Court overturns decision giving solicitors contractual entitlement to indemnity costs

A judge has struck down a clause in a law firm’s retainer that required the client to pay costs on the indemnity basis if she failed to pay her invoice in time.

Mr Recorder Cohen QC, sitting in Central London County Court, ruled that the provision contravened the principles of good faith.

South-west law firm Ashfords acted for Carmen Chevalier-Firescu on an employment law matter, proceedings which she did not consider to have been “satisfactorily conducted”, the judge noted.

Ashfords billed her £6,779, which she did not pay. It pursued a claim on the small claims track and District Judge Worthington – “who it is right to observe was critical in a number of respects, some of which he found to be fundamental, of the quality of service of the claimant’s solicitors” – awarded the firm £3,849.

The retainer provided: “We may charge you an administration fee of £75 plus VAT and our legal costs on an indemnity basis for any overdue invoices which are referred to our Asset Recovery Department.”

The firm argued that this overrode the costs provision of the small claims track in rule 27.14 so that the district judge was obliged to order costs on an indemnity basis. He did so, and assessed them at £3,080, having reduced the sum claimed from £3,880. Ms Chevalier-Firescu appealed.

The recorder decided that the clause has “an effect which is unusual, perhaps even abnormal”. He explained: “What it does is to impose significant obligations on clients, especially when dealing with matters that are not large in scale – both to pay legal costs of proceedings when they would not be required to do so and for those costs to be assessed on a basis which the court would not use in the absence of unreasonable behaviour.

“The unusual or abnormal effect is well illustrated where disputes arise as to the bill, as did they in this case, and the court found in favour of the client to the degree that it felt that a substantial reduction was necessary in the solicitor’s bill.”

Mr Recorder Cohen noted that the clause had not been highlighted in the client-care documents, which was particularly relevant given that this was an “ordinary” client, rather than a large commercial client.

He said he had “no hesitation” in finding that the clause caused “an imbalance between the parties”.

He went on: “It significantly penalised the solicitor’s clients in the event of default. It did so without attention being drawn to the clause in several pages of detailed terms, or in the key terms, or other explanation. In my judgment, therefore, it contravened the principles of good faith.”

Mr Loveday appeared on behalf of the appellant, Mr Griffiths on behalf of the respondent.

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Costs News
Published date
24 Feb 2021

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