The Guardian
Centre for Policy Studies says large rises are restricting access to justice
Lord Neuberger, the president of the supreme court, blamed excessive reliance on hourly rates among City firms for inflating legal fees and promoting inefficiency. Photograph: David Levene for the Guardian
Partners at top City law firms are charging clients more than £1,000 an hour, according to a Conservative thinktank which condemns fee rises for restricting access to justice.
The unusual critique of the UK’s largest commercial solicitors’ companies by the Centre for Policy Studies (CPS) follows calls from the justice secretary, Michael Gove, for a levy on City lawyers’ profits to improve the UK’s “two-nation” justice system.
The CPS report, entitled The Price of Law, points out that the top seven firms in the City, including those in what is known as the Magic Circle, employ tens of thousands of people and bring substantial tax revenue into the country.
The largest earning firms, measured by their turnover, are DLA Piper, Clifford Chance, Allen & Overy, Linklaters, Freshfields Bruckhaus Deringer, Norton Rose Fulbright and Hogan Lovells which each generated billing revenues of over £1bn in 2015.
In 2013, Lord Neuberger, the president of the supreme court, blamed excessive reliance on hourly rates among City firms for inflating legal fees and promoting inefficiency.
“The hourly rates for a partner at a top London firm now exceed £1,000 – the highest level ever recorded,” the CPS report states. “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.
“Those seeking to comply with UK legal procedure are forced to pay extremely high costs to do so – high enough to restrict access to law, particularly for smaller business clients for whom bills can be prohibitive.
“Lack of transparency on legal costs allows top law firms virtual control over their prices. Transparent pricing is vital for a marketplace to function fairly and efficiently. Yet it does not exist within the market for UK commercial law. Average hourly rates for commercial legal services are not published online.
“The remarkable similarity in the rates charged by each of the Magic Circle law firms suggests a shortage of competition between them … While there is no suggestion of collusion between the companies concerned … such close price similarity is indicative of a less-than-perfectly functioning market.”
In 2003, the report says, the average hourly rate for partners in top commercial firms was £498 to £598. By 2013, it had risen to between £713 and £866. Senior partners, it says, are now charging as high as £1,100 an hour.
The report has been written by an expert in legal costs, Jim Diamond, who has worked in the past for Allen & Overy as well as Clifford Chance. “The balloon is about to burst,” he told the Guardian.
“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,” Diamond added. “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.”
Last week Lord Justice Jackson, the senior judge who has overseen changes to rules for fees and litigation costs, said: “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.”
Responding to the report, the chief executive of the Law Society, Catherine Dixon said: “We welcome the Centre for Policy Studies’ recognition that the City of London has some of the best legal firms in the world. City law firms have built a reputation for excellence over many years and make a significant contribution to the UK economy.
“The fees charged by City firms reflect the complexity of the work and high standards required by corporations from across the world, which use English law and our firms because we are a centre of legal excellence. Many of these firms offer competitive prices. They are highly successful businesses operating in a competitive sector. We should be celebrating their phenomenal success.”
