Robin Stewart -v- HCC Solicitors, SCCO (Master Rowley) 17/10/17 - Solicitors' Bill reduced from £130k to £76k

The case demonstrates that, from a client's perspective, time for assessment has not expired simply because their solicitors say it is so. It is also an indication that the internal complaints procedures of solicitors, valuable though they are in some cases, should not be viewed as a replacement for the statutory rights of clients under the Act.

Kerry-Anne Moore

This case, dealt with by Kerry-Anne Moore and Mark Carlisle through our sister company Deep Blue Costs, resulted in HCC's bill for work going back to 2006 being reduced from £129,731.57 to just under £76,000, resulting in a re-payment to the client of just under £30k and payment by HCC of costs of £20k.

This was an application for assessment under s.70 Solicitors Act 1974 relating to fees charged by the Defendant for representing the Claimant in litigation concerning commercial property. The client's main complaint was that, in the course of a mediation on 23rd October 2014 at which terms were reached as to settlement of the claim as a whole, he was told (twice) that the costs to date were £70k, which figure he relied upon in reaching the settlement that he did. In actual fact however all told the costs amounted to just short of £102k.

Mr.Stewart complained immediately afterwards and, having gone through HCC's internal complaints procedure, was offered a modest reduction to the overall costs of £4,800.

The solicitors were first instructed in 2006 and had delivered what, at first sight, appeared to be a number of interim statute bills at regular intervals culminating a in a final bill (in the sense that it was the last of these regular interim bills) dated 20th November 2014.

Payment of the invoices had been made throughout the course of the case – some by legal expenses insurers until the indemnity limit was reached, but later by Mr.Stewart himself - and payment of that last invoice was made on 27th January 2015.

Time Limits and the Nature of the Bills Delivered

The first hurdle to get over therefore was the issue of time. The client instructed us in November 2015, so if they were interim statute bills only a small number of them were susceptible to assessment in light of the provisions of s.70(4) of the Act –

s.70(4 : the power of the court to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.

Proceedings were sent to the Court for issue on 4th December 2015 seeking an order either that the invoices be treated as a series of on account bills culminating in a final bill which, together, would be treated as the statute bill in accordance with Chamberlain v Boodle & King [1982] 1 WLR 1443 ; as an alternative, bearing in mind the decision of the High Court in Vlamaki v Sookias & Sookias [2015] EWHC 3334 (QB) (20 November 2015) that in fact none of the bills delivered were capable of being assessed, we sought delivery of a compliant bill pursuant to s.68 of the Act.

Although the Claim Form was sent for issue on 4th December 2015, it was not sealed until January 2015. This may have impacted on HCC's defence in that they contested the claim pleading that the application was wholly out of time because the bills were interim statute bills and, the last one being dated 20th November 2014, they were all caught by s.70(4). This disregards two points : (1) the fact that the absolute bar under s.70(4) is from the date of payment of the invoice, which had not happened until January 2015, and (2) the fact that from a procedural point of view the date of issue is the date upon which a correctly completed claim form is received by the court.

Following the exchange of witness statements in accordance with his directions the matter was listed for a preliminary issue hearing before Master Leonard on 2nd June 2016. The Defendant's evidence did not disclose any contractual entitlement to deliver interim statute bills. Even had there been such a contractual entitlement HCC would have been in difficulties because a contractual entitlement is not enough unless, as per the judgment in Vlamaki, the client has been given a proper explanation before entering into such a retainer with regard to its impact upon his or her rights under the Act.

Shortly before the preliminary issue hearing HCC capitulated and agreed to deliver a compliant bill, along with costs of the proceedings.

The "New" Bill and the Assessment

Surprisingly, HCC chose to deliver a new bill for a higher amount. The new bill totalled £129,731.57 whereas the previous on account bills had totalled just under £105,000. As a result Mr.Stewart faced the risk of paying a further £25,000 unless significant inroads could be made.

An immediate application was made for assessment of the new bill under s.70(1), but with provision that the scope of the assessment be limited under s.70(6) to the profit costs element of the bill alone.

s.70(6) : Subject to subsection (5), the court may under this section order the assessment of all the costs, or of the profit costs, or of the costs other than profit costs and, where part of the costs is not to be assessed, may allow an action to be commenced or to be continued for that part of the costs.

This was a tactical decision reflecting the fact that the main area of attack was the inaccurate costs estimate given at mediation. The majority of disbursements were counsel's or experts' fees, in respect of which the client had given express or implied approval, so they were unlikely to be reduced.

By focussing on profit costs it meant that the target figure for the 20% reduction was reduced, because of the interaction with s.70(9) (the "one fifth" rule), with s.70(12), which provides that -

the reference in subsection (9) to the fraction of the amount of the reduction in the bill shall be taken, where the assessment concerns only part of the costs covered by the bill, as a reference to that fraction of the amount of those costs which is being assessed.

This is an important consideration in all assessments under the Act. Without applying s.70(6), you still have to get 20% reduced from the whole bill. If you are not disputing disbursements then the 20% that you need to get off them needs to come off elsewhere. For example on a bill that is split 50/50 between profit costs and disbursements then, if profit costs are all that are realistically disputed, you would need to reduce the profit costs by 40% in order to achieve a "win" for the purposes of s.70(9) without resorting to the lottery of "special circumstances".

Points of Dispute were served raising a number of points but concentrating on the "estimate" issue. Importantly the Points of Dispute were supplemented by a witness statement from the client demonstrating the circumstances surrounding the provision of the figure during the course of the mediation appointment, how it had been queried by counsel, how he had relied upon it, how he may have acted differently had the correct figure been given and how (other than the obvious fact that he was now faced with a potentially higher bill) it caused him a loss.

In terms of how he would have acted differently, this was different to most "estimate" cases because they tend to deal with estimates given at a much earlier stage in the proceedings. In those cases the evidence is, necessarily, a much more hypothetical "I may have gone elsewhere" type of argument. In this case however, the costs had already been incurred and there was no opportunity to change history.Mr.Stewart however gave the following evidence by way of witness statement –

"Had a higher figure been provided in respect of costs there would have been two potentially different outcomes: either I would have attempted to negotiate a higher overall figure to take into account the higher costs, or the settlement would have been apportioned differently as between capital and costs."

He simply did not have the opportunity to assess the all inclusive offer made at mediation in light of the true costs figure.

In terms of his loss, Mr.Stewart's position was this -

"As matters stand I have paid excessive capital gains tax because in agreeing the apportionment of the total settlement with the defendants, I insisted that the total cost figure then provided by HCC be shown separately in the Tomlin order so that no future dispute could arise as to the apportionment of the settlement figure. The understatement by HCC of their costs has as a result produced a higher disposal figure for CGT purposes than would have been the case had I been informed during the negotiations that the costs incurred were much higher."


This is a crucial element which is often overlooked in costs estimate issues. There was clear and concrete evidence of a financial loss. The settlement figure was inclusive of costs. The amount of "gain" upon which tax would be paid was inflated, because the costs figure was deflated.

The assessment came before Master Rowley on 16th and 17th October 2017 and Mr.Stewart was represented by Counsel, Robin Dunne of Clerksroom.

The Master accepted the costs estimate argument finding that, for all work up until the day of the mediation, HCC were restricted to £70k. Some additional allowances were made for the costs of the day, including Counsel's fee, producing a total of £75,954.87.

This was a reduction of around 64% to the profit costs element of the bill, consequently HCC were ordered pay costs of assessment which were agreed in the sum of just over £20,000.

Summary

The case demonstrates that, from a client's perspective, time for assessment has not expired simply because their solicitors say it is so. It is also an indication that the internal complaints procedures of solicitors, valuable though they are in some cases, should not be viewed as a replacement for the statutory rights of clients under the Act.

It also reinforces the lessons that should be learned from the Vlamaki case – a bill is not a statute bill just because it looks like one – and provides a useful tactical insight into assessments under the Act, and the importance of evidence in cases where a costs estimate point is at large.

An abridged version of this article appears in this month's Costs Lawyer Magazine.

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