Many years ago, Maurice called me to complain about a legal bill that he had received. Fortunately, it was not me who had drawn his ire, although I was his primary legal counsel.
Maurice’s accountant had convinced him to go to a meeting with Peter, a very sophisticated tax lawyer, to discuss something called the ‘Quebec Shuffle.’
I barely understood the Quebec Shuffle at the time, and my understanding of it has not improved much over the years, so I will spare the reader any attempt to explain it. Suffice to say that it had something to do with shuffling paper, selling stuff into and out of a Quebec company, making different tax elections in Ontario and federally on the one hand and in Quebec on the other hand, and poof, your capital gains taxes were lower.
The strategy was not free from risk, as evidenced by the fact that a case about whether it constituted valid tax planning eventually made its way to the Supreme Court of Canada.
At the time that my client went to see Peter, the Quebec Shuffle was a fairly new idea. I don’t know whether Peter himself came up with it, but if he did not, he was apparently one of a small number of tax lawyers who were promoting this strategy.
Anyway, the first that I heard of Maurice’s meeting with Peter was when Maurice complained that he had received a bill for $1,500.00 from Peter which he thought was an awful lot of money for what had been done.
Maurice explained to me that he had noted the times on his watch when the meeting with Peter started and ended and that it had been 45 minutes long. He had also received a brief letter from Peter summarizing how the Quebec Shuffle worked. Maurice thought that it was a standard form. He guessed that Peter might have spent 5 minutes on it.
Maurice was quite perturbed at receiving a bill for $1,500.00 for what he thought was less than one hour’s work with the only detail provided being the statement, ‘for professional services rendered’. To give you a bit of context, my hourly rate at the time was about $250.00 although I would be the first to say that I did not have Peter’s expertise or reputation.
Maurice assured me that no fixed fee had been quoted and Peter had not discussed an hourly rate.
Maurice asked me what we could do about it. I suggested that we start by asking Peter to provide his dockets. Peter cheerfully cooperated. He sent me a calculation which said: “To meeting with client to discuss tax planning issues and summarizing the discussion in writing: 3.0 hours at $500.00 per hour = $1,500.00.”
Five hundred dollars was an extremely high rate at the time, but Peter was a pretty well-regarded tax lawyer, so it was not unheard of. Of course, we suspected that Peter’s answer was bullshit. We did not believe that Peter had spent three hours on the file. We spoke about having the account assessed, but Maurice decided to simply pay the $1,500.00 and chock it up to experience.
This story all happened back before there was much talk in the legal industry about ‘value billing’ or ‘fixed fees,’ and it was pretty much accepted that all lawyers billed by the hour. Despite this, Peter obviously had an expertise which he was trying to commoditize. He knew all about the Quebec Shuffle at a time when other lawyers did not. He had the big reputation. He wanted to charge way more than an hourly rate would justify, so he did. Personally, I have no problem with that. However, the communication left something to be desired.
There are many things that this story is not about. It is not about the value of the services that Peter provided or whether hourly billing or flat fees are a better approach to charging for legal services.
It is about transparency, communication and managing client expectations.
There is much discussion in the profession about whether lawyers should bill by the hour or on the basis of a flat fee. There are arguments on both sides and the advocates for each approach will often trot them out in any discussion of the issue (although for the most part, the proponents of billing by the hour simply stay calm and keep billing.)
If the truth be known, I think that what is missing from both sides of the discussion is the communication piece. I was not an early adapter to flat fee billing, which I rarely did. But I did learn about communicating with clients about fees, providing estimates and sticking to them, and thinking about how each bill would be viewed by the client before sending it. By the later years of my career, fee disputes were few and far between.
The legal industry certainly has to address how they bill. But even more importantly, we have to address how we communicate to establish client relationships and earn trust. With trust, you can make almost any billing arrangement work. Without trust, none of them are going to work.