Interim Billing – Certainty v Flexibility

Interim Billing – Certainty v Flexibility

Many firms adopt the process of interim billing, both as a means of ensuring that their cash flow remains as liquid as possible and as a defence against the client who either runs out of money or acquires a degree of reluctance in relation to the payment for work done.

The position used to be that a solicitor’s retainer with their client was viewed as an entire contract which had to be performed in full before any right to payment arose.  Gradually, over the years, this view has become less entrenched and the practice of interim billing has arisen. However, as the recent case of Richard Slade and Company Solicitors v Boodia and Boodia [2017] EWHC 2699 (QB) has demonstrated, solicitors need to be extremely careful as to how they carry out interim billing and how they manage the financial aspects of the matter to which that billing relates.

Methods of Interim Billing

There are essentially two methods of achieving the interim payment of costs:

  • by section 65(2) of the Solicitors Act 1974 in relation to contentious business, and
  • by an agreement with the client that interim bills may be submitted which agreement must be set out in the terms of business both for contentious and non-contentious business.

Thought must be given as to which is the most appropriate method in the circumstances.

Section 65(2)

Interim billing in reliance on Section 65(2) is applicable only to contentious costs.   Section 65(2) states:

 “If a solicitor who has been retained by a client to conduct contentious business requests the client to make a payment of a sum of money, being a reasonable sum on account of the costs incurred or to be incurred in the conduct of that business and the client refuses or fails within a reasonable time to make that payment, the refusal or failure shall be deemed to be a good cause whereby the solicitor may, upon giving reasonable notice to the client, withdraw from the retainer.”

In other words, s 65(2) allows the solicitor undertaking contentious business to request a reasonable sum on account of costs and to withdraw from the retainer if payment is not forthcoming.  Therefore, any bill of account submitted in reliance upon this provision operates as a request for a payment on account.   In the event that this request is not complied with, then the solicitor’s only sanction is to withdraw. The solicitor cannot sue on the interim bill (since it is a payment on account) and it is not open to the client to apply to have it assessed – therefore the time limits for applying for assessment do not apply.

So why rely on a section 65(2) request for payment on account rather than submit a formal interim bill?

The main reason in favour of this approach, and one which goes to the heart of the issue in the Richard Slade case, is that the solicitor is not limited to the amount of the bill on account.  An important factor – especially at the outset of a matter where the steps needing to be taken or disbursements incurred may be unclear.  Thus,  when the solicitor finally prepares a bill which covers that period, the solicitor may deal with previously unclaimed disbursements or may revisit the amount charged and may even be able to charge more in relation to that period provided that it is fair and reasonable to do so.

However, against this approach is that the solicitor will be unable to sue on the interim bill in the event that the client does not pay and it relates in part to work already undertaken.

Interim Statute Bills

The other approach to interim billing which solicitors can take is that of the Interim Statute Bill.

An interim statute bill is one which is a complete and self-contained bill of the costs which have been incurred up to a specific date or in relation to a specific aspect of the retainer. It is essential that they are regarded as a final bill in respect of the work covered by them (whether that be in relation to a period of time or by reference to a specific act) and the solicitor is not permitted to carry a subsequent adjustment in the light of an unanticipated outcome arising from the work covered by that particular aspect of the retainer.

A solicitor may deliver an interim statute bill at a natural break in litigation or by agreement at regular intervals such as monthly.  However, it should be noted that there is no implied right for a solicitor to deliver interim bills. If the solicitor wants to deliver interim bills other than at a natural break – e.g. monthly – in litigation, then there must be an express agreement to that effect.  See Vlamaki v Sookias & Sookias [2015] 6 Costs LR 827.

The main benefit of adopting the interim statute bill format is that an interim statute bill can be sued on.  The main disadvantage is that the solicitor, when preparing his final bill, may not revisit the amount charged on an interim stage and adjust it upwards, even if it should prove to be reasonable to do so.

Richard Slade and Company Solicitors v Boodia and Boodia

The extent to which interim statute bills comprise a final bill in respect of work done for that element of the retainer was brought home towards the end of last year in the case of Richard Slade and Company Solicitors v Boodia and Boodia [2017] EWHC 2699 (QB).

As we have seen from the description above, an interim statute bill is a bill which is regarded as a final invoice for the period covered by the bill.  Many solicitors have, however, regarded themselves as free to submit a further disbursement-only invoice, for example in relation to counsels fees that were not able to be included in the previous interim statute bill or even to submit an invoice for time that had not been recorded and submitted as at the date of issuing of the interim statute bill.

Mrs Justice Slade DBE in the Richard Slade case on appeal from Master James has stated that this approach is not correct.

She stated that “an interim statute bill must contain a bill of all costs including profit costs and disbursements in respect of agreed periods of time. Any practical difficulties which this requirement may cause to the solicitor are outweighed by the certainty given to the client, safeguarded by statute and authority, of knowing the total amount of costs they are being asked to pay. The client needs to know the total costs incurred over a certain period to enable them to form an evidenced based view of whether to exercise their right under Section 70 to challenge the bill.”

In other words, unless all of the costs incurred during the period covered by the interim bill are included (which must include all profit costs, disbursements and counsel’s fees) then notwithstanding the terms of business given to the client by the solicitor, the invoice will not be a “complete, self-contained bill of costs to date” and will not be capable of being described as an interim statute bill. At best, the interim bill will be nothing more than a request for a payment on account.

The important point to take away from this is that to be an interim statute bill, it must cover all of the costs in relation to that period and not just those which the solicitor has chosen to include within the bill.  This is a point that was made in the case of Bari v Rosen (trading as RA Rosen & Co Solicitors) [2012] 5 Costs LR 851 where the court said:

“… a solicitor may contract with his client for the right to issue statute bills from time to time during the currency of the retainer. Such bills are known as “interim statute bills”. They are nevertheless final bills in respect of the work they cover, in that there can be no subsequent adjustment in the light of the outcome of the business. They are complete self-contained bills of costs to date.”

Thus care must be taken to ensure that either it does cover everything and is issued as an interim statute bill or it is clearly expressed not to be a final bill but merely a payment on account (where that is permitted) and that a final bill will follow at some future date.  Yes, there is a possibility that the bills may be able to be taken together as forming one single statute bill – the so-called Chamberlain style statute bill (see Chamberlain v Boodle and King [1982] 3 All ER 188).  However, the key point to bear in mind here is that the court will tend to err on the side of the client if there is any lack of transparency or ambiguity.

Thus it is likely that the court will consider what information the client was given at the point at which the interim bill was delivered and, more pertinently, what inference the client would have made as a result. If the information given to the client was unclear, then the court would be likely to err in favour of the client – for example that any unbilled costs or disbursement should be disallowed.

One final point to make in this section is to be particularly wary of interim statute bills in relation to conditional fee agreements where usually the final bill for a given period will not be known until the case is concluded.  It is vital therefore, that if the solicitor is, for example, delivering a disbursements only bill that it is clear to the client that it is a disbursements only bill and not an interim statute bill which would pre vent the solicitor from delivering a bill for further charges for that period, and thus preventing the solicitor from charging their profit costs.

Appropriate wording

The primary purpose behind all of these rules is to ensure the client understands and has certainty in respect of the bills that they receive.  For this reason, it is vital that not only do the terms and client care letter clearly set out the potential for interim billing but also that the bills themselves clearly indicate what they are intended to cover.

The case of McLoughlin v Irwin Mitchell [2008] EWHC 90113 is a lesson in ensuring that solicitors comply with the provisions of the Solicitors Act 1974 in relation to the issuing of bills in contentious work and of the need for clarity both in terms of including appropriate wording in the terms and conditions and in relation to the narrative of the bills themselves.

Here the solicitors had submitted a number of interim invoices to a client which had, on the whole, been paid. However, subsequently the client queried the amounts of the bills and asked for a detailed assessment. Since more than 12 months had elapsed since the bills were paid, the solicitors sought to rely on section 70(4) of the Solicitors’ Act 1974, which states:

The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.

The court found that the invoices sent did not constitute interim statute bills because the solicitors had failed to provide a sufficient narrative to enable the client to take advice as to whether or not to apply for the bills to be assessed and there was nothing in the face of the bill, nor in the firm’s client care letter, to indicate to the client that the invoices were statute bills as opposed to bills on account.

In the circumstances, the court held that the time limit did not apply and that there could, therefore, be a detailed assessment of the bills.

It is vital, therefore, that the wording in the retainer letter and/or terms of business makes it clear to the client the nature of the bills that will be submitted to them and that the client is told that, unless it is expressly stated to the contrary, any interim bill will be the only and final bill for the charges and expenses incurred for the period for which the bill relates.  The court, should it come to be decided, will enforce the position that any interim invoice will be an interim bill on account of costs unless specifically stated to the contrary.  This is so even where the bill attempts to hold itself out as an interim statute bill by, for example, the inclusion of the dates to which it relates.

A suggested form of wording for the client care letter for interim statute bills is as follows:

So that you can budget effectively, we will normally send to you, from time to time, interim invoices during the conduct of your matter. We will then send out a final bill on the completion of the work. Unless expressly stated to the contrary, any interim bill that we send to you will be the only and final bill for the charges and expenses incurred for the period for which the bill relates.
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