Kerry Underwood

CONDITIONAL FEE AGREEMENTS AND INTERIM STATUTE BILLS

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Discounted conditional fee agreements and interim statute bills

 

In Sprey v Rawlison Butler LLP [2018] EWHC 354 (QB)

 

the court considered whether monthly bills delivered by a solicitor to his client under a discounted conditional fee agreement were “statute bills”, and therefore capable of detailed assessment under section 70 of the Solicitors Act 1974.

 

A solicitor’s retainer is an entire contract and usually the solicitor is entitled to be paid by the client only at the end of the retainer, such as at the conclusion of the litigation.

 

 

There are two exceptions to this:

 

 

  • where the solicitor and client have agreed that the solicitor may render interim bills;

 

  • at a natural break in lengthy litigation (Re Romer & Haslam [1893] 2 QB 286).

 

 

 

Agreement may be inferred from conduct, such as where the solicitor renders interim bills which the client accepts and pays (Abedi v Penningtons [2000] 2 Costs LR 205).

 

Here, the court said that the construction of the Conditional Fee Agreement did not permit or anticipate the rendering of interim statute bills.

 

Clause 11.1 under the section “Right to apply for an assessment” gave a clear indication that the invoices were not statute bills, as it said that the client had the right to challenge the bills under Section 70 of the Solicitors Act 1974, which was described as the “right to assessment by the court of the amount of the fees, Success Fee and/or Disbursements which are payable by the client under this agreement”.

 

The court said that unless those three items, that is fees, success fee and disbursements, were read separately, that is disjunctively, then the right to challenge them arose only at the end of the case.

 

Thus the interim bills were not statute bills, but rather requests for payment on account, or, in the circumstances, Chamberlain bills – see below.

 

There were other clauses which referred to fees being payable upon the final result of the claim.

 

 

A bill rendered by a solicitor to his client may be one of three things:

 

 

  • a “statute bill” (or, if the solicitor is entitled to render interim bills, an “interim statute bill”), that is, a final bill for the period that it covers, which complies with the requirements of the Solicitors Act 1974 (SA 1974), can be sued on by the solicitor (under section 69) and which is capable of detailed assessment under section 70;

 

  • a request for payment of a sum on account;

 

  • a “Chamberlainbill”, that is, a series of bills which become a statute bill only upon delivery of the last (after Chamberlain v Boodle & King [1982] 1 WLR 1443).

 

 

 

A statute bill cannot subsequently be amended without the consent of the parties or an order of the court, which will be granted only in exceptional circumstances (Polak v Marchioness of Winchester [1956] 1 WLR 819).

 

Statute bills are final bills in respect of the work that they cover, in that there can be no subsequent adjustment “in light of the outcome of the business”.

 

 

They are complete, self-contained bills of costs to date (Bari v Rosen [2012] EWHC 1782 (QB)).

 

Applications by a former client for an order for detailed assessment of the solicitor’s bill under section 70 of the SA 1974 are subject to time limits, as follows:

 

If the application is made more than 12 months after the client has paid the bill, no order can be made (section 70(4)).

 

If the application is made more than 12 months after the bill is delivered, or after the bill has been paid (but within 12 months of payment), the client must show special circumstances (section 70(3)).

 

 

If the application is made within 12 months of delivery of the bill, the court may impose terms when making an order for assessment, unless the application was made within one month of delivery, when it may not (section 70(2)).

 

 

If the client can show that the invoice or bill was no more than a demand for a payment on account, then he or she will be able to await the production of a statute bill and then make a request for an assessment within the time limits set out in the SA 1974.

 

 

In Richard Slade & Co Solicitors v Boodia and another [2017] EWHC 2699 (QB)

 

 

Slade J held that bills submitted by the claimant firm had not been statute bills.

 

The firm had invoiced monthly for profit costs but had invoiced separately, and later, for disbursements incurred in periods already billed.

 

To constitute a bill of costs under section 70 of the SA 1970, an interim statute bill had to represent the totality of the costs incurred or payable in respect of the period of the bill to enable the client to decide whether to exercise their right to challenge the amount.

 

 

At paragraph 33 of her judgment, Slade J said:

 

 

“The period within which a client can seek an assessment of costs runs from delivery of the bill. On the facts of this case none of the bills contained both profit costs and disbursements. On the defendant’s argument time for applying for an assessment of the bills runs from the date of delivery of each monthly profit costs bill. The court would be asked to make an assessment without knowing what disbursements had been paid or were liable to be paid by the solicitor in respect of the same period. In my judgment such an exercise would be contrary to the provisions of s.70 which by s.70(5) give the court not the parties a discretion to order separate assessments of profit costs or other costs within a bill. Further, as Mr Dunne submitted, to undertake an assessment of profit costs without knowing what disbursements were for the same period may deprive the client [of] the information on which to decide whether to challenge the profit costs bill for, for example, duplication of work by solicitor and counsel.”

 

 

 

And at 56:

 

 

 

“The Master was bound by statute as explained in authority to hold that an interim statute bill must contain a bill of all costs including profit costs and disbursements in respect of agreed periods of time. Any practical difficulties which this requirement may cause to the solicitor are outweighed by the certainty given to the client, safeguarded by statute and authority, of knowing the total amount of costs they are being asked to pay. The client needs to know the total costs incurred over a certain period to enable them to form an evidenced based view of whether to exercise their right under s.70 to challenge the bill. The right of a client to apply for assessment under s.70 is time limited. After expiry of the specified time limit that right is lost as is asserted by the defendant in respect of the majority of bills in this case. The treatment of incomplete bills of costs as statutory bills could lead to a multiplicity of applications under s.70 merely to preserve the client’s right to apply for assessment”.

 

 

 

Comments:

 

It is unclear from the judgment as to whether a bill delivered during a no win lower fee case can ever be a statute bill.

 

Although the court said that here the wording of the Conditional Fee Agreement was inconsistent with the ability to deliver interim statute bills – a highly questionable conclusion which disagreed with the decision of the Costs Master – it is open to question whether a different wording would have made any difference.

 

This is due to the line of authorities that says that a client does not need to decide whether to challenge the bill until she/he knows the full amount, which in a conditional fee case will not be until the end.

 

That makes no sense.

 

A client paying an hourly rate, win or lose, can be subject to interim statute bills even though s/he will not know until the end of the case how much the total will be.

 

Why should a no win lower fee client, paying a lower sum unless the case is won, be in a better position?

 

In any event, the client can calculate what the fee would be in the event of success.

 

Here the discounted fee was 40% of the full fee, with a 50% success fee.

 

So, if an interim statute bill of £40 is delivered, then the client knows the extent of the costs if the case is won:

 

 

£

Balance of fee                                                                      60

 

50% success fee on the full fee of £100                    50

 

Total                                                                                     110

 

 

 

This is a wrong decision.

 

 

Solicitors act assessments: interim statute bills: Conditional Fee Agreements

 

In Richard Slade and Company v Boodia and Boodia [2017] EWHC 2699 (QB)

 

the Queen’s Bench Division of the High Court, in an appeal from the Senior Courts Costs Office, upheld the Cost Master’s finding that interim statute bills must include disbursements.

 

As they had not done so here, they were not interim statute bills, and thus were not final bills for the period described, because not all of the costs were included in the bill.

 

Consequently the clients were not time-barred from seeking Solicitors Act Assessments for all 61 invoices involved.

 

The term “interim” statute bill is a little confusing as in fact the whole point of such a bill is that it is final and complete for the period it covers. That finality and completeness allows solicitors to sue on the bill pursuant to the provisions of Section 69 of the Solicitors Act 1974, but prevents the solicitor from charging any further fees for that period.

 

Thus finality and certainty is there for both parties and a client can decide whether or not to pay or dispute the bill.

 

The Shorter Oxford English Dictionary definition of “interim” is:

 

 

“A thing done in an interval; an interlude”

 

 

and thus the description is technically correct as, in the absence of contractual entitlement to the contrary, an interim statute bill can only be delivered when there is a natural break, or interlude, in the proceedings.

 

In fact most solicitor and client retainers create a contractual right to deliver an interim statute bill at any time.

 

However the other dictionary definition of “interim” is:

 

 

A temporary or provisional arrangement”

 

 

and that is where the potential confusion arises as in relation to that period, the whole point is that the bill is a final and permanent arrangement for that time.

 

The courts have long realised that the wording is somewhat unfortunate. In

 

Bari v Rosen (trading as RA Rosen & Co Solicitors) [2012] 5 Costs LR 851

 

the court said

 

“15. … a solicitor may contract with his client for the right to issue statute bills from time to time during the currency of the retainer. Such bills are known as “interim statute bills”. They are nevertheless final bills in respect of the work they cover, in that there can be no subsequent adjustment in the light of the outcome of the business. They are complete self-contained bills of costs to date.”

 

 

Here the High Court adopted that wording and reasoning.

 

It is important to note the wording that “there can be no subsequent adjustment in light of the outcome of the business.”

 

Thus if a bill is genuinely an interim statute bill charged at the discounted rate in a No Win Lower Fee Agreement, then there can be no subsequent further charge.

 

Here the court did briefly refer to the situation in a Conditional Fee Agreement case saying:

 

 

“The only potentially practical difficulty would be in a CFA case. Until the outcome of the case was known the client’s liability for costs could not be determined. However, where a decision was to be made between an interpretation that caused inconvenience to a solicitor and one which caused prejudice to a client, the client’s interest prevails.”

 

 

The point here is that generally a solicitor can deliver an interim statute bill, as they will know the work done to date and any disbursements incurred, and thus a final interim statute bill can be delivered and the client has to pay it and the solicitor can sue on the bill if it is not paid.

 

Obviously that cannot be done in a conditional fee case, as the final bill for that period will not be known until the case is concluded.

 

It is also most important that solicitors in conditional fee cases, whether No Win No Fee or No Win Lower Fee cases, make it clear when delivering a disbursements only bill, that it is not an interim statute bill. Otherwise it may be found that the solicitor can deliver no further charges for that period, and thus cannot charge profit costs.

 

Proper wording of the bill avoids that problem, but creates another problem, namely that the solicitor cannot sue on an interim on account bill as compared with an interim statute bill.

 

Thus it is essential to obtain payment on account of such costs, and then an interim on account bill can be delivered and the costs transferred from client account to office account to discharge that bill.

 

Generally, care needs to be taken when delivering an interim statute bill to ensure that all disbursements to date are included.

 

There is an obvious problem in relation to counsel’s fees in that counsel may be carrying on work generally and not have delivered a fee note for work done to date.

 

This is recognised in the judgment where the court says:

 

 

“54. Master James recognised in paragraph seven of her judgment the practical difficulties of obtaining and including disbursements such as fees for counsel and experts to coincide with the period in time to which a solicitor’s fees relate. The Master recognised that her answer that interim non-statute bill could be rendered carried the disadvantage by reason of Section 69 their payment cannot be enforced by taking proceedings.”

 

 

Depending upon the circumstances of the funding arrangement and the case, sometimes solicitors will want an interim bill to be a final statute bill for that period, and sometimes they will not.

 

The benefit of having a final interim statute bill is that the solicitor can sue on it and the client has strict time limits in which to challenge the bill under the Solicitors Act 1974.

 

The disadvantage from the solicitor’s point of view is that they cannot revisit the work done in that period, and thus it must be a carefully calculated and costed bill for work done during that period.

 

Thus if a solicitor, in a long ongoing matter, simply wishes to bill say £2,000.00 a month and then adjust the total each year, or at a natural interlude, or at the end of the case, then the solicitor must ensure that it is not an interim statute bill.

 

Perhaps the most significant area where solicitors must ensure that the bill is not an interim statute bill is where they are acting on No Win Lower Fee basis and thus charging the client the discounted fee as the matter proceeds, but with the right to charge the full primary fee, plus a success fee if appropriate, in the event of a successful outcome.

 

Let us assume the solicitor is charging £400.00 an hour, discounted to £200.00 an hour in the absence of access, and with a 100% success fee.

 

10 hours’ work is done and the matter is continuing.

 

The correct level of the bill is £2,000.00, reflecting the discounted rate, payable even in the event of defeat.

 

However, the solicitor will potentially be charging a further £600.00 an hour for that work, being the primary rate of £400.00 an hour plus a 100% success fee of £400.00 an hour, bringing the total up to £800.00 an hour, of which £200.00 per hour has been paid.

 

In those circumstances, which will become increasingly common in general civil and commercial work once fixed costs are extended, it is crucial that the bill delivered is not a statute bill.

 

Such bills are in fact “on account” bills and this should be made clear in the text of the bill.

 

Furthermore the bills should not refer to Solicitors Act assessments as that indicates that they are statute bills. That was the case here but the court held that it “would be reluctant to make a finding of a fatal flaw in the retainer” for that reason.

 

Where there is a series of interim, and not statute, bills delivered as part of a running account in respect of one piece of work, then the time for requesting assessment, and the time from when the solicitor can sue on the bills, runs from the date of delivery of the final, statute, bill.

 

Such a bill is known as a Chamberlain Bill, following the case of

 

Chamberlain v Boodle and King [1982] 3 All ER 188.

 

 

Here the court examined the authorities and stated that in order for a bill to be a statute bill, whether interim or final, it “must be complete, self-contained and final in relation to costs to date.”

 

A solicitor may render a bill and a client may pay that bill without it constituting a statute bill – see paragraph 22.

 

That is what is happening when a bill for the discounted element of the fee in a No Win Lower Fee Agreement is delivered and paid.

 

The assumption, as here, is that a solicitor will want any interim invoice to be an interim statute bill so that it can be sued upon and so that the client’s time for applying for an assessment starts to run.

 

However with conditional fee cases exactly the opposite is true.

 

 

In practice

 

Do not have the wording about the right to a Solicitors Act 1974 assessment on an “on account” bill.

 

Although it is not strictly necessary to include all disbursements for the relevant period in an “on account” bill, it is good practice.  It also avoids a client saying something to the effect of “I knew there would be more legal costs payable if I won, but I thought that all the disbursements were already dealt with as I was paying those as we went along, win or lose.”

 

Include in an on account bill wording along the following lines:

 

This is an interim on account bill. It is not a final bill for the work done during the period covered by this bill.

 

We reserve the right to deliver an additional, final, bill at the end of the matter.

 

Your time for challenging our costs and for applying for an assessment under Sections 70,71 and 72 of the Solicitors Act 1974 does not start until that final bill has been delivered.

 

We will advise you of your rights when we deliver that final bill.”

 

The following wording could be used for a Conditional Fee Agreement case, suitably adapted to effect the terms of the Conditional Fee Agreement:

 

This Interim on account bill represents the fees payable in any event, whether you win or lose your case and full details of the work done [are contained in this on account bill][are available on request][are contained in the attached schedule] and please ask us if you want any more information about that work.

 

These fees are calculated at the discounted rate in the Conditional Fee Agreement. If the case is won then you pay the full primary rate, together with a success fee”

 

[As the discounted rate is 50% of the full primary rate, then if you win the case you will pay the same sum again, being the difference between the primary rate and the discounted rate.

 

In addition, you will pay a success fee of []% on that full primary rate giving a further fee of [insert amount].

 

So, if you win, you will pay a further [Insert amount] in fees over and above the amount contained in this bill.

 

[However, the total charged to you, including this bill, is capped at []% of [damages][damages recovered].

 

This bill [does][does not] include all disbursements to date.

 

 

Theoretically, I think it possible to deliver a final interim statute bill for the discounted fee in a Conditional Fee Agreement, which would finalise the client’s liability in the event of defeat and enable the solicitor to sue on that element of the bill.

 

An additional bill could then be delivered on the basis that that is a free standing contractual entitlement to the balance of the full primary fee, plus the success fee.

 

However, given the fact that the Solicitors Act did not envisage Conditional Fee Agreements, and there is no authority on the point, I advise against such a course of action.

 

In any event if a solicitor is suing a client for the discounted fee part way through the case, it is hard to see how the solicitor client relationship could be one allowing the solicitor to continue to act until the end of the case.

 

 

 

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Written by kerryunderwood

June 11, 2018 at 8:28 am

Posted in Uncategorized

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