SOLICITOR'S NEGLIGENCE & SOLICITOR'S COSTS: ELEMENTARY ISSUES WORTH READING

The transcript of Edwin Coe LLP -v- Aidiniantz [2014] EWHC 3994 (QB) is worth reading for a number of reasons: (i) The nature of the duty owed by the solicitor in litigation; (ii)evidence and contemporary documents and (iii) the circumstances where a court will decline to make an order that a solicitor’s bill of costs be assessed.

OVERVIEW

• There is no duty on a solicitor to state the obvious to a commercial client.
• In particular there is no duty, once a client is advised that an action is possible, to consider that matter in further detail with the client.
• The court did not exercise its discretion to make an order for assessment of solicitor/own client costs outside the one month period set out by s.70 of the Solicitors Act 1974.

THE CASE

The claimant firm of solicitors had acted for the defendants in relation to a dispute surrounding the Sherlock Holmes Museum.  A freezing order had been obtained against various individuals and companies and the claimants were instructed to act on behalf of the respondents to that injunction.

The claimant was suing on a number of bills of costs totalling £103,300.17 and £75,907.17 against a number of companies and an individual. The individual was being pursued for work done personally and under an indemnity.  The defendants counterclaimed alleging negligence and seeking an order for assessment of the bills of costs in any event.

THE ALLEGATION OF NEGLIGENCE MADE AGAINST THE SOLICITORS

The allegations of negligence were that the claimants should have informed the defendants that payments could be made which would have ended, or mitigated, the effect of the freezing injunction against them.

THE DUTY OF CARE THAT A SOLICITOR OWES

1. It is, I think, convenient to remind oneself of some observations of Donaldson LJ in Carradine Properties Ltd. v. D.J. Freeman, reported at [1999] Lloyd’s Rep PN 483, but actually a case decided in 1982, which observations were approved by the Court of Appeal in Virgin Management Ltd. v. De Morgan Group Plc [1996] EGCS 16. At page 487 of the report Donaldson LJ said:-

“A solicitor’s duty to his client is to exercise all reasonable skill and care in and about his client’s business. In deciding what he should do and what advice he should tender the scope of his retainer is undoubtedly important, but it is not decisive. If a solicitor is instructed to prepare all the documentation needed for the sale or purchase of a house, it is no part of his duty to pursue a claim by the client for unfair dismissal. But if he finds unusual covenants or planning restrictions, it may indeed be his duty to warn of the risks and dangers of buying the house at all, notwithstanding that the client has made up his mind and is not seeking advice about that. I say only that thismay be his duty because the precise scope of that duty will depend inter alia upon the extent to which the client appears to need advice. An inexperienced client will need and will be entitled to expect the solicitor to take a much broader view of the scope of his retainer and of his duties than will be the case with an experienced client. “

1. The corollary to that approach, which was important to the outcome in Virgin Management Ltd. v. De Morgan Group Plc, is that it is not necessary, in order to discharge the obligation to advise a client with the care and skill to be expected of a reasonably competent solicitor, to point out to the client that which he already knows, or which is blindingly obvious to anyone of reasonable intelligence. The judgment of the Court of Appeal inVirgin Management Ltd. v. De Morgan Group Plc was delivered by Leggatt LJ. So far as is presently relevant, the case concerned whether a solicitor instructed to draft a legal agreement owed a duty to his client to advise concerning the financial implications of the agreement which he was asked to draft. In the course of the judgment of the Court of Appeal Leggatt LJ observed:-

“Virgin’s real complaint is not that they were not advised that the financing payments to be made by Concita were inclusive of any VAT which might be payable in respect thereof, which was obvious, but rather that they were not warned of the possibility that they might be chargeable to VAT.

…

However the duty is pleaded, in the end it comes to an allegation that Mr. Lehrer was under a duty to advise experienced and sophisticated commercial clients with ready access to fiscal advice that the terms of the transaction which they had agreed and which he had been instructed to put into legal form might be fiscally imprudent. We entirely agree with the Official Referee that the allegation cannot be substantiated.“

1. What can be derived from the judgment of the Court of Appeal in Virgin Management Ltd. v. De Morgan Group Plc which is relevant to the circumstances of the present case is that, in the absence of evidence to the contrary, a solicitor is entitled to proceed on the basis that his client is of reasonable intelligence, and so does not require to have the obvious pointed out to him. In my judgment a solicitor is also entitled to proceed, in the absence of evidence to the contrary, on the basis that his client is fluent in the English language, and capable of reading and understanding clear words expressed in the English language. Moreover, a solicitor is entitled to proceed on the basis that a businessman client is familiar with his own business, how it operates, and how it is affected by matters like orders of the court. A businessman client is not entitled to be treated as if he were an illiterate child.

IN THE CURRENT CASE

• The defendants knew perfectly well that it was possible for a freezing order to cease to have effect because the amount frozen was paid into court or otherwise secured.
• The terms of the paragraph in the freezing order which set this out was not difficult to understand. However it was incumbent upon the solicitors to point this out.
• The defendants made it clear that they had read the freezing order when it was received, and this was shown by e-mails that had been sent by the defendant.
• The judge rejected the argument that it was incumbent upon the solicitors to go through this in great detail.
• It was for the defendants to say if they wished to have the freezing orders discharged.
• In any event there was no benefit in seeking to have the freezing order discharged (demonstrated by the very limited nature of the damages claim that the defendants were seeing against the solicitor).
• The defendants’ claim consisted of the costs of making an application to discharge the order which failed. However those costs were not incurred because advice was not given to seek a discharge of the freezing order but because the discharge application was made and failed.

ASSESSMENT OF THE EVIDENCE

The claimant solicitors called several witnesses. The defendant only one. The judge preferred the evidence adduced by the claimant. The defendant’s evidence was contradicted by a relatively contemporaneous e-mail sent by counsel.

THE JUDGE’S CONCLUSION: NO EVIDENCE OF NEGLIGENCE

1. In the result I am satisfied that there is no substance whatsoever in the allegations of negligence made against Coe in the Part 20 Claim. For the reasons which I have explained, it was not incumbent upon Coe to give the advice which it is alleged that it did not give as to the possibility of paying parts of the £535,000 into court in order to procure the discharge of the Main Freezing Order as against Rollerteam and Holmes Ltd., as Mr. Aidiniantz, being aware of the possibility of procuring discharge by payment into court, had expressed no interest in that option. The advice given in the letter dated 18 December 2012 as to the possibility of paying money into court to secure the discharge of the Main Freezing Order was sufficient. If more explicit advice had been given before the decision to pay the £535,000 into court had been made, it would have been ignored on the critical point of not pursuing a discharge application, because Mr. Aidiniantz was determined to seek to have the Main Freezing Order discharged in order to secure advantage over those behind SHIS. That is the course upon which he resolved to continue after the consultation with Mr. Samek when, on my findings, he was told in terms that money could be paid into court in order to secure the release of any particular defendant in the Main Action from the Main Freezing Order as continued by the Return Day Order.

SHOULD THERE BE AN ASSESSMENT OF THE COSTS CLAIMED?

Section 70 (1) of the Solicitors Act 1974 requires that that an application to challenge a bill of costs be made within one month of the date being rendered. Section 70(2) allows the court to extend that time and section 70(3) requires that there be “special circumstances” after 12 months or if an assessment is sought after the bill has been paid.

(2) Where no such application is made before the expiration of the period mentioned in subsection (1) then, on an application being made by the solicitor or, subject to subsections (3) and (4) by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the assessment) order –

(a) that the bill be assessed; and

(b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.

(3) Where an application under subsection (2) is made by the party chargeable with the bill –

(a) after the expiration of 12 months from the delivery of the bill, or

(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or

(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,

no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.“

None of the defendants had sought an assessment of the bills within one month.

THE JUDGE’S CONSIDERATION OF HIS DISCRETION

1. So far as each of those decisions was concerned, an important question had to be whether, if assessment were directed, that would result in any benefit to those seeking assessment. I have already expressed my view that, in order to be satisfied on the question of possible benefit it was appropriate for a costs draftsman, or someone similarly qualified, to have been called to give expert evidence, but that that did not happen. Absent any expert evidence, the views of the client, or client’s representative, Mr. Aidiniantz, as to what he was seeking to achieve and how, had to be relevant, pace Mr. Flenley. The guidelines in Guide to the Summary Assessment of Costs 2005 edition, were just that, guidelines. They were not said to have been current in 2013, but in 2010, and related to the summary assessment of costs, which was not the exercise which I was invited to direct. I notice that paragraph 42 of the Guide, in explaining the guidelines, stated:-

“The guideline figures are not intended to replace figures used by those with accurate local knowledge. They are intended to provide a starting point for those faced with summary assessment who do not have that local knowledge.“

1. It seems to me appropriate for me to recognise that Coe operated at the date of the trial, and operated in 2012 and 2013, in a competitive legal market, and thus that its hourly rates were more likely to be competitive with other practices of a similar size and type of business in Lincoln’s Inn and the surrounding areas, than not.
2. I have already mentioned as relevant to the exercise of my discretion under Solicitors Act 1974 s.70(2) the fact that the client had agreed the amounts of the bills sought to be assessed. In those circumstances, as it seemed to me, in order to persuade me to exercise my discretion in favour of Mr. Aidiniantz, Rollerteam, Museum Ltd. and Holmes Ltd. it was incumbent upon those parties to explain why, having agreed the bills, it was sought to have them assessed. That involved not merely explaining why the bills had been agreed in the first place, but also why, that having been done, they now wished to have them assessed. Or, to put it another way, what did they expect to get out of an assessment, with reasons for any professed advantage, and why had they not chosen to seek that advantage within the time permitted by Solicitors Act 1974 s.70(1), but rather agreed the relevant bills? These questions were not addressed at the trial separately from the points which I have already rehearsed.
3. Having eschewed as a useful yardstick in assessing the reasonableness of the costs of Coe which it was sought to have assessed the experience of the court, if compelled to express a view I would have said that it was not obvious to me, in the light of my experience in other cases, that the costs charged by Coe were excessive, given the hourly rates of Mr. Gilchrist and Mr. Su, which did not seem unreasonable, and the vast number of e-mails and telephone contacts between Mr. Aidiniantz and Mr. Gilchrist and/or Mr. Su revealed by the evidence.
4. In the result I was not persuaded that it had been demonstrated that it was appropriate, in the exercise of my discretion under Solicitors Act 1974 s.70(2), to direct assessment of the unpaid, or partially paid, bills of which assessment was sought. The Part 20 Claimants were not entitled to an assessment under that provision simply for asking, yet the submissions of Mr. Flenley in closing came close to that contention. In the end I think that he sought to hold fast upon the rock of Mr. Gilchrist’s acceptance in cross-examination that on assessment the proper amounts of the bills might be found to be something of the order of 20% less than the sums claimed. Although that might look an attractive basis upon which to order assessment, there was no evidence, from Mr. Gilchrist or anyone else, of what might be the justification for the reduction of 20% or so. The main elements of each of the bills unpaid, or partially paid, and sought to be assessed were profit costs, disbursements and Value Added Tax. The calculation of the latter was simply a function of calculating the two former elements and applying the rate of the tax, 20%. The proper profit costs were a function of what work was done, by whom, at what hourly rate, whether the hourly rate was appropriate for the work in question, and whether the number of hours expended on each item of work was reasonable. The disbursements were mostly counsel’s fees. To which element, or elements, the 20% reduction might apply was obscure.
5. So far as the paid bills were concerned, I was, in addition, not satisfied that it had been shown that there were “special circumstances” which justified an order for assessment.