The decision of Senior Costs Judge Gordon-Saker in Kenton v Slee Blackwell PLC  EWHC 2613 (SCCO) is another warning as to the dangers of failing to give proper costs estimates.
The client had entered into a Conditional Fee Agreement with their solicitors. In advance of entering into the agreement, the solicitors had provided the client with a costs estimate:
“In our experience the basic legal charges in a case like this are likely to be between £5,000 and £20,000 (excluding VAT, expenses and disbursements, insurance and success fee) if liability and quantum are not seriously contested and a settlement is reached within the protocol period. If liability and/or quantum are disputed then the costs will rise. Additional costs will be incurred if mediation is required and if the claim proceeds to a contested hearing the basic legal charges are likely to fall within the £30,000 to £50,000 bracket; in some cases substantially more.”
Upon the client querying estimate, the solicitors advised:
“What I can also say to you is that in nearly 23 years of practice, I have yet to have a single case where my basic fees have been £100k! The closest I have had is £85k and that was with a fully contested trial as well so hopefully that will put it in to a bit of context.”
The client signed the CFA.
The client was provided with various costs letters as the matter progressed. The wording of these letters was the same, other than the figures:
“According to our computerised records, the costs incurred to date are approximately £x excluding VAT, disbursements and success fee. This figure is intended purely as a guide. The final figure will be based on a manual assessment of the file possibly carried out by the Court. It could therefore be higher or lower than the guide.
Matters may not be resolved for at least another six to twelve months and future costs will very much depend on whether your opponent is reasonable and cooperative. We may incur further costs of a few thousand pounds but if it is necessary to take the case all the way to a contested hearing then the costs will be considerably more and I would refer you to the estimate contained in the case fact sheet.”
The figures given for incurred profit costs in the various letters were:
|11 September 2018
|20 March 2019
|3 September 2019
|25 June 2020
|16 November 2020
Notwithstanding the figures contained therein, the letters did not expressly state that the original estimate had been exceeded and, confusingly, referred the client back to the original estimate.
Shortly before the matter went to mediation, a further costs estimate was provided showing incurred profit costs of £124,825, estimated costs of the mediation and estimated profit costs to trial of £75,000.
The matter settled at mediation and before proceedings were issued.
The solicitors submitted a bill claiming profit costs of £138,390.
The key findings of the Senior Costs Judge were:
“In the absence of any evidence as to why the costs incurred far exceed the estimate, it is difficult to reach any other conclusion than that the estimate was inadequate. Based on my experience, the figures that the Claimant was given were hopelessly unrealistic. … Realistic estimates would be multiples of the figures that were given. In my judgment, a realistic estimate of reasonable profit costs to settlement before the issue of proceedings would have been about £50,000, and a realistic estimate to the conclusion of a trial would have been at least £150,000.
It follows that, in my judgment, not only were the estimates unrealistic but the costs that were incurred are likely to be unreasonable.
Did the Claimant rely on the estimate? It is clear that costs were important to the Claimant. Before she signed the CFA she queried the likely outcome of the claim, setting out figures based on profit costs of £80,000 (“the maximum fees you say you’ve charged in the past”).
How did the Claimant rely on the estimate? According to her first witness statement, she ‘decided to proceed and signed the Case Fact Sheet’. She also signed the CFA. Had the Claimant been given an accurate estimate of the Defendant’s charges, along the lines of the figure that was eventually billed, she would have had the opportunity to consider whether she wished to continue with the claim and whether she wished to obtain an estimate from other solicitors.
What, if anything, is the effect of the subsequent costs information? By the date of the first costs letter, 4 months after the CFA, the costs exceeded the top end of the estimated bracket for pre-issue costs by 50 per cent. The costs letters are confusing. The client is told that the costs may be more or less than the figure recorded and is referred back to the estimate in the Case Fact Sheet.
By that point, the Claimant had signed the CFA and, if she terminated the retainer, she would be liable, at the Defendant’s choice, for their costs whether she won or lost. In that way, she was in a worse position than the claimant in Reynolds, who had received regular bills and updated assessments, but would be no worse off if she had terminated the retainer earlier than she did, once she saw the mounting costs. The Claimant in the present case was hooked by the initial estimate and could not escape it.
The Defendants did not provide the Claimant with proper costs information. She was not given any updated estimate until the mediation. …
In circumstances where the client was given a hopelessly inaccurate estimate, relied on the estimate by entering into a conditional fee agreement, lost the opportunity of doing something different, was not given proper costs information, was billed a sum several times the amount of the estimate, and where the solicitor failed properly to explain the difference between the estimate and the costs incurred, the amount that the client should reasonably be expected to pay must be a figure close to the estimate upon which she relied. The claim settled before issue and following mediation. The estimate given for that outcome was £5,000 to £20,000 plus “additional costs for mediation”. Taking the top end of that bracket and adding £20,000 for mediation would give £40,000. That is just under half of the figure which Ms Slade referred to as the most she had ever charged for a case which went to trial. It is also not far off the amount that I would expect to have seen estimated and incurred. £40,000 seems to me to be the reasonable sum which the Claimant should be expected to pay.”