Understanding lawyers' fees
Luxembourg does not impose a fee scale on lawyers. Fees are determined on the basis of certain criteria, which may vary depending on the situation.
Fees are set forth in a fee statement that lawyers send to their client when a case is concluded.
The fee statement also includes a category for expenses incurred by the law firm.
Criteria for establishing fees
Although there is no fee scale, lawyers do not have complete freedom in setting their fees.
They must take several criteria specific to the case into account, including:
- the lawyer's level of responsibility, depending on the magnitude of the case: the lawyer's level of responsibility is not the same in a dispute over EUR 500 as in one over EUR 500,000. This naturally has an impact on the fees;
- the degree of difficulty: the complexity of the dispute has a direct bearing on the amount of time spent on legal research and drafting pleas;
- the result obtained: lawyers fees are always due, regardless of the outcome of the trial. Lawyers do not have an absolute obligation to achieve a particular result. They can never guarantee that a court case will have a favourable outcome;
- the client's financial capacity: fees must be proportionate to the client's financial capacity.
The internal regulations of the Luxembourg Bar Association add the following further criteria:
- the work invested by the lawyer (or by other lawyers in the same firm): this is probably the most important criterion, since the level of fees is determined, above all, by the time that the lawyer and/or the lawyer's team spend on the case;
- the lawyer's reputation: a client who selects a well-known lawyer must be aware that such a lawyer will be more expensive than a lawyer who is less well known;
- the lawyer's professional experience: lawyers with long experience in a specialised field have higher fees than young lawyers who are just starting out.
On the basis of these criteria, lawyers usually set an hourly rate to be charged in a particular case and which they must communicate to their client from the outset.
If a lawyer does not readily inform their client about how they intend to set their fees, the client is advised to discuss this with the lawyer:
- during the initial consultation;
- or even during the first telephone call to set up a meeting.
It should be noted that the initial consultation with a lawyer is not free of charge. If the client then decides not to pursue the case or to pursue it with another lawyer, the lawyer must still be paid for the consultation.
It is even more important to discuss fees with a lawyer when the cost of the fees might be disproportionate to any settlement in a dispute over a modest amount.
Determination of fees by contract
Although it is not the general rule, lawyers may determine their fees by agreement with their clients. To that end, a lawyer and client may draft a fee agreement that explains how the lawyer's remuneration will be calculated. The agreement is always based on the criteria listed above.
Such an agreement may also provide that a certain amount will be paid to the lawyer based on the case's outcome (for example, 5 % of the amount recovered by the client).
However, lawyers may not enter into agreements with their clients in which the fees are based exclusively on the results of the lawyer's work.
In addition to compensation for the work performed, the fee statement usually includes a category for expenses incurred by the law firm.
This category is intended to cover the various business expenses incurred by the lawyer (secretarial costs, stamps, archiving files, etc.). It is generally billed to the client in the form of a lump-sum amount equal to approximately 5-10 % of the lawyer's fees.
16 % VAT
Given that lawyers are service providers, they are required by law to include value-added tax at the rate of 16 % on all their fees.
It is customary for lawyers to ask clients to pay them a certain amount as a retainer at the beginning or during the course of a case.
This amount is a down payment that will be deducted from the final fee statement.
A final fee statement is only drawn up at the end of the case, usually after a final court decision has been fully executed.
Given that a procedure can be spread over several years, the down payment ensures that clients do not end up having to pay an amount that exceeds their financial capacity.
Disputes about fees
If a client believes that the fee statement exceeds reasonable standards, they may ask the Bar Association to assess the lawyer's fees and costs. This process is called a taxation of lawyer fees and costs.
If warranted, the fee statement will be reduced to a fairer amount.
It should be noted that the Bar Association's taxation decision does not constitute a judgement. Therefore, in the event of a disagreement concerning the taxation decision, both the lawyer and the client may still commence court proceedings.