Garbutt v Edwards
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden |
| Judgment Date | 27 October 2005 |
| Neutral Citation | [2005] EWCA Civ 1206 |
| Docket Number | Case No: A2/2004/2345 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 October 2005 |
[2005] EWCA Civ 1206
Lord Justice Brooke Vice President of the Court of Appeal, Civil Division
Lord Justice Tuckey and
Lady Justice Arden
Sitting with Master Wright
Case No: A2/2004/2345
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CAMBRIDGE COUNTY COURT
HIS HONOUR JUDGE O'BRIEN
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Jeremy Morgan QC (instructed by Whiskers) for the Appellants
Mr. Clive Pithers (instructed by Vanderpump & Sykes) for the Respondents
This is an appeal with the permission of Mummery LJ from the order dated the 25 October 2004 of HHJ O'Brien sitting in the Cambridge County Court dismissing the appellants' appeal against the order of District Judge Pelly dated 12 May 2004. Before I describe the background, I will state the issue which arises on this appeal, as it is one of considerable professional interest and importance. The issue is this: can a paying party claim that his liability to the receiving party under an order for the payment of costs is discharged, or that it should be reduced, if the solicitor for the receiving party has failed to give to his client an estimate of costs in accordance with the Solicitors Costs Information and Client Care Code ("the Code") as required by the Solicitors' Practice Rules? It is necessary to examine the legislative framework for the Code to answer this question. Before I do that, I wish to describe two fundamental principles in the field of costs. They must be borne in mind when determining the role in the system to be accorded to failures of the receiving party's solicitors to provide a costs estimate.
The two fundamental principles to which I refer are:
1. the indemnity principle, and
2. the special status of the solicitors' certificate of accuracy attached to a bill of costs.
The indemnity principle
This principle is well-known to solicitors and others who are concerned in this field, but it bears repeating. It is in origin a common law principle. The principle was described by Baron Bramwell thus when giving the judgment of the court in the case of Harold v Smith (1860) 5 H&N 381, 385:
"Before stating the principle on which the Master acted on this taxation, it may be as well that I should state what we consider the principle upon which he ought to have acted. I think the question is one of considerable importance, and therefore, although it is only a question of reviewing taxation costs, I go into it at some length.
Costs as between party and party are given by the law as an indemnity to the person entitled to them: they are not imposed as a punishment on the party who pays them, nor given as a bonus to the party who receives them. Therefore, if the extent of the damnification can be found out, the extent to which costs ought to be allowed is also ascertained. Of course, I do not say there are not exceptional cases, in which certain arbitrary rules of taxation have been laid down; but, as a general rule, costs are an indemnity, and the principle is this,—find out the damnification, and then you find out the costs which should be allowed."
In the later case of Smith v Butler (1875) LR 19 Eq 473, Sir Richard Malins VC held:
"It is of great importance to litigants who are unsuccessful that they should not be oppressed by having to pay an excessive amount of costs. The present case illustrates this principle very clearly. I am satisfied that the Plaintiff's invention of this swivel was a most meritorious one, and, though he was ultimately unsuccessful in the suit, because there was held to be an anticipation, and therefore he must pay the costs, I think he ought to bear no more than the necessary costs. I adhere to the rule which has already been laid down, that the costs chargeable under a taxation as between party and party are all that are necessary to enable the adverse party to conduct the litigation, and no more. Any charges merely for conducting litigation more conveniently may be called luxuries, and must be paid by the party incurring them."
Thus there are limitations on what the receiving party may recover from the paying party. The touchstone for the recoverability of costs between parties is today expressed in terms of the costs having to be reasonably incurred and proportionate in amount, rather than in terms of necessity. Nonetheless, the statements of principle in these cases by Baron Bramwell and Sir Richard Malins VC are still vital to an understanding of the rationale and scope of application of the indemnity principle. Unsuccessful litigants should not have to pay an excessive amount of costs but nonetheless the successful party should be reimbursed for the costs that he has properly incurred.
As pointed out in Hollins v Russell [2003] 1 WLR 2487, the indemnity principle is now recognised by Parliament:
"23. …This common law principle, by which a paying party cannot be ordered to pay a receiving party more by way of costs than the receiving party is himself liable to pay, is now enshrined in statute, so far as solicitors are concerned, by section 60(3) of the Solicitors Act 1974, which provides:
"A client shall not be entitled to recover from any other person under an order for the payment of any costs to which a contentious business agreement relates more than the amount payable by him to his solicitor in respect of those costs under the agreement."
In 1999 Parliament showed itself well aware of the possible application of the indemnity principle in the context of the reforms it introduced in the 1999 Act, because by section 31 it provided:
"'In section 51 of the Supreme Court Act 1981 (costs) in subsection (2) (rules regulating matters relating to costs) insert at the end 'or for securing that the amount awarded to a party in respect of the costs to be paid by him to such representatives is not limited to what would have been payable by him to them if he had not been awarded costs'."
This section, however, has not yet been brought into force. (It will be noticed that these two sections state the principle in different ways, but that need not concern us for the purposes of these appeals.)"
The special status of the solicitor's certificate of accuracy attached to a bill of costs
When a bill of costs is served it will have attached to it a certificate as to accuracy by the receiving party's solicitor, i.e. a certificate that the costs as stated in the bill do not exceed the amount of the costs which the receiving party is obligated to pay to his solicitor. It is part of the professional duty of a solicitor to ensure that any bill of costs which he signs does not offend the indemnity principle. Accordingly the court will proceed on the basis that the certificate is correct unless there is reason to think otherwise, and thus will not seek to go behind the certificate. The effect of the certificate was considered in Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, which was in turn considered in Hollins v Russell:
"[59] Indeed, when the bill of costs is served, it is required to contain a certificate as to accuracy to the effect that the costs claimed in the bill do not exceed costs which the receiving party is required to pay to the solicitors presenting the bill. In Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, the status of the certificate was elevated. In that case, the claimant succeeded in obtaining damages for personal injuries incurred in the course of his employment. The defendants agreed to pay damages together with costs to be assessed. The claimant was assisted financially by his union. When the bill was presented, the defendants objected to the hourly rate and to the claimant's solicitors' mark-up and asked for evidence that the bill was not in breach of the indemnity principle. In due course a letter was produced to the court from a union representative which stated that the union's relationship with the solicitor was on the basis that the solicitors were entitled to make a full solicitor/client charge. None the less, the district judge held that they were entitled to disclosure of the relevant material. The Court of Appeal (Butler-Sloss, Henry and Judge LJJ) were clearly very concerned about the prospect of satellite litigation in assessment proceedings. The court held that there was no breach of the indemnity principle merely because the successful litigant was a member of a trade union which provided financial support. It was accepted by the paying party that the costs judge was entitled, if he saw fit, to be provided with the information that he needed. Judge LJ held (at 572–573):
'The [costs] officer is exercising a judicial function, with substantial financial consequences for the parties. To perform it, he is trusted properly to consider material which would normally be protected from disclosure under the rules of legal professional privilege. If, after reflecting on the material available to him, some feature of the case alerts him to the need to make further investigation or causes him to wonder if the information with which he is being provided is full and accurate, he may seek further information. No doubt he would begin by asking for a letter or some form of written confirmation or reassurance as appropriate. If this were to prove inadequate he might then make orders for discovery or require affidavit evidence … [I]t would theoretically be open to him to order interrogatories. However, if the stage has been reached where interrogatories might reasonably be ordered the conclusion that the receiving party had not been able to satisfy the...
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