The Original Decision
The Claimant and the Claimant’s sister were the sole beneficiaries of his late mother’s estate in this matter. The Defendant solicitors were retained by the sole executor of the will and the deceased’s brother and who played no active part in the application.
There was a formal engagement letter between the executor and the Defendant solicitors which set out the likely costs to be incurred. Copies of this engagement letter were sent to both of the beneficiaries. The original costs estimate for the fees was between £10,000.00 and £15,000.00 plus VAT and expenses. However, the total invoices raised by the Defendant solicitors amounted to sum £54,410.99 plus VAT and expenses. It should be noted that the gross value of the estate amounted to £2,881,000.00.
The Claimant sought to challenge the Defendant solicitors’ bills and sought an assessment under the Solicitors Act 1974. The Claim Form was issued 8 months after the last invoice was delivered.
Furthermore, the Claimant sought to rely on s.70 of the Solicitors Act which was in fact the incorrect route to seek an assessment because s.70 relates to applications for assessment by those chargeable with the bill. Given the contractual relationship only existed between the executor and the Defendant solicitors it could not be said that the Claimant was the individual chargeable. Instead, the Claim Form should have intended to rely upon s.71(3) of the Solicitors Act 1974 which relates to a ‘person interest in any property out of which the trustee, executor or administrator has paid, or is entitled to pay, the bill’. Fortunately, this mistake was rectified and agreed between the parties and the hearing proceeded.
Costs Judge Brown noted the relevant sections in the Solicitors Act 1974 and considered the relevant tests to be applied when considering whether to grant an application for an assessment.
The first test was to address the question: are the invoices raised interim statute bills? The Solicitors Act requires that the bills are capable of assessment in the first place. If the bills are to be considered simply to be requests for payments on account then the time periods, in effect reset, and therefore, the application of discretion is removed and an assessment can be awarded as of right. Having considered the limited information contained within the invoices such as the short narratives and brief timesheet in addition to considering the likely knowledge held by the executor Costs Judge Brown found that the invoices raised were interim statute bills capable of assessment.
The next consideration was to find whether there was a discretion afforded to order an assessment of costs or whether special circumstances were required in respect of the exercise of that discretion. Consideration was made in respect of the estimate that was originally given and the correspondence that followed indicating that the estimate was to be exceeded. Costs Judge Brown noted that very little information was provided in respect of the additional sums that would be incurred or in excess of the estimate. In these circumstances where the costs claimed were 4 to 5 times larger than the original estimate it was considered that this warranted special circumstances to order an assessment and for an explanation to be provided.
An argument was put forward by the Defendant Solicitors that any assessment would in effect be rendered useless due to the file being privileged/confidential as between the Defendant Solicitors and the executor. This point was swiftly dealt with and dismissed as posing any possible barrier to an assessment.
Costs Judge Brown then turned to the application of paragraph 95 in Tim Martin Interiors Ltd v Akin Gump LLP [2011] EWCA Civ 1574. The decision of the Court of Appeal, in effect, placed a restriction on the extent of the challenges that can be brought by a third party. Such an approach to assessment was referred to as a ‘blue pencil approach’ and in effect limited the challenges that can be brought to those which would have been available on a solicitor/own client assessment under s.70. However, Costs Judge Brown considered that Tim Martin should be distinguished when applications are brought under s.71(3) of the Solicitors Act 1974. Part of the reasoning that underpinned this distinction was a historic review of the origins of S.71 and in addition to considering the real-world scenario of a solicitor appointed as executor instructing their own firm to act on behalf of the administration of the estate. In these circumstances it was considered that such a restriction should not be placed on the beneficiaries from being able to have the bills assessed.
A final argument raised by the Defendant to block the request for an assessment was the delay by the Claimant in making the application. The Costs Judge found that the delay, whilst a factor to consider when exercising their discretion, was not in case a significant factor and had not prejudiced by such a delay.
Having given consideration to all of the issues above Costs Judge Brown found that there were special circumstances in this case to justify an assessment of the Bills. When reaching this conclusion Costs Judge Brown confirmed that the ‘triggering event’ that starts the stopwatch is the date of service of bills on the executor, not on the beneficiaries. Whilst this weighed against the Claimant in this matter, when all the circumstances were considered, including ‘serious concerns as to substantial overcharging’ an assessment of all the bills raised was ordered.
The Court of Appeal Decision
The Court of Appeal heard specific and limited appeals in respect of the original decision made by Costs Judge Brown. The main ground focused on the difference between orders for assessment under s.71(1) and s.71(3) of the Solicitors Act 1974, namely, whether there is a material difference if an Executor applies for an assessment and if a beneficiary applies for an assessment.
The second argument that was raised related to whether the Court would then be subsequently bound by the decision of Tim Martin Interiors Ltd v Akin Group LLP [2011] EWCA Civ 1574 which, in effect, severely restricted the scope of the challenges a third party could make at an assessment.
Both arguments were dismissed by the Court of Appeal, albeit, the Court of Appeal judges recognising that their decision was limited to the two specific appeals brought. Lord Justice Stuart-Smith undertook a detailed consideration of the centuries old right for clients and third parties to challenge their solicitors’ bill of costs. During the consideration LJ Stuart-Smith noted that there had been a well established principle for third parties, such as beneficiaries, to seek an assessment of solicitors’ bills of costs where the bills were to be paid out of funds from which they had an interest.
It was this distinction that formed the basis of the conclusion reached by the Court that it would not then be bound by the approach clearly set out in Tim Martin. This was based on the finding that given the unique position that beneficiaries find themselves in and that there are different interests to be protected when compared to an executor applying for an assessment under s.71(1). For instance, beneficiaries may not have instructed the solicitor, or been in a position to have approved the work undertaken by a solicitor, or have the information available to them as when a solicitor’s bill has been raised.
Comment
Before the decision in Kenig the ability of Third Parties to bring Solicitor/Own Client assessments were assumed to be governed by the approach set out in Tim Martin. This approach essentially rendered any potential assessment almost pointless given that it was thought that the Third Party would, in effect, be stepping into the shoes of the Executor and, therefore, face an uphill battle against an assessment on the indemnity basis combined with the presumption that if the Executor had provided consent to the work being undertaken that it was difficult to go behind that consent.
In those circumstances, a beneficiaries best shot of being able to challenge the costs being deducted from the Estate or Trust would be an action against the Executor for breach of their fiduciary duty. However, following the decision in Kenig it appears that the door is now open for beneficiaries to avoid such an action and directly challenge the solicitor’s bill themselves. This could be the thin end of the wedge and could provide beneficiaries with far greater scope to challenge and protect their interests.
The consequence of this is likely to meant that solicitors acting for estates or instructed by executors are now going to be more alive to the interests of the beneficiaries of those estates. It may be necessary that estimates or updates in respect of costs must now be provided to beneficiaries to cover all bases.
This will continue to be an evolving area of law given how significant the change to the principles underpinning Third Party Solicitor/Own Client assessments and it will undoubtedly lead to significant satellite litigation as solicitors and beneficiaries look to test the boundaries.
