Controlling Fees and Costs

Lawyers do not have complete freedom to charge whatever they want. There are vari­ous mechanisms controlling fees. These include fees recoverable from the other side, for example in litigation, and those charged to clients.

A number of practices are identified with some well-known abuses of hourly bill­ing systems. One of the most obvious is charging for work that has not been done. Others are less easy to detect yet familiar. ‘Gouging’, for example, refers to charging more than a reasonable price; it can occur when a lawyer settles any possible debate about a particular item in his own favour. ‘Churning’ refers to doing more work than is necessary given the nature or value of the case. Even sophisticated corporate clients may find this difficult to control. These issues cannot be left to the operation of the market, and mechanisms for external assessment of fees and costs therefore exist.

¹⁴ Bar Council, Bar Code of Conduct 1981, as amended, at para 307.

¹⁵ B Abel-Smith and L Stevens, Lawyers and the Courts (London, Heinemann Educational Books Ltd, 1967) at 231.

¹⁶ Hall V Simons [2000] 3 All ER 673, HL.

¹⁷ Bar Council, Bar Code of Conduct 1981, as amended, Annex G2.

A. The Basic System

The basic system for assessing costs paid, usually by the losing party, has been adjusted by a number of innovations. It is necessary to consider how the system works in principle. It usually assumes action by one or more of the parties challenging the lawyer’s bill.

Determining an appropriate hourly rate tends to be fairly broad brush. The costs judge has a table of what is appropriate for a solicitor of particular seniority and needs a fairly good argument for approving or disapproving something outside that range. Therefore, for example, the court tends not to look at the actual overhead of a firm in determining whether an hourly rate is reasonable. Thus, it is immaterial that a lawyer is ‘in-house’ and has lower overheads than a lawyer in private practice.^[1811]

i. Assessment Requested by Opponent in Litigation

a. The Incidence of Costs

In the English system of litigation the fees of the winner’s lawyers are usually paid by the loser.^[1812] This is on an indemnity basis, so, the costs cannot exceed those for which the successful party would have been liable to his lawyer. Therefore, if the winner incurred no costs, none can be recovered.^[1813] This principle is incorporated in the Civil Procedure Rules (CPR). The court has discretion to order payment of costs by one party to another, the amount of those costs and when they are to be paid.^[1814]

In deciding whether to make an order for the payment of costs by one of the parties to litigation, and the proportion of costs payable, the court has regard to all the circumstances. Circumstances do not include the means of the parties, but do include their conduct. This refers to whether they succeeded in all or part of the claim, whether they were reasonable in the way they framed their case and whether they followed the relevant court procedures.^[1815] The court also considers whether either party refused reasonable offers to settle.

b. Process

The main constraint on lawyers’ costs in litigation in the English system is detailed assessment of costs by the court after the event.^[1816] The process is specified in the CPR and conducted by costs judges exercising all the powers of a court, except powers to sanction the behaviour of lawyers.^[1817] The party claiming costs submits a detailed and itemised bill. The court focuses on the costs that are specifically challenged and does not evaluate the solicitor’s bill as a whole unless this is asked for. Party and party costs are assessed on either the standard basis or the indemnity basis. The standard basis of assessment is the usual or default position. The basic difference is that, in standard assessments, the costs must be proportionate to the matter in issue. On an indemnity basis, costs need not be proportionate. In both cases the costs must be reasonable, but, in assessments on the standard basis, any doubt as to reasonableness is resolved in favour of the paying party. When costs are assessed on the indemnity basis, any doubts are resolved in favour of the receiving party. Costs on an indemnity basis are awarded only where there has been some culpability or abuse of process by the paying party. The court decides which is applicable in a particular case.

c. Recovery

Lawyers may not be able to recover all of their costs from the other side. They may then seek to recover any shortfall from clients. This shortfall is sometimes called ‘solicitor and own client costs’.

ii. Assessment Requested by Clients

This assessment of costs by the court can be applied for by the client in both conten­tious and non-contentious business.^[1818] In the assessment of solicitor and client costs, much depends on the terms of the retainer, particularly what the client instructed the solicitor to do. In general, these costs are assessed on an indemnity basis. If there is any doubt as to their reasonableness, it will be assumed they are reasonable if they were approved by the client, either expressly or impliedly.^[1819]

There are two main reasons why assessment of solicitor and client costs is rare.

The process of assessment by the court applies also to legally aided cases. The legally aided client can take part in this process if he or she has an interest in the out­come. Such an interest may arise if the client is liable for a contribution or because the client is affected by the statutory charge. The costs of the assessment will be covered by legal aid.

iii. Detailed Assessment of Costs Required by Third Parties

Third party funders of litigation are potentially liable for adverse costs up to the amount of the funding contributed.^[1821] A third party who has paid, or is liable for, the costs of an action can also apply for court assessment.

B. Control by Courts

Lord Woolf’s Report Access to Justice (1995) aimed to reduce cost, delay and com­plexity in civil cases. In his interim report Woolf concluded that ‘the present system provides higher benefits to lawyers than to their clients’.^[1822] He was sceptical that the profession was concerned about controlling costs. The Civil Procedure Act 1997 led to revision of rules of court and the introduction of the Civil Procedure Rules (CPR). The ‘overriding objective’ of the rules was enabling the court to deal with cases justly. This meant, as far as practicable, saving expense, putting the parties on an equal footing and dealing with cases proportionately bearing in mind costs and the finan­cial position of the parties.^[1823] Proportionality meant relating costs to the amount of money involved, the importance of the case, the complexity of the issues and to the financial position of each party.

Several of the 12 specific tasks identified in the CPR as part of the judges’ active case management role involved control of the amount of work done by lawyers.^[1824] Therefore, for example, the judge must decide promptly which issues need full inves­tigation and adjudication and dispose summarily of the others.^[1825] The judge must also consider whether the likely benefit of taking a particular step justifies the cost of taking it.^[1826] These measures were supplemented by further amendment of the CPR following a review by Lord Justice Jackson of the costs of civil litigation in 2010.^[1827]

i. Fixed Costs

In his review of civil procedure, Lord Woolf saw fixed fees as essential to the success of the proposed ‘fast track’ procedure for civil litigation cases. The imposition of a system of task-based fixed fees has been one of the main innovations since the intro­duction of the CPR. The system has been strongly identified with the development of automated, online claims portals. Since 2000 the CPR have increasingly introduced fixed costs especially for routine or minor steps in cases.^[1828]

In 2002 a web-based system was introduced for initiating claims. The automated claims portal with fixed fees was introduced for debts up to £100,000. This was followed by another portal for road traffic accident claims below £10,000 with fixed costs.^[1829] Following the Legal Aid and Punishment of Offenders Act (LASPO) 2012, the upper limit for such claims was increased to £25,000 and similar portals, with fixed costs regimes, were introduced for employers’ liability and public liability personal injury cases.

ii. Costs Capping Orders

The courts have increasingly used principles in the CPR to cap costs. The use of pro­tective costs orders at an early stage in civil proceedings is an example.^[1830] Cost capping orders were available for some time in judicial review proceedings.

The approach was approved by the House of Lords in Campbell v MGN (No 2),^[1831] although it cannot be retrospective and must be applied for by the parties rather than on the initiative of the court.^{[1832] [1833] [1834] The courts have been hesitant to extend the practice. In R v Secretary of State for Trade,4 it was said that a costs capping order should be made only in exceptional circumstances. In Knight v Beyond Properties Ltd,43 it was stated that, in order to contemplate such an order, there must be evidence of extrava­gance which cannot otherwise be controlled. Whether capping orders will become normal in future remains to be seen. Their use to curtail costs in cases where condi­tional fee agreements operate is considered further below.}

iii. Costs Budgeting

One of the main measures proposed by Lord Justice Jackson to increase judicial control over the increasing cost of civil litigation was cost budgeting. The CPR now require litigators to agree a realistic assessment of costs at the start of a case.^[1835] The court records such agreement or, if the budgets are not agreed, will review them and, after making any appropriate revisions, record that the budget falls within the range of reasonable and proportionate costs. If the budget changes for any reason during the case, revised budgets must be submitted.^[1836]

Early indications were that the rules would be strictly enforced. In Sylvia Henry v News Group Newspapers Ltd,^[1837] neither the court nor the other side had been informed at the correct time that the agreed costs budget had been exceeded. The successful claimant in a defamation claim was therefore denied costs of nearly £270,000 that would otherwise have been allowable.

The courts’ strict line was continued in Mitchell v News Group Newspapers Limited.^[1838] The claimant (M) was a former cabinet minister who resigned following allegations arising from an altercation with police at the gates of Downing Street. M claimed damages in a libel action against The Sun newspaper for a story it ran in connection with the incident. M’s solicitors failed to file their costs budget by the deadline. In fact they were seven days late, delivering the calculation just before the costs management conference. The excuse was that they were a small office, heavily affected by maternity leave, and had key staff engaged on another case. Their recoverable costs, estimated to run to £1 million, were capped by the trial judge at £2,000.

The Court of Appeal considered an application for relief of sanctions by Mitchell’s solicitors.^[1839] It held that courts should normally grant relief for trivial non-compliance such as a failure of form rather than substance, or where a deadline is narrowly missed. If the default was not trivial, the burden of establishing a cause for relief was on the defaulting party. The Master of the Rolls outlined the reasons for which relief is likely to be granted. These were debilitating illness or an accident, developments causing the original period for compliance to become unreasonable and reasons out­side of the party’s control. They did not include overlooking a deadline or pressure of work. The imposition of the cap on the costs of the claimant’s solicitors was therefore upheld.

In a subsequent decision it was held that this guidance had been interpreted in such a way as to produce harsh outcomes and a raft of satellite litigation.^[1840] The Court of Appeal therefore introduced a three stage test with the aim of producing greater consistency in decisions. In the first stage the court should consider the nature of the breach. If it was not serious, it would not normally be necessary to consider sanctions. In the second stage the court should consider the reason for the breach. Finally, whatever, the outcome of the other two stages, the court should consider all the circumstances in order to deal justly with an application for relief from sanctions.

iv. Interlocutory Costs Orders

Before 2000, the payment of costs awarded in interlocutory matters was postponed until the end of the case. At that stage the loser could face a bill inflated by purely tactical interlocutory proceedings. Lord Woolf considered that the award of such costs should not await the end of the case. He recommended that they be awarded at the conclusion of the interlocutory proceedings and paid forthwith. ^[1841] This principle was embodied in Rule 44.7, which provides that orders for specified costs must be paid in 14 days.

The CPR Rule 44.8, also provides that ‘the party’s legal representative must notify that party in writing of the costs order no later than seven days after the legal repre­sentative receives notice of the order’. As Cook and Hurst remarked, this rule makes clients ‘realize that their lawyers have lost a battle and they will have to put their hands in their pockets and part with their money at an early stage in the proceedings’.^[1842]

v. Wasted Costs Orders

The wasted costs jurisdiction is another method by which solicitors’ and barristers’ costs can be controlled at the behest of both their clients and the other side.^[1843] It is partly aimed at protecting third parties from inflated costs and is a jurisdiction that has greatly expanded in recent years. It is dealt with in detail in part five.^[1844]

C. Control by Clients and Funders

Corporate and commercial clients, and others with a degree of power in the lawyer and client relationship, frequently seek ways of controlling lawyers’ costs. This section outlines one of the main methods, fixed fees. This kind of fixed fee could apply to a whole case or transaction (case-based fixed fees), or simply to parts of it (task-based fixed fees).

i. Imposition of Fixed Fees

Fixed fees operate as an alternative to the hourly charge. However long a particular task takes a lawyer, he is only be paid the fixed rate for that job. This is obviously disadvantageous to lawyers, who may perform work at a loss. In 1993, the Law Society failed in an action for judicial review of the Lord Chancellor’s decision to introduce standard fees in legally aided criminal cases. Many lawyers say that legally aided work has since become unprofitable. They claim that they can often only act in the best interests of clients if they are prepared to do unpaid work.

ii. Case-based Fixed Fees

Fixed fees are attractive to clients because they know in advance what they are com­mitted to paying. From the early-1990s there was growing pressure on solicitors, from commercial clients, for fixed rather than hourly fees in other areas of work.^[1845] This was largely aimed at controlling overwork and overbilling,^[1846] which many institutions, including the judiciary, saw as endemic in the legal profession.^[1847] Large corpora­tions often produce detailed codes regulating their relationship with their lawyers. These may require them to justify their fees and to give advance warning of bills.^[1848] Increasingly, in routine transactions, like conveyancing or making wills, a fixed fee is normal.

Fixed fees also appeal to third party institutions, like government agencies, funding litigation, for example, through legal aid. The Legal Services Commission controlled costs in civil cases by contracting solicitors to do a fixed number of case starts per year for a fixed yearly fee. In addition, the Civil Justice Council aims to negotiate set fees with the major players in certain types of litigation. For example, in personal injury cases agreements are being made with insurers, employers and lawyers relating to levels of success fee in conditional fee cases.^[1849]

iii. Task-based Fixed Fees

Task based fixed fees were introduced for legally aided criminal work, in the teeth of lawyer opposition, during the 1980s and 1990s. This idea has been extended by the introduction, by LASPO 2012, of the new funding code. This means that legal aid is more likely to be available only for targeted interventions in parts of the case. These could include only one activity, for example, of initial advice, assistance at court or advocacy.

D. Regulation

i. Brief Review of Attempts to Control Costs of Solicitors

The regulation of fees and costs was historically based on an assumption of time charging and itemised billing. The Law Society, and later the SRA, offered a free review of bills under £50,000 until 1 March 20 1 0.^[1850] The procedure was only avail­able in non-contentious matters^[1851] resulting in the issue of a remuneration certificate stating the fair and reasonable charge for the work covered by the bill.

The right to seek a remuneration certificate did not apply where a non-contentious business agreement under the Solicitors Act 1974, section 57 existed.^[1852] This was an agreement made in writing between solicitor and client and signed by both. Clients could enter such an agreement without realising that they forfeited the right to use the remuneration certificate procedure. This situation was criticised by the Legal Services Ombudsman.^[1853]

Solicitors applied for the review, usually before suing the client for fees, in situations where they did not hold client money. Clients could also request a referral. A client requesting a remuneration certificate had to pay 50 per cent of the costs, plus VAT and disbursements in advance. This could be waived by the SRA. The client could not get a remuneration certificate after the expiry of the time limits, where the bill had already been paid or where a court ordered an assessment of the bill. Failure by the solicitor to comply with the certificate could result in disciplinary proceedings.

The remuneration certificate procedure was little used compared to the numbers who, in surveys, expressed concern about solicitors’ costs. This may be because the procedure was not known to clients or because clients felt that the SRA was unlikely to disagree with solicitors. In fact, of approximately 2000 bills reviewed each year, about 60 per cent were reduced.

ii. Current System

From 1 March 2010 complaints about costs were directed to the Legal Ombudsman (LeO).^[1854] Many complaints do not require a detailed cost analysis, but those that do are referred to the Senior Courts Costs Office. Where the complaint is that the fees were excessive, LeO assesses whether the costs were reasonable overall. Lawyers are asked to explain anything questionable, such as unrelated, duplicated or dispropor­tionate costs or discrepancies between estimates and final bills.

LeO can order the rectification of errors, omissions and deficiencies and require that costs are limited in amount. He can order the solicitor to make an apology or make a payment of compensation for distress or inconvenience. After two complaints have been made against a firm, LeO charges it a fee for subsequent complaints.

According to the LeO report, many of the complaints he handles about costs arise in relation to litigation and family matters. In these areas it may be difficult to give an accurate estimate at the start of the matter because costs are often dependent on the actions of the other side. LeO guidance on costs emphasises the importance of keep­ing clients updated, especially when the costs are likely to exceed an estimate or limit set by the client. Lawyers should also be clear, when a client requests work, that this is likely to take fees outside the original estimate and what additional work will cost.

V.