Kerry Underwood explains the solicitor’s obligations relating to costs estimates and quotations, and recaps some cases when the solicitor either failed to provide an estimate, or provided an inadequate one.

The Solicitors Regulation Authority Code of Conduct requires that solicitors should clearly explain their fees, and explain if and when they are likely to change.

Outcome 1.13 requires solicitors to achieve the following outcome: “Clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter.”

Indicative behaviour IB(1.14) involves “clearly explaining your fees and if and when they are likely to change.”

Quotations

A quotation is a fixed price, and provided that the client has clearly accepted that fixed price quotation, there is little potential for disagreement.

Both parties benefit from the certainty of the arrangement and the solicitor benefits from being able to deliver an invoice for the total sum at the outset – the money can be paid straight into office account before any work is done.

A quote is a fixed price and without a CFA, that fixed price will be the maximum that any other party has to pay

This can apply in any type of work, and in non-contentious work it is common and straightforward. Thus the solicitor may agree to prepare a will for £300, and can deliver an invoice for that sum in advance.

In litigation, where recovery will be sought from the other side if the client is successful, care must be taken to avoid falling foul of the indemnity principle.

Let us suppose the solicitor agrees a fee of £10,000 for a piece of work. Under the indemnity principle that is the maximum amount the other side will have to pay, even if the matter becomes protracted. The answer is to have a no-win lower fee conditional fee agreement (CFA), with the lower fee being the fixed fee – in this example, £10,000. The undiscounted rate can be the full hourly rate, which then allows the fee to be recovered from the other side in full in the usual way. The agreement can be structured on CFA-lite principles, which means that, even in the event of success, the client does not have to pay more than the fixed sum of £10,000 that has been agreed.

There are endless possibilities as far as the solicitor and client agreement are concerned, but the main points to note are that a quote is a fixed price and without a CFA, that fixed price will be the maximum that any other party has to pay.

Tips for giving a quotation

It is important to set out clearly what work is covered by the quote. This is to avoid ‘mission creep’ where the client seeks to get the solicitor to do work not envisioned when the price was agreed.

It is also important to deal with what happens if the client disinstructs the solicitor – will the full fee still be payable?

From a commercial point of view, solicitors should effectively build in a contingency when fixing a price for uncertain work such as litigation.

Estimates

Where a fixed price is not agreed, the solicitor should provide an estimate of the cost of the work at the outset. Estimates cause far more problems than quotations.

In Harrison v Eversheds LLP [2017] EWHC 2594 (QB) the court said: “An estimate is what it says. It gives an idea … of what the future costs of work on a case are likely to be. A solicitor cannot be held to be restricted to recovering the exact sum set out in an estimate. However, a client is entitled to place some reliance on the estimate. The nature, degree and reasonableness of that reliance will no doubt be one factor in the view taken on an assessment under Section 70 of the Solicitors Act 1974 of how much more than the estimate it is reasonable for the client to pay.”

Frequent problems with estimates are that they are:

  • inadequate
  • unclear
  • not properly explained
  • not kept up to date.

One of the major reasons why estimates are inadequate is that the solicitor does not wish to scare off a client, and therefore, consciously or subconsciously, underestimates.

In contentious work you should always discuss the matter with another lawyer before giving an estimate.

You should consider whether to give an estimate for the entire action or break it down into stages, which will give a total for the whole action but also focus the minds of both solicitor and client on the cost of each stage. This tends to result in more accurate estimates as it forces you to consider the work likely for each stage, rather than just plucking an overall figure out of the air.

Solicitors are becoming more used to costs budgeting and the best way of getting estimates right is to look at what has happened in other similar cases. Actual budgets from other cases are a useful tool, too.

It is essential to make it clear that the estimate is indeed an estimate and not a fixed price quotation.

Estimate – sample wording

“This is an estimate and it is not a fixed price quote. You may have to pay us more than this, depending on what happens during the case.

We will keep the estimate under review and will revise it if we think that the costs are likely to be higher, or lower, than in this estimate.

If that happens, then we will discuss with you the reasons for the revision.”

Estimates should be considered at your regular file review – in my firm this takes place each calendar month. In heavy and fast-moving litigation, however, even that may be too long a period between reviews.

There is now no specific frequency with which you should give costs information to the client, but if you do this each calendar month as part of a regular file review, the client will have no cause for complaint.

If there needs to be a significant revision of the estimate, you will need to justify that by reference to what has changed since the original estimate was given and whether the cause of the change could have been foreseen at the beginning of the case.

Provided an estimate is clearly an estimate and not a fixed priced quote, you will not be held to it, but nevertheless it will be taken into account when the court considers what it is reasonable for the client to pay.

No estimates

Case study 1: Brookes v Atlantic Marine & Aviation LLP

In Brookes (t/a Brookes & Co) v Atlantic Marine & Aviation LLP [2018] EWHC 1168 (Comm), the Commercial Court held that a solicitor could bill her client and the client was liable for the relevant fees, even though the solicitor had not provided any fee estimate before the work commenced.

The solicitor had acted for the client in a number of matters, and at the beginning of their relationship, the client had emailed the solicitor stating that, unless it was necessary to deal with the matter urgently, the client required a purchase order with a fee estimate before any work was commenced.

The footer to the client’s email stated that it did not constitute any offer, acceptance or contract, and that no contract would be binding and no order placed or accepted without a signature on behalf of the client.

The solicitor replied that it was difficult to see how using purchase orders could work in practice and that it was hard to give a firm estimate without more information about the claim. The solicitor sent the client a letter of engagement and standard terms of business.

The client gave instructions for work to be carried out and the solicitors delivered bills for that work. The client failed to pay the last bill and argued that a purchase order and estimate were conditions precedent to any liability for fees.

The judgment

The court held that the footer on the client’s email deprived it of any contractual effect and that it was necessary to look at subsequent events.

The court noted that the client had not responded to the solicitor’s query about how the purchase order system could work in practice and had instructed the solicitor to do work without further mention of purchase orders.

Furthermore, the solicitor’s letter of engagement made it clear that the solicitor’s terms and conditions of business applied. The letter provided that if it was not signed and returned, the terms were deemed to have been accepted. Consequently, there was no condition of precedent to the client’s liability for the bills, nor was there any implied retainer. The solicitor’s terms governed the relationship and the solicitor was only obliged to use best endeavours to provide a costs estimate.

The appropriate way to resolve any dispute about the amount of the outstanding bill was to send it for detailed assessment.

Case study 2: Garbutt v Edwards

In the assessment between the parties in Garbutt v Edwards [2005] EWCA Civ 1206, the paying party sought to avoid payment on the basis that the retainer was unlawful. If there was no lawful retainer, the client had no liability to pay the solicitor and due to the indemnity principle the third party was not liable either.

The Court of Appeal rejected the argument that failure to give an estimate rendered the retainer unlawful. Instead, this was merely a factor for the costs judge to take into account.

Generally, where no estimate has been given, courts are likely to be harder on the solicitor in assessments between solicitors and their own clients, compared with a losing third party seeking a windfall.

Inadequate estimates

When deciding what sum is reasonable for a client to pay, factors to consider include:

  • whether the client relied upon the estimate
  • in what way they relied upon it.

Whether there should be a reduction, and if so to what extent, is a matter of judgment for the court. Specific deductions can be made to reflect the impact of an erroneous and uncorrected estimate on the conduct of the client.

The court should consider what deduction, if any, is necessary to do justice between the parties but it is not the proper function of the court to punish the solicitor for providing a wrong estimate, or for failing to keep it up to date.

Case study 3: Mastercigars

The leading cases on these issues are a series known as Mastercigars Direct Ltd v Withers LLP ([2007] EWHC 2733 (Ch); [2009] EWHC 1295 (Ch); and [2009] EWCA Civ 1526). In those cases, the court said that the client did not have to go so far as to show the ingredients of an estoppel against the solicitor. “It would often be difficult for a client to show that ‘he would have’ acted differently but the client may be able to show ‘it is possible he might have approached the litigation differently’ if he had been given a more accurate estimate.” Thus, Mr Justice Morgan’s formulation “does not require the client to prove on the balance of probabilities that he would have acted differently”.

In the judgments, the courts also made it clear that the approach apparently adopted in Wong v Vizards (a Firm) [1997] 2 Costs LR 46 – whereby costs judges would allow a margin of 15% or 20% on top of the estimate – was wrong: “The adoption of a margin approach greatly simplifies the steps which a Costs Judge needs to take when carrying out a detailed assessment of a bill, which has been preceded by a lower estimate.” Mr Justice Morgan said that adopting a margin approach as the convention in the majority of cases “pays scant, if any, attention to the legal process which I attempted to describe in my earlier judgment”.

Kerry Underwood provides consultancy services in relation to this area and can be contacted on kerry.underwood@lawabroad.co.uk .