Retainers and legal costs recovery: why the client agreement matters

A costs order gives a party the right to recover costs from another party, but it does not create the underlying liability. That liability comes from the contract between the client and their solicitor. Under the indemnity principle, an opponent is generally only required to indemnify the receiving party against what the client actually owes. If the client owes nothing, or owes less than the bill claims, the recoverable figure falls accordingly.

In practice this means the retainer is one of the first documents a paying party will ask about. Where Points of Dispute challenge the retainer, the receiving party may need to disclose it, or elect to rely on other evidence, before the court can be satisfied. A Bill of Costs also carries a signed certificate confirming that the costs claimed do not exceed what the client is liable to pay, so the drafting team must check the agreement rather than assume it.

Hourly rates claimed in a bill should not exceed the rates agreed with the client for the relevant period. If the client care letter records a partner rate of £300 per hour, a bill claiming £350 for that partner will be reduced, even if guideline hourly rates would otherwise support the higher figure. Rate increases need to have been notified and agreed in the way the retainer requires.

Scope matters too. A retainer for a personal injury claim may not cover a separate application, an appeal or work for a different client in the same household. Work done before the retainer began, or after it ended, needs a separate contractual basis. When we prepare a bill, we map each period of the work against the agreement in force at the time and identify gaps before the paying party does.

Changes of fee earner, firm or funding arrangement create the most risk. A file transferred between firms, or moved from a private retainer to a conditional fee agreement part way through, may involve two or more agreements with different terms. Each one should be located and checked.

Conditional fee agreements must satisfy section 58 of the Courts and Legal Services Act 1990 and the regulations made under it. A CFA that fails those requirements may be unenforceable against the client, which can leave nothing to recover from the opponent. For most agreements entered into from April 2013, a success fee is payable by the client rather than recovered from the losing party, but the base costs still depend on a valid agreement.

Damages-based agreements, third-party funding and before-the-event insurance each bring their own terms. Some allow recovery from the opponent on an hourly basis while the client's liability is calculated differently. Before a bill is drafted, it is worth confirming which agreement governs each period and what the client would owe if the case were lost, won or settled.

The retainer is equally important when a client questions their own solicitor's bill. Under CPR 46.9, costs are presumed reasonably incurred and reasonable in amount where the client expressly or impliedly approved them. Costs of an unusual nature or amount are presumed unreasonable unless the solicitor told the client, before the work was done, that they might not be recovered from the other side. Clear client care letters and costs updates therefore protect both the firm and the client.

Written contentious business agreements under sections 59 to 63 of the Solicitors Act 1974 can fix the basis of charging, but they are subject to specific formal requirements and the court's power to examine fairness and reasonableness. Firms using them should check the formalities carefully.