Reynolds v Stone Rowe Brewer (a firm)

This is the hearing of an appeal by Stone Rowe Brewer (“the solicitors”) from the order of Master Rogers (“the Costs Judge”) dated 4 July 2007. The Costs Judge assessed the invoices ordered to be assessed at £31,184.43, plus £5,143.97 for VAT, making a total of £36,328.40. The £31,184.43 included profit costs in the sum of £20,700. The balance was disbursements in the sum of £10,484.43, of which he allowed £4,000 for counsel’s fees, and £3,502.50 for the expert. The Costs Judge ordered the solicitors to repay an overpayment of £14,304.47.

There is no reasoned judgment. The hearing occupied much of the day and there is a transcript of the whole hearing. Ms Reynolds (“the claimant”) was appearing in person. She had drafted Points of Dispute. In the usual way, the Costs Judge went through the Points of Dispute item by item. The Costs Judge expressed his views and decisions on each item as the parties made submissions. It will be necessary to return to that transcript, but the Cost Judge also completed the form Reasons for Refusing Permission to Appeal. He wrote:

“On analysis of the relevant exchanges of correspondence/emails, I considered that the solicitors should be bound by an estimate of £18,000 to which I added the 15% “margin” available under Wong v. Vizards [1997] 2 Costs LR 46 [these figures making a total of £20,700]. I also limited the claimant’s liability for counsel’s and expert’s fees to estimates given… I reached my decision on the basis of the documents and oral submissions…”

The matter related to a dispute between the claimant and a building contractor. She was the owner of two residential properties, both of them in Kew. She employed the contractor to refurbish the property in May 2004. In September 2004 the claimant first instructed the solicitors. At that time she had paid about £25,000 to the contractor out of a total contract value of about £44,000 plus VAT. She complained that the works were sub-standard and incomplete. She did not wish the contractor to return to the site because she had lost confidence in the quality of his work. On advice from the solicitors a Schedule of Works outstanding was obtained from a surveyor.

On 10 December 2004 the solicitors sent to the claimant a copy of the surveyor’s report and gave their advice on the way forward. They then included this important paragraph:

“In terms of the cost of taking this matter forward, you should appreciate that litigating a building dispute is inevitably a very expensive process. 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. Once you have obtained quotes from alternative contractors, I can assess the value of your claim against the potential cost of issuing proceedings and advise on the proportionality of these sums or otherwise. …”

The letter was signed by a trainee solicitor who had dealt with the matter from the start. She became a solicitor during the course of the case.

The contractor was also claiming to be owed money at this time. It appears that there may have been some suggestion that they each “walk away”. In a letter to the solicitors of 30 December 2004 the claimant made clear that she did not intend to do this and that, although she understood that litigation was costly and time consuming, she felt it was the best way to tackle the problem.

The decision to litigate or not was taken out of the hands of the claimant on 15 February 2005 when the contractor issued proceedings as a litigant in person. He claimed what he said was the balance due under the contract and damages for breach of it.

On 22^nd February 2005 the solicitors wrote to the claimant. They gave an estimate for the drafting of the Defence and Counterclaim “in the region of £600 plus VAT”. She explained that this was on the basis of it taking her four hours to draft a defence and lengthy Counterclaim at her hourly rate of £150 an hour plus VAT. She also asked for money on account in the sum of £600 for the Court fees. On 2^nd February 2005 the solicitors had already sent a bill for profit cost totalling £1006.39. The claimant paid the money requested on account, but she was late paying the first invoice. The solicitors were still asking for it to be paid on 26^th March.

On 10 May 2005 the solicitors wrote a letter including both advice on the case and their second invoice. This was for a total of £2,670.78. In the letter the writer stated that she had in fact taken over seven hours to complete the draft Defence and Counterclaim but that she was charging only the £600. The letter continued:

“I am conscious of the fact that the costs in this matter are escalating and note that in our recent conversation you explained that you are under considerable financial strain meeting the mortgage payments…. As I explained to you at the outset, in any litigation of this nature a realistic estimate of each party’s costs is in the region of £10,000 - £15,000 plus VAT to conduct the matter through to trial. For this reason and in light of the financial strain this litigation is placing on you …….[she gave advice on checking insurance]. In view of the rising costs in this matter and the inevitable lengthy period it will take in which to resolve the matter (at a further cost to yourself), I would advise that you seriously consider attempting to resolve the matter by way of expert determination, subject of course to the [contractor] agreeing to such a proposal ”.

On 2 June 2005 the claimant wrote:

“In terms of your invoice I have been in shock to be honest and was not sure how to broach the issue. I presumed that the £600 you quoted for the drafting for the counterclaim would include letters and conversations that related directly to its content. I appreciate that since then there have been other matters arising including the issue of mediation but I expected an invoice for about £300. The reason for this is I had already paid the £600 for the drafting of the counterclaim to you on 2 March …. and on no occasion did you tell me that the letters and emails were and conversations were adding to the cost.

The above issue has resulted in me delaying my response which I now regret. I should have let you know how I felt and what I had thought earlier. The trouble is I am so reliant on you to represent me legally in this minefield that is litigation that I did not want to offend you. At the same time I cannot ignore the discrepancy in what I thought I owed and what you think I owe”.

The next day the solicitors replied explaining their charges. The letter included the sentence:

“In any litigation, as I have previously indicated, costs are likely to be in the region of £10,000 - £15.000 plus VAT in the event that the matter proceeds all the way to trial”.

The solicitors offered to accept payment of their 10 May invoice in three equal monthly instalments over the next three months.

On 16 September 2005 the solicitors sent their third bill in the sum of £2,738.34. By this time they had got to the stage of considering the Allocation Questionnaire and obtaining witness statements.

On 29 November 2005 the solicitors sent their fourth bill and a letter. The fourth bill was for a total of £8,281.79 (all but £30 of this being profit costs). There was written in bold upon it “our estimate as to the likely overall cost of your case must now be revised from our previous estimate of £18,000 plus VAT to £25,000 - £30,000 plus VAT if the matter proceeds to trial”. The VAT on £30,000 would be £5,250.

It can be seen that £30,000 plus VAT is just over £1,000 less than the total which the Costs Judge ultimately certified.

The narrative in the bill also records the preparation of a Schedule of Costs up to 25 November 2005. That shows a grand total of £16,313.04. £12,472.83 is in respect of profit costs. Of that, under the heading “attendances upon lengthy telephone calls with [the claimant]” there is recorded about five hours time spent on thirteen telephone calls. These varied between nine and forty two minutes, and took place between 20 December 2004 and 22 November 2005. The charge for these is £825.

In the letter of 29 November 2005 there was included the following:

“In respect of my firm’s invoice, I realise the sum incurred in respect of my firm’s fees is significant. However, this invoice reflects the amount of time and work which has been carried out on your file since the previous invoice of 16 September 2005 and includes all the applications made to date to Court as well as the preparation of Witness Statements, liaising on joint instructions [to the expert] and preparing the Listing Questionnaire. As you know, a considerable amount of work has been completed on your file since the previous invoice including a number of applications for an Unless Order, Witness Summary and Directions and there have been a number of very lengthy telephone conversations with you which have contributed significantly to the overall cost incurred…. As you can see from the enclosed estimate of anticipated future costs from now until the trial (including the trial itself), in respect of my anticipated estimated fees, the sums already incurred by way of costs are greater than future costs. This anticipated estimate of future costs include Counsel estimated fees…, as well as the expert fees… the total costs in this matter are escalating and this is partly due to the litigation and also due to the manner in which it is being conducted, namely the number of lengthy conversation and lengthy emails /written correspondences in the matter. Provided such correspondences and telephone conversations can be kept to a minimum, my future fees in the matter may be less than the anticipated estimated costs. Alternatively, if the matters proceed on the same basis as at present, it is likely that future fees in the matter would exceed the estimated future costs.

As you can see from the enclosed invoice dated 29 November 2005, my initial estimate of anticipated legal fees and associated costs of conducting the case to trial in the sum of £18,000 plus VAT must now be revised. At this stage in the matter, I would estimate that your likely overall costs in this matter could be as much as £25,000 - £30,000 plus VAT. Given that the amount that you are seeking to recover in your counterclaim is in the region of £62,300 (including VAT), there is a real possibility that the escalating costs in this matter will become disproportionate to the amount you are seeking to recover….”

On 1 December 2005 there was a meeting at the solicitors’ offices with the trainee solicitor and the partner Mr Andrews. They discussed the claimant’s instructions that the claim should be amended to claim damages in respect of the mortgage payments which she had had to meet. Mr Andrews confirmed that the trial would be “hugely expensive and complicated”. He said “the costs of this case overall are significant but the biggest costs are yet to come….” He estimated the costs for counsel’s fees at £5000 to £7000 plus VAT. At the end of the meeting it is recorded that the claimant confirmed that she was shocked at the amount of the invoice of 29^th November 2005, and was unable to discharge that at present. The solicitors agreed to postpone their fees until the sale of her other property, provided that was no later than six months thereafter. Mr Andrews estimated that if the matter went to trial the overall costs were likely to be in the region of £25,000 - £30,000. At that stage the total billed had been £14,697.52.

From then on the solicitors invoiced more regularly. On 20^th December 2005 their fifth bill was £851.10 (of which £4 was disbursements), and on 24^th January 2006 their sixth bill was £2,509.21 (of which £360 was disbursements). This brought the running total to £18,421.83.

On 24 February 2006 the solicitors’ seventh invoice was for £2,730.31. The invoice bears in bold letters “Our estimate as to the likely overall costs if your case remains as previously advised at between £25,000 - £30,000 plus VAT”. The accompanying letter indicates that the trial may run into a third day and that this may mean additional fees of £2,000 plus VAT for counsel and solicitors.

On 29 March 2006 the solicitors’ eighth bill was £8,761.99, including disbursements of £2,935.74. These were, mainly, half the cost of the surveyor’s inspection and report. On the bill was written:

“Our estimate as to the likely overall costs of your case must now be revised to between £35,000 - £40,000 plus VAT”.

On 27 April the solicitors sent their ninth bill in the sum of £2,343.01 (of which £60.02 was disbursements). The invoice bore the same estimate as before. This brought the running total to £32,317.16.

On 2 May 2006 the solicitors wrote to the claimant, referring to their agreement to defer payment of their fees until the sale of her second property, subject to that being no later than 1 June 2006. They noted that their outstanding fees were by then £20,754.27 including VAT. They said they were not prepared to increase their exposure on costs, so that in the event that full payment of those fees was received by 1 June they would not be able to continue to be acting further. This was four weeks before what was then expected to be the trial date. It had been adjourned from March.

On 3 May 2006 the claimant wrote:

“When the [contractor] first suggested the vacation of trial date from March, I highlighted my concerns regarding my finances,… I have already paid approximately £15,000 in terms of legal fees, disbursements and counsel’s fees. This is in line with the original estimate received from [the solicitors] at the start of the case. I understand that the actions of [the contractor] and his various solicitors have increased my costs, but I believe the actions that I have taken which have also increased them such as issuing an Unless Order, amending my counterclaim, and challenging will actually serve to protect my position on costs which is in both our interest. In terms of my financial position it is strained to say the least… ”.

In the same letter the claimant said she had reduced the selling price of the second of her properties, and taken the difficult decision to try to sell the Kew property one as well.

On 30 May 2006 the solicitors sent their tenth invoice, for £1,663.41, of which £1,047 was for disbursements. The invoice again bore the same estimate.

At a meeting on 15 May 2006 the claimant complained that the initial fee “that she received was less than half of the estimate which she had been provided with more recently”.

On 19 June 2006 the solicitors wrote to the claimant including Costs Schedules. The first Schedule was the one dated 25^th November 2005 which she had already seen. The second was from the period from 26 November 2005 up to and including trial on 27-29 June 2006. This one was for a grand total of £44,123.65. The combined grand total of the two Schedules was thus £60,436.69.

On 12 June 2006 the claimant wrote:

“I have now paid nearly £30,000 to your firm for your fees, counsel’s and other disbursements. Your estimates remain focussed on £30 - £40k but these must surely be over £50000 and you are not helping matters by giving incorrect cost estimates….”

The solicitors wrote on 12 June attributing the increase to the number of applications being made, including a recent application by the contractor for an adjournment which was opposed on the claimant’s instructions.

On 30 June 2006 the solicitors sent their eleventh invoice in the sum of £15,284.50. This was made up of profit costs of £6,433.32 together with disbursements at £8,851.18. The disbursements were almost all counsel’s fees, namely £4,118.38, and his brief fee for a trial on 27 June at £4,112.50. This brought the running total to £50,312.07. The invoice stated:

“The estimate as to the likely overall cost of your case must now be increased in view of the fact that the trial has been adjourned and the judge has ordered a five day trial is up to £60,000 plus VAT”.

In the covering letter the solicitors recorded that the claimant’s then outstanding liability to them was £28,850 including VAT. At the end of July, August, September and October the solicitors issued their twelfth to fifteenth bills, in the sums of £2,202.54, £3,396.68, £1,846.84 and £1,642.22. The disbursements were respectively, £1,067.49, £35, £1,237.01 (mainly counsel’s fees for the hearing on 16^th August) and £817.37. These brought the running total to £59,400.35.

On 17 August the solicitors wrote explaining that the case had been particularly costly for two reasons. First they said the contractor had throughout sought to prevaricate, sometimes acting in person sometimes with solicitors, failing to comply with orders and making it necessary to apply to the court, and to oppose his applications for adjournments. They added:

“The second factor which has significantly increased costs is the sheer volume of detailed emailed correspondence you have sent to [the trainee solicitor, by this time a solicitor herself] requiring detailed responses from her. By way of example between 7 and 15 August, being six working days, she received eight emails from you including four pages of attachments, all of which she has had to read action and respond to.

She has worked almost exclusively on your file over this period of time, preparing witness statements in opposition to [the contractor’s] application for relief from striking out, an application which, in my view, was bound to succeed and which [the solicitor] advised you of in a similar vein. Notwithstanding this advice, your instructions were to resist the application and these instructions were actioned. I understand that [the contractor’s] application for relief was successful. These circumstances, have, by no means, been unusual in this case.

Against this background I am afraid that you appear to have a wholly unrealistic view of how costs in this case should be dealt with….”.

On 31^st August 2006 the solicitors wrote enclosing their invoice of 27 July 2006. They referred to the fact that the estimate had now increased, as appears on the invoice:

“Our estimate as to the likely overall cost of your case can now be slightly decreased in view of the fact that the matter may now be concluded by way of a one day hearing of your counterclaim as up to £55,000 plus VAT”.

In September 2006 the solicitors wrote noting that the sum outstanding to them was £25,331.98 including VAT. By that time the second of the claimant’s properties had been sold but no payment had been made in respect of the outstanding sum. The solicitors refused to act further. New solicitors were instructed. The claimant was successful on all elements of her counterclaim and she was awarded damages of £55,380.

In the Points of Dispute the claimant stated that costs estimates “had been provided and increased in a haphazard and wild way often contradicting early estimates, detailed differing estimates on the same date and some include and some omit VAT”. She set out the various estimates given. In the introductory part she had written:

“I had been advised by [the solicitors] that my costs for litigation would be in the region of £10,000 to £15,000, which I could afford at that time. However this estimate given to me was widely out and my costs for the entire case are in the region of £90,000 and rising as the builder has lodged an appeal application”.

The extra £30,000 bringing the total up to £90,000 relates to the costs of the solicitors who acted at the trial. It no doubt involves an element of duplication, since they were instructed at that late stage.

The Costs Judge addressed the point about the estimates at page 30 of the transcript. He referred to the solicitors’ letter of 10 December 2004, and to the estimate given on 10 May 2005, and 3 June 2005. At page 33 of the transcript the Costs Judge turned to the solicitors and asked whether there was any reason why they should not be bound by the lower figure, namely £15,000. The solicitors submitted that they did not accept that the estimate was inadequate. They said it was based on the case as it was perceived at the time, and during this period there was obviously a lot of work that had been undertaken which had had effect on the overall costs that had been incurred and the way the case had been dealt with. That explained the letter of 29 November. The transcript then included the following passages, starting at p33 line 26:

“MASTER ROGERS: But the complaint is that there were no warnings between May and June and November as to the - it is a very substantial increase, is it not? …. It has doubled, effectively in a period of six months. We all know – we know that litigation can be (inaudible) I am not sure that lay clients do know, but the whole point of the estimate situation is that they should be kept informed as they go along so that they can indeed decide if they want to bring an end to the litigation because that sometimes happens. If you know that your litigation is costing you so much more than you thought you might just say, “Well, I can’t afford this. I’m going to break it off now and cut my losses.” Do you accept that between June and November there was no warning apart from the fact that obviously [the claimant] knew what was going on to the extent you were communicating with her about letters and about the progress of the action…

(p35)

MR ANDREWS: No, the first warning would have to be the letter of 29 November … I think at the stage that we have got to, the bills themselves were not significant in terms of breaching the earlier estimated figure.

MASTER ROGERS: Well they may not have been but here you have an estimate which suddenly goes up after a bill has been sent in … you see the earlier estimates, say up to and including - or imply up to and including trial, do they not? That is what they say in terms, do they not? They do not say – the difficulty you are in, it seems to me, is that you should have warned her that these costs were escalating well beyond what you had indicated. Whether it is 15 or 18 perhaps is not too (inaudible) but she is (p36) budgeting for £18000, is she not, on your footing to include a trial? And then to receive a bill which takes her up to that ceiling, if I call it that, and then to be told at the same time, “Oh, by the way, sorry, of course now we should have told you earlier” – that is not what is said but that must be the implication: “now we have looked at the bills, we realise that these costs are going to be greatly increased”. Why did not someone write and say, “Look, these costs are clocking up”? That is the whole point of estimates and keeping the client informed. They need to know what is going on, not necessarily on a daily basis but regularly…. If you had said to her: “Look, we can’t give you a figure at the moment… but it looks as if the £18000 is going to be breached; perhaps you ought to be looking at £25000 or £30000” or something of that sort, something to give her a warning that things were going beyond – which they do if it is long litigation. It is well known the costs go up, but the difficulty is not the costs going up but the problem is the client not knowing the extent to which they are going up. So they are not in the position of making a meaningful decision. She might have done a number of things: one I have already suggested. She might have stopped the litigation because she could not afford the litigation. She might have tried to find a cheaper solicitor, although whether she would have succeeded in that I do not know, or she might have decided to continue acting in person without the benefit of lawyers. Now, none of those options were given to her, were they, because she was not given the figures… (p37) [Mr Andrews is then recorded as referring to the explanations that were given at the time, in particular in July]… They are explanations of why the costs are higher but they do not actually address the point of why she was not warned they were going to be higher. If, for instance – take one example you have just read out – she changed her mind about a joint expert, then why did not the trainee solicitor write and say, “This is your instructions. You do know it is going to cost you more money, don’t you?” Even if she had not put a figure on it, it would have helped her, would it not, because she would have realised what was going on. There is an explanation – there could be a rational explanation but it doesn’t actually help to tell the client what it is costing, does it? I can understand, and I have seen some of (p38) the papers and the boxes - I know what was done. There is no question about the work you have done. The issue we are now concerned with, it seems to me, the crucial issue in this whole case, is what the effect of the estimates is, to what extent [the claimant] is entitled to rely on them because that is the problem, is it not?... (p39) I had this bundle in front of me when I was going through the correspondence in the boxes earlier today and I do not think there is any warning to [the claimant]…it does not necessarily have to say a certain sum but what it should say is, “I think that you ought to know that these costs are increasing sharply… [then, referring to Wong v Vizards]… It is a High Court decision on appeal from one of us here that if a solicitor gives an estimate on which they cannot rely, the solicitor should be bound by it but he should be allowed a 15% margin because estimates are estimates and cannot be accurate. So, it seems to me that what I am going to decide here is that the solicitors are limited to £18,000 (p40) plus 15% [that is, £20,700] whether you want to go outside and talk about it now in light of that decision I do not know, or we can go through the bills, but you know what the result is going to be in terms of costs.

MR ANDREWS: Sir, are you making that decision notwithstanding the fact that the estimates – were revisited?

MASTER ROGERS: Yes, I am.

MR ANDREWS: And the claimant advised?

MASTER ROGERS: Yes that is my decision because the earlier letters clearly say “to include trial” so, that is the decision. Now, if you want to go outside and discuss it … that is fine otherwise, we will plough through the bills but it is not going to be a very effective exercise for you, is it ?

MR ANDREWS: If that is your decision, Master, why do you need to go through the rest of the bills?

MASTER ROGERS: We do not… Of course this figure is your costs and we have disbursements to consider as well but that is a separate issue. As far as your disbursements are concerned a net figure of £20,700. Is that right? …

MR ANDREWS: Can I just briefly address you in relation to what you are suggesting and what your views are at the moment?

MASTER ROGERS: No, I have made a decision … (p41) I will give a reasoned judgment if you want me to but that is my decision. It seems to me quite plain.

MR ANDREWS: If that is your decision, Sir, then can I ask for permission to appeal?

MASTER ROGERS: Let us finish the bill off first, shall we? let us finish off the job. We have to do disbursements. We have not dealt with those yet. They are outside this estimate…”

The decision by the costs judge that the estimate did not include disbursements is favourable to the solicitors. It is not easy to reconcile with his earlier comment (on p34 of the transcript) that the estimate had effectively doubled in six months. On the footing that the earlier estimates of £18,000 and £15,000 had not included disbursements, the increase in November to £20,000 to £25,000 does not appear to be much of an increase. But both the solicitors and the claimant at the time treated the increase in November as a significant increase. If it was an increase, there is no analysis of the bills setting out what extra costs, such as for lengthy telephone calls and unforeseen applications, explained the increase in the estimate, and by how much. The transcript leaves unclear what the Costs Judge was deciding as to whether or not there was an explanation, and if so what explanation, for the fact that the costs estimates were changed in November.

The applicable law is helpfully set out by Mr Bacon for the solicitors in his first skeleton argument, and has not been the subject of dispute. The starting point is the Rules relating to the professional conduct of solicitors. Practise Rule 15 (Cost Information and Client Care) deals with the information which clients must be given about costs. As it applied at the time, paragraph 13.02 of the Solicitors Costs Information and Client Care Code provides as follows:

“For advanced costs information – general

The overall costs

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

(b)The solicitors should explain clearly to the client the time likely to be spent in dealing with the matter if time spent is a factor in the calculation of the fees.

(c)Giving “ the best information possible “includes:

(i)…

(ii)

Giving a realistic estimate; or

(iii)

Giving a forecast within a possible range of costs…

(iv)

The solicitor should make clear at the outset if a quotation, estimate or other indication of cost is not intended to be fixed…

(v)

Updating costs information

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

……(b) explain to the client (and confirm in writing) any changed circumstances which will, or which are likely to, affect the amount of costs,

… (c) inform the client in writing as soon as it appears that a costs estimate …may or will be exceeded.

Mr Bacon then referred to Wong v. Vizards. In that case the solicitors had sent to the client a written fee proposal which they said was drafted on “the worst case basis”. They wrote:

“I provided you with a fee proposal which hopefully sets out the fullest extent of your liability to this firm for costs likely to be incurred in the future”.

The submission for Mr Wong was that it was unreasonable that he should be charged more than the amount proposed on a worst case basis. Toulson J (as he then was) accepted that the fee proposal was not a binding agreement that in no circumstances would the solicitor’s fees exceed their fee proposal. But he said it amounted to a clear and considered indication to the client of his maximum liability, upon which the client was likely to rely and did rely. He said that in considering whether a reasonable amount for the work done should exceed what the client had been led to believe was a worst case assessment, the court should have regard to any explanation for the divergence. He said that in that case it had not been suggested that there was any unexpected development, and that no satisfactory explanation had been given. He cited from a passage from the Law Society’s Guide to Professional Conduct of Solicitors, seventh edition para 17.07, which stated that “the final amount payable should not vary substantially from the estimate unless clients had been informed of the changed circumstances in writing”. That provision is no longer to be found in the rules applicable to the present case.

In upholding the client’s submission, Toulson J said that he had in mind two competing factors. He went on:

“It could logically be argued, that since [the solicitor’s] proposal included £660 per day for attendance at the trial, the figure of £9995 should be reduced by £1320 on the ground that the trial took two days less than the time allowed for in the fee proposal. On the other hand, I am also mindful that while the sum claimed by the solicitor ought not to vary “substantially” (as the Law Society’s Guide says) from that previously estimated without a prior warning to the client, more especially if that estimate was expressed to be on a worst case basis, [the solicitor’s] fee proposal was a projection or estimate rather than a warranty. In not reducing the figure of £9955 by £1320, I have effectively allowed to the solicitor a margin of approximately 15% over the worst case estimate given. I consider that a greater divergence would be substantial and unreasonable”.

In Anthony v. Ellis & Fairbairn (A Firm) [2002] 2 Costs LR 277 Sir Oliver Popplewell also had to consider a bill delivered which was greatly in excess of an estimate given, in that case to insurers, at the beginning of proceedings. He drew assistance from the view expressed by Toulson J that the sum claimed by the solicitor ought not to vary substantially from that previously estimated without prior warning to the client, more especially if that estimate was expressed to be on a worst case basis. He also noted that Toulson J had taken the view that a margin of approximately 15% over the worst case estimate was a proper figure. Sir Oliver Popplewell adopted such a figure himself in the case he was considering.

After the skeleton argument for the solicitors had been drafted, Morgan J handed down his judgment in Mastercigars Direct Ltd v. Withers LLP [2007] EWHC 2733 on 23^rd November 2007. That judgment concerned four costs orders by Master Rogers. In respect of the relevant order in that case, Master Rogers had also concluded that the solicitors in that case were bound by an estimate they had given: para [46]. At para [112] Morgan J said:

“The closing submissions were recorded by the Costs Judge at paragraph 59 and 60 of his judgment, which included the reference to Cook on Costs, 2007 Edition page 15. The passage in Cook on Costs stated that unless the client was notified of the further sums payable, preferably before they were incurred, then the solicitor would be unable to recover costs in excess of the estimated amount. In my judgment, that passage does not correctly state the law. It seems to me that on a fair reading of the judgment, the Costs Judge was relying on this passage in Cook on Costs. Insofar as the Costs Judge relied upon that passage in Cook on Costs he was led into error in making his finding as to the contractual position. The contractual position is that the solicitors are entitled to a reasonable fee and in the present case in respect of certain bills that fee is to be the subject of a detailed assessment. At the stage of the detailed assessment, the estimate has the relevance which I have described above as a yardstick and in respect of any case raised by the client as to reliance on the estimate. Although the Costs Judge referred in paragraph 67 [that is the paragraph quoted in paragraph [46] of Morgan J’s judgment] to “all the evidence, oral and documentary”, it seems to me that I must inevitably find that his reasoning is based on his analysis of the contractual position, which for the reasons I have given was incorrect. It follows that I must allow the appeal… ”.

Both counsel referred me to this case. The terms of the retainer in Mastercigars are set out in paragraphs [63] to [67]. They are different from those in the present case and I do not need to refer to them in detail. In the section of the judgment headed “The Effect of Estimate” (paras [68] to [106]) Morgan J considered the law. He considered in particular two cases in the Court of Appeal, both concerned with a detailed assessment on the standard basis of the costs payable by one party to litigation to the other party to that litigation. In other words they were not concerned with a dispute on the indemnity basis between the client and that client’s solicitors. The two cases are Leigh v. Michelin Tyres PLC [2004] 1 WLR 846 and Garbutt v. Edwards [2006] 1 WLR 2907. In Garbutt Arden L J, at paras [44] and [45] of her judgment, had referred to Wong v. Vizards, and in particular to the words of Toulson J cited above, to the effect that in determining what is a reasonable amount for a client 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. Arden LJ remarked that that approach may be perfectly justified as between solicitor and client, but that the situation that she was concerned with was different. Morgan J refers to that at paragraph [89] of his judgment. He reached this conclusion on the law at [91]:

“In my judgment, so far as a statement of legal principle is concerned these cases are helpful and ought to be applied in the present context in the following way….. 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. What these two decisions of the Court of Appeal repeatedly state is that the court may “have regard to” the estimate or may take into account the estimate and the estimate is a “factor” in assessing reasonableness…..”.

Morgan J then went on to consider two questions of principle that arose in that case. The first was whether, in a solicitor client context, reliance by the client on the estimate is relevant, and if so, in what way. The second was whether there is any rule as to the addition of a margin to the solicitor’s estimate and whether the solicitor is entitled to add a margin, or alternatively whether the client is entitled to cap his liability as to the estimate plus such a margin.

At para [97] Morgan J framed the question as follows:

“Solicitors are entitled to reasonable remuneration for their services: see section 15 of the Supply of Goods and Services Act 1982. In considering what is reasonable remuneration, the court will want to know why particular items of work were carried out and ask whether it was reasonable for the solicitors to do that work and for the client to be expected to pay for it….

[98] The first part which an estimate can play in the assessment of reasonableness is the way described Dyson LJ in Leigh v Mitchelin Tyre PLC [26]… 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]… no doubt if the client put its case on the basis of estoppel by representation or a promissory estoppel then that would have to be considered. A client may have difficulty in showing such an estoppel. It might be said that the estimate was not the same as identifying a maximum or fixed price and the client could not rely on the estimate not being exceeded. Further in some cases (but perhaps not all cases) a client may have difficulty in showing that he may have acted differently if the estimate had been for the amount of the final bill. What should the court do where the client does not or is not able to, contend that there is an estoppel but he is able nonetheless to satisfy the court that he took the estimate completely seriously and it is possible he might have approached the litigation differently if he had been given a figure nearer to the figure in the final bill?

[101]… Wong v. Vizards is an authority at first instance, prior to Leigh v. Michelin Tyres PLC, of a case where there was reliance by a client on his own solicitor’s estimates. The judge in that case did not approach the matter on the basis of an alleged estoppel. Instead, he indicated that “regard should be had” to the level of costs the client had been led to believe he would have to pay. The question was then expressed as to whether it was reasonable for the client to pay much more than the estimated costs. In my judgment the proper response to this decision is to hold that the court in that case was finding that, for the purpose of assessing reasonable remuneration payable to the solicitor, it is relevant as a matter of law to ask: “what in all the circumstances it is reasonable for the client to be expected to pay?” Thus, even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client to pay, and to the extent that the figure does exceed what is reasonable to expect the client to pay, the excess is not recoverable.

As I understand it neither parties counsel invited me to take a different view to that set out in paragraphs [91] and [101] of that judgment. Morgan J then turned to the relevance of margin. He noted that the decisions of the Court of Appeal do not address the possibility of using a margin (para [104]). He referred back to para [76] of his judgment in which he had set out passages from the practice direction in relation to CPR Part 43. Section 6 of 43PD, as amended on 30 September 2005, and paragraphs 6.5 a and 6.6, refer to a difference of 20% or more between the base costs claimed by a receiving party on detailed assessment and the costs shown in an estimate of costs filed by that party. Morgan J recognised that those paragraphs gave some credence to the suggestion that use of a margin is a convenient approach. He then said:

“105 The difference of 20% referred to in those paragraphs is very much a starting point rather than a final conclusion. The difference of 20% is given in the first instance to identify the cases in which an explanation ought to be provided. In paragraph 6.6 (2), the difference of 20% is regarded as being relevant in deciding what to do where there is no satisfactory explanation or there was reasonable reliance. But even then there is nothing automatic about the judgment in the individual case. The court still must “have regard” to the difference and the extent to which the court has regard is a matter for its judgment”.

In his first skeleton argument Mr Bacon emphasised a number of points. All estimates were given before the costs incurred at the time the estimate was given had reached the total of the estimate, or the preceding estimate. Even at the end of the case, the £59,000 charged to the claimant was within the estimate provided in March 2006, together with a 15% margin. The explanation, it is submitted, is that in March 2006 the solicitors could not have predicted that the contractor would apply on 9 June 2006 to adjourn the case which was then fixed for 27 June, nor that the time estimate would then be increased from three to five days, nor that there would be an application on 16 August, nor, finally, that there would be a proposal for an appeal. It is further submitted that the claimant had every opportunity to consider her position when there were the increases in the estimates, and to decide whether to continue with the case. This was not a case where estimates had been exceeded without any warning.

The errors which he submits the Costs Judge made can be summarised as follows. The judge failed to take into account that the whole point of the November 2005 revised estimate was to update the claimant, in advance of the costs being incurred, that the original £18,000 was going to be breached. The judge effectively ignored the fact that for the period between the first estimate and the November 2005 estimate the costs were still less than the £18,000 estimate. To suggest that in those circumstances the law relating to estimates limits the solicitors to £18,000 is, it is submitted, obviously wrong. This is not a case where there was oral evidence, or witness statements, and the judge was taken to no document where it could be said that the claimant relied on the £18,000 estimate. The Judge failed to pay any regard to what in fact happened when the client was told of the increases, instead paying regard to what might have happened had the client had more warning. The Judge accepted, “there is no question about the work that you have done”, but fell into the error of believing that it was necessary for the solicitors to have provided more warning as to the increase of the estimate than they did. He disregarded all subsequent costs estimates and costs warnings. He paid no regard to the fact that the 10 December 2004 estimate was no more than an estimate, based on assumptions and caveats contained within that letter.

In his second skeleton argument Mr Bacon made submissions by reference to Mastercigars. He submitted that the Judge wrongly treated the estimate of 10 December 2004 as a fixed quotation. He referred to CPR 48(2)(a) which provides that it is to be presumed that costs have been reasonably incurred if they were incurred with the express or implied approval of the client.

The skeleton argument prepared by Mr Cottrell for the claimant was drafted after the judgment in Mastercigars had been handed down. He notes that, after 10 December 2004, the estimate given to the claimant was revised downwards in May and June. He submits that the estimates remained inaccurate as they progressed.

Mr Cotterell submits that the Judge was entitled to have regard to the estimates in the way that he did, and his decision was not wrong. He had before him sufficient relevant information to allow him to weigh up the importance of the various estimates and to take account of the effect that they should have. He did not submit that this was a case of reliance in the sense of reliance giving rise to estoppel. On the other hand, he submits that the claimant clearly submitted herself to substantial debts in the expectation that the total costs would be in the region of £10,000 to £15000. He refers to the documents in the bundle that refer to her financial position as she communicated it to the solicitor. A person whose financial situation was such as described by the claimant would be acting to her potential detriment in committing herself to costly litigation on the basis of the estimates she was given. She was deprived of the opportunity at an early stage to make the sort of cost analysis which in the letter of 10 December 2004, the solicitors had said they would advise upon.

He submits that the judge had in mind the relevant question, whether there was any reason for the disparity between the estimate and the amount billed. It was not sufficient for the solicitor to show the reason why the costs were as they were when eventually billed. There had to be an explanation for the inadequacy of the estimates in the first place. He submits that at no stage had the solicitors put forward any explanation for their estimates up to November 2005. It is difficult to see how the figures could have been accurate on any view. By 29 November 2005, when she was informed the estimate was to increase significantly, she had already been invoiced for more than £14,000 without being given any warning that the total figure was to exceed the estimates. While it is not as clear as it would have been if a reasoned judgment had been given, Mr Cottrell submits that it does not appear from the Costs Judge’s remarks on the transcript that he felt bound to assess the costs at the estimate plus 15% (plus VAT). On the contrary it is submitted that he approached the matter in the proper manner having regard to the estimates.

Mr Cottrell submits that having got the estimate so very wrong up to November 2005, it does not assist the solicitors to point to estimates after that date. By that date she was committed to the litigation. In any event, he submits the later estimates were also unreliable as events proved.

It would have been of assistance, and it might have saved much time and expense on this appeal (and perhaps the appeal itself), if the Costs Judge had given a reasoned judgment. The parties are entitled to a reasoned judgment: Flannery v Halifax Estate Agencies Ltd [2000] 1 WLR 377, 381. Where the reasons of a judge are inadequate, an appellate court may intervene. Once it was clear that the solicitors were not content and would seek permission to appeal, there was still an opportunity for this to be done. It did not need to be a long document, but it did need to be done at greater length than appears from the short remarks from the Reasons for Refusing Permission.

Nevertheless, I must consider the case on the material which is in fact available. I cannot find that the Costs Judge ever directed himself in law that he was bound to hold the solicitors to their estimate plus 15%, whether by reason of the judgment of Toulson J in Wong v Vizards, or for any other reason. In the transcript, and in the reasons, the Judge states that he took the view that the solicitors should be bound by it. In my judgment the question which the Judge was asking himself was the right question: what in all the circumstances is it reasonable for the client to be expected to pay? Assuming, as he did, that the solicitor had spent a reasonable time on reasonable items of work and that the charging rate was reasonable, he was entitled to find that the resulting figure nevertheless exceeded what was reasonable in the circumstances to expect the client to pay: see Mastercigars para [101]. The Costs Judge was entitled to decide that the excess was not recoverable.

As already noted, the Costs Judge decided that the amount which the claimant should pay in respect of profit costs was the figure of £20,700, derived as it was from the estimate of £18,000.

But it is not clear what the Judge did decide, beyond that. There is no finding as to whether the estimates increased because they had originally been wrong, or because of unforeseen events, or partly one and partly the other. If the increase was because the figure had originally been wrong, then in my judgment it does little to advance the solicitors’ submission that they gave a new, and higher, estimate, before the costs incurred exceeded the figure in the original estimate, or that, having been mistaken originally, they then gave a number of warnings as to when the estimates should be increased.

At one point in the transcript the Costs Judge puts to the solicitors the point, which he interprets one of the letters from the claimant as raising, namely that the original estimate was inadequate. The solicitors respond that they do not accept the estimate was inadequate. The Costs Judge does not go on, so far as appears from the transcript, to express a view as to whether the estimate originally given was inadequate or not, or whether the only issue which concerned him was that there were no warnings between May and November, during which the estimate effectively doubled in a period of six months.

In so far as the Costs Judge did consider that the solicitors should be bound by the estimate of £18,000, he did so by giving to that estimate an interpretation such that it covered only profit costs. This seems to me to be more favourable to the solicitors than they were entitled to expect. In each of the different ways in which the estimates of £10,000 to £18,000, or £10,000 to £15,000 were expressed in 2004 and 2005, they were expressed in terms which a layperson would have understood to include the whole of the costs that a client would incur through to and including a trial. When, on 29 November 2005, the solicitors stated that their estimate as to the likely overall costs of the case must now be revised from their previous estimate of £18,000 to £25,000 to £30,000 if the matter proceeds to trial, they were interpreting their own estimate of £18,000 as I think it ought to be interpreted. On the Costs Judge’s interpretation, namely that the £18,000 did not include disbursements, the increase to £25,000 to £30,000 was hardly an increase at all. On the Costs Judge’s interpretation, it was not until 29 March 2006, when the estimate was revised to between £35,000 and £40,000, that it counted as a material revision. By this time the total running cost was in excess of £32,000.

It is true that in her letter of 3^rd May 2006, the claimant accepted that actions which she had taken had increased costs (namely applying for an unless order and amending her counterclaim), as had actions by the contractor. But no detailed analysis has at any stage, whether contemporaneously before the Costs Judge, or before us, been carried out to demonstrate that the actions she refers to come near to accounting for the differences between the original estimates and the estimate current at the time she wrote that letter (namely £35,000 to £40,000 plus VAT), let alone the difference between the estimates and the costs actually billed.

In my judgment it cannot be shown that there was any error of law on the part of the Cost Judge of which the solicitors can complain. The Costs Judge was entitled to have regard to the estimates. He did have regard to them insofar as he held that the solicitors should be bound by them. He did so by giving them an interpretation which in effect meant that he treated the estimates as being for a much higher sum than that which the solicitors themselves attributed to the estimates. On the interpretation of the £18,000 adopted by the Costs Judge, I do not accept that the November estimate did update the claimant that the original estimate was going to be breached. And on the interpretation which the parties put upon the £18,000 when it was given, the revised estimate in November was, in my judgment, an attempt to correct an earlier under-estimate, and was not attributable to any change in the facts. In these circumstances, what the claimant did when she received the later warnings is of little materiality. I do not find that the Costs Judge did treat the estimate of £18,000 as a fixed quotation. As I find, he treated it as a yardstick.

In accordance with CPR r.52.11(1) this appeal is limited to a review of the decision of the Costs Judge, unless the court considers that in the circumstances it would be in the interests of justice to hold a re-hearing. By r.52.11(3) the court will allow an appeal where the decision of the lower court was wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.

If I had found that the Costs Judge had made the errors which Mr Bacon submitted that he did, I would have had to go on to consider the merits of the case. Given the inadequacies of the Costs Judge’s reasons, I think it right to express my own views on the merits.

I and the assessors do not have before us all the material that was before the Judge. We do not have the material that would enable us to form an independent judgment as to the reasonableness of the amount done and time spent. We do not have copies of all the pleadings and correspondence other than that between the solicitors and the claimant. However, we do not need these, given that the matter has proceeded on the assumption as the Costs Judge put it: “there is no question about the work you have done”. We do have all the bills, including the detailed narratives, and the correspondence by letter and e-mail between the solicitors and the claimant. In looking at these I am greatly indebted to the assessors for the assistance they have given me.

I have formed the clear view that the explanations that were given to the Costs Judge for the discrepancies between the estimates and the bills, and that were also given to the client in correspondence, and to us in argument by Mr Bacon, go very little way to explain the differences between the original estimates and the estimates up to April 2006, or between the estimates and the ultimate bills. All litigation involves some unexpected developments. The initial estimates reflected this, as did the later ones, by giving a wide range of figures, such as £10,000 to £18,000. This litigation was not in our experience an unusual example of a building dispute between a small contractor and a home owner. While the client may indeed have telephoned for longer, and written more often and at greater length than, some clients, we can see no explanation arising from this for the very large discrepancies that occurred. There had not been, so far as I have been able to find, any significantly unusual developments before November 2005, such as to explain the difference between the £18,000 estimate and the £30,000 revised 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. It is true that there were unexpected applications and costs wasted as a result of the contractor’s application for an adjournment in July 2006. But the costs estimates included the trial, and in the event the solicitors’ bills did not include the trial. The explanation for the difference between the estimates and the bills is, in my judgment that the estimates were just too low, and not in accordance with the requirements of the Code cited above.

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. The solicitors themselves thought that she could afford it. They were not contemplating, when they accepted her instructions, that they would be funding this litigation themselves by giving the claimant the credit which they in fact extended to her. If the solicitors had not withdrawn when they did, the total costs including the trial would no doubt have been less than the total of £90,000 which the claimant says they ultimately were. But they would have exceeded £60,000. Unhappily, 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.

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. I bear in mind, as Mr Bacon submits, that, when confronted in 2006 with estimates nearer the reality, the claimant pressed on. But that is not a guide as to what she would have done if she had been faced with the reality in December 2004, at the time when she should have been.

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. Whether I would have reached exactly that figure by the route that I would have taken, which is different from that of the Costs Judge, it is not necessary to explore. I reach that view having regard to the estimates, treating them as a yardstick, and to the other circumstances of the case I have recited above. In the circumstances, I would not reach a result different from that reached by the Costs Judge.

I would not purport to take a particular estimate and to apply to it a percentage margin. Nor did Toulson J purport to do that in Wong v Vizards. Toulson J arrived at the figure he arrived and then noted that it represented a margin of 15%. The figure that I have arrived at is just above the higher figure in the range estimated in November 2005, and more than 70% higher than the estimates of £18,000 which had been given earlier, giving them the interpretation that I do, namely that they were to cover all costs to trial, including disbursements. These estimates did not include the costs of the unforeseen applications that were made in July and August 2006, but neither did the bills include the costs of the trial, which the estimates did provide for. Overall, and in the light of these facts, it is not possible to say that the sum I would have allowed represents any particular margin over the estimates.

It follows that this appeal is dismissed.