COST BITES 108: SOLICITOR AND OWN CLIENT COSTS: THE NEED FOR THE LAWYER TO GIVE ACCURATE ESTIMATES OF COST AND THE CONSEQUENCES OF INACCURACY (THIS DOES NOT END WELL FOR THE SOLICITOR)

October 23, 2023 · by · in Assessment of Costs, Conditional Fee Agreements, Costs

The judgment of Senior Costs Judge Gordon-Saker in Kenton v Slee Blackwell PLC [2023] EWHC 2613 (SCCO) provides an object lesson in the perils of the clear warnings and advice that clients have to be given in relation to costs. A solicitor’s claim against their client for £256,263 plus VAT was reduced to £60,000 plus VAT. The judge makes important observations in relation to both the need to give accurate costs estimates to a client and the need to keep them fully informed throughout. These duties are not diminished in any way by the fact that the litigation is being conducted on a conditional fee agreement.   The judgment also contains a detailed consideration of they way in which the risks were assessed. A success fee of 70% was reduced to 50%.

“In circumstances where the client was given a hopelessly inaccurate estimate, relied on the estimate by entering into a conditional fee agreement, lost the opportunity of doing something different, was not given proper costs information, was billed a sum several times the amount of the estimate, and where the solicitor failed properly to explain the difference between the estimate and the costs incurred, the amount that the client should reasonably be expected to pay must be a figure close to the estimate upon which she relied.”

THE CASE

The claimant instructed the defendant firm of solicitors “Slee Blackwell”  in relation to a professional negligence action against another firm of solicitors. A CFA was entered into and Slee Blackwell gave an estimate of costs and sought a success fee of 70%. That professional negligence action settled at a mediation prior to the issue of proceedings. Slee Blackwell then recovered costs  from sought to recover £93,126.40 from the claimant plus a success fee giving a total due by the claimant of £256,263 plus VAT.

THE CLAIMANT’S APPLICATION FOR THE BILL OF COSTS TO BE ASSESSED

The claimant then made an application that the bill be assessed.  There were two primary issues in dispute: (i) the fact that the bill of costs was much higher then the estimates given to the claimant; (ii) the success fee set at 70%.

 

THE ESTIMATE OF COSTS

The judge found that bill of costs claimed exceeded the estimates given to the claimant.   No evidence was adduced to explain that difference.  The judge firstly examined the estimates closely.
    1. The case fact sheet contained an estimate of costs:
4. Estimate of charges
Our charges are based on the time we spend on your case. At this point it is not clear what issues will be in dispute. We therefore cannot say how much time we will need to spend on your case and therefore cannot give a precise estimate of our charges. In our experience the basic legal charges in a case like this are likely to be between £5,000 and £20,000 (excluding VAT, expenses and disbursements, insurance and success fee) if liability and quantum are not seriously contested and a settlement is reached within the protocol period. If liability and/or quantum are disputed then the costs will rise. Additional costs will be incurred if mediation is required and if the claim proceeds to a contested hearing the basic legal charges are likely to fall within the £30,000 to £50,000 bracket; in some cases substantially more.
5. Estimate of disbursements and expenses
We have agreed to fund all reasonable disbursements and expenses excluding legal expenses insurance. You have agreed that we will be reimbursed in full from any damages awarded or agreed (on a final or interim basis) or by you if the CFA is terminated).
It is difficult to accurately estimate what expenses and disbursements will be required at the outset of a claim. You may incur experts’ fees, court fees, mediation fees, copying fees and travelling expenses. These disbursements and expenses are unlikely to exceed £5,000 unless the claim proceeds to a contested hearing or mediation. This estimate does not include provision for any legal expenses insurance you decide to take out or barristers’ fees. It is anticipated that if a barrister is required they will work on a CFA basis.
6. Estimate of timescale
Between 6 months and 2 years.
7. Cost benefit
The proposed work is merited on a cost/benefit analysis.
    1. According to the Claimant’s first witness statement (at paragraph 13):
I had been told the rough value of the claim against [ABC] was in the region of £500,000. My understanding of the Case Fact Sheet was that if a settlement could be reached before Court proceedings were required, I could expect to pay Emma Slade between £5,000 – £20,000 for her basic charges and if the case went to a hearing I could expect to pay Emma Slade between £30,000 – £50,000 for her basic charges.
    1. Having been “once bitten twice shy”, as she put it, the Claimant queried the estimate in an email dated 10th May 2018, in particular the Defendant’s agreement to cap the success fee to 50 per cent of the damages. In reply, after giving examples of how the cap worked, Ms Slade explained:
What I can also say to you is that in nearly 23 years of practice, I have yet to have a single case where my basic fees have been £100k! The closest I have had is £85k and that was with a fully contested trial as well so hopefully that will put it in to a bit of context.
  1. The Claimant signed the CFA and case fact sheet on 11th May and returned them by post.

THE ESTIMATES GIVEN THROUGHOUT THE CONDUCT OF THE MATTER

The judge found that the estimates given throughout the solicitors dealing with the matter were not helpful. His view was that little care had been taken in their creation.

    1. The Defendant sent 5 costs letters to the Claimant between September 2018 and November 2020. Apart from the amount of costs specified, the letters were in identical terms, including the estimated time to the conclusion of the claim. That would suggest that little care was taken with their creation.
    1. The letter dated 18th September 2018 reads as follows:
This is a standard letter – not a bill. You do NOT need to take any action in respect of this letter.
In accordance with Law Society regulations we are writing to update you on the costs and timescale of your case.
According to our computerised records, the costs incurred to date are approximately £32,338 excluding VAT, disbursements and success fee. This figure is intended purely as a guide. The final figure will be based on a manual assessment of the file possibly carried out by the Court. It could therefore be higher or lower than the guide.
Matters may not be resolved for at least another six to twelve months and future costs will very much depend on whether your opponent is reasonable and cooperative. We may incur further costs of a few thousand pounds but if it is necessary to take the case all the way to a contested hearing then the costs will be considerably more and I would refer you to the estimate contained in the case fact sheet.
If we are dealing with your matter on a “no win – no fee” basis or under a legal expenses policy then your responsibility for paying costs will be regulated by the agreement entered into at the outset.
We confirm that our basic charges are calculated according to how long we are engaged on your case, unless fixed fees apply.
The hourly rates are currently: –
• Partner and solicitor with 8 years’ experience after qualification £300
• Solicitors with over 4 years’ experience after qualification £275
• Other solicitors and legal executives and other staff of equivalent experience £250
• Trainee solicitors and staff of equivalent experience £200
    1. The amounts of profit costs indicated in the letters were:
11 September 2018 £32,338
20 March 2019 £56,753
3 September 2019 £78,178
25 June 2020 £109,650
16 November 2020 £120,100
    1. The Claimant’s evidence as to her reaction to these letters is set out in her second witness statement:
11. Over the course of the two-and-a-half-year period between May 2018 and the settlement of the damages in November 2020 I received 5 letters from Slee Blackwell {POD 38-45}which were all in the same standard form, each of them stated in bold at the top that it was a standard letter and that it required no action. Each of them gave a figure for what it described as a computerised time record of costs to date, which was a guide, and that the actual figure may be more or less, and then each of them also referred me back to the original estimate. I never received any worklogs of the time spent.
12. As stated previously, I was not sure what to make of these additional figures being put forward, nor, beyond my understanding outlined above, completely au fait with how the CFA actually worked; as the letter stated I needed to take no action, and referred back to the original estimate, and as the matter was never issued in Court, and these new figures were certainly not expressed as a divergence from the original estimate, I felt reasonably secure that the amount that I would have to pay, if not recovered as costs, would be at most £20,000 plus success fee and disbursements.
13. Since I only received the letters described above every six months, the figure mentioned sometimes jumped dramatically from one letter to the next. For example, when I received the 4th of these letters on or around 25 June 2020 I noted that the time costs in the letter were now over £100,000, so notwithstanding the fact that the matter had still not been issued, the figure was 5 times the estimate for pre issue work and more than the worst case scenario that Emma Slade had put forward to reassure me when I had questioned the initial information. I was shocked to see how the charges had escalated especially as I had also recently read an article in the Sunday Times about people who ended up in debt after litigating a case under a CFA.
    1. On 6th July 2020, as the prospect of mediation loomed, the Claimant raised the question of costs in an email:
Also – and please forgive me if you’ve already answered this point but I couldn’t find your email about it – we happened to read an article in the Sunday Times about some people who ended up in debt after a case for which they had a CFA, so I’d like to clarify again: what percentage of any compensation offered will go on your fees and expenses or will that be covered separately?
    1. That was answered the next day by Ms Slade:
Regarding the final question, I think you may have misunderstood the workings of a CFA. We do not take a percentage of your damages, we take a percentage on top of our basic fees. I am afraid I cannot recall your success fee etc off the top of my head but let me give an example. Let us say that your success fee is 70%; let us say that my final costs are £10k. At the end of the claim, you will be responsible for the basic costs of £10k plus the uplift which will be £7k, ergo you are liable for £17k. The usual cost consequence is that that loser pays the winners costs. We can recover anything between 70-90% of the basic costs – not the success fee, we cannot recover anything for the success fee. Let us say we recover 85%. You will therefore be liable for £17k subject to the contribution of £8,500 by the other side. We do provide you with 6mo letters to let you know what our basic costs are currently running at and of course, I do bear in mind your costs liability when discussing settlement etc.
    1. On 28th July 2020 Ms Slade sent to the Claimant copies of her time records in answer to the Claimant’s request for a breakdown. The records show total time of 405.7 hours from 3rd May 2018 and total profit costs of £111,240.
    1. According to the Claimant she became concerned that if she did not continue with the case and ended the CFA she would be liable for the whole of the Defendant’s basic charges, expenses and disbursements; and would still have to pay the Defendant’s success fee if she changed solicitors and went on to win the case. She concluded that challenging the size of the success fee would be “safer”. In an email dated 13th August 2020 the Claimant wrote:
As I explained when we spoke, 90% on top of £10k or even £40k doesn’t seem unreasonable; when I received your latest statement showing that your fees had escalated to £110,000, which is an extremely high figure, it was quite a shock, as you acknowledged in our conversation. Whilst I appreciate that this was, as you explained, due the amount of time required to read through all the files, a 90% uplift on £110,000+ is an inordinately large amount.
    1. On 14th October 2020 the Defendant sent the Claimant a spreadsheet during the course of a telephone conversation about the Part 36 offer that the Defendant had made and the offer which the Claimant might make. The spreadsheet set out the likely results for the Claimant if either offer were accepted on the basis that the Defendant’s profit costs were “say £120,000”. The Claimant’s reaction, in an email dated 23rd October was “it appears that if I accepted an offer of £300,000, I would end up with £118,216 which is not acceptable”.
    1. The last costs information given to the Claimant was shortly before the mediation hearing when she was sent a schedule of costs prepared for the purposes of negotiation. That showed profit costs of £124,825 excluding value added tax, estimated costs of the mediation (including counsel’s fees of £8,880) and estimated profit costs to trial of £75,000.
    1. The day after the mediation meeting Ms Slade emailed the Claimant to say that she had made a mistake on the figures for costs and that, assuming a 70 per cent recovery of the inter partes costs and given the reduction in the success fee to 70 per cent, the Claimant should receive “about £103k”. The Claimant replied that “is the best news I’ve heard in a long time”. In the event, the sum due to the Claimant was £93,126.40.
The Claimant’s arguments on the costs estimates
    1. Mr Gaydon submitted that the estimates given to the Claimant were clear: the range given up to trial was £30,000-£50,000. The one case where the basic charges had reached £85,000 was exceptional and over £100,000 “was out of the question”. For a claim which settled before proceedings were issued, the Claimant could expect to pay £5,000-£20,000.
    1. The estimates were given before the Claimant entered into the CFA. Once she signed it she was bound to pay the Defendant’s legal charges except in the event that she lost the claim. If she terminated the agreement, she would be liable for the Defendant’s basic charges and disbursements on demand, win or lose, unless the Defendant decided to await the outcome and recover the success fee. It was incumbent on the Defendant to provide accurate costs information before the costs were incurred.
    1. The first costs information letter, sent 4 months after the CFA was entered into, did not say that the estimate had been or would be exceeded. The figure given was said to be only “a guide” and the final figure could be higher or lower. The Claimant was referred back to “the estimate contained in the case fact sheet” and no further estimate was given, except that “we may incur further costs of a few thousand pounds” or “considerably more” if the case goes “all the way to a contested hearing”. The subsequent letters added nothing as they were in identical terms, apart from the figure for incurred costs. It does not help a solicitor who has given a mistaken estimate at the outset to give higher figures subsequently: Reynolds v Stone Rowe Brewer [2008] EWHC 497 (QB) at para 59. It was clear from the correspondence that the Claimant was concerned about costs.
  1. The figure which the Claimant should reasonably be expected to pay should not exceed the estimate that she was given and Mr Gaydon contended for £20,000.

THE EFFECT OF THE ESTIMATE IN THE CURRENT CASE

The defendants did not adduce any evidence as to why the figures vastly exceeded the costs estimate.  The judge held that the costs the client had to pay should be based on that estimate.

    1. The Defendants chose neither to seek to cross-examine the Claimant on her witness statements nor to put in their own evidence in relation to the estimate, the costs information that was given, or the reason why the costs far exceeded the estimate. Ms Slade’s witness statement goes only to the risk assessment for the success fee.
    1. However at paragraph 9 of that statement, Ms Slade explains that:
… the claim was very likely to be document-dense. The Claimant had already tried to bring a number of claims which [ABC] would have needed to give consideration to in order to formulate the private prosecution. All of this would need to be considered which would have required a considerable investment by the firm and indeed a very high risk if there wasn’t evidence of a claim.
    1. That would seem to be inconsistent with the explanation that the increase in costs over the estimate was due to the size of disclosure by ABC. In any professional negligence case against a firm of solicitors, those acting for the claimant will need to consider carefully the defendant’s files. A solicitor working in this field should have a reasonable idea of how big those files are likely to be.
    1. In the absence of any evidence as to why the costs incurred far exceed the estimate, it is difficult to reach any other conclusion than that the estimate was inadequate. Based on my experience, the figures that the Claimant was given were hopelessly unrealistic. This was a professional negligence claim which would probably be brought in the High Court seeking damages in excess of £300,000. As Ms Slade anticipated, the case would be document heavy and a considerable amount of work would be required. Realistic estimates would be multiples of the figures that were given. In my judgment, a realistic estimate of reasonable profit costs to settlement before the issue of proceedings would have been about £50,000, and a realistic estimate to the conclusion of a trial would have been at least £150,000.
    1. It follows that, in my judgment, not only were the estimates unrealistic but the costs that were incurred are likely to be unreasonable.
    1. Did the Claimant rely on the estimate? It is clear that costs were important to the Claimant. Before she signed the CFA she queried the likely outcome of the claim, setting out figures based on profit costs of £80,000 (“the maximum fees you say you’ve charged in the past”)[11].
    1. How did the Claimant rely on the estimate? According to her first witness statement, she “decided to proceed and signed the Case Fact Sheet”. She also signed the CFA. Had the Claimant been given an accurate estimate of the Defendant’s charges, along the lines of the figure that was eventually billed, she would have had the opportunity to consider whether she wished to continue with the claim and whether she wished to obtain an estimate from other solicitors.
    1. What, if anything, is the effect of the subsequent costs information? By the date of the first costs letter, 4 months after the CFA, the costs exceeded the top end of the estimated bracket for pre-issue costs by 50 per cent. The costs letters are confusing. The client is told that the costs may be more or less than the figure recorded and is referred back to the estimate in the Case Fact Sheet.
    1. By that point, the Claimant had signed the CFA and, if she terminated the retainer, she would be liable, at the Defendant’s choice, for their costs whether she won or lost. In that way, she was in a worse position than the claimant in Reynolds, who had received regular bills and updated assessments, but would be no worse off if she had terminated the retainer earlier than she did, once she saw the mounting costs. The Claimant in the present case was hooked by the initial estimate and could not escape it.
    1. The Defendants did not provide the Claimant with proper costs information. She was not given any updated estimate until the mediation. The back-of-the-envelope calculations in the October 2020 spreadsheet did not set out the estimated costs to trial in the event that the claim did not settle. The costs letters, setting out the costs incurred to date, were confusing.
  1. In circumstances where the client was given a hopelessly inaccurate estimate, relied on the estimate by entering into a conditional fee agreement, lost the opportunity of doing something different, was not given proper costs information, was billed a sum several times the amount of the estimate, and where the solicitor failed properly to explain the difference between the estimate and the costs incurred, the amount that the client should reasonably be expected to pay must be a figure close to the estimate upon which she relied. The claim settled before issue and following mediation. The estimate given for that outcome was £5,000 to £20,000 plus “additional costs for mediation”. Taking the top end of that bracket and adding £20,000 for mediation would give £40,000. That is just under half of the figure which Ms Slade referred to as the most she had ever charged for a case which went to trial. It is also not far off the amount that I would expect to have seen estimated and incurred. £40,000 seems to me to be the reasonable sum which the Claimant should be expected to pay.

 

THE SUCCESS FEE

The judge carried out an equally close examination of the success fee.  The success fee claimed  was not justified and was reduced to 50%.

The success fee
    1. CPR 46.9(3) provides:
(3) 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;
    1. CPR 46.9(4) provides:
(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.
    1. The Defendant’s risk assessment form used a system of scoring. The methodology used is not at all clear on the face of the form. Both “Multi track” and “Multi defendant” were assessed as “very high risk” and each was given the maximum score of 5. “Limitation issues” were assessed at 4, which seems odd given that the costs order in the magistrates’ court was made after the Defendant was retained. “Causation” issues were also assessed as very high risk. That seems odd given that the costs order obviously followed from the alleged non-disclosure. Applying a table set out in the form, the total of 53 gave rise to a success fee of 90 per cent.
    1. Mr Brighton submitted that the points of dispute did not challenge the methodology used for the risk assessment. However, at point 2 it was contended that:
The percentage uplift charged to the client ought to be based on the aggregate of the relevant factors which go to risk.
The Risk Assessment Form purports to be a bespoke assessment of risk based on the individual circumstances of the case with the success fee set in accordance with the risks identified.
However, the Risk Assessment Form does not identify risks but instead applies a numerical score to factors which do not relate to risk.
The result is that the percentage uplift was not calculated by reference to the relevant risk factors of the specific case. The success fee is therefore unusual.
    1. Given the amount of work done by Ms Slade considering the Claimant’s papers and the time spent in taking instructions, one would expect a rather more honed and reasoned assessment of the risk.
    1. In her witness statement Ms Slade seeks to explain the approach taken in the risk assessment. “Multi track” appears to relate to the amount of costs likely to be incurred, rather than the risk of failure. “Multi defendant” referred to the fact that there were two potential defendants – ABC and leading counsel – and it was not then known who had drafted the summons. It was possible that significant costs may not be recovered against an unsuccessful defendant. Again, it is difficult to see this as a real risk. If proceedings were brought against two defendants and they blamed each other, the usual order would be that the unsuccessful defendant would pay the costs of the successful defendant. “Causation issues”, as explained by Ms Slade, seems to be breach of duty, rather than causation. She described that as “the biggest concern”. Ms Slade’s assessment of the “Limitation issues” appears to have been linked to the date of breach rather than the date when the cause of action accrued. Ms Slade explained that “Potential ATEI issues”, which were assessed as high and scored at 4, related to the risk that the claim would not meet the insurers’ requirement of 60 per cent prospects of success. That seems to be somewhat circular. Either the claim has prospects of success of 60 per cent or it does not. Reducing the prospects of success because the prospects of success may not be 60 per cent or more, seems to underline the unusual approach to risk assessment in this case.
    1. The approval of the client for the purposes of r.46.9(3) “means informed approval in the sense that the approval was given following a full and fair explanation to the client”: Herbert v HH Law Ltd [2019] EWCA Civ 527, para 37.
    1. In my judgment the risk assessment in this case was not a proper assessment of the prospects of success. It does not justify the staged success fees of 80 and 90 per cent. It cannot therefore be said that the Claimant’s approval of the success fees was informed and accordingly the presumption of reasonableness does not apply.
    1. Were the success fees nevertheless reasonable? That the Defendant adopted a staged success fee is relevant. However, the difference between the two stages is only 10 per cent. The first stage success fee of 80 per cent represents a chance of winning of about 55 per cent. That seems to me to be pessimistic. This is not a case where the solicitor can say that the prospects are so uncertain that they were little better than 50/50. District Judge Ikram’s February 2018 judgment clearly set out the failings in the prosecution. There may be issues as to who was to blame for those failings, as between the Claimant and ABC. However it would be difficult to see how ABC could have been unaware of them. The costs order clearly followed from those failings.
  1. In my judgment the assessment of the risk was unreasonable. It was more likely than not, by more than a minimal margin, that the claim would succeed. A realistic and reasonable assessment would have been 67 per cent, giving a success fee of 50 per cent.
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