The case of Ascension Asset Management Ltd & Anor v Sky Solicitors Ltd [2023] EWHC 875 (KB) provides a rare insight into what happens in a mediation and issues regarding costs.
Quite frequently solicitors give rough estimates of costs incurred to date and settle a case by way of a costs inclusive or global settlement. This case shows that they have to be careful what they say about the costs incurred to the client and also to make sure that if they are working under a CFA, that they can recover their costs on the basis of the settlement. If they do not specify what element of the settlement relates to their costs they risk not being able to charge their client, depending on the terms of the CFA.
In this case there had been a virtual mediation followed by a settlement. It was reported as follows:
- A mediation took place by videolink on 3 March 2021 before a trial listed for 12 – 16 April 2021. Counsel was instructed on the Claimants’ behalf. In the course of the mediation and after an initial exchange of offers, there were discussions, in particular, between Mr. Daniel and Counsel, following which it was proposed that an offer be made to the Opponents to resolve the disputes on the basis of a number of different proposals (which it is not necessary for me to recite) but which included the proposal that each party bear their own costs. Following this proposal, and whilst there is a dispute as to what was said at this point, it is common ground that Mr. Ijieze, who is a fee earner of the Defendant with conduct of the claims, raised the issue of his firms’ fees. On the Claimants’ case, as appears in Mr. Daniel’s witness statement, Mr Ijieze said that his firm’s costs were “in the region of £30-£50,000” and that Mr. Daniel “presumed” this included disbursements. Mr. Ijieze, in his witness statement, says that he said that “up to that stage” his firm’s costs were “not less than £50,000 plus VAT”. That factual dispute, as it was initially presented, concerning what was said about costs might be understood to have widened in the course of evidence (and I deal with this below). It appears however to be further common ground (and in any event I so find), that […]. It appears also to be clear, and I so find, that he did so in circumstances where he conveyed to Mr. Ijieze that the rent arrears (and other such recoveries) would be used to cover the Claimants’ liability to the Defendant in costs.
- In the early hours of 4 March 2021, a broad understanding of the way forward appears to have been reached. The deal anticipated was a complex one involving the transfer of property. The Defendant says that at this point the agreement was subject to contract and thus not binding. It was not entirely clear to me whether this was challenged by the Claimant at the hearing. In any event the Opponents in their correspondence after the mediation referred to the agreement reached at mediation as being ‘subject to contact’. Indeed Mr. Daniel refers in an email of 8 April 2021 to the agreement at mediation as “provisional”. In any event it appears clear from the documentation and the way the parties appear to have proceeded, indeed the course of further negotiation after the mediation, that neither party considered that the mediation had created a binding agreement. It seems to me clear that there was indeed no such agreement at the mediation.
- [….] It also appears that Mr. Daniel had concerns about proceeding with the proposed deal and counsel provided further advice on the merits of the claims. Significantly for these purposes, it was anticipated by the agreement that had been reached at mediation that the parties would bear their own costs.
- On 22 March 2021, the day before a PTR (rescheduled it would appear because of the continuing negotiations), a deed of settlement was concluded in the substantive action. The deed recognised (inter alia) the First Claimant’s interest in a number of properties and provided that a substantial sum be payable by way of rent (and, possibly other matters) in the sum of £170,379. It also provided that the parties were to bear their own costs.
- A substantial amount of work, it seems to me, had been undertaken after the mediation and before a binding deal could be reached. Indeed, there was clearly some prospect that the matter might go to trial, and some work continued on the claim and in preparation for the trial. In this period there were further communications between the Claimants and the Defendant as to costs, in particular an email from the Defendant 15 March 2021 stating that their fees were now “circa £75,000 plus VAT”.
The issues
- After the deed was finalised, in an email of 8 April 2021, Mr. Daniel appears to have argued that the DFCA “[excluded] the event of a mediation settlement” (which he nevertheless described as “the probable and preferred outcome“) and contended that in such circumstances the Claimants were required to pay a “capped fee” only and I understand that to be a reference to a losing fee.”
The judge was considering issues relating to whether a solicitor was entitled to recover fees following acting for the claimant and acting under a Discounted Conditional Fee Agreement. In particular whether the fact that an action had been settled with “no order for costs” meant that the solicitors were not entitled to any costs at all. The judge further considered, and rejected, an argument that the solicitors costs were “capped” by an estimate of costs given in the course of a mediation.
The key takeaway from this is that at any mediation or settlement meeting, it is important for a solicitor to have an exact figure of costs incurred to date Andy an understanding of the circumstances in which those costs will be payable.
The client had applied for assessment of the bill of costs its own solicitors had submitted. The bill was for £201,480.44 with the fees element being £144,000 plus VAT.
The retainer between the parties was a Discounted Conditional Fee Agreement (a DCFA). These provided a cap of £10,000 on fees if the action was lost, plus disbursements. The terms of the agreement are set out in detail in the judgment.
Interpretation of the DCFAs – The different interpretations canvassed
The judge said that “the Claimants’ case is that subclause 7.3 should properly be read as qualifying the obligation to pay basic charges in clause 3 and that such charges are payable only if there is an order or provision in the client’s favour in a settlement agreement expressly providing for the payment of the client’s basic charges (‘V1’).
Alternatively, the Defendant is entitled to be paid its basic charges if they have in fact been recovered from the opponent whether or not they are described in any agreement with the opponent as costs (‘V2’): the Defendant solicitors say it is clear that the costs were in fact recovered albeit not expressly as costs in the deed but in the form of rent or other financi payment.
The claimants’ initial argument was that since no costs were recovered in the rent and forfeiture action the defendant had no right to recover costs under the DCFAs. I do not propose to go into the detail of the judgment, because it is complex but essentially there was a risk that without any recovery of costs in the settlement under the terms of the retainer, the solicitor might not be entitled to any costs!
The judge said that “Turning first of all to V1, I agree with Mr. Benson that it is, at the very least, doubtful whether the literal meaning could be as the Claimants say: the DFCAs do not say in terms that the solicitors can only be paid basic charges if they are recovered from the opponent and are expressly described as basic charges, or indeed costs, in a settlement agreement or order. The words used in this subclause are “recovered” from the Opponents. Costs may well in fact be recovered in a literal sense in a lump sum payment even if that payment is not expressly labelled as costs.
In any event I agree with Mr. Benson that if V1 were correct, subclause 7.3 would lack business efficacy and be unworkable for, to my mind, obvious reasons.
It is plain that claims (particularly perhaps non- personal injury claims) can, and perhaps commonly, do settle without orders for costs. Parties, particularly perhaps those whose disputes arise in a commercial context, do not want the bother of having to pursue costs proceedings with the attendant further costs. Indeed, as here, there may be interim orders going either way, the working out of which would give rise to considerable further work and costs. Moreover, it may matter little whether the recovery of a sum of money is by way of damages, specific performance of an obligation to pay money or costs; and it is scarcely surprising that parties should ‘trade off’ costs and financial claims to agree one lump sum payment without having to specify whether any sum payable was by way of costs. But if V1 were correct then only if the sums recoverable in a compromise agreement were specifically described as costs would the client be liable to its solicitors for their fees; and if no mention is made of any costs recovery the client would avoid any liability for such fees (beyond those interim costs recovered) even if the claim clearly succeeded. And yet, curiously, on this interpretation it would seem that if the claims were lost there would be at least some liability for the losing fee.
Further, it is also plain that a client may decide not to take the solicitors’ advice as to settlement (indeed in mediation the parties may talk directly to each other without any involvement of solicitors) At the risk of stating the obvious in general solicitors cannot dictate the terms of settlement: the solicitor merely advises and the client makes the decision. But it follows that if the Claimant were right the client could simply cut the solicitors out of its fee by agreeing an order for settlement of the claim which makes no express provision for costs. Indeed a client could in this process effectively give up an existing entitlement to costs under interim cost orders and agree to receive the sums due under such orders by way of damages (which is what Mr. Benson was saying would happen here if the Claimants were correct) or by way of set off against a costs order in favour of the opposing party
It is not clear to me that the solicitors could in practice do anything to protect their interests in being paid their basic charges if V1 were correct
in any event the settlement of claims by mediation or otherwise shortly before trial is plainly not an unusual event. It followed however that if V1 were right solicitors would have to keep providing services (and possibly also incurring disbursements) if there were a prospect of a successful settlement but that no fees would be payable, an outcome which struck me as potentially serious for a solicitors’ firm (if not in some cases ruinous for a small firm) or if termination were possible terminate the retainers and quite possibly leave the client without representation at trial should settlement not in fact occur. That point illustrates just one of the problems. Indeed it would be difficult to see how any right to terminate might work in practice in a way that could adequately protect the solicitor’s interest. Solicitors are not always expected to participate in settlement negotiations and may not know be on notice, or adequate notice, of what a client might be negotiating. There might be a continuing risk throughout a claim that the client could negotiate a deal which cut the solicitors out of costs and thereby defeat the obvious expectation that the solicitors get paid their basic charges in the event of success. In any event in my judgment the termination provisions do not provide an appropriate or practical mechanism by which the solicitors can secure their basic charges.
There was a further argument that, because there was a mention of costs being around £50,000 during the course of the mediation, then the recoverable sums should be capped at that amount.
Cap on fees/costs of £50,000 by an estoppel
The parties disagree as to the nature and effect of representations made as to the defendant’s fees and disbursements in the course of the mediation and as to whether there was any material reliance upon them.
The law
It is not, I think, necessary for me to set out the relevant principles in any detail in order to deal with this. It is plain that in order for an estoppel to arise:
a) there must be a promise or an assurance or representation (in the nature of a promise) which is intended to affect the legal relationship between the parties and which indicates that the promisor will not insist on their strict legal rights (Chitty 6-098);
b) the representation must be clear or unequivocal (Chitty 6-099); and
c)it must also be “inequitable” for the promisor to go back on the promise; the promisee must have acted in reliance on the promise so that they can no longer be restored to the position in which they were before they took such action; if the promisee can be restored to that position, it will not be inequitable for the promisor to go back on the promise. (Chitty 6-103)
Discussion and findings
I think it is clear that if solicitors had represented that its fees were no more than a particular figure and in reliance upon that representation a client were to have entered into an agreement with opponents in litigation on a ‘drop hands’ basis, or one which did not provide for costs in their favour, this could amount to an estoppel preventing the solicitors from claiming a sum in excess of that which they had said was payable. The client may be taken to have acted to their detriment by relying upon the representation and agreeing to payment of a particular sum by the opponent, making it inequitable for the solicitors to claim any higher sum. That was not however the case here.
I did not have the benefit of any attendance note on this issue. There had however been a very significant amount of correspondence as to the Defendant’s fees and disbursements prior to and in the run up to the mediation. In a letter sent on 2 March, the day before the mediation, Mr. Ijieze wrote to the Opponents about unrecovered interim costs which alone were over £33,000 plus VAT (over £40,000 inclusive of VAT; Mr. Daniel was provided with a copy of this letter on the same date. He was informed of other costs including counsel’s fees (which for the mediation alone were £5,000 plus VAT) and would have been aware that other work had been done by the solicitors progressing the litigation and in preparation for the mediation. The consolidated claims had been costs budgeted and the costs budgets were sent to Mr. Daniel on 10 October 2021. Having provided Mr. Daniel with such information he would have understood that a substantial amount of costs was payable by the Claimants. It was perhaps important to remind him of the Claimants’ liability to pay costs before entering into any binding agreement but Mr. Ijieze was, it strikes me, likely to have proceeded on the assumption that Mr. Daniel had a pretty good idea of the amount of costs involved and any reference to a figure was likely to have been in passing. Against this background and in circumstances where the primary focus was on a complex negotiation with the Opponents involving a number of different elements with a number different matters being discussed in different online rooms, it is to my mind understandable that any such figure was not written down. Moreover to my mind it is inherently unlikely that Mr. Ijieze would have thought costs were limited to £50,000 and, to my mind, unlikely that he would have made any such representation.
When the issue of the defendant’s costs was raised in the mediation by Mr. Ijieze, he was not offering an estimate of the costs which was to be relied upon. The discussion appears to have taken place at relatively early stage of the negotiations. It seems to me clear that that any representation as to costs or the fees of solicitors made in the mediation could in any event only have been in respect of costs incurred up to that point; and thus be a broad approximation. The Defendant was charging on the basis of a hourly rate. That was known to the Clamant. Nobody knew at the initial stages of this mediation how much time would reasonably be required to complete the work that was necessary to for a deal to be reach. Whatever words were used by Mr Ijieze it seems unlikely that they could have suggested to Mr. Daniel there was likely be a cap on fees and any indication as to the outstanding amount was in broad terms which would have made it clear that the costs might well exceed £50,000 (consistent perhaps seems with the WhatsApp message of 13 March from Mr. Ijieze). Whilst the information provided does suggest that Mr Daniel sought to recover by way of rent arrears a figure of reflecting the figure Mr. Ijieze had referred to, I think he did so at his own risk knowing that he might owe his solicitors more than this; such a risk being considered reasonable in the context of the risk of not achieving a settlement before trial.
On this point I have in mind that Mr Daniel is supported in his account by Ms. Bambigboye who says that Mr. Daniel told him that Mr. Ijieze said that costs were £30,000 to £50,000. If Ms. Bambigboye correctly recounts the detail of what she was told by Mr. Daniel then Mr. Daniel was inaccurate in his account of what was said in mediation. It is to my mind unlikely Mr. Ijieze would have suggested that his costs could be as low as £30,000 or that Mr. Daniel would have thought that. Indeed it is perhaps of significance that in his email of 8 April Mr. Daniel described having been told [in mediation] that costs would be “in the region of £50,000 (including disbursements)” – not £30,000 to £50,000 and this representation seems inconsistent with a clear or unequivocal representation that the costs would not exceed £50,000. In my judgment there was no clear or unequivocal representation to that effect.
Nor, even if were wrong about this, am I satisfied that Mr. Daniels relied upon any such representation or that if he did, he did so to his detriment.Even if Mr Daniel had not specifically turned his mind to the precise figures in the various emails that were sent to him about costs he would have had some idea of the costs that were liable to exceed £50,000 (not least because of his ongoing liability for interim costs which had been awarded to the Claimants but not paid) and I reject his evidence that he had not considered such information. In any event any agreement, such as it was, at mediation, was subject to contract. As I have noted above Mr Daniel was informed by email on 15 March that the fees were some £75,000 plus VAT. It is perhaps surprising that when he received this email he did not specifically refer to the representation that is now alleged to have been made. But he plainly knew at this stage (if he did not know before this) before entering into the deed that the Defendant would be seeking over £50,000 in basic charges.
Some time shortly before the sending of the first email in the chain I have set out above on 15 March it appears there was some discussion between Ms. Bambigboye and Mr. Ijieze about costs. Ms. Bambigboye said that Mr. Ijieze had accepted that he had made a mistake and should not have told Mr. Daniel that his costs were some £30- £50,000 because their fees were between £50,000 and £60,000 something. I accept that Mr Ijieze would have been aware that the impression he might have given at the mediation was the fees could have been as low as £50,000 and that this would have required some correction. Further, I accept that he was likely to have made it clear that he was correcting any such misapprehension. But he was not correcting a mistaken indication that the costs could not exceed £50,000, so I do not think this assists the Claimants.
Accordingly, and for all these various reasons I must reject the Claimants’ case that there should be a cap of £50,000 as alleged.
I cannot however leave this issue without raising some concerns as to how the claim for costs appears to have increased so substantially from the figures that were put in in the emails of 15 March. I raised myself the issue as to whether even if there were no estoppel, a representation given as to costs may have an effect on reasonableness of the costs (per the guidance in Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch) and [2009] EWHC 651 (Ch) (see [102]). In the earlier of these two judgments Morgan J explained at [99] that an estimate of costs may be a useful ‘yardstick’ by which the reasonableness of the costs may be measured: if there is no satisfactory explanation for any departure from any estimate something less than an estoppel may suffice in terms of reliance for the purpose of deciding whether any departure from an estimate may be reasonable [8]. The following passage of the later judgment has recently cited with apparent approval by Vos MR in the context of non-contentious costs (Belsner v Cam Legal Service [2022] EWCA Civ 1387, [96]):
“ …even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client to pay and, to the extent that the figure does exceed what is reasonable to expect the client to pay, the excess is not recoverable…[102]
I was not sure Mr Benson was correct to suggest that the guidance given in Mastercigars only applied where an estimate of costs was provided in advance of the work to be undertaken and not here.”
Again, it is important to stress that often there are two agreements in a mediation- one between the client and the other party and another regarding costs between the client and their own solicitor. Sometimes the costs can be a barrier to settlement and it is important to work out who is agreeing to pay costs and how much as they can form a large part of the claim.
