In a two-part series for the New Law Journal, Julian Chamberlayne, Knowledge Management and Compliance Partner at Stewarts, analysed the key themes from those who responded to the Civil Justice Council’s interim report into Guideline Hourly Rates. A summary of that analysis and commentary is set out below, including a look forward to issues for the next review in just two years.
On 1 October 2021, the 2021 guideline hourly rates (GHR) came into force, ending an effective 11-year freeze on the key reference point rates at which successful litigants could recover the legal costs they had incurred from their opponents.
After many years of inertia, the Master of the Rolls, Sir Geoffrey Vos, rapidly confirmed his acceptance of the final report on GHR by the Working Group (the Working Group) of the Civil Justice Council (CJC) in August. That report followed a review of the 103 responses to its interim report received from solicitors, cost lawyers’ insurers, representative bodies, the NHS, the Law Society and judges. This mix of responses led the Working Group to conclude that its interim report recommendations, including its proposed new GHR, were correct and had a sound methodological basis.
Implementation
Paying parties had suggested that any change to the GHRs be deferred until further evidence could be gathered on changes in business models, including the effect of homeworking, as exacerbated by the Covid-19 pandemic. Some suggested that the location of fee earners should be irrelevant and the geographical areas abolished. However, the Working Group remained committed to concluding its review and delivering its report. It was mindful that the report of the 2014 review led by Sir David Foskett had not ultimately been implemented. The Working Group commented that it was too early for the impact on charge rates of these changes to be properly assessed, but they may be considered in the next review.
The CJC’s interim report had proposed annual updates in line with an appropriate Services Producer Prices Index (SPPI) be applied to the new GHR once set. In its final report, it described the question of indices as controversial. Consequently, it was content to sidestep it and await the outcome of government reviews relating to fixed and capped costs, which it believed would be available before the first annual update of the new GHR.
It is vitally important that the outstanding issue of annual indexation does not get overlooked, otherwise, like their predecessor, these new rates will rapidly fall behind.
Methodology
Several responses accepted the methodology used by the Working Group because full evidence-based precision sought but not ultimately achieved by the Foskett review was not possible. For instance, the London Solicitor’s Litigation Association commented: “We consider the report to be an excellent attempt to resolve a complex problem and are encouraged that progress on GHRs can now be made.”
The main theme from the paying parties was to suggest that the CJC should have reverted to an expense of time methodology, even though the 2014 working group, led by Sir David Foskett, had been unable to obtain reliable data of that type.
NHS Resolution (NHSR) suggested that data on the expense of time could be sourced from the Solicitors Regulation Authority (SRA) by asking it to include additional questions in its annual process for renewing solicitors’ practising certificates. The Working Group was unconvinced and noted that the information currently obtained by the SRA would not enable an expense of time calculation.
The Working Group was also unconvinced that it should have needed to take into account insurer panel solicitor rates, commenting:
“Personal injury claimant solicitors’ rates are not comparable, for example, because they have to triage and reject work, they may have no guaranteed stream of work, and they have to wait for payments sometimes for years.”
The Working Group acknowledged that the Forum of Complex Injury Solicitors (FOCIS) and other claimant solicitors referred to the fact that Lord Dyson MR had said: “It was important to emphasise that GHRs were originally intended to be a broad approximation of actual rates in the market.”
Rates claimed vs allowed rates
At the request of FOCIS, Professor Fenn helpfully prepared an analysis of the data set relied on by the CJC to contrast the rates claimed with the allowed rates. FOCIS observed that using allowed rates (the methodology adopted by the Working Group) led to proposed GHRs 15% lower than the average claimed rates. They were also lower than applying the Consumer Prices Index (CPI) or SPPI Legal to GHR 2010 in most bands and grades.
It is notable that the only consumer organisation to respond, the Association of Consumer Support Organisations (ACSO), expressed a similar concern, saying: “A rise in the GHRs will reduce the gap between the consumer’s legal costs on an indemnity basis and the legal costs that their solicitor will recover from their opponent on the standard basis. Reducing this shortfall helps reduce barriers to access to justice. It is important, therefore, that any increase realistically reflects market rates. Greater consideration should therefore be given to appropriate inflationary measures.”
The Working Group did not accept the proposition that there was a clear correlation between rates claimed and market rates, as defined by the Jackson Report as “the rates which an intelligent purchaser with time to shop around for the best deal will negotiate”. The implication was that some claimed rates are artificial.
Responding to the cross-check of applying the SPPI Legal Services to the 2020 trial rates, the Working Group referred to comments from Professor Rickman in Appendix I to the interim report in relation to SPPI Legal Services, who said: “While this may seem to be an actual candidate for uprating GHRs, there is a potential difficulty because it effectively compensates a law firm for cost increases that may largely be in their control.”
This tentatively made point faces two difficulties. Firstly, there is no evidence that law firms suffer from an institutional failure to adequately control overheads. But even if they did, where does that leave litigants who face the benefit or burden of costs shortfalls relating to the difference between charge rates and the GHR absent the exercise of judicial discretion to close that gap?
Contrasting the inflationary indices that paying parties suggested (the Annual Survey of Hours and Earnings and office costs) with those suggested by the receiving parties (SPPI Legal), the Working Group made the sound observation that they are different from a conceptual perspective. The former is based on costs, while the latter is based on prices. The GHR is intended to reflect a real market rate, or in other words, the price actually paid by litigants for a reasonable level of legal representation for their dispute. So how much, on average, law firms pay for their office space or in salaries to their staff does not provide the answer.
London and National Rates
Turning to the recommended changes for London 1 and 2, the Working Group reported that there had been considerable support for their proposed definition of London 1, namely “very heavy commercial and corporate work by centrally based London firms”.
The Working Group rejected some responses calling for an equivalent for very heavyweight commercial work undertaken outside London. It commented that historically such work was rarely carried out outside of central London, and the analysis of Business and Property Courts work outside London did not support such a separate GHR.
In relation to geographical areas, the Working Group largely stuck by its recommendations in its interim report to abolish National Band 3 and merge it into National 2. While it reported a divergence of opinion in the responses on whether to go further and reduce the national bands down to just one, it concluded now is not the time to make that change.
Revised guide for judges
The revised guide for judges conducting assessments also came into force on 1 October. It warrants careful reading by all litigation lawyers, as it has undergone some helpful updating. The Working Group reported that its proposed revisions generally received a highly favourable response.
As reflected in paragraph 28, GHRs are not only intended for summary assessments but are a helpful starting point in detailed assessments.
The Working Group stated that there was particular approval for the emphasis, in paragraph 29, that the GHRs are a starting point and that higher rates may be appropriate based on value, complexity, urgency, importance or any international element. That applied not just for Grade A fee earners but also Grades B and C.
Conversely, the Working Group rejected a suggestion from the Forum of Insurance Lawyers (FOIL) and other paying parties that paragraph 29 failed to specify that reductions from GHR should be made in appropriate cases. It answered that if a costs judge considers the work does not warrant a Grade A-C fee earner, the usual way of reflecting this is by allowing the work done at the rate of a lower grade fee earner.
The Working Group stuck by its proposal, both for the Revised Guide and for the CPRC, to consider a proposed amendment to Form N260 to require the addition of the location of the fee earner doing the work. It addressed concerns over the related practical difficulties by recommending that it be determined by reference to the office to which that fee earner is predominantly attached. It will be irrelevant if that fee earner happens to work from home or another location for, say, two days per week, as is becoming increasingly commonplace.
Conclusion
The Working Group did a tremendous job in coming up with balanced recommendations, which the Master of the Rolls was happy to implement in full and without further delay.
While it acknowledged its methodology was capable of some valid criticism, it remained of the view it was the best available in all the circumstances. Sagely quoting from Anna Karenina, the Working Group responded to the question marks over the methodology it used that “He who seeks perfection will never be content”.
For the next review, in just two years’ time, I would implore the CJC to consider the elusive definition of market rates further and whether it is better reflected by claimed rates than those allowed on assessment. It is more likely than the contrary that judicial moderation, influenced by reference to the outdated 2010 GHR, had led to rates judges allowed in 2019-2020 having failed to keep pace with inflation over the preceding 9-10 years. The likely step-change in assessed rates that we will see following the implementation of the new GHR in October will further demonstrate that circularity issue, rather than any underlying change in the claimed rates that litigants actually pay their lawyers.
While I acknowledge that a perfect methodology is unattainable, I remain of the view that in the post-Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) legal landscape, where even conditional fee arrangement clients are usually liable for costs shortfalls, the claimed rates are a more reliable indicator of the actual market rate than rates allowed on assessment. The exceptions to this seismic post-LASPO shift, for cases subject to cost assessment, will become even fewer once fixed costs are applicable to cases with a value of up to £100,000.
As Stewarts contended in response to the interim report, it remains important that efforts are made to gather reliable data on the market rates paid by litigants for the high value and complex commercial litigation intended to be covered by the new London 1 band. Very few high-value commercial disputes result in cost assessment, but when they do, as shown in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2504 (TCC), the rates are often materially higher than the new London 1 GHR. In the meantime, firms conducting such work will need to rely on enhancements with reference to paragraph 29 in the guide to assessments.
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