Mastercigars Direct Ltd v Withers LLP

On a solicitor-and-own-client detailed assessment, an inaccurate costs estimate is not a fixed-price cap. The court must first determine whether the client relied on the estimate and how it did so, without an elaborate investigation. It must then decide, as a matter of judgment, whether and how the estimate should affect the reasonable sum payable. The client need not prove detriment in the strict sense of showing, on the balance of probabilities, that it would have acted differently to its advantage. Showing that the estimate deprived it of an opportunity to act differently is relevant, with proven substantial detriment carrying greater weight. A percentage margin may sometimes express the just result, but it is not a conventional legal rule and requires adequate reasons. The court must not punish the solicitor for an inaccurate estimate.

Withers LLP appealed from decisions of Master Simons in the Supreme Court Costs Office concerning the detailed assessment of bills rendered to its former client, Mastercigars Direct Ltd. The dispute concerned two bills and the effect of a costs estimate dated 6 May 2005. Master Simons found that Mastercigars had relied on the estimate and limited Withers’ recoverable profit costs for the relevant period to the estimate plus a 20 per cent margin. He applied that decision when completing the assessment on 14 November 2008. The appeals challenged the findings on reliance, the approach to detriment, the treatment of explanations for the differences between estimate and bills, and the reasons for the 20 per cent margin. Mastercigars sought permission to cross-appeal. The central issue was how reliance on an inaccurate estimate should be reflected in the assessment.

1. Appeals allowed in substance. The order of Master Simons dated 14 November 2008, which gave effect to his decision of 11 July 2008, was set aside. The matter was not remitted to Master Simons for a fresh decision. The outstanding question was to be determined by Mr Justice Morgan with the assistance of a report from the Senior Costs Judge.
2. The Master was entitled to find that Mastercigars relied on the estimate. The findings were that it used the estimate for funding purposes and would have instructed other solicitors if the estimate had been nearer to the later bills. The client was not required to prove detriment by showing that it would probably have acted differently and achieved a better result. It was enough that the inaccurate estimate deprived the client of an opportunity to act differently. Actual substantial detriment would carry greater weight.
3. The applicable process, drawn from Leigh v Michelin Tyre plc [2004] 1 WLR 846, required the court to determine whether and how the client relied on the estimate, without an elaborate investigation, and then decide whether costs should be reduced, and by how much, in order to do justice. The estimate was not a fixed price.
4. The Master wrongly treated the question whether Withers had provided a satisfactory explanation for the difference between the estimate and the bills as central to reflecting reliance. That question related principally to the later assessment of individual items and their reasonableness. The Master was also too critical of Withers’ statement of reasons and should not have ignored it altogether.
5. A percentage margin was not prohibited in principle, but it was not the legally conventional or automatic method. It could be used where it best expressed the result required by the proper process. The approach in Reynolds v Stone Rowe Brewer [2008] EWHC 497 (QB) was helpful. Reliance on Wong v Vizards [1997] 2 Costs LR 46 did not establish that a margin was legally required. The 20 per cent margin was inadequately reasoned and appeared arbitrary.
6. Where a costs judge selects a margin, the relevant factors must be identified and their inclusion or exclusion explained. The judge must have evidence and submissions sufficient to assess matters relied on, including additional interlocutory work. It was unnecessary to determine Mastercigars’ proposed cross-appeal because the relevant order was being set aside.
7. The estimate related to the period commencing on 1 May 2005. No further order was necessary on that point. Under Civil Procedure Rules rule 35.15(3)(a), the Senior Costs Judge was directed to prepare a report, after the parties had sought to agree the questions and directions.

• High Court (Chancery Division): the present appeals were allowed in substance. The order of 14 November 2008 was set aside, and the outstanding issue was retained for determination by Morgan J with a report from the Senior Costs Judge.
• Supreme Court Costs Office: Master Simons decided on 11 July 2008 that Mastercigars had relied on the estimate and limited recoverable profit costs to the estimate plus 20 per cent. On 14 November 2008 he completed the assessment of one bill by applying that decision.
• High Court (Chancery Division): an earlier appeal from Master Rogers’ decision of 25 April 2007 was allowed on 23 November 2007, and the detailed assessment was remitted to a different costs judge. That earlier judgment was reported at [2008] 3 All ER 417.