Scottish Court of Session Decisions

The summons in this action was signeted on 2 May, 1989. It arose out of complaints made by the pursuers about the professional services rendered by the first defenders as consulting engineers and about the performance of the second defenders as specialist earthworks contractors in connection with a sheltered housing project in Aberdeen. On 25 July, 1995, following a procedure roll debate, the Lord Ordinary excluded from probation certain of the pursuers' averments against the second defenders, and otherwise allowed proof before answer. On 21 February, 1996, a diet of proof was fixed for 14 January, 1997 and the following six weeks. The action settled on 24 December, 1996 when the defenders agreed to pay damages of £0.77M. On 26 February, 1997 the pursuers were found entitled to the taxed expenses of the action. The Auditor of Court in due course reported on the taxation. The present dispute relates to one aspect only of the pursuers' claim to recover expenses from the defenders, described as the "commitment fees" paid to counsel instructed for the proof.

Parties' solicitors entered into correspondence towards the end of 1996 in which they exchanged information about the rates of remuneration sought by counsel for the proof. On 18 November, the pursuers' solicitors wrote to each of the defenders' solicitors intimating that the clerk of senior counsel, Mr. J. G. Reid, Q.C., had written asking for payment of a commitment fee, and stating:

The conditions provided for rebate of the commitment fee by £2,250 for each complete four day week during which the proof continued. The defenders' solicitors did not respond. The pursuers' solicitors wrote to counsel's clerk on 28 November, 1996, agreeing to make payment of the commitment fee. When the case settled, the fee of £9,000 was paid to Mr Reid. A commitment fee of £4,800 was paid to junior counsel, Mr Clive. The commitment fees charged by and paid to counsel were in addition to the fees charged for preparation for the proof. Mr Reid was paid fees for thirteen and a quarter days of preparation, and Mr Clive for five days of preparation, in each case including pre-proof consultations.

Additional background information available to the auditor is set out in the pursuers' account of expenses and in his report dated 24 March, 1998. The pursuers' solicitors spoke to the first defenders' solicitors regarding proposals for settlement of the action on 15 November, 1996. They were informed that there would be a response. The pursuers' first pre-proof consultation was held that day. At that consultation it was arranged that counsel would keep their diaries free from competing instructions for the duration of the proof. No response was received to the proposals for settlement. On 22 November, a minute of amendment was lodged on behalf of the first defenders. A further pre-proof consultation was held on 2 December. Answers to the first defender' minute of amendment were prepared and revised. Preparations for the proof continued. On 16 December a first offer was made by Minute of Tender. Thereafter the case settled on Christmas Eve as already mentioned.

There was a full debate at the taxation before the auditor. He was referred to a number of authorities: Macnaughton v Macnaughton 1949 S.C. 42; Gorrie v Ciba Geigy Ltd. 25 June, 1996; Kenny v Lord Advocate 1993 S.L.T. 372; Caledonian Railway Co. v Greenock Corporation 1922 S.C. 299 and Ahmed's Trustee v Ahmed (No1) 1993 S.L.T. 390. He was referred to Rule of Court 42.10.(1) and Practice Note No 5 of 1996, which was issued in response to Gorrie v Ciba Geigy. His report, and a later minute in response to the defenders' note of objections, contain a comprehensive statement of the reasons for his decision in allowing the fees. It is appropriate at the outset to say a little about the court's approach to a challenge to the auditor's determination of the fees payable as between party and party. Counsel were in agreement that the auditor is the proper officer to decide whether expenditure has been incurred properly in the conduct of litigation: Caledonian Railway Co. v Greenock Corporation at page 311; Macnaughton v Macnaughton; Wood v Miller 1960 S.C. 86 at 97-8; and Ahmed's Trustee v Ahmed. The court will interfere in limited circumstances. For present purposes the issues were whether the auditor had taken into account irrelevant matters, had failed to take into account relevant matters, and whether he had mistaken or misunderstood the relevant test of allowable expenditure as between party and party.

The auditor's conclusion in his report was in these terms:

For the Noters, Lord Mackay of Drumadoon argued that the auditor had applied the wrong test. He had dealt with the test of reasonableness on an agent and client basis. He had ignored the interests of the defenders. As between parties reasonableness had to be tested objectively. The public interest in the cost of litigation was not excluded. Necessity and economy might have been removed from the definition of the test, but they could still be relevant factors in deciding what was reasonable for the proper conduct of the litigation. Thus there might be a difference between the rates of counsel. It could not be reasonable as between parties simply to charge fees at the highest rate because the most expensive counsel had been instructed. The Practice Note of 1996 was unclear in its meaning. The Guide to Professional Conduct of Advocates could not add to, or amend, the Rule of Court. The Guide dealt with what an advocate was entitled to charge. It had no bearing on what counsel was entitled to have paid. The Guide, and in particular paragraph 5.12, applied to every case. On its terms it could mean that counsel could charge for the whole duration of a projected proof even if it were to settle on the first day, and could charge an additional commitment fee (though not referred to in the Guide) as well as for preparation. A commitment fee was a new and anomalous phenomenon. It was a payment for work not done, and, in that respect, was distinguished from the general class of fees. It was, even now, infrequently asked for and even less frequently agreed even as between client and agent. Solicitors who refused such a payment had no difficulty in instructing alternative counsel. For present purposes, the proper focus was as between party and party: Cooper & Wood v North British Railway Co. (1863) 2 M 346. An excessive fee could not be reasonable. Recoverable fees had to be assessed objectively, not by reference to what was paid, but to what would have been sufficient to engage competent counsel in a case of similar character: Caledonian Railway Co. v Greenock Corporation. Eminent counsel must not be allowed to throw an extra burden on unsuccessful parties: ibid. It was not in the public interest that particular counsel, or a particular clerk, should develop practices which had that effect. The auditor's role was to interpret practice of law agents generally, and objectively. Special arrangements would not be enforced as between parties: Macnaughton v Macnaughton. That case indicated what a "full time fee" was. Its essential characteristic was an engagement to sacrifice other work which might interfere with the case in question. The public interest required control over the expense of litigation. It was not for the auditor to introduce a new practice: compare Ovenstore v Ovenstone 1922 S.L.T. 65. Lord Osborne's opinion in Gorrie v Ciba Geigy Ltd should be followed. There was nothing in the Rules of Court to suggest that depriving counsel of the opportunity of conducting some other case could be relevant as between parties. The auditor in the present had misunderstood Gorrie. It was not concerned with preparation fees: the fees were not charged on that basis. The auditor also misunderstood Caledonian Railway Co. v Greenock Corporation and Macnaughton v Macnaughton. A material factor in understanding the objection to "full-time" fees was that they included compensation for the loss of remunerative work, and were not wholly remuneration for work done. It was that which was against the public interest. The auditor was wrong in law in implying that those cases were no longer relevant. It was clear in this case that the fees were to cover additional compensation of the kind discussed in Cooper & Wood v North British Railway Co. If the audit

For the pursuers, Mr Anderson argued that the objections should be repelled. The auditor had applied the correct test. What had been agreed was a commitment fee equivalent to six days' fees over a six week proof, rebated according to the actual length of the proof if it had taken place. Practice was developing. It was now recognised that new elements were appropriate in the feeing of litigation. Preparation fees were common. There was only one test: what was reasonable for the proper conduct of the litigation: Ahmed. Even if the older cases were relevant, the present situation was distinguished from the full time fees considered in Macnaughton v Macnaughton and Cooper & Wood v North British Railway Co. The full time fee was something outwith the normal course of business, something extraordinary and unacceptable. In current experience, long proofs and arbitrations were common. It was equally common for fees to be agreed in advance. That was fair both to counsel and client. No other profession would proceed with work without an understanding of the scope and level of fees chargeable. The particular practice in this case was becoming increasingly common. The auditor knew the practice of the profession and must be assumed to be aware of these developments. The arrangement could no longer be considered to be unusual. In any event it was for the auditor to judge that. Mr Anderson drew attention to contrary observations in Malpas v Fife Council 1999 S.L.T. 499. The Lord Ordinary there had applied the wrong test. In the present case the auditor had applied the precise test now prescribed in the Rules. It was almost axiomatic that the defenders must have had in contemplation the expense claimed. The proof was due to start on 14 January, 1997. The first offer was made on 15 November, 1996. The case settled on 24 December, in real terms, given the intervention of the holiday period, a week from the beginning of the proof. It was self evident that the defenders would have known that there would be a commitment fee. The precise terms did not have to be anticipated, or known, though in this case they were. But it was acceptable in general that the defenders must have known that there would be a fee. That dealt with what appeared to be the test in Malpas v Fife Council. One did not have to know the sum, only that a fee of the character involved would be paid. It must have been in contemplation that there would be expense. The precise mechanism was not a material consideration. Lord Mackay was wrong in attempting to make the performance of work the criterion. It was common practice for the first day's fee or first two days' fees to be paid on late settlement. There was often an element of payment for preparation in such a fee, but that was not its sole justification. The substantial part of the fee related to commitment. Kenny v Lord Advocate provided an example of the practice. There was nothing novel in the practice. The true question was what was justified by normal practice, ultimately expressed as what was reasonable for the proper conduct of the case. Necessity and economy had been removed from the test. The auditor had not failed in his duty. His decision was well within the scope of his discretion.

For the reasons discussed in Ahmed's Trustee, I am of opinion that the test prescribed in Rule 42.10-(1) is materially different from the previous formulations which required the application of tests of necessity, in one form or another, and due regard to economy, in the proper conduct of litigation. It was unnecessary in that case to go further than express reservations about the relevance of authorities relating to the earlier tests. Lord Mackay's argument in the present case was that the earlier authorities remained relevant to the application of the present test. The Rules of Court maintain a distinction between agent and client accounts and party and party accounts. Rule 42.7.-(6) provides for taxation of agent and client accounts, when remitted to the auditor, to determine what work and outlays have been reasonably incurred, and what sums should be paid for each item according to what is fair and reasonable in all of the circumstances. The auditor may take into account all or any of the factors listed in Rule 42.7.-(6) (c). Otherwise, Rule 41.10.-(1) prescribes as a test of recovery: "only such expenses as are reasonable for conducting the cause in a proper manner." Rule 42.14 provides for additional remuneration for a solicitor in appropriate circumstances to be allowed on a motion to the court. There are some differences in detail between the factors specified in Rules 42.7.-(6) (c) and 42.14. Paragraph (iii) of the former and paragraph (3) (g) of the latter have no direct equivalents in the other rule. There is a more material difference, at least of language, between the overall tests of "fair and reasonable in all of the circumstances" and "reasonable for conducting the cause in a proper manner". One must assume that the rules envisage the possibility that there may be expenses and fees which it is fair to impose on a client because of his relationship with his solicitor and the circumstances in which work is performed on his instructions, and expenses which it is appropriate to recover from an unsuccessful opponent. Rule 42.10.-(1) must, in my view, be interpreted as imposing an objective test in this context. Negatively, not all of the fees and expenses which it is fair to charge against a client will necessarily be recovered on a party and party taxation. Much of what was said in the older authorities will have an echo in the application of the present rule in these circumstances. But it would be wrong to apply dicta uncritically, ignoring the changes which have taken place. In Cooper & Wood v North British Railway Co., one has a distinction between agent and client charging and party and party charging which could be reflected in current practice. The successful party was not criticised for instructing the Solicitor General. The case was important to the pursuers. But they were not entitled to recover the whole cost from the defenders. One might understand the auditor today proceeding on the basis, as between agent and client, that: "There can be no objection to the employment of the most eminent counsel in any case, however small": Lord President at page 347. If the client wished to be represented by the most eminent counsel, it would be fair that he should pay the cost. Equally one would expect it to be acknowledged that as between parties, the court had an obligation to protect unsuccessful litigants from being unduly burdened by the risk of ruinous expense. But that does not assist in the application of the present test: in prescribing a test of objective reasonableness, the Rules of Court do not deviate from the purpose identified by the Lord President. In my opinion, Lord Mackay was right in arguing (a) that the fact that the auditor's adjudication is between parties is material; and (b) that the wider public interest in the costs of litigation cannot be ignored. The auditor must bring to bear on his asses

In Malpas v Fife Council, Lord Bonomy applied certain dicta of Lord President Cooper in Macnaughton v Macnaughton. I regret that I do not agree with his view that the introduction of the current formulation in the Rules of Court does not affect the guidance found there. The Lord President's observations were clearly influenced by the test of necessity which made the level of allowable expense a function of what was normal in the market. The distinction drawn by the Lord President (page 47) between the concern of the auditor with competent counsel "in general" and special bargains personal to the individual counsel points to a more arbitrary rule than one founded on reasonableness. Reasonableness must include the possibility that a bargain personal to the selected counsel will be found to be an eminently reasonable approach in the circumstances if the case is to be conducted properly. I remain of the view that the current Rules of Court prescribe a single test, and that it is not improved upon by incorporating language and ideas based on the superseded formulation of previous regulations and rules

It is necessary, next, to consider whether the auditor has applied the relevant test. I have some difficulty with the auditor's report. He has dealt at some length with the case of Gorrie and the argument about "full-time" fees in a way which may reflect the argument he heard, but which appears to have little to do with his decision. Lord Mackay's criticism of the auditor's understanding of Gorrie may have some substance. Counsel in that case submitted accounts for fees on the basis that having been instructed for a sixteen day proof they were entitled to payment of sixteen days' fees. The auditor did not allow the whole fees sought, but did allow fees for what he assessed as the reasonable time devoted to preparation. He referred to the fact that the unsuccessful party had paid such fees to their own counsel. The case settled three weeks before the proof. The Lord Ordinary (page 22) referred to the terms of the current rule. He did not disagree with Ahmed. But he remitted the case back because the auditor's treatment of the matter was so obscure that there was no discernible basis for the fees he fixed in name of preparation fees. The pursuers, in what the present auditor describes as a cri de coeur, sought to have the auditor directed to consider the fees in question as compensatory. In that context the Lord Ordinary made general observations which led to the Practice Note. If Lord Osborne meant that a fee in the nature of a commitment fee could never be recovered, then I disagree. I am far from certain that he did mean that. He said at page 31: "To my mind, there is nothing in the Rules of Court which suggests that the deprivation of counsel of the opportunity of conducting some other cause, in consequence of a previous involvement in a case which settles, can be relevant for consideration in a taxation between party and party." A commitment fee need not be of that character. Indeed, when arranged in advance, the primary reason for making such a payment may reasonably be assumed to be to secure the services of the advocate in question for the conduct of the instant litigation. Typically that will involve recognition of the consequence of his engagement, that he will not be free to accept competing instructions for another litigation in a different court at the same time. Lord Osborne appears to have been presented with a different argument. Further, as Lord Mackay agreed, such fees often include an element for preparation when agreed late. In so far as it might be applicable in a situation such as the present, I would consider Lord Osborne's observation to be too absolute. The Practice Note simply underlines the discretionary nature of the test in the Rule. The auditor refers to the appropriate test in this case, and I am of opinion that he clearly had the correct test in mind despite the excursus into the interaction of Gorrie and the Practice Note.

The proper approach to the charging of fees is a matter of professional discipline now regulated by the Faculty of Advocates. The Code provides:

In this case preparation was charged separately. But the Code specifically recognises that it may be proper professional practice to charge a fee where counsel has kept free from other engagements and has been unable to accept other instructions. No doubt Lord Mackay was correct in saying that the appropriateness of any charge, and the amount chargeable where appropriate, will often, if not normally, be negotiated after the event. But prior negotiation may be eminently sensible. The exposure of parties to liability for an opponent's expenses must often be a relevant factor in considering strategy. Advance knowledge of what may be the amount of that liability must be valuable. It cannot be of fundamental importance whether the issue is considered before or after the event. The Code, in either situation, is published, has a measure of acceptance in both branches of the profession, and is, at very least, an indication of what a reasonably competent solicitor might be expected to have in mind in advising a client of the exposure to risk. The auditor cannot be criticised for recognising that such a fee should reasonably have been expected in this case. It is not without significance that the first offer of settlement came as late as December, 1996 in a litigation which began in May, 1989, and that procedural manoeuvring by the defenders should have remained a factor of significance right to the eve of the proof. The generation of anxiety in an opponent may have its price for the initiator of the process as well as the victim. Pursuers exposed to intransigence are bound to require the support and the assurance of consistency which comes from a firm commitment by counsel they know to represent them at proof. The remedy in this case for any disadvantage which may have accrued through the terms on which counsel were prepared to accept instructions lay in the hands of the defenders, or more probably their insurers. Late settlement due to strategic and tactical decisions of defenders is endemic in our system of civil litigation. It is impossible to find sympathy for the defenders. They can succeed in the present objections only in technical grounds. In my opinion the position adopted by the pursuers is preferable on technical grounds. Given the high standard required for interference with the auditor's discretion, I consider that no basis has been made out for sustaining the objections in any respect. It is true that there was no prior stipulation for a commitment fee in the case of junior counsel. That was, so far as the information goes, agreed after settlement. But that merely brings his case closer to what Lord Mackay characterised as the normal situation. So far as quantum is concerned the auditor found the amounts to be reasonable. I consider that there has been no attack of substance on that finding. I shall repel the objections accordingly.