The consequences of exceeding a costs estimate

Estimate

The High Court examines the effect of an exceeded estimate of costs in detailed assessment proceedings under the Solicitors Act 1974

HARRISON v EVERSHEDS LLP [2017] EWHC 2594 (QB)

Costs Estimates: Key Points

  • When assessing costs which exceed an estimate given, the overarching question is what is the sum which it is reasonable for the client to pay.
  • A client is not required to establish an estoppel before reliance on an estimate is to be taken into account in assessing costs.
  • An estimate is to be distinguished from a quotation of fees: an offer which is accepted. An estimate is what it says. It gives an idea, which from a professional firm can be taken as reasonably and carefully made taking into account all relevant considerations, of what the future costs of work on a case is likely to be.
  • A solicitor cannot be held to be restricted to recovering the exact sum set out in an estimate. However a client is entitled to place some reliance on the estimate. The nature, degree and reasonableness of that reliance will no doubt be one factor in the view taken on an assessment under Section 70 of the Solicitors Act 1974 of how much more than the estimate it is reasonable for the client to pay.
  • Even if all work undertaken by a solicitor after an estimate has been given was reasonably undertaken and the costs reasonable in amount, nonetheless the resultant sum may exceed what it is reasonable in all the circumstances to expect the client to pay. The excess will not be recoverable.

Link to Judgment


Background

This was an appeal from an Order of Master Rowley, Costs Judge, made on 11 November 2016 on a preliminary issue on the detailed assessment, pursuant to the Solicitors Act 1974 Section 70, of various invoices tendered by his solicitors, Eversheds LLP (‘the Defendant’).

The Claimant contended that the costs payable by him should be limited on the basis of estimates of costs given to him by the Defendant. The estimates were considerably lower than the costs sought.

The Claimant had instructed the Defendant in proceedings against Lord Laidlaw arising from a property dispute. They settled part way through the trial. The total costs invoiced by the Defendant solicitors to their client, the Claimant, were by then £1,602,436.66 net of VAT comprising £863,283.72 profit costs and £739,152.94 disbursements.

The costs claimed were about 4.8 times an estimate net of VAT given by the Defendant to the Claimant on 2 October 2012 (‘the First estimate’) for £333,102.30 made up of £187,711 profit costs and £145,391.30 disbursements.

On 7 February 2013 the Defendant provided an Allocation Questionnaire which showed the Defendant’s anticipated total costs to be £548,054.13 made up of £336,811.80 profit costs and £211,242.33 disbursements (‘the Second estimate’).

The actual costs were therefore about 2.9 times the February 2013 estimate.

Master Rowley’s Decision

In a reserved decision on 11 November 2016 Master Rowley Ordered:

“(1) The Defendant’s profit costs (at normal hourly rates) are limited to a maximum of £650,000 plus VAT.

(2) The disbursements, including counsel’s fees, are not limited by this decision.”

The reasoning of the Master in deciding upon the amount which it would be reasonable for the Claimant to pay is set out in Paras 128 and 134 of his judgment. Master Rowley held:

“128. Bearing in mind the additional work subsequently estimated by Mr Harrison’s opponent, as well as my findings in respect of the amendments to the pleadings, disclosure and other additional work, it seems to me that it would be unreasonable for Mr Harrison to have to pay any more than twice the amount of profit costs anticipated in the second estimate. I have come to the conclusion that the appropriate limitation in respect of Eversheds’ fees is £650,000 plus VAT. Therefore to the extent that on detailed assessment Eversheds’ fees are above that amount they will be limited to the figure of £650,000 plus VAT

134. The limitation I am imposing on Eversheds’ fees is not a finding of professional negligence or anything akin to it. The solicitor owes a duty to his client to provide estimates in accordance with the professional conduct rules and the client is entitled to place reliance upon them. If a solicitor fails to provide reasonable estimates without justification and upon which a client relies, as I have found here, then in essence the court will impose a specific figure on the term of reasonable remuneration implied into the contract between solicitor and client in the manner set out by Morgan J in Mastercigars.”

Appeal Grounds

On 7 March 2017 Mr Justice Langstaff gave permission to appeal on the following grounds:

Ground 1

The costs judge erred in taking the Second estimate as the starting point for what costs could be recovered.

In support of Ground 1 Mr Robert Marven for the Appellant relied upon a finding of fact by Master Rowley at Para 20 of his judgment that Mr Harrison based his decision to commence litigation on the First estimate. As in Mastercigars the Claimant had established reliance on the First estimate. Accordingly it was submitted that the figures in the First estimate should have been the starting point for assessing the reasonableness of subsequent costs.

Ben Williams QC for Eversheds referred to later finding by Master Rowley at Para 103 of his judgment that the Claimant relied upon the First estimate in deciding to enter into litigation and on the Second as the foundation for continuing it. He held that it was not possible for the Claimant to have been relying on two different estimates at the same time. Mr Williams QC contended that the conclusion of Master Rowley that reliance upon the First estimate was superseded by the actions of the Claimant and the Defendant entering the CFA after receipt of the Second estimate was unassailable.

Ground 2

Having taken the Second estimate as his starting point the costs judge erred in holding that it was reasonable for the Defendant to recover profit costs of up to double the amount stated in that estimate (subject to the impact of the CFA).

Mr Marven contended that Master Rowley erred in principle in basing his decision on what costs it would be reasonable for the Claimant to pay, in part, on an increase in Lord Laidlaw’s costs between the time of the Allocation Questionnaire and their precedent H figures.

He submitted that the question for the Master was: what it was reasonable for the Claimant to pay? What Lord Laidlaw paid was not relevant. The court did not know what assumptions Lord Laidlaw’s solicitors had made in their assessment of costs. The reasonableness or otherwise of their costs in either the Allocation Questionnaire or the Form H could not be scrutinised. It was therefore not a reliable basis upon which to make an assessment of the

The other matters the Master relied upon to calculate the level of costs which it was reasonable for the Claimant to pay were his findings in respect of the amendments to the pleadings, disclosure and other additional work.

Mr Marven referred to Master Rowley’s findings of fact at Paras 58-60 of his judgment that neither the extent of the disclosure, the amendment to the defence and counterclaim nor the other additional work began to explain the discrepancy between the Second estimate and the costs actually incurred. Furthermore the Master had found at Para 29 that the estimate included a sensible cushion to guard against future contingencies.

Mr Williams QC contended that unanticipated costs were incurred after the Second estimate. He referred to Para 118 of the judgment in which the Master accepted that work was carried out after the Second estimate which was over and above either parties’ expectation and that this should be taken into account. It was contended that where an estimate is falsified by later events then less reliance can be placed on it.

It was submitted that the additional unanticipated work after the Second estimate was substantial. Disclosure had been a much larger task than originally anticipated. The cost of disclosure was £78,000 whereas only £53,000 had been allowed for this item in the Second estimate. There had been amendments to pleadings and a new serious allegation was made against the Claimant in the Counterclaim. The solicitors had to make trips to Atlanta and Monaco to meet the Claimant. Further, additional work had been summarised in bullet points in an email sent by the Eversheds to Mr Harrison.

It was contended that the Master did not err by taking the increase in Lord Laidlaw’s costs as a yardstick to assess the reasonableness of the increase in the Claimant’s costs. However, it was accepted that more work was likely to be carried out by Lord Laidlaw’s solicitors on pursuing the new claim made by him in the counterclaim than by the Claimant’s solicitors in defending the counterclaim.

Ground 3

The costs judge should have limited the recovery of disbursements with reference to the first alternatively the second estimate, as well as profit costs.

Mr Marven contended that Master Rowley should have limited disbursements payable by the Claimant in respect of counsel’s fees to those already paid or in some other way to reflect those in the Second estimate.

  • The disbursements in the Second estimate amounted to £211,242.33 excluding VAT. Future counsel’s fees were anticipated at £170,500 excluding VAT.
  • The total disbursements invoiced were £739,152.94, i.e. counsel’s fees £476,576.48, experts’ fees £167,641.67, accountants’ fees £65,000 and various £29,934.79.

Mr Marven contended that Master Rowley erred in failing to take into account the Second estimate of counsel’s fees. He erred in deciding that because Mr Harrison did not seek to include counsel’s fees in his CFA, less reliance was placed on that estimate. The Master erred in deciding that for that reason it was not appropriate to view the reliance placed on the Second estimate by the Claimant as meriting an overarching reduction of counsel’s fees.

Mr Williams QC contended that counsel’s fees reasonably increased as a result of developments after the Second estimate. A counterclaim was made which required a defence. The estimated length of the trial increased from four or five days to ten days.

The reason the Master treated reliance on the estimates of profit costs and counsel’s fees in the Second estimate differently was that the Defendant’s profit costs were made the subject of the CFA but counsel’s fees were not.

Discussion and Conclusions

The appeal was heard on 18 May 2017 by Mrs Justice Slade DBE sitting with Master Leonard.

The Relevant Legal Principles

The parties were in agreement as to the legal principles to be applied by Master Rowley in determining the issues which have given rise to the appeal. Namely:

  1. The overarching question is the sum which it is reasonable for the client to pay.
  2. A solicitor is not restricted to an estimate.
  3. An estimate of costs is not a quotation.
  4. A client is not required to establish an estoppel before reliance on an estimate is to be taken into account in assessing costs.
  5. In determining what is reasonable for the client to pay the costs judge is to have regard to the estimate.

MRS JUSTICE SLADE DBE:

38. The judgments of Mr Justice Morgan in Mastercigars were relied upon by both counsel and by Master Rowley in giving his judgment as setting out whether and if so how an estimate of costs affects the amount which it is reasonable for the client to pay. Mr Justice Morgan posed the question at paragraph 100 of [Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch) (“Mastercigars 1”)]:

“What should the court do where the client does not, or is not able to, contend there is an estoppel but he is able none the less to satisfy the court that he took the estimate completely seriously and it is possible he might have approached the litigation differently of he had been given a figure nearer to the figure in the final bill?”

Having referred to two decisions of the Court of Appeal, Leigh v Michelin Tyre Plc [2004] 1 WLR 846 and Garbutt v Edwards [2006] 1 WLR 2907, Mr Justice Morgan held of estimates at paragraph 101:

Something less than an estoppel seems to suffice in terms of relevance. Conversely, something more than a belief that costs are likely to equate to the estimate seems to be needed because Dyson LJ in para 31 [of Leigh] refers to the question of ‘how’ the paying party relied on the estimate. Further, at the end of the inquiry, the deduction in the costs which is thought to be appropriate is left to the good sense of the court.

Further, Mr Justice Morgan held:

102…even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client to pay and, to the extent that the figure does exceed what is reasonable to expect the client to pay, the excess is not recoverable……

104. If the final bill is significantly above the estimate, a court might routinely feel that the bill had increased by too much so that it was no longer reasonable to expect the client to pay all of it. The court may then be required to exercise its judgment as to what figure could properly be added to the estimate so as not to exceed the sum which it would be reasonable to expect the client to pay.

39. In [Mastercigars Direct Ltd v Withers LLP [2009] EWHC 651 (Ch) (“Mastercigars 2”)], referring to his earlier judgment Mr Justice Morgan held at paragraph 47:

Thus, my formulation of what is required does not go so far as to require the client to prove on the balance of probabilities, that he would have acted differently.

Further at paragraph 54:

The ultimate question is as to the sum which it is reasonable for the client to pay, having regard to the estimate and any other relevant matter.

40. In Reynolds v Stone Rowe Brewer (a firm) [2008] 4 Costs LR 545 Mr Justice Tugendhat held at paragraph 57:

Assuming, as he did, that the solicitor had spent a reasonable time on reasonable items of work and that the charging rate was reasonable, he was entitled to find that the resulting figure nevertheless exceeded what was reasonable in the circumstances to expect the client to pay…

The Grounds of Appeal

Ground 1

43. [I agree with Mr Williams QC] that the conclusion of Master Rowley that reliance upon the First estimate was superseded by the actions of the Claimant and the Defendant entering the CFA after receipt of the Second estimate was unassailable… In my judgment Master Rowley did not err in taking the Second estimate as the starting point for the assessment of fees which could be recovered.

44. Ground 1 is dismissed.

Ground 2

61. In my judgment Master Rowley both erred in principle and in his calculations when assessing the increase in the figure in the Second estimate which it would be reasonable for the Claimant to pay.

62. Master Rowley held that the Second estimate was reasonable in amount. The Defendant made a reasonable estimate of anticipated future costs bearing in mind the state of the pleadings and litigation at the time. By the time the Second estimate was prepared a counterclaim had been served. The Defendant also made an allowance or cushion for unanticipated costs.

63. Master Rowley rejected the contention advanced by Mr Marven based on Mastercigars that a margin should be allowed on the Second estimate to allow for unexpected work. Whilst Master Rowley may have been right to reject this broad approach to provide for costs of work which could not reasonably have been contemplated, in my judgment he erred in his approach to deciding the amount over and above those in the Second estimate which it was reasonable for the Claimant to pay.

An estimate is to be distinguished from a quotation of fees: an offer which is accepted. An estimate is what it says. It gives an idea, which from a professional firm can be taken as reasonably and carefully made taking into account all relevant considerations, of what the future costs of work on a case is likely to be. A solicitor cannot be held to be restricted to recovering the exact sum set out in an estimate. However a client is entitled to place some reliance on the estimate. The nature, degree and reasonableness of that reliance will no doubt be one factor in the view taken on an assessment under Section 70 of the Solicitors Act 1974 of how much more than the estimate it is reasonable for the client to pay.

64. The approach of Mr Justice Morgan in Mastercigars illustrates the effect to be given to an estimate if the final bill exceeds it.

At paragraph 102 of Mastercigars 1 the Judge explained that even if all work undertaken by a solicitor after an estimate had been given was reasonably undertaken and the costs reasonable in amount, nonetheless the resultant sum may exceed what it is reasonable in all the circumstances to expect the client to pay. The excess will not be recoverable.

65. In this case Master Rowley held at paragraph 29 that the Second estimate was reasonable and that the Claimant relied upon it when entering the CFA. From his approach in paragraph 128 it appears that Master Rowley took the amount of profit costs in the Second estimate as a base from which to add further costs for work reasonably carried out. However it is not clear from paragraph 128 of the judgment whether and how the fact of reliance on the Second estimate was taken into account in arriving at the conclusion that it would be reasonable for the Claimant to have to pay up to more than twice the amount of profit costs anticipated in the Second estimate.

66. In paragraph 128 of his judgment Master Rowley relied upon two factors in deciding on a level of increase in fees which it would be reasonable to expect the Claimant to pay from a starting point of the Second estimate. Master Rowley did not state what weight, proportion or amount he ascribed to each. The first was the additional work subsequently estimated by the Claimant’s opponent. No comparison was made between what work was undertaken on behalf of Lord Laidlaw after the allocation questionnaire compared with that undertaken for the Claimant. A comparison of an opponent’s costs is a useful check for ascertaining whether costs are reasonable as being in the same ball park. However, as submitted by Mr Marven, the increases in estimates of Lord Laidlaw’s costs were not a reliable basis for judging the reasonableness of the increases in the Defendant’s costs as the assumptions and advice upon which they were based were not known.

67. The other factor relied upon by Master Rowley to decide upon the amount of profit costs it was reasonable for the Claimant to pay was additional work carried out by the Defendant after the Second estimate. It is likely but not clear that Master Rowley was referring to additional work not anticipated in the Second estimate.

In my judgment the Master would have erred if he had made an addition for work already factored into the Second estimate.

Master Rowley in paragraphs 58 to 60 observed that additional anticipated work after the Second estimate did not account for the level of increase in costs claimed. The impression given from the findings in those paragraphs is that the amount of costs attributable to these items was not great.

68. Master Rowley did not explain in paragraph 128 how much by way of the Defendant’s profit costs he attributed to a comparison with Lord Laidlaw’s and why or how much he attributed to the additional unanticipated work carried out by the Defendant after the Second estimate.

69. In my judgment the award by Master Rowley of an increase of more than £300,000 in profit costs above those anticipated in the Second estimate required explanation and justification. Master Rowley erred in principle in relying on the level of the increase in the profit costs of his opponent’s solicitors when nothing was known about the assumptions, advice and information on which it was based. Further Master Rowley erred in his calculations of the increase in the profit costs of Lord Laidlaw’s solicitors as he failed to take into account that the first Allocation questionnaire figure was net of VAT and the second final figure included VAT. The increase was therefore wrongly inflated. Master Rowley based part of his assessment of the figure it was reasonable for the Claimant to pay on a mistake.

70. Master Rowley reached a conclusion on the profit costs which it was reasonable for the Claimant to pay that was not supported by his findings of fact, was based on a mistake on the figures and erred in principle in relying on profit costs charged to Lord Laidlaw in departing so substantially from the Second estimate. Master Rowley therefore exceeded the broad measure of his discretion in considering a reasonable upper limit on profit costs as high as twice that in the Second estimate.

Ground 3

78. The reason the Master treated reliance on the estimates of profit costs and counsel’s fees in the Second estimate differently was that the Defendant’s profit costs were made the subject of the CFA but counsel’s fees were not. In my judgment the Master erred in relying upon the fact that the Claimant did not include counsel’s fees in the CFA as a reason for not making an overarching reduction in counsel’s fees. Master Rowley held at paragraph 125 that it would have been possible to seek counsel’s fees to be governed by a CFA if they were considered to be out of control. Master Rowley had held the Second estimate to be reasonable on the state of knowledge at the time. There would be no reason for the Claimant to think Counsel’s anticipated fees of £170,500 were out of control at the time. In my judgment the failure to include counsel’s fees in a CFA did not absolve the Master from considering whether it was reasonable for the Claimant to pay a total of £476,576.48 in counsel’s fees of which the Defendant is claiming £189,311.48, being £39,373 paid in respect of invoices not being assessed, plus £149,938.48 in respect of invoices being assessed.

79. Whilst the additional work referred to by Master Rowley in paragraph 128 of the judgement and the increased length of the trial from four or five days to ten days warranted an increase in counsels’ fees from £170,500 in the Second estimate, in my judgment in the absence of additional reasons being found by him to justify the increase to £476,576.48 it was not open to Master Rowley to assess counsel’s fees in that sum. His decision to assess counsel’s fees in the sum of £476,576.48 is set aside.

80. Ground 3 of the appeal succeeds in respect of counsel’s fees.