Battle of hourly rates

The Court has the power at a detailed assessment of costs to allow hourly rates as claimed, or which are lower or, indeed, higher than the rates specified in the last approved or agreed costs budget. The ‘battle of hourly rates’ plainly has a significant impact upon costs recovery. Despite the importance of the issue, and the breadth of authorities in this area, it can still feel, on occasions, that figures are plucked out of thin air.

Basis of assessment

The incidence, basis and assessment of costs turns on an analysis of whether costs have been reasonably incurred and are reasonable in amount (CPR 44.3(1)). This was considered in Wraith v. Sheffield Forgemasters Ltd, Truscott v. Truscott [1998] 1 WLR 132 (CA) in which a two-stage process was adopted;

  1.  Has the receiving party acted reasonably in instructing the given solicitor having regard to the relevant circumstances?
  • Are costs reasonable compared to charges made by similar firms practising in the same area?

If a cheaper option is available it may be relevant to the first question, but it may have no relevance to the second. One is reminded of the words of John Ruskin: “There is hardly anything in the world that some man cannot make a little worse and sell a little cheaper, and the people who consider price only are this man’s lawful prey”.

The following are matters which a Court should regard as relevant when considering the reasonableness of a party’s decision to instruct a given solicitor:

  1. The importance of the matter to the party;
  2. The legal and factual complexities;
  3. Location of the party’s home;
  4. Any reasons/ desire to instruct a solicitor further afield;
  5. Why the specific solicitor was chosen;
  6. The location of the chosen solicitor; and
  7. What would the party be expected to know of the fees charged by the chosen solicitor compared to other solicitors which he may have reasonably considered instructing.

The importance of the above can be seen, for example, in the following:

  • Melanie Kelly v Hays Plc [2015] EWHC 735 (QB): A high value personal injury claim – London (City) solicitors were instructed but the claimant was located in National 1 area but worked in outer London. Rates allowed = £295 Grade A, £230 Grade B, £175 Grade C & £120 Grade D.
  • JXA v Kettering General Hospital NHS Foundation Trust [2018] EWHC 1747 (QB): A high value Clinical Negligence case in which liability had been agreed at 95%, and in which damages were estimated at £20m. Rates allowed = £350 Grade A, £200 Grade C, £150 Grade D.
  • Various Claimants v MGN Ltd [2016] EWHC B29 (Costs): Phone hacking litigation brought by multiple claimants. Rates allowed = £400 Grade A, £280 Grade B, £230 Grade C, £140 Grade D.

Guideline hourly rates

In 2015, the (then) Master of the Rolls, Lord Dyson, froze the guideline rates at their 2010 levels indefinitely after deciding there was no prospect of the evidence required to change them being produced.

The guideline hourly rates have been the subject of criticism pretty much ever since. By way of example, recently in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2504 (TCC) Mrs Justice O’Farrell urged a review of the guideline hourly rates saying the current levels are “not helpful in determining reasonable rates in 2019”.

Unless and until the rates are changed, they are:

Pay band Fee earner London 1 London 2 London 3 National 1 National 2 National 3
A Solicitors and legal executives with over 8 years’ experience £409 £317 £229-£267 £217 £201 £201
B Solicitors and legal executives with over 4 years’ experience £296 £242 £172-£229 £192 £177 £177
C Other solicitors or legal executives and fee earners of equivalent experience £226 £196 £165 £161 £146 £146
D Trainee Solicitors, paralegals and other fee earners £138 £126 £121 £118 £111 £111

However, while Guideline Hourly Rates will always be part of the costs conversation, they are not prescriptive – “in substantial and complex litigation an hourly rate in excess of the guideline figures may be appropriate … where other factors, including the value of the litigation, the level of the complexity, the urgency or importance of the matter, as well as any international element, would justify a significantly higher rate …” – HMCTS Guide to Summary assessment. This can be seen, for example, in:

  • Higgs v Camden and Islington Health Authority [2003] EWHC 15 (QB) the High Court concluded that the guideline rates were of limited assistance;
  • AA and others v TUI UK Ltd and others [2015] EWHC 90017 (Costs) the (then) Senior Costs Master said: “The Guideline Rates are published for the assistance of Judges and Court users in connection with Summary Assessment. They are guidelines only and the Court retains the discretion to allow rates which are reasonable in all the circumstances”; and
  • Arcadia Group & Ors v Telegraph Media Group Limited [2019] EWHC 96 (QB) –Of course, fees in excess of the guidelines can be and often are allowed, and in this case the defendants (who themselves claim up to £450 per hour) and I both accept that fees above those rates are justified”.

There is no question, however, that guideline rates remain the starting point, a reference point and a crosscheck, in assessments.

Inflation

It follows from the above that, absent a review of the guideline rates, a potential reason for justifying an enhanced rate is to account for inflation.

It is worth noting that Friston on Costs, 2018 sets out, on the inside cover, a list of the guideline hourly rates and the CPI increase since 2010. Dr Friston, a Deputy District Judge in the SCCO, has also included a table which provides the calculations for the rates accounting for inflation. However, this should not be regarded as a judicial endorsement.

Further, there is little case law out there which clarifies the inflation argument. Inflation was brought up in JXA (above) but the appeal judgment merely recorded the argument, which did not affect the ratio of the decision.

Calculating hourly rates: The rule of three

The historic (pre-CPR) method of calculating hourly rates utilised the “A & B Factors”. Factor A represented the costs of completing the work. Factor B was the profit element. Factor B would vary depending on the nature, value and complexity of the matter.

The Court accepted that it was reasonable for the charging rates to include a profit element of 50% in routine non-complex matters. In other words, two thirds of the hourly rate claimed represented the cost of completing the work and one third represented the profit element. 

In Higgs v Camden & Islington Health Authority (considered above) the Court considered the correct way in which hourly rates should be calculated, noting that the CPR and the (then) Costs Practice Directions discourage the use of the A plus B calculation, albeit regard was given to the A plus B method.

Subsequently, in Holliday v E C Realisations ltd [2008] EWHC 90103 (Costs) the Court confirmed that the A plus B method was outmoded.

The proximation argument

There is a discernible relationship between the fee earners’ rates in the guideline rates as per the following ratios: 

  • Grade D to Grade C – 1:1.3;
  • Grade D to Grade B – 1:1.6;
  • Grade D to Grade A – 1:1.8.

These ratios are different/greater for London 1 and 2 (for example London 1 Grade D to Grade A is 1:2.9) but these ratios can be easily determined.

It is, we consider, arguable that hourly rates, which depart from guideline rates, should nonetheless conform, at least broadly, to the ratios underlying the relationships between the guideline rates. In other words, while the Court may determine hourly rates as it sees fit, it is, we consider, possible to argue that any alternative hourly rates should have a close and defined proximation to one another.  

Conclusion

Guideline Hourly Rates are just that, a guide. Plainly parties to litigation are not bound to pay Guideline Hourly Rates, and technically there is no limit on the hourly rate which a solicitor can charge – as stated in Ohpen: “the [SCCO] guideline rates are significantly lower than the current hourly rates in many London City solicitors”.

On the question of proportionality is has been said “… it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings” (Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm)) and “ litigants are free to pay for a Rolls-Royce service but not to charge it all to the other side” (Re RBS Rights Issue Litigation [2017] EWHC 1217).

The two-stage test in Wraith and Truscott speaks to how a party may justify its solicitor’s hourly rate. The Court will then take into account both CPR 44.3(5) CPR 44.4(3) (the 8 ‘pillars of wisdom’) when considering whether costs are proportionate and reasonable (when assessing on the standard basis). These factors can be used to support an enhancement, for instance, given the complexity of the matter, or the conduct of parties.

Given the ramifications, the importance of winning the battle of hourly rates could hardly be clearer.