A paper issued today by the Centre for Policy Studies, a right-wing think tank set up by Margaret Thatcher, has backed Lord Justice Jackson’s call for the state to impose fixed fees on civil claims worth up to £250,000.
Costs lawyer Jim Diamond attacked a “shortage of competition” between magic circle law firms and said his latest survey showed that the top hourly rate for partners had hit £1,100.
On Jackson LJ’s plans to impose a grid of fixed costs on all civil claims up to £250,000, Mr Diamond said: “That seven years after his initial reforms Lord Justice Jackson has felt it necessary to be so prescriptive shows that the problem has so far been intractable.
“These latest draconian proposals, if and when implemented, will have drastic consequences for the entire legal profession and will be a significant step towards ensuring fair practice in legal procedure.
“The Lord Chancellor should therefore give Lord Justice Jackson’s proposals full consideration.”
Mr Diamond said in the report, The Price of Law, that there was “remarkable similarity” in the rates charged by magic circle law firms, which suggested a “shortage of competition between them”, with the difference between rates tending to be only around 5%.
“While there is no suggestion of collusion between the companies concerned (which would of course be illegal under UK competition law), such close price similarity is indicative of a less-than-perfectly functioning market.”
Mr Diamond went on: “However it should be a relatively simple task for either the Legal Services Board or the Law Society to collect and publish the hourly rates that are now being charged, and if necessary for the Office of Fair Trading and Competition Commission to investigate evidence of perceived or alleged collusion.
“A simpler method, for example, would be for the front-line regulator to insist on all law firms publishing hourly rates of their various fee-earners on their own websites.”
Earlier this week the Legal Services Consumer Panel called on legal regulators to force law firms to publish data on average prices.
Mr Diamond praised the top accountancy firms for “undercutting magic circle firms by applying stream-lined cost-saving techniques developed in corporate accounting – many simpler legal processes are automated and, importantly, accountancy firms charge by the results achieved, not the hour.”
The costs lawyer said: “Admittedly top accounting firms aren’t yet tackling the high-level cases that top law firms handle. However, there is good reason to believe that the firms plan to continue growth of their legal departments and will soon attempt to compete at the highest level – although they will struggle to secure such work initially as they do not have the same legal reputation that the magic circle enjoy.
“This is an indication that clients of magic circle law firms are to some extent paying for the name rather than the expertise – expertise which demonstrably could be provided at lower cost.”
In his 2015 hourly rates survey, Mr Diamond found that hourly rates for magic circle lawyers with five years’ PQE ranged from £500 to £575, and for partners from £775 to £850.
In a final example of expensive hourly rates acting as a “productivity drain on the wider economy”, he added: “The associated high salaries enjoyed by top law firms attract a significant proportion of top graduates – highly competent workers who could instead be employed elsewhere, in more productive industry.”
Alasdair Douglas, chairman of the City of London Law Society responded: “The top commercial law firms operate in an intensely competitive market…
“There is no cartel of a few UK firms sharing the work out between them. In fact at least 30 firms, US and UK-based, have the scale, international reach and resources to do most commercial work. That high level of competition has a major impact on determining fees…
“Clients and their lawyers negotiate the appropriate rates and method of charging depending on the work being done; hourly rates, fixed-fee agreements, discounts, premiums and the provision of secondees all being part of the mix.
“The typical City firm/client relationship is extremely well-informed; companies’ in-house counsel, many of whom are ex-City lawyers, are very experienced and only pay where they think they receive value for money. The clients will take their instructions elsewhere if they are dissatisfied, and can manage any complaints about the pricing in the same manner.”
Sue Nash, chair of the Association of Costs Lawyers, added: “I believe there is a real ‘wind of change’ amongst purchasers of commercial legal services who are beginning to realise that their legal spend is increasing and/or buying them less. There are smaller London based firms probably every bit as competent but charging up to 50% less and then there are market-disruptors like Riverview Law…
“However, we must not forget that these rates do not reflect the work done – or fees charged – by the vast majority of solicitors across the land. As for those solicitors and junior barristers doing legal aid work, with some hourly rates as low as £26 – and the absolute maximum for the most rare and complex cases is about £140 an hour – the vast majority can only dream of being able to bill £1,000 in a week let alone an hour… They are the ones ensuring that access to justice is more than just a slogan.”