Mastercigars Direct Ltd v Withers LLP [2009] EWHC 651 (Ch)

[2009] EWHC 651 (Ch)Case No CH/2008/PTA/0493
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 30/03/2009
Before
MR JUSTICE MORGANSITTING WITH ASSESSORS(SENIOR COSTS JUDGE HURST AND MR CARTER)
Between
Mastercigars Direct LimitedClaimantWithers LLPDefendant
Jeremy Morgan QC (instructed by Withers LLP) for AppellantSimon J Brown (instructed by Crane & Staples) for RespondentHearing Hearing dates: 16 th& 21 st January 2009
Judgment

The procedural history

[1]This judgment concerns two appeals and an application by the Respondent for permission to cross-appeal. The decision which is the subject of the first appeal was handed down by Master Simons on 11th July 2008 and the order which is the subject of the second appeal is an order of Master Simons of 14th November 2008. The proposed cross-appeal also relates to the same decision and order.[2]The underlying dispute between the Appellant, Withers LLP (“Withers”) and the Respondent, Mastercigars Direct Limited (“Mastercigars”) is between a solicitor and a former client as to the amount of the fees payable by the former client to the solicitor. The dispute has led to an order for a detailed assessment of some fourteen bills of costs rendered by the solicitor to the former client. In relation to two of those bills (numbered 139405 and 140598) there has been a hotly disputed issue as to the relevance and effect of an estimate dated 6th May 2005, provided by the solicitors to their then client.[3]This dispute has now developed a lengthy procedural history. Master Rogers decided certain questions in relation to this dispute on the 25th April 2007. Masters Rogers’ decision was adverse to Withers and Withers appealed. That appeal together with three other appeals were heard by me in October 2007 and I gave a reserved judgment in those four appeals on the 23rd November 2007. The history of the dispute up to the 23rd November 2007 is set out in detail in my earlier judgment, which is reported at [2008] 3 All ER 417.[4]On 23rd November 2007 I allowed the appeal against Master Rogers’ order of 25th April 2007 and directed that no further action was to be taken by way of an attempt to answer a preliminary issue that had earlier been directed. Instead it was ordered that the detailed assessment of the bills in question should be remitted to a different costs judge.[5]At the hearing of the appeal against Master Rogers’ order of 25th April 2007, it was clear that Mastercigars wished to put forward the case that it had relied on Withers’ estimate of 6th May 2005 and that the fact of reliance should have an important bearing on the sum ultimately recovered by Withers, in relation to the period of time covered by the estimate. I had held that Master Rogers had not made findings in relation to the issue of reliance on the estimate and, accordingly, in the order of 23rd November 2007 I gave directions as to the way in which the issue as to reliance should be dealt with as part of the detailed assessment. My recollection is that when judgment was handed down on the 23rd November 2007 there was discussion as to whether it would be appropriate to have a preliminary issue as to reliance but both parties submitted to the Court that a preliminary issue of that kind was inappropriate and that the question of reliance should be considered as part of the detailed assessment of the bills in question. The order of 23rd November 2007 therefore gave directions as to the service of evidence on behalf of Mastercigars and the giving of disclosure by it.[6]On the 18th December 2007, Mastercigars served a witness statement dated 17th December 2007 from Mr Kenyon, its Managing Director. Mastercigars wished to rely upon that witness statement for the purposes of its case as to the effect of its reliance on the estimate of 6th May 2005.[7]Also on 17th December 2007, Mastercigars served a list of documents by way of disclosure in relation to the issue as to reliance on the estimate of 6th May 2005.[8]Master Simons was allocated as the Costs Judge who would deal with the detailed assessment of the various bills. On 28th December 2007, he gave directions in the matter. In particular, he directed that Withers should serve “a statement of reasons for difference” limited to the period from 6th May 2005 up to the fourth day of the trial of the action in which the costs had been incurred. As explained in my earlier judgment, that action involved a claim by Mastercigars against Hunters & Frankau Limited. I understand the order of 28th December 2007, when it referred to a “statement of reasons”, as requiring a document setting out Withers’ explanation for the differences between the relevant bills they submitted and the estimate of 6th May 2005. The order of 28th December 2007 also fixed a further directions hearing for the 18th April 2008.[9]On 17th April 2008 Withers served the statement of reasons for the differences between the figures in the estimate of 6th May 2005 and the figures in the bills numbered 139405 and 140598. The statement of reasons consisted of one and a half pages of explanation to which were attached copies of the estimate and of the two bills. The estimate and the bills were annotated in detail in accordance with the explanation.[10]On 18th April 2008, Master Simons gave further directions. He directed that Mr Kenyon should attend the detailed assessment (due to begin on 23rd June 2008) for cross-examination but that such cross-examination was to be restricted to the question of Mastercigars’ reliance on the estimate of 6th May 2005. Master Simons also directed that Mastercigars were to be at liberty to respond to Withers’ statement of reasons, if so advised. I was provided with a transcript of the hearing on 18th April 2008.[11]On the 16th June 2008, which was one week before the substantive hearing before Master Simons was scheduled to begin, Withers wrote to the Master’s clerk dealing with a number of matters in readiness for the forthcoming hearing. In that letter, Withers referred to the procedure which might be adopted at the hearing following which, Withers said, there would be judgment “on the issue of reliance” and, following judgment, the assessment of the individual bills would commence.[12]The hearing before Master Simons, dealing with the estimate of 6th May 2005 and the relevant bills, duly took place on the 23rd and 24th June 2008. Mr Kenyon gave evidence in accordance with his witness statement of 17th December 2007 and was cross-examined and re-examined on 23rd June 2008. On 24th June 2008, the Master heard submissions from the parties. Mr Morgan QC made submissions on the law and Miss Rylatt, a solicitor advocate from Withers made submissions on the facts. Mr Baker, a costs draftsman, made submissions on behalf of Mastercigars. I have been provided with a transcript of the hearing on the 23rd and 24th June 2008. I have also been provided with copies of the skeleton arguments used at that hearing. During the hearing, in the afternoon of 24th June 2008, at a time when Mr Morgan QC was no longer present at the hearing, the Master raised with the parties certain questions as to the possible different approaches which might be adopted, depending on the findings he made as to the fact of reliance. It was agreed that Mr Morgan QC would write direct to the Master seeking to answer the Master’s questions, from Withers’ point of view. On 25th June 2008, Mr Morgan sent an e-mail to Master Simons putting forward Withers’ stance.[13]Master Simons reserved his judgment and made available to the parties a draft of his judgment which was intended to be handed down on the 10th or 11th July 2008. Before judgment was handed down, Mr Morgan on behalf of Withers wrote to Master Simons referring to the decision of the Court of Appeal in English v Emery Reinbold [2002] 1 WLR 2409, suggesting that the Master’s reasons in the draft judgment were inadequate and seeking further reasons in two specified respects.[14]Master Simons handed down his judgment on the 11th July 2008. I understand that the judgment as handed down did not differ from the judgment as provided to the parties in draft. Withers applied to Master Simons for permission to appeal, which he refused. He completed the usual form setting out his reasons for refusing permission to appeal and he wrote:
“No reasonable prospect of success. Paragraphs 40-44 give sufficient reasons as to why the Claimants relied on Defendant’s estimate. Having decided that the Claimants relied on the Defendant’s estimate I had to find a yardstick to enable me to decide what it was reasonable for the client to pay. My reasoning is set out in the judgment.”
[15]Master Simons’ judgment of 11th July 2008 runs to some 87 paragraphs. It will be necessary later in my judgment to refer to the detail of the Master’s reasoning. I will give only a brief summary of the judgment at this stage. The Master set out the history of the dispute as to costs and the history of the litigation against Hunters and Frankau Limited. He described the issue as to reliance upon the estimate of 6th May 2005. He referred in detail to the evidence given by Mr Kenyon at the hearing before him. He recorded the submissions for the parties and, at paragraphs 39 to 52, he made his findings on the question of reliance. At paragraphs 53 to 62, he discussed the effect of the reliance which was established and at paragraphs 63 to 87, he set out his conclusions on the effect of that reliance. In the course of these paragraphs, he considered Withers’ statement of reasons as to the differences between the estimate of 6th May 2005 and the two relevant bills. He also considered in detail various courses open to him in order to determine the dispute. His overall conclusion was that he should reflect the costs estimate in the detailed assessment of the two relevant bills, for the period covered by the estimate, by limiting the profit costs chargeable by Withers in accordance with the two relevant bills, for the relevant period, to the amount in the estimate plus a “margin” of 20%. The disbursements shown in the two relevant bills were not limited by the disbursements in the estimate but that was, as I understand it, because the disbursements in the estimate were greater than the disbursements in the bills for the relevant period.[16]No order was drawn up following judgment on the 11th July 2008 but Withers appealed that decision. On 7th October 2008, Peter Smith J granted Withers permission to appeal and recommended that the appeal should be listed before me because of my prior involvement in the matter. That course was later adopted.[17]On 14th November 2008, there was a further hearing before Master Simons. He completed the assessment of bill no. 139405 by giving effect to his decision of 11th July 2008. One point which arose at that hearing was whether the period covered by the estimate began on 1st May 2005 (as Mastercigars contended) or on 6th May 2005 (as Withers contended). Master Simons adopted the date of 6th May 2005.[18]Withers sought to appeal the Master’s order of 14th November 2008 essentially on the same grounds as they put forward by way of challenge to the decision of 11th July 2008. On 10th December 2008, Proudman J granted Withers permission to appeal and directed that the two appeals brought by Withers should be heard at the same time. No point has been raised in this case as to the ability of Withers to appeal the decision of 11th July 2008 in advance of an order being made to give effect to that decision. Now that an order has been made (on 14th November 2008) to give effect to the earlier decision, and an appeal has been brought against the order (on the same grounds as the earlier appeal) there is no difficulty about the court examining the various points which Withers raise.[19]In their appeals, Withers raise a large number of points. They say that the Master did not give adequate reasons for some of his conclusions. They say that the decision expressed conclusions on a matter on which Withers had not been heard, so that the process was vitiated by a serious procedural irregularity. Further, Withers contended that the Master had gone wrong in law in several specified respects.[20]Mastercigars has served a Respondent’s Notice. Mastercigars seeks to cross-appeal in two respects and, in addition, put forward a further ground for upholding the decision of the Master. Mastercigars accepts that it requires permission for the purposes of its cross-appeal and the application for permission, and indeed the substance of any appeal which might be permitted, were argued before me.[21]At the hearing of these various matters, I sat with assessors, namely, Senior Costs Judge Hurst and Mr Carter. Mr Carter had been an assessor in relation to the earlier appeals in which, as I have explained, I gave judgment on 23rd November 2007. I am grateful to my assessors for their very considerable assistance.[22]At the hearing Withers relied on a document setting out detailed figures in relation to one matter which had been raised. Mastercigars responded to that document in its oral submissions. After the hearing, there were written submissions on that matter, first from Withers and then from Mastercigars.

Satellite litigation

[23]In my earlier judgment, I referred to the decisions of the Court of Appeal in Leigh v Michelin Tyre plc [2004] 1 WLR 846 and Garbutt v Edwards [2006] 1 WLR 2907. In the first of those cases Dyson LJ at [31], and in the second of those cases Arden LJ at[47], expressed concern at the danger of satellite litigation as to the relevance of an estimate when it came to a detailed assessment of legal costs. I fear that the present case is a bad example of satellite litigation which has gone beyond its proper bounds. The sums directly involved in the present dispute are not insignificant but in the context of the total fees claimed by Withers they are comparatively modest. I was told at the hearing that the significance of the dispute has now gone beyond the sums nominally in issue. That is because the parties have incurred very considerable costs in relation to the detailed assessment and the outcome of these appeals may have a bearing on who ultimately will bear those costs. Although Mastercigars obtained an order against the other party to the underlying litigation that that party should pay the costs at first instance and in the Court of Appeal, Mastercigars has not made any real progress towards a detailed assessment of those inter partes costs.[24]I have considered what approach to take to these appeals. The appeals raise a large number of complaints which include complaints about procedural unfairness and a failure to give adequate reasons. The parties have urged the court to read lengthy transcripts of various hearings which have taken place. The hearing of these appeals lasted two days and would have lasted longer had I not imposed a time limit on oral submissions. Following the hearing, the parties made further submissions in writing. When considering my judgment, it was necessary to read a considerable amount of material including the entirety of the various transcripts. I concluded that there was no alternative to my dealing in detail with all the substantive points which had been raised. Permission to appeal was given in relation to both the appeals by Withers. The parties are therefore entitled to have all of their many points considered by the court. This has resulted in a long judgment but I have concluded that it is not appropriate to deal with the points any more briefly.[25]The result which I have eventually arrived at, for the reasons given in detail in this judgment, is that I will set aside the order made by Master Simons of 14th November 2008, which gave effect to his decision of 11th July 2008. That means that there will have to be further steps taken to resolve this dispute. Given that I have previously allowed an appeal against a Costs Judge and am now allowing this second appeal, I have carefully considered whether more needs to be said to set out the principles which Costs Judges should apply when dealing with a point of the present kind. I have decided that everything that can be said has been said by Dyson LJ in Leigh v Michelin Tyre plc , which I held in my earlier judgment applied to an assessment (as in the present case) between a solicitor and his client, where the client asked the Costs Judge to take into account an estimate provided by the solicitor.

A further authority

[26]In my earlier judgment in this case, I dealt with the many arguments which were raised as to the correct legal approach where the solicitor’s bill substantially exceeds an earlier estimate. Much of the earlier judgment is taken up with my reasons for not accepting the many arguments that were urged upon me. The part of the judgment which attempted to set out a positive statement of the legal principles which apply is at paragraphs [92] and [98] to [102].[27]Before Masters Simons gave his decision on 11th July 2008, there was a further relevant decision in this area, namely, Reynolds v Stone Rowe Brewer [2008] EWHC 497 (QB). In that case, Tugendhat J, sitting with assessors, heard an appeal from a decision of Master Rogers, the Costs Judge. The Costs Judge had held that the solicitors “should be bound by an estimate of £18,000 to which I added the “15% margin” available under Wong v Vizards [1997] 2 Costs LR 46…”. Both parties on the appeal to the High Court were prepared to accept my rulings on the law in my earlier judgment in the present case. Tugendhat J quoted from that judgment at paragraphs [92] and [98] to [102] (for some reason the paragraph numbering he used is slightly different from the numbering in the Law Reports). I have only one very minor comment to make on Tugendhat J’s statement of the law. In paragraph [45], he stated that Garbutt v Edwards [2006] 1 WLR 2907 was not concerned with a dispute on the indemnity basis between the a solicitor and a client. As I pointed out in paragraph [86] of my earlier judgment, although Garbutt v Edwards concerned a summary assessment between the parties, an important issue was as to the liability of a client to his own solicitor.[28]In the Reynolds case, at [57], Tugendhat J held that the Costs Judge had not misdirected himself in law. He had asked himself the right question: what in all the circumstances is it reasonable for the client to be expected to pay? He had not held that the solicitor was bound in law to receive only the amount of the estimate plus 15% because the Costs Judge had held, on the facts of that case that the solicitor “should be” so bound. At [59], the Judge expressed difficulty with the lack of findings of fact by the Costs Judge, in particular, the lack of findings as to the reasons for the differences between the estimate and the later bill. At [61], the Judge said that the Costs Judge had been too favourable to the solicitors in one respect. At [65], the Judge indicated that he would express his own views on the merits, having consulted with his assessors. At [67] to [68], he dealt with the question whether there were good explanations for the differences between the estimates and the bill. He held that the estimates were just too low and not in accordance with the Solicitors Costs Information and Client Care Code. At [69] to [70], the Judge held in terms that if reliable estimates had been given by the solicitors at the outset the client would not have acted as she later did. At [71], the Judge was prepared to assume that the solicitors had spent a reasonable time on reasonable items of work and that the charging rate was reasonable but the resulting figure exceeded what it was reasonable in all the circumstances to expect the client to pay. The figure arrived at by the Costs Judge was a figure which appealed to Tugendhat J as a reasonable figure to expect the client to pay. The Judge’s route was different from the route taken by the Costs Judge. At [72], the Judge said that he would not purport to take a particular estimate and to apply to it a percentage margin. He commented that Toulson J had not adopted that approach in Wong v Vizards. The figure arrived at by Tugendhat J did not represent any particular margin over the estimate.[29]The decision of Tugendhat J is helpful in a case of this kind. It starts with the principles I attempted to describe in my earlier judgment in the present case and then illustrates the application of those principles to a set of facts. Tugendhat J dealt explicitly with the question of explanations for the differences between the estimate and the bill. He also dealt explicitly with the question of reliance and found that the client had relied and made findings as to the way in which the client had relied on the estimate. He arrived at a figure which, as a matter of judgment, it was reasonable for the client to pay. He did not arrive at his figure by adding a margin to the amount of the estimate.

The Costs Judge’s findings as to the fact of reliance

[30]I will now consider the reasons given by Master Simons for the decision he reached on the 11th July 2008. I will begin with that part of the decision which deals with the issue of reliance by Mastercigars. In view of the fact that the grounds of appeal include the contention that there was no evidence for some findings made by the Master and in view of the further fact that the Master stated that he had taken into account the whole of Mr Kenyon’s witness statement, without repeating it verbatim in his judgment, it is unfortunately necessary for me to refer to the evidence given by Mr Kenyon as well as referring to the specific findings in the Master’s decision.[31]Mr Kenyon’s evidence-in-chief was contained in his witness statement of 17th December 2007. He described the various communications between Mastercigars and Withers and referred in particular to the estimates of 11th March 2005 and 6th May 2005. He also described what he was told by Mr Maycock of Withers on 9th August 2005. He described the degree of faith which he placed in the estimate of 6th May 2005. He also referred in somewhat general terms to the funding arrangements which Mastercigars put in place. He referred to the listing questionnaire which Withers on behalf of Mastercigars had served on the other parties to the litigation. I should comment that the facts as to the listing questionnaire raise points which are different from the issues as to reliance. Mr Kenyon said that he did not know of the contents of the listing questionnaire. His point was that the figures in the listing questionnaire, being much lower than the sums later billed might cause a difficulty for Mastercigars when seeking to recover costs from the other party to the litigation. The Costs Judge did not rule on that point. Further, that point was not argued on this appeal.[32]Mr Kenyon’s statement also went some way to describe “how” Mastercigars had relied on the estimate of 6th May 2005. He said that if he had known on the 6th May 2005 what he later came to know, he would have withdrawn instructions from Withers and instructed another firm of solicitors. He pointed out that he did later instruct other solicitors when the matter was on its way to the Court of Appeal. He said he relied on the estimate “but for some slippage”. His evidence was that not only did Withers provide an inaccurate estimate, they failed to revise it. He said that Mastercigars had taken from it the opportunity to make a commercial decision and either walk away from the proceedings or instruct another firm of solicitors, which Mr Kenyon said he would have done.[33]Mr Kenyon was cross-examined by Miss Rylatt of Withers. There was an investigation as to the funding arrangements put in place by Mastercigars. Mr Kenyon was cross-examined about why Mastercigars did not change solicitors in August 2005 when it became aware of the costs billed up to that date. Mr Kenyon’s explanation was by reference to the stage the proceedings had reached by August 2005. He was asked about the problems for Mastercigars due to the fact that the level of costs was identified somewhat later (in August 2005) rather than earlier (in May 2005). He referred to difficulties with funding arrangements and lack of confidence due to the billed figures being significantly more than the estimated figures. He accepted that the claim in the underlying litigation was worth something in the region of £8 million to £9 million.[34]When re-examined, Mr Kenyon referred in a little more detail to the figures raised by way of funding. Having received an estimate of £206,000 plus VAT, which was said to be approximately £250,000, Mastercigars arranged funding of £250,000 plus a further £150,000. Potentially, that evidence might have been of great importance when considering the reality of the suggested funding difficulty attributable to the estimate of 6th May 2005. On the face of it, Mastercigars was proceeding on the basis that the estimate might well be significantly exceeded. However, Withers did not rely on this evidence when making submissions to Master Simons and he made no finding about it. It is not completely clear whether the further £150,000 funding was for legal costs or for what were called “administration costs”. I can see the possibility that the reference to “administration costs” might have been costs incurred by Mastercigars over and above costs and disbursements due to Withers. In view of the fact that this answer by Mr Kenyon was not relied upon by Withers and was not further explored, I do not think it would be right for me to give any particular weight to it at this stage. Mr Kenyon also acknowledged in re-examination that slippage, either up or down, was always to be expected.[35]Master Simons dealt with the evidence on reliance at paragraphs 14 to 28 of his decision. He quoted extensively from Mr Kenyon’s witness statement. He accepted Mr Kenyon’s evidence. He referred to the cross-examination of Mr Kenyon on the question of funding and the value of the claim being in the region of £8 million to £9 million.[36]At paragraphs 29 to 38, Master Simons set out the submissions of the parties on the question of reliance and at paragraphs 39 to 52, he expressed his conclusions in relation to reliance.[37]The Costs Judge held that Mastercigars were concerned about the amount of costs and did rely on the estimate. It needed the estimate for funding purposes and Withers knew that fact. Mr Kenyon expected there would be slippage but the difference between the estimate and the bill was substantially more than slippage. Withers should have factored into the estimate the possibility or likelihood of unforeseen matters in the run up to a trial. Even if those matters were not factored into the estimate, Withers could have varied the estimate. The Master also took into account the fact that the explanation given by Mr Maycock to Mr Kenyon on 9th August 2005 was inaccurate. Mr Maycock had suggested that the increase in the billed costs was attributable to Counsel’s fees, but that was simply wrong.[38]The Costs Judge then grappled with the question as to how Mastercigars had relied on the estimate. He referred to the fact that this question of “how” a client relied on the estimate was referred to in Leigh v Michelin Tyre plc [2004] 1 WLR 846 at [31] but pointed out that that case was a case between the parties rather than between solicitor and client. At [44], the Costs Judge said that Mastercigars must show “how” it relied on the estimate and “it has done so to my satisfaction”. He suggested that where there was a substantial difference between the estimate and the bill it was not as relevant to show that the client had acted to its detriment. At [45], the Master said that the client is entitled to rely on an estimate from his solicitor whether or not the client acts to his detriment in so relying. The client is entitled to rely for budgetary reasons. At [46], the Costs Judge referred to Mastercigars’ funding and stated that where the estimate was substantially inaccurate, it affected the credibility of the client with funders. At [47], he found that Withers failed to update the estimate or warn the client of the extent of the escalating costs and, when the invoices were challenged in August 2005, inaccurate information was provided. The giving of inaccurate information was relevant as it would affect future commercial decisions.[39]In [48] of his decision, the Costs Judge dealt with the question of Mastercigars wishing to change solicitors. The grammar seems to have gone a little awry in the first sentence of the paragraph. He then dealt with the position in August 2005 and accepted Mr Kenyon’s evidence that it was impractical to change solicitors at that stage.[40]At [49], the Costs Judge dealt with the submission from Mr Morgan QC that reliance must be relevant reliance and it was relevant to ask in what way and to what extent the Claimant had acted differently from the way he would have acted with a more accurate estimate. The Costs Judge’s response to that submission was to quote from Mr Kenyon’s witness statement when he stated that Mastercigars would either walk away from the proceedings or instruct another firm of solicitors. At [50], the Costs Judge said that he accepted Mr Kenyon’s evidence on that point. He pointed out that the estimate was given approximately eight weeks before trial and there was sufficient time to instruct other solicitors. He did not specifically refer to the alternative of Mastercigars walking away from the proceedings. My own assessment would be that that alternative was much less likely than the possibility of changing solicitors. At [51] and [52], the Costs Judge referred to a submission for Withers that when considering reliance one looked at the estimate as a whole and the final bill as a whole rather than the element of profit costs alone. He rejected that submission on the basis that the real cause of complaint in this case related to profit costs which were within the control of Withers.

The grounds of appeal as to the fact of reliance

[41]Having set out the Costs Judge’s findings in relation to reliance, I will now deal with those grounds of appeal that concern matters I have described up to this point.[42]The first relevant ground of appeal is that Withers contend that the Costs Judge did not give adequate reasons for his finding that Mastercigars had shown how it relied on the estimate. Withers also say that he continued to fail to give reasons when invited to do so after Withers had seen the draft judgment and before judgment was handed down. Further, Withers say that on the basis of the findings of fact made by the Costs Judge, he was wrong in law to conclude that Mastercigars had shown how it relied on the estimate.[43]I have set out my own summary of the Costs Judge’s findings on the question of reliance. On a fair reading of those findings it is possible to be fairly clear as to what the Costs Judge was holding. He held that Mastercigars used the estimate of 6th May 2005 to approach funders. He held that it had arranged funding by reference to the estimate. He held that if the estimate of 6th May 2005 had been at a level approaching the figures in the later bills for the relevant period then Mastercigars would have instructed other solicitors in place of Withers. Beyond these findings, in my judgment, the Master did not clearly go. Although Mr Kenyon had given evidence which referred to Mastercigars walking away from the litigation, the Costs Judge did not in terms make a finding to that effect. I compare the way in which the Costs Judge expressed himself in paragraph [50] of his judgment with the way in which Mr Kenyon expressed himself as quoted in paragraph [49] of the judgment.[44]The Costs Judge did not discuss two matters which it might have been relevant to consider. The first question is at what level of cost would the amount of costs in an estimate delivered on 6th May 2005 cause Mastercigars to change solicitors. The second question is at what date between 6th May 2005 and 7th July 2005 (the first day of the trial) would a revised estimate from Withers, perhaps reflecting the further developments which had not been predicted in the estimate of 6th May 2005, have caused Mastercigars to instruct other solicitors. However, I do not think it is right to be critical of the Costs Judge in either of these respects. Mr Kenyon gave his evidence as to what Mastercigars would have done by reference to knowing as at 6th May 2005 what he later knew about the costs involved. Mr Kenyon did not attempt to explain how Mastercigars might have responded if it had been given an estimate on the 6th May 2005 which was significantly above the actual estimate but still significantly below the later bills. Nor did Mr Kenyon give evidence as to how late he could have left the matter in the run up to the trial before changing solicitors. Both those matters could have been raised with Mr Kenyon in cross-examination, but neither were. Mr Kenyon was cross-examined about why he did not change solicitors in August 2005 but he gave an entirely plausible answer to that question and an answer which meant that the situation on the 6th May 2005 was not to be equated with the situation in August 2005.[45]For the above reasons, I reject the ground of appeal which alleges the Costs Judge’s reasons were inadequate or that he was wrong in law to conclude that Mastercigars had shown how it relied on the estimate.[46]I will next consider Withers’ ground of appeal which contends that the Costs Judge was wrong in law to conclude that it was not relevant to show that the Claimant had acted to its detriment. Withers had submitted to the Costs Judge that reliance was only relevant if Mastercigars could go so far as to show that it had relied to its detriment on the estimate.[47]Before turning to the Costs Judge’s reasons, I should refer to how this question is dealt with in earlier judgments. In Leigh v Michelin Tyre plc [2004] 1 WLR 846, Dyson LJ at [31] referred to the extent to which there had been reliance and “how” the relevant party had relied on the estimate. In my earlier judgment in the present case at [100] and [101], I attempted to set out in more detail my understanding of what was required. I held that the client did not have to go so far as to show the ingredients of an estoppel against the solicitor. One part of my reasoning was that it would often be difficult for a client to show that “he would have” acted differently but the client may be able to show “it is possible he might have approached the litigation differently” if he had been given a more accurate estimate. Thus, my formulation of what is required does not go so far as to require the client to prove on the balance of probabilities that he would have acted differently. I also pointed out at [101] that, at the end of the enquiry, the way in which the estimate should be reflected in the costs recovered was left to the good sense of the Court. Further, in Leigh v Michelin Tyre plc at [31], Dyson LJ suggested that the question as to how the client relied on the estimate should be determined “without conducting an elaborate and detailed investigation”. Accordingly, in my judgment, it is not necessary for the client to prove detriment in the sense of showing on the balance of probabilities that it would have acted in a different way, which would have turned out to be more advantageous to the client. In a case where the client satisfies the court that the inaccurate estimate deprived the client of an opportunity of acting differently, that is a relevant matter which can be assessed by the court when determining the regard which should be had to the estimate when assessing costs. Of course, if a client does prove the fact of detriment, and in particular substantial detriment, that will weigh more heavily with the court as compared with the case where the client contends that the inaccurate estimate deprived the client of an opportunity to act differently and where the matter is wholly speculative as to how the client might have acted.[48]I do not agree with all of the statements made by the Costs Judge in this case on the question of detriment. However, I do not regard his treatment of the subject of detriment as undermining his essential findings of fact as to Mastercigars’ reaction to the estimate and how Mastercigars would have acted if the estimate had been nearer to the figure in the final bills for the relevant period. Accordingly, I reject the ground of appeal which refers to the Costs Judge’s treatment of the subject of detriment.[49]I next deal with a ground of appeal which Withers put forward by way of a challenge to the Costs Judge’s allowance of a 20% margin above the amount of the estimate. Withers say that this approach leaves Mastercigars better off as compared with the case where on 6th May 2005 Withers had provided an estimate which was nearer to the final bills for the relevant period and Mastercigars had then changed solicitors as a result. It is pointed out that if that had happened Mastercigars would probably have had to pay the new solicitors a fee for the time they would take to read into the case before they would arrive at the position that Withers were in as at 6th May 2005. It seems to me that I ought to consider this ground of appeal at this stage when dealing with the topic of reliance and having dealt with the question of detriment. It is right that the Costs Judge did not refer to this point. It is also right that he did not attempt to compare the figures charged by Withers with the notional fee that a new solicitor would have charged, first, for reading into the case and, secondly, for taking the case up to the end of the fourth day of the trial (the period covered by the estimate). If the Costs Judge had been given reliable evidence on those matters and if he had carried out the suggested exercise then the results might have been of some interest and might have been helpful in deciding the ultimate question as to the sum which it was reasonable for Mastercigars to pay. However, in my judgment, the Costs Judge is not to be criticised for not undertaking the exercise. Neither party suggested to him that he should do so. Neither party put forward any evidence on which he could make findings of this kind.[50]The next ground of appeal put forward by Withers, in relation to the Costs Judge’s decision on reliance, was that he was wrong to take into account the fact that Mr Maycock of Withers had given an inaccurate explanation to Mastercigars (presumably on 9th August 2005) as to why the bills so far exceeded the estimate. The inaccurate explanation was said by Mastercigars to be relevant to the question of reliance: see paragraphs [32] and [33] of the judgment dealing with the submissions on behalf of Mastercigars. At paragraph [42] of his judgment, the Costs Judge said he took the inaccurate explanation into account. However, he did not say how he took it into account and what difference it made to his findings as to reliance. I agree with Withers that the inaccurate explanation on 9th August 2005 was not relevant to the question of reliance. However, having accepted that much, I do not see how the Costs Judge’s reference to this point in any way undermines his specific findings as to the fact and extent of reliance, to which I have already referred. The Costs Judge referred later in his decision, in particular at paragraphs [70] to [74], to the inaccurate explanation given on 9th August 2005 but in those paragraphs he was dealing with a different question as to whether Withers had explained at the hearing before him, in a satisfactory way, why there was such a difference between the estimate and the later bills. The ground of appeal to which I am currently referring complains about the irrelevance of the unsatisfactory explanation to any question of reliance, but does not separately refer to the Costs Judge’s discussion in the later paragraphs of his decision. Accordingly, whilst I accept the basic point made in this ground of appeal, I do not accept that the matter raised has any real bearing on the essential findings of fact as to reliance.[51]Withers’ next ground of appeal in relation to reliance is that the Costs Judge was wrong in law to find that the relevant reliance was on the profit costs element of the estimate rather than the estimate as a whole. Further, it is said that insofar as this finding is one of fact there was no evidence to support such a finding. It should be noted that the distinction between the profit costs element in the estimate and the estimate as a whole is also put forward as a ground of appeal when challenging the 20% margins selected by the Costs Judge. However, at this stage I am dealing only with the grounds of appeal relating to the fact of reliance. On that point, in my judgment, it was open to the Costs Judge to hold that there was reliance on the estimate and on the two parts of the estimate represented by, first, profit costs and, secondly, disbursements (principally Counsel’s fees). Thus there was no error of law or of fact in the Costs Judge expressing himself in the way he did as to reliance on the part of the estimates which related to profit costs.

The effect of reliance

[52]Having upheld the Costs Judge’s findings as to the fact of reliance on the estimate by Mastercigars and, to the extent that the matter was explored before him, his findings as to how Mastercigars relied on the estimate, it is now necessary to consider the all important question of the effect of such reliance on the assessment of the amount of costs which it was reasonable to expect Mastercigars to pay.[53]Before considering the Costs Judge’s detailed reasoning and the criticisms of it, it may help if I attempt to set out a summary of the legal process which is involved. This summary is based on the reasoning of Dyson LJ in Leigh v Michelin Tyre plc (a case dealing with an inter partes assessment) as applied to a case of a solicitor and own client assessment. My summary is not intended to say anything different to that which was said in that case.[54]In my judgment, the legal process involved in a case where a client contends that its reliance on an estimate should be taken into account in determining the figure which it is reasonable for the client to pay is as follows. The court should determine whether the client did rely on the estimate. The court should determine how the client relied on the estimate. The court should try to determine the above without conducting an elaborate and detailed investigation. The court should decide whether the costs claimed should be reduced by reason of its findings as to reliance and, if so, in what way and by how much. Whether there should be a reduction, and if so to what extent, is a matter of judgment. Specific deductions can be made from the costs otherwise recoverable to reflect the impact which an erroneous and uncorrected estimate had on the conduct of the client. Such an approach requires the court to form an assessment of the impact of the estimate on the conduct of the client. The court should consider the deductions which are needed in order to do justice between the parties. It is not the proper function of the court to punish the solicitor for providing a wrong estimate or for failing to keep it up to date as events unfolded. In terms of the sequence of the decisions to be made by the court, it has been suggested that the court should determine whether, and if so how, it will reflect the estimate in the detailed assessment before carrying out the detailed assessment. The suggestion as to the sequence of decision making may not always be appropriate. The suggestion is put forward as practical guidance rather than as a legal imperative. The ultimate question is as to the sum which it is reasonable for the client to pay, having regard to the estimate and any other relevant matter.[55]In view of the decision of the Costs Judge in this case to limit the recovery of costs to the amount of the estimate plus a margin of 20%, it seems to be necessary to say a further word (in addition to the discussion in my earlier judgment) on an approach which involves adding a margin (usually expressed as a percentage) to the estimate. As Master Simons pointed out in his decision at [84]:
“This has been an approach that has been adopted by Costs Judges over many years to enable them to answer the question in circumstances such as this, “what in all the circumstances is it reasonable for the client to be expected to pay?”
[56]My own understanding, based on my discussions with my assessors, when I dealt with the earlier appeals in this case, and again with my assessors in connection with the present appeal, is that the margin approach is very much favoured by Costs Judges. Costs Judges have tended to adopt the margin approach, certainly ever since the decision in Wong v Vizards [1997] 2 Costs LR 46. As I attempted to explain in my earlier judgment, Wong v Vizards does not say that the margin approach is the correct approach as a matter of legal principle. Indeed, on the facts of Wong v Vizards, that case does not provide very much support for the adoption of a margin approach. I am happy to find that I am not alone in reacting in this way to the decision in Wong v Vizards. I refer to the discussion of the point in Reynolds v Stone Rowe Brewer [2008] EWHC 497 (QB) at [72], per Tugendhat J.[57]Of course, the adoption of a margin approach greatly simplifies the steps which a Costs Judge needs to take when carrying out a detailed assessment of a bill, which has been preceded by a lower estimate. When I considered my earlier judgment, and when I reviewed the decision of Master Simons in this case, I very carefully considered whether I was able to support the adoption of a margin approach in many, if not all, cases. The incentive to do so was considerable. If the margin approach became the permissible conventional approach then the costs of the detailed assessment could be reduced and the outcome would be more predictable. However, it is obvious, at least to me, that the adoption of a margin approach as the conventional approach in the majority of cases pays scant, if any, attention to the legal process which I attempted to describe in my earlier judgment and have now restated in paragraph 54 above. Conversely, I have not previously said, and do not now say, that a conclusion by a court, having followed the appropriate legal process, to express itself by reference to a margin, doing the best it can to quantify the costs payable, can never be right. It may be that the court is constrained to express itself by the use of a margin, because no other method is available which better expresses the result of the legal process which I have described.

The Costs Judge’s findings as to the effect of reliance

[58]I will now look in more detail at the reasoning of Master Simons in this case and express my comments on it and then consider, in particular, the grounds of appeal and cross-appeal. The Costs Judge dealt with the effect of reliance in paragraphs 53 to 87 of his judgment.[59]At [53], the Costs Judge identified the question as being “how if at all to reflect the estimate in the detailed assessment”. At [54] he identified five possible ways forward, as follows:(i) cap Withers’ costs for the relevant period at the amount of the estimate;(ii) allow a percentage margin;(iii) allow specific items over and above the estimate;(iv) allow a lump sum;(v) do nothing on the basis that the Defendant has given a satisfactory explanation for the difference between the costs billed and the estimate.[60]The first four of the options identified by the Costs Judge involved the estimate having a limiting effect on the costs recovered. With the fifth option, the estimate did not have any limiting effect. This list omits an important sixth option. The sixth option would involve forming a preliminary view as to what sums were reasonable costs reasonably incurred and then making specific deductions where justice so required. That sixth option would appear to give effect to the way the matter was described by Dyson LJ in Leigh v Michelin Tyre Plc at [32]. Such an approach might be called a “top down” approach whereas the second, third and fourth of the options identified by the Costs Judge might be called a “bottom up” approach.[61]Master Simons rejected the first option of capping the costs at the amount of the estimate. In my judgment he was plainly right to do so. The estimate was not a fixed price for Withers’ services and Mastercigars did not rely on it as a fixed price.[62]The Costs Judge then considered the fifth option whereby the estimate did not have any limiting effect on the costs recovered because there was a satisfactory explanation for the difference between the costs billed and the estimate. In paragraphs 64 to 75 of his decision, he considered at some length whether there was a satisfactory explanation. He held that a satisfactory explanation had not been given and he accordingly rejected the fifth option.[63]I will turn in a moment to the Costs Judge’s detailed reasons for saying that a satisfactory explanation had not been provided for the differences between the estimate and the bills. However, I have a preliminary difficulty with the Costs Judge’s approach to this question. As will be seen, he was setting out to determine the effect which his findings of fact as to reliance should have on the sum which it was reasonable for the client to pay. In my judgment, the matters referred to in the fifth option are not relevant to that. The matters raised in the fifth option were appropriate when answering a different question, namely, whether a comparison between the estimate and the bill meant that items in the bill required an explanation and there was a persuasive burden on the solicitor to provide a satisfactory explanation for the differences between the estimate and the bill. That question would arise at a time when the court was examining individual items in the bill and assessing their reasonableness. If, in accordance with the suggestion of Dyson LJ in Leigh at [33], the court was to decide how to reflect its findings as to reliance on the estimate in the assessment before considering whether elements of the costs were unreasonably incurred or an unreasonable amount, the court had, for practical purposes, to take into account the possibility that on the subsequent detailed assessment of individual items the court might take the view that the items were reasonable an amount and were reasonably incurred. This was the approach adopted by Tugendhat J in Reynolds at [71]. The question of whether there was a satisfactory explanation for the difference between the estimate and the bill has some similarity to, but is not to be confused with, a different question which might arise in the context of reliance. If a client is given an estimate and then subsequently the client is aware that the solicitor is doing further work which has not been included in the estimate, can the client be said to be relying on the estimate in relation to that further work or should the client realise that an additional charge will be made for the further work? That question, as to reliance, had been a live question in this case. The matters which I discussed in [119] to [126] of my earlier judgment involved a contention by Withers that Mastercigars could not have been relying on the estimate in relation to those matters, because Mastercigars must have appreciated that those matters involved additional work beyond the estimate, which work would have to be paid for. Those matters were the subject of evidence before Master Rogers but were not explored in the cross-examination of Mr Kenyon before Master Simons.[64]With that introduction to the question of “a satisfactory explanation”, I now turn to Master Simons’ treatment of that subject at [64] to [75] of his decision. As I have already explained, the Costs Judge had before him a statement of reasons, prepared by Withers, for the differences between the estimate and the bills. That statement had been served pursuant to an order of 28th December 2007. On 18th April 2008, the Costs Judge had ordered that Mastercigars was to be at liberty to respond to this statement, if so advised. Mastercigars did not serve a response.[65]Paragraph 6 of Withers’ statement of reasons said that the enclosures to the statement clarified, on an item by item basis, the reason why the bills exceeded the estimate. It was said that this was partly because work was done which was not included in the estimate and partly because work which had been foreseen had taken longer and cost more. The enclosures included the two invoices numbered 139405 and 140598 marked up to show the differences. The Costs Judge was very critical of the statement of reasons with its enclosures. He stated that the documents did not show how or why each item in the estimate was exceeded. He said a satisfactory explanation must identify which costs were costs that were covered by the estimate and which costs were not. If the costs exceeded those in the estimate the explanation should state why this was so. He referred to the solicitor’s time for working on witness statements. The estimate had provided for 9 hours whereas the bill for June alone provided for 29 hours 7 minutes. The Costs Judge suggested that no explanation was given for the difference. He added that for there to be a satisfactory explanation, it had to be explained why the estimate was not updated or why the client was not warned that the hours being spent exceeded the estimated time. The Costs Judge also referred to the explanation given by Mr Maycock to Mastercigars on 9th August 2005. That explanation was unreliable and was different from the explanation given in the statement of reasons.[66]Insofar as it was relevant for the Costs Judge to examine the statement of reasons when deciding how to reflect his findings of fact as to reliance in the detailed assessment, some of his criticisms are justified but some, in my assessment, went too far.[67]The statement of reasons did explain certain things. For example, the statement identified costs on work that had not been included in the estimate. That part of the statement therefore did show that additional work was being claimed at an additional cost. It is right that the statement did not go into much detail in relation to such an item. Further, the statement did not deal with any challenge that might have been put forward by Mastercigars to the effect that the item ought to have been foreseen and ought to have been in the estimate in the first place. Similarly, the statement included many examples of a predicted item of work taking a longer period and costing more than the estimate had foreseen. Again, the statement did not give particulars of all that was involved and did not meet any challenge that Mastercigars might put forward that a longer period should have been estimated in the first place. The Costs Judge was too critical in that he rejected the statement of reasons as any kind of attempt at an explanation.[68]The Costs Judge was factually correct when he stated that the statement of reasons was different from the statement made by Mr Maycock on 9th August 2005. However, that comment was of limited relevance. The comment may have justified the Costs Judge in examining critically the statement of reasons but did not justify the Costs Judge in rejecting any part of the statement of reasons just because it was different from an earlier erroneous explanation.[69]One response to these passages in the decision would be to say that, whether they are right or wrong, they have nothing to do with the question the Costs Judge was addressing, as to how he should reflect his findings as to reliance in the assessment. Another response would be to say that the Costs Judge was plainly influenced by this matter as to the absence of a satisfactory explanation when deciding on the reliance question. After all, the Costs Judge dealt with the matter at considerable length.[70]One curiosity in this case is that although Withers relied on the suggested additional work when the matter was heard by Master Rogers and although Withers stressed this additional work when the matter was argued before me on the earlier appeals (see paragraphs [121] to [126] of my earlier judgment), Mr Kenyon was not cross-examined on these matters before Master Simons. Those matters would seem to be very relevant to the question of reliance: could Mastercigars be said to be relying on the estimate in relation to work which Mastercigars would know was being carried out and which was not provided for in the estimate? The hearing before Master Simons was supposed to deal with the question of reliance and these questions were simply not raised by Withers. Further, there do not appear to have been submissions made to Master Simons about those matters. Nonetheless, when Master Simons decided what way to reflect his findings as to reliance in the detailed assessment, he added a margin of 20% which was to take into account “the additional interlocutory applications and some of the factors that were referred to in paragraphs 121 to 125 of the judgment of Morgan J”: see paragraph [85] of his decision. Accordingly, the Costs Judge regarded some at least of those suggested additional matters as being items which were not provided for in the original estimate and for which an additional charge could properly be made.

The grounds of appeal and cross-appeal as to the effect of reliance

[71]In their grounds of appeal, Withers complain that the Costs Judge dealt with this question of a satisfactory explanation in a way which disclosed a serious procedural irregularity. Withers submit that they were not given a proper opportunity to make submissions on the question as to whether they had given a satisfactory explanation for the differences between the estimate and the bills.[72]Withers also submit that the question of a satisfactory explanation went to the estimate’s role as a yardstick, when assessing the reasonableness of individual charges rather than to the reliance question. I agree with Withers’ submission in this respect. I have already stated that if the Costs Judge decides to follow the suggestion of Dyson LJ in Leigh v Michelin Tyre plc at [33] to determine how to reflect reliance in the assessment, before looking at the reasonableness of the individual charges, then the use of the estimate as a yardstick and the need for a satisfactory explanation does not bear on that question.[73]On the question of alleged procedural unfairness, both parties made submissions based on the transcript of the directions hearing on 18th April 2008 and the transcript of the substantive hearing on 23rd and 24th June 2008. My attention was also drawn to the e-mail from Mr Morgan QC on 25th June 2008, to which I have referred. Both sides submitted that a fair reading of these transcripts favoured that side and not the opposition. I have read the entirety of the transcripts. It is not appropriate to cite particular passages from the transcripts in this judgment. The Costs Judge considered with the parties in a large number of places during the hearing what precisely was the process on which everyone was engaged. I cannot find any very clear statement to the effect that the statement of reasons which had provided by Withers before the hearing in June 2008 would not be considered to be relevant at that hearing. Conversely, there does appear to be a clear statement that the Costs Judge would, in the first instance, deal with the question of reliance and there would then be a later stage when a detailed assessment was to be carried out. As matters turned out, that is what the Master has purported to do in his decision. He has decided questions as to how Mastercigars relied and the effect of that reliance and he has then held how those findings are to be reflected in the costs recovered by Withers. He has held that their profit costs should be limited to those shown in the estimate plus 20%. It is not wholly clear from the decision whether he was saying that the profit costs plus 20%:(1) were a cap on Withers’ entitlement; or(2) represented what Withers were entitled to, without there being any further detailed assessment. As I understand what happened at the hearing on 14th November 2008, he adopted the second of these approaches.[74]In the end, I do not think that the question of procedural fairness needs to be resolved for the purpose of dealing with this appeal. On the material before the Costs Judge, he knew that Withers were contending that they had done additional work which was not in the estimate. Indeed, as I have pointed out, he said that he took some of that additional work into account when selecting the margin of 20%. I also have concluded that he was more critical than he ought to have been about the statement of reasons. However, my primary conclusion on his treatment of the question of a satisfactory explanation was that that was not something that was relevant to what he set out to decide, which was: how to reflect reliance on the estimate in the assessment?[75]Having dealt with the first option and the fifth option, the Costs Judge then discussed whether he should reflect reliance on the estimate in the assessment by allowing a margin or by allowing specific items above the estimate or by allowing a lump sum in addition to the estimate. Withers had submitted that it was not legally permissible for him to hold that reliance should be reflected by imposing a cap by reference to a margin above the estimate. They submitted that my earlier judgment had so held. The Costs Judge rejected that particular submission. He was right to do so. In my earlier judgment I had held in terms that as a matter of legal principle, it was not possible to say, before making relevant findings of fact, that Withers’ recovery would be capped by reference to a margin or that Withers were prima facie entitled to the addition of a margin: see, for example, [118] in my earlier judgment. None of that precludes a particular Costs Judge having made specific findings on reliance deciding that the fairest way to reflect those findings was by reference to a margin above the estimate.[76]The Costs Judge rejected the third and fourth options, that is either allowing specific items above the estimate or adding a lump sum to the estimate, on the grounds that he was constrained from adopting those options by the suggestion made by Dyson LJ in Leigh v Michelin Tyre plc at [33] that a Costs Judge should determine how to reflect the estimate in the detailed assessment before going on to decide whether for other reasons there were elements of the costs claimed which were unreasonably incurred or unreasonable an amount. I do not read Dyson LJ as going so far as to say that one was constrained in the way suggested. Dyson LJ made a practical suggestion. If the practical suggestion turned out to be inappropriate in a particular case because the court was not thereby able to decide what justice required (see Dyson LJ at [32]) then there was no legal constraint on a Costs Judge deciding on a different way of proceeding. In my earlier judgment at [127], I had not suggested that the Costs Judge was constrained in that way. I had repeated the suggestion of Dyson LJ. I said that so far as the yardstick question is concerned “it may not be necessary to look again at the facts relevant to paragraphs 8(b) or 8(f) or, for that matter, the facts referred to in paragraph 8(a) of the grounds of appeal before proceeding to a detailed assessment” (emphasis added). I was careful to use the words “may not”. The Costs Judge changed the sense of my remark in paragraph [77] of his judgment when he suggested I had held that “it is not necessary to look again”.[77]The Costs Judge’s ruling out of the third and fourth options may not matter if the way in which he selected a margin to add to the estimate was free from challenge. I therefore turn to the challenge which is made to his ultimate decision on the margin question. At [84] and [85] of his decision, he held:
“Given the guidance from the Court of Appeal that I have to reflect the costs estimate in the detailed assessment before going on to decide whether for other reasons there were elements of costs claimed which were unreasonably incurred or were unreasonable in amount, in my judgment the only practical method in this particular case of reflecting the cost estimate in the detailed assessment is by way of a percentage margin. This has been an approach that has been adopted by Costs Judges over many years to enable them to answer the question in circumstances such as this, “what in all the circumstances is it reasonable for the client to be expected to pay?”
I consider an appropriate margin in this case to be 20%. This takes into account the acknowledgment by Mr Kenyon that there must be some slippage from the estimate, the additional interlocutory applications and some of the factors that were referred to in paragraphs 121 to 125 of the judgment of Morgan J.”[78]Withers challenge this approach on a number of grounds. First, they say that the Costs Judge gave inadequate reasons for his determination of a 20% margin and, specifically, failed to give further and better reasons when invited to do so following the release of the draft judgment. It will be remembered that when they saw the draft judgment, Withers had asked for further and better reasons. In relation to this part of the decision, they asked for better reasons as to the value attributed to the different ingredients referred to. In relation to the factors in paragraphs 121 to 125 of my earlier judgment, Withers asked the Costs Judge to say which of the factors were taken into account, and which were not.[79]In reacting to Withers assertion that the reasons were inadequate, I would not wish to impose too heavy a burden on a Costs Judge deciding a question of this kind. I have attempted to describe the legal process which is involved. Dyson LJ has suggested that some parts, at least, of the process should not involve an elaborate and detailed investigation. Further, it has been suggested that one reflects the fact of reliance in the assessment to the extent that justice requires. I have also held that for want of a better alternative, it may be appropriate to identify a just result by choice of an appropriate margin.[80]Notwithstanding the reasons why I should be cautious about criticising [85] of the decision, my conclusion is that the decision is inadequate as a statement of reasons for the selection of a 20% margin. The figure of 20% has all the appearance of being arbitrary rather than calculated. The Costs Judge plainly felt that the selection of the margin should be influenced by some of the factors in paragraphs [121] to [125] of my earlier judgment. If so, it was necessary, in order to give proper reasons for the conclusion, for the Costs Judge to identify which factors could be taken into account and which should be left out of account. In the case of these factors, it was also necessary for the Master to give brief reasons as to why a factor was taken into account, or left out, as the case may be.[81]At the hearing of these appeals, I was shown various calculations relating to the costs claimed for the matters referred to in paragraphs [121] to [125] of my judgment. Following the hearing, both parties made a series of further submissions which included submissions on these figures. It is simply not possible to tell from the Costs Judge’s reasons how he arrived at the figure of 20% and what contribution to that 20% was made by which of the matters in question. On the information before me, it seems very difficult to justify a margin of 20% unless one disallowed the majority of those matters and, in that event, it was incumbent on the Costs Judge to say which matters he disallowed, with his reasons for that conclusion.[82]Withers also contend that the Cost Judge should not have taken account of the interlocutory applications and the relevant facts without considering the evidence of, and hearing submissions on, the quantum of costs involved in such work. I have already referred to the curiosity that these matters were investigated in detail before Master Rogers but were not investigated at all before Master Simons. Mastercigars argued before me that Withers must be taken to have abandoned their case in those respects. However, Master Simons did not regard Withers as having abandoned their case in those respects and there is no cross-appeal against Master Simons’ decision to that effect. Therefore I proceed, as did the Costs Judge, on the basis that Withers had a continuing case that they should be paid sums in addition to the estimate because of the costs incurred in the interlocutory application and the other relevant matters. If that is so then there is force in Withers’ criticism that the Costs Judge should not have gone on to make an ultimate decision of a 20% margin by reference to those matters when he did not have the evidence before him and had not heard submissions on those matters. In effect, this criticism feeds into the earlier criticism that the Master failed to give anything approaching adequate reasons for his treatment of this point.[83]Withers also criticised the Costs Judge’s decision because he did not take into account matters over and above the ones he specifically mentioned in [85] of his decision. I take it that what Withers are referring to are the many differences between the estimate and the bill put forward in the statement of reasons. The Costs Judge had found the statement of reasons to be unsatisfactory and, on that basis, perhaps it was consistent for him to leave the statement of reasons out of account when selecting the appropriate margin. However, I have already expressed the view that the Costs Judge was over critical about the statement of reasons and it was an overreaction for him to ignore it altogether.[84]Withers also contend that the Costs Judge was wrong to apply his margin to profit costs alone rather than to the estimate as a whole. If that had been the only point, I do not think that I could have said that his approach was wrong in law in that respect.[85]Finally, Withers say that the adoption of a margin of 20% in this case was simply arbitrary. I have already expressed the view that the choice of the margin is not supported by adequate reasons and has the appearance of being arbitrary.[86]In its Respondent’s Notice, Mastercigars contends that the Costs Judge ought not to have allowed any margin above the costs estimate alternatively his allowance of 20% was excessive. Mastercigars argued that 20% was generous to Withers and the Court ought to reduce the amount of the margin or even remove it altogether. Based on my earlier findings I am not able to accept that contention. The Costs Judge was certainly not wrong in law to allow something above the amount of the estimate. In any event, I do not think that I need to consider the cross appeal. As will be seen, I will set aside the Costs Judge’s decision as to a 20% margin and the order of 14th November 2008 which gave effect to that decision. I will later give directions which will lead to the ultimate issue as to the effect of reliance being decided by myself. That will mean that the parties are free to make submissions to me as to the correct ultimate answer to arrive at.

The result

[87]I have now considered all of the various grounds of challenge to the Costs Judge’s decision of 11th July 2008. I conclude that his decision should not stand as the correct way of reflecting his findings of fact as to reliance on the detailed assessment.[88]As I have explained, on 14th November 2008, Master Simons completed his detailed assessment of the two relevant bills. He gave effect to his decision of 11th July 2008 by awarding to Withers profit costs in a figure 20% above the profit costs in the estimate of 6th May 2005. In view of my conclusions on Withers appeal against the decision of 11th July 2008, it follows that the order of 14th November 2008 which, inter alia, gives effect to that decision should now be set aside.[89]There is there one further point which has been raised. When the Costs Judge carried out his assessment on 14th November 2008, he was faced with a difficulty that the earlier part of the period covered by the estimate of 6th May 2005 was the subject of a bill that was not itself subject to detailed assessment. Withers proposed a particular method of dealing with that problem and the Costs Judge accepted their suggestion. Withers do not now appeal on that point and Mastercigars do not challenge the method used. Accordingly, I will not comment on that method nor will I indicate whether I would myself be prepared to adopt the same method. However, Mastercigars does raise a point about the detailed way in which the method was applied. Its point is that the period covered by the estimate began on the 1st May 2005 and not on the 6th May 2005. I have considered that point and in case it later becomes material, I can indicate my conclusion. My interpretation of the estimate is that it relates to the period commencing on 1st May 2005. Beyond that indication, it is not necessary to go. Mastercigars has raised points by way of intended cross appeal and wishes to contend that when the Costs Judge referred to the period beginning on 6th May 2005 in his decision of 11th July 2008 he made a slip which he should have corrected on 14th November 2008 under the slip rule. As I have set aside the order of 14th November 2008 and as I have expressed my own views which differ from Master Simons’ views in his decisions of 11th July 2008 and 14th November 2008, it not necessary for me to make any further order or give any further relief.

What should now be done?

[90]The final question is what should now be done to decide this dispute between the parties about the effect of the estimate. In my judgment, it is not sufficient to remit the matter to Master Simons for him to set out his reasoning in those respects where his earlier decision has been criticised for lack of reasons. This is because I have upheld other grounds of appeal put forward by Withers in addition to the ground of appeal based on inadequacy of reasons. I also do not think it is appropriate to remit the matter to Master Simons to decide it afresh. In their Appellant’s Notice, Withers have asked the Court on this appeal itself to decide the question as to the effect of the estimate on the detailed assessment of the two relevant bills. When I put that suggestion to Counsel for Mastercigars at the hearing, he did not raise any jurisdictional or other impediment to the Court proceeding that way.[91]On this appeal, I have had the considerable advantage of sitting with assessors, one of whom is the Senior Costs Judge. Under CPR rule 35.15(3)(a) I am able to ask an assessor to prepare a report for the Court on any matter at issue in the proceedings. The course which I will therefore adopt is to ask Master Hurst, the Senior Costs Judge, to prepare a report which will enable the Court to decide the final outcome of the questions which are outstanding.[92]The notes to rule 35.15 in Civil Procedure give guidance as to the involvement of the parties in drafting the questions to be put to the assessor and as to the involvement of the parties following the assessor’s report to the Court. In view of that guidance, I will not myself unilaterally draft the questions which will be the subject of the report. The parties should now seek to agree on the appropriate questions. Similarly, the parties should address the directions which are appropriate to enable the Senior Costs Judge to prepare his report and to enable me to determine the matter finally, following receipt of that report. My own wish is that the parties should bear in mind the desirability of acting proportionately in reaching a final decision on the outstanding matters so as to keep the costs and time involved within proper bounds. If the parties do agree on the appropriate questions and the appropriate directions, then I will review their agreement so that the course which will be adopted is a proportionate one. If the parties do not agree those matters, then I will settle them after hearing brief argument.

Cited in 9 later judgments