England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/12/2013

Mr Justice Phillips :

1. The Claimant, formerly a firm of solicitors, seeks judicial review of a decision of the Legal Ombudsman ("the Ombudsman") dated 27 September 2011. The decision directed the Claimant to limit the fees which had been charged to a client of the Claimant, Ms Vanessa Lane, for acting on her behalf in proceedings against a builder, Stephen Marshall. The Claimant had invoiced a fee of £5,000 (including VAT), but was directed to reduce its charges to £1,500 plus VAT. Permission to bring these proceedings was granted by Elizabeth Laing QC, sitting as a Deputy High Court Judge, on 20 November 2012.
2. The grounds of the challenge are (i) that the Ombudsman lacked jurisdiction to entertain a complaint in relation to the quantum of fees contractually due; (ii) that Ms Lane's complaint to the Ombudsman was out of time so that the Ombudsman did not have jurisdiction in the matter; and (iii) that the decision was irrational.

The Background Facts

3. In 2009 the Claimant was instructed by Ms Lane to act on her behalf in two sets of proceedings arising from building works which had been carried out at Ms Lane's home. The Claimant agreed to act on each claim on the basis of a conditional fee arrangement ("CFA"). The agreement in relation to the claim against Mr Marshall was contained in a letter to Ms Lane dated 10 March 2009. The letter set out that the success fee would be 67% of base costs if the case was successful before trial and 100% at trial. It also stated the following;

"Estimate

We believe that the time likely to be spent in dealing with your matter will be about 30 hours to the final hearing and estimate that your total charge and expenses will be about £5000 + VAT with disbursements. This estimate is governed by the CFA. Only in exceptional circumstances will this estimate be varied and we will inform you if it appears that any estimate may be exceeded….

If, for any reason, this matter does not proceed to completion, we will charge you for work done and expenses incurred.

We have agreed to set a limit of £5000 + VAT on the charges to be incurred. This means that you must pay those incurred up to the agreed limit without our needing to refer back to you. We will inform you as soon as it appears that the limit may be exceeded and will not exceed the limit in any event".

4. Annexed to the letter were the terms of the CFA, which included the following;

"Winning

A 'win' is defined as your claim being finally decided in your favour, whether by a Court decision or an agreement or settlement or in any way that you derive benefit from pursuing the claim……

Losing

If the outcome of your case does not fall within the definition of a 'win' then, for the purposes of this agreement, you have lost your case. If you lose you do not have to pay our basic charges but only for disbursements."

5. On 6 November 2009 Mr Marshall informed the Claimant by email that he had been made bankrupt. Mr Horsfall, a principal solicitor in the Claimant firm, immediately forwarded the email to Ms Lane, adding "no point in continuing – will speak to you…"
6. On 18 November 2009 Mr Horsfall emailed Ms Lane again, saying "I need to ask the Court for Judgment in the Marshall proceedings but not sure if you want to do this and incur the costs or just discontinue – please confirm". It is clear that this was a reference to the fact that if judgment was entered, this would count as a 'win' under the Conditional Fee Agreement, giving rise to a liability on the part of Ms Lane to pay the Claimant's base costs plus the success fee. Ms Lane replied "just discontinue if it means that I don't have to pay! Does this mean that I can't go on the list of creditors?" It is apparent from this that Ms Lane did not consider obtaining a Judgment was worth having to pay the Claimant's uplifted fees, but it is not clear whether she appreciated that she might be liable to pay the Claimant's base costs if she chose to discontinue. Mr Horsfall, however, asserts that he reached an oral agreement with Ms Lane that very day to the effect that Ms Lane would discontinue and pay £5000 including VAT in respect of the Claimant's base costs.
7. Mr Horsfall's account is supported by the fact that the following day, 19 November 2009, Ms Lane wrote to the Official Receiver lodging a claim in Mr Marshall's bankruptcy, including in her claim £6,613 (including VAT) in respect of sums due to the Claimant, being costs incurred by Mr Lane in respect of the claim against Mr Marshall. Mr Horsfall submits that this demonstrates that Ms Lane fully understood and agreed that, in discontinuing her claim (and thereby avoiding having to pay a success fee on pursuing the matter to judgment) she was incurring liability for the Claimant's base costs in the sum of £5,000.
8. On 14 December 2009 Mr Horsfall emailed Ms Lane setting out the total sums due in relation to the two matters he was dealing with on her behalf and stating 'on Lane v Marshall I have charged £5000 incl VAT as agreed'.
9. In early December 2009 Mr Horsfall was arrested and charged with money laundering offences arising from the activities of one of the Claimant's clients. Although most of the charges were ultimately not pursued, Mr Horsfall admitted one offence of fraud in November 2011, resulting in a 17 month prison sentence. He was also later struck off the roll of solicitors. In the meantime, the Claimant ceased trading on 2 December 2009 and the Solicitors Regulation Authority intervened in the Claimant's practice, taking control of the firm's files, including those relating to Ms Lane's claims.
10. As a result, it was not until 10 January 2011 that the Claimant invoiced Ms Lane for the £5000 said to be due in relation to her claim against Mr Marshall.
11. In the meantime, in February 2010, Ms Lane complained to the Legal Complaints Service ("the LCS") in respect of the Claimant's handling of both the Marshall case and the other claim arising out the works to her property, being a claim in relation to the installation of sash windows. The second claim had been settled, with Ms Lane receiving damages and her agreed costs from Tesco Personal Finance, the latter being responsible because Ms Lane had paid for the work by credit card. The LCS decided not proceed with the complaints in relation to the costs charged in relation to the Marshall claim pending the Claimant's sending invoices for those costs and closed its file. As referred to above, an invoice was sent on 11 January 2011.
12. On 26 January 2011, following receipt of the invoice, Ms Lane made a complaint to the Ombudsman (the Legal Ombudsman Scheme having replaced in the LCS in October 2010). Ms Lane alleged that the Claimant (i) had delayed in billing her; and (ii) was attempting to charge her under a conditional fee agreement notwithstanding that the case had been discontinued.
13. In June 2011 the Claimant commenced county court proceedings against Ms Lane claiming the £5,000 fee, but I am told that those proceedings were stayed by agreement and remained stayed pending the resolution of these judicial review proceedings.

The Ombudsman's Decision

14. On 19 July 2011 Mr Jas Dhami, an investigator for the Ombudsman, wrote a recommendation report in relation to Ms Lane's complaint. Mr Dhami expressed the view that the discontinuance of the claim against Mr Marshall did not fall within the definition of a "win" and was therefore a "loss" under the terms of the CFA with the result that the Claimant was not entitled to any fees and was only entitled to bill Ms Lane for disbursements. Further, he expressed the view that the time taken to render the invoice was unreasonable and amounted to poor service, although noting that the Claimant was unable to render a bill because of Mr Horsfall's imprisonment. Mr Dhami concluded that the Claimant's service had fallen short as it was trying to charge Ms Lane where the CFA did not show an obligation to pay. He recommended that the Claimant be required to waive their bill in its entirety.
15. The Claimant responded to the recommendation, contending that it was not for the Ombudsman to determine entitlement to a fee as a matter of contract and that the decision to waive the entire fee was not justifiable on the grounds of delay in rendering the invoice. The Claimant also took the point that the complaints were time barred under the Ombudsman's scheme.
16. The Ombudsman issued a provisional decision on 1 September 2012 in which she did not follow the recommendation in Mr Dhami's report but instead directed that the fees of the Claimant should be limited to £1,500 plus VAT 'in recognition of the way that [the Claimant] dealt with the costs of [the] claim against Mr Marshall'. The reasoning of the Ombudsman, addressed to the Claimant, was as follows:

"There is a significant disagreement between you and Ms Lane as to how the CFA came to an end and whether she is now liable for costs. Your firm did not enter judgment against Mr Marshall and so there was no "win" under the CFA. Had you done so then I accept that Ms Lane would then be primarily liable for costs if they could not be recovered from Mr Marshall. As Mr Marshall was bankrupt this would have seemed improbable and so this was a risk.

It is clear that, instead Ms Lane agreed to discontinue the proceedings. I note that you contend that Ms Lane discontinued and that in accordance with the standards terms governing a CFA she is now liable for your costs I have not seen the evidence as to what advice you gave Ms Lane regarding her liability for costs on this point but it is usual under a CFA that if the client discontinues, they become liable for costs.

Ms Lane had stated strongly that she did not decide to end the CFA but simply followed your advice and as such you effectively discontinued the CFA and therefore she is not liable for any costs. The evidence also shows that Ms Lane made it clear that she wished to discontinue on the basis that she did not have to pay.

However I note that Ms Lane wrote to the Official Receiver …. This letter lends weight to your firm's claim that she had agreed to pay legal fees of £5,000 plus VAT and that she was now seeking recovery of these fees…on that evidence I consider that she had accepted that they were due.

However my role is to decide what is fair and reasonable and that includes considering the circumstances in which this liability arose. There is limited evidence available regarding this matter but I have seen no evidence that your firm fully advised Ms Lane regarding the decision to end the CFA or that you explained the financial implications of doing so. I also have to take into account that this liability arose in 2009 but that your firm have only just sought recovery fees. I note that you have been in prison for some of this time but nevertheless I consider that your firm could have made arrangements to deal with this issue sooner. For that reason I have decided that your firm's fees should be limited to £1,500 plus VAT.

Because aspects of this differ from the remedy suggested in the recommendation report, I am giving you an opportunity to comment. Please let me have your comments by 16 September 2011. Once I have received your comments, I will make my formal decision. If you choose not comment, my formal decision is unlikely to change. "

17. Despite being afforded the opportunity to do so, the Claimant did not make any comment on the provisional decision, which was made final by the Ombudsman's letter of 27 September 2011.

The Grounds Of Challenge

(a) The Substantive Jurisdiction of the Ombudsman

18. Mr Horsfall, whom I permitted to make submissions on behalf of the Claimant as its managing director, argued that Ms Lane's complaint that the Claimant was not entitled to £5,000 under the CFA was not within the jurisdiction of the Legal Ombudsman Scheme, but was a purely contractual dispute concerning the terms originally agreed between the parties and a subsequent agreement between them. He argued that the Ombudsman did not have the power to determine that contractual dispute nor to direct that a contractually agreed sum be reduced on a non-contractual basis.
19. The jurisdiction of the Legal Ombudsman Scheme is derived from the Legal Services Act 2007 ("the Act"). Section 113 of that Act provides as follows:

"(1) this part provides for a scheme under which complaints which –

(a) relate to an act or omission of a person ('the respondent') carrying on an activity, and

(b) are within the jurisdiction of the scheme (see section 125),

may be resolved quickly and with minimum formality by an

independent person."

20. The Claimant accepts that the basic jurisdictional requirements set out in s.125 and s.126 of the Act are satisfied in relation to the complaint. Mr Horsfall's argument is based on s.125(1)(a), which provides that the Ombudsman has jurisdiction if a complaint is not excluded by scheme rules made under section 127 of the Act. Mr Horshfall relies upon rule 2.8 of the Legal Ombudsman Scheme Rules ("the Scheme Rules"), which provides that 'the complaint must relate to services which the authorised person provided….' He contends that the effect of this provision is to limit the jurisdiction of the Ombudsman to 'service complaints', being complaints about the standard of service provided by a solicitor to a client, and to exclude issues about whether a sum is contractually due.
21. In my judgment Mr Horsfall's contention fails for two reasons. First, rule 2.8 does not provide that complaints must be "about" services provided, let alone about the standards of service. In referring to complaints which "relate" to services provided, the rule uses an expression which is well understood to have a wide ambit. Contrary to Mr Horsfall's submission, there is no reason to read into the rule an exclusion of complaints relating to the amount charged for services, including whether the amount charged is contractually due and owing: it would be an artificial and unworkable distinction if the Ombudsman could consider the quality and levels of services but not issues of wrongful charging or overcharging. It is noteworthy that s. 137(2) of the Act provides that the Ombudsman may direct that the fees to which a respondent is entitled are limited to a specified amount. That would be a difficult provision to apply if the Ombudsman could not consider what was the correct contractual starting point before making such a determination.
22. Second, the Ombudsman's final decision in this case was, in any event, firmly based on a consideration of the level of service which the Claimant provided to Ms Lane in the context of advising her on her liability of fees under the CFA and the consequence of discontinuing the proceedings, as well as the delay in invoicing her. I see no basis on which that approach could be said to be outside the jurisdiction of the Ombudsman, even if, contrary to my finding above, the jurisdiction of the Ombudsman was restricted in the manner for which the Claimant contends.
23. Mr Horsfall made a related complaint that, as the Claimant challenged the jurisdiction of the Ombudsman following the Recommendation Report, the Ombudsman was obliged under rule 5.4 of the Scheme Rules to give the Claimant an opportunity to make representations before making a decision. Mr Horsfall contended that there was no such process engaged in this case. I do not accept that contention. The Claimant had the opportunity to make representations both after the recommendation report and after the provisional decision, but in the latter case declined to do so, apparently (so Mr Horsfall told me) because the Claimant did not wish to 'submit' to the Ombudsman's jurisdiction. Whether that was the reason (and it is difficult to understand how it arises as a matter of law or logic), the fact remain that the Claimant had ample opportunity to make representations on any issue before the Ombudsman made her final decision.
24. In the circumstances I reject the Claimant's contention that the complaint did not fall within the Ombudsman's jurisdiction.

(b) Time Limits

25. Mr Horsfall submits that, to the extent that the Claimant's complaint been treated by the Ombudsman as relating to the advice and service she received in and about deciding to discontinue her claim against Mr Marshall in November 2009, that complaint was time barred when lodged in January 2011, being more that one year after the relevant act or omission (Mr Horsfall accepts that the complaint in relation to the late service of the invoice was not out of time).
26. Section 133 of the Act provides as follows:

"(2) The Scheme Rules-

(a) must provide that the complaint is to be entertained under the ombudsman scheme only if the complainant has made the complaint under that scheme before the applicable time limit (determined in accordance of the scheme rules) has expired, and

(b) may provide that an ombudsman may extend that time limit in specified circumstances."

27. Rule 4.5 of the Scheme Rules provides as follows:

"Ordinarily, a complainant must … refer a complaint to the Legal Ombudsman within:

a) one year from the act / omission; or

b) one year from when the complainant should reasonably have known there was cause for complaint without taking advice from a third party;

which ever is later. "

28. Rule 4.7 of the Scheme Rules provides as follows;

"If an Ombudsman considers that there are exceptional circumstances, he/she may extend any of these time limits to the extent that he/she considers fair."

29. In my judgment, this ground of challenge is also without merit. First, where a client complains about the manner in which a solicitor has dealt with him in relation to charging, the conduct in question must be part of a continuing course of conduct, continuing until (and only crystallising as and when) the solicitor submits a fee note relating to the fees in question. Further, the client cannot reasonably have known that there was a definite cause for complaint unless and until the Solicitor does indeed invoice for the fees in respect of which the complaint is made: prior to that, there is merely a potential cause for complaint, which may never materialise if the solicitor thinks better of the matter. To require a client to bring complaints in relation to poor service or poor advice in relation to ongoing fees prior to being invoiced for those fees would be unrealistic and indeed absurd. Such an interpretation of the Scheme provisions in my view is not warranted.
30. Second, this is a case in which it would undoubtedly have been be appropriate, had it been necessary, to have extended the time limits for bringing a complaint, both because of the late submission of the invoice and because of the earlier dealings with the LCS. In those circumstances, and as Mr Horsfall accepted in argument, it would be pointless for this Court to quash the Ombudsman's decision on the basis that the claim complaint was out of time when it is clear that Ombudsman would be entitled to, and inevitably would, extend time for making the complaint and re-issue her original decision.

(c) Irrationality

31. Mr Horsfall argues that the Ombudsman's decision was irrational because it failed to recognise and reflect that the £5,000 fee was not just a sum due under the contract between the Claimant and Ms Lane but was an agreed settlement figure. Further, Mr Horshall contends that no reasonable tribunal would have reduced that contractually agreed sum to nothing or next to nothing.
32. Mr Horsfall's complaints might well have had some force had the Ombudsman adopted the reasoning in the recommendation report. That report reached a conclusion about what fees were contractually due which was at least arguably wrong as regards the original terms and failed to recognise that there appeared to have been an agreement between the claimant and Ms Lane as to what should occur in relation to the claim and the fees on or about 18 November 2009.
33. However, the Ombudsman's decision largely accepted the Claimant's analysis of the contractual arrangements and the liability of Ms Lane as a matter of strict contractual analysis. The decision was based firmly upon the Ombudsman's assessment of the manner in which the Claimant dealt with Ms Lane's liability for costs and the financial implications of discontinuing. It is certainly the case that the contractual arrangements set out in the retainer letter and the attached CFA were confusing and open to more than one interpretation. In my judgment it was entirely open to the Ombudsman, exercising her wide discretion as to what is fair and reasonable in all the circumstances (being the test set out in s. 137 of the Act and rule 5.36 of the Scheme Rules) to take into account the fact that there appeared to have been little or no explanation or advice provided to Ms Lane in relation to such matters in November 2009. The fact that the Claimant procured that Ms Lane entered a settlement agreement with the Claimant at the same time as discontinuing her claim against Mr Marshall does not remove (and possibly increases) the concerns that she was not properly advised as to her right and liabilities by the Claimant. In that context it is impossible to say that the Ombudsman's view of what was fair and reasonable in all the circumstances, including the amount by which the Claimant's fees should be reduced, was wrong let alone irrational. I see no basis for overturning her decision on that ground.
34. It is fair to say that the Ombudsman's approach in her decision in the provisional decision letter differed significantly from that taken in the recommendation report, but there is no doubt that the Ombudsman was entitled to determine the complaint on a basis she considered to be fair and reasonable, having given the Claimant a fair opportunity to comment on the revised approach. I can see no merit in the criticisms the Claimant has made of the procedural approach the Ombudsman adopted.
35. Mr Horsfall advanced subsidiary arguments that there had been procedural unfairness in relation to the Claimant's jurisdictional arguments or otherwise that the Claimant's legitimate expectation that it would be permitted to make representations in that regard had not been met. However, for the reasons set out above it is clear that the Ombudsman gave full provisional reasons for her decision and permitted the Claimant every opportunity to comment. I find there is no merit in any of the procedural complaints.

Conclusion

36. It follows that this claim will be dismissed with costs.
37. The Claimant was successful in a parallel claim against the Ombudsman (CO/2438/2012) and has been awarded his costs of that claim, the Consent Order dated 24 October 2013 providing that there be a summary assessment of those costs to be listed with the judgment in these proceedings. I would invite the parties to attempt to agree the costs in relation to each set proceedings, alternatively a net overall figure.