COST BITES 109: SOLICITOR AND OWN CLIENT COSTS: A REVIEW OF THE AUTHORITIES

We are returning to the judgment of Senior Costs Judge Gordon-Saker in Kenton v Slee Blackwell PLC [2023] EWHC 2613 (SCCO) looked at in the previous post.  That judgment also contained a detailed review of the authorities relating to the significance of a solicitor’s estimate of costs.  These are principles that every litigator must know, particularly those giving estimates of costs at the outset of a retainer.

This photo should not be used to encourage smoking. It is to assist in remembering the name of the leading case in this area.

“The ultimate question is as to the sum which it is reasonable for the client to pay, having regard to the estimate and any other relevant matter.”

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 judge allowed £40,000 and a success fee of £20,000 (plus VAT).

THE JUDGE’S REVIEW OF THE AUTHORITIES

The judge considered the authorities in detail.

The authorities

1. 1. In Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch)^[2] Morgan J succinctly summarised the principles derived from the two recent relevant decisions of the Court of Appeal^[3]:

In a case where a solicitor does give his client an estimate but the costs subsequently claimed exceed the estimate, it will not follow in every case that the solicitor will be restricted to recovering the sum in the estimate. What these two decisions of the Court of Appeal repeatedly state is that the court may “have regard to” the estimate or may “take into account” the estimate and the estimate is a “factor” in assessing reasonableness. For the reasons given by Arden LJ in Garbutt v Edwards at [50], these two cases do not themselves provide very much detailed guidance as to how one should react on the facts of a particular case because it was felt by the Court of Appeal it was impossible to foresee all the differing circumstances that might arise in any individual assessment.

1. 1. Whether the client relied on the estimate is an important factor in how the court should take the estimate into account. Morgan J said^[4]:

On the question of reliance, Leigh v Michelin Tyre Plc is authority for reliance being relevant on an assessment of costs between a paying party and a receiving party. Dyson LJ does not spell out in detail what the consequences of such reliance might be but he does not seem to have in mind only those cases where the paying party could show an estoppel. Something less than an estoppel seems to suffice in terms of relevance. Conversely, something more than a belief that the costs are likely to equate to the estimate seems to be needed because Dyson LJ in [31] refers to the question of “how” the paying party relied on the estimate. Further, at the end of the inquiry, the deduction in the costs which is thought to be appropriate is left to the good sense of the court.

1. 1. In Wong v Vizards [1997] 2 Costs LR 46, Toulson J (as he then was) concluded that:

The correspondence amounted to a clear and considered indication of Mr Wong’s maximum likely liability to Vizards, upon which Mr Wong was likely to rely and did rely. It is open to Mr Wong to argue that in determining what is a reasonable amount for him to pay for the work done, regard should be had to the level of costs which he had been led to believe represented a worst case assessment of his potential liability.

1. 1. In Wong there was no satisfactory explanation as to why the costs exceeded the estimates and the court allowed a sum which equated to the estimate given on a worst case basis plus 15 per cent.

1. 1. Until the decision in Wong was explained in Mastercigars, the commonly held view among costs practitioners, and indeed costs judges, was that where the client had relied on the estimate the court should limit the costs to the estimate plus a margin of 15 per cent.

1. 1. Following the first appeal in Mastercigars, the case was remitted to a costs judge to determine whether the client had relied on the estimate. In the second appeal^[5], Morgan J explained how the court should deal with reliance^[6]:

The court should determine whether the client did rely on the estimate. The court should determine how the client relied on the estimate. The court should try to determine the above without conducting an elaborate and detailed investigation. The court should decide whether the costs claimed should be reduced by reason of its findings as to reliance and, if so, in what way and by how much. Whether there should be a reduction, and if so to what extent, is a matter of judgment. Specific deductions can be made from the costs otherwise recoverable to reflect the impact which an erroneous and uncorrected estimate had on the conduct of the client. Such an approach requires the court to form an assessment of the impact of the estimate on the conduct of the client. The court should consider the deductions which are needed in order to do justice between the parties. It is not the proper function of the court to punish the solicitor for providing a wrong estimate or for failing to keep it up to date as events unfolded.

…

The ultimate question is as to the sum which it is reasonable for the client to pay, having regard to the estimate and any other relevant matter.

1. 1. As to the second question – how the client relied on the estimate – Morgan J explained^[7]:

Accordingly, in my judgment, it is not necessary for the client to prove detriment in the sense of showing on the balance of probabilities that it would have acted in a different way, which would have turned out to be more advantageous to the client. In a case where the client satisfies the court that the inaccurate estimate deprived the client of an opportunity of acting differently, that is a relevant matter which can be assessed by the court when determining the regard which should be had to the estimate when assessing costs. Of course, if a client does prove the fact of detriment, and in particular substantial detriment, that will weigh more heavily with the court as compared with the case where the client contends that the inaccurate estimate deprived the client of an opportunity to act differently and where the matter is wholly speculative as to how the client might have acted.

1. 1. The extent to which the estimate is exceeded is also important. As Morgan J said in the first Mastercigars appeal^[8]:

A modest excess does not call for much explanation and a substantial excess calls for a great deal of explanation. In some cases it might be useful to say that anything below a norm or margin does not require much if any justification whereas anything above that norm or margin should be expected to be explained in detail. Another function which the notion of the margin might play is in relation to reliance. Because an estimate is not a fixed price or a maximum price, even where a client relies on the estimate, it will often be the case that the client appreciates that there is some room for movement so that he would not be very surprised if the final bill turned out at a figure somewhat above the estimate. A figure somewhat above the estimate might therefore be perfectly reasonable to expect the client to pay. If the final bill is a little above the estimate then a court might routinely hold that the excess does not prevent it being reasonable for the client to be expected to pay the full bill. Conversely, if the final bill is significantly above the estimate, a court might routinely feel that the bill had increased by too much so that it was no longer reasonable to expect the client to pay all of it. The court may then be required to exercise its judgment as to what figure could properly be added to the estimate so as not to exceed the sum which it would be reasonable to expect the client to pay.

1. 1. Between the first and second appeals in Mastercigars, Tugendhat J considered similar issues in Reynolds v Stone Rowe Brewer [2008] EWHC 497. At the outset of a building dispute, solicitors had advised their client that her costs

would be in the region of £10,000 to £18,000 plus VAT, and this is only of course an estimate which could be increased depending on how strenuously the matter is defended.

1. 1. That estimate was increased as the case continued. The last estimate was £55,000 plus VAT. In concluding that the reasonable amount that the client should pay was £20,700, Tugendhat J explained^[9]:

This case has been a disastrous experience for the claimant, and little better for the solicitors. The claimant embarked on litigation which she could not by any means afford, on the understanding, conveyed by the solicitors, that she could just afford it. The solicitors themselves thought that she could afford it. They were not contemplating, when they accepted her instructions, that they would be funding this litigation themselves by giving the claimant the credit which they in fact extended to her. If the solicitors had not withdrawn when they did, the total costs including the trial would no doubt have been less than the total of £90,000 which the claimant says they ultimately were. But they would have exceeded £60,000. Unhappily, it is by no means uncommon for a claimant who recovers, as this claimant did, a judgment for some £55,380.80, to incur costs in excess of that amount in so doing. In this case it was never the intention of either the claimant or the solicitor that such a state of affairs should come about. It came about because the estimates in 2005, including the November 2005 estimate, were unreasonably low.

In my judgment the Costs Judge was fully entitled to come to the view that, if the estimates given at the start of the case had been such as are required by the applicable rules, then the claimant would not have acted as she did. She would clearly not have been able to afford to do so, and I think it unlikely she would have embarked on the course she did embark on. I bear in mind, as Mr Bacon submits, that, when confronted in 2006 with estimates nearer the reality, the claimant pressed on. But that is not a guide as to what she would have done if she had been faced with the reality in December 2004, at the time when she should have been.

1. 1. That last point was developed earlier in the judgment^[10]:

There is no finding as to whether the estimates increased because they had originally been wrong, or because of unforeseen events, or partly one and partly the other. If the increase was because the figure had originally been wrong, then in my judgment it does little to advance the solicitors’ submission that they gave a new, and higher, estimate, before the costs incurred exceeded the figure in the original estimate, or that, having been mistaken originally, they then gave a number of warnings as to when the estimates should be increased.

1. I have been referred to a number of decisions by my fellow costs judges. They do not purport to set out principles which conflict with those set out above, but reflect the appropriate exercise of discretion on the facts of the particular cases – the “good sense of the court” as referred to by Morgan J.