Bills Lacked The Necessary Finality To Be Considered Statute Bills

Initially, in November 2020, the Defendant provided the Claimant with an estimate of legal costs, setting out anticipated fees for the entirety of the arbitration proceedings. The costs estimate totalled approximately £909,357.20, a breakdown of which was later included in the hearing bundle. Based on this estimate, Blue Manchester instructed Howard Kennedy to act on its behalf in the forthcoming arbitration. However, as the case progressed, the Defendant’s fees significantly exceeded the original estimate. By March 2021, it became apparent that Howard Kennedy’s fees had already approached £750,000—a figure supposedly communicated informally to the Claimant, though the Claimant disputed any formal notification of such escalating costs at that stage.

In May 2021, a client care letter and a Conditional Fee Agreement (CFA) were signed. The CFA provided Blue Manchester with a discounted fee structure, reducing Howard Kennedy’s normal rates by approximately 87.5%. The CFA further included a “Win the Arbitration” clause, empowering Howard Kennedy to revert to full fees if the Claimant succeeded in the arbitration. The arrangement was therefore structured as a “no-win, reduced-fee arrangement,” recognising the possibility that the Defendant could retrospectively uplift its fees to standard rates in the event of a favourable arbitration outcome.

Although the arbitration resulted in an unfavourable decision for Blue Manchester in September 2022, which rendered the uplifts under the CFA inapplicable, the Claimant contested the invoices rendered by Howard Kennedy. The Defendant’s final legal charges, amounting to over £2.2 million, far exceeded Blue Manchester’s expectations. The Claimant contended that this sum was disproportionate to even the revised costs estimates communicated (allegedly intermittently and informally) and lodged a Part 8 claim to request a detailed assessment of 23 invoices issued by Howard Kennedy.

The key costs-related dispute in this litigation revolved around whether 15 of these invoices, spanning January 2021 to June 2022, constituted valid “interim statute bills” under Section 70(3)(a) of the Solicitors Act 1974, and whether special circumstances existed that justified disapplying the 12-month limitation period for challenging those bills. The outcome would determine whether these bills remained subject to assessment despite being over 12 months old at the time of the claim.

Chronology of Relevant Events

• November 2020: The Defendant provided an initial costs estimate of £909,357.20 and was instructed by the Claimant to represent them in the arbitration.
• January-June 2021: The Defendant issued 15 monthly invoices (bills 1-15) for legal services, covering the period until June 2022.
• May 2021: The parties signed a Conditional Fee Agreement (CFA) and client care letter, confirming a discounted fee arrangement.
• September 2022: The arbitration concluded unfavourably for the Claimant, meaning no uplift to standard rates under the CFA was triggered.
• August 2023: The court issued an order for the assessment of 8 bills, exempting these from the issue under S.70(3)(a), while the remaining 15 bills (bills 1-15) were left contingent on the present costs dispute.
• October 2024: The judgment was delivered addressing whether bills 1-15 qualified as interim statute bills requiring assessment and whether special circumstances existed.

Issues to be Decided

The key issue before Costs Judge Nagalingam was whether bills 1-15, rendered by the Defendant between January and June 2021, were valid interim statute bills under Section 70(3)(a) of the Solicitors Act 1974. Specifically, the court had to decide the following:

1. Did these bills qualify as interim statute bills, thus triggering limitation periods for requesting an assessment under the Solicitors Act 1974?
2. Alternatively, if they did constitute interim statute bills, should the 12-month time limit for challenging them be disapplied due to the existence of special circumstances?

Parties’ Positions and Arguments

Claimant’s Position (Blue Manchester Limited)

• Validity of Statute Bills: The Claimant argued that bills 1-15 did not qualify as interim statute bills. They contended that, under the CFA structure, no sums could be regarded as final (and therefore legally collectible as statute bills) until the outcome of the arbitration proceedings, which would determine the applicable rate (discount or full). The Claimant emphasised that the CFA contemplated “contingent” billing, dependent on success in the arbitration. Thus, any bills delivered during the arbitration were interim demands for payment on account rather than self-contained final costs as statute bills would require.
• Communication of Cost Estimates: The Claimant challenged how cost information was communicated. They argued the Defendant failed to issue adequate, timely updates regarding escalating costs. This failure, compounded by the significant shortfall between the original estimate (£909,357.20) and the eventual billed amount (over £2.2 million), further underpinned their argument that the bills lacked the requisite finality for statute bill status.
• Special Circumstances: Even if the bills were found to be interim statute bills, the Claimant submitted that special circumstances existed and justified the disapplication of the 12-month limitation. They pointed to significant overcharging—such as the Defendant’s admitted £40,000 error in early billing—and the Defendant’s failure to communicate revised estimates, arguing that such inaccuracies warranted judicial scrutiny via detailed assessment.

Defendant’s Position (Howard Kennedy LLP)

• Validity of Statute Bills: The Defendant maintained that each of bills 1-15 constituted valid interim statute bills. They submitted that the terms of business, alongside the CFA, explicitly allowed them to issue statute bills periodically, and that the discounted financial arrangements within the CFA did not negate the finality of the bills issued. They asserted that the bills fully satisfied the legal requirements of interim statute bills, being final for the work done in each period covered.
• Estimates and Communication: The Defendant acknowledged that earlier cost estimates had been exceeded, but claimed that they had effectively communicated these updates, though informally in some instances. They disputed the Claimant’s allegations of inadequate communication, pointing to internal records of conversations where revised estimates were purportedly discussed. Further, they argued that fluctuations in the case’s complexity justified the increase in fees.
• Special Circumstances: The Defendant rejected the claim of special circumstances, contending that a minor calculation error in prior invoices did not warrant reopening the bills for assessment. They argued that such discrepancies had been identified promptly by their team and the necessary corrections applied. The Defendant also emphasised that the governing legal framework supports the finality of statute bills, disallowing retrospective amendments or reassessment unless special circumstances demonstrably extended beyond mere calculation errors.

Decisions and Findings

The judge determined that the wording of the bills failed to meet the standard for interim statute bills, especially in light of the conditional fee agreement (CFA), which left the client uncertain about their total liability until the conclusion of the arbitration. He concluded that the bills in question, while labelled as interim statute bills, did not carry the finality required for such bills.

“In my view, and when taken in combination with the fact that all of the bills in question were being paid at discounted rates (and so in the knowledge that further charges could be raised relating to the same work), it was incumbent on the Defendant to be clearer both in their dealings with the Claimant and the language of the relevant funding documents.”

The judge emphasised that the small print on the face of each bill explicitly stated that they were “not necessarily a final bill,” which inherently contradicted the notion of an interim statute bill.

“I also agree with the Claimant that the fact that the Defendant made it clear on the face of every bill that they were ‘not necessarily a final bill’ means those bills lacked the necessary certainty to carry the status of being interim statute bills.”

The judge was critical of the Defendant’s attempt to enforce the payment of bills while reserving the ability to later increase the charges for the same periods, depending on the outcome of the arbitration. This undermined the transparency and finality required for statute bills.

“The Defendant clearly sets out that ‘The contents of this letter and our Terms of Business are subject to the attached Conditional Fee Agreement dated 4 May 2021… and should be read subject to that agreement which takes precedence over the terms of this letter insofar as they differ.’ I do not consider the Defendant intended to create a scenario whereby there was no means by which any tension between the terms of business and the CFA could be resolved.”

 The judge rejected the argument that the CFA allowed for interim statute bills in this context. He explained that while the CFA permitted the Defendant to issue monthly billings, the structure of the CFA, which allowed for potential adjustments based on the outcome of the arbitration, did not align with the principles of finality in interim statute billing. He held that the possibility of a later top-up bill precluded the bills from being statute bills.

“In terms of the Claimant’s knowledge, a key plank of the Defendant’s case is to invite this court to conclude that the question of how to treat a balancing or ‘top-up’ payment is now irrelevant, because no balancing payment was sought (as a consequence of the success provision of the CFA not being achieved). The problem with that line of argument is that it doesn’t extinguish the fact that finality in the bills could not be known until the matter had concluded.”

The judge determined that even if the bills were considered statute bills, special circumstances existed to permit their assessment under the Solicitors Act 1974. He pointed out the overcharging error and failure to clearly update the costs estimates as factors that contributed to special circumstances.

“I am satisfied that the lack of clarity over the estimated costs amounts to a special circumstance such that I would have been minded to order an assessment of the disputed unpaid bills in any event.”

The judge acknowledged that while the Defendant had credited the overcharged amount to future invoices, the fact that an overcharge occurred in the first instance raised broader concerns about the reliability of the billing process and justified an assessment.

“In the same way that had the Defendant discovered they undercharged for the periods covered by those earlier bills, they could not go back and ask the client for more (on the Defendant’s case anyway), the fact of an admitted overcharge, since credited in full, does not in my view open up those bills to an assessment where they are deemed paid in full.”

The judge noted the absence of any formal communication from the Defendant to the Claimant clarifying the drastically increased costs estimate. This lack of transparent communication about the rising fees was deemed a special circumstance warranting an assessment of the bills.

“It seems inexplicable and arguably inexcusable that the Defendant would so drastically alter their estimate and not formally confirm this in writing to the Claimant.”