Clifford Chance, Paris office. 1 Rue d'Astorg. Wikicommons/ Antonin garric. Some rights reserved.
Lord Thomas of Cwmgiedd, the former Lord Chief Justice, has called on the Government to act over the widening gulf between huge earnings at City law firms and the funding of public sector legal advice. (The Times, 25 June 2018). In 2012 and 2016, Lord Justice Rupert Jackson, who recently retired at the age of 70, produced his blockbuster reports on litigation costs running to over 1200 pages. Yet his Herculean labours barely touched on the problem highlighted by Lord Thomas.
It would be unfair to blame Sir Rupert. His task was not to examine disparities in lawyers’ pay but to review the system which enables one party (usually the successful one) to recover from another some or all of the costs of litigation.
His brief was limited to “recoverable” costs. “Actual costs” – the amount the client owes his lawyer – were outside it. His remit did not include the fundamental question: why are some lawyers paid so much more than others?
The principle that the loser pays the winner’s costs is deeply embedded in our system and it is important that the calculation of those costs – which are often less than the actual costs – should be fairly conducted and supervised. This is the main function of an army of costs specialists – costs judges, draftsmen, costs counsel and solicitors. Yet the bulk of legal work in the commercial field at least is “non-contentious”. There is no losing party involved, so the full costs are the responsibility of the client alone. The solicitor and the client agree the terms of their arrangement (“retainer”), which includes hourly rates or other forms of charging and an estimate of how long the work will take. When the job has been done, the solicitors submit their bill and the client is expected to pay up. Actual costs can still be charged even when offset by recoverable costs (if recovered). ”You can challenge your solicitor’s bill if you think you have been charged too much.”
Part III of the Solicitors Act 1974 provides for ultimate judicial supervision of charges for both contentious and non-contentious business. The Government website GOV.UK states categorically: ”You can challenge your solicitor’s bill if you think you have been charged too much. Ask the Senior Courts Costs Office to make a detailed assessment of your bill. They can reduce your bill if they think it’s too expensive.”
What criteria do they apply? Efforts have been made in recent years to establish meaningful rates for recoverable costs. The Costs Committee of the Civil Justice Council in 1999 drew up detailed “Guideline Hourly Rates”, calibrated according to the experience of the fee earner and the locality of the practice for use by judges required to make summary assessments. These were endorsed by the Master of the Rolls and have been updated several times.
In 2014, however, the then MR, Lord Dyson, decided not to change the rates fixed in 2010 and they have not been changed since. The highest hourly rate for the most experienced solicitors based in the City of London is £409. However, Guideline Hourly Rates were not meant to determine what solicitors could charge their own client. As Jackson said in his final report: ”it is not feasible to preordain how much clients must pay to their lawyers in every individual case. Also, that would be an unacceptable interference with freedom of contract. The best we can do is to restrict the recoverable costs.”
Ultimately, the only determinant of actual costs is “market forces”. It is true that the client must be given full details of the terms of business, including the persons who will carry out the work, their charging rates, and the projected cost. This information must be updated regularly as the work progresses. Costs budgeting in advance is also now routine since the Jackson reforms. But once this has been done, the client has little choice but to pay up.
Legal Aid is a different world. The Government guarantees to pay the lawyers but the Government (through legislation) determines rates of pay. The client has no say in the matter except when a contribution is called for. The lawyer’s choice is: take it or leave it. The lawyer’s choice is: take it or leave it.
We are still some way from explaining the huge disparities between the earnings of solicitors in different areas of law, especially between those in the commercial sector and those serving the public at large. Allen & Overy’s highest paid partner last year received £3.5 million. The Financial Times reported average profit per equity partner of “magic circle” firms last year: Allen & Overy £1.51 million; Linklaters £1.56 million; Clifford Chance £1.375 million excluding “annuities”, the amount of which is not disclosed); and Freshfields £1.547 million. Increases are already being reported for the current year. In such firms newly qualified solicitors can expect starting salaries upwards of £80,000 (even as much as £140,00). By contrast, the Young Legal Aid Lawyers have recently surveyed their 3500 members, all qualified solicitors for up to 10 years. More than half reported salaries of less than £25,000 and one-third below £20,000. Note that their work demands no less knowledge, skill or stress than commercial law. I know because I have done both.
What Lord Thomas describes as the huge earnings of City law firms must largely depend on high hourly rates. In February 2016, the Independent highlighted a report on the cost of law by Jim Diamond, a costs lawyer with 30 years experience in City firms who has been reporting annually on charging rates. Diamond claimed that partners in Magic Circle firms were charging “an average of £850 to £1100 an hour”. He described this as “an epidemic of over-charging”. Even outside the magic circle, it was recently reported by Legal Business that Lord Justice Leggatt in the High Court described costs claimed by the firm Weil Gotshal as “obviously unsustainable “. The top hourly rate demanded was £946 per hour. A trainee was charged at £282 per hour. The Court ordered a substantial reduction.
By contrast legal aid rates are specified in great detail by the Civil Legal Aid (Remuneration) Regulations. Many of the rates laid down are for a complete task, regardless of the time taken. Here are some random examples. Legal representation in care or supervision proceedings under the Children Act 1989 is paid for at a maximum of £63.06 per hour in London (£59.26 outside London). In other cases rates for preparation, attendance and advocacy vary between £55 and £70 per hour. In public law cases generally, advocacy fees range from £75.83 for hearings up to an hour long to £612.90 for a full day. These are the fee levels which have led to the recent industrial action taken by junior barristers. These are the fee levels which have led to the recent industrial action taken by junior barristers.
Why then do commercial clients continue to pay exorbitant fees? While undoubtedly” magic circle “ and other City firms are in competition for substantial corporate clients, price competition seems to be avoided. Is it entirely coincidental the partner profits mentioned earlier are so similar to each other? Do we have here an example of oligopoly, when firms in the same business tacitly avoid price competition to keep up the level for all? Those who make the decisions within client firms are not usually spending their own money. However inflated, the total legal fees are often dwarfed by the sums involved in the transactions advised upon. And earnings may not seem excessive when compared with the earnings of the moguls and financial wizards who lead the big commercial clients. Earnings may not seem excessive when compared with the earnings of the moguls and financial wizards who lead the big commercial clients.
Underlying the dramatic gulf in earnings described by Lord Thomas is the gulf in the self-image of commercial lawyers and those who serve what Lord Thomas calls the public sector. The former have become businesses, seeking to maximise profit. The latter, serving the impoverished and the disadvantaged, are performing a public service. Lord Thomas is referring to the latter.
Ironically the public sector, in the form of Government and public authorities, frequently finds itself paying high fees to City solicitors. A recent example is Carillion. The joint parliamentary committee investigating it discovered that Slaughter & May delivered bills for over £8 million for legal advice in the 8 months before its collapse. How many hours were charged at what rates by what fee earners? This has not been reported. What we do know is that much or all of this bill was paid by the public because Carillion was mainly engaged in outsourced public projects.
The public purse
Indeed much of the income of City law firms comes directly from the public purse at many times legal aid rates. How can this be justified? And of course, indirectly, much other income comes from corporations whose own income derives from the public.
Lord Thomas poses a real dilemma which echoes the growing global polarisation of rich and poor examined by economists such as Thomas Piketty. British justice has become a saleable commodity on the international market. Senior judges are despatched overseas to drum up business. (One of them told me so himself). The financial success of City firms boosts our economy. Cutting their fees would damage it.
So it is argued. But if we are to restore legal aid and redress the imbalance in access to justice, where will the money come from to pay for it? Would it not be fair to recoup from the commercial sector some of the profit they have received from the public purse? During his brief tenure as Lord Chancellor and Minister of Justice, Michael Gove favoured a levy on the highest earners in the big law firms but was turned down flat by them. Lord Thomas could add the weight of his authority to the revival of this proposal.
This article first appeared in the New Law Journal on July 20, 2018.