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New legal costs regime under the LSRA

Much of the profession will already be aware that there will be new obligations on solicitors regarding legal costs when sections 149 to 161 of the Legal Services Regulation Act 2015 are commenced. While the Law Society has not received notification of when these provisions will commence, it is anticipated that this will occur soon, possibly on 7 October 2019 – the beginning of the new legal year.

Consequently, solicitors should familiarise themselves with the new provisions and review them in conjunction with the Society’s guidance and precedents produced by its Legal Costs Working Group (available on the Society’s website).

Notices

One of the most significant forthcoming changes is the replacement of the requirements under section 68 of the Solicitors (Amendment) Act 1994 with those of section 150 of the 2015 act. On receiving instructions, solicitors will have to provide a section 150 notice detailing the legal costs that will be incurred, instead of a section 68 letter.

However, in instances where it is not reasonably practicable to set out the costs that will be incurred, the solicitor can set out the basis upon which the costs are to be calculated. Conversely, this requirement does not circumvent the solicitor’s duty to provide the client with the details of the legal costs to be incurred, and the solicitor has to send another notice detailing those costs when it becomes practicable for them to do so.

A valid notice

There are specific elements required for a valid section 150 notice. It must specify:

1. The costs incurred to date,
2. The fixed and certain costs to be incurred,
3. The costs likely to be incurred,
4. VAT,
5. The basis of the calculation of the costs, with reference to such matters as time spent, complexity, urgency (and other items detailed in paragraph 2 of schedule 1 to the act).

Notices must also contain:

1. A statement of the solicitor’s duty to issue new notices that make the client aware of factors that would likely lead to a significant increase in legal costs incurred over those previously disclosed,
2. A statement detailing the solicitor’s duty to inform the client of the likely costs of engaging a barrister or expert witness, if the need arises, and to be satisfied about the client’s approval for doing so,
3. Finally, a notice must also state an initial period of time during which legal services will not be provided effectively (a ‘cooling-off period’) that cannot be longer than ten working days. The act does not provide for a minimum period of time, and it is therefore up to each solicitor to use discretion to determine what a reasonable period of time is in each case. Exceptions exist to this obligation where (a) in the opinion of the solicitor, not to provide immediate legal services would constitute a contravention of a statutory requirement, the rules of court, or prejudice the rights of the client in a manner that could not later be remedied, (b) a court orders it, or (c) in litigation, a notice of trial has been served or a hearing date fixed.

Additional responsibility

Where the matter involves litigation, a solicitor has an additional responsibility to provide an outline of the work to be done in respect of each stage of the litigation process and detail the costs, likely costs, or basis of costs to be charged for each of those stages. They must also inform the client as to the likely legal and financial consequences of their discontinuance of the litigation and the circumstances in which they would be likely to be required to pay the costs of one or more other parties.

Solicitors may (under section 151) of the act, instead of issuing a section 150 notice, enter into a written agreement with the client prior to the provision of legal services concerning the amount and manner of payment. Any such agreement must contain all the particulars required in a section 150 notice.

Bills of costs

Solicitors should also be aware that their bills of costs will be regulated under section 152 of the act, and they will be required to sign their bills of costs and issue them in such form as may be specified in rules of court.

The act requires each bill to provide:

1. A summary of the legal services,
2. An itemised statement of the amounts charged,
3. Details of time spent, where time is a factor in determining the legal costs,
4. VAT,
5. The amount of any moneys recovered by, or payable to, the client,
6. The amount of legal costs recovered by, or payable to, the solicitor, and
7. Information on the dispute resolution procedures for the client to use if they object to any part of the bill.

Legal Costs Adjudicator

Where a client disputes any aspect of a bill of costs, solicitors are required to resolve the dispute through the procedures accompanying the bill of costs. The first stage of these procedures places an obligation on both parties to attempt to resolve the matter informally and, where that fails, the client or solicitor may apply to the new Office of the Legal Costs Adjudicator (which replaces the Taxing Master) to have the bill of costs adjudicated.

A client may refer the matter to the Office of the Legal Costs Adjudicator either before the expiry of six months from the date on which the bill of costs was provided or three months from the date of payment. The solicitor, on the other hand, can apply between 30 days and 12 months from the date on which the bill of costs was provided.

Solicitors should be aware that, where a bill of costs is reduced by 15% or more by the Legal Costs Adjudicator, they will be liable for the costs of the adjudication. However, where a bill of costs is not disputed and the client simply refuses to discharge the costs, it will still be open to a solicitor to pursue the client through civil proceedings.

Contentious business

It is also worth bearing in mind that the act continues the prohibition on percentage charging in contentious business (other than debt collection), as well as the setting of junior counsel costs as a specified proportion of senior counsel costs.

Finally, a solicitor shall not, without the prior written agreement of the client, deduct any moneys for legal costs from any damages payable to the client.

More details

For more details on section 150 notices and bills of costs, please see the Society’s guidance and precedents that were produced by its Legal Costs Working Group on the Society’s website.