GUIDELINE HOURLY RATES: ARE THEY NOW TRAMLINES?

Kerry will be discussing this topic, and very many others, in his two 1-hour Zoominars at 4.00pm on Wednesday 5 October and Tuesday 11 October 2022 – recordings are available whether or not you attend.

£35 for one Zoominar; £50 for both Zoominars – plus VAT in each case- including the recordings.

As many colleagues as you like from your organization can attend at no extra cost.

Please click here to book your place for the Zoominars.

This piece first appeared, in a slightly different form, on the Practical Law Dispute Resolution Blog.

It has been observed that Guideline Hourly Rates are just that – guidelines and not tramlines; in other words the courts are free to depart from them.

That view is now barely sustainable following a number of recent decisions, including two in the Court of Appeal.

In Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466

the Court of Appeal said that even in very heavy commercial work, a party must provide “clear and compelling justification” to depart upwards from London 1 Guideline Hourly Rates as those rates “already assume that the litigation in question qualifies as “very heavy commercial work””.

In Athena Capital Fund SICAV-FIS SCA & Ors v Secretariat of State for the Holy See (Costs) [2022] EWCA Civ 1061

the Court of Appeal referred to the Samsung decision saying:

“the appellants’ solicitors’ costs comprised £175,000 (including hourly rates charged well in excess of the guideline rates set out in Appendix 2 to the ‘Summary Assessment of Costs’ guide published in the White Book) … This court has recently held that, in the case of solicitors’ fees, if a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided: Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466. No such justification has been advanced in this case.”

“It may be worth emphasising one aspect. In my experience there has been a view that the previous set of Guideline Hourly Rates (before 2021) were not directed to the heaviest work such as takes place in the Business and Property Courts. In part no doubt this was because they were so out of date. Whatever the position was or was thought to be, it changed in the current set of Guideline Hourly Rates, which were approved by the Master of the Rolls in August 2021. As my Lord pointed out in Samsung v LG, the current set includes a band called ‘London 1’ which is a set of rates directed expressly to very heavy commercial and corporate work by centrally London based firms. I would add that the London 1 rates band in the current Guideline Hourly Rates is based on evidence from the Business and Property Courts themselves (see the Civil Justice Council’s Final Report of April 2021). Therefore the London 1 band is directly applicable to this case and so a justification for the much higher rates was needed.”

That seems to be that as far as the heaviest commercial work is concerned.

In Rushbrooke UK Ltd v 4 Designs Concept Ltd [2022] EWHC 1416 (Ch)

the Chancery Division of the High Court, in summarily assessing costs in relation to an application for an injunction to restrain presentation of a winding-up petition, reduced the hourly rate claimed to the guideline rate.

“13. In my judgment, both criticisms of the respondent’s costs schedules by the applicant have some force. The new costs guideline hourly rates came into force in October 2021. They are of course merely guidelines, but they represent a consensus view of what average work should cost in particular areas of the country (so taking into account regional variations) and the experience and expertise of the relevant fee-earner. I see nothing in the present case to suggest that the work done here was above average either in difficulty, or in complexity, or in novelty, or in importance to the client, or in some other way. This was, if I may respectfully say so, typical business work. A figure slightly above the guideline, so to say, within touching distance of it, would not be too high. A figure £89 (34%) above the guideline in my opinion is too high.”

The Court also said that some of the work should have been delegated to more junior lawyers.

“14. Secondly, I am unhappy with the notion that everything here has been done by a single grade A fee-earner. One of the important skills of a solicitor is to know how to delegate less important work to less expensive fee-earners. Sometimes it is said that, well, there was no one else to delegate to (I do not know whether that is the case here). The answer to that plea, of course, is that, as between himself and his solicitor, the client is quite entitled to insist on the grade A fee-earner doing everything. On the other hand, as between him and his opponent, he or she is not necessarily entitled to require the opponent to pay for it. At that stage the question is instead whether the costs are reasonably incurred and reasonable in amount. And reasonableness takes account of potential delegation. Moreover, it is not for the paying party to have to identify work which could have been done by a more junior fee-earner. In my former experience over 30 years as a practising commercial litigation solicitor, there were no litigation cases that I was involved in in which no work whatsoever could have been delegated to a more junior lawyer. In the present case, for whatever reason, it seems that it has simply not been considered. For example (and it is only an obvious example), there was no need for the grade A fee-earner to attend at the hearing and sit behind experienced counsel, who did all the advocacy. A grade C or D fee-earner would have been fine.”

What these cases do not deal with is the more ordinary rates for other geographical areas and types of work, where such special provision is not made within the guideline hourly rates.

For example, if a firm in Plymouth, Cardiff, Liverpool, Newcastle, Manchester or Hemel Hempstead, or wherever, is conducting a complex commercial, or clinical negligence case, or whatever, are they to be restricted to the local guideline hourly rates which, unlike the London 1 rates, make no provision for the complexity or heavy-weight nature of the case?

Maybe, or maybe not.

In Athena, the Court of Appeal was at pains to point out that, for heavy commercial work, things changed with the new Guideline Hourly Rates, effective 1 October 2021, but that is not the same with other work.

However, as reported extensively by me in various articles, the courts are now very reluctant to allow guideline hourly rates to be exceeded, even on solicitors and own-client assessments.

In a separate, but important, comment in Athena, the Court of Appeal criticized the paying party for not challenging the hourly rates and counsel’s fees of the receiving party, and suggested this may be because their own fees were also “disproportionately high”.

The Court of Appeal made it clear that the courts should step into the arena and reduce disproportionate costs, even if the paying party does not challenge them.

“It is a striking feature of the present situation, that although almost every possible point has been taken on both sides in the course of this appeal, there has been no challenge either to the appellants’ solicitors’ hourly rates or to the brief fees and other fees charged by their counsel. However, the costs payable by the losing party on the standard basis are limited to those which are reasonable and proportionate. Where the costs of the paying party are also disproportionately high, that can make no difference. In any event the court will scrutinise cost schedules in order to keep levels of recovery within reasonable bounds.”

This statement by the Court of Appeal may, or may not, be connected with Jim Diamond’s forthcoming book – The Legal Extortion Racket – which is out later this year.

According to Jim Diamond, hourly rates for partners in the so-called magic circle firms have now reached between £1,000 and £1,500 an hour.

Partners in United States firms based in London charge between £950 and £1,350 an hour while London firms outside the magic circle charge £900 an hour.

Newly qualified solicitors at magic circle firms and US firms in London charge £600 an hour while other City of London firms outside those groups charge between £300 and £450 an hour for newly qualified solicitors.

This comes at a time when one US law firm based in London that is paying newly qualified solicitors almost £180,000 a year, whilst others are paying around £125,000 a year.

Recent decisions in the Court of Appeal and various divisions of the High Court have shown that there is no prospect whatsoever of anything like these hourly rates being recovered from the other side, and indeed the courts are repeatedly sticking to Guideline Hourly Rates in all types of work and in relation to both summary and detailed assessments.

Throw into the mix of with effect from 3 April 2023, virtually all civil litigation claims valued at £100,000 or less will be subject to fixed recoverable costs, and one wonders when the clients bearing these costs will say “enough is enough”.

Fixed recoverable costs are likely spread soon to all civil claims valued at £250,000 or less.

Set out below are the City of London law firms’ hourly rates.

CITY OF LONDON (MAGIC CIRCLE) LAW FIRMS – HOURLY RATES

Year	NQ-2yrs PQE	5yrs PQE	Partner
2003	£175-£185	£245-£280	£375-£450
2005	£180-£215	£250-£300	£425-£525
2007	£235-£250	£375-£450	£625-£700
2008	£250	£350-£400	£600-£750
2009	£250	£375	£450
2010	£300-£350	£450-£550	£650-£725
2013	£350-£425	£450-£550	£700-£850
2015	£350-£500	£500-£575	£775-£850
2022	£450-£600	£650-£850	£1,000-£1,500

I am grateful to Jim Diamond and The Law Society Gazette.

In Issue 55, pages 425 – 434, in the article –

TIME AND THE CLIENTS: THE NEW FIXED COSTS SCHEME COMMENCING 3 APRIL 2023

I set out these two very short, but very important Court of Appeal judgments in full.

The issue of departing from the Guideline Hourly Rates for specialist work performed outside London was considered by the Chancery Division of the High Court in

Lappet Manufacturing Company Ltd & Anor v Rassam & Ors [2022] EWHC 2158 (Ch)

Where the court allowed £350 per hour for a partner, and £230 for a Grade C fee-earner in Nottingham, saying that a departure from the guideline hour rates was justified on the basis of “the long- established principle that specialist solicitors in specialist areas of activity should recover an uplift to reflect that specialism, where that is justified in the circumstances”.

The current guideline hourly rates for these level fee-earners in Nottingham are £261 per hour and £178 per hour, respectively.

The receiving claimants had succeeded in opposing two applications in relation to an action concerning trademarks and this was a separate judgment in relation to the costs of those applications.

“12. In this case, I am satisfied that there is justification for an increase on the Nottingham Guideline rates. That arises from the complexity of the issues which arose on the two applications I disposed of. Both required specialist knowledge of the procedure applicable to intellectual property claims, and trade mark claims in particular. The intricacies will be readily apparent from my earlier Judgment. In my opinion, the Claimants were thus fully justified in engaging solicitors with the appropriate specialist knowledge, appropriate to advising on the issues in question and managing the conduct of the Defendants’ applications. I do not regard this case as one in which the justification is put forward only in a generalised way: it is put specifically on the basis of the specialist procedural knowledge needed in order to act effectively. It therefore does not fall foul of the proscription set out by Males LJ in the Samsung case. Instead, as I see it, a departure from the Guideline Rates is justified on the basis of the long-established principle that specialist solicitors in specialist areas of activity should recover an uplift to reflect that specialism, where that is justified in the circumstances: see, e.g., ABS Company Limited v. Pantaenius UK Limited and others [2020] EWHC 3720 (Comm), per HHJ Pelling at [64].”

The Court here also made a similar point that was made by the Court of Appeal in Athena.

“17. I agree that the amount claimed is high and should be reduced. I will reduce it to £6,000. The only argument against reduction advanced by the Claimants is that the counsel fees claimed by the Defendants were in excess of £8,400. That is true: they total £12,840. All that goes to show, however, is that the Defendants’ fees for counsel were also disproportionately high. It does not, in itself, justify the Claimants’ counsel fees.”

In Brake & Anor v Guy & Ors [2022] EWHC 1911 (Ch) 

the Chancery Division was summarily assessing costs on the indemnity basis after an application in relation to a third party debt order and the receiving law firm is based in Central London.

The Court held that it was the work, and not the location, which determined whether London 1 or London 2 rates should apply:

“… the mere fact that a Central London law firm does predominantly very heavy commercial and corporate work does not mean that when it does a piece of work which is not such work the same “London 1” guideline rates still apply. In my judgment, work done by such a firm which is not “very heavy commercial and corporate work” will fall under “London 2” rather than “London 1” as “other work.””

The Court also applied the appropriate Guideline Hourly Rates, even though costs were on the indemnity basis.

“49. I do however make clear that I see no reason why a piece of litigation may not qualify in an appropriate case as “very heavy commercial and corporate work”. I do not think that that expression is restricted purely to transactional matters. However, in my judgment the work done on these two applications is simply not heavy enough to fall into that category. Indeed, the first of the two applications was straightforward, the kind of thing which is given to a junior solicitor or even a trainee. The injunction application was more difficult, but still not “heavy”, let alone “very heavy”. In my judgment these two applications constitute “other work in the City or central London”, and therefore fall within “London 2”.”

“50. Of course, as the Guide says, the guideline figures are intended only to provide a starting point for those faced with summary assessment. As the Guide then goes on to say,

“29. In substantial and complex litigation an hourly rate in excess of the guideline figures may be appropriate for grade A, B and C fee earners where other factors, for example the value of the litigation, the level of the complexity, the urgency or importance of the matter, as well as any international element, would justify a significantly higher rate. … “

I bear all that in mind. Nevertheless, I cannot see that there are any factors involved in these applications which would justify hourly rates significantly in excess of the guideline figures. When I come to assess the costs, therefore, I will be looking at hourly rates in the region of the figures given in “London 2”.”

Inflation

You need to have been qualified as long as I have to have worked with inflation in double digits as it is now, and this is obviously a major problem with Guideline Hourly Rates, which have only existed for around 20 years.

The so-called Rule of 72 is a way to calculate how quickly money loses its value in a period of inflation.

Quite simply divide 72 by the annual rate of inflation to determine the amount of time it takes for the value of money to halve.

With inflation now forecast to hit 18%, the value of money halves in four years.

This has been a major issue with fixed recoverable costs, that is that they have not been uprated at all, in the nine years since their introduction on  1 April 2013.

Unless the system is changed, or the courts uprate costs awards to reflect inflation, costs received in four years’ time for work done now will be worth half the current rate.

There is an additional problem in relation to courts only awarding Guideline Hourly Rates even on the indemnity basis, and that is that it sharply devalues the whole concept of Part 36 offers.

A claimant who matches or beats its own Part 36 offer at trial is entitled to costs on the indemnity basis, and that has traditionally been thought to mean that the starting point is the hourly rate which the client was paying its own solicitor.

If the only difference between standard costs and indemnity costs is that proportionality does not apply, and that the balance of proof shifts from the receiving party to the paying party to show that any expense was unnecessary or unreasonable, then the reality is that in most cases there will not be much difference between standard rate costs and indemnity rate costs.

This issue needs clarifying and resolving, as with effect from April 2023, in fixed recoverable costs, there will be a 35% uplift for a party matching or beating its own Part 36 offer.

This was very much predicated on the basis of solicitor and own-client costs being around 50% higher than standard costs, that is that approximately two-thirds only of costs recovered on a standard basis.

I know – it was my idea.

Solicitor And Own Client Hourly Rate

On a solicitor and own client assessment under the Solicitors Act 1974, it is always easier to justify basic charges than the success fee, and therefore as much of the charge as possible should be within the basic charge, which then reduces the amount of the charge which is a success fee.

It also maximizes the chances of the solicitors achieving the 50%, or 36%, or whatever, and it must be remembered that this is a cap, and not a fixed fee.

Let us take a simple example that demonstrates these two points.

The solicitor has agreed to cap all charges at 50% of damages and recovers £10,000 for the client, which obviously means that the maximum charge is £5,000.

They have done 10 hours work.

They utilize the Guideline Hourly Rates, as very many firms do.

The maximum charge to the client is as follows:

Thus, the solicitors cannot achieve a charge of 50% of the damages.

Let us assume that they take my advice and charge Guideline Hourly Rates plus 50%, which would give an hourly rate of £327.

The picture is now as follows:

As the total charges are to be capped at 50% of damages, the success fee element will be only £1,730 as follows:

The success fee is calculated as a percentage of the basic charges, and that works out at a success fee of 52.91%.

Thus the solicitor achieves the desired fee, and has the benefit of the success fee being 52.91%, rather than 100%, which would obviously be easier to justify on a Solicitors Act 1974 assessment.

Civil Costs Consultation: Budgeting And Guideline Hourly Rates

The Civil Justice Council is consulting on a wholesale revision of the civil costs regime; the Consultation Paper is here and the consultation ends at 12 noon on Friday 14 October 2022.

In the last piece I looked at pre-action costs and the interplay with fixed recoverable costs due to be extended in April 2023.

Here I look at the connected issues of Costs Budgeting and Guideline Hourly Rates, and in each case the Consultation Paper asks whether they should be abolished altogether.

Costs Budgeting

At the Civil Justice Council Costs Conference on 13 July 2022, the following questions were listed for discussion, taken directly from the Consultation Paper:

• Is costs budgeting useful?

• What if any changes should be made to the existing costs budgeting regime?

• Should costs budgeting be abandoned?

• If costs budgeting is retained, should it be on a “default on” or “default off” basis?

• For cases that continue within the costs budgeting regime, are there any high-level changes to the procedural requirements or general approach that should be made?

The general view was that Costs Budgeting should be retained and was useful, but needed changing, and as one delegate said:

“It is fine as long as it is for someone else and not me.”

The extension of fixed recoverable costs in April 2023 to virtually all civil cases valued at £100,000 or less will dramatically reduce the number of cases where budgeting applies; it does not apply to any fixed recoverable costs case.

Many thought that excluding the most high value cases – currently those over £10 million – made no sense; it was the equivalent of having a full budget for constructing a shed, but no budget at all for building a house.

The issue of incurred costs, including pre-action costs, was accepted as a major problem, and again using a building analogy was the equivalent of only preparing a budget once half the house had been built.

The consultation paper also asks whether hourly rates should be considered and whether costs management should be carried out by specialist Costs Judges and whether more training of judges is required if the present system is to be retained.

The Consultation Paper also says:

“One practical problem with costs budgeting that has been reported is the lack of consistency overall and, in particular, the differing approaches to the question of what comes first – identifying the work that needs to be done, or setting the budget with the work then being agreed within that budget.”

Guideline Hourly Rates

• What is or should be their purpose?

• Do or should they have a broader role than their current role as a starting point in costs

assessments?

• What would be the wider impact of abandoning Guideline Hourly Rates?

• Should Guideline Hourly Rates be adjusted over time and if so how?

• Are there alternatives to the current methodology?

At the Costs Conference the point was made that Guideline Hourly Rates have only been around for about 20 years and that the Solicitors Act 1974 had to be amended to allow charging by the hour as a legitimate basis for billing a client, and that there was very little research available and almost no logical basis for the actual rates.

When I started work in 1974, there was no billing by the hour. Indeed at the Crown Court you negotiated the fee with the court clerk at the end of the case, and walked away with a government order- equivalent of a cheque – or in some cases cash! I remember walking away with a stash of cash in the company of my client who had just been acquitted of robbery; I was relieved when we went our separate ways and I returned to the office.

There is a tension between Fixed Recoverable Costs where, with the minor exception of a 12.5% London Weighting Allowance, seniority and status of the lawyer and location are irrelevant, and Guideline Hourly Rates, where they are the only variables.

Few people thought they should be abandoned, and everyone recognized that there needs to be a mechanism for uprating them in a period of higher inflation.

Failure to uprate fixed recoverable costs was cited as a reason why many people opposed their extension.

Guideline Hourly Rates, although essentially a tool for between the parties’ assessments, do give solicitors a starting point for setting the charge to their client, with many adopting a Guideline Hourly Rate plus 50% formula to reflect the old adage about expecting to recover two thirds of costs from the other side if successful.

A key issue is whether location should be of any relevance in a world of hybrid working, remote and hybrid court hearings, Microsoft Teams, Zoom and WhatsApp etc.

Why should an opponent pay for London offices and London salaries? Surely that is a classic solicitor and own client expense.

Payment by the hour obviously rewards the inefficient and less talented lawyers and incentivises lawyers not to settle. High rates for city centre firms arguably reward a poor business choice of expensive locations.

A modern, efficient firm making use of technology and lower overheads risks being punished, a key feature in the flight compensation case of

Bott & Co Solicitors Ltd v Ryanair DAC [2022] UKSC 8 (16 March 2022)

where I advised Bott & Co, the successful law firm in the Supreme Court.

The lawyer who resolves a matter satisfactorily and quickly with little work deserves a higher, not lower, fee than the one who takes years and goes to trial.

Contingency fees achieve that in that the fee is the same, but clearly the less work done, the greater the profitability to the law firm.

In fact, it is some of the lowest paid Legal Aid work, such as housing, which needs an expensive city or town centre location to be near the clients. Commercial work does not.

The old idea of benchmarking should be revisited, that is where a particular fixed fee is regarded as reasonable for a particular piece of work, and that fixed fee would take into account the “seven pillars of wisdom” in CPR 44.4(3).

My firm’s office in Wellington in the Western Cape of South Africa has 37 team members carrying out secretarial, telephone, sales, marketing and so-called backroom work. The firms who use these services should be rewarded, not punished, for lowering the cost base.

There is now very substantial interest in having English/Welsh legal work done there, thus enabling firms to do socially valuable work at lower cost and to make a profit on fixed recoverable costs work, as well as lowering costs to the client.

In an open costs Guideline Hourly Rates case, that business acumen would be punished, not rewarded.

Perhaps the most important question is the one that is not asked in the Consultation Paper:

Is there any justification at all for charging by the hour?

Time present and time past
Are both perhaps present in time future
And time future contained in time past.
If all time is eternally present
All time is unredeemable.

Four Quartets: Burnt Norton by T.S. Eliot

Indemnity Costs And Guideline Hourly Rates

In

Eurosail-UK 2007-4BL Plc & Ors v Wilmington Trust SP Services (London) Ltd & Anor [2022] EWHC 1019 (Comm)

costs were awarded on an indemnity basis and in favour of a London 1 firm with the Court accepting that it was “certainly reasonable for the applicants to instruct their corporate solicitors to deal with this case”.

The Solicitors claimed over £800 an hour for Grade A fee-earners and £257 for a Grade D fee-earner.

The Court reduced the rates to £650 and £250 respectively, accepting that it should allow “slightly in excess of the guideline hourly rates”, which are £512 and £186 respectively.