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LAW & REALTY: The no discount rule Print E-mail
Friday, 19 January 2007

Roger Tan©The Sun
by Andrew Wong

THE Solicitors’ Remuneration Enforcement Committee (SREC) is a committee of the Malaysian Bar Council set up to ensure that all lawyers comply with the Solicitors Remuneration Order 2005 (SRO).

The SRO regulates the scale or fixed fees that may be charged by a lawyer for handling property transactions such as sale and purchase, loans, banking facilities and other non-contentious business. It also prohibits the giving of any discount on such fees.

Roger Tan (pix), the chairman of the SREC talks about the SRO and the no discount rule.

What is the purpose of the SRO and how will it benefit consumers?

The purpose of the SRO is to fix the fee that a solicitor may charge his client for property-related transactions. A fixed scale of fees is a common method of charging for professional services and will benefit consumers in that fees are readily ascertainable. For many first-time purchasers of property, knowing beforehand how much to set aside for such costs is important. It will prevent lawyers from overcharging; it protects the small consumers and also protects the public against inefficiencies of a solicitor since the scale sets a fixed rate regardless of time taken.

Let me show you the table below which compares the fees charged by other professions:

Accountants Malaysian Institute
of Accountants
No Not applicable MIA has set out a recommended basis for determining audit fees based on time charge, and the value of total assets or gross turnover or operating expenditure.
Architects Board of Architects Yes No Fee is based on cost of works and a regressive yardstick ranging from 10% to 3.5% is applied.
Doctors Malaysian Medical Association No Not applicable MMA has set out guidelines on charges payable.
Engineers Board of Engineers Yes No Fee is based on cost of works and a regressive yardstick ranging from 8.25% to 2.28% is applied.
Land Surveyor Board of Land Surveyors. Yes No Fees are paid to Board before commencement of work and will be paid out by Board in accordance with work done.

But various people have argued against a fixed scale of fees.

Well, that is true. They have said that on economic principle, legal costs should be decided by free market forces. Some have said that it insulates the incompetent lawyer from the competitive environment as there is little incentive to adopt cost-saving measures and improve practice management and service standards. Others have said that it prevents the public from choosing to pay less for a lower but acceptable standard of service, and also that such matters are often handled by clerks and not lawyers and the scale does not commensurate with the level of skills in conveyancing.

There are also some who have argued that lawyers and clients should be allowed to negotiate a fee, and that the rule is in total disregard of Asian social values — as it compels a lawyer to charge the full scale fees. Others say competition should be encouraged and not stifled and a discount will not lead to undercutting as the public should be able to appreciate that the cheapest may not be the best. They believe that the public’s interest is sufficiently protected if scale fees are prescribed as the maximum fees and that the rule deprives the public from engaging lawyers who comply with it.

Why then the need to have scale fees and the no discount rule?

Of course, we at the Bar Council have taken all these arguments into consideration and have concluded that, in comparison, the advantages of a fixed-scale regime far outweigh its abolition. In fact, from Jan 1, 2006, our fees for the standard statutory Schedules G & H sale and purchase agreements and financing agreements have also been reduced.

To the public, this rule is better known as the no discount rule. But to the Bar Council and the legal profession, it is more than that. The rule is also a no overcharging and undercutting rule. To date, we have, after receipt of complaints, hauled up those members who overcharged and they were also ordered to refund the overcharged fees to their clients.

In fact, the rule will ensure a fair and level “playing field” for all firms — big or small — because no matter which firm a client goes to, the prescribed fee for his property transaction will be the same. Lawyers will have the proper incentive to carry out the transaction to completion without having to argue with clients about a discount.

To us, as solicitors, we are professionals and haggling over fees only results in lowering the dignity of the legal profession, and giving of discounts can lead the client to believe that a lawyer can be bought and sold. With the rule, a client is free to choose his lawyer, either in a big firm or small firm, and not be forced to engage services with the best discounts. The rule prevents undercutting among lawyers. Giving  discounts on fees can also result in lawyers “cutting corners” to the detriment of their clients.

So, when fees do not commensurate with the services provided, it is not uncommon for the quality to be compromised. Thus, scale fees prevent overcharging and undercutting, and it protects consumers by promoting quality services as solicitors will compete based on the quality of their services and not on pricing.

Do scale fees then create a monopoly?

Well, contrary to popular belief, lawyers do not have a monopoly on conveyancing work as each stage of the conveyancing work can realistically be done and performed by either the seller or the buyer of the property himself.

Parties can draw up their own agreement which can be attested by any person of full age. Any instrument of dealing required can be attested by any officer or person specified in the Fifth Schedule to the National Land Code. The purchaser can conduct his own title search, submit his agreement or instrument of transfer for stamping and present the instrument for registration.

The vendor or the purchaser will have to accept the risks on their own. But if they wish to engage a solicitor and pass the risks to the solicitor, then the Bar Council is of the view that the solicitor should be reasonably and fairly remunerated for undertaking the work.

Is the Bar Council’s stand on scale fees and the no discount rule supported by other professional bodies and related associations?

Very much so. On Jan 20  last year, the Bar Council together with nine other professional bodies and boards issued a joint memorandum in support of professional scale fees. The collective view is that professional services are intellectual and creative products, and not commodities, and that it is not in the interest of the public for professional fees to be decided entirely by “market forces”.

A “free market” situation will lead to an unhealthy widespread undercutting of professional fees and the quality of professional services rendered being compromised.

We also have the support of the Federation of Malaysian Consumers Associations (Fomca) and the National House Buyers’ Association. These two bodies represent a very large segment of the public who pay legal fees.

In fact, many members have reported to us that more members of the public and financial institutions now appreciate the reason behind the rule.

Given time, will the Bar Council change this rule?

I don’t think so. This issue cropped up many times in our annual general meetings. But in our October 2005 reconvened annual general meeting, an unprecedented large number of members voted overwhelmingly to maintain the scale fees and prohibit discounts which also means prohibiting overcharging and undercutting.

I believe that was a wise decision by the Bar after looking at the effects on those countries which have abolished scale fees. The Malaysian Bar’s decision was obviously based on the interest of both the public and the legal profession.

The report is prepared by the deputy chairman of the Conveyancing Practice Committee, Bar Council, Malaysia

Note: This column is brought to you by the Malaysian Bar Council for your information only. It does not constitute legal advice. You should therefore seek professional legal advice for your specific needs. Neither the Malaysian Bar nor the Sun Media Corp Sdn Bhd shall be liable to any reader who suffers losses as a result of relying on this column.

Comments (1)add
Stephen Tan Ban Cheng: GET THE CULPRITS!

The Solicitors' Remuneration Enforcement Committee (SREC) led by my friend, Roger Tan must move to get those lawyers who still give discounts. It is not exactly a popular job, but it must be done if we are to give substance to the October 2005 vote to maintain the scale fees.

It is unfortunate that some of my learned friends have, for some unfortunate reasons, caved in to the unlawful demands of some unscrupulous elements who are out to disrupt the scaled professional fees.


Friday, January 19 2007 02:00 PM
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