Raising the Bar: how guideline hourly rates limit access to justice

In a statement dated 17 April 2015, Master of the Rolls the Rt Hon Lord Dyson said that the Guideline Hourly Rates (‘GHRs’) form ‘…an integral part of the process of… summary assessment… a starting reference point in the preparation of detailed assessments… [and] a yardstick for comparison purposes in costs budgeting’, something of a non sequitur following his previous statement that the GHRs are becoming ‘less and less relevant’. Nevertheless the GHRs remain, yet do they undermine the fundamental principles of access to justice?

In her recent article, Joanne Chase looked at Maximising Hourly Rates, and how skilful preparation of the retainer can lead to enhanced recovery at detailed assessment. It is quite clear that the GHRs do remain an important part of the determination of costs, whether by summary or detailed assessment.

The purpose of GHRs is to provide a ‘ready reckoner’ for judges dealing with cases which are to be dealt with by way of summary assessment. Pursuant to CPR 47 PD 9.2 the general rule is that a summary assessment should be conducted ‘(a) at the conclusion of the trial of a case which has been dealt with on the fast track… [and] (b) at the conclusion of any other hearing which has lasted not more than one day…’ It is clear from the construction of the rules that summary assessment, and therefore the guideline rates, are suitable only where the case of a type and complexity which can be disposed of in a single day trial.

It is clear that the GHRs have been calculated with reference to the type and complexity of work which is suitable to be disposed of at a single day trial, however in cases which are more complex they must be inherently unsuitable.

It has recently been reported that some City firms’ fees now exceed £1,000 per hour, which has of course generated the inevitable public outrage at ‘fat-cat lawyers’ riding the ‘legal aid gravy train’, as well as allegations that such rates are a bar to access to justice. It is of course obvious to anyone within the profession that the firms which charge over £1,000 per hour have nothing whatsoever to do with legal aid and indeed any client who is able to agree to a retainer providing for an hourly rate of more than £1,000 per hour is unlikely to be troubled by ‘access to justice’.

 I was recently instructed in a case which related to a complex negligence matter relating to the sale of a life insurance policy. In brief, the claimants (a company and its directors as individuals) alleged that the defendant (a large financial institution) had failed to properly incept a policy of life insurance in respect of one of the claimants’ former directors. When the director in question died, there were significant issues relating to liability and the appropriate remedy, as the insurer was not a party to the agreement itself. In this case, both parties instructed solicitors on retainers in which the hourly rate exceeded £250 per hour.

 I have seen numerous similar cases regarding large financial institutions and invariably the hourly rate of their solicitors will exceed £250. This is a simple illustration that the market determines the cost of legal representation in any particular area.

Where GHRs are applied, these financial institutions have the luxury of significant reserves from which they are able to stand the loss of, say £100 per hour to the rate allowed. Not only will they have their own capital but they will also in all likelihood be back by insurance. The ‘man on the street’ does not have this luxury. He is therefore faced with a choice; instruct a less specialist solicitor, or pay a higher hourly rate and stand the loss.

The GHRs therefore are themselves a bar to access to justice, because by setting a cap on the level of costs which the court will consider to be ‘reasonable’ they enable parties with the financial resources to stand a significant disparity between the hourly rate claimed and the hourly rate recovered to instruct more specialist solicitors than a party which does not.

At detailed assessment, as stated above, the court will refer to the GHRs when considering the hourly rates claimed. It is not, of course, as simple as drawing a direct comparison between the parties’ respective hourly rates and as long as they fall within a certain range determining that they are reasonable and proportionate; put bluntly the fact that an opponent acts unreasonably or disproportionately does not give you licence to act as unreasonably or disproportionately as them. However it is my view that the starting point for any assessment of hourly rates should be what the ‘market rate’ is for work in the relevant area. It is simply not the purpose of the courts to draw arbitrary red lines through hourly rates to reduce the paying party’s liability, which is a point often forgotten by both paying parties and the courts alike.

The relevant test is set out at CPR 44.3(2) and (3), which states that when assessing costs on the standard basis the court will allow only costs which have been (1) reasonably incurred and which are reasonable in amount and (2) proportionately incurred and proportionate in amount.

Once the court has determined that it was both reasonable and proportionate to bring the claim at all, then it will apply the specific test of whether the hourly rate is reasonable and proportionate. The test of whether the hourly rate is reasonable is a general test. This test was set out by Potter J and affirmed by Kennedy LJ in the Court of Appeal in Wraith –v- Sheffield Forgemasters[i], in which it was held that the court must consider:-

  1. Whether ‘to a reasonably minded plaintiff, [has] a reasonable choice or decision has been made?’; and, if  so
  2. What is ‘the appropriate rate or fee for a solicitor or counsel of the status and type retained.’

Of critical note is the statement immediately following this test that ‘in either case, solicitors’ 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 [my emphasis]or (in a case where the choice made was not reasonable) of the type or class of solicitor who ought to have been retained.’

It is clear from this judgment that the consideration of the hourly rate to be allowed must involve a consideration of the market rate in the area of law to which the claim relates. It is unlikely that general data will be available, as firms are notoriously secretive about their charging rates (and perhaps it would be in practitioners interests if they were not), however even in the absence of such general data the court does still have available to it the hourly rates claimed by the parties’ to the litigation[ii].

Once the court has determined that the hourly rate is reasonable, it should then consider whether the amount of that hourly rate is proportionate. This is a specific test taking into account the individual facts of the case and is set out at CPR 44.4.

In summary, the application of the GHRs in detailed assessment is both contrary to the judgment of the Court of Appeal in Wraith -v- Sheffield Forgemasters, as well as being contrary to the principle of access to justice and the Overriding Objective at CPR 1.1(2)(a). Moreover there is no statutory basis upon which the court can allow hourly rates with reference to the GHRs. In my view, the GHRs are applied in detailed assessment proceedings only by habit, but that their application should be strongly challenged whenever it may arise.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 2460622.

[i] [1997] EWCA Civ 2285

[ii] Even where the paying party had filed no summary statement or precedent H in the litigation, the court could still order disclosure of the retainer (at least to the court) or other evidence as to the hourly rate.

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