Optimising Costs Management: Part 2

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This is the second entry of a three part series on costs management. Part 1 can be read here. Part 3 can be read here.

CPR 3.15(5) confirms that the amount recoverable in respect of preparing the Precedent H is capped at 1% of the approved costs budget but all other costs of the budgeting and costs management is capped at 2% . Twice as much is therefore permitted for costs management as to prepare the costs budget. Why is this the case?

This 2% allows for preparation of Precedents R, all of the negotiations on budgets, analysis, advice, preparation of supplementary documents for CCMC and the costs lawyer’s attendance at CCMC (or drafting instructions to counsel). Following the CCMC the budgets will need to be finalized and agreed before being filed at court. But that is not the end of costs management.

Ongoing monitoring of costs incurred after the budget has been set makes staying within budget significantly simpler, while still achieving a good outcome for your client, and it will mean that problems are identified early and can be rectified.

However, if circumstances change following the setting of the costs budget then CPR 3.15A allows for revision and variation of costs budgets on account of significant developments. Indeed a party must revise its budgeted costs upwards or downwards if significant developments in the litigation warrant such revisions, and must do so promptly. If you know how much scope is left in each phase then it will be much clearer what revisions are required, thereby allowing it to be dealt with ‘promptly’.  

If you do exceed your costs budget without a good reason, those costs are not recoverable from your opponent. Of course, you may be able to recover any overspend from your client, depending on the terms of your retainer, but then it is absolutely vital that you have kept your client informed regarding their legal costs throughout the claim.

For example, if you did not get the outcome you wished for at the CCMC it should be common practice to provide a client with a copy of the approved costs budget and an explanation given regarding why the approved costs differs from the filed costs budget.

In ST v ZY [2022] EWHC B6 (Costs) the importance of keeping a client informed regarding their legal costs was emphasized.

This claim involved a fatal motorcycle accident where ST, the deceased’s partner, brought proceedings on behalf of the deceased’s estate, herself and her 4 children as dependents. The matter was budgeted, but when the matter settled the Court ordered that the Defendant should pay ST’s costs of the claim only on behalf of a single Claimant as a dependent, and as administratrix of the deceased’s estate.

Costs between the parties were then settled by agreement between the parties. However, because she was a protected party, an assessment of the Claimant’s solicitor and own client costs was ordered.

At the assessment it was identified that the Claimant’s solicitors had failed to advance any argument to support a good reason to depart from the budget in relation to the majority of the exceeded phases and had offered to accept the approved figures. In doing so they conceded £25,052.69 which they then sought to recover out of the Claimant’s damages. The judge noted:

“Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.”

Focus is often placed on monitoring the budget to identify whether it needs to be revised in the event of a significant development. However, managing clients’ expectations of costs is required, and informing them if a budget has been exceeded is vital. Without this, it is highly unlikely that an overspend will be recoverable.

Given the CPR’s allowance for recovery of costs management fees there is no good reason not to instruct a costs professional to assist with all aspects of costs management following preparation of the costs budget.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at costs.support@clarionsolicitors.com.

Optimising Costs Management: Part 1

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2% Budget Process Provision

Once costs budgets are prepared, Precedent Rs and negotiations naturally follow.

Budget discussions can lead to agreement of budgets in full, allowing for the costs management hearing to be vacated altogether. However, very often only certain phases are agreed, narrowing the costs issues in contention at CMC. Whether agreed in full or in part, investing time in negotiations and strategy at this point will lead to a more beneficial outcome overall.

In addition to preparing an ordered schedule of incurred costs or a composite summary, the next step is to decide who should attend the CMC to ensure you are well positioned from a costs perspective going forward.

Precedent Rs, negotiations, breakdowns, summaries and attendance at CMC all have the potential to be captured in the 2% provision for budget process and be recovered from your opponent if successful.

The Costs Management Conference

When a great deal rests on the result of the CMC a meticulously prepared advocate should not be underestimated. A sound understanding of the case to date is also key when deciding who is best suited to make those all-important representations in respect of the budgets.

Our costs management team are well versed in CMCs the depth and breadth of the country and have extensive experience in obtaining the most advantageous scenario of approved budgets possible.  If costs specialist input is required, this is something we can provide. 

Monitoring Budgets and Avoiding Shortfall

Regular monitoring of budgeted costs not only highlights any requirement for budget revision but also provides opportunities for agreement to be reached with your clients in relation to overspend before it occurs. It is also worth noting that utilising phase, task and activity codes on your time recording system will improve efficiency in this task. It can also lead to effective legal project management of cases, which will be covered in another of these blogs.

Budget monitoring is now mandatory pursuant to CPR 3.15A and is a service offered by Clarion. As long as the 2% budget and cost management caps have not been exceeded this work can also be recovered from your opponent if you are successful. In an era where solicitor-own client costs disputes are rising, it is more important than ever to keep track of expenditure in costs managed cases.

High Court swapped budgets for estimates

In Collins and Others v Ticketmaster UK Ltd v Inbenta Technologies Ltd [2022] Costs LR 123 costs estimates were ordered in place of costs budgets consequential to an application made by the claimants and Part 20 defendant which sought costs management after budgeting had previously been dispensed with.

Decision at first case management conference

Even though the claim fell within the bracket for budgeting, the general consensus at the first case management conference had been that costs budgeting should be disapplied. At this point the parties submitted that costs management was neither necessary nor appropriate. A further order mirrored this stance when the Part 20 defendant was joined to the matter, keeping a consistent pattern between the claims.

Basis for application

A change of heart by the claimants and Part 20 defendant was brought about by the defendant incurring considerable costs with no control by way of costs budget. HHJ Pearce (sitting as a judge of the High Court) described how he was:

drawn to an invoice dated 6 January 2020 from a law firm acting for the defendant to the defendant itself giving legal fees for that month discounted by 20% at a figure of just shy of $300,000, some way in excess of £200,000. As the applicants say, if that kind of cost is being run up regularly on a monthly basis, then the total costs for the defendant could easily be £5 million or, indeed, more.

Defendant fees were quite clearly substantial.

Response of the Defendant

The defendant contended that the application was:

in the manner of an abuse of process” and “whilst it is true that the Civil Procedure Rules give the court a wide power to vary orders, the authorities show that the parties are not at liberty simply to come back before the court to refight battles that have already been determined.”

The defendant also resisted the application on the basis that the litigation had been proceeding for quite some time now and even though a number of phases had still not commenced, considerable costs had been incurred, particularly in the disclosure phase, citing:

the true purpose of costs management which is the court’s exercise of its powers to control costs that have yet to be incurred.”

Court’s scope to revisit decision and the overriding objective

Despite the application being unsuccessful the court partially agreed with the grounds for application insofar as there was no reason why it could not revisit its decision on whether or not to make a costs management order. HHJ Pearce elaborated further by stating:

It would be different if there had been a contested hearing on that issue and the court had reached a reasoned conclusion as a result of submissions. It therefore follows that, as a matter of principle in my judgment, the applicants for this order do not need to show a change of circumstances in order to justify the court making an order.”

However, the court took account of the overriding objective, in particular the costs of complying with the costs management regime in circumstances where the benefits of a costs management order would be far less than if one had been sought earlier.

Decision

A compromise of costs estimates from all parties, which were ordered in respect of those phases that either had not yet begun or only had limited costs incurred so far, was deemed “sensible” by the judge who opined that the claimants and Part 20 defendant were entitled to know where the defendant was going in terms of likely costs.

The content and layout of the ordered estimates would essentially highlight the same costs as the estimated sections of a costs budget. HHJ Pearce concluded that the estimates would:

give the court the power to express an opinion as to the reasonableness and/or proportionality of any costs that it was estimated were to be incurred in the future. That is not to encourage any party to invite such an expression of opinion but it is, it seems to me, an available power that I could, if necessary, exercise.”

Estimates replacing budgets going forward?

The way this case ran its course and the initial disapplication of costs management is fairly unusual which suggests that costs budgets are likely to remain the default position when the relevant criteria are met.

Arguably there are lessons to be learnt from this failed application; being too hasty to dispense with costs budgeting can come back to bite the parties eventually.

Capturing costs between budget and CCMC: practical guidance

It is not unusual to incur substantial costs in the run up to CCMC after costs budgets have been submitted.  

Recovering these costs will be important to the receiving party, but often filing and service requirements of costs management documents can mean a bespoke approach is best adopted on a case-by-case basis, to ensure capture is maximised.

There are however some general steps that can be taken.

If a delay exists between budget and CCMC, either because the budget had to be advanced with the Directions Questionnaire or because the CCMC was adjourned post-filing and service, the budget may need to be brought up to date in respect of incurred costs. Updating the budget is particularly important if the incurred costs do not represent all costs up to and including the CCMC.

Alternatively, a schedule can be produced which sets out by phase the incurred costs since the budget and anticipated costs up to and including the CCMC. It should not be assumed that the anticipated costs relate solely to the CMC phase. Work relating to issue/statements of case, disclosure and ADR/settlement phases is very often being undertaken at this stage in the litigation.

On occasion, it may be appropriate to prepare both an updated budget and a schedule depending on the amount of costs in question, the length of any delay and any additional direction from the court.

In the absence of an order stating otherwise, the budget should be re-filed and re-served not later than 21 days before the first case management hearing. The schedule can be made available to the CCMC advocate to hand up to the Judge so that the costs are properly captured and reflected as accurately as possible on the approved version of the budget. The court can then be left to concentrate on setting the budget going forward. 

This approach not only accords with CPR 3.17 (3) (a) but also the case of Discovery Land Company, LLC & Ors v Axis Speciality Europe SE [2021], in which it was determined that work done but not yet billed, including disbursements, should be treated as incurred costs even if those costs cannot be quantified with precision. This decision provides for a degree of flexibility if the costs incurred immediately before the CCMC later turn out to be more or less than anticipated.

If the opponent attempts to challenge the level of incurred costs at this point in the litigation, reference to 3.17 (3) (a) should not only be made in relation to the fact the court may not approve costs up to and including the costs management hearing, but it may also be beneficial to refer to the fact that the Judge in the Discovery case said it was unhelpful for the court to comment on incurred costs at the CCMC stage. As the receiving party, avoiding recorded comment adverse to costs recovery later down the line is worth making the effort for.

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilCosts@clarionsolicitors.com.

Falling short when advising client of ‘shortfall’

The importance of clear client communication on costs budgets has again come to the fore, this time in the context of solicitor-own client costs.

When a case is subject to a costs management order, if budgeted costs are to be exceeded it follows that the implications of that overspend are properly explained to the client. Even if the client has been notified that the excess may not be recoverable from the opponent, further steps need to be taken before deductions can instead be made from damages.

The SCCO case of ST v ZY [2022] EWHC B5 (Costs) (21 February 2022) highlighted exactly that. The costs exceeded the budget by £31,304.68 in the following phases:

-Issue/statements of case: the figure approved was £4,792.46, but £10,771.50 was claimed, an excess of £5,979.04.

-Witness statements: the figure approved was £1,391.51, but £7,643.50 was claimed, an excess of £6,251.99.

-ADR/Settlement: the figure approved was £12,452.85, but £31,526.50 was claimed, an excess of £19,073.65.

In points of dispute, the Defendant relied on the ‘good reason’ requirement of CPR 3.18 (b) not being met to challenge the Claimant’s departure from their budgeted costs.

No attempts were made by the Claimant to advance a reply on the grounds of ‘good reason’ in relation to the excess in the issue/statements of case or the ADR/settlement phases. Recovery from the Client’s damages was instead the default position.

In relation to the overspend in the witness phase, the Claimant did however seek to justify extra costs on the basis that some unexpected work was required in relation to additional witness statements. The time included in the bill of costs for this amounted to 1.9 hours. Unsurprisingly no good reason was found for the £6,251.99 overspend.  

The Defendant also took issue with £11,038 being claimed over and above the 1% and 2% caps allowed for costs management. The Claimant conceded that recovery of this additional excess from the Defendant was not possible and again turned to the Client’s damages.

Senior Costs Judge Gordon-Saker commented in his judgement that he had seen nothing to suggest that the excess had been explained to the Client.

Counsel for the Claimant set out in his skeleton argument that costs information had been provided to the extent that she had been advised there would be a shortfall and the advice letters estimated that shortfall to be £43,500 plus VAT the month before settlement. This figure was very close to the budget overspend of both the budget phases and the costs management cap combined, which altogether totalled £42,342.68 plus VAT.

Claimant’s Counsel submitted that the excess costs were not unusual in nature or in amount and were therefore reasonably incurred so the presumption as per CPR 46.9(3)(c) was not applicable. SCJ Gordon-Saker agreed that they were not of an unusual nature but did consider them to be unusual in amount, distinguishing both elements with a simple analogy:

Paying a brief fee of £50,000 when the usual fee would be £5,000 would be unusual and one can easily see that the solicitor should be at risk if the client is not informed that the fee might not be recovered because of that. The amount can be unusual without the nature being unusual.”

On the facts of this case SCJ Gordon-Saker then pointed out that the issue/statement of case budgeted costs were exceeded by 100%, witness statement budgeted costs by over 400% and ADR/settlement budgeted costs by over 150%.

He did however accept that the Client was advised throughout that there would be costs deducted from damages because they were not recoverable from the Defendant, but that there was nothing to suggest she was told about the set budget or the effect of the budget. He further went on to say:

To avoid the presumption applied by CPR 46.9(3)(c), the solicitor must tell the client that as a result the costs might not be recovered from the other party. That must mean as a result of their unusual nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient. ST should have been told that the budget was being exceeded by a wide margin and that, as a result, those costs might not (and, indeed, almost certainly would not) be recovered from the other side.”

Consequently, costs in excess of both the budget and the 1% and 2% caps were presumed to have been unreasonably incurred. On a practical note SCJ Gordon-Saker concluded his judgment by stating:

I should add that I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and that the costs in excess of the budget would not be recoverable. At that point the client is moving from pursuing a claim in which reasonable and proportionate costs will be recoverable to a claim where no further costs will be recoverable in respect of some or all of the phases.

This case exemplifies the interplay between budgeted cases and solicitor-own client costs and the consequences of ambiguity.

When a budget is to be exceeded and it is apparent that those costs would neither satisfy the ‘significant development’ requirement for upward budget revision nor the ‘good reason’ test at assessment, the client needs to be advised of ‘unusual’ costs from all angles to minimise any potential write-off.  If and when a budget has actually been set, be clear about the consequences of exceeding that budget, especially if the client is to foot the shortfall bill. 

You can find out more about our services here or you can contact the Costs and Litigation Funding team at CivilandCommercialCosts@clarionsolicitors.com.

Proposed increases to court fees to proceed

Court and Tribunal Fees – The Government response to the consultation on ‘Increasing selected court fees and Help with Fees income thresholds by inflation’

Following a consultation process, the Government will be proceeding with proposed increases to Court fees. the changes are likely to come into force in early Autumn. The proposed fee increases reflect inflation and are not therefore real terms increases.

The proposed increases will effect the costs  of detailed assessment as set out below.

DescriptionCurrent FeeIncreaseFinal fee  
Assessment of costs (under Part 3, Solicitors Act 1974)  £55+£4£59
Where the party filing the request is legally aided  £220+£17£237
Costs up to £15000  £369+£29£398  
Costs £15000 – £50000  £743+£58£801  
Costs £50000 – £100000  £1,106+£86£1,192  
Costs £100000 – £150000  £1,480  +£115  £1,595  
Costs £150000 – £200000  £1,848  +£144  £1,992  
Costs £200000 – £300000  £2,772  +£216  £2,988  
Costs £300000 – £500000  £4,620  +£360  £4,980  
Costs Above £500000  £6,160  +£480  £6,640  
Issue of default costs certificate£66  +£5  £71  
Appeal (detailed assessment proceedings)£231  +£18  £249  
Request/application to set aside a default costs certificate  £121+£9£130  

There will also be an effect on the costs of assessment in Court of Protection cases:

On the filing of a request for detailed assessment for Court of Protection  £85£2£87  
Appeal against a Court of Protection costs assessment decision  £65£5£70  

Bethany Collings is an apprentice paralegal in our Costs and Litigation Funding team. If you have any questions, please contact her on 0113 227 3607 or at Bethany.Collings@clarionsolicitors.com

Persimmon Homes Ltd v Osborne Clark LLP – A warning to act promptly when revising costs budgets

The High Court has delivered the most significant judgment since the implementation of the use Precedent T for budget revisions in October 2020, and the provisions of CPR 3.15A.

The case

In Persimmon Homes Ltd and Anor v Osborne Clarke LLP and Anor [2021] EWHC 831 (Ch), the developer Claimant’s brought an action for negligence arising from the drafting of agreements and ancillary advice relating to the development of land. The Defendants had issued a claim for unpaid fees against the Claimant and the matters were being heard together.

A Costs Management Order had been made in December 2019, with the Claimant’s budget approved in the sum of £1.445m and was proceeding to a third CCMC in January 2021. Prior to the third CMC, an application was made to vary the approved costs budget by the Claimant on 21st December 2020 to increase their costs by circa £1.339m. The Precedent T had initially been submitted to the Defendant on 3rd December 2020.

The application was made on the basis that there had been 3 significant developments in the litigation, which were not anticipated when the case was initially cost managed. The costs of preparing a Request for Further Information and considering responses, costs of two additional CMC’s and the biggest issue, in relation to disclosure was that the budgets were based on model A & B in the disclosure pilot scheme, with model C eventually being used.

The framework for an application to vary an approved costs budget is outlined within CPR 3.15 A as many practitioners may be aware. Within this framework is an obligation on the parties, using the form prescribed by PD 3 E (Precedent T) to:

  • Revise its budgeted costs upwards or downwards if significant developments in the litigation
  • submit any revised budget promptly to the other party for agreement.
  • Confine the particulars to the additional costs occasioned by the significant development.
  •  submit the particulars of variation promptly to the court, together with the last approved or agreed budget, and with an explanation of the points of difference if they have not been agreed.

The Court may then approve, vary or disallow the proposed variations, having regard to any significant developments, or may list a further costs management hearing. Where an order is made by the Court, it may vary the budget for costs related to that variation which have been incurred prior to the order for variation but after the costs management order.

Master Kaye identified that to successfully persuade the Court to approve any variation, the threshold of a variation arising from a ‘significant development’ and being submitted promptly must be satisfied before any discretion as to the scope of the variation itself can be considered. The application to vary therefore involves a two-stage process. 

In relation to the first alleged significant development, Master Kaye noted that the request for variation had been submitted ten months after the request was made and four months after all costs in relation to it had been incurred. The Claimant’s submissions that an application to vary can be made after all costs were incurred were rejected, and it determined that whilst “there may be some incurred costs at the point at which an application is made, in respect of which the court may be persuaded to exercise discretion.…. CPR 3.15A (6) was never intended to and is not open season to come back and vary a costs budget after the event.” The application was therefore deemed too late.

Similar observations were also made in relation to the sought variation in relation to the costs of additional CMC’s. With Master Kaye taking issues with the fact that whilst the further hearings were not contemplated at the time the initial hearing took place, the application to vary did not come until 4 months after the order fixing the hearing was made. It was commented that “the absence of promptness in making the applications not only affects whether the application to vary meets the threshold test but has consequences from a practical perspective…… it may have been possible, had an application been made earlier in the year, to identify in advance of incurring all the costs factors which might have persuaded the judge prospectively that they amounted to a significant development that warranted a revision to the last approved costs budget. Prospectively it may then have been possible to persuade a judge that there were additional to be incurred costs said to arise from the RFI/RRFI and CMCs before the costs were incurred thus enabling the court to prospectively manage and control the costs. The very purpose of the variation process.”

The third, and biggest limb of the proposed variation in relation to disclosure was also rejected by Master Kaye. Issue was taken again with the timing of the application in view of the fact the Claimants were aware of the changes in respect of disclosure at earlier CMC’s yet failed to react to the situation. The application was made over 12 months following the switch to model C and therefore was not prompt. Stressing again the need to act prospectively, not retrospectively, Master Kaye confirmed that “Cost budgeting is about setting prospective costs and CPR3.15A is to enable the court to approach the question of variations and amendments in a practical and purposive way not to oust the role of the costs judge”.

Conclusion

The case highlights the extent of the obligations on the parties brought about by CPR 3.15, to revise budgets upwards or downwards throughout the litigation. Throughout the judgement Master Kaye highlighted that the additional costs will be determined by the costs judge at assessment, however the success of such submissions considering this judgment will be interesting to see. To protect their position, parties must assess the content of their approved budgets, and in particular the assumptions which were provided with them at the time of costs management and ensure that any deviations result in the preparation of a Precedent T, at the same time work is being carried out to deal with such deviations. This is the best way to ensure you protect your costs position.

You can find out more about our services here or you can contact the Costs Team at CivilCosts@clarionsolicitors.com.

Late costs budget? Not all lost…

The sanction imposed for failing to file a costs budget when required applied to future costs only in the recent appeal case of Hardy v Skeels (04.03.21, County Court at Stoke).

The ‘court fees only’ restriction was found to have been wrongly interpreted at the detailed assessment when only court fees were recoverable by the defaulting party who filed their budget a day late. Recovery of incurred costs, which can be substantial by the time a requirement for filing budgets arises, were seemingly overlooked.

In points of dispute, the paying party referenced Ali v Channel 5 [2018] to support their position, as the court took the view in this case that the purpose of the CPR 3.14 sanction would be undermined if it were applied to future costs alone and had no effect on incurred costs. The District Judge at the Hardy assessment sided with this stance, reportedly commenting that the sanction was intentionally draconian. This resulted in the sanction being applied to all costs.

In the subsequent overturning of this decision on appeal the CPR wording was scrutinised.

CPR 3.14: Failure to file a budget, states “Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees”.

Although the term ‘budget’ is a blanket reference to both incurred and future costs, the second reference to the term in the Rule was in effect found to mean costs comprising of only ‘future costs’ or ‘budgeted costs’. Incurred costs were therefore determined as recoverable subject to assessment. As the claim settled shortly after the budget filing deadline, the recovery by the receiving party of almost all costs became a possibility.

The rationale behind the appeal decision has brought to the fore how CPR 3.14 is not aligned with other Part 3 rules such as 3.15 and 3.18 which clearly define applicability to future costs. The Circuit Judge who dealt with the Hardy appeal was said to have commented on how CPR 3.14 was poorly worded and that the drafters may not have anticipated the effect of its literal definition. It seems the intention of the Rule was more meaningfully explored in the appeal as CPR 3.14 was found not be a standalone sanction of court fees and instead had to be read in conjunction with CPR 3.18 which has clear applicability to future costs only.

Anna Lockyer is an Associate in our Costs and Litigation Funding team. If you have any questions please contact her on 0113 2885619 or at anna.lockyer@clarionsolicitors.com.

This article was featured in our March 2021 newsletter, see the full newsletter here.

Footballers’ wives and their extraordinary budgets

In the much-publicised libel claim of Rebekah Vardy v Coleen Rooney, each party was required to file a costs budget that detailed the costs incurred to date and the amount of costs they estimated would be incurred to trial.

The budgets were considered by Master Eastman at a brief preliminary hearing on Tuesday. Mrs Rooney’s sought estimated costs in the sum of £402,312 whilst Mrs Vardy’s budget sought estimated costs in the sum of £465,842. In addition, Mrs Vardy had incurred circa £431,000 in costs pursuing the claim to date.

Defending the level of costs stated within Mrs Vardy’s budget, Ms Mansoori, who is the barrister representing the Claimant, said that the budget “reflects the complexity, scope and scale of the legal and factual issues”.

Master Eastman commented that both budgets were “extraordinarily large”, and he urged the parties to try and reach an amicable agreement in the matter. He also ordered that revised costs budgets be filed in June.

Reform to Trial Witness Statements in the Business and Property Courts

New duties and obligations will be placed on commercial litigators from the 6 April 2021 – Anna Lockyer and Professor Dominic Regan discuss the key features of these changes, their wider reaching implications in practice and the likely impact on costs budgeting

This video features Professor Dominic Regan who is working with the Costs and Litigation Funding team as a consultant.

Anna Lockyer is an Associate in the Costs and Litigation Funding Department at Clarion Solicitors. You can contact her at Anna.Lockyer@clarionsolicitors.com and on 0113 288 5619.