23 June 2022

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CLSB-commissioned report recommends review of regulatory framework, possible entity regulation and stronger distinction between interests of instructing solicitors and clients

The work of Costs Lawyers can exert a downward pressure on the cost of legal services at a time at a time when large corporate buyers feel they are “out of control”, the biggest ever review of the profession has concluded.

The report by Hook Tangaza, commissioned by the Costs Lawyer Standards Board (CLSB), said that – two decades on from the introduction of regulation – the framework was “ripe for review”.

It made a series of recommendations, including using regulation to strengthen the role of Costs Lawyers as “independent actors in the sector” – more akin to barristers and more open to instruction directly by clients – and considering the introduction of entity regulation by the CLSB.

The review is the key output of the £58,000 grant the CLSB received last year from the government’s Regulators Pioneer Fund to research whether, if regulation or legislation were different, Costs Lawyers could help reduce the cost of legal services.

The report said that, despite two decades of civil justice reform, costs continued to rise. But the answer was not necessarily further reform: regulators too had a role in supporting 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 in a much more comprehensive way”.

An international comparison showed that other jurisdictions have “much stricter conduct obligations on lawyers in relation to the fees they charge their clients and their control on the costs process, coupled with stronger roles for neutral costs assessors/adjudicators within their systems which avoid the need for expensive costs litigation”.

In England and Wales, by contrast, “the burden of appropriate checks and balances on costs is carried by limited and scattergun instruments such as client care letters and price transparency obligations, with possible recourse to [Legal Ombudsman] (for own solicitor costs) or otherwise to costs litigation.”

The report said the CLSB “could (should?) initiate a sector-wide discussion on the current shortcomings of the costs market in England and Wales”, highlighting to other legal regulators that “there is collaborative work to be done in areas like training, ethical codes, communication with clients etc”.

The CLSB should also be advocating for the Legal Services Board to take a broader approach to costs than simply focusing on specific points relating to consumers.

“England and Wales could learn from other jurisdictions, such as Ireland and Australia, and launch a debate around ‘excessive costs’ without undermining the operation of the market. Greater transparency about fees, which goes way beyond the limited measures taken so far, responsibility to communicate with clients and less onerous methods of challenging costs would all improve the functioning of the market.”

The report said there was an “under-awareness” of the benefits of using Costs Lawyers, but they already helped control costs, rather than simply shifting liability for who paid them. But there was “a great deal of evidence” to support the proposition that they have the potential to have a much bigger impact.

The research highlighted “a need for a more visible and assertive costs profession – one which recognises that there are different potential modes in which a Costs Lawyer could operate: as the agent of a solicitor (as at present), as an independent counsel or as a direct access lawyer for consumers”.

There was a “widespread perception” within the Costs Lawyer profession that ‘the client’ was the instructing solicitor, irrespective of whether the Costs Lawyer was working in-house at a law firm or within a specialist costs firm.

“The reference by a number of interviewees to their use of Costs Lawyers as ‘independent’ advisors - acting almost as barristers might – raises the interesting possibility that a stronger distinction between the interests of instructing solicitors (or others) and the ultimate client could be reflected in the Costs Lawyer regulatory principles.”

Hook Tangaza said the CLSB should consider introducing entity regulation, but recognised it might not be financially viable for the CLSB or those who might be interested in becoming regulated entities.

“There may, however, be other ways of approaching the needs that costs law firms have for some form of organisational recognition that could achieve some of the regulatory effect at much lower cost.

“One possibility would be for a collaborative alternative to be arranged, in which the CLSB works with another regulator. Alternatively, the CLSB could work up a voluntary approach, allowing costs law firms who wished to use the CLSB badge to do so if they met certain criteria such as having a firm-level complaints handling process, holding insurance etc.”

The CLSB could also strengthen “the perception of the distinctiveness (not to mention the existence) of the Costs Lawyers’ profession” by raising its own profile.

The report said: “This would help to increase recognition that what a Costs Lawyer might be able to offer is quite different to what solicitors offer to the market in relation to costs law, a distinction which risks becoming blurred as solicitors’ firms employ an increasing number of Costs Lawyers.

“This could mean, for example, working with the LSB to come up with different indicators and measures of success for an intermediary profession. Instead of using limited CLSB resource on regulatory initiatives such as consumer engagement and ongoing competence that are largely designed for the solicitor market, the CLSB should be given the flexibility by the LSB to find its own way to ensure Costs Lawyers are able to make the most positive contribution they can to the evolution of the legal market.”

The report said that, though it was not the CLSB’s job to grow the market for the profession, taking action “to underline to the wider market the role that Costs Lawyers can play” was a legitimate activity. This could include working with the ACL to deliver “more coordinated messaging about the role and advantages of using Costs Lawyers and coordinate this with other action, e.g. around the use of the CLSB badge”.

“The CLSB should consider means of ensuring the profession provide greater value to clients and consumers such as developing an ongoing competence framework, that ensures that where costs lawyers’ expertise and skills can be enhanced to meet emerging market needs.

“Lastly, the CLSB could work with ACLT or any other providers it may seek to authorise to expand the numbers entering the profession.”

The report also looked at other consumer-facing activities the CLSB could conduct. It could work with other legal regulators and the Legal Ombudsman to set out “a more structured escalation of costs disputes for consumers”.

“If an alternative approach to unleashing a raft of solicitor-own client cost disputes on the courts could be designed, this might dovetail with existing complaints regimes with a specific focus on costs and using a panel of independent Costs Lawyers to adjudicate.”

Finally, Hook Tangaza said there was room for more innovation, with the dependence on solicitors currently stifling demand: “If Costs Lawyers were better known beyond the niche costs law market, their contribution to the development of innovation in the sector could be increased.”

As well as embedding this in the Costs Lawyer qualification, the CLSB could support new CPD modules that focus on skills in new areas and specialisms such as legal project management, legal technology and pricing.

The CLSB said it would take forward the recommendations, such as planning a programme of work “aimed at harnessing the unique insights that Costs Lawyers can bring to stimulating discussion across all the legal regulators about how legal costs can be better controlled”, investigating the costs and benefits of entity regulation, and looking more closely at making a stronger distinction between the interests of instructing solicitors and clients.