Avoid paying the costs of assessment: 7 issues considered by costs judges when determining solicitor's costs under the 1/5th rule

A recent decision in Bentine v Bentine [2013] EWHC 3098 (Ch) has changed the current practice applied by the courts when dealing with the 1/5th rule under section 70(9) Solicitors Act 1974 .  But what exactly is the 1/5th rule and what has changed?

The 1/5th rule

Clients should be kept up to date with the costs being incurred on their behalf, especially since the 1 April 2013 reforms which seeks to place an increased emphasis on costs management alongside case management. However, in the unhappy event that a client disagrees with their solicitor’s costs, those costs can be subject to a detailed assessment under the Act upon application of either the client or the solicitor for this purpose.

If, on assessment, the solicitor’s bill is reduced by 1/5th or more the solicitor is required to pay the costs of the assessment under s 70(9) of the Act, (previously found in earlier Solicitor Acts when it was known as the 1/6th rule).  Any practitioner who has been involved in a detailed assessment will know that the costs to undertake one can be considerable.

What is taken into account when applying the 1/5th rule?

The practice of the costs judges to date has been to apply the 1/5th rule to all costs incurred by the solicitor; whether or not they were within the solicitor’s retainer.   However, this approach did not take into account the Court of Appeal decision in Re a Solicitor [1936] 1 KB 523; a judgment  which surprisingly appears not previously to have been applied in any 1/5th rule case.

Following the appeal decision in Bentine  this situation will change. There, the court, held that that the courts are bound by the Court of Appeal decision which provides that where items in a solicitor’s bill were struck out by the court, on the basis that those items of business were never included in any retainer given by the client, they ought not to be considered for the purpose of calculating the amount disallowed under the 1/5th rule. Below, the costs judge had reached the opposite view and from his decision, the solicitors had appealed.

What does this decision mean in practice?

This is an important issue for practitioners as the difference may well have a profound impact on whether the client or the solicitor ‘wins’ under the 1/5th rule.  For those interested in seeing the potential impact of the change, the judgment in Bentine includes an appendix which reworks the costs figures excluding costs which fall outside the retainer.  It can be seen that this can change the ‘winning’ party on assessment from the client to the solicitor, depending on what sums are regarded as being outside the client’s retainer.

As a consequence, it is now much more likely that disputes will arise between the solicitor and client as to what was or was not agreed as being part of the retainer with the client; an issue acknowledged in the judgment in relation to discussions as to ‘intermediate examples’ – see below.

Note: in Bentine, costs which it was argued should not form part of the retainer were (1) costs incurred during a time when the client had lost capacity to instruct the solicitors and (2) costs incurred by the solicitors once they were in dispute with the clients in relation to costs. Together they amounted to about £32,000 out of total bills rendered of £145,000. As they did not count in the one fifth calculation, the solicitor had “won” under section 70(9) but subject to “special circumstances” under section 70(10)- (see 7 below).

Other issues considered by the court in this judgment were:

1-jurisdiction of the costs judgein reviewing the cases on this issue, it was held that none of them say any more than the fact that bills incurred for work for which there was no retainer do not form part of the taxation under statute. This is confirmed in a text book—Hullock on Costs, Volume 1

2- identity of the person raising the issue of authority: when considering the issue of taxation, the distinction to be drawn is between the items that the client is not liable to the solicitor for, and therefore do not form part of the assessment, and those for which the client is liable but where there is a dispute as to whether the charges are reasonable or not; relying on White. It was held that 'who' raises the issue that the costs were incurred without a retainer is irrelevant; it could be the client, the costs judge on behalf of the client or the Official Solicitor. The issue is that, once raised, the costs judge must consider, during the assessment process, the reasonableness of the bills and in doing so the costs judge will consider, as a necessary preliminary, whether they were within the client's retainer

3-dealing with intermediate examples: what if, for example, the retainer allows for the appointment of junior counsel and the solicitor appoints a QC? This was held not a lack of retainer but rather an exorbitant charge, which would therefore form part of the assessment and be included in the one-fifth rule

4-costs of solicitor and client dispute as to costs: does a solicitor have a right to such costs? Such costs are costs incurred due to a dispute against a former client. They are therefore not costs incurred for, or on behalf of, a client and as such fall outside the client's retainer and outside the scope of costs assessment

5-per incuriam: was the decision in Re a Solicitor decided per incuriam? This was submitted in Bentine, but the court refused to make such a finding. For those interested, the discussions centre on the earlier Court of Appeal decision in Pytches for which a transcript of the judgment is not available (Pytches v Revett). While the Court of Appeal in Re a Solicitor said nothing about Pytches 'there is no question of it having been overlooked, either according to the technical rules about decisions reached per incuriam or indeed in substance'. For those interested, the reference to Pytches is discussed in the Bentine judgment at para 40

6-statutory amendment: what impact does the Legal Services 2007 Act have on the one-fifth rule? The provisions did not have a radical impact on the 1974 Act. Rather it dealt with changes of nomenclature brought in by the introduction of the CPR in 1999 such as the substitution of “assessment” for “taxation”. For those interested in the history of the Solicitors Acts a review is set out in the Court of Appeal decision in Ralph Hume Garry.

7-“Special circumstances” under section 70(10): This section permits the court to certify any special circumstances why the one fifth rule should be disapplied. In Bentine the Judge identified three such circumstances including the level of the costs which had fallen outside the scope of the retainer (for those interested, see the judgment at paragraphs 57-60). She also recognised that a solicitor should not be permitted to benefit from including improper charges which should not be in his bill. For those reasons, although the costs judge’s decision on Re a Solicitor had been overturned, the certification of special circumstances meant that the appeal failed and the decision of the costs judge was upheld, albeit on different grounds. For the future, this is likely to mean that where a solicitor includes in a bill, charges which fall outside the retainer enabling him to “win” under the one fifth rule, the injustice of  having won by that means will be put right by the court certifying special circumstances and  awarding  the costs of the assessment to the client.

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