COST BITES 175: SOLICITOR’S BILLS WERE NOT INTERIM STATUTE BILLS AND COULD BE ASSESSED: COURT OF APPEAL DECISION TODAY

In the judgment today in Signature Litigation LLP v Ivanishvili [2024] EWCA Civ 901 the Court of Appeal upheld an earlier decision of Costs Judge Leonard that a series of bills rendered by the appellant solicitors were not interim statute bills.  That meant that the bills, totalling, £13 million, which had all been paid, were open for challenge.

 

In my view, that submission neatly avoided the reality of what was happening here. In an ordinary case, a consumer of services may have up to six years to pursue claims against the services provider. But in the case of solicitors, s.70 drastically truncates that right: it offers a highly technical form of protection to solicitors by limiting the period of challenge to one year after the bill has been paid. That was not a problem in the past, because solicitors’ bills were usually rendered at the end of their work. Now solicitors sensibly seek interim payments, but they still want the protection of s.70, even under CFAs. As the authorities demonstrate, they make uneasy bedfellows.”

THE CASE

The claimant (former client) of the defendant solicitors sought a declaration that a series of invoices rendered by the defendant solicitors in the course of a retainer were not “statutory bills”.

THE DECISION OF THE COSTS JUDGE

The judge held that the bills, sent over a number of years, were not statutory bills.

    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. 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. 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. 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.”

THE DEFENDANT’S UNSUCCESSFUL APPEAL TO THE COURT OF APPEAL

The Court of Appeal upheld the decision of Costs Judge Leonard.  These were not final statutory bills.

 

    1. It is common in costs cases for the appellant to argue that, if the decision at first instance is not overturned, it will have a devasting effect on costs practice and funding. This case was no exception. Mr Williams pointed to the fact that, if these were not interim statutory bills, his clients faced the possibility of bills going back to 2016 being the subject of detailed challenge. He also said that it could have a chilling effect on the use of CFAs more widely.

 

    1. As to the point about the risk of a potentially stale challenge to the bills, that is a risk that any solicitor runs if his bills are not interim statute bills. In any event, it does not seem to me that, even if the respondent’s challenge went back to 2016, that should present any sort of insurmountable difficulty for the appellant. These days, with full computer records, a well-run firm of solicitors should have no difficulty in being able to justify the charges that it made in its detailed invoices, even if those invoices are some years old.

 

    1. As to the wider implications of the judge’s judgment, there has been no evidence on that point before this court. No representations have been received from the Law Society or any of the other organisations who often seek to intervene in costs cases. Moreover, given that, as I have demonstrated, the three CFA cases have each rejected the solicitor’s claim that the bill in question was an interim statutory bill (see paragraphs 36-41 above), a further decision to the same effect should not come as a surprise to those solicitors undertaking work on this basis.

 

    1. In response, Mr Mallalieu also identified two practical effects, one to support the proposition that the appeal should be dismissed, and one to demonstrate the difficulties if the appeal was allowed.

 

    1. As to the former, he said that one test of whether the invoice was an interim statutory bill was to ask whether it could have been the subject of proper assessment. He submitted that what would have been assessed would have been the claim at the Discounted Rate. The costs judge undertaking the assessment would have looked at the overall figure to see if it was reasonable, and might have concluded that, even if the hours were overstated, the overall figure was reasonable, because the hourly rates were only charged at 65% of the Standard Fee. So the result of any assessment might have been skewed because only the Discounted Rate was being charged. Although Mr Williams sought to argue that that was unlikely and that what would matter would be the hours only, I was not persuaded that it would be as simple as that.

 

    1. I note that this potential difficulty was identified expressly at [25] of Sprey, where Nicklin J said:

 

“25…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 (or earlier termination) at which rate he was being charged. On Mr Marven’s construction of the CFA, the Appellant progressively lost the right to challenge the bills as the claim went on.”

    1. Moreover, this issue was linked to what might happen if the appeal was allowed. Mr Mallalieu submitted that, in that event, the respondent would never have the opportunity of challenging the remaining 35%. That would be because, on this assumption, the invoices thus far were interim statutory bills, and the further invoices would simply be for the mathematical percentage uplifts that had been agreed on the happening of further contingencies. That would then mean that, not only could the respondent not challenge the interim bills rendered so far, but he would effectively be prevented from challenging the interim bills that were rendered in the future, because they would be based on a simple mathematical uplift in respect of work that it was now too late to challenge. That was the very outcome that the solicitors were unsuccessfully arguing for in Sprey.

 

  1. It is unnecessary for present purposes to delve further into these two elements of Mr Mallalieu’s submissions. But, in my view, they provide at least some further support for the conclusion that Ground 1 of the appeal must be dismissed.

 

CONCLUDING OBSERVATIONS

    1. Mr Williams’ opening oral submission was to the effect that this area of law had become “blinded by its own specialism”, and that highly technical arguments were blurring the straightforward resolution of these issues. He said that this explained the surge in the number of disputes arising under s.70.

 

  1. In my view, that submission neatly avoided the reality of what was happening here. In an ordinary case, a consumer of services may have up to six years to pursue claims against the services provider. But in the case of solicitors, s.70 drastically truncates that right: it offers a highly technical form of protection to solicitors by limiting the period of challenge to one year after the bill has been paid. That was not a problem in the past, because solicitors’ bills were usually rendered at the end of their work. Now solicitors sensibly seek interim payments, but they still want the protection of s.70, even under CFAs. As the authorities demonstrate, they make uneasy bedfellows.