Significant costs estimate failure causes detailed assessment of £4m of legal costs

Master Rowley, a costs judge sitting at the Senior Courts Costs Office, has ordered the detailed assessment of bills worth £4.2m after finding that the estimates provided by City law firm Dechert were so different from what was spent that they justified detailed examination. Master Rowley’s decision came in the high-profile dispute between Dechert and its former client Eurasian Natural Resources Corporation (ENRC). Judgment Here.

Dechert’s bills were rendered between one and 12 months before the application, meaning that, under section 70(3) of the Solicitors Act 1974, ‘special circumstances’ had to exist to justify an assessment. Without such circumstances, the Claimant was effectively time-barred from challenging the fees. The usual deadline is three months for fee to be challenged.

Dechert was called in by ENRC to handle an investigation into allegations by a whistleblower. Dechert billed more than £16.3m over two years before the retainer was terminated. ENRC submitted that they were the victims of significant overcharging and applied for a detailed assessment.

ENRC cited seven factors that justified a detailed assessment. Of those, the judge found that all but one of them amounted to special circumstances, therefore justifying a detailed assessment.

In particular, he said, “it is clear from the beginning of the retainer through to the end that the estimates were consistently below the costs that were being incurred at the time”.

He described the assumptions made in drawing up the original estimate as “wholly unrealistic” given the work required. Further, he stated: “Despite the estimates being updated periodically, they have not come close to mirroring the actuality and they are deficient in themselves.”

Examples of factors given by the Claimant as special circumstance to justify assessment were:

  • Dechert’s failure to give an initial costs estimate and adequate subsequent costs estimates;
  • The impossibility of ENRC challenging Dechert’s bills during the life of the retainer;
  • Specific billing irregularities, and;
  • Dechert’s attempts to avoid scrutiny of its charges.

This is a judgment which has particular significance for commercial law firms, and highlights the importance of regular and correct billing information being communicated to the client. Of particular interest is the importance put on continuing costs estimates and costs updates throughout the life of a matter, to ensure that the client has no argument that they were not aware of the level of costs being incurred. Dechert’s costs will now be subject to a detailed assessment, meaning that their full file of papers will be scrutinised by the costs judge.

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