Does Your Client Know?

Are you advising your client on issues such as budget overspends, shortfall of costs and ensuring you have informed consent?  If not, then you could be at risk of taking a massive economic hit.

Solicitors are entitled to be paid for the provision of litigation services, but what can they charge their client? A CFA can provide for a success fee, and it is not uncommon to charge for the shortfall in costs recovered.  But, with charges to clients, there is a growing tendency for those clients to come forward and argue what they are being charged is unreasonable and excessive.

It is misplaced to presume that Budgets and contractual hourly rates will not be argued in solicitor-own client assessments.

Solicitors have an obligation to monitor legal costs and Approved Costs Budgets. Advice should be provided to clients during the case when those approved phases are going to be exceeded, the implications of doing so and the options available, such as attempting to avoid any overspend or applying to revise the Budget to ask for extra spending or to bill the client for those additional costs.

Advice:

A client care letter summarises the key information which the client of a solicitor’s firm needs to know mainly how their legal matter is going to be dealt with. Solicitors must give the client the best possible information about how much pursuing their legal matter is going to cost overall. It can be difficult to give an overall estimate of costs, but Solicitors should try to use brackets or broad estimates for different scenarios.

The Ombudsman has set out cost guidance principles, and in summary, the client should be neither shocked nor surprised by any legal Bill submitted to them.

Friston On Costs 4th edition 2023 recommends that Solicitors give their client:

  • Best estimate of fees;
  • Best estimate as to what will be recoverable from the Defendant;
  • Why, if it be the case, that the hourly rate exceeds guideline figures and why this is so and how much the difference is;
  • What will be charged for irrecoverable Solicitor-own client work, such as funding advice, and explain that such expenditure is not payable by your opponent and the reason for charging this.

The basis of detailed assessment of solicitor and client costs can be found in CPR 46.9:

(2) Section 74(3) of the Solicitors Act 19746 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.

Cases dealing with consent, shortfalls and Approved Budgets:

The case of Herbert v HH Law (2019) EWCA Civ 527 developed the point of difference between consent and informed consent.  100% success fee was sought and consented to by the client.  This was a passenger RTA case where there was very little risk.  It was found that the client should have been advised of any risks and if they had, they would have negotiated the amount of success fee or they would have gone elsewhere, where a success of probably 15% would have been offered.

Belsner v CAM Legal Services Ltd [2020] EWHC 2755 (QB) held that a lawyer must give sufficient advice and provide all relevant information so that their client can provide informed consent when it comes to recovering any shortfall in costs from them.  This was a low value injury case subject to fixed costs, but the client was not informed what fixed costs would be received from the Defendant and therefore what shortfall they were to pay.

In the case of EVX v Smith [2022] EWHC 1607 (SCCO) the Solicitors argued the Litigation Friend had approved the hourly rates by entering into a Conditional Fee Agreement which provided for the rates claimed.  The CFA had been orally explained to the Litigation Friend and therefore, as she had given approval, the rates were assumed to be reasonable and not subject to review.  The Litigation Friend had been informed that costs would be claimed by way of shortfall in addition from those recovered from the Defendant and had agreed the settlement of costs with the Defendant.  Cost Judge Brown was of the view there was no informed consent to the hourly rates claimed and therefore no presumption of reasonableness.

In both the cases of ST v ZY [2022] EWHC B5 (Costs) and JXC v NIS [2023] EWHC 1000 (SCCO), although the client had consented to a deduction of costs from her damages, the solicitor had not specifically advised on the nature and effect of the Budget overspend.  In both cases, the budget had been exceeded and applying CPR 46.9(3)(c)(i), whilst not unusual in nature, is unusual in amount. As the solicitor did not warn their clients that the overspend would, in consequence, be irrecoverable from the opponent, the presumption at CPR 46.9(3)(c) applies and the overspend must be presumed to be unreasonably incurred.

Also in relation to exceeding Approved Budgets, Rhett St. James v Wilkin Chapman LLP [2024] EWHC 1716 (KB) held: “In the ordinary use of language, the amount of costs may be regarded as ‘unusual’ where a solicitor has significantly exceeded the budget set by the Court…To have significantly exceeded the budget, it is likely that the number of hours incurred, or the rate at which they are charged, has changed significantly from the budgeted assumptions, and, unusually, the solicitor has taken no steps to have the budget increased to reflect the changes…If the client has been kept in the dark, as in this case, the application of presumption of unreasonableness does not seem appropriate.”

Budget overspend should be regarded as unreasonably incurred before you consider the presumption created by CPR 46.9(3)(c).

You must remember:

Consent is not the same as informed consent.

Without informed consent, unusual costs are deemed to be unreasonable.

Unrecoverable costs between the parties, is likely to be unusual, and therefore unreasonable.

Unreasonable costs are at risk of not being recovered.

Estimates of costs should be kept up to date (on what basis are they calculated and on what assumptions? And any deviation from the costs path needs to be communicated to the client) – Budget Reports would help in Budgeted cases and TTL+ and interim billing would help in all other cases.

You need to provide clear instructions and seek agreement at the start of the case in relation to costs and maintain the clients’ knowledge and awareness throughout.  Attendance notes and advice should be kept as a record.

The client must always be kept in the loop in relation to costs, including Approved Budgets, adjustments to Budgets, exceeding any Approved Budgets and any costs orders, for example.

Solicitors are often given the recommendation to instruct counsel for advice on/and the drafting of their contracts/retainers; it is seen as a good investment.  It can also be a good investment instructing PIC for interim billing (ask about our new product TTL+) and Budget Reports and the management of Approved Budgets; without this you could be at risk of taking a massive economic hit.

Victoria Stewart, Costs Lawyer

16.01.2025

 

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