OVERSPENDING ON YOUR COSTS BUDGET? BETTER TELL YOUR CLIENT

Way back in the mist of time (that is post-Mitchell, pre-Denton) I reported a decision of District Judge Lumb on sanctions and costs budgeting. That particular post was then  plagiarised without any reference to me (matters were resolved amicably). However  when I found myself lecturing alongside DJ Lumb at the PIBA conference earlier this year  I did mention that it may be apt for me to steal his ideas.   This post is based on one of the things he discussed – the significance of CPR 46.9(2).

CPR 46.9(2) & (3)

This is an important (and I suspect often overlooked rule) which applies on solicitor and own client assessments.

“(2) Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.

(3) Subject to paragraph (2), 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;

(c) to have been unreasonably incurred if –

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.”

SECTION 74 OF THE SOLICITORS ACT 1974

74 Special provisions as to contentious business done in county courts.

(1)The remuneration of a solicitor in respect of contentious business done by him in a county court shall be regulated in accordance with sections 59 to 73, and for that purpose those sections shall have effect subject to the following provisions of this section.

(2)The district judge of a county court shall be the costs officer of that court but any assessment of costs by him may be reviewed by a judge assigned to the county court district, or by a judge acting as a judge so assigned, on the application of any party to the assessment.

(3)The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in a county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.

THE KEY POINTS

• The amount allowed on a solicitor and own client assessment will not, normally, exceed the amount which could have been allowed on an inter partes basis.
• If a solicitor wants to recover matters that are not allowed on an inter partes basis then the client has to tell the client that the costs may not be recovered.
• This can only be excluded by a written agreement.

THE SIGNIFICANCE OF THIS FOR COSTS BUDGETS AND LITIGATION

The reason I am writing on this issue now is that an article in Litigation Futures this week states that “Lawyers are overspending in 89% of High Court and county court cases where costs management orders are made...”

The article makes the point that problems occur when any particular phase is exceeded not just when the entire budget is exceeded.

THE IMPACT ON ASSESSMENT: THE APPLICATION OF THE INDEMNITY PRINCIPLE

These significance of this is not confined to a solicitor and own client assessment. This can go directly to an inter-partes assessment when a cost-budgeted phase has been exceeded. Much of the argument on assessment centres around the question of whether there was “good reason” for a part to exceed the budget. However the reality may well be that a paying party can ask for confirmation that the receiving party was told, in advance, that the budgeted phase was about to be exceeded.

• Clearly any work done outside a budgeted phase are costs that “might not be recovered from the other party”.
• Without a warning in advance the client will not be liable to pay those costs
•  If the costs are not recoverable from the client they are not recoverable from the paying party.
• Even if there is a written agreement under section 74(3) the question of whether the client knew of the matter and agreed that the phase could be exceeded could still be relevant on assessment.