The value of charging by the hour

Probate practitioners have been awaiting the result of the appeal in Jemma Trust Company Ltd v Liptrott and Others (2003) LTL, 24 October, which has just been handed down.

Costs Judge Rogers had held that, in the absence of express agreement, it was anachronistic and wrong for solicitors to charge a 'value' element in addition to an hourly rate.

He said that time costing was so much more sophisticated now than it had been in the 1970s (when the relevant cases were decided) that solicitors should charge on the basis of an hourly rate or on the basis of value, but not both.

The solicitors involved appealed and the Law Society intervened.

Solicitors' remuneration in relation to non-contentious business is governed by the Solicitors' Non-Contentious Business Remuneration Order 1994.

Paragraph 3 provides that a solicitor's costs shall be 'such sum as may be fair and reasonable having regard to all the circumstances and in particular to' various specific items, including:

- The complexity of the matter;

- The time spent;

- The amount or value of any money or property involved;

- Whether any land involved is registered land.

The Court of Appeal agreed that in contentious business it is now normal for the value of a claim to be taken into account when assessing a global rate.

However, the situation is not the same in relation to non-contentious work.

The 1970s authorities do not merely permit solicitors to charge by reference to a percentage of value; they indicate that charging by reference only to an hourly rate is wrong.

Mr Justice Donaldson in Property and Reversionary Investment Corporation Ltd v Secretary of state for the Environment [1975] 1 WLR 1504, said that, while time spent must always be taken into account, 'it is not necessarily, or even usually, a basic factor to which all others are related'.

Similarly, in Treasury Solicitor v Register [1978] 1 WLR 446, he said it was important to resist the attraction of charging on the basis of time spent in cases where 'one or more of the other factors is such as to dwarf it into insignificance'.

The present case involved a high-value estate (a little less than 10 million) so matters other than time costing were likely to be relevant.

The Court of Appeal found that it was still open to solicitors to make a separate charge based on value provided that the overall charge is fair and reasonable.

The court also found that such charges could be assessed (at least initially) on the basis of the rates recommended by the Law Society in An Approach to Non-Contentious Costs.

These are 1.5% for the gross estate less residence and 0.75% for the residence.

However, there was an important caveat.

In the opinion of the Court of Appeal, it will usually be appropriate to reduce the value element percentage in the case of high-value estates by reference to a regressive scale.

This is because the burden of responsibility on the solicitor does not increase in direct proportion to value.

The effect of increased value is regressive and the rate of regression increases with the value.

The Law Society says in its 1999 booklet, Non-contentious costs, available from the practice advice service, that: 'consideration should be given to reducing the value element percentage' when dealing with high-value estates.

However, in the opinion of the Court of Appeal this was 'insufficiently firm'.

In Maltby v DJ Freeman [1978] 1 WLR 431, Mr Justice Walton had considered the calculation of the regressive scale in probate cases.

The Court of Appeal adapted his scale to allow for the effect of inflation occurring since 1978.

It accepted that the appropriate percentages should be 11/2%, 1/2%, 1/6%, 1/12% and 1/24%.

The appropriate bands for work undertaken in 2003 were suggested as 1 million, 4 million, 8 million, 12 million.

The Court of Appeal was asked to give the profession some guidance for the future.

It suggested the following principles:

- The best practice is for solicitors to obtain prior agreement as to the basis of their charges not only from the executors but also, where appropriate, from any residuary beneficiary who is absolutely and immediately entitled.

- In any complicated administration it will be prudent for solicitors to provide in their terms of retainer for interim bills to be rendered for payment on account.

This is subject to the solicitor's obligation to review the matter, as a whole, at the end of the case to ensure that the amount claimed is fair and reasonable.

- There should be no hard and fast rule that charges cannot be made separately by reference to the value of the estate; value can, by contrast, be taken into account as part of the hourly rate; it can also be taken into account partly in one way and partly in the other.

What is important is that it should be transparent on the face of the bill how value is being taken into account; and in no case should it be taken into account more than once.

- In many cases, if a charge is made separately by reference to the value of the estate, it should usually be on a regressive scale.

The bands and percentages will be for the costs judge in each case.

The bands and percentages set out in the present case are merely a guideline.

- It may be helpful when a separate element of the bill is based on the value of the estate for the solicitor (or, if there is an assessment, the costs judge), to calculate at the end of the case the number of hours that would be taken to achieve the amount of the separate charge.

That may help to determine whether the remuneration claimed or assessed is fair and reasonable.

- In cases where there is no relevant and ascertainable value factor, it may be helpful to consider the Law Society's guidance given in An Approach to Non-Contentious Costs at paragraph 13.4.

Private client lawyers also need to look at the divorce case of P v P (Ancillary relief: Proceeds of Crime), 8 October 2003 (see [2003] Gazette, 30 October, 33 and [2003] Gazette, 6 November, 22), which gives guidance on the obligation of lawyers to disclose suspicions that a client is involved in an arrangement that may involve acquisition, retention, use or control of criminal property.

Criminal property includes assets derived from untaxed income.

By Lesley King, College of Law, London