SOLICITOR AND OWN CLIENT BILLS AND CONDUCT: CPR 44.11 DOES NOT APPLY: REDUCTION OF 75% OVERTURNED ON APPEAL

In John Poyser & Co Ltd -v- Spencer [2022] EWHC 1678 (QB) Mr Justice Morris (sitting with Senior Costs Judge Gordon-Saker as an assessor) overturned a finding that CPR 44.11 applies to solicitor and own client assessments. The practical result of this was that a reduction of 75% in the solicitor’s bill was overturned.

“CPR 44.11

1) The court may make an order under this rule where –

(a) a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or

(b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.

(2) Where paragraph (1) applies, the court may –

(a) disallow all or part of the costs which are being assessed; or

(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur.

(3) Where –

(a) the court makes an order under paragraph (2) against a legally represented party; and

(b) the party is not present when the order is made,

the party’s legal representative must notify that party in writing of the order no later than 7 days after the legal representative receives notice of the order.”

THE CASE

The claimant solicitors had acted for the defendant in litigation which was successful but which led to no order for inter partes costs. There was an assessment of the costs on a solicitor and own client basis.  The Master reduced the costs on assessment.  She then reduced the costs by a further 75% on the grounds of misconduct.

THE ALLEGED MISCONDUCT

The alleged misconduct centred on an assertion that the solicitors had failed to fully account for sums which had been paid in cash.  Other matters related to charging rates (which were agreed in the retainer) but which the Master found to be excessive .

THE CLAIMANT’S SUCCESSFUL APPEAL

The claimant’s appeal on this issue was successful.

THE COURT DID NOT HAVE POWER TO REDUCE COSTS BECAUSE OF “CONDUCT” ON A SOLICITOR AND OWN CLIENT ASSESSMENT

The judge found that CPR 44.11 does not apply to a solicitor own client assessment.

78.The Master’s analysis relies upon two central elements. In my judgment, neither support the conclusion that CPR 44.11 can apply to a Solicitor/Client Assessment.

79.First, the Master relied upon CPR 44.1(2), stating that “The costs to which Parts 44 to 47 apply include … (iii) costs payable by a client to their legal representatives”. However, properly interpreted, those words do not mean that each and every provision in each of CPR 44 to 47 inclusive applies to each of the different types of costs enumerated in CPR 44.1(2)(a)(i) to (iii) and (b). Rather the effect of that provision is to identify the different types of costs to which some or all of the provisions of CPR 44 to 47 might apply. CPR 44 to 47 covers a number of different costs regimes, with differing provisions and rules. It is not, and cannot be, the case that all the provisions in those four Parts apply to each and every type of assessment identified in CPR 44.1(2). It is clear that some provisions of these rules apply only to some of the particular types of assessment (and in particular to Party and Party Assessments).

80.Secondly, the Master relied upon the proposition that CPR 47 applies to CPR 46.9 and 46.10 (and since CPR 44.11 applies to CPR 47, it also applies to CPR 46.9 and 46.10). That proposition is said to be established by the White Book commentary at §46.10.2 (see paragraph 19 above). However, the White Book commentary is apt to mislead and, in any event, is not supported by authority. The proposition that the procedure in CPR 47 applies is qualified by the words “subject to the provisions of this rule”. CPR 46.9 and 46.10, and in particular, 46PD.6 set out a detailed and comprehensive procedure and rules for a Solicitor/Client Assessment. The sole reference in 46PD.6 to CPR 47 is in paragraph 6.8 of 46PD.6. The Master placed reliance upon paragraph 6.8. However it does not follow from the fact that, pursuant to one specific provision of 46PD.6, one particular provision in CPR 47 does not apply to a Solicitor/Client Assessment under CPR 46.10, all other provisions of CPR 47 do apply to a CPR 46.10 Assessment.

81.In the course of argument, Dr Friston took the Court through each of the provisions of CPR 47.1 to 47.20. The vast majority of those provisions can have no possible application to a Solicitor/Client Assessment; for example, CPR 47.4 as to venue cannot apply because CPR 67.3 makes express provision for the venue of a Solicitor/Client Assessment; CPR 47.5 to 47.10 apply only to costs payable by one party to another or payable to a charity; CPR 47.11 to 47.15 also apply only to costs payable by one party to another (and in any event the subject matter of CPR 47.13 and 47.14 is covered by CPR 46.10 and 46PD.6). CPR 47.20 can have no application to Solicitor/Client Assessment, in the face of the 1/5th rule in section 70(9) of the 1974 Act. The only provisions which might apply to a Solicitor/Client Assessment are those relating to interim and final certificates in CPR 47.16 and 47.17.

82.As regards the White Book commentary at §46.10.2, in advance of the hearing, I drew to Dr Friston’s attention the judgment of Asplin LJ in Ainsworth v Stewarts Law [2020] EWCA Civ 178, a Solicitor/Client Assessment case where at §36 she cited with approval that passage in the White Book in the following terms:

83.At first blush, those observations of Asplin LJ appeared to support the Master’s analysis. However in my judgment they were made in the context of the very specific issue in that case and do not detract from my analysis of the applicability of CPR 47 to Solicitor/Client Assessment. In that case, the specific issue was whether the points of dispute served by the client pursuant to CPR 46.10(3) were insufficiently detailed so as to justify them being dismissed. Neither CPR 46.10 nor 46PD.6 gives any indication as to the form which points of dispute are required to take. However there is provision in the Practice Direction to CPR 47 as to the form which points of dispute in CPR 47 proceedings should take. It was against this background Asplin LJ concluded that it was necessary to look to CPR 47 for assistance “in relation to the form which points of dispute should take”. CPR 47 could be used to fill a gap in the CPR 46.10 procedure. However this is not authority for the proposition that CPR 47 applies wholesale to a Solicitor/Client Assessment, let alone that such an Assessment is “a CPR 47 procedure/detailed assessment”. Where there is nothing in 46PD.6 or there is a gap, it is permissible to consider CPR 47, but that is not the same thing as saying that the whole of Part 47 applies to Solicitor/Client Assessment or that the latter constitutes a “detailed assessment” within Part 47.

84.In these circumstances, it is not possible to say either specifically that a Solicitor/Client Assessment can proceed “in accordance with Part 47” – (it follows that such an Assessment is not a “detailed assessment” within the definition in CPR 44.1(1)); nor that, more generally, CPR 47 applies to CPR 46.9 and 46.10.

Conclusion on Ground (1)

85.For these reasons, I conclude that the provisions of CPR 44.11 do not apply to a Solicitor/Client Assessment carried out pursuant to the 1974 Act and CPR 46.9 and 46.10. It follows that, for this reason alone, the Master was wrong, at paragraph 148 of the Judgment, to apply a further 75% reduction to profit costs pursuant to CPR 44.11.

THERE WAS NO MISCONDUCT JUSTIFYING A REDUCTION IN ANY EVENT

Further the judge found that the matters complained of were not established and did not amount to “misconduct” in any event.

THE ALLEGED SHORTFALL

86.In the light of my conclusion on Ground (1), Ground (2) does not arise for determination. Nevertheless, in the event that my conclusion on Ground (1) is wrong, I address this ground, albeit in relatively brief terms.

87.The Claimant submits that at the heart of the findings of misconduct on the part of the Claimant is the Master’s erroneous finding on the “shortfall” issue. It further submits that the Master was wrong to find that (a) the Claimant’s approach to the hourly rates of “Bev” and Mr Alleyne and (b) the inclusion of time related to, and items consequential upon each constituted “misconduct”.

The “shortfall”

88.The Master’s concluding finding on this issue was that £6,090 was never credited to the Defendant and does not appear in the cash account and that the Claimant did not make good the shortfall: see paragraphs 141, 142 and 145. That failure amounted to misconduct on the part of the Claimant.

89.In this regard, the evidence and explanations provided over time by the Claimant have been confused, inconsistent and subject to errors and corrections; particularly, in relation to the cash payments initially made by the Defendant to Ms Williams, how and when amounts were credited to the Defendant’s client account, the course of the complaint made by the Defendant to Mr Poyser, the amount of the shortfall, and when, whether and to what extent the Claimant gave a compensating credit for these payments. Regardless of Ms Williams’ own dishonesty, the Claimant can justifiably be criticised for the manner in which it handled this issue.

90.Having said that, in my judgment, on the evidence before the Court and indeed before the Master, the Master’s finding was wrong. On careful analysis of the evidence relating to (i) the cash withdrawn and handed over to Ms Williams and (ii) the amounts credited to the client account for the Defendant and (iii) the subsequent discounting of the bill in July 2018, I am satisfied that there was no “missing £6,090”, and that Mr Poyser genuinely sought to make good any relevant shortfall, and indeed substantially (if not wholly) achieved that objective by the discount given. That this is so can be seen both from the explanation in the SRA Report and in paragraphs 16 and 17 of Mr Poyser’s first statement. Indeed at the hearing on 27 October 2020 the Master appeared to accept this. At that stage her concerns as to misconduct were directed to other matters.

91.The position in summary is as follows. The Defendant withdrew and paid over cash in the sum of £10,590; however £400 of that had in fact been paid over to a third party. Thus she paid only £10,190. Of that sum, £4,390 was credited to the client account, and a further £2,000 was used to settle counsel’s fees. Thus, in total, the Claimant gave credit for £6,390. That left a shortfall of £3,800. In fact, as a result of earlier miscalculations, the Claimant applied a discount of £3,798.14².

92.I conclude that the Claimant did not substantially fail to make good any shortfall and further that the Claimant did not refuse to accept the Defendant’s “version of events” and that its conduct in relation to the shortfall did not amount to “unreasonable or improper conduct” within the meaning of CPR 44.11(1)(b). Furthermore, I accept that this issue of “shortfall” was central to the Master’s overall assessment and ultimate finding of misconduct: for example her findings that Mr Poyser put improper pressure on the Defendant at the meeting on 2 July 2018 was predicated on her erroneous conclusion that he was not willing to accept the Defendant’s version of events (see Judgment, paragraphs 29, 31 and 116) . Since this central finding was wrong, I conclude that the Master’s finding of misconduct in its entirety is unsafe and vitiated.

OTHER MATTERS DID NOT AMOUNT TO MISCONDUCT

93.As regards the findings in relation to the hourly rates and in relation to charging for matters related to the complaint, the Master concluded, at paragraph 121, that merely charging for these items amounted to misconduct within CPR 44.11. However it is clear that the Master took these two aspects fully into account in reducing the profit costs to a reasonable amount prior to the 75% “misconduct” reduction (paragraphs 105 and 106). As regards the latter, she reduced the number of hours by almost two-thirds; as regards the former, she disallowed the contractual rate and applied a substantially reduced rate for 55 of the 75 hours which she found to be reasonable. Having taken these matters into account in the assessment of reasonable costs, the Master provided no clear justification for concluding that, additionally, they amounted to misconduct justifying a further very substantial reduction. Rather, some of these aspects appear to have arisen from “mistake or error of judgment or negligence, without more” (see Gempride §26 (iii) at paragraph 17 above).

94.As regards the hourly rates in particular, the Master found (at paragraph 37) that there was “overcharging” by reference to the excessive rates charged for “Bev” and Mr Alleyne and that such overcharging amounted to “misconduct”. However, the Claimant charged for these two individuals at the rate of £217 expressly specified in the contract of retainer. The Master may have been justified in disallowing the full rate on assessment (as she did). However, in circumstances where that rate had been agreed in the contractual retainer, absent further analysis, I see no basis for a conclusion that to do so amounted to “misconduct” in the senses identified in the Gempride case (see paragraph 17 above). There was a reasonable explanation for charging at that rate. To this extent at least, I conclude that the Master erred in finding that the application of the agreed contractual rate of £217 per hour amounted to misconduct within CPR 44.11.

95.Finally I do not embark upon a more detailed analysis of the Master’s reasons for the finding of misconduct in relation to charging for matters relating to the complaint. In view of my conclusions on the shortfall and on hourly rates, I am satisfied that in any event the overall finding of misconduct on the facts is vitiated and should not stand, even assuming I am wrong on Ground (1).

THE CONSEQUENCES OF THE FINDINGS ON APPEAL

96.Finally, I turn to the consequences of my conclusions that the Master was wrong to impose a 75% reduction for misconduct pursuant to CPR 44.11 (on Ground (1) or alternatively on Ground (2)). On the particular facts of this case, the answer to this question is not straightforward. Following the hearing, I invited further written submissions on the issue.

97.The issue arises from two particular circumstances: first, the terms of paragraphs 145 to 147 of the Judgment (set out in paragraph 60 above), and secondly, from the fact that Eady J refused permission to appeal on Ground (4). The question is whether the combined effect of these circumstances is such that (despite upholding the substance of the Claimant’s appeal) the Master’s final conclusion remains in place and that the Final Costs Certificate should remain unaltered.

98.At paragraphs 145 to 147 the Master appeared to set out an alternative basis for her decision. At paragraph 145, she indicated that, if she were wrong about the applicability of CPR 44.11, a reduction “is … appropriate for other reasons”. The first reason she gave was the Claimant’s failure to credit “the missing £6,090” in the cash account. The second was the court’s duty under CPR 44.4 to have regard to all the circumstances in deciding whether costs were unreasonably incurred or unreasonable in amount. At paragraph 147, apparently in application of CPR 44.4, she concluded that she had a general discretion to assess costs by reference to the Claimant’s conduct (including hourly rates, time spent on the complaint and the Claimant failing to act on her concerns). However she then moved on, in paragraph 148, to apply the 75% reduction for misconduct, pursuant to CPR 44.11.

99.By Ground (4), the Claimant had contended as follows:

100.In his original skeleton argument considered by Eady J, Dr Friston supplemented this Ground by adding that, given that the Master had already reduced the costs to a reasonable level (at the first stage), this was not only a misapplication of CPR 44.4, but was visiting double jeopardy on the Claimant.

101.Eady J refused permission on to appeal on Ground (4) in the following terms:

102.In refusing permission, Eady J clearly addressed the Claimant’s argument about “double counting”. It is less clear that she addressed directly its contention that CPR 44.4 could not, in principle, apply to conduct relevant to the costs the subject of the assessment.

103.It follows from my conclusion that it was not in fact open to the Master to disallow the Claimant’s fees under CPR 44.11, that the question of whether they should then be disallowed under CPR 44.4, and to what extent, would go unanswered. As Eady J. pointed out, it appears that in fact the Master made no reduction under CPR 44.4. She merely identified that as a “potential alternative approach.” She did not expressly state that she reduced the costs by 75% pursuant to CPR 44.4.

104.I raised this in the Note. Dr Friston’s response was that the permission to appeal granted in relation to the findings of fact relevant to the misconduct should include matters consequential to any appellate findings as to those facts. Alternatively, while the Claimant does not have permission to challenge the existence of the jurisdiction to make further deductions under CPR 44.4, given the initial reductions made before the reduction for misconduct, it would not be appropriate to reduce the Claimant’s fees further.

105.In my judgment, it would be open to this Court, under CPR 52.20(2)(b), to refer back to the costs judge the question of what, if any, reduction should be made under CPR 44.4. However it would be obviously inappropriate to do so, if this Court were of the view that there is in fact no power under CPR 44.4 to disallow fees claimed in a Solicitor/Client Assessment (even if it might be said that the refusal of permission on Ground (4) debarred the Claimant itself from putting forward such a contention).

106.For similar reasons to my conclusion that CPR 44.11 does not apply to Solicitor/Client Assessments under the 1974 Act, CPR 44.4 also does not apply. That rule sets out the “factors to be taken into account in deciding the amount of costs” under the bases of assessment set out in the preceding rule (CPR 44.3), following an order for costs made under CPR 44.2. These three rules relate to Party and Party Assessment under orders made between parties; and not a Solicitor/Client Assessment. Moreover the factors set out in CPR 44.4(3) relate more obviously to Party and Party Assessment and some of them could not apply to Solicitor/Client Assessments: namely, the factors at CPR 44.4(3)(a), (c) and (h).

107.CPR 44.4 can have no application in a Solicitor/Client Assessment under section 70 where the function of the court is to decide whether the fees and disbursements incurred were reasonable in amount against the backdrop of the retainer agreed with the client. If CPR 44.4 could have any application to a Solicitor/Client Assessment, it could apply only to consideration of the costs of that assessment. It is that backdrop, of what may have been agreed between solicitor and client, which requires the special rules set out in CPR 46.9. That rule is headed “Basis of detailed assessment of solicitor and own client costs” in distinction to the heading to CPR 44.3: “Basis of assessment”.

108.Accordingly, as CPR 44.4 would not allow the Court to reduce the amount assessed in a Solicitor/Client Assessment, I conclude that it would not be appropriate to remit the question of whether such reduction should be made.

109.Finally and in any event, if and insofar as CPR 44.4 sets out the factors to be taken into account when assessing reasonableness, there is obvious force in Dr Friston’s argument that a further reduction would not be appropriate in the present case, given that the Master had already reduced the Bill very substantially on the grounds of what would be reasonable (Judgment, paragraphs 106 to 109). Moreover, I have concluded that the Master’s finding on the central aspect of the Claimant’s conduct (i.e. the shortfall) was wrong as a matter of fact.

110.It follows therefore that the 75% reduction in profit costs was wrongly made and that there are no alternative grounds for applying such a (or any other further) reduction. The Final Costs Certificate will be set aside and the relevant amount will have to be recalculated, in principle along the lines set out in paragraphs 108 and 109 of the Judgment. This will result in a finding that the Defendant’s overpayment was in a substantially lesser amount. Since the Claimant has in fact repaid an amount greater than this, ultimately there will be an amount due back from the Defendant to the Claimant. This will be in the region of £13,000. The precise calculation will depend on issues relating to interest and a further small adjustment in the Defendant’s favour (concerning the £401.86).