Increase in hourly rates constitute finding of 'special circumstances' in solicitor-own-client assessment
Posted on 30th July 2021 at 15:35
By Sean Linley, Costs Draftsman
The SCCO has found that a finding of 'special circumstances' in a solicitor-own-client assessment was justified because of "exceptionally large increases in the Claimant's hourly rates". It was not a defence to say that the Defendant could have could have discussed the increased rates with the Claimant and ceased to instruct the Claimant. No justification appeared to have been given to the Defendant and Costs Judge Leonard made clear that the increases called for an explanation and that there had to be "an issue about informed (or any) approval by the Defendant of the hourly rate rises imposed by the Claimant".
The case offers an interesting look at the issues in play where hourly rates are increased (and later challenged by a client) and provides a warning as to the need for clear explanations to be given to a client and even to potentially reallocate work where a fee earner's seniority (and therefore hourly rate) has increased. Against the growing backdrop of increased solicitor-own-client challenges, this is another reminder of the duties solicitors have to their clients.
In Raydens Ltd v Cole  EWHC B14 (Costs) (30 July 2021), the Court examined invoices rendered by the Claimant in matrimonial proceedings where it was instructed by the Defendant. The Judge helpfully set out the relevant rules: "under section 70(1), a solicitor’s client has an unqualified right to an order for detailed assessment of a bill delivered to the client if an application is made before the expiration of one month from delivery. If the client makes an application after that point, it will be made under section 70(2), which gives the court the discretion to make an order. Section 70(3)(a) limits that discretion by providing that if an application is made for the assessment of an unpaid bill after the expiration of 12 months from delivery, no order shall be made except in special circumstances."
The Defendant sought to argue that there were 'special circumstances' and that the invoices ought to be subject to an assessment. The Court, as we will see, agreed.
Of interest is the Court's comments as to the impact of increased hourly rates:
"Mr Teasdale points out that the increase in Mr Bremner’s hourly rate between 2013 and 2017 exceeded 30% (it would seem that, in her formal complaint of 2 December 2019, the Defendant overstated the increase). Mr Meakins’ hourly rate also increased, from £100 to £165, an increase of some 65%. The Defendant, however, signed up to the hourly rates set out in the engagement letter. A standard annual review provision did not give the Claimant carte blanche to impose unilateral hourly rate increases on this scale. They are properly subject to scrutiny and challenge: the Defendant could not be taken, by reference to CPR 46.9(3), to have approved those rates. There is a real case for the Claimant to answer here: the increases call for an explanation."
The Court found that the level of increase in hourly rates were 'quite exceptional'. Costs Judge Leonard stated that: "the Defendant’s litigation was managed by a partner and junior assistant team. At the time she signed the engagement letter she agreed to specified hourly rates payable over a period estimated at up to 18 months. In those circumstances she might reasonably have anticipated one annual hourly rate review before the litigation concluded. I do not believe that anyone in her position could reasonably have anticipated that before it was over, she would be paying the senior fee earner and his assistant hourly rates that had increased by over 30% and 65% respectively."
Costs Judge Leonard found that it was not enough to say that the hourly rates took into account the rates charged in the local legal services market. He stated that whilst it offered "a broad context for the rises" it did "not offer an explanation". "I do not know why Mr Bremner’s and Mr Meakins’ hourly rates increased to such an extent over four years, or whether any consideration was given to the extent to which those very substantial increases were going to exacerbate the difficulties that the Defendant experienced from the outset with funding very difficult and expensive litigation."
The SCCO considered that if it transpired that the hourly rates increased had something to with increasing seniority and experience then "it would give rise to the question whether [that fee earner] should have been replaced by someone whose hourly rate would have been closer to that originally agreed."
Moreover, it was not enough to say that the Defendant could have discussed the increasing rates or cease instructing the Claimant. It was the Court's view that "no explanation to justify such exceptional hourly rate increases" had been offered to the Defendant, "who was presented with a fait accompli."
It was held by the Court that the increases in hourly rate required explanation and that there were also issues "about informed (or any) approval by the Defendant of the hourly rate rises imposed by the Claimant."
The SCCO held that "a finding of special circumstances is justified in this case by exceptionally large increases in the Claimant’s hourly rates, charged to a client who was already struggling to fund her matrimonial litigation, against a background of quite exceptionally high overall litigation costs." The Court ordered that directions for an assessment should be subsequently made.
Although relating to matrimonial law, the case comes against an increased backdrop of challenges to solicitor costs. There are clear warnings embedded within the judgment as to the approach to be taken where hourly rates are increased. Again, the issue of informed consent rears its head. It is important to be prepared to justify any increase in hourly rates and that these are addressed with the client at the time the rates are increased. Contemparenous evidence should be recorded on the file.
Litigators are likely to keep an eye open for developments in this case as it now looks set to proceed to assessment. The recent multitude of solicitor own client challenges only serves to highlight the need for solicitors to ensure that issues around costs are dealt with transparently. And if the recent plethora of cases is anything to go by, these issues are not going away anytime soon.
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