Garbutt & Anor v Edwards & Anor

This is an appeal with the permission of Mummery LJ from the order dated the 25 October 2004 of HHJ O’Brien sitting in the Cambridge County Court dismissing the appellants’ appeal against the order of District Judge Pelly dated 12 May 2004. Before I describe the background, I will state the issue which arises on this appeal, as it is one of considerable professional interest and importance. The issue is this: can a paying party claim that his liability to the receiving party under an order for the payment of costs is discharged, or that it should be reduced, if the solicitor for the receiving party has failed to give to his client an estimate of costs in accordance with the Solicitors Costs Information and Client Care Code (“the Code”) as required by the Solicitors’ Practice Rules? It is necessary to examine the legislative framework for the Code to answer this question. Before I do that, I wish to describe two fundamental principles in the field of costs. They must be borne in mind when determining the role in the system to be accorded to failures of the receiving party’s solicitors to provide a costs estimate.

The two fundamental principles to which I refer are:

This principle is well-known to solicitors and others who are concerned in this field, but it bears repeating. It is in origin a common law principle. The principle was described by Baron Bramwell thus when giving the judgment of the court in the case of Harold v Smith (1860) 5 H&N 381, 385:

“Before stating the principle on which the Master acted on this taxation, it may be as well that I should state what we consider the principle upon which he ought to have acted. I think the question is one of considerable importance, and therefore, although it is only a question of reviewing taxation costs, I go into it at some length.

Costs as between party and party are given by the law as an indemnity to the person entitled to them: they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained. Of course, I do not say there are not exceptional cases, in which certain arbitrary rules of taxation have been laid down; but, as a general rule, costs are an indemnity, and the principle is this, - find out the damnification, and then you find out the costs which should be allowed.”

In the later case of Smith v Butler (1875) LR 19 Eq 473, Sir Richard Malins VC held:

“It is of great importance to litigants who are unsuccessful that they should not be oppressed by having to pay an excessive amount of costs. The present case illustrates this principle very clearly. I am satisfied that the Plaintiff’s invention of this swivel was a most meritorious one, and, though he was ultimately unsuccessful in the suit, because there was held to be an anticipation, and therefore he must pay the costs, I think he ought to bear no more than the necessary costs. I adhere to the rule which has already been laid down, that the costs chargeable under a taxation as between party and party are all that are necessary to enable the adverse party to conduct the litigation, and no more. Any charges merely for conducting litigation more conveniently may be called luxuries, and must be paid by the party incurring them.”

Thus there are limitations on what the receiving party may recover from the paying party. The touchstone for the recoverability of costs between parties is today expressed in terms of the costs having to be reasonably incurred and proportionate in amount, rather than in terms of necessity. Nonetheless, the statements of principle in these cases by Baron Bramwell and Sir Richard Malins VC are still vital to an understanding of the rationale and scope of application of the indemnity principle. Unsuccessful litigants should not have to pay an excessive amount of costs but nonetheless the successful party should be reimbursed for the costs that he has properly incurred.

As pointed out in Hollins v Russell [2003] 1 WLR 2487, the indemnity principle is now recognised by Parliament:

“23.

…This common law principle, by which a paying party cannot be ordered to pay a receiving party more by way of costs than the receiving party is himself liable to pay, is now enshrined in statute, so far as solicitors are concerned, by section 60(3) of the Solicitors Act 1974, which provides:

“A client shall not be entitled to recover from any other person under an order for the payment of any costs to which a contentious business agreement relates more than the amount payable by him to his solicitor in respect of those costs under the agreement.”

24.

In 1999 Parliament showed itself well aware of the possible application of the indemnity principle in the context of the reforms it introduced in the 1999 Act, because by section 31 it provided:

“‘In section 51 of the Supreme Court Act 1981 (costs) in subsection (2) (rules regulating matters relating to costs) insert at the end ‘or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs’.”

This section, however, has not yet been brought into force. (It will be noticed that these two sections state the principle in different ways, but that need not concern us for the purposes of these appeals.)”

When a bill of costs is served it will have attached to it a certificate as to accuracy by the receiving party’s solicitor, i.e. a certificate that the costs as stated in the bill do not exceed the amount of the costs which the receiving party is obligated to pay to his solicitor. It is part of the professional duty of a solicitor to ensure that any bill of costs which he signs does not offend the indemnity principle. Accordingly the court will proceed on the basis that the certificate is correct unless there is reason to think otherwise, and thus will not seek to go behind the certificate. The effect of the certificate was considered in Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, which was in turn considered in Hollins v Russell:

“[59] Indeed, when the bill of costs is served, it is required to contain a certificate as to accuracy to the effect that the costs claimed in the bill do not exceed costs which the receiving party is required to pay to the solicitors presenting the bill. In Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, the status of the certificate was elevated. In that case, the claimant succeeded in obtaining damages for personal injuries incurred in the course of his employment. The defendants agreed to pay damages together with costs to be assessed. The claimant was assisted financially by his union. When the bill was presented, the defendants objected to the hourly rate and to the claimant’s solicitors’ mark-up and asked for evidence that the bill was not in breach of the indemnity principle. In due course a letter was produced to the court from a union representative which stated that the union’s relationship with the solicitor was on the basis that the solicitors were entitled to make a full solicitor/client charge. None the less, the district judge held that they were entitled to disclosure of the relevant material. The Court of Appeal (Butler-Sloss, Henry and Judge LJJ) were clearly very concerned about the prospect of satellite litigation in assessment proceedings. The court held that there was no breach of the indemnity principle merely because the successful litigant was a member of a trade union which provided financial support. It was accepted by the paying party that the costs judge was entitled, if he saw fit, to be provided with the information that he needed. Judge LJ held (at 572–573):

‘The [costs] officer is exercising a judicial function, with substantial financial consequences for the parties. To perform it, he is trusted properly to consider material which would normally be protected from disclosure under the rules of legal professional privilege. If, after reflecting on the material available to him, some feature of the case alerts him to the need to make further investigation or causes him to wonder if the information with which he is being provided is full and accurate, he may seek further information. No doubt he would begin by asking for a letter or some form of written confirmation or reassurance as appropriate. If this were to prove inadequate he might then make orders for discovery or require affidavit evidence … [I]t would theoretically be open to him to order interrogatories. However, if the stage has been reached where interrogatories might reasonably be ordered the conclusion that the receiving party had not been able to satisfy the [costs] officer about the bill, or some particular aspect of it, would seem inevitable … [A]n emphatic warning must be added against the over enthusiastic deployment of these powers, particularly at the behest of the party against whom the order for costs has been made … [T]he danger of “satellite litigation” is acute. As far as possible consistent with the need to arrive at a decision which does broad justice between the parties, it must be prevented or avoided, and the additional effort required of the parties kept to the absolute minimum necessary for the [costs] officer properly to perform his functions.’

[60] The court attached considerable importance to the fact that solicitors are officers of the court and that they are trusted not to mislead the court or to allow it to be misled. Accordingly, the court indicated that it would expect solicitors to disclose the existence of a limit on the fees which they could recover from their client. Judge LJ said (at 575):

‘They would not have produced and signed a bill of costs which included a claim for “reasonable costs” which would have fallen foul of the indemnity principle … [I]n the ordinary case in which a “client care letter” has been provided (and certainly if and when the client care letter becomes obligatory), the hourly rate claimed in the bill of costs should coincide with the terms of that letter … [I]n view of the increasing interest taken in this issue by unsuccessful parties to litigation, coupled with the developing practice in relation to conditional fees, the extension of the “client care” letter and contentious business agreements under s 60(3) [of the Solicitors’ Act 1974], in future, copies of the relevant documents (where they exist) or a short written explanation … should normally be attached to the bill of costs. This will avoid skirmishes which add unnecessarily to the costs of litigation.’

[61] Our assessor has drawn our attention to para 40.2(i) of the Costs Practice Direction, under which (if there is a dispute as to the receiving party’s liability to pay costs to her solicitor) a copy of the client care letter must be produced to the costs judge. He tells us that the client care letter is also from time to time disclosed to the paying party. The client care letter, however, is not the same as the CFA although the CFA is often an integral part of the client care letter as we shall see in the TAG Test Cases.

[62] Henry LJ (at 575–576) also highlighted the importance of the signature by the solicitor to the bill of costs:

‘In so signing he certifies that the contents of the bill are correct. That signature is no empty formality. The bill specifies the hourly rates applied, and the care and attention uplift claimed. If an agreement between the receiving solicitor and his client … restricted (say) the hourly rate payable by the client, that hourly rate is the most that can be claimed or recovered on [detailed assessment] … The signature of the bill of costs under the rules is effectively the certificate by an officer of the court that the receiving party’s solicitors are not seeking to recover in relation to any item more than they have agreed to charge their client … For the avoidance of doubt, I also agree that the [costs] officer may and should seek further information where some feature of the case raises suspicions that the whole truth may not have been told. And the other side of a presumption of trust afforded to the signature of an officer of the court must be that breach of that trust should be treated as a most serious disciplinary offence.’”

As a matter of policy, therefore, the courts start from the position that the certificate of accuracy has been properly given. There must be good reason to justify going behind the certificate. However, for some special circumstances this principle has not been applied. There were such circumstances in the Hollins case where the question was whether a conditional fee agreement had been entered into which complied with section 58 of the Access to Justice Act 1999. One of the reasons for distinguishing the Bailey decision in that case was that Parliament had specifically provided that the agreement should be unenforceable if those conditions were not met. I will return to the question of the role of the certificate of accuracy in this case below.

Section 31 of the Solicitors Act 1974 (“the 1974 Act”) provides in material part as follows:

“31 Rules as to professional practice, conduct and discipline

(1)

Without prejudice to any other provision of this Part the Council may, if they think fit, make rules, with the concurrence of the Master of the Rolls, for regulating in respect of any matter the professional practice, conduct and discipline of solicitors and for empowering the Society to take such action as may be appropriate to enable the Society to ascertain whether or not the provisions of rules made, or of any code or guidance issued, by the Council are being complied with.

(2)

If any solicitor fails to comply with rules made under this section, any person may make a complaint in respect of that failure to the Tribunal…”

Section 37A of the 1974 Act provides that Schedule 1A to the 1974 Act has effect with respect to the provision by solicitors of services which are not of the quality which it is reasonable to expect of them. Schedule 1A provides so far as material as follows:

“Inadequate Professional Services

1.

(1) The Council may take any of the steps mentioned in paragraph 2 (“the steps”) with respect to a solicitor where it appears to them that the professional services provided by him in connection with any matter in which he or his firm have been instructed by a client have, in any respect, not been of the quality which it is reasonable to expect of him as a solicitor.

(2)

The Council shall not take any of the steps unless they are satisfied that in all the circumstances of the case it is appropriate to do so.

(3)

In determining in any case whether it is appropriate to take any of the steps, the Council may

(a)

have regard to the existence of any remedy which it is reasonable to expect to be available to the client in civil proceedings; and

(b)

where proceedings seeking any such remedy have not been begun by him, have regard to whether it is reasonable to expect him to begin them.

2.

(1) The steps are

(a)

determining that the costs to which the solicitor is entitled in respect of his services (“the costs”) are to be limited to such amount as may be specified in the determination and directing him to comply, or to secure compliance, with such one or more of the permitted requirements as appear to the Council to be necessary in order for effect to be given to their determination;

. . .

(c)

directing him to pay such compensation to the client as the Council sees fit to specify in the directions;

. . .

(2)

The “permitted requirements” are

(a)

that the whole or part of any amount already paid by or on behalf of the client in respect of the costs be refunded;

(b)

that the whole or part of the costs be remitted;

(c)

that the right to recover the costs be waived, whether wholly or to any specified extent.

(3)

The power of the Council to take any such steps is not confined to cases where the client may have a cause of action against the solicitor for negligence.

3.

(1) The amount specified in a direction by virtue of paragraph 2(1)(c) shall not exceed [£5,000]…”

The figure of £5,000 in paragraph 3(1) is to be increased to £15,000 with effect from 1^st January 2006: see the Solicitors (Compensation for Inadequate Professional Services) Order 2005.

Rule 15 of the Solicitors’ Practice Rules provides in material part as follows:

“Practice rule 15 (costs information and client care)

Solicitors shall:

(a)

give information about costs and other matters, and

(b)

operate a complaints handling procedure,

in accordance with a Solicitors’ Costs Information and Client Care Code made from time to time by the Council of the Law Society with the concurrence of the Master of the Rolls, but subject to the notes.

Notes

(i)

A serious breach of the code, or persistent breaches of a material nature, will be a breach of the rule, and may also be evidence of inadequate professional services under section 37A of the Solicitors Act 1974.

(ii)

Material breaches of the code which are not serious or persistent will not be a breach of the rule, but may be evidence of inadequate professional services under section 37A.

(iii)

The powers of the Office for the Supervision of Solicitors on a finding of inadequate professional services include:

(a)

disallowing all or part of the solicitor’s costs; and

(b)

directing the solicitor to pay compensation to the client up to a limit of £5,000.

(iv)

Non-material breaches of the code will not be a breach of the rule, and will not be evidence of inadequate professional services under section 37A…”

The Code provides:

“1.

Introduction

(a)

This code replaces the written professional standards on costs information for clients (see paragraphs 3-6) and the detail previously contained in Practice Rule 15 (client care) (see paragraph 7).

(b)

The main object of the code is to make sure that clients are given the information they need to understand what is happening generally and in particular on:

(i)

the cost of legal services both at the outset and as a matter progresses; and

(ii)

responsibility for clients’ matters.

(d)

It is good practice to record in writing:

(i)

all information required to be given by the code including all decisions relating to costs and the arrangements for updating costs information; and

(ii)

the reasons why the information required by the code has not been given in a particular case…”

2.

Application

…

(b)

The full information required by the code may be inappropriate, for example:

(i)

in every case, for a regular client for whom repetitive work is done, where the client has already been provided with the relevant information, although such a client should be informed of changes; and

(ii)

if compliance with the code may at the time be insensitive or impractical. In such a case relevant information should be given as soon as reasonably practicable…

3.

Informing the client about costs

(a)

Costs information must not be inaccurate or misleading.

(b)

Any costs information required to be given by the code must be given clearly, in a way and at a level which is appropriate to the particular client. Any terms with which the client may be unfamiliar, for example “disbursement”, should be explained.

(c)

The information required by paragraphs 4 and 5 of the code should be given to a client at the outset of, and at appropriate stages throughout, the matter. All information given orally should be confirmed in writing to the client as soon as possible.

4.

Advance costs information - general

The overall costs

(a)

The solicitor should give the client the best information possible about the likely overall costs, including a breakdown between fees, VAT and disbursements.

(b)

The solicitor should explain clearly to the client the time likely to be spent in dealing with a matter, if time spent is a factor in the calculation of the fees.

(c)

Giving “the best information possible” includes:

(i)

agreeing a fixed fee; or

(ii)

giving a realistic estimate; or

(iii)

giving a forecast within a possible range of costs; or

(iv)

explaining to the client the reasons why it is not possible to fix, or give a realistic estimate or forecast of, the overall costs, and giving instead the best information possible about the cost of the next stage of the matter…

…

6.

Updating costs information

The solicitor should keep the client properly informed about costs as a matter progresses. In particular the solicitor should:-

(a)

tell the client, unless otherwise agreed, how much the costs are at regular intervals (at least every six months) and in appropriate cases deliver interim bills at agreed intervals;

(b)

explain to the client (and confirm in writing) any changed circumstances which will, or which are likely to affect the amount of costs, the degree of risk involved, or the cost-benefit to the client of continuing with the matter;

(c)

inform the client in writing as soon as it appears that a costs estimate or agreed upper limit may or will be exceeded; and

(d)

consider the client’s eligibility for legal aid if a material change in the client’s means comes to the solicitor’s attention…”

This case arose out of a boundary dispute. The boundary dispute was settled by Tomlin order dated 20 February 2002. Under that order the appellants agreed to pay the respondents their costs to be assessed if not agreed. Those costs were subsequently assessed at £25,263.98 together with £616. 87 for the costs of the assessment by the order of District Judge Pearl dated 17 October 2003. The appeal from that order was dismissed by HHJ O’Brien at an earlier hearing. However there was a further order for costs and in respect of those costs an order was made for summary assessment. The costs were to be paid by the appellants. The summary assessment came before District Judge Pelly on 12 May 2004. District Judge Pelly rejected an argument that there was no liability because the solicitors for the claimants had failed to provide their clients with an estimate of the likely costs of the application. District Judge Pelly proceeded to reduce the amounts in question from £2,136 to £1,940 and £1,048.68 to £779.03 respectively. The appellants issued a second appeal, and this also came before HHJ O’Brien. The hearing was conducted on the basis that hourly rates were provided, but not estimates. The respondents accepted that they were not in a position to claim that they had provided an estimate. The respondents now say that an estimate was provided but it is too late to take that point now.

HHJ O’Brien referred to Wong v. Vizards [1997] 2 Costs LR 46. In that case, the costs charged by the solicitors greatly exceeded the estimate the solicitor had given. Costs were assessed at the amount shown in the original estimate plus 15%. The judge (Toulson J) also referred to rules 3, 4 and 6 in the Solicitors’ Costs Information and Client Care Code 1999 and to a number of authorities. He held that a client knows that he will be charged by his solicitor and thus a solicitor who fails to give an estimate should not thereby be disentitled from receiving any fees. I refer to the Wong case in my conclusions below.

Mr Morgan for the appellants, emphasised the importance of estimates. They inform the client of the total consideration for the solicitor’s fees. The hourly rate which the solicitor intends to charge is usually the most important element. The estimate is only an estimate and the client agrees to pay the whole of the final bill. The situation is open to abuse if there is no prior estimate. At the end of the transaction or litigation, the client may receive a large bill which he did not expect. An estimate cannot be exceeded without adequate notice and explanation. It therefore has an effect in practice on the terms of the contract of retainer.

Further, an estimate enables the client to consider whether to proceed with his instructions to his solicitors. It also concentrates the mind of the solicitor giving the estimate on the steps which are likely to be required to implement the client’s instructions and how best to achieve those steps cost-effectively. An estimate is important also for the other parties to the ligation because it encourages parties to act cost-effectively. The estimate helps to ensure there is some limit on legal costs, whoever is paying them.

Mr Morgan submits that the effect of a breach of the obligation to give an estimate is to render the contract of retainer unlawful. In particular he relies on Anderson v Daniel [1924] I KB 138. Mr Morgan distinguishes Shaw v Groom [1970] 2 QB 504, where the absence of a rent book did not prevent the enforcement of a contract for the payment of rent as the court held the provision of a rent book, though required by law, was a collateral matter which did not affect the enforceability of the contract. Mr Morgan submits that the applicable test is one derived from St John Shipping Corp v Joseph Rank Shipping Ltd [1957] 1 QB 267, namely is the contract though lawfully made, a contract which, as performed, is prohibited by statute? Mr Morgan accepts that the mere fact of a breach of the Solicitors’ Practice Rules does not render the contract unlawful and unenforceable: Awwad v Geraghty & Co [2001] QB 570.

Mr Morgan submits that the obligation to give an estimate is at the heart of the Code. A contract of retainer in which no estimate has been given is, absent justification, not a contract which is performed in a way permitted by law. Alternatively the absence of an estimate turns the contract of retainer into a contract which is prohibited by law. The force of the Code would be considerably undermined if there were no sanction for a solicitor who failed to give an estimate at all. Indeed, it would be absurd if a solicitor who gave no estimate could recover his costs but a solicitor who gave an estimate which proved to be inadequate (as in the Wong case) could be largely held to his original estimate.

Mr Morgan makes alternative submissions as follows. First he submits that the indemnity principle requires that the court should take into account the sanctions that could have been awarded against the solicitor. The paying party is entitled to stand in the shoes of the receiving party vis-à-vis his solicitor. Thus, in General of Berne Insurance Co v Jardine [1998] 2 All ER 30, the paying party could rely on a contractual cap agreed between the receiving party and his solicitor. Accordingly the court can take into account any reduction that the receiving party could have obtained through the regulatory process. Mr Morgan submits that the court could alternatively impose a form of tariff. His preferred approach, however, would be a penalty which was tailor made to the circumstances in the particular case. In the further alternative, Mr Morgan submits that the court can reduce the costs payable under CPR 44.14. Again, there is no clear scale. The court would have to take into account expert evidence as to what the solicitor should have done. Mr Morgan submits that the failure to give an estimate is a significant breach of a substantial duty imposed by a relevant code of professional conduct and therefore constitutes “improper” conduct for the purposes of CPR 44.14.

Mr Morgan recognises that his alternative submissions run the risk of creating satellite litigation but he submits that this risk is overstated. A question about the estimate could be taken in the points of dispute. The receiving party would simply state that he required to be satisfied that a proper estimate of costs was given. Disclosure in this field is a matter for the costs judge. The costs judge could require the receiving party to prove that it had received a proper estimate. Mr Morgan submits that the risk of conflict of interest between the solicitor for the receiving party and his client is in any event inherent within the indemnity principle. The risk is not increased under his alternative submission.

The court gave permission to the Law Society to file written submissions on this appeal, and is grateful to the Law Society for its assistance in this respect. In its written submissions, prepared on its behalf by Richard Drabble QC, the Law Society submits that it is not the effect of Rule 15, properly construed, that a breach should render the fees irrecoverable. No sanction is specified. The Law Society also relies on Hollins v Russell at [2003] EWCA Civ 718, [2003] 1 WLR 2487 at [111], and Awwad v Geraghty.

The Law Society submits that the failure to provide an estimate is likely to be relevant in determining what costs clients could reasonably be expected to pay. The Law Society submits that this is the general approach in Wong v Vizards and other authorities. The Law Society further submits that this court should take into account the potential availability of the Society’s disciplinary powers in a case which is serious enough to warrant this.

The court did not invite Mr Pithers, for the respondents, to address them on the question whether the contract for the payment of fees for which no estimate was provided was unlawful. Mr Pithers therefore directed his submissions to Mr Morgan’s alternative submissions.

Mr Pithers submits that the indemnity principle is not offended by the assessment of costs in this case. It would only be offended if the paying party was paying over the odds. The essence of the indemnity principle is that the receiving party should not be over-compensated. The receiving party is not over-compensated if the court assesses costs for which no estimate is given. The client has no obligation to pursue his solicitor if he does not provide an estimate and, if he does not do so, the costs nonetheless become payable.

Mr Pithers submits that the circumstances where an estimate has not been given are likely to be many and varied. A failure to provide an estimate will have an impact on the amount of costs in every case. The court could set a tariff, that is a formula for a standard deduction. The court would have to take into account that a costs estimate might not be given at the start, when instructions are accepted, but might be given later. In addition the estimate might be revised later. It is through the assessment process that the paying party has the protection that he is only paying a reasonable amount.

Mr Pithers submits that the court should not assume that the receiving party would take regulatory proceedings against his own solicitor. There is the additional difficulty that the Law Society is the arbiter. The court on the assessment cannot tie the hands of the Law Society if there were to be a complaint after the assessment. The receiving party may be under-compensated or over-compensated by the award of costs in the event.

Mr Pithers submits the Law Society looks at the failure to provide costs estimates as a disciplinary matter. The sanction should preferably be applied as between solicitor and own client and not after the end of the inter partes stage. As to this it must be observed that the Law Society will only consider the failure to provide a costs estimate as a disciplinary matter if the client makes a complaint to the Law Society about that failure.

Mr Pithers submits that on the appellants’ approach there is a risk of satellite litigation leading to costs and delays. Mr Pithers also submits that there is a risk of conflict. The paying party may be impecunious so the receiving party may want to have his own solicitors’ costs taxed down. If the receiving party has not had an estimate, it will be difficult for him to dispute the estimates for costs put forward by paying parties.

The launch pad for the appellants’ arguments is the indemnity principle, which I described at the outset of this judgment. In reliance on the indemnity principle, Mr Morgan argues that if, as he submits, the effect of the receiving party’s solicitor’s failure to give an estimate is to render the receiving party’s promise to pay his solicitor’s fees unenforceable, no fees are recoverable from the paying party. This is so even if the receiving party wishes to pay his solicitor and considers it appropriate to do so.

To determine the effect of a failure to give an estimate of costs, it is necessary to examine carefully the legislative framework on which the obligation to produce such an estimate is imposed. In that way the nature of the obligation can be determined.

I have set out the legislative framework above. Estimates are required only by the Code (as defined above). The Code is made pursuant to Rule 15 of the Solicitors’ Practice Rules. These Rules are made by the Council of the Law Society pursuant to section 31 of the 1974 Act (set out above). In making these Rules, the Council of the Law Society is acting in the public interest, and the Rules have the force of subordinate legislation: Swain v Law Society [1983] AC 598. The inference I would draw is that the Code is there to protect the legitimate interests of the client, and the administration of justice, rather than to relieve paying parties of their obligations to pay costs which have been reasonably incurred.

But the Rules are silent on the effect of a breach of a Code on an assessment of costs as between the parties to litigation. By contrast, paragraph 1 of Schedule 1A to the Act confers powers on the Council of the Law Society to impose sanctions on solicitors. If there is a complaint about fees, the Law Society can determine the amount of costs to which a solicitor is entitled, or award compensation not exceeding £5,000.

I accept Mr Morgan’s submissions about the benefits to the client of having an estimate. The imposition of the discipline of producing estimates is one of the strategies which has been adopted to contain legal costs, and there is no doubt as to the public interest in avoiding the incurring of unnecessary legal costs. Excessive legal costs imperil access to justice.

Having set the scene, I turn to consider the effect of a failure to give an estimate of costs as required by the Code on the contract of retainer between a solicitor and his client. In my judgment, for the reasons given below, that contract is not thereby rendered unenforceable.

Mr Morgan does not suggest that the statutory framework prevents the formation of a contract of retainer before a sufficient costs estimate has been given. What Mr Morgan submits is that it is unlawful to perform a contract of retainer unless the appropriate costs estimate is given. The correctness of this submission has to be determined as a matter of the true construction of the statutory framework. The fact that statute imposes a requirement to take some step, as here the making of a costs estimate, is not of itself sufficient to render the performance of a contract in disregard of that step unlawful and unenforceable: see for example the St John Shipping case and the Awwad case, which Mr Morgan cited in support of his submissions. What the court has to do is to determine the effect of the requirement as a matter of the true construction of the statutory provision.

The solicitors’ obligation to provide costs information in Rule 15 is “to give information about costs” in accordance with the Code. Rule 15 provides for the Code to be made by the Council of the Law Society with the concurrence of the Master of the Rolls. Thus the Code is incorporated by reference into the Rules and is binding and has statutory effect. That perhaps is the high water mark of Mr Morgan’s argument on this point. However, for the reasons already given, it does not mean that any contract made or performed in breach of a requirement imposed by the code is unenforceable.

There are a number of textual points which might be thought to support Mr Morgan’s case. In particular, Rule 15 begins by providing that a solicitor “shall” provide costs information. But, while the word “shall” is often mandatory, particularly when used in legislation, it has, depending on the context, been interpreted on occasion as directory or exhortatory only: see for example R v Secretary of State for the Home Department ex parte Jeyeanthan [2000] 1 WLR 354. In Rule 15, for the reasons given below, the word “shall” is not in my judgment mandatory in the sense that non-compliance with the Code will always result in a breach of Rule 15. Rule 15 must be interpreted with the Notes that appear immediately following it. It is clear from Note 1 that not every breach of the Code will result in a breach of Rule 15. It has to be a serious breach of the Code, alternatively there have to be persistent and material breaches. In my judgment this Note is an indication that a breach of the Code does not of itself render the contract of retainer unenforceable. Mr Morgan has not suggested that the contract of retainer is unenforceable only where Rule 15 is by virtue of Note (i) to be taken to be breached.

Another indication to that effect can be found in paragraph 2 of the Code. As one would expect, the Code does not require a cost estimate to be given in every case, especially where the instructions represent “repeat business”, such as the conveyancing work on identical plots of land. Likewise an estimate is not required where it is impractical or where compliance with the Code is at that time “sensitive”. I am not clear what situations that last-mentioned provision covers, but whatever it covers depends on an evaluation of the situation by the solicitor. In my judgment, it is unlikely that the Code has the effect of rendering contracts of retainer unenforceable according to whether the solicitor makes a correct evaluation of something which is bound to involve questions of opinion and judgment. Accordingly, paragraph 2 of the Code is a strong pointer against Mr Morgan’s submission.

Mr Morgan has emphasised the strong policy reasons for costs estimates. Indeed, in any question of statutory interpretation, the court is bound to have in mind the purpose of a statutory rule or the mischief at which it is directed, so far as such purpose or mischief can be ascertained. That is not to say, of course, that the court can simply give effect to that purpose, but where the court has to make a judgment about the proper meaning of a statute it is likely to want to consider whether it can by the process of interpretation give effect to its purpose or the mischief to which the statute is directed.

I agree with Mr Morgan that, where a rule is imposed in the public interest, it would be surprising and unlikely if there was no sanction for non-compliance. But, as the Law Society’s written submissions point out, there are disciplinary sanctions for breach of Rule 15. Under schedule 1A to the 1974 Act, the Council of the Law Society can determine what the fees payable by the client should be and indeed may award compensation up to £5,000: see the extracts from schedule 1A set out above.

Mr Morgan submits that, if a breach of the Code renders the contract unlawful, the solicitor is not entitled to any remuneration whatever. Neither the Law Society nor the respondents have contested this proposition. I note in passing that one of the reasons why the Law Commission of England and Wales recently provisionally recommended a change in the law on the effect of illegality on contracts is that in general a contract which is unlawful is wholly unenforceable: see Illegal Transactions: the Effect of Illegality (Consultation Paper No 154)(1999). If Mr Morgan’s proposition is correct, then far from it being a reason for interpreting the statutory scheme in the way Mr Morgan submits, it seems to me to be a reason for the contrary interpretation. This is because in a situation like this the effect of the common law rule is that the receiving party can recover nothing from the paying party even if he has paid his solicitor in full, because he is under no liability to his own solicitor and because the indemnity principle applies. If his solicitor were insolvent, he would not be able to recover his money from him even if he were entitled so to do.

Because the question at issue turns on the true interpretation of the particular statutory framework for costs estimates, I do not consider that it is necessary to set out the various cases on illegality that have been cited to us. For the reasons given above, I reject Mr Morgan’s submission that the effect of the failure to give a costs estimate is to render the contract of retainer unlawful and unenforceable.

Having reached this point, I conclude that it is a question for the discretion of the judge assessing costs in any particular case whether to take into account any failure by the receiving party to provide an estimate in the circumstances and of the kind required by the Code. Mr Morgan submits that the practice of the court should be to make a deduction for the amount of any reduction that the client would have obtained if he had taken proceedings against his own solicitor under schedule 1A to the 1974 Act. In my judgment this course would be likely to be productive of greater unfairness to the receiving party than any unfairness that there might be to the paying party in not taking this course. The making of the deduction would involve further cost and delay and there would be a risk that the costs judge would not reach the same conclusion that the Law Society would have done or might in fact do when proceedings are later taken. In any event, in my judgment the receiving party should be free to make his own decision whether to take disciplinary proceedings against his own solicitor as he thinks appropriate. He should not be forced to do so because he cannot get full recompense for his costs incurred against the paying party unless he does so. Accordingly I would reject this submission by Mr Morgan. The deduction contended for is not required by the indemnity principle as the client has not obtained any reduction himself in his solicitor’s bill.

Mr Morgan submits that the court should set some form of tariff, that is that the court should say that a solicitor who fails when required to do so to prove that he gave his client an estimate of costs which complies with the Solicitors’ Practice Rules should only recover a fixed percentage of his costs. The authority which is adduced in support of this proposition is Wong v Vizards, on which the judge relied. That case concerned an assessment of costs between solicitor and own client. The costs far exceeded the estimate given to the client. Toulson J held the solicitors to the estimated sum plus 15%, save that he allowed the solicitor to recover the costs of communications with the client on the basis that these were not covered by the estimate and so (by implication) the Judge reasoned that the client must have expected to pay separately for these communications. Toulson J held at page 48:

“It is open to Mr Wong to argue that in determining what is a reasonable amount for him to pay for the work done, regard should be had to the level of costs which he had been led to believe represented a worst case assessment of his potential liability.”

While that approach may be perfectly justified as between solicitor and client, the situation here is different. I have already concluded that the paying party cannot claim that the contract of retainer is unlawful because of the failure to give an estimate. In those circumstances, it would seem to me illogical to apply some sort of tariff as suggested by Mr Morgan. It would result in the paying party obtaining a part of the benefit he would have obtained if I had held that the contract of retainer was rendered unenforceable. In any event, a fixed tariff would be rough justice in many cases and for that reason there would have to be very strong reasons for adopting such a tariff.

In my judgment the answer to the question of principle identified in the first paragraph of this judgment is that the paying party can, if he has grounds to do so, submit that, if the receiving party’s work had been estimated in accordance with the requirements of the Code, a lower amount of costs would have been incurred. In those circumstances he can ask the costs judge to require the receiving party to prove that such an estimate was given. The procedure established in Pamplin v Express Newspapers Ltd [1985] 1 WLR 689 would then apply.

The costs judge must, however, give weight to the certificate as to accuracy. In view of the conclusions reached above, this is not a case where the special status of that certificate does not apply or where the Bailey case should be distinguished: there is no legislative policy which would be undermined in this case. The costs judge must therefore be satisfied that there are grounds for requiring the receiving party to prove that there was an estimate. The costs judge must be satisfied that there is some real basis for the paying party’s contention that the receiving party should be required to prove that there was an estimate, or an adequate estimate, and that the dispute is not (to quote the words of Hobhouse J in the Pamplin case at 696H) a sham or fanciful dispute. In addition, the costs judge must be satisfied that the absence of an estimate, or a proper estimate, as to costs could have had both a calculable effect, and a not immaterial effect, on the costs claimed. Otherwise the application will waste time and costs and be used as a springboard for satellite litigation of the kind that brings litigation into disrepute. If, exceptionally, the receiving party is required to prove that there was a proper estimate, and fails to satisfy the court on this, the court must take that information into account in deciding the amount of the costs of the receiving party which were reasonably incurred or were reasonable and proportionate in amount for the purposes of CPR 44.4 and CPR 44.5.

There then arises the question whether, if the stage is reached that the costs judge is asked to take into account on an assessment between the parties the fact that an estimate of costs was not given by the solicitor for the receiving party to his client when it ought to have been given, how the costs judge should take that fact into account. This is a different question from that which arose in the recent case of Leigh v Michelin [2004] 1 WLR 846, where this court had to consider the position where a party had been required by Section 6 of the Costs Practice Direction (“the CPD”) to give an estimate to the other party when filing his listing questionnaire and had failed to do so, or had given an estimate which was not updated, and which in either case was greatly exceeded by the bill of costs that was served at the conclusion of the litigation. Moreover, unlike the situation in the Leigh case, no question arises with respect to the estimates with which we are concerned of any reliance by the other party to the litigation as he would not have been aware of the absence of the estimate. Accordingly much of the guidance in the Leigh case cannot be applied in this case.

Where there is simply no estimate at all for the costs in dispute, then the guidance that I would give is that indicated already, namely that the costs judge should consider whether and if so to what extent the costs claimed would have been significantly lower if there had been an estimate given at the time when it should have been given. If the situation is that an estimate was given, but not updated, the first part of the guidance given in the Leigh case can be applied here. The guidance was as follows:

. “ [First, ] the estimates made by solicitors of the overall likely costs of the litigation should usually provide a useful yardstick by which the reasonableness of the costs finally claimed may be measured. If there is a substantial difference between the estimated costs and the costs claimed, that difference calls for an explanation. In the absence of a satisfactory explanation, the court may conclude that the difference itself is evidence from which it can conclude that the costs claimed are unreasonable.”

However, the above guidance is at a very general level. Like the Court in the Leigh case, I would stress that the guidance given above is not exhaustive since it is impossible to foresee all the differing circumstances that might arise in any individual assessment.

Following the Leigh case, the 40^th Update of amendments to the Practice Directions, issued on 30 September 2005, amended Section 6 of the CPD. Under Section 6 as amended, the court is expressly empowered to regard a difference of 20% or more between the base costs claimed by a receiving party and the costs shown by an estimate of costs, for which no satisfactory explanation is given, as evidence that the costs claimed are unreasonable or disproportionate. The new provisions do not apply in the situation in the present case. We have not heard argument as to whether a similar 20% or greater difference in a case such as this should be the point at which an explanation is required, in default of which the court should be able to regard the difference as evidence that the costs claimed are unreasonable or disproportionate. I thus express no view on that further point.

I now turn to Mr Morgan’s submission about CPR 44.14. This provides:

“44.14

(1) The court may make an order under this rule where –

(a)

a party or his legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or

(b)

it appears to the court that the conduct of a party or his legal representative, before or during the proceedings which gave rise to the assessment proceedings, was unreasonable or improper.

(2)

Where paragraph (1) applies, the court may -

(a)

disallow all or part of the costs which are being assessed; or

(b)

order the party at fault or his legal representative to pay costs which he has caused any other party to incur,

(3)

Where –

(a)

the court makes an order under paragraph (2) against a legally represented party; and

(b)

the party is not present when the order is made,

the party’s solicitor must notify his client in writing of the order no later than 7 days after the solicitor receives notice of the order.”

In my judgment, it will in general be unnecessary to have resort to CPR 44.14 in the situation under consideration. The appropriate way of dealing with the failure of the receiving party’s solicitor to give his client a proper estimate as to costs is through the development and adaptation of the established processes and principles of the assessment of costs, as explained above. In my judgment the steps which I have concluded should be taken reflect the fact that, consistent with the indemnity principle, the receiving party should receive reimbursement from the paying party for the costs that he has properly incurred.

No reasons were advanced to the judge as to why the presence of an estimate of costs would have made any difference to the amount of costs that the paying party should be required to pay. In those circumstances the judge’s order was correct and I would dismiss this appeal.

I agree.

I also agree.