Lawyers face probe over price-undercutting

A vicious scramble for contracts among law firms has triggered fresh investigations into claims of massive undercutting in the legal profession amid growing protests by deal losers.

The Council of Law Society of Kenya (LSK) says it is investigating a string of complaints by some of its members who claim they are increasingly being locked out of deals by colleagues who offer clients lower service charges.

Price-undercutting is regarded as professional misconduct under the Advocates Remuneration (Amendment) Order 2014 that sets compensation terms for advocates.

“It has come to the attention of the council that some law firms and advocates are undercutting by charging less than what is provided for under the order,” Apollo Mboya, LSK chief executive officer, said in a circular to its members.

Kenya has about 7,500 practising lawyers, with corporate deal-making presenting lucrative opportunities.

“We are in the process of investigating the various complaints. Any member involved should know that this amounts to professional misconduct,” the CEO further said in the circular seen by Business Daily.

Under the Advocates Act, any lawyer who accepts less than the scale fees can be fined not less than Sh100,000 or imprisonment of up to two years.

Increased investments in infrastructure, oil and gas and financial services, as well as a rising number of foreign investors eyeing the mergers and acquisitions market have presented fresh opportunities in project finance, venture capitalism, business formation and due diligence investigation.

Pushing through these projects demands a wide range of professional support, including legal services.

The battle for these mega-corporate deals has however turned ugly with some lawyers and law firms bending the rules to woo clients seeking cheaper services.

“It is ridiculous to see some of our learned friends stooping so low just to win deals. The rules are clear but some greedy fellows won’t respect them and deeply undercut in service charges. They are cheapening the trade,” a lawyer said on condition of anonymity due to the sensitivity of the matter.

Chief Justice Willy Mutunga in April 2014 published the Advocates (Remuneration) (Amendment) Order 2014 whose main aim was to review lawyers’ fees in light of the increased demand for their professional services in various sectors of the economy.

The regulations raised the fees charged by advocates by about 40 per cent especially in services such as conveyance, filing of suits, registration of trademarks and debt collection.

The new regulations prohibit advocates from getting into agreements with clients which allow the former to charge fees at a scale lower or higher than the prescribed fees to avoid unnecessary price wars.

Advocates now only have the option to charge as per the scale fees in the new rules, charge an hourly rate or enter into agreements with their clients so long as the fees negotiated are not less than Sh10,000.

Before the changes, an individual buying a Sh5 million property would for example pay a lawyer 1.5 per cent fee, amounting to Sh75,000. The advocate, however, had to observe a set ceiling of Sh25,000.

According to the new rates, the advocate will now charge two per cent of the value, in this case Sh100, 000, reflecting a 33 per cent increase in the fees.

Some lawyers, however, disregarded the changes in remuneration regulations by Dr Mutunga and charged fees at rates at low as 0.5 per cent, sources at LSK said.

Insiders said deals in real estate and land transactions are some of the hardest hit by the price undercutting because they are more regular and involve high price values.

Land and property prices around most urban areas such as Nairobi, Mombasa and Kisumu have lately hit the roof, making transactions involving them an attraction for lawyers and law firms.

A new report by HassConsult Real Estate reveals that land prices in Nairobi for example have appreciated by 535 per cent over the last seven years with an acre that cost around Sh30 million then now going for Sh170 million.

According to the new regulations, the fees for land transactions is calculated cumulatively on the basis of the value with parcels worth up to Sh5 million attracting a lawyers fee of two per cent or Sh35,000 whichever is higher.

For land parcels valued at between Sh5-100 million, the legal fee is prescribed at two per cent plus 1.5 per cent of the balance.

Due to these lucrative returns some lawyers and law firms are allegedly charging as low as a third of the prescribed fee to maximise on the number of deals bagged and boost their overall earnings.