England and Wales Court of Appeal (Civil Division) Decisions

Case No: QBENI 2000/0080/A2

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Mr JUSTICE ALLIOTT
(QUEEN'S BENCH DIVISION)
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 4.July 2000

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BUXTON LJ:

1. This is an appeal from a decision of Alliott J sitting with assessors on the appellant's application for a review of the decision of Deputy Master Badcock on a contested taxation. The taxation arose out of lengthy proceedings brought by Mr Cole against BT, in which he was unsuccessful and ordered to pay BT's costs. BT had acted thoughout by an employed, "in-house", solicitor, in respect of whose work a charge of £105 per hour together with a "mark-up" of 60 per cent was included in the bill of costs. The Deputy Master considered that he was bound by the decision of this court in In Re Eastwood [1975] Ch 112, first to tax the employed solicitor's bill as if it were the bill of an independent solicitor; and second to apply the conventional method in such taxation of identifying an hourly expense rate (the `A' figure) and then applying to it a percentage uplift (the `B' figure). The Deputy Master concluded, by the normal method of applying comparable figures for expense rates, and conventional approaches to the percentage uplift, that in the present case the A figure of £105 and the B figure of 60 per cent were both justified.
2. There might seem to be no controversy involved in that determination, not least because Mr Cole does not seek to challenge, even if he could do so, the basic principle laid down in In Re Eastwood. However, before the Deputy Master Mr Cole argued that any conclusion reached on the basis of the A and B figures must be subject to the overriding principle that the receiving party must not recover more than the actual cost to it of employing the solicitor: that is, the indemnity principle. He said that if the gross hourly rate produced by the application of the A and B figures, £168 per hour, were multiplied by the number of hours that the solicitor would be expected to work in any one year, an annual cost of his services to BT of some £300,000 would be produced. It was not credible that one solicitor could have cost that much to employ, particularly at the time when the litigation was in process in 1993. The approach adopted by the Deputy Master therefore on its face breached the indemnity principle. This was accordingly a case falling within the category identified by Russell LJ in In Re Eastwood [1975] 1 Ch at p 132D, in that it appeared reasonably plain that the indemnity principle would be infringed if the method of taxation appropriate to an independent solicitor's bill is entirely applied. BT should therefore disclose salary scales, and data on overheads and the like, to enable the actual cost to them of employing the solicitor to be calculated.
3. The Deputy Master pointed out an obvious fallacy in Mr Cole's argument, in that it assumed that the solicitor would be generating a "chargeable" hour for every hour that he worked under his contract of employment. The Deputy Master was therefore not persuaded that Mr Cole's arguments did make it "reasonably plain" that the indemnity principle would be breached by the application of the conventional approach, as Mr Cole had to establish before the more detailed enquiry could be embarked upon. In reaching that conclusion the Deputy Master drew attention to the warnings of this court in In Re Eastwood as to the impracticality and undesirability of requiring a breakdown of all the activities and expenses of an in-house solicitor's department: a process that, in the world of practical justice in which the taxation process moves, the adoption of the conventional approach was designed to avoid.
4. So far so good. However, in order to meet Mr Cole's argument that the rate of £168, extrapolated to the solicitor's expected hours, would produce an unreasonable figure of total costs, BT during the course of argument before the Deputy Master tendered a table headed "Hourly Rate for Grade ILRS" [the Hourly Rate table], that set out the total pay and associated expenses attributable to all solicitors in the solicitor's grade within BT, and then divided that figure by the "target" chargeable hours expected of such a solicitor. That calculation produced an "hourly rate" of £160. The Deputy Master said of this:
"Although based upon "chargeable hours" that is not an hourly rate which [the solicitor] includes in any bill which he or BT's legal department send to BT for his services in this litigation. It is also not clear whether BT's legal department [is] expected to cover their own costs or are run at a loss within the company. To raise these matters is to recognise the scale and complexity that would be involved in identifying with any certainty whether and to what extent the indemnity principle had been breached. In Eastwood the Court of Appeal clearly felt that such a complex and intricate accounting exercise was to be avoided except in the case where the breach was reasonably plain. That exercise in the case of an organisation as large as BT would be time consuming, complex and costly particularly in relation to an action which spread over some 8 years".
5. He accordingly saw no reason in the hourly rate table for departing from the Eastwood approach. In his application to the Judge for a review of the Deputy Master's assessment Mr Cole contended that the Deputy Master should have acted on the hourly rate table as a ground for not following the Eastwood approach; and further said that if the figures had been properly analysed the hourly rate that they produced would have been shown to be much too high, first because an unreasonably low figure had been taken for the target chargeable hours, and second because the figures were for 1997-98, and needed to be adjusted for inflation to produce a proper figure for the period of the litigation. If the proper billable hours figure had been used the rate would reduce to £138, and if inflation had been taken into account the figure would further reduce to £110. That demonstrated that the claim for £168 per hour plainly breached the indemnity principle.

6. The Judge and assessors accepted Mr Cole's calculation in respect of billable hours, and did not express disagreement with his further reduction in respect of inflation. Alliott J however continued:

The flaw in Mr Cole's argument is that the figure of £110 he arrives at is only the so called "A figure". If 60 per cent is added to that figure then a figure of £176 is achieved, which is, of course, higher than the rate allowed. Thus even if we were minded to approach the matter as contended for by Mr Cole we would not find any breach of the indemnity principle. In fact, we do not consider this to be an exceptional case to be treated other than in the way established in the case of In re Eastwood.

7. Mr Cole's first complaint in this appeal is that the Judge and assessors were in error in treating the figure produced by the hourly rate table as an "A" figure. In truth, it was already the product of A and B. Reduced as the Judge and assessors agreed that it should be to £110 it showed that the figure of £168 was far too high; and since the £110 already contained all the elements legitimately taken into account in the B uplift it could not be increased further. However, and more generally, he also says that the hourly rate table demonstrates the actual cost to BT of employing the solicitor and any uplift on that figure must represent profit: which a solicitor in private practice may legitimately seek, but which cannot, because of the indemnity principle, be available to the employer of an in-house solicitor.
8. It is a surprising and difficult aspect of this case that whereas the Deputy Master assumed that the figure of £160 yielded by the hourly rate table was correctly calculated and saw it as justifying his figure of £168, the Judge and assessors, if they had been minded to act on the hourly rate table, would have significantly reduced its yield, but yet not have seen it as undermining the assessed figure of £168. It is understandable why Mr Cole says that the latter conclusion must be wrong; and also understandable why he says that once figures such as those in the hourly rate table are available they must be relied on in preference to the more generalised approach in In Re Eastwood. Such arguments however do not give proper weight to the approach to taxation adopted in In Re Eastwood, or the respect that that approach accords to the judgement of taxing masters and assessors.
9. The judgment of this court in In Re Eastwood establishes that the conventional method appropriate to taxing the bill of a solicitor in private practice is also appropriate for the bill of an in-house solicitor in all but special cases where it is reasonably plain that that method will infringe the indemnity principle. Such a special case will arise where a sum can be identified, different from that produced by the conventional approach, which is adequate to cover the actual cost incurred in doing all the work done. Such a sum may be identified by concession (see [1975] 1 Ch at pp 130G-131A) or, presumably, by the factual assessment of the taxing tribunal itself: but that possibility does not justify a detailed investigation in every case (ibid., at p132E).
10. In the present case there was no such concession. Mr Post for BT said that the hourly rate table did not make such a concession, and instanced many other matters over and above those set out in the table, including controversial allocation of costs, that would have to be taken into account to achieve a statement of the full cost; and it will be recalled that the Deputy Master saw the table as being an incomplete statement. In those circumstances, it is a matter for the judgement of the expert tribunal as to whether it is satisfied that the material is such as to create a special case in the terms of the guidance in In Re Eastwood. Neither of the tribunals in this taxation so concluded. I have already referred to the view of the Deputy Master; and the Judge and assessors considered that the table set out no more than the `A' figure. That was not, as Mr Cole argued, an analytical mistake on their part, but rather a conclusion as to the nature of the figures contained in the daily rate table that was well within the ambit of their expert judgement. Nor is it correct that the reduction of the hourly rate set out in the table from the £160 to £110 falsifies the conclusion reached by the Deputy Master. He did not rely on the rate in the hourly rate table as demonstrating that his own figures were correct: indeed, Mr Cole criticises him for not giving that type of conclusive weight to the hourly rate table figures. Rather, the Deputy Master in the passage already cited from his Reasons found that the figures were not sufficient to justify a departure from the In Re Eastwood approach.
11. The conclusion of the Judge and assessors that the present is not a special case concludes this appeal. Mr Cole's complaint that the figures in the hourly rate table show that the indemnity principle has been infringed is misconceived, first because the hourly rate table is insufficient to demonstrate that as a matter of fact; and second and more fundamentally because In Re Eastwood requires it to be assumed that, except in a special case, the indemnity principle is not infringed by the application of the conventional approach. That latter assumption may in some cases strain logic, as Mr Cole says it does in the present case: but, as this Court emphasised in In Re Eastwood, it has the merit of simplicity, and of avoiding the burden of detailed enquiry in any but a special case.
12. Mr Cole submitted that if he were correct in his contentions the whole of BT's bill should be struck out, as the solicitor would have committed an act of serious professional misconduct in signing a bill that infringed the indemnity principle. That submission was plainly not right. The statement of Henry LJ in Bailey v IBC Vehicles [1998] 3 All ER at p576b on which the submission was founded said that a professional offence in terms of breach of trust would be committed if a private solicitor sought to recover more than he had charged his client. No such breach of trust would be committed by a solicitor who prepared a bill on a standard basis that, although approved by a taxing master, two expert assessors and a Judge of the High Court, had been reversed in the Court of Appeal. The most that Mr Cole could have hoped to achieve in this appeal would have been the remission of the assessment to the Deputy Master. In that assessment the Deputy Master would have had to reconsider the weight to be given to the hourly rate table, and in fairness would have had to take into account any further matter in terms of costs and allocation that BT wished to put before him. That is sufficient to demonstrate that such an enquiry would be in exactly the form that this Court in In Re Eastwood said must be avoided. Mr Cole said that that was not so, because all that was necessary could be achieved by production of the equivalent of the "client care" letter that was referred to in Bailey v IBC. But in the case of an in-house solicitor there will not be any such letter, or any such simple source of identifying the "true" cost of his services. That is precisely why the conventional A + B method, properly supervised by the taxing master, has to be resorted to in his case.
I would dismiss this appeal.
HOOPER J: I agree.
Order: Appeal dismissed with costs.
(Order does not form part of the approved judgment.)