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Lack of care with cost estimates, retainers and time recording leads to reductions on a solicitor/own client assessment

Robert PattersonLeave a comment

Although the sums in issue in this detailed assessment under the Solicitors Act 1974 were not significant (the bill totalled £3,841 plus VAT), Costs Judge Nagalingham’s judgment in Jennifer Underhill v Thackray Williams Solicitors [2024] EWHC 3206, gives a useful insight into the consequences of some common failings by solicitors with regard to cost estimates, hourly rates and time recording.

The Facts

The Claimant instructed the Defendant to advise in relation to an employment matter. The Defendant received three instructions from the Claimant. The first was on a fixed fee basis of £250 plus VAT for a meeting and a written advice. The second instruction related to the preparation of a letter before action and conduct of an employment tribunal matter. The third instruction concerned the negotiation of a settlement agreement following a settlement with the Claimant’s employer. The costs associated with the first and third instruction formed no part of the detailed assessment, which focussed solely on the bill delivered by the Defendant in connection with the second instruction, in the sum of £3,841 plus VAT.

The Issues

Due to the modest size of the bill, a formal breakdown was not ordered. Instead, the parties had agreed that the Defendant’s time ledger provided sufficient detail for the costs claimed to be assessed. However, the time ledger was not accurate. It totalled £5,863 plus VAT, but there was no explanation that could be reconciled with a bill figure of £3,841 plus VAT. In addition, the front of the ledger reported time of 26 hours 11 minutes, but the final page totalled the time 27 hours 24 minutes; neither were correct because the individual items amounted to 23 hours 36 minutes.

All work done on that instruction was subject to a conventional private fee-paying agreement. In their engagement letters, the Defendant provided a cost estimate which indicated that their fees should not exceed £1,470 plus VAT for pre-action and without prejudice letters but that if the matter proceeded to a final hearing, costs were estimated at £15,000 to £20,000 plus VAT. The Claimant believed that the cost estimate meant that her total bill would not exceed £1,470 plus VAT as a settlement was agreed before proceedings were issued.

The hourly rates claimed by the Defendant were also in dispute. The claim was conducted by a Grade C solicitor and the Claimant had agreed rates of £195 per hour and £210 per hour for him. However, although the engagement letters indicated that the Grade C would be supervised by a Partner, there was a dispute as to whether the Claimant had been advised of her hourly rate.

The Decision

As with all detailed assessments under the Solicitors Act 1974, the costs were assessed pursuant to CPR Rule 46.9(3), which provides that:

“…costs are to be assessed on the indemnity basis but are to be presumed –

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;”

In respect of the cost estimate, the Costs Judge found in the Defendant’s favour. He found that, correctly interpreted, the cost estimate related only to the preparation of the letter before action and that the wording of the engagement letters was sufficient to conclude that the Claimant had either expressly or impliedly approved costs to be incurred beyond the initial estimate. However, the Costs Judge could not conclude that the costs beyond the estimate were reasonable in amount, because the Defendant failed provide an updated cost estimate until the conclusion of the matter.

As regards hourly rates, the engagement letters all indicated that the Grade C would be supervised by a Partner. However, none of the engagement letters mentioned the Partner’s hourly rate or that the Claimant would be charged £350 per hour. In the circumstances, all Partner time was removed from the bill.

The inaccuracies in the time ledger did not result in any significant reductions, as there had been a significant write off in the sum of £1,772 plus VAT. However, it was beyond doubt that there had been errors and that was taken into account in respect of costs of the assessment.

The bill was assessed in the sum of £3,150 plus VAT, a reduction of circa 15%. Pursuant to section 70(9) of the Solicitors Act 1974, a reduction to the bill of less than 20% would normally have resulted in the Claimant paying the costs of the assessment. However, the Costs Judge held that the errors in the time recording and the fact that an updated cost estimate was not provided until all the costs had been incurred (thus depriving the Claimant of an opportunity to approve the costs) were special circumstances which justified a different order. Consequently, the Costs Judge made no order as the costs of the assessment.

Robert Patterson is a Senior Associate in the Civil and Commercial Costs Team at Clarion Solicitors. You can contact the team at civilandcommercialcosts@clarionsolicitors.com

Prevention is better than cure

Andrew McAulayLeave a comment

The recent case of  Stella v Hodge Jones & Allen LLP demonstrates the importance (and benefit) of a law firm having a retainer in place with a client which clearly sets out the type (or types) of bills that will be raised.

Types of Bills

There are 4 types of invoices that can be raised:

  1. Statute Final.
  2. Payment on Account.
  3. Gross Sum.
  4. Chamberlain (a series of bills which are treated as payment on account bills, but which all become final bills upon delivery of the statute final bill)

Retainer

Law firms should clearly set out in client care letters and terms of business how a client will be billed i.e. will the bills raised be interim statute final bills or will they be payment on account bills.

Stella v Hodge Jones & Allen (HJA)

The Claimant requested an assessment of 34 bills raised to him by HJA.

There were a number of legal arguments in relation to the Claimant’s ability to challenge all the bills, but this blog only focuses on the arguments in relation to the type of bill raised.

HJA’s position was that only 8 of the 34 bills were capable of assessment, because the other 26 bills were outside the time limits for assessment i.e. the 26 bills (totalling £140,492.20) were interim statute final bills and, as a result, those bills were outside the period for challenge (s70 Solicitors Act 1974).

Judge Whalan determined that the bills were payment on account bills; therefore, the time limits under the Solicitors Act 1974 had not commenced. The primary reason being the wording in the HJA retainer in relation to billing arrangements. This meant that the Claimant was entitled to assess all the bills, despite some of them dating back to 2017.

Judge Whalan made an interesting comment (obiter dicta) in his Judgment:

“There is no real excuse for imprecision, uncertainty or ambiguity. If a solicitor wants to provide for the demand and payment of interim statute bills, then the retainer should express an unequivocal provision to this effect. The profession’s consistent failure to do so is, frankly, baffling.”

In reaching his decision, Judge Whalan relied on this test:

  1. The burden of proving that the retainer provides for the delivery of interim statute bills falls on the receiving party.
  2. When considering a retainer, it is necessary to refer to the relevant contractual provisions as a whole.
  3. When determining whether a retainer does allow the solicitor to render interim statute final bills, the court should resolve any fundamental ambiguity against that construction.

This is a common dispute on solicitor/own client assessments, and an argument which, more often than not, falls in favour of the client (because of the above test and, in particular, paragraph 3). The client is in a position of strength if there is ambiguity or doubt over the contractual terms because the burden of proof falls on the law firm.

Points to consider for good practice 

These are basic points, but if followed, will help a law firm to avoid such a dispute:

  • Harmony 

Ensure that what is said in your client care letter aligns with what is said in your terms of business. Also, ensure that someone who has expertise in costs law has the responsibility of drafting the relevant parts of your client care letter and terms of business.

  • Bill (invoice) template 

Ensure you have a bill template (or templates) which cover the 4 types of bills mentioned earlier. Also, ensure the communication sending the bill to the client (email or letter) provides the correct information.

Summary

A lack of consistency is usually the problem. Ensuring harmony between the client care letter, terms of business, bill and communication with the bill is key to avoid a dispute.

As a law firm, it is sensible to have a default type of bill that you want to raise for most of your matters. For example, your template client care letter and terms of business may cater for statute final bills, so that would be the default bill template. However, you should provide your lawyers with the knowledge and autonomy to modify template client care letters and terms of business to change the type of bill to be raised, where appropriate. For example, payment on account bills would be appropriate for a matter funded by way of a discounted Conditional Fee Agreement.

We are regularly instructed by law firms to review their retainers and provide advice to ensure compliance with the latest developments in costs law and litigation funding. Please contact Andrew McAulay (andrew.mcaulay@clarionsolicitors.com or 07764501252) if you have any questions.