Hourly Rates….Are You Charging Enough?

Published November 21, 2014 by

I recently attended Kerry Underwood’s “Underwood on Jackson on Tour” at the Old Trafford Cricket Ground in Manchester, and as you might imagine with the man himself speaking, very enlightening it was, too. As a cricket fan, it was enough for me to be sitting on the front row in the members’ suite, looking out on to a cricket pitch being delicately tended by the groundstaff. Of course, it would have been even better had there been a match on, but then that might have been somewhat distracting.

The first thing I would say about the seminar is that, if you haven’t already done so, book a place on the next one near you – it will be well worth the investment. Not only were we provided with an informative opinion of the current status of the industry following on from the Jackson reforms and the inevitable confusion following the Mitchell judgment, we were also given extensive notes – both in paper form and on a penstick – which, we were informed, will be regularly updated until January 2016.

The seminar covered a number of points, but I want to pick up on one area in particular, being the issue of the hourly rate – with specific reference to cases which fall under the protocol and fixed fees regimes and where a Conditional Fee Agreement is in place. Kerry’s point was that, where protocol or fixed fees apply and there is a CFA in place allowing for the recovery of a success fee – limited to 25% of the damages recovered – solicitors should, in their retainer documentation, allow for a high hourly rate in order to maximise costs recovery from their client under that agreement, whilst still ensuring that the client recovers 75% of the damages awarded. In his notes, Kerry gave a number of examples, and I have attempted to adapt one of his examples below.

Example:

The client is injured in an RTA and the matter settles for £11,000 damages whilst still in the RTA Portal (stage 2). The claim is funded by way of a CFA which allows for a maximum 100% success fee –this being limited to 25% of damages relating to pain, suffering and loss of amenity, as well as damages for past pecuniary loss. Under the Portal, the profit costs recoverable from the other side are the stage 1 and 2 costs combined. These total £960 inclusive of VAT. We will assume, for the purposes of this example, that all disbursements are recoverable from the paying party.

Let us then consider two scenarios – in both we will assume that the 25% cap is calculated on the full amount of damages awarded. In order to be fair to the client and leave him with the 75% of damages which he is expecting, we will deduct the costs payable by the other side from the total allowable success fee so that the client is only paying a success fee on the shortfall amount:

In the first scenario, we have charged an hourly rate of £250 and have spent a total of four hours working on the case. Our total base costs are therefore £1000 plus VAT (or £1200 in total).

The maximum success fee to be charged to the client is 25% of £11,000 which is £2750, therefore the following calculations apply:

Full solicitor and own client base costs £1200
Profit costs recoverable from the other side £960
Maximum possible fee to be charged to the client (25% of damages) £2750
Shortfall – £2750 – £960 recovered from the other side £1790
Actual amount which would have been recoverable as a success fee, had a higher hourly rate been charged (A) £1790
Amount recoverable from the client when the Indemnity Principle is taken into consideration = 100% of base costs (B) £1200
Shortfall £590

 

Therefore, by charging an hourly rate of £250, we have lost out on £590 because the 25% of damages cap takes us beyond the 100% success fee on base costs which is the maximum we can charge our client under the CPR.

If we look at the same case, but with a rate of £400 per hour being charged, the figures look somewhat different:

Full solicitor and own client base costs (four hours at £400 plus VAT) £1920
Profit costs recoverable from the other side £960
Maximum fee to be charged to the client (25% of damages) £2750
Shortfall – £2750 – £960 recovered from the other side £1790
Actual amount recoverable as a success fee, taking into consideration the cap on recovery from the client’s damages (A) £1790
100% success fee on base profit costs (B) £1920
Actual success fee charged (A as a percentage of B) 93%

 

In this second example, we have recovered the full amount allowed by the cap on recovery from the client’s damages, without any breach of the Indemnity Principle.

If we take this second example one step further, and assume that £3000 of the damages are for future losses, we can calculate figure A as a percentage of the allowable damages pool of £8000, we are still within the 25% cap – £1790 being 22.4% of the allowable damages pool.

In light of the above, then, it clearly makes sense to charge a high hourly rate when matters fall into the Portal (or indeed Fixed) costs regime. The hourly rates cannot be challenged as it will have been agreed at the outset and it only affects the costs recoverable from the client and not the paying party.

The above comments are made, with thanks, with the express agreement of Mr Kerry Underwood whose blog can be found at http://kerryunderwood.wordpress.com/.