UK & Europe
Insurance & Reinsurance
With the continuation of the Guideline Hourly Rates ("GHR") review, we consider the issues arising from the thorny question of what should happen with the GHR now.
The New Review
A new working group was appointed earlier this year to review the current GHR, which were last updated in 2010. Headed by Sir Stephen Stewart, the remit of conducting an evidence-based review of the GHR is to make what recommendations they consider appropriate. The working group has said it hopes to have a report ready for a full consultation by the end of the year.
Concerns with the New Review
There is no preliminary report yet on how the new committee is approaching the hourly rate problem. However, based on the documents issued and the evidence sought, it appears that their approach will not be as measured as it was in 2014, when the last review was carried out.
The forms that have been circulated in order for the committee to gather its evidence asks for information such as the location of the parties, the value of the claim, the type of case, the amount of the bill and the most recent hourly rate claimed and allowed. Perhaps most tellingly, however, it seeks no information as to the costs to the law firm of fee-earner time, the salaries of the various grades of fee earner or the firm’s overheads.
Further, the evidence seeks information about the rates in all types of cases, whether they go to summary assessment, provisional assessment or detailed assessment.
The first issue with this relates to the ‘most recent’ rate. Since 2013, budgeting has been commonplace in most cases, and certainly in multi-track claims. The effect of a slew of case law since budgeting was introduced is that hourly rates in the budgeted phases cannot be challenged on assessment.
Therefore, the committee is effectively requesting that parties provide details of rates that cannot be challenged no matter how unreasonable.
Indeed, the Clyde & Co Costs Team have seen numerous instances where a budget claims one rate for the incurred work and a much higher rate for all work going forward. In other cases, the hourly rates significantly increase shortly after the budget is set.
The committee has also asked for information on rates that have been either assessed or agreed. However, as parties generally settle for a global figure, there is usually no consensus on what has been agreed. The defendant will often challenge the rate as unreasonable and in its own calculations on the settlement will no doubt factor a reduction to these. However, a claimant always maintains that their rates are reasonable and, in their calculations, will likely assume that they recovered these as claimed.
It therefore seems likely that where cases have been agreed and there is no budget, the information provided to the committee will be contradictory and where there is a budget, the defendant will simply leave those cases from the review as they will lead to an entirely skewed outcome, although claimants will no doubt be including all their cases in the form.
No market forces
Whilst claimants argue that there are market forces at play, this does not appear to be borne out in the evidence. Indeed, a report from the Competition and Markets Authority ("CMA") found that fewer than 17% of solicitors’ firms and other legal providers publish a price list online, and this leaves clients in the dark about the likely costs they will incur for any legal service, whether it is having a will prepared or litigation. The report concluded that:
"Consumers find it hard to make informed choices because there is very little transparency about price, service and quality. This lack of transparency weakens competition between providers."
Following this, the SRA undertook its own investigation in an effort to improve transparency. However, it found a reluctance to advertise prices, with the reasons given ranging from the fact that the solicitor picks the rate based on the particular case to the fact that solicitors don’t want their competition to see their prices.
Further, in most litigated cases as claimants will recover their costs from the defendant or not pay anything in the event of a loss, they have almost no interest in what hourly rate their solicitor is claiming.
The lack of any evidence as to the ‘expense of time’ ("EOT") calculation will also, it seems, fail to take into account what the previous review found; that overheads are falling.
That trend is likely to continue over time. Whilst there has been a gradual move throughout the legal industry towards hot-desking and more remote working to reduce overheads, thanks to COVID-19 this trend has accelerated and is unlikely to ever go back to where it was. Indeed, some firms have already announced that remote working will be a permanent move. Whilst this doesn’t obliterate overheads, it does significantly reduce them.
Another trend which has been seen, particularly since 2013, is the inclusion of work or time which has always historically been considered as an office overhead in the bill of costs; for example, courier fees and photocopying charges. Time for filing documents, providing costs updates to the client and even for dealing with the allocation of damages are also costs, among others, which are now frequently claimed in Bills of Costs.
Almost all of this work is generally claimed in the budgeted phases with the claimant arguing that since it’s budgeted, it cannot be challenged. However, if solicitors are now recovering their overheads as costs, this should also have an effect on the GHR to be allowed; if they are correct, then the GHR must reduce accordingly.
The approach of the ongoing review appears to amount to merely a comparison exercise of what the rates were, what they are said to be now and therefore what the committee considers they should be, rather than a detailed consideration of the EOT.
What effect this will have on the rates is yet to be seen but what is clear is that such a fundamental change in the way hourly rates are determined is likely to lead to a cascade-effect as the same exponentially increase as the years pass.