Interim Statute Bills | Contractual Rights And Obligations

BOODIA & ANOR V SLADE (T/A RICHARD SLADE & CO SOLICITORS) | FULL SUMMARY AND DECISION

Relevant Background

• An application for detailed assessment of their former solicitor’s invoices was issued by the Claimants in November 2016.
• The invoices in question were issued under a retainer agreement entered into in January of 2013.
• The case became the subject of repeated hearings in the Senior Courts Costs Office, as well as successive appeals to the High Court, the Court of Appeal and (abortively as permission was refused) the Supreme Court before returning to the SCCO in December 2020 and again (prior to judgment being handed down), in June 2022.

• On 11 December 2020 Master James had to deal with a ‘Preliminary Issue’, namely:

  a. whether the Claimants signed the Retainer with informed consent to the provisions within the retainer providing for interim statute Bills; and

  b. if they did not, whether, for this reason, the Defendant’s invoices, either individually or collectively, are or are not Bills for the purposes of s.70 of the Solicitors Act 1974.

• The Defendant’s original submissions (in December 2020) were that the Preliminary Issue went to whether the Defendant’s retainer allowed it to submit interim statute Bills; if ‘informed consent’ is a relevant consideration in these circumstances (which the Defendant disputed), the absence of informed consent would mean that the Defendant was not (in contract) entitled to render interim statute Bills.
• The second limb of the Preliminary Issue addressed the character of the contractual relationship between the Claimants and the Defendants, namely: was it a relationship which permitted the Defendant to raise interim statute Bills?

The Claimants’ Position

For the Claimants, it was said:

• whether or not the Bills delivered were (as a matter of fact and law) to be treated as interim statute Bills, was dependent upon (inter alia) the Claimants’ state of knowledge both at the time of entering into the retainer and at the time that the Bills were actually delivered. The Claimants’ state of knowledge includes the proposition that (regarding costs in contentious business) the default position is that a final Bill cannot be rendered until the business is completed.
• hence it is trite law that all retainers include the potential for delivery of interim statute Bills, either under the “natural break” principle or by agreement, but that neither is determinative. Whether Bills purportedly delivered as interim statute Bills are properly construed as such is dependent upon a range of both statutory and common law tests, including the state of knowledge of the clients (informed or uninformed).

Claimant’s Authorities

The Claimants cited from a line of cases on this issue, including Davidsons v Jones Fenleigh [Costs LR (Core Vol) 70 per Roskill J at p75 (requiring a Solicitor to “…make it plain to the client either expressly or by necessary implication that…his purpose of sending in that Bill for that amount at that time [is so that he can]…require that Bill to be treated as a complete self-contained Bill of costs to date.” They also cited Abedi v Penningtons [2000] Costs LR205 per Lord Justice Simon Brown at p14, referring to the judgment in Re Romer & Haslam and especially the assertion that, “Kay LJ reached his conclusion on the basis that ‘the intention of both parties was that [the Bills] should be treated as items in statements of account …’”

Adams v Al Malik [2014] 6 Costs LR 985 per Fulford J at 48 was cited “…the Solicitor must make it plain to the client that the purpose of sending the Bill at that time is that it is to be treated as a complete self-contained Bill of costs to date (see the judgment of Roskill LJ in Davidsons v Jones-Fenleigh [1980] 124 SJ 204).” Also cited was Bari v Rosen [2012] EWHC 1782 per Spencer J at para 17 “Even if there was a contractual right to issue interim statute Bills, it would be a question of fact whether any individual Bill issued to the client was a statute Bill. If there was no contractual entitlement to issue an interim statute Bill, any interim Bill issued could be no more than a request for payment on account”

Great reliance was placed upon Vlamaki v Sookias and Sookias [2015] EWHC 3334 (QB) and the Claimants cited an extensive extract from Walker J at paras 15 – 16:

“In accordance with established principles, I interpret the terms of the contractual retainer by reference to the agreement as a whole and by reference to the factual matrix at the time of the agreement. In addition, I have regard to two concessions which were properly made by Mr Mallalieu: (1) if there were an ambiguity on a fundamental aspect of the terms and conditions that cannot otherwise be resolved then the ambiguity is to be determined against the Solicitors; and (2) the factual matrix was that Mr Mallalieu’s client was a firm of Solicitors while Dr Vlamaki was not a lawyer. These concessions reflect the approach taken by Spencer J in Bari v Rosen. In that case ambiguities in the retainer were resolved against the Solicitors, with the result that an entitlement to render Bills which the Solicitor required to be paid “by return” was not an entitlement to render interim statute Bills. In reaching that conclusion Spencer J noted the observations of Master Leonard cited above. Those observations underscore the impracticality and unfairness to a client if a retainer has the effect that interim Bills are final in relation to the period that they cover, with resultant drastic limitations on the ability of the client to make use of statutory provisions for assessment. Thus, for example, a client who followed the complaints procedure in clause 11.4 of the present retainers would, without knowing it, be giving up the statutory right to taxation within 1 month of delivery of the Bill. These drastic limitations, and the inevitable recognition of the factual matrix found in concession (2) above, in my view constitute sound reasons for strictly applying concession (1) above. Application of such a concession carries with it a corollary: unless the retainer makes it unambiguous, the client will not be able to say that under the retainer Bills are final in relation to the period that they cover. However, that corollary, to my mind, is unlikely to cause injustice to either side.”

The Claimants asserted that, although not binding, the principle had been applied in a number of decisions, in such a way as to either (a) find that no statute Bill at all had been delivered, or (b) to construe Bills as being a series of on account Bills to be treated for the purpose of assessment as a Chamberlain Bill; the first of those cases was that of Erlam v Richard Slade & Company Plc (being a retainer which was for all material purposes the same as the retainer in the instant case).

It was said that, the principle of a client’s “informed consent” to the terms of a retainer being required in order for it to be binding, underlies all of these decisions, and is now well established (albeit in differing contexts) in Macdougall v Boote Edgar Esterkin [2001] Costs LR 118, Herbert v HH Law Limited [2019] EWCA Civ 527 and Belsner v Cam Legal Services Ltd [2020] EWHC 2755 (QB).

The Claimants asserted that these cases demonstrate that the Court can and does intervene in the contractual arrangements between Solicitor and client, where they have been entered to into without the informed consent of the client. The ability of the Court to intervene in terms as to costs as between Solicitor and client, even to the extent of setting aside such terms altogether, forms an express part of the primary legislation in the context of Contentious Business Agreements – see Solicitors Act 1974, s.61(2). It would be illogical (say the Claimants) to conclude that the Court could intervene in a CBA (the statutory purpose of which was to reduce the client’s right to assessment) but could not do so in the circumstances of the Claimants’ case.

It was said that:

• the words of Mr Justice Lavender at paragraphs 68 to 69 of the judgment in Belsner articulate (possibly for the first time) the principle that underlies such interventions:

“I do not consider that this appeal can be determined by a simple comparison between the wording of CPR 46.9(2) and (3). The requirement for informed consent which applies in cases under CPR 46.9(3) does not arise because of the use of the word “approval” rather than the word “agreement”. The requirement for informed consent arises because of the fiduciary nature of the relationship…It goes without saying that an agreement for the purposes of CPR 46.9(2) must be a valid and enforceable agreement. It follows, for example, that an agreement procured by fraud or misrepresentation would not suffice. Nor, obviously, would an agreement whose performance would involve a breach of fiduciary duty. To that extent, therefore, CPR 46.9(2) requires informed consent.”

• paragraph 37 of the retainer confirmed that the Defendant is subject to the rules and principles of professional conduct; those rules and principles are thus incorporated as contractual duties.
• furthermore, under the SRA Code of Conduct the Defendant was obliged to do various things. These included:
  • only entering into fee agreements with clients that were legal, and which the Defendant considered suitable for the client’s needs/took account of the client’s best interests;
  • informing clients whether and how the services the Defendant provides are regulated and how this affects the protections available to the client;
  • ensuring that clients are in a position to make informed decisions about the services they need, how their matter will be handled and the options available to them and ensuring that clients are informed of their right to challenge or complain about a Bill and the circumstances in which they may be liable to pay interest on an unpaid Bill.
• as to Fiduciary duty, in Matthew v Bristol & West Building Society [1996] EWCA Civ 533 Lord Justice Millett held that:

“A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary.”

The Claimants case was that any failing on the part of the Defendant to ensure that the Claimants consented to the terms of the retainer (such that they purported to depart from the default position of a statute Bill at case end) on an informed basis would amount to a breach of one or more of the above duties and would render any agreement for the delivery of interim statute Bills invalid and/or unenforceable. They asserted that the Court of Appeal in Herbert v H H Law made it clear that the burden of showing informed consent lies with the Solicitor (and that Lavender J had followed that in Belsner). They asserted that this principle was consistent with the general principle (in cases where the nature of a Bill is disputed) that the burden of establishing that a Bill is a statute Bill lies with the Solicitor.

• The Defendant asserted that the Claimants recognised that their new argument addressed not the character of the Bills, but the terms of the retainer, having repeatedly referred to it in shorthand as ‘the Vlamaki point’ (that being a reference to Vlamaki v Sookias & Sookias [2015] EWHC 3334) in which Mr Justice Walker determined that in order to create an entitlement to render interim statute bills a solicitors’ retainer must make plain the intention and that each interim bill would be a final bill for the period that it covered. Any ambiguity in the retainer is to resolved in favour of the client.
• It was contended for the Claimants based on this decision that the Defendant had no contractual right to render statute bills as the Claimants never gave ‘informed consent’ to the Defendant’s contractual right to raise interim statute Bills.
• For the Defendant it was said that no test of ‘informed consent’ applies before clients are contractually bound by their Solicitors’ terms of appointment and as such, ordinary contract law applies: here the Claimants freely entered into a contract which allowed interim statute billing, plus the relevant contractual terms were made clear to the Claimants so that there was no arguable issue of a lack of informed consent on the facts in this case.

The Defendant’s Position

For the Defendant it was argued that:

• the Preliminary Issue is misconceived as the issue of informed consent has no place in determining whether the terms of a retainer are effective. ‘Informed consent’ is an issue which arises in the law of fiduciary obligations and in certain transactions with a fiduciary, ‘informed consent’ is necessary for the transaction to be effective, due to the usual principle that a fiduciary cannot place itself in a conflict of interest with, or make a profit from its fiduciary relationship with, its principal.  A principal (here, the Claimants) can nonetheless allow these things, but will only be bound by its agreement to do so if the fiduciary (here, the Defendant) has given it disclosure of all material which is relevant to that decision.
• in the context of liability for Solicitors’ costs, ‘informed approval’ has been held to be necessary before a Solicitor can avail itself of the presumptions of reasonableness in CPR 46.9, or before a client is bound by an agreement to contract out of s 74(3) of the Solicitors Act 1974 (which otherwise places a statutory limitation on costs payable for county Court business).
• however, ‘informed consent’ had never been required to the initial terms of a Solicitor’s retainer, because the agreement of those terms both precedes and defines the fiduciary relationship.  A Solicitor is not acting as a fiduciary when initial terms are agreed, hence ordinary contractual principles apply, subject of course to the Solicitor discharging its obligations under the SRA Codes of Conduct.
• the most elementary principle of a fiduciary relationship is that the fiduciary must subordinate its interests to its principal’s interests and cannot allow any conflict of interest to develop.  These requirements would be completely unattainable were fiduciary obligations to apply where a putative fiduciary is negotiating the terms on which it is prepared to accept such an appointment, especially its terms as to remuneration.
• the scope of a fiduciary’s obligations is defined by it terms of appointment: Kelly v Cooper [1993] AC 205, 213H-215D.
• it is trite that the default legal position is that trustees and other fiduciaries are not entitled to profit from their position.  This is no breach of their fiduciary positions, as it is authorised by their terms of appointment, a separate source of authority from informed consent obtained subsequent to the fiduciary obligations arising: Snell’s Equity, 34th ed, §7-042.
• the Defendant’s retainer is clear: it was entitled to submit monthly, final Bills and the Claimants signed their agreement to these terms and, as such, are bound by them. No issues of informed consent arose, but even if they had, what information would the Claimants say that they were not given?  The Defendant’s retainer expressly states a right to render Bills and the right to assessment thereof, and each interim statute Bill rendered also gave notice of that right.
• if the Claimants’ case is that, because the default position at common law is that a Solicitor cannot submit interim Bills, the Defendant was under an obligation to explain that in order to enable the Claimants to seek alternative terms elsewhere.
• any detailed written contract will entail a departure from the common law position, otherwise it is pointless; its purpose is to set out the specific terms upon which the parties have agreed.  Here, the Defendant stipulated for monthly Bills, and the Claimants agreed to that; it was always open to them to seek other terms elsewhere. Furthermore, where informed consent is required, a party is obliged to explain the facts, not the law: cf Knight v Frost [1999] BCC 819, 828.  Here, the fact (of interim Billing) was fully explained, the law (of what that meant re: time limits) was not but, presumably, did not need to be.
• hence, even if the informed consent issue were open to the Claimants, it would fail both legal and factually.
  • Legally, there is no requirement for informed consent before a Solicitor’s terms of appointment are binding, as those terms pre-date, and define, the scope of the fiduciary relationship, and
  • Factually, these Claimants were given a sufficiently clear explanation of the relevant Billing terms.

Erlam v Richard Slade & Company Plc

Suibsequent to the parties’ respective submissions at the hearing in December 2020 but prior to (the significantly delayed) judgment being handed down the first-instance case of Erlam v Richard Slade & Company Plc which the Claimants relied upon was successfully appealed to His Honour Judge Gosnell (sitting as a Judge of the High Court) in January of 2022.

In the Defendant’s submission, the learned Judge in that case (citation [2022] EWHC 325 (QB)) had now decided the Preliminary Issue in its favour, and Master James was now bound by that decision.

The Claimants asserted that the Master was not bound by that decision for the reasons that follow.

MASTER JAMES:

If this Court did not already decide the Preliminary Issue, is it bound by the decision in Erlam?

65.  Mr Williams QC took me through the decision and made specific reference to paragraph 28 thereof; the learned Judge indicated that he was not convinced that the decision of Mr Justice Fulford (as he then was) in Adams v Ali Malik (cited by the Claimants, see paragraph 26 above) is a sufficiently firm foundation to base the proposition that a solicitor has an obligation to his client not only to advise a client of his rights under the Solicitors Act to ask for an assessment but also to explain what the legal consequences of the service of an interim statute bill would be. As a decision on permission to appeal, it is not a legally binding authority, and it does not say that the Solicitor should tell the client that if a complete self-contained bill is delivered then this starts the clock running for the purposes of a Solicitors Act assessment. The learned Judge then adds:

I fully accept that Costs Judge Rowley in Masters v Charlies Fussell appears to suggest that a solicitor does bear this additional obligation but I am not convinced that Mr Justice Fulford’s decision in 2003 is sufficient authority to support the proposition. I fully accept the practical difficulties for the client in applying for an assessment of his own solicitor’s costs whilst still instructing him in the underlying litigation as identified in paragraph 19 above. Perhaps this would be a good reason for amending the legislation or for the Solicitors Regulation Authority to amend the Code of Conduct or introduce regulations to like effect. In the absence of such amendment however the situation remains that there is no statutory or regulatory obligation to advise a client what the legal consequences are likely to be for him or her when a solicitor serves an interim statute bill.

It is not normal for provisions explaining the legal consequences of contractual terms to be implied into a contract unless there is some additional statutory or regulatory obligation to do so as a result of a perceived need for consumer protection. Whilst there may be such a need here it has not resulted in any changes to the Act or relevant regulatory reform. In the absence of such, I take the view that if there is a clear contractual term reserving the right of a solicitor to deliver interim statute bills then he is entitled to do so, without having to spell out what the legal consequences of such an act would be for the client.

66.  The learned Judge then described the provision reserving the right to deliver interim statute Bills as being clearly worded and (in his judgment) containing no room for ambiguity, making it clear that they “are detailed bills and are final in respect of the period to which they relate” which, he asserts, is sufficient explanation to justify the delivery of an interim statute Bill. As well as the retainer in Erlam being for all material purposes the same as the retainer in this case, Mr Williams QC pointed out that the case law considered by the learned Judge in Erlam was the case law aired before me on 11 December 2020 including Vlamaki.

67.  At paragraph 25 of his decision in Erlam the learned Judge refers to the Solicitors Act 1974 as legislation of some antiquity (at nearly half a century old) which does not appear to have been amended substantially over the years and in particular not to have undergone the sort of transformation which is common when consumer rights are brought into the equation: “When dealing with a client’s right to seek an assessment of costs from his or her solicitors the Act seeks to strike a balance between allowing a reasonable time for a client to question the quantum of costs whilst protecting solicitors from having to deal with stale allegations of overcharging. Whilst the Act purports to regulate those rights it does not go so far as to oblige the solicitor to advise the client of these provisions in terms, nor to explain in plain English what the actual consequences of the application of those terms are for the client. I am personally sympathetic to the argument that it probably should.” (my emphasis)

68.  Mr Williams QC pointed out that, when it ran in their favour, the Claimants were keen for me to follow the first-instance decision in Erlam and asserted that it is contradictory for them now to argue that I should not follow it. Further, he cited several cases in support of the proposition that I must follow the decision of His Honour Judge Gosnell (sitting as a Judge of the High Court) as a coherent system of justice requires a subordinate Court to agree with (or at least to abide by) the decision of an Appeal Court. The learned Judge in Erlam has handed down a decision that is binding upon me and I should abide by that decision.

69.  Mr Williams QC referred in particular to Sayce v TNT (UK) Ltd [2011] EWCA Civ 1583 in which Lord Justice Moore-Bick stated that the rules of precedent require lower courts to accept and apply the decisions of higher courts, even though they may consider them to be wrong, and quoted from Lord Simon in Miliangos v George Frank (Textiles) Ltd [1976] A.C. 443 at page 478: “It is the duty of a subordinate court to give credence and effect to the decision of the immediately higher court, notwithstanding that it may appear to conflict with the decision of a still higher court. The decision of the still higher court must be assumed to have been correctly distinguished (or otherwise interpreted) in the decision of the immediately higher court. . . . Any other course is not only a path to legal chaos but in effect involves a subordinate court sitting in judgment on a decision of its superior court.”

70.  For the Claimants, Mr Carlisle asserted first that the route to an Appeal in Erlam has not yet reached its end; the Appeal has been turned down on the basis that the Court of Appeal already decided the issue in Boodia but (per the Claimants) the issue already decided in Boodia and the issue in Erlam are not one and the same. It has not yet reached its end and could, in Mr Carlisle’s submission, have been decided wrongly and Mr Williams QC would accept (Mr Carlisle asserted) that I am bound by Erlam unless it was wrongly decided or per incuriam.

71.  So far as the latter is concerned,

paragraph 25 of the decision in Erlam sets out the learned Judge’s sympathy with the proposition that the rules should require an explanation (albeit they do not currently do so). Paragraph 28 refers to the lack of any statutory or regulatory obligation to advise a client what the legal consequences are likely to be for him or her when a solicitor serves an interim statute bill; per the Claimants, that overlooks the Consumer Rights Act 2015. Although the legislation is seven years old, Mr Carlisle referred to this as a rapidly-developing area of the law and stated that, although it was not raised in Erlam clearly it should have been but that there was now another opportunity to address it i.e., before me.

72.  Mr Carlisle pointed out that, to date, there had been no Notice to the Claimants regarding cross-examination and that their version of events was, therefore, unchallenged before me. The learned Judge in Erlam had said (to paraphrase) that he would have had sympathy if only there had been a Statutory requirement to inform the Claimants at the time of entering into the retainer: per Mr Carlisle there is, in the Consumer Rights Act 2015 and I should now apply it.

73.   In response, Mr Williams QC submitted that the Defendant’s primary position remains that I am bound by the decision in Erlam even if it was ‘plainly wrong’. By way of a secondary position, the Defendant asserted that the 2015 Act is not a matter for me to decide in this Judgment; if the Claimants wish to run it at this very late stage they will have to do a great deal more in the way of groundwork and, for example, the Defendant would not accept the proposition that the Claimants were entitled to ‘Consumer’ protection in these circumstances. The dispute involved a property owned by them and run as a business (a care home I believe) and if they now wished to assert that they had dealt with the Defendant as consumers, there may need to be cross-examination after all. Certainly, per Mr Williams QC, for present purposes there was no evidential foundation for such a claim by them (Mr Carlisle referred to evidence including the fact that Bills were addressed not to the business but to the Claimants themselves, as tending to prove their consumer status).

Decision

74.

I agree with the Defendant’s primary position, that I am bound by the decision of His Honour Judge Gosnell (sitting as a Judge of the High Court) in the case of Erlam; it is a decision at the next tier and is binding upon me even if ‘plainly wrong’. Further, I do not think that the decision in Erlam is wrong; the learned Judge was not directed to the Consumer Rights Act 2015 despite that legislation predating the case by several years. I do not propose to speculate on what the learned Judge may have decided, had he been taken to that legislation: the point is that, based upon the matters that he was directed to, his decision seems to me to be correct and describing it as ‘wrong’ would rather put the emphasis in the wrong place. If the Consumer Rights Act 2015 should have been raised in Erlam it is not a question of the decision being wrong but of the fast-moving law in this area having failed to keep up.

75.  As such, in relation to the Preliminary Issue in my view there is no longer anything to decide as His Honour Judge Gosnell (sitting as a Judge of the High Court) has decided the issue already in Erlam and I understand and agree with his reasoning in doing so. This then brings me to the last of the questions addressed on 10 June 2022, namely, are there other issues which, notwithstanding the above, are open to this Court to decide at this time (specifically issues around Consumer protection legislation as it affects Solicitor/Client relationships)?

76.  In fact I can deal with that in very short order as both parties were ad idem that this is not the end of the matter as there are questions around Chamberlain Bills, Special Circumstances, Consumer Rights Act 2015 and so on, still to address: I should add that my understanding is that the Defendant has indicated that it will be pressing for all of these to be shut down fairly hard, both on the issue of whether the Claimants dealt as ‘Consumers’ or not and on the issues of Res Judicata/Issue Estoppel, Waiver and Procedure that have already been canvassed in relation to the Preliminary Issue now disposed of by the decision in Erlam.