As will be seen from the cases that follow, entry on this list is not (and is not intended to be) dependent upon the level of damages recovered, or even upon the claimant attaining a successful outcome. Rather, it is dependent upon the quality of the judgment given, having regard to the level of understanding and appreciation that can be gleaned from it of the issues and complexities that inhabit this area of the law.

Background

Charnley Davies Ltd (‘CDL’) was one of 17 companies in the Charnley Davies group which collapsed in January 1987. CDL carried on an insurance broking business, while other companies in the group provided fund management, property investment and financial services.

On 16 January 1987 Mr Richmond was appointed administrator of CDL and of 12 other companies in the group. Very shortly after taking office, the administrator was advised by the CEO of CDL that the goodwill of the business would not last very long, especially if the brokers and their staff left the company’s employ, and that his ability to sell the business depended upon the insurance companies keeping their agency agreements with CDL alive until a sale had been effected.

On 24 January 1987, and having previously placed an advertisement in the Financial Times for the sale of CDL, the administrator wrote to all interested parties inviting unconditional offers by 27 January 1987. However, upon the expiry of that deadline, the only offers received were those supported by CDL’s own brokers and he decided to accept them.

On 28 and 29 January 1987 the administrator exchanged contracts for the immediate sale of CDL’s businesses and, in the process, obtained a total purchase price of £50,000 for the goodwill and £7,500 for the furniture and equipment.

A claim was then presented against the administrator on 30 March 1987 by 11 major insurance companies, all of whom were creditors of CDL. In due course, leave was given to amend the claim by joining CDL as second defendant and by adding a claim for an order that the administrator pay compensation to CDL for any damage it had sustained as a result of the sales he had effected.

Allegations

By the time that the matter came to trial, the claim against the administrator was confined to the assertion that he had acted negligently in failing to enlist the support and assistance of the claimants, not because they were creditors, but because as leading insurance companies they had relevant knowledge and expertise and their attitude could affect the time at the administrator’s disposal and the success of the sale.

Considerations

In determining the claim, Mr Justice Millett made the following observations:

• An administrator is under a common law duty to a company over which he is appointed to obtain a proper price for its assets;
• The duty of an administrator to obtain a proper price for a company’s assets is not absolute, but only to take reasonable care to do so. In turn, this meant that an administrator must obtain the best price that circumstances, as he reasonably perceives them to be, permit and he is not to be made liable because his perception is wrong, unless it is unreasonable;
• An administrator is to be judged not by the standards of the most meticulous and conscientious member of his profession, but by those of an ordinary, skilled practitioner;
• When the claimants launched their claim against the administrator, they (wrongly) believed that he was managing the affairs of CDL in a manner which disregarded their interests and those of the creditors generally, which was a perfectly proper complaint to bring under section 27 of the Insolvency Act 1986 (which provisions are now contained within paragraph 74 of Schedule B1 of the Insolvency Act 1986);
• However, as the claimants’ claim developed into one of professional negligence, it raised a different issue, viz. misconduct by the administrator, rather than his unfairly prejudicial management;
• By persisting in their claim under section 27, the claimants had not only adopted the wrong procedure, but had also undertaken the burden of establishing that the sale of CDL’s assets at an undervalue (whether or not due to negligence) was due to the administrator’s management of CDL’s affairs in a manner that was prejudicial to their interests.

Decision

Based on these observations and the evidence before the court, Mr Justice Millett found that the administrator had not acted negligently or with undue haste in selling the businesses when he did. Nor had the claimants established that the administrator had realised less than the fair value of CDL.

He further held that while it was unnecessary to decide the remaining question, viz. whether a sale of the company’s assets by an administrator at a negligent undervalue is sufficient, without more, to establish a claim to relief under section 27, he expressed the view that it was not.

Background 

The partnership of J & H Kyrris had operated thirteen restaurants under franchise from Burger King. However, by April 1997 it had encountered financial difficulties and become insolvent. On 28 April 1997, and upon a petition by the Royal Bank of Scotland, an administration order was made against it.

After taking office the administrators carried on the partnership business with a view to selling it as a going concern, which they eventually did in November 1998.

On 30 July 2001 the administrators applied for the discharge of the administration order and for their release, together with an order winding up the partnership. However, the day before that application was heard, applications were made by Mrs Kyrris and Mr Royle opposing the discharge and making equitable charge claims.

Allegations

In due course both Mrs Kyrris and Mr Royle commenced claims against the administrators. Both alleged that the partnership had previously created equitable charges in their favour and that the administrators had failed to account to them individually as secured creditors. In addition, and in the alternative, both sought to allege that the administrators owed a duty of care in negligence and/or a fiduciary duty to them as creditors of the partnership, to take reasonable care to ensure that their interests and those of other creditors were protected. They further alleged that the administrators had breached these duties in various respects, including by selling the partnership’s assets at an undervalue and through mismanagement of its business affairs.

Upon the application of the administrators to strike out the claims, HH Judge Behrens ordered that the equitable charge claims be allowed to continue, but that the claims based on the duties allegedly owed to the claimants as unsecured creditors would not. The administrators appealed and the claimants cross-appealed.

Considerations

In giving the leading judgment in the Court of Appeal, Lord Justice Parker observed that:

• The court had only limited evidence of the circumstances surrounding the alleged creation of an equitable charge in favour of Mrs Kyrris;
• The evidence that was available to the court was sufficient to raise a real possibility that an equitable charge was created in favour of Mrs Kyrris;
• Whether or not the administrators received notice of Mr Royle’s claim was an issue of fact to be decided at trial;
• It was arguable that an equitable charge had been created in favour of Mr Royle;
• In the leading judgment given by Lord Justice in Mummery Peskin v Anderson (2001) it had been confirmed that while the directors of a company could owe fiduciary duties to the shareholders in addition to the fiduciary duties they owed to the company by virtue of their office, that would be dependent upon establishing a special factual relationship between the directors and the shareholders;
• The position of an administrator appointed under the Insolvency Act 1986 vis-à-vis creditors, is directly analogous to that of a director vis-à-vis shareholders;
• Absent a special relationship, an administrator owes no general duty to creditors.

Decision

Accordingly, the court dismissed both the appeal and the cross-appeal and, in the process, confirmed that there is no actionable duty of care generally owed at common law (whether arising in tort or as a fiduciary) by an administrator to an individual creditor. Any such duty that does arise will necessitate special circumstances.

Background

Mr Berntsen and Mr Richardson had decided to purchase and redevelop the Coniston Hotel at Sittingbourne in Kent and together, they formed a limited liability partnership called Coniston Hotel (Kent) LLP (‘LLP’).

Working capital for the project was provided by Mr Berntsen and Mr Richardson (‘Members’) and by various loan facilities provided by NatWest Bank (‘Bank’). However, by June 2010 the Bank had confirmed that it would not release the further funds required to complete the development without additional security.

On behalf of the LLP, the Members then appointed Ms Rayment and Mr Tait as individual insolvency practitioners practising from the offices of BDO Stoy Hayward. On the advice of Mr Tait an additional valuation of the hotel was obtained from Knight Frank, which reported that it was worth much less than the Members claimed. In response, the Bank refused to provide any further funding and on 22 June 2010, Ms Rayment and Mr Tait were appointed joint administrators of the LLP.

On 1 August 2011 the Members commenced claims against the joint administrators. In doing so, the Members sought an order that Ms Rayment and Mr Tait should cease to act as joint administrators, that the administration be ‘discharged’ and that the costs of the administration should be borne by them personally. In the event, before those proceedings were determined and upon a winding up order being made against the LLP, the joint administrators were discharged from office. However, that was subject to the claims commenced by the Members, which were allowed to continue.

Allegations

In due course, and in their Points of Claim, the Members confirmed that they were seeking to recover compensation/loss/damages from the joint administrators occasioned by their breach of fiduciary duty of and/or negligence, under both paragraph 74 and paragraph 75 of Schedule B1 of the Insolvency Act 1986.

In response, the joint administrators applied for an order either striking out the claims or granting summary judgment to them.

Considerations

In determining the application, Mr Justice Norris observed that:

• For the purposes of paragraph 74, the application is brought by reference to the applicant’s standing as ‘a creditor or member’ and is directed to the protection of his interests as such. The primary relief is directed to regulating the conduct of the administration itself;
• Paragraph 74 does not exist to enable individually disgruntled creditors to pursue administrators for compensation. Its focus is ‘unfair harm’, being unequal or differential treatment to the disadvantage of the applicant (or applicant class) which cannot be justified by reference to the interests of the creditors as a whole or to achieving the objective of the administration;
• Paragraph 75 is concerned with wrongful conduct of the administrator in relation to the company or the LLP, which can be pursued by an office holder, a creditor or a contributory;
• The court cannot order the wrongdoing administrator to pay equitable compensation for breach of fiduciary duty or damages for breach of some other duty to an individual creditor or to a contributory. If there is a deficiency in the insolvency then the payment goes for the benefit of the creditors as a class: and if the company proves solvent in administration then the benefit goes to the contributories as a class;
• The proceedings confused claims by Mr Berntsen and Mr Richardson for personal losses caused to them by the alleged professional negligence of Ms Rayment and Mr Tait prior to 22 June 2010, with claims for harm suffered by them as members or creditors of the LLP because of the alleged failure of the joint administrators to act in accordance with the duties imposed on them by Schedule B1 of the Insolvency Act 1986;
• The fact that the LLP had since entered liquidation, did not preclude a claim issued under paragraph 74 during the period of administration from being pursued.

Decision

In turn, the court held that while Mr Berntsen’s and Mr Richardson’s personal claims for loss/damages/equitable compensation for breach of fiduciary duty and/or negligence were not properly advanced, the balance of their claims as creditors or members under paragraphs 74 and 75 of Schedule B1 would not be struck out or made subject to an order for summary judgment and could continue.

Background

Ms Davey was the sole shareholder and the sole director of Angel House Developments Limited (‘AHDL’). She was also the guarantor of its indebtedness to Dunbar Assets plc (‘Dunbar’) to the extent of £1.6 million, plus interest and costs.

In 2007 AHDL acquired Angel House, a four-story commercial office property located in Docklands, London. The acquisition was funded by a loan facility with Dunbar, who was granted a legal charge over Angel House.

In due course AHDL submitted a planning application to redevelop Angel House into a residential tower with hotel, office and retail space. However, the planning process encountered various difficulties and delay and, in the meantime, AHDL defaulted on its borrowing covenants.

On 27 December 2012 Dunbar appointed Mr Money and Mr Stewart-Koster as joint administrators of AHDL. In turn, and at the instigation of Dunbar, the administrators appointed Alliance Property Asset Management Limited (‘APAM’) to undertake (i) the day-to-day property management of Angel House, (ii) the asset management of Angel House to maximise its rental income, (iii) the management of the ongoing planning application, (iv) the positioning of the property for sale, and (v) the management of the marketing and sales process.

Initially the administrators considered that the best result would be achieved by continuing to trade AHDL and by securing planning permission before disposing of Angel House. However, that strategy later changed in response to certain events and in favour of an immediate disposal.

Although Ms Davey expressed an interest in purchasing Angel House and redeeming Dunbar’s loan, she was unable to provide the funding assurances required by the administrators within the timeframe stipulated. As a result, Angel House was sold to Cubitt Property Holdings Limited for £17.05 million on 19 December 2013. In turn, Dunbar received £15,978,011.86 from the proceeds of the sale in part payment of its loans.

Litigation then followed. On 31 January 2014 Dunbar issued a claim against Ms Davey seeking to recover the costs of enforcing her personal guarantee. On 18 July 2014 Ms Davey issued a claim against the administrators under paragraph 75 of Schedule B1 of the Insolvency Act 1986. On 7 November 2014, and having taken an assignment of rights of action from the liquidator of AHDL, Ms Davey was given permission to amend her defence to Dunbar’s claim for the purposes of adding a counterclaim. On 9 February 2015 the court ordered that the two matters be heard together.

Allegations

As regards the claim against the administrators, Ms Davey alleged that they had acted in breach of duty in:

• Rejecting the objectives of rescuing AHDL or achieving a better result for ADHL’s creditors as a whole, when determining their approach to the administration;
• Seeking advice on the sale of Angel House from APAM, which was neither independent nor suitably experienced;
• Failing to obtain a proper price for Angel House;
• Failing to explore and pursue a funded rescue for AHDL; and
• Failing to exercise their own independent judgment in the conduct of the administration.

In relation to Dunbar, Ms Davey alleged that it:

• Was liable for any breaches of duty by the administrators by reason of its interference in the conduct of the administration;
• Was liable in damages for procuring breaches of duty by the administrators;
• Was liable in damages for conspiring with APAM to injure AHDL and/or Ms Davey by unlawful means;
• Acted in bad faith towards Ms Davey or so as to prejudice Ms Davey in such a way as to cause her personal guarantee to be discharged.

Considerations

In determining the allegations before the court, and in his 173-page judgment, Mr Justice Snowdon observed that:

• An administrator is required to have regard to the interests of all of the company’s creditors, and he can only limit his ambition to seeking to realise assets to repay the secured creditor if he thinks that it is not reasonably practicable to achieve anything else. But even then, he must not unnecessarily harm the interests of the creditors as a whole;
• An administrator’s decision not to pursue a rescue of the company as an objective will only be open to challenge if it was made in bad faith or was clearly perverse;
• The more deferential standard of review of the decision of the administrator as to which objective to pursue does not also extend to the methods adopted by the administrator to pursue his chosen course;
• Seeking information and the views of the directors and shareholders as to the prospects for the company may well be a sensible step in most cases. However, there can be no ‘fundamental’ rule requiring the administrator in every case to go through a process of consultation with the directors and shareholders, still less that he should seek their ‘confirmation’ that rescue of the company as a going concern is not feasible;
• There was no absolute requirement for a competitive selection process or ‘beauty parade’ to be carried out prior to appointment of administrators or their agents;
• There was no hard and fast legal rule prohibiting the appointment by administrators of agents who had been recommended by a secured creditor: the essential question being whether the agents to be appointed were competent and able to discharge their fiduciary duties;
• While administrators are subject to (i) the fiduciary duties of agents to act in good faith, loyally and for proper purposes, and (ii) a duty to exercise the level of skill and care of an ordinary, skilled practitioner, they are not generally subject to the wider and more onerous duties in relation to sales of property imposed upon trustees;
• An administrator is entitled to have regard to his own experience of a candidate firm when deciding who to engage as selling agents and, in a case in which it is doubtful or uncertain whether the sale price will exceed the secured debt, the administrator must be entitled to take into account the views of the secured creditor as to the identity of any agent who will be engaged to assist in the sale process;
• Administrators could not be liable to a company in negligence if they reasonably relied upon advice from an agent that appeared competent;
• It must be a question of fact in each case, depending upon the nature of the asset and the relevant market, as to whether, and if so, what type of marketing is required to discharge the administrator’s duty to take reasonable care to obtain the best price for an asset;
• An administrator must exercise independent judgment. He must not simply allow another person to dictate to him how he should exercise his powers as administrator. Nor should he unquestioningly act in accordance with the wishes of another;
• An administrator is entirely at liberty to consult with those creditors whose interests are likely to be affected by the decisions he takes to ascertain their views, and in many cases it will be entirely sensible that he should do so;
• The leading authority on the nature and scope of fiduciary duties remained the decision of the Court of Appeal in Bristol and West Building Society v Mothew (1998);
• There is no deemed agency in favour of the company, that would prevent the court from finding, where appropriate, that an administrator was acting as agent of the secured creditor, so that the secured creditor could be held liable for any breach of duty to the company or others interested in the equity of redemption;
• To justify a finding of an agency relationship required that the administrator should either have been compliant with directions given by the secured creditor, or to have been unable to prevent some interference with his intended conduct of the administration;
• A third party could not, as a matter of law, be liable in tort for causing an administrator to breach his fiduciary duties to a company, because the law does not recognise such a tort;
• A third party could be liable in tort for procuring a breach of statutory duty or breach of a duty of care by administrators, but this would require both knowledge on the part of the defendant that he was inducing a breach of duty, and an intention to procure that breach;
• An unlawful means conspiracy is committed where the claimant proves that he has suffered loss or damage as a result of unlawful action taken pursuant to a combination or agreement between the defendant and another person or persons to injure him by unlawful means, whether or not it is the predominant purpose of the defendant to do so.

Decision

In the circumstances of this case, the court found that there had been no breach of duty by the joint administrators, who had acted independently and reasonably relied on the advice from APAM. Further, there had been no wrongdoing on the part of Dunbar, which was entitled to enforce the personal guarantees that Ms Davey had given to it. Accordingly, both Ms Davey’s claim and counterclaim were dismissed.

Background

Ary Digital UK Limited (‘ADUL’) was part of a group of companies and a broadcaster of customised streaming content for the Southeast Asian community in the UK. To facilitate its broadcasts, ADUL acquired Electronic Programming Guides (‘EPGs’) on a fixed-term basis from British Sky Broadcasting Ltd (‘BSB’). These enabled it to provide a digital display menu, listing current and upcoming television programmes on its channels.

By 2011 ADUL was in financial difficulty and at this time it was introduced to Mr Iqbal, a licensed insolvency practitioner and founding partner at Cooper Young. Mr Iqbal was subsequently appointed as adviser to ADUL and, based on his advice, ADUL entered into administration with the aim of achieving a better result for the creditors as a whole than would be achieved if ADUL was wound up.

Once appointed as administrator, Mr Iqbal instructed Edward Symmons to advertise ADUL’s assets for sale, including the EPGs for which he had agreed a provisional sale price with the directors of £40,000. Although the advertisement was to run for a period of 12 days, Mr Iqbal instructed Edward Symmons after only 8 days to sell the EPGs to the directors for £40,000, in addition to various other assets.

While Mr Iqbal relied on the fact that the directors were the only parties interested in the EPGs and that he was concerned not to lose them, no evidence was advanced at trial to justify this concern. Moreover, Mr Iqbal had not obtained any prior independent evidence to confirm the value of the EPGs and had instead relied upon comments from ADUL’s accountant and directors.

Following the sale, Mr Iqbal submitted a written report to creditors in which he recommended that ADUL enter into a creditors voluntary liquidation and that he be appointed as liquidator. However, at a subsequent meeting of creditors in July 2011, those proposals were rejected and ADUL was instead wound up following the appointment of alternative joint liquidators.

As the joint liquidators of ADUL, Richard Brewer and Mark Wilson were subsequently granted permission, pursuant to paragraph 75(6) of Schedule B1 of the Insolvency Act 1986, to examine the conduct of Mr Iqbal while acting as administrator.

Allegations

Amongst other matters, the joint liquidators alleged that in disposing of the EPGs Mr Iqbal had acted negligently and/or in breach of his equitable duty of care by:

• Failing to obtain the best price for the EPGs;
• Failing to obtain proper valuation evidence;
• Accepting a valuation provided by the directors and/or their accountant;
• Acquiescing in a very short marketing campaign.

The joint liquidators further alleged that Mr Iqbal had acted in breach of his fiduciary duty by acting in some capacity for the directors of ADUL in connection with the sale of the EPGs, which had been agreed prior to the administration.

Considerations

In determining the claim, Chief Insolvency and Companies Court Judge Briggs observed that:

• In his judgment in the Court of Appeal in Bristol & West Building Society v Mothew (1981), Lord Millett gave what has now become the accepted exposition of the law concerning fiduciaries, when he explained that…‘A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary…’
• While the duty to act for a proper purpose has been developed primarily in cases concerning the powers of express trustees and company directors, it also applies to insolvency office-holders;
• The present law, borne out of the rule in Re Hastings-Bass (Deceased) (1975), is that a fiduciary is under a duty to take account of relevant and not irrelevant matters, when exercising a power in that capacity;
• The parties were agreed that Mr Iqbal, in the office of administrator, owed a co-existent common law and equitable duty of care to ADUL;
• The principle that a trustee who relies upon apparently competent advice should not be liable if that advice turns out to be wrong, unless the decision which he takes is outside the scope of his powers or contrary to the law, applied equally to an administrator;
• In his report to creditors, Mr Iqbal had advised that his agents had been able to sell the assets of ADUL for £57,000 against an estimate of £6,000 if ADUL was wound up, notwithstanding that he had not received any such estimate;
• In his report to creditors, Mr Iqbal had represented that Edward Symmons had estimated that the EPGs might realise ‘£10,000 in situ or £4,000 ex situ’, when in fact these were estimates provided by the directors of ADUL;
• Mr Iqbal had by his own admission failed to appreciate the applicability of Statement of Insolvency Practice 16 (SIP 16) – Pre-packaged Sales In Administrations, and had failed to have any regard to Statement of Insolvency Practice 13 (SIP 13) – Disposal of Assets To Connected Parties;
• Mr Iqbal had not enquired about the level of knowledge that Edward Symmons had of EPGs or how dated their experience was;
• The advertisement for ADUL’s assets failed to refer to the EPGs, failed to refer to the channel numbers that were for sale, failed to refer to the likely audience numbers available on each of those channels or other special features and failed to refer to the use of the EPGs by the wider group of companies;
• Mr Iqbal had obtained a valuation of the EPGs after the sale, but only on an informal ‘desktop’ basis and only so that he could address any concerns that the creditors might express about the value he had achieved;
• Based on the expert valuation evidence, it appeared that Mr Iqbal could have achieved a sale price of £743,750 for the EPGs;
• Equitable compensation is generally assessed at the point of judgment and with the benefit of hindsight, so that foreseeability has no part to play and the creditors, acting through the joint liquidators, are not required to mitigate loss.

Decision

In turn, the court held that Mr Iqbal had been negligent in various respects, including as a result of his failure to recognise that the directors could not provide independent advice to him on timing, advertisement, price or any matter concerning ADHL and its assets.

The court also concluded that Mr Iqbal had breached his fiduciary duties by, amongst other matters, preferring the interests of the other companies within the group over those of ADUL itself.

Finally, it ordered that Mr Iqbal should pay equitable compensation in the sum of £743,750 to ADUL as a result of his breaches of fiduciary duty.

Before considering case examples of solicitor/client assessments, it is important to have some knowledge of the law on which those cases have been decided and we set this out below. This should not only aid understanding, but also provide a convenient point of reference.

The statutory provisions governing an assessment of solicitors’ costs in the present context can be found in Part III of the Solicitors Act 1974. The key provisions are those contained within sections 70 and 74.

Section 70 sets out various time limits within which a client may apply for an assessment and these are explained in our related article: Disputing Solicitors Fees: A Clients’ Guide

However, in essence, section 70 provides that:

‘(1) Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is complete.

(2)  Where no such application is made before the expiration of the period mentioned in subsection (1), then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit…order: (a) that the bill be assessed; and (b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.

……

(4)  The power to order taxation conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.

In addition, section 74(3) provides that:

‘The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in the county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.’

Here the ‘rules of court’ referred to are the provisions contained within the Civil Procedure Rules (commonly abbreviated to ‘CPR’) and Part 46.9 in particular. This prescribes the basis of detailed assessment of solicitor and client costs and, in truncated form, states that:

(1) This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund…or by the Lord Chancellor…

(2) Section 74(3) of the Solicitors Act 1974 applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.

(3) Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed—

(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c) to have been unreasonably incurred if—

(i) they are of an unusual nature or amount; and

(ii) the solicitor did not tell the client that as a result the costs might not be recovered from the other party.

(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.

These provisions are supplemented by paragraph 6 of Practice Direction 46 of the CPR which, amongst other matters, provides that:

(6.1) A client and solicitor may agree whatever terms they consider appropriate about the payment of the solicitor’s charges. If, however, the costs are of an unusual nature, either in amount or the type of costs incurred, those costs will be presumed to have been unreasonably incurred unless the solicitor satisfies the court that the client was informed that they were unusual and that they might not be allowed on an assessment of costs between the parties. That information must have been given to the client before the costs were incurred.

(6.2) Costs as between a solicitor and client are assessed on the indemnity basis. The presumptions in rule 46.9(3) are rebuttable.

In any given year the courts are required to process numerous applications for an assessment of solicitors’ costs. However, each of the case examples that we have summarised below arises from an application which has, in our view, given rise to a decision of both general and practical significance. As will be observed, in some of these cases the client was successful, in others the solicitors.

Background

The client, Palomo SA, was a commodity trader based in Madrid, who had instructed the solicitors to act for it in connection with a number of commercial arbitration disputes.

On 26 November 1998 the client issued an originating summons, seeking an assessment of six invoices previously raised by the solicitors. Of these invoices, five of them had been paid more than 12 months prior to the summons and so outside the 12-month time limit set by section 70(4) of the Solicitors Act 1974. On appeal, and on this basis, Mr Justice Buckley ordered that these five bills could not be assessed. Dissatisfied with this decision, the client appealed.

Meanwhile, the solicitors issued proceedings against the client seeking payment of approximately £67,000 in unpaid fees. Although the solicitors were initially successful before Master Rose in obtaining judgment against the client for £48,006.89, that judgment was subsequently overturned on appeal by Mr Justice Tugendhat QC. This was on the grounds that the court only had the power to grant judgment on liability (which was not disputed) and to order the amount of costs due to be assessed. Dissatisfied with this decision, the solicitors also appealed.

Considerations

In determining both appeals, and amongst other matters, the Court of Appeal observed that:

• Section 70 of the Solicitors Act 1974 did not expressly state that the client forfeits his common law right to object to paying more than a reasonable sum for the solicitor’s services, if he does not avail himself of the statutory procedures;
• There were a number of Court of Appeal authorities which supported the proposition that a client who is sued by his solicitor for the amount of his charges is entitled to challenge the reasonableness of the sum claimed, notwithstanding that the period during which he may apply for an order for assessment of solicitors’ costs under (what is now) section 70 of the Solicitors Act 1974 has expired;
• The solicitor is not disadvantaged by the possibility that the client is entitled to have the reasonableness of the charges assessed by the court after the statutory periods for assessment have expired;
• The solicitor’s claim is for a reasonable sum (whether by statute or at common law) and not for a liquidated sum and the burden of proving that the sum is reasonable rests upon him;
• The assertion that a counterclaim is necessary, where an hourly rate is agreed, is contrary to the basic rule that the solicitor is entitled to claim no more than reasonable remuneration for the work that he was retained to do;
• Although section 65(2) of the Solicitors Act 1974 entitled the solicitor who conducts contentious business to request a payment on account, that did not constitute a bill for the purposes of the assessment procedure under section 70 of the same Act;
• The five bills in question each stated that they were ‘On account of charges and disbursements incurred or to be incurred’ and did not contain any VAT reference;
• The five bills could be contrasted with other statutory bills, which stated that they were ‘To charges for professional services’ and were accompanied by a VAT reference.

Decision

Dismissing the solicitors’ appeal and allowing the client’s appeal, the court therefore concluded that the client was not precluded from challenging the reasonableness of the outstanding fees claimed by the solicitors and was not precluded from seeking an assessment of solicitors’ costs in respect of the five bills.

Background

Fifteen clients, of which Breyer Group plc was one, had instructed the defendant firm of solicitors to pursue damages claims against the Department of Energy and Climate Change.

Ultimately the clients took issue with the nature and amount of the charges that had been made and raised eight preliminary issues for the court to decide.

Considerations

In determining seven of the preliminary issues, and amongst other matters, Master Rowley sitting in the Senior Court Costs Office commented that:

• The solicitors’ practice of charging for routine communications at one sixth of an hour, rather than at one tenth of an hour, was extremely unusual in contentious business;
• The general warning given by the solicitors about the recoverability of party/party costs in litigation did not sufficiently warn the clients that such a charge was unlikely to be recoverable from the opposing party and, therefore, fell foul of CPR Part 46.9(3)(c);
• It was unrealistic, however, for a client to be given a specific warning before every instruction that an item of work may not be recoverable from the opposing party in litigation and CPR Part 46.9(3)(c) was not a method of importing all of the expectations of a standard basis party/party assessment into a solicitor/client assessment;
• While the practice of charging for perusing routine incoming correspondence was not unusual and so did not necessitate a warning to the client before being incurred, the rate of one sixth of an hour applied by the solicitors was unusual and should be reduced to one twentieth an hour;
• The costs incurred by the solicitors in gathering new clients to join the action as Claimants were authorised and were not unusual in nature or amount;
• The costs incurred by the solicitors in preparing and providing client care letters were also not unusual in nature or amount;
• While invoicing and credit control were generally administrative matters that should be covered by the solicitors’ overheads, where payment is delayed and the solicitor with conduct of the matter had to get involved, this cost may be recoverable from the client;
• For the purposes of section 70(9) of the Solicitors Act 1974, and determining whether the client had been successful in reducing the solicitors’ costs by one fifth, the court would take as its starting point the discounted sum claimed in costs by the solicitors and not the higher aggregate sum of the costs the solicitors had incurred;
• In determining whether or not the costs payable by the clients to the solicitors should be capped to any extent as a result of the cost estimates given by the solicitors, the court should firstly determine whether the clients did rely on the estimates and secondly, in what way and by how much the costs should be reduced by reason of its findings as to reliance.

Decision

Accordingly, the court held that while the clients had failed to establish not only that they had relied on the cost estimates provided by the solicitors, but also that the costs claimed were unreasonable having regard to those estimates, certain elements of the costs claimed were unreasonable and would be reduced on assessment.

Background

The client had entered into a settlement agreement with ITV2 as part of its underlying claim. This was on terms that ITV2 pay to it the settlement sum of £8.6 million inclusive of costs. The client subsequently issued Part 8 proceedings, seeking an assessment of solicitors’ costs of £3.6 million.

Considerations

In determining the preliminary issues, Master McCloud, sitting as a Deputy Costs Judge in the Senior Courts Costs Office, observed that:

• This case turned less on the terms of the retainer and more on what occurred in terms of the client’s informed – or not informed – consent in relation to the agreement with ITV2, what it was that it consented to, and what the implications of that consent may be for the application of the presumptions in CPR Part 46.9;
• The degree to which a client’s consent must be informed – i.e. the nature of the information to be provided to the client – must be fact sensitive;
• This case represented a commonplace situation where negotiations take place which lead to a settlement in which a fixed sum of costs will also be paid to the client to discharge the defendant’s liability for costs;
• Where the settlement sum fully discharges the client’s liability for own solicitors’ costs, the client must be informed of the proposed terms of settlement accurately and must understand and consent;
• If he is so informed and consents, then the solicitors are entitled to proceed on that basis, and the client is consenting to the solicitors having in fact incurred those costs;
• CPR Part 46.9(3) provides presumptions as to reasonableness which operate within a detailed assessment, but does not mean that a client is unable to seek an assessment of solicitors’ costs;
• The ‘global’ settlement of £8.6 million had been clearly broken down and the client was well aware that £3.6 million had been allocated to costs, which meant that it would experience no shortfall in the recovery of its costs;
• The fact that the settlement agreement did not itself provide a breakdown of the settlement sum did not prevent the court assessing what the parties understood it to reflect.

Decision

On this basis, the court concluded that the client had in fact given informed consent and that the presumptions in CPR Part 46.9(3) in favour of the solicitors did apply.

In this case the court had to decide whether the solicitors were entitled to an interim payment of costs from the client, before an assessment of solicitors’ costs had actually taken place.

Background

The client had secured an award of damages and costs in multi-million-pound claims against two defendants, who were unable to meet those awards and who subsequently became bankrupt. After receiving invoices from his solicitors totalling £922,890.33, the client then applied for an assessment of solicitors’ costs under section 70(1) of the Solicitors Act 1974.

In addition to ordering an assessment the court was required to determine a number of preliminary issues. In doing so, and amongst other matters, it found that:

• The client had not, as he claimed, agreed with the solicitors that he would not have to pay for their work unless either it resulted in a “net gain” to him or he recovered costs from his opponents;
• There was no substance in the client’s assertion that he was inadequately advised as to the content and effect of the Conditional Fee Arrangements (CFAs) that he had entered into with the solicitors;
• The client’s motive in pursuing his underlying claims was not primarily the recovery of money;
• The client gave full and informed consent to the transfer of the CFAs to his current solicitors.

Having filed a request for an assessment hearing, the solicitors also applied under CPR Part 47.16 for an interim costs certificate, requiring the client to pay to them the sum of £636,583.83 pending the outcome of the assessment. The client objected.

Considerations

In determining the solicitors’ application, the court observed that:

• Section 70(1) of the Solicitors Act 1974 did not prohibit the issue of an interim costs certificate as part of an assessment of solicitor/client costs;
• Parts I, V and VII of CPR Part 47 (and the corresponding parts of Practice Direction 47) apply to solicitor/client assessments except in so far as they are inconsistent with CPR Part 46 or Practice Direction 46 (or for that matter CPR Part 67 and Practice Direction 67) or with the primary statutory provisions governing solicitor/client assessments;
• Paragraph 6.18 of Practice Direction 46 offers guidance as to the appropriate exercise of the court’s power under CPR Part 47.16, to make an interim award of costs to a receiving party, where it is evident that the receiving party is the client rather than (as would more usually be the case) the solicitor. Paragraph 6.8 of Practice Direction 46 also makes it clear that, as the heading to section III of CPR Part 47 indicates, the default provisions of that section are intended only to apply to assessments between opposing parties;
• The client’s objection to the application having been made before the solicitors filed an application for a detailed assessment hearing did not raise any obstacle, as CPR Part 47.16 empowered the court to issue an interim costs certificate at any time after the receiving party’s request for a detailed assessment is made;
• In addition to determining whether it was empowered by CPR Part 47.16 to issue an interim costs certificate, the court had to decide (i) whether it would be right for the client to make an interim payment; and (ii) if it would be right, what the amount should be.

Decision

In the circumstances of this case, and on the limited information available, the court concluded that it was entitled to order, and should order, the issue of an interim costs certificate in the sum of £350,000, which seemed much less than the amount that would be payable by the client to the solicitors on assessment.

Background

The client, Nicky Herbert, had been injured in a road traffic accident, when a bus struck the car that she was travelling in from behind. Proceedings were subsequently issued by her solicitors seeking damages for a whiplash injury and related loss.

In due course a settlement was reached, whereby the client received £3,400 plus costs to be assessed if not agreed. From these damages, and having incurred fees of £4,795.40, the solicitors deducted £691 plus VAT, totalling £829.20, in respect of their success fee.

The client subsequently issued proceeding pursuant to section 70 of the Solicitors Act 1974, seeking an assessment of solicitors’ costs. In response, the court ordered that this be limited to an assessment of the success fee charged.

At first instance, District Judge Bellamy held that the success fee should be reduced from 100% to 15%. His decision was then upheld by Mr Justice Soole on appeal. The solicitors further appealed.

Considerations

In giving the leading judgment in the Court of Appeal, Sir Terence Etherton MR observed that:

• It was common ground that CPR Part 46.9(3) and (4) must be read together;
• There was no longer any dispute between the parties regarding the application of CPR Part 46.9(3)(c), it being accepted that as the retainer made it clear that the success fee could not be recovered from the opposing party in the underlying claim, the condition in CPR Part 46.9(3)(c)(ii) was not satisfied;
• It was accepted by the parties that the requirement of ‘approval’ from the client in CPR Part 46.9(3)(a) and (b) meant informed consent in the sense that the approval was given following a full and fair explanation to the client;
• Where the client brings proceedings under section 70(1) of the Solicitors Act 1974, it is for the client to state the point of dispute and the grounds for it. If the solicitor wishes to rebut the challenge by relying on the presumptions in CPR Part 46.9(3)(a) or (b), the burden lies on the solicitor to show that the precondition of the presumptions, informed approval, is satisfied. Once the solicitor has adduced evidence to show that the client gave informed consent, the evidential burden will move to the client to show why, as a result of having been given insufficiently clear or accurate or comprehensive information by the solicitor or for some other reason, there was no consent or it was not informed consent. The overall burden of showing that informed consent was given remains on the solicitor;
• In this country the fixing of a success fee in a conditional fee agreement had traditionally relied upon an assessment of the risk of the proceedings being lost and the wording of CPR Part 46.9(4) confirmed that a success fee was expected to be dependent upon risk;
• The solicitors’ justification for charging a 100% success fee, capped at 25% of damages, relied not on any assessment of risk but on (i) the solicitors’ alleged need to cover overheads and maintain a reasonable level of profit; (ii) the fact that the same charging model had been adopted by many other personal injury solicitors; and (iii) the fact that it reflected the market rate;
• While the imposition of a 25% cap was not unusual, and its practical effect may have been to reduce the success fee to an amount that was not in all the circumstances exorbitant, it was nevertheless the case that the starting point of a 100% uplift, irrespective of litigation risk, was unusual.

Decision

Accordingly, the Court of Appeal held that the presumptions contained within CPR Part 46.9(3)(a) and (b) did not apply and that the decision of the District Judge to reduce the success fee to 15% would stand.

Background

The client, a director and shareholder in a family company, instructed the solicitors initially to advise and represent him with a view to resolving certain commercial operational issues through mediation. Within their retainer letter, the solicitors estimated that their charges would be £10,000 plus VAT and disbursements and stated that this was based on a number of assumptions.

Regrettably, a resolution through mediation was not possible and the disputes escalated, with the client becoming embroiled in a web of interconnected litigation. Thereafter, substantial costs were incurred by the solicitors, which resulted in six invoices totalling £84,919.90 being rendered by the Defendant between 31 January and 31 May 2018. By this point, the client had already paid £75,855 in costs to the solicitors.

Having paid £22,057.60 towards the six invoices outstanding, the client then applied for an assessment of solicitors’ costs under section 70 of the Solicitors Act 1974. The implications for assessment of the solicitors’ cost estimates was then heard as a preliminary issue.

Considerations

Sitting in the Senior Courts Costs Office, Master Leonard observed that:

• Although not matters raised for the purposes of the assessment, the client took issue with much more than the solicitors’ failure to provide any further costs estimate beyond that provided at the outset of its retainer;
• The solicitors relied to an extent on the fact that it did send invoices to the client on at least a monthly basis throughout the period of the retainer, thereby keeping him apprised of the accruing costs;
• When assessing solicitor/client costs the test was whether costs have been reasonably incurred and are reasonable in amount. To this a number of rebuttable presumptions applied, including (i) that costs have been reasonably incurred if they were incurred with the express or implied approval of the client; and (ii) that they are reasonable in amount if their amount was expressly or impliedly approved by the client;
• The Court of Appeal held in Garbutt v Edwards (2005) that failure by a solicitor to give an estimate did not in itself render a contract of retainer between a solicitor and a client unenforceable;
• If, on an assessment of solicitors’ costs, it is found that (a) the solicitor has never provided the client with an estimate of the costs and (b) if a proper estimate had been given, the client would have paid less than the solicitor was claiming, it may be appropriate to limit the amount payable by the client to an amount that it was reasonable, in all the circumstances, to expect the client to pay;
• In order to demonstrate that it was right to limit the solicitors’ recoverable costs in that way, it may be sufficient to prove that the failure to provide adequate advice deprived the client of an opportunity of acting differently;
• Simply to hold a solicitor to an estimate as if it were a binding quotation, might produce a windfall for a client who may not have relied upon it or who may have taken the same approach regardless;
• The failure in this case to give any further estimate of costs constituted a breach of the solicitors’ professional and contractual obligations to the client;
• By the time the first of the invoices subject to assessment was raised, it would have been clear to all concerned that the initial estimate was no longer relevant and could not reasonably be relied upon by the client;
• Holding the solicitors to the initial estimate would take no account of the costs that the client would still have incurred with other solicitors;
• While there might well be a case for limiting the costs recoverable by the solicitors to the likely costs that the client would have incurred if he had instructed another solicitor to represent him, the evidence that the client had produced was inadequate to permit any firm calculations to be made.

Decision

In the circumstances, the court held that it would be wrong to limit the costs recoverable by the solicitors from the client to the amount of their initial estimate.

Background

The client, Darya Belsner, appealed an assessment of her solicitors’ bill of costs under section 70 of the Solicitors Act 1974, which itself related to work done by the solicitors for the client in a claim for damages for personal injury arising from a road traffic accident.

Amongst other matters, the client alleged that the District Judge had been wrong to assess the solicitors’ bill in the sum of £3,104.15 because:

• Pursuant to section 74(3) of the Solicitors Act 1974, the amount allowed on assessment should not, except where rules of court permit, exceed the amount which could have been allowed as between party and party in the proceedings;
• The District Judge had mistakenly held that the rules of court did permit the allowance of a greater amount, because CPR Part 46.9(2) applied;
• While there was a written fee agreement (in the form of a Conditional Fee Agreement (‘CFA’)) which entitled the solicitors to charge the client a greater amount than that which the client could have recovered from the other party in the underlying claim, the client had not given her informed consent to it, even though she had signed it. That was because the solicitors had failed to give the client a ‘full and fair’ exposition of the factors relevant to the agreement.

Considerations

In determining the appeal, and amongst other matters, the court noted that:

• The CFA provided for a success fee of 100% of the basic charge, subject to a cap of 25% of the total amount of any damages, but did not provide for an overall cap on the amount recoverable by the solicitors from the client;
• The client recovered damages of £1,916.98 and costs of £1,783.19, making a total recovery of £3,700.17;
• The solicitors had been prepared to limit their fees to £2,168.69, representing the costs of £1,783.19 recovered by the client and a success fee of £385.50;
• The solicitors’ bill of costs which was relied upon at assessment (inclusive of the basic fee, success fee, disbursements and VAT) totalled £4,306.07;
• Although this was a test case, the parties had collectively incurred costs of £87,715.53 in relation to the appeal, which itself concerned a sum of only £385.50, being the difference between the costs the client had recovered and the fees that the solicitors had charged;
• The relationship between solicitor and client is a fiduciary one and a solicitor may not receive a profit from his client without his client’s fully informed consent;
• A solicitor who wishes to rely on CPR Part 46.9(2) must not only point to a written agreement which meets the requirements of the rule, but must also show that his client gave informed consent;
• To establish informed consent, the solicitor must show that he made sufficient disclosure to the client;
• If it had been pointed out to the client here that, while the solicitors’ estimate of costs in the underlying claim was £2,500 plus VAT, she might recover only £500 or £550 plus VAT in costs, then that may have affected her consent to the CFA;
• The general terms used by the solicitors to describe to the client the potential disparity between the solicitors’ fees and the costs the client might recover, were not such as to bring home that disparity to the client;
• It was a very striking feature of the CFA that the solicitors’ estimated basic charges were five times the amount which the client might be entitled to recover by way of costs;
• The solicitors should have warned of this disparity and, having failed to do so, the client could not be said to have given her informed consent to the CFA.

Decision

As a result, the court held that the solicitors could not rely on CPR Part 46.9(2) and that the fees payable by the client to her solicitors would be limited to those costs that she recovered from the opposing party in her underlying claim.

To put the solicitors’ bills rules into greater context, we have set out below a summarised account of a series of important cases in which the courts have had to consider and apply these rules.

Background

The client had instructed the solicitors to represent him in complex and drawn out matrimonial proceedings with this wife. During the course of the proceedings the solicitors raised four invoices. The first three of these were paid without demur, while all but £2,820.51 was paid towards the final invoice.

The solicitors commenced proceedings against the client to recover the outstanding balance. In response, the client sought and obtained an order that all four of the invoices be assessed by the court. This was on the basis that the solicitors were retained to conduct the entirety of the proceedings and that, this being a single contract for the performance of that retainer in its entirety, they were not entitled to any remuneration until the conclusion of those proceedings. Accordingly, the four bills were to be treated as one bill and that all of them should be assessed. The solicitors appealed, first to the Judge in Chambers and then to the Court of Appeal.

Considerations

Giving the leading judgment, Lord Justice Roskill observed that:

• It had been conceded that the fourth bill, which was by far the largest, fell within the prescribed time limits and was liable to be assessed under section 70 of the Solicitors Act 1974;
• There was clear authority that in the old-fashioned common-law action a solicitor was not entitled to be paid until after he had completed his duties in that action;
• The Court of Appeal had accepted in In Re Romer & Haslam (1893) that in certain circumstances a solicitor might, in the course of a long-drawn-out common-law action or arbitration, properly send in bills from time to time to his client where there had been a ‘natural break’;
• Each of the solicitors’ bills covered a different and irregular period of time and there was no reason why a ‘natural break’ could not be ascertained by reference to one or more particular points of time;
• The first three bills were intended to be and were accepted by the client as being, in relation to the periods which they covered, complete and self-contained bills which the solicitors expected and intended that the client should pay, as in fact he did.

Decision

Applying the principles laid down in In Re Romer & Haslam, the court held that the first three bills were in fact statute bills and that the time limits for assessment under the Solicitors Act 1974 had long since passed. The court further determined that it would not order the assessment of those bills under its inherent jurisdiction, the client having long since paid them without demur.

Background

The client, an experienced solicitor himself, instructed the solicitors to represent him in a dispute involving the partners of his firm. Bills were submitted to the client on a monthly basis and took the form of a final account for the work done during the relevant periods. In total, 23 bills were raised totalling £215,819.09. However, only £87,883.39 was paid and in due course the solicitors commenced proceedings to recover the outstanding balance.

In response, the client filed a defence and counterclaim, in which he alleged professional negligence and sought to set off his damages against the outstanding fees claimed. In addition, the client applied to strike out the claim on the grounds that the solicitors were not entitled to sue as they had not complied with the solicitors’ bills rules.

The application was rejected by Mr Justice Tomlinson at first instance and the client appealed. In doing so, and amongst other matters, the client alleged that the judge had been wrong in failing to decide that the solicitors’ bills were not gross sum bills on which the solicitors were entitled to sue.

Considerations

Giving the leading judgment in the Court of Appeal, Lord Justice Ward observed that:

• While the question raised by the appeal was deceptively short and simple, the answer to it was anything but and required a review of the law dating back to Victorian times;
• It was to be regarded as good practice for solicitors to provide an adequate description of the work they had done in order to justify the charges made;
• A client could not establish a bill was non-compliant with the Solicitors Act 1974 for want of information in the bill, if he was already in possession of all the information that could be reasonably wanted for deciding whether or not to seek an assessment of the bill;
• While there must be something in the bill to indicate the ambit of the work, any inadequacies of description may be redressed either by accompanying documents or by other information already in the possession of the client;
• Provided the client is possessed of the knowledge he reasonably needs to decide whether or not to insist on an assessment of the bill, the solicitors will have satisfied the requirement for the bill to be bone fide complying with the Act;
• Solicitors had the right to submit a gross sum bill instead of a detailed bill, pursuant to section 64 of the Solicitors Act 1974 and, having done so, the client was entitled to require the solicitor to deliver, in lieu of that bill, a bill containing detailed items;
• It was unfortunate that section 64 of the 1974 Act did not require the client to be informed of his right to seek a bill containing detailed items, as well as the consequence of doing so, and of his entitlement to seek an assessment;
• A gross sum bill in contentious business will not be ‘bona fide complying with [the] Act’ if the client shows (i) that there was no sufficient narrative in the bill to identify what it was he was 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 assessed;
• The sufficiency of the narrative and the sufficiency of the client’s knowledge would vary from case to case, and the more that the client knows, the less the bill may need to spell it out for him;
• The interests of justice required that a balance be struck between protecting the client’s right to seek an assessment of costs and of the solicitors’ right to recover not being defeated by opportunistic resort to technicality;
• Here the bills in question were expressly stated to be for professional charges, did identify the matter to which they related and did identify the period of time which they covered.

Decision

Accordingly, the court held that as the judge at first instance had found upon a review of the evidence that there was a real prospect of the solicitors establishing that the client knew all he needed to know to be able to exercise his right to seek an assessment of costs, it would not be right to strike out the solicitors’ claim on the grounds that the underlying bills did not comply with the Solicitors Act 1974.

Background

The client had instructed the solicitors to act for him in a professional negligence claim against his former solicitors. During the course of their retainer, the solicitors raised 20 separate invoices and obtained a charge against the client’s home as security for their fees.

In due course, and after the Court of Protection had satisfied itself that the client was incapable of managing his own affairs as a result of mental ill health, a First General Order was made in favour of his daughter.

The solicitors subsequently commenced proceedings to enforce their legal charge. In response, the client commenced Part 8 proceedings seeking an assessment of the solicitors’ costs.

Considerations

Sitting in the Supreme Court Costs Office, Master Simons observed that:

• With the exception of the final three invoices, all the solicitors’ invoices had been paid at least 12 months prior to the issue of the client’s claim and exceeded the time limit for applying for an assessment imposed by section 70(4) of the Solicitors Act 1974;
• While the solicitors’ standard terms and conditions clearly stated that interim invoices would be rendered before the conclusion of the matter, they also stated that (i) those invoices may not include all the costs incurred to the date to which the invoice was issued; and (ii) a final invoice would be rendered upon completion of the matter;
• The fact that the final invoice raised did not actually include any costs from outside the period that it was stated to cover, did not mean that the earlier invoices must have been statute invoices;
• Until the final invoice had been delivered, the client could not have known whether or not there would be any additional costs included in that invoice;
• There was no evidence to support the assertion that there was an express or an implied agreement between the parties that the interim invoices were statute invoices – the client did not know the difference between a statute and a non-statute invoice, or the effect and the consequences of such;
• Other than the disbursement only invoices, all the invoices stated that they were interim invoices on account;
• The invoices did not contain sufficient information on which to enable a client to obtain advice as to whether or not he should apply for a detailed assessment;

Decision

On this basis, the court concluded that all the invoices were demands for payments on account and not statute invoices and that, accordingly, the client had applied for an assessment within the statutory time-limits.

The court further held that, in any event, there were special circumstances which entitled it to extend the statutory time limits and that the court had inherent jurisdiction to order an assessment in the circumstances.

Background

Following a road traffic accident, the client instructed the solicitors under a Conditional Fee Agreement (‘CFA’) to represent her in a claim for damages for personal injury.

After a settlement was reached, the solicitors sent the client £1,410.75, representing the balance of the damages recovered after deduction of their success fee and an ATE insurance premium. Shortly thereafter the client instructed new solicitors, who requested and were sent a copy of the personal injury claim file. Amongst other documents, this contained a Bill of Costs dated 26 June 2016 (‘June Bill’), which her original solicitors had not previously sent to the client. This totalled £1,505.25.

At the client’s request, and in August 2016, the solicitors delivered a fresh Bill of Costs. This was in the total sum of £6,461.95. Having previously asserted the June Bill was not a statute bill, the client then alleged that the June Bill was a statute bill and sought to agree a date for delivery of it. However, in the absence of agreement, the client then applied for an assessment of the June Bill.

At first instance, District Judge Bellamy held that the June Bill was not a statute bill and had not been delivered. The client appealed.

Considerations

Sitting in the High Court, Mr Justice Soole observed that:

• A document was not a bill of costs unless it was sent by the solicitor to the client as a demand or claim of the sum therein stated to be due;
• The court’s power to order a solicitor to deliver a bill of costs under section 68 of the Solicitors Act 1974, does not entitle the court to order (or the client to seek) delivery of a specifically identified document and thereby, to determine the terms and content of the solicitors’ demand or claim for payment;
• The client could be in no better position if the relevant document had come into his possession otherwise than in the character of a delivered bill of costs and there was no basis for treating it differently from a document which remained in the solicitors’ possession;
• Whether or not there had been any breach of the Solicitors Accounts Rules, it would not entitle the client to treat an undelivered bill of costs as if it had been delivered.

Decision

In these circumstances, and affirming the decision of the court below, the judge held that the June Bill was not a statute bill and had not been delivered to the client. Accordingly, it could not be the subject of assessment under section 70 of the Solicitors Act 1974 and the client’s claim would stand dismissed.

Background

The solicitors were instructed to represent the client in a claim for professional negligence. Having initially acted under a private retainer, the solicitors subsequently acted under a Discounted Fee Agreement (‘DFA’) which provided that the client would pay 40% of the normal hourly rate if he lost the claim and a success fee of 50% of the normal rate if he won.

A series of bills were raised at the discounted rate, the last four of which went unpaid. In addition, and upon the client winning the claim, the solicitors raised a balancing invoice for the remaining 60% of the normal rate and later, an invoice for their success fee.

The client applied for an assessment of the bills relating to the DFA. At first instance, Master Rowley held that all the bills were statute bills and that the client was out of time under section 70(4) of the Solicitors Act 1974 for assessment. The client appealed.

Considerations

Sitting in the High Court, The Honourable Mr Justice Nicklin observed that:

• Clause 11.1 of the DFA provided that the client had the right to an assessment by the court of the amount of the solicitors’ fees, success fee and/or disbursements which were payable under the DFA, by making an application under section 70 of the Solicitors Act 1974;
• The success fee could only be payable in the event of success and, unless the billable items referred to in clause 11.1 were read disjunctively, the right to challenge those items arose only at the end of the case;
• The client’s liability to pay crystallised on the happening of a particular event (success, loss or termination) and it was only at that point that the client became liable to pay at either the discounted or normal rate;
• Until the conclusion of the matter, the client would not know what rate was being charged and whether that rate was reasonable, and could not decide whether to exercise his right to seek an assessment;
• The fact that the balancing invoice sought payment of the remaining 60% of the normal rate, rather than the full normal rate less the discounted rate already billed, was of no consequence;
• Statute bills could not subsequently be amended, as was necessitated here by operation of the DFA which permitted additional charges where the claim was successful;
• In determining whether or not an agreement between the parties to treat the discounted bills as statutory bills was to be inferred, regard was to be had not only to the terms of the bills themselves but also to the terms of the DFA which they had entered into.

Decision

In the circumstances, the court held that the discounted bills were not statute bills but requests for payment on account or (more likely in the circumstances) Chamberlain bills and that no agreement between the parties to the contrary should be inferred. Therefore, the appeal was granted.

Background

The client instructed the solicitors to represent him in a mis-selling claim against his bank. The solicitors and counsel each acted under a Conditional Fee Agreement (CFA) which provided for a success fee of 100%.

In the event, and with the client’s authority, a settlement was reached on terms that the bank would pay US $500,000 to the client as damages and £340,000 to the solicitors as costs. Shortly thereafter, the solicitors delivered two bills to the client totalling £340,00 and comprising their fees (but no success fee), counsel’s fees (with no success fee) and an ATE insurance premium.

The client then applied for an assessment of costs pursuant to section 70 of the Solicitors Act 1974. On 23 April 2015 an order for assessment was made which directed, amongst other matters, that either party could apply for a hearing within three months of the date of the order.

Pursuant to the order, the solicitors served a bill of costs totalling £934,799.34. The client subsequently initiated a professional negligence claim, in relation to which court proceedings were then issued in April 2018. In December 2018, the solicitors applied to strike out the assessment proceedings. In January 2019, the client responded with an application to the court for an extension of time in which to request an assessment hearing.

Considerations

Sitting in the Senior Courts Costs Office, Master Leonard observed that:

• There was a substantial overlap between the assessment and professional negligence proceedings which could have the undesirable consequence of the same issues being tried in two different forums at the same time;
• It was right to treat the client’s application for an extension of time as if it were an application for relief from sanctions;
• In challenging the costs that he had already paid to the solicitors, the client’s position was comparable to a party suing for a sum of money and it was for him to protect his position by complying with the orders made by the court;
• The family difficulties that the client had experienced were regrettable, but did not provide good reason for his failure to comply with the directions timetable that had been set by the court;
• The client’s status as a litigant in person at the time of applying for an assessment had no bearing upon the matter: the client could have applied for a hearing at any time or instructed solicitors if needs be;
• It was not incumbent upon the solicitors to file the required papers and pay the required hearing fee in order to allow the client to pursue his assessment, nor could the client have expected the solicitors to do so;
• The client had failed to understand that detailed assessment was not simply a process of reducing the solicitors’ billed costs, but was to establish a reasonable chargeable figure, which might be substantially above the actual billed figure;
• Here the client had to show that the costs and disbursements figure of £934,799.34 should be reduced below £340,000, which seemed unlikely;
• It appeared that the client had abandoned the assessment in favour of the professional negligence claim, only to realise that he needed to pursue the assessment after all, although this itself was not a good reason for requesting an extension of time.

Decision

In these circumstances, the court held that the client was not entitled to an extension of time to apply for an assessment hearing, that the solicitors’ costs would be assessed as billed and that it was unnecessary to consider the solicitors’ application to strike-out.

Such an attempt was made in the Court of Appeal case of Fraser v BN Furman (Productions) Ltd & Others. Here the claimant factory worker had been injured when her hands became trapped in an electric welding machine. In an action against her employer, she recovered damages as a result of its failure to fence the dangerous parts of the machine. In turn, the defendant employer commenced proceedings against its insurance broker for failing to arrange employers’ liability insurance cover.

In defence, the broker argued that even if it had arranged cover, the insurer would have been entitled to decline the policy claim on the grounds that the defendant had failed to comply with an important condition of the policy. It further argued that where an agent employed to enter into a contract had failed to do so, the only measure of damages is what the principal would have recovered under the contract if the third party to the contract had exercised all his legal rights in resisting the principal’s claim.

On appeal, the court held that while such a restriction was established by common law authority, it represented a special rule that only applied to contracts that were null and void and did not apply in the present case, where there was no question that the policy of insurance would have been a valid and enforceable contract, subject to any election by the insurer. Accordingly, the defendant was awarded as damages that sum which has been awarded as damages to the claimant and which the defendant would have recovered under a liability policy, but for broker negligence.

This was the argument presented to the Court of Appeal in the case of Alfred Dunbar v A&B Painters Ltd & Others. Here the claimant sustained serious injuries when he fell over 40 feet, when the scaffolding he was using to paint a bus station collapsed. In an action against the defendant employer, the claimant recovered damages of £125,000. In turn, the defendant claimed an indemnity against the insurer or damages against the broker.

At trial the judge found that the insurer had been entitled to repudiate the policy on the grounds of misrepresentation, which itself was due to broker negligence. However, the judge also found that the claimant was working at more than 40 feet above floor level, which was in excess of the height restriction stipulated by the policy and above which cover was excluded. The broker therefore contended that, in so far as the particular circumstances of this accident were concerned, the defendant had no right to be indemnified under the policy and thus had suffered no loss.

On appeal, the court held that what loss the defendant had suffered did not depend upon whether the insurer would have been entitled as a matter of law to repudiate liability under its policy, but whether as a matter of business it would have been likely to do so. Therefore, what the defendant had lost was the chance of obtaining an indemnity from the insurer. Further, and as the chance of repudiation was nil, the value of that chance was equal to the full amount of the cover otherwise available under the policy.

Whether or not such losses are recoverable was considered by the High Court in the case of Arbory Group Ltd v West Craven Insurance Services (A Firm). Here the defendant brokers had failed to explain to the claimant how its business interruption insurance cover would operate and in turn, how it should determine the amount of cover it required.

After a serious fire at its premises, the claimant discovered that it was substantially underinsured for business interruption. It therefore commenced an action for broker negligence, claiming not simply the profits lost as a result of being underinsured, but also the additional profit lost as a consequence of the delay in being able to re-establish its business, caused by the reduced policy payment received from its insurer.

After reviewing the authorities, the judge concluded that the court was firstly required to determine the kind of loss that could reasonably be foreseen in the event that insufficient business interruption cover were to be effected due to broker negligence. It was then necessary to determine if the cause of the claimant’s loss of profitability could be attributed to the breach of duty identified.

Here it was held that the claimant could recover total damages of £611,746, representing both the shortfall in the payment it received from the insurer due to the underinsurance (being £299,902) and the loss of profit it had suffered as a result of that shortfall (being £311,844).

That was the decision which the House of Lords was required to make in the case of Aneco Reinsurance Underwriting (In Liquidation) v Johnson and Higgins Ltd. Here the claimant underwriter had been approached by the defendant broker to reinsure certain risks written by the Bullen syndicate, on the understanding that $11 million of cover would be ceded to other underwriters as retrocessionaires, which the broker would arrange.

After writing cover on this basis, the claimant was subsequently required to pay claims totalling $35 million. When it in turn made a claim against the policies written by the retrocessionaires, cover was avoided for misrepresentation due to broker negligence.

On appeal by the broker, the court observed that there was a fundamental distinction to be drawn by the law of damages between a defendant who undertook to advise a claimant generally whether to enter into a particular transaction, and if so on what terms, and one who merely agreed to provide particular information. In this case, where the broker had undertaken to provide general advice, rather than specific information, the claimant was entitled to recover the entirety of its foreseeable loss, namely $35 million, and not just for the loss of cover for $11 million.

If the coverage claim against the insurer is unsuccessful, the policyholder may well become liable to pay the insurer’s associated costs, as well as its own. Moreover, and even if the coverage claim is successful, it is unlikely that the policyholder will recover all of its litigation costs from the insurer. Provided that the policyholder has acted reasonably, the courts have generally been willing to compensate the policyholder for such liabilities where broker negligence has subsequently been established.

An example of this approach can be found in the High Court case of Ramco Limited & Another v Weller Russell & Laws Insurance Brokers Limited. Here the claimants traded in army surplus stock, some of which was destroyed by fire. Claims were then made against their insurance policy, but were rejected. In response, the claimants commenced proceedings in the High Court against their insurer, following which the insurer accepted the claim of the first claimant but not the claim of the second. The second claimant then appealed to the Court of Appeal, but was unsuccessful. It subsequently sought permission to appeal to the House of Lords, before then electing to discontinue its claim. Both claimants then commenced proceedings for broker negligence.

Amongst other losses, the claimants sought compensation for the costs incurred in the litigation with their insurer. The first claimant claimed £7,500, being the difference between its actual costs and those it had recovered from the insurer. The second claimant claimed in respect of the High Court proceedings the sum of £35,000 for its own costs and the same amount for the costs it had been ordered to pay to the insurer. It also claimed in respect of the Court of Appeal proceedings the sum of £49,341.20 for its own costs and £15,000 for the costs it had to pay to the insurer. In each case, these claims were accepted by the negligent broker and approved by the court. However, the second claimant also claimed £4,799.57 for the costs of its petition to the House of Lords. Although the broker asserted that these costs were not recoverable, damages for them were nevertheless awarded by the court.