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	England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Harrison v Eversheds Llp [2017] EWHC 2594 (QB) (24 October 2017) URL: http://www.bailii.org/ew/cases/EWHC/QB/2017/2594.html Cite as: [2017] EWHC 2594 (QB)

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IN THE HIGH COURT JUSTICE
ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE
Master Rowley Costs Judge
Case number: JR1404982
Appeal ref: QB/2017/0010

		Royal Courts of Justice Strand, London, WC2A 2LL
		24/10/2017

THE HONOURABLE MRS JUSTICE SLADE DBE :

1. Mark Andrew Harrison ('the Claimant') appeals from the Order of Master Rowley, Costs Judge, made on 11 November 2016 on a preliminary issue on the detailed assessment, pursuant to the Solicitors Act 1974 Section 70, of various invoices tendered by his solicitors, Eversheds LLP ('the Defendant'). The preliminary issue was that set out in point 2 of the Claimant's Points of Dispute challenging the Defendant's invoices. The Claimant contended that the costs payable by him should be limited on the basis of estimates of costs given to him by the Defendant. The estimates were considerably lower than the costs sought.
2. The Claimant had instructed the Defendant in proceedings against Lord Laidlaw arising from a property dispute. They settled part way through the trial. The total costs invoiced by the Defendant solicitors to their client, the Claimant, were by then £1,602,436.66 net of VAT comprising £863,283.72 profit costs and £739,152.94 disbursements.
3. The costs claimed were about 4.8 times an estimate net of VAT of £162,711 profit costs plus £139,138 disbursements given by the Defendant to the Claimant on 2 October 2012 ('the First estimate'). The estimate included unbilled costs to date but not billed costs to date which totalled £31,253.30 net of VAT comprising £25,000 profit costs and £6,253.30 disbursements. Thus the overall First estimate was for £333,102.30 made up of £187,711 profit costs and £145,391.30 disbursements.
4. On 7 February 2013 the Defendant provided an Allocation Questionnaire which showed the Defendant's anticipated total costs to be £548,054.13 made up of £336,811.80 profit costs and £211,242.33 disbursements ('the Second estimate'). The actual costs were therefore about 2.9 times the February 2013 estimate.
5. In a reserved decision on 11 November 2016 Master Rowley made the following Order:

"(1) The Defendant's profit costs (at normal hourly rates) are limited to a maximum of £650,000 plus VAT.

(2) The disbursements, including counsel's fees, are not limited by this decision."

6. On 7 March 2017 Mr Justice Langstaff gave permission to appeal on the following grounds:

"(1) The costs judge erred in taking the Second estimate as the starting point for what costs could be recovered;

(2) Having taken the Second estimate as his starting point the costs judge erred in holding that it was reasonable for the Defendant to recover profit costs of up to double the amount stated in that estimate (subject to the impact of the CFA); and

(3) The costs judge should have limited the recovery of disbursements with reference to the first alternatively the second estimate, as well as profit costs."

7. At the hearing of the appeal before me on 18 May 2017 Mr Marven appeared for the Claimant and Mr Benjamin Williams QC for the Defendant. I sat with Master Leonard for whose expertise on technical costs matters I am grateful. However the decision on the appeal is mine alone. At the conclusion of the hearing the outcome of the appeal was announced with the reasons being reserved. These are those reasons. The Order made on the 18 May 2017 on the Notice of Appeal was:

Ground 1 dismissed;

Ground 2 allowed – assessment to be remitted to Master Rowley;

Ground 3 allowed in respect of disbursements on counsel's fees.

Outline facts

The following outline of relevant facts is taken from the judgment of Master Rowley.

8. The Claimant is a property entrepreneur living in Monaco. He uses his experience to identify opportunities to purchase and then develop properties in which high net worth individuals invest. The Master explained:

"5. Typically, in his business model, Mr Harrison and his companies earn their fees in three ways. The first is a finder's fee based on a percentage of the purchase price. In the present case that was a sum of £1 million. The second income stream is a percentage of the capital gain on the property after a fixed term. In this case it was 30% of the gain after three years. The final income is generated by the appointment of PREM [the Claimant's property management company] to manage the property during the fixed term."

9. Lord Laidlaw who is also based in Monaco, invested in Special Purchase Vehicles set up by the Claimant for investment in properties. Not all the terms of the agreement between the Claimant and Lord Laidlaw were reduced to writing. Lord Laidlaw who had paid a finder's fee of £1 million sought to terminate the involvement of PREM in managing the properties. The Claimant instructed James Batham, a partner in the Defendant. The Master held at paragraph 10:

"The scope of the instruction was not immediately clear and so it was agreed that Mr Batham would carry out an initial review for a fixed cost of £5,000 plus VAT."

10. Further investigation and consideration of the merits of the case including taking advice from leading counsel involved two further payments of £10,000.
11. On 2 October 2012 Mr Batham sent the First estimate to the Claimant in an email. By this time proceedings had been issued by the Claimant and permission to serve out of the jurisdiction had been obtained. The Claimant considered the value of his claim to be £9 million. The estimate of costs was attached to the email and was described to be 'for all stages to the end of the trial.' However the estimate contained caveats:

"…Further, we are not able to predict with any great degree of certainty at this stage what amount of contact and correspondence we will have with the other side, the court, counsel etc that falls outside of the time spent complying directly with the various steps. However, to give you an idea, we have dealt with this by providing provisions for correspondence and conferences with counsel at each stage.

Finally, whilst there will almost certainly be a need for us to make or oppose interim applications during the proceedings, we simply cannot say what those will be and how long they will take to deal with.

For all of these reasons, the attached document is, and can only ever be, an estimate."

12. Master Rowley did not accept that estimated disbursements related to experts' fees rather than counsel's fees for dealing with experts. Subject to that proviso the Master accepted at paragraph 20 that the Claimant based his decision to commence litigation on the First estimate.
13. Master Rowley held at paragraph 21 that the Second estimate of February 2013, which increased the figure of about £330,000 in the First estimate to £547,000, brought matters to a head and resulted in a CFA being entered into. When asked why he did not call a halt at this stage because of increasing costs the Claimant said that 'the bullet had now left the gun' and it was too late to call a halt. The Master held at paragraph 26:

"…I do not think there is anything on which to support the suggestion that Mr Harrison was intending to rely on the first estimate in the manner suggested when the second estimate was produced."

14. As to the figures for disbursements in the Second estimate, Master Rowley commented at paragraph 23 that fees for counsel had been revised to £106,000 from £37,000 in the First estimate. He observed that this figure compares with the sum of £95,000 in Lord Laidlaw's allocation questionnaire for the fees of Lord Marks QC. He noted that experts' fees were described as 'TBD': 'to be determined'.
15. Master Rowley commented, as Mr Williams QC counsel for the Defendant had pointed out, that the estimate of costs provided by Lord Laidlaw's solicitors with his allocation questionnaire was £593,183.96, a similar amount to that of the Defendant in theirs, the Second estimate.
16. On 28 October 2013 the Defendant provided the Claimant with a Third costs estimate. It did not deal with disbursements or incurred costs. It gave a figure of £252,000 for further solicitors' costs up to the end of the trial. Master Rowley observed that the figures were considerably higher than had previously been put forward, £692,000 for profit costs rather than £337,000. Master Rowley held at paragraph 33 that the Third estimate is not one for which either side can have much regard.
17. The Fourth and final costs estimate was produced on 13 January 2014. It was in the form of precedent H for costs through to trial. The parties provided a table showing the movement of the estimate of costs:

Date	Document	Profit costs	Disbursements	Total
2/10/12	1st Estimate	£162,711	£145,391.30	£308,102.30
4/2/13	2nd estimate (Allocation Q)	£336,811.80	£211,242.33	£548,054.13
28/10/13	3rd estimate	A further £252,000
13/1/14	4th estimate (precedent H)	£883,606.70	£849,722.47	£1,733,329.17
	Actuals	£863,283.72	£739,152.94	£1,602,436.66

18. Master Rowley held at paragraph 43 that the Claimant negotiated the fees of the property valuation expert. He found the Claimant's evidence convincing that as long as the invoices were within the overarching estimate then he was content to pay them. At the point that fees became higher than he was expecting, the Claimant simply stopped paying the invoices.
19. The case of the Claimant against Lord Laidlaw went to trial on 13 March 2014. The case settled on a confidential basis on the fifth day of the trial.

The Judgment of Master Rowley

20. Master Rowley commented that the First estimate was produced prior to Lord Laidlaw's defence and counterclaim and did not include previously billed costs which brought the profit costs to £187,711 and a total figure of £333,102.30. The Second estimate was produced following receipt of the defence and counterclaim. The Master held in paragraph 57 that the increase in profit costs by virtually £700,000 from a starting point of £187,000 is one which demands some explanation. Master Rowley rejected the Defendant's explanation for the increase in profit costs of that extent. He held at paragraph 58:

"Having considered the amendments to the pleadings and the claimant's witness statements, it does not seem to me that the defendant's case is made out. The amount of disclosure originally estimated by Mr Batham seems to me to be entirely inadequate given the size of the claim and the likelihood of a counterclaim. But even when that exercise had been carried out, it comprised little more than a tenth of the increased costs."

Master Rowley considered that most of the costs incurred post-dated the Second estimate but by the time that estimate was produced the shape of the case was available to be seen from the pleadings. The Master held at paragraph 60:

"It seems to me that neither the extent of the disclosure nor the amendment to the defence and counterclaim can account for the unchecked increase of the costs from the level set out in the second estimate to those subsequently incurred overall. Similarly, whilst the bullet points undoubtedly set out additional work that had been done, none of the items involved can begin to explain the discrepancy between the second estimate and the costs actually incurred."

21. At the hearing before the Master, the Defendant relied upon an issue on the counterclaim to discredit the Claimant. Master Rowley accepted the evidence of Mr Clavell-Bate, a partner in the Defendant, that in a pre-trial conference the Claimant did not inform his advisors that part of a finder's fee invoiced by purchasing agents Finn & Co was rebated to him personally. The Master recorded at paragraph 79 that counsel for Lord Laidlaw told the trial Judge that the way in which he intended to put his client's case could not be done without imputing dishonest intention on the part of Mr Harrison. In essence it was to be said on behalf of Lord Laidlaw that the Finn & Co fee was only £50,000 but an invoice for considerably more than that sum was raised for the solicitors who were completing the transaction. However Master Rowley held:

"80. This issue has no direct relevance to the estimates because the events involved, whether they occurred or not, took place after all of the estimates had been provided"

However Master Rowley recognised that this point was raised to seek to demonstrate a lack of credibility in the Claimant's evidence generally.

22. Master Rowley preferred the evidence given on behalf of the Defendant that the Claimant did not tell them in a pre-trial conference that he and not PREM had received the £1 million finder's fee paid by Lord Laidlaw.
23. At paragraph 99 Master Rowley held that he had no doubt that the Claimant relied upon the First estimate when deciding to enter into litigation. The Master held:

"100. It also seems to me to be clear that Mr Harrison subsequently relied on the second estimate when discussing further funding of the case and entering into the CFA. The significant increase in the costs provided in an estimate only five months after the first estimate could only be partially covered by the suggestion of a "sensible cushion". The CFA would place a brake on payment of further costs by only requiring Mr Harrison to pay 60% of them unless he succeeded in the litigation. The need to agree to a CFA, albeit on partial payment terms, is significant in my view in demonstrating both Mr Harrison's concern about the costs being incurred and Eversheds' concern about future conduct of the litigation if Mr Harrison's fears were not assuaged.

101. By contrast, there is nothing in my view to suggest that Mr Harrison relied on the third estimate and it simply prompted him to complain to Mr Clavell-Bate. There is no evidence about the fourth estimate but it was not exceeded in any event."

24. In paragraph 103 Master Rowley held that reliance by the Claimant on the First estimate was superseded by the actions of both the Claimant and the Defendant in entering into the CFA.
25. Master Rowley rejected the argument advanced by Mr Williams QC on behalf of the Defendant that they had corrected the earlier estimates as the case progressed. He held that this was a case in which that approach cannot be an answer to a client who relies upon an earlier estimate. The reason for this conclusion was set out in paragraph 108:

"It is undisputed that the fourth estimate in this case adequately covered the work required to be done. Based upon Mr Williams' argument, it would cure the first three estimates even though they were all considerable underestimates. By the time the fourth estimate was provided, there was little or nothing that Mr Harrison could do to change the course of his litigation. That was not the case at the time he received the first and second estimates. It seems to me therefore to be clear that simply providing a correct estimate subsequently will not necessarily rectify an erroneous estimate upon which reliance has been placed. There will no doubt be many cases where such a correction does resolve any difficulties but this is not such a case."

26. It was undisputed that the Fourth estimate adequately covered the work to be done. That estimate was held not to correct the earlier inadequate estimates.
27. Alternatively, Mr Williams QC submitted to the Master that if the earlier estimates were reasonable but were falsified by later events then there are good grounds for deciding that the costs should not be reduced simply for the client's reliance upon the earlier estimate.
28. Master Rowley rejected the alternative submission that if the earlier estimate was reasonable the Defendant should not be held to it as it had been proved wrong by unforeseeable events. This argument was predicated on the original estimate being reasonable. Master Rowley held that the First estimate was not reasonable.
29. Master Rowley held at paragraph 112 that if the Claimant had initially received an estimate in the sum set out in the Second estimate he would still have commenced proceedings. The Master held at paragraph 113:

"Some of the obvious shortcomings in the first estimate had clearly been remedied by the time of the second estimate. Elsewhere I have given the example of the trial fees for counsel having been increased to a figure which was similar to that estimated by Lord Laidlaw. Indeed, it seems to me that regard can be had to the quantum of Lord Laidlaw's allocation questionnaire generally when considering the reasonableness of the second estimate. Whilst I do not think the assumptions within that allocation are illuminating, the overall shape and size of the opponent's estimate does support Eversheds' estimate."

However Master Rowley held that whilst the advice on the merits showed that the Defendant had a grasp on the essentials of the case, Mr Batham had not got fully to grips with costing those essentials as the continuing underestimate of the amount allowed for disclosure illustrated.

30. At paragraphs 115 to 117 the Master was of the view that the great majority of work required ought to have been contemplated by the Defendant at the time of preparing the Second estimate. He held that the additional areas of work said to be required did not generally involve matters which would have been unexpected and the costs involved did not justify the overall increase in the level of costs. The subsequent trebling of costs was not justified and made the sum sought unreasonable.
31. Master Rowley observed that both sides to this litigation carried out work which exceeded expectations and this should be taken into account. However the fact that the Claimant's costs were twice the increase of Lord Laidlaw's from a similar allocation questionnaire baseline indicated to him that the increase to that extent was not justified.
32. Having decided that the amount of profit costs claimed was not reasonable the Master then considered the way in which and by how much the sum claimed should be reduced.
33. The Master held that it was not appropriate to treat the Claimant as having relied upon any estimates in relation to the experts' fees. These had been described as 'to be confirmed' or 'to be determined'. Negotiation of such fees were to be negotiated by the Claimant. There is no appeal from the decision of the Master that there was to be no reduction in the amount sought by the Defendant for experts' fees.
34. As for the amount sought in respect of counsel's fees, Master Rowley held that the underestimate in the First estimate for counsel's trial fees had been corrected by the time of the Second estimate to a figure that was comparable with both parties' thinking at the time.
35. Master Rowley considered that less reliance should be placed on the figures in the Second estimate for counsel's fees than figures in the estimate for the Defendant's profit costs because the Claimant did not seek to include such fees in the CFA. Accordingly the figure sought for counsel's fees was not reduced.
36. On Master Rowley's interpretation of the judgments of Mr Justice Morgan in Mastercigars Direct Ltd v Withers LLP [2007] EWHC 2733 (Ch) ("Mastercigars 1") and Mastercigars Direct Ltd v Withers LLP [2009] EWHC 651 (Ch) ('Mastercigars 2'), he considered that it would not be appropriate to add a margin or percentage to the Second estimate. However this is the effect of his reasoning in deciding on a reasonable figure to be paid.
37. The reasoning of the Master in deciding upon the amount which it would be reasonable for the Claimant to pay is set out in paragraphs 128 and 134 of the judgment. Master Rowley held:

"128. Bearing in mind the additional work subsequently estimated by Mr Harrison's opponent, as well as my findings in respect of the amendments to the pleadings, disclosure and other additional work, it seems to me that it would be unreasonable for Mr Harrison to have to pay any more than twice the amount of profit costs anticipated in the second estimate. I have come to the conclusion that the appropriate limitation in respect of Eversheds' fees is £650,000 plus VAT. Therefore to the extent that on detailed assessment Eversheds' fees are above that amount they will be limited to the figure of £650,000 plus VAT.

134. The limitation I am imposing on Eversheds' fees is not a finding of professional negligence or anything akin to it. The solicitor owes a duty to his client to provide estimates in accordance with the professional conduct rules and the client is entitled to place reliance upon them. If a solicitor fails to provide reasonable estimates without justification and upon which a client relies, as I have found here, then in essence the court will impose a specific figure on the term of reasonable remuneration implied into the contract between solicitor and client in the manner set out by Morgan J in Mastercigars."

The applicable legal principles

38. Mr Marven and Mr Williams QC were in agreement as to the legal principles to be applied by Master Rowley in determining the issues which have given rise to this appeal. The overarching question is the sum which it is reasonable for the client to pay. A solicitor is not restricted to an estimate. An estimate of costs is not a quotation. A client is not required to establish an estoppel before reliance on an estimate is to be taken into account in assessing costs. In determining what is reasonable for the client to pay the costs judge is to have regard to the estimate. The judgments of Mr Justice Morgan in Mastercigars were relied upon by both counsel and by Master Rowley in giving his judgment as setting out whether and if so how an estimate of costs affects the amount which it is reasonable for the client to pay. Mr Justice Morgan posed the question at paragraph 100 of Mastercigars 1:

"What should the court do where the client does not, or is not able to, contend there is an estoppel but he is able none the less to satisfy the court that he took the estimate completely seriously and it is possible he might have approached the litigation differently of he had been given a figure nearer to the figure in the final bill?"

Having referred to two decisions of the Court of Appeal, Leigh v Michelin Tyre Plc [2004] 1 WLR 846 and Garbutt v Edwards [2006] 1 WLR 2907, Mr Justice Morgan held of estimates at paragraph 101:

"Something less than an estoppel seems to suffice in terms of relevance. Conversely, something more than a belief that costs are likely to equate to the estimate seems to be needed because Dyson LJ in para 31 [of Leigh] refers to the question of 'how' the paying party relied on the estimate. Further, at the end of the inquiry, the deduction in the costs which is thought to be appropriate is left to the good sense of the court."

Further, Mr Justice Morgan held:

"102…even if the solicitor has spent a reasonable time on reasonable items of work and the charging rate is reasonable, the resulting figure may exceed what it is reasonable in all the circumstances to expect the client to pay and, to the extent that the figure does exceed what is reasonable to expect the client to pay, the excess is not recoverable...…

104. If the final bill is significantly above the estimate, a court might routinely feel that the bill had increased by too much so that it was no longer reasonable to expect the client to pay all of it. The court may then be required to exercise its judgment as to what figure could properly be added to the estimate so as not to exceed the sum which it would be reasonable to expect the client to pay."

39. In Mastercigars 2, referring to his earlier judgment Mr Justice Morgan held at paragraph 47:

"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."

Further at paragraph 54:

"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."

40. In Reynolds v Stone Rowe Brewer (a firm) [2008] 4 Costs LR 545 Mr Justice Tugendhat held at paragraph 57:

"Assuming, as he did, that the solicitor had spent a reasonable time on reasonable items of work and that the charging rate was reasonable, he was entitled to find that the resulting figure nevertheless exceeded what was reasonable in the circumstances to expect the client to pay…"

The Grounds of Appeal

Ground 1

41. By Ground 1 it is asserted that the costs Judge erred in taking the Second estimate as the starting point for what costs could be recovered.
42. Whilst Mr Marven did not abandon Ground 1, rightly he concentrated his submissions on Grounds 2 and 3. In support of Ground 1 Counsel relied upon the finding of fact at paragraph 20 that the Claimant based his decision to commence litigation on the First estimate. As in Mastercigars the Claimant had established reliance on the First estimate. Accordingly it was submitted that the figures in the First estimate should have been the starting point for assessing the reasonableness of subsequent costs. It was said that the Defendant's costs should have been limited to the figures given in the First estimate with a generous increase of £100,000 at undiscounted rates.
43. Mr Williams QC referred to paragraph 103 of the judgment of Master Rowley. The Master held that the Claimant relied upon the First estimate in deciding to enter into litigation and on the Second as the foundation for continuing it. He held that it was not possible for the Claimant to have been relying on two different estimates at the same time. Mr Williams QC contended that the conclusion of Master Rowley that reliance upon the First estimate was superseded by the actions of the Claimant and the Defendant entering the CFA after receipt of the Second estimate was unassailable. I agree. In my judgment Master Rowley did not err in taking the Second estimate as the starting point for the assessment of fees which could be recovered.
44. Ground 1 is dismissed.

Ground 2

45. By Ground 2 it is asserted that, having taken the Second estimate as his starting point, Master Rowley erred in holding that (subject to the impact of the CFA) it was reasonable for the Defendant to recover profit costs which were up to double the amount stated in that estimate.
46. Mr Marven contended that not only did Master Rowley err in principle in basing his decision on what costs it would be reasonable for the Claimant to pay on the increase in Lord Laidlaw's costs between the time of the Allocation Questionnaire, the basis of the Second estimate, and the precedent H figures, the costs actually claimed, but also the Master erred in his calculation of the increase in Lord Laidlaw's costs.
47. Mr Marven submitted that the question for the Master was what it was reasonable for the Claimant to pay. What Lord Laidlaw paid was not relevant. The court did not know what assumptions Lord Laidlaw's solicitors had made in their assessment of costs. The reasonableness or otherwise of their costs in either the Allocation Questionnaire or the Form H could not be scrutinised. It was therefore not a reliable basis upon which to make an assessment of the reasonableness of those sought by the Defendant.
48. Further, Mr Marven pointed out that the first estimate of Lord Laidlaw's costs excluded VAT and the second included VAT. Therefore the increase between those two figures did not accurately reflect the real increase in costs. Like was not compared with like.
49. When like was compared with like, the profit costs of Lord Laidlaw's solicitors increased from £412,876.50 in the allocation questionnaire to £643,585 on form H, an increase of 56%. The figures for disbursements showed an increase from £180,307.46 to £338,535.47, an increase of 88%.
50. Accordingly it was submitted that Master Rowley erred in holding at paragraph 118 that Lord Laidlaw's costs doubled from the allocation questionnaire in round terms. It was said that it is apparent from paragraph 128 of his judgment that Master Rowley took into account his finding of the additional work subsequently estimated by Lord Laidlaw's solicitors in deciding the amount of costs it was reasonable for the Claimant to pay. The Master had erred in calculating the increase in Lord Laidlaw's costs. Since this formed a basis for deciding the level of costs it would be reasonable to pay the Master's decision could not stand.
51. The other matters the Master relied upon to calculate the level of costs which it was reasonable for the Claimant to pay were his findings in respect of the amendments to the pleadings, disclosure and other additional work.
52. Mr Marven referred to paragraphs 58 to 60 of his judgment in which Master Rowley held that these matters did not warrant substantial increases in costs. He held at paragraph 48 that the disclosure exercise accounted for little more than a tenth of the increased costs.
53. Master Rowley made findings of fact that neither the extent of the disclosure, nor the amendment to the defence and counterclaim nor the additional work set out in bullet points by the Defendant (Bundle 3 p.485, 486) began to explain the discrepancy between the Second estimate and the costs actually incurred.
54. Mr Marven referred to paragraph 29 of the judgment of Master Rowley. The Master found that the Second estimate was a reasonable estimate of the costs expected to be incurred based on the case as it was then known. By February 2013 a Counterclaim had been served. Furthermore the Master found that the estimate included a sensible cushion to guard against future contingencies. The Master held that the Claimant was entitled to rely upon the Second estimate and did so when he entered into the CFA.
55. It was contended that not only did Master Rowley err in relying on the increase in Lord Laidlaw's costs from the time of the allocation questionnaire to the Form H sum as a basis for calculating what it was reasonable for the Claimant to pay the Defendant but also the Master erred in calculating the increase in Lord Laidlaw's costs. Further the Master erred in ascribing a considerable increase in costs to items he held were not of great significance. In addition the Master placed insufficient weight on the Claimant's reliance on the Second estimate.
56. Mr Williams QC contended that unanticipated costs were incurred after the Second estimate. Counsel referred to paragraph 118 of the judgment in which the Master accepted that work was carried out after the Second estimate which was over and above either parties' expectation and that this should be taken into account. It was contended that where an estimate is falsified by later events then less reliance can be placed on it.
57. It was contended by Mr Williams QC that the Master did not err by taking the increase in Lord Laidlaw's costs as a yardstick to assess the reasonableness of the increase in the Claimant's costs. However Mr Williams QC accepted that more work was likely to be carried out by Lord Laidlaw's solicitors on pursuing the new claim made by him in the counterclaim than by the Claimant's solicitors in defending the counterclaim.
58. It was submitted on behalf of the Defendant that there was substantial additional unanticipated work after the Second estimate. Disclosure had been a much larger task than originally anticipated. The cost of disclosure was £78,000 whereas only £53,000 had been allowed for this item in the Second estimate. There had been amendments to pleadings and a new serious allegation was made against the Claimant in the Counterclaim. The Defendant had to make trips to Atlanta and Monaco to meet the Claimant. Further, additional work was summarised in bullet points in an email sent by the Defendant to the Claimant.
59. As for the contention that the Master proceeded on a false calculation of the increase in Lord Laidlaw's costs, Mr Williams QC pointed out that the Counterclaim was amended after the Second estimate.
60. Mr Williams QC accepted that it seems that before Master Rowley, both parties proceeded on a misapprehension that the figures for costs of Lord Laidlaw at the stages of the Allocation questionnaire and his final bill both included VAT when the first did not.
61. In my judgment Master Rowley both erred in principle and in his calculations when assessing the increase in the figure in the Second estimate which it would be reasonable for the Claimant to pay.
62. Master Rowley held that the Second estimate was reasonable in amount. The Defendant made a reasonable estimate of anticipated future costs bearing in mind the state of the pleadings and litigation at the time. By the time the Second estimate was prepared a counterclaim had been served. The Defendant also made an allowance or cushion for unanticipated costs.
63. Master Rowley rejected the contention advanced by Mr Marven based on Mastercigars that a margin should be allowed on the Second estimate to allow for unexpected work. Whilst Master Rowley may have been right to reject this broad approach to provide for costs of work which could not reasonably have been contemplated, in my judgment he erred in his approach to deciding the amount over and above those in the Second estimate which it was reasonable for the Claimant to pay. An estimate is to be distinguished from a quotation of fees: an offer which is accepted. An estimate is what it says. It gives an idea, which from a professional firm can be taken as reasonably and carefully made taking into account all relevant considerations, of what the future costs of work on a case is likely to be. A solicitor cannot be held to be restricted to recovering the exact sum set out in an estimate. However a client is entitled to place some reliance on the estimate. The nature, degree and reasonableness of that reliance will no doubt be one factor in the view taken on an assessment under Section 70 of the Solicitors Act 1974 of how much more than the estimate it is reasonable for the client to pay.
64. The approach of Mr Justice Morgan in Mastercigars illustrates the effect to be given to an estimate if the final bill exceeds it. At paragraph 102 of Mastercigars 1 the Judge explained that even if all work undertaken by a solicitor after an estimate had been given was reasonably undertaken and the costs reasonable in amount, nonetheless the resultant sum may exceed what it is reasonable in all the circumstances to expect the client to pay. The excess will not be recoverable.
65. In this case Master Rowley held at paragraph 29 that the Second estimate was reasonable and that the Claimant relied upon it when entering the CFA. From his approach in paragraph 128 it appears that Master Rowley took the amount of profit costs in the Second estimate as a base from which to add further costs for work reasonably carried out. However it is not clear from paragraph 128 of the judgment whether and how the fact of reliance on the Second estimate was taken into account in arriving at the conclusion that it would be reasonable for the Claimant to have to pay up to more than twice the amount of profit costs anticipated in the Second estimate.
66. In paragraph 128 of his judgment Master Rowley relied upon two factors in deciding on a level of increase in fees which it would be reasonable to expect the Claimant to pay from a starting point of the Second estimate. Master Rowley did not state what weight, proportion or amount he ascribed to each. The first was the additional work subsequently estimated by the Claimant's opponent. No comparison was made between what work was undertaken on behalf of Lord Laidlaw after the allocation questionnaire compared with that undertaken for the Claimant. A comparison of an opponent's costs is a useful check for ascertaining whether costs are reasonable as being in the same ball park. However, as submitted by Mr Marven, the increases in estimates of Lord Laidlaw's costs were not a reliable basis for judging the reasonableness of the increases in the Defendant's costs as the assumptions and advice upon which they were based were not known.
67. The other factor relied upon by Master Rowley to decide upon the amount of profit costs it was reasonable for the Claimant to pay was additional work carried out by the Defendant after the Second estimate. It is likely but not clear that Master Rowley was referring to additional work not anticipated in the Second estimate. In my judgment the Master would have erred if he had made an addition for work already factored into the Second estimate. Master Rowley in paragraphs 58 to 60 observed that additional anticipated work after the Second estimate did not account for the level of increase in costs claimed. The impression given from the findings in those paragraphs is that the amount of costs attributable to these items was not great.
68. Master Rowley did not explain in paragraph 128 how much by way of the Defendant's profit costs he attributed to a comparison with Lord Laidlaw's and why or how much he attributed to the additional unanticipated work carried out by the Defendant after the Second estimate.
69. In my judgment the award by Master Rowley of an increase of more than £300,000 in profit costs above those anticipated in the Second estimate required explanation and justification. Master Rowley erred in principle in relying on the level of the increase in the profit costs of his opponent's solicitors when nothing was known about the assumptions, advice and information on which it was based. Further Master Rowley erred in his calculations of the increase in the profit costs of Lord Laidlaw's solicitors as he failed to take into account that the first Allocation questionnaire figure was net of VAT and the second final figure included VAT. The increase was therefore wrongly inflated. Master Rowley based part of his assessment of the figure it was reasonable for the Claimant to pay on a mistake.
70. Master Rowley reached a conclusion on the profit costs which it was reasonable for the Claimant to pay that was not supported by his findings of fact, was based on a mistake on the figures and erred in principle in relying on profit costs charged to Lord Laidlaw in departing so substantially from the Second estimate. Master Rowley therefore exceeded the broad measure of his discretion in considering a reasonable upper limit on profit costs as high as twice that in the Second estimate.

Ground 3

71. By Ground 3 the Claimant contends that:

"The costs judge should have limited the recovery of disbursements with reference to the first alternatively the second estimate, as well as profit costs."

72. Mr Marven contended that Master Rowley should have limited disbursements payable by the Claimant in respect of counsel's fees to those already paid or in some other way to reflect those in the Second estimate. At the hearing Mr Marven stated that he would not pursue an appeal in respect of experts' fees.
73. The disbursements in the Second estimate amounted to £211,242.33 excluding VAT. Future counsel's fees were anticipated at £170,500 net of VAT, including £106,000 for the trial. Disbursements invoiced by the Defendant totalled £223,412.94 made up of £189,311.48 counsel's fees, £4,166.67 expert fees and £29,934.79 various. In addition the Claimant had paid or been invoiced directly a further £515,740 made up of £287,265 counsel's fees, £163,475 experts' fees and £65,000 accountants' fees. The total disbursements were £739,152.94, i.e. counsel's fees £476,576.48, experts' fees £167,641.67, accountants' fees £65,000 and various £29,934.79.
74. Mr Marven contended that Master Rowley erred in failing to take into account the Second estimate of counsel's fees. He erred in deciding that because the Claimant did not seek to include counsel's fees in the CFA, less reliance was placed on that estimate. The Master erred in deciding that for that reason it was not appropriate to view the reliance placed on the Second estimate by the Claimant as meriting an overarching reduction of counsel's fees.
75. Mr Williams QC contended that counsel's fees reasonably increased as a result of developments after the Second estimate. A counterclaim was made which required a defence. The estimated length of the trial increased from four or five days to ten days.
76. Master Rowley adopted a different approach to the estimates of the Defendant's profit costs and to Counsel's fees in the Second estimate. The Master held at paragraph 100 that the Claimant relied on the Second estimate after discussing further funding of the case and entering into the CFA. At paragraph 103 it was held that the Claimant relied on the Second estimate as the foundation for continuing the litigation on CFA terms.
77. The Master adopted a different approach to the effect of reliance on the Second estimate when assessing how much of the final costs bill it was reasonable for the Claimant to pay to the Defendant in respect of counsel's fees. He took into account the Second estimate of the profit costs as a base from which to assess these. He held that there was less reliance placed by the Claimant on the estimate of Counsel's fees. By that finding it is to be inferred that some reliance was placed on that sum in deciding to continue the litigation. However that inference was not reflected in the conclusion that it was not appropriate to view that reliance as meriting an overarching reduction in respect of counsels' fees.
78. The reason the Master treated reliance on the estimates of profit costs and counsel's fees in the Second estimate differently was that the Defendant's profit costs were made the subject of the CFA but counsel's fees were not. In my judgment the Master erred in relying upon the fact that the Claimant did not include counsel's fees in the CFA as a reason for not making an overarching reduction in counsel's fees. Master Rowley held at paragraph 125 that it would have been possible to seek counsel's fees to be governed by a CFA if they were considered to be out of control. Master Rowley had held the Second estimate to be reasonable on the state of knowledge at the time. There would be no reason for the Claimant to think Counsel's anticipated fees of £170,500 were out of control at the time. In my judgment the failure to include counsel's fees in a CFA did not absolve the Master from considering whether it was reasonable for the Claimant to pay a total of £476,576.48 in counsel's fees of which the Defendant is claiming £189,311.48, being £39,373 paid in respect of invoices not being assessed, plus £149,938.48 in respect of invoices being assessed.
79. Whilst the additional work referred to by Master Rowley in paragraph 128 of the judgement and the increased length of the trial from four or five days to ten days warranted an increase in counsels' fees from £170,500 in the Second estimate, in my judgment in the absence of additional reasons being found by him to justify the increase to £476,576.48 it was not open to Master Rowley to assess counsel's fees in that sum. His decision to assess counsel's fees in the sum of £476,576.48 is set aside.
80. Ground 3 of the appeal succeeds in respect of counsel's fees.

Disposal

81. The detailed assessment of the Defendant's profit costs and of counsel's fees are remitted to Master Rowley for determination.