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||Neutral Citation Number:  EWHC 177 (QB)
||Case No: QB/2010/589
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM THE SENIOR COURT COSTS OFFICE
Mater O'Hare, Costs Judge, 16 September 2010
||Royal Courts of Justice
London, WC2A 2LL
B e f o r e :
MR JUSTICE CRANSTON
Sitting with assessors
|| Gary Minkin
||- and -
||Cawdery Kaye Fireman & Taylor
Joshua Munro (instructed by Cawdery Kaye Fireman & Taylor) for the Appellant
Mark James (instructed by Routh Clarke) for the Respondent
Hearing dates: 28 January 2010
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Cranston:
- This is an appeal from an Order of Master O'Hare sitting as a costs judge. Master O'Hare gave permission to appeal. It concerns the detailed assessment of costs payable by the respondent, Mr Gary Minkin, to his former solicitors, the appellants, Cawdrey, Kaye, Fireman & Taylor ("the firm"). The general issue the appeal raises is whether, during the course of litigation, solicitors can refuse to undertake further work unless the client pays outstanding fees, or an amount on account, especially if the amount is in excess of any estimate. In the present case the Master held that this constituted repudiation of the contract, which meant that the firm was not entitled to any fees once the client accepted that the contract was at an end.
- Mr Minkin was involved in matrimonial litigation with his wife, from whom he had separated. On 26 June 2009, Mr Minkin contacted Mr Philip Cooper, a solicitor at the firm. Mr Minkin wished the firm to represent him at a hearing on 28 July 2009. The hearing was the final hearing in relation to an Occupation and Non-Molestation Order, which Mrs Minkin had obtained on a without notice basis on 4 June 2009. The matter had been adjourned on 11 June. The order prevented Mr Minkin from attending the matrimonial home and from molesting Mrs Minkin. Mr Cooper said that the firm would be able to undertake this work. He said he would like to instruct counsel to advise in conference, and to represent Mr Minkin at the hearing.
- Later that day, 26 June, Mr Cooper sent Mr Minkin an email which estimated the costs of instructing a junior barrister to represent him at a hearing on 28 July, with a trainee solicitor attending court to assist, as "likely to be £3,000 plus VAT". The email continued: "I doubt very much that we can do this cheaper and I understand it is a sizeable sum". As agreed Mr Minkin made a payment of £2,000 on account.
- The firm's retainer letter, dated mid July 2009, was signed by Mr Cooper on behalf of the firm. It was headed "Non Molestation and Occupation Order", but there was no other indication of what it was undertaking to do. The firm estimated that, "our overall charges and expenses for this matter are likely to be £3,500 plus VAT [i.e. £4,025]. I will try and keep costs down as much as possible, hopefully to £3,000 plus VAT." The letter added:
"Any such overall step by step estimates are not intended to be fixed or binding and other factors may mean that the estimate will be varied from time to time. We will update you on any such estimates in writing at your request and will in any event inform you in writing if it appears that any previous estimates may be exceeded. Our invoice will also keep you informed of the level of charges being incurred on a monthly basis with a statement as to the actual level of charges incurred as against the relevant estimate. In any event we will communicate with you by telephone or in writing (including by email) when our charges have reached £3,500 and at increments of £1,000 thereafter".
The letter explained that fees and disbursements were payable even when not recoverable from the other party. Interim accounts were usually submitted on a monthly basis and a final account after completion of the matter. In accordance with the firm's usual policy, "we should be grateful if you would let us have the sum of £3,000 to be held by us on account of fees and disbursements to be incurred." On 15 July 2009, Mr Minkin signed the retainer letter, as requested.
- Enclosed with the letter were the firm's standard terms of business, which were referred to in the letter. Clause 4 explains that estimates are a guide and there is no guarantee the final charge will not exceed the estimate because there are many factors outside the firm's control which have a bearing. Clause 5, "Billing arrangements", provides that to avoid costs rising to an unexpected level, the firm will usually submit regular interim accounts and a final account after completion of the matter. Clause 6, "Payment terms", reads that bills are payable on presentation and interest may be payable after 30 days on unpaid fees. Importantly it continues:
"6 Where we hold sufficient funds on your behalf and we have sent you an account, we will usually deducts our fees and disbursements from these funds. Where this is not the case, or where it is not possible (for example where the funds are required for some other purposes), our account will be due to us on receipt and you should make payment ...
Unless otherwise stated our bills are payable on presentation
If an account is overdue for payment, without reasonable justification, we may suspend or terminate our services to you
Payment on account is dealt with in clause 7 of the standard terms.
"7 In most circumstances, and invariably in matters dealt with by the firm's commercial litigation and family departments, we will ask you for a payment on account of anticipated fees and disbursements. Sometimes, we may ask for further payments on account as the matter progresses. We shall ensure that you have reasonable notice of our requirements as and when the need arises. Any delay in payment could have an adverse effect on a case and where that delay is without reasonable justification we reserve the right to stop work pending payment."
Pursuant to clause 13, "Termination of our engagement", a client can terminate an agreement in writing at any time, for example if the client loses confidence in the firm's work. On the other hand a firm can only cease acting for a client on reasonable grounds and reasonable notice.
We may only decide to stop acting for you on reasonable grounds and on giving you reasonable prior written notice."
- The conference with counsel occurred on 15 July 2009. Afterwards, the firm undertook further work for the hearing on 28 July. However, the day before the hearing it was discovered that Mrs Minkin had left the matrimonial home and rented it to tenants. Mr Cooper discussed the position with Mr Minkin and corresponded with the tenants' agents. The hearing took place on 28 July 2009, as anticipated. The Occupation Order was dismissed because Mrs Minkin was no longer at the family home and therefore had no need for injunctive relief against Mr Minkin. However, Mrs Minkin applied for an adjournment of consideration of the Non-Molestation Order so as to obtain legal representation. The court agreed to an adjournment.
- On 30 July 2009 the firm sent Mr Minkin what it described as "Re: Your Personal Affairs
To Our Professional Charges". On its face and in bold typeface it read: "This invoice is payable on presentation". It also advised Mr Minkin of his right to a detailed assessment of the Bill on the back of the invoice. The Bill was for £5,472.50. It gave credit for the £2,000 paid on account. £3,472.50 was said to be owing. On 3 August 2009 Mr Minkin telephoned Mr Cooper to say that he was not happy with the amount billed. Mr Cooper explained that the costs estimate had been exceeded largely as a result of an increase in work because Mrs Minkin had unexpectedly rented the matrimonial home. Mr Minkin said he could not pay the fees until he had a costs order against Mrs Minkin. Mr Cooper explained that the firm needed to be paid if Mr Minkin wished it to continue working. Later that day Mr Minkin agreed in an email to send the firm a further £1,000. In his evidence Mr Minkin says that this was what he thought Mr Cooper was referring to.
- By an email in reply the same day Mr Cooper explained that the increase of £1445 over the original £3500 plus VAT was "caused largely by an increase in work by the fact that the tenants had been moved in". He added that at the start of the matter Mr Minkin had agreed to transfer at least a further £1000 on account by the end of July. Mr Cooper stated that the firm needed to be paid as matters proceeded. If Mr Minkin wanted the firm to continue acting for him then he would need to make arrangements to meet the interim fees.
- Between 3 August and 17 August 2009, Mr Cooper carried out work on the case. He contacted the tenants' agent and Mr Minkin. On 17 August 2009 Mr Minkin sent the firm £1,000. The next day, 18 August, Mr Cooper sent Mr Minkin an email providing advice and asking for instructions. The email said:
"Thank you for provision of the £1,000 towards our bill. There now remains and [sic] outstanding balance of £2,472.50 excluding the work in progress."
Within the hour Mr Minkin emailed Mr Cooper instructing him to proceed with the possession action against the tenants.
- On the evening of 19 August 2009 Mr Minkin visited the former matrimonial home. That was against Mr Cooper's advice. As a result, a complaint was made to the firm that Mr Minkin had threatened a sixteen year old girl, who was on her own at the time. In an email on 20 August 2009, Mr Cooper informed Mr Minkin of the complaint. He then recommended that counsel's opinion be obtained on possible possession proceedings. Mr Cooper also asked for the outstanding balance of the bill and for a further payment on account, in particular to obtain Counsel's opinion and to initiate possession proceedings against the tenants of the former matrimonial home. "Currently the balance on the outstanding invoice is £2,472.50. There is work in progress on your file of £1,114 plus VAT. I would be grateful thereafter if you could arrange to provide us with the sum of £5,500 which will clear the outstanding balance and enable us to hold money on account of circa £1750".
- In response Mr Minkin sent an email as follows:
"Concerning your fees, you know my financial position. I have suggested you get hold of the rent money to cover this. Why has this not been done yet? You seem to be raking up the fees at an alarming rate, yet there is no actual definitive progress. I should like to know how you have arrived at this figure."
Mr Cooper replied by email that liability to pay fees was owed by Mr Minkin and not the tenants. The email continued that Mr Cooper would arrange for a print out of the work carried out since the last invoice, but he would not do any more substantive work on the matter until the firm was in funds. In response Mr Minkin raised questions about obtaining rent from the tenants, as he did in another email 4 days later, 24 August 2009.
- Mr Cooper's reply email of 24 August 2009 was that the firm could not institute proceedings against the tenants or Mrs Minkin in relation to the rent unless Mr Minkin put the firm in funds. He appreciated Mr Minkin was under financial strain. Mr Minkin's response was that he wanted the firm's costs to be met from the rent money. Counsel had advised that he should receive at least half of it. He was at a loss to understand where the time had gone. "So what on earth has £3000 achieved?" In response Mr Cooper offered to write to Mrs Minkin and request that she pay the rent money. But the email reiterated: "I am afraid I am unable to continue to act whilst there is this outstanding arrears
I will not be issuing any proceedings until we are in funds".
- During the week of 25 August 2009, Mr Cooper was on holiday. His secretary, Mrs Louizou, learnt that Mrs Minkin had applied for the Occupation Order to be reinstated and that a hearing of the application was imminent. She sent Mr Minkin the relevant documents. Mr Minkin telephoned Mrs Louizou and said that he wanted the firm to make an urgent cross application. Mrs Louizou contacted Mr Cooper and Mr Cooper told her to explain to Mr Minkin that a cross-application was not necessary or even possible, and the court would simply list Mrs Minkin's application to be heard at a future date. Further, the firm would not issue applications because Mr Minkin needed to pay the fees and money on account if he wanted the firm to continue to act. In her email to Mr Minkin Ms Louizou said:
"There have been various requests for settlement of the outstanding invoice and payment on account but to date this had not been done. CKFT cannot continue to act in such circumstances."
Mr Minkin then emailed Mr Cooper asking him where all the "fee time" had gone, to devise a "plan of action" to claim the rent money, and to be pro-active. He was not flush with money.
- On his return from holiday on 1 September 2009 Mr Cooper emailed Mr Minkin and attached the court order listing the hearing of Mrs Minkin's adjourned application for 8 September 2009. The email repeated, again, that:
"My firm's position remains as before in that we cannot continue to act in circumstances where there is a substantial amount outstanding. To summarise there is £2,472.50 outstanding from our first invoice and there is about £1,100 of work in progress."
- Later that day Mr Minkin emailed that he had lost confidence in Mr Cooper, and did not want the firm to continue work. Mr Minkin wrote:
"I am right to query your fees. The only reason you are so defensive, is that you know that they are indefensible
I made my financial position very clear to you at the outset. You assured me that you minimise costs as best you can. Well according to the costs to date this is not what you have done
You have succeeded in making what is already a very stressful situation much worse. I trust you to help me. I have paid you £3,000. I feel you have badly let me down
In the absence of a proactive proposal from you, I would like this matter referred to the firm's senior partner for their review. I would have liked to continue to work with you but I feel we have got nowhere since the hearing. I cannot afford to give you more money only for it to be wasted.
By the way you may like to deduct the costs you have added in looking at the emails I sent you. Chasing an answer to the previous emails which you had not replied to."
- On 2 September 2009 Mr Cooper agreed to refer Mr Minkin's complaint to Mr. Joel Leigh, the partner of the firm dealing with complaints, "to determine if any of your grievances have merit" and added that he would arrange to deliver a "final" invoice. The firm accepted that the relationship with Mr Minkin had broken down. When Mr Leigh subsequently dealt with the matter he understood the principal concerns to be that Mr Minkin had been charged excessive fees and, notwithstanding that, Mr Cooper had failed to advance the file as instructed.
- By letter dated 2 September 2009 the firm delivered a second bill dated 31 August 2009 seeking £950 + VAT, i.e. £1,092.50 for work done in August and the balance of £2,472.50 due on the 31 July 2009 bill. This made a total due of £3,565. Mr Cooper wrote:
"I confirm I will not incur any more fees until such time as the balance of the £3,565 is cleared. You will note that I have managed to agree with the Partners a reduction to your invoice of circa £300 to assist you on an interim basis."
Mr Minkin provided no further instructions. On 4 September 2009, the firm wrote to the court stating that they were no longer instructed. At the hearing of the Occupation Order on 8 September 2010 Mr Minkin acted in person and confirmed to the court that the firm no longer acted for him. Mr Minkin did not complain that the firm failed to represent him at that hearing.
The Master's assessment
- Mr Minkin applied for a detailed assessment of the two Bills under section 70 of the Solicitors Act 1974. The firm filed breakdowns of the Bills, Mr Minkin filed Points of Dispute, and the firm filed Points of Reply. The Points of Dispute contended that the firm refused to follow Mr Minkin's instructions or conduct work from 3 August 2009, when he questioned the costs, restricting their representation to "limited work". The firm specifically refused to follow instructions in relation to pursuing the rent monies. The firm then refused to act from 24 August 2009 in further breach of contract. In the circumstances no costs were payable due to breach of the retainer. In the Points of Reply the firm denied breach of the retainer. Shortly before the July hearing the issue of the tenants had arisen, causing an increase in costs over the original estimate. After the hearing Mr Minkin wanted the firm to take action against the tenants and his wife. In any event, there was no detrimental reliance on the estimate.
- The Master heard the detailed assessment of the two bills on 10 June 2010. He assessed the Bills in the sum of £5,721.25, the first in the sum of £4,640.25, the second in the sum of £1,081.00. He dismissed an argument that costs should be limited because the costs bill exceeded the original estimate of £3,000 + VAT. However, the Master was of the view that the firm was not entitled to any costs, and should repay costs paid by Mr Minkin, because it had terminated the retainer without giving reasonable notice.
"The [firm] terminated their retainer without giving reasonable notice to the claimant (by email dated 3 August 2009, threatening to cease acting unless paid, but not setting a deadline, by email dated 18 August 2009 acknowledging receipt of a part payment of £1,000 without clarifying the deadline and, by emails dated 24 and 25 August 2009 (less than one month after delivering the bill in question) refusing to act further because of non-payment)."
The Master then gave the firm permission to require him to review his rulings on the basis of formal evidence. The firm served formal witness statements of Mr Cooper and Mrs Louizou. Mr Minkin also served a witness statement. There were no material disputes of fact.
- At a hearing on 16 September 2010, the Master reviewed his previous decision. He reaffirmed the earlier outcome, but for different reasons. In his judgment he held that the firm was in breach of contract on each occasion when they said they would not continue to act without payment. They were contractually entitled to render interim accounts payable immediately, which Mr Minkin was contractually obliged to pay on receipt. They were also contractually entitled to suspend work if Mr Minkin delayed payment without reasonable justification. The contractual terms to that effect were not unfair or unlawful under the Unfair Contract Terms in Consumer Contract Regulations 1999, 1999 SI No 2083.
- However, Mr Minkin had reasonable justification under clause 6 for delaying payment in that the first bill exceeded the estimate. The matrimonial proceedings had not concluded and that was what the estimate was intended to cover. Mr Minkin complained promptly about the first bill. The firm had no right to suspend work. In the Master's judgment the retainer was terminated by Mr Cooper's email of 1 September 2009 in which he refused to do further work without payment. That was a repudiatory breach of contract because Mr Minkin had a reasonable justification in not paying. That repudiation was accepted in Mr Minkin's return email later that evening. The breach was a serious breach. The firm "downed tools", in particular in refusing to contact the court, thereby destroying the prospects of a continuing relationship with Mr Minkin. The firm was not entitled to any costs. The firm had to refund all the amounts paid, less counsel's fees.
- Appeals to this court on costs are by way of a review, not a re-hearing, of the decision of the costs judge. In Assicurazioni Generali SpA v Arab Insurance Group  EWCA Civ 1642,  1 WLR 577, Clarke LJ explained:
"15. In appeals against conclusions of primary fact the approach of an appellate court will depend upon the weight to be attached to the findings of the judge and that weight will depend upon the extent to which, as the trial judge, the judge has an advantage over the appellate court; the greater that advantage the more reluctant the appellate court should be to interfere. As I see it, that was the approach of the Court of Appeal on a "rehearing" under the RSC and should be its approach on a "review" under the CPR.
16. Some conclusions of fact are, however, not conclusions of primary fact of the kind to which I have just referred. They involve an assessment of a number of different factors which have to be weighed against each other. This is sometimes called an evaluation of the facts and is often a matter of degree upon which different judges can legitimately differ. Such cases may be closely analogous to the exercise of a discretion and, in my opinion, appellate courts should approach them in a similar way."
As an example of a situation where the judge has to weigh up a number of different factors Clarke LJ cited Todd v Adam  EWCA Civ 509,  2 All ER (Comm) 1. In that case the issue was whether a contract of service existed. Clarke LJ quoted with approval the judgment of Mance LJ in the latter decision where Mance LJ said at :
"[S]o far as the appeal raises issues of judgment on unchallenged primary findings and inferences, this court ought not to interfere unless it is satisfied that the judge's conclusion lay outside the bounds within which reasonable disagreement is possible."
- This appeal raises the issue as to whether either party was in breach of contract. The Master reached a decision on that issue on the basis of unchallenged primary findings of fact. It follows that this court can only interfere if it is satisfied that the Master's conclusion lay outside the bounds within which reasonable disagreement is possible. He must have erred in principle; taken into account factors he should not have; failed to take into account those he should have; or decided wholly wrongly by not balancing fairly the various factors: Phonographic Performance Ltd v AEI Rediffusion Music Ltd  1 WLR 1507, 1523.
- When clients retain solicitors under a contract of retainer they may be given an estimate of the costs of undertaking the work. The status of this type of estimate was considered in Mastercigars Direct Ltd v Withers LLP  EWHC;  1 WLR 881. There the company had instructed solicitors in relation to trade mark litigation. There was an estimate of the costs, broken down by the categories of work, which it was anticipated would be needed. The firm's standard terms of business indicated that an estimate was neither a fixed quotation nor an upper limit. After reviewing the rules of professional conduct governing estimates, statutory material and previous authority, Morgan J said that where an estimate was exceeded it did not follow in every case that the solicitors were limited to recovering the sum in the estimate. The estimate was a factor in assessing the reasonableness of any charge, given that under section 15(1) of the Supply of Goods and Services Act 1982 solicitors were entitled to reasonable remuneration: , . What in all the circumstances it is reasonable for clients to be expected to pay can turn on the degree of their reliance on the estimate: -.
- In law a contract of retainer may be an entire contract, so that unless it provides otherwise solicitors cannot seek their costs until the work has been completed or the retainer otherwise terminated. On the other hand a retainer may be a divisible contract, where there are staged payments, the condition precedent to each being the completion of the relevant part of the work. At common law, since under an entire contract payment turns on a complete performance, the courts refuse to order a pro rata payment for part performance. As a matter of construction they are not prepared to add such a provision to the contract, and the mere acceptance of acts of part performance under an express contract are not, taken alone, treated as justifying the imposition of a restitutionary obligation to pay: Chitty on Contracts, 13th ed., 2008, vol. 1, para. 21-030.
- Whether a retainer is an entire or divisible contract depends on the circumstances. There is a long line of authority that a retainer entered for the purposes of an ordinary claim or statutory appeal will be presumed to be an entire contract. In Richard Buxton (a firm) v Mills-Owens  EWCA Civ 122;  1 WLR 1997, Dyson LJ (with whom Maurice Kay LJ and Sir Mark Potter P agreed) cited with approval a passage from Lord Esher's judgment in Underwood, Son & Piper v Lewis  2 QB 306, 310:
"[W]hen a man goes to a solicitor and instructs him for the purpose of bringing or defending such an action , he does not mean to employ the solicitor to take one step, and then give him fresh instructions to take another step, and so on; he instructs the solicitor as a skilled person to act for him in the action, to take all necessary steps in it, and to carry it on to the end."
Dyson LJ was in no doubt that the retainer in the case before him, to advise on and appeal a grant of planning permission, was an entire contract: .
- By contrast, in Warmingtons v McMurray  2 All ER 745, Goddard J held that no question of an entire contract arose. The client had embarked upon a variety of investments and transactions which were likely to result in serious losses and had retained the solicitors to undertake all such proceedings as might be necessary to get her out of her difficulties. The solicitors had successfully prosecuted several matters and Goddard J held that, since there was not an entire contract, they were entitled to discharge themselves where the client refused to meet a bill which they had rendered. Earlier Jessel MR had said in In Re Hall v Barker  9 Ch D 538, that the doctrine of entire contracts did not apply where a solicitor was retained, nominally for one matter, but in reality in relation to a succession of matters. "It is not reasonable that a solicitor should engage to act for an indefinite number of years, winding up estates, without receiving any payment on which he can maintain himself" (at 545).
- With an entire contract, it may be that the circumstances are such that the client accepts less than complete performance and agrees to pay the solicitors reasonable remuneration for the work done. As a matter of general principle the law might imply a new contract to that effect, or in some situations determine that the solicitors have a restitutionary claim. In practice there is some authority for the notion of "natural break" in protracted litigation, at which point solicitors can render an interim bill. Solicitors are advised, however, to rely on the notion of natural break as a basis for delivering a bill in only the clearest cases: Cordery on Solicitors, .
- To make clear that the whole burden of funding work undertaken for a client does not fall on them until completion, especially when the work is of a protracted, contentious nature, solicitors will typically have standard business terms for payment on an ongoing basis. Under the terms of the retainer solicitors may be able to render an interim bill. If that complies with the requirements of section 69 of the Solicitors Act 1974 ("a statute bill") the solicitors can sue the client in the event of non-payment. The client in turn can require the details of the bill to be assessed. Alternatively under the retainer the firm may be able to request a payment on account. That is not a statute bill so the firm cannot sue on it, nor can the client request that its details be assessed.
- However, section 65(2) of the Solicitors Act 1974 provides that in respect of contentious business solicitors may request a client to pay a reasonable sum on account and failure to do so is good cause for them to withdraw from the retainer.
"Section 65. Security for costs and termination of retainer
(2) If a solicitor who has been retained by a client to conduct contentious business requests the client to make a payment of a sum of money, being a reasonable sum on account of the costs incurred or to be incurred in the conduct of that business and the client refuses or fails within a reasonable time to make that payment, the refusal or failure shall be deemed to be a good cause whereby the solicitor may, upon giving reasonable notice to the client, withdraw from the retainer."
Litigation before a court is contentious business for these purposes: s. 87. On its face section 65(2) does not apply to interim statutory bills since bills are a demand, not a request for payment on account of costs incurred.
- At common law termination of a retainer requires solicitors to give reasonable notice and to have good cause for refusing to act further for the client: Underwood, Son & Piper v Lewis, at 313, per Lord Esher MR; at 315, per A L Smith LJ. There may be contractual terms reflecting or modifying these requirements, although under the Solicitors' Code of Conduct 2007 solicitors "must not cease acting for a client except for good reason and on reasonable notice": rule 2.01(2). The guidance to rule 2 of the code gives as an example of good reason for ending a retainer where there is a breakdown in confidence or the solicitors are unable to obtain proper instructions.
- Where solicitors terminate an entire contract before its completion, and do so for good reason, they are entitled to be paid for the work done. That was the ratio of the recent decision of the Court of Appeal in Richard Buxton (a firm) v Mills-Owens, where the court held that since the client insisted that the solicitors and counsel advance a case which was not properly arguable, the solicitors had good reason for terminating the retainer. The consequence for payment is stated in the judgment of Dyson LJ (with whom Maurice Kay LJ and Sir Mark Potter agreed):
[T]he common law rule that a solicitor is entitled to be paid for all the work he has done prior to termination if he terminated for good reason has been part of our law for almost 200 years. It follows that the solicitors are entitled to be paid their profit costs and disbursements for the work done prior to the termination."
- The consequences of solicitors terminating an entire contract, for failure to put them in funds, is less clear. Warmingtons v McMurray  2 All ER 745 was cited by Mackay J at first instance in Richard Buxton (a firm) v Mills-Owens as authority that, in circumstances where a client does not keep solicitors in funds for disbursements, they are discharged and may sue on a quantum meriut:  EWHC 1831 (QB), . But Goddard J made clear that solicitors "cannot as a condition of continuing to represent the client demand part of [their] profit costs as the case proceeds": at 748. Mackay J did not suggest otherwise.
- In Wilson v William Sturges & Co (a firm)  EWHC 792;  Costs LR 614 the costs judge held that, where the solicitors had refused to continue to act for a client unless she paid an outstanding bill for their costs, they were not entitled to recover the amount of the bill, only the sum paid on account. The solicitors conceded that their estimate was £ 1,500 + VAT. At points during the litigation the solicitors advised that the costs were mounting and eventually exceeded that estimate. Later they presented an interim bill for £4,636.84. In a letter of 8 September 2004 they refused to undertake further work on the case until the balance outstanding was paid. There was a further insistence on full payment in a letter on 1 October, which contained a full explanation of their position. The costs judge held that that letter constituted a termination of the retainer. Although the terms of the retainer enabled the solicitors to terminate with good reason, the failure to pay the interim bill was not good reason.
- On appeal Nelson J highlighted the fact that the client had accepted that the expenditure to date, and estimated expenditure, would go beyond the £1500 + VAT estimate. The £4363.84 figure was just under 20% more than what she had accepted. Despite letters to her she had given the firm no further instructions. Nor had she offered to pay anything more than the £1500 + VAT she had already paid. In these circumstances the 8 September letter was not a threat that unless the account was paid in full they would refuse to act. Rather it could properly be regarded as an invitation to the client to negotiate payment on the account: . The 1 October letter could also be considered as a further invitation to negotiate: .
- In these circumstances Nelson J did not consider that the letter of 8 September 2004 was a breach of contract, and certainly not a breach of contract which rendered the whole retainer unenforceable. Nor in the circumstances did he consider the letter of 1 October 2004 to be a termination of the retainer, disentitling the solicitors from claiming their costs in respect of previous work, properly done: . Nelson J then went on to say that even if the insistence upon full payment on 1 October 2004 before being prepared to continue to act was a breach of contract, it was not one such as to disentitle the solicitors to their reasonable costs of work properly carried out: . Their breach of contract did not prevent them from recovering reasonable costs in respect of work properly done: .
- In my view Wilson v William Sturges & Co turns on its own facts and the interpretation which Nelson J placed on the letters of 8 September and 1 October, that they were invitations to negotiate, not breaches of contract. Nelson J's wider view that, even if the letters constituted a breach of contract, that did not disentitle the solicitors to reasonable costs, was obiter dicta. In any event, his Lordship did not have the benefit of addressing Underwood, Son & Piper v Lewis and its consideration of entire contracts, a decision which has recently been affirmed by the Court of Appeal in Richard Buxton (a firm) v Mills-Owens. Nor did his Lordship consider Warmingtons v McMurray, and Goddard J's view, quoted earlier. Wilson v William Sturges & Co is therefore not binding authority that solicitors can breach the retainer by refusing to act because of the client's non-payment, and still sue for their reasonable fees.
- It is clear that solicitors can terminate a retainer for good reason and on reasonable notice. That is the position at common law and under the Solicitors' Code of Conduct. At common law it is not good reason that a client has not paid part of the profit costs as an ordinary claim or statutory appeal proceeds. If solicitors wrongly terminate on that basis they cannot sue for outstanding fees, having not performed the obligations undertaken. By the terms of their retainer, however, they may require payment on an interim basis. If pursuant to that they tender an interim statutory bill they can sue on it in the event of non-payment; if they request a reasonable amount on account, they can terminate the contract under section 65(2) of the Solicitors Act 1974 if the client does not pay within a reasonable time. Termination under section 65(2) applies only in the case of contentious business and must be on reasonable notice.
The firm's appeal
- In his cogent submissions on the firm's behalf, Mr Munro submitted that the firm had not terminated the contract. Rather, Mr Minkin had, and there was no basis for his doing so. Under the standard terms, clauses 5 and 6, the firm were contractually entitled to demand payment of sums due, for work done, and on account of future work, and Mr Minkin was contractually bound to pay those sums. The firm was simply not in breach of contract having done so and Mr Minkin not having paid. To put it another way, the firm were contractually entitled to say that they would suspend work under clause 6 unless payment of those sums was made by Mr Minkin within a reasonable period.
- Moreover, Mr Minkin had no reasonable justification under clause 6 for the delay in payment or for non-payment. On 24 August 2009, when the firm stopped work, the first bill, which was payable on demand, was 25 days old. The costs estimate had been exceeded, but there was good reason for that. There had been substantial work which was not foreseen, due to the unexpected letting by Mrs Minkin of the matrimonial home. At all times, the firm was willing to continue acting for Mr Minkin as long as he satisfied his contractual obligations to pay. Alternatively, the firm was entitled to suspend its work under clause 6 in the event of non-payment.
- Instead, in Mr Munro's submission, it was Mr Minkin who was in breach of contract and terminated it. Mr Minkin regularly failed, without reasonable justification, to pay the sums which the firm was lawfully entitled to demand. He did not even pay the estimate. As late as his email of 25 August 2009 he was affirming the contract by giving further instructions. It was on 1 September 2009 when he stated in writing that he had lost confidence in Mr Cooper and did not want the firm to do further work. That was a mechanism of immediate termination of the retainer under clause 13.
- Since the contract was terminated, Mr Minkin became liable to pay the reasonable costs incurred, as ultimately assessed by the Master. That those exceeded the estimate is beside the point. That estimate was £3,500 + VAT, i.e. £4,025. The assessed costs of the first bill were only some £600 in excess of that at £4,640.25. The retainer letter emphasised that any estimate was not intended to be fixed and binding. The estimate was exceeded because of the additional work incurred when the wife rented the house to tenants. Mr Minkin was informed of this as early as 3 August. Indeed, he did not complain explicitly about the costs after 3 August but continued to give instructions to Mr Cooper during August as to what to do in relation to both the rent the tenants were paying and obtaining possession from them. Mr Minkin was clearly told that unless payment was forthcoming further work would not be undertaken. Emails to that effect, such as Mrs Louizou's of 25 August, were a simple statement of the contractual situation.
- Even if the firm terminated the retainer, Mr Munro further submits that the termination was not in breach of contract because it was pursuant to section 65(2) of the Solicitors Act 1974. By the time the firm stopped work on 24 August 2009, it had good cause to do so pursuant to this section. Mr Minkin had been notified on 3 August 2009 that the firm would not continue to act unless the first bill for £5,472.50 was paid. By 24 August 2009 Mr Minkin had had 21 days notice that the firm would not continue to act if he failed to make payment of the first bill. He refused to pay and instead only paid £3,000. Reasonable costs incurred by the firm, as assessed later by Master O'Hare, totalled £5,721.25.
- Alternatively, even if the firm terminated the retainer, that was not in breach of contract because it was entitled to payment of an interim statutory bill under section 69 of the Solicitors Act 1974. By the time the retainer was terminated, at the earliest 1 September 2009, the firm was entitled to sue on the bill dated 30 July 2009. Any termination of retainer by the firm for non-payment of the bill dated 30 July 2009 could not possibly be in breach of contract. The firm were entitled by statute to sue Mr Minkin for payment of their bill at the time the retainer was terminated. Mr Munro also invoked Wilson v William Sturges.
The firm's repudiation of contract
- Under clause 6 of the firm's standard business terms it is entitled to suspend or terminate its services to a client, if an account is overdue for payment without reasonable justification. Clause 13 provides that the firm can only terminate its engagement on reasonable grounds and on giving reasonable prior written notice. Clause 13 is consistent with the common law and with the Solicitor's Code of Conduct. Therefore it seems to me that clause 6 must be read subject to clause 13 to render the terms as a harmonious whole. A partial basis for this outcome is the rule of construction that terms in a contract are construed against those using them, so long as the construction does not work a wrong.
- Two consequences follow. First, termination for non-payment under clause 6 must be with reasonable notice. That obviates the need to consider a submission in the respondent's notice that clause 6 is an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999 in providing that the account is due immediately, with termination for non-payment a possible course of action. Secondly, termination for non-payment must be reasonable. That underlines the point, in my view, that a justification on the part of a client not to pay can be reasonable even if not objectively correct, for example, as determined subsequently by a costs judge. A failure to pay, because an invoice exceeds an estimate, may also be reasonable justification within clause 6, one aspect being the extent to which the client has relied on the estimate. So long as the basis for withholding payment is not frivolous, trivial or made in bad faith, it may not be reasonable for the firm to terminate for that reason.
- In my judgment it cannot be said that the Master was wrong in concluding that Mr Minkin had reasonable justification within clause 6 for withholding payment on the balance of the invoice issued on 31 July 2009. At £5,472.50 it exceeded the estimate of £3500 + VAT by a considerable margin. The estimate was important to Mr Minkin because he had limited funds, a fact Mr Cooper knew. Although in the retainer letter the firm undertook to give written notice of an estimate being exceeded, no advanced warning had been given to Mr Minkin when the estimate was exceeded. The first time he knew that this had occurred was when he received the invoice. Not surprisingly, Mr Minkin questioned, and questioned it promptly, on 3 August 2009. From his point of view little had been achieved at that point. The hearing had been adjourned until October. The case was still continuing, so the estimate would be exceeded by an even larger margin than in the invoice.
- The firm claims that the estimate was exceeded because of the additional work caused by Mrs Minkin renting the house. Even if that had been the case, Mr Minkin should have been warned, as the retainer letter said he would be. In fact, as my assessors advise me, the extra work because of the tenants being in the home amounted to at most £300 of the 31 July bill, as shown by the breakdown.
- Thus in my view the firm did not have the contractual right to terminate its retainer on the ground of non-payment under clause 6. Consequently, it was in breach of contract when it refused to continue to act. That refusal was contained in Mr Cooper's email of 24 August 2009, Mrs Louizou's of 25 August 2009, and Mr Cooper's of 1 September 2009. On any view this was a serious breach of contract. As the Master characterised it, it was a threat to "down tools". As such it constituted a repudiatory breach, ultimately accepted by Mr Minkin. The contract was therefore terminated. There is no flaw in the Master's finding that the retainer was terminated by the firm and not by Mr Minkin.
- Mr Minkin did give Mr Cooper further instructions after the 1 July invoice, in particular to pursue proactively the advice of counsel to obtain the rent being paid by the tenants of the matrimonial home. There is no need to determine whether this meant Mr Minkin lost the right to treat the contract as at an end on the basis that those instructions followed the earlier breaches of contract by the firm. It is clear that Mr Minkin did not affirm the contract after the 1 September 2009 breach.
- On Mr Munro's alternate submission the emails of 24, 25 August 2009 and 1 September 2009 did not purport to terminate the retainer but were a suspension of it under clause 6 of the standard terms. That is difficult to accept given the language of these emails which is redolent of termination, not suspension. The word suspension or any synonym for it is simply not used in the emails. In any event, if the emails were meant to suspend the retainer, it was a precondition that payment was withheld without reasonable justification. For reasons already explained, it cannot be said that Mr Minkin's non-payment of the 31 July invoice was without reasonable justification.
- Mr Munro's further submission, that if the firm terminated the contract, that was justified under section 65(2) of the Solicitors Act 1974, gets nowhere. The Master held that the bill dated 31 July 2009 was an interim statute bill, not a request for payment on account triggering that section. That finding is not surprising since the invoice was in the form of an interim statute bill, not least with the reference to the possibility of assessment on its reverse side. As an interim statutory bill the firm could have sued on it but chose not to do so. If it had done so it would have faced the contention on which I express no view that there was no right at that point to issue an interim statute bill under clause 5 of the firm's standard business terms.
- The outcome may seem harsh on the firm. But the fact is that it should have been clearer in its retainer letter as to the nature of the engagement. That may have allowed it to inform Mr Minkin that pursuit of the tenants his wife had allowed into the matrimonial home did not fall within its ambit. It should also have complied with the terms in its retainer letter and those in its standard terms of business. Under these it should inform a client in writing when it appears that any previous estimate may be exceeded. It must then consider whether, in the circumstances, the client has reasonable justification for not paying and whether it would be reasonable to terminate the contract for non-payment. And it can only do that with reasonable notification. The appeal must be dismissed.
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