District Judge Chris Lethem smokes out the significance of the Mastercigars costs case against Withers


Solicitors have long been aware of the necessity of providing accurate costs information. However, the recent decision of Mr Justice Morgan in Mastercigars Direct Limited v Withers LLP [2007] EWHC 2733 (Ch) (23 November 2007) has relaxed the rigorous approach formerly adopted in considering costs estimates.



It has long been thought that a solicitor would be held to within 15% of their last estimate to the client. This was a product of the decision of Mr Justice Toulson in Wong v Vizards [1997] 2 Costs LR 46. The decision was followed in a number of subsequent cases (including Anthony v Ellis & Fairbairn [2000] 2 Costs LR 277), and Cook on Costs asserted that unless the client was notified of the further sums payable, preferably before they were incurred, then the solicitor would be unable to recover costs in excess of the estimated amount. In short, the Wong v Vizards principle has stood the test of time and brought a certain discipline to costs estimating as between the solicitor and his client.



The Wong principle was considered in the case of Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766, [2004] 2 All ER 175. This was a case concerned with inter parte costs estimating under Costs Practice Direction (CPD) 6.4. The paying party had estimated their overall profit costs at £6,000 plus VAT on their allocation questionnaire. This was never updated at the time of the pre-trial checklist. Their final bill sought £14,482.80 for profit costs. The paying party sought to argue that the receiving party should be limited to receiving their estimate plus 15%, applying the Wong principle. In essence, they submitted that, as the costs as between solicitors and client were limited to the estimate plus 15%, the indemnity principle meant that they could not have to pay more than this.



Although the court did not specifically address this argument, one can infer that they supported District Judge Chapman, who distinguished estimating to the client from estimating under the CPR. He felt that it would be an unintended consequence of the CPR if the receiving party was held to an estimate given in the infancy of the case. The court held that, where there was a substantial discrepancy between the estimate given and the final bill, then that called for an explanation. Where the paying party or the court relied upon the estimate, then that too might be taken into account. This, of course, led to the amendment of the CPD to include 6.5A and 6.6.



The difficulty with Leigh was that it left the law uncertain. One now had a different regime for estimating to a client (Wong) and as between the parties (Leigh). How this could be consistent with the indemnity principle was not made clear in Leigh.



The Court of Appeal's second foray into the field clarified the situation slightly. In Garbutt v Edwards [2005] EWCA Civ 1206 [2006] 1 All ER 553, the receiving party had filed no estimate of costs. Accordingly, the court was also asked to consider the rule 15 requirements to give an estimate of costs to the client. In Garbutt, the court considered Wong and, giving the only reasoned judgment, Lady Justice Arden said: 'While that approach [Wong] may be perfectly justified as between solicitor and client, the situation here is different.' The court came to a similar conclusion to that in Leigh, holding that, if there has been no estimate, this should be taken into account in deciding the amount of costs which were 'reasonably incurred' or 'reasonable and proportionate in amount' for the purposes of CPR 44.4 and CPR 44.5.



Garbutt affirmed the dissonance between estimating as between the parties on the one hand, and solicitor and own client estimating on the other. The difficulties of squaring this approach with the indemnity principle became more pronounced.



This brings us to Mastercigars. Mastercigars instructed Withers in connection with a trademark dispute. Withers provided a letter of engagement and their best estimate of costs. At periodic intervals, they updated the estimates for costs including the trial. On 6 May 2005 that estimate totalled £356,000. On 10 May 2005 the estimate on the listing questionnaire was £461,534.24 (though this erroneously included VAT). The case concluded on 10 March 2006 after a 17-day trial. The decision was then appealed to the Court of Appeal and, in October 2006, Mastercigars changed solicitors and Withers' retainer was determined. By this time, Withers had delivered some 24 bills to its client. The grand total of the bills was approximately £1,050,000. Mastercigars argued that Withers' costs had to be limited to the 6 May 2005 estimate, an argument largely upheld by the costs judge.



On appeal, Mr Justice Morgan decided:



(a) that an estimate is not a quote and that solicitors are entitled to reasonable remuneration for work done (section 15 of the Supply of Goods and Services Act 1982 applied);



(b) the court may 'have regard to' the estimate or may 'take into account' the estimate and the estimate is a 'factor' in assessing reasonableness; the estimate may be a useful yardstick against which to judge the reasonableness of the bill;



(c) there is no basis for permitting the solicitor a margin on top of the amount of the estimate. Rather, the greater the margin by which the bill exceeds the estimate, the greater the explanation that will be required from the solicitor;



(d) Wong v Vizards and Anthony v Ellis & Fairbairn were decided before Leigh and Garbutt, and the latter decisions were to be preferred;



(e) the fact that a margin of 20% is mentioned in CPD 6.5A and 6.6 is merely a starting point, not a conclusion;



(f) there is no basis for implying a term that the solicitor will comply with the Solicitors Cost Information and Client Care Code; and



(g) the passage in Cook on Costs is not a correct statement of the law.



Remarkably, Mr Justice Morgan revealed that his assessors did not agree with his conclusions in overturning the costs judge, and they did not agree with his findings concerning the margin.



Mastercigars is a wide-ranging and detailed analysis of the law in relation to the retainer between the client and its solicitor, and bears reading.



District Judge Lethem sits at Tunbridge Wells County Court