28 April 2022
Costs shortfall: Lawyers need to provide more detailed information to clients
The recent decision in ST v ZY [2022] EWHC B5 (Costs) by Senior Costs Judge Gordon-Saker is another decision where claimant solicitors faced criticism for seeking to recover a shortfall in the costs from their client when they had not supplied sufficient information.
The case proceeded on behalf of the claimant (a minor), the claimant’s mother and the claimant’s three siblings. The case brought by the mother and her three other children was discontinued but continued for the claimant.
The claimant’s solicitor, Irwin Mitchell, wrote to their client at the conclusion of the claim seeking to recover a shortfall of the costs, totalling £53,719. The costs budget had been exceeded by over £31,000 and the 1% and 2% costs recoverable in respect of budget preparation and the costs management process had been exceeded by over £11,000. It was confirmed in the judgment that the shortfall sought from the claimant would be “a very significant part’ of the damages”.
The matter came before the court for the assessment of the costs payable by the claimant in accordance with CPR 46.4(2).
CPR 46.9(2) confirms that a shortfall in costs can be recovered from the client if there is written consent that permits payment to the solicitor of a greater amount than had been recovered. In this case, there was provision in the retainer that a shortfall may be recovered from the client.
On solicitor/client assessments, the assessment of the costs is on the indemnity basis. A court will only disallow costs that are held to be unreasonably incurred if they are unusual in nature or amount.
‘Significant development’
Irwin Mitchell conceded that the costs claimed were over budget. They did not seek to amend their budget and did not submit that there was a ‘significant development’ during the claim. They also did not advance any arguments that there was ‘good reason’ to depart from the budget, apart from in relation to the witness phase. In this phase, the court concluded that there wasn’t a realistic possibility that the court would have found good reason to depart from the budget. Irwin Mitchell’s replies to the points of dispute conceded that just over £25,000 as an overspend and then they sought to recover this from the claimant.
In addition to exceeding the budget, the claimant had also exceeded the 1% and 2% amounts claimed for the costs budgeting and management process, in accordance with CPR 3.15(5), by over £11,000. No exceptional circumstances were provided as to why there had been such a significant overspend.
The budgeted overspend and the overspend on the capped costs had been conceded by the claimant in the inter partes costs assessment and did not form part of the settlement with the defendant. One of the main questions before the court as to whether the shortfall should be recoverable from the client was whether the overspend on the budget and the capped costs amounted to costs that have been unreasonably incurred on a solicitor/own client basis.
No communication, no budget?
While the court acknowledged that updates had been provided to the client throughout the case, no information had been provided in relation to there being a budget, to the overspend of that budget, or that the capped fees had been exceeded. The claimant had only been notified that the court might set a budget but the solicitor would advise them further. No further advice was provided. No information was provided regarding the overspend.
Senior Costs Judge Gordon-Saker commented: “I think it very surprising that a solicitor would not tell their client that the budget had been exceeded and the costs in excess of the budgets would not be recoverable.”
In light of the failures to provide specific information to the client, or reasons for the overspend, it was confirmed that the excess costs (the budget overspend and the caps) were unusual in amount as per CPR 46.9(3)(c)(i) because the budgeted figures were well in excess of what the court considered reasonable at this hearing and at the CMC. Therefore, the costs claimed must be unusual in amount.
It is clear that where the law allows a solicitor to recover a shortfall from their client, that the solicitor should proceed with caution. A claimant can challenge the solicitor/client costs claimed in relation to any shortfall with the court being able to conclude that the costs have been unreasonably incurred if the claimant goes over a phase in a budget or a capped cost.
Following on from the case of BCX v DTA [2021] EWHC B27, to avoid the presumption applied by CPR 46.9(3)(c) this case is further evidence that solicitors need to provide more in-depth information to their client as to what costs are recoverable inter partes and communicate that some of the work to be undertaken may result in a shortfall in costs, especially in relation to budget overspend, and caps and this must mean that the time claimed is unusual in nature or amount. Telling the client that some costs might not be recovered from the other side is not sufficient.
This article first appeared in the New Law Journal
Laura Rees is an ACL Council member and a Costs Lawyer at Hill Dickinson