A-Changin’ Bob Dylan Things are moving pretty quickly in the economy and like older professions we limp along trying to keep up. For example, owners of law firms are no longer just lawyers. Owners of businesses are no longer partners. Now, any Australian citizen (provided they haven’t been struck off) can buy shares which own law firms. Brett Davies Lawyers itself is a 100% subsidiary of ASX listed Integrated Legal Holdings that Brett Davies founded and listed over 2 years ago. Whether you have shareholders or partners, if not you, then at least your spouse cares primarily about making money. I don’t think listing law firms on the ASX has changed this.

Fix fee litigation lowers standards? Litigation is the hardest thing to fix fee. So let’s look at litigation. While speaking to fellow lawyers on this, some use USA law firms to argue that fix fee litigation lowers standards and your chance of winning. In the USA a litigator of a rich client (e.g. insurance company) puts in as many hours into a case as the client bears. The poor person (e.g. consumer) has a plaintiff lawyer. The plaintiff lawyer 593311090901Brett Davie2bkd:6226: :7:Seminar9.doc 1994-2009 © Brett Davies Lawyers, Tel: 08 9325 7999

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often works on a contingency arrangement or fixed fee. They put in as little of their time as possible. The argument goes that the more time you put into a file the greater the chance of winning. “If the big law firm gives a fixed fee then there is less chance of winning” goes the argument. In my view it is untrue. At Brett Davies Lawyers we practice in taxation. At the moment the ATO is suing everyone they can to feed Prime Minister Rudd’s need to give money to worthy causes - to keep us out of the recession. People are frightened of fighting the ATO because it is big and powerful. Small business is also frightened of an open cheque book for our litigation lawyers’ hourly rates. As we specialise in this area we are happy to give a fixed fee. At the moment the ATO has sent out 17,000 letters to people about “personal services income”. For $24,000 we go in to bat for the taxpayer from the audit stage, through to the objection stage and then, if required, fight the good fight in the istrative Appeals Tribunal (AAT).

In the AAT there are no cost orders so the client is only liable for his own costs. At least the risk of our fees and paying the ATO’s fees are removed. The clients don’t want to go to court and because we get the $24k up front there is a strong desire (either consciously or unconsciously) for our lawyers to want to settle the matter as early as possible. There is no loss of quality by fixing fees in litigation. In fact for a law firm that charges on an hourly rate there is a desire (either consciously or unconsciously) to keep the matter going as long as possible and push for the day in court. 593311090901Brett Davie2bkd:6226: :7:Seminar9.doc 1994-2009 © Brett Davies Lawyers, Tel: 08 9325 7999

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I personally don’t like selling time. Our lawyers hate the time billing recording process. Time billing creates a zero-sum game in which we are selling our lives, not just our time. Also, time billing fosters an environment that doesn’t provide the right incentives for young lawyers to live out the ideals of the profession. The wrong message is: increase the time and get more money. Litigation is too complex to quote Above, perhaps unfairly, I gave the example of how Brett Davies Lawyers fixed fees a highly specialized and often repeated area of litigation. Litigation is often not like that. The other side can cause huge cost blow outs. How could you fix fee for those contingencies? My wife, Angelina, wants to renovate our kitchen. The contractors arrive with their clip boards and tapes, they look at power points and problem areas. Later they come back with a fixed price. Not liking the price, I suggested an hourly rate. However, my architect spoke out against this because of hidden problems in old homes. I will opt for the fixed price and move that risk onto the contractor – knowing full well that the contractor has increased his fixed price to cover the potential unseen problems. The contractor is doing this all day long and is able to average out a profit on each renovation. As a one off renovation I can’t afford to take that risk. Now, of course, we are a noble profession and help ister justice, so it is completely terrible of me to compare our profession to that of a tradesperson. What we do is complex. However, so too the tradesperson suffers his own unexpected problems. As lawyers we can average out the cost of litigation matters. You will win on some and lose on the others. Overall, you make your profit – or perhaps a greater profit, as you will have more clients. Fixed feeing stops unexpected bills appearing on the client’s desk. The client still gets them, but they are expected. Also, as lawyers we are able to fix fee litigation in stages or based on what happens next. The fix fee doesn’t have to be at the conclusion of trial. Technology At Brett Davies Lawyers we had Simon Treloar, principal of Bionic Software in Sydney design and construct a leading edge application called CADA - Computer Assisted Document Assembly. This was in 1994. Fifteen years later we still use this system. Lawyers enter the clients’ details (correctly) only once. Every bit of correspondence, deeds and letters flow out of CADA’s precedents – with just the click of a button. Our lawyers are also required to touch type as fast as they can dictate. All documents created in CADA are automatically catalogued to the client and the matter. This technology (which was unique in 1994 but is now becoming more commonplace) frees our lawyers from as much routine work as possible. This leaves our lawyers with more time for problem solving and client . I sat on the Law Society of WA’s ad hoc exist survey committee. The results suggested that the more time a lawyer spent with clients the less stressed they were. We have not had secretaries or a typing pool for over 15 years. Our costs are lower and our quality of work is higher. I had occasion to review a Will that I prepared 15 years ago with the Will maker that rang me up on an urgency basis. It took me about 12 seconds for CADA to find and 593311090901Brett Davie2bkd:6226: :7:Seminar9.doc 1994-2009 © Brett Davies Lawyers, Tel: 08 9325 7999

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open a copy of that electronic Will for me. The client’s questions were answered during that telephone call. This is just as well as we provide unlimited free advice on the Will to the Will makers, their next of kin (when the time comes), their ant, adviser and their own lawyer. We wouldn’t have been able to provide that service if we were time billing. Quality Assurance Just as technology sets us free to move away from time billing – as much as we can – so to having a QA system helps. Our Manual states:

Do we follow an accepted Standard in creating our systems? Our systems comply with The Law Society of Western Australia Quality Practice Standard. Brett Davies Lawyers together with 18 other law firms were the first group to achieve the Law Society Standard in 1997. When Team first arrive or change to another section of the firm they find that the systems are written down and are clear and understandable. Therefore, you need less training and can concentrate on serving your clients’ needs rather than being bogged down on learning “how to do it”. By documenting the systems we make it easier for you to provide excellent service. The system also ensures that we have the same level of quality for everyone and everything we do. Alternatives Apart from time billing, these are the different ways lawyers can set revenue. You are welcome to email or ring me with additions to this list:

1. Fixed fees This encourages efficiencies and I think helps the lawyer focus on the client’s real goals. The problem is it works best when you are highly specialised or you are a senior practitioner. The best example of this is a lawyer friend of mine in Wagga. He has been a lawyer for over 40 years; he knows what the file is going to cost. He quotes the work. He gets the money up front. He has few complaints by his clients.

2. Blended hourly rates Here you charge one hourly rate. It makes no difference if your Articled Clerk does the work, or your Senior Partner. I have never tried it, but speaking to Managing Partners it sure pushes the work down to the most junior person qualified to do the work. Perhaps it helps with fee hogging. There is a risk that that junior person may not be sufficiently qualified. A senior lawyer that I spoke to didn’t like it. However, he is not one to delegate his work, so perhaps he was not well suited to his current larger law firm that had a strong delegation emphasis.

3. Capped fees The lawyer takes his best guess, adds 10% and then caps the fee. Anything over the capped amount the lawyer has to wear. I have found that this encourages early settlements (which are usually, but not always, good).

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4. Project fees This is working well for a number of litigation law firms I spoke to. The matter can run for years, but they are able to estimate each discrete component of the court case within agreed events. As set out above, Brett Davies Lawyers uses this with success.

5. Contingency fees & Success fees This is unfamiliar to me. I couldn’t find any law firms successfully using this system in Australia. As you see in USA law television serials, the lawyer’s fee is tied to settlement or outcome. As lawyers can’t share the profits or the win of the court case it is probably not an option. There are movements for law firms to set up a new side business of litigation funding where that entity can get 40 – 60% of the win plus court costs. I suppose a “win or no fee” approach is similar. However, surely you would need to pad the bill for the matters that you win. Or, is it the case you only take on matters that you know will get a payout? I did speak with a law firm that negotiates a success fee. If they win they charge extra. There is a nice alignment between client’s goals and lawyer’s goals. It is fully documented and fully disclosed to the client, which is a relief as many lawyers I spoke to said that they pad the bill if they win anyway. I understand the sentiment. However, I am not sure that such an agreement, where there is a for good results, would stand up at taxation. That is more of a fault of our antiquated taxation and bill checking system.

6. Retainer fees ants have been using this for many years. A small ing practice will give a large ing house say $2,000 a year. For that you get unlimited free calls of 10 minutes each on any topic. Plus, you get free and timely information. The holy grail of law is to get ive income. The opposite of that is “eat what you kill”. Retainer fees achieve ive income of sought. However, you need to be highly specialised. Conclusion Lawyers either coconsciously or subconsciously can pad or reduce their time. They can then alter the bill. If you do well then you tend to “write up your time”. If the client is upset or you didn’t win you tend to write down the bill. There is a lot of movement in time-billing. The clients are well aware you have this power and don’t like it. They would rather have the power. Alternative billing practices, such as fix feeing, may achieve this. Subject to the ethical constraints, you may be able to make more money by using billing methods other than time-billing such as fixed feeing where you can. Fixed feeing gives a lawyer greater confidence to ask for the fees up front – thus reducing bad debts. The decision to attempt billing other than by time, is not as simple as changing from hourly fees to flat or fixed fees. You have to look at everything you do. This includes procedures in your office, how you use staff, and exploit technology. You have to move your lawyers from mechanically filing in time sheets like robots to helping develop efficient processes.

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At the end of the day, the clients decide this question of billing methods for us. For example, many law firms, particularly, large practices have been providing tenders to governments for many years. This is increasing. Many clients still gladly pay on time spent on the file, but sadly, as they become more knowledgeable and less trusting of the old professions this mode of charging is threatened further. We need to talk more on this and adapt.

593311090901Brett Davie2bkd:6226: :7:Seminar9.doc 1994-2009 © Brett Davies Lawyers, Tel: 08 9325 7999