COST BITES 103: INTERIM BILLS WERE NOT FINAL BILLS: CLIENT COULD STILL HAVE THEM ASSESSED

In  Ivanishvili v Signature Litigation LLP [2023] EWHC 2189 (SCCO) Costs Judge Leonard rejected an argument that a series of bills rendered by a solicitor were “statutory” bills.  This meant that all the bills could be subject to assessment.  The judgment sets out the problems for solicitors sending interim bills where conditional fee agreement payments have yet to be identified.

“His primary case is that none of the invoices rendered by the Defendant to date qualify as statutory bills. That is because the contract of retainer between the parties incorporated a Conditional Fee agreement (“CFA”) and those invoices represent only a part of the fees that may become due to the Defendant for the work undertaken under that contract. As a result, they were neither complete nor final. In consequence, he says, the time for him to make an application for assessment will not start to run until a final bill has been delivered.”

SOLICITOR AND OWN CLIENT DISPUTES

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THE CASE

The claimant was a former client of the defendant solicitors. He issued proceedings seeking a declaration that a series of bills presented by the defendant in the course of litigation where they acted on his behalf were not statutory bills.  The bills totalled £12,781,354.66.  If they were not statutory bills then they were all potentially liable to a solicitor and own client assessment.  The defendant had acted for

THE JUDGMENT

The judge found that the interim bills were not final statutory bills.  Consequently they could all be subject to a solicitor and own client assessment.

Contracts of Retainer and Interim Billing

1. 1. The default position for a contract between a solicitor and the client who retains that solicitor is that it is an “entire contract” (aptly compared by Mr Williams to a contract with a courier, who will not be paid for bringing a package halfway to its destination). In consequence the solicitor is entitled to render a statutory bill only at the end of the retainer, as on the completion of a transaction or the conclusion of litigation.

1. 1. There are exceptions to this rule. Some contracts of retainer, such as for the management of complex, multi-party litigation, may not lend themselves readily to the “entire contract” model. In such cases, the solicitor may be able to rely upon Romer & Haslam and other authorities which establish that a solicitor may have the right to render a statutory bill at a “natural break”. It must be clear on the evidence that the parties understood and intended that the bill so rendered be treated as final (that being the context in which the burden of proof, in Romer & Haslam, was found to lie with the solicitor).

1. 1. More generally, the “entire contract” principle is, as one would expect, subject to agreement to the contrary. The solicitor and client may agree that the solicitor may, during the currency of the contract of retainer, render interim bills. To qualify as interim statutory bills, they must however be complete and final for the work that they cover. As Spencer J put it in Bari v Rosen:

“… a solicitor may contract with his client for the right to issue statute bills from time to time during the currency of the retainer. Such bills are known as “interim statute bills”. They are nevertheless final bills in respect of the work they cover, in that there can be no subsequent adjustment in the light of the outcome of the business. They are complete self-contained bills of costs to date.”

1. 1. Simon Brown LJ in Abedi v Penningtons (at page 207) quoted (evidently with approval) a similar definition of interim statutory bills from Cordery on Solicitors:

“Although they are interim bills they are also final bills in respect of the work covered by them. There can be no subsequent adjustment in the light of the outcome of the business.”

1. 1. An agreement between a solicitor and a client to the effect that the solicitor may render an interim statutory bill or bills may be inferred from conduct.

1. The necessity of completeness and finality as characteristics of a statutory bill was considered by the Court of Appeal in Richard Slade & Co v Boodia, in which the court found that there was nothing to prevent a solicitor rendering separate statutory bills, at different times, for profit costs and disbursements, but otherwise left the requirements of completeness and finality as I have described them.

The Issues

1. 1. The Defendant rendered 79 invoices to the Claimant between 31 March 2016 and 26 October 2022. They come to £12,781,354.66. All have been paid.

1. 1. The point of the Part 8 application made by the Claimant is to preserve such rights as he has to challenge the amount of the Defendant’s billing through an assessment under section 70. His primary case is that none of the invoices rendered by the Defendant to date qualify as statutory bills. That is because the contract of retainer between the parties incorporated a Conditional Fee agreement (“CFA”) and those invoices represent only a part of the fees that may become due to the Defendant for the work undertaken under that contract. As a result, they were neither complete nor final. In consequence, he says, the time for him to make an application for assessment will not start to run until a final bill has been delivered.

1. 1. The Defendant argues that the invoices rendered to the Claimant were, at the time of delivery, complete and final bills. For that reason, says the Defendant, only one of the bills rendered, dated 26 October 2022, is open to assessment (and the assessment of that bill is not contested). Otherwise, all of them having been paid, either they can only be assessed if special circumstances are established (section 70(3)(c)); or, as they were paid more than 12 months before the date of the application for assessment, the court has no power to order their assessment at all (section 70(4)).

1. Alternatively, the Defendant says that it would be right to conclude, by reference to Chamberlain v Boodle and King and In re Romer & Haslam, that the invoices became final statutory bills when the Defendant terminated the contract of retainer in September 2022. It would follow that the court could order now that the entire series could be assessed, but at least there would be no delay pending the delivery of any further bill.

THE ARGUMENTS

Informed Consent

1. 1. The Claimant argues that any contractual agreement to the effect that the Defendant’s regular invoices would be interim statutory bills would require the Claimant’s “informed consent”. In this context, that term refers to the proposition that, in order for any such agreement to be effective, the Defendant would have had to make the consequences of such an arrangement clear to the Claimant. That means in particular the loss, through the passage of time, of his right to apply for assessment of the Defendant’s monthly invoices, even as the Defendant continued to act for him.

1. 1. I believe that Mr Williams is right in saying that “informed consent”, in this sense, has no bearing upon the appropriate interpretation of a contract of retainer. Adams v Al Malik, The Winros Partnership v Global Energy Horizons Corporation and other authorities which emphasise the importance of client knowledge, seem to me to address the delivery of an interim statutory bill where that is not authorised by the contract of retainer. The contractual position, in my view, is consistent with the judgment of HHJ Gosnell, sitting as a deputy judge of the High Court, in Richard Slade & Co v Erlam.

1. 1. In Richard Slade & Co v Erlam, HHJ Gosnell (sitting as a deputy judge of the High Court) found that the following provisions in a contract of retainer permitted the delivery of interim statute bills:

“Bills are rendered monthly in arrears. Our bills are detailed bills and are final in respect of the period to which they relate, save that disbursements ( costs and expenses which we incur on your behalf) are normally billed separately and later than the bill for our fees in respect of the same period.”

1. 1. The logic of HHJ Gosnell’s decision was that it was clear, by reference to that contractual provision, that the solicitor’s monthly bills (final as they were for the work undertaken in relation to the period covered by each bill) were to be interim statutory bills, final for the work they represented. Although there is an obvious disadvantage to any client whose time to challenge a solicitor’s interim statutory bill begins to run whilst that solicitor is still actively instructed, there is no statutory or regulatory obligation upon a solicitor whose retainer incorporates such a clear contractual term to spell out the full legal consequences of the delivery of such bills.

1. 1. Although HHJ Gosnell’s decision ultimately rested on the terms of a CFA which he found to have replaced the retainer in question, the conclusion to which I have referred seems to me to have been a part of his chain of reasoning, and not merely obiter. In any event I respectfully agree with him.

1. 1. Whether a contract empowers a solicitor to render interim statutory bills falls, in my view, to be determined upon the normal principles of contractual interpretation. As HHJ Gosnell found, a solicitor and a client can agree that the solicitor may render interim statutory bills without delving into the legal consequences of that agreement. There is no requirement that the agreement itself should do so, and the client’s subjective knowledge of the legal position is not to the point. If the retainer provides for the solicitor to deliver complete, final interim statutory bills for a given period, that will be sufficient.

CFAs and Interim Statutory Bills

1. 1. I have been referred to the judgment of Nicklin J in Sprey v Rawlison Butler LLP. Like this case, Sprey v Rawlison Butler LLP concerned a discounted CFA: the client would pay 40% of the solicitor’s standard hourly rates if the claim did not succeed, and if it did succeed would pay their full hourly rate plus a success fee of 50%. Nicklin J found that it was not open to the solicitor, under the terms of the CFA, to render monthly interim statutory bills.

1. 1. Mr Williams submits that although that judgment is widely cited as authority for the proposition that it is not possible for a solicitor acting under a Conditional Fee Agreement to render an interim statutory bill, Nicklin J’s judgment did not go that far. His findings were based upon his conclusion that the terms of the CFA did not permit the delivery of interim statutory bills.

1. 1. I agree, but at paragraphs 25 and 40 of his judgment Nicklin J highlighted the difficulties of reconciling the necessary qualities of completeness and finality in an interim statutory bill, with the fact that under a CFA, a solicitor’s charges are not finalised until its conclusion (I have removed references to termination which have no application to this case):

“At the heart of an assessment is whether the sum charged by the solicitors to the client is reasonable. The charge for work done at 40% of the normal rates might well be reasonable, but at 100% not reasonable. A client would not know until the end of the claim… at which rate he was being charged…”

(Nicklin J’s) “… construction of the CFA is consistent with the principle that a statute bill cannot subsequently be amended… 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…”

1. 1. At paragraph 37 of his judgment in Richard Slade & Co v Erlam HHJ Gosnell observed, of Sprey v Rawlinson Butler LLP:

“I accept in that case there was an added complication that the solicitors hourly rate increased if the condition which triggered the success fee applied. Not surprisingly Mr Justice Nicklin found that an interim bill at the lower hourly rate could not be an interim statute bill because it was not a self-contained and final bill for that period…”

1. 1. Assuming that it is possible to agree that interim statutory bills may be rendered for any unconditional element of a solicitor’s charges under a CFA, one would expect the relevant retainer to contain clear terms overcoming the difficulties of reconciling the conditional element of any CFA with the concept of a complete and final interim bill.

Whether the June 2016 Retainer Authorised the Delivery of Interim Statutory Bills: Conclusions

1. 1. My conclusion is that the June 2016 Retainer did not confer upon the Defendant any contractual right to render interim statutory bills.

1. 1. The June 2016 Retainer did provide for the Defendant to render regular invoices, normally monthly, which would identify (as they subsequently did) their full value at the Defendant’s standard hourly rates and which would be (as they subsequently were) accompanied by a breakdown of the hours worked by each fee earner. Read as a whole, but with particular reference to paragraph 6.1 of the June 2016 Terms, it is clear that the June 2016 Retainer provided that whatever further charges might be rendered by the Defendant for the period covered by each invoice would be based upon the same work.

1. 1. What the June 2016 Retainer (or the terms of business that accompanied it) did not say was that the Defendant’s monthly invoices would be final. That is wholly unsurprising, given that it was understood that each invoice represented only part of the Defendant’s fees for the work described in the accompanying breakdown. That the conditions under which any further charges would be payable for that work had not yet been agreed, only served to increase the uncertainty surrounding the final charge to be rendered.

1. 1. Further, the proposition that the Defendant’s monthly invoices were to be final is inconsistent with the wording of the June 2016 Retainer to the effect that a final invoice would be sent when the work encompassed by the retainer had been, or was about to be, completed. It would follow that bills rendered in the meantime were not final, and that (as Mr Mallalieu says) the final invoice, when delivered, would incorporate the conditional elements of the Defendant’s fees. In the meantime, as the June 2016 Retainer put it, the monthly invoices would help keep the Claimant “informed of the costs which are being incurred”: a phrase consistent with final billing at a later point.

1. 1. Mr Williams has drawn my attention to the fact that the June 2016 Terms provide both for payment on account (as does the June 2016 Retainer itself) and interim invoicing. There is however nothing determinative about that. Solicitor’s terms of business commonly provide separately for payments on account in advance and for interim bills, which may or may not be statutory bills. Payment in advance will be held on client account. Interim billing provides a mechanism through which the solicitor can properly address cashflow needs by appropriating funds received from the client to office account. That is the case whether or not the bills are interim statutory bills.

1. 1. I can find nothing in the June 2016 Retainer or the June 2016 Terms that could be said to have the necessary clarity attendant upon an agreement for the delivery of interim statute bills, much less in the context of a CFA. I am unable, on the evidence, to reach the conclusion that the June 2016 Retainer, together with the June 2016 Terms, authorised the delivery of interim statutory bills.

Whether an Agreement for the Delivery of Interim Statutory Bills Can Be Inferred from the Parties’ Conduct

1. 1. The Defendant relies upon authorities, notably Abedi v Penningtons and Davidsons v Jones-Fenleigh, which establish that, where a client acquiesces to the delivery of interim bills in the requisite form, one may properly imply an agreement to the effect that they were interim statutory bills. As Simon Brown LJ put it in Abedi v Penningtons (at page 207):

“Before a solicitor is entitled to require a bill to be treated as a complete self-contained bill of costs to date, he must make it plain to the client expressly or by implication that that is his purpose of sending in that bill for that amount at that time. Then, of course, one looks to see what the client’s reaction is. If the client’s reaction is to pay the bill in its entirety without demur, it is not difficult to infer an agreement that the bill is to be treated as a self-contained bill of costs to date” – per Roskill LJ in Davidsons v Jones-Fenleigh…”

1. 1. It seems to me that an insurmountable difficulty for the Defendant in pursuing this line of argument is that the monthly bills rendered and paid under the terms of the June 2016 Retainer were rendered by the Claimant and paid by the Defendant under the terms of a CFA which provided that they were not to be final. Payment without demur, under those circumstances, cannot be taken of evidence of an agreement to the contrary.

1. 1. Nicklin J came to a similar conclusion in Sprey v Rawlinson Butler LLP, in which the CFA provided for monthly billing at the 40% rate:

” … an inferred agreement between the parties that the 40% invoices that were rendered would be statute bills… would have been inconsistent with the terms of the CFA as I have held them to be and inconsistent with the principle from Bari that the bills had to be final bills in respect of the work that they purported to cover (because they were liable to be increased if the claim were won …”

1. 1. My conclusion is that, in the period up to the 19 September 2021 Variation, there is no proper basis for inferring, from the parties’ conduct, any agreement for the delivery of interim statutory bills. From 19 September 2021, the same principle must apply. If the June 2016 Retainer, as varied from that date, did not provide for the Defendant’s monthly invoices to be interim statute bills, then there is no basis upon which to infer, from the Defendant’s paying those invoices, any agreement to the contrary.

The Effect of Termination

1. 1. A series of non-statutory bills may culminate in, and be incorporated within, one final statutory bill (Bari v Rosen at paragraphs 55 and 56, referring to Chamberlain v Boodle and King). The Defendant argues that, absent contractual provision for interim statutory bills, such would be a proper construction of the events in this case, and in the alternative that (looking at the same facts in a different way) the termination of the retainer could properly be identified as a “natural break” at which the Defendant was entitled to finalise its billing.

1. 1. The difficulty with both approaches is that although the retainer has ended, the Defendant’s billing is not yet final. The Defendant reserves the right to charge more for the work that has been done.

1. 1. Underlying the Chamberlain principle is the understanding that, billing has been finalised, typically on the termination of a retainer. In that context, it is appropriate (and is likely to be convenient) for a solicitor to render a final bill that incorporates previous non-statutory bills. If however further payment is potentially due, then billing cannot yet be finalised and the Chamberlain principle has no application.

1. 1. Nor could the termination of the retainer be identified as a “natural break” by reference to which the Defendant could be entitled to treat all invoices previously rendered as final statutory bills.

1. 1. That is, again, primarily because the Defendant’s invoices were not final. As Lord Esher, MR put it in Romer v Haslam (at 294):

“… a solicitor cannot be said to have sent in a final bill if he has sent in something which neither party understood nor intended to be final.”

1. 1. I can find no basis for concluding that on the termination of the retainer on 23 September 2022 either party intended, contrary to the terms of the June 2016 Retainer (either before or after variation from 19 September 2021), that in consequence all bills were to become final. That would require, on the Defendant’s part, an abandonment of any further claim for payment for the same work, and that is not the Defendant’s position.

1. 1. I believe that the correct interpretation of the position must, consistently with the provisions of the June 2016 Retainer as varied in September 2021, be that the invoices delivered to date can only be finalised when either the Defendant delivers a bill for such additional fees as may be due (for the balance of its hourly rates and/or, as appropriate, the Uplift Fee and the Success Fee) or the Defendant accepts that nothing further is due, and finalises its billing on that basis. In those circumstances it could be right to treat the monthly invoices rendered by the Defendant to date as part of a Chamberlain series, but not otherwise.

Summary of Conclusions

1. 1. The monthly invoices rendered by the Defendant under the terms of the June 2016 Retainer before it was varied from 19 September 2021 were not statutory bills.

1. 1. The May 2021 Terms adopted by the parties from 19 September 2021 did not have retrospective effect, because the parties agreed that they would not have such effect. Even if they did have retrospective effect it would not have extended to monthly invoicing, given that the May 2021 Terms expressly applied to future invoicing. Nor could any such agreement have converted retrospectively what were, as a matter of fact, non-statutory invoices into interim statutory bills.

1. 1. The monthly invoices rendered by the Defendant under the terms of the June 2016 Retainer after it was varied in September 2021 were not statutory bills.

1. 1. There is no basis for inferring, from the conduct of the parties at any time, an agreement to the effect that the Defendant’s monthly invoices were statutory bills, because any such agreement would have been inconsistent with the terms of the retainer under which they were rendered and paid.

1. I find no basis for concluding that the Defendant’s monthly invoices became statutory bills on the termination of the Defendant’s contract of retainer on 23 September 2022, whether together as a Chamberlain series or by reference to a natural break. Neither the Chamberlain nor the natural break principles can apply when billing has not been finalised.