Law firms making ‘wildly inflated’ costs claims, standards body finds

Costs lawyers should be more widely retained to stop firms from inflating their costs when they are working on a contingency basis, according to a specialist regulatory body.

The report prepared by the Costs Lawyer Standards Board (CLSB), which regulates around 700 costs specialists, suggested that large corporate buyers feel legal costs are ‘out of control’ and that the market needs greater intervention to rein in firms.

One litigation funder told researchers that costs never came in on budget and were often overestimated. A specialist professional negligence insurer said they were ’desperate for claims to be presented honestly, based on evidence’.

The CLSB report said: ’The message from both was that, in their view, solicitors’ firms were often presenting wildly inflated claims based on their interests in a CFA and this was not always acting in the best interests of the client.’

Many of those interviewed for the research identified that costs were now an ‘ethical issue’ and that action taken through civil justice reforms was often just a ‘sticking plaster’. There was also the suggestion that clients do not fully understand what their costs will be and what that may mean for the damages they receive.

The report added: ‘Lawyers’ fees are never going to be popular, but remuneration at the same time, has to be fair and under control.

‘For this to be the case, clients need to understand better what they are paying for and lawyers need to move away from the traditional hourly billing model towards a fixed-price model that aligns their incentives more closely with their clients.’

The report concluded that regulators should do more to support better control of costs earlier in the process (even before costs budgeting), not least in the form of better pricing/valuation services for clients and transparency about potential costs.

Without good communication by solicitors, more clients will bring claims to recover litigation charges, the report said.  Interviewees said they expected ‘significant growth’ in costs actions under section 74 of the Solicitors Act.

The report also found that the absence of costs experts has allowed firms being acquired to inflate the value of their work in progress. This has ‘been the downfall’ of large firms absorbing other practices in the legal market.

Kate Wellington, chief executive of the CLSB, said: ‘The report highlights a need for all legal services regulators to focus on how legal costs can be better controlled, and the CLSB will play its part in that – we will now take forward the findings in a programme of work that aims to bring the maximum benefits to end users of legal services.’

This article is now closed for comment.