Scottish Court of Session Decisions

[3] On 15 July the petition called on the petitioner's motion for a first order. At that hearing certain of the petitioner's insurance creditors were represented; these consisted of National Grid Insurance Company (Isle of Man) Limited and associated creditors. Mr Sellar, who appeared on behalf of those creditors, explained that they intended to object to the scheme and to the manner in which the requisite meeting of Scheme Creditors was to be held. I was informed that the National Grid creditors considered that the scheme would seriously prejudice their financial position. The purpose of the insurance that had been effected with the petitioner was to provide reinsurance against claims that might be made against the National Grid creditors over a very long period. Such claims were likely in large part to fall into the category incurred but not reported ("IBNR"); these were cases where a claim in fact existed against the relevant insurance creditor but the claim against the creditor had not yet been intimated, with the result that the insurance creditor was unaware of its existence. That inevitably made it extremely difficult to place any value on the claim for the purposes of the scheme of arrangement. A large number of other IBNR creditors existed. Mr. Sellar stated that the National Grid creditors intended to submit in due course that it was not appropriate to hold a single meeting of Scheme Creditors; the IBNR creditors, in particular, were in a significantly different position from the other creditors, and a separate meeting of the IBNR creditors should be summoned. He accepted, however, that under existing Scottish practice it was not possible for creditors to oppose a scheme of arrangement at the stage of the motion for the first order. Instead, the relevant scheme meeting or meetings had to take place in the manner proposed by the petitioning company and, if the scheme were approved at those meetings, any objections as to procedure or substance had to be presented to the court when the motion for approval of the scheme was made. The legal advisers to the National Grid creditors had nevertheless taken view that they should intimate their objection at the earliest possible opportunity. I should say that the existing Scottish practice does appear to me to be defective in cases such as the present; it is clearly desirable that any substantial objections should be argued, if possible, before the expense of convening and holding meetings of creditors is incurred. In these circumstances I consider that the intervention of the National Grid creditors at an early stage was entirely proper. Nevertheless, in accordance with the established practice, I granted the first order, which inter alia appointed the petitioner to fix a single meeting of Scheme Creditors for the purpose of considering and, if thought fit, approving the scheme of arrangement. That meeting was scheduled to take place on 5 September 2005. One further matter of significance occurred at this hearing. The original scheme of arrangement purported to be governed by English law. I indicated that this was wholly inappropriate in a Scottish petition for sanction of a scheme of arrangement. The purpose of such a petition is that a Scottish judge should sanction the scheme. In order to do that he must understand fully the scheme and its implications. If the scheme is governed by a legal system other than Scots law, he cannot do so without external advice, a situation that is obviously most undesirable. In the event, however, counsel who appeared on behalf of the petitioner agreed to amend the scheme to have it governed by Scots law, and this was duly done.

[4] The next development in the court proceedings occurred on 2 September, when General Reinsurance Corporation, another of the petitioner's insurance creditors, lodged a note in the petition process. The purpose of the note was to obtain an order compelling the petitioner to provide a list of actual and potential Scheme Creditors, and a further order to provide the noter with current solvency projections for the petitioner as presented to and discussed with the Financial Services Authority in July or August 2005. An incidental order was sought to declare that any vote at the meeting of Scheme Creditors to be held on 5 September should be null and void; in the event it was agreed by the petitioner that the meeting should not take place on 5 September. The note came before me on 5 September. I was addressed in considerable detail by counsel who appeared on behalf of the noter, the National Grid creditors and the petitioner. Ultimately I decided that the noter should be provided with the names and addresses of the Scheme Creditors; it seemed to me that any other course would create a serious risk that the meeting of such creditors would not adequately represent their true opinions on the scheme. I also ordered that the solvency projections discussed with the Financial Services Authority should be made available to creditors; it seemed to me that there was considerable doubt about the petitioner's true financial position on the basis of the documents that had been made available with the petition and subsequently. I found the petitioner liable to the noter and to the National Grid creditors in the expenses of the hearing of 5 September. A further, relatively short, hearing took place on 9 September, when I decided that the information referred to in the interlocutor of 5 September could be provided by electronic means. On this occasion I decided that no expenses should be due to or by any party in respect of the hearing.

[5] Thereafter the petitioner decided to abandon the petition in terms of Rule of Court 29. On 29 September a motion was enrolled on its behalf to have the petition dismissed and to make no awards of expenses except in so far as expenses had already been dealt with. That motion called on 3 October. A lengthy debate took place on the question of expenses. Mr. McNeill, who appeared on behalf of the noter, moved for expenses on an agent and client basis. He was joined in that motion by Mr. Sellar. I dismissed the petition and found the petitioner liable to the noter and the National Grid creditors in the reasonable expenses occasioned by the petition process on a party and party basis, in so far as they had not already been dealt with. I reached this decision on the basis that, at the hearings that had taken place, the submissions made for the noter and the National Grid creditors had been useful. The case had not technically reached the stage of a discussion on the merits, and in particular on the question of whether all of the Scheme Creditors had a sufficient identity of interest to justify a single meeting. Nevertheless, the arguments that were likely to be presented on those matters were foreshadowed in the course of the hearings, and the petitioner's financial position was discussed in some detail. I thought it desirable that these matters should be discussed at an early stage. In addition, it was clear that extensive preparations had been carried out on the substantive issues that arose in connection with the petition.

[6] Following the interlocutor of 3 October, the noter and the National Grid creditors moved for an additional fee in terms of Rule of Court 42.14(2). The motions were opposed, on the ground that the work for which the additional fee was sought was largely work which fell to be performed either by counsel or by London solicitors; it was not work that had, generally speaking, been performed by the solicitors in Edinburgh. Mr Howie, who appeared a behalf of the petitioner, submitted that work performed by English solicitors could not be remunerated by means of an additional fee in terms of Rule of Court 42. In the first place, the Rule referred to a "solicitor". Section 11 of the Interpretation Act 1978 provides that, where an Act confers power to make subordinate legislation, expressions used in that legislation had, unless the contrary intention appears, the meaning which they bear in the Act. The Rules of Court were enacted under the Court of Session Act 1988; consequently the word "solicitor" in the Rules should normally be given the same meaning as in the 1988 Act. Section 51 of the 1988 Act defined "solicitor" as having the same meaning as in the Solicitors (Scotland) Act 1980. That obviously excluded English solicitors. In the second place, Mr. Howie submitted that the provisions in Rule of Court 42.14 for an additional fee were essentially supplementary to the Table of Fees contained in Rule 42.16. The provisions of the Table of Fees were only applicable to Scottish solicitors; that was clear from Wimpey Construction (UK) Ltd. v Martin Black & Co (Wire Ropes) Ltd., 1988 ST 264, a decision of a court of seven judges, and Wilson v Craig, 1983 SLT 556. Fees incurred to English solicitors were recoverable as outlays, and the Table of Fees had no application. Consequently an additional fee could not apply to English solicitors.

[7] In response, Mr. Sellar submitted that the reference to a "solicitor" in Rule of Court 42 should be coloured by its context, and is capable of applying to an English solicitor. He submitted further that Rule 42.9, which provides that an account of expenses should be taxed as if the whole work in the cause had been carried out by one solicitor, should be given a wide interpretation, in such a way as to cover work carried out by English as well as Scottish solicitors.

[8] The manner in which fees incurred to solicitors practising outside Scotland are recovered in a Scottish taxation of expenses is in large part set out in the decision of a court of seven judges in Wimpey Construction (UK) Ltd. v Martin Black & Co (Wire Ropes) Ltd, supra. The relevant principles can be summarized as follows.

1.      If an English solicitor is properly employed in a Scottish litigation he is entitled to be remunerated for his work according to an English scale of remuneration: ibid. at 1988 SC 287.

2.      Such remuneration is treated as part of the outlays in the account of expenses.

3.      In considering the English account, the Auditor must in the first place determine which items on the account would be admissible in a Scottish party and party account. In order to do that, he may require the English account to be stated in such a form as to disclose clearly what items of work were in fact done by the English solicitors: ibid. at 1988 SC 288. At this stage the Auditor must obviously apply Scottish principles, in exactly the same way as he would when dealing with a party and party account rendered by Scottish solicitors.

4.      Thereafter, the Auditor must discover what charges for the admitted items in the account are appropriate in accordance with English law and practice. The Auditor has a wide discretion as to how he goes about this task, although with an English account consulting the taxing master is an obvious step to take: ibid. at 1988 SC 288-289. At this stage, therefore, the Auditor must ascertain and apply the relevant English scale of charges.

[9] In view of those principles, I am of opinion that it is not competent to award an additional fee under Rule of Court 42.14 in respect of work carried out by an English solicitor. The account incurred by an English solicitor is treated differently from a Scottish account in two important respects: first, it is recoverable as an outlay rather than as a direct charge and, secondly, the amount allowed against individual items in that account is to be determined by English rather than Scottish law and practice. It is clear, therefore, that the Table of Fees contained in Rule of Court 42.16 cannot apply to an English account, because that table sets out Scottish charges. The additional fee contemplated by Rule of Court 42.14 is quite simply a fee additional to the Table of Fees, and the uplift allowed by the Auditor must relate to the level of charges in that Table. An additional fee under Rule 42.14 is accordingly only referable to a Scottish account prepared in accordance with the Table of Fees. It follows that the word "solicitor" used in Rule 42.14 must refer to a Scottish solicitor only. The context does not admit of any other interpretation.

[10] Nevertheless, if an English solicitor, or any other lawyer practising outside Scotland, properly carries out work that is unusually difficult or time-consuming or carries an unusual level of responsibility, it seems only fair that he should be allowed a suitable increase in his fee. In my opinion such an increase can be allowed under existing Scottish practice. Under the approach laid down in Wimpey Construction (UK) Ltd. v Martin Black & Co (Wire Ropes) Ltd, supra, the level of the fee that is allowed to a solicitor practising outside Scotland, as against the particular items of work undertaken for which he may recover a fee, is a matter to be determined in accordance with the law and practice of the jurisdiction in which he practises. The question of whether an uplift should be allowed to reflect unusual difficultly or responsibility, or the unusually time-consuming nature of the work undertaken, is in my view an aspect of the level of fee. Such an uplift is concerned not with whether particular items of work have been properly undertaken in connection with a litigation but rather with the proper remuneration for those items of work. It follows that, if the jurisdiction where the non-Scottish lawyer practises allows an uplift to reflect factors such as unusual difficultly or unusual responsibility, that uplift should normally form part of the fee that is recoverable as an outlay in the Scottish litigation.

[11] Nevertheless, although the question of an uplift is referable to English law and practice, the amount that is allowed is ultimately a matter to be decided by the Auditor, under the control of the Court. That appears from Wimpey Construction (UK) Ltd. v Martin Black & Co (Wire Ropes) Ltd, supra. The decision in that case was that the taxation should be carried out by the Auditor, according to Scottish practice, and should not be remitted to a taxing master in England. That has certain practical implications. In particular, it indicates that at the outset either the Court or the Auditor should determine whether the work performed by the non-Scottish solicitor appears to have involved unusual complexity or difficultly, or to have required unusual skill, time, labour or specialized knowledge, or to have involved an unusual degree of responsibility. That is because the work was performed in the context of Scottish litigation, and it is in the light of that litigation that the existence of special features must be determined. For this purpose, it seems to me that the list of factors in Rule of Court 42.14(3) can be used; that is a list of the matters for which a Scottish solicitor could obtain an uplift in his fee, and the general policy of the law should be to allow an uplift in similar circumstances to any non-Scottish solicitor who has performed important work in the case.

[12] It follows that it is necessary to determine whether the work performed by the English solicitors acting for the noter or for the National Grid creditors involved any of the factors listed in Rule 42.14(3). Because of my detailed involvement in the petition proceedings I think that it is appropriate that I should indicate the factors that appear to be relevant in the present case. In my opinion heads (a) and (b) are clearly satisfied in respect of both of the firms of solicitors involved. The petition proceedings were potentially very complex, and a number of difficult questions arose; these related in particular to the position of the IBNR creditors and the financial state of the petitioner. At least so far as Scotland is concerned the questions were novel. In addition, it is clear that considerable skill, time and specialized knowledge would be required of the solicitors acting for both the noter and the National Grid creditors; this largely reflects the complexity and difficultly of the issues that arose. It is also clear that the case involved a significant element of urgency because of the time demands of petition procedure. I also think that head (c) is satisfied, in respect of the importance of the documents that had to be considered. The number of such documents was not out of the ordinary, but the documentation was critical to the issues in dispute and required very close consideration. In my view head (d) was not satisfied in respect of either set of solicitors; the place and circumstances of the action and the work performed by the solicitors do not appear to me to have been in any way unusual. I think that heads (e) and (f) are satisfied in respect of the solicitors acting for the National Grid creditors only. They were concerned about certain important aspects of their own insurance. The noter, by contrast, is a major participant in the reinsurance industry, and I do not think that the petition would have had the same importance to it. I should add that Mr. McNeill conceded that head (d) did not apply to the noter and that head (f) might not be significant. Head (g) is I think satisfied for both sets of solicitors, in that there was clearly considerable correspondence with a view to resolving or narrowing the issues in dispute in respect of the petition.

[13] The next stage is for the Auditor to follow the procedure laid down in Wimpey Construction (UK) Ltd. v Martin Black & Co (Wire Ropes) Ltd, supra, at 1988 SC 288-289. First of all, he must determine the items in the English solicitors' accounts that are allowable on a party and party basis in a Scottish taxation. Thereafter, he must discover what charges would be appropriate as a matter of English law and practice for the allowable items. As part of this process he must consider whether English law and practice would permit the English solicitors acting for the noter and the National Grid creditors to obtain an increased fee to reflect any or all of the factors that I have listed in the last paragraph. If it does not permit such an increase, obviously that is the end of the matter so far as any uplift is concerned. If it does, the amount of the uplift that would be awarded in England must be ascertained. How this is done is a matter entirely for the Auditor, but he may clearly decide that it is appropriate to refer the matter to an English taxing master. Thereafter the Auditor should determine the amount of the uplift that is to be given, and that should be treated, along with the basic fees payable to the English solicitors, as part of the outlays incurred by the noter and the National Grid creditors.

[14] I was also asked to award an additional fee in respect of the work performed by the Scottish agents who acted for the noter and the National Grid creditors. This was opposed by Mr Howie on the basis that their function had been essentially to act as a channel of communication between the London solicitors and counsel. I do not feel able to reach a decision as to whether the Scottish solicitors are entitled to an additional fee in terms of Rule of Court 42.14, and I intend to remit this matter to the Auditor under Rule 42.14(2)(b). On one hand, I do not belittle the importance of the tasks performed by solicitors in the position of the Scottish solicitors in this case. They ensure that information flows smoothly between their own instructing solicitors and counsel. They play a significant part in ensuring that the issues arising in the case are promptly and accurately identified. They also ensure that the court is properly informed about what is happening, and has the proper documentation placed before it. These are all matters that are of vital importance to the proper conduct of any court proceedings. On the other hand, an additional fee should only be awarded where the tasks performed by the solicitor are out of the ordinary. At present I do not have adequate information as to precisely what the Scottish solicitors did, and without that information I cannot determine whether it can be considered out of the ordinary. When the Auditor considers their accounts, however, he will be in a position to make a judgment about that matter.

[15] One further matter was raised at the hearing on 31 October 2005. Both the noter and the National Grid creditors asked me to clarify whether a range of items of work carried out by their solicitors fell within the scope of the award of expenses in the interlocutor of 3 October 2005. These included matters such as considering the petition and scheme and accompanying productions, considering the method of valuing IBNR claims, considering the insurance implications of the scheme for the particular creditors concerned, considering certain other decided cases dealing with broadly similar schemes of arrangement, and attempting to obtain the names and addresses of creditors and financial information about the petitioner. In this connection I was referred to the decision in Laing v Scottish Arts Council, 2001 SC 493, where it was held that a Lord Ordinary has power to correct an interlocutor to bring it into line with the court's original intention. The critical point in that case is that, if an interlocutor is to be corrected, the Lord Ordinary must have had an intention at the time when he signed it that is not reflected in its terms. The existence of the intention is crucial. In the present case, when I awarded expenses on 3 October 2005 my intention was simply to make an award of party and party expenses in the manner in which those are normally allowed by the Auditor. I had no more specific intention about the matter, and I certainly did not consider the substantial list of individual items that were referred to in the motions on behalf of the noter and the National Grid creditors. For this reason I do not think that it is competent for me to correct my earlier interlocutor.

[16] Nor do I think it appropriate to clarify the interlocutor at this stage, in order to state that various specific items of work fall within its scope. In the first place, I do not have the relevant accounts of expenses before me; for that reason I am wholly unable to discover the scope of each of the items of work that is claimed. In the second place, determining whether a particular item of work is properly chargeable as an element in a party and party account is a matter that normally falls in the first instance to the Auditor. There are sound reasons for this. The Auditor has a familiarity with solicitors' accounts that is usually lacking in a Lord Ordinary. He is in a better position to know how long particular tasks are likely to take, and to decide whether they are matters that are necessary for the purpose of conducting the particular case in question. He is also in a better position to consider the detail of an account. His decision is obviously subject to review by the Court, but it is of clear assistance to the Court to have his views before it reaches a decision of its own. In the present case counsel made the point that the proceedings involve novel subject matter, so far as Scotland is concerned. In addition, it can be said that petitions for the approval of schemes of arrangement are rarely contested, which may make the taxation of a solicitor's account in such a case an unusual event. While there is some force in these points, I am still of opinion that it is preferable if the Auditor considers the matter in the first instance, because of his familiarity with solicitors' accounts in general. If the noter or the National Grid creditors wish to take issue with part any of his decision they can have the matter brought back to the Court.

[17] For the foregoing reasons I will remit the motions to allow an additional fee to the Auditor for the purposes set out in paragraph [14]. The accounts rendered by the English solicitors acting for the noter and the National Grid creditors will be taxed by the Auditor as a result of the interlocutor of 3 October 2005; that process should be performed in the manner described in paragraph [13], and it is not necessary to issue any further interlocutor on the matter. Finally, for the reasons stated in paragraphs [15] and [16] I will refuse in hoc statu the motions to clarify the scope of the interlocutor of 3 October 2005.