The Consequences Of An Inadequate Costs Estimate And A Flawed Risk Assessment | Solicitors Act Assessment

Kenton v Slee Blackwell PLC [2023] EWHC 2613 (SCCO)  was a Solicitor and Client costs dispute in the Senior Courts Costs Office between Mrs Amanda Kenton, the claimant, and her former solicitors, Slee Blackwell LLP, the defendant law firm.

Relevant Background

• In 2013 the Claimant instructed ABC to investigate and bring a private prosecution against three individuals, BH, AG and AA.
• It was alleged that these individuals had conspired dishonestly to sell shares belonging to the Claimant’s mother at an undervalue. The individuals were the mother’s solicitor and two tax advisers.
• Informations were laid at Willesden magistrates’ court and summonses were issued against the individuals in September 2017
• The individuals secured the intervention of the Director of Public Prosecutions, who discontinued the prosecution in February 2018.
• District Judge Ikram concluded that the prosecution had never stood a realistic chance of success and that the application for the summons had been an improper act by reason of material non-disclosure to the court.
• In a subsequent judgment, dated 31st May 2018, District Judge Ikram ordered the Claimant to pay the individuals’ wasted costs in the total sum of £210,691.
• In March 2018 the Claimant approached the Defendant in relation to a proposed claim against ABC and/or leading counsel who had been instructed by them in relation to the prosecution.
• A conditional fee agreement was entered into on 15th May 2018 in respect of the proposed claim for damages for professional negligence, which provided for a success fee of 90 per cent if the claim concluded at trial, or 80 per cent if it concluded before then.
• The agreement, which incorporated modified Law Society conditions, provided for hourly rates for the 4 usual grades of fee earner of £300, £275, £250 and £200.
• Following favourable advice from counsel, a letter of claim was sent to ABC in August 2019. The letter of response denied liability but suggested mediation.
• In October 2020 ABC made a purported Part 36 offer.
• A mediation meeting took place on 30th November 2020 which resulted in a settlement on terms that ABC would pay the Claimant £295,000 together with her costs to be assessed.
• An inter partes bill of the costs of the claim against ABC was drawn up in April 2021 in the total sum of £209,262, of which the profit costs were £152,210 excluding value added tax.
• An agreement was eventually reached in February 2022 whereby ABC agreed to pay the Claimant’s costs in the sum of £138,000; about two-thirds of the sum claimed.
• On 13th May 2022 the Defendant sent to the Claimant a bill in the total sum of £342,738.60. After deduction of that sum from the damages and costs paid by ABC (a total of £432,000), £93,126.40 was said to be payable to the Claimant.
• On 17th June 2022 the Claimant commenced proceedings for an order for the detailed assessment of the bill. Although the claim was listed for directions in July, the parties agreed that the hearing should be vacated to allow settlement discussions.
• In October 2022, following acknowledgment of service, the matter was relisted for directions, but the parties then agreed a consent order that the bill dated 13th May 2022 be the subject of detailed assessment, restricted to the profit costs and success fee.

Claimant’s Position

The Claimant argued that:

Estimates

The profit costs incurred significantly exceeded the estimates of costs provided to her by Slee Blackwell to Mrs Kenton before the CFA was entered into. She had relied on those estimates in deciding to proceed.

The initial estimates of costs given to Mrs Kenton by Slee Blackwell were:

• £5,000 to £20,000 for basic charges if liability and quantum were not seriously contested and settlement was reached before proceedings were issued.
• If the case went to a contested hearing, basic charges were estimated at £30,000 to £50,000.
• Disbursements were estimated at under £5,000 unless the claim proceeded to a contested hearing or mediation.

In an email on 10th May 2018, Slee Blackwell gave an example of a case where their basic fees reached £85,000 after a fully contested trial, describing this as the closest they had come to £100,000 fees.

The first costs information letter in September 2018 indicated costs incurred to date of around £32,338.

Subsequent costs letters gave the following updates:

• 20 March 2019 – £56,753
• 3 September 2019 – £78,178
• 25 June 2020 – £109,650
• 16 November 2020 – £120,100

Just before mediation, a schedule estimated profit costs to date of £124,825.

Success Fee

The success fee of 80% and then 90% was unreasonably high and not properly calculated based on a reasonable assessment of the risks.

The Defendant’s Position

Costs Estimates

• The estimates given were qualified and costs information was provided subsequently.
• The costs letters informed Mrs Kenton of the amounts incurred.
• The October 2020 spreadsheet showed the costs impact.
• Mrs Kenton did not complain or refer back to the original estimate even when costs exceeded £100k.
• Given the subsequent information, reliance on the initial estimate was unreasonable.
• The increase was due to unanticipated extensive disclosure from ABC.

Success Fee

• The points of dispute did not challenge the risk assessment methodology.
• “Multi-track” related to the amount of costs likely to be incurred.
• “Multi-defendant” addressed the risk that costs may not be fully recovered.
• “Causation issues” referred to breach of duty, the biggest concern.
• Limitation issues related to the date of breach, not when the claim accrued.
• “ATEI issues” addressed the risk of not meeting 60% prospects of success.
• The risk assessment justified the staged success fees.
• The client approval was informed and the presumption of reasonableness applies.
• The success fees were reasonable given the uncertainties involved.

Judge’s Findings

Estimates

Senior Costs Judge Gordon-Saker found that:

• The the original estimates were wholly unrealistic and inadequate for what was a complex, document-heavy case requiring significant work::

“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. This was a professional negligence claim which would probably be brought in the High Court seeking damages in excess of £300,000. As Ms Slade anticipated, the case would be document heavy and a considerable amount of work would be required. 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.”

• Mrs Kenton relied on the estimate by entering into a conditional fee agreement and lost the opportunity of doing something different.

“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”

He concluded:

“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.”

Success Fee

In respect of the success fee, the judge found that this was not supported by the risk assessment and was not therefore informed:

“In her witness statement Ms Slade seeks to explain the approach taken in the risk assessment. “Multi track” appears to relate to the amount of costs likely to be incurred, rather than the risk of failure. “Multi defendant” referred to the fact that there were two potential defendants – ABC and leading counsel – and it was not then known who had drafted the summons. It was possible that significant costs may not be recovered against an unsuccessful defendant. Again, it is difficult to see this as a real risk. If proceedings were brought against two defendants and they blamed each other, the usual order would be that the unsuccessful defendant would pay the costs of the successful defendant. “Causation issues”, as explained by Ms Slade, seems to be breach of duty, rather than causation. She described that as “the biggest concern”. Ms Slade’s assessment of the “Limitation issues” appears to have been linked to the date of breach rather than the date when the cause of action accrued. Ms Slade explained that “Potential ATEI issues”, which were assessed as high and scored at 4, related to the risk that the claim would not meet the insurers’ requirement of 60 per cent prospects of success. That seems to be somewhat circular. Either the claim has prospects of success of 60 per cent or it does not. Reducing the prospects of success because the prospects of success may not be 60 per cent or more, seems to underline the unusual approach to risk assessment in this case.

“The approval of the client for the purposes of r.46.9(3) “means informed approval in the sense that the approval was given following a full and fair explanation to the client”: Herbert v HH Law Ltd [2019] EWCA Civ 527, para 37….In my judgment the risk assessment in this case was not a proper assessment of the prospects of success. It does not justify the staged success fees of 80 and 90 per cent. It cannot therefore be said that the Claimant’s approval of the success fees was informed and accordingly the presumption of reasonableness does not apply.

Was it nonetheless reasonable? The concluded that it was not.

“That the Defendant adopted a staged success fee is relevant. However, the difference between the two stages is only 10 per cent. The first stage success fee of 80 per cent represents a chance of winning of about 55 per cent. That seems to me to be pessimistic. This is not a case where the solicitor can say that the prospects are so uncertain that they were little better than 50/50. District Judge Ikram’s February 2018 judgment clearly set out the failings in the prosecution. There may be issues as to who was to blame for those failings, as between the Claimant and ABC. However it would be difficult to see how ABC could have been unaware of them. The costs order clearly followed from those failings.

“In my judgment the assessment of the risk was unreasonable. It was more likely than not, by more than a minimal margin, that the claim would succeed. A realistic and reasonable assessment would have been 67 per cent, giving a success fee of 50 per cent.”