Act: Artis; Acting Solicitor (Scotland) HM Revenue & Customs

Alt: A Stewart; McGrigors, LLP

3 March 2009

[1] Following a successful appeal to the House of Lords the respondents were found entitled to their expenses in respect inter alia of an appeal by the appellants to the Inner House of the Court of Session which was determined on 23 August 2005. The appeal concerned the method of computing trade profits for the purposes of income and corporation tax.

[2] An account of expenses was lodged on 5 October 2007 by the respondents' Scottish solicitors McGrigors LLP. On 18 August 2008 the then Auditor of Court reported on his taxation of that account. The respondents lodged a Note of Objections in respect of two specific abatements made by the Auditor. The first objection related to an abatement of the fees of senior counsel. This objection is no longer insisted upon, and we need say no more about it. The second objection related to the abatement in whole of fees charged by Messrs Dorsey & Whitney, Solicitors, London.

[3] In a Minute, in response to the Note of Objections, the then Auditor has explained his position on this matter as follows:-

"2. The fees charged by Messrs Dorsey & Whitney, Solicitors, London, appear at the end of the Account as an outlay and the firm's time records are produced to vouch that figure. Strictly speaking, this does not conform to Rules of Court 42.1.3 and 9. The fundamental objection is that it is unreasonable for charges made by English agents representing a Scottish company for proceedings in the Court of Session to be allowed as a party and party expense.

Rule of Court 42.9 states, 'An account of expenses presented to the Auditor in accordance with an order of the court shall set out in chronological order all items in respect of which fees are claimed and shall be taxed as if the whole work in the cause had been carried out by one solicitor'.

By letter of 7 May 2004, Dorsey & Whitney advised the Inland Revenue that "for purposes of proceedings in Court of Session we have appointed Scottish Solicitors to appear on Record ... direct all relevant communications for the attention of Heidi Archibald at McGrigors and copy same to ourselves". In the Auditor's view this is clearly a transfer of the agency from the London agents to Messrs McGrigors. Rule of Court 42.9 makes it clear that only the charges for one solicitor can be recovered on a party and party basis. For this reason, the whole of Messrs Dorsey & Whitney's account has been abated.

In dealing with the account in this manner, the Auditor has been guided by the authorities and taxed the account in terms of Rule of Court 42.10.-(1)."

[4] Counsel for the respondents argued that the then Auditor had misdirected himself in a number of respects - each of which could be said to have formed part of the determinative reasoning for his decision. First, in his consideration of rule of court 42.9, he had erred (a) in questioning the form of the account produced and (b) in concluding that the rule "makes it clear that only the charges for one solicitor could be recovered on a party and party basis". As to the former, there was clear authority, dealing with the precursor of rule 42.9 (rule 347, which was in similar terms), that the rule was concerned only with the work done by Scottish solicitors and had no application to work done by foreign solicitors. The fees of such solicitors were, by longstanding practice, shown as outlays on the account. Reference was made to Wilson v Craig 1983 SLT 556 and Wimpey Construction (UK) Limited v Martin Black & Company (Wire Ropes) Limited 1988 SLT 264. As to the latter, rule 42.9 did not provide that only the charge for one solicitor could be recovered on a party and party basis. Fees charged by both principal and local solicitors were regularly so recovered, the rule being essentially concerned with the form of presentation of the account and to make it clear that the basis of taxation would be to avoid double counting. Secondly, the Auditor misdirected himself in so far as he proceeded on the basis that it was a fundamental objection (apparently of general application) that it was "unreasonable for charges made by English agents representing a Scottish company for proceedings in the Court of Session to be allowed as a party and party expense". It was clear on authority (reference again being made to Wimpey Construction (UK) Limited v Martin Black & Company (Wire Ropes) Limited) that where solicitors outside Scotland were engaged the Auditor required to consider each proposed fee on its merits and to decide, in the first instance, which items, if any, were admissible in a party and party account. This is what the Auditor should have done in the present case (and what should be done if, as was requested, the matter was remitted for further consideration). There was no reason in principle to approach the matter differently in the case of English solicitors acting for a Scottish company. It was to be noted that before the Auditor it had been accepted on behalf of the respondents that not all of the entries in the London solicitors' itemized account could reasonably be charged on a party and party basis, although the contention was (and would remain if the matter was remitted for further consideration) that a number of items could, representing work related to the appeal distinct from that undertaken by Messrs McGrigors. Lastly, the Auditor erred in his construction of the letter of 7 May 2004. It was clear from its terms that the London agents did not transfer the whole agency, but retained the position of principal agents, appointing Messrs McGrigors as local agents "to appear on the record".

[5] In a brief response, counsel for the appellants submitted that, properly understood, the only reason for the then Auditor's decision was his construction of the letter of 7 May 2004 as involving a complete transfer of agency - a construction which, it could be said, was at least reasonably open to him. Beyond that, while his observations relating to the form which the London solicitors' account took could not be supported, it was reasonably apparent that these observations did not form part of the reason for the total abatement. As to his later observation as to what rule of court 42.9 made clear, he could not reasonably be taken to have meant anything more than that double accounting was to be avoided. If the observation was to be read literally it could not be supported. As to the sentence beginning "The fundamental objection is ...", this simply recorded a submission which had been made at the taxation on behalf of the appellants, and did not form part of the Auditor's reasoning. If it did, it could not be supported.

[6] We have come to the view that the respondents' objection must be sustained.

[7] While it may not be right to read the first two sentences of the relevant part of the Auditor's Minute as forming part of the determinative reasoning, otherwise the submissions of counsel for the respondents fall, on our opinion, to be accepted in their entirety.

[8] The question of the fees charged by Messrs Dorsey & Whitney will therefore be remitted to the Auditor for further consideration.