Claiming Enhanced Hourly Rates in Complex Matters

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In the course of drafting Bills and conducting negotiations and assessments I have probably encountered most of the arguments and difficulties which can arise in relation to when enhanced rates can be claimed both on inter party and LSC matters.

I thought it would be useful to give a brief outline of some factors which I hope will assist in ensuring that you are properly remunerated for matters where an enhanced hourly rate is justified but of course if you would like to discuss any particular aspect in more detail or would like to discuss any particular cases which you are dealing with at the moment, please do not hesitate to contact me.

Indemnity Principle

One of the most common  problems which prevents any enhanced rate being claimed arises because of the operation of the indemnity principle, ie., that the costs which can be claimed from a paying party can never exceed the solicitor and client costs.

An attempt to claim an enhanced hourly rate can fall at the first hurdle because the agreement reached with the client, either in a CFA or in a private client retainer, states an hourly rate which is too low to allow for any enhancement to be claimed on the between the parties rates. 

This is particularly common with CFAs where the rate stated in the CFA is often the rate allowed in the local County Court with no provision for any higher rate or enhancement and also where the rate agreed with the client has not been increased during the course of a claim. It is important to remember that you will not be able to claim a higher rate from a paying party than the rate you have agreed with your client.

Between the Parties Charging Rates

Provided that the indemnity principle is not breached then in complex matters the conducting solicitor can quite properly be rewarded for the skill, effort, specialised knowledge, responsibility, complexity, difficulty or novelty of the matter. 

Before the CPR hourly charging rates were calculated by reference to the cost of doing the work (the A Factor) and to this was added a factor known as the B Factor which represented the profit and which would vary depending on the nature of the matter.

Since the introduction of the CPR, hourly rates are no longer expressed as comprising an A and B Factor but are expressed as a single composite charging rate.  Although this is the case, that composite charging rate must include both the cost of doing the work and the profit element and it is reasonable therefore to calculate that the routine composite charging rates include a profit element of 50%.  In other words, two thirds of the composite rate represents the cost of doing the work and one third represents the profit element.  It is this profit element representing one third of the composite rate which can be increased to reflect any of the factors mentioned in Rule 44.5 in a non-routine case.

When adding a percentage enhancement onto the composite rate, it is often useful to initially do a calculation breaking the composite rate down between the cost of doing work and the profit element before then adding on an appopriate percentage to reflect the complexity of the matter.  

This was the approach taken by the Court in the case Higgs -v- Camden & Islington Health Authority [2003] which was a clinical negligence case in which the Claimant was awarded £3.5m damages.  The Bill claimed an inclusive composite rate of £300.00 per hour and in considering the reasonableness of that inclusive rate, the Judge used a calculation based on the old A Factor + B Factor and upheld the rate of £300.00 per hour which represented £150.00 per hour with 100% mark-up.

The question as to how much mark-up will be allowed will of course depend on the particular circumstances of the case but certainly some assistance can be obtained from the Higgs case and also from two older cases:-

In Johnson -v- Read Corrugated Cases Limited [1992] the Court indicated that the range for non-exceptional cases started at 50% (the B Factor).  That figure could increase above 50% to reflect factors including the complexity of the case but that to justify a B Factor of 100% there must be some combination of factors which mean that the case approaches the exceptional.  A mark-up of 75% was allowed in that case.

In Loveday -v- Renton (No. 2) [1992] a mark-up of 125% was allowed but this was a major test case where the trial lasted for 65 days.  This will obviously be towards the very top end of the mark-up that can be recovered.

The Johnson and Loveday cases were of course decided under the old regime and a little bit of maths has to be applied to a composite hourly rate to arrive at the same result as a care and conduct (B Factor) mark-up under the old regime. 

How to Calculate a Percentage Enhancement on a Composite Hourly Rate

In order to arrive at a percentage increase on a composite hourly rate equivalent to the 125% B Factor allowed in Loveday -v- Renton a 50% enhancement would be added to the composite rate. For example, if we had a composite rate allowed in a County Court of £150.00 per hour, a 50% enhancement on that rate would give a total rate of £225.00 per hour. This is the same as the calculation using an old-fashioned A and B Factor where the composite rate of £150.00 includes the A Factor (the costs of doing the work of £100.00 per hour) together with the profit element (the B Factor) of 50%. 

If a 125% mark-up is substituted for the 50% B Factor, then the rate would be £225.00 per hour (£100.00 plus 125%) ie., the same as the composite rate plus 50%.  It is sometimes useful to carry out an exercise like this when considering increased hourly rates as most of the authorities where increased hourly rates were allowed were under the old regime.

I am happy to assist you in giving consideration to what is an appropriate overall hourly rate and enhancement in relation to any particular cases that you may have.  Please don't hesitate to get in touch.