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, 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 and others v Secretariat of State for the Holy See (Costs), 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 In part no doubt this was because they were so out of date.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.
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 these 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 solicitor and own-client assessments.
In a separate, but important, comment in Athena, the Court of Appeal criticised 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.
This statement by the Court of Appeal may or may not be connected with a report in Jim Diamond’s forthcoming book – The Legal Extortion Racket – that rates for partners in the so-called Magic Circle firms in London have reached between £1,000 and £1,500 per hour, this compared with £625 to £700 in 2007.
Inflation over that period was 36%.
Partners in US firms based in London charge between £950 and £1,350 an hour, compared with £450 to £500 in 2007.
Newly qualified solicitors in Magic Circle firms and US firms in London are charged out at £600 an hour.
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 and another v Rassam and others, 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].”
In Brake and another v Guy and others [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 and that 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.
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.
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.
