Guideline Hourly Rates in 2020. What role does inflation play when assessing the Solicitors hourly rates.

In the field of costs litigation, perhaps the first and foremost disagreement between Paying Parties and Receiving Parties is whether the hourly rates claimed are appropriate. I would argue that in over 95% of the Points of Disputes, there will without a doubt be a dispute from the Paying Party that the hourly rates claimed are unreasonable, disproportionate and for whatever reason, there will seek to reduce the rate claimed to the relevant guideline hourly rate based on the location of the Claimant or his Solicitors.

The current guideline hourly rates were set in 2010. Before 2010, the rates tended to be published either annually or bi-annually and were provided to Judges to assist them in their summary assessment of the costs. In early 2014, the Costs Committee after conducting an extensive consultation, recommended that the guideline hourly rates, which at the time, have only been in force for 4 years should nonetheless be revised. However, despite the recommendations, Lord Dyson rejected the Costs Committee’s proposals and confirmed that the existing rates would remain in force for the foreseeable future. It should be noted however, that Lord Dyson did observe that the 2010 guideline hourly rates were becoming  ‘less and less relevant’ for several reasons, such as advances in technology, changing business practices and models and the ever-increasing sub-specialisation of the law.

Since the rates were enacted in 2010, there has been a legion of authorities which have consistently affirmed that the rates are not binding in the context of detailed assessment proceedings. There is an overall general industry consensus that the rates are what they say they are, merely guidelines and should not therefore supplant the experience and knowledge of the Court. Some Judges and commentators have gone as far as to argue that they are of no use in Multi-Track detailed assessment proceedings.

Furthermore, when  you consider the length in time since the rates were reviewed, they have somewhat become much maligned amongst some of the Judiciary, notably Mrs Justice O’Farell comments in the case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2504 (TCC), who made the following comments at paragraph 14.

‘It is unsatisfactory that the guidelines are based on rates fixed in 2010 and reviewed in 2014, as they are not helpful in determining reasonable rates in 2019.’

One of the many issues that has arisen with the use of the Guideline Rates over time is the fact that there is a single figure for a particular level of Solicitor or Fee Earner in a particular locality. That figure takes no account of the size of the firm, the nature of the work undertaken etc in the particular case.

Here at Dynamic Costs, we have advanced the argument that inflation should be taken into account when the Court are asked to assess the hourly rates for that particular claim. The reason for this is that inflation affects Law Firms as much as it affects every individual or legal entity within society. Firms are consequently faced with much higher soft and hard overheads as a result of the inflation then they would have been in 2010 when the original guideline hourly rates were set by the Costs Committee.

In support of the above, The Brown Shipley & Co (Private Banking firm) report entitled ‘SCCO Guideline Rates and the Impact of Inflation’ and dated October 2019 demonstrates an RPI inflation rate increase of 31% between 2010 and the end of 2018. Although most official indexes of the impact of inflation prefer the CPI to the RPI rate, even so, the CPI inflation from 2010 to 2019 is approximately 21%.

In the last 12 months, we have seen a change in the Judicial approach when it comes to the assessment of hourly rates and application of the 2010 guideline hourly rates. The case of  Vadim Maratovich v Igor Valeryevich Kolomoisky (1) Gennady Borisovich Bogolyubov was an SCCO decision handed on the 9^th March 2020  and the matter of PLK & Ors  (Court of Protection) Costs [2010] EWHC B28 was a High Court decision handed on the 30^th September 2020.

In both of these cases, the Courts were extremely critical of the guideline hourly rates set in 2010. The Court accepted that inflation should be taken into account when determining what the appropriate hourly rate should be and in the latter case, the Court even suggested that a 20% enhancement of the guideline hourly rates is something that can be considered to prima facie reasonable when considering factors such as inflation and various other macroeconomic variables.

The case of PLK & Ors is of particular interest because in that case, the Court was asked to consider real evidence in support of the argument for inflation, increase in hard and soft overheads by law firms since 2010, increase in firms expenses, salaries etc. The Receiving Party in the PLK matter filed evidence of RPI inflation increase between 2010 and 2019, evidence of demonstrating increases in salaries and firm’s overheads from regional and national firms over the same period.

This then led the Court to conclude that ‘in 2020 the GHR cannot be applied reasonably or equitably without some form of monetary uplift that recognises the erosive effect of inflation and, no doubt, other commercial pressures since the last formal review in 2010”

The Judge also went on to argue that if the rates claimed in the Bill are at least a 20% enhancement on the guideline hourly rates, then there should be a rebuttable presumption that they are prima facia reasonable.

‘If the hourly rates claimed fall within approximately 120% of the 2010 GHR, then they should be regarded as being prima facie reasonable.’

In conclusion, I believe that the decision in the PLK & Ors is a very positive outcome for Claimants or Receiving Parties in detailed assessment proceedings. There are arguments of course that the Court was dealing with a Court of Protection matter, however, their reasoning and opinions on the guideline hourly rates and what factors should be taken into account when assessing the appropriate rates for a particular claim are without a doubt applicable to all types of claims. It is my opinion that this decision is not just exclusive to COP work or that it an atypically high field of law in comparison with other comparable areas of practice. Fee earners in personal injury, medical and professional negligence, for example, incur invariably time and expense that is irrecoverable and inflation, rise in salaries, soft and hard overheads affects them just as much as it affects COP firms.