Do you know how much your case will cost?
Research has revealed that one of the major concerns of many small and medium businesses in regard to legal services is the unpredictability of costs. The solicitor’s method of charging, namely an hourly rate, it is argued, does not give an incentive to the solicitor to work efficiently. The more hours worked, the more hours billed. From the solicitor’s point of view, the hourly rate works because the work involved in a case can be unpredictable and clients and their demands vary considerably. Some clients are helpful, other clients are not; some clients are in touch with the solicitor almost daily and others leave the solicitor to get on with it, except when instructions are sought. This unpredictability means that the hourly rate is the dominant method of billing by almost all solicitors’ firms. The commercial client’s perspective is obviously different. A business client would like to budget for the costs and so would much prefer fixed or, at least, capped legal fees and would also prefer outcome-focussed billing; in other words, if a case wins, the lawyer gets paid (or gets paid more). The business client wants value for money and some control over the legal spending budget.
In the context of court cases in litigation, the rules might soon be about to change. When litigation is issued and a defence is filed, it is allocated to one of three tracks in the Court’s system: the small claims track, the fast track or the multi track. Legal costs are generally not recoverable from your opponent in the small claims track (value of claim currently £5,000 and below). Fast track matters are matters that can be, in simplest terms, dealt within a one-day trial. The Ministry of Justice (MoJ) is highly likely to introduce fixed costs in the fast track. It is rumoured that these will be in the region of £12,000. The MoJ will also consider introducing costs’ management in multi track cases. These tend to be more complex and high value cases. Costs’ management has already been piloted in the Technology and Construction Courts (TCC) and might well be rolled out across all multi track cases in the future. This means that litigation solicitors will be forced to more accurately predict and estimate their fees for carrying out various stages of the litigation proceedings. Fixed and capped fees might become more prevalent, thereby addressing the requirements and the needs and perceptions of business clients and, although not eliminating the hourly rate (there has to be some method of calculating the time and work spent on a matter), the predictability of costs from the application of the hourly rate is likely to considerably improve, thereby assisting clients with their legal costs budgeting and controlling the legal costs spend.
It should be noted that costs’ management in the multi track and fixed costs in the fast track (where there are already fixed costs in respect of the trial) will not operate as a cap on legal costs. As at present, there will always be an element of costs between the client and the solicitor that cannot be recovered between the parties. This might be in the region of 35% of the total costs. Sometimes it can be higher. It follows therefore that although the cap, for example in fast track, might be £12,000, the solicitor-client legal costs might be higher, for example, £15,000 and £3,000 would not be recoverable in this illustration. This depends upon the agreement reached between solicitor and client.
What does appear to be a likely outcome of the changes and developments over the next two or three years is that the costs information provided by solicitors to their commercial clients will become clearer, more easily understood and more manageable, allowing commercial clients to make better informed decisions regarding the costs’ risks and proportionality of costs to the value of claims.
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K. Hardington [email protected]ter.com
13 October 2011