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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE
(Master Rowley)

		Royal Courts of Justice Strand, London, WC2A 2LL
		26 February 2018

The Honourable Mr Justice Nicklin :

1. The principal issue in this appeal is whether the monthly bills delivered by a solicitor to his client under a discounted conditional fee agreement are 'statute bills' and therefore capable of detailed assessment under s.70 Solicitors Act 1974.
2. On 13 September 2017, Master Rowley decided that the relevant monthly bills served by the Respondent solicitors in this case were 'statute bills' and, in consequence of the passage of time since their original service, the Appellant had lost the right to seek a detailed assessment of some of those bills. With the permission of the Master, the Appellant seeks to appeal that decision.

Solicitor and client

3. A solicitor's retainer is an entire contract and, in the ordinary way, the solicitor is entitled to be paid by the client only at the end of the retainer (whether the completion of the transaction or the conclusion of the litigation). There are two exceptions: (1) where the solicitor and client have agreed that the solicitor may render interim bills; and (2) at a natural break in lengthy litigation: In 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.
4. A bill rendered by a solicitor to his client may be one of 3 things:

(1) 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, which can be sued on by the solicitor (under s.69) and which is capable of detailed assessment under s.70.

(2) A request for payment of a sum on account.

(3) A "Chamberlain bill", 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).

5. 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); [2012] 5 Costs LR 851 [15].
6. Applications by a former client for an order for detailed assessment of the solicitor's bill under s.70 Solicitors Act 1974 are subject to time limits. If the application is made more than 12 months after the client has paid the bill, no order can be made: s.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: s.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 1 month of delivery, when it may not: s.70(2).

The costs proceedings

7. The Respondent firm of solicitors acted for the Appellant in a claim for damages for professional negligence. From January 2012 to March 2013 they acted under a conventional retainer. From March 2013 to September 2015 they acted under a discounted conditional fee agreement ("CFA"). The Appellant and the Respondent parted company and the Appellant instructed new solicitors. The Appellant's claim was ultimately settled in October 2015 for £525,000 inclusive of costs.
8. The CFA provided that the Appellant would be liable to pay the Respondent at discounted rates (40% of the normal rates) if he lost the claim. If he won, he was liable to pay the Respondent at their normal rates plus a success fee of 50%.
9. The Respondent billed the Appellant monthly, at the full rate during the conventional retainer, and at the 40% discounted rate during the period covered by the CFA ("the 40% invoices"). In October 2015, the Respondent billed the Appellant for the balance between the normal rate and the discounted rate ("the balancing invoice") and, in January 2016, for the success fee. The Appellant paid all of the bills apart from (a) the last four of the 40% invoices, (b) the balancing invoice and (c) the success fee.
10. The Appellant applied for an order for assessment of all of the bills, but later withdrew his claim for assessment of the 13 bills that had been delivered under the conventional retainer. In relation to the 40% invoices, Master Rowley concluded that they were interim statute bills. On that basis, those rendered between March 2013 and September 2014, which had been paid more than 12 months before the application was issued (13 November 2015), were out of time and no order could be made for their assessment. The Master ordered that the bills dated from September 2014 should be the subject of assessment. He found special circumstances for the assessment of the 9 bills delivered more than 12 months before the application was issued (but paid within that 12 months) and directed that a further £10,000 be paid by the Appellant on account of the 3 unpaid discounted bills delivered less than 12 months but more than one month before the issue of the application. In respect of the balancing invoice he directed that, for the period covered by the time-barred bills, the assessment would be limited to the reasonableness of the hourly rate (and not the reasonableness of the time/work done).

The Appeal

11. The Appellant challenges the Master's decision on three grounds. He contends that the Master was wrong to find:

i) that the 40% invoices were interim statute bills because such invoices "were not intended to be and could not have been final bills in respect of the work covered by them";

ii) that the Respondent firm had the right to deliver interim statute bills under the CFA; and

iii) that the balancing invoice could not be assessed by reference to the reasonableness of the work done where that work was covered by earlier (time-barred) invoices.

12. The third ground only arises if the Appellant fails with the first two grounds.

Did the agreement allow the solicitors to render interim statute bills under the CFA?

13. Logically this issue comes first. If the agreement between the parties did not permit the rendering of interim statute bills, then that would be the end of the matter.
14. The 'client care' or as it was called 'engagement' letter, sent by the Respondent firm to the Appellant on 23 January 2012 ("the Client Care Letter"), so far as material, provided:

"Billing and Credit Control

… We operate a strict credit control policy and if invoices are not settled, or payments on account are not made when required we will cease acting for you. In addition, we may set limits on accrued work in progress and disbursements and/or ask you for payments on account."

15. Included with that letter were the Respondent firm's standard terms of business. In the section 'Fees', it included:

"Payment: unless we agree otherwise, we will invoice you monthly. Invoices are payable on delivery. Accounts unpaid for more than 28 days will accrue interest at the rate payable on Judgment Debts…

Payment on Account: we may … ask for money on account of fees and disbursements. If so, we will not do any work or incur disbursements until we have received that sum on account. If you fail to make a payment on account or pay our invoices we will stop acting for you. We undertake further work only on the strict condition that you agree to pay our outstanding invoices, thereby constituting a binding agreement between us that our outstanding invoices be treated as liquidated debts…"

16. The CFA was agreed on 22 March 2013. I have been referred to the following parts of the CFA:

i) Under the section "Fees and Disbursements":

4.1 The provisions of the engagement letter dated 23 January 2012 between the Client and Rawlison Butler LLP in respect of the Claim ("the Engagement Letter") will continue to apply, save as varied by the terms of this Agreement from the date stated at the beginning of this Agreement^[1] … In the event of any inconsistency between the Engagement Letter and this Agreement, the terms of this Agreement shall prevail.

4.2 Under this Agreement, Rawlison Butler LLP's fees are calculated by reference to the hourly rates set out below. These hourly rates will be reviewed periodically to reflect increases in overhead costs and inflation. Normally the rates are reviewed annually with effect from 1 April each year. Rawlison Butler LLP will inform the Client in advance of any increase in the rates.

	Normal Rates	Discounted Rates
Partners	£325.00 per hour	£130.00 per hour
Associates/Senior Associates	£250.00 per hour	£100.00 per hour
Assistant Solicitors	£215.00 per hour	£86.00 per hour
Trainee Solicitors	£120.00 per hour	£48.00 per hour

4.3 Rawlison Butler LLP will bill the Client at the Discounted Rates on a regular (usually monthly) basis, together with any Disbursements as and when incurred. All such invoices are payable by the Client upon delivery. The amounts billed in this way will be payable by the Client regardless of the outcome of the Claim.

ii) "Rawlison Butler LLP's fees" are defined as: "The amounts which Rawlison Butler LLP charges for the work it does on the Client's Claim, whether charged at the Normal Rates or Discounted Rates set out below, but not including the Success Fee"

iii) Under the section: "What happens if the Client Wins"

5.1 If the Client Wins the Claim, the Client will be liable for Rawlison Butler LLP's fees at the Normal Rates, together with Disbursements, the Success Fee and the Insurance Premium.

iv) Under the section: "What happens if the Client Loses"

6.1 If the Client Loses the Claim, the Client will be liable for Rawlison Butler LLP's fees at the Discounted Rates and for Disbursements…

v) Under the section "Success Fee"

7.1 The Success Fee is set at 50% of Rawlison Butler LLP's fees at the Normal Rates. This consists of:

7.1.1 45% of the fees at the Normal Rates to reflect the risk that Rawlison Butler LLP is taking that it will not receive the Conditional Fees if the client loses ("the risk element of the Success Fee"); and

7.1.2 5% of the fees at the Normal Rates to reflect the postponement of payment of the Conditional Fees until the end of the case ("the postponement element of the Success Fee").

vi) "Success Fee" is defined as "the percentage of Rawlison Butler LLP's fees at the Normal Rates which are added to the Client's bill if the Client Wins the Claim"; "Conditional Fees" are defined as "the difference between the fees at the Normal Rates and the fees at the discounted rates".

vii) Under the section "Right to apply for an assessment"

11.1 The Client has the right to an assessment by the court of the amount of the fees, Success Fee and/or Disbursements which are payable by the Client under this Agreement, by making an application under section 70 of the Solicitors Act 1974. There are time limits for such an application, including the absolute right to assessment if the Client applies to the court within one month of delivery to the Client of the bill of costs, and a gradual reduction of the right the longer it is left thereafter, which Rawlison Butler LLP will inform the client about if asked. The Client is, of course, welcome to seek advice from another law firm about this but would have to pay for such advice.

viii) Under the section "Termination"

14.1 The Client can end this Agreement in writing at any time. If the Client does not continue with the Claim, the Client must pay Rawlison Butler's fees at the Normal Rates for the work done up to the termination date, together with Disbursements and other expenses, but not including the Success Fee. If the Client continues with the case and Wins the Claim, the Client will also have to pay the Success Fee.

ix) The CFA is silent as to the method by which the balancing invoice would be rendered to the Appellant in the event that the Appellant became liable to pay the fees at Normal Rates and (if applicable) the Success Fee.

17. The Master found that, read together, clauses 4.3 and 11.1, provided for the delivery of interim statute bills. He rejected the Appellant's argument that clause 4.3 was ambiguous and should be read, applying the contra proferentem rule, as not providing a right to deliver interim statute bills. The balancing invoice was, the Master held, akin to an invoice for a success fee in a CFA; it was not adjusting the underlying bill, it was seeking the payment of a further sum the calculation of which was based on the original (unadjusted) 40% invoices.
18. In this appeal, Mr Marven contends that the Master's decision should be upheld for the reasons he gave. Alternatively, he submits that, even if the CFA did not establish an agreement that the 40% invoices were statute bills, there was in any event an inferred agreement to this effect. In support of this submission he relies upon Abedi -v- Penningtons per Simon Brown LJ (quoting with approval a passage from Cordery on Solicitors):

"(c) Agreement

Before a solicitor is entitled to require a bill to be treated as a complete self-contained bill of costs to date, he must make it plain to the client expressly or by implication that that is his purpose of sending in that bill for that amount at that time. Then, of course, one looks to see what the client's reaction is. If the client's reaction is to pay the bill in its entirety without demur, it is not difficult to infer an agreement that the bill is to be treated as a self-contained bill of costs to date – per Roskill LJ in Davidsons -v- Jones-Fenleigh (1980) 124 Sol Jo 204 (following In re Romer and Haslam [1893] 2 QB 286).

In that case the court found that each of four bills delivered was complete and final in its own right and that the time for taxing three of them had expired. …"

19. During his submissions, I asked Mr Marven whether it was his contention that the terms of the CFA upon which he relied meant that all the bills rendered to the Appellant were interim statute bills or merely permitted interim statute bills to be rendered. He was initially inclined to submit that it was the latter, but he revised that submission to the former.
20. Mr Carpenter's submission is that the Master's interpretation of the CFA was wrong. On proper analysis, he submits, the CFA does not permit interim statute bills to be rendered. His submission is neatly encapsulated in his skeleton argument:

"It is submitted that the correct analysis of the operation of the CFA is that [the Respondent] was entitled to charge [the Appellant] for its work at an hourly rate which would depend on the outcome of the case. Effectively, [the Respondent] was saying to [the Appellant], 'We will charge you at £x per hour for this work if you win, but only £y per hour if you lose'. [The Respondent] could ask for payment on account of those charges at the lower hourly rate, which would be payable in any event, but [the Appellant's] liability for [the Respondent's] charges in respect of the work would not crystallise until the conclusion of the case or the termination of the retainer. Put another way, the amounts billed in respect of work done as the case progressed were potentially subject to adjustment at the end of the case and the balancing invoice can only be regarded as an adjustment of the earlier invoices."

21. He submits that this analysis is supported by:

i) consideration of the inherent nature of the balancing invoice;

ii) the express wording of the CFA;

iii) the fact that the outcome should not depend on or be affected by how the Respondent chose to bill the Appellant; and

iv) the decision in Bari.

22. I do not agree with the Master's reading of clauses 4.3 and 11.1 and his conclusion that the CFA permitted the Respondent firm to render monthly statute bills. In my judgment, clause 4.3 is neutral as to whether the 40% invoices were statute bills or not. The agreement to pay at the 40% rate is equally consistent with the Appellant making payments on account at that rate. I am satisfied, however, clause 11.1 gives a clear indication that the 40% invoices submitted by the Respondent were not statute bills. Clause 11.1 informed the Appellant that he had the right to challenge the bills rendered by the Respondent firm under s.70 Solicitors Act 1974. This was described as the "right to an assessment by the court of the amount of the fees, Success Fee and/or Disbursements which are payable by the Client under this Agreement."
23. The Success Fee could only by payable in the event of success (i.e. at the conclusion of the case, whether or not the CFA had been brought to an end at an earlier point). Unless the three billable items referred to in this clause are read disjunctively, the right to challenge those items arose only at the end of the case. That would mean that the interim bills were not statute bills but requests for payment on account or (more likely in the circumstances) Chamberlain bills.
24. In my judgment, further support for this conclusion comes clearly from the wording of clauses 5.1 and 6.1. These clauses provided what would happen in the event, respectively, that the client won or lost the claim. However, both clauses referred to fees being payable upon the final result: "If the Client Wins/Loses the Claim, the Client will be liable for Rawlison Butler LLP's fees at the Normal/Discounted Rates…" Likewise, clause 14.1 provided that upon termination of the agreement (when the claim did not continue), "the Client must pay Rawlison Butler LLP's fees at the Normal Rates for the work done up to the termination date". On Mr Marven's construction of the agreement as a whole, the Appellant was liable to pay the Respondent's discounted fees (in the sense of being enforceable under a series of interim statute bills) each month as the claim went along. If the Appellant had been paying interim statute bills each month, then, in the event of success or early termination (when the claim did not continue), the Appellant's liability was not to pay the Respondent's "Normal Rates", but to pay the "Normal Rates" minus the "Discounted Rates" that had already been paid. If, however, the interim bills that were rendered were for payments on account or Chamberlain bills, then the terms of the Agreement were correct. The Appellant's liability to pay crystallised on the happening of that event (success, loss or termination). Only at that point did the Appellant become liable to pay at the Respondent's fees either at the Normal or Discounted rates. Sums that had been already paid by the Appellant each month would be deducted from that sum.
25. It was also at that point that the Appellant's right of assessment arose under clause 11.1. This is also consistent with my construction of the CFA as a whole. At the heart of an assessment is whether the sum charged by the solicitors to the client is reasonable. The charge for work done at 40% of the normal rates might well be reasonable, but at 100% not reasonable. A client would not know until the end of the claim (or earlier termination) at which rate he was being charged. On Mr Marven's construction of the CFA, the Appellant progressively lost the right to challenge the bills as the claim went on.
26. In Richard Slade & Co Solicitors -v- Boodia & Another [2017] EWHC 2699 (QB); [2017] 6 Costs LO 827 Slade J held that bills submitted by the Claimant firm had not been statute bills on a proper reading of the agreement. The point of construction turned on the treatment of disbursements, but the principles have wider application. The following paragraphs of her judgment appear to me clearly to set out both the relevant principles and the policy reason for her conclusion:

[32] In my judgment Master James could have but did not find that the retainer did not provide for delivery of interim statute bills. The bills, the subject of agreement between the parties were not to be "complete self-contained bills of costs to date". There were to be separate bills rendered at different times for profit costs and disbursements. There can be no subsequent adjustment of costs claimed in a statute bill in respect of the period to which they relate. The finality referred to in the agreement relates only to the solicitor's profit costs not to the totality of the costs incurred or payable in respect of the period of the bill.

[33] 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.

I interpolate here that the same could be said, by analogy, about the 'uplift' in fees that would have occurred upon success of the claim or termination of the CFA.

[56] Master James did not fail to consider the submissions advanced on behalf of the defendant as to the effect of deciding that a statute bill must include all costs including disbursements for a defined period. 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. Although this may be unlikely in continuing litigation where client and solicitor are enjoying good relations, it may be otherwise when those relations have become less amicable.

27. It is true that, in the balancing invoice, the Respondent firm did in fact seek payment of the difference between Normal and Discounted Rates. Mr Carpenter submits that, in light of the terms of the CFA I have set out, it would have been more appropriate for the Respondent to have billed for the total fees at the Normal Rates and then given credit for the sums that had been received from the Appellant at the Discounted Rates. I accept his point, however, that the terms in which the Respondent constructed the balancing invoice is not determinative of the proper construction of the CFA. The point is unlikely to have been appreciated by the person drawing up the balancing invoice.
28. Finally, this construction of the CFA is consistent with the principle that a statute bill cannot subsequently be amended (see paragraph 5 above). The effect of the clauses I have identified was that the 40% invoices were liable to be later changed. What was ultimately to be paid for the work that was the subject of any 40% invoice would not be known until the Appellant won or lost the claim or terminated the CFA. Mr Marven submits that this construction would mean that the Respondent was not entitled to be paid. If by that he means that the Respondent lacked an enforceable right to payment of its fees (under s.69 Solicitors Act 1974), then that is right. But the consequences of that principle are not as harsh as they might appear. It does not mean that the Respondent was not entitled to some form of payment. The Respondent could always insist that the Appellant make payments on account under the express terms of the Client Care Letter.
29. In my judgment, therefore, the proper construction of the CFA was that it did not permit (or anticipate) the rendering of interim statute bills.

Was there an inferred agreement that the monthly bills were statute bills?

30. I turn therefore to Mr Marven's alternative submission: that the parties had nevertheless agreed by their conduct that the interim bills rendered were statute bills.
31. Mr Marven's submissions principally rely upon the terms of the 40% invoices, their amounts and the Appellant's response to them when they were delivered. He points to the following:

i) the invoices were for precise, but varied, sums each month;

ii) each invoice described what was being invoiced as "our professional charges as a final bill for the period [the relevant month]. Please see attached narrative";

iii) each was stated to be "payable on delivery";

iv) the wording on the pro forma invoice stated: "There are provisions to sections 70, 71 and 72 of the Solicitors Act 1974 relating to the assessment of costs which gives you the right to have the bill checked by an Officer of the High Court"; and

v) for the invoices rendered by the Respondent firm from 29 September 2014 to 19 May 2015 (inclusive), the Appellant settled each invoice in full each month.

32. He relies on the judgment of Simon Brown LJ in Abedi (p.219) in which the Judge relied upon and applied the earlier authorities of Davidsons -v- Jones-Fenleigh [1980] 124 Solicitors Journal 204:

"If the client's reaction is to pay the bill in its entirety without demur it is not difficult to infer an agreement that the bill is to be treated as a complete self-contained bill of costs to date… Looking at each of [the bills], it seems to me, applying the principles laid down in In re Romer & Haslam, that there was a clear intention on the part of the [solicitors], and indeed a plain agreement to be inferred from the conduct of the parties that those bills should be treated as completely self-contained bills covering the period down to the relevant date given".

And In re Romer (p.298):

"Payment on account by the client in respect of the separate bills is not conclusive to show that each of them was a separate bill of costs under the Act; it may be consistent with a clear understanding between the parties that the ultimate bill sent in should be the ultimate bill of costs, and that the payments were to be considered as made against that bill. It must always be a question of fact whether a document is a separate bill of costs or, so to speak, a chapter in a volume. In determining whether a document has been delivered is a bill of costs, it must not be forgotten that the onus of showing that it has been lies on the solicitor…"

33. Mr Carpenter readily accepts that if the inquiry is limited to looking solely at the 40% invoices and the Appellant's response to them, then ordinarily the Court would have little difficulty in concluding that they were interim statute bills. However, he submits that it is not possible to draw the inferences that would otherwise support this conclusion in light of the CFA and its terms (as I have held them to be). I agree. In Abedi there was no CFA or other agreement to shed light on the nature of the payments that would be made by the client to the solicitors. Here, the weight that might normally be attached to the fact that the 40% invoices were expressed to be "final", were submitted in precise sums, were to be paid immediately and were for defined work that had been carried out in the relevant period has to be assessed in the context of the CFA. It was obvious to the parties that, under the CFA, come what may, the Appellant was going to be liable to pay the Respondent firm's fees at the Discounted Rate. However, the nature of the CFA meant that sums paid in purported settlement of the 40% invoices were necessarily payments on account and the bills themselves Chamberlain bills. In my judgment, the behaviour of the parties cannot, in this case, alter the express agreement that they had reached in the CFA as to the status of the bills that were rendered.
34. I therefore reject Mr Marven's submission that there was an inferred agreement between the parties that the 40% invoices that were rendered would be statute bills. Such an agreement would have been inconsistent with the terms of the CFA as I have held them to be and inconsistent with the principle from Bari that the bills had to be final bills in respect of the work that they purported to cover (because they were liable to be increased if the claim were won or the CFA terminated). In fact, there was nothing inconsistent (given the nature of the CFA) with the 40% invoices being rendered in the form that they were and paid by the Appellant as payments on account. Given the fundamental liability to pay at the 40% rate that made good sense for both the Appellant and Respondent. It does not, however, change the 40% invoices into statute bills.
35. Given the conclusions that I have reached, I do not need to deal with Mr Carpenter's third ground of appeal.
36. For these reasons, I allow the appeal. I will invite Counsel to agree the consequential order.

Note 1    The date was not included “at the beginning of the Agreement” it was left blank. It is common ground however that the date was 22 March 2013.    [Back]