Interim Bills and Discounted Success Fees – Are they Statutory Bills?

Court of Appeal Rules on Conditional Fee Agreements and Interim Invoices

Key Implications of the Decision

Ivanishvili (claimant/respondent) v Signature Litigation LLP (defendant/appellant)

In a recent ruling, the Court of Appeal clarified that interim invoices issued under discounted conditional fee agreements (CFAs) do not qualify as final bills. These invoices, which do not include success fees, uplift fees, or other additional costs tied to the litigation’s outcome, are considered requests for payments on account rather than statute bills. As a result, the time limits outlined in Section 70 of the Solicitors Act 1974 (SA 1974) for challenging solicitor fees do not apply to such interim bills.

This ruling addresses ongoing concerns about the Solicitors Act’s application to modern legal billing practices, as highlighted by Lord Justice Coulson. He pointed out that when the Solicitors Act 1974 was enacted, CFAs were illegal, and billing was based on the “entire contract” principle. Today, however, fees under CFAs are often not fully determined until the litigation concludes, creating uncertainty around the finality of invoices issued during the case.

Solicitors working under CFAs must be mindful that interim invoices are not considered final bills unless they are complete and final, including all potential fees. They must also clearly advise clients about their rights under SA 1974 and ensure compliance with SRA Accounts Rules regarding client monies when handling interim payments.

Case Background

The appellant, Signature Litigation LLP, entered into a discounted CFA with the respondent, charging 65% of their standard fees during the course of the litigation, with the remaining 35%, success fees, and uplift fees conditional on a positive outcome. Over a period of five years, the firm issued 79 invoices covering the non-conditional portion of their fees, amounting to nearly £12.8 million. The respondent paid all invoices.

However, in 2022, Signature Litigation terminated the retainer but sought further payments, including the success and uplift fees. In response, the respondent initiated Part 8 proceedings, seeking a declaration that the interim invoices issued were not final statute bills under the Solicitors Act 1974.

At first instance, Costs Judge Leonard ruled that the invoices did not constitute statute bills, but granted permission to appeal due to the lack of higher court rulings on this specific issue.

The Court’s Decision

The Court of Appeal dismissed the appeal and upheld the lower court’s decision. It reaffirmed that a final statute bill must be “complete and final” concerning the work and the period it covers. In this case, since the additional success fees and uplift fees were still contingent on the outcome of the litigation, the interim invoices could not be treated as final statute bills.

Signature Litigation argued that the invoices represented stand-alone entitlements for the non-conditional portion of the fees and that any success or uplift fees were separate returns for the risk taken. However, the Court rejected this argument, stating that any additional fees directly related to the work reflected in the interim invoices. The ruling emphasised that for an invoice to be treated as a final bill, it must not be revisited or modified later.

The decision clarifies that interim invoices under CFAs remain incomplete until all potential liabilities, such as success or uplift fees, are settled. As a result, they do not trigger the time limits for fee challenges under Section 70 of the Solicitors Act 1974.

Full Text of Section 70 of the Solicitors Act 1974

Section 70: Assessment of Solicitor’s Bills

1. When a solicitor delivers a bill of costs to the client, the client or the solicitor can apply to the High Court within one month for an order to have the bill assessed by a court officer. The court is required to make such an order unless there is no reasonable basis for believing the bill contains an overcharge.
2. If no application is made within one month, the High Court may still order an assessment, but only if special circumstances justify doing so.
3. No application for assessment can be made after 12 months from the date of delivery of the bill, unless the client becomes legally incapacitated, or the bill includes charges unrelated to the original instruction.
4. Where the application is made by the solicitor, they are not entitled to recover the costs of the application unless the court finds the client had no reasonable grounds to dispute the charges.

Applying Section 70 to Conditional Fee Agreements

Section 70 of the Solicitors Act 1974 establishes the right for clients to challenge solicitor’s bills, but only if the bill is final. In the case of Signature Litigation LLP v Ivanishvili, the question centred around whether the interim invoices presented under a discounted CFA could be classified as statute bills. The Court of Appeal confirmed that interim invoices lacking finality in terms of additional success fees or uplift fees cannot be considered statute bills under Section 70, thereby postponing the statutory time limits for challenging fees.

This ruling is particularly relevant to modern legal practice, where CFAs often delay the final assessment of costs until the outcome of litigation is clear. As a result, clients retain the right to challenge solicitor fees until a final statute bill is issued, ensuring that additional conditional fees are accounted for.

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