Wisdom hath builded her house, she hath hewn out her seven pillars.
-Proverbs, 9:1
The first point that always arises substantively in a detailed assessment, after a desultory exchange on disclosure (or not) of the receiving party’s retainer is the question of hourly rates.
When a costs judge assesses hourly rates on assessment, she does so by directing herself in accordance with rule 44.4 CPR when exercising her discretion to come up with a set of figures to apply to the time claimed on the bill of costs:
(1) The court will have regard to all the circumstances in deciding whether costs were –
(a) if it is assessing costs on the standard basis –
(i) proportionately and reasonably incurred; or
(ii) proportionate and reasonable in amount, or
(b) if it is assessing costs on the indemnity basis –
(i) unreasonably incurred; or
(ii) unreasonable in amount.
(2) In particular, the court will give effect to any orders which have already been made.
(3) The court will also have regard to –
(a) the conduct of all the parties, including in particular –
(i) conduct before, as well as during, the proceedings; and
(ii) the efforts made, if any, before and during the proceedings in order to try to resolve the dispute;
(b) the amount or value of any money or property involved;
(c) the importance of the matter to all the parties;
(d) the particular complexity of the matter or the difficulty or novelty of the questions raised;
(e) the skill, effort, specialised knowledge and responsibility involved;
(f) the time spent on the case;
(g) the place where and the circumstances in which work or any part of it was done; and
(h) the receiving party’s last approved or agreed budget.
These factors (a) to (h) are known as the Eight Pillars of Wisdom: formerly there were seven of them, with an obvious nod to either the Book of Proverbs or T.E Lawrence’s classic of desert warfare, but with factor (h) added after the 2013 reforms. So far so good, but in order to properly exercise any judicial discretion, it cannot operate in a vacuum.
It needs either a matrix of norms, or evidence, so that a judge has something to grapple with when making decisions. In costs, for many years, judges had access to figures, set locally, often in consultation with the profession, which permitted them to do that, particularly in the years before composite hourly rates, when the courts still dealt in A and B factors, or overhead and profit.
As the years went by, the A and B process was consigned to history, with composite hourly rates, and the practice of setting rates locally, or at least with reference to local surveys and knowledge, being superseded by the creation of guideline hourly rates on a national basis, albeit with different rates for broad categories of locality.
But since 2010, this national process has broken down: it has been frozen in amber despite the passage of time in the outside world with no updated rates set since then. Not only are the figures bound to be inaccurate, it is not even known whether the hourly rates should necessarily increase when they do change.
In the last ten years, the practice of litigation and the structure of the legal profession has changed markedly, probably with consequent changes to solicitors overheads, which form the largest constituent part of the hourly rates.
The role of guideline rates is simply that: they are guidelines and not tramlines, and they do not oust or dictate the exercise of the court’s discretion, but they serve the essential purpose of providing a starting point for an assessment of hourly rates, and a cross check at the end of that process.
Otherwise, the danger is that a costs judge will simply pluck figures out of the air, usually nice round numbers ending with a “0”, which may result in very rough justice to the paying or receiving party.
One of the vexed questions that has been created by the lack of an uptodate national or local survey of hourly rates, is uncertainty about how the court should assess hourly rates and in order to provide a partial answer, various arguments can be put forward, with varying degrees of detail, and it has to be said, varying likelihood of success.
The first and most obvious argument is to uplift the 2010 hourly rates by inflation, and to put the figures forward on detailed assessment. It is not hard to calculate what those figures should be. Simple tools online, enable the 2010 figures to be calculated to date, or to an anterior point, and the increase flagged up in tabular form. See for example:
https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator
The counterblast is to point out either that RPI is not necessarily a reliable indicator of for example, wage inflation, which might be a better index for calculating any increase, as the largest part of a solicitor’s firms overheads, will be salaries, but also that inflation is of necessity only one factor. How can a judge take that into account, but leave out of account, hot desking, reduced floorspace, IT driven efficiencies, declining numbers of support staff and so on?
Another argument, which has some support in the authorities is to seek to put forward an evidence based argument for a particular set of hourly rates, by putting forward calculations based on The Expense of Time or similar methodology, which show the expense rate for the fee earners in question, seeks a certain level of profit upon that that expense rate, and thus produces a specific hourly rate ostensibly grounded in quantitative data, or as lawyers, like to call it “evidence”.
The conceptual difficulty with such calculations is that the courts have never been concerned with the expense rate of a particular firm, but only with averages across a locality, or indeed nationally, when setting guideline rates. Otherwise, each and every detailed assessment might become a mini-trial of a particular firms expense rate, and whether the partners really needed Rolls Royces, funded by the firm.
The point is illustrated in L. v. L. (Legal Aid Taxation) [1996] 1 F.L.R. 873 where Neill L.J., having considered recent authorities as to the principles to be applied by the taxing officer, discerned five propositions which he listed thus, at p. 877:
“(1) The general principle of taxation is that a solicitor’s remuneration should consist of two elements—first, a sum computed on the basis of an hourly rate which represents what is called the ‘broad average direct cost’ of undertaking the work; and secondly, a sum, usually expressed as a percentage mark-up of the broad average direct cost, for care and conduct …
(2) The broad average direct cost is to be assessed by reference to an average firm in the relevant area at the relevant time …
(3) The relevant time means the time at which the work was done. No allowance should be made for the consequences of later inflation …
(4) The district judge can draw on his own experience and on information which is provided to him by local firms … The district judge can also take account of surveys …
(5) An artificially inflated figure for uplift should not be used to correct or compensate for inadequate hourly rates … Accordingly the appropriate hourly rates should be the rates which ‘represented the actual cost to the solicitor at the relevant time doing the relevant work (assuming always that the solicitor has acted reasonably and the costs are incurred at the appropriate level) …’ “
This approach to using averages, not particular, expense rates was confirmed in the seminal decision of Wraith v Sheffield Forgemasters Ltd [1998] 1 WLR 132 where the Court of Appeal cited with approval the formulation of principle by Mr Justice Potter at first instance:
“in relation to the first question ‘Were the costs reasonably incurred?’ it is in principle open to the paying party, on a taxation of costs on *142 the standard basis, to contend that the successful party’s costs have not been ‘reasonably incurred’ to the extent that they had been augmented by employment of a solicitor who, by reason of his calibre, normal area of practice, status or location, amounts to an unsuitable or ‘luxury’ choice, made on grounds other than grounds which would be taken into account by an ordinary reasonable litigant concerned to obtain skilful competent and efficient representation in the type of litigation concerned … However, in deciding whether such an objection is sustainable in practice, the focus is primarily upon the reasonable interests of the plaintiff in the litigation so that, in relation to broad categories of costs, such as those generated by the decision of a plaintiff to employ a particular status or type of solicitor or counsel, or one located in a particular area, one looks to see whether, having regard to the extent and importance of the litigation to a reasonably minded plaintiff, a reasonable choice or decision has been made. If satisfied that the choice or decision was reasonable, it is the second question ‘what is a reasonable amount to be allowed?’ which imports consideration of the appropriate rate or fee for a solicitor or counsel of the status and type retained. If not satisfied that the choice or decision was reasonable, then the question of ‘reasonable amount’ will fall to be assessed on the notional basis of the costs reasonably to be allowed in respect of a solicitor or counsel of the status or type which should have been retained. In either case, solicitor’s hourly rates will be assessed, not on the basis of the solicitor’s actual charging rates, but (in a case where the decision to retain was reasonable) on the basis of the broad costs of litigation in the area of the solicitor retained or (in a case where the choice made was not reasonable) of the type or class of solicitor who ought to have been retained” That in my judgment is right.
There is however room to argue that where a firm is a specialist firm, that firm is able to put forward evidence of its own expense rates in a quasi Expense of Time exercise: because the “average” firm in the context of the above decisions, is a notionally generalist firm. It can be argued that particular specialisms require particular and different levels of overhead. Thus the argument was approved, though it failed in its application in the case of Jones v Secretary of State for Wales [1997] 1 WLR 1008 where the court noted:
There are obvious disadvantages in departing from the well established rule that the hourly rate is to be calculated largely by reference to the local average and nothing I say is intended to encourage such a departure in ordinary cases. However, in a case such as this and providing the master is satisfied that the firm in question is clearly outside the range of local solicitors that go to make up the average rate, I can see nothing wrong in a higher rate. I stress that the higher rate would not be appropriate if the firm had engaged in a case which could reasonably have been handled by other local firms. The costs would not then have been reasonably incurred. In other words, it must have been reasonable to instruct such a firm for the particular case. This point was confirmed, albeit in a different context, in Wraith v Sheffield Forgemasters Ltd [1996] 1 WLR 617, [1997] 1 Costs LR 23 .
I am certainly not suggesting that in routine taxations the solicitor must attend with evidence of all his overhead expenses. If he did, it should cut little ice because the touchstone is usually the local average or comparable rate as was underlined in Johnson v Reed Corrugated Cases Ltd , L & L and many other cases. However, where a solicitor wishes to challenge what may have become the going rate in any area or, as here, to make a special case, he certainly should be required to produce evidence. The master’s apparent acceptance of Mr Valentine’s assertion that “the expertise which his firm held itself out as providing inevitably created higher expense rates”, without evidence was wrong. It also seems to me that the matters he appeared to rely on, relating to Mr Valentine’s skill and expertise, should properly have been considered in the percentage mark up and not in the hourly rate.
And:
Of course, I can accept that a specialist firm such as Pitmans, acting for commercial clients will probably have higher overheads than the average Reading firm. They may have to pay their assistant solicitors and other staff higher salaries. It may be reasonable to provide extra facilities for demanding clients. More sophisticated equipment may be required. However, if a master is to assess a reasonable figure he will need sufficient evidence of these matters. There was none in this case. I have nevertheless asked my assessors whether, based on their own knowledge and experience, they could advise me that £100 was, on any view, bound to be reasonable. They could not. They felt it was high. In circumstances I allow the appeal. Since £75 was offered by the respondent that figure will be substituted for £100. For the avoidance of doubt, I accept that if evidence were provided on some future occasion a higher figure might be allowed.
It follows that solicitors undertaking certain specialisms, such as eg: town and country planning practices, or clinical negligence specialists, can rely upon their specialism to unpick the broad averages that underpin the general approach on the basis of existing authority. The more interesting point is to what extent the courts will be prepared to entertain more evidenced base arguments because of the lack of any alternative way of calculating rates.
As was observed in the recent case of Ohpen Operations UK Limited v Invesco Fund Managers Limited [2019] EWHC 2504 (TCC)
As to the first point, the hourly rates of the defendant’s solicitors are much higher than the SCCO guideline rates. It is unsatisfactory that the guidelines are based on rates fixed in 2010 and reviewed in 2014, as they are not helpful in determining reasonable rates in 2019. The guideline rates are significantly lower than the current hourly rates in many London City solicitors, as used by both parties in this case. Further, updated guidelines would be very welcome.
Welcome indeed.
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