It may be time to ditch the guideline hourly rates (GHR) entirely in favour of a market solution given they are meant to reflect what lawyers are charging, Birmingham Law Society (BLS) has said.
The national Law Society – which opposed leaving rates to the market – said it was aware that some law firms “do disproportionately well out of the current GHR”.
In its response to the Civil Justice Council’s GHR working group consultation, BLS’s dispute resolution committee questioned whether they continued to serve the purpose of being an overview of rates in the marketplace, “or whether they are now otiose”.
It went on: “Traditionally, GHR have been relied upon by defendants’ insurers, their legal advisers and costs draftsmen to reduce the amount recoverable by successful claimants, particularly in personal injury cases.
“GHR has therefore acted as a costs constraint as opposed to any real indication of commercial rates. The time may have come to step away from this one-sided objective and to leave rates to the free market.”
Like other respondents, BLS expressed “serious concerns” about the methodology used, as it was largely based on what costs judges were allowing. This did not reflect rates in the marketplace.
The response said: “If the underlying principle of GHR is to provide an overview of rates and be broad approximations of rates in the marketplace, then the only data to be relied upon/used should be the rates agreed between the professional and client.”
In any case, increasing hourly rates would not necessarily have an impact on what was recovered by the paying party due to the application of proportionality.
“Unless the current application of proportionality is shifted, increasing GHR is arbitrary and ultimately does not assist the client. If anything, the client will end up paying a larger shortfall to the professional in respect of costs that are not recovered from the paying party.”
By contrast to the other responses seen by Litigation Futures to date, the national Law Society backed the methodology and said it was “broadly supportive” of the recommended new GHR.
But noting the working group’s narrow terms of reference, it said the review and any resulting changes should be seen only as an interim measure to assist fee-earners, law firms and costs judges.
“It should not be viewed as a conclusive exercise, but rather as an evolving area of civil justice that should be constantly kept under review. We note that the [review] was not about: a) calculating how much the solicitor can reasonably charge their client, or b) working practices or business models adopted by law firms which determine the costs associated with staff, overheads, profit/loss to the firm…
“Therefore a future, more comprehensive, review would be useful.”
This should consider whether the GHR were delivering “value for money”, the society said, looking at issues such as the impact of remote working and hearings, and whether rates should be looked at with reference to the type of work carried out, and to the size of the law firm and associated overheads.
“A comprehensive review of GHR based on a number of factors would assist solicitors in justifying their rates and enhance the integrity of the profession.”
The Law Society urged a firm commitment to review the rates ever three years.
The response noted too: “We are aware of a minority across the profession who would call for GHR to decrease.
“While the Law Society does not agree with this view, we understand the reasons behind this thinking and are anecdotally aware that some law firms do disproportionately well out of the current GHR.
“Another option would be the removal of GHR altogether, to allow for market forces to naturally guide what hourly rates should be, although we don’t support this suggestion.”