The Lesser Spotted Paragraph of CPR

There has long been a concern that with an increase in the operation of fixed recoverable costs, and an ever-increasing consumer awareness, that the incidence of costs disputes between clients and solicitors would accelerate.

Indeed, the complaints data from the Legal Ombudsman shows that 15% of complaints received related to excessive costs or insufficient/deficient costs information being provided by solicitors to their clients.

The matter of Eric Christopher Dunbar v. Virgo Consultancy Services Limited, heard on 30 November 2018, demonstrated that there continued to be significant failings within the sector when it comes to provision of adequate costs information. It is acknowledged that his was quite an extreme case, where after delivering a Bill for £70,000 plus VAT (a total of £84,000) it was found that having failed to give any estimate of costs, or any other advice on costs, that a total of £34,000 was a reasonable sum for the client to pay. Further, that the operation of VAT had not been explained and therefore no VAT was recoverable. This case illustrates that clients will not simply sit back and not accept as reasonable charges presented to them- which have not been properly explained or anticipated.

This case serves as a reminder to all practitioners to fully and properly comply with the SRA Code of Conduct and their obligations to provide clients with the, “best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter….”

The cases of Garbutt v. Edwards and ‘Mastercigars No 2’ and the decisions referred to therein provide the fundamentals upon which the court will make a decision in relation to inadequate costs estimates.

These cases however were decided pre-Jackson reforms and prior to the introduction of costs management and the delightful Precedent H. So, what are the contemporary considerations in relation to costs information provided to clients?

A good starting point is the lesser known, and infrequently highlighted, provision found at Part 46.9 of the Civil Procedure Rules. This a greatly overlooked provision and its contents can come as quite a surprise to practitioners who may believe that they are entitled to charge and recover whatever was stated in the retainer/contract with the client.

CPR, 46.9 provides as follows:

“(2) Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.
(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;
(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.”

The effect of this provision in CPR, and the corresponding section of the Solicitors Act, highlights that in order to successfully recover more from a client than has been recovered on an inter partes basis in County Court cases- there needs to be evidence that the client has actively consented or approved costs incurred in excess of the amount recovered inter partes.

Good practice dictates that not only should your retainer documentation provide a clear explanation that there is likely to be a shortfall between inter partes recovery and solicitor own client charges but a proactive approach should also be adopted during the life of the case, and approval by the client should be properly recorded to avoid any future ‘misunderstanding’.

Taking this discussion to its natural conclusion, the SRA code of conduct and good practice suggest that a solicitor should ensure that clients see and approve costs budgets. Furthermore, if costs are incurred outside of the budget then the client must be told that these are unlikely to be recovered inter partes. It will be at your own peril if you fail to advise a client about the consequences of exceeding an approved budget and failure to update the same. The savvy client will quickly spot, or may be advised when contemplating a complaint, that costs incurred outside of the parameters of that budget, pursuant to CPR, 46.9(c), will be presumed to be unreasonably incurred. The onus will then be on you to prove that the client was aware of and consented to the additional costs being incurred. This is onemore reason to make sure your budgets are prepared accurately, and applications to amend the budget are made when slippage does take place.

This article was written by Michelle Barron who is a Costs Lawyer and Head of Operations based at the Carlisle office.