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
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.