An end to estimates?

Do not be surprised if your clients complain if you fail to provide them with the best information about the costs to be incurred during the life of a case.

In some instances, the complaints can lead to a solicitor client assessment as occurred in Reynolds v Stone Rowe Brewer [2008] EWHC 497 (QB) and Mastercigars Direct Ltd v Withers LLP [2008] 3 ALL ER 417.

In Reynolds, the solicitors (SRB) confirmed by way of costs estimate that: 'If the matter did proceed through to a trial, it is more than likely that your costs would be in the region of £10,000 to £18,000 plus VAT, and this is only of course an estimate which could be increased depending on how strenuously the matter is defended.'

Over a six month period, SRB advised Reynolds that they were increasing the costs estimate on four separate occasions, the last estimate being one of £55,000 which was quickly exceeded. Reynolds changed solicitors and was awarded in excess of £55,000 at trial.

On assessment the Master concluded that SRB had given an original estimate upon which Reynolds was entitled to rely and on this basis they were bound by the original estimate of £18,000 plus a 15 per cent margin.

On appeal at the High Court, Tugendhat J held that the initial estimates were just too low and not in accordance with the requirements of the Code cited above. The Master was fully entitled to come to the view that if the estimates given at the start of the case had been such as are required by the applicable rules, then the claimant would not have acted as she did.

Withers LLP was instructed by Mastercigars Direct Ltd in a trademark dispute. They provided a letter of engagement and their best estimate of costs. At periodic intervals, they updated the estimates for costs including the trial. On 6 May 2005 that estimate totalled £356,000. The case concluded on 10 March 2006 after a 17-day trial.

After the trial, Withers LLP had delivered some 24 bills to its client totalling approximately £1,050,000. Mastercigars argued that Withers' costs had to be limited to the 6 May 2005 estimate which was largely upheld by the costs judge.

On appeal to the High Court, Mr Justice Morgan decided:

• an estimate is not a quote and a solicitor is entitled to reasonable remuneration for work done;
• the court may 'have regard to' the estimate or may 'take into account' the estimate as it is a 'factor' in assessing reasonableness; it may be a useful yardstick against which to judge the reasonableness of a bill; and
• there is no basis for permitting the solicitor a margin on top of the amount of the estimate. Rather, the greater the margin by which the bill exceeds the estimate, the greater the explanation that will be required from the solicitor.

As no findings as to the issue of reliance upon the costs estimates had been made by the original costs judge, Morgan J directed that it should be dealt with as part of the detailed assessment of the bills in question.

At the detailed assessment the costs judge heard evidence and concluded that he should reflect the costs estimate in the detailed assessment by limiting the profit costs chargeable by Withers in accordance with the relevant bills, for the relevant period, to the amount in the estimate plus a 'margin' of 20 per cent.

On appeal to the High Court, Mr Justice Morgan upheld the costs judge's findings as to the fact of reliance on the estimate by Mastercigars, and set out the legal process involved in a case where a client contends that its reliance on an estimate should be taken into account in determining the figure which it is reasonable for the client to pay as follows:

• The court should determine whether the client did rely on the estimate.
• The court should determine how the client relied on the estimate.
• The court should try to determine the above without conducting an elaborate and detailed investigation.
• The court should decide whether the costs claimed should be reduced by reason of its findings as to reliance and, if so, in what way and by how much. Such an approach requires the court to form an assessment of the impact of the estimate on the conduct of the client.
• The court should consider the deductions which are needed in order to do justice between the parties.
• It is not the proper function of the court to punish the solicitor for providing a wrong estimate or for failing to keep it up to date as events unfolded.

The court found that the costs judge's statement of reasons for the selection of a 20 per cent margin on top of the costs estimate was inadequate as it had all the appearance of being arbitrary. However, the court was not able to determine the effect of reliance upon the estimate and directed that the senior costs judge, who was sitting as an assessor, should report upon this issue.

These two cases demonstrate that the costs estimation process is not rigorous enough to provide clients with the costs transparency and costs certainty that they require.

This inherent flaw permeates through to litigated cases when costs estimates are exchanged in accordance with the CPR. This appears as a significantly lower costs estimate than are the amount of costs claimed in a bill.

A proposal being considered by the Civil Litigation Costs Review being undertaken by Lord Justice Jackson was for the costs estimate process to be replaced by a more rigorous costs budgetary process within which the parties had to work.

Costs budgets will drive practitioners' behaviour towards considering and setting out how much time should be spent on a particular issue or activity. The costs budget would inform the client and provide a ceiling for costs of the case.

This will provide the certainty that consumers need and indeed is suggested under guidance note 36 to the obligation under Rule 2-03 of the Solicitors Regulation Authority Code of Conduct.

As to whether a costs budgetary process will come to fruition very much depends upon the outcome of the consultation following the release of Civil Litigation Costs Review working paper on 8 May 2009.