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.

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