Hourly billing 'incentivises inefficiency', says Neuberger
The end of the hourly rate is nigh and a costs council should be established urgently to review litigation billing methods, the Master of the Rolls Lord Neuberger has warned.
Lord Neuberger
Speaking at the Association of Costs Lawyers conference last week Neuberger MR reiterated his concerns that the hourly rate “leads to inefficient practices, at worst it rewards and incentivises inefficiency”. The time for change has come, he added.
“Only a costs council can provide the necessary, active, expert scrutiny of litigation costs at the macro level,” Neuberger MR said. “It remains my hope that the recommendation that a costs council should be established will be implemented, and that members of your organisation, with their particular expertise in the field of legal costs, will serve on it and advise it.”
Lord Justice Jackson recommended that a costs council be established by the Civil Justice Council (CJC) as part of his wider review of civil litigation costs (18 January 2010).
He urged the profession to adopt as a matter of urgency “value pricing rather than hourly billing”, adding that the march of ABSs into the profession would “sound the death knell of hourly billing, as it will lead to more positive and market-orientated practices”.
While fixed fees were one alternative method of billing, Neuberger added, the other alternative would be for firms to adopt contingency-based agreements, known as ‘damages-based agreements’ (DBAs), when legislation allows.
The CJC established a working party last August to work towards the implementation of Jackson LJ’s reforms (19 August 2011). Former Irwin Mitchell chairman Michael Napier, who was widely credited with helping develop the conditional fee system, is leading the group (16 November 2011).
Neuberger MR said the group would need to consider how DBAs can operate across different procedural tracks, warning that DBAs should not become a breeding ground for satellite litigation.
“Care will need to be taken to ensure that differences between the various funding mechanisms do not provide improper incentives for claims to be pursued, to the detriment of clients and the proper administration of justice, in particular procedural tracks when they ought properly to be pursued on a different track,” he said.
“Care in drafting rules, and a robust attitude by the courts, will need to ensure that this does not become a fertile ground for meretricious satellite litigation.”
It is not the first time Neuberger MR has attempted to reinvigorate the debate around the hourly rate. In December he told the Chancery Bar Association: “We should all aim to be cracking disputes as efficiently and cost-effectively as possible.”
In February, Neuberger MR slammed Irwin Mitchell over its pricing policy, which allowed it to charge six times the amount paid out to its client in a dispute (21 February 2012).
The MR said “something is out of kilter” when the firm had managed to amass costs of £75,000 when its client, plumber Adrian Simcoe, had received a £12,500 settlement for a personal injury claim.
Giving the substantive Court of Appeal judgment, Neuberger MR stated: “Unless this is an exceptional case, the fact that, without even incurring the cost of a trial, it cost the claimant nearly six times as much to pursue the claim as it was actually worth suggests that something is out of kilter in at least some parts of the civil justice system.”
His campaign against the hourly rate, however, has been met with disdain by some lawyers, who argue that the judiciary has no right to interfere with the commercial workings of a firm.
Just Costs national advocacy manager Thomas Blackburn said firms would cling on to the billing method long after Neuberger MR retires from the bench.
He commented: “Whilst the eminent Lord is correct in that solicitors and barristers are exploring alternative fee structures, such arrangements will be the exception not the norm.
“I’d remind the legal field of Lord Justice Woolf’s recommendations regarding technology playing a greater and more prominent role in proceedings. Thirteen years later, we’re still waiting for that to happen.”
A copy of the full speech can be read here.
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Readers' comments (25)
Anonymous | 23-May-2012 11:27 am
Many other types of business have hourly costs but do not charge hourly rates.
There is no real reason why lawyers can't make greater use of fixed fees, conditional fee arrangements and (when the regulation allows) contingency fees.
Fixed fees are fundamentally different to capped fees because under a capped fee arrangement the lawyer takes all the risk; under a fixed fee arrangement the client shares the risk.
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Anonymous | 9-Jul-2012 5:14 pm
By the time you transfer from one solicitor to another the bill has been hiked up already.
Client should be given a choice of the way they should be billed. After all solicitors live off their clients. That is their bread & butter.
It is a known fact how solicitors hike up their bill into thousands of pounds.
I think only those solicitors are objecting to Lord Neuberger because they are the ones who are milking the clients.
Clients need protection against those solicitors who exploit the system.
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The Arches | 10-Jul-2012 10:56 am
I see Neuberger's point but there is clearly a distinction to be drawn between litigation costs (particularly where the other side pays) and say, corporate costs.
Having (briefly) worked in a “no win, no fee” sweat shop, I regularly witnessed senior colleagues engage in long, meandering debates over peripheral issues; spend an age on the telephone to clients harping on about often superfluous information, and taking forever to dictate or type often far too convoluted letters, with all the time recorded and later charged. I was once interrogated by a partner for my comparatively low time recorded on a settled matter, and I was forced to negotiate a higher costs figure with the other side based on time which had never been spent.
Now I work in a corporate department which is plainly in stark contrast to the PI world. The client pays and the “something for nothing” culture is rife with most clients driving a hard bargain at the outset and later haggling over/complaining about the final bill. Having said that, I have some sympathy, as initial estimates are regularly exceeded. If you went to a mechanic for a new cam belt for your car, and received a quote for £400, but then ended up getting asked to pay £800, you’d be furious. Even as a lawyer, if I ever need and have to pay for legal advice, there’s no way I’ll agree to paying anything other than a fixed fee made clear at the outset.
The hourly bill creates an obsession with time and pulls solicitors in two totally different directions – on the one hand trying to keep your time as low as possible for the client, on the other hand trying to keep your overall time recording figures high to hit your firm’s targets. A fixed pricing structure is practically inevitable, where firms take the rough with the smooth and quoting has to be improved. It will reduce stress levels for solicitors and will foster stronger client relations. If clients demand a crazily low fee at the outset, then good luck to them in finding somebody else stupid enough to do the work. Other professions manage to do it profitably, and so should the legal profession, otherwise outside influences in the new ABS world will find a way.
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Anonymous | 26-Nov-2012 11:11 am
A talented Lawyer/Solicitor neighbour of mine, working for a large ahd 'respoected' national firm is thinking of leaving the profession after just 7 years of practice as she is fed up with being challenged to produce 13 hours of 'billed time' during a 9 hour woking day!
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Darren | 28-Mar-2013 12:38 pm
I meet up with my £240/hour lawyer
I am in desparate need
I talk.
I'm not that efficient - not my fault, I just was born that was, just like every other Joe Public.
I am under stress: Every 15 seconds I talk runs up £1.00
I try to dexterily convey the concerns - 60 seconds pass, that's now cost me £4.00
And the lawyer hasn't yet advised me.
In a 5 minute chat where I do all the talking, and he's not said a word, I've spent £20.
What have I received for my £20? Nothing - because I've done all the talking, he's said nothing.
So I cut my story short - I don't give the full picture. And therefore his advise cannot be according to my situation.
I believe that everyone should have access to legal help: yet the reality is not the case. Even in the UK with the Legal Aid Board, I've personally been stung where a lawyer at the Citizen's Advice Bureau explained this wouldn't cost me anything, and it's an easy case. My bill was £10,000, increasing at 8% (statutory interest rate) and is now a charge on my property. How can this be right? I never agree to this, and I never saw it coming.
"Hourly rates incentivises inefficiencies" - I am easily persuaded towards this argument; I'd struggle to see it any other way.
I have personal experience, and this is fundamentally wrong.
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