Report condemns hourly fees of over £1,000 at City law firms

A Conservative think tank has condemned increasing fees of more than £1,000 an hour charged by City law firms for restricting access to justice.

The Centre for Policy Studies (CPS) made the criticisms in a report, The Price of Law, published in the wake of Justice Secretary, Michael Gove’s calls for a levy on City lawyers’ profits to address the “two-nation” justice system in the UK.

Magic Circle firms and others bring substantial tax revenue into the country, with the largest by turnover – Clifford Chance, Allen & Overy, Linklaters,Freshfields Bruckhaus Deringer, Hogan Lovells, Norton Rose Fulbrightand DLA Piper –each generating billing revenues exceeding £1 billion last year.

Supreme Court President Lord Neuberger said in 2013 that City firms’ reliance on hourly rates inflated legal fees and resulted in inefficiency.

The CPS report states: “The hourly rates for a partner at a top London firm now exceed £1,000 – the highest level ever recorded.

“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.”

It adds that in 2003 the hourly average rate for partners at top commercial firms was between £498 and £598. However, by 2013, this range had grown to between £713 and £866.

Now, senior partners are charging up to £1,100 per hour.

The report, authored by legal costs expert Jim Diamond who previously worked for Clifford Chance and Allen & Overy told The Guardian that “The balloon is about to burst”.

“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,” he 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.”

Lord Justice Jackson, who has overseen amendments to the rules for litigation costs and fees, 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.”

The chief executive of the Law Society of England and Wales, 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.”