Be cautious on costs

The recent case of Reynolds v Stone Rowe Brewer (a firm) [2008] EWHC497(QB) sets out the importance for solicitors to give detailed consideration at the outset to costs estimates given to clients.

Prior to Reynolds helpful guidance on costs had most recently been given in the Mastercigars Direct Ltd v Withers LLP case [2007] EWHC2733. However, the High Court has now taken a step back from the position in Mastercigars, refusing to award a solicitor the full costs billed even where regular updates on estimates had been provided to the client and were not in the round exceeded. This is obviously very concerning for solicitors.

The judgment

Mrs Reynolds had a dispute with her building contractors and in December 2004 consulted solicitors after a claim was brought against her. Following an initial discussion with the solicitors a schedule was obtained from a surveyor identifying the outstanding works. Subsequent to this the solicitors provided advice and a cost estimate for dealing with the claim and her counterclaim. The estimate stated that if the matter proceeded to trial, costs would be in the region of £10,000 '“ £18,000 plus VAT.

Throughout the litigation the solicitors sent a number of letters to Reynolds advising her that due to changes in the case their estimate needed to be varied. A final estimate of £60,000 was reached.

After appointing new solicitors, Reynolds was ultimately successful on her counterclaim and awarded damages. Master Rogers' job was to determine the costs payable by Reynolds to her first solicitors. Master Rogers held that the solicitors should be bound by their original estimate.

On appeal Mr Justice Tugendhat found that there had been no error on the part of the Master Rogers who had been entitled to find that solicitors should be bound by their original estimate. He found that the revised estimates did not entitle the solicitors to claim further costs. This was on the basis that the revised estimates were simply to correct earlier 'under-estimates' and were not attributable to any change in the facts.

Solicitors Code of Conduct 2007

Most solicitors have by now familiarised themselves with the Solicitors Code of Conduct 2007 which governs solicitor-client relations. Costs obligations on solicitors are set out at Code 2.03 which states 'You must give your client the best information possible about the likely overall costs of a matter both at the outset and, when appropriate as the matter progresses'.

This leads us to question what the 'best information possible' means. We already have some guidance on what is expected of solicitors when advising clients on costs from recent cases, upon which there has been a great deal of commentary. In addition to this, in a litigation context there are also requirements to provide details of base and future costs to clients and opponents at allocation.

The problem is that for many solicitors allocation may well be the first time that they carry out a detailed assessment of the costs of the litigation. Following Reynolds this could be too late. The court's consideration of the whether the 'best information possible' has been provided may well be determined by reference to information given to clients at a much earlier stage.

The approach taken by Mr Justice Tugendhat to determine whether the solicitors had satisfied their obligations to Reynolds was to consider the terms of the estimate provided at the outset and the subsequent events throughout the litigation. He then sought justification from the solicitors for the reasons why the cost estimate given at the outset had to be varied.

Where he considered that justification could not be provided he took the view that ''¦the estimates were just too low and not in accordance with the requirements of the [Professional Code of Conduct]'. At the time of his ruling the Solicitors Code of Conduct had not yet come into force.

Practical implications

The judgment has serious implications for solicitors. While many give very careful consideration to letters of advice and other day to day matters, all too many solicitors take a 'finger in the air' approach to costs, particularly at the outset of an instruction when information may be lacking.

This approach now seems a risky one to take and solicitors would do well to give greater consideration to the issues that are likely to arise when preparing estimates. Failure to do this may result in the careful work which has been carried out ultimately being done for free.

Neither does it appear that a well-placed caveat accompanying the initial estimate such as 'the figure reached is intended as an estimate and may need to be varied when more information is available' will allow scope for later revisions. In the Reynolds case the initial estimate letter stated 'this is only of course an estimate which could be increased depending on how strenuously the matter is defended'. This was determined insufficient to justify the later cost increases.

A possible reaction to the findings of Mr Justice Tugendhat may be that solicitors become overly cautious when providing costs estimates and vastly overstate costs to trial in order to protect them on any assessment. The risk is, of course, that clients may then be driven to competitors or indeed driven away from pursuing the matter altogether. Alternatively, on an inter-partes basis, estimating too high will result in a statement of reasons having to be produced under the Civil Procedure Rules where the difference between the estimate and final bill is 20 per cent or greater.

It remains to be seen whether the judgment will be appealed and whether it can be applied to larger commercial cases where accurately predicting costs from the outset to completion is a minefield.However, it is clear that solicitors face increased pressure to take a more serious and methodical approach to costs estimates at the outset if they do not want to find themselves out of pocket.