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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 64
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OPINION OF
LORD MACKAY OF
DRUMADOON
in the cause
TODS MURRAY W.S.
Pursuers;
against
ARAKIN LIMITED
Defenders:
________________
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Act:
Hodge, Q.C.; Simpson &
Marwick, W.S.
Alt:
Frost, Party; McNamara, Party
28 April 2006
Introduction
[1] This is an action for payment. The pursuers, who are a firm of solicitors,
sue for payment of professional fees and outlays. The pursuers claim that those fees and
outlays are due in respect of professional services that they carried out for
Arakin Limited ("Arakin"), who formerly carried on business as
contractors.
[2] The action was raised against Arakin in
1996. On 29 May 2001, Martin Frost and Andrew
McNamara were sisted as parties to the action.
They were sisted as defenders in room and in place of Arakin, having
taken from Arakin an assignation of Arakin's interests in the action. Mr. McNamara is a director of Arakin and
was involved in setting up and running the business carried on by Arakin. Mr. Frost and Mr. McNamara are the only
defenders to the action, in which a counterclaim has also been lodged. The current written pleadings of the parties
are to be found in a Closed Record dated May 1999 (No.37 of Process).
[3] This Opinion follows upon a hearing on
Notes of Objections relating to the taxation of three accounts of expenses,
which had been prepared and lodged in process by the pursuers. Those accounts of expenses are Nos. 6,
12 and 36 of Process.
History of action
[4] The history of this action has been long
and complicated. The summons was
signetted on 27 May
1996. The sum initially
concluded for was £32,696.75. Although
the summons did not state this explicitly, by reference to an account of
expenses (No. 7 of Process), which was lodged in process and incorporated into
the terms of the summons, that sum was sought by the pursuers on the basis that
it constituted the balance of fees and outlays due in respect of professional
services provided to Arakin between 5 August 1993 and 3 July 1995, in
connection with litigation between Arakin and McLachlan & Brown in Glasgow
Sheriff Court. Shortly after the action
was raised, the summons was served on Arakin and arrestments were lodged, in
furtherance of a warrant for arrestment on the dependence that had been granted
when the summons was signetted.
[5] On 4 September 1996, shortly after the action called,
an unopposed motion on behalf of the pursuers was granted allowing the summons
to be amended in terms of a Minute of Amendment (No. 5 of Process). That had the effect of deleting the sum
concluded for and substituting the sum of £41,767.38. The terms of the Minute of Amendment
contained no explanation for the making of that amendment.
[6] On 19 December 1996, during a motion roll hearing at
which the pursuers and Arakin were both represented, the pursuers were again
allowed to amend the summons in terms of a further Minute of Amendment
(No. 8 of Process). This added a
second conclusion in the sum of £204,594.13.
That second conclusion related to a separate claim for fees and outlays,
in respect of professional services which the pursuers had provided to Arakin
in connection with an arbitration between Arakin and the City of Glasgow
District Council.
[7] Defences had not been lodged by 19 December 1996. That did not happen until 7 February 1997. It would appear, however, that following upon
the amendment of the summons on 19 December 1996, the summons was adjusted
informally to link the recently introduced second conclusion to the claim for
fees and outlays in respect of professional services provided in connection
with Arakin's arbitration with the City of Glasgow District Council. That claim was also reflected in the terms of
the defences that were lodged (No. 10 of Process).
[8] On a number of occasions when this
action has been before the court, senior counsel for the pursuers has informed
the court that the pursuers also claim that since May 1996 Arakin have been due
£9,070.63 in respect of professional services the pursuers carried out for
Arakin in connection with an action between Arakin and Harvie
Construction. This is illustrated in a
number of productions lodged in process by the pursuers, including No. 292
of Process. Notwithstanding that further
claim, no reference to Harvie Construction is to be found in the written
pleadings for the pursuers, as set out in the Closed Record dated March 1999
(No. 37 of Process). Neither when
the action was raised nor since have the pursuers sought to introduce into
their written pleadings any reference to professional services provided in
connection with Arakin's dispute with Harvie Construction.
[9] The matter is further complicated by the
fact that the pursuers admit that they made an error when the summons was
amended to include the second conclusion.
That error involved the pursuers leaving out of account sums which they
accept that Arakin had paid them prior to the action being raised. On that basis the pursuers' position before
the court (although not in their written pleadings) is that the sum second
concluded for should be £62,860.77, as opposed to £204,594.13. That position was explained to Mr. Robert
Grieve, Arakin's Law Accountant, in a letter dated 1 August 1997, which forms part of
No. 292 of Process. Notwithstanding
the terms and date of that letter, when the Closed Record was lodged in process
on 11 May 1999 the sum second concluded remained as £204,594.13.
[10] In summary the pursuers now maintain that
when the action was raised the sums Arakin were due them were
(a) £32,696.75 in respect of the McLachlan & Brown case,
(b) £9,070.63 in respect of the Harvie Construction Limited action and (c) £62,860.77
in respect of the arbitration involving the City of Glasgow
District Council.
Opinion of Lady Smith dated 31 October 2003.
[11] It is appropriate that I mention that
between the allowance of a hearing on the Notes of Objections and that hearing
taking place, a proof took place before Lady Smith. Following that
hearing, she issued an Opinion dated 31 October 2003.
In that opinion, Lady Smith addressed a number of allegations that
had been raised by the current defenders, Mr. Frost and Mr. McNamara,
relating to certain items of process, including the accounts of the expenses
which are Nos. 6 and 12 of Process.
Between pages 43 and 49 of her Opinion, Lady Smith sets out
her findings in respect of Nos. 6 and 12 of Process. At this stage it is not necessary for me to
do any more than indicate that the findings made by Lady Smith were before me
during the hearing on the Notes of Objections over which I presided.
The three accounts of expenses - Nos. 6, 12 and 36 of Process.
(a) No. 6 of Process
[12] No. 6 of Process is a time and line
account that relates to professional services which the pursuers carried out in
connection with an arbitration between Arakin and the City of Glasgow
District Council.
After the proof she heard, Lady Smith held that the account of expenses
that constitutes No. 6 of Process is the document that was lodged in
process on 23 October 1996, apart from the front page (which is a
photocopy), an addendum to the account (which was drafted subsequently) and
various additions and notations (which the Auditor added to the account, when
the account was being taxed). On one
view these findings may be difficult to reconcile with the terms of the
interlocutor pronounced by Lord Kingarth on 7 February 1997 in which
he ordained "the pursuers to submit detailed time and line accounts in relation
to work the pursuers carried out on behalf of the defenders in respect of a
dispute and arbitration between the defenders and the City of Glasgow District
Council, (being the subject matter of conclusion 2 of the summons as
amended)". The interlocutor also
remitted the accounts to the Auditor of Court for taxation in terms of Rule of
Court 42.7.
[13] If, as Lady Smith held, the account of
expenses, which now constitutes No. 6 of Process, had been lodged in
process on 23 October 1996, it is unclear why Lord Kingarth should
have been invited to order that time and line accounts be submitted, before
being remitted to the Auditor for taxation.
However, it is not necessary to explore that historical question
further. What is important is that on 7 February 1997 the
account of expenses relating to the work carried out by the pursuers in
relation to the arbitration between Arakin and the City of Glasgow
District Council was remitted for taxation. That remit took place two days after written
defences were lodged and long before the Closed Record came into
existence. The taxation of this
particular account, which lasted 8 days, was completed more than a year before
the Closed Record dated March 1999 was lodged in process. The auditor who taxed that account was the
former Auditor of the Court of Session, J. Haldane Tait, W.S. His Report on the taxation is dated 27 March 1998
(No. 19a of Process).
[14] The pursuers lodged a Note of Objections
(No. 27(a) of Process) to the Auditor's Report on his taxation of
No. 6 of Process. By interlocutor
dated 12 October 2001 there were
allowed to amend that Note of Objections, in terms of a Minute of Amendment
(No. 104 of Process).
[15] The defenders also lodged a Note of
Objection (No. 22 of Process) to the Auditor's Report on his taxation of
No. 6 of Process. By interlocutor
dated 19 March 1999, the
defenders were allowed to amend that Note of Objections in terms of a Minute of
Amendment (No. 35 of Process), under deletion of paras. 7(d) - 7(f)
of that Minute. The defenders' Note of
Objections (No. 22 of Process) was further amended in terms of a Minute of
Amendment lodged by Mr. McNamara (No. 241 of Process). That further amendment was allowed by
interlocutor dated 31 May
2004.
[16] The Auditor was invited to comment on the
Notes of Objections to his Report on the taxation of No. 6 of
Process. He did so in two Minutes dated
5 May 1998 and 13 July 1998 (neither of which appear to have been
allocated Nos. of Process, when they were lodged, but both of which are filed
in a folder with Nos. 27(a)-(d) of Process) and a further Minute dated
18 December 2001 (No. 128 of Process).
(b) No. 12 of Process
[17] No. 12 of Process is an account of
expenses that relates to professional services which the pursuers claim were
carried out in connection with actions in Glasgow Sheriff Court between Arakin
and McLachlan & Brown. It covers
professional services that were provided between 5 August 1993 and 3 July 1995. The account, which is a time and line
account, was lodged in process on 20 February 1997.
It is reasonable to assume that occurred in furtherance of an
interlocutor pronounced by Lord Coulsfield on 8 October 1996, which
ordained the pursuers to lodge detailed time and line accounts in relation to
work carried out by the pursuers on behalf of Arakin in actions raised against
Arakin by McLachlan & Brown and Harvie Construction and to submit those
accounts to the Auditor of Court for taxation in terms of Rule of Court 42.7.
[18] No. 12 of Process was lodged by the
pursuers on the basis that it would supersede another account, which had been
lodged previously as No. 7 of Process and which was not a time and line
account. The taxation of No. 12 of
Process was also undertaken by the former auditor, Mr. Tait. He produced his Report in respect of that
taxation on 27 March
1998 (No. 19(b) of Process).
[19] The defenders lodged a Note of Objection
(No. 23 of Process) to the Auditor's Report on his taxation of No. 12
of Process. By interlocutor dated 19 March 1999, the
defenders were allowed to amend that Note of Objections in terms of a Minute of
Amendment (No. 34 of Process), under deletion of paras. 2(v) - 2(vii)
and 7 of that Minute. The Minute of
Amendment appears to have superseded a document in virtually identical terms,
which had been lodged on behalf of the defenders (Supplementary Note of
Objections (No. 27(d) of Process)).
The Note of Objections (No. 23 of Process) was further amended in
terms of a Minute of Amendment lodged by Mr. McNamara (No. 240 of
Process). That further amendment was
allowed by interlocutor dated 31 May
2004.
[20] The Auditor was invited to comment on the
Note of Objections to his Report on the taxation of No. 12 of Process,
which had been lodged on behalf of Arakin.
He did so in Minutes dated 5 May
1998 (No. 27 (b) of Process) and 18 December 2001
(No. 128 of Process).
(c) No. 36 of Process
[21] No. 36 of Process is an account of
expenses that relates to professional services which the pursuers carried out
in connection with actions in Glasgow
Sheriff Court between Arakin and McLachlan &
Brown. It covers professional services
that were provided to Arakin between 4 August 1988 and 1 July 1993. The account, which is a time and line
account, was lodged in process on 23 March 1999 and borrowed out the same day, for
onward transmission to the Auditor for taxation of the account. Such taxation had been authorised by the
interlocutor dated 7 February
1997, to which I have already referred. The taxation of this account was carried out
by the Auditor of the Court of Session, Neil J. Crichton W.S., who produced his
Report on the taxation on 26 October
1999 (No. 42 of Process).
[22] The defenders lodged a Note of Objection
(No. 53 of Process) to the Auditor's Report on his taxation of No. 36
of Process. By interlocutor dated 31 May 2004, the
defenders were allowed to amend that Note of Objections in terms of a Minute of
Amendment lodged by Mr. McNamara (No. 242 of Process).
[23] The Auditor was invited to comment on the
Note of Objections to his Report on the taxation of No. 36 of Process,
which had been lodged on behalf of the defenders. He did so by Minute dated 18 December 2001
(No. 129 of Process).
Action taken in advance of the hearing on the Notes of Objections.
[24] Sometime after the court allowed a hearing
on the Notes of Objections, I was asked by senior counsel for the pursuers if I
would provide guidance to the parties as to the scope of the forthcoming
hearing and the procedure which I would wish to see followed during the
hearing. I agreed to do so. Having heard submissions from parties, in
amplification of their Notes of Arguments (No. 142 of Process for the
pursuers and No. 148 of Process for the defenders), I issued an Opinion on
5 April 2002. In that Opinion, I endeavoured to deal with
the scope of the forthcoming hearing and the procedure that should be followed
during the hearing. Since the hearing on
the Note of Objections took place, another case has been decided that provides
guidance as to the scope of a hearing on notes of objections to a report by the
Auditor of Court. That case is Gupta v Ross 2005 SLT 548. The
decision in that case is in line with the authorities to which I was referred
during the hearing that led to my issuing my Opinion of 5 April 2002. Para. [6]
of the Opinion of the Court in Gupta reaffirms that the scope of a hearing on a
note of objections should be limited to considering the reasons of the Auditor
for his decisions in relation to the items to which objection has been taken.
[25] In order to provide further assistance to
parties in advance of the hearing, I arranged for composite versions of their
Notes of Objections (as amended) to be prepared. The parties were offered the opportunity to comment
on drafts of these composite versions of the Notes of Objections and the
hearing proceeded on the basis that the terms of the composite versions had
been agreed.
[26] Unfortunately during the course of
preparing this Opinion, I noticed for the first time that certain errors have
crept into the preparation of the composite version of the Note of Objections
on behalf of the defenders in respect of No. 6 of Process. That exercise had
involved marrying up the provisions of the original Note of Objections (No. 22
of Process) with those of the subsequent Minutes of Amendment (Nos. 35 and 241
of Process). That exercise was not an easy one. As prepared, the composite
version of the Note of Objections on behalf of the defenders in relation to No.
6 of Process included two objections numbered '5'. Having reconsidered the
terms of the two Minutes of Amendment, I suspect that the first of these two
objections was included in error in the composite version. What I have decided
to do, however, is to renumber the objections as Objection '5A' and Objection
'5B'. I have also included some additional lines at the beginning of the
composite versions of each of Objections 2 and 5A, as it would appear they may
have been omitted in error, when the composite version was being prepared. For the avoidance of any doubt, I should also
indicate that in reviewing the composite version of the Note of Objections on
behalf of the defenders to No. 6 of Process, I experienced some difficulty in
working out whether or not the terms of Para. 3 of the
original Note of Objections (No.22 of Process), as amended by the terms of Para. 3 of the
first Minute of Amendment (No.35 of Process), had been deleted by the terms of
page 2 of the second Minute of Amendment (No. 241 of process). Having regard to
the terms of second Minute of Agreement, I reached the view that they had been
and that they were replaced by what is now Objection 3.
[27] In this Opinion I intend to quote from the
composite versions of each Note of Objections and set out in italics the terms
of each of the objections that have been taken in respect of the three accounts
of expenses. I intend to deal with each
objection in turn. Whilst this approach has
resulted in lengthening my Opinion, I trust that it will prove to be of assistance
to those who may be involved in identifying the issues that require to be
addressed before this action can be concluded.
General issues that arose during the hearing on the Notes of
Objections.
[28] During the course of the hearing, a number
of issues emerged which involved broader discussion than an examination of how
the Auditors had dealt with specific items of work in the individual accounts
of expenses. It is appropriate that I
should record and comment briefly on a number of these general issues, before
turning to deal with the terms of the individual objections.
[29] One of these general issues might be said
to have been foreshadowed by a paragraph entitled "Clients' lack of access
to files", on page 4 of the Auditor's Report on his taxation of
No. 16 of Process (No. 19(a) of Process). It arose out of the fact that when
Mr. Tait was auditing the Account of Expenses No. 6 of Process, he
was allowed access to the pursuers' files and indeed provided by the pursuers
with what was described as being a "Box of Additional Papers". I was informed by senior counsel for the
pursuers that these files and additional papers were made available to the
Auditor at the conclusion of the hearing before him. Senior counsel understood that the files and
papers had been present in the room where the taxation had taken place, during
at least part of the hearing before the Auditor.
[30] It became clear from what I was informed
by senior counsel for the pursuers and Mr. McNamara that during the
taxation of No. 6 of Process the pursuers had not been prepared to afford
Mr. McNamara any opportunity to consider the contents of the files and
papers, which the pursuers subsequently made available to the Auditor. Senior counsel for the pursuers indicated
that the pursuers had offered to allow a professional representative of Arakin
to study their files. The Note lodged by
the pursuers as No. 275 of Process states that was confirmed by a letter
dated 13 May 1997, which the
pursuers sent to Balfour & Manson, who were at that stage acting for
Arakin. I understand that the pursuers
adopted a similar position in relation to their files and papers, when No.12 of
Process was taxed. Mr. McNamara
confirmed that he had not been allowed access to the pursuers' files and papers.
He informed me that as far as the law accountant, who had represented Arakin
during the taxations of Nos. 6 and 12, was concerned, all that he had been
allowed to see were documents relevant to photocopying charges that were being
claimed. It was only after the taxation
of Nos. 6 and 12 of Process had been completed that Arakin sought to
recover documents from the pursuers' files.
They did so in terms of a specification of documents that was lodged on 15 April 1998
(No. 21 of Process). Commission and
diligence in respect of that specification of documents, which did not cover
any internal office memoranda and aides-memoir kept by or on behalf of the
pursuers, was granted by interlocutor dated 30 April 1998. When No. 36 of Process was before the
Auditor for taxation, the pursuers sent the Auditor four files of papers. By a letter dated 12 July 1999, which the pursuers sent to
the Auditor, it was made clear that the files were to be made available in the
Auditor's Office for inspection by Arakin's Law Accountant alone and that
Mr. McNamara was not to be permitted access to the files (see
No. 263/4/73 and 78 of Process).
[31] In anticipation of the hearing on the
Notes of Objections, I pronounced an interlocutor dated 26 August 2004, in
which I ordained parties to lodge in process all copies in their possession of
any documents that had been submitted to the Auditors in connection with the
taxations of the three accounts and of any correspondence that had passed
between the Auditors and those acting for the pursuers and those acting for
Arakin during the taxations. Various
documents were lodged in response to that interlocutor. In addition, a large box of papers, described
as having been received from the Auditor, was lodged on 1 November 2004 (No. 274
of Process). Despite the volume of documents that now form parts of process, it
remains unclear as to whether all the documents covered by that specification
of documents have been recovered by the defenders and are now lodged in
process.
[32] Any auditor taxing an account of the
nature of Nos. 6, 12 and 36 of Process would have been likely to have
compared at least some of the entries in the account with the contents of the
solicitor's file. In any event, it is
clear from the documents placed before me that during the taxation of
No. 6, 12 and 36 of Process the Auditors involved, Mr. Tait and
Mr. Crichton, took the opportunity to consult at least parts of the files
and some of the papers with which they had been provided by the pursuers.
Moreover, there is no suggestion that the Auditors allowed Mr. McNamara to
look at the files and papers, which they had been given by the pursuers. Indeed, at one stage during his submissions,
senior counsel for the pursuers informed me that he understood that the Auditors
had refused to allow those acting for Arakin during the taxations, who were
Mr. McNamara and a law accountant, Robert Grieve, to see the pursuers'
files, as opposed to productions and other documents that may have been copied.
[33] When I raised the possible ramifications
of this issue with senior counsel for the pursuers, he acknowledged that if
Arakin and those acting for them at the taxations had not been given access to
the files and other documents, which the Auditors had seen, the taxations of Nos. 6,
12 and 36 of Process might require to start again from scratch. In acknowledging that, senior counsel was no
doubt conscious of his own submissions to the effect that in taxing the
pursuers' accounts the Auditors had required to check at least some of the
entries in the account with the documents that the pursuers had made available
to them, including their files. Senior counsel for the pursuers also
acknowledged that whilst Arakin would have had copies of some of the
correspondence passing between the pursuers and themselves, those acting for
Arakin at the taxations would not have had copies of everything within the
pursuers' files, in particular file notes relating to the items of work carried
out by the pursuers and charged for in the accounts.
[34] There was a related issue which emerged
from senior counsel for the pursuers' reference to Nos. 28/4 and 28/5 of
Process. No. 28/4 of Process is a
Schedule of Queries, which the Auditor prepared and submitted to the pursuers
prior to completing his taxation of Nos. 6 of Process. No. 28/5 of Process, which is dated 24 February 1998, contains
the pursuers' Answers to that Schedule of Queries. These documents were lodged as productions as
long ago as 11 June
1998, but it is unclear whether they were seen by Arakin and
those representing them prior to the Auditor completing his taxation of
Nos. 6 of Process on 27 March
1998. Further copies of
the Schedule of Queries and the Answers thereto were lodged in advance of the
hearing before me (No. 249/5/4 and 5/5 of Process).
[35] There is, as I have indicated, a measure
of dispute between the parties as to which papers were made available to Arakin
and to those acting for Arakin, in particular during the course of the
taxations of Nos. 6, 12 and 36 of Process.
There is also a dispute as to whether the Schedule of Queries and
Answers were intimated to those acting for Arakin during the course of the
taxation of No. 6 of Process. I
have not found any correspondence amongst the productions to suggest that they
were. However these are not factual
issues that I can resolve in the context of a hearing on a note of
objections.
[36] Whilst I received very helpful submissions
from senior counsel for the pursuers (including
reference to the Human Rights Act 1998 sections 7(1)(b) and 22(4)
and R v Lambert [2002] 2 AC 545) as to the law which would apply to a
situation in which an auditor taxing an account had been provided with papers
by one party to the taxation, which had not been made available to another party,
I do not consider that at this stage I can make any ruling as whether the
procedure followed before the Auditors was flawed to the extent that it would
preclude the court from granting decree against the defenders in respect of
sums calculated by reference to the Auditors' decisions at taxation. If the defenders are minded to pursue this
issue, it will require to be focused and resolved after a hearing of evidence,
before any question could arise of Nos. 6, 12 and 36 of Process being
remitted back to the Auditor for re-taxation of the accounts, in whole or in
part.
[37] During the hearing on the Notes of
Objections it also became clear that what has happened in this case is that the
accounts of expenses proceeded to taxation prior to the parties considering
whether the court should be given the opportunity to determine the validity or
otherwise of at least some of the grounds upon which the action is being
defended. Some, but not all, of those
grounds of defence are focused in the pleadings. As will become clear when I turn to deal with
the individual objections to the Auditors' Reports, during the taxations of all
three accounts issues were raised that were not matters for the Auditors to
resolve. When issues relating to grounds
of defence to the action were raised before the Auditors, they, for the main
part, took the view that the issues involved were not for them to deal
with. The raising of such issues
undoubtedly complicated the taxations that took place.
[38] In my opinion, some of these issues, such
as the claims about "gross mismanagement of the cause" on the part of the
pursuers, could, and arguably should, have been resolved by the court before
the taxations began. That is because the
issues involve contentions by the defenders that the pursuers acted without
instructions from Arakin or contrary to instructions from Arakin. Those are contentions which the pursuers
strenuously dispute. The issues to which
they relate could only be resolved by the court after a hearing of evidence. It
is unclear whether the parties paused to consider whether in relation to any of
the three accounts the taxation of the account ought to be delayed until the
court had been invited to determine any issues that could profitably have been
resolved before the taxation got underway.
A possible explanation as to why such issues were not addressed prior to
the taxations may lie in the chronology of the dates on which (i) the
pursuers were ordained to lodge time and line accounts, (ii) the accounts
of expenses were lodged and (iii) the accounts were remitted to the
Auditor of Court. I have already
summarised that history. Whatever the
explanation, the problems which the raising of such issues caused for the
Auditors were considerable.
[39] The taxations were further complicated by
other issues being raised before the Auditors, which were not for them to
decide and which can only be decided once the taxation of the individual
accounts has been finalised. These
include issues such as the application of the doctrine of settled accounts to
the sums claimed by way of fees and outlays by the pursuers, the VAT chargeable
and recoverable in respect of those sums, whether the pursuers' rights to
pursue any of those sums have prescribed and a final accounting as to what
sums, if any, remain recoverable by the pursuers. These are matters, which in my opinion, will
require to be determined by the court after the taxations of all three accounts
have been concluded and any other issues raised in the principal action have
been resolved by agreement between the parties or by ruling by the court.
[40] Although the application of the doctrine
of settled accounts cannot be determined at this stage of the action it might
nevertheless be useful to set out the pursuers' position in respect of that
issue. It has been very helpfully
summarised in a Note which the pursuers lodged on 9 November 2004
(No. 275 of Process) in response to an interlocutor I pronounced on
30 September 2004:-
"The
pursuers do not seek through the taxation of their accounts to receive payment
of sums in excess of those they had invoiced for the work covered by the
particular invoices. Thus for any given
period where an invoice has been submitted and paid in full the pursuers are
not arguing that after taxation they should be paid in excess of the sum
invoiced in respect of that period. When
ordered to produce time and line accounts the pursuers are entitled to re-frame
their accounts in the time and line form and the only constraint on the
pursuers is that they will not seek a further payment in relation to any period
where the sum due after taxation in respect of a period which has been invoiced
and fully paid exceeds the amount in the paid invoice. Where Arakin has not paid invoices in full or
where invoices have not been rendered in respect of work undertaken after the
periods in respect of which invoices have been submitted and paid, the pursuers
are entitled to payment of the sums due on taxation."
That
explanation is illustrative of how a number of issues were raised before the
Auditors, rather than deferred to a much later stage in the action. As far as
the defenders' position on the application of the doctrine of settled accounts
is concerned, that is less clear. On more than one occasion during the hearing,
Mr. McNamara suggested that at all times when the pursuers had been acting for
Arakin he had wished to keep open the possibility of having the pursuers'
invoices and accounts of expenses taxed. Accordingly, whatever may have been
submitted by the law accountant acting for Arakin before the Auditors, if the
defenders still wish to found on the doctrine of settled accounts as part of
their defence to the action they will require to seek to focus that in their
pleadings.
[41] On a number of occasions when this case
has been before me, both Mr. Frost and Mr. McNamara have advanced
submissions relating to VAT. The topic
is complicated. There are factual
questions involved, such as which invoices have been VAT invoices. There are
also legal questions, such as whether Arakin has been or would be entitled to
recover from H.M. Revenue and Customs the VAT already paid to the pursuers in
respect of the invoices submitted to Arakin and paid before the action was
raised or the VAT sought by the pursuers in respect of the fees and outlays
sued for in the present action.
[42] Before this action can be concluded, it
will be necessary for the court to carry out a detailed accounting, which takes
into account, amongst other matters, (i) the fees and outlays, which the
pursuers were entitled to be paid by Arakin, (ii) the VAT properly
chargeable by the pursuers on VAT invoices submitted to Arakin in respect of
those fees and included within those outlays, (iii) the payments to
account, whether of fees, outlays or VAT, made by Arakin to the pursuers
following upon their receipt of those invoices, (iv) any payments by
Arakin to parties other than the pursuers in settlement of outlays, including
VAT on such outlays, which had been referred to in VAT Invoices submitted by
the pursuers to Arakin, (v) the VAT which can be charged by the pursuers
and recovered by Arakin in respect of fees incurred by Arakin, which remain due
by them and which have not yet been the subject of a VAT Invoice submitted by
the pursuers, (vi) the VAT included within any outlays incurred by the
pursuers on behalf of Arakin, which remain due by Arakin and which have not yet
been the subject of a VAT Invoice, (vii) the interest (if any) which the
pursuers are entitled to claim from the defenders, in respect of any sums due
by the defenders, and (viii) the interest (if any) which the defenders are
entitled to set-off against any sums due to the pursuers, in respect of
payments made by Arakin to the pursuers.
The exercise will involve questions of fact and questions of law,
including construction of the relevant VAT legislation, the defenders' plea of
prescription and the application of the doctrine of settled accounts to the
agreed and established facts of the case.
Before this exercise could be completed, the pursuers will require to
lodge, amongst other documents, the invoices received by them in respect of
those outlays they incurred which included an element for VAT. It is probable that many of the vouchers are
already in process and are to be found within the multitude of productions that
have already been lodged. However,
before the exercise could be completed, the vouchers will require to be
inventoried and, preferably, copied and collected together in files which could
be read in conjunction with the Accounts of Expenses to which the outlays
relate.
[42] It is against that background that I turn
to deal with the terms of individual objections in the Notes of Objections.
Note of Objection by
Pursuers to Report by the Auditor of Court on the Pursuers
Account of Expenses
(No. 6 of Process)
[43] The
Pursuers object to the Report by the Auditor of Court dated 27th
March 1998 upon the
Pursuers' Account of Expenses number 6 of process in respect of the following
items:
1. Details of Entries
Disallowed by the Auditor in regard to the Scott Schedules.
|
Page No.
|
Item No.
|
Amount
|
|
66
|
4
|
Deduction
of £55.50
|
|
66
|
8
|
Deduction
of £72.25
|
|
67
|
3
|
Deduction
of £133.70
|
|
68
|
6
|
Deduction
of £83.25
|
|
75
|
8
|
Deduction
of £55.80
|
|
85
|
7
|
Deduction
of £589.00
|
|
89
|
4
|
Deduction
of £12.40
|
|
92
|
4
|
Deduction
of £136.40
|
|
93
|
1
|
Deduction
of £261.20
|
|
93
|
5
|
Deduction
of £124.00
|
|
96
|
7
|
Deduction
of £108.50
|
|
97
|
1
|
Deduction
of £62.00
|
|
98
|
7
|
Deduction
of £117.00
|
|
99
|
2
|
Deduction
of £155.00
|
|
100
|
8
|
Deduction
of £62.00
|
|
101
|
6
|
Deduction
of £201.50
|
In respect of these items,
the Auditor's Report commented: "The
Auditor, however, has restricted the charges for perusal of the Scott Schedules
considered that it was the primary responsibility of the clients and Rand
Associates to complete them accurately from the information held by them,
although the solicitors would require to have an awareness of them."
The Pursuers contend
that these were competent and proper charges and should have been allowed in
full on the ground that they were competently and properly incurred as a result
of:
(a) The
Pursuers' need to acquire a thorough working knowledge of the Scott Schedules
since they were part of the Arbitration process;
(b) The
Defenders' express instructions requiring Mr. Simpson of the Pursuers to
have a working knowledge of the Scott Schedules; and
(c) The
Pursuers' need to have a working knowledge of the Scott Schedules (a) to
ensure that they reflected the correct legal consequences of agreements reached
in 1988 with Glasgow District Council that the Council would pay for works
which enured to the benefit of the contract works even if not formally
instructed, and (b) as they required to discuss the contents of the Scott
Schedules and their relationship to the 1988 agreements in two Procedure
Meetings in the Arbitration in 1990.
Mere awareness or
familiarisation was not sufficient for the performance of the pursuers' duty to
the Defenders and would not have been consistent with the Defenders' express
instructions. Reference is made to Rule of
Court 42.7(6)(d)(i). The Pursuers'
files demonstrated those instructions.
The Pursuers' files (including the Defenders' letter of 7 December
1992) also
revealed that the Defenders acknowledged the major role which the Pursuers
played in relation to the final account."
The Auditor erred in
disallowing the said items and failed to have regard to material considerations
(a)-(c) above and also in:-
(d)
His failure
to act upon and take proper account of the Arbiter's Note of December 1992
(hereinafter referred to as "the Arbiter's Note") to which he was referred in
argument and which stated inter alia; "In all these
circumstances, I (the Arbiter) am not prepared to grant the Motion (for an
Additional Fee) in the terms expressed, nor will I make any further
recommendations to the Auditor with regard to the factors suggested as being
appropriate to an Additional Fee as contemplated by Rule 347(d). I do however recognise that there may be
circumstances in Phase I of the Arbitration which would cause the Auditor to
vary the hourly charge he may choose to apply, and in that regard, I would
intimate that either my clerk or I will be pleased to confer with the Auditor
as he may require"; and
(e)
His
misapplication of the section of the Arbiter's Note which stated inter alia: "I do not consider that any particular
specialist knowledge is required in the instruction of Scott Schedules". Specialist knowledge was not in issue in
relation to the entries in the account relating to the Scott Schedules. The entries related to charges measured by
the time spent working on the Scott Schedules and did not involve any addition
for specialist knowledge.
[44] In developing this objection, senior
counsel for the pursuers referred me to certain documents that had been lodged
as productions, at an early stage in the case (Nos. 28/1 and 28/2 of
Process), and to other documents, which had been lodged with the specific
purpose of their being used during the hearing on the Notes of Objection
(No. 249/5/4, 249/5/5, 249/7 and 249/11 of Process). Senior counsel submitted that all these
documents touched on the role that the pursuers had played in connection with
the arbitration relating to the City of Glasgow
District Council.
He submitted that when taxing that part of the Account of Expenses,
No. 6 of Process, the Auditor had required to check the entries in the
account with the documents made available to him, including the entries in the
pursuers' files.
[45] Senior counsel accepted that the role that
the pursuers had played in relation to the Scott Schedules was a question of
fact. However, he argued that it had not
been limited to the pursuers merely familiarising themselves with those
schedules. Because Arakin and
Mr. McNamara had raised issues as to the contents of those documents, the
pursuers had required to become involved in the compilation of the
documents. Senior counsel submitted that
when the Auditor was applying the presumptions to be found in Rule of
Court 42.7(6)(d)(i) and (ii), he
had erred in law in failing to address precisely what the pursuers' role had been
and what instructions the pursuers had been given by Arakin. The Auditor had
also erred by failing to take into account the Arbiter's recognition that there
had been circumstances, during Phase 1 of the Arbitration, which might
have merited the Auditor, who taxed the account of expenses against the City of
Glasgow District Council, varying
the pursuers' hourly rate (see No. 28/2 of Process). Finally the Auditor had erred by taking into
account a suggestion by the Arbiter that specialist knowledge had not been
required for the pursuers' work on the Scott Schedules (see No. 28/2 of
Process).
[46] In responding to these submissions,
Mr. McNamara stressed that the pursuers had not been instructed to prepare
the Scott Schedules. He had been able to
prepare the Scott Schedules himself.
Mr. McNamara also alleged that some of the work relating to the
Scott Schedules, for which the pursuers sought payment, had been carried out by
the pursuers contrary to the instructions he had given them. This was one of a number of areas in which he
contended that the pursuers had been guilty of "gross mismanagement of the
cause".
[47] Mr. Frost responded to similar
effect. He argued that whilst the
pursuers were entitled to be paid for what they had done, that depended on it
being established, as a matter of fact, what that work had amounted to. In his view, this objection illustrated how
the cart had been put before the horse, in the taxation of the accounts of
expenses.
[48] When the Auditor was asked to comment on
the pursuers' Note of Objections to his taxation of No. 6 of Process, he
responded to this particular objection to the effect that he considered that he
had allowed sufficient time for the pursuers to familiarise themselves with the
Scott Schedules (page 2 of the Minute of 13 July 1998). That comment does, of course, have to be read
with what the Auditor stated in the passage about Scott Schedules, on
page 4 of his original Report on the taxation of No. 6 of Process
(No. 19 of Process). A quotation
from page 4 of that Report is set out in the terms of the Objection.
[49] It is clear from the papers before me that
during the taxation the Auditor was faced with competing contentions as to what
the pursuers had been instructed to do and what work they had carried out in
relation to the Scott Schedules. Before
making decisions on the entries relating to these schedules, the Auditor
appears to have considered the detail of the entries, some of which he has abated, and to have done so in
light of his perusal of the papers before him, including the pursuers'
files.
[50] Leaving aside for the meantime whether is
was appropriate for the Auditor to be looking at files to which Arakin and
those acting for them were not being allowed access, in my opinion the manner in
which the pursuers seek to have this objection addressed involves their raising
questions of fact that could only be resolved by a hearing of evidence. As was made clear by Lord Reed in Urquhart v Ayrshire & Arran Health Board 2000 SLT 829, Rule 42.4, which
deals with the procedure for taking objection to a report of the Auditor, does
not envisage that there will be disputed questions of evidence during a hearing
on a Note of Objections to an Auditor's report.
The Extra Division in Gupta v Ross 2005 SLT 548 agreed with that
view.
[51] This objection proceeds upon, and indeed
its terms include reference to, a number of factual contentions which
Mr. McNamara and Mr. Frost do not accept. Those contentions include reference to the
instructions the pursuers received. The
objection, by inference, draws a distinction between the pursuers
"familiarising" themselves with the Scott Schedules and a need for the pursuers
to acquire a "thorough working knowledge" of those schedules. Standing the factual dispute between the
parties, the Auditor took the view that the primary responsibility for the
completion of the Scott Schedules lay with Arakin and Rand Associates, the
experts that Arakin had engaged. The
Auditor also took the view that what the pursuers required was an awareness of
the contents of the schedules. In my
opinion, in reaching those views, the Auditor clearly concluded that certain of
the items of work claimed for by the pursuers had not been reasonably incurred. Indeed, as I have already mentioned, in his
Minute commenting on the Note of Objections he expressly states that he
considered he had allowed sufficient time for the pursuers to familiarise
themselves with the Scott Schedules.
[52] In adopting such an approach, the Auditor
did not require to resolve the factual dispute between the parties as to what
instructions the pursuers had received in relation to the Scott Schedules. In
my opinion, standing the information that was before him, it was open to the
Auditor to proceed on the basis that it had been demonstrated to his
satisfaction that not all of the items of work claimed in respect of the Scott
Schedules had been reasonably incurred because primary responsibility for those
schedules had lain elsewhere.
[53] In my opinion, this particular objection
to the Auditor's taxation of No. 6 of Process cannot be sustained. It is substantially dependent on questions of
fact, which cannot be ventilated and determined during a hearing on a Note of
Objections. On those factual issues, the
parties were and indeed remain in dispute.
In my opinion, the Auditor was entitled to proceed on the approach he
adopted namely that what the pursuers required to do was to familiarise
themselves with Scott Schedules, because others had primary responsibility for
those documents. It is not clear whether
the letter of 7 December
1992 mentioned in the objection was drawn to the attention of the
Auditor. But even if it was, I do not
consider that its terms support the construction placed on it in the
objection. The Auditor acknowledges that
he was referred to the Arbiter's Note, but I am not persuaded that he either
misunderstood or misapplied the terms of that Note in reaching the decisions he
did in deciding how to tax the items of work relating to the Scott Schedules. In these circumstances, I am not prepared to
sustain this objection.
[54] 2. Details of Entries disallowed by the Auditor
in respect of telephone calls.
|
Page No.
|
Item No.
|
Amount
|
|
2
|
1
|
Deduction of £3.75
|
|
3
|
6
|
Deduction of £11.00
|
|
6
|
2
|
Deduction of £14.55
|
|
7
|
4
|
Deduction of £9.70
|
|
7
|
5
|
Deduction of £14.55
|
|
8
|
5
|
Deduction of £2.42
|
|
11
|
2
|
Deduction of £29.10
|
|
11
|
3
|
Deduction of £9.70
|
|
11
|
4
|
Deduction of £9.70
|
|
11
|
6
|
Deduction of £9.70
|
|
12
|
5
|
Deduction of £4.85
|
|
13
|
1
|
Deduction of £24.25
|
|
14
|
4
|
Deduction of £4.85
|
|
14
|
5
|
Deduction of £4.85
|
|
15
|
2
|
Deduction of £24.25
|
|
15
|
5
|
Deduction of £24.25
|
|
16
|
3
|
Deduction of £97.00
|
|
16
|
7
|
Deduction of £4.85
|
|
17
|
4
|
Deduction of £9.70
|
|
24
|
2
|
Deduction of £14.55
|
|
24
|
3
|
Deduction of £9.70
|
|
26
|
3
|
Deduction of £9.70
|
|
26
|
5
|
Deduction of £8.08
|
|
28
|
4
|
Deduction of £15.75
|
|
30
|
8
|
Deduction of £11.40
|
|
31
|
3
|
Deduction of £5.55
|
|
31
|
7
|
Deduction of £23.70
|
|
32
|
2
|
Deduction of £12.00
|
|
32
|
6
|
Deduction of £3.15
|
|
33
|
7
|
Deduction of £46.80
|
|
34
|
1
|
Deduction of £27.75
|
|
35
|
5
|
Deduction of £1.80
|
|
35
|
7
|
Deduction of £2.62
|
|
37
|
6
|
Deduction of £9.00
|
|
39
|
11
|
Deduction of £2.10
|
|
40
|
7
|
Deduction of £1.20
|
|
41
|
1
|
Deduction of £15.75
|
|
43
|
1
|
Deduction of £18.15
|
|
44
|
1
|
Deduction of £28.75
|
|
45
|
1
|
Deduction of £2.40
|
|
45
|
7
|
Deduction of £17.25
|
|
58
|
2
|
Deduction of £69.38
|
|
58
|
6
|
Deduction of £33.30
|
|
59
|
1
|
Deduction of £111.00
|
|
62
|
2
|
Deduction of £38.85
|
|
63
|
2
|
Deduction of £61.05
|
|
63
|
6
|
Deduction of £44.40
|
|
65
|
2
|
Deduction of £11.10
|
|
66
|
2
|
Deduction of £72.25
|
|
66
|
8
|
Deduction of £72.25
|
|
67
|
5
|
Deduction of £55.50
|
|
68
|
2
|
Deduction of £16.25
|
|
68
|
4
|
Deduction of £5.55
|
|
72
|
2
|
Deduction of £55.50
|
|
74
|
2
|
Deduction of £68.20
|
|
74
|
3
|
Deduction of £31.00
|
|
75
|
8
|
Deduction of £55.80
|
|
76
|
1
|
Deduction of £18.60
|
|
77
|
5
|
Deduction of £62.00
|
|
78
|
5
|
Deduction of £186.00
|
|
79
|
5
|
Deduction of £27.90
|
|
79
|
7
|
Deduction of £12.40
|
|
79
|
8
|
Deduction of £12.40
|
|
79
|
9
|
Deduction of £15.50
|
|
81
|
2
|
Deduction of £24.80
|
|
81
|
3
|
Deduction of £31.00
|
|
81
|
4
|
Deduction of £62.00
|
|
83
|
4
|
Deduction of £68.20
|
|
86
|
2
|
Deduction of £3.10
|
|
87
|
1
|
Deduction of £12.40
|
|
89
|
2
|
Deduction of £49.60
|
|
89
|
4
|
Deduction of £12.40
|
|
89
|
5
|
Deduction of £62.00
|
|
91
|
1
|
Deduction of £446.40
|
|
92
|
4
|
Deduction of £136.40
|
|
94
|
7
|
Deduction of £62.00
|
|
95
|
5
|
Deduction of £74.40
|
|
96
|
7
|
Deduction of £108.50
|
|
98
|
7
|
Deduction of £117.00
|
|
101
|
6
|
Deduction of £201.50
|
|
106
|
1
|
Deduction of £161.20
|
|
107
|
4
|
Deduction of £6.20
|
|
111
|
5
|
Deduction of £115.60
|
|
115
|
3
|
Deduction of £183.60
|
|
129
|
6
|
Deduction of £170.00
|
|
139
|
1
|
Deduction of £40.80
|
|
141
|
9
|
Deduction of £40.80
|
|
142
|
3
|
Deduction of £102.00
|
|
142
|
4
|
Deduction of £136.00
|
|
144
|
10
|
Deduction of £20.40
|
|
156
|
4
|
Deduction of £27.20
|
|
160
|
3
|
Deduction of £47.60
|
|
161
|
5
|
Deduction of £153.00
|
|
168
|
6
|
Deduction of £225.00
|
|
172
|
2
|
Deduction of £75.00
|
|
174
|
6
|
Deduction of £56.50
|
|
194
|
5
|
Deduction of £37.50
|
|
201
|
4
|
Deduction of £30.00
|
|
203
|
6
|
Deduction of £80.00
|
|
205
|
3
|
Deduction of £20.00
|
|
207
|
1
|
Deduction of £16.00
|
|
208
|
1
|
Deduction of £8.00
|
|
208
|
4
|
Deduction of £16.00
|
|
204
|
6
|
Deduction of £56.00
|
|
208
|
7
|
Deduction of £8.00
|
|
210
|
6
|
Deduction of £20.00
|
|
211
|
8
|
Deduction of £8.00
|
|
212
|
4
|
Deduction of £16.00
|
|
214
|
5
|
Deduction of £80.00
|
|
219
|
1
|
Deduction of £16.00
|
|
219
|
8
|
Deduction of £16.00
|
|
220
|
1
|
Deduction of £16.00
|
|
224
|
2
|
Deduction of £48.00
|
|
226
|
5
|
Deduction of £16.00
|
In respect of these
items, the Auditor's Report commented:
"NOTE: Throughout the files there
is constant reference to long telephone calls with Mr. McNamara, many on
the same day or within days, and apparently going over the same subject matter
but with no record of actual time spent on the calls. While the Auditor has observed that
Mr. McNamara is naturally voluble, the Auditor is of the opinion that a
solicitor has a responsibility to his client to curtail telephone calls and
meetings when they are not advancing the client's business, and constantly to
remind the client of that. The Account
and file notes record that telephone calls with Mr. McNamara on occasions
lasted almost an hour or longer. The
Auditor, therefore, has abated time charges to what appears to be reasonable
having regard to the information noted in the file entries, which are often
uninformative. In the Auditor's opinion
a file entry should record the essential information exchanged between the
parties so that, should occasion require another solicitor to take up the work,
a reading of the file will enable him to appreciate all that has gone before."
The Pursuers contend that these were competent and
proper charges and should have been allowed in full on the ground that they
were competently and properly incurred as a result of:
(a) The
fact that most of the calls were initiated by Mr. McNamara of the
Defenders who refused to curtail said calls after Mr. Simpson advised him
that he was being charged for the telephone conversations;
(b) The
fact that the attempts of Mr. Simpson of the Pursuers to curtail or avoid
telephone conversations with Mr. McNamara of the Defenders were
unsuccessful and led to:
(i) attempts
by Mr. McNamara to speak to other Partners (and especially to
Mr. Dobie of the Pursuers);
(ii) abusive
telephone conversations between Mr. McNamara and the Pursuers'
receptionist/secretarial staff; and
(iii) a
complaint from Mr. McNamara to the Pursuers' Senior Partner.
(c) The
determination of Mr. McNamara to express and repeat his personal hostility
against representatives of Glasgow District Council despite repeated advice
from the Pursuers that this was irrelevant; and
(d) The
absence of any suggestion that the Defenders had queried or complained about
the costs of the calls when they received the Pursuers' bills during the
currency of the agency contract (Reference is made to the fact that
Mr. McNamara persisted in making the long telephone calls notwithstanding
the receipt of accounts which showed that the calls were subject to a
professional fee for the time spent discussing the Arbitration);
(e) The
fact that the Pursuers were able to provide for the Auditor a detailed break
down of the time spent talking to the Defenders (Reference is made to
points 17 and 18 of the Pursuers' "Answers to the Auditor's Enquiries");
(f) The
fact that the time recording system relied upon by the Pursuers is an accurate
and fair basis for recording time and evaluating its cost which is approved by
the Law Society of Scotland;
The Auditor erred in
disallowing the said items and misdirected himself as a result of his disregard
for factors (a) to (f) above and:
(g) The
fact that, whatever may have been the ideal or preferred situation, long
telephone calls did take place at the insistence of the client (Reference is
made to Rule of Court 42.7 which provides inter alia (in
paragraph 6(d)) that in taxing the account the Auditor shall presume
(unless the contrary is demonstrated to his satisfaction) that - (i) an item of
work or outlay was reasonably incurred if it was incurred with the express or
implied approval of the client); and
(h) His
failure to take proper account of the fact that:
(i) The
client was demanding;
(ii) The
Defenders were in a position to afford the professional services which
Mr. McNamara instructed and insisted upon; and
(iii) The
Defenders were and are a commercial undertaking capable of taking an informed
view of how long they should spend discussing the Arbitration with their legal
advisers.
(i) The
fact that although not all of the calls were necessary for the conduct of the
Arbitration, the overwhelming majority of such calls were initiated by
Mr. McNamara of the Defenders and prolonged at his insistence.
[55] This is another objection in relation to
which there is a factual dispute between the parties. When commenting on this objection, in his
Minute dated 13 July
1998, the Auditor stated that he allowed such time for calls as
appeared to be reasonable, having regard to the contemporaneous file
notes. He indicated, in relation to
telephone calls which are said to have been prolonged at Mr. McNamara's
insistence, that contention involved a "dispute in fact on which the Court will
require to rule."
[56] Senior Counsel for the pursuers recognised
that in advancing this particular objection all the pursuers could do was to
seek a hearing of evidence. He suggested
that affidavits could be lodged in advance of a hearing of evidence, which
could address the history of the calls between the pursuers and
Mr. McNamara, the pattern and nature of the telephone calls, who normally
initiated them, and whether any written or oral warnings were given to
Mr. McNamara, as to the likely cost of the calls.
[57] In responding to these submissions,
Mr. McNamara referred to a document that he had prepared and had lodged in
process on 19 November
2001 (No. 119 of Process).
The document is entitled "Tods Murray's erroneous telephone entries" and
purports to be a comparison between the entries for telephone calls in the
Accounts of Expenses founded upon by the pursuers and itemised telephone
accounts, which Mr. McNamara has obtained from BT. Mr. McNamara was agreeable to the
suggestion of fixing a hearing of evidence in relation to this dispute, as was
Mr. Frost.
[58] Notwithstanding the guidance in the
authorities to which I have previously referred, I have reached the view that I
should allow a hearing of evidence in relation to the factual issues that are
raised by this objection. Whilst that is an unusual course of action to follow,
I am prepared to adopt it because it is one which all parties seek. A hearing on the factual issues relating to
the telephone calls between the pursuers and Mr. McNamara is a hearing the
parties could bring about at some future stage in the action. It seems sensible to allow it to take place
now, for the reason it should place the court in the position of being able to
make findings in fact that may assist the parties to reach agreement on the
items of work covered by this objection, failing which the court will require
to determine the objection. Such a
determination might result in the account being remitted back to the Auditor. When the case is put out By Order, I will discuss
with parties the fixing of and procedure for a hearing of evidence in relation
to the factual issues that lie behind this objection. I trust that by the date of that By Order
hearing parties will have considered the economics of their failing to reach a
compromise agreement on the sums involved in the items of work to which this
objection relates.
[59] 3. "1991
JAN. 15 Fee for considering and checking of
Inventories and Productions for claimant and Respondent over a period of time
calculated on a basis of 100 sheets per hour £4,488.00"
In respect of these items, the Auditor's Report
commented: "The Auditor regrets to note
that in the taxation of this Account and subsequent perusal of the solicitor's
files, a variety of errors in the Accounts became apparent, the principal ones
being as follows:
"(i) The
inclusion of charges for items of work which either did not take place or for
which there were no supporting file entries.
The Auditor was particularly concerned to note an omnibus entry on Page 111
of the Account representing 66 hours of unrecorded time which was
presumably to cover time engaged on work for the clients not otherwise noted in
the Account".
The Pursuers contend (i) that the Auditor had no
factual basis for his speculation that the work did not take place, (ii) that
the Auditor failed to take into account the existence of vouching of the
charges, of which he had been informed (see paragraphs 3(b) and 4 below) and
(iii) that these charges were competent and proper charges and should have been
allowed in full on the ground that they were competently and properly incurred
as a result of:
(a) The
fact that the Pursuers did carry out the work which was also charged and
described in the judicial account (for which the Defenders have been paid by
Glasgow District Council) notwithstanding that there were incomplete file
entries in respect thereof (the Pursuers having been under extreme time
pressure in preparing for the Arbitration during the relevant period had a
legitimate excuse for the absence of file entries);
(b) The
fact that the Pursuers operate a system of daily time sheets and weekly time
returns whereby the Partners and staff fill out sheets detailing the number of
chargeable units (6 minutes = 1 unit) attributable to a particular
file and said time returns are fed into a computer. The Auditor had before him the computer time
sheets generated by that process and was informed that the Pursuers could
produce the manually produced weekly time sheets from which the computer time
sheets were compiled and which revealed the time spent on the case on a daily
basis and in most cases a short summary notation of the work which was carried
out.
(c) The
fact that the system employed by the Pursuers for time recording (hereinafter
referred to as "the system") and the method of charging a set fee per hour for
perusing a known number of documents are methods which are approved by the Law
Society of Scotland and by the Scottish Legal Aid Board; and
(d) The
fact that the system provided vouching for the time charges to the Defenders;
The Auditor erred in disallowing the said items and
misdirected himself by failing to take account of factors (a)-(d) above and as
a result of:
(e) The
fact that the Auditor deleted this entry in its entirety on the basis of his
said speculation without asking the Pursuers to produce vouching (which he knew
was available in the form referred to in (c) above) to support it as he could
have done in his Schedule of Queries; and
(f) The
fact that esto there was insufficient vouching (which is denied) there
was no basis of alleging that the Pursuers had not carried out the work.
[60] In arguing this particular objection,
senior counsel for the pursuers explained that the charge has been calculated
on the basis that the work of considering Inventories of Productions had been
carried out at the rate of 100 sheets an hour.
That was said to be a recognised method of charging for such work. The Auditor had rejected this method of
charging out of hand, without giving the pursuers any notice of his intention
to do so or seeking clarification from them as to how the sum claimed had been
calculated. Had the pursuers been given
notice of the Auditor's concerns, they could have provided him with time
recording sheets. These would have indicated a reasonably accurate record of
the work that had been carried out.
Examples of such time recording sheets had been lodged in process, in
anticipation of the hearing before me (No. 249/14 of Process).
[61] In responding to these submissions,
Mr. McNamara intimated that he was challenging that 66 hours had been
spent on this item of work. In doing so
he referred to other productions, No. 76 of Process at page 19,
No. 217/1 of Process and No. 256 of Process.
[62] In his submissions, Mr. Frost suggested
that he could see merit in a concession being made to the pursuers in respect
of this item of work, but submitted that it was premature to do so. Issues relating to the alleged mismanagement
of the cause required to be "sorted out", before the pursuers' accounts of
expenses could be properly taxed.
[63] I repel this objection. I do so for a variety of reasons. In the first place, it would be very
difficult, if not impossible, to sustain this objection and order an amendment
of the Auditor's Report, without hearing evidence. There is no agreement between the parties
that I should do so. On the contrary,
there is a significant dispute between the parties as to what work was involved
in the pursuers considering and checking the productions in the arbitration. Indeed the pursuers' charge for doing so was
not claimed on the basis that the pursuers had actually spent 66 hours
carrying out such work. On the contrary,
the charge was put forward on the basis that by reading 100 sheets an hour, it
would have taken the pursuers 66 hours to read through and consider the
productions.
[64] Secondly, there is the problem that having
quantified the charge for £4,488 on one basis, namely the 100 sheets an
hour basis, the pursuers now complain that they were not given the opportunity
to vouch the charge on another basis, namely by reference to time sheets kept
by their partners and qualified staff.
[65] All of that suggests this particular
objection goes beyond the scope of objections to an Auditor's Report, as envisaged
by the provisions of Rule of Court 42.4.
[66] As the Auditor explained at pages 7-8
of his Report (No. 19(a) of Process), he was concerned about a number of
charges in No. 6 of Process. Those
charges included charges for items of work which either did not take place or
for which there were no supporting file entries. The entries to which he was referring
included the item of work amounting to £4,488, which is the subject this
objection. As he makes clear at the top
of page 8 of his Report on the taxation of No. 6 of Process
(No. 19(a) of Process), the Auditor disallowed that particular charge for
the reason that there were no supporting entries in the pursuers' files. He did not assert that no work had ever been
done in considering and checking productions.
He assumed that the entry covered work which was not otherwise noted in
the Account of Expenses. In these
circumstances, I reject the argument advanced on behalf of the pursuers that
even if there was insufficient vouching for the item of work, there was no
basis for alleging that they had not carried out the item of work. The Auditor made no such allegation in
relation to this entry in the Account.
[67] Rule of Court 42.7(6)(e) entitled the
Auditor to disallow any item of work, which was not vouched to his
satisfaction. In my opinion, that Rule
entitled the Auditor to disallow any entry for an item of work, which may well
have been carried out, but was not vouched in a manner that enabled the Auditor
to determine from the papers placed before him what the carrying out of the
item of work had involved and when and over what period of time the item of
work had been carried out by a partner, legally qualified assistant or other
member of staff of the pursuers. The
item of work, which is the subject of the present objection, appears to fall
within this category. How the Scottish Legal Aid Board may be prepared to treat
claims of this nature does not have a bearing on how the Auditor was required
to proceed. Nor was the Auditor bound by
what the City of Glasgow District Council had agreed
in respect of the account of expenses they required to settle. It is clear that the Auditor did not flag up
his concerns about this item of work when he submitted his Schedule of Queries
to the pursuers (No. 249/5/4).
However, it is also clear from the terms of the Written Submissions on
behalf of Arakin, which were spoken to at the conclusion of the hearing before
the Auditor (No. 263/3/2 at page 3), that this particular item of
work had been the subject of discussion before the Auditor. That discussion proceeded on the basis that
the pursuers accepted there were no entries in their files to support the entry
for £4,488 in the account of expenses No. 6 of Process. Before the Auditor, the law accountant for
the pursuers explained the claim for £4,488 on the basis that it was to "take
account of time not otherwise recorded".
It would appear, therefore, that during the hearing the pursuers were
afforded an opportunity to justify this fee.
They clearly failed to do so.
Looking at the taxation procedure as a whole, I am not persuaded the
approach the Auditor took before disallowing this entry was tainted by
procedural unfairness. In these
circumstances I am not prepared to sustain this objection.
[68] 4.
In refusing to take account of the Pursuer's computer time sheets and in
failing to verify or even give the Pursuers the opportunity to vouch those time
sheets when the Pursuers had informed him that the weekly time sheets could be
produced, the Auditor erred in law. He
failed to take account of a relevant consideration, namely that the Pursuers
had these manually produced time sheets (which as above averred the Law Society
considered to be an important element in the calculation of a fee). These provided the best evidence in relation
to the factor list in Rule of Court 42.7(6)(c)(iii), namely the time spent
on the item of work and on the cause as a whole. He acted unfairly in disregarding the
computer time sheets without requesting the Pursuers to produce the manually
produced time sheets of which he had been made aware. While he produced a Schedule of Queries in
which he requested the Pursuers to vouch certain items and to produce certain
documents before making his determination, he did not in that Schedule of
Queries or otherwise give any notice of his intention to disregard the computer
time sheets. His acting in this way
amounted to procedural unfairness which has caused the Pursuers material
prejudice. Further and in any event he
acted unreasonably (a) in disregarding the computer time sheets and failing to
request production of the manually produced time sheets, (b) in relying solely
on the files and papers (viz. his
criticisms (v), (vi) and (viii) on page 8 and criticisms (ix) and (x) on
page 9 of his report), (c) in failing to take account of the Pursuer's
explanation of the way in which the computer printouts were compiled (viz. his
comments on page 9 of his report) and in failing to have regard to the
reality of acting for the defenders on the instructions of Mr. McNamara,
which the Pursuers explained to him. The
Auditor also failed properly to consider the files to which he did have
regard. On pp. 3-4 of the report he
records an assertion on behalf of the defenders that there were no lists of papers
accompanying the instructions sent to counsel at various times throughout the
whole of the arbitration and he appears to accept the assertion. That assertion was incorrect as an
examination of the file for this purpose would have revealed."
[69] As senior counsel for the pursuers pointed out during the
course of his submissions, the subject matter of this objection was not
addressed by the Auditor in his Report on the taxation of No.6 of Process. However, in his Minute dated 13 July 1998, in para. 3b,
the Auditor commented on this particular criticism. It is clear from what he said that he did not
find the pursuers' weekly time returns to be of assistance. That was because they did not identify the
work carried out and the time claimed for individual items of work. The Auditor clearly did not regard them as
being the best evidence of the time that may have been spent on individual
items of work. Having regard to the form
and contents of Nos. 249/14 of Process such views are understandable. In my opinion, the Auditor was entitled to
take the view that the time sheets and returns before him did not provide a
suitable basis for charging and that he should use his own judgement as to what
was a suitable fee for each item of work.
[70] There are other reasons why this particular objection falls to
be criticised. It is an objection taken
to the procedure followed by the Auditor rather than one as to how he dealt
with specific items or work in the account he was taxing. Such an objection falls within the category
of objection discussed in the Opinion of the Court in Gupta v Ross 2005 SLT 548
at paras. [6] and [7] as involving matters that can not competently be
dealt with in a hearing on a Note of Objections. It may be of importance to note that the terms
of this objection illustrate the extent to which the pursuers expected the
Auditor to consider the terms of their files, which they had lodged with him,
but which they had prevented Arakin and their advisers from having full access
to. In the whole circumstances, I repel
this objection.
[71] 5. The entries in the account subject to Uplift
in the Pursuers' contention are those relating to the conduct of the clients'
business but excluding charges for photocopying. The Pursuers applied to the Auditor for an
uplift in respect of these entries.
The Auditor failed to
exhaust his remit in respect that:
(a) Although
he had refused an uplift on Part 1 of the Arbitration the Arbiter granted an
uplift in respect of Part 2 (Reference is made to the Interlocutor of 5th September
1994 which was available for the use of the Auditor);
(b) The
Defenders received the benefit of the uplift on Part 2 of the Arbitration
when they received an award of expenses on a party and party basis from Glasgow
District Council;
(c) The
Pursuers made submissions to the Auditor applying for an uplift; but
(d) Notwithstanding
said submissions, the Auditor made no ruling in respect thereof.
In his Minute the Auditor refers to
Rule 42.14 and suggests that an uplift is irrelevant to the taxation of a
solicitor client account. The Pursuers
applied for an uplift in fees to reflect the responsibility which they had
undertaken including their involvement in work outside the normal work of a
solicitor. While the Pursuers referred
to grounds similar to those in Rule 42.14 in support of their application,
they did not make or purport to make an application under that Rule. As revealed in his Minute, the Auditor erred
in law in treating it as such an application and in ignoring his power to grant
an additional fee as a responsibility fee in taxation of a solicitor client
account. He made no ruling on the
application. As a consequence he failed
to exhaust his remit.
[72] I
agree with the Auditor that the allowance of an additional fee, determined
under reference to the factors enumerated in Rule of Court 42.14, is
apposite to the taxation of a party and party account, not the taxation of a
solicitor and client account under Rule of Court 42.7. Whilst it is correct that the pursuers did
not make or purport to make their application for an uplift in their fees under
Rule of Court 42.14, they justified their application under reference to
certain of the factors to be found within the terms of that Rule. The importance of the matter to the client, the
amount of money involved, the complexity and difficulty of the subject matter,
the requirement of the skill and experience of a solicitor versed in building
contract matters, the number of documentary productions were amongst the
factors relied upon.
[73] As the Auditor points out in para. 4
of his Minute dated 13 July 1998, when he was taxing the pursuers' account
of expenses what he allowed was what the provisions of Rule of
Court 42.7.-(6)(b) required him to allow, namely " in respect of each item
of work and outlay, such sum as may be fair and reasonable having regard to all
the circumstances of the case".
Rule 42.7 makes no provision for the Auditor to allow or award a
further fee or percentage uplift for an item of work, which is to be additional
to such sum as the Auditor has allowed to the solicitor for that item of work
in terms of Rule of Court 42.7.-(6)(b).
Furthermore Rule of Court 42.7.-(6)(b) explicitly refers to and
requires the Auditor to have regard to "all the circumstances of the case". The provisions of Rule of Court 42.7-(6)(c)
also require account to be taken of the various factors upon which the pursuers
based their application for a percentage uplift of their fees The Auditor has made clear that in respect of
the taxation of No. 6 of Process those factors were taken into account in
his fixing, for particular items of work, "such sum(s) as may be fair and
reasonable". In respect of individual items of work, the sums he allowed were
sums which he considered to be "fair and reasonable". Nor, in my opinion, can the provisions of any
other parts of Rule of Court 42.7, in particular Rule of Court 42.7-(6)(a), be
construed as permitting the award of a percentage uplift additional to the
total fees allowed for individual items of work under Rule of Court
42.7-6(a). In such circumstances, I am
not persuaded that the pursuers had the right to seek, in addition to the sums
the Auditor allowed in respect of individual items of work, an additional fee
or percentage uplift based on those same factors. In my opinion, it would have been incompetent
for the Auditor to have granted such an uplift.
[74] The factual situation in the present case
is, in my opinion, significantly different from that which existed in Davidson & Syme W.S. v Booth and Another 1972 SLT 122. In that
case, the Auditor had taxed an account of expenses of a firm of solicitors,
which had been prepared on the basis that the work covered by the account was
regulated by the Table of Fees approved by the Council of the Law Society of
Scotland and applicable from 1st October 1964 (as amended in
1966). In respect of certain categories
of work that table of fees allowed the recovery of fees "chargeable according
to circumstances", which entitled a solicitor to charge such sums as were fair
and reasonable. However, the table also set out rates for other categories of
work, under headings such as "Documents and Papers", "Engrossing and Copying", "Time
Occupied" and "Correspondence, etc.". Some of these prescribed rates related to what
could be charged for the pages and sheets involved in items of work and others
related to the charge for the periods of time involved in carrying out items of
work. In relation to the fees under such categories, the Table of Fees made no
provision for the fees chargeable and recoverable by solicitors requiring to be
assessed as being fair and reasonable or being subject to increase on account
of the nature and extent of the responsibilities placed on the solicitor. In Davidson & Syme W.S. v Booth and Another in addition to
allowing fees calculated in accordance with the rates set out in the Table of
Fees, the Auditor allowed the solicitors a responsibility fee on the basis that
would be fair and reasonable, having regard to the nature of the work done and the
responsibility undertaken by the solicitors.
The allowance of that responsibility fee was upheld by the court on the
basis that the implied contract between the solicitor and the client was that
the solicitor would be remunerated at the rate that is reasonable for the work
that was done (see Lord Ordinary, at page 126, and Lord President Clyde,
at page 128). Taxing the
solicitors' account solely by reference to the Law Society's Table of Fees
would not have achieved the fixing of reasonable remuneration. In the present case, the situation is
different. The Auditors were directed by the court to tax the three accounts of
expenses in terms of Rule of Court 42.7 and required to apply the statutory
provisions set out in that Rule. Those
provisions, and in particular those of Rule of Court 42.7-(6)(b), required the
Auditors to allow in respect of each item of work and each outlay "such sum as
may be fair and reasonable having regard to all the circumstances of the case".
In my opinion, those provisions required
the Auditors to look at each item of work and outlay separately and, on an
entry by entry basis, determine sums that were fair and reasonable in respect
of each item. In my opinion it was not
open to the Auditor to determine sums that were fair and reasonable on the
understanding that those sums were liable to be augmented by an additional fee
in the form of a percentage uplift. The
terms of Rule of Court 42.7-(6)(c), which required the Auditor to take into
account certain specified factors in determining sums that were fair and
reasonable, reinforce me in my opinion as to the approach the Auditor required
to follow. For these reasons, I repel
this objection.
[75] 6. "1991
FEB. 1 Attendance at preliminary
Consultation with Counsel prior to the pre-Proof Consultation. 25 units £170.00"
The
Auditor's Report commented on these charges as follows: "However, as the Auditor has taxed off as
unreasonable a pre-Consultation meeting between the solicitors and Counsel held
on 1st February 1991, Account page 114, and for which
Counsel had included a fee in his omnibus fee of £13,500.00, exclusive of Value
Added Tax, paid direct by the clients, The Auditor is of the opinion that the
clients should, therefore, receive a cash refund of £230.00, inclusive of Value
Added Tax, in the final cash reconciliation between the solicitors and
clients."
The Pursuers contend that
these were competent and proper charges and should have been allowed in full on
the ground that they were competently and properly incurred as a result of:
(a) The fact that the consultation of 1st February
1991 (hereinafter referred to as "the consultation") was necessary and
reasonable when there was insufficient time for a Note on the Line of Evidence
and Counsel required to be briefed and discuss preparations for the Arbitration
in advance of a lengthy consultation with Mr. McNamara of the Defenders;
and
(b) There was no challenge by the Defenders
to Counsel's fees for the Consultation.
The Auditor erred in
excluding the entry from the Pursuers' account and has given no reason for
concluding that the meeting was unreasonable.
[76] This objection was not insisted upon.
[77] 7. The Pursuers also object to the Auditor's
unjustified comments about (i) work wrongly charged at a qualified solicitor's
rates and (ii) photocopying charges (both on p. 8). In respect of the former the Defenders had
been charged on a correct basis in the Pursuers' fee notes and the error in the
Account of Expenses (which was prepared when the Defenders required a taxation)
was recognised and conceded before the taxation. In relation to the latter, the photocopying
by Rand Associates had correctly been included in the
judicial account but had incorrectly been transposed into the Account of
Expenses. Again this was conceded before
the taxation. The said items (i) and
(ii), the compromise on other photocopying charges agreed between the parties,
and the discovery that the Defenders had paid certain outlays which remained as
debit items in the Pursuers' Account (including Counsel's fees and room hire
charges) accounted for over sixty per cent of the adjustment to the Pursuers'
Account recorded in the taxation. In
respect of the other forty per cent, the matters challenged in paragraphs 1-5
above and the Auditor's unwillingness to have regard to the Pursuers' time
sheets, which are now a standard method of recording and evaluating
professional time as above explained, has resulted in an unfair assessment of
the Pursuers' Account.
[78] This objection was not argued.
Note of Objection by Defenders to Report by the Auditor of Court on the
Pursuers
Account of
Expenses (No. 6 of Process)
[79] 1. (A) The
Auditor misdirected himself through his misunderstanding of VAT Regulations by
allowing Tods Murray to recover VAT on items of alleged work that were not
supported by invoices and by allowing VAT on the agreed photocopying
costs. The Auditor should or ought to be
aware that Arakin Limited was unable to recover VAT, refer to No. 75 of
process for details.
(B) On
page 5 of No. 164 of process Mr. Anderson informs the reader
that Tods Murray did not render VAT invoices for the sums sued for, as this
would have attracted VAT. This is an
open admission that Tods Murray and Simpson & Marwick raised a false
summons and submitted a false account to the Court. I refer to page 4 of No. 237 or
Process that demonstrates the lengths Tods Murray went to in pretence that VAT
invoices existed for the sums sued for.
Abatement required that Tods Murray's account known as No. 6 of
process is restricted to the value and date of all invoices rendered as the
Statute of Limitations Act 1973, section 18A, this Act is binding on a Court
and is referred to in the Pleas-in-Law, page 56 of the Pleadings.
[80] Para. (A)
of this objection refers to a line of argument that the defenders have sought
to raise on a number of occasions since I became involved in dealing with this
action. That line of argument relates to
how much VAT the pursuers have been entitled to recover, and remain entitled to
recover, from Arakin and the defenders in addition to the fees and outlays
which the pursuers have been paid or which they sue for, in respect of
professional services they carried out for Arakin. The line of argument is set out in some
detail in No. 75 of Process, which is an affidavit sworn by Martin Gill, C.A., to which
are attached a number of schedules. To
some extent, the line of argument is based on the form of the invoices that the
pursuers submitted to Arakin before the action was raised. However, it also involves the related issue
as to whether Arakin would be entitled to recover from H.M. Revenue and Customs
any VAT which has been paid to the pursuers by Arakin or which the pursuers
claim is still payable by the defenders.
[81] Senior counsel for the pursuers accepted
that the defenders are perfectly entitled to raise as part of their defence to
the action the issue of how much VAT the pursuers have been or remain entitled
to receive from Arakin and the defenders.
He submitted, however, that that issue was not one for the Auditor to
resolve, whether it related to the VAT referred to in the invoices submitted to
Arakin before the action was commenced or to the VAT payable on the sums
brought as due to the pursuers at the conclusion of the taxation of No. 6
of Process. I agree.
[82] In my opinion, the Auditor had no role to
play in resolving and ruling upon any dispute between the parties as to the VAT
payable to the pursuers or the VAT recoverable by Arakin and the
defenders. Having said that, issues relating
to VAT can only be resolved once it is clear, whether as a matter of agreement
between the parties or by ruling of the court, what professional fees and
outlays the pursuers have been and remained entitled to recover from Arakin and
the defenders. Even then, the issues may
require to be focused in the parties' written pleadings.
[83] In my opinion Para. (B)
of this objection also raises questions of fact and, more importantly,
questions of law which were not for the Auditor to resolve. Indeed, as reference to page 4 of
No. 237 of Process makes clear, the defenders are seeking to found on
evidence given during the hearing before Lady Smith, which took place long
after the taxation of No. 6 of Process finished. Questions of prescription are for the court
rather than the Auditor to rule upon, subject of course to those issues being
properly focused in the pleadings. For
these reasons, I repel this objection to the Auditor's Report. It is a matter for the defenders to decide
whether and, if so, by what procedure they intend to raise in their pleadings
in this action the issues that lie behind this objection.
[84] 2. Details of entries allowed by the Auditor in
relation to the Pursuers' failure to comply with the clients' instructions.
|
Page Nos
|
Item Nos
|
Amount Already
Taxed Off
|
Reduction Sought
|
|
All
|
All
|
|
All Sums
|
The Auditor has failed to rule on Objection G, failure
to recover documents and conduct arbitration in accordance with the client's
instructions. Rule 42.7(6)(d)(1)
states that "in taxing an account submitted to him under Paragraph 1 the
Auditor shall presume (unless the contrary is demonstrated to his satisfaction)
that an item of work or outlay was reasonably incurred if it was incurred
with the expressed or implied approval of the client". The corollary to that rule must be that if
work was carried out contrary to the clients' instructions or that if charges
are included in the account in relation to work carried out emanating from a
failure to comply with clients' instructions the Auditor must presume that the
charges have not been reasonably incurred and tax them off.
[85] The Report by the Auditor on his taxation
of No. 6 of Process (No. 19(a) of Process) narrates a number of
objections that were raised on behalf of Arakin during the taxation. These included "G. That unnecessary charges are included as a
result of the Agents' failure to comply with the Client's instructions with
regard to recovery of documents". On
page 4 of his Report, the Auditor indicates that in his opinion it was not
for him to comment as to how the arbitration was conducted or might have been
conducted. He observed that decisions as
to (i) when to obtain and lodge productions, (ii) when to take
precognitions and (iii) the need for Scott Schedules, which together with
other matters were the subject of much criticism on behalf of Arakin, were
essentially matters of professional judgement for the pursuers, in advancing
the interests of their clients.
[86] This particular objection is framed in
fairly general terms. Nevertheless, it
is clear from certain of the productions lodged, and in particular from the
terms of the written submissions spoken to on behalf of Arakin at the
conclusion of the taxation, that the Auditor was invited to consider a number
of allegations to the effect that the pursuers had failed to act in accordance
with Arakin's instructions or had acted contrary to their instructions. Alleged failures on the part of the pursuers
to follow instructions to recover documents from the City of Glasgow
District Council and when dealing with the
solicitors acting for the Council were amongst the matters complained about.
[87] In making submissions in respect of this
objection, Mr. McNamara indicated that he wished me "to deal with the
pursuers' failures to follow instructions" and then send the Account back to
the Auditor to be-taxed. Such a course
of action was warranted because the pursuers had been guilty of "gross
mismanagement of the cause" (see Hastings on Expenses in the Supreme and Sheriff Courts,
at pages 118-119).
[88] Senior counsel for the pursuers submitted
that the Auditor had been quite correct in deciding that it was not appropriate
for him to determine issues of alleged mismanagement of the cause. For that reason, they were not issues that could
be resolved during a Hearing on Notes of Objections to the Auditor's Report.
[89] In my opinion, the Auditor was perfectly
entitled to take the view that it was not for him to comment on how the
arbitration had been conducted or might have been conducted. In terms of Rule 42.7-(6) the Auditor
required to consider the individual items of work charged for and address
whether they were reasonably incurred and reasonably charged for. Issues as to whether the pursuers acted
contrary to instructions in their whole approach to the conduct of the
arbitration, or at least to significant parts of it, are entirely different
matters. Ideally these matters should
have been raised before the account of expenses was remitted for taxation or at
least before the taxation took place.
That did not occur.
[90] The defenders wish to rely on such matters
in defence of that part of the pursuers' claim which is founded on the account
of expenses No. 6 of Process. The
matters are to some extent already raised in the written pleadings, in
Answer 3(b) of the Defences. They
will require to be addressed by the Court, possibly in the context of a proof
or a hearing of evidence restricted to discrete issues. In these circumstances, I repel this
objection.
[91] 3. (A) The
Auditor misdirected himself on 19A of Process by stating he did not investigate
Junior Counsel's costs for No. 6 of Process despite concern showed by
R. Grieve at the Diet of Taxation. The Auditor is fully aware that the charges
levelled against Arakin by Junior Counsel are at least 300% higher than normal
in 1991/92. Abatement required, that
Junior Counsel costs are restricted to a maximum of £350.00 per day for a
maximum of five days, refer to pages 15/16 of No. 27 of Process
and to page 48, item D of the Record.
(B)
The Auditor
misdirected himself in 19A of Process by stating it was not for him to decide
if the Solicitor had competently run the case and I refer to page 33 of
No. 6 of Process, 15th March, concerning Mr. Simpson
classifying phase 1 of the Arbitration as a pantomime. This pantomime was caused by Mr. Simpson
who failed to inform Arakin that when a contract is at large the only
requirement is to submit weekly time-sheets, refer to No. 48 of Process
and pages 43/44 of the Record for a full explanation. Abatement required all costs incurred by
Arakin Limited for phase 1 of the Arbitration.
(C)
The Auditor
misdirected himself in page 4 of his report by stating the Solicitor's
performance was a matter for the Solicitor's judgement and again I refer to page 33
of No. 6 of Process where Mr. Simpson and Counsel were aware that
Arakin was owed £180,000.00 by Glasgow District Council in
March 1988. No attempt was made by
Mr. Simpson to raise this matter before a Sheriff in Glasgow District
Council where he should have sought recovery of the £180,000.00 immediately as
Glasgow District Council was contractually bound to pay any sums
outstanding. Mr. Simpson should
have aborted Arbitration proceedings immediately and sought a meeting with
Glasgow District Council's Chief Executive to have Arakin restored to Glasgow
District Council's list of approved contractors, refer to page 47 of the
Record. Abatement required, that all
costs incurred by Arakin for the dispute be paid by Tods Murray for
gross-mismanagement-of-cause.
[92] Dealing first with Objection 3(A),
the documents lodged in process include a letter dated 2 March 1998, which
Robert Grieve, the law accountant acting for Arakin, wrote to the Auditor
(No. 24/4 of Process). It is clear
from the terms of that letter that Arakin had challenged and were continuing to
challenge the fees of counsel who the pursuers had instructed. Arakin sought to have the counsel's fees
included in No. 6 of Process taxed off, or at least reduced, partly on the
basis that Arakin had already settled some of those fees, partly because of
double counting and partly because the pursuers had failed to provide full
clarification of the work the fees covered and the rates that had been charged.
[93] Senior counsel for the pursuers stated
that those who had represented the pursuers at the taxation had no recollection
of counsel's fees having been challenged during the taxation. It was accepted that many of the fees charged
by counsel had been paid by Arakin, before the action had been raised. Those payments had been made as part of the
settlement of invoices, which had pre-dated the preparation of the time and
line account (No. 6 of Process).
The only reduction in counsel's fees brought about by the taxation had
been made in respect of a pre-consultation meeting on 1 February 1991, which the
Auditor had taxed off on the basis that the holding of the meeting was
unreasonable. The meeting had not dealt
with any matters which could not have been addressed at the consultation which
the clients attended.
[94] Whilst there is a measure of uncertainty
as to the extent to which the fees of counsel were challenged during the course
of the taxation, the terms of the letter of 2 March 1998 satisfy me that
the Auditor failed to address matters that had been raised before him, prior to
issuing his Report on the taxation (No. 19(a) of Process) on 27 March
1998. Accordingly I sustain
Objection 3(A). The account will
require to be remitted back to the Auditor to allow this outlay to be
reconsidered.
[95] Objection 3(B) raises the same issue
of principle as I addressed in relation to Objection 2. This objection is based on another allegation
of gross mismanagement of the cause, which could not have been dealt with
during the taxation nor can it be dealt with during a hearing on a Note of
Objection to the Auditor's Report.
Indeed reference to the defenders' averments in Answer 3, on
pages 43 - 44 of the Closed Record, and to the terms of No. 84 of Process,
a document lodged by Mr. McNamara and entitled "Draft Report on the
actions in The Arbitration of Arakin v Glasgow of Tods Murray Solicitors",
makes that clear. I am quite satisfied
that I should repel this objection, for the same reasons and on the same basis
on which I repelled Objection 2.
[96] Similar comments can be made in respect of
Objection 3(C). It is clear from
the terms of this objection and of Arakin's pleadings in the Closed Record that
criticisms of some significance have been advanced and are being maintained in
respect of the manner in which the pursuers acted for Arakin in connection with
Arakin's dispute with the City of Glasgow
District Council.
In my opinion it is quite clear that it was not for the Auditor to
determine whether or not the pursuers should have aborted the arbitration
proceedings and raised proceedings in Glasgow
Sheriff Court.
I repel this objection for the same reason and on the same basis as I
repelled Objection 2.
[97] 4. The Auditor misdirected himself by not
reporting Tods Murray to the Court for gross overcharging in No. 6 of
Process that was easily established from Tods Murray's computer time-records,
refer to pages 10-15 of No. 237 of Process. Abatement required, that No. 6 of
Process to the date of the last invoice be restricted to £36,871.00 excluding outlays
and that 68% of £36,871.00 be abated from £36,871.00 to make No. 6 of
process legal, valid and accurate when the correct rates are applied, refer to
pages 11-15 of No. 237 of Process for explanation.
The Auditor has failed to address the defenders' submissions
regarding as to the level of fees charged by Counsel. The Auditor was informed that the Defenders
had for some time, been seeking assurance that there had not been an element of
double charging in Counsel's "omnibus" invoices. The Auditor ought to have fully investigated
the matter so that his taxation might provide a definitive liability. Reference is made to the letter from Grieve
& Co. to the Auditor dated 2nd March 1998. Furthermore
the amounts stated for Counsel's fees in the Account do not correspond with the
amounts claimed in Invoices rendered to the Defenders. The Pursuers are called upon to produce the
Invoices from Faculty Services Ltd and to explain the inconsistencies.
The Pursuers are further called upon to produce their
letter to Faculty Services Ltd dated 1.4.92, which the defenders aver may
assist in clarifying the question of possible duplication of charges.
[98] In the first part of this objection, the
defenders invite the court to overturn the Auditor's taxation of the account by
reference to time-records of the pursuers (No. 217 of Process), which I
understand to have become available to the defenders since the taxation took
place. The reference in the objection to
No. 237 of Process is to a document entitled "Minute of Amendment to Notes
of Objections for the Defenders", which was lodged in process but never
moved. It appears to have been a
precursor to the Minute of Amendment (No. 241 of Process) that was moved
and given effect to. In addition to
containing proposed amendments to the Notes of Objections on behalf of the
defenders, No. 237 of Process contained a number of written submissions,
including some based on the contents of the time-records.
[99] In my opinion, it would be quite
inappropriate, and well beyond the scope of a hearing on a Note of Objection to
an Auditor's Report, for the court to scrutinise the detail of a solicitor's
account of expenses, which has been taxed by the Auditor, and compare the
individual items of work and charges in that account against the internal time
records of the solicitor concerned. The
Auditor taxed the account in accordance with the provisions of Rule of
Court 42.7. Those provisions
directed the Auditor to allow such sums, as might be fair and reasonable, in
respect of such work and outlays as had reasonably been incurred by the
pursuers. The Auditor was also entitled
to presume (unless the contrary was demonstrated to his satisfaction) that an
item of work was reasonably incurred and the fee charged was reasonable, if the
item of work was done with the express and implied approval of Arakin and the
amount of the fee charged had been expressly or impliedly approved by
Arakin. If it is being alleged
that any of the items of work contained in No. 6 of Process are false, in
the sense that they were never carried out or that the length of time charged
for them has been grossly and deliberately exaggerated, such allegations would
require to be pled as parts of the substantive defence to the action. Moreover, if any such allegations were
to be substantiated, it would probably be necessary to remit the account of
expenses back to the Auditor to enable a further taxation to take place. For these reasons, I repel the first part of
this objection.
[100] As I understand it, in the context of this
objection, the defenders also seek to challenge how the Auditor dealt with
their request that he clarify which fees were charged by counsel and which of
those fees had been paid by Arakin. These were issues raised in a letter dated 2 March 1998
(No. 24/4 of Process), which Arakin's law accountant wrote to the
Auditor. In particular the Auditor was
requested to seek clarification of (a) whether there has been any
duplication in the fees actually charged by counsel and included in invoices
submitted to the pursuers by Faculty Services Limited, (b) the work
covered by and the amounts of those fees, (c) which of those fees have
been paid to Faculty Services Limited and (d) when and by whom such
payment of fees has been made. As I
understand the defenders' position, what they sought and still seek is no more
than an accounting exercise, which could have been carried out before the
taxation took place. It will require to
be carried out in respect of the fees of counsel that are included in the Account
of Expenses No. 6 of Process and the invoices that preceded that account
of expenses. No. 251 of Process,
which was lodged on 8 June
2004, bears to be a table setting out the result of such an
exercise. Insofar as the contents of
No. 251 of Process are challenged, or require to be clarified further, it
is not appropriate to do so in the context of a hearing on a Note of Objection
to the Auditor's Report on his taxation of No. 6 of Process. On that basis, I repel this objection.
[101] Having regard to what I explained earlier,
in Para. [26], about the preparation of
the composite version of the Note of Objections on behalf of the defenders to
the taxation of No. 6 of Process, I should stress that I do not understand that
the defenders wished to insist on an objection to the effect that that the
Auditor erred in failing to tax the reasonableness of all of the fees of
counsel that are included in No. 6 of Process.
[102] 5A.
Details of entries allowed by the Auditor in relation to recovery of Judicial expenses.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
192
|
1
|
|
75.00
|
|
193
|
9
|
|
22.50
|
|
193
|
10
|
|
37.50
|
|
194
|
1
|
|
18.75
|
|
194
|
3
|
|
18.75
|
|
194
|
5
|
37.50
|
18.75
|
|
195
|
5
|
225.00
|
525.00
|
|
|
6
|
45.00
|
105.00
|
|
|
7
|
45.00
|
105.00
|
|
|
8
|
122.00
|
28.00
|
|
197
|
4
|
|
15.00
|
|
198
|
3
|
|
37.50
|
|
200
|
3
|
|
18.75
|
|
|
6
|
|
7.50
|
|
201
|
2
|
|
7.50
|
|
202
|
5
|
|
30.00
|
|
203
|
2
|
|
3.75
|
|
|
3
|
|
18.75
|
|
|
4
|
|
32.00
|
|
|
5
|
|
8.00
|
|
204
|
5
|
|
24.00
|
|
|
6
|
|
32.00
|
|
205
|
1
|
|
16.00
|
|
|
3
|
20.00
|
40.00
|
|
|
4
|
|
16.00
|
|
206
|
1
|
|
48.00
|
|
|
2
|
|
16.00
|
|
|
4
|
|
4.00
|
|
|
5
|
|
8.00
|
|
207
|
2
|
|
8.00
|
|
207
|
3
|
|
8.00
|
|
208
|
1
|
8.00
|
16.00
|
|
|
2
|
|
8.00
|
|
|
3
|
|
32.00
|
|
|
5
|
|
8.00
|
|
|
6
|
56.00
|
24.00
|
|
209
|
5
|
24.00
|
24.00
|
|
210
|
6
|
20.00
|
40.00
|
|
|
8
|
|
16.00
|
|
211
|
1
|
|
16.00
|
|
|
2
|
|
8.00
|
|
|
4
|
|
200.00
|
|
|
5
|
|
8.00
|
|
|
6
|
|
480.00
|
|
212
|
2
|
|
8.00
|
|
|
3
|
|
16.00
|
|
|
5
|
|
16.00
|
|
|
6
|
|
160.00
|
|
|
7
|
|
8.00
|
|
213
|
1
|
|
40.00
|
|
|
2
|
|
4.00
|
|
|
4
|
|
48.00
|
|
|
5
|
|
20.00
|
|
|
6
|
|
40.00
|
|
|
7
|
|
24.00
|
|
214
|
1
|
|
16.00
|
|
|
2
|
|
8.00
|
|
|
3
|
|
3.00
|
|
|
4
|
|
48.00
|
|
|
5
|
80.00
|
16.00
|
|
215
|
1
|
|
8.00
|
|
|
2
|
|
32.00
|
|
|
5
|
|
24.00
|
|
|
7
|
|
20.00
|
|
216
|
2
|
|
20.00
|
|
|
3
|
|
16.00
|
|
|
4
|
|
8.00
|
|
|
6
|
|
120.00
|
|
|
7
|
|
8.00
|
|
|
8
|
|
16.00
|
|
|
9
|
|
16.00
|
|
217
|
1
|
|
16.00
|
|
|
2
|
|
16.00
|
|
|
3
|
24.00
|
16.00
|
|
|
4
|
|
40.00
|
|
218
|
3
|
|
16.00
|
|
|
4
|
|
8.00
|
|
|
5
|
|
8.00
|
|
|
6
|
|
1.20
|
|
|
7
|
|
8.00
|
|
219
|
1
|
16.00
|
24.00
|
|
|
2
|
|
8.00
|
|
|
3
|
|
8.00
|
|
|
5
|
|
16.00
|
|
|
6
|
|
4.00
|
|
|
7
|
|
1.60
|
|
|
8
|
16.00
|
16.00
|
|
220
|
1
|
16.00
|
8.00
|
|
|
2
|
|
8.00
|
|
|
3
|
|
8.00
|
|
|
4
|
|
32.00
|
|
|
5
|
|
4.00
|
|
|
6
|
|
59.20
|
|
|
8
|
|
16.00
|
|
221
|
1
|
|
16.00
|
|
|
2
|
|
8.00
|
|
|
3
|
|
8.00
|
|
|
5
|
|
48.00
|
|
|
1
|
|
8.00
|
|
222
|
1
|
|
8.00
|
|
223
|
3
|
|
48.00
|
|
224
|
1
|
|
32.00
|
|
|
2
|
48.00
|
80.00
|
|
|
3
|
|
40.00
|
|
|
5
|
|
320.00
|
|
|
6
|
|
40.00
|
|
|
7
|
|
48.00
|
|
225
|
1
|
|
8.00
|
|
|
2
|
|
1.20
|
|
|
3
|
|
40.00
|
|
225
|
4
|
|
8.00
|
|
|
6
|
|
40.00
|
|
|
7
|
|
8.00
|
|
|
9
|
|
24.00
|
|
226
|
6
|
|
32.00
|
|
|
7
|
|
8.00
|
|
|
8
|
|
4.00
|
|
227
|
6
|
|
8.00
|
|
228
|
2
|
|
8.00
|
|
|
|
|
|
|
With regard to the Judicial account for phase 1
of the Arbitration, the Auditor has failed to adhere to the terms of his remit
in refusing to tax-off the charges emanating from the Pursuers' failure to
comply with the client's instructions to have the Account taxed. It is the Solicitor's duty to maximise a
recovery of Judicial Expenses on behalf of the Defenders. Reference is made to the Closing Submissions
to the Auditor. In any event the Court
is invited to find that the Pursuers ought to have sought expenses in relation
to Phase 1 on an Agent/Client basis and in so finding to ordain the
Auditor to tax-off items relating to the work involved in adjusting the
Judicial Expenses and to restrict the charges in the Account to the levels of
fees recovered in the Judicial Account for like work.
[103] This is another objection that is based upon
allegations which the defenders make against the pursuers, in respect of the
professional services the pursuers provided to Arakin. It is alleged that the pursuers failed to
implement instructions from Arakin to proceed to taxation of the account of the
expenses awarded in favour of Arakin in the arbitration. The pursuers are also criticised for having
failed to seek that the award of expenses in favour of Arakin should be on an
agent and client, client paying, basis.
During the taxation, the Auditor was asked to restrict the sums payable
to the pursuers to those that would have been recoverable on a party and party,
party paying, basis. However, the Auditor
took the view that, as he was being asked to tax the account of expenses
No. 6 of Process on an agent and client basis, such contentions could not
be accepted by him. If the contentions
raised during the taxation and in this objection are going to be pursued by the
defenders, that cannot be done in the context of this hearing. They will have to be focused in the
defenders' written pleadings and pursued as part of their substantive defence
to this action. For these reasons I
repel this objection.
[104] 5B. "Details of entries allowed by the Auditor
in relation to Rand Associates.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
26
|
4
|
|
4.85
|
|
|
6
|
|
52.50
|
|
27
|
4
|
|
115.50
|
|
|
6
|
|
5.25
|
|
|
7
|
55.00
|
56.00
|
|
29
|
7
|
|
15.75
|
|
|
8
|
2.25
|
0.90
|
|
30
|
1
|
|
210.00
|
|
|
2
|
|
(outlay)
33.73
|
|
|
9
|
|
10.50
|
|
31
|
1
|
|
52.00
|
|
|
2
|
6.00
|
105.00
|
|
|
4
|
|
78.75
|
|
32
|
1
|
22.50
|
5.25
|
|
37
|
2
|
9.00
|
157.50
|
|
61
|
7
|
|
18.77
|
|
62
|
1
|
|
11.10
|
|
63
|
2
|
|
27.75
|
|
64
|
10
|
|
2.78
|
|
65
|
3
|
|
177.60
|
|
|
5
|
|
61.05
|
|
66
|
1
|
|
99.90
|
|
|
3
|
|
5.55
|
|
|
4
|
55.50
|
55.50
|
|
|
5
|
|
5.55
|
|
|
6
|
|
1.11
|
|
|
7
|
|
2.75
|
|
|
8
|
72.25
|
6.10
|
|
67
|
6
|
|
33.30
|
|
68
|
4
|
5.55
|
16.65
|
|
|
5
|
|
20.00
|
|
|
6
|
83.25
|
83.25
|
|
|
7
|
|
27.75
|
|
69
|
2
|
|
11.10
|
|
70
|
1
|
|
11.10
|
|
71
|
1
|
83.25
|
83.25
|
|
76
|
2
|
|
31.00
|
|
80
|
3
|
|
18.60
|
|
84
|
1
|
|
12.40
|
|
87
|
8
|
|
12.40
|
|
89
|
1
|
|
6.20
|
|
91
|
2
|
|
43.40
|
|
92
|
5
|
|
6.20
|
|
97
|
3
|
|
93.00
|
|
98
|
6
|
|
6.20
|
|
|
7
|
117.00
|
62.80
|
|
100
|
5
|
|
12.40
|
|
|
8
|
62.00
|
93.00
|
|
101
|
8
|
|
3.10
|
|
112
|
1
|
27.20
|
109.40
|
|
114
|
3
|
|
3.40
|
|
|
6
|
|
6.80
|
|
122
|
7
|
|
6.80
|
|
124
|
7
|
|
186.00
|
|
126
|
2
|
|
3.40
|
|
128
|
1
|
|
61.20
|
|
129
|
3
|
|
3.40
|
|
131
|
4
|
4.80
|
2.00
|
|
131
|
5
|
|
3.40
|
|
134
|
7
|
|
20.40
|
|
135
|
8
|
|
40.80
|
|
137
|
1
|
|
27.20
|
|
139
|
2
|
40.80
|
34.00
|
|
|
5
|
|
13.60
|
|
141
|
8
|
|
3.40
|
|
144
|
8
|
|
3.40
|
|
146
|
1
|
|
13.60
|
|
155
|
3
|
|
3.40
|
|
|
6
|
|
5.44
|
|
|
7
|
|
13.20
|
|
156
|
1
|
|
34.00
|
|
|
2
|
|
17.00
|
|
158
|
3
|
|
13.20
|
|
|
4
|
|
47.60
|
|
162
|
9
|
|
13.60
|
|
164
|
1
|
|
15.00
|
|
165
|
1
|
|
142.50
|
|
|
2
|
|
172.50
|
|
|
5
|
|
7.50
|
|
166
|
5
|
|
15.00
|
|
169
|
3
|
|
30.00
|
|
170
|
6
|
|
3.75
|
|
171
|
4
|
|
3.75
|
|
|
8
|
82.50
|
225.00
|
|
174
|
10
|
|
15.00
|
|
175
|
6
|
|
75.00
|
|
176
|
10
|
|
165.00
|
|
177
|
2
|
|
37.50
|
|
|
7
|
|
30.00
|
|
179
|
2
|
|
15.00
|
|
|
3
|
|
1.50
|
|
|
6
|
|
1.50
|
|
81
|
3
|
|
1.50
|
|
|
4
|
|
3.75
|
|
182
|
4
|
|
22.50
|
|
184
|
4
|
|
15.00
|
|
186
|
1
|
|
3.75
|
|
188
|
2
|
|
37.50
|
|
188
|
3
|
|
18.75
|
|
|
5
|
|
75.00
|
|
|
6
|
|
18.75
|
|
195
|
2
|
|
7.50
|
|
201
|
5
|
|
3.75
|
|
|
6
|
|
1.58
|
|
|
|
|
|
The Auditor has failed to rule on the Defenders'
objection. The Court is invited to find
that Rand were instructed on the advice of the Pursuers and
that the Defenders were not advised that Rand's fees would not be recoverable.
The Court is invited to ordain the Auditor to off-set the amount of Rand's fees not recovered judicially against the amount of the taxed
account. Reference is made to a Letter
from the Pursuers to Arakin dated 28th Jan 1991, produced herewith, wherein they state "in my view
most, if not all of the Rand
expenditure by the Company will be recoverable". Reference is also made to the Auditor's
decision on the matter of Scott Schedules.
The Court is invited to find that the Pursuers ought not to have
involved themselves in matters pertaining to Contract conditions - matters
which were the specific domain of Rand Associates
- and to tax-off all charges in relation thereto. The Arbiter in his findings refused to allow Rand to be certified as Expert Witnesses and in doing so made reference to the
fact that the Defenders' Director Mr. McNamara was skilled in the
preparation of Final Accounts. The costs
of Tods Murray's involvement in these matters and those incurred by their
insistence in producing a final Account by this method ought to be taxed-off as
no legal skill was required. Reference
is made to a letter from Arakin to Tods Murray dated 12.10.92. Outwith Tods Murray's in-put into Phase II,
the only additional contribution of a qualified Solicitor was in attending only
21/2 days of the 55 day Hearing.
[105] This is another objection that is based on
factual contentions by the defenders that are disputed by the pursuers. During the course of the arbitration between
Arakin and the City of Glasgow District Council, Rand
Associates were instructed to assist Arakin.
Mr. Downing and Mr. Miller of Rand Associates gave evidence
during the arbitration. Having made a
finding of expenses in favour of Arakin, the Arbiter declined to certify
Mr. Downing and Mr. Miller as skilled witnesses. The Arbiter's reasons for doing so are quoted
on page 6 of the Auditor's Report (No. 19(a) of Process). At the taxation, Arakin contended that,
before Rand Associates were instructed, the pursuers should have advised them
that the recovery of Rand's fees was
unlikely, that the pursuers had not done so and that the pursuers should bear
those costs of instructing Rand which had
not been recovered from the City of Glasgow
District Council.
[106] In this objection to the Auditor's Report,
the defenders argue that the Auditor ought to have taxed off the fees in
respect of all the items of work in No. 6 of Process, which related to the
work carried out by Rand Associates, including the pursuers' meetings with
members of Rand's staff and their consideration of and advising on documents
produced by Rand. That objection is
predicated on the contention that the pursuers gave Arakin advice that turned
out to be erroneous.
[107] In my opinion, the Auditor was in no
position to resolve the factual and legal issues that lie behind this
objection. If the defenders seek to
pursue their contentions that the pursuers gave Arakin negligent advice, prior
to the instruction of Rand Associates, which the averments at page 54 of
the Closed Record suggest they do, and that such advice had a bearing on
whether or not Rand Associates should have been instructed, those are matters
that will require to be pursued in the defenders' defence to the action. For these reasons, I repel this objection.
[108] 6. Entries allowed by the Auditor in relation
to the Pursuers' photocopying charges of Productions C1, C2, C3, C, C28 and
R1-22.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
235
|
6
|
|
£6,641.25
|
|
|
7
|
|
£2,026.88
|
|
|
|
|
|
The Auditor erred in allowing a figure of £7,500 plus
VAT in respect of the photocopying of Productions C1, C2, C3, C, C28 and R1-22
referred to at pages 109, 110 and 235.
The defenders maintain that any agreement reached in the course of the
taxation between the Pursuers and the Defenders was for £7,500 inclusive
of VAT. The Defenders also maintain that
the £7,500 was to cover all photocopies, not just the copying of
productions. The Auditor has added
VAT. The Auditor has also allowed for
photocopying throughout the account. In
the absence of any clear consensus in idem between the parties, the matter
should be remitted back to the Auditor.
In any event, the Defenders allege that the Pursuers misled the
Defenders' Director Mr. McNamara in the course of the taxation. They initially represented to the Defenders
per their account at pages 109 and 110 that they had made 8 copies of
Productions C1, C2, C3, C, C28 and R1-22, a total in excess of
40,000 sheets. In the course of the
taxation they represented that they had in fact copied about 30% of these
papers, i.e. about 16,000 sheets. On the
basis of said representations the Defenders agreed to a cumulo figure of
£7,500. All of these copies were in fact
taken by Rand Associates and not the Pursuers. The Defenders only became aware at the close
of the taxation that the Pursuers had only copied a total of approximately
1464 sheets. The account should be
remitted back to the Auditor and the Pursuers should be ordered to produce to
the Auditor said photocopies.
[109] It is clear from the terms in which this
objection is framed that it is based on the allegation that Arakin's agreement
to a cumulo figure of £7,500 in
respect of photocopying charges resulted from their having been misled by
representations made by the pursuers.
There is also a factual dispute as to whether the figure of £7,500 was
intended to be inclusive or exclusive of posts and incidents and VAT. The Auditor's Report (No. 19(a) of
Process) deals with this latter point by stating it had been reported to him at
taxation that those charges had been agreed by the parties on a "commercial
basis" at the restricted figure of £7,500 in total, but that subsequently
dispute arose as to posts and incidents and VAT.
[110] Having regard to the nature of the issues
raised by this objection, it would be impossible for me to hold that the
Auditor erred in law in not having taxed off the two entries on page 235
of No. 6 of Process, which are referred to in the objection. However, I do not understand how the Auditor
considered it was appropriate for him to implement an 'agreement' between the
parties, if there was a dispute between them as to whether or not the figure of
£7,500 was inclusive of posts and incidents and VAT. Accordingly I sustain this objection, on the
basis that at some stage the entries in No. 6 of Process relating to
photocopying charges will require to be re-taxed. In so ruling, I wish to make clear that I am
not suggesting that it would be for the Auditor to rule on every allegation of
misrepresentation that the defenders may choose to advance. Depending on which allegations the defenders
wish to pursue, it may be necessary for particular allegations to be raised in
the pleadings and resolved by the court before the account is remitted back to
the Auditor. On the other hand, once the
account is remitted back to the Auditor, in terms of Rule of
Court 42.7-(6).(e) he may disallow any item of work or outlay which is not
vouched to his satisfaction.
[111] 7. Entries allowed by the Auditor in relation
to the Pursuers' communings with Glasgow District Council
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
42
|
6
|
|
5.25
|
|
48
|
2
|
|
10.50
|
|
48
|
3
|
|
1.05
|
|
48
|
4
|
|
15.75
|
|
48
|
5
|
|
13.12
|
|
48
|
6
|
31.50
|
26.25
|
|
48
|
7
|
|
5.25
|
|
49
|
6
|
|
26.25
|
|
50
|
1
|
|
262.50
|
|
50
|
2
|
|
2.10
|
|
50
|
3
|
|
11.73
|
|
51
|
3
|
|
63.00
|
|
51
|
6
|
|
8.50
|
|
52
|
3
|
|
325.50
|
|
42
|
4
|
|
13.11
|
|
52
|
5
|
2.62
|
2.62
|
|
52
|
6
|
|
1.05
|
|
53
|
6
|
|
36.75
|
|
53
|
8
|
|
10.50
|
|
56
|
4
|
|
199.80
|
|
57
|
5
|
|
83.25
|
|
57
|
6
|
149.85
|
321.90
|
|
57
|
8
|
0.10
|
27.75
|
|
58
|
1
|
|
11.10
|
|
58
|
5
|
|
11.10
|
|
60
|
1
|
|
66.60
|
|
60
|
3
|
|
5.55
|
|
62
|
5
|
|
16.65
|
|
63
|
3
|
|
5.55
|
|
63
|
6
|
44.40
|
11.15
|
|
66
|
9
|
|
5.55
|
|
69
|
3
|
|
5.55
|
|
73
|
5
|
|
12.40
|
|
73
|
6
|
|
3.10
|
|
74
|
6
|
|
18.60
|
|
75
|
3
|
|
6.20
|
|
75
|
9
|
|
6.20
|
|
76
|
5
|
|
6.20
|
|
77
|
1
|
|
18.60
|
|
78
|
1
|
|
12.40
|
|
82
|
6
|
|
12.40
|
|
83
|
1
|
|
6.20
|
|
83
|
3
|
|
24.80
|
|
84
|
4
|
|
37.20
|
|
85
|
5
|
|
12.40
|
|
86
|
5
|
|
527.00
|
|
86
|
6
|
|
12.65
|
|
86
|
7
|
|
12.40
|
|
87
|
3
|
62.00
|
434.00
|
|
87
|
4
|
|
12.65
|
|
87
|
5
|
|
80.60
|
|
88
|
4
|
|
3.10
|
|
88
|
5
|
|
6.20
|
|
89
|
3
|
|
6.20
|
|
89
|
4
|
12.40
|
6.20
|
|
90
|
6
|
|
6.20
|
|
92
|
2
|
|
12.40
|
|
93
|
3
|
|
55.80
|
|
93
|
4
|
|
4.96
|
|
94
|
1
|
|
2.48
|
|
94
|
3
|
|
4.96
|
|
94
|
8
|
|
24.80
|
|
97
|
5
|
|
24.80
|
|
99
|
5
|
|
74.40
|
|
99
|
6
|
|
6.20
|
|
105
|
1
|
|
18.60
|
|
107
|
1
|
|
43.40
|
|
113
|
3
|
|
210.80
|
|
115
|
4
|
|
6.80
|
|
116
|
1
|
|
61.20
|
|
121
|
4
|
|
13.60
|
|
121
|
5
|
|
6.80
|
|
|
|
|
|
The Auditor erred in allowing the above items. Where work has been carried out contrary to
the clients' instructions then charges in respect of such work must be taxed
off. Reference is made to Hastings on Expenses at page 119. The Pursuers were given specific instructions
not to enter into dialogue with Glasgow District Council. The Pursuers failed to comply with those
instructions.
[112] As this objection is based on the allegation
that the pursuers acted contrary to instructions, an allegation that the
pursuers deny, it is clear that this objection must be repelled. If the defenders wish to pursue this
allegation they will require to seek to amend their pleadings, so that this
particular issue of alleged mismanagement of the cause is properly focused.
[113] 8. The details of entries allowed by the
Auditor in relation to mismanagement of the cause by the Pursuers.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
The Auditor erred in holding (on page 4 of his
report) that the manner in which the arbitration was conducted or might have
been conducted was essentially a matter of professional judgement for the
clients' solicitors. Reference is made
to Hastings on Expenses at page 119. The Auditor failed to appreciate that he had
the discretion to disallow charges incurred where there had been mismanagement
of the cause. The Auditor declined to
make any ruling concerning mismanagement of the cause. Reference is made to Hastings at page 119.
There was mismanagement of the cause in the following
respects:-
(a)
The
Pursuers failed to appreciate that the contract was "at large" due to
liquidated and ascertained damages being levied and the Architects having
issued additional instructions. They
accordingly failed to advise the Defenders that the valuation could have been
prepared on a day work basis to conclude the final account. Had they identified that timeously, it would
have taken at that stage a clerkess approximately 4 hours to value said
outstanding works up to the determination of the contract, none of the
Defenders' day works being disconform to the contract or bill rates. A day work valuation could have taken place
quickly and easily. The costs in connection
with phase 1 of the arbitration being measurement or works were unnecessary
and could have been avoided. Further,
the delay in the arbitration caused by phase 1 would have been
avoided. Phase 1 held up the
arbitration by approximately four years.
If the arbitration had proceeded directly to phase II, the
arbitration would have been completed well before 1993. By the conclusion of the Arbitration of 1993
the Defenders had lost their core trading business. In any event, the Auditor therefore erred in
allowing the costs relative to phase I.
(b) The
Pursuers delayed unreasonably in recovering documents from Glasgow District
Council ("GDC"). The Pursuers were
instructed in 1987 to recover documents.
These were not recovered until 1991.
Certain documents (particularly the GDC Clerk of Works diary and
internal memos passing between the GDC surveyor and architect) showed that GDC
employees had acted in a highly improper manner. Had the Pursuers recovered these documents
timeously in about 1987, it would have been apparent that
(i) GDC
were aware that the Defenders were owed £90,000 although they outwardly denied
this and that the surveyor had been directed not to pass payment;
(ii) GDC
were wrongly directing the Architect on what to pay and not to pay;
(iii) The
Architect wrongfully directed the Clerk of Works not to sign for day works;
(iv) GDC
had falsely withheld £16,000 from the Defenders alleging bad workmanship
whereas the loss had been caused by frost damage when the site had been the
responsibility of GDC;
(v) The Architect was aware of additional sums due to the
Defenders of £8,000.
Had GDC been faced with
these documents recovered in 1987 it is unlikely that the arbitration would
have proceeded. Had the Defenders been
aware of these documents in 1987, they could have avoided the matter proceeding
to arbitration and could have raised Court proceedings against GDC in respect
of the breach of contract. The documents
showed that the total value of the final account was approximately £271,500
being the above figures of £90,000, £16,000 and £8,000; £6,500 being a refund
to liquidate and ascertained damages wrongly applied and £151,000 of stage
payments made prior to termination. The
Arbiter in his award found that the total final value of the contract was
£273,000.
(c) The
Pursuers in their closing submissions at the taxation accepted that the main
purpose of the arbitration was to save the Defenders. The main threat to the Defenders' business
was their removal from the Council list of approved contractors. When the Defenders first consulted the
Pursuers in 1986/87, the defenders were faced with removal from the list. On 24th February 1987, a partner of the Pursuers met the GDC solicitor and
stressed to GDC the importance of the Defenders of restoration to the
list. The Pursuers (in page 6 of
their letter dated 20th April 1995 to the Law Society of
Scotland) admitted that at the end of 1987 it had been made clear to them that
the Defenders would not be restored to the general building tender list. The Pursuers failed to tell the Defenders of
this. Had the Defenders been made aware
of this they would not have continued to commit themselves to the substantial
costs of the arbitration.
(d) (deleted
from Minute of Amendment No. 35 of Process, when it was lodged)
(e) (deleted
from Minute of Amendment No. 35 of Process, when it was lodged)
(f) (deleted
from Minute of Amendment No. 35 of Process, when it was lodged)
(g) The
Pursuers failed properly to warn the Defenders about the costs and the
potential costs of the arbitration. They
gave them insufficient information and advice upon which to make a sound and
informed commercial decision as to whether or not ultimately to proceed with
the arbitration. The Pursuers had
informed the Defenders' Accountants in 1987 that the total costs of the arbitration
to the Defenders would be as high as £60,000 if they lost. The Defenders ultimately won the
Arbitration. The Defenders' total
expenses claimed were £485,000 against which the Defenders only recovered
£207,000 from GDC, resulting in a shortfall in excess of £275,000. The Defenders would not have proceed with the
Arbitration had they been informed of the true level of potential costs.
(h) There
was excessive delay in the appointment of the Arbiter. The Defenders had stressed to the Pursuers
the importance of a speedy resolve to the matter. It took the Pursuers in excess of 21/2 years to
have an Arbiter appointed.
(i) There
had been serious misconduct and impropriety on the part of GDC Officers. This should have been referred to and
included in the Deed of Submissions prepared by the Pursuers. The Pursuers failed to do so. The Arbiter in his final award accordingly
refused to deal with that issue. The
Pursuers offered to rectify matters by lodging an application for a Stated
Case. As by this time (1993) the
Defenders had lost their core business, they required to take an economic
decision not to pursue that particular head of claim further.
[114] The terms of this objection include various
allegations of mismanagement of the cause, directed against the pursuers. For the reasons I have previously explained,
it was not for the Auditor to rule on the validity or otherwise of such
allegations during the course of the taxation.
Nor can I rule on them in the context of a hearing on Notes of Objection
to the Auditor's Report. I accordingly
repel the objection, on the understanding that it will be for the defenders to
decide whether or not they wish to pursue these allegations as part of their
defence to the action.
[115] 9. The Auditor misdirected himself by allowing
costs for trainees as they are not qualified, refer to page 5, item 2
of No. 237 of Process. Abatement
required, all costs for trainees be abated from No. 6 of Process and as
Tods Murray was charging throughout their account £74.00 per hour for
solicitors and trainees, referred to in their time-records No. 217 of
Process, that the number of hours for trainees be removed from No. 6 of
Process at an hourly rate of £74.00 per hour.
For years Tods Murray has been making illegal profits by charging Arakin
advanced rates for solicitors and applying that advanced rate to trainees
rates, refer to No. 217 of Process.
[116] As I understand the position, the law
accountants who drafted the Account of Expenses No. 6 of Process
originally charged all attendances by the pursuers at the arbitration hearing
at the same rate, irrespective of whether an attendance was by a partner of the
pursuers or by a qualified solicitor or trainee solicitor employed by the
pursuers. I also understand that mistake
was identified before the taxation got underway and that some adjustments in
respect of the mistake were conceded by the pursuers during the course of the
taxation. In his Report (No. 19(a)
of Process) the Auditor makes clear that he taxed the charges claimed by the
pursuers to reflect which attendances were by qualified solicitors and which by
trainees. The Auditor indicates that he
proceeded on the basis that the decision as to whether a qualified solicitor or
a trainee should be in attendance was a matter for the professional judgement
of the pursuers. It was for them to
ensure that the interests of Arakin were reasonably safeguarded. In my opinion, the Auditor was correct to
proceed on that basis. Subject, of
course, to their professional charges being subject to taxation in accordance
with the provisions of Rule of Court 42.7, it was, in my opinion, a matter
for the pursuers to decide whether one of their partners or some other member
of their staff should be in attendance during the arbitration hearing. Moreover, Mr McNamara was obviously aware
that the representatives of the pursuers were in attendance during the hearing.
No objection on behalf of Arakin appears to have been taken at the time to a
partner or other representative of the pursuers being in attendance during the
arbitration. In these circumstances, it
was for the Auditor to tax the charges claimed in respect of the attendances at
the arbitration and to do so in accordance with the provisions of Rule of
Court 42.7. Having considered the
terms of this objection, No. 217 Process and the Auditor's Report
(No. 19(a) of Process), I am unable to identify any error on the part of
the Auditor, which would entitle me to uphold this objection. In these circumstances, I repel this
objection.
[117] 10. The Auditor misdirected himself by allowing
Tods Murray to recover as an addition, posts, incidents and telephone calls in
No. 6 of Process. As all VAT
invoices submitted by Tods Murray are inclusive of posts, incidents and
telephone calls abatement required of posts, incidents and telephone calls from
No. 6 of process. NB. It is
established from No. 119 of Process, BT Records that Tods Murray was
erroneously charging 660% (on average) higher for telephone calls in No. 6
of Process.
[118] It was for the Auditor to decide whether to
allow the pursuers' claim for an appropriate allowance for posts and incidents,
in addition to the figures taxed in respect of each item of work. In my opinion, there is no merit in that part
of this objection. The charges
recoverable in respect of telephone calls I have already dealt with. The terms of No. 119 of Process merely
confirm that the disputes between the parties as to the length and need for the
telephone calls, which took place between Mr. McNamara and the pursuers,
are not matters that the Auditor could have been expected to resolve. I repel this objection.
[119] 11. The Auditor misdirected himself through
allowing Tods Murray costs for entries with no vouchers for alleged work in
No. 6 of Process. As the Auditor
was aware that Tods Murray had erroneous charges on No. 6 of Process,
refer to Rand Associates letter of 22nd August
1986,
pages 17-29 of No. 76 of Process and item B, page 10 of
No. 237 of Process. The Auditor is
in breach of Rule 42.2.3.
Abatements required, all entries without vouchers in No. 6 of
Process be abated.
[120] Rule 42.7 - (6)(e) provides that the
Auditor may disallow any item of work or outlay that is not vouched to this
satisfaction. I have considered the
terms of the letter of 22 August
1986 (No. 76 of process) and the Minute of Amendment for
Mr. McNamara (No. 237 of Process).
In passing I should note that at the motion roll hearing on 13 May 2004 Mr. McNamara informed
the court that he was not insisting upon the Minute of Amendment. Having done so, it remains unclear which
items of work or outlays the defenders complain were not adequately
vouched. Moreover, in terms of Rule of
Court 42.7(6)(e) the Auditor had a discretion as to whether he will
disallow an item of work or outlay that is not vouched to his satisfaction. In these circumstances, I repel this
objection.
[121] 12. The Auditor misdirected himself by allowing
Tods Murray to recover costs for an Addendum as there is no Court Interlocutor
granting Tods Murray authority to include an addendum. In any event Tods Murray have not raised a
VAT invoice to support an addendum and any sums owed are now prescribed.
[122] The Addendum to the Account of Expenses
No. 6 of Process has never been lodged in process as a separate item of
process. It was prepared by the pursuers
and presented to the Auditor shortly before he began his taxation of No. 6
of Process. Since the Auditor completed the taxation of No. 6 of Process, the
Addendum has been bound as part of No. 6 of Process. All this appears to have
occurred without objection from Arakin.
Indeed it was only when the second Minute of Amendment to Note of
Objections (No. 241 for Process) was lodged on 21 May 2004 that objection was first taken to
the taxation of the Addendum. Those acting for Arakin during the taxation must
have been given a copy of the Addendum, because it contents were considered
during the taxation. Indeed, a
significant number of the fees for items of work in the Addendum were taxed off
by the Auditor. Of the fees claimed,
which amounted to £9677, a total of £8233.67 was taxed off. The fees allowed all related to periods of
time when trainee solicitors were engaged in dictating notes of the evidence
that had been led during the arbitration hearing. No suggestion is made by the defenders that
such work was not carried out.
[123] The objection proceeds upon two
grounds. The first is that the court has
never pronounced an interlocutor granting authority to the pursuers to "include
an addendum". As a matter of fact, that
is correct. In my opinion that did not
prevent the Auditor from taxing the Addendum on the basis that it was part of
the account(s) of expenses relating to the work which the pursuers had carried
out for Arakin in respect of the dispute and arbitration between Arakin and the
City of Glasgow District Council. The
Auditor was authorised to tax the account(s) by the interlocutor of
7 February 1997. Moreover, in view
of the fact that those acting for Arakin at the taxation did not object when
the Auditor was presented with the Addendum and the Addendum was referred to
during the taxation, I consider that the defenders are now barred from seeking
to rely on the fact that no interlocutor was pronounced allowing the pursuers
to add an addendum to No. 6 of Process.
Had issues been raised, when the Addendum was first submitted to the
Auditor, about the production of the Addendum or about whether the Auditor was
authorised to tax the Addendum, I have little doubt that the court would have
been prepared to pronounce any interlocutor that was deemed to be necessary to
allow the Auditor to tax the Addendum.
In my opinion, both the pursuers and the Auditor were perfectly entitled
to rely on the fact that those acting for Arakin failed to take any objection
to the Addendum being considered by the Auditor. The pursuers and the Auditor
having done so, it is too late for the defenders now to argue that the Auditor
should not have dealt with the Addendum
[124] The objection also raises issues relating to
VAT and prescription. As I have already
made clear, such issues were not for the Auditor to deal with. It is open to the defenders to raise them as
part their defence to the action. In
these circumstances, I repel the objection.
[125] 13. The Auditor misdirected himself by not
checking invoices to verify costs in No. 6 of process, if he had he would
have discovered that Tods Murray was making an illegal profit from Counsel's
costs of £661.00, refer to page 16, item 10 of No. 237 or
process. Abatement required, £661.00 be
abated from No. 6 of Process.
[126] The objection involves, as I understand it,
a challenge to whether the fee of £661 has (a) been properly charged,
(b) is encompassed within any of the large sums for counsels' fees which
are included, as outlays, within No. 6 of Process and (c) has been
paid by Arakin. It is quite impossible
for me to resolve such issues in a Hearing on Objections. Insofar as the objection relates to the
Auditor's Report on his taxation of No. 6 of process, I must repel the
objection. As I have already indicated,
in the fullness of time there will require to be a reconciliation between the
sums claimed by the pursuers and those paid by Arakin, whether to the pursuers
themselves or directly to Faculty Services Limited. When that reconciliation takes place, the
court will, in the absence of agreement between the parties, require to decide
on the available evidence which fees have been charged by counsel, which fees
were recoverable by the pursuers and which fees have been paid by Arakin,
whether to the pursues or directly to Faculty Services Limited.
[127] 14. The Auditor misdirected himself in
page 19A of his report by failing to deduct sums paid by Arakin for
No. 6 of Process and he further failed to allow Compound Interest in his
reconciliation as he was aware Tods Murray and Arakin agreed interest would be
paid on over-payments, refer to page 10 of No. 237 of Process. Agreement is required from Tods Murray that
No. 75 of process is the correct value of the state of the account when
abatements are deducted and Compound Interest is applied before any other
objections are heard.
[128] This objection also illustrates the need for
a reconciliation between the sums that the pursuers were entitled to have paid
by Arakin and those that have been paid by Arakin. It is contended on behalf of the defenders
that on the date the action was raised, far from Arakin being due sums to the
pursuers, Arakin had overpaid the pursuers and were due sums by the
pursuers. It is also contended that in
carrying out the necessary reconciliation compound interest should be allowed
on the over-payments made by Arakin. In
my opinion, none of these matters were for the Auditor to resolve. On the contrary, in the absence of agreement
between the parties, they are matters which the court will require to
resolve.
[129] In the course of taxing No. 6 of
Process, the Auditor has compared the fees and outlays claimed in respect of
specified periods with the fees charged in certain invoices that the pursuers
had previously submitted to Arakin and sums paid by Arakin before No. 6 of
Process was drafted and lodged in process.
Those periods relate to parts, but not all, of the total period covered
by No. 6 of Process. Useful though
that comparative exercise may be, an overall accounting as between the pursuers
on the one hand and Arakin and the defenders on the other is a matter the Court
will ultimately require to determine.
[130] 15. It is noted that items 7, D to F have
been removed from No. 35 of process.
I have just become aware of this by reference to Lord Mackay's note
and was not informed by Arakin's legal team of these omissions that are salient
to the cause of A. McNamara. I refer to page 1351 of Spoors Legal
Encyclopaedia, Volume 13 and ask the Court to re-introduce these items in
No. 35 of Process as they are recorded from pages 43 to 54 in the
present Record.
[131] I am not prepared to re-instate the
averments that were deleted from No. 35 of Process, by the interlocutor of
Lord Osborne dated 19 March 1999.
In pronouncing that interlocutor, Lord Osborne allowed the defenders'
Note of Objections to the Auditor's Report on his taxation of No. 6 of
Process (No. 22 of Process) to be amended in terms of the Minute of
Amendment (No. 35 of Process) under the exclusion of paragraphs 7(d)
to (f) thereof. It would not be
competent for me to make a ruling whose practical effect would be to overturn
Lord Osborne's decision. In these
circumstances, I repel this objection.
[132] 16. The Auditor misdirected himself on various matters and was unreasonable
in ignoring Arakin's relevant instructions to Tods Murray, he was unreasonable
in using his discretion on non vouched entries and on these issues as a
consequence he failed fully execute his remit.
[133] This objection summarises other objections
with which I have dealt. For example it
is broad enough to encompass the submissions Mr. McNamara made about the
entries relating to telephone calls and work in connection with Scott
Schedules. However, the objection is not
focused on particular entries in the No. 6 of Process and when I was
addressed in respect of this objection neither Mr. McNamara nor
Mr. Frost directed me to specific entries.
In these circumstances, I have no alternative but to repel this
objection.
Note of Objection by Defenders to Report by the Auditor of Court on the
Pursuers
Account of Expenses (No. 12
of Process)
[134] 1A. Details of Entries Allowed
by the Auditor in relation to Settled Fees/Paid Invoices.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
8 - 41
|
All
|
|
13,305.88
|
|
|
|
|
|
Pages 8 to 41 of the Account cover
the period from 1st January 1994 to 25th March
1994. The Pursuers' Fee Note 66028
(fee Note II) dated 19th April 1994 in the sum
of £53,500 covered the same period.
Said Fee Note has been paid. The
Pursuers own ledgers show that said invoice had been paid. Reference is made to the ledger entries dated
16th June 1994. The
Auditor erred in holding that it had not been paid. (Reference is made to page 11 of the
Auditor's Report). Accordingly, the
Auditor ought to have proceeded upon the basis of the doctrine of Settled
Accounts.
In the event, for the period covered by said
Fee Note, the Auditor disallowed charges totalling £13,305.88. Said figure was deducted by the Auditor
without regard to Fee Note II. It is
submitted that the figure of £13,305.88 ought to have been deducted from
the Fee note Total of £53,500 on the basis that the fees therein fell to
be treated as maxima fees recoverable.
Separatim. The Defenders contend that subject to the
outcome of the other objections set out herein, the Account, insofar as it
concerns pages 8-41, ought to be remitted back to the Auditor to tax of
new.
[135] This is one of a number of objections that involve disputes
between the parties as to whether, prior to this action having been raised,
Arakin had paid in full invoices which the pursuers had submitted to them. All
of these invoices are to be found within the productions, although some of them
have been lodged as appendices to or parts of other productions. Against the background of such factual
disputes, the objections touch on the application of the doctrine of settled
accounts.
[136] The Auditor stated, on page 2 of his Minute in respect of
this Note of Objections (No. 27(b) of Process), that when disputed matters
of fact arose during the taxation he either took a view on the dispute or
reserved the matter for the court's decision.
He also observed that after the completion of the taxation procedure
there will require to be a final cash reconciliation between the parties to
demonstrate that no duplication of charges has occurred.
[137] In relation to this particular objection, there is a dispute
between the parties as to whether Arakin settled in full the fees, outlays and
VAT that the pursuers sought in their Invoice No. 66028 dated
19 April 1994 (a copy of which forms part of No. 75 of Process). The pursuers contend that Arakin did not and
that, in particular, the VAT included within the invoice has never been
paid. They make reference to a letter
dated 5 April 1995, which is attached to No. 27(b) of Process.
[138] I have already set out the pursuers' approach to the application
of the doctrine of settled accounts in the circumstances of this case. On account of the fact that there is a dispute
between the parties as to whether Invoice No. 66028 has been settled in
full, I have reached the view that in the context of ruling on the defenders'
Note of Objection to No. 12 of Process I could not, and in any event
should not, reach any final decision as to the application of the doctrine of
settled accounts in respect of the fees and outlays claimed on pages 8 -
41 of the No. 12 of Process. That
is a matter that will require to be addressed when a final reconciliation is
carried out between the sums the pursuers have been entitled to recover from
Arakin and the sums they have been paid.
Having said that, I do not accept the defenders' argument that the
figure of £13,305.88, being the total of the sums the Auditor taxed off from
pages 8 - 41 of No.12 of Process, falls to be deducted from the figure of
£53,000 for fees in Invoice No. 66,208.
If the doctrine of settled accounts did not apply, the Auditor of Court
did not err in deducting the figure of £13,305.88 from the fees and outlays
claimed in No. 12 of Process, for the period from 1 January 1994 to 25
March 2004, rather than from £53,000. On
the understanding that a reconciliation is going to be required at a later
stage, I repel this objection.
[139] 1B.
The Auditor misdirected himself by stating fee note 66028 had not been
paid, that fee note had been paid in full and over and above this amount Tods
Murray had £75,000 of additional sums Arakin paid without invoice. The Auditor misdirected himself by taxing
No. 12 of Process after March 1994, the date of the last invoice until
Tods Murray raised a VAT invoice refer to No. 75 of Process. Since the Diet of Taxation Arakin Limited and
a number of Solicitors have written to Tods Murray to asking them to supply VAT
invoices for the sums sued for, despite these requests Tods Murray has failed
to supply invoices. Abatement required
all sums in No. 12 of Process be abated after March 1994 as under Statute
of Limitation Act 1973, section 18A the sums in No. 12 of Process after
March 1994 are prescribed.
[140] This objection also touches on the factual issue as to whether
Invoice No. 66028 was paid in full.
However the main thrust of the objection relates to another issue,
namely whether the pursuers' claim to fees and outlays in No. 12 of
Process, in respect of the items of work dated after March 1994, has
prescribed. The defenders contend that
it has, by reason of the fact that the pursuers have never submitted VAT
invoices in respect of such items of work, despite being requested to do
so.
[141] In my opinion, it was not for the Auditor to consider issues such
as whether the pursuers have abided by the relevant VAT Regulations and whether
any part(s) of the pursuers claims for fees and outlays have prescribed. Such issues are for the court to rule on and
will, if necessary, be addressed, at a later stage in the action. On that understanding, this objection is
repelled.
[142] 1C. The Auditor misdirected
himself by ignoring the £75,000.00 paid by Arakin as Tods Murray has never
raised a VAT invoice to support the £75,000.00.
The Auditor should have directed Mr. Dobie to amend No. 12 of
process as Solicitors (Scotland) Account Rules 1995, section 6(1)d. The impact on the Account Rules up to the
Diet of Taxation can be ascertained in No. 75 of Process, which also takes
into account the present abatements for No. 12 of Process, further more
the Auditor was fully aware that Arakin and Tods Murray had agreed that Tods
Murray would pay interest on overpayments.
Abatements required that on all sums overpaid by Arakin Judicial
Compound Interest is applied from the date the overpayment is identified until
Tods Murray pays A. McNamara.
[143] This objection also touches on issues that are for the court,
rather than the Auditor, to determine.
How any payment of £75,000 made by Arakin should be deemed to have been
allocated against any unpaid invoices previously submitted by the pursuers to
Arakin was not for the Auditor to rule on.
Similarly the application of the Solicitors (Scotland) Account
Rule 1995 is a matter for the court, as are issues relating to
interest. On that basis, and
acknowledging that the court may require to rule on such issues at a later
stage in the action, the objection is repelled.
[144] 2. Details of Entries allowed
by the Auditor in relation to actions contrary to clients' instructions.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
All
|
All
|
Taxed off
|
All sums
|
|
|
|
|
|
At page 5 of the report the Auditor
declined to rule on the proposition that the Pursuers acted contrary to and
without instructions from the Defenders.
(Reference is made to Hastings on Expenses at page 119). In this regard it is submitted that the
Account ought to be remitted to the Auditor to tax of new.
The Pursuers were under standing
instructions by the Defenders that any proposed amendments to the record should
be sent to the Defenders for approval prior to lodging. The Defenders made it clear to the Pursuer
that they expected this by inter alia letters dated 10/7/91, 30/10/91,
1/11/91, 22/11/91, 27/1/92 & 13/2/92.
Notwithstanding this, the Defenders only became aware of the precise
details and the import of the Pursuers' amendments to the Closed Record in
about July 1994, a number of months after the amendment procedure had
occurred.
These amendments were based on agreements
reached with the opponents' Agents (Messrs Brechin Robb) and were on the basis
of valuations by the opponents' Accountants ("KPMG"). Those agreements were not based on valuations
or the opinion of the Defenders' own Accountants Pannel Kerr & Forster
("PKF"). Agreements were reached between
the Pursuers and Brechin Robb in about February/March 1994. On 31 May 1994 Brechin Robb advised the
Pursuers that agreements had been reached and were binding. Said agreements were reached without the
defenders' knowledge or consent. The
Defenders only became aware of the amendments made to the record and the
agreements when they were shown the amended Closed Record on 27/7/94. In particular the Pursuers, without the
Defenders' knowledge or consent, wrongly reached agreement on and undervalued
the Defenders' claims as follows:-
(i) The
1993 Corporation Tax loss claim was withdrawn when it should not have
been;
(ii) They wrongly ignored the 1984 company losses;
(iii) There was incorrect deduction of Corporation Tax
from 1985 and 1986 Bonuses;
(iv) They wrongly agreed to the reduction of interest on
corporation tax due to the Defenders;
(iv) Refer to No. 239 of Process, meeting of 13th
September 1996 Counsel states he was unaware Mr. Dobie had all information
concerning Corporation tax and that he was unaware that Mr. Dobie had a
higher valuation for Duchess Estate. I
refer to Mr. Dobie's fax to PKF where Mr. Dobie admits to using Arakin's
opponent's figures.
Agreement was reached regarding all of the
above or reductions were made to the Defenders' claims in respect of all the
above without the Defenders' knowledge or consent.
Further the Pursuers failed to follow the
Defenders' instructions to obtain guidance from the Defenders' Accountants, PKF
on issues of tax. PKF had given the
Pursuers clear and correct guidance on how the sums claimed would be treated as
to tax, namely that any sums awarded would be subject to tax and would
therefore have to be grossed up. The
Pursuers failed to follow said guidance.
The Pursuers failed to advise Senior Counsel of said specialist and
correct tax advice.
The Auditor failed to rule on the issue of
the Pursuers failing to follow the Defenders' instructions.
[145] This objection is another example which raises issues which it
would have been quite inappropriate for the Auditor to have to deal with. The provisions of Rule of
Court 42.7(6)(d)(i) do admit the possibility of it being demonstrated to
the satisfaction of the Auditor that an item of work, in respect of which fees
are claimed, was carried out by a solicitor contrary to the instructions of the
client. In my opinion, however, where
the resolution of such an issue involves adjudicating on factual questions of complexity,
involving questions as to the reliability of the recollection, and possibly
also the credibility, of those involved in the giving and taking of
instructions, it would be inappropriate to expect the Auditor to resolve the
issue. In the present case, the issues
involved, including whether the pursuers acted contrary to instructions and, if
so, whether they should be remunerated for work they were explicitly instructed
not to carry out, are of such complexity that even if they were explicitly
raised during the hearing before the Auditor he was perfectly entitled not to
deal with them. If the defenders wish to
pursue such allegations, that will require to be done before the court, as part
of the defenders' defence to the action.
Their defences include averments to similar effect as the contentions
involved in this objection. The court
will require to deal with these averments in due course. On that basis, I repel this objection.
[146] 3. Details of Entries allowed
by the Auditor in relation to quantification work carried out contrary to
clients' instructions.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
28
|
6
|
|
230.00
|
|
|
31
|
10
|
|
11.50
|
|
|
32
|
1
|
|
11.50
|
|
|
32
|
2
|
|
11.50
|
|
|
34
|
3
|
|
603.75
|
|
|
35
|
4
|
|
11.50
|
|
|
35
|
12
|
345.00
|
575.00
|
|
|
35
|
13
|
|
126.50
|
|
|
35
|
14
|
|
15.40
|
|
|
35
|
15
|
|
5.75
|
|
|
35
|
16
|
|
5.75
|
|
|
36
|
1
|
|
11.50
|
|
|
36
|
2
|
|
11.50
|
|
|
42
|
4
|
|
57.50
|
|
|
42
|
5
|
12.00
|
22.50
|
|
|
43
|
2
|
|
103.50
|
|
|
43
|
3
|
|
12.00
|
|
|
44
|
1
|
|
27.00
|
|
|
44
|
2
|
|
11.50
|
|
|
44
|
3
|
|
11.50
|
|
|
45
|
3
|
|
345.00
|
|
|
45
|
5
|
|
34.50
|
|
|
45
|
6
|
|
230.00
|
|
|
45
|
7
|
|
56.16
|
|
|
45
|
8
|
|
11.50
|
|
|
45
|
9
|
|
5.75
|
|
|
48
|
4
|
|
5.75
|
|
|
48
|
5
|
|
23.00
|
|
|
48
|
6
|
|
23.00
|
|
|
49
|
2
|
|
11.50
|
|
|
49
|
6
|
|
57.50
|
|
|
49
|
9
|
|
92.00
|
|
|
50
|
3
|
|
11.50
|
|
|
50
|
4
|
|
80.50
|
|
|
50
|
5
|
|
46.0
|
|
|
50
|
6
|
|
23.00
|
|
|
51
|
6
|
|
69.00
|
|
|
52
|
3
|
|
23.00
|
|
|
53
|
2
|
|
115.00
|
|
|
53
|
4
|
|
69.00
|
|
|
54
|
4
|
|
69.00
|
|
|
56
|
3
|
|
92.00
|
|
|
56
|
5
|
|
57.50
|
|
|
57
|
9
|
|
69.00
|
|
|
58
|
1
|
|
46.00
|
|
|
59
|
1
|
|
46.00
|
|
|
59
|
6
|
|
11.50
|
|
|
59
|
7
|
|
34.50
|
|
|
59
|
8
|
|
46.00
|
|
|
60
|
3
|
|
11.50
|
|
|
60
|
4
|
|
11.50
|
|
At page 5 of his report, the Auditor
declined to rule on the proposition that the Pursuers acted contrary to and
without instructions from the Defenders.
(Reference is made to Hastings on Expenses at page 119).
The Pursuers were instructed that, for the
purpose of the McLachlan & Brown action, quantum was to be dealt
with exclusively by Pannell Kerr & Foster, Chartered Accountants. The Pursuers were specifically instructed not
to become involved in assessing or agreeing evidence regarding quantum. The Pursuers contravened these instructions
and involved themselves in matters of quantum without the Defenders'
authority to do so and in particular between about February and December 1994
spent considerable time and resources preparing schedules quantifying the heads
of claim. As a consequence, unnecessary
expense was incurred by the Pursuers, prior to and after Proof. The necessary calculation ought to have been
carried out by Accountants qualified to do so rather than by the partner of the
Pursuers dealing with the matter. The
carrying out of the necessary calculations took the Defenders' Accountants
approximately 5 hours which was all that was necessary. The Auditor failed to rule on the issue of
the Pursuers failing to follow the Defenders' instructions.
[147] This objection covers in greater detail the same ground as that
covered by the last objection. For the
same reasons I gave in respect of the last objection, and on the same basis as
I repelled that objection, I repel this objection.
[148] 4. Details of entries allowed
by the Auditor in relation to perusal of charges.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
5
|
6
|
263.50
|
653.50
|
|
11
|
2
|
460.00
|
230.00
|
|
11
|
3
|
|
345.00
|
|
14
|
9
|
|
690.00
|
|
18
|
7
|
|
115.00
|
|
33
|
11
|
345.00
|
345.00
|
|
23
|
1
|
225.00
|
120.00
|
|
34
|
2
|
|
345.00
|
|
|
|
|
|
The Auditor erred in allowing charges
representing 50 hours for perusal of documentation.
(i) It
was not established that the work was carried out by the Pursuers;
(ii) Without sight of the Pursuers' Account for the period preceding
5th August 1993, the Auditor could not properly assess whether
the perusal charges sought were reasonable, justified and free from
duplication; and
(iii) In any event, the Pursuers were instructed in 1991 to
send all relevant documentation to Pannell Kerr Forster, Chartered
Accountants. They failed to comply with
said instructions. The perusal charges
through the period from 1991 to the Proof in 1994, if incurred (which
is denied) were incurred without and contrary to the express instructions of
the Defenders.
[149] This objection raises a number of issues. The first is whether the work covered by the
specified items of work was carried out.
In sub-paragraph (i) it is contended that it was not established
that the work was carried out by the pursuers.
The approach which the Auditor states he adopted was to allow
"reasonable charges for work done so far as supported by file entries or
reasonably inferred from such entries".
In following that approach he had access to all the pursuers' files for
the period covered by No. 12 of Process.
Leaving aside the issues of whether the Auditor should have been given
access to files that Mr. McNamara was not being allowed to see and whether
the pursuers were acting contrary to instructions, the Auditor was perfectly
entitled to examine the items of work specified in this objection and to tax
them in accordance with the provisions of Rule of Court 42.7. It is clear from the Auditor's Report that he
did so and that in the process he satisfied himself that the items of work had
been carried out. In my opinion, the
Auditor was entitled to reach such a conclusion. I repel the objection in
paragraph (i).
[150] The issue raised in paragraph (ii) of this objection is
slightly different. It is based on the
fact that when the Auditor taxed the Account of Expenses No. 12 of
Process, he did not have before him the Account of Expenses No. 36 of
Process. As I have previously explained,
No. 12 of Process relates to work carried out by the pursuers for Arakin,
from 5 August 1993 to 3 July 1995, in connection with
the actions in Glasgow Sheriff Court
involving Arakin and McLachlan & Brown.
No. 12 of Process was taxed by Mr.Tait, the previous Auditor of
Court, with his Report being dated 27 March
1998. No. 36 of Process
relates to work carried out by the pursuers between 4 August 1988 and July 1993, in connection
with the same actions. The terms of
No. 36 of Process indicate that the account was not drafted until February
1999, which was after No. 12 of Process had been taxed. The account was prepared after
Lord Eassie pronounced an interlocutor dated 18 December 1998, which
granted a motion that had first been enrolled on behalf of Arakin on
12 June 1998 and had sought that the pursuers be ordained to lodge detailed
time and line accounts in relation to the litigation between Arakin and
McLachlan & Brown prior to 5 August 1993. The interlocutor of 18 December 1998 ordained the pursuers to lodge
such accounts by 28 February 1999. By interlocutor dated 4 March 1999, the period for lodging the
accounts was extended to 25 March
1999 and No. 36 of Process was lodged on that date. The Account was subsequently taxed by
Mr. Crichton, the present Auditor, on 26 October 1999.
[151] When Mr.Tait taxed No. 12 of Process he was aware that the
pursuers had acted for Arakin prior to 5 August
1993. Indeed he was aware
that four fee notes in respect of such earlier work had previously been
submitted to and paid by Arakin. Against
that background, he records in his Report that he was asked during the taxation
to consider the work that had been carried out prior to 5 August 1993 to ascertain "to what extent,
if any, there might be duplication of charges in respect of work performed in
the earlier period'. In his Report he
indicates that he perused the pursuers' files, in respect of the earlier
period, and the four fee notes. He then
stated:
"As these four
Fee Notes are all in narrative form it has not been possible for the Auditor to
determine precisely what work was carried out in the respective periods and
which may have been duplicated to any extent in the Account before the Auditor
for taxation. It is noted that included
in the earlier work there was copying of documents, and precognitions taken, but
any continuing value of that work is not known and the clients' case appears to
have been altered subsequently by Minute of Amendment and substantial
adjustments made to it.
The Auditor has had to proceed
on the basis that the work in the present Account was reasonably required to be
done when it was done."
[152] Against that background, the second issue raised in the objection
is whether, when he was taxing the Account of Expenses No. 12 of Process,
Mr. Tait could have properly assessed whether the perusal charges sought
in the Account of Expenses No. 12 of Process were reasonable, justified
and free from duplication, when he did not have sight of the Account of
Expenses No. 36 of Process, which had yet to be drafted.
[153] In my opinion, there is no reason why, as a matter of principle,
the Auditor could not have taxed the items of work detailed in this objection
in accordance with the provisions of Rule of Court 42.7. On the question as to whether the items of
work in No. 12 of Process were done on the dates that they bore to be
done, the Auditor was, as I have previously indicated, entitled to reach the
conclusions he did. It was obviously
open to those representing Arakin during the taxation to raise before the
Auditor any concerns they had about whether the individual items of work complained
of were justified, reasonable and constituted duplication in respect of work
carried out prior to 5 August 1993, for which Arakin had been previously
charged and had paid. Those representing
Arakin did so. Thereafter it was for the
Auditor to proceed in accordance with the provisions of Rule of Court 42.7
and in particular those of Rule of Court 42.7-(6). The approach the Auditor followed is
explained by him in the passage from his report which I have quoted. In my opinion, in respect of the issues
raised in paragraph (ii) of this objection, the Auditor did not err in
law. The approach he followed was in
accordance with the provisions of Rule of Court 42.7-(6). In particular, once he was satisfied that the
individual items of work had been carried out, it was open to him to presume,
unless the contrary was demonstrated to his satisfaction, that the items of
work were reasonably incurred if they had been incurred with Arakin's implied
approval. Subject to the issue of
whether the pursuers acted contrary to instructions, which I deal with next,
approval could be implied from the fact that the pursuers were acting for
Arakin in connection with the actions involving McLachlan and Brown. In these circumstances, I repel the second
leg of this objection. In doing so I
note that notwithstanding the fact that the account of expenses for the work
done prior to 5 August 1993 is now available (No. 36 of Process), the
defenders have made no attempt to identify individual items of work in the
later account which support the contention that in the preparation of the
Account of Expenses No. 12 of Process certain items of work constituted
the duplication of charges for work that had already been charged and paid
for.
[154] The issue raised in (iii) of this objection is a further
allegation that the pursuers acted contrary to instructions. It is unclear whether this particular
allegation was raised before the Auditor.
Whether or not it was, the allegation is not one that it would have been
appropriate for the Auditor to have dealt with.
The objection is repelled, on the understanding that the allegation is
one that the defenders may be able to pursue before the court as part of their
defence to the action.
[155] 5A Details of entries allowed
by the Auditor in relation to rates of charge.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
8 - 63
|
All
|
|
|
|
|
|
|
|
The Auditor erred at page 7 in his
Report by inferring that agreement had been reached as to the rates of charge
for the period 1st January 1994 to close of the Account. At
pages 5-7 in his Report, the Auditor refers to correspondence between the
parties. Item 4 is an excerpt from
the Defenders' letter addressed to the Pursuers, dated 31st December
1993. The Defenders accepted the Pursuers' rates of
charge, subject to taxation.
Excerpts from the correspondence confirm the position adopted by the
parties. The Auditor further erred by
allowing a rate increase as a Solicitor is not allowed a higher rate when he is
subordinate to Counsel, Rule of Court 42.14.2(b).
Separatim. The Defenders submit that the Pursuers are
not entitled to charge enhanced rates given their failure to act in accordance
with the Defenders' instructions.
It is submitted that the Account ought to be
remitted back to the Auditor to be taxed (I) for the period 1st January
1994 to 31st December 1994 on the basis of an hourly rate
of £80; and (ii) for the period of 1st January 1995
to 3rd July 1995 on the basis of an hourly rate of £81.
[156] This objection involves a factual issue which may have financial
implications of some significance. That
issue is whether, during December 1993, the pursuers and Arakin reached an
informal agreement as to the rates of fees that would be charged by the pursuers
for items of work carried out from 1 January
1994. Before the Auditor the
pursuers contended that such an agreement had been reached and founded on
letters, which they had sent to Arakin during December 1993. The defenders contended that Arakin had
accepted the pursuers' rates of charge, subject to taxation.
[157] The issue was dealt with in a passage between pages 5 - 7 of
the Auditor's Report, at the conclusion of which the Auditor indicated that,
having considered the items of correspondence to which he refers, he had
inferred that an informal agreement as to rates had been reached between the
pursuers and Arakin. Having stated that
conclusion, the Auditor then indicated that 'the Court may determine
otherwise'.
[158] After enquiry by my Clerk as to what papers, if any, had been retained
in the offices of the Auditor, following the taxations of Nos. 6, 12 and
36 of Process, the contents of No. 274 of Process were lodged in court on
1 November 2004. As I have
mentioned, No. 274 of Process is a large box containing a number of files of
papers and numerous loose papers, which appear to relate to work covered by the
three Accounts of Expenses Nos. 6, 12 and 36 of Process. The box also
contains copies of correspondence between the Auditors and the parties relating
to the three taxations. The contents of
the box are not inventoried in any way.
Within the box I found copies of the three letters sent by the pursuers,
which are referred to by the Auditor, a copy of the first page of Arakin's
letter of 23 December 1993 (which is referred to in the pursuers' letter
of 29 December 1993 and which the Auditor may not have seen) and a copy of
the letter dated 31 December 1993, which Arakin sent to the pursuers and
to which the Auditor refers.
[159] Within the context of a hearing on a note of objections to a
report by the Auditor, it is clearly not for me to determine whether or not the
pursuers and Arakin entered into an informal agreement. Were I to do so would involve my resolving,
on the basis of oral submissions and my perusal of some documents, a factual
dispute between the parties. It would be
inappropriate for me to do so.
[160] In determining this aspect of this objection, the questions I
have to consider are (i) whether it was open to the Auditor to resolve the
dispute between the pursuers and Arakin as to the existence and terms of an
informal agreement between them as to fees, (ii) if so, whether it was
open to the Auditor to infer from the documents and other information before
him that such an agreement had been reached and (iii) if he did, what the
Auditor considered the terms of that agreement to have been.
[161] During the hearing, Mr. McNamara's submissions were limited
to referring me to correspondence between the pursuers and Arakin, which he
said I would "find in the box" ( No. 274 of Process). Senior counsel for the pursuers, for his
part, argued that the questions should be determined in favour of the
pursuers.
[162] As far as the first question is concerned, it is clear that the
terms of Rule of Court 24.7 are such as to permit the Auditor, when he is
taxing an account under that Rule, to consider whether or not an informal
agreement relating to fees exists and, if so, what the terms of any such
agreement are. Turning to the second question,
the Auditor was in my opinion entitled to conclude that an informal agreement
had been entered into. Indeed, in their
Note of Objections the defenders accept that an informal agreement was entered
into.
[163] The third question as to what the Auditor considered the terms of
the informal agreement to have been is, however, more difficult. Those terms must be found in the four letters
to which the Auditor refers in his Report (No. 19(b) of Process). As the Auditor observes, the first of those
letters, dated 17 December 1993,
was sent when the six week diet of proof, which at that stage was scheduled to
begin on 1 February 1994,
was rapidly approaching. The pursuers
contend that the agreement was to the effect that the rates specified on the
second page of the letter of 17 December 1994 had been agreed, as had the
fact that any taxation of the pursuers' account to Arakin would be "on the
agreed basis, including rates" set out in that letter. The pursuers contend that Arakin accepted
such terms, during the discussions between Mr. Dobie of the pursuers and
Mr. McNamara, in his capacity as a director of Arakin. Those discussions are referred to in the
pursuers' letters of 22 and 29
December 1993 and in Arakin's letter of 31 December 1993, which Mr. McNamara
signed. The defenders, on the other
hand, contend that Arakin accepted the rates detailed in the letter of 17 December 1993 "subject to
taxation" and subject to their right to challenge whether or not the rates were
reasonable.
[164] The Auditor states in his Report that he had not seen any letter
from Arakin specifically accepting or rejecting the rates proponed (sic).
That statement was made after he had read Arakin's letter of 31 December 1993. His Report then indicates that he inferred
that an agreement as to the rates proponed (sic)
had been reached. However, he does not
set out the factual basis on which that inference was drawn, nor does he
explicitly detail what he understood the full terms of the informal agreement
to be.
[165] If an informal agreement as to fees existed, as the Auditor held
it did, the Auditor was not bound by its terms. The Auditor was, however,
required to take those terms into account, in determining whether a sum charged
in respect of an item of work was fair and reasonable (Rule of
Court 24.7-(6)(c)). Obviously,
before taking into account the terms of any agreement, the Auditor required to
decide what he considered the terms of the agreement to have been. Was the agreement to the effect that the
pursuers and Arakin had agreed that the rates set out in the letter of 17 December 1993 were the rates that
the pursuers would be entitled to charge and, which failing recovery of
expenses from McLachlan & Brown, would be paid by Arakin? Or was the agreement limited to agreeing the
rates that the pursuers would employ, when calculating their charges for work
they had carried out, those being rates which Arakin would be free to challenge
as being unreasonable, if it was necessary for the pursuers' account of
expenses against Arakin to proceed to taxation?
[166] Such a distinction has, of course, to be viewed against the
background of the terms of Rule of Court 24.7-(6)(c) that require the
Auditor in determining whether a sum charged in respect of an item of work is
fair and reasonable to take into account an informal agreement relating to
fees. For an Auditor to take into
account the terms of an agreement as to rates is, of course, a different matter
from the Auditor automatically adopting and applying those rates when determining
the fees recoverable in terms of the account he is taxing. Likewise, whatever the rates were to be, the
Auditor had a duty to consider, in accordance with the provisions of Rule of
Court 24.7 whether each item of work was reasonably incurred.
[167] Having carefully considered the terms of page 7 of the
Auditor's Report (No. 19(b) of Process), I construe from what the Auditor
states that he concluded the terms of the informal agreement fell within the
first of the two alternatives I have articulated, rather than the second. Bearing in mind, in particular, the terms of
the sixth paragraph of Arakin's letter of 31 December 2005, the Auditor was, in my opinion,
entitled to reach such a conclusion and on that basis apply the provisions of
Rule of Court 42.7-(6)(c).
[168] Accordingly I repel this objection, insofar as it is based on the
argument that the Auditor erred by inferring an informal agreement had been
reached as to the rates of charge for the period 1 January 1994 to the
close of the account. Those rates are to
be found in the letter dated 17 December
1993.
[169] The objection also alleges that the Auditor erred by allowing a
rate increase as a solicitor is not allowed a higher rate, when he is
subordinate to counsel. Reference is
made to Rule of Court 42.14.2(b). I
reject this argument. Rule of
Court 42.14.(b) came into effect on 5 September
1994. Its provisions relate
to the granting of an additional fee to a successful party in a
litigation. Rule 42.14 had no
application to the taxation of No. 12 of Process.
[170] The terms of the objection also allege that the pursuers are not
entitled to enhanced rates on account of the fact that they acted without
instructions. As I have already
indicated, that was not an issue that the Auditor could have been expected to
address.
[171] The contention that the account should be re-taxed on the basis
of hourly rates of £80 or £81 I reject, on account of the conclusions I have
reached about the informal agreement as to fees. In these circumstances, I repel this
objection.
[172] 5B.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
1 - 7
|
All
|
|
|
|
|
|
|
|
In the absence of any agreement as to rate
of charge, the Auditor erred in applying an hourly rate of £100 for the
period August 1993 to December 1993.
The hourly rate ought to have been £80.
[173] As far as the entries in the account for the period prior to 31 December 1993 are concerned,
it was for the Auditor to determine fair and reasonable sums for the items of
work involved. No reason was advanced as
to why an hourly rate of £80 was adopted.
In these circumstances, I see no reason for holding that the Auditor
erred in law in adopting an hourly rate of £100. I repel this objection.
[174] 6. Details of entries allowed
by the Auditor in relation to photocopying.
|
Page Nos.
|
Item Nos.
|
Amount Already Taxed Off
|
Reduction Sought
|
|
30
|
4
|
|
12,306.80
|
|
|
|
|
|
There was no proper information before the
Auditor upon which he could be satisfied as to what if anything, had been
copied to the extent that such copying gave rise to a charge of £12,306.80.
At page 9 of his Report, the Auditor
records the fact that he had made an independent inquiry with "a partner of
Messrs Alexander Stone & Co, Solicitor, Glasgow ...". It is submitted that said inquiry was
inadequate. The Auditor has failed to
make sufficient investigation as to what was actually copied by the
Pursuers. The defenders call upon the
Pursuers to produce sets of all the documents said to have been copied and
invite the Court in the event of failure so to produce, to tax-off the charges
claimed in the Account. Separatim
in any event, it is believed that the photocopying of productions was carried
out by Tods Murray and Brechin Robb. The
Pursuers have failed to specify which productions were copied by them and which
were copied by Brechin Robb. Separatim,
it is believed that the photocopying or in any event a substantial quantity
thereof was carried out by Xpress Print.
The Pursuers' ledger entry dated 15/2/94 refers to productions being "copied and
bound". The Pursuers are called upon to
produce the Xpress Print invoice and their failure to do so will be founded
upon. Further and in any event, it is
believed that said photocopying was charged to the Defenders by the Pursuers
under the Pursuers' invoice of 16th July 1993.
Said invoice was paid on 13th August 1993.
[175] As framed this objection appears to raise a number of questions
of fact, including whether the pursuers had themselves copied all the documents
detailed in the entry on page 30 of No. 12 of Process or whether the
copying had been carried out by a firm called Xpress Print. The pursuers had paid the sum of £554.80 to
that firm, which they sought to recover as an outlay incurred in binding
extensive productions. By the date of
the taxation the relevant voucher for the outlay had been mislaid. At the taxation, it had also been questioned
by Arakin whether it had been necessary for the pursuers carry out the
extensive copyings claimed for.
[176] During the course of Mr. McNamara's submissions he referred
to pages 32 -35 of a Report prepared by him (No. 76 of Process) and a
bundle of miscellaneous correspondence and statements lodged on behalf of the
defenders (No. 279 of Process). The
burden of his submissions was that before the Auditor it had been unclear what
copying the pursuers had carried out themselves and that the copying undertaken
had been more extensive than was necessary or reasonable. He submitted such issues remained.
[177] Senior counsel for the pursuers submitted that before the Auditor
the challenge had been limited to whether the copying carried out had been
reasonable, which it had been for the Auditor to determine.
[178] As with many of the issues raised during the hearing before me,
the factual issues mentioned by Mr. McNamara when dealing with this objection
include some issues that it would be impossible for the court to resolve in the
context of a hearing on a Note of Objection to the taxation of an account of
expenses. His references to the
documents I have detailed merely had the effect of increasing the number of
such issues.
[179] The Auditor dealt with the item of work, which is the subject of
this objection, on pages 8-9 of his Report (No. 19(b) of
Process). It is clear from what the
Auditor says in his Report that he proceeded on the basis that the photocopying
covered by the item of work that is challenged had been carried out by the
pursuers. Indeed the Auditor states that
he was informed that issue was not being taken to the amount of the copying
done, as distinct from the need for the copying to be done.
[180] In my opinion, the Auditor was entitled to reach the view that he
should tax this item of work on the basis that the pursuers had themselves
carried out the photocopying specified in the item of work. As I have indicated, in his Report the
Auditor records that it was conceded, on behalf of Arakin, that issue was not
being taken to the amount of copying that had been carried out. That concession was made after the law
accountant acting for Arakin had been given the opportunity to inspect the
documents copied. Accordingly whilst the
enquiries the Auditor himself made to quantify the actual extent of the
copyings were limited in scope, I am persuaded that it was open to him to reach
the view he did as to the extent of the copyings carried out.
[181] As far as the issue of whether it was reasonable for the pursuers
to have carried out a large amount of photocopying is concerned, that was
another issue which it was for the Auditor to determine. The Auditor has explained why he reached his
decision on that issue. He relied on
enquiry made of a partner of another firm of solicitors, who subsequently acted
for Arakin and who confirmed that the documentation in the case was
substantial. His decision on this issue
appears to have been taken without his having looked at the documents that had
been lodged as productions on behalf of Arakin only 14 days before the
start of the proof. It was the lodging
on behalf of Arakin of the extensive number of productions that gave rise to
the large claim for photocopying.
Standing the fact that the pursuers lodged those productions after
consulting with the senior counsel acting for Arakin, it might have been
difficult to have argued during the taxation that the lodging of the
productions was an unreasonable course of action for the pursuers to have
taken. It would not appear that any such
argument was advanced before the Auditor.
Once decisions had been reached as to which productions should be lodged
on behalf of Arakin, the need to make copies of those productions would have
automatically arisen.
[182] Why the Auditor chose not to look at the documents that had been
copied by the pursuers is unclear. They
were available to and had been seen by the parties' law accountants during the
course of the taxation. However, when
regard is had to the entries in No. 12 of Process, which precede the entry
for the photocopying charges and which detail the discussions, consultations
with counsel, meetings and other steps that led to the lodging of extensive
productions on behalf of Arakin, it is clear that it was open to the Auditor to
take the view that he was satisfied that the charge for making four copies of
Arakin's productions was a reasonable one for the pursuers to include in their
account. In these circumstances and
bearing in mind the provisions of Rule of Court 42.7-(6), I have reached
the view that it was open to the Auditor to proceed in the manner he did. I repel this objection.
[183] 7A. Tods Murray have never given Arakin Limited
any invoices to support outlays and Arakin is unable to recover VAT, of note,
the variance of outlay costs on invoices submitted to what is contained in
No. 12 of Process is highlighted by the last invoice submitted, 66028 in
which Tods Murray submitted a cash account that identifies Counsel costs of
£52,675.00 net of VAT and in No. 12 of Process the figure for Counsel
costs inclusive of VAT is £76,762.00.
Abatements required that under the Statute of Limitation Act, 1973, section
18(A) all outlays in No. 12 of process are prescribed and be abated from
No. 12 of Process.
[184] It is one of the lines of defence to the action that part of the
sum first concluded for, which relates to the sheriff court actions involving
McLachlan & Brown, embraces sums in respect of which no VAT invoices or fee
notes have been issued by the pursuers.
On that basis the defenders contend that certain of the sums claimed by
the pursuers have prescribed with the passage of time (see Closed
Record 21D-E).
[185] In taxing
the Account of Expenses No. 12 of Process, the Auditor has made some
provision for VAT on pages 63 and 64 of the account. It is also clear that the figure allowed for
outlays includes certain amounts of VAT, some of which are detailed and some of
which are subsumed within omnibus figures.
[186] Notwithstanding the provisions of Rule of
Court 42.7-(6)(e), it was not for the Auditor to address the issues
referred to in this objection. These
involve matters that the court will require to address in due course. On that basis, I repel this objection.
[187] 7B. The Auditor misdirected
himself by not investigating the entry on page 6 of No. 12 of Process
concerning Counsel's costs. The Auditor
further erred by accepting Mr. Dobie's word that there was no prior fee
arrangement for Counsel's costs, refer to details on page 7/8 of
No. 237 of Process. Abatements
required Counsel's preparation costs restricted to £3,800.00 and the 2 days
overcharged for Counsel's days at proof be abated.
[188] The Auditor indicates at pages 7-8 of
his Report that he did not consider the reasonableness of counsel's fees. Before me, Mr. McNamara indicated that
the Auditor had been asked to abate the fees of junior counsel in their
entirety and to abate the fees of senior counsel to a more limited extent.
[189] The abatement of junior counsel fees was sought on the basis that
when a previous junior counsel had required to withdraw from the litigation and
a replacement junior counsel had been engaged in January 1994 that had been
done without the agreement of Arakin.
That issue was raised before the Auditor and is dealt with in his
Report. However, it was not raised in
the Note of Objections to the Auditor's Report.
Accordingly, it is not an objection I am prepared to deal with.
[190] As far as senior counsel's fees are concerned, this particular
branch of objection proceeds on the factual assertion that Mr. Dobie of
the pursuers had been instructed to provide Mr. McNamara with details of
the fees that would be paid to senior counsel for preparing for the sheriff
court proof and the first day of the proof and that the figure of £5000 had
been mentioned by Mr Dobie and had agreed between them. More details of how and when this alleged
agreement was reached are set out in No. 237 of Process, to which I was
referred by Mr. McNamara. Reference
was also made to entries on page 110 of No. 36 of Process and pages 6
and 57 of No. 12 of Process. In the
event, the Account of Expenses No. 12 of Process indicates that senior
counsel was paid £21,650, together with some provision for VAT, for preparing
for the proof, and £1,200, together some provision for VAT, for the first day
of the proof. It should be noted in
passing that the figures for fees paid to counsel included in the Account of
Expenses No. 12 of Process are difficult to reconcile with the entries in
the pursuers' cash account of their dealings with Arakin during the period
between 29 December 1993
and 18 April 1994. A copy of that cash account is to be found
within No. 75 of process. For
example, the entry on page 6 of No. 12 of Process bears to be the
payment of an outlay of £5,000 to Faculty Services Limited on 21 December
1991 "to account of Counsel's fees for Proof Preparation", which is additional
to the payments to senior counsel detailed on page 57 of the same account,
whereas the cash account suggests that the £5,000 was paid to account. All this illustrates how the vouchers
relevant to the amount and payment of counsel's fees will required to be
carefully considered by the court in due course, as part of the accounting
exercise to which I have referred.
However, I am not prepared to sustain the objection to the Auditor's
decision at the taxation to decline to tax off the payment of the outlay of £5,000. The objection proceeds on factual assertions
that it would be inappropriate for me to address during the course of a hearing
on objections to the Auditor's Report.
It is for the defenders to decide whether they wish to pursue these
allegations by seeking to amend their defences to the action. Accordingly I
repel the objection.
[191] 7C. Mr. Dobie made illegal profit from
Counsel's preparation costs; refer to pages 7/8 of No. 237 of
Process. Abatement required from
No. 12 of Process £12,313.00.
[192] I understand this objection to be relate to
the previous objection and I repel it for the same reasons.
[193] 7D. It is now known that Mr. Dobie misled
Counsel, refer to minute of meeting 13th September 1996 of
No. 239 of Process and Counsel may have to do additional work in which he
charged £17,000.00 plus VAT, refer to Faculty Services invoice No. 239 of
Process. Arakin was penalised twice by
paying the sum of £17,000.00 plus VAT, refer to page 8 of No. 237 of
Process.
[194] Insofar as this objection raises a point that
has not already been raised, it is limited to contending that the defenders are
being required to pay the sum of £17,000 plus VAT, sought by Faculty Services
Limited in respect of senior counsel's fees for preparing for the proof,
notwithstanding that fact that the sum has already been paid, by Arakin, as
part of a payment Arakin made to Alexander Stone & Co. in 1995. They claim that assertion is vouched by the
copy of the Faculty Services' invoice dated 14 July 1995, receipted as paid on 29 November 1995, which forms part
of No. 239 of Process. As I have
already made clear, issues such as those raised by this objection will require
to be addressed by the court at a later stage in the action. On that basis, this objection must be
repelled.
[195] 7E. Junior Counsel. Mr. Dobie misled Junior Counsel that he
had the authority to deal in quantum and duped Junior Counsel into signing
minutes-of-agreements that were irreversible, refer to Brechin & Robb's
letter in No. 239 of Process and pages 8/9 of No. 239 of
Process. Abatement required all Junior
Counsel's costs abated from No. 12 of Process.
[196] This objection involves factual issues, which
the Auditor could not have been expected to resolve. Disputes as to the nature and terms of the
instructions the pursuers received and as to whether those instructions were
carried out will require to be resolved by the Court at a later stage in this
action. On that basis I repel the
objection.
[197] 8. The Auditor misdirected
himself by allowing charges for a trainee refer to page 5, item 2 of
No. 237 of Process.
[198] Reference to No. 237 of Process makes
clear that in this objection the defenders are contending that when taxing the
Account of Expenses No. 12 of Process (and indeed the Account of Expenses
No. 6 of Process) the Auditor should have taxed off the fees claimed for
all items of work carried out by the pursuers' trainee solicitors. The defenders contend this particular issue
was raised during the taxations before the Auditor, but that is difficult to
reconcile with the terms of the Auditor's Reports (Nos. 19(a) and 19(b) of
Process). Whilst both reports mention
the question of fees for work carried out by trainees, in neither instance does
the report indicate that Arakin had argued that under no circumstances were the
pursuers entitled to recover fees for work carried out by trainees. Rather the issues before the Auditor appear
to have been (a) when it was appropriate for trainees to be in attendance, (b)
whether the pursuers could recover fees for the attendance of solicitors and
trainees and (c) the rate(s) at which the attendance of trainees should be
charged, if any fee for their attendance was going to be recoverable.
[199] In arguing this objection, Mr McNamara referred to Hastings on Expenses in the Supreme and Sheriff Courts
Hastings at page 120, where the author indicates that one of the
exceptions to the right of a solicitor to remuneration from his client is "when
he is unqualified or lacks a practising certificate"'. In my opinion that passage provides no
support for this objection. In the
present case it is not the trainee solicitors who are seeking remuneration for
the work they did, it is the pursuers who are doing so. A qualified solicitor is perfectly entitled
to employ members of staff, whether or not they have any legal training or
qualifications, to assist in the carrying out items of work, which fall within
the instructions they have received from their client. For that reason, I repel this objection.
[200] 9. The Auditor misdirected himself by not
challenging Mr. Dobie to explain why there was 146 hours less in
No. 12 of Process for trainees than there was in No. 7 of
Process. No. 7 of Process is the
missing part of the summons and this is the benchmark in which No. 12 of
Process was created. Abatement required
146 hours at trainee rate be abated from No. 12 of Process.
[201] The history of No. 7 of process was addressed during the
proof before Lady Smith and I refer to her findings in respect of that
history in paragraph [49] of her Opinion dated 31 October 2003. The
production bears to be an account of expenses submitted by the pursuers to
Arakin in connection with the McLachlan & Brown litigation. It covers the period from 5 August
1993 to 3 July 1995.
Lady Smith held that the account which constitutes No. 6 of
Process was lodged in process on 23 October 1996, having previously been intimated to Arakin's then
solicitors, Alexander Stone & Co., on 27 July 1995.
[202] In No. 237 of Process the defenders state that during the taxation
of No.12 of Process Mr. McNamara and Mr. Grieve, who were
representing Arakin, did not have a copy of No. 7 of Process available to
them. It is maintained that was because
it was taken out of process. It is
unclear from the Inventory of Process whether No. 7 of Process was
borrowed out of process whilst the taxation of No. 12 of Process was
underway. That taxation was concluded on
27 March
1998. In paragraph [49] of her Opinion Lady
Smith indicates that No. 7 of Process was missing from process for a
while. It appears from the evidence she
heard that No. 7 of Process was absent from process between 24 April
1998 and 23 October
2000. That period post-dates the taxation. The Auditor's Report makes no mention of the
Auditor having seen No. 7 of Process.
Nor is any mention made of it in his subsequent Minute on the Note of
Objections (No. 27(b) of Process).
All that can be inferred from what the defenders state in No. 237
of Process is that during the taxation
Arakin's representatives did not refer the Auditor to the contents of
No. 7 of Process. In these
circumstances, it would be impossible for me to hold that the Auditor
misdirected himself in the manner alleged in this objection.
[203] Furthermore, even if the Auditor had been referred to what is
said on page 7 of No. 7 of Process about the number of hours expended
by a partner and the number expended by a trainee, it is extremely doubtful
that would have required him to alter the approach he took to the taxation of
the Account of Expenses No. 12 of Process.
The Auditor explains on page 4 of his Report the approach he took
to the assessment of the reasonableness of the times claimed in respect of
individual items of work. That approach
was not based on what was shown on time sheets that were placed before him, but
rather on his consideration of the files and case papers he saw. In my opinion, the Auditor was perfectly
entitled to adopt that approach. In
these circumstances, I repel this objection.
[204] 10. The Auditor misdirected
himself by allowing costs in No. 12 of Process that had no vouchers to
support these costs. The most glaring
examples are telephone calls; refer to No. 119 of Process where it is
established that Tods Murray was charging for calls that never took place. Under Rule 42.2.3 the Auditor has a duty
to abate costs that are non-vouched.
Abatement required non-vouched costs in No. 12 of Process be
abated.
[205] This objection alleges that the Auditor
misdirected himself by allowing costs in No. 12 of Process that were not
supported by vouchers. In my opinion the
objection is misconceived. In
No. 12 of Process the entries relating to telephone calls are not outlays. Rather they relate to items of work, in
respect of which the pursuers seek recovery by way of fees of such sums as are
allowed by the Auditor as fair and reasonable.
As far as telephone calls are concerned, I need not elaborate on what I
have said earlier in this Opinion. I
repel the objection.
[206] 11.
The Auditor misdirected himself by allowing costs for post, incidents
and telephone calls. On all invoices
paid by Arakin posts, incidents and telephone calls are inclusive, of note,
No. 7 of Process, the missing part of the summons, post, incidents and
telephone calls are abated from No. 12 of Process.
[207] In my opinion this objection is also misconceived. In the Account of Expenses No. 12 of
Process the entries relating to posts, incidents and telephone calls are not
outlays. Rather they relate to items of
work, in respect of which the pursuers seek recovery by way of fees of such
sums as are allowed by the Auditor as fair and reasonable. As far as telephone calls are concerned, I
need not elaborate on what I have said earlier in this Opinion. As far as posts and incidents are concerned,
the practice adopted by the Auditors, when taxing time and line accounts, is to
add on at the end of an account a percentage of the fees that have been
approved during the taxation. That percentage is to cover the cost of postage
and other incidental expenditure incurred in carrying out the items of work
previously taxed. That is the approach
that was followed when the Account of Expenses No. 12 of Process was
taxed. The fact that a different
approach may have been adopted by the pursuers when they prepared No. 7 of
Process or any of the other invoices that they submitted to Arakin prior to the
present action being raised is irrelevant.
I repel the objection.
[208] 12. The Auditor correctly stated in 19B
page 3 "matters not for the Auditor has to be a decision for the Court",
therefore I ask the Court to decide on Gross-mismanagement of Cause by
referring to page 2, item 5 of No. 237 and to consider the
following.
The dispute between McLachlan & Brown
and Arakin Limited was a simple case of negligence as McLachlan & Brown
misled Arakin that they had a £210,000.00 tax liability. Arakin had committed its reserves into a
leisure complex in the East-End of Glasgow and had no funds to pay £210,000.00. McLachlan & Brown advised Arakin to
dispose of Duchess Estate to release capital to meet its liabilities to
HMIT. After they had sold Duchess Estate
to SDA Arakin had a meeting with HMIT and at that meeting HMIT discovered that
McLachlan & Brown had double entered a contract for Monklands District
Council of £485,000.00.
McLachlan & Brown sued Arakin for unpaid
fees of £20,000 and when the new accountants PKF entered negotiations with HMIT
it was agreed that Arakin did not owe £210,000.00 for tax and due to other
mistakes by McLachlan & Brown in Arakin's accounts HMIT paid Arakin
£30,000.00 for previous over-payments.
Thereafter Arakin counter-claimed McLachlan & Brown for negligence
and Consequential Losses based on Arakin's expert's ascertainment of loss.
The fees incurred by Arakin for legal work
in the McLachlan & Brown dispute is absurd as negligence was prima facie
when HMIT repaid Arakin £30,000.00.
Abatement required all costs incurred by Arakin in the McLachlan &
Brown dispute and Judicial Compound Interest be applied when payment was made
until payment is received by A. McNamara, refer to Boots Chemists v GA Estates 1992 SC 485.
[209] As I have already indicated, issues falling within the
description of gross mismanagement of the cause are for the court to rule
on. The court cannot do so in a hearing
on Notes of Objection to the Auditor's Report.
It is for the defenders to decide whether they wish to pursue the issues
mentioned in this objection. If they do,
they will require to ensure that the issues are properly focused in their
pleadings to allow the issues to be dealt with after legal debate or
proof. I repel this objection.
Note of Objection by
Defenders to Report by the Auditor of Court on the Pursuers
Account of Expenses (No. 36
of Process)
[210] The Defenders object to the
Report by the Auditor of Court dated 26th October
1999 for the reasons
hereafter condescended upon:
1.
The Auditor has failed to apply the "doctrine of paid accounts". Reference is made to the Reports by the
Auditor of Court dated 27.3.98 and to the Auditor's Note in relation
thereto. All of the fees in the present
account fall to be treated in the same manner as the auditor taxed those
Accounts. Invoices were rendered and
paid by the Defenders in respect of the period of the account. The Auditor ought to have taxed the relevant
portions of this Account at no more than the fee paid on Invoice. Furthermore, should any particular period of
the Account on taxation amount to less than the amount paid on Invoice that
should be the amount at which that period of the Account is taxed, and the
amount of overpayment should be identified.
[211] In taxing the Account of Expenses
No. 36 of Process, the Auditor, Mr. Crichton, made no reference to
the doctrine of paid (or settled) accounts.
In that regard, he adopted a different approach to that adopted by
Mr. Tait, when taxing Nos. 6 and 12 of Process. He has fully explained his reasons for doing
in the Minute dated 18 December
2001(No.129 of Process), which he prepared in response to my
interlocutor of 20 November 2001. As I have already indicated, the
consideration of what application (if any) the doctrine of settled accounts has
in the circumstances of this case will be a matter for the court to deal with,
once a number of other factual and legal issues have been resolved. On that basis, I repel this objection.
[212] 2. On pages 1-94 of the
Account (to 12.7.92) charges are applied in terms of Table of Fees of
Solicitors in the Sheriff Court as regulated by Act of Sederunt.
However, on P94 a Percentage Increase has been applied at the rate
of an addition 75%. The Auditor has
applied a minimal abatement to that increase.
The defenders submit that in terms of the Act of Sederunt applicable at
the date only a Sheriff has the authority to allow an increase in the level of
fee. Had this Account been taxed in the Sheriff Court, the Sheriff Court Auditor would have had
no authority to apply an increase. The
Pursuers are not entitled to circumvent the terms of an Act of Sederunt simply
by choosing to raise proceedings in the Court of Session. The Auditor ought to have taxed the Account
in terms of the Act of Sederunt applicable to Sheriff Court proceedings. The entire additional fee claimed should be
taxed off. Quoad Ultra should the Court fund that
the Auditor is entitled to allow an additional fee it is submitted that the
Pursuers' actings throughout do not justify any additional fee. The Note of Objections to the Account
No. 12 of process is referred to for its terms.
The Auditor misdirected himself by quoting
Rule 42.7.6(a) on page 5 of No. 42 of Process; he had no right to allow a rate increase
under that rule. I refer to
Rule 42.14 that clearly states before an Auditor can increase a fee he has
to have an Interlocutor. The Auditor
further misdirected himself by allowing a rate increase as solicitors are not
allowed a higher rate when they are subordinate to Counsel, Rule of
Court 42.14.2(B). The Auditor
further misdirected himself by allowing a rate increase, as a rate increase is
only applicable to a Party - Party Account. Abatement required that the rates in
No. 36 of Process be reduced to these relevant to the Act of Sederunt.
The Auditor misdirected himself by allowing
a reduced sum for entries in the account that were non-vouched and was in
breach of Rule of Court 42.2.3.
During the Diet of Taxation Mr. McNamara gave the Auditor
No. 119 of Process (BT Records) that identifies gross over charging by
Mr. Dobie on telephone calls and it is noted that most of the abatements
in No. 36 of Process are telephone entries that never took place. This glaring example of false entries
relating to telephone calls should have alerted the Auditor to apply
Rule 42.2.3 strongly and abated any entry that was non-vouched. Abatement required all non-vouched entries
abated from No. 36 of Process.
[213] This objection concerns the same issue I
considered in paras. [72]-[74] of this Opinion when dealing with
Objection 5 in the pursuers' Note of Objections to the taxation of the
Account of Expenses No. 6 of Process.
In my opinion, Mr. Crichton erred in law in awarding a 75%
percentage increase in the total of fees.
My reasons for reaching that conclusion are based on the views I
expressed when dealing with the earlier objection. I need not repeat what I said then. In short I agree with Mr. Tait's
approach to the construction of Rule of Court 42.7 - (6). I accordingly sustain this objection in so
far as it relates to the uplift in the fees, which the Auditor allowed. That
part of the objection referring to telephone calls and other unspecified
entries relating to outlays is repelled, for the reason that it raises
questions of fact that cannot be resolved during a hearing on a Note of
Objections. It is possible that parties could agree to address the dispute
between them about phonecalls, within the context of the hearing of evidence
that I am prepared to allow in respect of Objection 2 of the pursuers' Note of
Objections to the taxation of No. 6 of Process.
[214] 3. Necessary adjustments to
posts and incidents and VAT should be made to reflect the foregoing.
[215] This objection is superseded.
[216] 4. The Auditor misdirected
himself by allowing any costs for post, incidents and telephone calls as these items have been
included on each invoice paid by Arakin Limited. Abatement required all post, incidents and
telephone calls abated from No. 36 of Process.
[217] This objection mirrors Objection 11,
which the defenders took to the taxation of No. 12 of Process. For the reasons I gave in respect of that
earlier objection, I repel this objection.
[218] 5.
Outlay. Arakin has never received any invoice to
support outlays, refer to page 4 of No. 237 of Process, and was
unable to recover VAT. Attempts were
made to recover VAT on all Tods Murray time-and-line account but Custom &
Excise insisted on invoices made out to Arakin Limited from Tods Murray. Despite requests Tods Murray have never given
Arakin Limited any VAT invoice for outlays.
Abatement required under the Statute of Limitations Act 1973,
section 18(A) all outlays in No. 36 of Process are prescribed.
[219] This objection returns to the issues that
were raised by Objection 7A, which the defenders took to the taxation of
the Account of Expenses No. 12 of Process.
For these reasons and on the basis I repelled that objection, I repel
this one.
[220] 6. The Auditor misdirected
himself by allowing costs for Mr. Dobie dealing in quantum and perusal of
accountancy matters. Tods Murray
was under standing instructions not to become involved in quantum and
accountancy matters and to deal only on matters of Law, refer to page 110
of No. 36 of Process, Mr. Dobie failed to comply with instructions
and negotiated and reduced Arakin's experts (PKF) figures, refer to
page 54 of No. 12 of Process.
Abatement required all entries in No. 36 of Process that involves
dealing in quantum and perusal of accountancy papers that were for Arakin's
experts PKF and Rand Associates, to be abated from No. 36
of Process.
[221] This objection is founded on one of the
allegations of mismanagement of the cause, which the defenders make against the
pursuers. In particular it is alleged
that Mr. Dobie acted contrary to instructions and should not be
remunerated for doing so. It is unclear
from the Auditor's Report (No. 42 of Process) and his Minute (No. 129
of Process) whether or not those issues were raised before the Auditor. However, even if they were, the issues were a
matter for the Court to decide. For that
reason, and on the basis, that it would open to the defenders to seek to pursue
these matters before the Court, I repel this objection.
Summary
[222] In these circumstances I am intend to
pronounce an interlocutor dealing with the various objections in the Notes of
Objections to the taxations of the three accounts of expenses, Nos. 6, 12 and
36 of Process. In respect of the Note of Objections by the pursuers to the
taxation of No. 6 of Process that interlocutor will repel objections 1, 3, 4,
5, 6 and 7 and allow a hearing on evidence in respect of objection 2. In
respect of the Note of Objections by the defenders to the taxation of No. 6 of
Process that interlocutor will repel objections 1, 2, 3B, 3C, 4, 5A, 5B, 7, 8,
9, 10, 11, 12, 13, 14, 15 and 16 and sustain objections 3A and 6. In respect of
the Note of Objections by the defenders to the taxation of No.12 of Process
that interlocutor will repel objections 1A, 1B, 1C, 2, 3, 4, 5A, 5B, 6 , 7A,
7B, 7C, 7D, 8, 9, 10, 11 and 12. In respect of the Note of Objections by the
defenders to the taxation of No. 36 of Process that interlocutor will repel objections
1, 3, 4, 5 and 6 and sustain objection 2 in part and repel it in part.
[223] Before I pronounce that interlocutor, I
intend to put the case out By Order to allow further procedure to be discussed.
