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New Guideline Hourly Rates by the end of 2020?
The Civil Justice Council have founded a Guideline Hourly Rates Working Group, chaired by Mr Justice Stewart QC to conduct an evidence-based review of the basis and amount of the guideline hourly rates with a view to reporting by the end of 2020.
The Current GHR
The current edition of the GHR is now 10 years old. In the last attempt to update them, in 2014, the Civil Justice Council (CJC) Costs Committee proposed changes which would have resulted in a net reduction in fee-income of 2.2% for qualified fee-earners and by just over 5% for all fee-earners.
However, because there were “fundamental” shortcomings in the evidence, the then Master of the Rolls, Lord Justice Dyson, decided to freeze GHR at the 2010 levels saying that there was no prospect of the evidence required to change them ever being produced.
Discussions with the Law Society to obtain more evidence identified a lack of funding to undertake any survey to produce adequate evidence together with considerable doubt that sufficient numbers of firms would participate and provide the level of detailed data required to produce accurate and reasonable GHRs.
The Civil Procedure Rules Committee reconsidered GHR and in December 2019 published a report criticising the investigation that informed Lord Dyson MR’s decision to freeze 2010-established GHR indefinitely.
The report noted that the July 2014 analysis sought to rigorously establish “actual rates to a high degree of accuracy”, rather than form “broad approximations of actual rates in the market”, that were recommended by Sir Rupert Jackson PC, in his Review of Civil Litigation Costs: Final Report.
As such, it was foreseen that any forthcoming review would need to ensure “the need to produce broad approximations of actual rates, rather than anything more accurate than that”.
The GHR working group have resolved to obtain evidence as to the hourly rates allowed by Regional Costs Judges, SCCO Costs Judges and authorised court officers in the detailed assessments which they undertake.
In addition, the working group have requested that solicitors should provide historic data upon the hourly rates
- claimed and allowed upon assessment, or
- claimed and agreed between the parties,
from 1 April 2019 until 31 August 2020.
They have also requested that solicitors should provide data upon hourly rates claimed and allowed upon assessments between 1 September 2020 and 27 November 2020.
Whilst there is an urgent need for a review of GHR, we are concerned that the data being requested and the process that is being used will lead to GHR being introduced that are fundamentally flawed.
Hourly rates claimed – Historically, the hourly rates claimed were those that a client would actually pay to his solicitor irrespective of the outcome. There was competition amongst law firms and clients had a financial interest in reducing the hourly rate to an affordable level.
This situation changed when conditional fee agreement funding was introduced. The vast majority of personal injury claims are funded under conditional fee agreements on a “No win: No fee” or a “No win: Low fee” basis.
This is because CFA funding allows a solicitor to seek recovery of a very high hourly rate (say £500 per hour) when successful or to receive nothing or a very low hourly rate (say £100 per hour) if unsuccessful or where costs were not recovered.
As a result, the hourly rates claimed upon assessment are not representative of the hourly rates that a claimant would actually pay his solicitor for the services provided. The claimant is never going to pay those high hourly rates and has no interest in reducing them.
There is only one restraining force on hourly rates and that is how much the costs judge will allow on an assessment.
The vast majority of personal injury claims are funded under CFAs for this very reason. It follows that determining new GHR on the basis of a data set of distorted hourly rates is fundamentally flawed.
Hourly rates allowed - Today the Courts’ knowledge of local hourly rates comes from those that are claimed and allowed upon assessment. It ignores the fact that over 99% of costs claims are settled without the need for an assessment by the court.
Keoghs handle over 100,000 claims a year and less than 1% proceed to a hearing where costs are assessed with hourly rates being determined by the Court.
In the vast majority of that 1% of cases, the hourly rates are the pre-eminent issue because those claimed significantly exceed the hourly rates claimed in the 99% of cases that settle without a hearing.
It follows that the average hourly rates that the court assesses in the 1% of cases is not representative of the average hourly rates that are claimed. This is of real concern where the only restraining force on hourly rates is how much a Costs Judge allows upon assessment.
It follows that determining new GHR on hourly rates that are allowed in that 1% of cases is statistically unsound and fundamentally flawed.
Technology and efficient business practices
The use of information technology has significantly reduced law firm overheads and increased profitability. There have been reductions in clerical non-fee earning staff, decreases in the level of fee earners needed to conduct cases through case management systems, process mapping and precedent letters and documents.
The specialisation of firms and sub-specialism in a firm’s sectors provide economies of scale and concentration of expertise.
COVID-19 has had a massive catalytic effect to drive change in working practices in many law firms. The legal profession has rapidly advanced their digitalisation programmes to enable them to continue to provide legal services whilst their fee earners work from home.
This digitalisation means that firms no longer require buildings to match their paper footprint. Work no longer needs to be done in offices in cities but can be done from each fee earner’s home. A firm’s property requirements and overhead in terms of property costs will reduce as a result.
Regional variation and charging concerns
Coincidently, the Times reported today (7 September) on the research commissioned by the Legal Services Board and the Competition Market Authority (CMA) that revealed significant regional differentials. For example firms based in the North of England were 20% cheaper than firms based elsewhere, and firms in Wales were 27% cheaper. We understand that overheads are a factor, but the product is the same legal advice. Such imbalance will inevitably pollute any historical rate research on the lines intended.
Using a dataset of historic hourly rates will only serve to “bake” into any new GHR the pre-COVID overheads, along with regional imbalances, that are currently reducing as a result of digitalisation.
In our view, basing GHR on this dataset will not satisfy the objective of reviewing the basis of GHR and will result in new rates which are distorted, fundamentally flawed and out of date.
We have set out our in depth proposals on the way forward in our article on GHR published in the third issue of PI Aware (page 14).