Top City law firms are billing up to £1,100 an hour – the highest rates ever recorded – producing “astronomical” and “unjustifiable” fees that are restricting access to justice, it has been claimed.
Partners at “Magic Circle” firms are now charging an average of £850 to £1,100 an hour – almost double the £498 to £598 in real terms they were billing in 2003, according to the author of a report for the Centre for Policy Studies think-tank.
Secrecy around pricing and a lack of competition is keeping the fees artificially high, the study found.
The report’s author, Jim Diamond, said a knock-on effect is seeing lawyers throughout the system demand much higher hourly rates, distorting the market to the point that small businesses were being priced out of justice.
Mr Diamond, a costs lawyer who also publishes an annual survey of firms’ hourly rates, told The Independent that:
* Last year he was contacted by two clients about partners at two different Magic Circle firms charging £1,100 an hour
* Many firms bill for “unit time”. So for typing “yes” or “no” and hitting “send” on an email, the partner might count it as a six-minute time unit and bill £110 – for 30 seconds’ work
* The inflationary effect was such that, in one “bog-standard commercial” case, “a law firm above an Essex chip shop is charging £437 an hour”
* A partner at a top-50 law firm in central London last year charged his client £2,800 for meeting him for a drink in a wine bar. He billed it as a seven-hour working day at £400 an hour
* A top-15 law firm charged a business £44 for sandwiches at a lunch attended by only two representatives of the client company – then added its normal hourly rate to the £22 per head sandwich fee.
Mr Diamond said the fees being charged by the top firms were “astronomical and almost always unjustifiable”.
Magic Circle firms declined to comment on the report’s claims last night. Mr Diamond said: “There is secrecy bordering on paranoia about their fees. The lack of transparency allows them virtual control over their prices. It’s smoke and mirrors: ‘You don’t ask us. We charge you, we get away with it.’
“It creates inflation throughout the system. The second- and third-tier firms shoot their fees up to the point that small businesses can’t afford the legal fees. It is denying people access to justice.”
His criticism of the billable hours system echoed that of the Court of Appeal judge Lord Justice Jackson, who in 2013 played a key role in reforms to introduce costs management in civil litigation.
Delivering a public lecture last week, Lord Justice Jackson warned that firms could be tempted to create unnecessary work and prolong litigation in order to boost their profits.
He 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.”
He added: “If costs prevent access to justice, this undermines the rule of law. Complexity is inherent in every modern legal system, [but] there are other jurisdictions with complex laws and procedural rules where litigation costs are significantly lower than here.”
In his report, The Price of Law, Mr Diamond points out that in the US, partners in the top 14 firms averaged an hourly rate of $980 (£671) – while the leading UK firms were billing roughly the same numbers, but in sterling. The billable hours system, he added, was “outdated and unsustainable”. “The Lord Chancellor should give full consideration to Lord Justice Jackson’s proposals to move to a fixed fee basis, to ensure the price of law is not punitive.”
Mr Diamond added: “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.”
All five Magic Circle firms – Allen & Overy, Clifford Chance, Freshfields, Linklaters and Slaughter & May – refused to comment.
A source who works at one Magic Circle firm said, however: “We are competing for talent in a global market. US firms pay people a hell of a lot more than we do.
“And the top firms concentrate on the larger, cross-border complex multi-jurisdictional stuff. That takes a lot of work and costs money.
“To say there is no access to justice for smaller firms who don’t want to pay our fees is like saying Michelin-starred restaurants are too expensive for people on the dole. Just as there is a whole range of restaurants to fit different budgets, small businesses can get perfectly good legal advice from mid-tier firms.”
The source added: “There is a lot of pressure from clients to keep costs down. Billable hours are still probably the bulk of it, but I don’t think there is a firm that doesn’t use alternative fare arrangements.”
Catherine Dixon, chief executive of the Law Society, the professional body for solicitors, said: “We welcome the [report’s] recognition that the City of London has some of the best legal firms in the world. Many offer competitive prices. They are highly successful businesses operating in a competitive sector. We should be celebrating their phenomenal success.”
A Ministry of Justice spokesperson said: “This Government remains supportive of the principle of extending fixed recoverable costs.”
Explainer: rise in fees
How average hourly rates for partners at leading commercial-law firms have increased in real terms (despite a dip during the recession):
2003: £498 to £598
2005: £546 to £674
2007: £766 to £858
2008: £710 to £888
2010: £729 to £813
2011: £644 to £752
2013: £713 to £866
2015: £775 to £850
2016: £850 to £1,100
Source: Jim Diamond, the author of ‘The Price of Law’