Adam Johnson J: Working party chair
Costs disputes between solicitors and their clients worth up to £50,000 should be dealt with by the Legal Ombudsman (LeO) and not the courts, the Civil Justice Council (CJC) has proposed.
Larger claims and those outside the scope of LeO should be subject to compulsory ADR before they can go before a judge.
A consultation issued yesterday by the CJC’s working party on reform of part III of the Solicitors Act 1974 also recommended sweeping away many of the technicalities around costs, such as the contentious/non-contentious distinction, statute bills and the content and format of bills, and instead putting the onus on professional conduct rules and sanctions.
The working party, headed by Mr Justice Adam Johnson, described the Act as “seriously out of date”, with parts of the structure dating back to the Attorneys and Solicitors Act 1729.
“The regime as a whole reflects the concerns of a time when there was no developed system of regulation for solicitors. It is complex, formalistic and outmoded.
“Moreover, its complexities provide perverse incentives for costly litigation about costs, which have been criticised in a number of modern authorities (most notably Belsner).
“The resultant inefficiencies are wasteful of court time and resources and damaging to consumers and businesses alike.
“We suggest that the time has come for introduction of a new, clear and simplified system reflecting modern regulatory and business practices.”
The main provisional recommendation was that solicitors’ charges should be subject to an overarching principle that they be ‘fair and reasonable’ by reference to the matter in question, “judged on an objective basis but taking account of the characteristics of the parties and nature of the matter”.
This should apply both to the amounts actually charged and to the contractual terms, rather than the manner of achieving the agreement, making the much-litigated concept of ‘informed consent’ “not appropriate”.
“Problems of this kind, concerning the manner in which agreements are entered into, are captured in other parts of the law, including parts concerning consumer protection,” the working party said.
There would need to be guidance on what ‘fair and reasonable’ meant, with regulation 3 of the Solicitors’ (Non-Contentious Business) Remuneration Order 2009 offering a template.
Reflecting the comments of the Master of the Rolls, Sir Geoffrey Vos, in the 2022 case of Belsner, the working party said the LeO process would be “a more appropriate method” for modest bills – which it suggested initially would be up to £50,000 – and that recourse to the courts should only be available with good reason.
LeO already uses the test of ‘fair and reasonable’ in dealing with complaints and the working party said its scheme rules should be clarified to make clear it could deal with complaints about costs even if not linked to a service complaint.
For complainants outside of LeO’s jurisdiction (such as large companies) or where the bill exceeds £50,000, clients would first have to exhaust the solicitors’ internal complaints procedure and then go through compulsory ADR before seeking recourse to the courts.
“For those cases which do result in court proceedings, we envisage that in many of them the fact that there are agreed terms explaining the basis of charging will be enough to justify concluding that the charges are reasonable,” the consultation said.
“Exceptions may be where the client is a consumer and is able to challenge the fee agreement as unfair under the Consumer Rights Act 2015, or where the terms involve payment at an hourly rate and there is evidence of inefficiency in the management of the work undertaken.”
The working party acknowledged that LeO was currently struggling to meet its targets for complaint handling.
“Nevertheless, our proposed model seems to us to be the most proportionate structure to ensure that clients are provided with varied avenues to resolve their disputes, whilst simultaneously reducing the burden on the courts.
“However, this model simply will not function unless adequate funding is made available to LeO to facilitate its involvement.”
The working party provisionally favoured a single time limit of a year from receipt of a bill to initiate a court challenge.
The final report is due in early 2027 and the working party said implementation should be “relatively simple”.
It also sought views on whether a similar regime should be extended to other authorised lawyers, such as barristers, chartered legal executives, trade mark attorneys and costs lawyers.
David Bailey-Vella, chair of the Association of Costs Lawyers, commented: “This is an exciting moment for the costs market. We are pleased to see recommendations that will sweep away many of the outdated formalities around bills that serve only to prolong disputes unnecessarily.
“In principle, shifting responsibility for smaller bills to the Legal Ombudsman is attractive if it makes their resolution quicker and cheaper.
“But the current state of the ombudsman, which has been open about the need for radical reform in the face of a fast-growing caseload and ever-longer waits for complainants, raises questions about how practical this is, at least for the foreseeable future.
“Similarly, while many of the failures we see in costs cases are matters of professional conduct – such as not providing clients with adequate costs information – the Solicitors Regulation Authority is also reporting increasing complaints and is going through a turnaround process of its own.
“We support the greater use of ADR, as recommended by the report for larger bills, but we need solicitors to buy in too.
“Overall, there is much to like in this consultation. But what it points to is the need for a culture change as much as a rule change if we are to deliver a regime that works in the interests of all.”
Law Society vice-president Brett Dixon said: “Rules around solicitors’ costs are unnecessarily complicated and it is positive that the Civil Justice Council are considering reform.”
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