Provide clients with accurate costs estimates for administering estates, or risk a challenge from disgruntled beneficiaries, warns Kris Kilsby.
Solicitors must ensure that accurate estimates for administering estates are provided and that beneficiaries are kept informed of the costs being incurred. Failure to do so may leave solicitors open to challenges from unhappy beneficiaries and a reduction in costs recovered.
The decision of Costs Judge Brown in Kenig v Thomson Snell & Passmore LLP  Lexis Citation 357 is an important one for all solicitors who practise in the administration of estates, as it may have opened the door for beneficiaries to bring applications under s 71 of the Solicitors Act 1974 (SA 1974).
The claimant and his sister were the sole beneficiaries of their late mother’s estate in this matter. The defendant solicitors were retained by the sole executor of the will and the deceased’s brother, who played no active part in the application.
There was a formal engagement letter between the executor and the defendant solicitors which set out the likely costs to be incurred. Copies of this engagement letter were sent to both of the beneficiaries. The original costs estimate for the fees was between £10,000–£15,000 plus VAT and expenses. However, the total invoices raised by the defendant solicitors amounted to over £54,000 plus VAT and expenses. It should be noted that the gross value of the estate amounted to almost £3m (£2,881,000). The claimant sought to challenge the defendant solicitors’ bills and sought an assessment under SA 1974. The claim form was issued eight months after the last invoice was delivered.
Furthermore, the claimant sought to rely on s 70, SA 1974, which was in fact the incorrect route to seek an assessment, because s 70 relates to applications for assessment by those chargeable with the bill. Given the contractual relationship only existed between the executor and the defendant solicitors, it could not be said that the claimant was the individual liable to be charged. Instead, the claim form should have intended to rely upon s 71(3), SA 1974 which relates to a ‘person interested in any property out of which the trustee, executor or administrator has paid, or is entitled to pay, the bill’. Fortunately, this mistake was rectified and agreed between the parties and the hearing proceeded.
Costs Judge Brown considered the relevant sections and tests in SA 1974 to be applied when considering whether to grant an application for an assessment.
The first test was to address the question: are the invoices raised interim statute bills? SA 1974 requires that the bills are capable of assessment in the first place. If the bills are to be considered simply as requests for payments on account, then the time periods in effect reset; the application of discretion is therefore removed, and an assessment can be awarded. Having considered the limited information contained within the invoices, such as the short narratives and brief timesheet, in addition to considering the likely knowledge held by the executor, Costs Judge Brown found that the invoices raised were interim statute bills capable of assessment.
The next consideration was to find whether there was a discretion afforded to order an assessment of costs, or whether special circumstances were required in respect of the exercise of that discretion. Consideration was made of the estimate that was originally given and the correspondence that followed, indicating that the estimate was to be exceeded. Costs Judge Brown noted that very little information was provided in respect of the additional sums that would be incurred or in excess of the estimate. In these circumstances where the costs claimed were four to five times larger than the original estimate, it was considered that this warranted special circumstances to order an assessment and for an explanation to be provided. An argument was put forward by the defendant solicitors that any assessment would in effect be rendered useless due to the file being privileged between the defendant solicitors and the executor. This point was swiftly dealt with and dismissed as not posing any possible barrier to an assessment.
Costs Judge Brown then turned to the application of para  in Tim Martin Interiors Ltd v Akin Gump LLP  EWCA Civ 1574,  All ER (D) 02 (Jan). The decision of the Court of Appeal, in effect, placed a restriction on the extent of the challenges that can be brought by a third party. Such an approach to assessment was referred to as a ‘blue pencil approach’ and in effect limited the challenges that can be brought to those which would have been available on a solicitor/own client assessment under s 70, SA 1974. However, Costs Judge Brown considered that Tim Martin Interiors should be distinguished when applications are brought under s 71(3), SA 1974. Part of the reasoning that underpinned this distinction was a historic review of the origins of s 71, in addition to considering the real-world scenario of a solicitor appointed as executor instructing their own firm to act on behalf of the administration of the estate. In these circumstances, it was considered that such a restriction should not be placed on the beneficiaries from being able to have the bills assessed.
A final argument raised by the defendant to block the request for an assessment was the delay by the claimant in making the application. The judge found that the delay, while a factor to consider when exercising their discretion, was not a significant factor and had not been prejudiced by such a delay.
Having given consideration to all of the issues above, Costs Judge Brown found that there were special circumstances in this case to justify an assessment of the bills. When reaching this conclusion, he confirmed that the ‘triggering event’ that starts the stopwatch is the date of service of bills on the executor, not on the beneficiaries. While this weighed against the claimant in this matter, when all the circumstances were considered, including ‘serious concerns as to substantial overcharging’, an assessment of all the bills raised was ordered.
Following this decision, solicitors acting as executors and instructing their own firms cannot simply rely upon the exemption previously afforded to them by Tim Martin Interiors to approve their own costs. Instead, it will be necessary to ensure that accurate estimates for administering estates are provided and that, as far as possible, the beneficiaries are kept informed of the costs being incurred. Failure to do so may leave you open to challenges from disgruntled beneficiaries and, ultimately, a reduction in costs recovered.
Kris Kilsby is a council member of the Association of Costs Lawyers (www.associationofcostslawyers.co.uk) & a costs lawyer at Paramount Legal Costs (www.paramountlegalcosts.co.uk).
This article first appeared in the New Law Journal on 12 May 2023