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10.9 The Competition Act 1998, the main provisions of which were modelled on and had to be applied consistently with Articles 81 and 82 EC, prohibited agreements between undertakings, decisions by associations of undertakings or concerted practices which:

(a) might affect trade within the United Kingdom, and

(b) had as their object or effect the prevention, restriction or distortion of competition within the United Kingdom.

As the legal professional bodies fell within the classification of associations of undertakings, their decisions on fees were within the ambit of the 1998 Act.

10.10 Other statutory provisions relevant to solicitors’ fees were as follows :

• Excessive fee charging by a solicitor might amount to professional misconduct in terms of section 39A of the Solicitors (Scotland) Act 1980.

• Where a solicitor and his client had reached an agreement in writing as to the solicitor’s fees, section 61A of the Solicitors (Scotland) Act 1980 provided that it was not competent to remit the solicitor’s account for taxation.

• The Council of the Law Society of Scotland had powers to reduce or set aside a solicitor’s fees and outlays where it held the services rendered to have been inadequate (in terms of section 42A of the 1980 Act); or, where it held a fee to have been grossly excessive, to withdraw the solicitor’s practising certificate (section 39A of the 1980 Act).

(b) Current professional rules

10.11 The Code of Conduct for Scottish Solicitors required the fees charged by solicitors to be fair and reasonable in all the circumstances. Factors to be considered in relation to the reasonableness of fees included :

(a) The importance of the matter to the client;

(b) The amount or value of any money, property or transaction involved;

(c) The complexity of the matter or the difficulty or novelty of the question raised;

(d) The skill, labour, specialised knowledge and responsibility involved on the part of the solicitor;

(e) The time expended;

(f) The length, number and importance of any documents or other papers prepared or perused; and

(g) The place where and the circumstances in which the services or any part thereof were rendered and the degree of urgency involved.

10.12 The Law Society of Scotland issued a Practice Guideline to Scottish solicitors in November 2005 on how they should present their accounts to their clients and the further information they should make available if their clients seek a breakdown of the fees (see annex F).

(c) Fees for non-court business

10.13 Until the end of 1984, solicitors’ fees for non-court business such as conveyancing, trust and executry work, corporate work and general business were regulated by the Law Society of Scotland by means of a prescribed scale of fees. From 1 January 1985 the Law Society of Scotland ceased to prescribe the level of fees. From that date until its withdrawal on 1 August 2005 the Society published an annual Table of Fees for General Business, the purpose of which was to recommend charges for professional services rendered by solicitors in Scotland.

(d) Cost of Time Survey

10.14 Since the late 1970s the Law Society of Scotland had carried out an annual survey of the cost of running a solicitor’s practice, known as the Cost of Time Survey. The survey was used to calculate the value of the unit in the Society’s recommended table of fees which it published each year. The purpose of the annual Table of Fees for General Business was to “… recommend charges for professional services rendered by solicitors in Scotland…” and the Society’s annual cost of time informed the unit cost figures recommended. The Society recommended an hourly charge rate, but explained that it was for the solicitor and client to agree on an acceptable method of pricing the work done, whether by an agreed hourly rate or by a fixed fee for the whole work.

10.15 The Law Society of Scotland considered the implications of the Commission’s decision in the case of the Belgian Architects’ Association for its Table of Fees for General Business and the implications for the profession of withdrawing the recommended fees table. The Council of the Law Society of Scotland decided to withdraw the table of recommended fees on 25 February 2005. The legal opinion on which the Society based that decision did however advise that the Society might continue to carry out its annual Cost of Time Survey of legal firms. The survey was prepared by an independent actuary who worked out the average cost of running a solicitor’s practice from figures provided to him by firms across Scotland about the previous year's costs111. The annual survey assisted individual firms to calculate what they needed to earn to meet their overheads, including staff wages and running costs112. With the abolition of that table, the Society decided in future to publish the annual Cost of Time Survey as a historical hourly cost rate.

10.16 The Society’s guidance on recommended fees, which was withdrawn with effect from 1 July 2005, accepted that solicitors might assess their own unit values, though noted

111 _{The average cost of running a solicitor’s practice in 2004 worked out at a rate of £115 per hour of solicitors’} chargeable time. That rate was based on notional salaries of £55,000 pa for profit sharing partners aged 35 or over and £48,800 for profit sharing partners aged under 35. Salaried partners were included at their actual salaries.

these would have to be justified at a taxation if challenged. Though the withdrawal of the Society’s guidance on fees might increase competition in the legal services market (as argued by the European Commission Report), there was a risk that its withdrawal might also reduce transparency for consumers wishing to complain about the level of fees charged.

10.17 Where a client considered a proposed fee to be excessive or declined to pay it or when a solicitor wished to enforce the fee in such circumstances, the Auditor of Court (an official based in every Sheriff Court in Scotland) could “tax” or assess the reasonableness of the fee in question (see Part VI).

(e) Competition issues

10.18 The Office of Fair Trading noted that to achieve compliance with competition law, it would be important to ensure that any information on price provided by a professional body was historical only, collated and aggregated by a third party and framed to show that it was not intended as a recommendation but as a description of historical prices. The Law Society of Scotland confirmed that it planned to take the Cost of Time Survey forward on that basis, and suggested that auditors could use survey data to develop their own table.

10.19 With the Society’s agreement, a researcher discussed the methodology used with the actuary responsible for the Cost of Time Survey. Historically, the Cost of Time Survey had been used in conjunction with ‘notional salaries…for senior and junior profit-sharing partners. Those salaries were estimated by increasing the figure for the previous year in line with national average earnings’113. It was understood that those notional salaries had been produced by the Society’s Remuneration Committee. In calculating the hourly expense rates a number of specific assumptions were made about chargeable hours for different categories of fee earners, rates of return for interest on working capital, pension provisions and changes in the retail price index. Participants in the Survey were offered the possibility of having their firm’s benchmarks generated for them by the consulting actuary and an Appendix provided a pro forma through which others could calculate their firm’s benchmarks (Appendix II to the Survey).

10.20 From the 2005 Cost of Time Survey the method had changed (the questionnaire used for the 2005 Survey is at annex G). The notional salary for profit-sharing partners was now the median level of profitability (excluding return on capital and pension provisions) from the 2004 Cost of Time Survey. The researcher noted that this notional salary although derived from the median level of profitability could be, possibly, indirectly influenced by the Remuneration Committee’s choice of notional salary from the previous year. This would occur if firms responding to the 2004 Cost of Time Survey used the hourly rates produced from the 2003 Survey when setting their charging rates for 2004. In such a case their profitability level would be determined, inter alia, by the notional salary level. Indeed, even if firms did not use the actual rate from the Cost of Time Survey but their choice of rate had been influenced by the actual rate that influence would be perpetuated through the use of the median profitability figure as a benchmark in the future. The Law Society of Scotland agreed to discuss the matter with the actuary.

113 _{Page 50, Benchmarks and Cost of Time, The 2004 Survey of Legal Practices in Scotland, Law Society of} Scotland, 2005

(f) Client Paying

10.21 By far the greatest proportion of work done by solicitors was charged against the solicitor’s own client.

i) Written fee charging agreements

10.22 In terms of Section 61A of the Solicitors (Scotland) Act 1980 solicitors and clients could enter into a written fee charging agreement in respect of any work done or to be done. Where such agreements had been entered into, it was not competent in any litigation arising out of any dispute as to the fees to be paid under such an agreement for the Court to remit the solicitor’s account for taxation. In 1993 the Law Society of Scotland passed a practice rule, with the concurrence of the Lord President, the effect of which was to require solicitors to raise a Court action for payment of outstanding fees and give the client an opportunity to defend the action before the solicitor could obtain a decree on which diligence could be done. They could not go straight to diligence (ie enforcement of an unpaid debt).

10.23 From 1 August 2005 solicitors had been required by virtue of the Solicitors (Scotland) (Client Communication) Practice Rules 2005 to advise clients in writing of certain information at the outset of a matter, including either an estimate of the total fee to be charged plus VAT and outlays, or the basis upon which the fee would be charged (including VAT and outlays which might be incurred). A separate Guidance Note issued with the Rules114 made clear that where an external fee charger, such as an auditor or law accountant, was asked to assess the fees to be charged (for example, in an executry), solicitors should explain to their clients the basis on which the auditor or accountant would be asked to fee up the file. If the work was being charged at an hourly rate, the actual rates applicable to different personnel carrying out the work would need to be stated as well as any commission charged on capital transactions such as the sale of a house. Where an account was to be rendered on a detailed basis, the charges for letters, drafting papers, etc also needed to be expressed as well as the hourly rate.

10.24 Intimation of such an estimate would not necessarily constitute a written fee charging agreement, but if the client accepted such proposed fees in writing, such acceptance would in the Society’s view be an agreement in terms of section 61A of the Solicitors (Scotland) Act 1980. If the agreement set out an hourly rate or basis of charging but did not quote a total fee, the client would still be entitled to challenge whether or not all the work done was necessary, but would not be entitled in the Society’s view to challenge the rates to which he had previously agreed.

ii) Taxation

10.25 If there was no written fee charging agreement, the client was entitled to require the solicitor to submit the account to the auditor for taxation. It was also possible for a solicitor on his own initiative and for his own guidance to send a file to an auditor of court or an independent law accountant to have a fee assessed; such

114 _{available on the Society’s website in the section on Commonly Used Rules :}

unilateral action was not improper, but such an assessment could not be represented as a taxation or as having any official status. The fee for such a reference was not chargeable to the client unless it was included in a terms of business letter issued by the solicitor at the commencement of the work and the work had been instructed on that basis.

10.26 Taxation was a formal process where both the solicitor and the client had the opportunity to make representations to the Auditor about the reasonableness or otherwise of the fees. The outcome of a taxation was binding on both solicitor and client and the expenses of the taxation were entirely at the discretion of the Auditor, the latter being an issue which attracted adverse comment in the research on auditors reported in part VI of this chapter.

10.27 If a solicitor required to sue a client for unpaid fees, the Court might, but did not necessarily require to, remit the account to the auditor of court for taxation. The law on this question was fully reviewed by Sheriff Principal Sir Stephen Young115 who held that a Sheriff had discretion as to whether to remit to the Auditor by virtue of the relevant rule of court116_{. The exercise of such discretion would depend on the} particular circumstances of the case. In the case in question the Sheriff Principal decided not to remit the account to the auditor and granted decree for the sum sued for.

10.28 The Scottish Consumer Council thought that the taxation process could be viewed as a useful consumer protection mechanism in theory, but had concerns that it might not be widely used and that consumers either might not know about it or might be deterred from using it for fear of the cost should the auditor not find in their favour. It was also clear from the auditor of court research that the taxation process was complex, lacked transparency and had considerable potential for inconsistency. The Council was concerned that there was no clear evidence as to whether the process did provide adequate protection for consumers, as it had not been possible for the auditor of court research to include a survey of the views and experiences of individual court users.

10.29 The functions and operation in practice of the auditor of court in relation to taxation are examined in greater detail in part VI to this chapter.

iii) Speculative fees

10.30 There was no prohibition on a solicitor carrying out work on a speculative basis, where a fee was only charged in the event of success. That basis was common in litigation, particularly personal injury cases (see Part IV), but was also very common in estate agency (no sale – no fee) and commercial work. In such transactions, the fee might be enhanced in the event of success, and might either be substantially discounted or waived altogether if the matter was unsuccessful. Such arrangements had to be agreed between solicitors and clients, preferably in writing to

115 _{Stronachs Corporate v Mountwest 166 Limited (A1677/03 in Aberdeen Sheriff Court, on the Scottish Courts} website).

116 _{Rule 2(1) of the Act of Sederunt (Solicitor and Client Accounts in the Sheriff Court) 1992 (1992 SI No.} 1434)

eliminate problems caused by differing recollections of verbal agreements. Such an arrangement was not truly pro bono work (see below).

(g) Third Party Paying

10.31 In the context of a litigation, one party to the litigation might be found liable to the other party for some or all of the latter’s legal expenses. The party entitled to an award of expenses was liable in the first instance to pay his own expenses, but was entitled to recover some or all of the expenses from the other party. This is discussed further in Part III below. 10.32 Apart from litigation, there were several situations where the solicitor’s own client was not responsible for payment of the solicitor’s fee. The most common of these were:

• leases where the tenant was normally liable for the landlord’s solicitor’s fees and outlays;

• secured loans where the borrower was liable by statute for the lender’s solicitors fees and outlays;

• executries where the residuary beneficiaries were not executors (in an executry the clients are the executors not the beneficiaries117);

• business relocation where the individual’s legal expenses were to be paid by the employer or a relocation company;

• legal expenses insurance;

• any other contractual arrangement for payment of one person’s legal expenses by another person.

In all of these situations the third party paying had the right to require a taxation of the solicitor’s account, unless such a right had been contractually excluded. The taxation would be conducted on the same basis as if the client was paying, except that the auditor might disallow a particular charge notwithstanding that the client had specifically instructed that item to be carried out.

(h) Clients in receipt of legal advice and assistance under the Advice and Assistance Scheme

10.33 Advice and Assistance under legal aid legislation was also available for general business where the client was financially eligible and the position is dealt with fully in Part IV below. If the authorised expenditure under the Advice and Assistance scheme had been exhausted, it was open to the solicitor and client to agree that work could continue to be done, treating the client as a private fee paying client for such work subsequent to such an agreement. That could not be retrospective, and fees had to be charged at Advice and Assistance rates for the period when the client was under the scheme and subject to the level of authorised expenditure available when the work was done. The client had a statutory right to taxation.

(i) Solicitor advocates

10.34 For the purposes of the regulation of fees (apart from legal aid and party and party expenses in litigation), solicitor advocates were solicitors and subject to the same regulation as other solicitors. No research had been carried out as to the fees charged by solicitor advocates.

(j) Pro Bono

10.35 Solicitors could undertake work without charging a fee, known as pro bono118 work. Many firms did so for charities, or for long standing clients needing advice about a particular matter. Many firms prepared wills for no charge, or for a donation by the client to charity; the Will Aid scheme was the best known example of that but there were others. In some circumstances outlays would be incurred.

PART III : ADVOCATES’ FEES