Natural born billers
Every six minutes a lot of lawyers are a lot richer. Brian Cathcart looks at what they charge and how they justify it
Sunday 05 March 1995
Inside three months his legal costs had passed £20,000 and he was borrowing money. "It was pretty frightening watching the charges mount up," he recalls, but he persisted. By the time the case came to trial in October 1991, his bill had reached £180,000.
Fortunately for him, he won. Not only was he awarded damages of £150,000, but costs were ordered against the defendant so there was no bill to pay. Until, that is, she declared herself bankrupt, whereupon the bill bounced back to Dr Smith.
His damages were cut to £50,000, but it made little difference because the defendant could not pay them anyway. Meanwhile, not only were his lawyers seeking their costs for the action but there were further charges for their unsuccessful efforts to enforce payment. Dr Smith and his father both remortgaged their homes and emptied their savings accounts to raise £90,000, but it was not enough. The bill eventually reached £270,000.
Dr Smith, who practises in Northampton, is contesting his lawyers' fees, this time doing the legal work himself. What does he think of lawyers' charges? "When it costs a quarter of a million pounds to clear your name in a simple case of defamation," he says, "you can safely say that is excessive."
Dr Smith's experience of living through a traumatic legal case with a ticking time-bomb of legal costs is familiar to many people, some of them famous, who have become tangled up in the courts.
Gillian Taylforth of EastEnders, for example, ended up with bills in the region of £500,000 when she lost her action against the Sun over those shenanigans in a Range Rover. George Michael's court battle with Sony cost him £3m.
The Maxwell brothers, whose case has not yet even come to trial, have already run up legal bills of £4m (although we will pay that through legal aid). In 1993, after a dispute with a Middle Eastern company, the helicopter makers Westland paid £4.9m to a single London law firm. Perhaps the all- time record will go to the Lloyd's insurance imbroglio, which has become so complex the total bill is expected to reach £100m.
LAWYERS are not popular. They may not yet have fallen in British public esteem to their American status of fleecing parasites, but there are signs that they are headed down the same road. The Gallup organisation has been polling since 1982 on the perceived trustworthiness of certain professions. Then, almost 50 per cent of people rated lawyers high or very high, but in the latest survey this had fallen dramatically to 27 per cent. (Journalists scored 9 per cent.)
Many people have their own individual grudges - smaller than Dr Smith's but still lodged painfully in their hearts or overdrafts. The resentment is not just about money - the opacity of the mumbo-jumbo, professional arrogance and unaccountability also play their part. Sometimes lawyers can seem not so much like a profession as a priestly caste, modern Brahmins, perhaps, who have substituted the secrets of the law of tort for Sanskrit as a means of holding sway over the rest of us. But the bill is what most of us remember; the amicable divorce that somehow cost £7,000 ("but our only argument was over who should keep the lawnmower!"), the conveyancing ritual that must surely be nothing more than falling off a log.
These are at the petty end of legal money-making. The serious stuff lies elsewhere. How do the bills get to be so big? And how do lawyers justify them?
When you have a serious legal problem, you instruct a solicitor. You may start with your local firm, who handled your will or your conveyancing, but if the problem is a big one, if you are rich, or if there is a lot of money at stake, you may move up-market. Your opponent will not stint on his legal advice, so how can you risk it?
Such thinking leads many to the big, "blue-chip" City of London firms: Slaughter and May, Linklaters, Freshfields, Eversheds, Clifford Chance, Herbert Smith ... there are a couple of dozen. Most operate out of glass palaces in the Square Mile, have staffs of 1,000 and more and 100 partners in charge.
They pride themselves on employing the cream of the profession and providing them with the best training and technical back-up in the world. They also have a lot of clout. "Nothing will make you sit up and take notice quite like getting a fierce letter from a big City law firm," said one legal journalist.
A partner will deal with you at first. If he is a senior partner, he may be earning £200,000 a year. According to Joe Macrea of the legal recruitment firm ZMB, full partners in top companies - lawyers with nine years' experience or more who have a stake in the firm's success - start at around £90,000. At the top of their profession they make £300,000, and there may be a few who earn £500,000.
When you come to talk money with the partner, however, he will not mention his annual income. He will quote instead an hourly rate. According to a survey by the International Financial Law Review, good partners in top City firms quote between £235 and £350 per hour for their services, which is actually steeper than the £250 an hour charged by the better American lawyers.
The partner will also quote different hourly rates for junior staff who will be involved in the case such as assistant solicitors who are in their first years of practice and "paralegals" - trainees, researchers and the other footsoldiers of legal business.
Let us say that you are unlucky, and your case is not settled before it reaches trial, so you need a barrister. Again, if you want to win this case, you will not want to risk a second-best barrister for fear that your opponent has a top-flight one. You will have to pay.
Top British barristers cost even more than solicitors: Tony Grabiner QC, a commercial law specialist, makes £600 an hour, according to the magazine Legal Business. George Carman, the celebrated libel and criminal barrister, almost certainly tops that. He and Sydney Kentridge, a leading commercial specialist, are reckoned to be so much in demand that they are above quoting hourly rates.
A day in court with a top advocate can set you back several thousand pounds - and that is only after you have stumped up a similar sum to retain his services in the first place. There will be "brief fees" as a down- payment, "conference fees" so that the case can be discussed, "refreshers" during the trial, and separate payments for a junior barrister to help.
When the case comes to trial, you will find yourself funding perhaps four, perhaps in a tricky matter more, people in the courtroom. It may be over in a day, or it may drag on for two weeks. Then you lose and costs are ordered against you. Suddenly, like Dr Smith (although he won), you are a victim of billing.
"BILLING," writes John Grisham in one of his legal thrillers, "was the lifeblood of the firm. Everything revolved around it. Promotions, raises, bonuses, survival, success, everything revolved around how well one was billing."
As in Grisham's America, so in London. Throughout cases, solicitors keep account records in meticulous detail, usually down to time units of six minutes, all of which will find their way into the final bill. This is a system that might have been designed to benefit lawyers.
Andrew Ellis of Allied Legal Services, who specialises in scrutinising legal bills for clients, describes what happens: "Nothing takes less than six minutes. A letter, for example, may take six minutes per page. A phone call never less, although perhaps they might throw in two calls for that time. The more sophisticated solicitors are very adept with their lightpens and timesheets."
In other words, if something takes two minutes to do it may go down on the sheet as a full six minutes; if it takes seven minutes it might be noted as two units, equivalent to 12 minutes. A three-page letter might be charged as three units, or 18 minutes, even if it took only 10 minutes to write.
In the United States, where billing is an art form, lawyers have found that since they can do more than 10 six-minute tasks in an hour, their day is elastic. In one notorious case a lawyer billed 59 hours' work for a single 24-hour period, but there is no evidence of similar excess on this side of the Atlantic.
Still, young legal staff are under pressure to make sure there are no blank spaces in their sheet. Sometimes they are given billing targets they must meet, and billing performance tables are circulated, ranking them against other young lawyers. The whole business, Mr Ellis says, is becoming timesheet driven. "People are running around all the time looking for somebody to bill to."
While the clocks are ticking, so are other meters. Some cases are mind- bogglingly demanding of paper. In one recent trial a judge sat down to find himself confronted with 147 lever-arch files of documents.
These thousands of pages can find themselves being copied ad nauseam: copies for the record, for the assistants, for the partner, for the barrister, for his junior and for the judge. One copy per person is not enough; there may be three. Then there will be copies - perhaps as many again - for "discovery", the formal process of exchanging evidence with the other side. And sometimes one copy will be fed into the fax to each destination while others are put into the mail.
Photocopiers are equipped with special key-pads that mean no one can make a copy without keying in an account number. In this way, the charges can really add up. Four-figure photocopying bills are not unusual, and at anything from 10p to 35p per sheet, depending on what the firm chooses to charge, the price can go much higher. That is not including the cost of the para-legal standing over the machine.
Then there are the other disbursements: expert witnesses need to be paid for their time; other witnesses have to be interviewed wherever on the globe they may be; hotels have to be stayed in, taxis hired, documents traced, meals eaten and so on.
Again, American bills include the most exotic feats: the lawyer who charged air fares for both his wife and his mistress; another who billed not only for an air ticket, but for time spent in the air and, separately, for work done in that time. A celebrated bill included a charge for a Danish pastry in the law firm's own canteen.
British cases may not be so colourful, but Andrew Ellis says he has found a London firm that charged a partner's hourly rate for work done by an assistant, even though the assistant had added a note to the file saying the wrong rate was being used. The worst case he recalls is of a firm that hid charges from one case in the bill for another.
Timesheets, photocopying, disbursements ... and the bill goes on. For when the straightforward account has been added up, it is sent to the firm's partners, who will calculate the appropriate "uplift". This is a premium reflecting a variety of factors such as the complexity of the case, the care and attention devoted to it, or the size of the sums of money at the centre of the dispute. Uplift can be large. In one 1993 case it came to light that a law firm was routinely adding 50 per cent, and cranking that up to 100 per cent when the matter was complex.
And the lawyers have all the cards. You, for example, have lost your case, so they have nothing to lose by billing you extravagantly, since the next time you have a problem you will hardly come to them for help. If you had won, the bill would probably have gone to the loser anyway and you would not have had to pay. Heads they win, tails they win.
SO MUCH for the prosecution; what about the defence? Most lawyers would say that the scenario described above was a travesty of the facts, either outdated or prejudiced or both.
First of all, the British legal profession is still deep in the worst recession it has ever known. Something like 65 per cent of the country's 67,000 lawyers are suffering from some degree of financial trouble, and while most of these would be small high street firms that never see the big-money business, the blue chip firms are feeling the pinch, too.
For the first time, budgets at the big firms are being cut, young lawyers who have been painstakingly selected and trained are being "let go", partners, even, have been sacked. There is simply not enough big-money work to go around, and what work there is can be the subject of fierce competition.
"Beauty contests", in which several firms are asked to tender for a job, quoting prices and sometimes making presentations involving an entire legal team, were once a rarity but are now common. One government department recently invited tenders for a contract from no fewer than 75 solicitors.
At the same time, firms from the US and the regions, notably Yorkshire, are moving in, poaching good lawyers and undercutting old London prices.
Clients, too, are under pressure to get value for money. "They have become sophisticated buyers of legal services. They know there is overcapacity, and they are taking full advantage," says Paul Rhodes, of Dibb Lupton Broomhead, one of the north of England firms now established in the City.
The result is a squeeze on prices, and a slow change in billing practices. "I would be amazed if you can find anyone charging £300 an hour these days," said one senior City partner. "The competition out there is absolutely cut-throat; you just couldn't get away with it."
Yet even now, if you ring a top firm and ask for its prices, it will not tell you. "We don't quote charges publicly," said one. "This is a competitive market and we would be giving away our trade secrets to our rivals."
David McIntosh, senior partner at the middle-range firm Davies Arnold Cooper, offers a different explanation: "Some of these firms are protecting giant overheads, and they are still trying to charge yesterday's rates. What they want is to be able to quote one price to the nave and unknowing and another to the sophisticated customer."
Mr McIntosh's firm has broken with custom by issuing a printed protocol of its charges. His own rate - he is a litigator of 30 years' experience - is £250 an hour and he promises no hidden "uplift" at the end of the day.
But perhaps the best defence is that the sums at stake in the really big cases often dwarf the legal fees. In the Westland case, for example, the dispute was over a total sum of almost £400m, and it was well worth while for the company to spend £24m on various lawyers and accountants to secure a favourable settlement.
In fact, cases of that kind make City law business a multi-million-pound export industry in its own right, for which, it is often argued, the public might show more appreciation. Of the world's 10 biggest law firms, as calculated by International Financial Law Review, five are British-based.
IF YOU ask them about fees, British lawyers soon start bitching. Provincial firms hate London ones. Small firms accuse big firms of "milking clients to pay for marble atriums". Big firms moan about barristers "who charge whopping prices without having any overheads to pay for". And barristers complain of solicitors in big firms who land themselves "big pay packets for 25 years" while the unfortunates at the Bar must live by their wits and reputations and are only ever as good as their last case.
Lawyers would have you believe that theirs is an aggressive business world in which services may not come cheap but where prices are none the less subject to fierce competition. But that competition works two ways.
Yes, the law firms and barristers compete, but at the top of the system an upward pressure on prices is maintained by the adversarial nature of the legal system. In a case that could go either way, your choice of lawyer might make the difference between victory and defeat. Pay for the best, whatever they ask, and you are more likely to win (and if you win you are likely not to have to pay the bill anyway).
The danger for British lawyers is that they might end up as unpopular as their counterparts in the US. American scientists, runs one joke, are starting to use lawyers in their experiments instead of white rats. They give three reasons: first, there are more lawyers than white rats; second, you can't become emotionally attached to a lawyer; and third, there are some things a white rat just won't do.
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