White labelling in legal services…not to be overlooked
If you are a Costs Lawyer (or Costs Draftsman), the concept of “white labelling” is something that has been ingrained in the day job forever. You see a Costs Lawyer will charge their agreed hourly rate to their solicitor client for drafting a bill of costs, yet the corresponding entry in the bill of costs will be calculated, not at the Costs Lawyer’s hourly rate, but at their solicitor clients hourly rate agreed with their client, albeit probably at grade D.
The effect of this long established principle is an instant profit for the solicitor. Is this fair I hear you say! Well, don’t believe me, look at CPR 47 PD 5.22(6), which states:
Agency charges as between principal legal representatives and their agents will be dealt with on the principle that such charges, where appropriate, form part of the principal legal representative’s charges. Where these charges relate to head (1) in paragraph 5.12 (attendances at court and on counsel) they must be included in their chronological order in that head. In other cases they must be included in head (9) (attendances on London and other agents).
And the case law that established this principle, is Smith Graham (a firm) (appellant) v The Lord Chancellor's Department (Respondent) (1999) QBD (Hallett J) 30/7/99. In this case solicitors had instructed a non-solicitor external agent to undertake investigative work. Mrs Justice Hallett held that the agent’s work was of a fee-earner nature and therefore the agent should be considered as being in the temporary employment of their instructing solicitors. This is indeed the same fictional approach that has allowed Costs Draftsman to appear at Detailed Assessment hearings (and before this, Taxations as they were called). Consequently, the agent’s fees could be charged as profit costs, even where this meant that the solicitor could charge and recover more in profit costs than they had actually paid their agent.
The same principle was arrived at by the most respected exponent of legal costs and author of “Cook on Costs”, His Honour Judge Michael Cook, when in Stringer-v-Copley - KINGSTON UPON THAMES COUNTY COURT (11 June 2002), he concluded:
“...in view of my finding in respect of the Litigation Support Agency, it would appear that the fees of medical Support agencies could also be treated as though the work had been done by the solicitors and charged accordingly.”
The so called “legal Fiction” arrived at by Hallet J in Smith Graham was finally decided by the Court of Appeal in Nicholas Crane v Canons Leisure Centre  EWCA Civ 1352, in which the claimant's solicitors were acting under a Collective Conditional Fee Agreement (“CCFA”) which at that time, included the recovery from the Defendant of a success fee upon "base costs”. Every bit of base costs was therefore an issue and the question of the costs consultant’s fees being charged as profit costs, came to be decided. By a majority, the Court of Appeal held that the costs consultant’s fees were "base costs" within the meaning of the CCFA and that the success fee was therefore recoverable upon them.
Over the years, this has worked for me to great effect, during thirty odd years of fee-earning in litigation. Back in the 1980’s, I used a retired police officer to take simple witness statements and provide a plan and photos of a locus in quo in road traffic accidents (we are meant to call them collisions nowadays!), who charged me £50 per hour. I charged this work at my own rate of £125 per hour.
More recently, at a firm undertaking catastrophic injury claims, we naturally used forensic accountants often to provide expert evidence. Since no one would question that accountants are generally better at maths than lawyers, the forensic accountants were happy to charge a modest fee for number crunching on very large schedules of loss (on the basis they received the meaty forensic accounting expert work) and this work on the schedules was then charged at the conducting fee earner’s rate, at grade A, making a respectable profit for the firm.
So, any work which is genuine fee earner work can be outsourced to an agent and then charged as if you have done this yourself. The only cautionary note is that if the work strays into expert work of any kind, it must be charged as a disbursement, otherwise it may not only be irrecoverable but may jeopardise reliance on any expert opinion.
When we are being pressed by clients on fees, running a case subject to the scrutiny of costs budgeting, or indeed a matter which falls within the newly extending fixed recoverable costs regime, any increase in margin must surely be grabbed with both hands. Good luck!
Richard Allen is a Costs Lawyer and Senior Pricing Consultant at Burcher Jennings and Virtual Pricing Director.