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01 October 2019
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A question of honour

Francis Kendall looks at a recent case in which an agreement on costs was not binding.

An agreement by solicitors to “honour” a costs budget did not amount to a binding agreement to limit their clients’ overall liability in costs, the High Court ruled recently in a case taking us all back to the good old days of contract law. 

Blyth & Anor v Nelsons Solicitors Ltd [2019] EWHC 2063 (QB) concerned work done by the defendant solicitors for the claimants in a contentious probate dispute. After a brief private instruction, the parties agreed a conditional fee agreement (CFA) in November 2013. 

The claimants alleged that, in June 2014, shortly before a case management hearing, they agreed with Nelsons to cap their costs liability to the sums set out in the costs budget - £176,000 plus success fee and VAT. The litigation settled at a mediation in March 2015. Nelsons sought costs of £400,000, inclusive of success fee and VAT, plus disbursements, which it said was the sum agreed at the mediation. 

The claimants sought a Solicitors Act assessment; the bill was £609,000, comprising £290,000 profit costs and a 75% success fee, plus VAT, but Nelsons accepted that the claimants' actual liability could not exceed £400,000. 

The part of Master Whalan’s ruling at the detailed assessment under appeal was his finding that there was no concluded contractual agreement that the costs payable by the claimants to the defendant would be limited to the sum set out in the costs budget. 

The claimants said the agreement to cap fees was made orally at a meeting and confirmed in writing by email a few weeks later. However, Master Whalan found that, while the claimants “undoubtedly” raised some concerns about costs at the meeting, these related to the disbursements for which they were directly and immediately liable. In response, Nelsons agreed to provide the advocacy in-house rather than instruct counsel. 

Within the follow-up email, Nelsons said: “Insofar as any costs budget revisions are necessary due to the increase in the trial length from 7-10 days, then obviously, we will need to pass these costs on to you, but in so far as there is any other ‘over-run’ of charges, then I confirm that we will honour the original budget and, of course, the appropriate success fee that will apply to our final bill.” 

Master Whalan found: “Insofar as no such agreement was concluded, the best interpretation of [this] was that it comprised an indication that the solicitors intended to work within a budget that they expected to be adequate and which, moreover, they expected the court to approve in a costs management order. Ultimately, both assumptions proved to be incorrect, but this does not, in my conclusion, convert a discussion about procedure into a binding agreement to limit the claimants' overall liability in costs." 

On appeal, Mr Justice Stewart ruled that the master was entitled to find that both claimants "exhibited a fundamental confusion" about the "original budget" which was to be honoured. “This of itself undermines any possible finding of a binding agreement,” he said. 

He continued: “As to the word ‘honour’, this is capable of bearing the meaning that the original budget would not be exceeded by fulfilling a previous agreement. 

“It is, however, also capable of the meaning that, apart from the revisions necessary because of the possible increase in trial length, the Precedent H would be respected in the sense that, as the master said: ‘the solicitors intended to work within a budget they expected to be adequate…’ 

“Although, absent context and the evidence as a whole, which the master took into account, and the findings he made, the former might at first blush seem the preferable construction, the latter is a permissible construction and the master was entitled to make it.” 

Stewart J added that written notes of the meeting formalised in the email – produced by the two Nelsons lawyers present – did not refer to any discussion or agreement to cap or limit the costs. 

He concluded by questioning the point of the dispute altogether: “It follows that the appeal will be dismissed. Counsel for the defendant told me that, once additional liabilities etc. are taken into account, the difference between the £175,959.90 in the Precedent H and the £400,000 agreed as a cap in the March 2015 meeting is only some £30,000. If that is correct, it is very unfortunate that so much by way of extra costs has been incurred subsequently.” 

Although the case is pretty fact specific, it highlights the interplay between clients’ expectations and lawyers’ intentions arising from the budgeting process. Clients need to be well informed throughout and regularly updated with developments – there is no point burying heads in sand and almost inviting a situation like this down the line. 

It is clear that the client’s expectations in this case and the commercial reality of the position were at odds. I am sure the lawyers thought they had been clear – and they were ultimately proved to be right – but the whole process would have been a lot less costly had the lawyer ensured that the client understood the position fully at the time. 

There is a surprising difference between being clear and having the person you are communicating with understanding your intentions – there is an onus on the professional to ensure understanding. 

That said, there is nothing a lawyer can do with a client who simply refuses to accept what a reasonable person would. I have a case on my desk where a client, in a Solicitors Act dispute, has an overarching point that she is not liable for any of the lawyer’s fees. This is despite having personally signed statements of costs throughout the proceedings and having recovered those costs from her opponent at various stages.

Francis Kendall is the vice-chair of the Association of Costs Lawyers and a Costs Lawyer at Kain Knight

This article first appeared in Litigation Funding on 1st October 2019 

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