How the Law Society of England and Wales control external legal costs!

 

In the IN THE COMPETITION APPEAL TRIBUNAL June 2016

http://www.catribunal.org.uk/files/1249_Socrates_Judgment_CAT_10.pdf

In the matter of:

SOCRATES TRAINING LIMITED –v- THE LAW SOCIETY OF ENGLAND AND WALES

Brief:

In this costs capping hearing, The Law Society of England and Wales, sort costs in excess of £637,000 (on reduced hourly rates of city law firm, Norton Rose Fulbright) in regard to a claim against them of £500,000.

The Law Society’s costs were subsequently capped at £350,000.

 BRIEF FACTS OF CASE.

In the present case, the claimant is an SME with an annual turnover of some £750,000.

The claim alleges an abuse of dominant position by the defendant, the Law Society, and seeks an injunction and damages. The part of the case that is subject to the FTP by order of the Tribunal is limited to the injunction claim. If an abuse is established, then the question of damages has been split off for a subsequent trial outside the FTP. However,

it is relevant to note that the damages are quantified in the claim form at £112,500, on the basis that by reason of the conduct complained of the claimant has lost the custom of some 75 firms who would spend some £600 each for two and a half years. In pure financial terms, as a competition action this is not a large claim. Of course, if an injunction were not granted after trial, the ongoing loss would be greater, so it may be said that the value of the claim is not limited to the damages to trial but extends several years into the future. Even so, it is hard to see that in broad terms it is over £500,000.

 Costs Capping Application.

Both sides have put in costs budgets as directed. The claimant’s budget is in the total sum of some £220,000, which includes almost £56,000 for an expert economist. The defendant’s budget is a little over £637,000, including a little over £33,000 for an expert economist.

The Law Society, having initially instructed a well-known firm of solicitors in Birmingham, then changed to instruct a major firm in the City of London. Mr. Scott, a partner in the Law Society’s current solicitors, explains in his witness statement and as I accept, the solicitors have reduced their fees below their usual commercial rate. However, even with this reduction the charge amounts to £395 an hour for the partner and £315 an hour for a senior associate. I note that the trainee solicitor is charged at £150 an hour.

Specific Issues on the Budgets

(1) So far, this case has involved the preparation and then amendment of a defence, which was drafted by counsel, attendance at one case management conference and consideration of issues concerning disclosure, but not any actual disclosure. I find it surprising and certainly not reasonable that the solicitors have spent 450 hours since being instructed on the 25 April 2016 at a cost of almost £140,000.

( 2) I note that the fees for preparing witness statements are calculated on the assumption that each of the four witness statements would be 30 pages in length. Even on that assumption, I do not think it is reasonable or necessary for the partner to devote 40 hours to reviewing those witness statements, and reviewing the statements of no more than three witnesses from the other side, when the other members of the team are also devoting 235 hours to this task.In addition, there is a charge of £16,000 for counsel’s work under the same head.(

(3) Given that the expert economist is charging the fees of some £33,000 for his or her work on the experts’ reports, which I do regard as reasonable, it is not, in my view, reasonable or necessary for the solicitors and counsel to incur further fees of over £50,000 in connection with the preparation of the expert’s report, which, of course, has to be prepared by the expert not by them, and then consideration of the report produced by the other side’s expert. Some expenditure of time on that is clearly justifiable, but, in my view, not this much.

(4) For the solicitors to charge over £103,000 for trial preparation and attendance at a three to four day trial – all that, of course, quite apart from counsel’s fees –seems to me excessive. I should observe that it is, of course, the claimant’s solicitors, not the defendant’s solicitors, that will be preparing the trial bundles and this is not a case where those bundles will comprise many thousands of documents.

 

Conclusion:

Standing back, on the material now before the Tribunal, in my judgement the appropriate figure for a cap on the claimant’s recoverable costs from the Law Society is £200,000, and the appropriate figure for a cap on the Law Society’s recoverable costs from the claimant is £350,000

Questions for The Law Society Gazette

THE LAW SOCIETY GAZETTE 

“Don’t sneer at solicitors for not publishing prices”

 The above article (link below) appeared in The Law Society Gazette, 13 April 2017, under the heading:

https://www.lawgazette.co.uk/comment-and-opinion/dont-sneer-at-solicitors-for-not-publishing-prices/5060666.article

The introduction of the article stated;

“It should be self-evident why solicitors cannot be more open about their prices.

They are not retrograde obstructionists, running scared of scrutiny and determined to keep clients in the dark.

They simply cannot set and publish prices for many complex pieces of work when there are so many differentials involved. To paraphrase one American, there are too many ‘known unknowns’ at play here.

There will be strands of work where firms can offer guidance, perhaps a price range, to let consumers know where they stand.

But to require them to be specific and commit to prices for clients yet to even get in contact is a road to ruin – or at least unpaid bills and the small claims court.

There may well be other industries where prices are fixed and on show. But the law is not a ‘fruit and veg’ stall – it is a dynamic and difficult sector, with feet-dragging opponents, and unpredictable and sometimes costly pitfalls along the way”.

The article then continued to express concerns that the SRA “is being leant ” – The word leant on was in bold and linked to an article published in the Law Society Gazette dated 15 December 2016 –in regard to The Competitions Marketing Authority’s (“CMA”)  Report on the legal market place under the headline : Firms must publish price information- https://www.lawgazette.co.uk/practice/cma-report-firms-must-publish-price-information/5059157.article

It is not for me to comment on, if the CMA/others are “leaning on” the SRA as I am sure the CMA/others and the SRA will reply to this article in due course. What is relevant is the CMA conducted extensive research into the legal market place in 2016. Concluding that transparency on fees/costs is a major issue. The Law Society and specifically the regulation team did participate in this research process, in fact attending the CMA’s round table meeting in September 2016. The Law Society’s regulation team members sat on the same table at this meeting with representatives of the Legal Ombudsman, Ministry of Justice and others.

The direct/indirect result of this process led the Law Society to draft; The Price and Service Transparency Toolkit,  ( see link below) which  was published  the week before the CMA report was published.

http://www.lawsociety.org.uk/support-services/advice/articles/price-and-service-transparency-toolkit/

The introduction stated:

“Price and service transparency is not about providing more information, as too much can cause confusion. The key is to provide the right information which allows those seeking legal services to assess the value of the service”.

Page 5- Stated:

Disbursement is a well understood term in the legal world but it may not be a familiar term to clients. Disbursements are defined by the Solicitors’ Accounts Rules 2011 (SAR) as

“any sum that you spend or are going to spend on behalf of your client or trust, including any VAT element12”.

The SRA is clear that a firm’s overheads are not considered to be disbursements13. The following should not be described as disbursements:

  • annual subscription costs and transaction fees for using online solutions to manage business processes,
  • telegraphic transfers,
  • administration charges such as postage and photocopying

The bottom item in my professional opinion covers the majority of bills submitted to clients by law firms in England & Wales.

Let’s  make this simple, the SRA and the Law Society have now categorically stated that law firms CANNOT charge as disbursements –

“ administration charges such as postage and photocopying”.

I have raised this specific issue with the Regulatory Team, of the Law Society. I met them at the CMA Round table meeting last September and subsequently at their offices in Chancery Lane in November 2016. So they know my views on this subject.

The Law Society Gazette as the mouth piece of the legal profession must now clearly state that these overheads are not chargeable to the client.

 

 

 

JERSEY STATES DEBATING LEGAL COSTS

STATES OF JERSEY OFFICIAL REPORT TUESDAY, 24th MARCH 2015

Background—

Discussing the  legal costs in the Historic Children’s Inquiry in The  States of Jersey Assembly (i.e. Parliamentary Question Time). The initial budget was £7m and the costs are now expected to exceed £20M

Below are 3 quotes from states members:

Page 72-  Deputy J.A.N. Le Fondré:

I am reminded of a discussion or a meeting, I think between the Chief Minister, possibly the Minister for Treasury and Resources, and myself and I think there was a representative – I will think of the name – I think it was Jim Diamond Consulting Limited many years ago. I do not know if the name is quite right, but that particular individual had a reputation and a career in analysing and digesting legal costs and the legal profession did not like him very much because he had some success. All I would suggest, perhaps to the Chief Minister, is perhaps

page-82   Deputy P.D. McLinton of St. Saviour:

I am going to mention this and I am very pleased that Deputy Le Fondré mentioned already, Jim Diamond, a costs lawyer, who has been described as a pioneer of legal budgeting, who I would suggest may be employed by the Island to go over our legal bill with a fine toothcomb. He may be able to claw-back some of the money for our Island while still enabling the inquiry to do its valuable work. It is our perfect right to get the best value for money and, I believe, on his track record, he may be the very man for the job. I only mention him in this debate because his name keeps coming up off the record and, though it is already on the record, I want to make sure it is really on the record.

Page 86-Senator A.J.H. Maclean:

How I could do that as chairman of my Scrutiny Panel? I am going to be in a lot of trouble. Who quite rightly pointed out … what has not sprung out of my mind is Mr. Diamond who, of course, is a cost control lawyer that Members will have heard mention before and I think some of the work he has carried out in the past, or indeed there are other similar individuals in firms, are those that we need to focus attention on in order to ensure that services that are being procured are done so in an efficient and an effective manner. I think at the very heart of the problems that we see before us in 87 terms of controlling costs have been the fact that quite rightly this has been an independent inquiry set up; independence is obviously critically important.

http://www.statesassembly.gov.je/AssemblyHansard/2015/2015.03.24%20States%20-%20Edited%20Transcript.pdf

 

 

DECHERT-v-ENRC

Dechert -v- ENRC – 27.1.2017

http://www.bailii.org/ew/cases/EWHC/Costs/2017/B4.html

The above case has received substantial coverage in the legal press. The global legal costs run to over £15m+. Well it was going to happen some time, i.e. the courts or the regulators getting a grip of the mess in the legal profession of lack of budget information/accuracy/updates. Advocating on this issue for over 2 decades.  I wrote an article called Budget based billing in 1999, published in Legal 500.The whole purposes of my work on the Tool Kit on Costs Management published by the Law Society in 2013 was to give the legal profession, specifically the small law firms the tools to be able to provide budgets/costs information/updates to their clients. As it sold a grand total of 2 in 2016, I suspect not! The legal profession has buried its preverbal head in the sands.  Well wake up and smell the coffee, if legal costs, as in this case can end up in court because of lack of budget information/accuracy/updates wait till the rest of the world catches on.

The judgment  in this case runs to over 100 paragraphs. I have picked out the 2 paragraphs as a stark warning to the legal profession that the courts will not tolerate the BAD old ways of budgets/client transparency.

 51              Mr Gerrard’s view that the work was difficult to predict is prevalent in every estimate that he has given. But any such difficulty is in my view wholly insufficient to cover the gap between the estimates and the reality. Mr Gerrard’s phrasing is redolent of costs estimates from ten or more years ago where a solicitor would routinely say that the costs to be incurred were impossible to predict. As recorded above, Mr Gerrard referred in his first estimate to the need for efficiency, careful consideration and intelligent targeting of time and resources. He indicated that the claimant would be kept informed of the likely costs as the matter progressed. The discrepancy between that approach and the reality of brief estimates only produced reactively, and which were invariably underestimates, is vast.

52.               The work carried out in this case straddles the period of the review of Lord Justice Jackson. The need to improve the prospective understanding of costs through budgeting was writ large within that report and given prominent publicity. In that environment, it is simply not sufficient for a solicitor to provide an early estimate which is then not updated for a considerable period. I have already commented that the original estimate made seemingly unrealistic assumptions on the work that would be required and in my view it was almost inevitable that it would be exceeded once the investigations had begun.

 Paragraph 34.An example given of actuals/budget figures.

 Monthly estimate for 2012 April to August  between £350K to £400K.

Actual Costs 

May £696K

June £492K

July £596K

Aug £622K.

 Monthly estimate for 2012 September –  Dec £530K -£560K.

Actual costs

Sept £784K

Oct  £1.35m

Nov £1.14m

 

LAW FIRMS DEFECTIVE BILLING PRACTICES.

‘Hundreds of thousands of clients may have cause to claim some of their money back if they have paid a legal bill in the last 12 months’.

For over two decades  now, I have been campaigning against the defective billing practices used by law firms in England & Wales. The world renowned legal directory, Legal 500, published my first  article on this subject in 1998,  “Defective Billing Practices” this gave  graphic illustrations of defective billing practices used at that time and which continue to be used today. The law and regulations mentioned in that article cover a period 150 years.

The Competitions and Marketing Authority (“CMA”)  after a year long investigation, published a report on 15th December 2016,  which demanded the legal profession give  better and more informed price information.

I was delighted to be the only individual  to be invited to contribute to the report and attend the “round table” meeting of major legal stakeholders in September 2016.

The England & Wales Law Society ( “The Law Society “) published their own report PRICE AND SERVICE TRANSPARENCY TOOLKIT  (“PSTT”) on 7th December 2016.   http://bookshop.lawsociety.org.uk/ecom_lawsoc/public/saleproduct.jsf?catalogueCode=CMBT001.

Clearly, The Law Society have attempted to take the “wind out the sails” of the CMA report by publishing their report the week before.   However, what they have done inadvertently,  is justify my opinion that the standard billing practices of the majority of law firms in England & Wales are defective.  The Law Society in their PSTT report ( see below for the relevant section) have correctly concluded that over head charges of law firms such  as photocopying, postage etc are NOT DISBURSEMENTS, and should never have been charged for separately or at all.

I believe 100,000’s of legal bills have been sent  by law firms to their clients in the last 12 months, the vast majority of which will contain these claims under heading  DISBURSEMENTS”

Let me repeat, they are not  DISBURSEMENTS and should not have been charged for separately or at all.

I suggest client’s  should immediately request a refund from their law firms if these charged have been made under DISBURSEMENTS, even if the bill was paid within the last 12 months (http://www.legislation.gov.uk/ukpga/1974/47/section/70  see section 3 (c) ).

Once this issue is in the public domain, what faith will the public have over the reasonableness of the rest of the legal fees charged by the majority of law firms!

PRICE AND SERVICE TRANSPARENCY TOOLKIT PUBLISHED BY – LAW SOCIETY 7th  DECEMBER 2016.

Page 4 Price and service information.

You should not describe overheads of you firm (such as normal postage, telephone calls and charges arising in respect of client due diligence under Money Laundering Regulations 2007)  as disbursements.

Page 5 – Telling Clients about Disbursements

Disbursement is a well understood term in the legal world but it may not be a familiar term to clients.

Disbursements are defined by the Solicitors’ Accounts Rules 2011 (SAR) as “any sum that you spend or are going to spend on behalf of your client or trust, including any VAT element”.

The SRA is clear that a firm’s overheads are not considered to be disbursements. 

The following should not be described as disbursements:

• annual subscription costs and transaction fees for using online solutions to manage business processes,

• telegraphic transfers,

• administration charges such as postage and photocopying, 

• professional indemnity insurance, and

• the cost of undertaking client due diligence, including identification checks for anti-money laundering purposes.

Background.- JIM DIAMOND COSTS LAWYER
Jim is regarded as one of the leading experts in the field of legal costs and legal budgets. He was awarded, UK  Legal Costs Lawyer of 2016 -by Legal Monthly.  Jim‘s “The Price of Law Report” was published by The Centre for Policy Studies, the leading right wing think tank in Feb 2016.  http://www.cps.org.uk/publications/reports/the-price-of-law/ .
Jim was described in in 2012 by Professor Roy Greenslade in The Guardian;

“Cost lawyer Jim Diamond is determined to show that the system is iniquitous, arguing that major City law firms are guilty of massive over-charging. For a good while, he has been running something of a lone campaign against the way clients are charged by fellow lawyers. His latest assault can be found on the Legal Week website in an article headlined How law lost its soul – the epidemic of over-charging clients by City law firms“.

Qualification/Status.
*UK Costs Lawyer of the Year 2016.
Costs Lawyer status

Major Publications 

The Centre Policy Studies-“The Price of Law”

http://www.cps.org.uk/publications/reports/the-price-of-law/

 

* The Client Guide to Controlling Legal Costs.

http://old.clerksroom.com/downloads/615-CLIENT-GUIDE-TO-LEGAL-COSTS–MARCH-2016.pdf


 

* The Law Society’s Tool Kit on Costs Management

http://bookshop.lawsociety.org.uk/ecom_lawsoc/public/saleproduct.jsf?catalogueCode=CMBT001

Jersey Law firm fees slashed by 80%

LEGAL COSTS UPDATE.

– Jersey Law firm fees slashed by 80%

I am delighted to report the result of a legal costs dispute I was involved in for a client in Jersey.

A full report of this case is on Page 1 and 2 of the Jersey Evening post.

NB– Of the 227 individual items of claim MADE BY THE LAW FIRM the court threw out 177..

http://jerseyeveningpost.com/news/2017/01/27/law-firms-60000-fees-slashed-by-80-per-cent/

The Price of Law

In The Price of Law leading legal costs expert Jim Diamond argues that the hourly rates charged by top London corporate law firms are so high that they risk restricting access to justice.

Hourly rates for a partner at a top London firm now exceed £1,000 – the highest level ever recorded. In nominal terms the top City of London law firms charge almost the same amount per hour as their American legal cousins except that the UK firms charge their clients in sterling.

Furthermore the report warns that charging by the hour rather than by the result – as is commonplace in other top corporate industry – is highly inefficient and a potential drain on productivity.

The report outlines three main causes for the rapid increase in hourly rates for top law corporate law firms:

  • the increasing complexity of the UK tax and legal systems;
  • the lack of transparency on legal costs that allows top law firms virtual control over their prices; and
  • a shortage of competition between practices – which is indicated by the remarkable similarity in the rates charged by top corporate law firms.

Jim Diamond explains:

“The top commercial law firms in the City of London are regarded as some of the best legal practices in the world, and are some of the most expensive providers of legal services. However they are also some of the least transparent, particularly in terms of pricing: while they do publish yearly statistics on the performance of their firm, from turnover to profit per partners, they do not publish information on the hourly rates charged to their clients.

Steps should be taken to ensure fair practice in legal procedure. The “billable hour” is an outdated and unsustainable billing method for legal services to continue. Alternative billing methods must be considered and legal procedure must be simplified to ensure that the legal market place thrives in the long term, and the price of law is not punitive.”

Lord Justice Jackson has now put forward proposals for moving to a fixed fee basis for all litigation work, suggesting that fees are capped, stating last month that:

Remuneration on a time basis rewards inefficiency. Unrestrained costs shifting drives parties to leave no stone unturned: the more costs mount up, the more determined each party becomes to ensure that the other party pays them. The result is inevitable – a civil justice system which is exorbitantly expensive.”

The Lord Chancellor should give full consideration to these proposals in order to ensure that the legal market place thrives in the long term, and that the price of law is not punitive.