The Law Society Gazette reports that Halliwells, with its significant insurance division, is “hovering on the brink of administration”.
As the recession increasingly bites, with both claimant and defendant firms going under, it can only be a question of time before some law costs drafting firms start to be hit by the knock-on effect. We can only hope that the apparent increases in personal injury claims will help compensate. Unfortunately, it is unlikely to benefit those legal costs firms who lose their main clients.
The Law Society Gazette has reported that: "The Ministry of Justice [has] outlined proposals to shut nearly a third of the courts in England and Wales and confirmed it will be looking at ways to make ‘efficiency’ savings in the legal aid budget. A consultation document details plans for the closure of 157 of the 530 courts in England and Wales – 103 of the 330 magistrates’ courts, and 54 of 219 county courts."
Although it has not been officially announced, the Legal Costs Blog understands there are plans to move the Senior Courts Costs Office to a portacabin outside Dudley.
When flying back from holiday the other day I was glancing at the on-board bar prices. (Despite living a multi-millionaire playboy lifestyle, I am too mean to pay for a flight that has a free bar.)
They were selling 5cl miniatures of Bombay Sapphire gin (standard 40% strength) for £4 a bottle. By my maths, that works out at £80 a litre. The same flight was selling duty free (which unfortunately you are not meant to consume on the flight) Bombay Sapphire (at 47% strength: the good stuff) for £24 for two one litre bottles: £12 a litre. That, by any standards, is a significant price differential.
In the field of legal costs there is a similar level of surprising price gap between the hourly rates that claimant representatives claim and the rates charged by defendant lawyers. Claimants argue that this difference is not evidence that they are overpaid – and therefore that the Guideline Hourly Rates are too high - but rather is due to a combination of the fact that defendant lawyers have guaranteed work volumes and that claimant lawyers have different acquisition costs due to advertising and/or referral fees.
I will leave others to decide whether this explains the following example. This is simply one in my current case load and is far from being anything like the most extreme example I have seen.
The case concerns a high profile, high damages sporting injury claim. The main fee earner (a Grade A) for the claimant is based in a Northern city (Band One). The rate claimed for 2007 is £285. A 100% success fee is claimed in addition. With VAT at 15%, the total claimed is £655.50 per hour. The main fee earner (also Grade A) for the defendant is based in Central London. The rate charged to the defendant insurers for 2007 was £160 (£184 with VAT). Both fee earners are specialists in this type of claim. So, a rate of £655.50 as against £184.
It is no doubt fair to say that comparing a CFA funded case with a non-CFA funded case is something of an artificial comparison. Nevertheless, the base hourly rate claimed by the claimant's solicitor is 46% above the Guideline Hourly Rates for the area where the firm is based. The rate charged by the defendant solicitor is 45% below the Guideline Hourly Rates for the area where the defendant firm is based. Despite the claimant’s solicitors being based in an area where the Guideline Hourly Rates are lower, they are claiming a rate that is 78% higher than the defendant’s.
Of course, maybe claimant lawyers are just “worth” more.
Feel free to submit more extreme examples than this one.
Ropewalk Chambers has an excellent article on their website by Andrew Hogan on how the current approach to hourly rates has led to a lack of proportionality and transparency in legal costs. This article was first presented to the Association of Law Costs Draftsmen at this year's annual conference and has also appeared in the Personal Injury Law Journal.
I had hoped never to have to mention the dread subject of VAT again.
But the inevitable has happened and the budget has raised VAT to 20% from 4 January 2011.
At the risk of repeating myself, this will mean that from 4 January 2011 bills of costs should usually be drafted with up to 4 sections and different rates claimed for each, regardless of when the matter settles:
Before 1 December 2008 – 17.5%
Between 1 December 2008 and 31 December 2009 – 15%
Between 1 January 2010 and 3 January 2011 – 17.5%
From 4 January 2011 – 20%
Of course, if you are lucky enough to be drafting a bill where some of the work stretches back to 1991 you will have a further period with 15% applying pre-1 April 1991. A bottle of champagne to the first reader who sends me a copy of a bill next year with 5 different VAT rates applied.
The amounts now at stake make it crucial to get this right.
One well known firm of law costs draftsmen (who shall remain nameless) has only just removed from the “latest news” section of their website information about the change in VAT rate. And they were referring to the 1 December 2008 decrease, not the 1 January 2010 increase.
Apparently, the other day at a detailed assessment, the thorny issue of the correct approach to VAT arose and the Legal Costs Blog was mentioned by one of the law costs draftsmen present (not someone from my firm) and the Regional Costs Judge duly proceeded to print off a copy of my last post on the subject for all to study.
I’m not sure quite what benefit was obtained from this but it reminds me of the story of the judge who had heard lengthy submissions from one of the advocates and informed him: “I’ve listened carefully to all you have to say but I am none the wiser”. To which the barrister replied: “Quite possibly Your Honour but you are now considerably better informed”.
The Legal Costs Blog has been a bit quite over the last few days. This is because I've been on holiday in sunny Turkey. Indeed, I'm writing this post lying on a sun-lounger by the pool with the laptop precariously balanced on my stomach and with a drink on the table beside me with an extra long straw to avoid any danger of accidentally performing a sit-up.
However, my time has not been entirely wasted with my holiday reading material.
In a previous post I commented on the problem that costs judges face in that the only bills of costs they are likely to see are the most unreasonable ones. Reasonable bills almost invariably settle. Judges perception of what is “normal” is formed by the most unusual bills that come their way.
Ask a colleague the following question:
How many litres of diesel does it take to fill up a jumbo jet? Is it more of less than 500?
Now ask another colleague the same question with a subtle twist:
How many litres of diesel does it take to fill up a jumbo jet? Is it more of less than 500,000?
Then ask each of them to give a concrete estimate of how many litres of diesel it really does take to fill up a jumbo yet.
Almost inevitably, the first person will give a lower estimate than the second person, and probably by a very large margin. The reason for this is something called anchoring. Both colleagues will quite literally use the numbers you put in their head (500 or 500,000) as their frame of reference – anchoring points – on which to base their judgements.
Dutton's books goes on to describe how this concept of anchoring influences even judges, as shown in a study by German psychologists Birte Englich, Fritz Strack and Thomas Mussweiler:
“The team took a group of experienced judges and asked them to read an outline of a case. The case involved a man who'd been convicted of rape. Once they'd familiarised themselves with the details, the judges where then divided into two groups. One group were to imagine the following: that while the court was adjourned, they received, in their chambers, a telephone call from a journalist. This journalist posed them the following question: Would the sentence be higher or lower than three years? The other group were presented with a slightly different scenario. They, too, were told that they'd received a telephone call from a journalist – only in this case the journalist would enquire whether or not the sentence would be higher or lower than one year. … [T]he average length of sentence handed down by the judges in the first group was 33 months. In the second, it was 25.”
Strangely, Dutton fails to follow this up by exploring the relevance of this concept to the world of legal costs and I will therefore have to take the baton and run with it.
One of the areas that my firm, Gibbs Wyatt Stone, specialises in is legal costs in catastrophic injury claims. Lets take a typical catastrophic injury claim (if there is such a thing) that settles shortly before trial. A bill of costs is presented claiming 150 hours on documents. Hopefully we can all agree that 150 hours is too much, although, depending on the facts of the case, this may not be outrageous for this type of claim. So what would a judge allow adopting a broad-brush approach?
With high value costs claims there is no real sensible way of dealing with the document time other than on a broad-brush basis. With the current bill of costs format, work done on, for example, drafting the claimant's witness statement, will often be scattered over various dates throughout the document schedule. Trying to deal with this on an item-by-item basis is a lost cause. When drafting points of dispute I will often try to total the time claimed to see how long has been spent on a specific task in total. If this totals, for example, 20 hours on the claimant's witness statement, then a judge can begin to consider whether this is reasonable given the length of the final statement. However, in general, a broad-brush approach to the document time is often the only way to sensibly proceed.
So, given my example of a total of 150 hours for such a claim, what can we expect the court to allow? Members of the judiciary who are reading this can play along at home. I'm going to suggest a likely figure of somewhere between, 120-130 hours.
Now, let’s play the game again with a case with the same facts but with a bill claiming 400 hours on documents. We all should be able to agree that this would usually be a silly amount of time. But what would the court allow? Acting for defendants, I would think I had done rather well if the court reduced this to 200 hours. That is not to say that I would consider 200 hours to be a reasonable figure but rather that, in my experience, it is very rare for a judge to reduce document time by more than 50%. I previously put this down to a reluctance on the part of judges to make a finding that virtually amounted to a finding of gross incompetence on the part of the solicitors (because the time spent was more than twice what a competent firm would have taken) or a finding of fraud (more time was being claimed than had actually been spent). I now think that the anchoring concept may be playing a part. The bigger the figure first claimed, the more likely it is that a large figure will be allowed. The amount claimed acts as the anchoring point in the costs judge’s mind.
The courts do appear to be willing to allow much higher overall figures on the most excessive bills than they ever would allow on the more reasonable ones. Ironically, the more reasonable the bill of costs presented, the less the firm will probably recover. The more outrageous the claim, the bigger the final award is likely to be. If costs judges and costs officers are likely to suffer from this problem, despite their experience, how much worse will this be for less experienced district judges? Other than the anchor of what is claimed, what do they have to help them determine what a reasonable figure is? Judges need to take an extra critical view of the largest bills and avoid worrying that they may be being too harsh simply because the size of the reduction looks very large.
A further definition from The (Alternative) Legal Costs Dictionary:
Jackson Report n. A review of civil litigation costs in the English legal system undertaken by Lord Justice Jackson. The final report had a similar effect to a penalty shoot-out against Germany. It reduced grown men to tears. May decimate large swathes of the legal costs industry. Certainly decimated large swathes of the Amazon rain forest.
Following on from the Legal Service Board's recent report into referral fees, which concluded that there was no evidence that referral fees caused consumer detriment, is the Legal Services Consumer Panel’s report which called for greater disclosure of referral fees and better regulation, but found that the payments do have a place in the legal services market and should be allowed to continue. The full story can be read on the Legal Futures website.
So, is this all good news for claimant solicitors who favour referral fees and a kick in the teeth for Lord Justice Jackson who wanted a ban? Hardly.
The really interesting part of the report commissioned by the Legal Service Board is the conclusion that despite referral fees in RTA claims being typically around £800 (where the solicitors’ recoverable profit costs will often be in the region of only £1,200), there is “no evidence of any detrimental effect on the quality of service arising from the payment of referral fees”. Read that quote again. Solicitors are apparently able to run typical RTA claims for around £400, presumably make a profit and with no drop in the quality of service. It is hard to imagine a finding more likely to strengthen Jackson LJ’s attempt to reduce costs to something more proportionate.
The report also explained that typical referral fees in RTA claims have increased from around £200 in 2004 to £800 now. This has been a transfer of profit from solicitors to third parties.
One argument in support of the continuation of referral fees is that it generates increased claims, through increased marketing activities raising awareness amongst the public, and therefore promotes access to justice. The basis for this claim in the LSB report was the upturn in RTA claims in recent years, despite the reduction in RTA accidents. The overall drop over the same period in relation to EL claims is dismissed out-of-hand by the report on the basis that EL claims are unconnected to referral fee generated marketing. The report, conspicuously, fails to mention PL claims. I therefore did their work for them and went back to the CRU data so see what that shows. For those interested, it can be found at Appendix 25 of Jackson’s LJ’s preliminary report. This shows a significant drop in PL claims during this period (although an increased success rate). If claims management marketing has had such a positive impact on RTA claims why has it had no positive impact on PL claims? It seems unlikely that there has been a significant drop in actual accidents during this period. Whatever the explanation is for the increase in RTA claims, it is unlikely to be related to referral fees in my humble opinion.
The referral fee game has simply resulted in a transfer of profit away from solicitors to third parties. I have no big problem with that, but surely the better response is to reduce fixed fees and hourly rates. The increase in the level of referral fees has been driven by what the market can bear. Reduce the Stage 1 and 2 payments for the new RTA Protocol to £400 in total and referral fees will disappear on their own. There will be no money to pay them. And, with no “detrimental effect on the quality of service”.
In a previous post I wrote that I was going to admit to being wrong on three occasions. Here is the second confession.
Back in January, I predicted there would be no increase in the Guideline Hourly Rates. That prediction turned out to be inaccurate and the rates were indeed increased in April. However, as the Advisory Committee on Civil Costs observed, their decision to increase in line with the private wage index meant the 1.7% increase was “well below current RPI inflation and so will lead to a significant fall in the real pay of solicitors operating in this area”.
They also made clear: “we have yet to complete our analyses of the issues raised in our paper The Derivation of New Guideline Hourly Rates”. So what is that review likely to conclude?
The Senior Costs Judge, Master Hurst, commented at the Association of Law Costs Draftsmen’s National Conference that: “The chances of the advisory committee coming up with agreed hourly rates that would be universally accepted are absolutely zero”.