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OUTER HOUSE, COURT OF SESSION
[2008] CSOH 30
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OPINION OF LORD GLENNIE
in the cause
TRUNATURE LIMITED
Pursuers;
against
(FIRST) SCOTNET
(1974) LIMITED and (SECOND) SCOBIE & JUNOR (ESTD 1919) LIMITED
Defenders:
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Pursuers: Robertson;
McClure Naismith
Defenders: Clancy, QC,
Higgins; Burness W.S.
Introduction
[1] On 4 February 2008 I repelled the defenders' Note of Objections to the
Auditor's Report on the Pursuers' Account of Expenses and orally gave brief
reasons for so doing. On 8 February 2008 I acceded, on certain conditions, to the defenders'
motion for leave to reclaim against that decision. Accordingly, it is necessary for me to give
my reasons for my decision in writing. I
was told by Mr Clancy QC, who appeared for the defenders, that he sought
to argue only one point on the reclaiming motion, namely that covered by para.6
of the Note of Objections. This Opinion
is therefore confined to that point.
[2] The
background to this matter is an Intellectual Property action in which, after
proof, I found in favour of the pursuers.
The defenders' reclaiming motion was unsuccessful. On 1 February
2007
I found the defenders liable to the pursuers for expenses on an "agent and
client" basis. Although the interlocutor
was silent on the point, I intended that to mean expenses on an "agent and
client, client paying" basis; and it is now accepted by the defenders,
after clarification of my intention, that the interlocutor should be so
read. McPhail, Sheriff Court Practice, at para.19.44, confirms that this is in
fact the meaning of an interlocutor which awards expenses on an "agent and
client" basis. At the same time, I found
the pursuer entitled to charge an additional fee in terms of certain of the
heads of Rule of Court 42.14(3).
Since that interlocutor has not been reclaimed, it is unnecessary for me
to explain my reasons for coming to those decisions.
[3] The
pursuers lodged for taxation an account of expenses in which they claimed a
total of г221,806.15 plus an additional fee by way of an uplift of 250%. The basic figure of г221,806.15 comprised
solicitors' fees of just over г92,000 and outlays (including fees for counsel
and experts) of nearly г130,000. The
auditor "taxed off" only some г2,447.81 from the solicitors' fees and nothing
from the figure claimed for outlays. In
addition, having considered all the various heads in Rule of Court 42.14(3),
he awarded an additional fee of г133,500.00, which reflects an uplift of about
150% on that part of the account which comprised the solicitors' fee as taxed
down. The result of that taxation
overall is that the pursuers are entitled to recover, in addition to the sum of
г130,000 odd for outlays, an amount of
г225,968.81 in respect of solicitors fees.
Submissions
[4] Para.6
of the defenders' Note of Objections is in the following terms:
"6. At taxation, the Auditor made provision for payment of a
significant additional fee in addition to payment of the expenses on an agent
and client basis. As a result, the
pursuer will recover an amount vastly in excess of the sum expended by it on
legal expenses. In so providing, the
Auditor erred."
In developing his submissions on this point, Mr Clancy
submitted that the account lodged for taxation reflected the terms of
engagement agreed between the pursuers and their solicitors - this was the
basis upon which the Auditor had abated the fees element of the account by
г2,447.81, the fees claimed in the account for writing letters being in excess
of the rate agreed for this task in the terms of engagement. The Auditor's decision on the taxation meant
that the pursuers would recover more than they had agreed to pay their
solicitors. This was confirmed by the
penultimate sentence in the Auditor's Minute in response to the Note of
Objections, which was in the following terms: "It is correct that as a
consequence of the award of expenses, the receiving party will receive expenses
greater than those for which his client is liable." To that extent, Mr Clancy argued, it
would be a windfall for the pursuers and would not represent expenses at
all. An award of expenses should do no
more than indemnify the client against the expenses he has incurred. He reminded me, under reference to Baker Hughes Ltd. v CCG Contracting International Ltd. 2005 SC 65, 69, that the
agent/client, client paying basis of an award of expenses was generally thought
to provide the receiving party with something approaching a full
indemnity. In the present case, because
a small amount had been taxed off, there was some (limited) scope for the
application of an additional fee, i.e. there could be an additional fee of up
to г2,447.81. He submitted that the
additional fee should be capped so that the receiving party never recovered
more than the amount of fees actually paid by it to its solicitors.
[5] Mr Robertson,
for the pursuers, emphasised that this hearing was not a re-opening of my
earlier interlocutor (a) awarding expenses on an agent/ client, client paying
basis and (b) finding the pursuers entitled to an additional fee. Nor should the court second-guess the
auditor's judgment on what was or was not reasonable or merited in terms of the
interlocutor remitting the matter to taxation.
The assessment of an additional fee was entirely a matter for the
auditor's discretion: Gray v Babcock Power Ltd. [1990] SLT 693. The auditor had before him the account of
expenses, the terms of engagement, and all the time sheets, vouchers and other
relevant materials; and, using his experience, he had reached a decision after
full consideration of that material. It
was wrong to focus exclusively on the itemised account of expenses lodged for
taxation. That account reflected the sum
presently billed to the pursuers by their agents. It was not surprising that the itemised
account rendered by the solicitors to the pursuers did not contain an amount
for an additional fee, since until the diet of taxation it was uncertain how
much, if anything, the auditor would allow by way of an additional fee. The account lodged for taxation, however, was
accompanied by a claim for an additional fee by way of a percentage
uplift. This claim for an additional fee
was to be regarded as part of the account of expenses submitted for taxation: Honer v Wilson 2007 SLT 54 at para.[21].
That it was competent to award an additional fee in a case where
expenses were to be taxed on an agent/ client basis was not in issue between
the parties. The case of Tods Murray v McNamara 2007 SC 435 was an example of an additional fee being
awarded in a taxation as between agent and client. In a case where an additional fee was allowed
in a taxation on an agent/client, client paying basis, then virtually any
uplift given by way of an additional fee was bound to result in an award of
expenses in excess of the itemised account of expenses submitted for
taxation. But that did not mean that it
was in excess of what the pursuers would be liable to pay their solicitors. The capping approach advocated by the
defenders was unprincipled. If that
capping approach were correct, then an award of expenses on an agent/client,
client paying basis, would have the effect of taking away from solicitors the
additional fee which the court and the auditor had thought was merited.
Discussion
[6] In
stating briefly my reasons for repelling the Note of Objections on this point, I
indicated that I preferred Mr Robertson's submissions. I explained that I was not persuaded by the
submission that the amount awarded by
the Auditor by way of an additional fee gave rise to a situation where the
pursuers would recover in the award of expenses more than they were liable to
pay their solicitors. The factors
justifying the award of an additional fee all relate to the work undertaken by
the solicitor in a particular case. They
are factors which may justify the payment to the solicitor of an additional fee
because of, for example, the particular expertise of the solicitor in so far as
relevant to the particular case or the greater responsibility undertaken by him. If an additional fee is allowed in a taxation
as between parties to the litigation under Rule 42.14, the effect is to
require the paying party to pay to the receiving party an additional sum by way
of expenses so as to reimburse the receiving party for the additional fee which
it will have to pay to its solicitor. It
seemed to me that there was no question of the pursuers receiving more by way
of the award of expenses than they would have to pay their solicitors. In so far as the receiving party received an
amount by way of an additional fee, after a taxation pursuant to an
interlocutor under Rule 14.14 finding the pursuers entitled to an
additional fee, it would surely be under a duty to account to its solicitors
for that part of the expenses which it received, whether by an implied term of
the contract of engagement or by the application of the principles of unjust
enrichment.
[7] Having
been reminded of the arguments and the authorities on the application for leave
to reclaim, and faced with the task of putting on paper my reasons for
repelling the defenders' argument, it became clear to me that, whilst I adhered
to my decision, I should express my reasons rather more fully.
[8] I
start by reminding myself that, as was pointed out in Tods Murray v McNamara at
para.[11], the Auditor brings to the taxation process a wealth of
experience. He will be well aware of the
principle that an award of expenses is compensatory. In other words, the receiving party is
compensated in whole or in part (depending on the scale of taxation) for the
expenses which he has to pay to his agents, whether agents' fees or
disbursements. Were an amount to be
awarded in excess of the expenses which the receiving party was required to pay
to his agents, that excess could not properly be called "expenses": c.f. Taylor v Marshall's Food Group 1998 SC 841.
By the same token, an award of an additional fee under Rule of
Court 42.14 is an award of an additional fee to be paid by the receiving
party to his agents; otherwise it could not properly be called a "fee". All of this will be second nature to the
Auditor. I would therefore be
disinclined too readily to assume that in taxing the pursuers' expenses pursuant
to the court's interlocutor the auditor has intended to award the pursuers a
sum in excess of the amount which they have paid or will be required to pay to
their agents. Although the language used
by him in the penultimate sentence of his Minute (which I have quoted in
para.[4] above) may at first glance suggest that this is what he has done, I am
satisfied that properly understood in the context of the taxation it shows no
such thing. I come to that conclusion
for the following reasons.
[9] The
factors set out in Rule 42.14(3)(a)-(g), which are relevant to the allowance of an
additional fee in an award of expenses as between the parties to the
litigation, also appear in paras.(i)-(vi) of Rule 42.7(6)(c), and are
relevant to the taxation of the solicitor's own account with his client under
that Rule. The Auditor must take those
factors into account in that context in deciding what fee is fair and
reasonable. Tods Murray v McNamara
concerned a taxation of a solicitor's account with the client in terms of Rule 42.7. At paras.[39]-[42] the Lord Justice-Clerk
explains how such a taxation works. The
auditor will go through the itemised account, taxing off some items and abating
others. He will also consider whether
and, if so, how to allow for a "special responsibility" element having regard
to the enumerated factors, if relevant, in Rule 42.7(6)(c). He may make such allowance by up-rating the
fees for individual tasks. More
commonly, perhaps, and certainly less laboriously, in a case where he finds an
uplift justified, he will simply apply to the total fees as taxed by him an
overall percentage uplift.
[10] Taxation
of a solicitor's account with his client is, I suspect, the exception rather
than the rule. In most cases the account
is agreed and there is no need for a contentious taxation. That appears to have been the case here. The taxation between the parties to the
litigation with which I am here concerned was not preceded by a taxation as
between solicitor and client in which the uplift for the special responsibility
element would have been assessed.
Rather, it simply proceeded upon the basis of the itemised account of
expenses and a claim for a percentage uplift.
It was to that itemised account, as taxed down on an agent/client basis
by the sum of г2,447.81, that the auditor applied a percentage uplift of 150%,
just as I assume he would have done had he been dealing with a contentious
taxation as between solicitor and client under Rule 42.7. He considered that the special responsibility
element (by reference to the factors set out in Rule 42.14(3)) justified
an uplift of that amount; and I can think of no likely circumstances in which,
had he had to assess a fair and reasonable fee in a taxation in this case
between solicitor and client under Rule 42.7, he would have come to a
different assessment of the percentage uplift to be applied.
[11] There
having been no solicitor client taxation of the solicitors' account under
Rule 42.7, all the Auditor had before him at the taxation between the
parties to the litigation was the itemised account of expenses which would have
formed the basis for a solicitor client taxation under that Rule had such a
taxation been required. He was not,
therefore, in a position to know what amount would have been assessed as fair
and reasonable under Rule 42.7 as between the pursuers and their solicitors;
but no doubt he would have assumed that the uplift on that account would have
been of the same order as the uplift of 150% which he allowed on the taxation
as between the parties to the litigation.
I am assuming, of course, that the terms of engagement between the
pursuers and their solicitors did not preclude any such uplift; the Auditor has
not suggested that they did and it would, I suspect, be unusual in this type of
case for them to do so.
[12] It
follows from the above that the likely result of a taxation as between
solicitor and client, had one taken place, would have resulted in an uplift of
the same percentage as was awarded in the taxation between the parties to the
litigation with which I am concerned.
There can be no question, therefore, of the pursuers recovering from the
defenders under the taxation an amount in name of expenses in excess of the sum
which the pursuers are bound to pay their agents. It seems to me that when the Auditor said that
as a consequence of the award of expenses the pursuers will receive expenses
greater than those for which they are liable to their agents, he must have
meant simply that they would receive an amount by way of expenses in excess of
the amount shown in the itemised account lodged for taxation. That is in fact the reality of the
situation. As I have said, it seems
improbable in the extreme that he should have intended to allow more by way of
expenses than the amount for which they were liable.
[13] For
those reasons it seems to me that the challenge in para.6 of the Note of
Objections must fail.
