The back of the queue

This post first appeared as an article in the February 2017 issue of Litigation Funding magazine.

As 2017 opens, despite predictions that the Brexit process would absorb the attentions of lawmakers and divert scarce resources away from the dry and dusty terrain of costs reform, to greener European pastures, there are a significant number of reform projects under way.

First the misleadingly entitled “Reforming the soft tissue injury (whiplash) claims process”, secondly the imminent and overdue consultation on fixed costs in clinical negligence claims, thirdly Jackson LJ’s further report into fixed costs and fourthly the move to a digital bill of costs in October 2017.

However seemingly left high and dry, despite the flood waters of reform flowing, remains the vexed question of amending the current regime for Damages Based Agreements (DBAs) prescribed by the Damages Based Agreements Regulations 2013 made under section 58AA of the Courts and Legal Services Act 1990.

That this reform is sorely needed, is apparent to me from the increasing trickle of cases which come across my desk, where the shortcomings, failings and drafting infelicities of the current Regulations are manifest. It is salutary also to note both that there are no decided cases on the Damages Based Agreements Regulations 2013 and also that the Law Society has produced no model DBA.

A few examples of some of the problems will suffice. As is well known, the government declined to give lawyers what they really wanted, which was a form of hybrid Conditional Fee Agreement (CFA), whereby the lawyers would be able to recover costs from the losing party to litigation and a success fee, calculated as a percentage of the damages recovered by the client.

Instead the “Ontario” model was adopted, whereby the client agrees to pay a percentage of the damages recovered, and then in turn is able to deduct from the payment, the amount of costs recovered from the other side and retained by his lawyer.

The first problem that this creates is a conceptual one: what costs are to be credited against the payment, if a client has entered into multiple DBAs, with for example a solicitor and counsel, or a DBA with a claims management company and a further CFA with a solicitor’s firm? Is it the totality of the costs recovered from the other side? Or just the costs peculiar to each “representative”? Given that claims management companies “costs” will not be generally recoverable from the other side to litigation this creates real doubt as to the client’s liability.

Secondly, because the payment agreed under the DBA, acts as a cap for the purposes of the indemnity principle on costs recoverable from the losing side per rule 44.18 CPR, the suitability of the DBA for litigation which takes a surprising turn, may change overnight. A £3000 claim for example, funded by a DBA with a provision for payment of 25% of damages recovered, would cap any recoverable costs at £750. This would be a good deal for a solicitor, if the case settles after a dozen letters have been written.

It could prove an unfortunate bargain, if proceedings need to be issued, fraud is raised as a defence, and a low value case proceeds as a multi-track claim. Although the retainer may be capable of novation in such circumstances, should the client agree, a further layer of needless complexity will need to be addressed to ensure retainer issues are not problematic at the end of the case.

Thirdly, do you trust your client? If the client has entered into a DBA and as things get tougher, in prosecuting the claim, changes his mind, and no longer wishes to proceed with the claim, he can end the DBA. Whilst the client can end the agreement, unless it concerns an employment matter, then the Regulations give the solicitor no facility to send the client a bill for early termination. The Regulations are silent as to the client’s liability in those circumstances: but given that regulation 4 prescribes what payments can be made and the only payments that can be made, the solicitor is likely to be horribly exposed.

An unintended consequence of the introduction of DBAs, which can be utilised by claims management companies (CMCs), as well as solicitors, and which apply to the provision of claims management services, is that they are being deployed to arguably circumvent the referral fee ban, in personal injury litigation. The client enters into a DBA with the CMC, the CMC refers the case to a solicitor who enters into a CFA with the client and no prohibited referral fee changes hands.

But a solicitor cannot ignore the presence of the DBA, or turn a Nelsonian blind eye, to the client’s agreement with the CMC, taking the view that this occurred before his instruction and is none of his business, but is under a duty to advise a client of the nature of the agreement and his obligations.

The sad cases of Beresford and Smith, where solicitors failed to do so and whose relationships with claims management companies were pored over and found wanting, are instructive and on point: the decision of the Solicitors Disciplinary Tribunal was upheld by the High Court: Beresford and Smith v Solicitors Disciplinary Tribunal [2009] EWHC 3155 (Admin).

Although the Solicitors Practice Rules have been swept away and replaced by the Solicitors Code of Conduct, I do not think it is the case that the regulatory requirements have eased in the years since this case: far from it, if anything the regulatory net is likely to tighten further both for solicitors and CMCs who will shortly be regulated by the FCA.

There are other flaws with the drafting of the Regulations and the uses to which they might be put: these issues can be divided into drafting issues and matters of policy. These were addressed in a very interesting and useful report from the Civil Justice Council entitled The Damages Based Agreements Reform Project: Drafting and Policy Issues.

The report was published in August 2015 and runs to 145 pages, of closely argued text, dealing with the details of the confusingly named Damages Based Agreements Regulations 2015. These “Regulations” as the report makes clear in its introduction are a set of draft Regulations, provided to the report’s working party, which were intended to be brought into force in 2015, subject to any revisions or amendments flowing from the working party’s report.

In this respect, it is interesting to note what the working party recorded the then government as wishing to achieve in its terms of reference:

In particular, the Government’s intention is ‘substantively to improve the regulatory framework without encouraging more litigation’, and that the overriding objective is ‘to ensure that any  changes we make do not encourage litigation which would not otherwise be taken forward. Given the  similarities in substance between DBAs and CFAs, the Government does not see DBAs are filling  an access to justice gap — rather, they are intended to be an alternative form of funding, perhaps  in niche areas of litigation.’ In stating this, however, Lord Faulks acknowledged that it was a  ‘complex issue’, and that the Government was keen to avoid, so far as was possible, the ‘unintended  consequences’ that may flow from the redrafting of the DBA Regulations.

Reading that passage one comes away with the conclusion that not only was the government of the day reluctant to reform DBAs for fear of the law of unintended consequences, but it had no interest in promoting DBAs as a form of mainstream funding, perhaps seeing the model, as another unwelcome piece of fuel for the “compensation culture”.

Accordingly, given the current zeitgeist, I suspect the excellent 2015 report will remain to gather dust on the shelf for quite a while to come. DBA reform, is, in Mr Obama’s memorable phrase “at the back of the queue”.

A copy of the article as originally published can be found here: The Back of the Queue PDF

The top 5 ways your solicitor rips you off

What do you think of the title to this post? Does it catch your attention? Admittedly it is not blessed with the same power and venom possessed by the phrase “Enemies of the People” but it both catches the attention and has power to shock.

However the title was not  devised by me. Rather it reflects the a marketing wheeze devised by a company that had spotted a perceived gap in the market for advice  in relation to solicitor-own client assessments under the Solicitors Act 1974. The aggressive tone of the advertisement led to a complaint to the Advertising Standards Authority, which was upheld: you can read the report here: https://www.lawgazette.co.uk/practice/-your-solicitor-rips-you-off–cmc-told-to-pull-provocative-ad/5055869.article

The accompanying video to the advertisement still lingers palely (and amusingly) in cyberspace on Youtube, with an earnest presenter providing an explanation of what wicked creatures solicitors are.

In truth few professions are more regulated than the legal profession, and rightly so given the quasi-monopoly it has over litigation and the need to ensure that the public interest is protected.

The history of regulation and in particular constraints upon what lawyers may charge their clients is long and goes back centuries before the enactment of the Solicitors Act 1974.

A fairly basic safeguard, is a statutory requirement that when a solicitor levies a bill, upon which they may take legal action if it is not paid, that bill must contain a sufficient narrative of what work has been done, and what the client is being charged for, so that it constitutes a “proper” bill. Unless and until such a bill is served, no action can be brought.

As noted in the case of Ralph Hume Garry v Gwillim [2002] EWCA Civ 2002 the origins of the requirement that a solicitors bill should have a narrative, can be traced back to Georgian times and the Act for the better Regulation of Attorneys and Solicitors, 1729, 2 Geo. II. c 23, section 23

As early as that time there had been a bar on the solicitor commencing action until the expiration of one month from the delivery of his bill and there were provisions, slightly different provisions it has to be emphasised , for the taxation of that bill. Even then the bill had to be properly delivered and “subscribed with the proper hand of such attorney or solicitor”. The content of the bill received a little more clarification than has since appeared in that it was prescribed that the bill should be:−

“Written in a common legible Hand and in the English Tongue (except Law Terms and Names of Writs) and in Words at length (except Times and Sums) ×”

That may explain the practice of having a narrative account of the work done.

That Act was succeeded by the Solicitors Act 1843 which provided in section 37 as follows:

“No solicitor shall commence or maintain any action or suit for the recovery of any fees, charges, or disbursements for any business done by such × solicitor, until the expiration of one month after such × solicitor × shall have delivered unto the party to be charged therewith × a bill of such fees, charges, and disbursements, and which bill shall either be subscribed with the proper hand of such × solicitor, (or, in the case of a partnership, by any of the partners.

….

Provided also, that it shall not in any case be necessary in the first instance for such solicitor  in proving a compliance with this Act, to prove the contents of the bill he may have delivered, sent, or left, but it shall be sufficient to prove that a bill of fees, charges, or disbursements, subscribed in the manner aforesaid, or enclosed in or accompanied by such letter as aforesaid, was delivered, sent, or left in the manner aforesaid; but nevertheless it shall be competent for the other party to show that the bill so delivered, sent, or left was not such a bill as constituted a bona fide compliance with this Act “

Section 37 gave rise to some titanic battles in the Victorian courts about the taxation of solicitors bills. Keene v Ward (1849) 13 Q.B. 513. That was an action by the solicitors under a bill which contained charges in respect of nine actions in the Court of Exchequer and two in the Common Pleas. It also contained items in respect of two other actions as to one of which the parties were named and the bill was itemised to state, for example, “Instructions to sue 3s. 4d., writ of summons 12s. 6d”. The final charges in the bill did not identify at whose suit the defendant was the client and contained the fascinating description:−

“Attending you on your informing an action had been brought against you, and as to possibility of throwing it over the Long Vacation; and you were to bring me the writ and notice of declaration × 6s.8d.

The defendant objected to the bill submitting it did not satisfy the requisites of section 37. The argument was that because the bill did not state the court to which the business related, no−one could advise as to the taxation of those parts of the bill and if the bill could not be referred for taxation, it was insufficient. Patteson J. delivering the judgment of the court held:−

“In requiring the delivery of an attorney’s bill, the legislature intended that the client should have sufficient materials for obtaining advice as to taxation: and we think that we fulfil that intention by holding the present bill sufficient within that principle: whereas, if we required in respect of every item a precise exactness of form, we should go beyond the words and meaning of the statute, and should give facilities to dishonest clients to defeat just claims upon a pretence of a defect of form in respect of which they had no real interest.

The next case of interest was Cook v Gillard (1852) 1 E. & B. 26. Here the solicitor Mr Cook delivered a bill to his client divided into four parts. The first part was headed “Yourself and Ransom”. It consisted of a charge for attending the defendant and consulting as to slanderous reports; and then, under a fresh head, “Hilary Term 1846”, there were charges for “Letter before action”, “Instructions to sue”, “Writ of summons”, and “Attending settling”. The amount of the first part of the bill was £2. 19s. 8d. Except insofar as might be inferred from the items quoted there was nothing to show whether the suit of Gillard v Ransom had been pending in any, or which, of the superior courts. The second part of the bill related to conducting the defence of a case at the Middlesex Quarter Sessions and the third part for conducting a prosecution there. The fourth part of the bill was headed “Yourself and Mrs Heydeman”. It contained charges for taking the opinion of counsel on the construction of an agreement, various charges for collecting evidence and making enquiries at Hatton Garden, Tottenham Court Road, and other places well known to be in Middlesex, but which were not stated on the face of the bill to be there; for “Instructions to sue in an action on the case”; for “Writ” and “Service”; for attending in court when on motion by counsel “A rule was made to refer all matters in dispute”; and for attending the reference. The amount of this head of the bill was £122. 8s. 10d. Except insofar as might be inferred from the items quoted there was nothing to show whether the cause of Gillard v Heydeman had been pending in any, or which, of the superior courts. It was contended for the defendant that the first and last parts of the bill were insufficient, as they did not show in what courts the business there charged for was transacted; and therefore that the bill, being one entire bill, was not sufficient as to any part. For the plaintiff it was contended that the bill was sufficient for the whole; or, if not, that it was divisible and good pro tanto.

Lord Campbell C.J. delivered the judgment of the court. He referred to Ivimey v Marks (16 & W.) 843 in which the rule was laid down that a charge for an item in an action, without specifying in what court the action is brought, rendered the bill bad, the reason being that the client ought to be enabled by the bill to obtain advice as to taxation without the need of further question. The Lord Chief Justice pointed out section 37 of the 1843 Act and said:−

“No requisites for the bill are particularised: there is no requirement that the court should be specified: and the section further declares that the plaintiff is not bound in the first instance, in proving a compliance with the Act, to prove the contents of the bill delivered; but it is presumed sufficient unless the defendant proves that it is not such a bill as constitutes “a bona fide compliance with this Act.” The defendant here does not prove that any further information was practically wanted for taxation, or suggest that the name of the court in which the two writs of summons were issued would have been of any use to him: nor does he contend that the Act has not in this case been bona fide complied with, unless the arbitrary rule be deduced from the cases above mentioned, that the name of the court as to every item is indispensable, can be maintained. Now this rule, as applied to the existing statute, appears to have originated in a mistake: it was first introduced by judges applying the provisions of stat. 2 G. 2, c 23, s.23; and then there was good reason for it; for the jurisdiction to tax under that statute is given to the court in which the greater part of the business was done; and it was therefore indispensable for the parties and for the taxing officer to be able to assign each item to its appropriate court, before the taxation could be entered upon: moreover at that time the scale of charges in the different courts was different; so that the name of the court was also wanted in order to estimate the amount of charges. But, under the existing statute, if there is any item in any court of law, jurisdiction is given to all the superior courts indifferently; so that in respect of jurisdiction the name of the court is entirely immaterial: and so likewise it is for estimating the amount due, as the scale of charges in all the superior courts is now uniform. The judges, who instituted the rule in relation to the existing statute, adopted it from cases under the former statute, without adverting to the important changes in the law which the legislature had made; and thereby, as we think, contravened the intention of the legislature. If this reasoning is correct, it follows that the rule, which so originated, has been maintained without any useful purpose.”

He analysed a number of cases including Keene v Ward and then said:−

“This has been followed by a very salutary judgment in Cozens v Graham (16 Jurist, 952), where a bill was held valid although the court in which the business was done was not mentioned or described, it being clear that the defendant, knowing the court, did not want the information and only made the objection to evade payment of a debt.

Lord Campbell C.J. held:−

“I think the plaintiff has proved that he delivered such a bill as the statute requires. The statute, it is to be observed, requires the delivery of a bill of fees, charges and disbursements, but does not specify further what its contents shall be. I agree, however, that the bill must disclose on the face of it sufficient information as to the nature of the charges. I adopt the rule as to this, laid down in Keene v Ward  and in Cook v Gillard.The view taken by my brother Patteson in Keene v Ward seems very sensible.

He went on to say:−

“Complaints have sometimes been made that solicitors are not at liberty to recover the fair remuneration for their services as freely as any other person. It may be necessary to subject them to some regulation; but they have just ground for complaint if those regulations are vexatious, preventing the fair recovery of a just amount. I do not think that the legislature intended to throw on the solicitors the burthen of preparing a bill such that another solicitor on looking at it should, without any further statement, see on the face of the bill all the information requisite to enable him to say the charges were reasonable.

The principles to be derived from these cases were summarised by Ward LJ in his judgment in the Ralph Hume Garry case as follows:

Against that background the principles to be deduced from those cases appear to me to be these:−

i) the legislative intention was that the client should have sufficient material on the face of the bill as to the nature of the charges to enable him to obtain advice as to taxation. The need for advice was to be able to judge the reasonableness of the charges and the risks of having to pay the costs of taxation if less than one−sixth of the amount was taxed off.

ii) that rule was, however, subject to these caveats:−

a) precise exactness of form was not required and the rule was not that another solicitor should be able on looking at the bill, and without any further explanation from the client , see on the face of the bill all information requisite to enable him to say if the charges were reasonable;

b) thus the client must show that further information which he really and practically wanted in order to decide whether to insist on taxation had been withheld and that he was not already in possession of all the information that he could reasonably want for consulting on taxation.

iii) the test, it seems to me, is thus, not whether the bill on its face is objectively sufficient but whether the information in the bill supplemented by what is subjectively known to the client enables the client with advice to take an informed decision whether or not to exercise the only right then open to him, viz., to seek taxation reasonably free from the risk of having to pay the costs of that taxation.

iv) a balance has to be struck between the need, on the one hand, to protect the client and for the bill, together with what he knows, to give him sufficient information to judge whether he has been overcharged and, on the other hand, to protect the solicitor against late ambush being laid on a technical point by a client who seeks only to evade paying his debt.

The Victorian authorities formed a backdrop, to the very issue the Court of Appeal had to decided in the Ralph Hume Garry case: namely the sufficiency of a narrative for the purposes of section 69 of the Solicitors Act 1974 which provided:

(1) Subject to the provisions of this Act, no action shall be brought to recover any costs due to a solicitor before the expiration of one month from the date on which a bill of those costs is delivered in accordance with the requirements mentioned in subsection (2);

(2) The requirements referred to in subsection (1) are that the bill

(a) must be signed by the solicitor, or if the costs are due to a firm, by one of the partners of that firm, either in his own name or in the name of the firm, or be enclosed in, or accompanied by, a letter which is so signed and refers to the bill; and

(b) must be delivered to the party to be charged with the bill, either personally or by being sent to him by post to, or left for him at, his place of business, dwelling house, or last known place of abode;

and, where a bill is proved to have been delivered in compliance with those requirements, it shall not be necessary in the first instance for the solicitor to prove the contents of the bill and it shall be presumed, until the contrary is shown, to be a bill bona fide complying with this Act.

The Court of Appeal formulated the test as follows:

70.This review of the legislation and the case law leads me to conclude that the burden on the client under section 69(2) to establish that a bill for a gross sum in contentious business will not be a bill “bona fide complying with the Act” is satisfied if the client shows:−

i) that there is no sufficient narrative in the bill to identify what it is he is being charged for, and

ii) that he does not have sufficient knowledge from other documents in his possession or from what he has been told reasonably to take advice whether or not to apply for that bill to be taxed.

The sufficiency of the narrative and the sufficiency of his knowledge will vary from case to case, and the more he knows, the less the bill may need to spell it out for him. The interests of justice require that the balance be struck between protection of the client’s right to seek taxation and of the solicitor’s right to recover not being defeated by opportunistic resort to technicality.

71. On the facts of this case each bill was obviously and latterly expressly for professional charges. Even though it may have been perfectly obvious, the bills did identify the matter. Crucially for a determination of what was being charged for, the bill identified the period over which the work was being done. These bills may not have said much, but they did say something.

72. Whether the client’s knowledge was sufficient to supplement the lack of full narrative is a matter of fact. The judge held upon a review of the evidence that it was inappropriate to strike out the claim since Mr Ralph had shown a real prospect of establishing at the trial that Mr Gwillim knew all he needed to know about the work and the basis of charging reasonably to be able to exercise his right to seek taxation. I could not possibly interfere with those conclusions which, if the law is as I have stated it to be, were inevitable in the particular circumstances of this case. I would, therefore, dismiss the appeal.

73. I add this postscript for the profession’s consideration so that an unseemly dispute of this kind does not happen again. Surely in 2002 every second of time spent, certainly on contentious business, is recorded on the Account Department’s computer with a description of the fee−earner, the rate of charging and some description of the work done. A copy of the print−out, adjusted as may be necessary to remove items recorded for administrative purposes but not chargeable to the client, could so easily be rendered and all the problems that have arisen here would be avoided. In these days where there seems to be a need for transparency in all things, is a print−out not the least a client is entitled to expect?

A full copy of the judgment can be found here: Ralph Hume Garry v Gwillim [2002] EWCA Civ 1500.

Quis custodiet ipsos custodes?

Many of my colleagues at the Bar believe that I spend my days with an abacus, counting out 6 minute units of time, and the minutes of my own life in coffee spoons.

Far from it. As I have frequently observed, the law and practice of costs and litigation funding throws up more problems of fraud, negligence and professional regulation than any other sphere. Part of my work involves the law relating to the regulation of claims management companies, some of whom burn “white hot” in terms of the acceptability of their practices.

One case that I dealt with some years ago concerned a man who set up as an unregulated claims management company, systematically targeting disabled people, who often had very sound claims for disability discrimination and exploiting their claims for profit.

Earlier this year, long after the hearing I dealt with at Central London County Court in 2012, he was sent to prison.

The facts of the case are set out here:

http://www.disabilitynewsservice.com/ministry-of-justice-failure-may-have-exposed-hundreds-to-fraudsters-activities/

The case illustrated to me two particular points.

The first was the comprehensive net of regulatory provisions which forbade such activity.

First there are the provisions which preclude people from pretending to be solicitors. Section 20 of the Solicitors Act 1974 (as amended by the Legal Services Act 2007 on 8th March 2008) states that no unqualified person may act as a Solicitor and any person who contravenes this prohibition is guilty of an offence and liable on conviction on indictment to imprisonment for a term of up to 2 years or to a fine or both.

Section 21 of the Solicitors Act 1974 catches an unqualified person who wilfully pretends to be or takes or uses any name title additional description implying that he is qualified or recognised by law as qualified to act as a solicitor and provides that he shall be guilty of an offence and liable on summary conviction to a fine.

Secondly, there are the provisions which provide criminal sanctions for unregulated persons, carrying out litigation or exercising rights of audience. Section 12 of the Legal Services Act 2007 establishes a number of reserved legal activities including inter alia the exercise of a right of audience and the conduct of litigation and makes them subject to statutory regulation. Section 13 provides that the question as to whether a person is entitled to carry on an activity which is a reserved legal activity is to be determined solely in accordance with the provisions of this Act and a person may only carry on such an activity if the person is authorised or exempt within the statutory scheme.

Section 14 of the Legal Services Act 2007 establishes an offence for a person to carry on an activity which is a reserved legal activity unless that person is entitled to carry on the activity such offence being punishable on summary conviction to a term of imprisonment of up to 12 months or a fine or conviction on indictment to a term not exceeding 2 years or a fine or both.

Section 17 of the Legal Services Act 2007 creates a further offence for a person wilfully to pretend to be entitled to carry on any activity which is a reserved legal activity when that person is not so entitled or with the intention of implying falsely that that person is so entitled to take or use any name title or description.

Pursuant to Section 18 and 19 of the Legal Services Act 2007 the Act further defines who are authorised persons and who are exempt persons.

Schedule 2 of the Legal Services Act 2007 the conduct of litigation is defined to mean the issuing of proceedings before any Court in England and Wales, the commencement prosecution and defence of such proceedings and the performance of any ancillary functions in relation to such proceedings such as entering appearances to actions.

Thirdly, any fee arrangements are likely to be void and unenforceable, in this context. Fee arrangements provided by non-qualified persons, unlawfully conducting litigation on a “no win-no fee” basis, are usually unlawful contingency fee arrangements and void at common law and contrary to and prohibited by the statutory scheme for Conditional Fee Agreements set out in the Courts and Legal Services Act 1990.

Finally, there are the provisions which apply to the provisions of claims management services. Perhaps most significantly, by Section 4 of the Compensation Act 2006 a person is prohibited from providing regulated claims management services unless he is authorised or exempt or a waiver has been granted or he is an individual acting otherwise than in the course of a business.

Pursuant to Section 7 of the Compensation Act 2006 a person commits an offence if he contravenes Section 4 and is liable on conviction on indictment to imprisonment for a term not exceeding 2 years or to a fine or to both or on summary conviction for a term of imprisonment not exceeding 12 months or to a fine not exceeding the statutory maximum or to both.

The Compensation (Regulated Claims Management Services) Order 2006 Regulation 4 provides that services of the kind specified are prescribed in relation to the making of a claim of a kind described in paragraph 3 or in relation to a cause of action that may give rise to such a claim.

Under Regulation 4(3) the kinds of claim include claims for personal injuries as defined by the Civil Procedure Rules 1998 which includes any claim which may give rise to a claim for inter alia a mental illness such as depression or “damages for a mental impairment” which would include an award for injury to feelings or in respect of claims in relation to employment including discrimination claims.

The second point that struck me about the case was that all these measures, providing consumer protection to the public were effectively worthless, if, there was no enforcement of them by the public authorities: leaving in this case a vulnerable section of the public exposed for many years to the actions of a criminal and without access to justice.

The third way

When a client receives a bill for a solicitor’s work, it may provoke a gamut of emotions from gratitude to anger, and anger normally arises from a belief that the client has been overcharged, or is being asked to pay for work of poor quality or work that has been undertaken negligently, in turn causing the client to suffer further financial loss.

In such circumstances a client’s options should they wish to take matters further are threefold. The first can be an action for damages for professional negligence, the second can be an application for a solicitor-client detailed assessment in the SCCO or a District Registry, and the third can be a complaint, initially to the solicitor, but then almost inexorably to the Legal Ombudsman.

The question of which of these routes is to be pursued, will normally follow from correctly identifying what the subject matter of the complaint is, and what remedy will be sought. However, in a post LASPO 2012 world, where success fees are irrecoverable as is the cost of ATE insurance, if it can be obtained at all, the ability of a client to fund further legal proceedings against his former advisors is likely to be severely curtailed, possibly rendering professional negligence proceedings or a solicitor-client detailed assessment unviable.

The Legal Ombudsman route becomes of necessity, a client’s only real chance of redress, because in making a complaint to the Legal Ombudsman, a client does not expose themselves to the prospect of an adverse costs Order, noting that particularly in the context of a solicitor-client detailed assessment, the 20% rule loads the dice against a client recovering the costs of those proceedings. In addition, because the process is inquisitorial, much of the “heavy lifting” in terms of determining the complaint, will be undertaken by the Legal Ombudsman, giving an unrepresented individual a greater prospect of success.

The Legal Ombudsman’s role has been expanded in recent years, to include complaints about claims management companies as well as solicitors and other lawyers. A significant proportion of complaints against solicitors are complaints about fees, and in 2014 the Legal Ombudsman published a report “Complaints in Focus: No win, no fee agreements”, which identified an increasing concern with conditional fee agreements, including particular problems with the transfer of risk of unrecovered costs, lack of clarity in terms and conditions, a lack of explanation of complex terms and conditions, aggressive marketing and a lack of robust vetting.

In respect of claims management companies, the report “Complaints in focus: Claims management companies” identified that 40% of complaints against claims management companies are about fees, including unjustified fees, the failure to refund upfront fees and contractual disputes about fees.

It follows that when a dispute about fees arises and a complaint is made, a solicitor will need to know with clarlity, the basis upon which the Legal Ombudsman will reach a decision, and assuming the worst, how that decision might be capable of challenge.

The Legal Ombudsman is the ombudsman scheme established by the Office for Legal Complaints under the auspices of the Legal Services Act 2007. The details of the scheme are contained within the Scheme Rules, the latest version of which is January 2015. The scheme closely parallels that which applies to financial services albeit that the source of its jurisdiction and its context is distinct. It is open principally to consumers of legal services who are individuals, or small businesses at micro-enterprise level or charities or clubs with an income of less than £1 million per annum, who have a right of complaint.

The Legal Ombudsman will usually require that a complaint is made first to the solicitor’s firm for redress under their internal complaints procedure, but if that is not addressed within 8 weeks or inhouse resolution is not possible, or there are other exceptional reasons, a complainant can ask the Legal Ombudsman to deal with the complaint directly.

There is a limitation period of 6 years from the date of the act or omission, with provision for a later period of 3 years from the date of knowledge of the act or omission, and the Legal Ombudsman retains a discretion to extend time. Detailed rules of procedure establish an inquisitorial system for the garnishing of evidence, the receipt of representations, the grounds on which a complaint may be dismissed or discontinued and the possibility of an oral hearing, though most complaints will be resolved “on the papers”. The criteria by which a complaint will be determined are set out in rules 5.36 and 5.37:

5.36       An ombudsman will determine a complaint by reference to what is, in his/her opinion, fair and reasonable in all the circumstances of the case.

5.37       In determining what is fair and reasonable, the ombudsman will take into account (but is not bound by):

(a)         what a decision a court might make;

(b)         the relevant Approved Regulator’s rules of conduct at the time of the act/omission; and

(c)          what the ombudsman considers to have been good practice at the time of the act/omission.

It is these rules, which have led to the fearsome and often misunderstood proposition that the Legal Ombudsman is not bound to apply the law: what it means is best addressed by example. For instance, when looking at a solicitor’s conduct, in a case where there has been negligent advice, but that advice has not resulted in any financial loss to the client, t a court trying a professional negligence action would be bound to dismiss the case on the grounds of lack of causation of loss. The Legal Ombudsman is not bound to apply the law of causation and reach the same conclusion, and can simply give a remedy for poor service.

The Legal Ombudsman himself, is a creature of public law, his actions are amenable to judicial review and is accordingly bound by well established principles of public law to reach a decision which is legal, according to his powers.

Thus in this sense, the Legal Ombudsman is very much subject to law, and a solicitor aggrieved by a Legal Ombudsman’s decision is entitled to challenge the decision in the High Court. In the context, of a dispute about fees, given that the Legal Ombudsman has the power to award compensation of up to £50,000 or an unlimited ability to reduce fees, it can be seen that in a real sense the remedies available under the scheme, exceed those which would be available to a Costs Judge on a detailed assessment.

In general it can be observed that judicial reviews are hard to run successfully. In procedural terms, any claimant faces a number of hurdles, from the tight time limit that proceedings should be brought as soon as possible, to the requirement to grant permission. In substantive terms, the High Court, is usually prepared to afford a public law decision taker, acting in their particular area of expertise a degree of deference. But judicial reviews can be brought and won, against the Legal Ombudsman

The grounds upon which a decision of the Legal Ombudsman can be impugned are the full array of grounds which can be deployed in public law challenges in any context. These include ultra vires, jurisdictional error, error of law, error of fact, fettering a discretion, insufficient inquiries, bad faith or improper motive, unfairness, inconsistency, irrelevancy, Wednesbury unreasonableness, procedural unfairness, proportionality and also human rights, such as A1P1, where money is involved. Perhaps the most fruitful area for challenge lies, in the field of natural justice, including the obligation by the Legal Ombudsman to give a lawyer a chance to make representations and to give reasons for his decision.

Two relatively recent decisions of the High Court, illustrate some of the issues which arise in fee disputes. In the case of Stenhouse v Legal Ombudsman & Pasture [2016] EWHC 612 (Admin), this case concerned a dispute over a barrister’s fees, incurred on a Direct Access basis. A jurisdictional challenge to the Legal Ombudsman’s decision failed, but a challenge on the grounds of natural justice succeeded. The barrister’s conduct had been unfairly traduced in the decision, because the first he had known of the allegation was when he read about it in the decision.

In the case of Mitchell and Co v Legal Ombudsman and Patel [2016] EWHC 1933 (Admin) conversely, a solicitor’s challenge to a decision that he repay his client £34,000 in fees incurred under a contingency arrangement, on the basis of  (1) that the Ombudsman lacked jurisdiction to direct the repayment; (2) alternatively, that the Ombudsman’s decision was not founded upon the quality of the advice provided to the client, as he claimed, but rather on the fairness of the contingency fee agreement; and (3) the decision to direct repayment was irrational or unreasonable, failed on all grounds.

Overall, then the conclusion that I draw is that when a client disputes a solicitors’ fees, the cumbersome and expensive procedure of a solicitor own client assessment, may prove less advantageous than a complaint to the Legal Ombudsman, for the reasons outlined above. However, the popularity of this approach will hinge on whether the quality of the Legal Ombudsman’s decision making, is perceived to be comparable to a rigorous approach by a judge and whether in the years to come the current impasse in obtaining adverse costs protection can be overcome.

Third party costs assessments reconsidered

Third party costs assessments are rare beasts. The context in which they commonly arise is in the context of challenging a solicitor’s costs for administering an estate, when disappointed beneficiaries find that the residuary pot from which their legacies have been drawn, has been depleted rather more than they had hoped.

The starting point is to note that the work is non-contentious business and accordingly as a point of substantive law pursuant to section 56 (7) of the Solicitors Act 1974 the assessment of a bill of costs of a solicitor in respect of non contentious business is to be subject to the provisions of any Remuneration Order made under the section.

The Solicitors (Non-contentious Business) Remuneration Order 2009 is the order currently in force and this provides crucially at article 3 the criteria by which a solicitors fees or costs are to be judged.

In particular there is a requirement that a solicitor’s costs must be fair and reasonable having regard to all the circumstances of the case and in particular; to the complexity of the matter or the skill or novelty of the questions raised; the skilled labour specialised knowledge and responsibility involved; the time spent on the business; the number and importance of the documents prepared or considered, without regard to length; the place where the circumstances in which the business or any part of the business is transacted; the amount of value of any money or property involved; whether any land involved is registered land within the meaning of the Land Registration Act 2002; the importance of the matter to the client; and the approval (express or implied) of the entitled person and the express approval of the testator to the solicitor undertaking all or any part of the work giving rise to the cost; or the amount of the costs.

In the “interpretations” contained in article 2 an entitled person means a client or an entitled third-party and an entitled third-party means the residuary beneficiary absolutely and immediately and not contingently entitled to an inheritance where a solicitor has charged the state for his professional costs for acting in the administration of the estate and the only personal representatives are solicitors or their like.

It is open to  residual beneficiaries to apply for a assessment known as a third-party assessment under section 71 (3) of the Solicitors Act 1974.

The case of Tim Martin Interiors Ltd-v-Akin Gump LLP [2011] EWCA Civ 1574 is particularly interesting,  given that purportedly it applies in respect of personal representatives who hold estates and beneficiaries who wish to challenge the amount of costs incurred and paid out of the fund per paragraph 2 of Lord Justice Lloyd’s judgement which reads as follows:

The same problem may arise in other situations. A purchaser may be liable to pay costs incurred by a vendor, a tenant the costs incurred by a landlord, an insurer may have to pay costs incurred by its insured, or one party the costs incurred by another in some other kind of transaction.  By analogy, the liability to bear the burden of the costs may arise because the solicitor’s client is a fiduciary, a trustee or personal representative holding a trust fund or estate, or an office-holder in an insolvency or a receivership, and a beneficiary or creditor may wish to challenge the amount of the costs incurred and paid out of the fund.

In particular terms paragraphs 82 to 84 of the judgement of Lord Justice Lloyd which seems to truncate horribly the scope of an assessment under section 71 are of concern:

None of the older cases seems to show that the court allowed the recovery of a lesser amount for some item in the bill on the basis that some expenditure on it was proper but that too much had been claimed. The cases all appear to me to show that items were either allowed or disallowed in whole.  In particular what Cozens-Hardy J said in Re Gray at page 246, quoted at paragraph [46] above, is inconsistent with Mr Saifee’s submission that on a third party taxation under section 38 of the 1843 Act, the amount allowable in respect of given work could be reduced as regards the liability of the third party even if it could not be reduced as regards the liability of the client under section 37.

Neither on the basis of precedent, therefore, nor as a matter of principle does it seem to me that it is open to the court on an assessment under section 71 to substitute a lower amount for a higher one, on the basis that something is allowable but that the rate claimed is unreasonably high, unless that substitution could have been made on an assessment under section 70 as well. Where the client has agreed the bill and paid it, such a substitution is not possible under section 70.

Thus, I accept Mr Saifee’s argument to the extent (but no further) that on an assessment under section 71, the court can strike out of a bill (a) any item which relates to business for which the third party is not liable at all (e.g. here the bankruptcy, which is outside the scope of liability under the mortgages) and (b) any item which, as a whole, would only be allowable as against the client on the basis of advice that it would not be recoverable against the third party, and therefore is to be treated as subject to a special arrangement between client and solicitor. I do not accept that either the cases or the statute allow the court to alter the amount of an item in the bill in respect of which something is properly chargeable, but where the court considers that the amount claimed is excessive and unreasonable, so that a lower amount should be allowed, unless that could be done on an assessment under section 70, as between the solicitor and the client directly.  I therefore agree with Lewison J who said at paragraph 34:

“On an assessment under section 71 the court is entitled to interfere with the hourly rate agreed between the solicitor and the client; but only to the extent that it could have interfered with it at the behest of the client.”

He went on to point out that in a case where the client had agreed the rate there was very little scope for such interference, because of the presumption under CPR rule 48.8(2)(b).

That is a serious limitation on the scope of an assessment under section 71 for determining the question what is properly due from the third party to the client. In his submissions Mr Saifee invoked the words of Kekewich J in Re Longbotham & Sons, quoted at paragraph [48] above, in support of the argument that the courts had been able to construe the section in a more constructive way, so as to be more useful to a third party, and that this approach should be maintained.  It is a fair comment that the courts were able to go quite a long way towards helping a third party in this situation, and also that, if this cannot be applied in present circumstances where the dispute is likely to include matters such as the proper hourly rate, then resort to an assessment under section 71 will rarely be of use to a third party.  Nevertheless, it seems to me that what Mr Saifee invited the court to sanction is not within the scope of the section.  I therefore agree with Lewison J that, while it was correct for Master Campbell to exclude from the assessment under section 71 matters to do with actual or possible bankruptcy proceedings against the guarantors, it was not open to him to reduce the amount chargeable in respect of items which, as such, were within the scope of the liability for costs under the mortgages.  In particular it was not open to him to assess the bill on the basis that no more than £225 per hour should be allowed for a Grade A fee earner’s time spent on the matter.  The Bank as client had agreed to these charges and could not itself have challenged them on an assessment, even if it had wanted to do so.  It follows that the third party could not challenge them by way of a section 71 assessment.

Indeed it contemplates that were for example an executor, to have agreed a bill of costs rendered to him by the solicitor, if this case applies to an application for an assessment by residuary beneficiaries there will be very little indeed that can be challenged by way of assessment as the executor, is of course, the client.

But this judgement can be distinguished on another ground. In particular it seems to me that there is a clear distinction to be drawn between the position of a mortgagor under section 71(1) of the Solicitors Act 1974 and section 71 (3) which is the section we are concerned with concerning the rights of residual beneficiaries.

This latter section lacks the crucial wording “as if he were the party chargeable with it”, indicating that the assessment under section 71(3) is wider in scope than that which applies under section 71(1).

That would be quite sensible: a beneficiary is not subject to the contractual obligations contemplated by section 71(1) and is never “liable” for the bill. That would serve as a point of distinction although  the wording of paragraphs 101 and 102 of the judgement  again contemplates that it is applicable to claims arising out of the administration of an estate.

Instead of seeking an assessment under section 71, therefore, in almost all cases a mortgagor or other party seeking to challenge the costs claimed and received by a mortgagee should bring a claim for an account of the sums due under the mortgage. I doubt that such proceedings for an account nowadays would be much more complex than assessment proceedings.  In practice the mortgagor would issue a claim form, perhaps under Part 8, in the Chancery Division or, where appropriate, in the county court, and on the first hearing before the Master or District Judge he would apply for an order that the costs in dispute be referred for assessment, normally to the SCCO.  From then on, the procedure would be as for an assessment under section 70, but with the right parties contesting it, namely the mortgagor and the mortgagee.  The costs judge will have the necessary expertise, and will be able to decide the dispute, on ordinary principles and processes of assessment, in an economical and efficient manner.  Once the assessment is complete, the result would be reported to the Master or District Judge, and the account would proceed on that basis.  Somewhat more by way of steps in the proceedings would be necessary than for an ordinary assessment, but not a great deal.  If there are other issues in dispute as well they can be dealt with in whatever is the appropriate way, by the Master or District Judge or, if necessary, by a judge.

A claim for an account may be the right approach for several situations which can throw up this sort of problem, for example in the case of a trust or the administration of an estate. In other cases that may not be the right approach, and it may be necessary to claim a declaration as to the amount properly due, especially if the amount claimed has had to be paid by the third party, no doubt under protest.

In the light of this judgment it may be anticipated that third party assessments will become rare, whereas claims for an account, and like proceedings in other types of case, where the real issue is as to the reasonableness of legal costs, best resolved by those experienced in the assessment of costs, may become much more frequent. With that in mind, it seems to me that it might be sensible for a dispute which is only, or mainly, about legal costs to be able to be commenced as an application for an account directly in the SCCO, rather than having to go via the Chancery Division.  So far as the jurisdiction of the county court is concerned, as regards an assessment under section 70 or 71 it is limited to a case where the bill relates wholly or partly to contentious business in the county court and where the bill does not exceed £5,000: see article 2(7) of the High Court and County Courts Jurisdiction Order 1991.  So far as I am aware, none of the financial limits on the jurisdiction of the county court in that article applies to a claim for an account under a mortgage.  It seems to me that the appropriate procedure for a dispute of this kind is a subject worthy of the attention of the Civil Procedure Rules Committee. 

It may be then that there is a simpler solution than prodding that sleeping Leviathan the Rules Committee: given that the Court of Appeal appear not to have noticed the difference in wording between sections 71(1) and (3) and were not concerned with a claim for costs arising from the administration of an estate, the comments could be said to be obiter dicta and per incuriam in any event.

Solicitors and their bills

I have thought increasingly frequently in the last couple of years, about writing a book on solicitor-own client disputes a particularly interesting area of costs work, and uniquely painful for the solicitors who find themselves embroiled in a vulgar dispute with their own client about their fees.

Most solicitors never escalate a dispute with their client about their fees and many clients are reluctant to embark upon the uncertainties of a solicitor -own client assessment : if queries are raised, then a deal is usually struck which both sides are prepared to live with.

But sometimes it happens, and what has emerged in several solicitor-own client disputes I have seen in the last year, is the failure of the solicitors firms in question to appreciate the need to send their client a proper bill that complies with the formalities of the Solicitors Act 1974, or even to appreciate whether they are asking their client for monies on account, or sending an interim statute bill.

Most firms send their clients short form invoices. But are those invoices interim statute bills or invoices for payments on account? The question whether a bill is to be regarded as an interim statute bill or an invoice for payment on account is always an issue of fact in respect of each case.

The starting point is always the retainer which will often expressly state whether an interim invoice is to be regarded as an interim invoice on account or an interim statute bill. Assuming that the bill is a proper statute bill, a danger lurks in the 1974 Act, in that if the bill fails to comply with the provisions of the Act, then no bill for the purposes of the Act has been delivered and any action on it is likely to be a nullity.

Section 69 (1) of the Solicitors Act 1974 precludes any action from being brought to recover any cost due to a solicitor before the expiration of one month from the date on which a bill of those costs is delivered in accordance with the requirements mentioned in subsection (2).

Those requirements are that the bill must have been signed in accordance with section 69 (2A) and must’ve been delivered in accordance with section 69 (2C) in that it was delivered to the party to be charged the bill personally, or was delivered to that party by being sent to him by post to or left him at his place of business dwellinghouse or last known place of abode or it was delivered to that party by means of an electronic communications network.

The difficulty with some bills that I see is whether the bills contain a “sufficiency of narrative” to be statute bills, which is not a statutory requirement per se but rather a requirement that the courts have constructed when looking at section 69 and its predecessor statutory section.

In Carter Ruck (a firm).v.Mireskandari [2011] EWHC 24 (QB)  Mrs Justice Swift comments on some of the earlier authorities. The crucial point to note is that she applied a test formulated originally by Lord Justice Ward where he explained that the burden on the client under section 69 (2E) of the 1974 act to establish that a bill for a gross sum in contentious business is not a bill bona fide complying with the Solicitors Act 1974 is satisfied if the client shows that there is no sufficient narrative in the bill to identify what it is his being charged for and that he does not have sufficient knowledge from other documents in his possession or from what he has been told reasonably to take advice whether or not reply that bill to be taxed.

The classic example of an insufficient narrative is something like “For professional services supplied”.

But on the authorities, the deficiencies in the narrative could probably be satisfied by setting out what documents the client has and what he was told to show that he did know sufficient about the incurrence of fees, whether or not to apply for the bill to be taxed. In this scenario, a set of explanatory letters and good quality attendance notes will be crucial.

Conditional fee agreements and liens

Some years ago, at a solicitor-own client detailed assessment, I was told by my professional client that her policy was to obtain 75% of her fees on account and to regularly bill her client on an interim basis, to ensure that never more than 25% of her fees were outstanding. As she remarked to me at the time she had no interest in being a “busy fool”. She had a wise policy.

In personal injury litigation now largely funded by way of Conditional Fee Agreements, as a matter of practicality such a policy is not possible. The reason our current system of financing litigation costs exists is because most clients cannot afford to pay for legal representation on a privately paid basis and the state is unwilling to underwrite legal fees through a comprehensive Legal Aid scheme. Solicitors depend on succeeding in cases and obtaining their costs by payment from a third party.

Sometimes during the course of such litigation a relationship between a solicitor and client breaks down. The client may not co-operate and the solicitor terminates the Conditional Fee Agreement. The client may become dissatisfied and wish to change solicitors, himself terminating the retainer. The client may go on to instruct alternative solicitors. In such circumstances the Conditional Fee Agreement will usually give the former solicitors an entitlement to send the client a bill for their fees and disbursements.

What is a bill of costs in these circumstances? It is what is called a statute bill. It must comply with section 64 of the Solicitors Act 1974. But the client (absent being in receipt of an interim payment from the third party) is unlikely to be able to pay it until the end of the case.

In such circumstances, a lien over the client’s file will assume crucial importance in ensuring that the entitlement of the former solicitors to be paid is safeguarded.

A solicitor’s lien, is one of those creatures of the common law that everyone has heard of, but no one is quite sure what it means. It is accordingly appropriate to consider what a lien is and how it works.

The starting point in modern authority, concerns the position where a client discharges his solicitor and may be taken from the case of Leo Abse and Cohen v Evan G Jones Builders Limited 1984 WL 282817 where Eveleigh LJ noted as follows:

Now, a solicitor who is discharged by clients in the case is entitled to hold the papers until his fees are paid. There are exceptions to that position, of course. There nearly always are exceptions to any proposition, and one exception is that rights of third parties are affected. An instance of that is to be found in the case of Belaney v. French, reported in (1872) 8 Chancery Appeal Cases at page 918 , in which the head-note reads: “Solicitors for the trustees of an estate which is under the administration of the Court have not, after their discharge, such a lien for costs and money advanced in the suit as will enable them to refuse production of documents which are required by the receiver for the management of the estate”. In the present case there is no third party interested in this matter; so that it is simply a case of asking whether grounds exist for depriving the Solicitor of his lien.

In the case of Hughes v. Hughes, reported in 1958 Probate at page 224, Lord Justice Hodson said at page 227: “There is no doubt that a solicitor who is discharged by his client during an action, otherwise than for misconduct, can retain any papers in the cause in his possession until his costs have been paid: see In re Rapid Road Transit Co., 1909 1 Chancery, page 96. This rule applies, as the authorities show, whether the client’s papers are of any intrinsic value or not …”. At page 229 he said: “As the matter stands, we do not think there is an existing or potential third party interest which should override the solicitor’s lien. This lien should be preserved in the public interest in order that litigation may be properly conducted with due regard to the interest, not only of litigants, but also of the officers of the court who serve those interests”.

However the situation is different where it is the solicitor who ends the retainer, and much depends on whether the litigation is ongoing, or is concluded. In such circumstances, the usual practice is that the lien is relieved, on receipt of undertakings from the new firm of solicitors.

The starting point in modern authority to support this proposition, is the case of Gamlen Chemical Ltd.v.Rochem Ltd [1980] 1 WLR 614, where solicitors discharged themselves from acting for their client, who instructed new solicitors, Oliver J made the following Order:

Upon the undertaking of counsel for the defendants Rochem Ltd., Rochem International Ltd. and Rochem (Equipment) Ltd., on behalf of the solicitors for the said defendants (1) to hold all papers and documents delivered to them by Amhurst, Brown, Martin & Nicholson under this order subject to the lien of the said Amhurst Brown, Martin & Nicholson for costs (2) to afford the said Amhurst, Brown, Martin & Nicholson and their costs draftsman reasonable access to the said papers and documents for the purpose of preparing their bill of costs (3) to defend this action in an active manner and (4) to re-deliver the said papers and documents to the said Amhurst, Brown, Martin & Nicholson after the conclusion of this action. Let the said Amhurst, Brown, Martin & Nicholson so soon as may be reasonably practicable and in any event forthwith upon the receipt by them of written authorities from the defendants” — then a number of defendants are named — “deliver (on oath if required) to Douglas Goldberg & Co. all papers in this action and all other documents in the custody or power of the said Amhurst, Brown, Martin & Nicholson relating to this action and belonging to the said defendants or any of them.”

An appeal against that Order was dismissed by the Court of Appeal: Goff LJ noting the effect of earlier authority:

Mr. Ormrod cited three cases in support of that analysis, and we have been referred to one of them, namely Heslop v. Metcalfe (1837) 3 My. & C. 183 which seems to me to be of the utmost significance in this case, and to afford conclusive reasons why we should not at this late stage reverse the decision in Robins v. Goldingham, because Heslop v. Metcalfe shows quite clearly that in those days the court had fully adverted to the factual effect upon the lien on the making of such an order, and to the hardship which it would impose upon a solicitor. Lord Cottenham L.C., giving judgment, said at pp. 188–190:

“Undoubtedly, that doctrine may expose a solicitor to very great inconvenience and hardship, if, after embarking in a cause, he finds that he cannot get the necessary funds wherewith to carry it on. But, on the other hand, extreme hardship might arise to the client, if, — to take the case which is not uncommon in the smaller practice in the country, — a solicitor, who finds a poor man having a good claim, and having but a small sum of money at his command, may go on until that fund is exhausted, and then, refusing to proceed further, may hang up the cause by withholding the papers in his hands. That would be great grievance and means of oppression to a poor client who, with the clearest right in the world, might still be without the means of employing another solicitor. The rule of the court must be adapted to every case that may occur, and be calculated to protect suitors against such conduct … I then take the law as laid down by Lord Eldon, and, adopting that law, must hold that Mr. Blunt is not to be permitted to impose upon the plaintiff the necessity of carrying on his cause in an expensive, inconvenient and disadvantageous manner. I think the principle should be, that the solicitor claiming the lien, should have every security not inconsistent with the progress of the cause.”

In the same case Templeman LJ noted this:

I entirely agree. This appeal illustrates the difficulties which arise when a client and his solicitor part company in the midst of litigation. A solicitor who accepts a retainer to act for a client in the prosecution or defence of an action engages that he will continue to act until the action is ended, subject however to his costs being paid. That principle was re-affirmed in Bluck v. Lovering & Co., 35 W.R. 232, 233.

If before the action is ended, the client determines the retainer, the solicitor may, subject to certain exceptions not here material, exercise a possessory lien over the client’s papers until payment of the solicitor’s costs and disbursements. Thus, in Hughes v. Hughes [1958] P. 224, 227–228, Hodson L.J. said:

“There is no doubt that a solicitor who is discharged by his client during an action, otherwise than for misconduct, can retain any papers in the cause in his possession until his costs have been paid … This rule applies, as the authorities show, whether the client’s papers are of any intrinsic value or not, …”

The solicitor himself may determine his retainer during an action for reasonable cause, such as the failure of the client to keep the solicitor in funds to meet his costs and disbursements; but in that case the solicitor’s possessory lien, i.e. his right to retain the client’s papers of any intrinsic value or not, is subject to the practice of the court which, in order to save the client’s litigation from catastrophe, orders the solicitor to hand over the client’s papers to the client’s new solicitors, provided the new solicitors undertake to preserve the original solicitor’s lien and to return the papers to the original solicitor, for what they are worth, after the end of the litigation.

This practice was settled many years ago, and as Goff L.J. has shown, from the citation which he gave of Heslop v. Metcalfe, 3 My. & C. 183, 188, there are convincing reasons why the practice should be followed, and it has been followed, at least in the cases Goff L.J. has cited, Webster v. Le Hunt (1861) 9 W.R. 804; Robins v. Goldingham, L.R. 13 Eq. 440, and is to be found also in the argument of counsel in Hughes v. Hughes [1958] P. 224.

What this means, is that where litigation is ongoing, papers should normally be handed over, subject to a lien to be preserved by an undertaking.

This means in turn that the starting point, is that the papers should be produced subject to the lien. But that is not the end of the matter, as the court retains a discretion to enable the former solicitors to ask for an undertaking or indeed, seek an Order containing terms, which can go beyond the “usual” undertaking noted above.

The lien, and the notion of  undertakings, is subject to an exception. The equitable jurisdiction in Slatter.v.Ronaldsons [2002] 2 Costs LR 267 indicates that the court might retain a residual discretion, if the facts warrant it, to order delivery up of the papers but I doubt that would be exercised commonly, at all, where it is the client who has chosen to end the retainer.

Supposing the new firm of solicitors breaches its undertaking? The case of Udall.v.Capri Lighting Ltd [1988] 1 QB 907 indicates that although a claim for compensation can be made, any award of compensation is discretionary, rather than a right.

On parting company with the client, the wisest solution is to get payment in full, in line with the terms of the Conditional Fee Agreement. But the client may well show empty pockets.

In such circumstances careful consideration must be given to both billing the client and taking care to obtain an appropriate undertaking from any new firm of solicitors prior to handing over any file.

Suing your solicitor?

One of the incipient developments of the next 12 months, must surely be a “mis-selling” scandal in respect of conditional fee agreements for low value personal injury claims, with solicitor-own client success fees, to clients who have the benefit of Before the Event (BTE) insurance.

In the halcyon days, prior to the 1st April 2013, there was little doubt that the combination of a CFA Lite, coupled with After the Event (ATE) insurance, was an excellent funding option for many clients, particularly in the field of low value personal injury litigation.

Under such an arrangement, the client never had to pay a fee to his solicitors out of his damages, and the additional liabilities of the success fee, and the ATE premium, would be recovered from the paying party.

Although solicitors would (or should have) at the start of their retainer, advised the client of his funding options, they could fairly explain that the client would be no worse off by electing not to use his BTE insurance, and in some ways better off, given the immediacy with which the solicitor could start to work on the case, and the fact that the client had retained the solicitor of his choice.

But with the abolition of recoverability of additional liabilities, since the implementation of LASPO 2012, on the 1st April 2013, the landscape has changed fundamentally. A solicitor who does not advise his client on the benefits of BTE insurance, and who goes on to levy a success fee, paid for now by the client out of his general damages and past special damages, is at real risk of an action for damages for professional negligence.

The Solicitors Code of Conduct in chapter one is very clear on the indicative behaviours which are required of a solicitor, to achieve the appropriate outcomes.

It provides that the following are indicative behaviours:

IB(1.5)

explaining any limitations or conditions on what you can do for the client, for example, because of the way the client’s matter is funded;

IB(1.13)

discussing whether the potential outcomes of the client’s matter are likely to justify the expense or risk involved, including any risk of having to pay someone else’s legal fees;

IB(1.14)

clearly explaining your fees and if and when they are likely to change;

IB(1.15)

warning about any other payments for which the client may be responsible;

IB(1.16)

discussing how the client will pay, including whether public funding may be available, whether the client has insurance that might cover the fees, and whether the fees may be paid by someone else such as a trade union;

IB(1.17)

where you are acting for a client under a fee arrangement governed by statute, such as a conditional fee agreement, giving the client all relevant information relating to that arrangement;

IB(1.19)

providing the information in a clear and accessible form which is appropriate to the needs and circumstances of the client

These provisions have a long history in the former Solicitors Practice Rules and the Codes made under those Rules. A descendant on the distaff side was the former Conditional Fee Agreements Regulations 2000 which largely replicated those provisions, in particular in regulation 4. They are apt to include within their scope, an investigative duty on the part of a solicitor to establish what the clients funding options are.

The leading case of Myatt and Others.v.National Coal Board [2006] EWCA Civ 554 which considered the degree of inquiry a solicitor should make into establishing a client’s funding options had this to say about the factors that a solicitor should bear in mind when making enquiries:

72 First, the nature of the client. If the client is evidently intelligent and has a real knowledge and understanding of insurance matters, it may be reasonable for the solicitor to ask him not only (i) whether he has credit cards, motor insurance or household insurance or is a member of a trade union, (ii) whether he has legal expenses insurance, but also (iii) the ultimate question of whether the legal expenses policy covers the proposed claim and, if so, whether it does so to a sufficient extent. Litigants such as the Myatt claimants and Ms Garrett plainly do not fall into this category: few litigants will. If the solicitor does ask such questions, he will have to form a view as to whether the client’s answers to the questions can reasonably be relied upon.

 73 Secondly, the circumstances in which the solicitor is instructed may be relevant to the nature of the inquiries that it is reasonable to expect the solicitor to undertake in order to establish the BTE position. A good example of the application of this factor is to be found in Pratt v Bull, which was one of the five cases that was heard together with Hollins v Russell [2003] 1 WLR 2487. In that case, the 80-year-old claimant was injured in a road accident. A solicitor visited her while she was in hospital and a CFA was made. At the assessment of her costs, it was argued on behalf of the defendant that the possibility of legal expenses insurance under her home insurance policy had not been fully explored. The court said, at para 138, that there were limits to what can reasonably be expected of the interchange between solicitor and client in such circumstances: “It would be ridiculous to expect a solicitor dealing with a seriously ill old woman in hospital to delay making a CFA while her home insurance policy was found and checked.” It was sufficient that the solicitor had discussed it with her and formed a view on the funding options.

74 Thirdly, the nature of the claim may be relevant. If the claim is one in respect of which it is unlikely that standard insurance policies would provide legal expenses cover, this may be a further reason why it may be reasonable for the solicitor to take fewer steps to ascertain the position than might otherwise be the case.

75 Fourthly, the cost of the ATE premium may be a relevant factor. This is the point made at para 50 of Sarwar v Alam [2002] 1 WLR 125. In our judgment, it is as relevant to a question of breach of regulation 4(2)(c) as to a question of the reasonableness of the premium for the purposes of an assessment of costs pursuant to CPR r 44.4.

 76 Fifthly, if the claim has been referred to solicitors who are on a panel, it may be relevant that the referring body has already investigated the question of the availability of BTE. Whether it is reasonable to rely on any conclusion already reached will be a matter on which the panel solicitor must exercise his own judgment.

 77 It follows from the calibrated approach that we have suggested at paras 72—76 above that we do not consider that it is possible to give rigid guidance as to the questions a solicitor should ask in every case. In particular, in our judgment a solicitor is not required in every case to ask the client who says that he has a home, credit card or motor insurance or is a member of a trade union to send him the policy or trade union membership document (the first of the three approaches suggested by Mr McCue: see para 56 above). In some circumstances, it is reasonable for the solicitor to ask the further question whether the insurance covers legal expenses and to rely on the answer given by the client without further ado. In yet other cases, it is even reasonable to ask the client to answer what we have called the ultimate question.

The duty is also apt to include giving a client advice, on the best means to fund his case. It is not sufficient for the solicitor to set out his options expressionlessly: the duty can include “sending a client down the road”, if that is in his best interests, rather than retaining a client and certainly charging the client a success fee that had he utilised his BTE insurance he would not have had to pay.

Solicitors firms who do not comply with these duties will find themselves the subject matter of a complaint when they deduct a success fee from a client’s damages on the basis that they did not establish a client’s funding options or did not offer objective disinterested advice on what the client’s best course of action was.

Clients who don’t pay their bills

The post below was originally published in June 2011 in the Costs E-journal of Ropewalk Chambers Costs team.

Litigation should run smoothly.  A lay client will be properly advised.  Substantial work will be undertaken on the lay client’s instructions.  A case will be hard fought. And it will be won. But, by definition, 50% of litigation must end unsuccessfully and at that juncture the relationship between a solicitor and a lay client is most likely to break down.  A refusal to pay fees properly due and disbursements properly incurred will occur and a solicitor may be forced to sue for fees.  This post will consider some of the common pitfalls facing a firm which has to sue a former client and consider how they may be avoided.

The starting point is to consider the retainer between the firm and the client.  This is no more nor less than the bundle of contractual terms and obligations made between the solicitor and the client.  At the most basic level it sets out what a solicitor agrees to do and what the solicitor will be paid.

A retainer does not have to be made in writing, it may be made orally or by conduct in the way that any other contract may be made.  But a firm that does not insist on a written retainer is asking for trouble and not just through a failure to prove their entitlement to remuneration.  The Legal Complaints Service passed responsibilities to the Legal Ombudsmen on 6th October 2010 but the Solicitors Code of Conduct is clear:

2.02 Client care

(1)You must:

(a)identify clearly the client’s objectives in relation to the work to be done for the client;

(b)give the client a clear explanation of the issues involved and the options available to the client;

(c)agree with the client the next steps to be taken; and

(d)keep the client informed of progress, unless otherwise agreed.

 (2)You must, both at the outset and, as necessary, during the course of the matter:

(a)agree an appropriate level of service;

(b)explain your responsibilities;

(c)explain the client’s responsibilities;

(d)ensure that the client is given, in writing, the name and status of the person dealing with the matter and the name of the person responsible for its overall supervision; and

(e)explain any limitations or conditions resulting from your relationship with a third party (for example a funder, fee sharer or introducer) which affect the steps you can take on the client’s behalf.

(3)If you can demonstrate that it was inappropriate in the circumstances to meet some or all of these requirements, you will not breach 2.02.

This rule, together with rule 2.03 is well known to every solicitor in practice.

2.03 Information about the cost

(1)You must give your client the best information possible about the likely overall cost of a matter both at the outset and, when appropriate, as the matter progresses.  In particular you must:

(a)advise the client of the basis and terms of your charges;

(b)advise the client if charging rates are to be increased;

(c)advise the client of likely payments which you or your client may need to make to others;

(d)discuss with the client how the client will pay, in particular:

(i)whether the client may be eligible and should apply for public funding; and

(ii)whether the client’s own costs are covered by insurance or may be paid by someone else such as an employer or trade union;

(e)advise the client that there are circumstances where you may be entitled to exercise a lien for unpaid costs;

(f)advise the client of their potential liability for any other party’s costs; and

(g)discuss with the client whether their liability for another party’s costs may be covered by existing insurance or whether specially purchased insurance may be obtained.

(2)Where you are acting for the client under a conditional fee agreement (including a collective conditional fee agreement), in addition to complying with 2.03(1) above and 2.03(5) and (6) below, you must explain the following, both at the outset and, when appropriate, as the matter progresses:

(a)the circumstances in which your client may be liable for your costs and whether you will seek payment of these from the client, if entitled to do so;

(b)if you intend to seek payment of any or all of your costs from your client, you must advise your client of their right to an assessment of those costs; and

(c)where applicable, the fact that you are obliged under a fee sharing agreement to pay to a charity any fees which you receive by way of costs from the client’s opponent or other third party.

(3)Where you are acting for a publicly funded client, in addition to complying with 2.03(1) above and 2.03(5) and (6) below, you must explain the following at the outset:

(a)the circumstances in which they may be liable for your costs;

(b)the effect of the statutory charge;

(c)the client’s duty to pay any fixed or periodic contribution assessed and the consequence of failing to do so; and

(d)that even if your client is successful, the other party may not be ordered to pay costs or may not be in a position to pay them.

(4)Where you agree to share your fees with a charity in accordance with 8.01(h) you must disclose to the client at the outset the name of the charity.

(5)Any information about the cost must be clear and confirmed in writing.

(6)You must discuss with your client whether the potential outcomes of any legal case will justify the expense or risk involved including, if relevant, the risk of having to pay an opponent’s costs.

(7)If you can demonstrate that it was inappropriate in the circumstances to meet some or all of the requirements in 2.03(1) and (5) above, you will not breach 2.03.

The rules form a useful checklist for what is the bare minimum of a written retainer, usually contained in a client care letter.  It is a document which is often subordinated to the status of a form, or template letter, but common failures in drafting can cost a firm thousands of pounds in fees or raise doubts in litigation over fees, which do not exist.

Common problems include:

  • A failure to spell out in clear, simple terms precisely what the solicitor is to do from start to finish.
  • A failure to include an express term entitling the solicitor to ask for monies on account of costs and disbursements, or to specify what a reasonable amount would be.
  • A failure to specify, what constitutes a fundamental breach of contract on the part of the client or good cause, entitling a solicitor to terminate the retainer and sue for their fees.
  • A failure to specify, by way of express term, an obligation on the part of a client to pay interest on costs, from a clear and settled point in time at a specified rate.

In addition to the usual features that the common-law imparts to contracts, certain peculiar features attach to the contract of atypically privately paid retainer.  First, a contract of retainer is prima facie an entire obligation, that is a non-divisible contract: the solicitor is only entitled to be paid if they perform the entire contract and, conversely, is entitled to be paid nothing if the contract comes to a premature end.  This is subject to qualification, insofar as it might be possible to argue on the facts of the case that the contract is divisible.

Secondly, whilst a client can terminate a retainer at any time, for any reason, the solicitor must do so for good cause and with reasonable notice to the client.  Hence the importance of agreeing, in advance, what would constitute events which fall within this category.

In addition to the common law, the relationship between a solicitor and his client is overlaid by the provisions of the Solicitors Act 1974: under this statute the Solicitors Code of Conduct 2007 was made, as were the prior Solicitors Practice Rules, which provide much of the minutae of the provisions governing solicitor/client relations.  The statute is, however, significant for the existence of section 65(2) which permits a solicitor to request payments on account in the case of a non-divisible retainer where:

  • The work done is contentious.
  • A reasonable sum on account is requested.
  • The client refuses or fails to pay after a reasonable time has elapsed.
  • That refusal/failure is a “good cause” where, upon reasonable notice, the solicitor may withdraw from the retainer.

The Solicitors Act 1974, in particular sections 59 to 63, provide for a particular sub-species of retainer to be made: the contentious business agreement, which is meant to benefit clients by providing a mechanism by which clients forgo the right to a solicitor/own client assessment in return for a written agreement, specifying what the solicitor will do and what the solicitor will charge.  Given the uncertainties of litigation, very few solicitors would sensibly work under such an arrangement, given the clear potential for unexpected twists and turns to require further and additional work to be done.

A solicitor sues on a bill of costs but only when the requirements of the Solicitors Act 1974 have been met.  And the first of those requires consideration as to what the innocuous word “bill” means in this context.  Pursuant to section 69 of the Solicitors Act 1974, to be a valid bill permitting an action to be brought to recover costs:

  • No action can be brought until one month has expired since the delivery of the bill of costs.
  • The bill must be signed by the solicitor or an employee on his behalf, or enclosed with a signed letter.  NB: the signature these days can be electronic.
  • The bill must be delivered either personally, or sent by post or left at the client’s business, dwelling house or last known place of abode.
  • May only be sent electronically if the client has consented to that.

The bill pursuant to section 64 may be either a gross sum bill or a bill containing detailed items.  A client has a right within 3 months of delivery of a gross sum bill of costs to require a solicitor to deliver a detailed bill which stands in place of the gross sum bill.  It cannot be used to expand the bill formerly submitted.

A particularly vexed point which arises from time to time is the question of an initial, possibly rushed bill of costs being delivered, and then a significant quantity of other work being “found” on the file.  In those circumstances, consent, or ultimately leave of the court, must be sought to amend or vary the bill.  The court will look at this, much as it would any other amendment.

Action may be brought in the County Court, or in the High Court, on the bill.  But what options face a client then?  In effect, he has a number of options.

The first, is to request a solicitor/own client assessment.  A solicitor/own client assessment takes place under section 70 of the Solicitors Act 1970 and under part 48 of the Civil Procedure Rules 1998.  A client has an absolute right to an assessment if requested, within one month of delivery of the bill, the ability to apply to the court in its discretion for an order for assessment, for a period of up to 12 months after delivery and after 12 months have elapsed, only if a client can show special circumstances, will an assessment be ordered.

The problems that a solicitor/own client assessment can create are numerous:

  • The rarity of the process.  Most solicitors will bend over backwards to avoid litigating an assessment with their client.  There are important differences between the own client process and the inter partes process.
  • Lack of objectivity.  The difficulty with arguing over one’s own fees is manifest: the solicitor may sincerely believe his bill is justified but the court may take a different view.
  • Poor file keeping and preparation.  Short form attendance notes or, even worse, claims for estimated time will permit deep cuts to be made in a bill, despite the basis of assessment, being indemnity costs.
  • The 20% rule.  If a bill is discounted by more than 20%, or more accurately, the costs to be assessed are discounted by 20%, the solicitor will pay the costs of the assessment.

The second is to defend the action either seeking a common-law assessment, whereby the solicitor must prove the reasonableness of his charges, or seeking to offset (usually) a claim for damages for alleged professional negligence.  A solicitor who delivers a gross sum bill, and where no assessment is ordered, still has to prove the entitlement to costs claimed.  Pursuant to the case of Turner.v.O Palomo SA [2000] 1 WLR 37, the court may direct that a costs judge assesses costs, or if the amount is manageable, in the context of the trial, assess them itself.

It is common for this requirement to be overlooked when directions are being made, in the context of an action for debt and a counterclaim for professional negligence.

The third is to seek an extra-judicial remedy, which can be devastatingly effective. This is to make a complaint.

The Legal Ombudsman (who has an engaging website at www.legalombudsman.org.uk) pursuant to section 137 of the Legal Services Act 2007, now resolves complaints against solicitors.  Each firm is allowed two “free” complaints each year, thereafter the Legal Ombudsman will charge a firm a fee of £400 per complaint to resolve it. Conversely, the disgruntled client pays nothing.

His powers are wide. He can direct pursuant to the provisions of the Act:

  • An apology.
  • Fees claimed be limited in amount.
  • Payment of compensation for distress, or inconvenience.
  • Rectification of errors, omissions and deficiencies.
  • That other action be taken at the expense of the solicitor, in the interests of the complainant.

Will disputes over fees increase?  It seems likely for a number of reasons.  The first is the current recessionary climate: lay clients, like everyone else, have every reason to challenge and haggle over fees claimed and work done.  The second is the ever tightening web of statutory regulation, which the solicitors’ profession is subject to. It has never been easier to make a complaint.  And thirdly, with the implementation of Jackson looming, and fundamental changes in the law and practice of costs, there will undoubtedly be clear scope for expensive mistakes to be made.