Cancellation fee — amount not fair or reasonable
[Names used in this article are fictitious]
A $120,000 “cancellation fee” charged when a trial did not go ahead was not fair or reasonable a lawyers standards committee has determined.
The committee found unsatisfactory conduct on the part of the barrister who charged it. It ordered him to reduce his fee from $120,000 to $40,000.
The barrister, Dovetail, represented Mr Trout, and prepared for what he expected would be an eight-week trial. However, following a sentence indication, Mr Trout pleaded guilty and the trial was abandoned.
Dovetail had set out his fees proposal in a letter to Mr Trout. The letter included the following statement: “I have committed to a trial duration of 8 weeks and have not been able to take on other work for that period as a result. Should the full 8 weeks of hearing time not be required, I will include in my fee the equivalent of one additional week in court to reflect that commitment.”
Dovetail’s rate for attendances in court was $8,000 per day.
When the case did not go to trial, Dovetail charged fees in two categories: $128,000 for the actual work undertaken, described as “preparation” and $120,000 described as “trial fee”. The committee noted that the “trial fee” was Dovetail’s cancellation fee in circumstances where the expected 8-week trial did not eventuate.
The committee observed that a cancellation fee is payable to a lawyer where a lengthy trial or other significant commitment does not eventuate after the lawyer has done considerable preparation work and has excluded the opportunity for other work because of the commitment.
The committee said it considers that any agreement to pay a cancellation fee would be subject to the following relevant obligations under the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (RCCC):
- Rule 3.4 (a) requiring the lawyer to provide information, in advance, about the basis on which the fee will be charged;
- Rule 9.2 by which a cancellation fee agreement must be fair and reasonable having regard to the interests of both client and lawyer;
- Consequently, a “fair and reasonable fee” must be determined by reference to the reasonable fee factors at Rule 9.1(a)-(m).
Consistent with those requirements, a lawyer will be entitled to charge a cancellation fee only if there is an agreement in writing in advance and then only on the agreed terms. Any fee agreement is subject to the overriding criteria that it be fair and reasonable having regard to both the interests of the lawyer and client and the fee factors set out in r 9.1. The committee said it did not consider it was open to a lawyer to charge a cancellation fee because the lawyer believes in retrospect the circumstances warrant it.
Mr Trout disputed the cancellation fee. The parties were unable to reach agreement and Mr Trout complained to the Law Society.
Mr Trout emphasised that he had no complaint about the quality of services he received from Dovetail. His complaint was about the cancellation fee. Mr Trout noted that he had accepted Dovetail’s written proposal of a one-week cancellation fee and had paid the amount of $40,000 to Dovetail to cover this. The balance of the fee ($80,000) was disputed.
In his response to the committee, Dovetail said that he considered the extra $80,000 was appropriate for a number of reasons, including the fact that he had committed to the full eight-week trial period, to the exclusion of other work.
He said the fee agreement was based on the trial proceeding “in circumstances where it was literally certain to proceed”. There was, he said, “no contingency to it not proceeding because that was not a realistic prospect”.
Dovetail also noted that he had given Mr Trout a $32,000 discount on the preparation fee.
The committee did not accept that, on the evidence, there was any contractual basis for the cancellation fee charged by Dovetail. The only other basis upon which a fee of $120,000 might conceivably be justified is if the fee could be said to be fair and reasonable having regard to the interests of the lawyer and client.
“The balance of the fee, $80,000, is found by the standards committee to be excessive and unjustified either as a matter of contract or established principles of professionalism in relation to lawyers’ fees,” the committee said. In reaching that conclusion, the committee had regard to the fact that:
- The parties had put their minds to a fair and reasonable cancellation fee of $40,000 (being one week of court time) if the hearing did not last as long as anticipated. There was no legitimate or logical basis for multiplying that amount by three if the trial did not proceed,
- The committee noted that it was open to Dovetail to negotiate terms to cover the eventuality that, in fact, occurred but he had not done so.
- A fee of $120,000 to compensate for time allocated to a trial which did not proceed was out of all proportion as a matter of fairness and reasonableness;
- Since Mr Trout accepted that a cancellation fee for one week in the sum of $40,000 was appropriate and only complained to the Law Society about the balance of $80,000, it was unnecessary to consider whether or not a cancellation fee could be charged at all in the circumstances.
The committee noted that although the excess level of fee was high, there were no aggravating factors such as wilful breach of the RCCC or exploitation of a vulnerable client. There were no grounds accordingly for suggesting culpability at a higher level than unsatisfactory conduct.
The LCRO upheld the Standards Committee’s decision.
Last updated on the 22nd December 2017