Calculating Fee for Legal Service by AI
Dr. Omar S I Abasheikh, senior legal counsel at Halcon Systems L.L.C., shares his perspective on understanding the complexities of determining fees for legal services performed using AI and the implications for legal professionals and clients
Natural, corporate, and government persons purchase legal services. Quantification of the service required is the principal phase in the procurement process. What cost to attribute to a given matter and the method to calculate it is in the hands of the legal professional providing the service. Navigating the intricacies of estimating and controlling legal fees is challenging enough, especially when there is uncertainty about recovering legal fees in certain jurisdictions, such as in United Arab Emirates (U.A.E.) where a lawyer’s fee and some legal expense are not recoverable under law or court practice. Nevertheless, lawyers render legal services to, for, and on behalf of the aforementioned persons, whom receive payment therefor. Knowing what method of calculation to employ to allocate a cost to a given legal service would permit accurate estimation of the fund needed for the relevant service and provide certainty thereof, which is another key procurement process stage.
Those persons who purchase legal services, in particular legal counsel working for corporate and government entities, question the high price quotation they receive from external counsel who use AI to render the desired legal service. In-house counsel expect that the use of AI ought to reduce the fee that external counsel should charge. Use of AI in the legal field is not new, and neither is charging higher fee for work carried out by AI. AI has been in existence since the genesis of the legal profession in ancient civilisations.[1] In the legal profession, AI has three meanings: (i) Advanced Intelligence; (ii) Advancing Intelligence; and (iii) Artificial Intelligence. The third form of AI is a computer system equipped with specified intelligence to take action and achieve defined output. What method of calculation should be applied to determine the fee for legal service provided with the use of AI? For legal counsel to determine the fee for a certain type of legal service begins with knowing which AI will do the work.
Those with advanced intelligence are given these job titles: Chief Legal Officer; General Counsel; Deputy General Counsel; Chief Compliance Officer; Chief Intellectual Property Counsel; Assistant or Associate General; Legal Director/Head of Legal; and Senior Legal Counsel. Those with advancing intelligence are referred to as Legal Counsel; Commercial/Contracts Counsel; Employment/Labour Counsel; Litigation Counsel; Regulatory Counsel; Privacy/Data Security Counsel; Product Counsel; Real Estate Counsel; Corporate Secretary/Governance Counsel; Legal Operations Manager; and Paralegal/Legal Assistant. Both adopt a precise job title with itemised responsibilities and charge a fee for their consultation, research, drafting, attending hearing, and negotiation. Their fee is calculated based on their knowledge, skills, and experience, which in some jurisdictions is also done in accordance with guidelines provided for such purpose.
Currently legal professionals charge a fee on their ‘hourly rate’ for the time they work on a matter, a ‘fixed fee’ for a specific service, a ‘blended fee’, which is a mix of hourly rate and fixed fee, a ‘contingency fee’ based on a percentage of the financial outcome of a claim, or a ‘retainer’ paid in advance in return for discounted hourly rate. The fee varies depending on numerous aspects including, but not limited to, (i) whether the matter is contentious or uncontentious, (ii) the lawyer’s reputation or expertise, skills, and experience, (iii) the complexity of the matter, (iv) the geographical location of the law firm, and (v) whether the lawyer operates in a top-tier or second-tier law firm. This method of calculation is more of an ‘art’ than it is ‘science’ because it will depend on the creativity and self-expression of the legal professional providing the service and their place of work, and not on logic and evidence as to why the particular service is worth the fee quoted or charged.
It is an expected and accepted unspoken rule that those who have advanced intelligence charge their fees for work that is carried out by those with advancing intelligence. Should or could this rule be applied to work that is carried out by artificial intelligence? Whilst it is easy to determine aspects (i), (iii), (iv), and (v), how should the reputation of the artificial intelligence be judged? Artificial intelligence exhibits superior intelligence and is expeditious, but it (a) is based on the knowledge, skills, and experience of those with advanced and advancing intelligence; (b) does not assume a job title according to a specific job description; and (c) is not required to possess a law degree or authorisation to practise law.
When deciding the legal fees to award a winning party, courts and tribunals are influenced by the going rate in the marketplace, which takes into account the factors enumerated above as (i) to (v). In U.A.E. Article 47 of the ‘Federal Decree Law No. 34 of 2022 Regulating the Legal Profession and Legal Consultation Profession’ lists the elements for determining legal fees. In United States of America (“U.S.A.”), it is calculated using the ‘lodestar method’[2], where (a) a reasonable hourly rate is multiplied by (b) a reasonable number of hours worked.[3] The lawyer has to prove that the hourly rate is reasonable,[4] which must be done with documentation that shows, amongst other elements, the time spent. In England and Wales, the ‘Solicitors’ guideline hourly rates’ and ‘Senior Courts Costs Office Guide’ (‘SCCO’) provide guidance. Under the SCCO, costs judges and officers decide, on the ‘standard’ or ‘indemnity’ basis, how much a successful party in litigation can recover from their opponent and how much a barrister, who are allowed to set their own prices, or a solicitor should be paid. Such costs must have been reasonably incurred and reasonable in amount.[5] This model is also used in Queensland, Australia, in accordance with the scale of costs set out in the Uniform Civil Procedure Rules 1999. In Canada, a lawyer’s invoice could be reviewed by the ‘Assessment Office’ of the province or territory ‘Superior Court of Justice’. An ‘Assessment Officer’ will decide if the invoice is reasonable or excessive. This superintendence is inexistent in U.A.E. because Article 52(2) of the U.A.E. law states that “The legal fees may neither be reduced nor increased if their value is agreed upon after the agreed work is completed”.
With the third type of AI having greater intelligence and speed than the second and first type, assessment of whether cost for work carried out by the latter was reasonably incurred and reasonable in amount is easily performed but such a task will be a thought-provoking exercise when it comes to the former. This is because, if not for any other reason, no precise job title could be assigned to intelligence that is artificial. With abovementioned guidelines in mind as to how the cost for service performed by the first and second type of AI should be calculated, a useful mechanism to compute the cost for service performed by the third type of AI could be to apply commercial sense. The cost of legal service carried out by artificial intelligence should be commensurate to the cost of (i) buying the appropriate computer system or software and (ii) the person who bestows upon it the pertinent knowledge, skills, and experience to perform changeable job title and responsibilities. The above enumerated factors remain significant determinants. Additionally, consideration would have to be given to the rules that regulate the legal profession in the applicable jurisdiction. In U.S.A., Rule 15 of the ‘ABA Model Rules of Professional Conduct’ of the ‘American Bar Association’ orders that fees and costs for legal services must not be illegal, prohibited, unconscionable, or clearly excessive.[6] In England and Wales, the ‘Solicitors Regulation Authority’ obliges that solicitors, registered European lawyers, and registered foreign lawyers maintain trust and act fairly and are told that “You do not abuse your position by taking unfair advantage of clients or others”.[7]
If the third of type of AI performs a particular task in 20 minutes, the other types of AI should consider whether it would be unconscionable or excessive to charge more for it. It is likely to amount to abuse of position and taking unfair advantage of the client. Certain amount of responsibility should, however, fall upon the client requiring the legal service, with the starting point being to understand whether their matter needs AI, AI, or AI. Knowing this would allow the client to pay a negotiated fixed fee for a particular service that is to be performed by a particular type of AI without also paying for one or both of the other type. Quantifying the service required is linked to the cost payable for it.
Understanding what cost to assign to legal service is a challenging uncertainty. Financial clarity is, nevertheless, essential! Regardless of the method to quantify legal fees, lawyers’ responsibility is to find a balance between art and science with regard to their fee so as not to be illegal, prohibited, unconscionable, clearly excessive, or taking unfair advantage. The standards of professionalism expected of legal professionals is not only to maintain trust and act fairly, but it is to ensure that purchasers of legal services have access to justice because “It is not merely of some importance, but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done”.[8] This legal principle means that justice should serve both the rules and values of lawyers.
Text by:
Dr. Omar S I Abasheikh, senior legal counsel, Halcon Systems L.L.C.
Footnotes:
[1] Robert J. Bonner, Lawyers and Litigants in Ancient Athens: The Genesis of the Legal Profession (New York: Benjamin Blom 1927); John Crook, Law and Life of Ancient Rome (Cornell University Press 1967)
[2] Lindy Bros. Builders, Inc. of Philadelphia, et al. v. American Radiator & Standard Sanitary Corp. et al. 487 F.2d 161, 168 (3d Cir. 1973)
[3] William Joyce, et al. v. Federated National Insurance Co. 228 So. 3d 1122 (Fla. 2017) [1126]; Seminole County v. Coral Gables Federal Savings & Loan Association So. 2d 614 (Fla. 5th DCA 1997) [615]
[4] The Scott Fetzer Company, Kirby Company Division v. Carol J. Weeks, et al, Defendants, Charles M. Mcdonald, 859 P.2d 1210 (Wash. 1993) [151]; Bowers v. Transamerica Title Ins. Co., 675 P.2d 193 (Wash. 1983) [597]
[5] M v London Borough of Croydon [2012] EWCA Civ 595
[6] See also Rule 4-1.5 of the ‘Rules Regulating the Florida Bar’ and Rule 4-200 of the ‘California Rules of Professional Conduct’
[7] Paragraph 1.2 of the ‘SRA Code of Conduct for Solicitors, RELs and RFLs’
[8] R v Sussex Justices; Ex parte McCarthy [1924] 1 KB 256, 259
