ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR JUSTICE LEWISON
ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LORD JUSTICE KITCHIN
SITTING WITH SENIOR COSTS JUDGE HURST AS ASSESSOR
| TIM MARTIN INTERIORS LTD
|- and -
|AKIN GUMP LLP
Nicholas Bacon Q.C. (instructed by Akin Gump LLP) for the Respondent
Hearing date: 3 November 2011
Crown Copyright ©
Lord Justice Lloyd:
i) He accepted the objection that the use of a City firm, and of partner time charged on that basis, was unreasonable, and therefore beyond the limit of what was chargeable under the mortgages. He allowed an hourly rate of £225 for any time properly allowable on the part of a Grade A fee-earner.
ii) He accepted that costs relating to bankruptcy proceedings were not within the scope of the liability under the mortgages.
iii) He accepted many of the objections as regards the charging of too much time, including the point that, if a client requires his solicitor to travel to meetings with him, it cannot expect a third party to pay for that travelling time, unless there are special reasons for it.
iv) Leaving that point aside, he disallowed a number of detailed items for particular reasons. In some instances his disallowance appears to have been on the basis that he did not accept it as proved that the time had been spent, especially in the absence of attendance notes of meetings or long telephone calls. In other cases it was on the basis that, even if the time had been spent, the particular meeting was not something that could properly be charged to a third party; one example was what was described as a brainstorming meeting at the Bank's premises. It is not always easy to distinguish between disallowance on the basis that the time was not spent (or not proved to have been spent) on the one hand, and time treated as either excessive or inherently improper to be allowed as against a third party. For example he cut down the allowance of some items charged at more than one six-minute unit, on the basis of their being "routine items for which a six-minute allowance would have been appropriate". That is consistent with saying either that the extra time was not spent or with saying that, even if it was, it should not have been, and that, at any rate as against the third party, only a single unit should be allowed.
"the [appellant] cannot dispute the amount properly payable between [the solicitors] and [the Bank], but what he can do is to say that the amounts which are sought to be passed on to him under the banking documents are unreasonable and, in deciding whether those sums are unreasonable, it is the task of the court to examine those contractual documents to ascertain whether costs which he has paid are fair and reasonable under the Act."
"(1) Where a person other than the party chargeable with the bill for the purposes of section 70 has paid, or is or was liable to pay, a bill either to the solicitor or to the party chargeable with the bill, that person, or his executors, administrators or assignees may apply to the High Court for an order for the assessment of the bill as if he were the party chargeable with it, and the court may make the same order (if any) as it might have made if the application had been made by the party chargeable with the bill.
(2) Where the court has no power to make an order by virtue of subsection (1) except in special circumstances it may, in considering whether there are special circumstances sufficient to justify the making of an order, take into account circumstances which affect the applicant but do not affect the party chargeable with the bill.
(3) Where a trustee, executor or administrator has become liable to pay a bill of a solicitor, then, on the application of any person interested in any property out of which the trustee, executor or administrator has paid, or is entitled to pay, the bill, the court may order—
(a) that the bill be assessed on such terms, if any, as it thinks fit; and
(b) that such payments, in respect of the amount found to be due to or by the solicitor and in respect of the costs of the assessment, be made to or by the applicant, to or by the solicitor, or to or by the executor, administrator or trustee, as it thinks fit.
(4) In considering any application under subsection (3) the court shall have regard—
(a) to the provisions of section 70 as to applications by the party chargeable for the assessment of a solicitor's bill so far as they are capable of being applied to an application made under that subsection;
(b) to the extent and nature of the interest of the applicant.
(5) If an applicant under subsection (3) pays any money to the solicitor, he shall have the same right to be paid that money by the trustee, executor or administrator chargeable with the bill as the solicitor had.
(6) Except in special circumstances, no order shall be made on an application under this section for the assessment of a bill which has already been assessed.
(7) If the court on an application under this section orders a bill to be assessed, it may order the solicitor to deliver to the applicant a copy of the bill on payment of the costs of that copy."
"(2) Subject to paragraph (1A), costs are to be assessed on the indemnity basis but are to be presumed –
(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;
(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;
(c) to have been unreasonably incurred if –
(i) they are of an unusual nature or amount; and
(ii) the solicitor did not tell his client that as a result he might not recover all of them from the other party."
"(1) Where the court assesses (whether by the summary or detailed procedure) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which –
(a) have been reasonably incurred; and
(b) are reasonable in amount, and the court will assess them accordingly.
(The Costs Practice Direction sets out circumstances where the court may order otherwise)
(2) This rule does not apply where the contract is between a solicitor and his client."
"(1) Where the contract entitles a mortgagee to –
(a) add the costs of litigation relating to the mortgage to the sum secured by it;
(b) require a mortgagor to pay those costs, or
the mortgagor may make an application for the court to direct that an account of the mortgagee's costs be taken.
(2) The mortgagor may then dispute an amount in the mortgagee's account on the basis that it has been unreasonably incurred or is unreasonable in amount.
(3) Where a mortgagor disputes an amount, the court may make an order that the disputed costs are assessed under rule 48.3."
"if an account contains items of litigation costs or non-litigation costs the items can be referred to a [costs judge] for [assessment], i.e. for the [costs judge] to decide what amount is recoverable in respect thereof.
[Assessment] is no more than a quantification machinery by means of which the recoverable amount of costs, disbursements, expenses etc. is ascertained."
The position as between the client and the third party
The scope of the legislation
"… the third party obtained the usual third party order for taxation under section 38 of the Solicitors Act 1843, on submitting to pay what should appear to be due to the solicitors on taxation."
"First, it is to be observed, that the Petitioner has fallen into a mistake, which has been of very frequent occurrence; mortgagors think, that where they call for a taxation of a mortgagee's solicitor's bill, they have a right to alter the relation of solicitor and client, and are not bound to pay more than the mortgagees could establish as against them, the mortgagors. There is nothing in the Act of Parliament which warrants this notion, and it is not so. The bill may be taxed at the instance of the mortgagor, who is liable to pay it; but it is the bill between the mortgagee and his solicitor; and the mortgagor desiring to tax it, must do it on the condition of paying what is due to the solicitor from his client the mortgagee, which possibly may be more than the mortgagee, if he had paid it, could have recovered over from the mortgagor. The mortgagor asking taxation against the solicitor, has merely the right to tax the bill as between the solicitor and his client the mortgagee."
"This petition is also misconceived in this respect: it proceeds on the notion that a mortgagor having settled an account with the mortgagee and paid the bill of the mortgagee's solicitor, is entitled, in this jurisdiction by petition, to quarrel with the account so settled, and tax the costs of the solicitor, not as between him and his client the mortgagee, but as between the mortgagor and the mortgagee; and further, that if charges be found in the bill of costs which the mortgagee could not maintain in an account between him and the mortgagor, they are to be disallowed. Such a notion is entirely erroneous, and so much of this petition as depends on this point falls to the ground."
"At the same time, it cannot but be evident that the effect of these decisions will be to reduce the 38th section to a very narrow operation, for all the cases concur in this :—that the cestui que trust can only tax the solicitor's bill as his clients, the trustees, could have done, and if they, knowingly and after having had due time to consider the bill, have thought proper to pay it, unless some of the items contained in it are fraudulent, in the strict and criminal sense of that term, the trustees are precluded from taxing the bill, however improper it may be, short of containing fraudulent items, in which case the cestui que trust is driven to his bill in equity to obtain relief."
"If a person, being a trustee, chooses to employ a solicitor for the purpose of conducting the affairs of the trust, which, of course, the solicitor is well aware of, there is a distinction between his employing that same solicitor for exactly similar purposes with regard to which he is not a trustee. Suppose, for instance, that he is not a trustee, but simply a client, and that he says to the solicitor, "I wish you would make me, or procure for me, copies of such and such deeds, and I want to have them fully explained to me, and I come to you for that purpose." The solicitor tells him, "You can have them if you wish, but they are not at all wanted, they are of no species of use." The client says "Never mind, I require it to be done." The solicitor says, "If you wish it, you shall have it." When the bill is taxed, and that fact is stated, the client cannot complain. He would be told, "You ordered it to be done, you were told it was useless, and you must pay for it." But take the case where he is a trustee. He makes the same request, the solicitor makes him the same answer, on which the client says, "Never mind, I still insist upon that being done." Then it is the duty of the solicitor to tell him, "Very well, if you insist on its being done, it shall be done; but you must understand that as this is not required for the purposes of the administration of the trust, you cannot charge these costs against your cestui que trust, and I cannot put them into the bill of costs which will have to be paid out of the trust estate; therefore, if you require it to be done, you must pay for it personally, and you will understand that it is a personal matter between you and me." And Mr. Little very properly admitted, if the circumstances amounted to something like collusion between them, there could be no question upon the subject.
I think, therefore, that it is the duty of the solicitor to tell the trustee, "This is not wanted for the administration of the trust, and if you insist upon its being done, it is for your private convenience, and, therefore, cannot be charged against the trust estate."
So regarding it, I have looked at this bill, and I have no doubt that the client did order it all, but then the application of the rule I have mentioned appears to me to be necessary, and then comes this question, which is properly a question for the Taxing Master to determine, is it proper, or necessary, or fit, for the administration of the trust that certain things should be done?"
"But the purchaser did not contract to pay all the proper charges as between the vendor and his solicitors in relation to the matter, but only certain specified charges. The Taxing Master was right in saying that the items in question were charges in relation to matters not within the agreement. It could hardly be contended in a case of mortgagor and mortgagee that the mortgagor would be liable to pay costs of the mortgagee's solicitor relating to matters entirely outside the mortgage."
"It follows, therefore, that with respect at least to any piece of business properly inserted in the bill which the third party is liable to pay, it is not open to the third party to object that payments sanctioned by the client are excessive." (page 246)
"The governing idea of Chitty J's judgment is that even on a third party taxation the Court is bound to look at the nature of the items and to consider whether, apart from the order, the applicant is under any liability to pay them. In other words, although the solicitor may put in one bill as against his own client a series of items, some of which may go beyond the liability of the third party, the third party does not by obtaining an order to tax render himself liable to the whole bill. With respect to matters falling within his liability under a contract express or implied, he cannot dispute the amount properly payable as between the solicitor and his own client, but in other respects his liability is not increased by obtaining a third party order to tax. In the present case the petition only alleged that the solicitors were employed by Mr. Bassett as lessor "to prepare a lease," and the submission to pay contained in the order must be limited to what properly results from such employment."
"That seems on the face of it a rather useless dealing with a bill of costs, because a mortgagor, in ordinary circumstances, does not care to know what the liability of the mortgagee to his solicitor is, but desires to know what his own liability is to the mortgagee's solicitor, that is, to the mortgagee through his solicitor. He wishes to know what he has to pay for principal, interest, and costs, and to ascertain what is to be charged against him; and it is of very little advantage to him to know what may be charged by the solicitor against the mortgagee, some part of which may not be chargeable against himself."
"For in the present case the third party is a mortgagor, and he is only interested in the relations between the solicitor and his client so far as they concern the position of the client strictly in his character of mortgagee. The mortgagor, therefore, is entitled under section 38 to have taxation of the solicitors' bill limited to the items of costs incurred by the client strictly in his position of mortgagee. And it is on that principle that the Taxing Master has proceeded.
It may well be that the client, as between himself and the solicitor, is liable for costs incurred in relation to the mortgaged property with which the mortgagor is not concerned, and for which the mortgagor is not liable. Those will be costs incurred by the mortgagee in his personal capacity so far as concerns the mortgagor, and not costs incurred by him in the capacity of mortgagee strictly and properly considered, and accordingly would not have to be taxed or considered by the Taxing Master in a taxation by the mortgagor as third party.
And I may add, though it may not be necessary to do so for the purposes of the present case, that if the mortgagee chose to sanction a charge by his solicitor beyond what he and the solicitor knew or must be taken to have known could be properly charged as against the mortgagor, though the mortgagee might be bound for the excess by reason of his sanction, the mortgagor would not be bound, for the sanction by the mortgagee would be held as given by him in his personal capacity and not in his capacity of mortgagee."
"In the first place, I assent entirely to every word of the judgment which has just been read by my brother Romer, in so far as it deals with the question which relates to matters which do not, strictly speaking, concern the mortgagor, and which involves costs incurred by the mortgagee otherwise than as mortgagee strictly speaking. I mean by that such costs as are outside the costs for which the mortgagor would be liable. As far as I am concerned, I do not wish to go beyond that."
"he had taxed the bill as between the solicitors and their client in so far as in his judgment such costs came within the scope of the liability of the third party; that he considered that the agreement was not for an indemnity, but meant that fair, reasonable, and proper costs as between solicitor and client should be paid by the third party, leaving all costs that were luxurious, unnecessary, or unreasonable to be paid by the client."
"In my opinion the proper construction of that agreement is that Mr. Edwardes made himself liable for all costs which would ordinarily be allowed between solicitor and client on taxation. In my view he did not make himself liable for items which could not be properly charged by the solicitor against his own client except by virtue of some special agreement. Test it in this way. Suppose the lady had agreed to pay 50l. to the solicitors as a retaining fee, and assuming it was paid under circumstances which precluded her from getting it back again, could it be said that it was within the contemplation of the parties to this agreement that Mr. Edwardes should be liable to pay such an item as that? To my mind, no. I think he has contracted to pay solicitor and client costs to be taxed in the ordinary way without regard to any special arrangement which may have extended the client's ordinary liability."
"I should like to say a word on the so-called hardship to solicitors which may be caused by this decision. The hardship would be the other way, to my mind, if we decided differently. It would be a great hardship if a person who had made himself liable to pay solicitor and client costs of the ordinary kind could, by taking an order under section 38, find himself liable to pay sums which he knew nothing about - sums only chargeable against the client by virtue of some special agreement. There, to my mind, would lie the hardship. On the other hand, I see no hardship on the solicitors. They have always the liability of their own client to fall back upon. Every solicitor knows his liability to have his bill of costs taxed. His bill is always liable to be taxed under the third-party section, and, if he puts into his bill items which cannot be charged against the third party, it is no hardship on him if they are not allowed, nor is it any hardship that he cannot be allowed extra - items which can only be allowed by special agreement when a bill is taxed between solicitor and client."
"But the submission that, if the account were taxed down, the plaintiff could, as of course, have an order against the defendants to pay the amount disallowed, is not in my judgment well founded. The third party taxation under section 70(1) [of the 1957 Act] is a taxation, not of the solicitor's bill as between the plaintiff and the solicitors, but as between the solicitors and client, i.e. between the mortgagee and its solicitors: see Re Longbotham & Sons.
The plaintiff as mortgagor has, or may have, only a limited interest in the bill delivered by the mortgagee's solicitors to the mortgagee, and it is only to the extent that there may be included in it any items which the mortgagee may claim were costs properly incurred by it in regard to its mortgage, and to which the plaintiff may be liable as between mortgagor and mortgagee, that the plaintiff [is] concerned with the bill at all. The purpose of the taxation is not to ascertain the liability to the plaintiff of the solicitor, or the amount of his overpayment, but to ascertain the amount of the mortgagee's costs properly incurred in regard to the mortgage. As was pointed out in Re Longbotham the result on taxation may be that items which the mortgagee was not liable to pay may be disallowed on such a taxation though they may be allowable as between a mortgagee and his solicitor. It is in the light of these considerations that the submission that the plaintiff would be entitled to payment from the defendants of any amounts disallowed on taxation of the bill, is to be examined. There was no relationship of solicitor and client between the defendants and the plaintiff, and there is nothing is section 70(1) to impose liability on the solicitor whose bill is being taxed to account to the third party, or to pay to that party the amount disallowed.
In view of this difficulty it was urged that here the defendants had paid themselves with money belonging to the plaintiff, and that to the extent that they had been overpaid, or to the extent that they had overpaid themselves, they must repay the plaintiff. These are not, however, proceedings in an action to make the defendants account for moneys of the plaintiff coming into their hands, but proceedings under the Solicitors Act 1957 for a taxation of a bill of costs, and I have not had my attention directed to any provision of any enactment which requires the court to direct payment to a third party mortgagor of sums taxed off the bill of the mortgagee's solicitors. Moreover, to say here that the bill, to the extent that it represented an overcharge, was paid out of the money belonging to the plaintiff, would prejudge the state of account as between the plaintiff and the mortgagee. As I have indicated, the mortgagee here in fact claims that it has not recovered the full amount of interest due under the mortgage, and in any case in which the mortgagee's security is insufficient to satisfy the mortgage, interest and costs, an order against the defendants, such as is suggested, would work an injustice to the mortgagee."
Is the position the same under the present Act as under the 1843 Act?
Quantification – the effect of the older cases
"I think that solicitors acting for executors or trustees cannot be said to have dealt properly with their clients if they have charged the executors or trustees to any considerable extent beyond what would be allowed to them in their accounts with the estate which they represent."
"On an assessment under section 71 the court is entitled to interfere with the hourly rate agreed between the solicitor and the client; but only to the extent that it could have interfered with it at the behest of the client."
He went on to point out that in a case where the client had agreed the rate there was very little scope for such interference, because of the presumption under CPR rule 48.8(2)(b).
Payment or repayment
Lord Justice Kitchin
Lord Justice Ward