William Gibson pores over the finer details of the rules on costs in the new Solicitors Code of Conduct


Many legal practitioners, once the satisfying glow of qualification has passed, do not put costs practice, billing or recovery high on their lists of enthusiasms. And why should they? Most, if not all, firms employ accounts departments, and an increasing amount of control is being exercised by practice managers or chief executives.



What these administrative people do not do, of course, is appear on the front line, face to face with clients or opponents. And, of course, neither of these groups is slow to take advantage of slips, errors or obscure technicalities when money is at stake.



Increased judicial interest and adverse publicity on the subject of legal costs has raised public awareness of the right to challenge legal bills, so the number of references to detailed assessments under the Solicitors Act 1974 and costs-related complaints via the Law Society have risen sharply.



The enthusiasm for challenging costs has increased in line with the growth of the so-called compensation culture generally, and highlights the need for practitioners to have the fire-fighting equipment of best practice in place before the blaze begins.



Anyone instructing solicitors knows they will have to pay a ‘fair and reasonable’ charge for the service but what constitutes ‘fair and reasonable’ tends to depend on viewpoint. He who pays the piper frequently objects to the tune

being called.



Over the course of many years as a costs draftsman, I have dealt with the fall-out from practitioners’ failure to comply with the requirements of their regulatory body. These failures arise mostly from lack of knowledge rather than lack of concern, but they are still causing solicitors to suffer severe reductions in fees



THE NEED FOR ESTIMATES

Under the regime which comes to an end on 30 June, a high proportion of challenges arose from the inability of practitioners to deal with estimates. The requirement in rule 15 of the Solicitors Costs Information and Client Care Code 1999 is that, where possible, estimates of likely costs should be given at the outset and then revised before being exceeded, if the figures seemed likely to be wrong. Failure to heed that basic expectation was a rich source of satellite litigation and successful challenges by clients, giving rise to frequent judicial pronouncements. Among the most prominent was Wong v Vizards [1997] 2 Costs LR 46, which decreed that it was not unreasonable for a final bill to exceed an estimate by up to 15% but that ‘a greater divergence would be substantial and unreasonable’.



The knock-on effect of that ruling was to give paying parties another stick with which to beat the donkey on inter partes assessments. If a client had a limited liability to his own solicitor because of a technical challenge on professional conduct, then the indemnity principle (section 60(3) of the Solicitors Act 1974) applies the same restriction for the benefit of an opponent/paying party.



On that basis, it might have looked as if failure to give an estimate at all could negate a client’s liability completely, but help for the beleaguered was at hand. In Garbutt v Edwards [2005] EWCA Civ 1206, the defendant argued that failure to comply with rule 15 rendered the contract between solicitor and client unlawful and therefore unenforceable against the third party. The Court of Appeal, however, declared that The Guide to the Professional Conduct of Solicitors (1999) (which has the force of subordinate legislation) existed to protect the legitimate interests of the client and the administration of justice, rather than to relieve paying parties of their obligation to pay costs. ‘The mere fact that a contract was made or performed in breach of requirements imposed by the code is insufficient to render it unlawful or unenforceable,’ the court said.



The Solicitors Code of Conduct clears away any remaining doubt. Nowhere in rule 2 (the new rule 15) is there any requirement to give a client an estimate. The client does still have to be given ‘the best possible information’, both at the outset and as the matter progresses, and should be advised if the charging rates are to be increased. Although the code does not specifically say so, the court’s take on that last point has always been that the client should be notified of increased rates before they are applied. Telling a client at the outset that rates which he has just agreed ‘usually increase annually’ seems unlikely to satisfy rule 2.03(1)(b).



The Garbutt decision is given its final protective coating by paragraph 2 of the notes for guidance on rule 2: ‘It is not envisaged that a breach of rule 2.02 (client care), 2.03 (information about the case) or 2.05 (complaints handling) should invariably render a retainer unenforceable.’ However, if the original agreement with the client does include any guideline figures as to the likely cost, practitioners are required to keep the client up to date with ‘any changes affecting the original agreement’ (paragraph 18 of the guidance notes), so there is still potential for mischief making if costs are not monitored. This can be avoided if the relevant file is covered with reminders about any estimated figure. If the firm’s time recording system has the capability to do so, record the figure in a way which triggers a ‘flag’ if the figure is approached.



OUT WITH THE OLD

One significant feature of the code, particularly in respect of costs, is what is excluded rather than included. Rule 2 incorporates the principles previously included in chapters 12, 13 and 14 of the previous guide, and the new version seems intended to reduce areas of potential conflict by excluding them from the list of obligations. That way, clients have fewer pegs on which to hang complaints.



The old rule 12 included a requirement for ‘dealing promptly with communications’. Failures to do so helped to fill the in-tray of what is now the Legal Complaints Service for many years but that requirement seems to have gone.



Also missing is any guidance on the form or content of bills, the differences and implications of final and interim bills, and delivery of bills or recovery of unpaid fees (the old chapter 14). These have not just been overlooked but deliberately excluded. According to paragraph 30 of the guidance notes: ‘All of these matters are governed by complex legal provisions, and there are many publications that provide help to firms and clients.’ (Try Cordery on Solicitors.) There are also, of course, costs draftsmen and counsel waiting in the wings to conduct the inevitable litigation.



The issues of exercising a lien and termination of the retainer are touched on briefly, and it is perhaps reassuring to note that while the old rule 12.12 gave, as an example of a good reason for termination, ‘the client’s or solicitor’s bankruptcy or mental incapacity’, paragraph 10 of the guidance notes now makes no mention of the solicitor being so afflicted.



Guidance is given in rule 2 as to the obligations and requirements when acting for a publicly funded client, acting under a conditional fee agreement (incorporating the Solicitors Practice (Client Care) Amendment Rule 2005) and the position on contingency fees, which are still lawful in non-contentious business, including most tribunals, and in contentious business up until proceedings are issued.



SO WHAT MUST YOU DO

To summarise the basic costs requirements for a retainer under the new code:

l A client must be given the best information possible about the likely overall cost of a matter at the outset. This includes the basis, terms and rates of charging. Any quoted figure for this must be monitored and updated if necessary before increases occur.

l Any costs information must be clear and confirmed in writing. If the firm’s standard template retainer letter runs to many pages, let the client know where the important part – the ‘how much will it cost?’ bit – is hidden.

l In litigation, the client must be warned of the risk of having to pay an opponent’s costs and should be given a cost/benefit risk analysis.

l The client’s existing insurance cover must be explored and the possibility of other insurance being available explained.

l Finally, when considering options in litigation, the possibility of mediation or alternative dispute resolution should be discussed. In view of the potentially severe costs sanctions which can be imposed for refusing to mediate (see Halsey v Milton Keynes NHS Trust; Steel v Joy [2004] EWCA Civ 576), perhaps this option deserves to be upgraded to ‘must.’

l This article first appeared in Litigation Funding.



William Gibson is a freelance costs draftsman



Understanding the code

l The code can be accessed via the Solicitors Regulation Authority’s website – www.sra.org.uk. It will be updated on a three-monthly basis.

l The printed edition of the code will be published in late June. It is priced at £29.95 and can be ordered from Prolog (Law Society Publishing’s distributors),

tel: 0870 850 1422.

l The Companion to the Solicitors Code of Conduct, written by Peter Camp, provides commentary and guidance. It will be published in August and is priced £34.95 (discounted to £29.95 if ordered together with the code before 31 August via Prolog).

l The SRA’s professional ethics guidance team is available, tel: 0870 606 2577, to help with enquiries.

l The Law Society has designed an online training course to help lawyers understand the code and get up to speed on the impact of the changes that it will introduce. The course is accredited for two hours of continuing professional development by both the Law Society and Bar Council and is priced at £60 + VAT for individuals, discounted by £10 if booked before 1 July. Discounts are also available for group bookings. To register and pay, go to www.lawsocietycpd.org.uk.