Solicitor-Client Costs Disputes: ACL Proposes Alternative to Legal Ombudsman

The way in which solicitor-client costs disputes are resolved could change significantly under proposals currently being considered for reform of the Solicitors Act 1974.

Earlier proposals from the Civil Justice Council (CJC) suggested that costs disputes worth up to £50,000 could move away from the courts and instead be handled by the Legal Ombudsman (LeO).

The Association of Costs Lawyers (ACL) has now proposed a different approach, which is a dedicated pre-action protocol, an online costs dispute portal and preliminary decisions made by specialist legal professionals.

For ARC Costs, the proposals are particularly interesting because they recognise something costs practitioners see regularly, i.e. many disputes about solicitors’ bills involve technical questions that can potentially be resolved much earlier if the parties exchange the right information.

What is being proposed for solicitor-client costs disputes?

The CJC has been considering reform of Part III of the Solicitors Act 1974, which governs the assessment of costs between solicitors and their clients.

One proposal has been for disputes worth up to £50,000 to be handled by LeO rather than through the existing court assessment process.

However, the ACL has raised concerns about whether LeO currently has the specialist expertise and capacity necessary to conduct costs assessments.

Instead, it has proposed a more specialist system designed specifically for costs disputes.

At the heart of the proposal would be a new pre-action protocol for solicitor-client costs disputes.

Could a pre-action protocol resolve disputes earlier?

One of the most interesting aspects of the ACL proposal is its emphasis on early disclosure.

Disputes over legal fees can sometimes arise because the solicitor and client have very different understandings of what happened during the retainer.

A client may, for example, believe they were never provided with an estimate or adequate information about charging arrangements. The solicitor’s file may contain evidence showing that information was provided.

Under the current system, the position may not become completely clear until proceedings have begun and disclosure or inspection of the solicitor’s file takes place.

By that stage, both sides may already have incurred additional costs.

A pre-action protocol could require parties to exchange relevant information, potentially including retainers, estimates, invoices and other documentation, before proceedings are issued.

From a costs perspective, there is obvious value in identifying the real areas of disagreement as early as possible.

An online portal for costs disputes

The ACL has also suggested creating an online portal through which the parties could exchange information and make settlement offers.

The concept is similar in principle to other online claims systems.

Where the parties could not reach agreement, the dispute could be referred to a suitably qualified lawyer for a preliminary determination.

The proposed panel could include:

• Costs Lawyers;
• solicitors;
• barristers; and
• chartered legal executives.

More complex disputes could then be referred to the court.

This would effectively create a filtering mechanism, potentially resolving more straightforward disagreements without requiring full court proceedings while retaining judicial determination for cases involving difficult or high-value issues.

What happens if a party disagrees with the decision?

The ACL’s proposed system would not necessarily make the preliminary decision final.

A dissatisfied party could proceed through a process based on the existing provisional assessment regime.

That could involve a paper determination followed, where appropriate, by an oral hearing for disputes worth up to £75,000.

Interestingly, the ACL has also suggested a costs consequence where a party challenges the preliminary decision but fails to improve its position sufficiently.

Under its proposal, if the court did not alter the panel’s determination by at least 20%, the party issuing the challenge would bear the costs.

Such a mechanism could provide a significant incentive for parties to consider carefully whether further proceedings are commercially worthwhile.

The debate over “fair and reasonable” legal fees

The proposals go considerably further than simply deciding which body should hear costs disputes.

The CJC has suggested an overarching principle that solicitors’ charges should be “fair and reasonable” when assessed objectively.

The ACL has expressed concerns about how broadly that principle might operate. One issue is the relationship between solicitor-client assessments and inter partes costs.

The two cannot always be viewed in isolation. A valid retainer between solicitor and client is important to inter partes recovery because of the indemnity principle. Equally, the amount recovered from an opponent may be less than the amount the solicitor is contractually entitled to charge the client, leaving a shortfall payable by the client.

Creating significantly different tests for the two forms of costs assessment could therefore create practical difficulties.

Could agreed hourly rates be challenged more frequently?

This could be particularly important when it comes to hourly rates. A solicitor and client may expressly agree the applicable hourly rates at the beginning of a matter.

If a new “fair and reasonable” test were applied broadly to contractual charging terms, it could potentially create more scope for those agreed terms to be challenged later.

The ACL’s position is that solicitors should generally be able to agree specific contractual terms with clients and rely upon them.

It has therefore suggested that any new fair and reasonable principle should apply to the amounts actually charged, rather than providing a broad mechanism for reopening contractual terms.

For law firms, the eventual wording of any reform could have significant implications for retainers, client-care documentation and billing practices.

Why specialist costs expertise matters

ARC Costs has previously discussed the proposal for LeO to take on lower-value solicitor-client costs disputes and the practical difficulty that LeO itself has acknowledged: it is not currently resourced or equipped to assume that responsibility immediately.

The ACL proposal raises an alternative question.

Rather than moving technical costs disputes from the courts to a general legal complaints body, could a specialist process resolve them more efficiently?

Solicitor-client costs disputes can involve complicated issues surrounding retainers, statute bills, interim bills, hourly rates, estimates, proportionality and the client’s right to assessment under the Solicitors Act.

Some disputes are relatively straightforward. Others involve preliminary legal issues capable of determining whether substantial fees are recoverable at all.

A system capable of distinguishing between the two could potentially be important.

Robert Collington’s commentary

Robert Collington, Costs Lawyer at ARC Costs, comments:

“The focus on early disclosure is particularly interesting. We see solicitor-client disputes where identifying the retainer, estimates, bills and relevant correspondence at an early stage can significantly narrow what is actually in dispute.”

He continues:

“There is also a strong argument for specialist costs knowledge being available within whatever system ultimately replaces or reforms the existing process. Solicitor-client assessments can involve technical questions about retainers, billing and entitlement that go considerably beyond deciding whether a client feels that a fee is too high.”

What would the proposals mean for law firms?

Nothing has changed yet. These are proposals being considered as part of a wider debate about reforming an area of law that has existed in various forms for generations.

However, law firms should be watching developments carefully.

Any reform could affect how bills are challenged, what information firms must provide when a dispute arises, the role of ADR and the procedure clients follow when seeking an assessment.

It also reinforces the importance of good costs practices now.

Clear retainers, realistic estimates, accurate bills and comprehensive records of information provided to clients can all become important if fees are subsequently challenged.

How ARC Costs can help with solicitor-client costs disputes

ARC Costs acts in solicitor-client costs disputes for law firms and clients, providing specialist advice on the Solicitors Act 1974, retainers, Bills of Costs, Points of Dispute, Replies, negotiations and assessment proceedings.

We can also become involved before a dispute reaches assessment, helping parties identify the genuine issues and explore whether an agreement can be reached without unnecessary proceedings.

Whether the future lies with LeO, a specialist online portal or a reformed court process remains to be seen. What the current debate makes increasingly clear, however, is that solicitor-client costs disputes require a procedure that is proportionate and accessible while retaining the specialist expertise necessary to deal with complex legal costs issues properly.

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