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Solicitor-client cost disputes in a PI context:

Negligence, documents and coverage

Paul Parker

Tom Asquith

Benjamin Fowler

February 2019

This material was provided for the 4 New Square Professional Liability & Regulatory Conference in February 2019. It was not intended for use and must not be relied upon in relation to any particular matter and does not

constitute legal advice. It has now been provided without responsibility by its authors.

Paul Parker Call: 1986

“He’s a wonderful advocate: tenacious, brave and prepared to roll his sleeves up. You feel very confident in his services.” – Chambers & Partners

“His robust approach means nothing is left to chance.” – Legal 500

Paul is a specialist in professional liability and disciplinary matters involving accountants, actuaries, financial services professionals, lawyers, insurance brokers and construction professionals. Paul also regularly advises in connection with conduct-related complaints, particularly to the ICAEW, the SRA and the BSB. He has advised extensively on regulatory and disciplinary issues concerning breaches of SARs – both fraudulent (including advisory

involvement in the Marrache scandal in Gibraltar) and non-fraudulent – separate business structures, introductions and referrals, conflicts of interest, publicity and proper standards of work in a wide variety of contexts over a number of different professions.

He is the first port of call for COLPs and COFAs facing compliance and notification issues. He has substantial recent experience of defending in proceedings particularly before the SDT (including the Miners’ Compensation Cases and the collapse of Cobbetts LLP), BTAS and the disciplinary committees/panels of the ICAEW, IoFA, ACCA, TDB and CLC.

Tom Asquith Call: 2007

“He routinely achieves outcomes which exceed expectations.” – Legal 500

“A junior who is going places; he is hardworking, incisive and good with clients.” – Legal 500

Tom Asquith is a commercial litigator with a focus on professional liability, banking and financial services, costs and international arbitration. He is an experienced trial advocate whose caseload includes issues of jurisdiction and foreign law (e.g. Caribbean, Italian, Middle Eastern and US) across his areas of expertise. Tom is also ranked as a Leading Professional Negligence Junior by Legal 500 and is instructed by both claimants and

defendants across a wide range of professions.

Tom is able to use his specialist financial services experience (which has included two secondments at what was the Financial Services Authority) to assist with claims against financial services professionals. He is recommended as a leading junior for both Banking & Finance and Financial Services in Legal 500. He also has considerable experience of claims involving allegedly negligent tax advice.

Benjamin Fowler Call: 2011

Benjamin is an experienced junior advocate who has appeared in the Court of Appeal and High Court (led and as sole counsel) as well as the County Court on a wide variety of matters encompassing general commercial litigation, construction, professional negligence and costs.

Benjamin has experience in all aspects of professional liability and regularly advises and acts on behalf of both claimants and defendants in claims against lawyers, construction professionals, surveyors and valuers, insurance brokers, accountants and financial professionals. He has been instructed on a variety of professional negligence matters, including successfully acting as sole counsel in Tomlinson v TW Solicitors (QB, 2018),

defeating a claim against solicitors following a three-day trial in the Queen’s Bench Division. Benjamin also acted as junior counsel (led by David Turner QC) in Muduroglu v Stephenson Harwood (A Firm) [2017] EWHC 29 (Ch), striking out claims against solicitors arising out of their handling of share sale agreements and warranties and complex loan transactions and trust arrangements.

SOLICITOR-CLIENT COSTS DISPUTES IN A PI CONTEXT:

NEGLIGENCE, DOCUMENTS AND COVERAGE

Paul Parker, Tom Asquith and Benjamin Fowler

February 2019

I Claims against solicitors for negligent advice on costs

1. Solicitor-client costs disputes are on the increase. Whilst assessments under the Solicitors Act

1974 will normally lie outside of the bounds of professional indemnity insurance coverage, there

are other means by which clients are able to challenge their costs liability to their own solicitors.

2. These can be broken down into the following three headline categories:

a. Overcharging: this is the traditional remit of 1974 Act assessments. With the introduction

of deduction from damages and the loss of recovery of additional liabilities from paying

parties, clients are looking to their solicitors’ costs where they are out of pocket.

b. Bad Advice: this can relate to both the client’s own legal costs and the other side’s costs

(advice on the risks faced when pursuing or continuing litigation). The key issues are

around different sources of funding; if these cannot be recovered from the other side on

assessment, clients will be looking to their solicitors to challenge the advice given.

c. Under-recovering: the introduction of cost budgeting and the increased scrutiny of

parties’ costs provides numerous challenges – increased scope for mistakes to be made

(time limits, revisions to budgets) and criticism of advice given (or not given).

3. Although there are not a great deal of reported decisions to date, there is a clear appetite for such

claims and there is authority to support them in principle. By way of example, in Heron v TNT

(UK) Ltd and Another [2014] 1 WLR 1277. This was an application for a non-party costs order

against other side’s solicitors in relation to failing to obtain ATE to cover adverse costs. The Judge

and CA expressly referred to and recognised the possibility of a claim by the client against his

solicitor for failing to obtain ATE on his behalf.

Overcharging

4. Although challenges by clients to their solicitors’ costs are within the remit of the 1974 Act and

generally do not engage PI cover, allegations of overcharging can arise in combination with

allegations of negligence within a professional negligence claim.

5. There has been a discernible rise in the number of cost-recovery solicitors’ firms promising to

assist clients challenge their solicitors’ fees. One such firm was on the wrong end of a recent

decision of Soole J in Herbert v HH Law Ltd [2018] EWHC 580 (QB).

6. The Claimant had contended that HH failed to conduct a risk assessment to inform the level of

success fee, and that the 100% uplift was unreasonable. Relying on the change of landscape

following the civil justice reforms of 2013, the firm said that it had been necessary to restructure

charges to cover overheads and make a profit, and the client had been made aware of the

structure in her CFA. Soole J (upholding the District Judge’s reduction in fee to 15%) held that the

risk assessment remained a relevant factor when assessing the fee percentage. ‘Approval’ must

be “informed approval”; the agreement had to be “clearly explained” before being entered into.

7. One way in which overcharging claims can find their way into PN claims is as a claim for abatement.

This is a distinct right at common law which can be raised by way of claim or counterclaim; it is

not (unlike set off) defensive only. The claimant must show that the breach of contract alleged

directly reduced the value of the services subsequently rendered.

Bad Advice

8. Solicitors are duty-bound to advise clients on the funding of their case including (a) what the

available options are; (b) how to choose between them; (c) estimates on costs; (d) advice on the

other side’s costs; (e) advice on cost budgeting and recovery; and (f) advice on costs risks.

9. The standard of care will be informed by the Code of Conduct, in particular IB(1.13) to (1.21).

Fee arrangements with your client

IB(1.13) discussing whether the potential outcomes of the client's matter are likely to justify the expense or risk involved,

including any risk of having to pay someone else's legal fees;

IB(1.14) clearly explaining your fees and if and when they are likely to change;

IB(1.15) warning about any other payments for which the client may be responsible;

IB(1.16) discussing how the client will pay, including whether public funding may be available, whether the client has

insurance that might cover the fees, and whether the fees may be paid by someone else such as a trade union;

IB(1.17) where you are acting for a client under a fee arrangement governed by statute, such as a conditional fee

agreement, giving the client all relevant information relating to that arrangement;

IB(1.18) where you are acting for a publicly funded client, explaining how their publicly funded status affects the costs;

IB(1.19) providing the information in a clear and accessible form which is appropriate to the needs and circumstances of

the client;

IB(1.20) where you receive a financial benefit as a result of acting for a client, either:

(a) paying it to the client;

(b) offsetting it against your fees; or

(c) keeping it only where you can justify keeping it, you have told the client the amount of the benefit (or an

approximation if you do not know the exact amount) and the client has agreed that you can keep it;

IB(1.21) ensuring that disbursements included in your bill reflect the actual amount spent or to be spent on behalf of the

client;

10. Consideration must be given to all reasonably obtainable options: BTE insurance; trade

union/organization funding; CFA; DBA; ATE; private funding (and different structures – fixed or

hourly rates); and third-party funding.

11. Reference is often made to the detailed guidance in Sarwar v Alam on the enquiries a solicitor

should make into the existence of BTE cover. The Court noted that the question of

reasonableness was distinct from the question of whether or not the solicitor was in breach of

duty:

“If a solicitor gives advice which proves unsound, it will not necessarily follow that the advice

was negligent. The advice will necessarily be based on information provided by the client. If

the information is inadequate or inaccurate, the advice may prove to be unsound without any

question of fault on the part of the solicitor.” (Sarwar at [51])

12. The reasonableness of the decision to enter into a CFA and the level of success fees charged under

that CFA have been considered recently by the Courts:

a. In McDaniel & Co v Clarke [2014] EWHC 3826 (QB)

i. Hickenbottam J heard an appeal of Master Gordon-Saker’s decision to assess fees

and disbursements at nil where the solicitors had allowed the client to enter into

a CFA where union-funded legal aid was available as an alternative.

ii. The solicitors admitted the failure to advise, but appealed on the basis that (a)

there was insufficient evidence to support the contention that the claimant would

have taken advantage of the legal aid; and (b) the assessment should have been

based on the lost chance to take up the legal aid.

b. AMH v The Scout Association [2015]

i. The claimant’s claim had been funded on legal aid until the eve of the Jackson

reforms, at which point she switched to a CFA with ATE insurance.

ii. Master Leonard concluded that the solicitors had “more or less nudged the client

towards the CFA” and had failed to give the client complete advice.

iii. BUT given the concerns about the change in funding regimes; the solicitor’s

evaluation of the risks of losing legal aid; and the fact that the CFA was a CFA Lite

(and was therefore not risking a loss of damages to meet unpaid costs), the

decision was reasonable.

c. Surrey v Barnet & Chase Farm Hospitals NHS Trust [2018] EWCA Civ 451

i. Again, the claim concerned a switch from legal aid to CFA and ATE.

ii. Last in a line of cases including Milton Keynes Foundation Trust v Hyde, Arianna

Ramos v Oxford University Hospitals NHS Foundation Trust, and Oliver Davis v

Wiltshire Primary Care Trust. This decision brings some clarity.

iii. Where the alternative method of funding was not apparently more attractive or

advantageous, enhanced consideration would have to be given to the reasons for

the switch, which should be contained in advice to the client.

Cost Budgeting

13. Is there scope for claims by disappointed clients arising out of harsh cost management decisions?

14. Where uncertainty reigns, clients are more likely to complain that their solicitors failed to advise

of outcomes which were arguably unforeseen:

a. Where a good reason to adjust the budget is not made out (and revisions were not made

earlier). This has led to inconsistent decisions – see Nash v MOD (2018).

b. Where a solicitor takes a view on what will be recovered inter partes, but does not foresee

the level of deduction made on proportionality grounds.

II How to, and how not to, extract fee-related papers from your previous solicitors’ files

1 2017 and 2018 saw a flurry of applications in the Senior Courts Costs Office brought by

claimants seeking delivery up of files generated by their former solicitors in connection with

previous litigation in which they had been involved. The nature of those applications was, in

effect, that the claimants/former clients required advance disclosure of the entirety of their

former solicitors’ file in relation to the underlying litigation in which the solicitors had acted

for them, expressed to be for the purpose of that claimant’s considering his/her right to

detailed assessment of those solicitors’ fees. The applications by and large were brought a

substantial period of time after the original action, with no intermediate complaint about the

defendant solicitors’ charges, and where the low quantum of the fees potentially in dispute

were likely to be out of all proportion to the cost of the disclosure/delivery up exercise

demanded by the claimants.

2 The principal reported decisions – all now reasonably well known – were Green v SGI Legal

LLP [2017] EWHC B27 (Costs), Hanley v JC&A Solicitors Ltd [2017] EWHC B28 (Costs), Swain v

JC&A Ltd [2018] EWHC B3 (Costs), Riaz v Ashwood Solicitors Ltd [2018] EWHC B5 (Costs) and

Whale v Mooney Everett Solicitors Ltd [2018] EWHC B10 (Costs). Green, Riaz and Whale were

decisions of Master Leonard. He rejected delivery up. Hanley was a decision of Master James.

She, too, rejected delivery up. The contrary view was taken by Master Brown in Swain.

3 Hanley and Green were appealed, and the appeals were heard in July 2018. Soole J gave

judgment on 28 September 2018. He dismissed the appeals. Delivery up was refused on a

number of different grounds. This short paper discusses the bases on which delivery up was

sought and refused, and examines whether there is anywhere left to go for those ex-clients

who feel, or who have been persuaded (on, no doubt, a no-win-no-fee basis) to feel that they

may have been overcharged.

4 The jurisdictional starting-point for these delivery up applications is section 68(1) of the

Solicitors Act 1974. It provides that

“(1) The jurisdiction of the High Court to make orders for the delivery by

a solicitor of a bill of costs, and for the delivery up of, or otherwise in relation

to, any documents in his possession, custody or power, is hereby declared to

extend to cases in which no business has been done by him in the High

Court.”

The argument on the part of the claimants was that this section gives the court an

untrammelled breadth of discretion to provide them with any and all documents in the

possession, custody or power of the solicitor.

5 Soole J rejected that argument. He held that the question whether a document was or was

not to be delivered up depended on its ownership. As for ownership, case law generally

supported long-standing Law Society guidance as follows:

5.1 “Original documents sent to the firm by the client will continue to belong to the client,

except where title was intended to pass to the firm.”

5.2 “Documents sent or received by the firm as the agent of the client belong to the client.

For example: communications sent to the firm by third parties and the firm's

communications with third parties as agent for the client. This would include

correspondence with a counterparty or the giving or receiving of instructions to/from

the client's other advisers.”

5.3 “Final versions of documents, the production of which was the object of the retainer,

belong to the client. For example: agreements or written representations.”

5.4 “Final versions of documents prepared by a third party, including the client's other

advisers, during the course of the retainer and paid for by the client belong to the

client. For example, opinions of counsel and experts' reports.”

5.5 “Documents prepared for the firm's own benefit or protection, or documents

prepared as the means by which the firm discharges its function, belong to the firm.

For example: file copies of letters written to the client, notes as to time taken or made

for protective purposes as to advice to the client, drafts and working papers

generally.”

5.6 “Copies of internal emails and correspondence created during the course of the

retainer, and all emails and correspondence written by the client to the firm belong

to the firm.”

5.7 “Accounting records, including vouchers and instructions, belong to the firm.”

6 The effect of that part of the decision was that section 68 did not alter or expand in any way

the long-standing position regarding ownership of documents, so that whether under the Act

or under the inherent jurisdiction of the court, delivery up has always depended and continues

to depend on the proprietary rights in the document in question. The inherent jurisdiction is

not a backdoor route to obtaining documentary material which would not otherwise be

exigible. It is a jurisdiction over solicitors which is both essentially “punitive and disciplinary”

(In re Grey [1892] 2 QB 440, 443) and “residual” (Symbol Park Land v Steggles Palmer [1985]

1 WLR 668, 674). Whether the residuality of the jurisdiction means that it is a jurisdiction of

last resort – to be exercised only in cases of clear breach of duty where there is no other way

of avoiding an injustice – was doubted in Riaz (at [34]), but nevertheless the weight of

authority now suggests that it is a jurisdiction the exercise of which demands a clear case

capable of being adjudicated summarily: Assaubayev v Michael Wilson [2014] EWCA Civ 1491,

[2014] 6 Costs LR 1058 at [31], and Riaz at [38].

7 Since recourse to section 68 of the 1974 Act and the inherent jurisdiction of the court was

gaining so little traction in the SCCO during 2017 in particular, claimants developed their

argument to bring in fiduciary duties. The appeal in Hanley / Green did not touch on fiduciary

duties, these not having been argued at first instance, but fiduciary duties were very much at

the heart of Riaz and Whale. In those cases it was sought to be argued that the fiduciary nature

of the solicitor/client relationship – see the well-known passage in Bristol & West BS v Mothew

[1998] Ch 1, 18 – opened the door to a delivery-up in equity, because the withholding of

documents by the solicitor amounted to a preference of his own interests over those of the

client.

8 Superficially attractive though this argument may have been, Master Leonard rejected it in

both of those cases. In Riaz he was persuaded that equitable remedies for breaches of

fiduciary duty were not, generally speaking, matters for a costs judge (at [40]). In Whale he

was further persuaded that the fiduciary duty owed by the solicitor to his client were defined

by the terms of his contract of retainer and did not obviously go further (at [44]). In each case

the Master was not persuaded that the claimant was in fact able to identify a breach of any

specific fiduciary duty: see for instance the comprehensive statement of the nature and limits

of fiduciary duties in a professional/client context found in John Youngs Insurance Services Ltd

v Aviva Insurance Services Ltd [2011] EWHC 1515 (TCC) at [94]:

“From the various authorities cited by the parties I derive the following

principles in relation to the equitable duty to account:

(1) that, in the case of an agent employed under a contract, the scope of

any fiduciary duties of the agent will be determined by the terms of the

underlying contract: see Henderson v Merrett at 206C;

(2) Not every breach of duty by a fiduciary is a breach of fiduciary duty:

see Bristol and West Building Society v Mothew at 16D;

(3) A fiduciary is someone who has undertaken to act for or on behalf of

another in a particular matter in circumstances which give rise to a

relationship of trust and confidence. The distinguishing obligation of a

fiduciary is the obligation of loyalty. A fiduciary must act in good faith; he must

not make a profit out of his trust; he must not place himself in a position where

his duty and his interest may conflict; he may not act for his own benefit or

the benefit of a third person without the informed consent of his principal: see

Bristol and West Building Society v Mothew at 18B;

(4) The facts and circumstances must be carefully examined to see

whether in fact a purported agent and even a confidential agent is in a

fiduciary relationship to his principal: see Boardman v Phipps at 127 B;

(5) The fiduciary relationship cannot be superimposed upon the contract

in such a way as to alter the operation which the contract was intended to

have according to its true construction: see Hospital Products v United States

Surgical Corp at 97;

(6) A person may be in a fiduciary position in respect of some part of their

activities and not in respect of other parts; each transaction or group of

transactions must be looked at: see New Zealand Netherlands Society v Kuys

at 1130 D;

(7) The essence of a fiduciary relationship is that it creates obligations of

a different character from those deriving from the contract itself. Many

commercial relationships involve an obligation by a party to do honestly and

conscientiously what that party had by the contract promised to do. To

introduce into such relationships the whole new dimension which flows from

giving them a fiduciary character would have adverse consequences. Merely

because a party puts faith in another party and contends that their trust has

not been repaid does not give rise to a fiduciary duty; high expectations do not

necessarily lead to equitable remedies: see In re Goldcorp Exchange at 98F.”

9 Whilst in either case Master Leonard did not directly tackle the preference of interests

argument mentioned above, surely properly tackled it would fail because:

9.1 Insofar as the claimant sought delivery up of copies of documents which his/her

solicitor had previously sent him/her (but s/he had lost), then it could not be said that

the solicitor was guilty of a preference of interests, for the document(s) had already

been sent once;

9.2 Insofar as the documents belonged to the solicitor in any event, then they cannot have

amounted to documents created for the client’s benefit in which the client could have

any enforceable interest, and so there was no interest to prefer;

9.3 In the absence of any other obvious conflict of interest or express allegation of

impropriety, it is impossible to see on to what a claim for delivery up in equity – thus

put – could attach;

9.4 There is nothing to suggest that the existence of a fiduciary duty can of itself interfere

with the fiduciary’s own proprietary rights.

10 So far, then, all avenues argued in favour of delivery up have been closed, either at first

instance in the SCCO or on appeal to the High Court. What, then, is left for the claimant eager

to investigate his/her former solicitor’s billing?

11 The possibilities seem to be these:

11.1 An application for pre-action disclosure pursuant to CPR 31.16. This is not the place to

discuss the jurisdictional requirements of such an application, save to say that there

are well-defined criteria which an application for the disclosure of documents which

may or may not disclose whether there is a case for arguing previous overcharge might

not satisfy.

11.2 An application limited to a copy of a mislaid CFA. This might find favour with a costs

judge following the closing words of Soole J in Hanley/Green at [74]:

“… it does not follow that solicitors should in all circumstances press

their legal rights to the limit, nor that they can necessarily do so with

impunity. To take one example, a refusal to comply with a former

client’s request for a copy of a mislaid CFA (made on an undertaking

to pay a reasonable copying charge) so that advice may be obtained

on the prospects of a s.70 application, would surely entitle the client

to issue such an application notwithstanding the inability to comply

with the procedural requirement in PD46 para. 6.4; and could have

potential adverse costs implications for the solicitors within those

proceedings, whatever their result.”

11.3 A focused application by a client (beneficiary) against his/her solicitor (fiduciary) for

an equitable account. Such an application would have to be made on the footing that

the solicitor holds trust property – namely a fund attributable to legal fees – which

requires to have been duly administered and of which the solicitor’s stewardship

requires proper justification. Such an application has the benefit that it does not

depend on any mishandling of the fund by the solicitor, but merely on the solicitor’s

receipt of monies in circumstances sufficient to import an equitable obligation to

handle such monies for the claimant’s benefit: see Snell’s Equity (23rd Ed.) at 20-015.

12 It will be interesting to see how many claimants seek to take advantage of the short dictum of

Soole J’s in the Hanley/Green appeal (route 2 above), and if so with what success. Route 1 –

pre-action disclosure – is likely to be a difficult one for claimants, both in terms of satisfying

the CPR 31.16 criteria and in terms of cost. Route 3 – an action for an account – might work,

but would involve potentially lengthy proceedings in a chancery court and, most likely, would

therefore be prohibitive on the grounds of cost. There are, therefore, nevertheless possible

ways round the now-established negative judicial reaction to the types of delivery-up

applications filling the SCCO’s lists over the last couple of years or so, but it very much remains

to be seen how much anyone will have the stomach, or the wallet, for the fight.

III Claims by clients for repayment of fees and whether these are costs disputes or claims

which engage insurance

The issue

1. A solicitor negligently advises a client to settle litigation which could have been struck out at the

outset on limitation grounds. The client sues for the amount of damages it paid to the claimant,

and also the legal costs it paid to its solicitor. Does the latter fall within the scope of the solicitor’s

standard indemnity cover? What if the client had not already paid the legal costs?

The minimum terms and conditions in solicitors’ policies

2. Clause 1.1 of the MTC states as follows:

“Subject to the limits in clause 2, the insurance must indemnify each insured against civil liability

to the extent that it arises from private legal practice in connection with the insured firm’s practice,

provided that a claim in respect of such liability:

(a) is first made against an insured during the period of insurance; or

(b) is made against an insured during or after the period of insurance and arising from

circumstances first notified to the insurer during the period of insurance.”

3. claim” is defined in the SRA Glossary as “a demand for, or an assertion of a right to, civil

compensation or civil damages or an intimation of an intention to seek such compensation or

damages.”

4. Various exclusions are set out at Clause 6 of the MTC. One exclusion which might appear to affect

the analysis is that set out at clause 6.6, namely the exclusion for debts and trading liabilities.

6.6 Debts and trading liabilities

Any:

(a) trading or personal debt of any insured; or

(b) legal liability assumed or accepted by an insured or an insured firm under any contract or

agreement for the supply to, or use by, the insured or insured firm of goods or services in the course

of the insured firm’s practice, save that this exclusion 6.6(b) will not apply to any legal liability

arising in the course of an insured firm’s practice in connection with its or any insured’s use of or

access to the HM Land Registry network (including, without limitation, access under a Network

Access Agreement made under the Land Registration (Network Access) Rules and the Land

Registration (Electronic Communications) Order 2007) other than an obligation to pay search fees

or other charges for searches or services provided by HM Land Registry to the insured firm; or

(c) guarantee, indemnity or undertaking by any particular insured in connection with the provision

of finance,

Some possible scenarios

5. Scenario 1. Client has paid solicitor’s fees already; then seeks to recover them as damages along

with settlement sum. Scope of cover would appear to be £300,000.

6. Scenario 2. Client has not paid fees. Solicitor brings fees claim; faced with damages claim for

settlement sum. Is the scope of cover still £300,000? NB: Fearns v Anglo-Dutch Paint & Chemical

Co Ltd [2011] 1 WLR 366 para 33 and the Ontario Court of Appeal case of Myers v Simcoe and Erie

General Insurance Company (1994) 115 DLR (4th) 607.

7. Scenario 3. Client has not paid fees. Client brings damages claim, which is settled. Solicitor brings

fees claim, which is resisted. Can the solicitor seek cover from insurers?

Paul Parker, Tom Asquith and Benjamin Fowler

4 New Square Chambers

Disclaimer: this handout is not to be relied upon as legal advice. The circumstances of each case

differ and legal advice specific to the individual case should always be sought.

© 2019 Paul Parker, Tom Asquith and Benjamin Fowler.

05/02/2019

1

Solicitor-client costs: negligence, documents and coverage

Benjamin Fowler, Paul Parker and Tom Asquith

5 February 2019

Introduction

• Solicitor-client costs disputes are on the rise

• Engaged in professional negligence claims, especially involving allegations of:

• Failure to advise on funding

• Failure to give costs estimates

• Overcharging

• Fine line between claims which engage insurance, and those which are uninsured costs

disputes

Introduction

• Three areas to cover:

1. Negligence: claims against solicitors for negligent advice on costs

2. Delivery: delivery up of files

3. Coverage: When claims for repayment of fees engage insurance

05/02/2019

2

Negligence relating to costs

Introduction

Increase in challenges by clients to costs:

• Overcharging: Impact of change to available funding options –

deductions from damages

• Bad Advice: available funding; other side’s funding; costs risks

• Under-recovering: Cost budgeting – reduced scope for recovery inter

partes and increased scope for mistakes

• Not a great deal of claims as yet, but sound in principle (see Heron v

TNT (UK) Ltd [2014] 1 WLR 1277 at [38]

Overcharging

• Traditional territory of solicitor client assessments under Solicitors Act 1974

• Can arise in combination with allegations of negligence – unclear how to disentangle these

when they are alleged together (such as in a counterclaim raised in response to a solicitor’s fees

claim)

• Recent issues arising in this context:

CFAs and ‘informed approval’ – to benefit from the presumption of approval within a 74 Act

assessment, there must be informed consent; the principle of freedom of contract is no answer to

a failure to inform and obtain consent

Herbert v HH Law Ltd [2018] EWHC 580 (QB) per Soole J

05/02/2019

3

Abatement

• Alternative to set off in response to a solicitor’s fees claim

• A distinct right at common law to be raised by way of counterclaim

• Client must show that the breach of contract directly reduced the value of the

services rendered

• Will not diminish costs incurred prior to the provision of deficient services

Advice on Funding

• Code of Conduct 2011 IB1.16

• Enquiries about BTE cover – see detailed guidance in Sarwar v Alam at

[45]-[51]

• Guidance limited to modest RTAs, and not applicable to claims

management bulk work (Garrett v Halton)

• CA held that the question of reasonableness was distinct from the

question of whether the Claimant’s solicitor was in breach of duty.

Availability of legal aid instead of CFA –

McDaniel & Co v Clarke [2014] EWHC 3826 (QB) at [27]

Solicitors allowed client to enter into a CFA where they could have used union-funded legal aid;

Hickenbottom J found that it was open to the costs judge to assess the fees and disbursements

at nil, as they were not reasonably incurred in the circumstances.

• Alternatives to ATE insurance

• Change in standards – advice on charging methods? Other solicitors won’t charge success fees?

05/02/2019

4

Advice on Funding

• AMH v The Scout Association [2015] SCCO

• C claimed damages for historical sexual abuse; here claim was funded by legal aid until March

2013 when this was discontinued and she continued the claim under a CFA and ATE insurance

• Solicitor had considered whether it was in C’s best interests to continue with the legal aid;

including whether it would provide sufficient funds to trial and C’s continuing eligibility BUT

had failed to set out in writing the pros and cons of the funding arrangement

Master Leonard held that the Claimant’s funding choice was reasonable, in spite of the criticisms

Advice on Funding

Surrey v Barnet & Chase Farm Hospitals NHS Trust [2018] EWCA Civ 451

• A Claimant who has instructed solicitors on legal aid and then switches to a CFA cannot recover the

success fee and ATE premium where liability was admitted

• Changes in funding prior to the implementation of LASPO –different decisions going either way

• If the advice to switch was “unsound”, that could taint the reasonableness of the Claimant’s decision

• Claimant was not given a fair appraisal of the options or advised of the loss of a 10% uplift on general

damages

• Noted that the Claimant’s solicitors would be entitled to a substantial success fee which was not clear

from the advice given

Claims against solicitors to follow in the wake?

Impact of cost budgeting

Increased scope for overlap with PI claims:

• Failure to apply to revise the budget and establish a good reason to

depart

• Note the difficulties surrounding ‘good reasons’ – Nash v MOD

[2018] EWHC

• Failure to advise on proportionality and the limits of what can be

recovered inter partes – what advice should be given?

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Delivery up of files

Introduction – the cases

1. Green v SGI Legal LLP [2017] EWHC B27 (Costs)

2. Hanley v JC&A Solicitors Ltd [2017] EWHC B28 (Costs)

3. Swain v JC&A Ltd [2018] EWHC B3 (Costs)

4. Riaz v Ashwood Solicitors Ltd [2018] EWHC B5 (Costs)

5. Whale v Mooney Everett Solicitors Ltd [2018] EWHC B10 (Costs)

**************************

Hanley v JC&A Solicitors Ltd [2018] EWHC 2592 (QB), [2018] 4

Costs LR 693

Solicitors Act 1974, section 68

(1) The jurisdiction of the High Court to make orders for the delivery by a solicitor of a bill of costs, and for the delivery up of, or otherwise in relation to, any documents in his possession, custody or power, is hereby declared to extend to cases in which no business has been done by him in the High Court

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Who owns the file?

https://www.lawsociety.org.uk/support-services/advice/practice-notes/who-owns-the-file/

Client’s:

• original documents sent by client to firm

• communications sent/received by firm as client’s agent

• final versions of documents for which firm retained

• final versions of third party advices/reports for which client has paid

Firm’s

• documents prepared for firm’s own benefit and protection

• file notes, drafts, working papers

• internal emails, correspondence etc and correspondence sent by client

• accounting records

Fiduciary duties

John Youngs Insurance Services Ltd v Aviva Insurance Services Ltd[2011] EWHC 1515 (TCC) at [94]:

1. Scope of duty determined by terms of underlying retainer

2. Not all breaches are breaches of fiduciary duty

3. Fundamental obligation is one of loyalty: Mothew

4. Is the agency relationship a fiduciary relationship at all?

5. Fiduciary relationships cannot alter contractual retainer

6. Person may be part fiduciary and part not

7. Commercial relationships do not necessarily have to have a fiduciary character

Preference of interests: really??

• documents already sent by solicitor to client once before

• documents belonging to solicitor in any event

• what other obvious conflict of interest / allegation of impropriety?

• existence of fiduciary duty cannot of itself interfere with proprietary rights

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Any way forward?

• Pre-action disclosure: CPR 31.16

• Soole J:

“… it does not follow that solicitors should in all circumstances press their legal rights to the limit, nor that they can necessarily do so with impunity. To take one example, a refusal to comply with a former client’s request for a copy of a mislaid CFA (made on an undertaking to pay a reasonable copying charge) so that advice may be obtained on the prospects of a s.70 application, would surely entitle the client to issue such an application notwithstanding the inability to comply with the procedural requirement in PD46 para. 6.4; and could have potential adverse costs implications for the solicitors within those proceedings, whatever their result.”

• Equitable account

Cover for fees?

Introduction

• Company engages Solicitors re breach of contract claim

• Settlement at mediation - £200,000

• Spend on Solicitors - £100,000

• Limitation defence missed!

• £200,000 v £300,000?

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The MTC

• Clause 1.1: “…the insurance must indemnify each insured against civil

liability…”

• “claim” = “a demand for, or an assertion of a right to, civil compensation or

civil damages or an intimation of an intention to seek such compensation or

damages.”

• Clause 6.6(a) – exclusion in respect of “trading or personal debt of any

insured”.

Liability insurance

• West Wake Price & Co v Ching

“The essence of the main indemnity clause – as indeed of any indemnity clause – is

that the assured must prove a loss. The assured cannot recover anything under the

main indemnity clause or make any claim until they have been found liable and so

sustained a loss. If judgment were given against them for the sum claimed, they would

undoubtedly have sustained a loss and the question would then arise what was the

cause of the loss.”

• 1st party vs 3rd party losses

Scenario 1

• £100,000 paid

• Claim for £300,000

• NB effect of assessment

• Kyriackou v ACE Insurance Ltd

“…But a claim for damages requires a breach of duty or obligation and

would therefore exclude claims for restitution or debt…”

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Scenario 2

• £100,000 not yet paid

• Claim for £200,000

• Fearns v Anglo-Dutch Paint & Chemical Co Ltd

“…neither the existence nor the exercise by A of this right of equitable set-off has

the effect of extinguishing or reducing either claim.”

• Myers v Simcoe and Erie General Insurance Company

“Although a set-off is commonly referred to as a defence, it nevertheless involves a claim by the defendant who asserts set-of. At trial, the trial judge in this case would be required to determine whether the allegations of professional negligence on the part of the respondent had been proven and then to assess the damages resulting from such negligence.”

Scenario 3

• £100,000 not yet paid

• Fees claim for £100,000

• Counter claim for £200,000

• Fearns v Anglo-Dutch Paint & Chemical Co Ltd

“…neither the existence nor the exercise by A of this right of equitable set-off has the effect of

extinguishing or reducing either claim.”

• Myers v Simcoe and Erie General Insurance Company

“Although a set-off is commonly referred to as a defence, it nevertheless involves a claim by

the defendant who asserts set-of. At trial, the trial judge in this case would be required to

determine whether the allegations of professional negligence on the part of the respondent had

been proven and then to assess the damages resulting from such negligence.”

Cover for fees?

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