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OUTER HOUSE, COURT OF
SESSION
[2009] CSOH 12
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P2633/06
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OPINION
OF LORD HODGE
in
the Petition
ROBIN ANDREW
McLEAN
Petitioner;
for
Orders
relative to
ZONAL
RETAIL DATA SYSTEMS LIMITED
Respondents:
ннннннннннннннннн________________
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Petitioner: MacColl, Advocate; McGrigor Donald
Respondents: Sandison, Advocate; Brodies LLP
30 January 2009
[1] This
is a hearing on a Note of Objections under Rule of Court 42.4 in relation
to the report by Mr Neil Crichton, the Auditor of Court who retired last
year, on the taxation of the respondents' account of expenses.
[2] The
scope of such a hearing is limited as the Auditor has a wide discretion and the
court will interfere with that discretion only if it is satisfied that the
Auditor has misdirected himself in its exercise. Thus if the Auditor has taken account of an
irrelevant consideration or has failed to take relevant material into account,
or if he has misunderstood the factual information before him or misdirected
himself on a point of law or has reached an unreasonable decision the court may
uphold the challenge. Similarly the
Auditor's report may be challenged if he has not carried out his remit under RC
42.1 by taxing the account in accordance with the court's interlocutor. See Wood
v Miller 1960 SC 86, Lord Justice
Clerk Thomson at 97-98, Tods Murray
WS v Arakin Limited (No 2) 2002
SCLR (Notes) 759, Lord Mackay
of Drumadoon at paragraphs 9 and 12.
[3] In
older case law it has been suggested that the court has jurisdiction where some
issue of principle is involved (Thoms v Thoms' Trustee 1907 SC 343, Lord Stormonth
Darling at 346). I understand that
formulation not to envisage a materially wider jurisdiction than that which I
have summarised in the preceding paragraph but to reflect the view that the
court may interpret the Rules of Court which give guidance to the Auditor in
accordance with their spirit and not as strictly as a statute: Mica Insulator Company Limited v Bruce Peebles & Company Limited 1907
SC 1293, the Lord President (Dunedin) at 1301. There is therefore scope for the court, or at
least the Inner House, to use the jurisdiction, which is otherwise akin to that
of judicial review, to give guidance in relation to questions of expenses.
[4] The
proceedings involved a petition under sections 459-461 of the Companies
Act 1985 in relation to Zonal Retail Data Systems Limited. The petitioner was a minority shareholder and
the respondents were shareholders in the company. On 4 October
2007 Lord Reed appointed a proof to proceed on 19 February 2008 and allocated eight days to
the hearing. At a By Order hearing on 14 January 2008 I discharged the proof as
the petitioner, who had not prepared for the hearing, intimated an intention to
abandon his application. Thereafter the
petitioner lodged a Minute of Abandonment and on 11 February 2008 I dismissed the petition. On the opposed motion of the respondents I
found the petitioner liable to the respondents in the expenses of process
(a) on a party and party basis up to 7 October
2007 and (b) on an agent and client, client paying basis
from that date onwards.
[5] In the
Note of Objections the petitioner challenges the Auditor's report in relation
to two entries in the respondents' account of expenses, namely his allowance of
an entry dated 15 March 2007 for the perusal by solicitors of a draft
report prepared by KPMG and an entry dated 26 March 2007 relating to an
outlay to KPMG for the preparation and discussion of the draft expert report
dated 15 March 2007. The Auditor
accepted the first entry at the sum of г123.00 as stated in the account of
expenses. He taxed down the second
entry, which was for г11,842.47 and г2,072.43 of VAT, by approximately
twelve per cent, deducting г1,390.47 and г242.33 respectively. The petitioner challenges the recoverability
of these entries on the basis that they related to a draft report which was not
lodged in court but was used for discussion with clients and to inform the
later expert report for which KPMG billed separately. Mr MacColl, who appeared on behalf of
the petitioner, referred the court to a letter from KPMG dated 24 July 2008 to the respondents'
solicitors, which had been produced to the Auditor. In that letter the expert, Mr Milliken,
stated:
"I provided our
mutual clients with a draft report dated 15 March
2007 ('my earlier report'), which provided a range of valuation
options which could be taken as at 28 February
2007. This report was the
basis of a subsequent discussion with the clients but was not at that stage in
a format suitable for lodgement in a court of law. The thinking was used to inform the later,
formal expert witness report".
[6] In his
Note of Objections the petitioner also challenged the allowance of charges by
solicitors for the perusal and consideration of incoming e-mails. He asserted that a solicitor was not allowed
to charge for perusing and considering incoming correspondence on either the
party and party basis or the agent and client, client paying basis. But Mr MacColl did not insist upon this
argument.
[7] Mr MacColl
advanced three arguments in relation to the first and surviving ground of
challenge. The first submission was that
the court had awarded the respondents "the expenses of process" and that
charges relating to the preparation and discussion of the draft report which
was not the report eventually lodged in court were not expenses of process. I was not referred to any authority on the
meaning of the expenses of process. Such
expenses are the expenses of the judicial process as distinguished from extra-judicial
expenses (viz. Lord Thomson in Milligan v Tinne's Trustees 1971 SLT (Notes) 64) but that
observation does not advance the argument in this case.
[8] I am
satisfied that the first ground of challenge has not been made out. I do not accept the proposition that the costs
relating to a draft report can never form part of the expenses of process and
am aware of no authority to vouch that proposition. A person who is engaged to be an expert
witness may be instructed to consult with counsel on the scope and content of
his intended evidence. The expenses so
incurred are expenses in the process and are frequently recovered at least in
part. In complex cases the evidence of
an expert witness which is set out in a report may be revised over time and
thus several drafts of the report may fall to be considered by the party's
legal team. The extent of the
recoverability of the charges relating to that work will depend on the
judgement of the Auditor as to (a) whether the work was reasonably required and,
if it was, (b) what is a fair and reasonable charge for that work. In this case the petitioner has not
demonstrated that the draft report was in a category of services, the costs of
which are irrecoverable, or that otherwise the Auditor has erred in law. The former Auditor had seen both the draft
report and the final report. It is not
for this court but it is a matter within the Auditor's jurisdiction to decide
how far it is fair and reasonable to allow charges in relation to that report.
[9] Mr MacColl's
second submission, which may have arisen from a comment which I made during the
hearing, was that the former Auditor had erred in that he appeared to have
taxed the whole account on the agent and client, client paying scale and
therefore had not carried out the remit in the interlocutor of 11 February 2008. While I was initially attracted by this
submission as an interpretation of the Auditor's Note attached to his Minute on
the Note of Objections I am satisfied that the submission is unsound.
[10] In the
Note, which was signed by the current Auditor, Mr Kenneth M Cumming, but
prepared by the former Auditor, who taxed the account, the former Auditor
stated:
"The Auditor
respectfully responds to the Note of Objections No. 17 of process as
follows:
Rule of Court 42.13.2
states: 'where it was reasonable in any
cause to employ a skilled person to make investigations or to report for any
purpose, any charges for such investigations and report and for any attendance
at any proof or jury trial shall be allowed in addition to the ordinary witness
fee of such a person at such rate as the Auditor shall determine is far and
reasonable'.
1. This instructs the Auditor to allow
fair and reasonable charges to a skilled witness for the investigation and
preparation of a report. The Petition
clearly sets out the Petitioner's concerns that the Respondents conducted the
affairs of the company, "in a manner which has caused and continues to cause
unfair prejudice to the interests of the Petitioner as shareholder." This is a claim which requires detailed
investigation by an expert witness so that a full report may be prepared to be
lodged with the court and on which the expert will give evidence. The Auditor has had the benefit of seeing the
reports in this matter and is satisfied that in the circumstances of this case
it is reasonable that [sic] the cost
of and work involved in the draft report is (a) reasonable and
(b) forms a proper recover[y] against the [petitioner].
2. MacLaren on Expenses at p 510
deals with the allowance of agent and client, client paying expenses states 'In
the taxation of an agent's account against his own client, therefore,
employment having been satisfactorily established or admitted, the only
question is whether the work was done.
This is settled before the Auditor, who has the process before him and
who will see whether the agent was entitled to make professional charges for
the items which are charged in his account.
As Lord President Inglis has said, (Hamilton v Brown, 1890,
17 R. 505; 27 S.L.R. 406)
"Every item charged as outlay must be duly vouched, and after it is proved to
the satisfaction of the Auditor that the work was done and the vouchers are
produced there is an end to the plea that the work was not done," and
Lord McLaren remarked in the same case, 'In the case of a law agent's
account against his client the fact that the work was done is to be
established, not by evidence adduced to the judge, but by vouching the account
before the Auditor. I would only add
that this is not a rule which lawyers have made for their own benefit, but that
it results from the nature of the contract of agency, in which the proof must
depend almost always upon documentary evidence.''
Essentially this indemnifies the
parties for costs incurred in the action.
The client signed terms of engagement which show clearly that his
agent's fees were to be charged on the basis of time expended. The Auditor had the opportunity of
considering the files, papers and time records and is satisfied that the work
charged for in the account was properly incurred. The Note of Objections appears to proceed on
the basis that this was an award on a party and party basis.
In reaching these conclusions the
Auditor acted reasonably and in accordance with the authorities and taxed the
account in terms of Rule of court 42.10.-(1)."
[11] There
is in my opinion some ambiguity in the wording and layout of the Note as the
former Auditor (a) did not specify that in his application of Rule of
Court 43.13(2) to the circumstances of this case, he taxed the account on
the party and party basis in relation to the challenged items and (b) did
not make it clear that his comments in the penultimate paragraph related only
to the second challenge referred to in paragraph 6 above. But I am persuaded, as Mr Sandison
submitted on behalf of the respondents, that, on a correct reading of the Note,
the quotation of the Rule of Court and the paragraph numbered (1) were the
former Auditor's answer to the first challenge in the Note of Objections (paragraph 5
above) while the paragraph numbered (2) and the penultimate paragraph
addressed only the second challenge which the petitioner has now withdrawn. I am supported in that view by a
consideration of the taxed account of expenses.
The law accountant who prepared
that account emphasised in bold type on page 4, after the entries relating
to the court hearing on 4 October
2007, that that was the time from which the expenses were to be
taxed on the agent and client, client paying basis. The Auditor could scarcely have overlooked
that when taxing the account. I am
satisfied that he did not do so by a comparison of the number and extent of his
abatements of the entries in the account before 4 October 2007 and the paucity of
abatements thereafter.
[12] Mr MacColl's
third submission was that the Auditor had no jurisdiction to allow the
challenged entries because the court had not pronounced an interlocutor
empowering him to do so. He submitted
that the Auditor's quotation from Rule of Court 42.13(2) (see
paragraph 10 above) omitted the important opening proviso: "Subject to paragraph (3)". That is a reference to Rule of Court 42.13(3)
which is in the following terms:
"The Auditor may
make no determination under paragraph (2) ... unless the court has,
on granting a motion made for the purpose, before or at time at which it
awarded expenses or on a motion enrolled at any time thereafter but before the
diet of taxation -
(a) certified that the witness was a skilled
witness;
(aa) certified that it was reasonable to employ
that person to make investigations or to report; and
(b) recorded the name of that witness in the
interlocutor pronounced by the court".
[13] Mr MacColl's
submission was a simple one. The Rule of
Court gave the Auditor jurisdiction in relation to the additional charges of a
skilled person only if the court had pronounced an interlocutor which contained
a certificate under each of the three heads of that Rule. Thus, unless the court certified that it was
reasonable to employ the person to make investigations or to report, the
Auditor could not consider a claim for an additional charge beyond his fee as a
witness. If that submission were
incorrect, he submitted that the person who had been certified under head
(a) but not head (aa) could claim a fee as a skilled witness but not
for his investigation or the preparation of a report. In this case the relevant interlocutor in
relation to the skilled person was that of Lord Menzies dated 4 March 2008. It stated: "The Lord Ordinary, on the
unopposed motion of the respondents, certifies Mr Ken Milliken as a
skilled witness for the respondents". This
interlocutor did not expressly certify that it was reasonable to employ him to
make investigations or to report. As the
challenged charges related to the preparation of a draft report the Auditor had
no jurisdiction to consider them.
[14] I am
not prepared to uphold this submission for two reasons. First, the submission was not foreshadowed in
the Note of Objections and is therefore not before me in terms of Rule of
Court 42.4. Lest I am wrong in that
view, I am in any event satisfied that the submission is unsound on its merits.
[15] In
relation to the merits of the submission it is necessary to consider (a)
whether the court's certificate was necessary to allow the Auditor to consider
the charges and (b) whether the interlocutor gave the needed certification.
[16] The
rules which have governed the payment of expenses in relation to skilled
witnesses have been amended over time. The
current wording of Rule of Court 42.13(2) and (3), which was
introduced in 2006, widened the basis on which a skilled person could
obtain a fee for making investigations or preparing a report. Before that amendment was made the relevant
rule, since 1998, authorised certification only when it was necessary to employ
the skilled person to make investigations in order to qualify himself to give
evidence in a prospective proof or jury trial.
[17] Although
I was not referred to authority on the issue, I am satisfied that it was
necessary for the court to certify Mr Milliken as a skilled witness if the
disputed charges were to be considered by the Auditor. It appears that once a skilled person falls
to be treated as a witness the current Rules provide that the court must grant
a certificate under Rule 42.13 in order that those instructing the skilled
person as a witness may recover a charge for his investigations or report in
addition to a witness fee. When,
formerly, the rule requiring certification did not apply if parties settled a
case before a proof or jury trial had taken place (or, latterly, had been
allowed), the Auditor had authority before that stage in the proceedings was
reached to allow reasonable remuneration to skilled persons: Clements v The Corporation of Edinburgh (1905) 7F 651; Earl v Kvaerner Energy Limited 2002 SLT 1167. The extent to which the Auditor may now do so
without certification by the court depends, it seems to me, upon whether and
from when in the progress of an action the skilled person falls to be treated
as a witness.
[18] When a
skilled person is a witness Rule 42.13 applies. The 2006 amendments have extended the
scope of Rule 42.13(2). By (a) substituting
a test of reasonableness for one of necessity, (b) referring to the
preparation of reports as well as investigations and (c) removing the
stated link between the investigations and the skilled person's qualification
to give evidence at the prospective court hearing, the 2006 amendments
have extended the circumstances in which the court certifies the work of a
skilled person. It appears to me,
nonetheless, that the Rule as now drafted envisages that the skilled person
must be someone who is a witness or is expected to be a witness if a proof (or
trial) were to take place in the proceedings.
Rule 42.13, as its title states, is concerned with charges for
witnesses. As that is only a heading I
attach limited weight to it in interpreting the Rule. But the reference in Rule 42.13(2) to
charges in addition to the ordinary witness fee and the reference back to the
skilled witness by the use of the phrase "that person" in Rule 42.13(3)(aa)
support the view that the Rule is concerned only with the certification of
skilled witnesses. Thus if the skilled
person is, or is expected to be, a witness at such evidential hearings and if
it is reasonable to employ him to make the investigations or to report, the
agents instructing him are, on certification, entitled to recover extra charges
for such work and for his attending any proof or jury trial in addition to his
ordinary witness fee.
[19] In this
case the proof had been allowed and was scheduled to commence shortly after the
petitioner lodged his Minute of Abandonment.
I am satisfied that Mr Milliken is to be treated as a skilled
witness and that he falls within certification regime of Rule 42.13. It is not necessary in this case to determine
at what earlier point in an action, if any, a skilled person falls within that
regime.
[20] Lord Menzies's
interlocutor of 4 March
2008 contains the standard wording used by this court in granting
a motion for certification under Rule 42.13. Under the previous rule, which required
certification that the witness was a skilled witness who made investigations,
attended or gave evidence at the proof or jury trial a similar wording was used
in the court's interlocutors. While a
literal reading of the current Rule 42.13(3) could form the basis of a
submission that the court's interlocutor is defective because it does not
contain an express certification that the employment of the person was
reasonable, I am satisfied that it is implicit in the interlocutor that the
reasonableness test has been met. That
is a component of the test which the court applies to motions under Rule 42.13. I also note that the Rule in head (b)
requires that the interlocutor record the name of the witness but otherwise the
Rule does not lay down the form of the certification. I do not interpret heads (a) and (aa)
as requiring the use of specific words in an interlocutor. Thus I consider that the court's standard
interlocutor is to be read as a "shorthand" certification under heads (a)
and (aa) in Rule 42.13(3).
[21] I
therefore repel the petitioner's objections and reserve the question of the
expenses incurred in the procedure on the Note of Objections.
