FREE CHAPTER from ‘A Practical Guide to Solicitor and Client Costs – 2nd Edition’ by Robin Dunne

CHAPTER TWO – ESTIMATES

Introduction

2.1. A client who instructs a solicitor in a contentious matter will always want to know two things at the outset; what the merits are and what the cost will be. In non-contentious matters the client will similarly be concerned as to the costs of the work.

2.2. The simplest way to ensure that both solicitor and client know what the cost will be is for the client to be given a fixed quote at the outset. That quote will not change and will provide certainty for both parties.

2.3. Fixed fees are eminently suitable for some types of work (particularly non-contentious legal work such as property transfers) where the potential amount of work the solicitor will do can be easily ascertained at the outset. However, in many other types of legal work a fixed quotation is a recipe for under payment. Litigation is an obvious example. In litigation the amount of work the solicitor must undertake can be increased by factors outside of their control- a problematic opponent for example.

2.4. The SRA Code of Conduct for Solicitors 2018 requires that a solicitor should (a) clearly explain their fees and (b) if and when they are likely to change. The Code at 8.7 states that solicitors must:

ensure that clients receive the best possible information about how their matter will be priced and, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of the matter and any costs incurred.

2.5. Where a fixed price is quoted and accepted there is little potential for dispute; the client will pay that amount whatever the work undertaken (and the solicitor will not be able to charge more without the consent of the client).

2.6. Where a fixed price is not agreed the solicitor should provide an estimate of the cost of the work at the outset. As shall be seen estimates have the potential to cause issues for the solicitor where they prove inadequate and where the client has relied upon them.

2.7. The remainder of this chapter will focus on estimates.

The Golden Rules

2.8. Estimates become problematic where there are inadequate, not properly explained and where the solicitor does not regularly keep them updated.

2.9. Following these rules should keep disputes to a minimum:

(i) Ensure the first estimate is accurate

2.10. The understandable reluctance of a solicitor to provide an estimate that has the potential to scare off a client should not dissuade them from providing a sensible estimate at the outset.

2.11. The fee earner providing the estimate should be experienced enough to be able to properly estimate the likely cost of the work. The estimate should not be given on a ‘best case scenario’ but rather be a realistic band of figures which takes into account a smooth-running case at one end and a case where far more work will be needed at the other.

2.12. If the fee earner is not sufficiently experienced to properly estimate what the cost will be then they should discuss the issue with a supervisor or partner in the firm.

2.13. Taking sufficient time to provide an accurate initial estimate will avoid many potential problems. It is striking how many solicitors provide inadequate estimates at the outset. As will be seen, in some circumstances an inadequate initial estimate may not be cured by revisions at a later date.

2.14. Thought should be given as to whether it would be beneficial to provide estimates in stages rather than for the entire action. For example, an estimate could be given for bringing the matter to proceedings. Thereafter, to bring the matter to a CMC and then a pre-trial review. Finally, a figure can be given to take the case all the way to trial. Breaking the estimates down into these phases can mean that the figures are far more accurate. Of course, a client will likely still want to have an idea of the overall cost but the staged approach allows:

(a) more accurate estimates

(b) natural points where an estimate can be discussed and revised if the claim is taking longer or becoming more complicated. This can mean the next stage estimate and the overall figure can be revised in consultation with the client.

(ii) Ensure the estimate is properly worded.

2.15. When providing the initial estimate it is essential to set out in clear language that the figures quoted are estimates only, are subject to change and are not a fixed quote.

2.16. The following wording is suggested:

It is important that you understand the likely level or amount of our fees for undertaking this work.

At this stage it is impossible to set out a precise figure for the cost because there are a number of factors which could increase the amount of work we are required to do. In our experience we estimate that the cost of the work will be between £X and £Y.

This is not a fixed price quote and is an estimate only. The amount you are required to pay us may be higher than this depending on what occurs during the period we are instructed. We will revise the estimate if at any time the likely cost will rise or fall. If that happens we will discuss with you the reasons for the revision before the estimate is altered.

We will write to you with an updated estimate every 3 months during the period of our instructions. If you are concerned as to the level of costs or wish to make a decision in respect of the claim which requires you to have an up to date estimate of costs you may ask us for such an up to date figure at any time.”

(iii) Keep the estimate updated

2.17. It is understandable that sometimes initial estimates prove inaccurate but there is no excuse for allowing such an estimate to remain untouched as the work progresses.

2.18. The solution is simple; diarise the matter for review at regular periods and check whether the last estimate is still accurate. If not, revise it and tell the client. It is far better to have a discussion of the likely costs (and why they may change) during the retainer than have a dispute with a disgruntled client once it is at an end.

2.19. If an estimate is to be significantly revised then there should be a justification for this. What has changed since the original estimate? Why could this change not be foreseen at the outset? These are the questions that a court will ask if the estimate proves to be an issue at a later assessment.

Giving No Estimate

2.20. It might be thought that giving no estimate at all would place the solicitor in a better position than providing an estimate which could turn out to be inadequate.

2.21. In Garbutt v Edwards1 (a between the parties assessment) it had been argued that a failure to give an estimate rendered the retainer unlawful. That was rejected by the court of appeal who held that where no estimate is given this is merely a factor for the costs judge to take into account.

2.22. There is no obvious sanction within the rules, Act or case law for a solicitor who fails to give an estimate. However, two points should be noted; firstly, that a failure to give an estimate is a clear breach of the code of conduct and secondly, a client could argue that had a reasonable estimate been given they would possibly have approached the matter differently (and as a result this should be taken into account when the costs judge assesses what it would be reasonable for the client to pay).

2.23. In Newman v Gordon Dadds LLP2 the costs judge set out the principles thus:

From those authorities one can distil the following principles. If, on the assessment of costs between a solicitor and a client, it is found (a) that the solicitor has never provided the client with an estimate of the costs that the client was likely to pay and (b) that if a proper estimate had been given, the client would have paid less than the solicitor is claiming, it may be appropriate to limit the amount payable by the client to the solicitor to an amount that it is reasonable, in all the circumstances, to expect the client to pay. That may be less than would otherwise be payable for work reasonably done by the solicitor at a reasonable rate.” [69]

2.24. It would be most unadvisable to risk sanction by the SRA or the costs judge for failing to provide an estimate.

When Can a Solicitor Be Held to the Estimate?

2.25. Unless an estimate is a considered a fixed price quote the solicitor will never be held to an estimate. Rather, when considering what it is reasonable for the client to pay, the estimate will be taken into account where:

(a) the figures provided prove inadequate and the actual costs exceed the amounts quoted.

(b) where the estimate has not been properly explained (if the client can argue that it was a fixed quote then it could act as a cap on the recoverable fees).

(c) where there is no adequate explanation for the overspend.

(d) if the client can show reliance upon the estimate then the solicitor may be held to the sum (although the estimate will never operate as a cap).

2.26. The leading case on solicitor and client estimates is Mastercigars Direct Ltd v Withers LLP3. Here, the solicitors exceeded their estimate and at first instance were restricted to that amount. They appealed that decision to the High Court where Morgan J gave judgment on the general principles. The matter was remitted back to the costs judge to consider reliance and this decision was appealed back to Morgan J4. Finally, the Court of Appeal refused permission to appeal in a written judgment5.

2.27. Morgan J set out the legal principle in the first Mastercigars judgment thus:

In a case where a solicitor does give his client an estimate but the costs subsequently claimed exceed the estimate, it will not follow in every case that the solicitor will be restricted to recovering the sum in the estimate”. [92]

2.28. Rather, the proper position was set out as follows:

The estimate is a useful yardstick by which the reasonableness of the costs may be measured. If there is a modest difference between the estimate and the final bill, because an estimate is not a fixed price for the work, one may be very little surprised by the modest difference. The greater the difference, the more it calls for an explanation. If there is a satisfactory explanation for the difference then the estimate may cease to be useful as a yardstick with which to measure reasonableness. Conversely, if there is no satisfactory explanation the estimate may remain a very useful yardstick with which to measure reasonableness.” [99]

2.29. In other words, when the costs judge is assessing the solicitor’s bill he may use the estimate as ‘a useful yardstick’ which assists in informing him as to the reasonable level of costs. That does not mean that the solicitor is limited to the estimate amount but if he wishes to recover costs in excess of an estimate (particularly where the difference is not modest) then the court will expect an explanation as to the difference.

2.30. Per Morgan J the ultimate question is what in all the circumstances is it reasonable for the client to pay:

“…in some cases, the solicitors’ estimate will be a useful yardstick with which to measure the reasonableness of the final bill and in other cases the amount of the estimate will be a factor in considering what sum it is reasonable to expect the client to pay”. [103]

Reliance Upon an Estimate

2.31. The second Mastercigars judgment was concerned with the question of the courts approach where a client can show that they relied upon the estimate. Morgan J at [54] set out the steps the court should take when considering this issue (said to be “put forward as practical guidance rather than as a legal imperative”) thus 6:

In my judgment, 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 is 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…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.

  • Whether there should be a reduction, and if so to what extent, is a matter of judgment. Specific deductions can be made from the costs otherwise recoverable to reflect the impact which an erroneous and uncorrected estimate had on the conduct of the client.

  • 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.” [54]

2.32. In respect of the burden upon the client, the judge held:

“…the client did not have to go so far as to show the ingredients of an estoppel against the solicitor. One part of my reasoning was that it would often be difficult for a client to show that “he would have” acted differently but the client may be able to show “it is possible he might have approached the litigation differently” if he had been given a more accurate estimate. Thus, my formulation of what is required does not go so far as to require the client to prove on the balance of probabilities that he would have acted differently”. [47]

2.33. As can be seen, all that is required is that the client can show that it is possible that he might have approached the litigation differently had an accurate estimate been provided.

A margin above the estimate

2.34. In the second Mastercigars judgment Morgan J noted7 that costs judges had, since Wong v Vizards (A Firm)8 adopted a margin approach (often said to be 15% or 20%) to determining the reasonable costs payable by the client. Put simply, they would limit the solicitor to the estimate and then add on a percentage margin to allow for the fact that the estimate was not a fixed quote.

2.35. However, the court in Wong had never suggested that a margin over and above the estimate should be allowed as a general practice. In fact what Toulson J did in that case was to work out what he considered would be the reasonable costs taking into account the estimate (which happened to be a figure of the estimate plus 15%). Despite this, first instance decisions in cases where estimates had been exceeded began to use the ‘estimate plus 15%’ rule of thumb appeared and many in the profession took this to be a rule of general application. It was never so.

2.36. Morgan J in the first Mastercigars judgment made it very clear that the idea of the ‘estimate plus a % margin’ was erroneous [104-105]. In the second judgment he made this clear, stating:

“…the adoption of a margin approach greatly simplifies the steps which a Costs Judge needs to take when carrying out a detailed assessment of a bill, which has been preceded by a lower estimate… it is obvious, at least to me, that the adoption of a margin approach as the conventional approach in the majority of cases pays scant, if any, attention to the legal process which I attempted to describe in my earlier judgment and have now restated in paragraph 54 above.” [57]

2.37. That is not to say that that a court, when properly taking the steps required and asking itself what in all the circumstances is it reasonable for the client to pay, can never express itself by reference to a margin. However, the judge must consider the issue fully and properly and cannot short cut the process by simply allowing an estimate plus 15 or 20%.9

2.38. Despite the law being clarified for many years it is still common to see clients arguing that costs should be restricted to an estimate plus a margin. That is not the correct approach.

Initial inadequate estimate revised

2.39. If a solicitor provides an estimate at the outset which is inadequate then revising that estimate will not necessarily mean the court disregards the original.

2.40. The case of Reynolds v Stone Rowe Brewer10 provides a salutary warning to solicitors when setting estimates at the outset.

2.41. The claimant in this case instructed solicitors in relation to a dispute with her builder. The builder issued proceedings and she counter claimed, eventually recovering damages of £55,380.

2.42. The claimant’s solicitors advised at the outset 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.”

2.43. Throughout the claim the solicitors increased this estimate numerous times. By the final revised estimate their bills totalled £59,400.35 and their estimate of their costs to trial was £55,000 plus vat.

2.44. In fact, by the end of the matter the claimant’s total costs liability (including the fees of the second firm instructed to take over the matter) was £90,000.

2.45. At the first hearing before the costs judge the solicitors sought to justify why the original estimate was so inadequate. The costs judge found that this did not explain the difference and allowed the solicitor the sum of £18,000 plus Vat (the top end of the original estimate) with a margin of 15% in addition. The solicitors appealed.

2.46. Tugendhat J also held that the explanations for the overspend did not justify the inadequate estimate:

While I accept that by the time the estimate of £60,000 was given there had been some unusual developments in the form of the applications which the Claimant instructed the solicitors to oppose, contrary to their advice, these cannot explain the bulk of the difference between the ultimate claim by the solicitors and their earlier estimates”. [68]

2.47. The judge commented that:

This case has been a disastrous experience for the Claimant, and little better for the solicitors. The Claimant embarked on litigation which she could not by any means afford, on the understanding, conveyed by the solicitors, that she could just afford it.” [69]

2.48. He went on to say:

“…it is by no means uncommon for a Claimant who recovers, as this Claimant did, a judgment for some £55,380.80, to incur costs in excess of that amount in so doing. In this case it was never the intention of either the Claimant or the solicitor that such a state of affairs should come about. It came about because the estimates in 2005, including the November 2005 estimate, were unreasonably low.” [69]

2.49. And further that:

In my judgment the Costs Judge 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. She would clearly not have been able to afford to do so, and I think it unlikely she would have embarked on the course she did embark on.” [70]

2.50. The conclusion of the judge was:

I assume that the solicitors have spent a reasonable time on reasonable items of work, and that the charging rate is reasonable. But I find that the resulting figure exceeds what it is reasonable in all the circumstances to expect the client to pay. The figure that the Costs Judge certified is a figure that it is reasonable to expect the Claimant to pay in this case.” [71]

2.51. As a result, the solicitors recovered only the costs contained within the original estimate plus a margin. Had the solicitors provided a reasonable and realistic estimate at the outset they could have avoided all of the problems that followed. Of course, had they done so the claimant may never have taken on the claim in the first place.

2.52. This case and others11 demonstrate that simply revising an inadequate estimate given at the outset may not mean the court will only take into account the later revisions (particularly if the client can show reliance). It is imperative that solicitors endeavour to get the estimate right at the start of the retainer.

Budgets and Estimates

2.53. The rules relating to costs budgets apply to certain types of cases only and are concerned with the reasonable and proportionate sums payable between the parties.12

2.54. Since costs budgets are set with proportionality in mind and on the basis of what may reasonably be recoverable between the parties (rather than on a solicitor and own client basis) it cannot be said that a budget represents the amount that a client is liable or even likely to pay to his own solicitors; rather it sets out the amount likely to be paid by the opponent if the claim succeeds.

2.55. However, in respect of estimated costs, a budget approved by the court does show the sums recoverable between the parties (and will not be departed from unless the party can show good reason). It is therefore an extremely useful document to provide to a client.

2.56. Good practice (and the code of conduct) dictates that a solicitor should ensure that the client sees the approved budget. If costs are incurred outside the parameters of that budget then it is likely that the court will find that they fall within CPR r.46(c) and will be presumed to be unreasonably incurred.13

2.57. Further, the provisions at s.74(c) of the Act and CPR r.46.9(2) mean that in contentious county court cases the solicitor will be limited to the costs recoverable between the parties unless there is agreement to the contrary.14 In these circumstances the budget is clearly an important document within the solicitor client context.

2.58. As a result, where a costs budget is approved or agreed, the solicitor should send this to the client and explain that it represents the costs that will be recovered between the parties if the case is won (but do not include the costs that the client will be liable to pay on a solicitor client basis). If costs are incurred outside the budget (and the budget is not revised) then the client must be told that these are unlikely to be recovered at the end of the claim.

2.59. There is much to commend the practice of a costs lawyer preparing a solicitor and client budget (at the same time as the between the parties budget is approved) and serving this on the client. This will ensure that the client has a good idea of the overall cost to them and the likely amount that the opponent will pay if the claim is successful.

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1[2005] EWCA Civ 1206

2[2020] EWHC B23 (Costs)

3[2007] EWHC 2733 (Ch)

4[2009] EWHC 1295 (Ch)

5[2009] EWCA Civ 1526

6These steps have been separated for ease of reading. In the original judgment they are all included within one paragraph with no breaks.

7[56]: “…the margin approach is very much favoured by Costs Judges.”

8[1997] 2 Cost LR 46

9See [57] of the Second Mastercigars judgment

10[2008] EWHC 497 (QB)

11See for example Harrison v Eversheds [2017] EWHC 2594 (QB)

12The rules are set out at CPR Part 3 II (r.3.12 -3.18) and PD 3E

13See Chapter Six

14See Chapter One