I undertook to pay the other side’s costs, but the matter didn’t complete. Do I have to pay the bill issued?

I acted on a licence to assign a lease, undertaking to pay the landlord’s legal costs limited to a specific amount, payable whether or not it completed. The matter ended early with no substantive work done. Their solicitor billed for the full amount. How should I advise my client?

Unless there is express provision to the contrary, it is implied that:

• an undertaking to pay costs will be discharged if the matter does not proceed; and
• that any undertaking to pay another party's costs will be interpreted as 'proper costs'

Whilst express words to the effect that costs will be payable in any event have been used, the landlord’s solicitor will be at risk if they have overcharged for the work done.

Your client can apply for third-party assessment of the landlord’s solicitor’s bill under section 71 of the Solicitors Act 1974, whereupon the undertaking will then take effect on the bill assessed.

Solicitors’ costs in non-contentious matters need to be compliant with the Solicitors (Non-contentious Business) Remuneration Order 2009, which sets out the criteria for assessing a bill for fairness and reasonableness.

Consider also rule 1.2 of the SRA’s Codes of conduct which state:

“You do not abuse your position by taking unfair advantage of clients or others.”

This rule can be discussed with the professional ethics team at the SRA who can be contacted on 0370 606 2577 or by email at professional.ethics@sra.org.uk.

In future, you may want to check your procedures to ensure that:

• fee earners obtain full information about the other firm’s charging structure before giving a cost undertaking
• any undertaking to pay costs is expressed to be contingent on the recipient first providing a detailed account of the work undertaken

Your firm will not become liable under the undertaking until that condition precedent has been satisfied.

For further information, see our practice note on professional undertakings.