DEDUCTION OF LEGAL FEES FROM THE CLIENT’S DAMAGES: SOLICITORS SUCCESSFUL ON APPEAL

June 11, 2021 · by · in Appeals, Costs, Personal Injury

The decision of Mr Justice Lavender in SGI Legal LLP v Karatysz [2021] EWHC 1608 (QB) is part of the long, and continuing, battle relating to the deduction of legal fees by solicitors from claimant’s damages.  In this case the solicitor’s appeal was successful.

 

THE CASE

The claimant had instructed the defendant solicitors to act on her behalf in a personal injury action.  The matter settled and the defendant deducted sums from the damages in addition to the fees payable by the defendant.  The claimant issued proceedings challenging the deduction of damages. At a hearing the District Judge held:

  1. That the amount of costs the solicitors were entitled to receive were limited to the costs recovered from the insurers.
  2. That the solicitors should pay the costs of the assessment given that the bill had been reduced by more than one fifth.

THE SOLICITOR’S APPEAL

The solicitor’s appeal against this decision was successful.

THE JUDGMENT ON COSTS

The judge set out the grounds of the appeal.

(2)(h) The Instigation of this Appeal
    1. The appellant’s notice was filed by the Defendant on 13 February 2020. There were three grounds of appeal.
    1. Ground 1 challenged the limitation decision. As I have said, the Defendant had permission to appeal on that ground.
    1. Ground 2 was in the following terms:
“If and in so far as it is necessary to address the issue, the district judge was wrong to conclude that, if court proceedings had been issued, (which they had not), SA 1974 s 74(3) would have been engaged to limit basic charges to inter partes recovery. The district judge was wrong not to conclude that the CFA had the effect that SA 1974 s 74(3) was disapplied under CPR r. 46.9(2).”
    1. The Defendant needed the permission of this court to advance ground 2, but, in the event, at the hearing before me Mr Marven conceded that it was not necessary to address the issue identified in ground 2.
    1. Ground 3 sought to challenge the district judge’s decision that the amount of the bill was £2,731.90 rather than £1,571.50. Since the Defendant accepted that it was liable for the costs of the review of the “on paper” assessment, ground 3 only arises if the appeal is allowed on ground 1. Again, the Defendant needed the permission of this court to advance ground 3. On 1 May 2020 Lambert J ordered that the application for permission to appeal on ground 3 and, if permission were granted, the substantive appeal be listed together with the appeal on ground 1.
(4) The Terms of the Contract
    1. Mr Marven made two submissions about the terms of the contract between the Claimant and the Defendant.
    1. First, he submitted that it was a term of the contract that the amount which the Claimant could recover from the Defendant in respect of costs was limited to 25% of the damages received by the Claimant. I do not accept this:
(1) The success fee was capped at 25% of the relevant damages by clause 4.1 of the CFA, but there was no such agreement in relation to the Defendant’s base costs.
(2) On the contrary, paragraph 8.1 of the document entitled “CFA: What You Need To Know” expressly provided that, if the Claimant won her case, she would then be liable to pay all the Defendant’s basic charges. This is consistent with paragraphs 2.2, 3.2, 3.3, 8.2 and 8.4 of that document and clause 3.1 of the CFA.
(3) The Client Care Letter stated that the Defendant aimed to achieve an outcome whereby no more than 25% of the Claimant’s damages were deducted in respect of costs. That, however, was an aspiration rather than a commitment.
(4) Mr Marven relied on the next two sentences in the Client Care Letter, which read:

“This is achievable because the Court rules currently allow you to recover costs from your opponent and so this enables us to claim your costs from your opponent rather than entirely from your damages. If the rules were to change to prevent you from recovering costs from your opponent, then by entering into the CFA with us, you hereby agree that we would be entitled to deduct a higher proportion than 25% of your damages in respect of costs.”

(5) He submitted that it was implicit in the second of these sentences that, unless the rules of court were changed, the Defendant could not deduct more than 25% of the Claimant’s damages in respect of costs. However, in my judgment it is not possible to imply such a term in the face of an express term to the contrary, namely paragraph 8.1 of the document entitled “CFA: What You Need To Know”.
    1. Secondly, he submitted that, by agreeing to the contract, the Claimant agreed to the Defendant’s hourly rate of £161 per hour for a Grade D fee earner. I do not accept this either. As I have already pointed out, although paragraphs 3.1 and 3.2 of the document headed “CFA: What You Need To Know” referred to the Defendant’s hourly rates and said that they were set out in the Client Care Booklet and that the Claimant agreed and approved them, I was not shown any contractual document which set out the Defendant’s hourly rates. In particular, I have not seen any contractual document which refers to a rate of £161 per hour. In those circumstances, I do not see how it can be alleged that the Claimant agreed that she would pay for the time of the Defendant’s Grade D fee earners at the rate of £161 per hour.
(5) Ground 1: The Limitation Decision
    1. By ground 1, the Defendant challenges the limitation decision. This ground of appeal will involve a consideration of sub-paragraphs (a), (b) and (c) of CPR 46.9(3), but it is appropriate to begin by considering the terms of CPR 44(1)-(3) and 46.9(1) & (3).
    1. Mr Kirby referred in his submissions to the Solicitors (Non-Contentious Business) Remuneration Order 2009, but the district judge did not base his decision on that order and even the late respondent’s notice did not include an allegation that the district judge’s decision should be upheld on the basis of that order.
(5)(a) Ground 1: CPR 44(1)-(3) and 46.9(1) & (3)
    1. CPR 46.9(1) provides as follows:
“This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.”
    1. It followed that CPR 46.9(3) applied to the assessment of the Defendant’s costs. CPR46.9(3) provides as follows:
“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.”

    1. Thus, CPR 46.9(3) required that the Defendant’s costs be assessed on the indemnity basis. What that means is set out in CPR 44.3(1)-(3), which provide as follows:
“(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.
(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and

(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.”
    1. It is important to remember that these provisions form the context for the operation of sub-paragraphs (a), (b) and (c) of CPR 46.9(3). The Defendant’s costs were to be assessed on the indemnity basis, which meant that:
(1) the court would not allow costs which had been unreasonably incurred or were unreasonable in amount; but
(2) the court would resolve any doubt which it may have about whether costs were reasonably incurred or were reasonable in amount in favour of the Defendant.
    1. It is possible for the court to assess costs on the indemnity basis, and to decide for that purpose whether costs claimed were unreasonably incurred or were unreasonable in amount, without recourse to any of the presumptions provided for in sub-paragraphs (a), (b) and (c) of CPR 46.9(3). Indeed, that is what the district judge appears to have done in his decision on Point 3 in the “on paper” assessment. The district judge said that, “9 hrs x £120 would seem reasonable.” He was, in effect, saying that:
(1) any costs relating to more than 9 hours’ work were unreasonable; and
(2) any costs claimed at a rate of more than £120 were unreasonable in amount.
(5)(b) Ground 1: CPR 46.9(3)(a) & (b)
    1. Mr Marven submitted that the district judge should have found that the presumptions provided for in sub-paragraphs (a) and (b) of CPR 46.9 applied in the present case. He did so, primarily, by submitting that the Claimant had agreed that at most 25% of her damages could be paid to the Defendant. However, I have already held that there was no contractual agreement to this effect.
    1. In any event, I doubt whether an agreement to a cap on the amount of costs recoverable by the Defendant from the Claimant would fall within the scope of either sub-paragraph (a) or (b):
(1) Such an agreement would not constitute the approval, express or implied, of any particular item of work being done by the Defendant. Nor would it, for example, constitute approval to the Defendant taking 11 hours over work which the district judge considered could be done in 9 hours.
(2) Nor would an agreement to such a cap constitute the approval of the amount of the Defendant’s costs or, for instance, of the Defendant’s hourly rate. A client who agrees that she will not pay more than 25% of her damages is not agreeing that she will pay 25% of her damages, come what may.
    1. I note that the section of the Client Care Letter headed “Outline of the Work” could perhaps be relied on for the purposes of sub-paragraph (a), but Mr Marven did not place any reliance on that section in his submissions. Mr Marven did rely, for the purposes of sub-paragraph (b), on his submission that the Claimant had approved the Defendant’s hourly rate, but I have already explained why I do not accept that submission.
    1. It was accepted that a solicitor can only invoke the presumptions in sub-paragraphs (a) and (b) if he has obtained the client’s informed consent. The district judge found in paragraphs 5 and 6 of his judgment that the Claimant had not given her informed consent to the agreement about the Defendant’s costs.
    1. Mr Marven submitted that the district judge was wrong to make this finding, but the principal basis for that submission was, again, his submission that the parties had agreed to a cap on the amount of costs recoverable by the Claimant. Where such a cap is agreed, that may be a significant factor in relation to the issue of informed consent. That is a matter for consideration in another case. But in this case there was no cap.
    1. Before considering whether a client has given informed consent, it is appropriate to identify what it is that the client is alleged to have given informed consent to. The difficulty for the Defendant is that, as has already been seen, the Claimant did not agree to the Defendant doing 11 hours’ work and the Claimant did not agree to the Defendant being paid for that work at the rate of £161 per hour. Since the Claimant did not consent to the hours worked or the hourly rate, the question whether she gave informed consent to them simply does not arise.
    1. It can be said that the Claimant agreed that the Defendant would do the work identified in the “Outline of the Work” section of the Client Care Letter and agreed that the Defendant would be paid for that work on the basis of the hours worked multiplied by an hourly rate. That much does not greatly assist the Defendant in relation to sub-paragraphs (a) and (b). However, insofar as the Claimant agreed anything with the Defendant in relation to the nature or amount of the costs to be incurred, I consider that the district judge was right to hold in paragraph 5 and 6 of his judgment that the Claimant did not give her informed consent to the agreement between the parties as to costs.
    1. It is illustrative to consider the potential effects of that agreement:
(1) In dealing with Point 3, the District Judge decided that 9 hours at £120 per hour was reasonable for the Defendant’s base costs. That is £1,296 (i.e. £1,080 plus VAT of £216). Had Aviva not paid the Defendant by mistake the extra £300, the Claimant would have had to pay £696 (i.e. £1,296 less £600) to the Defendant, together with the ATE insurance premium of £143 and a success fee equivalent to 15% of £1,296, i.e. £194.40. That would have made a total of £1,033.40 to be deducted from the damages of £1,250, leaving the Claimant with £216.60, or 17%, of her damages.
(2) The position is even more striking if one uses the figures in the Defendant’s bill, in which the Defendant contended that its base costs were £2,060.40 (i.e. £1,717 pus VAT of £343.40) and its success fee was £312.50. Adding the ATE insurance premium of £143 to these amounts gives a total of £2,515.90. If the Defendant had claimed that amount from the Claimant, then, even allowing for the extra £300 which Aviva paid to the Defendant, the Defendant’s costs would have exceeded the amount of the Claimant’s damages by £365.90 (i.e. £2,515.90 less the sum of £1,250 and £900). On that basis, bringing the claim for damages would have left the Claimant with no damages and £365.90 out of pocket.
(3) The Defendant had paid £625 to Glenfield Marketing. In order for the Defendant not to be out of pocket, it needed to charge at least that amount to the Claimant by way of base costs and success fee. Yet if, as happened, the claim settled at Stage 2 for £1,250, then, in order to limit its recovery to 25% of the Claimant’s damages, the Defendant would have to claim no more than £760.42 (i.e. £500 base costs plus £260.42 success fee) plus VAT from the Claimant. That is only £135.42 more than the Defendant had paid to Glenfield Marketing.
    1. These figures are for illustration only. However, as the Defendant acknowledged in paragraph 16.4 of the document headed “CFA: What You Need To Know”, the Defendant was obliged to give the Claimant the best information possible about the likely costs of her claim for damages.
    1. Despite that obligation:
(1) The Defendant did not (unlike the solicitors in Belsner v Cam Legal Services Ltd) give the Claimant an estimate of its likely costs. Indeed, the Defendant did not even tell the Claimant what hourly rate it would charge.
(2) Nor did the Defendant inform the Claimant that, for example, if her claim settled at Stage 2 for less than £10,000, then the amount which her opponent would be liable to pay in respect of the Defendant’s base costs might be £500 plus VAT.
    1. I have set out what the Defendant did say about its likely costs:
(1) On the one hand, the Defendant said, in paragraph 3.2 of the document headed “CFA: What You Need To Know” that the costs which were chargeable under the agreement would almost certainly exceed the fixed costs which Aviva would have to pay and so the Claimant would be required to pay the shortfall from her damages. Moreover, the Defendant stated in paragraph 8.3 of that document that the Claimant would have to pay the success fee and the ATE insurance premium herself.
(2) On the other hand, the Defendant stated in the Client Care Letter that it aimed to achieve an outcome whereby no more than 25% of the Claimant’s damages were deducted in costs and that this outcome was “achievable”. It could be said that this was an ambitious statement in the context of a claim for damages for a whiplash injury for which the Claimant had received no medical attention. The amount of the claim was likely to be modest, as the Defendant must have appreciated While the Defendant could not predict the precise amount for which the claim would settle, the Defendant must have appreciated that it was likely to be at the lower end of claims covered by the Protocol. No evidence was adduced before me to suggest that the Defendant ever believed that the Claimant’s claim might settle for an amount significantly greater than the amount for which it did settle.
(3) Clause 3.2 of the CFA and paragraph 8.2 of the document headed, “CFA: What You Need to Know” each referred to the possibility of the Claimant recovering “part or all” of the Defendant’s basic charges and disbursements from Aviva. This said nothing about how large a part of her costs the Claimant was likely to recover from Aviva if she did not recover all of them.
(5)(c) Ground 1: CPR 46.9(3)(c)(i)
    1. The district judge found, in effect, in paragraph 7 of his judgment that the Defendant’s costs were “of an unusual … amount”, since £161 per hour was an unusual hourly rate for a Grade D fee earner conducting a low value road traffic accident claim. Mr Marven challenged this finding, but in my judgment it is an assessment which the district judge was entitled to make. He explained that the usual rates in such cases were between £111 and £125 per hour and there was no evidence before me that £161 per hour was a usual rate in such cases. It follows that the requirement of CPR 46.9(3)(c)(i) was satisfied.
    1. Although it is not necessary for the determination of this appeal, I should state that I do not accept the Claimant’s submission that any costs in excess of the fixed costs allowed inter partes were unusual for the purposes of CPR 46.9(3)(c)(i) on an assessment of costs between solicitor and client on the indemnity basis. It is not necessary for me to decide this point, because the district judge did not base his decision on it, but it may be worth stating that in my judgment the question of what is usual or unusual as between solicitor and client is a very different question from the question of what is recoverable inter partes.
    1. The question whether a solicitor’s costs should be limited to those recoverable inter partes is dealt with by subsection 74(3) of the Solicitors Act 1974 and CPR 46.9(2). Assuming that a solicitor’s costs are not so limited by virtue of those provisions, it is not the purpose of CPR 46.9(3)(c) to reintroduce the same limit by a different route.
(5)(d) Ground 1: CPR 46.9(3)(c)(ii)
    1. As for CPR 46.9(3)(c)(ii), the Defendant told the Claimant, by paragraphs 3.2, 8.2 and 8.4 of the document headed, “CFA: What You Need To Know” that the Defendant’s costs might not be recovered from Aviva. Moreover, paragraph 3.2 stated that this was because the hourly rates when multiplied by the number of hours charged would exceed the fixed fees payable by Aviva. Mr Marven submitted that this was sufficient to mean that CPR 46.9(3)(c)(ii) was not satisfied.
    1. The district judge took the view that informed consent was relevant for the purposes of CPR 46.9(3)(c)(ii), in the sense that a solicitor who argued that he had told his client that, as a result of their unusual nature or amount, the relevant costs might not be recovered from the other party had to show not merely that he had told his client that, but that he had obtained his client’s informed consent to it.
    1. I note, however, that there is no authority to this effect:
(1) MacDougall v Boote Edgar Esterkin [2001] 1 Costs LR 118 concerned the need for informed consent when a solicitor sought to rely on the predecessor of CPR 46.9(3)(b).
(2) Herbert v HH Law Ltd [2019] 1 WLR 4253 concerned the need for informed consent when a solicitor sought to rely on CPR 46.9(3)(a) & (b).
(3) My decision in Belsner v Cam Legal Services Ltd concerned the need for informed consent when a solicitor sought to rely on CPR 46.9(2)
    1. Indeed, the parties to Herbert v HH Law Ltd appear to have proceeded on the basis that informed consent was not relevant to CPR 46.9(3)(c). In paragraph 35 of his judgment, Sir Terence Etherton MR said as follows:
“There is no longer any dispute between the parties in relation to CPR r 46.9(3)(c). The judge recorded (at para 27) that Mr Andrew Hogan, counsel for HH before him and junior counsel for HH before us, accepted that an irrecoverable success fee could be regarded as a cost of an “unusual nature or amount” but had submitted that, as the retainer made it clear that the success fee could not be recovered from the other party, the condition in CPR r 46.9(3)(c)(ii) was not satisfied, and so there was no presumption under CPR r 46.9(3)(c) that it was unreasonably incurred. The judge agreed with that submission: para 47. There is no respondent’s notice challenging that decision.”
    1. Mr Marven submitted that informed consent is irrelevant to CPR 46.9(c)(ii). In my judgment, that is right. The issue under CPR 46.9(c)(ii) is whether or not the solicitor told his client what is there set out. That issue concerns what the solicitor said, not whether the client agreed with or approved what the solicitor told him. That issue is materially different from the issue under CPR 46.9(2) or 46.9(3)(a) & (b), which is whether the client agreed or approved something proposed by the solicitor. The focus there is on what the client did, which is why it is relevant to consider whether the client gave informed consent to what was proposed.
    1. Accordingly, I conclude that the district judge was wrong to decide that the presumption under CPR 46.9(3)(c) arose in the present case.
(5)(e) Ground 1: CPR 46.9(3)(c) and the Limitation Decision
    1. In any event, even if the district judge was right in his construction of CPR 46.9(3)(c)(ii), and supposing that it was to be presumed under CPR 46.9(3)(c) that the Defendant’s rate of £161 per hour was unreasonable, it does not follow that it was appropriate to limit the Defendant’s base costs to the amount recovered from Aviva in respect of fixed costs. The effect of CPR 46.9(3)(c), where it applies, is to create, for the purposes of an assessment of costs on the indemnity basis, a presumption that certain costs were unreasonably incurred. Where a solicitor claims costs at an unreasonable rate, the appropriate course on assessment on the indemnity basis is usually to allow costs at a reasonable rate. Assuming that it was reasonable for the work to be done (and there was no challenge to the district judge’s decision that it was reasonable for 9 hours’ work to be done), it is not unreasonable for the solicitor to be paid for that work at a reasonable rate.
    1. Moreover, in this case, the district judge had already, in deciding Point 3, decided that £161 per hour was an unreasonable rate and had instead identified £120 per hour as a reasonable rate. In the light of that decision:
(1) There was no need for the presumption in CPR 46.9(3)(c), since the district judge had already decided that £161 per hour was in fact an unreasonable rate.
(2) Moreover, the district judge had already decided the extent to which that rate was unreasonable: it was unreasonable insofar as it exceeded £120 per hour, but no further.
    1. These considerations suggest that the district judge, if he had found that the presumption applied, should have reduced the Defendant’s base costs to £1,296 (i.e. 9 hours at £120 plus VAT per hour).
    1. The district judge did not explain in his judgment why he did not do that and why instead he considered that the application of the presumption provided for in CPR 46.9(3)(c) led to the limitation decision. I have quoted the exchange in which Mr Marven asked the district judge to clarify what he had decided. The district judge agreed that the effect of his decision was the same whether:
(1) a claim form had been issued, in which case subsection 74(3) of the Solicitors Act 1974 applied; or
(2) a claim form had not been issued, in which case subsection 74(3) of the Solicitors Act 1974 did not apply, but he applied the presumption in CPR 46.9(3)(c).
    1. Immediately after providing that clarification, however, the district judge added:
“And I keep my hourly rates as they are, by the way.”
    1. That was a determination by the district judge that £120 per hour was a reasonable rate.
    1. Mr Shenton, on behalf of the Claimant, then prompted the district judge to say that the amount recovered from Aviva in respect of base costs was reasonable, but that was inconsistent with what the district judge had just decided about hourly rates. The amount recovered from Aviva, £900, was equivalent to £750 plus VAT, which, as payment for 9 hours’ work, was equivalent to a rate of £83.33 per hour. Yet the district judge had just decided that £120 per hour was a reasonable rate (and, indeed, the Claimant had not argued for a lower rate).
    1. Mr Kirby submitted that, in contending that the application of the presumption in CPR 49.9(3)(c) ought to have led the district judge to allow 9 hours’ work at £120 per hour, Mr Marven was raising a point on appeal which had not been raised before the district judge. However, I have quoted earlier in this judgment the passage from his submissions in which Mr Marven raised this very point.
    1. Mr Kirby also submitted that the district judge was entitled, when applying the presumption, to decide that £900 (including VAT) was the appropriate amount to allow for the Defendant’s base costs, on the basis that it was, as the district judge said, a reasonable amount. However, the district judge’s statement, after giving judgment, and prompted by Mr Shenton, that £900 was a reasonable amount was inconsistent with his considered decision on Point 3 in the “on paper” assessment that it was reasonable to allow 9 hours at £120, a decision which was not even challenged by the Claimant and which, after hearing argument on the hourly rate, the district judge decided to uphold.
    1. While I accept that the district judge could, for good reason, have departed from the “hours times hourly rate” method of assessing the Defendant’s base costs and could, for good reason, have alighted on £900 as the reasonable amount for the Defendant’s base costs (in the sense that any greater amount would have been unreasonable), I am not persuaded that that is what the district judge did.
    1. In those circumstances, I consider that the limitation decision was wrong and that the district judge should have assessed the Claimant’s base costs (before the limitation of the Claimant’s costs at £1,571.50) at £1,296 (including VAT). On that basis, the district judge should have found that nothing was owing from the Defendant to the Claimant, since the Defendant was entitled to charge the Claimant the £455.50 which it had retained from the Claimant’s damages.
(6) Ground 3: The Amount of the Bill
    1. Ground 3 concerns an issue which arises by virtue of subsection 70(9) of the Solicitors Act 1974, which provides as follows:
“Unless—
(a) the order for assessment was made on the application of the solicitor and the party chargeable does not attend the assessment, or
(b) the order for assessment or an order under subsection (10) otherwise provides,
the costs of an assessment shall be paid according to the event of the assessment, that is to say, if the amount of the bill is reduced by one fifth, the solicitor shall pay the costs, but otherwise the party chargeable shall pay the costs.”
    1. The district judge decided that “the amount of the bill” was £2,731.90, as contended for by the Claimant. On that basis, he awarded the Claimant the costs of the assessment. The Defendant contends that he was wrong and that the amount of the bill was £1,571.50. It is arguable that the district judge was wrong and I grant permission to appeal.
(6)(a) Ground 3: Post-Hearing Submissions
    1. Mr Kirby referred in his oral submissions to the district judge’s order of 28 March 2018. It appeared to me at the hearing that he was arguing that the issue of the amount of the bill was res judicata and I was concerned that that the law on res judicata had not been fully argued in the skeleton arguments prepared for the hearing. Consequently, I gave the parties the opportunity to make further written submissions on this issue after the hearing.
    1. In the event, although Mr Marven made submissions as to the potential application of the doctrine of res judicata, Mr Kirby made clear in submissions dated 8 December 2020 that he was not relying on the doctrine of res judicata. Rather, he was asserting that the Defendant had accepted that the amount of the bill was £2,731.90:
(1) in the acknowledgment of service;
(2) by not objecting to the order of 28 March 2018 (paragraph 1 of which included the words, “Amount of £2,731.90”);
(3) by applying for the variation other parts of that order, but not paragraph 1; and
(4) by asserting that, for the purposes of the assessment of the success fee, the court needed to assess the total amount claimed for the Defendant’s base costs.
    1. These are all matters which I have taken into account in considering what was the amount of the bill.
(6)(b) Ground 3: Authorities on Subsection 70(9) and its Predecessors
    1. In his “on paper” assessment, the District Judge referred to p. 2370 of the White Book. This appears to have been a reference to what is now paragraph 7C-123 of Volume 2 of the White Book 2021, which states, inter alia, that the amount of the bill:
“… includes the full amount of the bill, and disregards the added expression “say X” (Re Carthew (1884) 27 Ch D 485; Re Mackenzie (1894) 69 L.T. 751) or the fact that a lesser figure is alone claimed (Re Paull (1884) Ch D 485).”
    1. As I will explain, it appears to me that this note is something of an oversimplification. Re Paull and re Carthew (1884) 27 Ch D 485 concerned two bills of costs. Carthew’s bill was for £83 3s 4d, but concluded with the words, “say £78”. £78 was paid. Paul’s bill was for £361 19s 2d, but the solicitor stated separately that he claimed only £320 16s 6d and that sum was paid. In each case, the taxation resulted in a figure which was less than 5/6ths of the higher sum stated in the bill, and less than the lower sum demanded by the solicitor and paid to him, but more than 5/6ths of that lower sum.
    1. Section 37 of the Act for Consolidating and Amending Several of the Laws relating to Attorneys and Solicitors Practising in England and Wales 1843 (“the 1843 Act”) was the section then in force. It provided as follows:
“… the costs of such reference shall, except as herein-after provided for, be paid according to the event of such taxation; that is to say, if such bill when taxed be less by a sixth part than the bill delivered … then such attorney or solicitor … shall pay such costs; and if such bill when taxed shall not be less by a sixth part than the bill delivered … then the party chargeable with such bill … shall pay such costs ; …”
    1. In relation to Carthew’s bill, Baggallay LJ, with whom Cotton LJ agreed, said as follows
“The bill delivered was a detailed bill consisting of items amounting to £83 3s. 4d. At the foot of it was written “say £78,” and the signature followed these words. There was no letter accompanying the bill, so we can only infer the intention with which those words were written. It is not necessary to come to a very positive conclusion on the point; but I should say that the words in substance mean this, “Here is my bill for £83 3s. 4d. If you will pay £78 without taxation I will accept it in full discharge. If you do not I will take what taxation gives me.””
    1. Lindley LJ put it this way:
“The first point is, was it a bill for £78? It is impossible, in my opinion, to say that it was. It was a bill containing items making up £83 3s. 4d., with an offer to take a less sum, and it is impossible to say that the bill delivered within the meaning of the Act was a bill for £78.”
    1. In relation to Paull’s bill, Baggallay LJ said as follows:
“In In re Paull an order was obtained under sect. 41 for taxation after payment. The bills as delivered amounted to £361 19s. 2d., but the solicitor stated that he claimed only £320 16s. 6d., which was £41 2s. 8d. less than the amount of the bills. He had previously delivered a cash account in which he had treated the bills as being of the lesser amount. An order for taxation after payment having been obtained, full bills were carried in and the Taxing Master disallowed £81 3s. 8d., reducing their amount to £280 15s. 6d., which is more than five-sixths of the £320 16s. 6d. but less than five-sixths of the £361 19s. 2d. If the matter stood there, I should say, as in Carthew’s Case, that the bill must be taken as at the larger amount, and that it must be considered that more than a sixth has been taxed off, and that the solicitor must pay the costs of the taxation.”
    1. Baggallay LJ then went on to consider that part of section 37 of the 1843 Act which was the predecessor of subsection 70(10) of the Solicitors Act 1974. No issue arises as to that subsection on this appeal.
    1. Re Mackenzie (1894) 69 L.T. 751 is referred to in paragraph 7C-123 of Volume 2 of the White Book 2021 and was the subject of written submissions before the district judge, but neither party relied on it before me.
    1. I drew the parties’ attention to Re Hellard & Bewes [1896] 2 Ch 229, which was not cited to the district judge (but which was cited in the appeal in Belsner v Cam Legal Services Ltd). In connection with the grant of a lease, the lessor’s solicitors wrote on 24 December to the lessee’s solicitors to say that their charges in relation to the lease amounted to £7 11s. On 1 January the lessee’s solicitors wrote asking for particulars of the charges. On 2 January the lessor’s solicitors replied by sending a bill with detailed items, amounting to £10 10s 8d, adding at the foot, “Say £7 11s.” The lessee obtained an order to tax the bill, and on the taxation the whole of the £7 11s. was allowed. North J held that the bill was delivered on 24 December, that the bill sent on 1 January was merely explanatory and that, the bill not having been reduced on taxation, the solicitors were entitled to the costs of the taxation. In relation to the words, “Say £7 11s”, North J said:
“I understand that note when expanded to mean, “Our charge if made by items would amount to 10l. 10s. 8d., and that is more than the 7l. 11s. which we have already stated to be our whole claim in respect of the business comprised in this bill.” I think, therefore, that the taxing master was justified in saying that the 7l. 11s. was the bill actually claimed; and, although the mistake of treating the other document as the bill is perfectly intelligible now, yet it was a mistake, because the letter of December 24 was the bill. That being so, Re Tilleard and Re Russell, Son & Scott exactly apply, and I think the taxing master was right in following those cases.”
    1. It is unnecessary to say anything about the facts of Bentine v Bentine [2016] Ch 489. Sales LJ said as follows in paragraph 5 of his judgment:
“Section 70(9) provides for a basic and simple default rule that the costs of the assessment should follow the event (ie be paid by the losing to the winning party), where the “event” (ie the criterion of who has won and who has lost) is defined by reference to whether a reduction in the amount of the bill of one fifth has been achieved by the client in the assessment (I refer to this as “the one-fifth rule”). However, subsection (10) allows the court to modify this position where the costs officer certifies that there are “special circumstances relating to a bill or to the assessment of a bill.””
    1. Then in paragraph 7 he said as follows:
“Disputes between solicitors and clients regarding the amount of solicitors’ bills can be substantial, and the costs of resolving them can likewise be substantial. … Both client and solicitor benefit from knowing in advance what the basic default rule is governing the costs of an assessment, and what ordinarily counts as winning and losing, so that they can make a rational calculation of the risks involved in proceeding with a disputed assessment before a costs judge.”
    1. Arden LJ said as follows in paragraph 111 of her judgment:
“In my judgment, the policy behind section 70(9) is that the remedy under section 70 should be efficacious and that potential claimants should not be disincentivised from bringing claims under section 70 by the usual costs-shifting rule. The result of the usual cost-shifting rule would be that, if the solicitors were successful in obtaining judgment for their bill they would in the absence of other factors obtain an order for costs. Without section 70(9), this would be so even if it was reduced by 20% or more. Section 70(9) displaces that result.“
    1. In Bentine v Bentine the three judges expressed differing views on the effect of the fact that the Solicitors Act 1974 was a consolidation Act: see paragraphs 42 to 57 (per Sales LJ), 73 to 80 (per Sir Bernard Rix) and 100 and 102 to 108 (per Arden LJ, who, as Lady Arden, referred in paragraph 89 of her judgment in R. (on the application of Derry) v Revenue and Customs Commissioners [2019] 1 WLR 2754 to the issue discussed in Bentine v Bentine as one which was yet to be resolved). Arden LJ identified the issue as follows:
“Farrell v Alexander [1977] AC 59 establishes, that where the meaning of a consolidation statute is clear, the court should not generally investigate its “antecedents”: see per Lord Wilberforce, at p 73, Lord Simon of Glaisdale, at p 83, and Lord Edmund-Davies, at p 97. It should interpret the statute afresh according to its ordinary meaning. Those antecedents include earlier judicial authorities as well as earlier legislative provisions. But it does not follow that the interpretation of a consolidation statute in this way authorises the court to ignore some earlier authority on an earlier legislative provision which has been consolidated where that authority is binding on it under the doctrine of precedent.”
    1. In the present case, subsection 70(9) of the Solicitors Act 1974 Act and section 37 of the 1843 Act were not identically worded, in particular because section 37 did not contain the phrase “the amount of the bill”, but there is scope for debate as to whether the current subsection is materially different from its predecessor, such that a case decided on section 37 of the 1843 Act remains binding when considering subsection 70(9) of the Solicitors Act 1974.
    1. I was also taken to the unreported decision of Master Rowley given on 26 July 2017 in Breyer Group Plc v Prospect Law Limited. The solicitors in that case had received payments on account totalling £73,720 plus VAT. When asked to produce a statute bill, i.e. a bill which complied with the requirements of section 70 of the Solicitors Act 1974, they produced a bill with an attached breakdown. The breakdown contained items totalling £99,804.91 plus VAT. The bill gave that figure, but then contained the words “Limited to the amount previously billed” and gave the figure of £73,320 plus VAT. Master Rowley decided that “the amount of the bill” for the purposes of section 70(9) was £73,320 plus VAT.
(6)(c) Ground 3: Decision
    1. In my judgment, the key to the issue which arises under subsection 70(9) is the construction of subsection 70(9) and, in particular, the phrase, “the amount of the bill”. Since a bill of costs is a demand for payment, it is in my judgment plain that the amount of a bill is the amount demanded by the bill.
    1. That conclusion is not inconsistent with any of the authorities. In particular, Breyer Group Plc v Prospect Law Limited was an example of a case in which a bill contained a demand for one amount, but also identified a larger amount which the solicitor contended that he could have charged. The decision of Master Rowley in Breyer Group Plc v Prospect Law Limited was that the amount of the bill in that case was the lesser amount demanded, rather than the greater amount which might have been demanded. It is, moreover, a decision on subsection 70(9) of the 1974 Act.
    1. The older cases to which I have referred were decisions on section 37 of the 1843 Act, which was differently worded. I doubt whether Re Paull and re Carthew can be regarded as binding authority on the construction of a phrase which is not to be found in the legislation under which it was decided. However, unless it is a binding authority, Farrell v Alexander [1977] AC 59 is authority that, if the meaning of subsection 70(9) is clear (which I consider that it is), Re Paull and re Carthew should be disregarded. Indeed, Bentine v Bentine has left open the question whether, even if the decision in Re Paull and re Carthew would otherwise be binding, it should be disregarded.
    1. In any event, I do not consider that my reading of subsection 70(9) of the Solicitors Act 1974 Act is in any way inconsistent with the relevant parts of the decision in Re Paull and re Carthew. In particular:
(1) The decision in Re Carthew turned on the construction of the particular bill at issue in that case. The Court of Appeal did not purport to lay down any general rule that a bill which said, in effect, “I could demand x, but I demand the lesser sum of y”, was a bill for x rather than y. On the contrary, it is implicit in the reasoning of Baggallay LJ that, if he had interpreted the bill in that case as saying “I could demand £83 3s 4d, but I only demand £78”, then he would have treated it is a bill for £78. He treated it instead as a bill which contained both a demand for £83 3s 4d and an offer (which was unaccepted and therefore of no effect) to compromise that demand if the client paid £78.
(2) Contrary to what is said in paragraph 7C-123 of Volume 2 of the White Book, I do not read Re Carthew as laying down a general rule that the words, “Say X” in a bill must always be disregarded. On the contrary, Re Hellard & Bewes [1896] 2 Ch 229 is an example of a case in which the words, “Say X” were interpreted as meaning that the amount demanded was X (although the principal ratio of North J’s decision was that the document which contained the words, “Say £7 11s” was not the bill in that case).
(3) As for Re Paull, it appears that the only figure mentioned in the bill in that case was the figure of £361 19s 2d. The offer to accept less was separate from the bill, and so the bill remained a demand for £361 19s 2d.
    1. It is clear from his judgment that the district judge was affected by what he understandably perceived to be a lack of clarity in the Defendant’s bill. It is a curious feature of this case that, while the Claimant contended that amount of the bill was £2,731.90 and the Defendant contended that it was £1,571.50, neither of those figures is stated in the bill.
    1. Nevertheless, if one asks the question, “How much was being demanded by this bill?” the answer is clear. The Defendant was merely seeking by this bill to justify its retention of the £1,116 received from Aviva and the £455.50 deducted from the Claimant’s damages. The Defendant was not by this bill demanding payment of any more, and certainly not a further £1,160.40, from the Claimant.
    1. Moreover, the Claimant was well aware of this fact. That is why she said in her points of dispute:
“The reality therefore is that the Defendant has charged legal fees of £1,571.50 (£1,116 of which was paid by the third party, and £455.50 by the Claimant).”
    1. On that basis, I conclude that the amount of the bill was £1,571.50 and that the district judge was wrong to decide otherwise.
(7) Conclusion
    1. For the reasons set out in this judgment, I allow this appeal on grounds 1 and 3. I invite the parties to agree the terms of an order to give effect to my decision.
Tags: , ,