A question of discounts
19/08/2005 The Sun Jennifer Gomez & Sujartha Kumarasamy

ON one side, there's the Bar Council and on the other, the Real Estate and Housing Developers Association (Rehda). Caught in between are house buyers and lawyers who have been giving discounts to developers and consumers. The council is firm on its decision to enforce the Solicitors Remuneration Order 1991, which prohibits lawyers from giving discounts for the documentation of the sale & purchase agreement (SPA). Although in place since 1991, the rule has not been enforced till last November. Rehda argues that the fees should be market-driven and wants the council to review its stand.

The Bar Council is adamant that the move will protect both the legal profession and consumers; it even has the backing of the Federation of Malaysian Consumer Association (Fomca) president N Marimuthu. However, Fomca's immediate past president, Prof Datuk Hamdan Adnan, who is also its adviser, believes that legal fees for the SPA is an issue between lawyer and buyer.

"It should be a free market, not a cartel. Let's say a lawyer is starting a business, and his overheads are low, he might feel that he does not need to charge so much for an SPA." Hamdan says that as a business, there should be fair competition. "The lawyer should be able to set his fee based on his ability, his overheads and his location." Taking the consumer's point of view, he adds: "By taking away the discount element, consumers will not have extra benefits."

The Consumers Association of Penang (CAP) agrees with Hamdan, saying that for individual cases, it should be up to the lawyer to decide if he wants to give a discount. "It should be left to the lawyers and the clients to work that out," says CAP president SM Mohd Idris.

In the case of SPAs for houses sold by the developers, CAP feels that there should be a minimum fixed fee. "The SPA for housing project units is standard, where the terms and conditions are drawn up by the Ministry of Housing and Local Government. Most of these agreements are easy to complete like fi lling in the names, unit numbers and so on. There should be a minimum fixed fee set by the ministry for this. In most cases, the same lawyer is also retained to do the loan documentation, which includes transfers, charges, deed of assignments and so on," he adds. CAP feels that there should not be a scale fee as these agreements are standardised.

In a poll, Propertyplus posted five questions on the issue to 10 house buyers, who averaged 36 years of age. The majority felt that the legal fees charged for the SPA should be market-driven.


1) Do you think lawyers should give a discount on legal fees when documenting the SPA? Why?

Dinesh Selvaratnam, 35, pilot:
Yes.

Nelson Wong, 46, executive search consultant:
Why not? Giving discounts has been a marketing strategy and practice for businesses worldwide. A legal firm is a business entity, not a charity and this is an open-market economy.

Aaron Lau, 33, chartered accountant:
Lawyers should give discounts, especially in documenting SPAs as this is a routine procedure. Most SPAs have the same content. It makes perfect sense to get it from the lawyer who gives the highest discount.

Fuzianna Ibrahim, 41, pharmacist:
No. Professional fees should be standardised based on the value of properties.

Cheah Kong Ming, 33, consultant:
Why not? Firstly, SPAs and memoranda of transfer are practically standard. Secondly, the quality of the services is for the buyer to judge. Buyers should do their homework before engaging a solicitor.

FK Hor, 35, consultant:
The no-discount policy should be followed. Allowing discounts may result in under-cutting. In a market where not all information is perfectly available, it may be difficult for the consumer to know if he or she is paying substantially more than the best price in the market.

Suzanna Chua, 40, general sales manager:
Yes. Prices or fees should be determined by market forces.

Cat Chooi, 31, research manager:
Yes, definitely.

Aileen Anthony Sinniah, 32, corporate communications manager:
From a consumer’s point of view, who wouldn’t want a discount? I would go for lawyers who give a discount... consumers would benefit.

Alvin Yap, 35, consultant:
Yes. Each legal firm can have its own discount benchmarks and should stand by its fees. At the end of the day, consumers do acknowledge that their satisfaction will be measured by the quality of service, credibility and competency of the lawyer. But a discounted fee does not necessarily mean a discount in service. It just means that the legal firm is effectively managed and therefore can have a better margin of profit. Consumers have to be given a choice as to who they want to work with.

2) Bar Council president Yeo Yang Poh (pix, left) argues that a fixed fee will benefit the legal profession and consumers. “Allowing undercutting [discounts] will lead to competition based solely on pricing. It will give undue weight to pricing and too little emphasis on quality of service, since price is immediately visible to the client whereas quality of service is not. In an environment where undercutting is limitless, it becomes easy for those who do not place an emphasis on quality of service to successfully compete. Over time, this kind of environment will lead to survival of the cheapest rather than survival of the best,” says Yeo. Your comments?

Dinesh:
Mr Yeo’s argument is as naïve as it is one-sided. The issue of price versus quality is one that is synonymous with almost all professions and does not pose a new problem. There is no such thing as limitless undercutting as the basic principles of economics involving supply, demand, quality and pricing will find its own equilibrium. Once this point is reached, the only way to attract business is by simply improving what’s on offer. There will always be a place for cheaper services possibly affecting quality, as well as more expensive services that don’t necessarily guarantee quality. What is certain is that market forces should be left to decide pricing. The Bar Council is right to worry about quality of service, however, charging an arm and a leg does not ensure quality. On the contrary, blanket protectionism will kill competitiveness, breed complacency and reduce quality of service.

Wong:
One can be highly philosophical about this but until and unless you can enforce this policy and penalise the offenders, you are only preaching to the choir. A toothless tiger is powerless and serves no purpose in trying to address a dichotomy.

Lau:
The Bar Council has imposed a fixed-fee policy but it has failed to a certain extent. Lawyers themselves have introduced the ‘discount’ as they saw that this is a way to get business and also to help consumers reduce costs. It is not about ‘survival of the cheapest’ but rather to ‘give discounts to survive’.

Fuzianna:
I agree. No profession should be compromised by price undercutting. It leads to unhealthy competition.

Cheah:
As consumers, we always want cheap and good. The solicitors should know how to balance both.

Hor:
I believe the position of the Bar Council is to prevent under-cutting among the lawyers. If discounts are allowed, then there may come a situation where there will be offers and counteroffers between the client and the lawyer. Should this go out-of-hand, it may not reflect very well on the profession as a whole.

Chua:
Price fixing is bad news for competition... no competition equals ineffi ciency. At a time when the walls of protectionism are coming down, it’s mind boggling where Mr Yeo is driving towards.

Chooi:
Somehow, I disagree. A fixed fee may probably minimise the price war among law firms. Who can guarantee homebuyers will receive better services if the fee is fixed? If that is the argument, perhaps the Bar Council should consider a flat rate! There are times when a price war is good and healthy for the market. One example would be the telco industry. Imagine, if there hasn’t been a price war among them, will the telcos evolve this much? Will mobile users get better services, coverage or cheaper SMS rates today?

Sinniah:
If this is the road we are taking, it is going to be a self-professed prophecy.

Yap:
As a professional body, more emphasis should be put on educating the consumer with regards to the legal system in Malaysia. Most Malaysians are ignorant of their rights before getting into a contract. More often than not, consumers do not understand a contract. The signing of the SPA is routinely done — many consumers still do not know what they sign for. All they do is to initial on the mark “X” on each and every page of the SPA. What entails in the SPA and the rights they uphold should anything were to go wrong are not made known to them. In some instances, lawyers were not even present when the SPA is signed.

The service value, even with the no discount ruling since 1991, failed to deliver its service standard as perceived by the consumer.

3) Rehda says that fees charged for legal services should be market-driven. The no-discount ruling is counter-productive, not benefi cial to the public and has caused legal costs to rise exponentially; placing tremendous cost pressures on the industry, developers and consumers, it says. Rehda president Jeffrey Ng (pix, right) argues that a standard SPA that does not provide any room for variation, save for particulars of the property concerned and details of the developer and the buyer. Why pay full-scale fees for something that is pretty standard and repetitive? Your comments?

Dinesh:
I agree totally with Ng. The unnecessarily high costs of a standard SPA burdens the buyer, directly affects the industry and indirectly dampens the economy.

Wong:
I think that Ng has got his feet better grounded on terra firma than Fomca and the Bar Council.

Lau:
I agree with Jeffrey Ng.

Fuzianna:
The rate to be charged must be pre-determined with agreement by all parties concerned. If there is a standard, reasonable fee, the consumers should know the standard rate charged. It is healthy practice, this way.

Cheah:
I agree.

Hor:
If it is felt that the current fee based on existing rates is high, then perhaps a committee comprising representatives from the various parties should be formed to study and make revisions to the scale fees [in respect of the percentages as well as the thresholds]. Another suggestion is to use the scale fees [or any revision therefrom] as a minimum fee whereby no lawyer is allowed to charge anything less but he or she is allowed to charge more to a client, on a willing-buyer willing-seller basis. If the lawyer is able to convince a client that he or she can provide a better level of service and thus charge a higher fee, and that is accepted by the client, then let the case be so. If there is also the intention not to over burden those from the lower income group, we can perhaps adjust the ceiling fee for properties costing up to RM100,000 [or whatever value that is taken as the fair value of a lowcost property]. Say, for example, no more than RM700 in SPA fees for such properties.

Chooi:
Absolutely, I can’t agree more.

Sinniah:
Whatever is said and done, property buyers in Malaysia still lack the protection owed to us. It’s disappointing that this whole issue has been assessed the way it is — discounted fees equates to discounted services! Since when?

Yap:
A market-driven service ensures consumers the quality of deliverables that are value for their money. The deciding factor is the consumer, not the Bar Council. The standard and repetitive SPA does not justify the effort versus reward as perceived by the Bar Council. Probably, a new scale of calculation needs to be put in place to counter it and a more proactive role of duties be spelt out before implementing the new scale of fees.

4) Fomca has backed the Bar Council’s stand of no discounts for legal fees. Your comments?

Dinesh:
This policy can only be viewed as unfair protectionism.

Wong:
Fomca has a long history and track record of serving the interest of the public. However, there are common and legal business practices and marketing strategies that are common worldwide that we’ve to accept as a reality. These are some of the things that we cannot avoid in real life, for example, when lawyers or anyone for that matter, give discounts to clients.

Lau:
The role of Fomca is to highlight, make aware and/or to fight for consumers’ rights.

Fuzianna:
I concur with the Bar Council and Fomca. It is a professional service rendered by a professional agent.

Cheah:
Fomca does not understand the needs of the consumers. It should do its homework better.

Hor:
As a consumer, I would prefer to avoid “quote-shopping” or calling up legal firms to find out which one offers the best price.

Chua:
Legal fees should not be fixed. A no discount policy should not be an issue of contention. The basics are not right. Medical doctors charge different fees... why should legal fees be fixed? Consumers would make their choice of legal representation based on merit, reputation, goodwill and so on and not always be price driven. Let the market drive prices.

Chooi:
Shouldn’t Fomca be on the side of consumers?

Sinniah:
It’s bad enough that the whole property business is never on the consumer’s side, now Fomca has agreed to this.

Yap:
Why has the “no discount” rule, in place since 1991, failed? There must be some indicative findings to use as a benchmark.Has Fomca done research on this? What are its findings?

5) Fomca president N Marimuthu (pix, right) stresses that consumers want quality, reliable services and safety — and so they have to pay for these. “We don’t want to take a short cut.” He equates discounted fees with “discounted service”. “What is RM2,000 in fees when one is buying a RM200,000 to RM300,000 property?” he asks. Your comments?

Dinesh:
If a lawyer charges me RM 1,000 for a service that Mr Marimuthu’s lawyer charges him RM2,000 for and the quality of work is the same, where is the problem? Competition can only benefi t the consumer. Should either lawyer do a poor job regularly, he will quickly develop a poor reputation. If there is malpractice involved, then there will still be avenues open to complain regardless of how much is charged.

Wong:
RM2,000 is a lot of money for the man on the street who is signing the same set of documents, for the same kind of house, on the same street as everyone else.

Lau:
Quality, reliable services and safety are very subjective and one cannot place a monetary value on such factors. The processes that the lawyer goes through to get the SPA done is procedural and I do not see any discounted service here at all. The idea is not discounted service, but more to find the lawyer that can give the most competitive price.

Fuzianna:
A professional cannot be competing by way of pricing… this will certainly lead to ‘compromised quality of service’.

Cheah:
When we buy a house, we have financial assistance from the banks but not [when it comes to] legal fees. We have spent so much on the house... can’t we save a bit on legal fees?

Hor:
Quality of service is normally subjective and it is usually measured between the expectations of the client and the level of service provided by the lawyer. Expectations vary between clients. Naturally, the smaller the expectation gap, the more satisfied the client. To a certain extent, the view may not be true that discounted fees equal discounted services. There may be some lawyers who give more discounts to gain clients but that does not also mean that the service provided is of lower quality. It may not be true to conclude that all lawyers who charge full fees will also provide the best services.

Chua:
I agree. If I want a discounted service, I’ll know where to go. Let the consumer decide. There is definitely a growing need and recognition of service and professionalism.

Chooi:
RM2,000 is still cold hard cash. To a [first-time] homebuyer, even RM500 could help in settling bills. Therefore, a little discount can sometimes help to ease the pain. Should a homebuyer be penalised for purchasing a property? Or is it because if one could afford a RM200,000 property, there is no problem paying RM2,000 in legal fees? It’s not a question of affordability, but is that necessary?

Sinniah:
Of course, you know of cheap things being lower in quality but this is legal service! I don’t understand why they have equated discounted fees with discounted service! Does this mean that whenever we get bargains, we can be assured of compromised products and services?

Yap:
While RM2,000 is a small fi gure compared with a RM200,000 or RM300,000 property, it is not the value that the consumer is looking at but the justifi cation of quality, reliable services and safety. How can these be measured and made known to consumers so that they can make wise decisions as to whether they want discount lawyers or not? Furthermore, who determines these qualities such as reliable services and safety as mentioned by Fomca Malaysia’s president? Is there a standard checklist for all lawyers to show to consumers what they are going to do/fulfi l from such an engagement? Is the scope of work spelt out transparently and is the written consent from the consumer obtained before the lawyer is engaged? How would a consumer know should there be inconsistencies in the service?