Costs

Costs law review: sheltering from the perfect storm

This article discusses the practical implications of the recent upsurge in litigation being brought by former clients in respect of lawyers’ fees, including Herbert v HH Law.

About the author: Dr Mark Friston is a leading expert on the law of costs and is the general editor of the foremost textbook on the topic ‘Friston on Costs’.

Over the last few years, a perfect storm has been raging which has given rise to a nascent industry that poses a threat to firms who provide legal services to consumers. At present, this industry has its sights on firms that carry out contentious civil work, but it is only a matter of time before it realises that there is low-hanging fruit to be plucked elsewhere, such as from firms that do family and non-contentious work. The focus of this article is on contentious work, but the points that are made apply to other areas.

Since 2013, many firms have - for entirely legitimate business reasons - been taking deductions from damages in order to compensate for the loss of income imposed by the Jackson reforms. This has generated demand in the sense that there is now a pool of clients who wish to reclaim those monies. Those reforms have also reduced the work available to costs practitioners, thereby creating a pool of competent persons who are eager to meet that demand. This being so, it is no surprise that an industry has emerged.

The law which governs the remuneration of lawyers is fearsomely complex, so it is no surprise that that industry has had its teething problems; on the whole, however, it is going from strength to strength. By way of example, only last month the Court of Appeal upheld a finding that if a solicitor wishes to charge a blanket success fee, clients must be told of this fact (see Herbert v HH Law [2019] EWCA Civ 527, 3 April 2019). There are many, many other points former clients may wish to take, and this is especially true now that retainers (including retainers with Chartered Legal Executives) fall under the Consumer Rights Act 2015.

Contracts of retainer

Whilst an obvious point, contracts of retainer need to be bombproof. They should be checked and rechecked to ensure that they comply with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 SI No 3134 and the Provision of Services Regulations 2009 SI No 2999.

Atypical funding arrangements are laden with risk in a consumer setting. They should form part of a package of funding only if specialist advice has been taken from somebody who understands both consumer law and costs law.

Information, approval and estimates

Fees should be reasonable, and where a client approves any expenditure, this ought to be in circumstances in which they have been adequately informed about that expenditure. As the decision in Herbert has shown, this is especially true where success fees are to be incurred. It may still be possible to charge success fees that are based on factors other than the risk profile of the case in hand, but this should only be done if the client has been given all the relevant information. Even then, it is a strategy that may give rise to problems in the future.

Informed approval is key (in respect both of success fees and of other fees). One could easily argue that in the present climate, clients should not only be given ‘funding advice’ (ie, advice about how they are going to pay), but also about alternative means by which legal services may be purchased, so-called ‘procurement advice’. If, for example, a family practitioner wishes to charge a fixed fee for a divorce, the client ought to be told that other firms in the area may charge a lower fee.

In view of section 50 of the Consumer Rights Act 2015, estimates must be accurate; written, informed approval ought to be obtained in respect of any revisions. This is particularly true in family matters as the sums charged often far exceed the original estimate. It would be wise to keep a complete record of all conversations with clients (this being because of the effect of the aforesaid section, which incorporates spoken representations into the contract).

Billing and invoicing

Firms of solicitors should have a clear, written policy that deals with whether interim invoices are interim statute bills or requests for payment on account. The position ought to be spelled out in the contract of retainer.

Invoicing errors must be avoided. Common mistakes include sending invoices that are intended to be statute bills, but which contain only deductions (and which fail to refer to monies recovered from opponents). Another common mistake is sending a series of invoices without making it clear whether the statute bill is delivered at the end of the retainer or when each invoice is delivered.

Complaints procedures

Firms may wish to write into their complaints procedure a provision that if a client has a complaint about fees or disbursements, the firm will, at the client’s election, consent to any claim or assessment being stayed pending resolution of a complaint and/or determination by the Legal Ombudsman. This may provide a degree of costs protection if a claim is pursued.

It is possible to write into a contract that the firm will be obliged to use a form of alternative dispute resolution. If this is done, regard should be had to the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 SI No 542.

Remedial action

Some firms may be especially at risk of claims being brought by former clients; those firms who have charged success fees that are not based primarily on risk may fall in this category. Those firms may want to consider whether they need to take remedial action (such as redelivering bills or asking clients to enter into retrospective contentious business agreements).

Management of disputes

It would almost always be a mistake to try to manage a dispute in which court proceedings were in sight without taking specialist advice. The only exceptions to this would be where the dispute can be settled or managed by way of a complaints procedure (with or without the assistance of the Legal Ombudsman).

This is not only because of the complexity of the law, but also because a claim that may, at first, seem to be an isolated instance may actually be the first of a barrage of claims. There have been instances of firms being put into administration as a result.

CILEx Greater Manchester Branch has arranged for Dr Mark Friston to deliver a talk on recent developments in solicitor and client costs law and practice. The talk will take place at the offices of Clyde & Co, Chancery Place, 50 Brown Street, Manchester M2 2JT on 20 June at 6 pm. To register your interest in attending e-mail: greatermanchester.branch@cilex.org.uk