The Civil Justice Council is consulting on a wholesale revision of the civil costs regime; the consultation ends at 12 noon on Friday 30 September 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 recognised 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 and so on.
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, 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
