This was an appeal against decisions of Master Gordon-Saker in the course of a detailed assessment of costs under s70 Solicitors Act 1974, including his decision that it was appropriate to use the solicitors’ costs estimate as a yardstick notwithstanding the fact that he had already concluded that that the client had not relied on it.
Relevant Background
The respondent (“Spartafield”) a property developer instructed the appellant solicitors, Howard Kennedy, to represent them in litigation in the TCC between themselves and a contractor called Penten Group Limited relating o a property in East London. The litigation proceeded to trial before Recorder Nissen QC on 4 to 8 July 2016.
Spartafield essentially succeeded at trial to a large extent, but Penten Group Limited is insolvent and so recovery of costs was limited.
Spartafield immediately challenged the costs claimed by the appellant and applied for a detailed assessment of all six of their bills under s. 70 of the Solicitors Act 1974.
The Estimates
The appellant sent a standard letter of engagement to Spartafield’s managing director, Mr Leon, on 4 May 2016, which gave an initial estimate of £5,000 to £10,000. However, this made clear that it was only an estimate regarding a very initial stage of costs.
Prior to a CMC on 9 May the appellant had prepared a costs estimate in the form of Precedent H.
This provided for attendance by the solicitors at two days of trial at a cost of £8,000, disclosure costs in the region of £4,000, costs relating to the CMC at £6,750, solicitors’ costs relating to witness statements at £8,600 and trial preparation at £10,250.
The overall estimate of the solicitors’ future costs was put at £41,500.
The judge was not happy at that stage with either party’s costs estimates and asked that the Spartafield’s costs estimate as between the parties be reduced to closer to £85,000.
The overall costs estimate, including both solicitors’ costs and counsel’s costs, had come to around £105,000.
As between Spartafield and the appellant, it was agreed that the original budget in the form of the Precedent H should stand as the costs estimate as between the solicitor and Spartafield as client.
Unforeseen Developments
Two notable developments took place around the start of the trial on 4 July which affected the costs incurred and also affected the parties’ relationship and were unexpected.
Firstly, there was a decision made by Spartafields to disclose a set of files that had been sent to their barrister by Mr John Shannon, who was a surveyor, and an issue had arisen on Spartafield’s side as to when they should be disclosed and as to whether the appellant had complied with instructions from the client to disclose.
These files were only disclosed to the other side on the morning of the trial, starting on 4 July, and there was substantial correspondence on this. The Master ruled in August 2018 that some work had been done unnecessarily because the appellant had failed to follow the client’s instructions to offer disclosure of these files at the earliest opportunity.
The other development that arose around the start of the trial was that there was an issue in the trial as to whether Spartafield had conducted a sufficient search of its email archives and whether it had made proper disclosure of documents in this respect.
Mr Leon was crossexamined on the first day and he admitted in cross-examination that his witness statement had been inaccurate regarding a certain category of internal emails.
The judge ordered the appellant to produce a witness statement regarding the adequacy of Spartafield’s disclosure and to carry out a search of these internal emails between Mr Leon and Mr Grant.
Compiling a witness statement and carrying out the search was onerous work done overnight and the court made a further order requiring the appellant to review all communications. So, it was accepted, there was an intense period of work over the first couple of days of the trial that had not been anticipated.
A further development in relation to the progress of the trial was that it lasted for five days rather than the originally estimated two days.
The Master’s Decision
The Master concluded that none of the costs estimates produced by the appellant including that which had been given in the form of Precedent H. He went on to point out that,
“It is not a function of this court to punish solicitors for failing to comply with their regulatory or professional obligations. However, it seems to me that the defendant did not provide the claimant with the best possible information about the likelihood of all costs of the matter.
While I accept that additional, unanticipated work was required, it is important to bear in mind that none of this work was the subject of any further estimate. The claimant was simply not told what this work was likely to cost until the final invoice. I cannot accept the defendant’s assertion that it could not realistically be expected to provide estimates of this further work. Solicitors are expected to be in control of the costs incurred. Where unanticipated work is required, they should be able to inform the client of the likely costs of this further work before it is incurred. The defendant’s failure in this case to provide costs information in respect of the work which was not included in the estimate that was given is a factor which the court should take into account when considering the reasonableness of costs of that work.”
This decision was not appealed.
The Grounds of Appeal
The appellant complained that the Master had used the costs estimate as yardstick to assess costs which were incurred unexpectedly and were not included in the costs estimate when he had previously ruled that the client had placed no reliance whatsoever on the cost estimate.
The most concrete example of the alleged error was said to be where the appellant had claimed fees for 15 hours of partner’s time and 2 hours 24 minutes of an associate’s time for work done considering and revising the costs budget for the purposes of applying for costs.
The appellant had already conceded that 1.8 hours was not something they would seek to recover, so the work in dispute was 13 hours of the partner’s time and 2 hours 24 minutes of the associate’s time.
The Master allowed six hours of the partner’s time plus one hour of the associate’s time.
The appellant’s larger objection in financial terms was as to the assessment of costs of the disclosure work that had to be done in the first few days of trial and also the trial preparation work that had escalated in the few days before trial and also during trial.
In relation to disclosure, their invoice showed a headline sum of £32,500 for disclosure, having originally estimated £4,000 in the form H estimate. In total they claimed 102.3 hours on the extra disclosure and 154 hours for work done preparing bundles.
The Master aggregated the time spent on the extra disclosure and the work done on trial and bundle preparation because these were aspects where there had been new work for which no estimate was given.
For this work, he allowed 27 hours’ partner time, 10 hours for assistance and 115 for the trainees.
It was contended that it would be an error of principle for the Master to take into account the estimate as a yardstick for work that was outside the estimate.
The appellant’s position was that it would be simply wrong for the Master to balance costs that are outside the estimate, including wholly new and unexpected costs, as against the costs that had been estimated, and that to balance these two sorts of costs against each other was both unfair and unprincipled.
The appellant relied on the Court of Appeal’s decision in Garbutt v Edwards, and suggested this was authority to suggest that it would be correct to take account of an estimate that turns out to be incorrect, but only where a costs judge had made a finding that the correct estimate would have made a difference to the outcome.
Ultimately, it was argued that the Master should not have referred to the estimate as a yardstick or used it as such in circumstances where he had concluded that Spartafield had placed no reliance on the various estimates given.
The Respondent’s Position
Spartafield’s position was that the Master had been fully aware that the majority of the costs in question were unanticipated new costs that had not been covered by the estimate, that he had made the right decision in his decision in January 2018 when he had addressed the significance of the estimate and the significance of the information coming from the appellant regarding costs and that the judge had been quite correct to take into account that the appellant had not updated the estimate and simply had not given an estimate for large chunks of the work done.
MS CLARE AMBROSE:
(Sitting as a Deputy Judge of the High Court)
34. I turn to my findings on the Master’s approach to the costs and the estimate, in particular ground 2. There was much discussion in argument about the Master’s reliance on “the yardstick”. It perhaps would be useful and fair to explain how this terminology comes about. Perhaps the first use of the concept was in the Court of Appeal’s case in Leigh v Michelin Tyre in 2003, which concerned an estimate that turned out to be inadequate, and there the [sic] Dyson LJ referred to the relevance of estimates and said at para.26, “What follows is not intended to provide an exhaustive guide as to the circumstances in which a costs estimate may be taken into account in determining the reasonableness of the costs claimed, but it should assist judges … First, the estimates made by solicitors of the overall likely costs of the litigation should usually provide a useful yardstick by which the reasonableness of the costs finally claimed may be measured. If there is a substantial difference between the estimated costs and the costs claimed, that difference calls for an explanation. In the absence of a satisfactory explanation, the court may conclude that the difference itself is evidence from which it can conclude that the costs claimed are unreasonable.”
35. The Master used similar language. That case was not dealing with a situation where the work in question was never in the estimate. The appellant says that the situation here is different; this is an “apples and pears” situation, so that the estimate cannot fairly be taken into account, even if “apples and pears” is my own crude explanation of the point.
36. Some further guidance on the role of an estimate has been given by Morgan J in two decisions called Mastercigars Direct v Withers, the first was reported as [2007] EWHC 2733 (Ch) and, the second, [2009] EWHC 651 (Ch). In the 2007 case he comments at para.92,
“In my judgment, so far as a statement of legal principle is concerned, these cases are helpful and ought to be applied in the present context in the following way. In a case where a solicitor does not give his client an estimate, the result will not generally follow that the solicitor is unable to recover any costs from his client. In a case where a solicitor does give his client an estimate but the costs subsequently claimed exceed the estimate, it will not follow in every case that the solicitor will be restricted to recovering the sum in the estimate. What these two decisions of the Court of Appeal [that he referred to earlier] repeatedly state is that the court may have regard to the estimate or may take into account the estimate and the estimate is a factor in assessing reasonableness. For the reasons given by Arden LJ in Garbutt v Edwards, these two cases do not themselves provide very much detailed guidance as to how one should react on the facts on a particular case because it was felt by the Court of Appeal it was impossible to foresee all the differing circumstances that might arise in any individual assessment.”
37. Then Morgan J in the 2009 case goes on to give quite detailed guidance regarding the situation where a client contends that its reliance on an estimate should be taken into account in determining the figure which it is reasonable for the client to pay. On that subject, he says, at para.54,
“The court should determine whether the client did rely on the estimate. The court should determine how the client relied on the estimate. The court should try to determine the above without conducting an elaborate and detailed investigation. The court should decide whether the costs claimed should be reduced by reason of its findings as to reliance and, if so, in what way and by how much. Whether there should be a reduction, and if so to what extent, is a matter of judgment.”
38. The Master expressly adopted this approach in his decision on the preliminary issue as to the relevance of the estimate.
39. These dicta essentially deal with the specific situation where a party contends that its reliance on the estimate should be taken into account.
Here, the Master found no reliance on the estimate and this was never relied upon as the basis for using the estimate as a yardstick, and it was never put forward by Spartafield either.
On this basis,
I reject the appellant’s argument that, by having concluded that the estimate was not relied upon, that in itself meant that the Master made an error of principle and could not refer to it as a yardstick or otherwise take it into account.
40.
I turn to the situation here where the Master expressly acknowledged that the work in question was new and unanticipated work that was not covered by the estimate. The question arises as to the relevance of an earlier assessment in that situation.
The appellant says that there is no clear authority covering this situation and it is a somewhat new question. The appellant, as I explained above, says that the estimate is not relevant and cannot be used as a yardstick unless there is a finding as to what would have happened if the estimate had been correct or had been corrected. I do not accept that Garbutt v Edwards is authority for the proposition put forward by the claimant. First, it is a case governing inter partes costs. Secondly, it lays down a broad proposition that
where a judge is assessing costs, it is a matter for her discretion as to whether to take into account any failure by a solicitor to give an estimate.
Indeed, Arden LJ recognises that
in a situation between client and solicitor, it may be open for the party to argue that in deciding the reasonable amount to pay for work done, regard should be had to the level of costs which he had been led to believe represented a worst case assessment of his potential liability.
The Master recognised the existence and scope of this discretion by saying that the purpose of assessment between a client and solicitor is not to penalise a solicitor for breach of compliance with regulatory requirements or professional good practice. He recognised the estimate could not be used to disallow all costs. As a matter of principle, I also consider that
a judge, especially a costs judge who will understand the estimates and have strong experience of them, may usefully take those estimates into account in assessing the reasonableness of costs that have arisen outside the estimate but are new and unexpected.
41. In addition, it cannot be said that the Master here erred in considering the estimate as a yardstick such that it was the only relevant consideration he took into account. To the contrary,
the Master made clear beyond doubt that he took into account the fact that the costs in issue were new costs and unanticipated. And he also made clear that his decision was heavily influenced by the fact that the appellant had failed to update their estimate or give any estimate in relation to significant quantities of work, contrary to the expectations of the professional regulations, and that they had also been responsible for some of the work created due to the late disclosure of the Shannon file.
42. I accept Spartafield’s submission that
it is significant that the Master did not disallow the new and unexpected costs, so he did not use the estimate as a means for blocking the recovery of costs for matters not included in the assessment.
To the contrary,
he accepted that the costs in question were outside the scope of the estimate and actually allowed the appellant to recover 185 per cent of the profit costs that had been originally estimated.
In my view,
the term yardstick is not to be given some strict or literal interpretation. It is not intended to mean a strict benchmark or some strict or technical table of conversion.
At most, the term is referring to an earlier measurement that a judge may find useful in allowing heads of costs or assessing the reasonableness of costs claimed.
Typically, the term is used to measure heads of cost that have already been anticipated, but the judge could use an existing estimate of some work in order to estimate the reasonableness of fees for separate and perhaps unanticipated work. One example raised in argument would be where costs of dealing with certain witnesses had been estimated; that estimate might be relevant and properly taken into account in assessing the costs of new and unexpected witnesses.
Here, the Master had carefully considered the relevance of the estimate in his decision in January 2018 that was not appealed. He had correctly come to the conclusion that he could take it into account in assessing fees and also that in regards to unanticipated work he could take into account the failure of the appellant to provide an estimate of what those costs would be.
44. When, in August, he came to the next stage of the detailed of assessment,
he was entitled to take into account the earlier assessment, together with the appellant’s failure to provide an updated estimate or any estimate in relation to new work.
45. In my view,
the original estimate was of some use in making clear that this was a case where counsel was taking a leading role, where solicitors were being expected to keep costs to a minimum and where, in that context, £42,000 was considered a reasonable estimate of solicitors’ costs to the end of trial.
The Master made it clear beyond doubt that it could not be regarded as decisive in face of unanticipated costs, but it represented how both sides had estimated costs at that stage, in particular how the appellants had given an estimate that had crossed the line at that stage which was less than three months before trial. I regard it as significant that the estimate was not used by the Master as the sole factor to guide his assessment and it did not dictate what costs would be recovered. Indeed, the appellant could not identify any direct link relating to the estimate that established an error of principle. The complaint was simply in the Master referring to it as a yardstick.
46. In my view,
the Master correctly took the estimate into account as one of many factors in assessing what was a reasonable sum to allow for the costs in question. His decision, whether regarded as an evaluation or an exercise of discretion, was one he was entitled to come to and reflected a careful and fair consideration of all the matters put before him by both parties.
47. In conclusion, I do not allow the appeal on either of the grounds of appeal.
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