It is not a new concept or a novel issue, nor will solicitors be unfamiliar with the requirement to provide a cost estimate at the start of a case. However, despite this there remains consistent issues raised, or at the very least open to a client to argue, relating to inaccurate estimates and the impact of the same on the costs the client should be liable to pay to their solicitor as a result.
Here we consider the basic requirements and how to deal with estimates both from the outset and throughout an ongoing claim.
Why are estimates important?
The SRA requires solicitors to provide to their clients their ‘best available costs information’ – this should be provided at the outset and will form the basis of the client’s expectations. An estimate of costs may be broken down to reflect different stages of a case, but should also provide an estimate of costs up to conclusion of the claim/litigation.
Costs estimates are important to both the solicitor and the client – for the solicitor they can provide a figure for the general level of costs relating to the work to be completed on the case which is approved by a client. Failure to provide an estimate would leave the solicitor without this and would not be adequate either in accounting for the SRA requirements or in identifying the general level of work approved by a client.
For the client, an estimate enables them to enter into litigation ‘with their eyes open’ and also to assess if a claim is economical/viable on a potential costs – v- reward basis. The provision of an estimate enables the client to decide whether to pursue a claim, whether to continue with a claim or whether to seek alternative (cheaper) representation or to represent themselves as litigant in person.
A client will inevitably provide instructions based on certain expectations about the prospects of their case and will wish to know if those expectations are realistic – as part of considering this, the cost estimate assists in dealing with any expectations about the cost of the litigation.
A cost estimate is of key importance where it remains a tool used to measure the reasonableness of costs charged to a client – in a solicitor/client costs assessment, a Costs Judge is entitled to have regard to the estimates given in the case.
If you are aware that a client has limited financial resources, the costs estimate comes with increased importance – a close eye must be kept on the level of costs being incurred and the estimate the Claimant has been given must reflect that.
What happens if an estimate is wrong – can it be updated?
An estimate provided at the outset of a case should provide detail of the scope of work which it covers – the advice should be clear, identifying that it is an estimate, rather than a fixed price for the work that is anticipated.
There are often developments in litigation which may not have previously been anticipated and therefore would not have been covered in an initial cost estimate, much the same as in cost management between the parties. Moreover, work may prove more costly and time intensive than initially thought, there may be more documentation than anticipated, the matter may prove to be more contentious, and indeed the conduct of the client may lead to additional costs being incurred. In this instance a full updated estimate should be provided to a client – setting out the costs incurred to date and any revisions needed to the cost estimate to take the matter to conclusion. An explanation as to why the costs estimate has been increased should be clear and the updated estimate should be sufficiently detailed to enable the client to consider their potential costs liability.
If regular costs updates are being provided to a client, which is a recommended approach, it should be fairly straightforward to identify when a cost estimate needs to be updated.
Guidance of the Legal Ombudsman notes that solicitors should be guided by the following considerations:
- Clients should never be surprised by the Bills they receive.
- Solicitors must advise their clients what they are charging for.
- Clear and accurate records should be kept of all costs information.
The Legal Ombudsman has reported that complaints often relate to a failure by a solicitor to update clients on the level of costs anticipated and therefore this leaves the clients without the opportunity to try and control them.
It is appreciated by the Legal Ombudsman, and the Courts generally, that costs can sometimes increase beyond an initial estimate or scope of work – regardless of the reason for this, the issues must be raised with the client during the course of a case.
A retrospective explanation of why costs are higher than an estimate will unlikely be enough to secure recovery of costs substantially exceeding an estimate given – considering what is reasonable to expect a client to pay, the estimate will be given due consideration, where it will represent the client’s expectations.
The role of a cost estimate in the assessment of costs
This was previously considered in the case of Wong –v- Vizards (1997) by Toulson J, who found it was permissible to reduce the allowable costs to the level of the estimate and then add back in an additional amount which acted as a ‘margin’ for the solicitor of 15% above the estimate the Claimant had been given.
More recent commentary came from Morgan J in the case of Mastercigars Direct Ltd –v- Withers LLP (2007) where it was noted that the Court may have regard to an estimate and may take the estimate as a factor when assessing reasonableness, but did not advocate the application of the estimate as a final limit to the costs that can be recovered.
The effect of an estimate being given but ultimately exceeded may be that the Court allows an assessed amount that is lower than the amount that would be justified on a line by line assessment.
The case of Harrison –v- Eversheds LLP (2017) also noted this issue, clarifying that:
“An estimate is to be distinguished from a quotation of fees: an offer which is accepted. An estimate is what it says. It gives an idea, which from a professional firm can be taken as reasonably and carefully made taking into account all relevant considerations, 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.”
Reliance on an estimate – is this relevant?
It may be that a cost estimate is referenced by a client in a costs dispute with their solicitor, but it appears that no reliance was actually placed on the estimate by the client (e.g. if it appears clear the estimate was not accurate, where the client had already received interim Bills exceeding the estimate) – the question here would be whether the estimate therefore has any relevance in an assessment of the costs charged. The answer is straightforward – regardless of whether a client can argue or prove reliance on an estimate, the Court is still permitted to have regard to an estimate because it is a relevant factor to use as a ‘yardstick’ on assessment.
Where a client is able to show reliance on an estimate, the Court will likely give greater weight to that estimate.
In either case, it will be a relevant factor to consider when reviewing what is reasonable to expect a client to pay to their solicitors for the work done.
The effects of cost budgeting – is this relevant to solicitor/own client costs?
Cost budgeting and the process of cost management offer, if prepared accurately, is the best possible information as to what a party’s costs liability will be, providing both own costs information along with potential adverse costs of an opponent (unless the opponent is acting as a Litigant in Person).
A Cost budget should be provided to a client for consideration and approval. The Budget must be accurate and must not breach the indemnity principle. In providing the budget to a client for review, an updated estimate of costs to conclusion is being provided.
Where a cost budget is approved by a client, this could strongly be argued to provide the ‘express or implied approval’ to incur the costs noted therein, limiting any later arguments from a client that work was done which was not approved, or that their estimate had not been updated.
As something of a side note here, where reductions are made on an inter partes CMO to the cost budget, this information should be relayed to a client, so they are aware of the costs which may not be recovered from their opponent if their claim succeeds. Again this enables a client to make an informed choice as to how (and if) they want to proceed. Failure to explain the potential limitations applied by an approved cost budget may cause notable difficulties in recovering costs outside that budget, where no express approval of the client has been received to do so.
Concluding notes – ‘take home’ points:
- Provide a detailed estimate at the outset, ensuring your client has the best possible information as to their potential costs liability.
- Provide regular updates to a client, to include updated estimates if required.
- Detailed updated estimates to include reasons why the estimate has increased.
- Utilise estimates and cost budgets to manage expectations and as tool for approval of work to be done.