As result of the new Solicitors Regulation Authority (SRA) Standards and Regulations issued in November 2019, which replaced the SRA Handbook, solicitors are required to comply with paragraph 8.7 of the SRA Code of Conduct for Solicitors, RELs and RFLs and paragraph 7.1 (c) of the SRA Code of Conduct for Firms. In addition, there is a requirement to comply with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, which stipulate that solicitors must provide the information about the overall cost of the services and if there are likely to be any disbursements.
Notwithstanding the clear provisions that are included within these regulations, and indeed the preceding regulations in the SRA Handbook (sections 1.12 to 1.16), the courts are still having to consider and determine disputes between parties, clients and solicitors, in relation to costs being charged.
Continuing difficulties were recently highlighted in a case before Master Leonard at the Senior Courts Costs Office (Adam Newman v Gordon Dadds LLP), where he was required to consider, as a preliminary issue, the cost estimates and their effect on the client’s bills.
The client in this case was the claimant, Mr Newman. The claimant was in dispute with Jabac Finances Ltd and sought to establish that the present operation of the company was unfairly prejudicial to his interest. He intended issuing an unfair prejudice petition under section 994 of the Companies Act 2006. However, the main thrust was to bring the parties to the table by way of a mediation to resolve the matter.
The solicitors submitted a retainer letter, dated 21 August 2017. This included an estimate for the cost of carrying out the work as being “no more than £10,000 exclusive of VAT and disbursements (estimate)”. Yet it was clear from this retainer letter that the work to be carried out was limited to that which was described in the letter and did not cover what turned out to be multiple proceedings, advice and assistance in relation to matters outside the scope of that included within the retainer letter. Additional work was to be charged at the firm’s appropriate hourly rate for the individual undertaking the work.
The defendant decided to invoice on a monthly basis. Costs incurred up to 31 December 2017 were paid by the claimant. It transpired, however, that six bills, dated between 31 January 2018 and 31 March 2018 amounting to £84,919.90, were disputed and unpaid. This gave rise to an order under section 70 of the Solicitors Act 1974 for these bills to be subject to detailed assessment.
In carrying out the assessment, the amount was determined by reference to CPR 46.9 with costs being assessed on the indemnity basis. Costs that had been reasonably incurred and were reasonable in amount were allowed, but with some rebuttable presumptions including that the costs had been reasonably incurred if they were incurred with the express or implied approval of the client, and that they were reasonable in amount if the amount was expressly or impliedly approved by the client. Such determination, however, was dependent upon evidence being presented to the court.
Although Master Leonard made it clear that there was a lot of information and evidence not available to him, he concluded, based on what was available, that:
- The solicitors had failed to provide the client with any estimates of potential future costs other than the limited estimate provided for the initial work detailed.
- There had been a failure to advise the client adequately on estimates, which was in breach of the contractual and professional obligations of solicitors, and this in turn deprived the client of the opportunity to make an informed choice as to whether to seek alternative representation.
- He did not consider that the estimate, which was limited to £10,000 to cover the initial work as expressly stated, was reasonably relied upon by the client for the purpose of anticipating the cost of the litigation that followed, it having been exceeded long before the bills which were the subject of assessment had been rendered. Master Leonard did not consider that it would be right to limit the defendant’s recoverable costs to that figure.
- While it might have been appropriate for the costs recoverable by the solicitors between January and May 2018 to have been limited to the likely expenditure that the client would have incurred on choosing another solicitor, the evidence produced by the client was not sufficient to identify a reliable and fair figure.
- Applying the principles that arose from the decisions in MasterCigars Direct Ltd v Withers LLP  EWHC 2733 (Ch) and MasterCigars Direct Ltd v Withers LLP  EWHC 651(Ch), the solicitors’ costs could not reasonably be limited to any specific sum.
This decision again highlights the need for solicitors to be vigilant in relation to compliance with the SRA Code of Conduct for Solicitors generally, and provides useful guidance as to what should be addressed when deciding, whether acting for solicitors or the client, how to prepare and present the case to the costs judge for determination. It is not appropriate to leave explanations as to the terms or the retainer and costs information to comment in witness statements, pleadings or submissions, but it is more important for this to be dealt with from day one (that is, at the point of entering into the retainer).
Specifically, if rendering interim invoices, it is not appropriate to rely upon the fact that these may have been rendered and paid as an indication of the client being kept informed of the accruing costs. This is no substitute for the provision of the best possible estimate of future costs.
It is also essential for the purpose of budgeting a multi-track claim for attention to be paid to the costs being incurred or to be incurred, so as to not fall foul of the failure to update the budget and limit the clients’ potential recoverability of the costs. The starting point must therefore be the solicitor and client relationship, and the contractual provisions must comply with all relevant rules and regulations. Where there is a dispute and it is necessary for the court to be asked to assess costs, it is also essential that evidence presented to the court by either party is full and sufficient to enable the costs judge to have a clear picture of what was agreed and what information was provided in relation to costs. Failure to do this will lead to the consequences highlighted in the MasterCigars decisions. There could be a substantial disallowance of costs. (The obligations to comply fully with the SRA Standards and Regulations, and ensure evidence available to the court, was also highlighted in the recent case before Master Gordon-Saker in Iwuanyawu v Ratcliffes Solicitors.)