SOLICITOR AND OWN CLIENT ASSESSMENT: INTERIM BILLS ARE NOT STATUTE BILLS

In Masters v Charles Fussell & Co LLP [2021] EWHC B1 (Costs) Costs Judge Rowley found that bills rendered by the defendant solicitors were not final bills and the claimant retained a right to challenge those costs.

” in order to “make it plain” to a client that he is receiving an interim statute bill, it seems to me that the information given at the outset needs to make clear that there are time limits and indeed give some indication of what those time limits are. The idea that several months, or, in this case, years after the engagement letter and terms and conditions were provided, the client ought to be alive to the fact that he has an entitlement under the Solicitors Act if he challenges bills promptly, seems to me to be far-fetched. There is no mention of the Solicitors Act on the invoices even to prompt such a recollection.”

THE CASE

The claimant issued proceedings against its former solicitors seeking assessment of bills rendered.  The court was asked to determine a number of preliminary issues.

THE ISSUES

The judge set out preliminary issues to be determined.  The defendant solicitors had rendered a number of bills.  The question was whether these were “statute” bills and the time for challenge had expired.

(a) The status of the bills referred to in the claim form, that is whether they are

(i) interim statute bills

(ii) one or more in a series of “on account bills” as per Chamberlain v Boodle and King, or

(iii) none of those

(b) In light of the court’s finding on issue (a)

(i) whether or not and on what terms the claimant may be entitled to assessment and

(ii) if they are required, whether or not special circumstances exist so as to justify an assessment, or

(iii) if the bills are neither interim statute bills nor a Chamberlain series, whether an order for delivery of a statute bill ought to be made.

THE LAW

1. 1. Mr Dunne and Mr Jones were agreed as to the law in relation to these issues. In order for a bill rendered by a solicitor to a client to be an “interim statute bill” it has to have certain characteristics. Absent those characteristics, the bill is not counted as a “statute” bill and as such the various provisions of the Solicitors Act 1974 (“the Solicitors Act”) do not apply to it. A non-statute bill is often described as a request for payment on account in order to distinguish it from an interim statute bill.

   2. Mr Dunne described the requirements of an interim statute bill as requiring it to be a self-contained bill which is complete in respect of both the period which it covers and in its subject matter. The Court of Appeal decision of Richard John Slade (trading as Richard Slade and Company) v Boodia & Anor [2018] EWCA Civ 2667 clarified that an interim statute bill could relate simply to solicitors’ charges or counsel’s fees or disbursements without having to contain all three elements to the extent that they existed for a particular period. However, other than this, the sum claimed must be complete and not subject to any subsequent adjustment.

   3. If a bill rendered is an interim statute bill, then the provisions of section 70 of the Solicitors Act apply in respect of the time periods in which any application needs to be made by the client for an assessment of the bill. An application within a month of delivery of the bill will allow an assessment as of right. Where, as here, the invoices have largely been paid, any application after a month but before the end of 12 months will require the court to find that there are “special circumstances” for an assessment to be ordered. After the period of 12 months, s70(4) stipulates that there is no jurisdiction for the court to order any assessment of a bill that has been paid. Some of the later bills in this case have not been paid and, in respect of those bills, the timescales are more generous and, importantly, s70(4) does not apply to oust the court’s jurisdiction after a period of time.

   4. The Draconian nature of the time periods in limiting a client’s ability to obtain an assessment of a solicitor’s statute bill has led the courts to require solicitors to “make it plain” to their clients if they intend each bill rendered to be a self-contained bill for a period and for which the time limit for challenge begins to run immediately. The alternative approach for solicitors is to render a series of requests for payments on account with a final statute bill provided at the end of the matter. The time for challenging the solicitors’ fees would then only begin to run once the final invoice had been delivered.

   5. Mr Dunne relied specifically on the words of Fulford J (as he then was) at paragraph 48 in the case of Adams v Al-Malik [2003] EWHC 3232 (QB) where he said:

“In particular the party must know what rights are being negotiated and dispensed with in the sense that the solicitor must make it plain to the client that the purpose of sending the bill at that time is that it is to be treated as a complete self-contained bill of costs to date…”

1. To the requirements set out by Mr Dunne (at paragraph 15 above), Mr Jones added that the invoice must be payable rather than merely seeking a payment on account. In this respect, the work would have to be charged in arrears to show that the work had actually been done.

2. Furthermore, according to Mr Jones, the bill needed to be “assessable”. If it were not, then a Solicitors Act assessment could not take place. The effect of this point was that the client needed to be provided with sufficient information either on the face of the bill, or its attachments, or from the client’s knowledge of relevant matters as described at length in the case of Ralph Hume Garry (a firm) v Gwillim [2003] EWCA Civ 1500.

3. Finally, in respect of the law, even if a bill exhibits all the characteristics of an interim statute bill, it may still not count as such if the solicitor does not have the right to render such an invoice rather than simply request a payment on account. The ability to render an interim statute bill can occur during what has been described as a “natural break” in the proceedings but there is no suggestion of that having occurred here. It is also possible for the entitlement to occur through conduct but again that was not suggested. As Mr Dunne fairly described it, the defendant’s argument is entirely that they were entitled contractually to render interim statute bills and did so.

THE FINDINGS IN THIS CASE

The judge considered three periods of time when different retainers were being considered.

1. 1. Given that there was little dispute in the evidence and that the law applying to these issues was also essentially agreed, it is not surprising that the submissions by both advocates were succinct. There were some attempts to widen out the arguments in favour of the parties’ positions. For example Mr Dunne argued optimistically that the engagement letter and the terms of conditions were inconsistent and in such circumstances the engagement letter should apply. In fact, as Mr Jones pointed out, it seemed clear on the face of the documents that the terms and conditions were there to provide detail in comparison to the general statements contained in the engagement letter as would be expected. But those attempts to widen the argument on both sides did not seem to me to add very much.

   2. The core position of Mr Dunne was that neither the engagement letter nor the terms and conditions provided the information to the client which would make it plain to him that the bills he was receiving on roughly a monthly basis were statute bills and for which the time period in which to challenge them ran from the moment he received each one.

   3. Mr Jones’s core argument was that in fact each invoice received by the claimant was a self-contained bill which provided more than enough information for the claimant to consider whether to seek to assess it. He referred to the wording in the terms and conditions at paragraph 5 – in particular about the invoices being rendered in arrears; being comprehensive in their periods and subject matter – as well as the wording of paragraph 6 about the client’s entitlement to an assessment under the Solicitors Act. By these terms, Mr Jones submitted, the defendant had made it plain to the claimant that it was going to render interim statute bills. To the criticism that the Solicitors Act time periods were not spelt out, Mr Jones referred to the phrase “subject to certain criteria” in paragraph 6 and to the comment immediately below it about the client being able to ask Mr Fussell for any further information required.

Decision on the first retainer

1. 1. I have no doubt that the defendant intended the arrangements with the client to be one where interim statute bills were delivered and therefore, if necessary, could be sued upon for non-payment. The terms of the invoices themselves seem to me to be clearly an attempt to produce a self-contained bill for the period involved and there is a detailed list of the activities carried out during that period and the overall time taken. I accept Mr Jones’s submission that the bills would be assessable under the Solicitors Act.

   2. However, I consider that the defendant’s argument runs aground when contemplating the practical difficulty of the client bringing a challenge whilst litigation is continuing. Mr Dunne relied on paragraph 20 of Jacobs J’s decision in Harrods v Harrods (Buenos Aires) Ltd [2012] 5 Costs LR 851:

“That causes difficulty when you have litigation which is ongoing. The client is called upon by these provisions to challenge an interim bill within one month, if he wants to do it as of right; and if he does not challenge it within 12 months then he has to show “special circumstances” to challenge his solicitors bill. That puts him in an impossible position. Either he challenges his solicitors’ bill – the very solicitor who is now acting for him – and continues using that solicitor at the same time; or he has to change solicitor, all in the middle of litigation when he is facing another enemy.”

1. 1. The difficulty in a client suing his solicitor while still instructing him is immediately apparent and does not really require High Court authority. It is often prayed in aid as a special circumstance when the challenge is outside the initial month. It seems to me to be self-evident that most clients would expect any issues with costs of this sort to be dealt with either by communicating with the solicitor to resolve perceived problems or at the end of the case when the inevitable conflict between solicitor and client would be less problematic. Whether a proactive approach of approaching the solicitor was undertaken or the client simply waited till the end of the case, the one month time limit would have been long gone by the time the client considered whether to challenge the bill in court.

   2. It is for this reason that in order to “make it plain” to a client that he is receiving an interim statute bill, it seems to me that the information given at the outset needs to make clear that there are time limits and indeed give some indication of what those time limits are. The idea that several months, or, in this case, years after the engagement letter and terms and conditions were provided, the client ought to be alive to the fact that he has an entitlement under the Solicitors Act if he challenges bills promptly, seems to me to be far-fetched. There is no mention of the Solicitors Act on the invoices even to prompt such a recollection.

   3. Consequently, in my view, although the solicitors intended the bills to be interim statute bills, they cannot be treated as such so as to preclude the client from an opportunity to challenge those costs. Consequently, they are akin to requests for payments on account albeit that I appreciate entirely that this is not the intended nature of the invoices that have been rendered for the payments made to date.

Submissions on the second retainer

1. 1. Mr Dunne submitted that none of the provisions of the CFA entitled an interim statute bill to be rendered in the first place. There was nothing even similar to the original terms and conditions for the defendant to fall back upon. Mr Jones’s response to this was to indicate that the terms in the CFA were supplemented by the original terms and conditions to the extent that they dealt with matters outside the CFA. As such the second retainer was an elaboration of the first rather than a completely new arrangement.

   2. Mr Dunne also submitted that, based on the case of Sprey v Rawlison Butler [2018] EWHC 354 (QB), a discounted CFA could not form the basis of an agreement which entitled the solicitors to render interim statute bills. In this case, the solicitors were entitled to payment of 75% of their fees as the case progressed. The remaining 25% of those fees and a further 25% of the total fees by way of success fee would also be paid in the event of a successful outcome. In Mr Dunne’s submission, these facts were on all fours with the case of Sprey.

   3. Mr Jones distinguished the case of Sprey from the circumstances of this case. Here, according to Mr Jones, there was no suggestion of any fees being paid retrospectively. The agreement was simply saying that in the future the solicitors would charge the client additional sums. Therefore, it could not properly be construed as looking retrospectively after the case ended as some CFAs did. It was just an agreement with an additional charge on a particular contingency. Come what may, the solicitors would be entitled to 75% of their usual fees together with 100% of the disbursements. If certain circumstances eventuated in the future, the solicitors could put in another bill for an additional amount for the base fees and also for the success fee. This clear structure meant that the bills delivered during the proceedings were final for the periods in which they were set out. The further bills related to the future agreement. Mr Jones submitted that there was no general rule that an interim statute bill could not be rendered in a CFA case; it depended upon the terms.

   4. During the course of the submissions, Mr Dunne also developed the suggestion that in fact no fees whatsoever might be charged by the solicitors given that the CFA appeared to have been terminated in a manner which was not envisaged by that agreement. The “murky” circumstances of the termination as described by Mr Dunne were categorised as being “absolutely obvious” by Mr Jones. By the beginning of 2018, he said, it was obvious to both parties that the claim would not end successfully and so the parties agreed that a new arrangement was required.

Decision on the second retainer

1. 1. Mr Dunne’s point regarding termination was also raised as a special circumstance and I have dealt with it later. I do not need to consider it for the purposes of my decision on the second retainer.

   2. In Sprey, as here, the solicitors were originally instructed on a private paying, or conventional, retainer before moving onto a discounted CFA. Nicklin J described the terms of the CFA as follows:

“8. The CFA provided that the Appellant would be liable to pay the Respondent at discounted rates (40% of the normal rates) if he lost the claim. If he won, he was liable to pay the Respondent at normal rates plus a success fee of 50%.

9. The Respondent billed the Appellant monthly, at the full rate during the conventional retainer, and at the 40% discounted rate during the period covered by the CFA (“the 40% invoices”). In October 2015, the Respondent billed the Appellant the balance between the normal rate and the discounted rate (“the balancing invoice”) and, in January 2016, the success fee. The Appellant paid all of the bills apart from (a) the last four of the 40% invoices, (b) the balancing invoice and (c) the success fee.”

1. 1. At paragraph 5 of his judgment Nicklin J had described statute bills in this way:

“A statute bill cannot subsequently be amended without the consent of the parties or an order of the court, which will be granted only in exceptional circumstances: Polak v Marchioness of Winchester [1956] 1 WLR 819. Statute bills are final bills in respect of the work that they cover, in that there can be no subsequent adjustment “in light of the outcome of the business“. They are complete self-contained bills of costs to date: Bari v Rosen [2012] EWHC 1782 (QB).”

1. 1. In his conclusions, Nicklin J said at paragraph 28:

“Finally, this construction of the CFA is consistent with the principle that a statute bill cannot subsequently be amended (see paragraph 5 above). The effect of the clauses I have identified was that the 40% invoices were liable to be later changed. What was ultimately to be paid for the work that was the subject of any 40% invoice would not be known until the Appellant won or lost the claim or terminated the CFA. Mr Marven submits that this construction would mean that the Respondent was not entitled to be paid. If by that he means that the Respondent lacked an enforceable right to payment of its fees (under s.69 Solicitors Act 1974), then that is right. But the consequences of that principle are not as harsh as they might appear. It does not mean that the Respondent was not entitled to some form of payment. The Respondent could always insist the Appellant made payments on account under the express terms of the Client Care Letter.”

1. 1. Nicklin J described the heart of an assessment as being whether the sum charged by the solicitors to the client was reasonable. He then said that the charge for work done at 40% of the normal rates might well have been reasonable but, at 100%, it was not reasonable. Translating that comment to this case, the 75% of the fees might be reasonable but 100% might not be. The client could not possibly know until the end of the case because he did not know until that point whether he was liable for any more than 75% of the fees.

   2. Save that the percentages were different in Sprey, I cannot see that there is any difference between that case and this one in the nature of the arrangement between the solicitor and the client. Whatever percentage is charged as the case goes along, the balancing charge paid at the end will be treated, based on the authority of Sprey, as adjusting the earlier invoice in respect of the work done for a particular period and as such is inconsistent with a self-contained bill having been rendered.

   3. Although the parties in Sprey specifically agreed that the terms of the conventional retainer would continue, save where altered by the terms of the CFA, that is not, in my view, the usual approach. There is certainly nothing in the terms of the CFA which suggest this has occurred and which might give the solicitors any entitlement to render interim statute bills. In any event, for the reasons I have given, the first retainer itself did not provide that entitlement and as such, no term imported from that agreement could assist the defendant in raising interim statute bills under the second retainer.

The third retainer

1. As I indicated above, if I found that the first retainer did not entitle the solicitors to render interim statute bills, then there could be no prospect of the third period being covered by an entitlement to render such bills even on the defendant’s case.

2. In any event, I prefer the claimant’s position in respect of the third retainer. I do not accept that, where a CFA replaces a privately paying retainer in its entirety, the original retainer subsists in some fashion so that it can be simply continued with once a CFA has ended. That is different from, for example, the situation in Garnat Trading & Shipping (Singapore) PTE Ltd v Thomas Cooper (a firm) [2016] EWHC 18 (Ch) where a CFA was carved out for a discrete application and the privately paying retainer was used for the remainder of the work. In my judgment the original retainer here ended when the CFA was entered into by the parties.

3. Furthermore, the retainer for the third period had both the claimant and his wife as clients of the defendant. Whilst, as I understand it, the claimant’s wife denies any liability to the defendant for its bills, it seems to me that the defendant certainly thought that both the claimant and his wife were their clients in relation to that particular retainer and that in itself makes it of a different nature from the original retainer. Therefore, even if the CFA had somehow existed throughout the second period, it does not seem to me that the original retainer could be considered to be effective for the third period.

4. Indeed, the only agreed element of the retainer in writing concerned the hourly rates set out in Mr Winter’s email referred to above. But even those rates are based on the CFA rather than the original retainer and as such there is no vestige of an agreement based on the original terms between the parties. There could only be a contractual entitlement to render interim statute bills in an oral retainer if it had been expressly agreed at the time: there was no suggestion that this had occurred here.

5. Consequently, I find that none of the three retainers entitled the defendant to render interim statute bills to the claimant during the course of the retainer.

THE CLAIMANT RETAINED THE RIGHT TO CHALLENGE THE BILLS

The judge held that the claimant retained the right to challenge the bills. If this finding was wrong then he would have exercised his discretion to extend time in any event.

1. 1. Given my conclusions on the preliminary issues set out at (a), I can take the options for the preliminary issues at (b) fairly quickly. There is no need for an order for delivery up of a final statute bill because the invoice dated 31 October 2019 will serve perfectly adequately for that purpose.

   2. Similarly, there is no need for the claimant to demonstrate that any special circumstances exist because the proceedings were brought within a month of the final statute bill being delivered. Standard directions regarding the breakdown of costs and cash account, points of dispute and replies together with the setting down of the case for a detailed assessment if required can be given together with the usual orders regarding a stay of any other proceedings et cetera.

   3. For the avoidance of doubt, and in case the decisions I have come to are appealed, I should deal with the question of the existence of special circumstances.

   4. The decision of Lewison J (as he then was) in Falmouth House Freehold Co Ltd v Morgan Walker LLP [2010] EWHC 3092 (Ch) was cited, as is usually the case, as setting out the test to be applied as to whether the circumstance in the case amounts to a special circumstance for the purposes of the Solicitors Act. The circumstance has to be “special” but does not have to be “exceptional”. It needs to be something which, compared with the ordinary case, is something which justifies a detailed assessment of the costs notwithstanding the time limits in s70(3) of the Solicitors Act.

   5. The claimant, in his witness statement, pointed to the size of the overall bill (£930,104.41); the lack of costs estimates; and alleged discrepancies in the bills and some queries regarding overcharging. To this list, Mr Dunne, during his submissions, added the query about the termination of the CFA in circumstances where that occurred in a manner not apparently anticipated by the agreement itself.

   6. Mr Jones accepted that the estimates given were not regular throughout the proceedings but submitted that it was insufficient to amount to a special circumstance given the antiquity of the bills being considered. He did not think that the allegedly “substantial burden” placed on the claimant by the size of the invoices rendered nor the number of proceedings involved nor indeed changes in retainer were sufficient to amount to special circumstances either. He was rather more scathing about the evidence regarding alleged discrepancies and overcharging.

   7. In Falmouth House, Lewison J said the following regarding the size of the bills:

“Morgan Walker argue that the fact that there are large sums involved is not a special circumstance and rely for that proposition on the decision of Mr John Martin QC in Winchester Commodities Group Ltd v RD Black and Co [2000] BCC 310. However, in that case Mr Martin held that the stark level of the fees in issue was “at first sight a good point”; but that for seven particular reasons on the facts of that case the point turned out to be of little substance. That case is not authority for the proposition that the amount of fees in issue is irrelevant to the question whether there are special circumstances. In Re Robinson (1867 – 68) LR 3 Ex 4 the Court of Exchequer held that a large charge calling for explanation was a special circumstance. In my judgment Master Simons was entitled to take it into account.”

1. The fees in dispute in the Falmouth House case were £201,417.07. In the Winchester Commodities case, the relevant invoices amounted to roughly £430,000. Whilst the size of the bills rendered may not amount to a special circumstance in itself, it is certainly a relevant factor for the costs judge to consider.

2. The admitted lack of estimates seems to me to be magnified by the prism of the size of the overall invoices rendered in this case. The scope for the sum that it is reasonable for the client to pay to be at variance to the invoices rendered is increased by that size.

3. Furthermore the obvious difficulty in clients bringing proceedings on a monthly basis against their solicitors in order to protect their Solicitors Act rights regarding assessment is always a powerful argument in respect of special circumstances. That is particularly so where the overall sums claimed are large.

4. It is these factors which, to my mind, demonstrate that special circumstances exist to have invoices which are caught by section 70(3) assessed. I say nothing regarding the alleged discrepancies or overcharging as they are really a matter for detailed assessment. The question of whether the solicitors were entitled to end the CFA or whether ending it by agreement is a valid termination is also a matter for detailed assessment.

5. Therefore, if an appeal court found that the defendant was entitled to render interim statute bills and that those which were paid less than 12 months before proceedings were brought (if any) together with those which have not been paid required special circumstances for the bills to be assessed, then I would find that those circumstances exist.