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When Legal Fees Become a Risk Issue: Legal Fees, Professional Risk and the Solicitor’s Dilemma Pt 1

There is a difficult realisation that the legal profession must confront honestly.

Many lawyers are no longer asking only how to grow.  They are asking how to survive.  This is particularly true of practices involving solicitors’ work that is high-volume, compliance-heavy, time-sensitive and risk-sensitive.

When survival becomes the dominant pressure, there is a danger that ethics, logic, rules and the law are slowly pushed to the side.  It seldom happens in one dramatic moment.  It happens through habit, commercial pressure, market expectation and fear of losing work.

That is when the profession must pause.

The issue is not simply that lawyers want to be paid more.  That would be too narrow and too self-serving a way to frame the matter.

The real issue is whether legal practice can remain competent, ethical and sustainable when lawful remuneration is treated as negotiable, professional responsibility is taken for granted and legal work is increasingly viewed as a commodity.

Legal practice is a regulated profession.  It carries duties to the client, to the court, to the legal system and to the administration of justice.  Those duties require time, competence, supervision, judgment and discipline.  They also require a fee structure that allows those duties to be performed properly.

Clients are entitled to value.  They are entitled to efficiency.  They are entitled to clarity.  They are entitled to ask questions.  But clients are not entitled to define professional standards solely according to their own commercial convenience.  They are not entitled to treat prescribed fees, where they apply, as optional merely because a transaction appears routine. 

The word “standard” has become one of the most dangerous words in legal practice.

A sale and purchase agreement is described as standard.  A loan documentation file is described as standard.  A discharge, a perfection of transfer, a corporate document, a tenancy agreement, a due diligence exercise or a letter of advice may all be described as standard.

But standard to whom?

To the client, “standard” often means familiar, repeated or commercially routine.  Sometimes it means nothing more than the client’s expectation of what the work should cost.  Sometimes it is a conclusion reached before the work is even understood.  It becomes a convenient word used to reduce the perceived value of professional work.

To the lawyer, the same file may still carry risk.

The identity of the parties must be verified.  The authority to act must be checked.  The documents must be accurate.  The title, charge, encumbrance, condition, consent, undertaking, timeline and payment flow must be considered.  Conflicts must be assessed.  Client account risks must be managed.  Anti-money laundering obligations may arise.  Advice must be given.  Records must be kept for several years.

The fact that a transaction is common does not mean it is risk-free.  A road used every day can still produce an accident if discipline is lost.

There is now a deeper concern.  The market appears increasingly to reward the lowest fee rather than competent service.

Clients shop around.  Some developers resist prescribed rates.  Some large institutions impose their own fee expectations.  Some government-linked companies and listed companies, despite their own governance requirements, may still push legal fees downward.  In some procurement exercises, the first question is price, not competence, capacity, supervision, experience or risk management.

There is also an imbalance in the allocation of risk.  A client may negotiate aggressively on fees, but if something goes wrong, the lawyer remains exposed to the full extent of professional responsibility.  The fee may have been reduced, but the duty of care is not reduced in the same way.  A file undertaken at a heavily reduced fee does not carry a reduced professional obligation.

This is why fee pressure is not merely a commercial issue.  It is a risk issue.

The profession may need a more serious discussion on whether professional indemnity, risk assessment and fee discipline should be viewed together.  If the full professional risk remains with the lawyer, then the profession must ask whether it is sustainable for the corresponding remuneration to be treated as freely negotiable where the law has already prescribed it.

A distorted market signal is then created.

The question is no longer, “Who can do this properly?”

The question becomes, “Who can do this for the lowest fee?”

That is a dangerous question for a regulated profession.

Whenever this issue is raised in public discussion, the answer often given is “market forces”.  Yes, market forces matter.  Lawyers do not practise outside economic reality.  Firms must be efficient, responsive and disciplined.  Legal services, however, cannot be priced as though they are ordinary consumer goods.

Legal work is not a product on a shelf.  It is not bought by weight, length or volume.  It is a professional service attached to judgment, duty, ethics and accountability.  When clients pay for legal services, they do not only pay for documents.  They pay for the responsibility of the lawyer who stands behind those documents.

This is where the Solicitors’ Remuneration Order must be properly understood.

Where the law prescribes remuneration, it should not be treated as a mere guide.  It is part of the regulatory structure governing non-contentious legal work.  It recognises that legal work is not only the visible document produced at the end.  It also includes advice, checking, explanation, attendance, verification, record-keeping, supervision, compliance and professional accountability.

These parts of the work are often invisible to the client, but they are not optional to the lawyer.

The cost of practice keeps increasing.  Firms must pay salaries, rent, technology costs, cybersecurity costs, professional indemnity insurance, training expenses, compliance costs, file management costs, client account controls and administrative overheads.

At the same time, regulatory expectations have increased.  Anti-money laundering compliance, beneficial ownership verification, risk assessment, sanctions screening, record-keeping and reporting discipline are no longer optional matters of good office practice.  They form part of the modern reality of legal practice.

Costs increase.  Fees decrease.  Risk remains.

Something will eventually give way.

If the profession does not manage this contradiction according to law, the market will manage it through desperation.  That is where the danger lies.

This pressure is not unique to one jurisdiction or one branch of practice.  In a conversation with the president of a respected legal organisation, she observed that even pro bono work in her country is facing difficulty because lawyers now have to weigh the duty to serve against the need to survive.  That observation should concern us.
When survival becomes the issue, individual discipline alone may not be enough.

A person who is drowning does not first ask whether the thing they grab is proper, elegant or safe.  Instinct takes over.  He reaches for whatever may keep him afloat.

In legal practice, the same danger exists.  When firms are under constant financial pressure, the instinct may be to accept whatever work comes, at whatever fee and under whatever terms.

That instinct may begin with fear.  Fear of losing the client.  Fear of losing the panel.  Fear of losing staff.  Fear of not meeting overheads.  Fear of being left behind in a market where others appear prepared to do the work for less.

This is why the problem cannot be left entirely to individual lawyers.

There must be a greater force.

That greater force, however, is not one institution alone.  It is not simply the Government.  It is not simply the Malaysian Bar.  It is not simply enforcement.  It is the combined force of law, regulation, professional leadership, institutional responsibility and market education moving in the same direction.

The law must be respected.  The Malaysian Bar must guide, educate and, where necessary, enforce.  Law firms must build internal discipline so that pricing, workload and supervision are treated as risk management issues.  Institutional clients must understand that governance cannot be demanded on one hand and underfunded on the other.  The public must be educated that legal remuneration is not merely private bargaining, but part of a regulated professional framework.