GHR responses back ACL criticism of basing new figures on assessed costs

Responses to the consultation on the guideline hourly rates (GHR) have mainly echoed the ACL’s concerns over the methodology and reliance on the figures judges allow on assessment rather than actual market rates being charged to litigants.

We reported in the last eBulletin on the ACL’s response to the Civil Justice Council (CJC) working group and the City of London Law Society made the same recommendation that the group should use the hourly rate information contained within costs budgets and rates claimed on assessment (rather than being awarded).

The society’s litigation committee said: “Although not all cases reach even that stage or are subject to the costs budgeting regime, far more do go through that process than the detailed (or provisional) assessment stage.

“The committee’s experience is that comments upon hourly rates at the costs budgeting stage is infrequent, but that does not mean that they are any less good a real-time indication of actual market rates and tracking them ought to be possible.”

It said actual market rates were “self-regulated as a result of the forces at play in what remains a competitive legal market”, and often already reflected the complexity of a matter, the expertise required, the scope to do the work differently using technology or flexible resourcing, what competing practices might charge, and so on.

The Association of Personal Injury Lawyers (APIL) noted that recovered rates were, by definition, as out-of-date as the existing GHR.

It went on to highlight the particular position of personal injury, where the amounts claimants paid were “often much lower than hourly rates which would usually be charged to the same individual for other types of work at the same firm”.

APIL said: “This makes it evident that the hourly rates charged for injury claims are artificially deflated by the historic GHR rather than inflated when contrasted to other practice areas.”

There was also “a tendency” to minimise the costs shortfall clients faced because clients needed their damages to meet their long-term injury-related losses and necessities.

The association said the working group should also have relied more on the services producer price inflation (SPPI) index for legal services – which the CJC said recorded a 34% increase in inflation since 2010.

“It is not clear to us why the CJC would not use the SPPI (legal services) index when it is clearly representative of the level of cost inflation being experienced by the legal services sector.”

Even the smaller increase in the consumer prices index would result in higher GHR than those proposed, APIL said.

“It is encouraging that the CJC accepts that the appropriate SPPI index (legal services, we would suggest) could be used when annually updating GHR. It is simultaneously disappointing that there is no firm commitment to do this, the CJC describing it as ‘currently impracticable’, a premise which we do not accept.”

Birmingham Law Society’s litigation committee even questioned whether the GHR were now “otiose”.

It went on: “Traditionally, GHR have been relied upon by defendants’ insurers, their legal advisers and costs draftsmen to reduce the amount recoverable by successful claimants, particularly in personal injury cases.

“GHR have therefore acted as a costs constraint as opposed to any real indication of commercial rates. The time may have come to step away from this one-sided objective and to leave rates to the free market.”

The largest regional law society in the country also expressed “serious concerns” about the methodology: “If the underlying principle of GHR is to provide an overview of rates and be broad approximations of rates in the marketplace, then the only data to be relied upon/used should be the rates agreed between the professional and client.”

In any case, increasing hourly rates would not necessarily have an impact on what was recovered by the paying party due to the application of proportionality.

“Unless the current application of proportionality is shifted, increasing GHR is arbitrary and ultimately does not assist the client. If anything, the client will end up paying a larger shortfall to the professional in respect of costs that are not recovered from the paying party.”

The national Law Society said it did not support abolishing the GHR and letting market forces guide what hourly rates should be.

Its was the only response we have seen to date that supported the CJC’s methodology. As a result, it was “broadly supportive” of the recommended new GHR, but urged a firm commitment to review the rates every three years.

“[The review] should not be viewed as a conclusive exercise, but rather as an evolving area of civil justice that should be constantly kept under review. We note that the [review] was not about: a) calculating how much the solicitor can reasonably charge their client, or b) working practices or business models adopted by law firms which determine the costs associated with staff, overheads, profit/loss to the firm.”

A future, “more comprehensive”, review should consider whether the GHR were delivering “value for money”, the society said, looking at issues such as the impact of remote working and hearings, and whether rates should be looked at with reference to the type of work carried out, and to the size of the law firm and associated overheads.

“A comprehensive review of GHR based on a number of factors would assist solicitors in justifying their rates and enhance the integrity of the profession.”

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Costs News
Published date
15 Apr 2021

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