29 January 2018

Only transparency can end the legal costs rip off

By Jim Diamond

During the summer of 1998 I had a meeting with John Pritchard, the creator and owner of The Legal 500, about producing a section on legal costs/hourly rates for that year’s edition. I subsequently produced a pro forma fee note, of the kind generated by big law firms, showing how they almost all ignored some of the rules and regulations on how they billed their clients. Or in layman’s terms, how they ripped off their clients. I helped in the production of the rate survey and ended up the following year producing it on my own, as the Legal 500 team found it too hard to assemble the information.

Twenty years later, I am still doing this hourly rate survey, and banging the drum for transparency, both in terms of hourly rates and accurate information on the actual potential costs of using legal services.

The powers that be are now banging a far bigger drum, and it is a political drum which will not be ignored. The Competition and Markets Authority CMA produced a report in December 2016, demanding transparency and more competition in the sector, and giving the legal industry three years to sort the issues out.

I was invited to meet representatives of the CMA and subsequently to attend the round-table meetings with the main legal stakeholders in September 2016. My table included representatives of the Law Society, Legal Ombudsman and Ministry of Justice.

One view was it would take up to five years for law firms to develop software and expertise in the area of legal budgets to comply with Sir Rupert Jackson’s reforms and the potential changes mooted by the CMA. Not one of those at my table were aware that in 2013 The Law Society had in fact published Tool Kit on Costs Management specifically as an aid for smaller law firms to develop skills in this area of law. The Tool Kit was a disastrous selling product with only two or three sales in 2016, and was eventually withdrawn in January 2018. Asked by one of those at the meeting how I knew so much about the Tool Kit, I replied: “Because I wrote it!”

I have now produced an updated version of A Client Guide to Control Legal Costs aimed at educating buyers of legal services. (My first version was produced directly for Goldman Sachs in 2003.) A free copy is available by emailing me directly.

Since the CMA report was due to be published December 15, 2016, it came as something of a surprise that The Law Society’s Tool Kit on Transparency was published the week before. The CMA report – all 518 pages – demanded transparency, while the Law Society report recommended transparency, but also made significant comments on billing practices – not least the endemic billing practice of charging clients for the administrative costs of photocopying and the like. It is a shame it took The Law Society nearly two decades to accept my views on this, which was first published in the above mentioned Legal 500 article.

Hundreds of thousands of clients have been overcharged for these items over this period, a disgrace and a sad reflection on the legal industry taking advantage of clients’ ignorance in this area. Though perhaps ignorance is the wrong word for what may be better described as a breach of trust in the lawyer/client relationship.

The Legal Service Board [LSB] is the overall regulator of the entire legal market place. Back in 2010, they did not know even what hourly rates City law firms were charging clients. Billing practices were therefore totally alien to them. Again, I know this as the LSB invited me to give an internal seminar in October 2010, and subsequently published extracts from my hourly rate survey, as they had none of their own.

The Legal Ombudsman and the Solicitors’ Regulatory Authority [SRA] are too underfunded to police or monitor the legal industry effectively. To give one example, I have acted for a client with a serious complaint against a lawyer for overcharging, that the SRA has been investigating for a month shy of three years.

So over the 12 months after publication of both the CMA and The Law Society’s report, have things improved?

Sadly not, going by the findings of Legal Services Consumer Council LSCC reported in the Law Society Gazette of November 23 2017, under the headline “Consumer champion attacks ‘cultural resistance’ to price transparency”. Dr Jane Martin, chair of the LSCC, cited recent “disheartening” research on prices published by the Legal Services Board, the oversight regulator, as evidence that transparency is being actively resisted by many firms.

She describes it as “astonishing” that 74 per cent of conveyancing firms said they had no plans to advertise their prices; only 11 per cent of the market currently does so. In wills, trust and probate work, 21 per cent of firms display their prices, but 59 per cent say they have no plan to publish in the future. Martin suggests the findings reflect an “entrenched culture of unwillingness to change” from providers who should realise they can benefit from greater transparency.

To really understand the views of the legal industry, read the comment section on the article. The personal comments directed towards Dr Martin were unprofessional and frankly rude, with one person writing; “We estimate that our fees will be in the region of £100 to £750,000, subject to a number of variables that are too numerous to mention, and may or may not include VAT subject to your residential status and the nature of your matter”.

While that is a ridiculous comment that the author should be ashamed of, the far greater concern is 68 people clicked on the “thumbs up” sign agreeing with it. I raised this very issue at the Westminster Legal Forum a week or so after this was published (when the speaker after me was Dr Martin).

In January 2018, The General Council of the Bar of England and Wales published a note on the subject of transparency: “Most of our concerns about publishing hourly rates – concerns shared by numerous barristers and chambers directors – are practical, but there is one important point of principle: barristers are selling their skill and judgment in a highly competitive market, and we would want to avoid fostering a taxi-meter approach to billing in which barristers are driven towards standardised rates in a way which reduces, rather than enhances, competition.”

None of the articles I have read over the last 12 months supports or endorses the CMA’s report and recommendations. The legal profession will fight change to the bitter end. But change will come; and change will be the loss of self-regulation.

Jim Diamond is a lawyer and leading expert in legal costs.