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Estimating the special circumstances of Eurasian Natural Resources Corporation v Dechert

In Eurasian Natural Resources Corporation Limited v Dechert LLP, the Senior Courts Costs Office (SCCO) stressed the need for solicitors to engage in careful prospective consideration of costs, and to provide regular and realistic costs estimates to clients. It is the latest round of Dechert’s long-running fee dispute with its former client, concerning work carried out by the defendant firm in relation to a criminal investigation into Eurasion Natural Resources Corporation (ENRC) by the Serious Fraud Office (SFO).

ENRC applied for detailed assessment of 15 paid invoices, amounting to £4.2 million in total, which had been rendered to it by the defendant between one and 12 months prior to the date of the application. As the invoices had been paid in full over one month previously, ENRC could not seek assessment as of right under section 70(3) of the Solicitors Act 1974, but had to show that “special circumstances” existed in order to have the invoices assessed, pursuant to section 70(3). In finding that the claimant had succeeded in establishing that special circumstances existed, the SCCO held that the discrepancy between the limited costs estimates that had been provided and the costs billed was plainly one that “calls for an explanation” (following the Court of Appeal’s guidance on the relevance of costs estimates in Leigh v Michelin Tyre Plc).

The facts in this case are perhaps particularly egregious: Dechert’s overall final bill came to some £16.3 million. No original estimate of costs had been provided. DLA Piper, initially instructed in the matter, had provided an estimate of just £350-400,000, plus VAT and disbursements (though it was accepted that this estimate had been overtaken by events). Such costs estimates as were provided were reactive, “considerably awry on every occasion” and based on “highly unrealistic assumptions”. Moreover, detailed plans of work had been prepared and considered at length in numerous internal meetings, but no effort had been made to cross-reference these plans to the costs estimates.

The impact of Jackson

Paragraph 52 of Master Rowley’s judgment specifically cites the Jackson reforms, noting that:

“The work carried out in this case straddles the period of the review of Lord Justice Jackson. The need to improve the prospective understanding of costs through budgeting was writ large within that report and given prominent publicity. In that environment, it is simply not acceptable for a solicitor to provide an early estimate which is then not updated for a considerable period.”

Whilst not referred to within the judgment, this approach is mirrored by the regulatory position: the costs obligations placed upon solicitors under the SRA Code of Conduct 2011 stipulate, at mandatory outcome O.13, that it must be ensured that:

“… clients receive the best possible information, both at the time of engagement and, when appropriate, as the matter progresses, about the likely overall cost of their matter”.

Whilst it may be taking some time for practice to catch up with obligation, the only striking feature in Master Rowley’s judgment is the scale of the costs involved: the judgment itself reflects nothing more than a reiteration of fairly long-standing principles.

Additional points

Whilst Master Rowley made it very clear that the discrepancy between the estimates and the costs billed was the primary factor in establishing that special circumstances existed, there were additional factors which would have prompted the same conclusion. These were namely:

  • The size of the bill.
  • Various billing irregularities.
  • Unusual features of the solicitor/client relationship given the nature of the proceedings.
  • The claimant’s inability to challenge monthly invoices as a result of this.
  • The defendant’s approach to billing queries generally and the instant proceedings specifically.

This is therefore a useful case for those seeking to challenge solicitor/own client bills where inadequate or inaccurate estimates are not an issue between the parties.

39 Essex Chambers Caroline Allen

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