SOLICITORS NOT ENTITLED TO INDEMNITY COSTS BY RELYING ON CONTRACTUAL TERMS: A FORMER CLIENT’S SUCCESSFUL APPEAL

I am grateful to barrister Ted Loveday for sending me a copy of the judgment of Mr Recorder Cohen QC in Carmen Chevalier-Firescu -v- Ashford LLP (29th January 2021, Central London County Court, a copy of which is availableChevalier-Firescu – Central London CC – Judgment – 20210129 V Final The Recorder overturned a decision that a clause in the contract between client and solicitor allowed the solicitor to claim costs on an indemnity basis. It is an important issue in relation to the balance of power and knowledge in client/solicitors relationships.

THE CASE

The former client of the respondent firm of solicitors was sued for not paying a bill.   The solicitors sued on the bill and claimed £6,779.30.  That bill was reduced, during a small claims track hearing, to £3,848.00.

However the contract of the retainer between the parties contained a provision

“We may charge you an administration fee of £75 plus VAT and our legal costs on an indemnity basis for any overdue invoices which are
referred to our Asset Recovery Department”

THE DECISION OF THE DISTRICT JUDGE

The District Judge held that the contractual provisions overrode CPR 27.14 so that the solicitors could recover their costs on an indemnity basis.  He awarded the solicitors costs on the indemnity basis of £3,880.

THE CLIENT’S SUCCESSFUL APPEAL

The client successfully appealed that decision. It was held on appeal that such an unusual clause should have been brought specifically to the client’s attention by the solicitors.

THE SUBMISSION BEFORE THE DISTRICT JUDGE

The Recorder reviewed the submissions before the District Ujdge.

5. The submission made to the District Judge was that clause overrode the provisions of 
CPR 27.14 so that, notwithstanding that this was a small claim, the District Judge was
obliged, as a result of the contract, to order costs on an indemnity basis to the claimant’s
solicitors. He did so, and assessed those costs at, I think I am right in saying, £3,080, having
reduced the sum claimed from £3,880 because even on an indemnity basis there is a
discretion in the court to reduce the costs which are recoverable if they were not reasonably
incurred, and having regard to the decision of the District Judge as to the reduction of the bill
because of the failures in the service quality of the claimant’s solicitors, there is no surprise
in there being a reduction.

THE GROUNDS OF APPEAL

The Recorder considered several grounds of appeal, however he decided the appeal on the third ground.

GROUND 2: THE CONSUMER RIGHTS ACT

8. Ground 2: The ground of appeal advanced is that the judge wrongly failed to assess
whether the contractual costs clause in clause 12.7 of the standard terms of business was fair
under section 62 of the Consumer Rights Act 2015; the judge ought to have done so even
though neither of the parties raised the point, as required by section 71 subsection 2 of that
Act.
9. I interject to say that the court will have, ordinarily, a duty to raise points such as this
under the provisions of this Act, but as it seems to me, a submission was addressed by
counsel to the learned judge that he was obliged to do what he did. Counsel who was
appearing for the solicitors was against an unrepresented party and the Court’s attention was
not drawn to the Act or material authorities. The learned District Judge plainly accepted that
submission of counsel. In one sense, this ground of appeal is one of process because even if I
uphold it, it does not answer the substantive question of law as to whether what is accepted
by the Respondent to be a consumer contract to which the Act applies is unfair.

GROUND 3: THE CONTRACTUAL COSTS CLAUSE WAS UNFAIR

The Recorder determined the appeal on the grounds that the clause was unfair.

14. It seems to me material in considering this to start by thinking of the relationship of the
parties. Ashfords were a firm of solicitors holding themselves out as experts in employment
law. Their clients, and I include within this the appellant, were dealing with employment
matters rather than large scale commercial matters, and cannot be expected – and nor, I think,
can any ordinary client be expected – to know the ins and outs of the law or the costs
provisions of the CPR as I have outlined them. Indeed, the first few minutes of this appeal
were taken up with two learned and able members of the Bar, who have very well
represented their clients, having to help me, as someone who has spent a professional lifetime
in the law and approximately 25 years on the Bench, in trying to work out what the effect of
this clause was. Having done that, it does seem to me to be clear that this clause has an effect
which is unusual, perhaps even abnormal in effect. What it does is to impose significant
obligations on clients, especially when dealing with matters that are not large in scale – both
to pay legal costs of proceedings when they would not be required to do so and for those
costs to be assessed on a basis which the court would not use in the absence of unreasonable
behaviour. The unusual or abnormal effect is well illustrated where disputes arise as to the
bill, as did they in this case, and the court found in favour of the client to the degree that it
felt that a substantial reduction was necessary in the solicitor’s bill.
15. It seems to me necessary to think about one further thing. In accordance with current
practice, and I believe also SRA requirements, not only are detailed terms required for the
client, but also a summary of key points is required to be provided to the client. I have been
referred to that summary. There is no reference to this change in what would be the general
law and the general position of a solicitor and client in the unfortunate event that there had to
be litigation to recover a bill. That change as I have outlined it is significantly in favour of
the solicitor and to the detriment of the client.
16. Once again, I return to the subject of the relationship. This is a relationship of trust
with an expert lawyer whose task it is to advise a client. In my judgment, fairness and
common sense indicates that where there was such a change it ought to have been drawn
specifically to the attention of the client, and in terms of the statute, it does seem to me to
indicate an imbalance between the positions of both parties and an imbalance in what was
achieved as a result. As to the requirement of good faith, we are not dealing with good faith
as may have been understood by a common lawyer in years gone by, but an entirely different
concept.
17. I have no hesitation in saying that this clause was reflected as an imbalance between the
parties. It significantly penalised the solicitor’s clients in the event of default. It did so
without attention being drawn to the clause in several pages of detailed terms, or in the key
terms, or other explanation. In my judgment therefore, it contravened the principles of good
faith.

As a result the appeal was allowed.