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How attorney fees are calculated in China?

What is the Basis for a Legal Fee?

Attorney's fees are generally a matter of agreement between the client and the attorney. There are no recommended fee schedules. While fees vary from attorney to attorney, the basic ingredient is the amount of time spent on a particular problem. Clients are often unaware that the advice given to them in a few minutes or the few pages of a document prepared for them are products of much time and effort by the attorney and often by others in the office such as legal assistants and secretaries.

How We Compute Our Fees?

There are four usual methods of calculating legal fees;

(1) Hourly fee arrangements

(2) Contingency fee arrangements

(3) Flat fee arrangements

(4) Percentage fee arrangements

Hourly Fee Arrangements:

An hourly rate depends on the circumstance of the case and the experience and expertise of the lawyer. Under this arrangement, the client is generally responsible for the out-of-pocket expenses (filing fees, transcripts, sheriff's costs) as well as for the time spent performing the legal work (meetings, research, drafting documents, phone calls).

Contingency Fee Arrangements:

This is an arrangement used primarily in personal injury and collection cases. They are not allowed in criminal or divorce matters. The lawyer receives no fee unless money is recovered for the client. If money is recovered, the lawyer then received an agreed-upon percentage of the recovery, generally ranging from 25 to 45 per cent. The percentage often depends upon the amount of work anticipated, the probability of recovery and the complexity of the issues involved. If there is an appeal, the percentage can be higher. Contingent fees can be complied to gross receipts or net receipts. In any event, the client would be responsible for all out-of-pocket expenses such as filing fees and depositions. If an attorney is dismissed by the client prior to the conclusion of the matter, the client may be responsible for payment of a reasonable fee for services rendered by the attorney. All contingency fee agreements must be in writing (in Massachusetts) and signed by both the attorney and the client.

Flat Fee Arrangements:

With the flat fee arrangement, the attorney will render a specific legal service to the client for a fixed sum of money. Criminal defense matters or the preparation of a simple will are often the subject of a flat fee arrangement. If there are unexpected complications which arise, it is sometimes necessary to modify such an arrangement.

Percentage Fee Arrangements:

A percentage fee arrangement is sometimes used in the administration of an estate or in the selling or purchasing of a home. Then fee would then be a fixed percentage of the estate or the value of the property being transferred.

When Should You Discuss Fees?

The lawyer and the client should discuss the cost of the legal services at the initial meeting. The lawyer may not be able to forecast the exact amount of the time and effort required, but should be able to give the client an estimate based upon the information which the client can provide and the lawyer's past experience. The client should not hesitate to raise the issue of legal fees at any time with his or her attorney. The client has a right to a detailed billing showing the lawyer's time and efforts in those instances where the fee is based upon an hourly rate.

Who is Responsible for the Fees?

The client must pay the fees and expenses. In some cases that go to court, the judge may award a partial or full fee to be paid by the opposing side. This does not release the client from the obligation to pay the attorney.

When is the Fee Paid?

Most case require a retainer fee or deposit to apply to the lawyer's expenses or future charges. Clients should expect to pay when they retain an attorney. The attorney will generally bill on a monthly basis and the client is expected to remain current. A contingency fee case is billed upon completion of the case, except for expenses which may have been incurred.

Can Legal Fees be Limited?

The client should discuss legal fees and related costs during the initial meeting and consider a written fee agreement. The client should ensure that he or she is totally familiar with the basis on which the fees will be calculated. If the lawyer's work is concluded and the fees required are less than the amount of the retainer, the balance will be refunded. Being fully prepare with documents and information at the initial meeting can often reduce the time that an attorney must spend seeking that information. The client should be as brief as possible in all communications and refrain from frequent phone calls for which he or she will be billed. The client should always communicate openly and honestly with the attorney. Failure to do so can often result in added expenses.

What are Alternative Fee Arrangements?

Alternative or special fee arrangements are agreements between Our firm and a client to provide compensation to Our firm based on a structure other than hourly billing.  Such structures can take the form of contingency fees, fixed fees, value- or success-based fees or other alternatives to hourly fees appropriate under the circumstances of a specific matter.  Special fee arrangements can be hybrids in which Our firm receives a percentage of its hourly rate, with the remainder contingent on the outcome of the matter.  If there is an unfavorable result, no further fees are paid.  If there is a positive outcome, Our firm might receive a multiple of the fees it has at risk.  In addition, special fee arrangements can span more than one case.  Our firm is willing to negotiate special fee arrangements that provide a fixed contingency across a group of cases, or to handle a group of defense cases at a discount, in exchange for a contingency on plaintiffs' cases that a client may have.

Why Do Clients Seek Special Fee Arrangements?

Clients now recognize the inherent benefits in shifting some or all of the legal fee risk to law firms.  First and foremost, shifting the fee risk to the law firm aligns the law firm's incentives with the client's, and reduces the risk to the client.  In addition, clients who lack the financial resources to pursue important but expensive litigation are provided the opportunity to pursue such matters by having their law firm invest in the case alongside the client.  In the absence of special fee arrangements (SFAs), such matters might never be pursued.  Clients also value SFAs because they can provide predictable cash flow and budgeting.  An SFA with a fixed monthly fee or flat fee as an element is a prime example of a structure that guarantees certainty in legal expenditures.  In surveying its clients, Our firm has found that more and more clients are utilizing alternative fee arrangements and looking to firms, like Our firm, that regularly provide such arrangements.

What are the Risk-Sharing Options?

Our SFAs have included pure contingent fee and partial contingent fee litigation matters, fixed fees in litigated and non-litigated matters, "hold backs" or any combination of risk/reward structures negotiated on a case-by-case basis with the client.  In certain matters, we have taken part of our fee in equity or stock.  At Our firm, we are prepared to discuss and pursue any reasonable risk-sharing fee structure that balances the relative investment and risk taken on by the Firm with the client's objectives for success in the matter.  Specific types of SFAs that Our firm has entered into include:

Pure Contingency Fee.  A pure contingency fee arrangement is the most traditional alternative fee arrangement in which Our firm receives a fixed or scaled percentage of any recoveries in a lawsuit brought on behalf of the client as a plaintiff.  Typically, the client pays the expenses of the litigation, however, Our firm is also willing to discuss sharing part or all of the expense risk with clients.  Pure contingency fees can be useful structures in many plaintiff cases seeking monetary or monetizable damages.  They are often appropriate when the client is an individual, start up, or corporation with limited resources to finance its litigation.  Even large clients, however, appreciate the budget certainty and risk-sharing inherent in a contingent fee arrangement.

Partial Contingency Fee.  A partial contingency fee arrangement is when Our firm receives a portion of its hourly rate plus a smaller percentage of any recoveries in the lawsuit.  Partial contingency fees reduce the cost of litigation to the client, while still aligning Our firm's incentives with the client and sharing the fee risk between Our firm and the client.  Partial contingency fees are most common in plaintiff cases seeking monetary or monetizable damages, however, they are not limited to such matters.  Defense cases can also be structured as partial contingency fees with success contingent on agreed upon results or milestones being achieved.

Fixed Fee.  Fixed fee or flat fee arrangements are typically arrangements whereby Our firm agrees to handle a matter or group of matters for a sum certain or for a certain burn rate per month.  Fixed fees can be subject to an overall cap paid up front, or they can be for a fixed amount per month without a cap.  The specific nature of any fixed fee arrangement can be tailored to the nature of any given matter.  Clients who desire budgeting certainty often find fixed fee arrangements attractive.

Holdback/Success Fee.  A holdback/success fee arrangement is similar to a partial contingency fee in that Our firm is paid a portion of its fees up front, but has a portion withheld contingent upon success in the matter.  If the matter is concluded successfully, Our firm receives a multiple of the holdback or an agreed upon success fee.  This structure is often used in defense cases or when the result sought in the matter is not monetary.  For instance, Our firm has used this type of arrangement in corporate transactions where success is the completion of an acquisition, sale or other transaction.  Our firm has also used this structure in patent cases where the outcome sought is a finding of validity or invalidity of a patent, or in litigation defense cases where the result sought is summary judgment or limiting damages below a certain quantum.

Multiple Matters.  SFAs need not be limited to a single case or corporate matter.  Our firm has entered into arrangements with clients that pool groups of plaintiffs cases on a contingent fee basis, as well as groups of defense cases on a fixed or flat fee basis.  In addition, Our firm has negotiated arrangements with clients where it handles a fixed pool of defense cases on a reduced hourly fee basis, in exchange for handling a group of plaintiff contingent fee cases for the client, or for receiving right of first refusal to handle all plaintiff contingent fee cases for the client for a period of time.

Appeals.  Appellate matters can also be well suited to alternative fee arrangements.  Our firm is willing to handle appellate work where its compensation rests, in whole or in part, on the success of the appeal.

Other Matters.  The examples provided above are not meant to be exhaustive.  Our firm is willing to discuss any alternative fee arrangement structure for all different types of matters with clients.  As long as the risks are fairly balanced between Our firm and the client, there is no type of matter that cannot be structured as an SFA.

How Does the Process Work?

The SFA process typically begins with a new client or matter.  Clients often initiate the risk-sharing consideration process, but partners at the Firm also may suggest an SFA for a particular matter.  Once the Firm and client decide to pursue a matter for non-hourly treatment and conflicts have been cleared, background information is shared so that the Firm can assess the nature and complexity of the matter, the likelihood of success or difficulty in achieving success, the likely fees to be incurred (or invested by Our firm), and the client's objectives for success in the matter.  Once the Our firm partner is familiar with the background facts, he or she will submit a proposal to the Firm's SFA Committee for guidance and approval.  The SFA Committee will guide the partner in discussing the SFA with the client or may, if asked, have one or more of its members discuss the proposed SFA with the client directly.  The SFA Committee ensures that the proposal fairly balances the risks and rewards to the client and the Firm, and assists in preparing an appropriate agreement with the client.

What Type of Clients Choose Risk-Sharing Arrangements?

Many clients prefer SFAs over traditional hourly billing.  Some clients lack the financial resources to pursue a particular case or matter, as is often the case in intellectual property litigation matters or litigation matters for smaller growth companies.  Other clients favor the further alignment of interests inherent in certain risk-sharing arrangements where the Firm only gets paid where a "win" has been secured for the client, such as contingent fee litigation matters.  Still others prefer SFAs for their cash flow benefits or to bring certainty to budgeting.  Whatever the motivation, our clients have been pleased with our flexibility and cooperation in arriving at fair and appropriate SFA structures.

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I am a licensed China lawyer. Most clients are foreign nationals and companies. China Lawyer Blog have associates in Beijing, Shanghai, Tianjin, Guangzhou, Suzhou, Nanjing, Qingdao, Fuzhou, Hainan, Hefei, Wuhan, Xian, Changsha, Xiamen and Hangzhou. Learn More

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China Lawyer BLog AuthorPeter Zhu, an experienced China attorney licensed to practice law for more than ten years, the author of this China Lawyer blog, welcomes any enquiry or consultation related to Chinese law.