COST BITES 149: SOLICITORS ACT ASSESSMENT – WERE THESE STATUTE BILLS? (YES THEY WERE)

In Pickering v Thomas Mansfield Solicitors Ltd [2024] EWHC 1107 (SCCO) Costs Judge Brown found that a series of invoices rendered by the defendant solicitors were “statute bills”. He rejected an argument that the requirements for such bills had been expanded by observations made by the Court of Appeal in  Karatysz v SGI Legal LLP [2022] EWCA Civ 1388.

“It strikes me that the bills in this case could have been drafted in a clearer way. It is however sufficiently clear from the addendum pages to the bills and the time sheets that they are final bills which comprehend all of the costs of the particular matters on which the Solicitors say they were instructed.”

The costs judge over your shoulder (solicitor and own client costs): Deducting costs from the client’s damages:  Webinar 15th July 2024

Booking details are available here.

This webinar looks at the regulations and case law relating to the deduction of costs from the client’s damages in a personal injury claim.

• When can a deduction from damages be made?
• Protection for the client
• What must be the client be told?
• What steps need to be taken if court approval is needed?
• How is a “success fee” justified?
• Avoiding difficulties and potential pitfalls
• Where do things go wrong?

The webinar examines the key judgments on this topic and looks at those areas that have proven to be problematic and which have led to litigation and solicitor-own client disputes. It looks in detail at the Legal Ombudsman’s guidance on Good Costs Service and the steps that lawyers have to take to comply.

THE CASE

The claimant was seeking a Solicitors Act assessment of costs in a case where the claimant had delivered invoices totalling £2,533.579.24.  The claimant raised an issue that the bills that had been rendered were not “statute bills” because they did not contain sufficient information.

THE JUDGE’S CONSIDERATION OF THIS ISSUE

The judge found that the invoices could have been presented with more clarity. However he rejected the claimant’s argument that these were not statute bills.

1. 1. Mr. Ralph’s argument was that as a matter of law the invoices delivered could not be statute bill because the invoices did not, he argued, provide adequate information of the sums that been paid on account and they could not be reconciled with various payments made on account paid under earlier invoices. In support of this argument he relied upon a passage or passages in Karatysz v SGI Legal LLP [2022] EWCA Civ 1388.

1. 1. Whilst not dealt with in any detail by the parties (it was raised by myself in the hearing), it is perhaps helpful to make some mention- albeit briefly- of the statutory background, being Part III of 1974 Act. The Part is headed Remuneration and at least as regards the relevant provision of this Part it is generally regarded as a consolidating Act. The Part is in three sections. The first and second sections deal with claims for remuneration pursuant to contentious and non-contentious business agreements. Such agreements are generally enforceable but only to the extent that they are in writing and satisfy the requirement of fairness and reasonableness^[2]. The provisions permit solicitors to sue on such agreements and limit the extent to which challenge could be made to the costs on the basis of the agreement. In contrast , the third section of this Part is concerned, at least to some extent, with an assessment of a statute bill of costs: such assessments are, of course, generally referred to as ‘Solicitors Act’ or solicitors/client assessment. A Solicitors Act assessment of a bill is however generally understood as an assessment of the reasonableness of the charges in a solicitor’s bill for fees and disbursements^[3].

1. 1. Ordinarily, of course, a Solicitors Act assessment is carried out having regard to the presumptions set out in CPR subrule 46.9. Paraphrased in broad terms, there are presumptions that the sums claimed are reasonable in amount and reasonably incurred if they were incurred with the express or implied approval of the client, and a presumption that costs have been unreasonably incurred if they are of an unusual nature or amount and the solicitor did not tell the client that as a result the costs might not be recovered from the other party^[4]. Thus, whilst not a matter of argument in this case, and it is at least somewhat tangential to the issue I am now addressing, in EVX v Smith [2022] EWHC 1607 (SCCO) I came to the view that hourly rates may be assessed as unreasonable and not payable if they were unusual and the explanation that they might not be recovered from the other side had not been given. As Fletcher–Moulton LJ had explained in Clare v Joseph [1907] 2 KB 369 (see p376), a case expressly dealing with the introduction of the provisions dealing with business agreement which I have referred above (the Attorneys and Solicitors Act, 1870), solicitors were understood to be in a position of undue influence and for that reason were not generally permitted to rely upon any agreement with a client as entitlement to costs^[5] (see too Friston^[6]) (It will be appreciated that the provisions relating to a Solicitors Act assessment are of some considerable antiquity evolving centuries before, it might be observed, the principles of contract had been developed).

1. The importance of what might perhaps otherwise appear as a diversion from the issue which I am required to deal with now, is that a claim by a solicitor for remuneration is generally (if it is not on a business agreements) understood to be founded on the delivery of a bill, not a contract^[7]. If no bill has been served the court can order one to be provided. But unless the solicitors has delivered a bill a claim for costs is defective. The importance of the delivery of a compliant ‘statute’ bill lies not just in informing the client what is due, but is an element of the cause of action. Thus, the definition of what constitutes a bill, or ‘statute’ bill, for these purposes is an important one in determining whether there is a proper cause of action either on the part of the solicitors for payment of fees and disbursement or on the part of the client for an assessment; it is not merely evidence of a debt.

THE DISCUSSINO OF KARATYSZ

The judge considered the impact of observations in Karatysz. He held that these were obiter or, alternatively, made per incuriam.

1. 1. In Karatysz v SGI Legal LLP [2022] EWCA Civ 1388 the court was concerned with the “amount of the bill” for purposes of the 1/5^th rule (see above section 70 (9)) and in determining which party should pay the cost of an assessment (subject to special circumstances). The solicitors argued that the bill was a claim for a sum equivalent to the amount of costs recovered from the other side (to the claim on which the solicitors were instructed) plus 25% of the damages together with the costs an ATE premium. If that were the amount of the bill, the deduction achieved in the assessment was less than 1/5^th. The client’s case was that the amount of the bill was the sum asserted in a schedule or ledgers attached to the bill; this was, as I understand it, the amount actually assessed, and if that were the amount of the bill the deduction achieved exceeded 1/5^th. The Court of Appeal agreed with the solicitors that the amount of the bill was limited to the amount claimed.

1. 1. It was in the context of this dispute that the Master of the Rolls, Vos MR, said this (at [46]):

“The Client argues that certainty is needed, I agree. Properly drawn bills ought in future to state the agreed charges and/or the amounts that the solicitors are intending by the bill to charge, together with their disbursements. They should make clear what parts of those charges are claimed by way of base costs, success fee (if any), and disbursements. The bill ought also to state clearly (i) what sums have been paid, by whom, when and in what way (i.e. by direct payment or by deduction), (ii) what sum the solicitor claims to be outstanding, and (iii) what sum the solicitor is demanding that the client (or a third party) is required to pay.

(my underlining)

1. 1. Mr. Ralph for the Claimant argued what was said in Karatysz, this passage in particular, is a development of the common law addressing what constitutes a statue bill for the purposes of a Part III of the 1974 Act.

1. 1. It is clear however that the Court of Appeal in Karatysz was at least primarily concerned with the construction of the phrase “the amount of the Bill” for the purposes of s70(9) of 1974 Act – the ‘1/5th rule’. What was said about the requirements of bill was on any view plainly obiter, as Mr. Ralph accepts. It seems to me however that the Master of the Rolls went out of his way to make clear that the only question he had to decide is the meaning “amount of the bill” see [31]; in the conclusion of his judgment he said that “points made about gross sum bills and the legal (as opposed to good practice requirements for the content of bills were not in the grounds of appeal and we have not therefore decided them“. [48].

1. 1. Neither Ralph Hume Garry nor Boodia nor any other cases dealing the requirements for a statute bill^[9] were referred to in the judgment. The comments relied upon by Mr. Ralph are not necessary for the reasoning supporting the outcome appeal. Moreover, in my judgment it is plain that the Court was not seeking to revisit the guidance given in Ralph Hume as to what constitutes a bill.

1. 1. Mr. Marven is, I think, right to say that Master of Rolls was concerned with best practice. His comments must be seen in the context of an expensive dispute over a small amount of money where there was uncertainty arising from the bills as to what was being claimed. The guidance was intended to avoid disputes of this sort, where solicitors are effectively seeking payment of the amount for the ATE premium and sum for other costs up to 25% of the damages. It is clear from the terms of guidance that it was as to what ought to happen ‘in future’. A ruling as to the state of the law applies retrospectively because it is to be understood as stating what the law always has been (Re Spectrum Plus Ltd (In Liquidation) [2005] UKHL 41, [2005] 2 AC 680 at [12]-[16]) but that was not the case here.

1. 1. It is not uncommon for time sheets or ledger or indeed Breakdowns (see CPR 46.10) to exceed the amount claimed, the solicitors are in effect saying that they did more work than claimed for in the bill, and thus there is what might be viewed as a ‘cushion’ over and above the amount claimed. In these circumstances if the bill is reduced by 1/5^th the court has to deduct more than this sum from the ledgers or Breakdown. That phenomenon is well known. It might in some circumstances lead to a finding of special circumstances but the statutory provisions and the guidance now given are clear, as the court emphasised: it is the claim in the bill that counts, not the amount in the Breakdown or ledger.

1. 1. In the circumstances I cannot take the passages relied as a basis for doubting the guidance in Ralph Hume and importing what appears to be accepted would be a new stipulation for a solicitor’s bill.

1. 1. I accept that a bill has to be complete. In Cobbett v Wood [1908] 2 KB 420 a bill in respect of the outstanding sum owed by the client where sums had have been paid inter partes (i.e. by the other side in the litigation) and received by the solicitor was not complete as the solicitors were understood to be claiming the whole of the sum against the client (and the inter partes payment was to be regarded as an interim payment against that sum). The ‘amount of the bill’ is the full sum claimed as payable and any payments against that are merely interim payments; thus the meaning of the phrase ‘amount of the bill’ is answered by asking what the bill was demanding to be paid (or to have been paid even if that sum had been paid), as appears in Karatysz at [36].

1. 1. I might add that the 1/5^th rule applies against the full amount claimed in the bill, not the amount claimed less the interim payment. Thus, it might be observed, a precise understanding of the amount of the interim payment is not necessary to form at least some view as to whether the bill may be vulnerable to a 1/5^th reduction.

1. 1. I might also add, perhaps (as with the reference to the statutory background above) unnecessarily, that I would be concerned that if this new stipulation were to be imported into the definition of a statute bills it could be problematic. In more complex cases where, such as here, there may be multiple streams of work which might generate different series of bills, and there might be difficulties in determining what sums have been received on an interim basis against certain claims in bill, so that there might be issues as to whether an interim payment are properly attribute to work claimed in any particular bill. Solicitors often themselves allocate interim payments to different work streams with little input from client (as might be suspected happened in this case). Because of the role that a statute bill has in determining where a cause of action is made out, any rule that meant that the interim payments had to be stated on a bill of costs might generate significant disagreement as to the status of a bill and thus as to whether claims by solicitors or clients said to be founded on a statute bill are properly made out. It strikes me that this could have significant adverse effects upon the ability of parties to resolve issues as to costs.

1. 1. Indeed, albeit not mentioned in argument (and I add this by way of further reinforcement only), it is perhaps relevant to note that the standard directions on a Solicitors Act assessment provide for the service of a Cash Account. This direction might be said presume that in the absence of such an Account there might be legitimate room for doubt about the amount already paid on account; it strikes me that any such disagreement can ordinarily be resolved in a Solicitors Act assessment without difficulty or the need to refer to the bills themselves.

1. 1. Needless perhaps to say, if I were wrong about the above and the passages relied upon could be understood to be a (binding) statement of the law, there might be a substantial basis for thinking that the decision was per incuriam, because Ralph Hume and Boodia were binding on the later Court of Appeal in Karatysz^[10] (see Willers v Joyce (No 2) [2016] UKSC 44 at [8] if authority is needed on this point). But for reasons which I have already stated I think the judgment of the Court of Appeal is quite clear on this point.

1. 1. It strikes me that the bills in this case could have been drafted in a clearer way. It is however sufficiently clear from the addendum pages to the bills and the time sheets that they are final bills which comprehend all of the costs of the particular matters on which the Solicitors say they were instructed. It is also clear that solicitors were also giving credit for the interim payments already made against those claims.

1. 1. It seems to me that the information is probably sufficiently clear on the bills in the terms required by Karatysz when all the documentation is considered. But in any event, it is sufficiently clear on the information known to the Claimant (I note that Claimant’s own unamended Claim Form expressly stated the total of the bills were for £2,533,79.14). In short, the invoices together with their enclosures made it sufficiently clear what had been paid and provided sufficient information to the Claimant to enable her to take a decision as to whether to apply for assessment. But I am, further, satisfied that in any event the Claimant had sufficient knowledge of the interim payments.

1. 1. These was no issue raised by Mr. Ralph that the necessary features of a statute bill identified by Ward LJ in Ralph Hume Garry were not otherwise present.

1. In the circumstances it seems to me that the invoices delivered must be regarded as statute bills.