Law advice is no good unless it is expensive? I’m not sure I agree

It never ceases to amaze me how many people seem to judge something or somebody by how much they charge, writes Chris Blackhurst

Temple Bar Memorial marks the ceremonial entrance to the City of London (HarshLight)

His lordship did not hold back. In a judgment at the Court of Appeal this week, Lord Justice Males said there was “no justification at all” for a London law firm charging £1,131.75 an hour. The fee Cleary Gottlieb Steen & Hamilton, said Males, was “substantially in excess of the guideline rates”.

Cleary Gottlieb was advising the electronics giant LG in appealing a competition case against Samsung. LG won the appeal, and its solicitors submitted a costs bill of £72,818.21 for the one-day hearing. The charge was based on hourly charges of between £801.40 and £1,131.75 for Grade A fee earners and between £443.27 and £704 for Grade C.

Samsung argued this was well above the guidelines set out in the “White Book”, the bible of litigation procedure and costs, for “very heavy commercial and corporate work by centrally based London firms” of £512 for Grade A and £270 for Grade C. Males and Lords Justice Lewison and Snowden agreed, and noted: “In some cases, therefore, the rates claimed are more than double the guideline rates.”

Cleary Gottlieb, which had global revenues last year of £935m, maintained “its hourly rates are above the guideline rates, but that is almost always the case in competition litigation”. Males was unimpressed: “This was a one-day appeal, where the only issue was the appropriate forum for the trial, the documentation was not heavy, and the amount claimed (£900,000) was modest by the standards of commercial cases.” The judges cut the lawyers’ bill to £55,000.

Thus, was shone an all too rare light on the charging practices of top London law firms. For once the lawyers were caught out. Normally, clients swallow hard and pay the bill. But because it was the other side picking up the tab, they challenged the invoice. Possibly, too, it was because Samsung was advised by fellow US rival Covington & Burling (they each have large London practices) and they could not resist getting one over their opponent. Possibly, though, because as was pointed out, a charge of almost £73,000 for one day, entailing little extra work, when the sum being fought over was £900,000, was eye-watering and impossible to ignore, and to justify.

Often the City maxim applies that advice is not any good unless it is expensive. Seriously. It never ceases to amaze how the supposedly most sophisticated financial brains on the planet judge something or somebody by how much they charge – not the quality, but the price. Low and they must be rubbish; high and they’re brilliant.

I once recommended a friend to a City company for IT advice. They loved him, thought he was great, but the CEO was not prepared to take his proposed fee to the board as it was too little. He was told to put “another zero” on the end and the business would be his.

It’s this attitude that keeps the City’s inhabitants in the manner to which they’re accustomed. It’s mutually serving, everyone gets a share of the pie

Crazy. But there again, another City saying applies. What’s involved here is not their money but “other people’s money” or OPM. If they’re hit with a bill personally and paying out of their own pockets, they might take a closer look at what they’re being charged. But because the money is not theirs, they’re not bothered.

Frequently, too, they just want the famous name on the letterhead. Cleary Gottlieb are top tier, known on Wall Street as a “white shoe” firm (the legal elite, so-called for the colour of shoes worn by Ivy League students). That will do; hire them, pay them whatever they want.

This point was implied in Males’ criticism of LG for making no attempt “to justify its solicitors charging at rates substantially in excess of the guideline rates”. The judge quoted the company’s lawyers as having merely observed “that its hourly rates are above the guideline rates, but that is almost always the case in competition litigation ... I regard that as no justification at all.”

He added that “if a rate in excess of the guideline is to be charged ... a clear and compelling justification must be provided. It is not enough to say the case is a commercial or competition case, or it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate.”

LG thought it was OK to bill for twice the recommended rate; Cleary Gottlieb stated baldly that it almost always charges above the guideline rate in competition litigation. It’s as if the subject of advisory fees merits a collective shrug and the rejoinder: “Who cares? That’s what they cost.”

It’s this attitude that keeps the City’s inhabitants in the manner to which they’re accustomed. It’s mutually serving, everyone gets a share of the pie.

I once saw a bill from a leading firm of City solicitors. Four of their lawyers had to visit a barrister in Middle Temple. They could have taken the Underground from their offices near Mansion House. It was all of two stops from there to Temple. Instead, they went by black cab, which, because of the traffic, took half an hour there and the same back. They each charged the client for one hour of their time.

OPM. The finest three letters in the legal lexicon.