England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		09/05/07

Mr Justice Briggs:

1. This is an appeal by Dr Ilangaratne, brought with the permission of Rimer J, against the Order of Deputy Master Seager-Berry, sitting as a costs judge, made on 12 July 2006, and superseded by an order with further provisions as to costs on 8th August 2006. Dr Ilangaratne appeared in person and conducted his appeal both orally, and by skeleton argument, with courtesy, economy and considerable skill.
2. In order to understand precisely what it is that Dr Ilangaratne appeals against, it is necessary to explain the background to the Deputy Master's Order, and to the Judgment given by him extempore on 12^th July 2006.
3. Dr Ilangaratne was the unsuccessful claimant in a negligence action against the British Medical Association ("the BMA"), the respondent to this appeal. Judgment was given in the Central London County Court after a lengthy trial, on 18^th December 2002, and Dr Ilangaratne was ordered to pay the BMA's costs.
4. On 29^th October 2004 Master Seager-Berry ordered the issue of an interim costs certificate ("the Interim Certificate")in favour of the BMA in the sum of £120,000, in relation to its claim for costs in excess of £200,000, and ordered that further Points of Dispute be filed in relation to one outstanding item in the Bill of Costs.
5. Master Seager-Berry refused permission to appeal, but permission was granted on four specific grounds by Gray J. on 16^th February 2005, and the appeal was heard by Warren J. sitting with Costs Judge Campbell and Mr Peter Todd as Assessors on 23^rd June 2005.
6. One of the four grounds of appeal was that the claim for costs upheld by the October 2004 Order offended against the indemnity principle, under which a paying party cannot be ordered to pay any costs in excess of the sum which the receiving party is liable to pay its own solicitors: see Gundry v Sainsbury [1910] 1KB 645. Dr Ilangaratne's submission was that, because the BMA had defended his claim with the assistance of insurers namely Royal & Sun Alliance ("RSA"), and RSA had instructed Messrs LeBoeuf, Lamb, Greene & MacRae ("LLGM"), and since the BMA had not disclosed its contract of insurance with RSA, it should be inferred that there was no retainer between BMA and LLGM pursuant to which the BMA were under any liability to pay their fees.
7. Warren J rejected that submission on the conventional ground that where litigation is conducted for a party at the expense and on the instructions of its insurers, the court will readily infer that the party is nonetheless the client of the solicitors pursuant to a contract of retainer.
8. In relation to the present case, Warren J said this:

"In the present case, there is not the slightest evidence to suggest that the arrangements between BMA and its insurers were any different from the general run of actions where a party is insured."

"I do not consider that Dr Ilangaratne has any prospect of establishing before the Master that the indemnity principle is breached because there was no retainer at all. At most he might be able to argue that the terms of the retainer do not permit recovery of the full amount which is claimed"

Warren J rejected all Dr Ilangaratne's other grounds of appeal.

9. Nonetheless, the experience of the Assessors sitting with Warren J was that the rates of charging applied by LLGM to obtain its Interim Certificate from the Master were "significantly higher than those they would expect to see in cases of this nature where insurers are funding the defence" (paragraph 33 of Warren J's judgment). The learned judge continued:

"My Assessors express surprise that, as no retainer documents have accompanied the bill when it was lodged at the Court for assessment, the Master did not, in the circumstances of the present case, ask for production to him under the Costs Practice Direction section 40.14 of any document which dealt with the rate of charging which solicitors acting for the BMA and the insurers were to pay. By that route, the Master could have satisfied himself that there were no concerns that the costs which it is now sought to recover might not be in accordance with the charges previously agreed between the solicitors and insurers."

10. In relation to this issue, Warren J. was told, in response to questions from him and from the Assessors, that although a retainer for any specific case might be concluded informally by a request from the BMA to its insurers that they retain solicitors, and by subsequent contact between RSA and LLGM, the terms of any such retainer, and in particular the applicable charging rates would be governed by a "standing arrangement" already in place, governing the conduct of litigation by LLGM for insured customers of RSA, and that the present was just such a case.
11. In paragraph 41 of his judgment, Warren J. continued:

"Now, I appreciate that the Master himself was not told what I was told, namely that there was a pre-existing standing arrangement between the solicitors and the insurers. Had he known that, he himself might well have asked for further clarification. Although the matter does not come before me by way of a formal re-hearing, I do not think that I should ignore the additional material which I now have in attaching proper weight to doubt which arises, in the view of my Assessors, about the hourly charging rates…."

After making it clear that he meant no accusation of malpractice against LLGM, he continued:

"I do, however, consider that in the light of all the information before me, the matter should go back to the Master to enable him to take such steps as he thinks appropriate to satisfy himself whether or not the indemnity principle is satisfied. I do not rule that he must necessarily ask to see the documents governing the standing arrangements between the insurer and the solicitors. He may, for instance, be satisfied, if it is forthcoming, by a letter from the solicitors which states clearly that the charging rates in the bill are in accordance with the standing arrangements and that there would be no form of capping of the solicitors' fees had Dr Ilangaratne been successful in his action against the BMA. "

He concluded:

"Accordingly, this appeal is allowed to the limited extent only that the matter should return to the Master for him to take further steps in the light of this judgment to satisfy himself whether or not the indemnity principle is satisfied."

12. Master Seager- Berry had retired by the time Warren J's judgment was handed down on the 4^th October 2005, but he continued to deal with the matter as a Deputy. He gave written directions in relation to the matter referred back to him by Warren J on 21^st October 2005, again on 22 February 2006, and again on 14^th June 2006. As a result, by the time of the hearing on 12^th July 2006, the BMA had disclosed under cover of a letter from LGM dated 23^rd March 2006, an earlier letter dated 18^th December 2000 from their partner Mr Rochez to RSA which, it was submitted, constituted the "standing arrangement". I shall refer to it as the "December 2000 letter".
13. LLGM's letter of 23^rd March 2006 also revealed for the first time that the Bill of Costs (upon which the Interim Certificate had been issued) had been prepared on the basis (among others) of an invoice for £68,256.50 plus disbursements and VAT dated 24^th January 2003, which had, following discussions "with the client" (which I infer means RSA) been re-issued in the sum of £45,000 plus disbursements and VAT. After an unreserved apology, the letter invited the imposition of a limit of £94,222.24 to Part 3 of the Bill of Costs, in which the previous profit cost element assessed by Master Seager Berry at £67,461.58 would be reduced to £57,328.25, with consequential adjustments of the relevant VAT.
14. The March 2006 letter also stated that whereas the December 2000 letter had identified a charging rate of £110.00 per hour for a trainee, a higher rate had in fact been charged in the present case, namely £115.00 per hour. I shall refer below to the two specific matters disclosed in the March 2006 letter as (i) the January 2003 invoice issue and (ii) the trainee rate issue.
15. Turning to the December 2000 letter, it was written to RSA relatively soon after Mr Rochez had left Davies Arnold Cooper and joined LLGM. It began:

"I thought is sensible, particularly with David Wilkinson joining us, that I now write to record our various discussions through the last year during which we have considered various approaches to costs and individual charging rates."

Mr Rochez recalled that at Davies Arnold Cooper he had been charged out at £280.00 per hour to RSA, and recorded discussions since his joining LLGM pursuant to which there was to be a flexible rate for his time rising to £300.00 "or at its highest £325.00". He then identified specific charging rates between £175 and £240 per hour for named members of LLGM, and a charging rate for trainees and paralegals of "up to £110.00 per hour depending on the individual and the nature of the work." He then proposed a rate for David Wilkinson of £275.00 per hour and continued:

"I know we share a view that charging by an hourly rate is a deeply unsatisfactory approach to costs. What is important is to provide "added value"; something I have always strived to achieve. The difficulty is to provide tangible evidence of "value for money" rather than some perception. Once we see how 2001 develops then it would be appropriate that David and I met with you to assess our level of business, the service provided and how we can cost this in a way that creates real value. In the meantime, I am happy with the way we have progressed this year, and I am grateful to you for allowing some flexibility in my own rate, which, in turn, allows me to consider how best I can add "value"."

16. The December 2000 letter, together with the explanation offered in the March 2006 letter with which it was enclosed, constituted the material before the Deputy Master upon which he gave his extempore judgment on 12^th July 2006. Unfortunately, no recording of his judgment survived, and he was obliged to issue a revised judgment, with the assistance of notes taken by the parties. The Deputy Master concluded that the December 2000 letter was a binding and enforceable agreement, which included charging rates in the form of a bracket for Mr Rochez, specific rates for named fee earners and hourly rates for trainees and paralegals, as well as a proposed rate for new fee earners. He rejected a submission that it was a mere negotiating document rendered inadmissible by reason of the dictum of Lord Hoffmann in the ICS case [1998] 1 WLR 896 at 913 that "the law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent".
17. The Deputy Master had already correctly identified his task by saying that Warren J had "referred back to him the indemnity principle point". He concluded that the Bill of Costs inter parties did not breach the hourly rate identified in the December 2000 letter for a partner or senior assistant, or for the assistant solicitor. He noted that documents attached to the bill suggested that in certain respects higher hourly charging rates had been used, but not in the inter parties bill itself, save for the trainee's charges, which he held should be reduced from £115.00 per hour to £110.00 per hour "subject to any evidence which the defendant or the defendant's solicitors are able to provide…"
18. He then turned to the January 2003 invoice issue and continued, in paragraphs 9 and 10 of his revised judgment:

"Another issue on which clarification is required, is the proposed substitute figure of £57,328.25. It is sufficiently low to avoid the indemnity principle being breached. I accept that in a commercial world, negotiations take place in which finer details are put on one side, and a global approach is adopted. It seems likely to me that the indemnity principle has not been breached. The claimant is a litigant in person, and he needs the comfort of knowing whether or not the figure does or does not breach the indemnity principle.

Regrettably two issues remain unresolved. The costs certificate reflects a significant sum. There has been a reduction, but the Court needs to be satisfied that the concerns raised by the learned Judge have been properly dealt with."

I infer that this last paragraph was a reference both to the January 2003 invoice issue and to the trainee rate issue, because in the Order of the same date, and the revised Order dated 8^th August 2006, the Deputy Master gave directions for further information about both those issues to be provided by the BMA to Dr Ilangaratne, and for Dr Ilangaratne to reply, with provision for a further hearing if, after use by the parties of their best endeavours to agree, either of those issues remained outstanding. He ordered the BMA to pay 75% of Dr Ilangaratne's costs and Dr Ilangaratne to pay 25% of BMA's costs, in both cases on a standard basis.

19. Dr Ilangaratne appeals with the permission of Rimer J. on three of the six grounds identified in his Appellant's Notice, having been refused permission in relation to the other three. He has also sought to introduce a fresh ground of appeal at this hearing, to which I shall refer below.
20. Before considering Dr Ilangaratne's grounds of appeal, it is instructive to identify what, in substance, the Deputy Master decided on 12^th July 2006. He was (per Warren J in paragraph 43 of his judgment) "to satisfy himself whether or not the indemnity principle is satisfied" or, as paraphrased in the Order made by Warren J on 4^th October 2005, to determine "whether or not the indemnity principle is satisfied only". The concern which had led to the matter being remitted to him was not that there might be no contract of retainer between the BMA and LLGM, a proposition which Warren J had rejected out of hand, but that there might be a contract which provided for charging rates lower than those to be found in the Bill of Costs, as both he and his Assessors thought possible. Unless there was such an agreement, the Deputy Master's earlier Interim Certificate was to stand, all other grounds of appeal against it having been rejected. It follows that it was not for the BMA to justify its Bill of Costs, and therefore the Interim Certificate, by reference to a contract which provided for charging rates which the Deputy Master had earlier accepted as reasonable. It was merely for the BMA to take such steps, either voluntarily or as directed by the Deputy Master, as were sufficient to enable him to satisfy himself that there was no contract providing for lower charging rates.
21. By directing the provision of further information, a reply, and in the absence of agreement, a further hearing in relation to the January 2003 invoice issue and the trainee rate issue, the Deputy Master was in my judgment plainly reserving to a future hearing any final decision, in relation to those two issues, whether there had been a breach of the indemnity principle. His revised judgment reflected a provisional conclusion that there probably had been in relation to the trainee rate issue, unless the BMA or its solicitors were able to prove otherwise, and that there had probably had not been in relation to the January 2003 invoice issue, because it reflected an agreed reduction of fees below a level at which a breach of the principle was at all likely. It is however plain that those conclusions were only provisional, because a reading of the revised judgment and the Order and revised Order demonstrates that the two questions were still at large.
22. By contrast, it seems to me that his conclusion that the December 2000 letter was a binding and enforceable agreement necessarily involved a finding that, save in relation to those two discrete issues, there had been no breach of the indemnity principle reflected either in the Bill of Costs or, therefore, in the Interim Certificate. It is that conclusion which Dr Ilangaratne challenges by his appeal.
23. I should add that following the Deputy Master's judgment, there was further communication between the parties about two discrete issues, followed by a hearing on 17^th January 2007 attended by counsel and solicitors for the BMA, but not by Dr Ilangaratne, who merely made written submissions. At that hearing the BMA conceded the trainee rate issue, but succeeded on the January 2003 invoice issue. The Deputy Master's decision to that effect on 17^th January 2007 is not the subject of this appeal, although Dr Ilangaratne made it clear to me that he disagrees with it.
24. I turn therefore to Dr Ilangaratne's grounds of appeal against the Deputy Master's decision on 12^th July 2006. The first two may be grouped together (as they were by Rimer J. when giving permission to appeal). In substance, they assert that the Deputy Master was wrong to conclude that the December 2000 letter constituted a binding and enforceable agreement, or formed any part of the retainer.
25. By Respondent's Notice, the BMA contend in the alternative to the conclusion reached by the Deputy Master that the December 2000 letter either evidenced an earlier binding and enforceable oral agreement or an agreement by conduct, or formed part of the process of the making of a later agreement by conduct, in each case so as to define contractually, as between the BMA and LLGM the chargeable rates or bands in respect of LLGM's conduct of the defence to Dr Ilangaratne's claim.
26. In order to understand the relationship between the December 2000 letter and LLGM's retainer in respect of the defence of Dr Ilangaratne's claim, it needs to be borne in mind that he issued proceedings on 23^rd October 2000, slightly less than 2 months before the letter itself, and that those proceedings led to judgment on 18^th December 2002. Although this has not been explored in any evidence or submissions, I infer that LLGM must have been retained shortly before the December 2000 letter was written.
27. In my judgment the December 2000 letter was not itself a written contract of retainer, or a self contained contract at all. It was a letter which evidenced that, when it was written, the standing arrangement between LLGM and RSA was such that any instructions by RSA to LLGM in relation to a matter for one of RSA's insured customers would give rise to a retainer between the customer and LLGM the terms of which included by incorporation, remuneration for LLGM's services at the charging rates described in the letter as being already agreed or in force. Thus for example, any such retainer would be on terms that Mr Rochez could be charged out at a band between £280.00 per hour and £325.00 per hour, depending on the weight of the case, and that the other individuals either named or classified would be charged out at the rates specified. By way of exception, it is evident that there was no standing arrangement or agreement as to the rate at which David Wilkinson was to be charged out, but merely a proposal.
28. Since it is probable that the retainer between the BMA and LLGM was made shortly before the December 2000 letter was written, it is in my judgment a reasonable and proper inference that when the BMA requested RSA to instruct solicitors to defend the claim, and RSA duly instructed LLGM, there was incorporated into the contract of retainer thereby created provision for remuneration at the rates which I have described, not because of the December 2000 letter itself, but because of the prior discussions which it records and evidences. Alternatively, if the retainer of LLGM in the present case occurred shortly after the December 2000 letter, then there were incorporated into it terms as to remuneration as set out in the letter itself.
29. In my judgment, and I have reinforced in this by receiving advice as to the experience of my Assessors, who are the very same Assessors as assisted Warren J, where solicitors who contemplate acting in a number of similar matters for a particular client propose, discuss or agree charging rates in general terms (i.e. unconnected with any specific retainer) then any retainer subsequently made in which there is expressed no contrary intention is likely to be held to include by way of incorporation the charging rates thus proposed, discussed or agreed. In relation to charging rates previously agreed, the prior agreement constitutes a form of master agreement incorporated in each subsequent retainer. In relation to charging rates which are merely proposed or discussed, those proposals or discussions are likely to be found to constitute standing offers to provide legal services if retained within the category of case under discussion, which are by implication or by conduct accepted when instructions for any particular subsequent case are first given and received.
30. That is in my judgment exactly what occurred in this case, and it explains why, correctly in my opinion, the Deputy Master considered that in the light of the charging rate for trainees of £110.00 per hour, it would be for LLGM to prove an express agreement for a higher charging rate before they could justify within the indemnity principle any rate higher than £110.00 per hour in the bill of costs.
31. In reaching that conclusion, I have considered with my Assessors and rejected the following submissions from Dr Ilangaratne. The first, (a repetition of a submission to the Deputy Master) was that the December 2000 letter was merely a negotiating document, and therefore inadmissible. In my judgment that misconceives the nature of the principle enunciated by Lord Hoffmann in the ICS case, which is merely that evidence of what the parties said or did in negotiation is inadmissible for the purpose of construction of a contract. Evidence of negotiations has never been inadmissible on the question whether or not a contract has been made, and if so on upon what express terms. The reason for the exclusion of negotiations as an aid to construction is precisely because the parties have, by a later document or form of words, expressed their common intention in a manner which thereafter falls to be construed objectively. Here, there was either an earlier agreement shortly before the December 2000 letter was written or one made shortly thereafter which incorporated its terms as to hourly charging rates.
32. Dr Ilangaratne's second submission was that there could not be any lawful contract of retainer between the BMA and LLGM, because the process whereby the charging rates had been agreed (if they had) involved a breach of the Solicitors' Costs Information and Client Care Code 1999, made pursuant to Rule 15 of the Solicitors' Practice Rules 1990. I reject this submission, because there is Court of Appeal authority to the effect that a breach of the Code does not render the related retainer unlawful: see Garbutt & anr v Edwards & anr [2006] 1Costs LR 143, in particular paragraphs 34, 41 and 42 of the Judgment of Arden LJ. Accordingly, the question whether the facts of this case disclose a breach of the Code does not arise, and I say nothing more about it.
33. Dr Ilangaratne's most fundamental submission was that the court should infer from the facts that a) the December 2000 letter is not itself a contract, b) the BMA's refusal to provide disclosure of the underling insurance contract, and c) the absence of any other evidence, that there was in truth no retainer at all between the BMA and LLGM.
34. As I have already noted, that submission was roundly rejected by Warren J. in October 2005. It was not a point which was remitted to the Deputy Master to reconsider, and even if it had been, nothing in the material before the Deputy Master in July 2006 would have justified any such radical conclusion. In my judgment, consistent with the typical case where solicitors are retained by an insurer for its insured customer, the inference of a retainer by the customer is easily, normally and appropriately drawn. Nothing in this case affords any basis for a contrary conclusion.
35. I turn to Dr Ilangaratne's remaining ground of appeal (number 5 in the Appellant's Notice) for which, not without hesitation, Rimer J. gave permission. He said:

"For myself I doubt if ground five add anything to grounds one and two. If Dr Ilangaratne succeeds on grounds one and two he does not need ground five; and if he fails in them ground five is not going to help him."

36. By ground 5, Dr Ilangaratne seeks to suggest that since clear breaches of the indemnity principle were disclosed at the hearing before the Deputy Master both as to charging rates and quantum, his view "it seems likely to me that the indemnity principle has not been breached" in paragraph 9 of his proposed judgment involved an error and a breach of natural justice.
37. In my judgment, this ground of appeal is misconceived. The observations of the Deputy Master criticised in ground 5 were, as I have shown, made by him specifically in relation to the January 2003 invoice issue. It was plainly only a provisional decision, because the Master gave directions for further information and, if necessary, the final determination of that issue in his Order and revised Order, and has subsequently determined that issue at a later hearing, which is not the subject of this appeal.
38. It is however fair to say that, save in relation to that issue, and the trainee rate issue, the Deputy Master did in substance decide that no other breach or potential breach of the indemnity principle was disclosed as the result of the enquiry remitted to him by Warren J. In my judgment, he was both entitled and correct to come to that conclusion on the material before him, and there was no procedural error in the directions which he gave prior to that hearing capable of vitiating his decision upon the basis that it was made upon inadequate materials. In order to avoid disputes about costs turning into disproportionate satellite litigation, the Costs Judge has a broad discretion as to the evidential and other preparation which needs to precede his decision on any matter which is in dispute: see in particular Bailey v IBC Vehicles Ltd [1998] 3 ALL ER 570, per Judge LJ, where he said:

"…the danger of "satellite litigation" is acute. As far as possible consistent with the need to arrive at a decision which does broad justice between the parties, it must be prevented or avoided, and the additional effort required of the parties kept to the absolute minimum necessary for the taxing officer properly to perform his function."

39. I turn finally to the additional ground which Dr Ilangaratne sought to advance at the hearing of the appeal. It is that the Master's decision in July 2006 should be set aside as vitiated by apparent bias. Again, this ground is advanced by reference to paragraph 9 of the revised Judgment wherein Dr Ilangaratne suggests that the Deputy Master prejudged the question whether there had been a breach of the indemnity principle. I consider that he did nothing of the sort, for the reasons already set out, and if even if he did, that would come nowhere near to establishing a case of apparent bias. Accordingly, this is a ground in respect of which Dr Ilangaratne has no realistic prospect of success and I refuse permission for it to be advanced at this late stage.
40. It follows that Dr Ilangaratne's appeal fails and must be dismissed. My conclusion to that effect is of course mine alone, but I acknowledge with gratitude the assistance and advice which I have received from my Assessors, in a relatively specialised area where they do and I do not have substantial experience. They wish it to be known that, having studied the materials now available, and listened to Dr Ilangaratne's submissions, the concern which they expressed to Warren J, which led to this further litigation about the BMA's claim for costs, have been laid to rest.