Although those working in legal costs tend to get very excited about the latest obscure technical challenge, it is the routine areas of dispute that have the greatest impact on the largest number of cases. A costs judge allowing an hourly rate of 20% more or less than anticipated will usually completely throw any offers made.
One of the particular problem areas surrounding costs law has always been the issue of what hourly rates are appropriate for solicitors undertaking personal injury work who are based in the geographical location which is termed “City of London” (ie postcodes beginning EC1, EC2, EC3 and EC4).
The starting point (despite what some maintain) is always to look at the Guideline Hourly Rates for summary assessment. The last published rates (2010) for Grade A fee earners gave the following for different bands:
City of London £409
Central London £317
Outer London £229-267
Band 1 (eg Manchester Central) £217
Band 2/3 (eg Luton) £198
(The explanation given for the range of figures for Outer London is that “these ranges go some way towards reflecting the wide range of work types transacted in these areas”.)
It can immediately be seen that there is a vast difference between the Guideline Rates for City and Band 2. Some of this difference will be due to the average differences in overheads (principally dictated by property prices/rent and wages), but this clearly does not begin to explain the full difference.
The answer was to be found as far back as Senior Costs Judge Master Hurst’s decision in King v Telegraph Group Ltd  EWHC 90015 (Costs):
“City rates for City solicitors are recoverable where the City solicitor is undertaking City work, which is normally heavy commercial or corporate work.”
Although this answers the question as to whether City rates should automatically be applied to personal injury work undertaken by firms based in the City, it does take the matter much further as to what rate should instead be allowed.
The recent decision of Mr Justice Goss, on appeal from a costs judge, in JXA v Kettering General Hospital NHS Foundation Trust  EWHC 1747 (QB) provides some further guidance.
The case itself concerned a cerebral palsy clinical negligence claim. Liability was agreed on a 90/10 split in favour of the Claimant. Damages are not capable of being resolved for many years. The claimant’s mother and litigation friend “selected a senior partner in Fieldfisher LLP, based in the City of London, as a result of a search on the internet and by reason of [the partner’s] highly regarded expertise in clinical negligence claims”. Although it was not in issue that the partner “was and is an acknowledged leader in the field”, there is nothing in the judgment to suggest the claimant’s mother’s views were arrived at by anything other than an internet search.
It was also common ground “that this was high value complex litigation of considerable importance to the claimant” and that the value of the claim will run into millions of pounds, potentially £20 million.
The hourly rates had been claimed at:
£380 to 31 March 2013 then rising at the rate of £10 pa every 31 March up to £420 to 16 November for a Grade A partner.
£270 for a Grade C solicitor from 1 January 2017.
£150 rising at £10 pa to £190 over the same period for a Grade D trainee/paralegal.
The original costs judge had referred to the claim as being one of “substantial value, clearly at the very highest end of importance to the claimant and as being an exceptionally complicated case”. He concluded:
“Taking all of those factors into account, and with regards to the guidance in the White Book with respect to consideration of comparable firms doing comparable work, I don’t find that I need to make any ruling as to what location is appropriate. The ruling must be in relation to what rates are appropriate, based on comparable firms doing comparable work, and in relation to the submissions that have been helpfully made by both advocates today.”
He allowed rates as follows:
£350 for a Grade A partner.
£200 for a Grade C assistant solicitor.
£150 for a Grade D trainee/paralegal.
Upon being pressed for his reasons he added:
“I take into account the location of the claimant as a starting point, and I look at comparable firms doing comparable work. In terms of the theoretical locality as a starting point I would consider firms within the Outer London area to be a reasonable point at which the claimant could have looked at firms well outside of their area, but, of course, I am aware myself of firms, for example, in Nottingham or Manchester or other legal centres which the claimant, I think, could have reasonably gone to as well. I accept that there will be a consequent effect on travel time as a result of that, but in terms of a locality, I take a theoretical locality as Outer London, but as I am guided by the White Book I can take into account comparable firms doing comparable work, and that will account for firms around the country, including within the location of your instructing solicitors’ firm.”
The focus of the Claimant’s appeal was that the Master did not answer the question as to whether it was reasonable to instruct the particular solicitor instructed and so his decision as to whether the charging rate was reasonable was flawed. It was also argued that he failed to properly consider the effect of inflation on the claimed hourly rates between year ending 31 March 2013 and 16 November 2017.
The appeal court accepted the main criticism and concluded:
“I am satisfied that the Master did not directly address the first question as he should and decided whether the choice of [solicitor] was objectively reasonable in the circumstances. When pressed, he implied it was (or may have been) an unreasonable choice, indicating that he took a theoretical locality of Outer London but, guided as he was by the White Book, he then went on to say that he could ‘take into account comparable firms doing comparable work, and that will account for firms around the country, including within the location of Fieldfisher LLP.’”
However, the legitimacy of that challenge did not undermine the conclusion reached as to the appropriate rates to allow. The appeal judge was clearly influenced by the views of another costs judge who was sitting with him as an assessor. He concluded:
“In the event of allowing the appeal, I was invited to determine what cost rates would be reasonable for firms practising in the same area. In this regard I have been greatly assisted by the knowledge and experience of the Costs Judge sitting with me. Her expertise and experience as to the firms engaged in this type of case both in London and nationally has guided me in the conclusion to which I have come. The Master had a broad discretion in this regard, applying CPR44.4. I am satisfied on all relevant facts and applying appropriate considerations that the rates determined by the Master fell within the reasonable band of decisions open to him, notwithstanding his failure to answer clearly the first question in the required two stage process.”
Although there is always a danger of trying to clinically dissect a decision of this nature, which was arrived at on broad-brush principles based primarily on the experience of the original costs judge and the costs judge on appeal, I would suggest that what was ultimately allowed, in reality, for a firm in the City undertaking personal injury (here the most complex type of clinical negligence) does broadly mirror Outer London Guideline Hourly Rates (as last published in 2010) with the equivalent of approximately a 100% “B” Factor profit element.
The Outer London Guideline Hourly Rates for Grade A fee earners are £229-267. These figures are based on a notional 50% “B” Factor profit element. Taking the top of the range (£267) as being reasonable, given the complexities of the case and expertise of the solicitor, would give an “a” Factor of £178. Allowing a 100% “B” Factor as representing something towards the very top of what might be allowed for this type of litigation (being recognised as being exceptionally complex and clearly being potentially at the very top end of value for PI claims) would give a figure of £356 (approximately the £350 allowed). (On this crude cross-check, the uplifts for the Grade C and D were somewhat lower.)
This analysis does not allow for any inflationary uplift since the last published rates of 2010. The appeal judgment simply records the arguments:
“[the costs judge had] a claim for an incremental year on year raising of the rates charged. He took account of the guideline rates for the summary assessment of costs. On behalf of the claimant it is emphasised that these rates are for significantly less complex cases and no more than guidelines, and are rates set in 2010 and take no account of subsequent inflation. The defendant answers by referring to the absence of any evidence justifying the incremental annual increase or the impact of inflation on this market over the period in question, the refusal by the Master of the Rolls in July 2014 to adjust the hourly rates following the proposals of the CJC Cost Committee’s Report of May 2014 (which proposed a reduction in City rates) and submits that it would be wholly wrong for the Master to have transposed a back-calculated approach or adopted a general inflationary approach.”
There was certainly no criticism in the judgment of the costs judge for taking into account Guideline Hourly Rates.
Ultimately, it is not surprising that (working backwards) the starting point for the hourly rates was in line with Outer London rates rather than City rates. The overheads of undertaking such work are unlikely to be materially different for a firm operating in the City compared to one in Outer London. A few years ago, on the subject of whether PI work should attract City rates, Jacques Hughes, one of the readers of this blog, commented:
“The argument is just silly. PI and commercial work inhabit fundamentally different markets, and PI lawyers delude themselves if they think otherwise. Compare a top-notch PI practice like Irwin Mitchell to a real City firm and ask: does the PI firm have a 24 hr secretarial service? Does it have a 24/7/365 reprographics department capable of handling, say, 20 million pages a year? Do staff have to be paid to work all hours in order to liaise with NYC and Hong Kong? Does it have a library of 10,000 volumes plus, with subscriptions to all major Commonwealth and American law reports and journals? Does the PI firm have to run a recruitment drive targeted at the best candidates at Oxbridge and equivalents in the US & Australia, paying trainees 50K plus packages? Do middling assistants expect salaries in the 150K + bracket? Are international travel and worldwide offices a major PI overhead? The answer to all of these questions is consistent, obvious, and negative. City rates for PI work is a nothing more than a mirthless joke.”