Kundrath v Kwatia & Anor

The Appellant, Sylvia Kundrath, appeals against the decision of Master Rogers on 26^th April 2004 refusing her application dated 23^rd March 2004 to have a detailed assessment made of a bill of costs rendered to her by Henry Kwatia & Gooding, the Respondent firm of solicitors on 15^th July 2002. Permission was given by Simon J on 10^th June 2004.

The bill of costs was for £23,746.05. It relates to proceedings against Sylvia Kundrath by a company called Redcliff Close (Old Brompton Road) Management Limited. The background to the service of the bill of costs and what transpired afterwards can be ascertained from two documents in the Appellant’s bundle. The first is Sylvia Kundrath’s witness statement dated 8^th December 2003 prepared in bankruptcy proceedings instituted by the Respondent on 21^st October 2003. The second is an undated draft document at pages 35-40 setting out her points of dispute to their Bill of Costs, prepared by Mr Richard Manley, a costs draftsman at Allen & Overy acting pro bono for her through the Royal Courts of Justice Citizen’s Advice Bureau. From these documents it appears that on 12^th July 2002 the Respondent faxed a letter to her. This required her to attend their offices to give them instructions regarding her case and stated that if she failed to arrange to see the writer of the letter the firm would not be in a position to continue to defend the action. She had been out of the country during June and was away again when the letter of 12^th July arrived. A friend of hers saw the fax and informed the Respondent that she was away. According to Miss Kundrath the bill dated 15^th July 2002 was faxed to her on 18^th July. She replied on 14^th August. This letter is not in the Appellant’s bundle but the judgment of Master Rogers quotes an extract. This states:-

“I am in receipt of your letter of 18^th July enclosing your bill for the sum of £23, 746.05 which I do not accept. I would ask pursuant to Section 70, 70(1) and 70(2) of the Solicitors Act that you apply if you want the bill to be taxed and certificated.”

On 19^th August 2002 the Respondent replied stating inter alia:-

“It is a matter for you to apply to the Supreme Court Costs Office for an order that this bill be assessed. Since more than one month has elapsed any order made by the court to assess the bill will be conditional on you paying into court 40% of the bill.”

The letter also invited Miss Kundrath to call on the Respondent to discuss the progress of her case and their representation. Its terms are consistent with the continued existence of the retainer. The Learned Master described the part of the letter I have quoted as “a complete misrepresentation” and “inaccurate”. He stated that it may well have misled Miss Kundrath into thinking that she could only get the bill assessed if she paid 40%. He also stated that Miss Kundrath did not take up the proposal made that she should fight in court at that stage, and that subsequently the retainer appeared to have been terminated. He stated that although it was disputed who terminated the retainer, since by the date of the hearing before him it was clear that the retainer had ended, on the face of it the bill became payable.

The next event appears to be a Statutory Demand by the Respondent dated 14^th March 2003 (page 63), eight months after the delivery of the bill. This does not appear to have been served formally until 23^rd June 2003 (see page 39) eleven months after the delivery of the bill. The advice to the draft points of dispute was primarily concerned with whether the retainer had been lawfully terminated, the validity of the Statutory Demand, and the lawfulness of the bankruptcy proceedings. The application and the points of dispute to the bill of costs reflect the advice. Neither document addresses the requirement laid down in Section 70(3) of the Solicitors Act 1974 that where an application that a bill be taxed is made by the claimant (but not the solicitor) after the expiration of 12 months from the delivery of the bill no order shall be made “except in special circumstances” by seeking to identify such “special circumstances”. The Learned Master stated that it seemed to him that while there were all sorts of issues that might arise if the matter was referred to a detailed assessment, the advice missed the point entirely. In relation to “special circumstances” he stated:-

“There are a number of cases on “special circumstances” and it is clear that there is no hard and fast rule as to what is meant by that expression but, like a lot of things, you recognise special circumstances when you see it, although you cannot necessarily define it within lines. I am sorry to have to say in this case that, with the best will in the world, I do not think Miss Kundrath has come anywhere near establishing that there are any special circumstances in this case and in those circumstances I have no alternative but to dismiss this application.”

The Appellant submitted that the Learned Master had fallen into error in concluding that there were no special circumstances. She submitted that this was because she had been misled by the Respondent’s letter of 19^th August 2002. Secondly, she submitted that the fact that there was a real issue as to whether the solicitors’ retainer had been terminated when they sought payment of their fees and submitted their bill in circumstances in which there was no client care letter constituted a special circumstance. She submitted that the Learned Master fell into error in not considering whether the retainer had been terminated at that time but considered the position as it was at the time the matter came before him. She also stated that the defendant remains on the court record as her solicitor. Thirdly, she submitted that where a solicitor seeks to recover fees from a client and uses the threat of bankruptcy in order to recover those fees it is essential that the solicitor takes all appropriate steps to ensure that he is entitled to payment of the fees, that the retainer is properly terminated, and that he is entitled to serve a bill. Implicit in this is a submission that where this is not done the circumstances are “special”. Finally, she relied on factual errors in Master Rogers’ judgment listed in her letter to the court dated 26^th May 2004. She pointed out that the Master was under the impression that the bankruptcy notice was not served until October 2003 which was beyond the 12 months from the delivery of the bill. It had been served within that 12 month period. She also maintained that she did attempt to apply for an assessment of the bill of costs before the hearing of the bankruptcy petition on 10^th December 2003 but was informed by the court office that it would have no bearing on the bankruptcy hearing and that she should explain her circumstances to the Registrar. She submitted that the delay in taking up the Registrar’s suggestion that she apply for an assessment was caused by the delay in obtaining legal advice. She submits that the Learned Master fell into the error in the implicit suggestion in his judgment that the Appellant did not do anything in relation to the assessment until her application of March 2004.

On behalf of the Respondents Mr Metzger submitted that the decision was within the Learned Master’s discretion. Until the solicitors instituted bankruptcy proceedings the Appellant did nothing and the fact that she was prepared to do nothing until then meant that there were no special circumstances justifying an assessment after the expiration of 12 months from the delivery of the bill of costs. With regard to the termination of the retainer he submitted that it was not the Respondents’ position that the retainer was terminated by the firm. The Respondent’s position is that the Appellant’s failure to respond to their request for her to contact them and give them instructions terminated the retainer. With regard to the absence of a client care letter Mr Metzger submitted that there was no client care letter because the way the agreement arose was that the Appellant had contacted the partner she dealt with, Harry Kwatia, late at night and thereafter the dealings between her and the firm were on an oral basis.

The discretion of a Costs Judge in relation to the existence of special circumstances is a broad one which is not to be interfered with lightly by an appellate court. For a modern statement of the approach see Arrowfield Services Limited v BP Collins (a firm) [2003] EWHC 830 (Ch). In that case Mr Michael Briggs QC, sitting as a Deputy Judge of the Chancery Division, stated that the function of an appellate court is not to exercise any relevant discretion afresh but to review the decision of the Costs Judge and that the question whether in any particular case “special circumstances” are disclosed is a matter falling within the discretion of the Judge to whom the application is made rather than a pure question of law: see paragraph 7, citing Re Hirst & Capes [1908] 1 KB 982, 990. See also Re Cheeseman [1891] 2 Ch 289 and Re Ward (1910) 102 LT 881. The Deputy Judge stated that it follows that an appellate court can only interfere with the result if it is satisfied that a mistake of law or analysis has been made or the Costs Judge has otherwise decided the matter outwith the generous ambit of discretion afforded to him. In considering whether “special circumstances” are or are not shown in any particular case what is relevant is an assessment of the aggregate of the relevant circumstances rather than an item by item assessment of each circumstance: see paragraph 9, citing Sanders v Isaacs [1971] Ch 240.

Has there, in the present case, been such a mistake of law or analysis so as to take the matter outside the Learned Master’s discretion? It must first be said that the Learned Master does not explain why he concluded that Miss Kundrath did not come anywhere near establishing that there are any special circumstances. The absence of any explanation or reasons beyond that “special circumstances” are recognised when seen means that it is not easy to ascertain whether the Learned Master’s decision contains a mistake of law or analysis.

I turn to the implications of the letter of 19^th August 2002. This letter was written before the expiration of the 12^th month period from the delivery of the Bill and therefore at a time when it was not necessary for there to be “special circumstances” before an order is made: see Section 70(2) and (3) of the Solicitors Act 1974. During the hearing, in response to a question by one of my assessors, Mr Metzger stated that the letter of 19^th August was an attempt to put the Appellant in a position where she would pay and that this was due to a misunderstanding of the position by the Respondent’s independent costs draftsman. Its purpose was thus to induce payment.

I have concluded that, in the light of this reason, the letter was not merely “inaccurate” and “a misrepresentation” but, given the inequality of the parties, it amounted to the sort of pressure which it has been recognised is capable of amounting to special circumstances: see Re Norman (1886) 16 QBD 673 and Cook on Costs page 46. The pressure on the lay client arising from the induced belief that the Court would not assess a bill unless 40% of it is paid into court is in effect conduct by the Respondent solicitors that may dissuade their client from seeking a costs assessment. While the Learned Master took account of the misleading nature of the letter, his judgment does not consider whether it amounted to pressure upon the client, and, if so, whether that pressure together with the other circumstances of the case constitute special circumstances. It is possible that this was because the explanation of the purpose of the letter was not before him. If it had been put to him he may have reached a different conclusion.

As far as the termination of the retainer is concerned, the Learned Master did not consider whether the retainer had been terminated when the bill was submitted and, if not, when it was terminated, and when the bill became payable. To the extent that the letter of 19^th August suggested the defendants considered the retainer remained on foot, this was a factor that, in the absence of a client care letter or written instructions, was relevant to consideration of whether there were special circumstances to justify the taxation of the bill of costs.

In my judgment the failure to consider these factors, and in particular whether the letter of 19^th August 2002 amounted to improper pressure do constitute a mistake of analysis justifying interference with the decision. I have concluded that the failure to consider whether the letter of 19^th August amounted to improper pressure together with the unresolved uncertainty as to the status of the retainer at the relevant date means that the Learned Master did not take into account all the matters relevant to the exercise of his discretion. As I have indicated, it is possible that the explanation of the purpose of the letter of 19^th August was not before the Learned Master. His analysis may have followed from the way in which the matter was put to him but I have concluded that in relation to the impact of the letter of 19^th August, it was not the correct analysis.

For these reasons it falls to me to exercise the discretion as to whether there are special circumstances justifying an assessment of the bill of costs afresh. I have concluded that there are. The Learned Master stated, with reference to the points of dispute to the defendants’ bill of costs, that there are all sorts of issues that might arise if the matters were referred to a detailed assessment. The points of dispute allege a number of matters that would constitute pressure and overcharging which, it has been said (see Bowen LJ in Re Boycott (1885) 29 Ch 571, 580 approved in Re Norman (1886) 16 QBD 673), it is a good working rule to regard as showing special circumstances. These, together with the way in which the Appellant was misled by her solicitors and the motivation for the letter of 19^th August 2002 which, for the reasons I have given, in itself amounted to pressure suffice in my judgment to find that in this case there are special circumstances.

That leaves the question whether I should or should not exercise my discretion to order a detailed assessment. I have in mind the unexplained delay between August 2002 and the issue of the Statutory Demand in March 2003, its service in June 2003 and the institution of bankruptcy proceedings on 21^st October 2003. That is undoubtedly a long period of time for which there has been no satisfactory explanation. The Appellant’s explanation relates to the period after the institution of the bankruptcy proceedings to which she states she had to give priority. There is, however, no evidence before me that this delay has caused significant prejudice to the Respondent. In this respect this case is similar to Arrowfield Services Limited v BP Collins (a firm).

For these reasons, with respect and deference to the decision of the Master I allow the appeal and set aside his order dated 26^th April 2004. I order that there should be a detailed assessment of the bill rendered by the Respondent. The Respondent is to provide the court and the Appellant with a detailed breakdown of the costs within 21 days and the Appellant is to provide the court with points of dispute in relation to this within 30 days thereafter. The Respondent is to desist from proceedings against the Appellant in respect of the bill until final determination of the detailed assessment. The Appellant appeared in person and I make no order as to costs in respect of the appeal.