This was a case before Master Rowley in the SCCO. The claimant company applied for a detailed assessment of fifteen invoices rendered to it by the defendant during a period of approximately six months in 2012.
Following instruction, the defendant had rendered bills regularly on either a fortnightly or a monthly basis. After the retainer ended, the claimant brought an application under Section 70(3) Solicitors Act 1974 seeking to have the costs claimed in those invoices assessed by the court.
Since all of the defendant’s invoices had been paid in full, the claimant could only seek an assessment as of right in respect of any invoice that had been rendered less than a month before the application was made.
The parties had agreed that the last six invoices totalling around £15m could be assessed.
Invoices rendered and paid more than twelve months before the claimant’s application could not be assessed as the court had no jurisdiction to do so. These totalled around £3.9 million.
The application before Master Rowley concerned 15 bills rendered between one and twelve months before the application. The claimant had to show that “special circumstances” applied in order to have the relevant invoices assessed.
Master Rowley referred at the outset of his judgment to the comments of Lewison J in Falmouth House Freehold Co Ltd v Morgan Walker LLP  2 Costs LR 292:
“Whether special circumstances exist is essentially a value judgment. It depends on comparing the particular case with the run of the mill case, in order to decide whether a detailed assessment in the particular case is justified despite the restrictions contained in s 70(3).”
The Claimant sought to rely on seven factors in support of its application for an assessment:
(1) The defendant’s failure to give an initial costs estimate and its subsequent failure to give adequate costs estimates
(2) The size of the bills
(3) The fact that there is to be a detailed assessment of a substantial part of the defendant’s charges in any event
(4) The impossibility of the claimant challenging the defendant’s bills during the currency of the retainer
(5) The defendant’s approach to billing queries during its retainer
(6) Specific billing irregularities
(7) The defendant’s attempts to avoid scrutiny of its charges
For the purpose of this update we will look at the submissions and decision on (1) “estimates” only.
The first estimate provided to the claimant by his solicitor, Mr Gerrard, was dated 24 December whilst Mr Gerrard was a partner at DLA Piper. Under the heading “cost estimate – DLA Piper” Mr Gerrard stated that:
“An accurate estimate at this stage is notoriously difficult as we have no idea as to the number of documents to be reviewed, relevant accounting records to be considered or number of interviews to prepare for and or consideration of what is said from the interviews.”
In a further letter dated 29 March 2011, Mr Gerrard said:
“You have asked for an estimate of costs for the work contained in the investigation plan. It is very difficult to give an accurate estimate because we do not know how much electronic data will be recovered in Kazakhstan, nor do we know the volume of hardcopy documents or the number of potential witnesses which will be identified as relevant. We have therefore done our best to provide a rough estimate based on the following assumptions:
(1) Full cooperation of ENRC plc and SSGPO is given to the efforts to collect and review electronic and hardcopy documents and to interview witnesses;
(2) The electronic and hardcopy documents can be collected by Internal Audit and Bridge2 Limited without undue difficulty;
(3) A large part of the electronic and hardcopy documents collected will be reviewed by Internal Audit, with only those key and relevant documents translated into English for review and analysis by DLA Piper;
(4) No more than 5 witnesses of fact are to be interviewed, and all such interviews will take place in London…”
On the basis of those assumptions DLA estimated the investigation would cost £350,000-£400,000 plus VAT and disbursements.
In the event, the assumptions on which this estimate was provided were “falsified by events” and it was accepted by the claimant that it “had never placed any store in that particular estimate”
Mr Gerrard moved to Dechert in April 2011 and the claimant followed.
On 26 July 2011 Mr Gerrard sent an email to the claimant’s Mr Ehrensberger following a recent conversation between the two setting out his estimate for the fees for the next phase of the investigation. His email stated that:
“it is difficult to provide an accurate estimate because we do not yet have the results of the data search terms. However, I understand that the amount of data collected in Kazakhstan is significant.”
He then set out his “best rough estimate” of Dechert’s fees for the following two to three months. That estimate amounted to £160-£200,000 per month plus VAT and disbursements.
The next estimate of costs was sent on 10 September 2012 following an email from Mr Ehrenberger to Mr Gerrard two days earlier in the following terms:
“On Friday Beat asked me to look at preparing responses to internal budget requests – for 2013 and an “end of Q3” update of forecast on Q4 expenditure.
“The annual budget information for 2013 I will deal with next week but the deadline for the Q3 Forecast for October, November and December is due on Monday (internal deadline was brought forward). The instructions indicate that in addition to anticipated “ordinary course” expenditure, all project costs must also be included in the forecast update.
“I know this is short notice as it is due at the end of Monday but could I ask you to arrange on Monday for me to receive a brief breakdown of projected or anticipated costs for each of the next 3 months including both day-today costs based on previous months expenditure and any expectations on each project you have running for ENRC (broken down by project)?”
In response to that email, Leann Adams, Mr Gerrard’s assistant, sent an email stating:
“I confirm the costs per month from September through to December to be between approximately £530,000-£560,000.”
A fourth estimate was emailed to the claimant on 30 March 2012 in the following terms:
“It is not easy to give an accurate figure for each month as there will obviously be some months that require more work than others depending on what is happening in the investigation.
“I can give an estimated monthly run rate of approximately £350,000-£400,000 which would mean approximately £3,600,000 (based on £400,000 each month) for the remainder of the year. However, Neil feels that the investigation should not go on as long as December and therefore this will mean that the total fees will not reach the estimated amount above.”
The final estimate given during the life of the retainer was set out in a spreadsheet attached to an email dated 18 January 2013 by Duncan Wiggetts, a partner at Dechert.
The spreadsheet set out the number of hours expected to be worked by four different levels of fee earner. By this point the Kazakhstan investigation was expected to conclude within the costs estimate provided of £204,275. The majority of the work estimated (£3,592,541) related to the African investigation.
The Claimant’s Submissions
Mr Williams, for the claimant, demonstrated with reference to a bar chart that the bills were above the estimates in every single month from January 2012 to March 2013.
He accepted that the early estimates were overtaken by events but said they were relevant in the sense that they demonstrated that the estimates were only revised when prompted by the claimant.
By contrast, even when there was a new retainer letter, there was no revision of the previous estimate initiated by the defendant.
The estimates were entirely unsatisfactory and were based on predictions which were of a lower monthly spend for the future than had been billed in the previous months.
That could only be an accurate estimate if the work was decreasing but it was clear from the defendant’s case that the work was in fact increasing markedly.
He submitted that the bills rendered during between April and September 2012 were between 25% and 95% above the estimate that covered that particular month.
In October the increase was 141% and in November it was 105%.
Even in the three-week working month of December, the bills exceeded the estimate by 35% and then went back to being considerably more in the early part of 2013.
By the time the estimates for the later periods were produced, the defendant knew the shape of the case very well. Indeed, it was the defendant who was best placed to know how much cloth needed to be cut in terms of the expense of the investigation and the claimant was reliant upon the defendant in this respect.
Mr Williams said that the claimant was not running an estoppel type argument in relation to reliance upon the estimates. This was not a case where, if accurate estimates had been provided, the claimant could have chosen a different course of action.
But estoppel, according to Mastercigars, is the high water mark of reliance and it was, he submitted, not necessary to prove reliance to that level for the estimates to be relevant.
It was clear that the claimant wanted estimates regularly in order to budget on its expenditure.
There was a lack of detail in the invoices, even allowing for the sensitive nature of the descriptions; a failure of the defendant to update estimates or to break down those that were provided; and an uncertainty as to whether disbursements et cetera were included.
Finally, Mr Williams said, it was of “profound significance” that solicitors apparently expert in their field, got the estimates so wrong. This was a pointer to a lack of justification of the excess over the estimates and clearly called for an explanation. As such this was a special circumstance.
The Defendant’s Submissions
Mr Browne, for the defendant, questioned the relevance of the bar chart that been provided by the claimant, which he described it as being so devoid of detail that it was embarrassing.
For example, he said, during the currency of the retainer, there were three further whistleblower reports at the end of 2012 and beginning of 2013 but there was no reflection of this in the simple bar chart produced.
As far as he was concerned, the bar chart simply demonstrated the dramatic upturn in work in Autumn 2012. The marking of the estimates on the bar chart demonstrated in any event that the estimates were in line with the recent previous months’ billings.
Mr Browne described the claimant’s argument regarding estimates as being “as vague as could be” since there was no reliance suggested by the claimant on any of the estimates.
Regulatory investigation was, unlike commercial litigation, unpredictable. It is always uncertain and those uncertainties may be far reaching. For example, there may be co-operation with the investigation or deliberate obfuscation by those being interviewed and the defendant would not know which to expect when giving the estimate.
Finally, Mr Browne produced a chronology of events from January 2012 to January 2013 which set out a table of events which he said had been discussed regularly at various committee meetings and presentations. It had been approved by the claimant and then had been reported upon by the defendant to the claimant thereafter.
Having carried out the work as instructed and approved, it had been billed to the claimant who had paid it without question. If anything called for an explanation in terms of the work involved, then the exhibits to defendant’s witness statements provided that explanation.
The Claimant’s Response
Mr Williams accepted that the work was different from commercial work in its broadest sense. However, he did not accept that it was any more difficult to budget as a result.
Having created the detailed work plans, it should have been quite possible to budget appropriately. Indeed, he submitted, if the work plans had been costed with estimates, it would have gone a long way to meeting the claimant’s case on this point. But there had been no cross-referencing of the work required to the estimates whatsoever.
Mr Williams also contested Mr Browne’s suggestion that the documents exhibited to the witness statements demonstrated the work that had been carried out. The fact that it had been done was no more than any solicitor who says that they have carried out work “on instruction.” It did not mean that the work might not call for an explanation and it was often the case on a Solicitors Act assessment that the work was within the scope of the client’s instructions.
Finally, he said, the three further whistleblowers’ reports identified by Mr Browne were not relevant to the question of estimates. One was not mentioned on the SFO report and the other two did not surface until February or March 2013 and as such were after even the last estimate.
50. It seems to me that the bar chart was a clear graphical representation of the estimates provided by the defendant compared with the amount of costs that had been incurred.
It is clear from the beginning of the retainer through to the end that the estimates were consistently below the costs that were being incurred at the time. As Mr Williams said, the estimates were often badly wrong for the month in which they were given let alone future months.
51. Mr Gerrard’s view that the work was difficult to predict is prevalent in every estimate that he has given. But any such difficulty is in my view wholly insufficient to cover the gap between the estimates and the reality. Mr Gerrard’s phrasing is redolent of costs estimates from ten or more years ago where a solicitor would routinely say that the costs to be incurred were impossible to predict.
As recorded above,
Mr Gerrard referred in his first estimate to the need for efficiency, careful consideration and intelligent targeting of time and resources. He indicated that the claimant would be kept informed of the likely costs as the matter progressed. The discrepancy between that approach and the reality of brief estimates only produced reactively, and which were invariably underestimates, is vast.
52. The work carried out in this case straddles the period of the review of Lord Justice Jackson. The need to improve the prospective understanding of costs through budgeting was writ large within that report and given prominent publicity. In that environment,
it is simply not sufficient for a solicitor to provide an early estimate which is then not updated for a considerable period.
I have already commented that the original estimate made seemingly unrealistic assumptions on the work that would be required and in my view it was almost inevitable that it would be exceeded once the investigations had begun.
53. Thereafter, the only estimates provided until Mr Wiggetts became involved, were reactive estimates provided upon the claimant’s requests for information for budgeting purposes. Those estimates were wholly insufficient to provide any detail to the claimant and the exchange between the claimant and Ms Adams between 8 – 10 September 2012 (see paragraphs 28 and 29 above) is but the most glaring example.
Detailed information as to future spending was requested and the barest response was provided. If the responses had proved to be reasonably accurate, then there may have been less to be concerned about, but it is clear that the estimates were considerably awry on every occasion.
54. I do not have to consider the question of reliance as such in this decision. But the exchange to which I have just referred and the email from Ms Coleman requesting a meeting of herself and Mr Ehrensberger with the defendant to discuss billing (see paragraph 83 below) make it clear that the claimant did have concerns about the extent of the costs being incurred.
55. Mr Browne did not tackle the figures directly in relation to the discrepancy between the estimates and the actual costs billed. In my view that was simply because he could not do so. The only position the defendant could take was to say that the amount of the work done was demonstrated in the many documents exhibited to the witness statements. But that, it seems to me, is aiming at the wrong target.
It may be that at the detailed assessment hearing all of the work claimed can be justified as being reasonable. But it cannot be an answer to the question of whether the discrepancy calls for an explanation simply to demonstrate that a lot of work has been carried out.
There is no way to compare the amount of work carried out with the estimates because, as Mr Williams pointed out, there has been no attempt to cost the various work plans. The defendant’s attempt to provide an explanation in this manner so as to avoid the court concluding that the discrepancy calls for an explanation is an impossible one to achieve in a case of this size. If there was a small bill for which the defendant could demonstrate simply why the extra costs had been incurred, it might be possible to take the approach that the defendant has here. But in bills of this magnitude, it cannot in my judgment be done.
56. I therefore consider that
the claimant has demonstrated that a special circumstance exists in the discrepancy between the estimates provided and the costs actually billed. Despite the estimates being updated periodically, they have not come close to mirroring the actuality and they are deficient in themselves. It must be arguable that the claimant can demonstrate some reliance upon the estimates such that the court may consider reducing the overall sums billed on the basis that it would be unreasonable for the client to pay the full amount in accordance with the decision in Mastercigars.