SECTION 74: KEY COSTS LAW YOU HAVE NEVER HEARD OF
Few lawyers realise that they are not allowed to charge a client anything beyond costs recovered from the other side in any County Court matter, even a multi-track matter, unless they have the client’s written agreement expressly permitting a greater amount to be paid.
This becomes of greater importance as fixed costs spread to all types of work and with a higher damages limit.
In the absence of this wording, solicitors, and indeed counsel, are limited to the costs recoverable from the other side.
In a small claim this is virtually nothing and in any portal or fixed costs claim it is uneconomic.
In any other case it effectively means that the maximum charge to the client is the guideline hourly rate for the particular level of fee earner and the particular geographical area.
In the event of defeat the same rules apply as the law is that the charge to the client cannot exceed the amount which “could have been allowed in respect of that item as between party and party in those proceedings”.
Thus had the matter been won, that charge could have been allowed and therefore the lawyer is allowed to charge in the event of defeat.
This has been the law for a long time. The relevant legislation is Section 74 of the Solicitors Act 1974.
Section 74 of the Solicitors Act 1974
Section 74(3) of the Solicitors Act 1974 provides:-
“(3) The amount which may be allowed on the assessment of any costs or bill of costs in respect of any item relating to proceedings in a county court shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.”
This is an important and little known provision, which on its face prevents a solicitor charging any client any element of solicitor and own client costs in any County Court matter, including small claims, fixed costs matters as well as non-fixed costs matters in both the fast-track and multi-track in the County Court.
It allows a charge on defeat, but only to the extent that between the parties recovery would have been made in the event of a win.
However Section 74(3) has the escape clause “except in so far as rules of court may provide otherwise…”
CPR 46.9 reads:-
“Basis of detailed assessment of solicitor and client costs
(1) This rule applies to every assessment of a solicitor’s bill to a client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 or by the Lord Chancellor under Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
(2) Section 74(3) of the Solicitors Act 1974 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.
(4) Where the court is considering a percentage increase on the application of the client, the court will have regard to all the relevant factors as they reasonably appeared to the solicitor or counsel when the conditional fee agreement was entered into or varied.”
Thus the Act, read in conjunction with this rule, does allow the solicitor to charge the client more than would have been recovered, but only if there is a written agreement expressly permitting payment of a greater sum.
CPR 46.9(4) refers to Conditional Fee Agreement success fees.
The appropriate wording should go in every retainer/Client Care Letter/agreement dealing with County Court or potential County Court litigation.
I suggest the following wording:-
“Section 74 Solicitors Act 1974 agreement
This agreement expressly permits the solicitors to charge an amount of costs greater than that which you will recover or could have recovered from the other party to the proceedings and expressly permits payment of such sum.
This part of this agreement is made under section 74(3) of the Solicitors Act 1974 and Civil Procedure Rules 46.9 (2) and (3).
In so far as any costs or disbursements are of an unusual nature or amount these costs might not be recovered from the other party.”
This law only applies to County Court matters and therefore this wording does not have to be put in matters which do not come before the County Court, for example CICA claims.
There is a circular argument as to whether this clause needs to be in a Contingency Fee Agreement covering pre-issue of proceedings. By definition the Contingency Fee Agreement covers pre-issue work and if proceedings are issued then the Conditional Fee Agreement is in place from day one.
However if the matter is settled pre-issue and costs are sought from the other side, with an additional charge to be made to the client as is usual, then it is arguable that on assessment the client could rely upon Section 74(3) in the absence of this clause being.
The counter-argument is that it is not contentious business and Section 74(1) specifically applies only to contentious business.
It is simply not worth taking the risk. Include the wording.