Complex cases, high value claims and hourly rates
The issue of hourly rates is always one of interest because it is such a common area of contention. It’s no surprise it is. A reduction to the hourly rates equates to a reduction to each item claimed which can have a dramatic effect.
Often the focal point of hourly rate disputes are the SCCO Guideline Hourly Rates. It’s easy for a Paying Party to refer to these as it’s largely seen as the only certain guidance available from the judiciary. There can be no doubt that for the majority of cases the guideline rates are out-dated. They have not changed since 2010 and there have been no adjustments for inflation. The counter argument runs that the Master of Rolls, Lord Dyson, refused to change the Guideline Hourly Rates in 2014 when there was an opportunity to do so.
Our experience is that, broadly speaking, the attraction to the SCCO Guideline Hourly Rates is a misnomer. The argument becomes crass when it is used so regularly, especially when it is raised in respect of cases to which it clearly is not suited. One such case is JXA (by his Mother and Litigation Friend VLA) -v- Kettering General Hospital NHS Foundation Trust which was heard on appeal in the High Court at the end of June.
This was a high value Cerebral Palsy case to which work commenced in March 2013. The issue of quantum remains on-going but it had been agreed that damages could run into many millions of pounds (potentially £20 million). Cerebral Palsy cases epitomise claims which require specialist expertise and the hourly rates often claimed in such proceedings are reflective of this.
- The correct test for determining hourly rates is the two-stage test as set-out in Truscott v Truscott Wraith v Sheffield Forgemasters Ltd.
- The Court should have regard to “whether the successful party had acted reasonably in employing the solicitors who had been instructed [and] whether the costs charged were reasonable compared with the broad average of charges made by similar firms practising in the same area”.
- The SCCO Guideline Hourly Rates are a guideline only and may not be relevant to all cases.
- No express guidance was given on whether inflation should be taken into account when determining what was a reasonable hourly rate.
- The Court have a ‘broad discretion’ when considering hourly rates.
The liability costs were assessed at the SCCO with the Appeal centring around the Master’s decision on hourly rates. The Claimant averred that the Master:
- Applied the wrong test and failed to have regard to any or any proper reasonable interest of the claimant given the importance of the litigation to him.
- Failed to take into account or give sufficient weight to the relevant considerations as set out in the Bill of Costs and the replies and the submissions made orally at the hearing on 16 November 2017.
- Gave undue weight to less relevant factors including the theoretical availability of alternative and unnamed solicitors across a number of geographic locations, in particular outer London, Nottingham, Birmingham and Manchester.
- Failed to properly consider the effect of inflation on the claimed hourly rates between year ending 31 March 2013 and 16 November 2017.” (Paragraph 4)
The Claimant had sought an hourly rate of £380.00 per hour for the Grade A Partner (rising at the rate of £10.00 per annum every 31 March up to £420.00 per hour), £270.00 per hour for a Grade C solicitor and £150.00 per hour (rising at the rate of £10.00 per annum every 31 March up to £190.00 per hour) for the Grade D fee earners.
The Master determined that the appropriate hourly rates for the case were £350.00 for the Grade A Partner, £200.00 for the Grade C Solicitor and £150.00 for the Grade D fee earners.
The High Court noted that it was well established that when determining whether hourly rates were reasonably incurred, it was a two-stage process. Reference was made to Wraith v. Sheffield Forgemasters Ltd, Truscott v. Truscott  1 WLR 132 (CA) in that the Court should regard “whether the successful party had acted reasonably in employing the solicitors who had been instructed [and] whether the costs charged were reasonable compared with the broad average of charges made by similar firms practising in the same area”. [Paragraph 7].
The Claimant argued that the Master did not address whether it was reasonable to instruct the solicitor engaged and consequently his decision as to whether the hourly rate claimed was reasonable was flawed.
Notably the Master, in the first instance decision, stated that the SCCO Guideline Hourly Rates were “a guideline” only and that it did not follow that other firms across the country would have charged less than the Claimant’s solicitors. He also noted that the claim was one of substantial value, at the very highest end of importance to the Claimant and was exceptionally complicated.
The Master concluded, as follows “taking all of those factors into account, and with regards to the guidance in the White Book with respect to consideration of comparable firms doing comparable work, I don’t find that I need to make any ruling as to what location is appropriate. The ruling must be in relation to what rates are appropriate, based on comparable firms doing comparable work, and in relation to the submissions that have been helpfully made by both advocates today.”
The Claimant sought clarification as to the Master’s findings in relation to the use of a London solicitor whereupon he found as follows:
“I take into account the location of the claimant as a starting point, and I look at comparable firms doing comparable work. In terms of the theoretical locality as a starting point I would consider firms within the Outer London area to be a reasonable point at which the claimant could have looked at firms well outside of their area, but, of course, I am aware myself of firms, for example, in Nottingham or Manchester or other legal centres which the claimant, I think, could have reasonably gone to as well. I accept that there will be a consequent effect on travel time as a result of that, but in terms of a locality, I take a theoretical locality as Outer London, but as I am guided by the White Book I can take into account comparable firms doing comparable work, and that will account for firms around the country, including within the location of your instructing solicitors’ firm.”
The High Court, reflecting on the Master’s comments, found “that the Master did not directly address the first question as he should and decided whether the choice of Mr McNeil was objectively reasonable in the circumstances. When pressed, he implied it was (or may have been) an unreasonable choice, indicating that he took a theoretical locality of Outer London but, guided as he was by the White Book, he then went on to say that he could “take into account comparable firms doing comparable work, and that will account for firms around the country, including within the location of Fieldfisher LLP.”
Mr Justice Goss, sitting with a Costs Judge for the appeal, found that the Master had reached his decision on the hourly rates, based upon the evidence before him and by applying his pre-existing knowledge of hourly rates charged and allowed in cases of this nature. It was noted by the High Court that the Master had “recognised the gravity and complexity of the case and allowed rates significantly in excess of the rates for summary assessment.”
It was established that the Master should have answered the first question, chiefly whether the instruction of the Claimant’s solicitor was reasonable. None-the-less, it was found that the hourly rates determined by the Master were within the reasonable band of decisions available to him and were appropriate for the case. This led to a peculiar situation where the appeal was successful, however, had no effect on the outcome. No Order as to costs, for the costs of the Appeal were made.
The case does not provide us with any ground-breaking guidance but it does re-assert the established test which should be applied when considering hourly rates. It remains disappointing that the issue of inflation was not grappled with but this is, perhaps, unsurprising given the advent of Costs Budgeting and, in particular, Harrison. It is accepted now that, in a budgeted case, the Court will not depart from the future element of a Costs Budget absent ‘good reason’.
There have been a slew of cases addressing whether hourly rates are a ‘good reason’ to depart from the approved element of a Costs Budget. The general consensus is no. Master Rowley in Jallow v Ministry of Defence made it clear that it did not matter what hourly rate was claimed as long as it was within the budgeted amount.
Consideration may also be given to the extension of fixed costs which again dilutes arguments as to hourly rates.
Regardless, this still leaves hourly rate arguments in relation to incurred costs in a budgeted claim or in their entirety for non-budgeted cases.
What can be taken from JXA is the clear recognition from the Court that the SCCO Guideline Hourly Rates are precisely that, a guideline. The test in Wraith still prevails as to whether a specific solicitor was reasonable to instruct and whether the charges raised were comparable to other firms in the area for the claim at hand. These aspects present a strong starting point for setting out a compelling argument for so-called ‘enhanced hourly rates’.
In any event there is still the issue of ‘broad discretion’ and this is what prevailed here. The Master may have erred in not applying the two-stage test correctly, but he ultimately came to a decision which was within ‘the reasonable band of decisions open to him’. There is an insinuation here from the High Court that either a lower or higher hourly rate could equally have been found to be reasonable (no relief to the Claimant). There’s also an implicit acceptance as to how subjective the issue of hourly rates can be.
Will we see parties looking to gather evidence as to hourly rates charged in the local area? This is something I have seen more of recently. I have even seen witness evidence on the issue of hourly rates at provisional assessments. One obvious step is to start aggregating and examining what different Courts and Masters are allowing for different cases. Naturally, the issue of hourly rates will turn on case specific facts but a broad picture can be developed. This is what we do at PIC and it allows us to begin to prepare and plan for assessment as the Bill of Costs is drawn. The issue of hourly rates is another area which requires a tactical approach in the chess game of costs. If you know how the game may be played, it gives you the best chance of success.
Update 01/08/2018 – My thanks to Roger Mallalieu, who was instructed on behalf of the Defendant in this case, who has informed me that on receipt of written submissions Goss J decided that the Defendant was the winner overall and awarded it 50% of its costs.