General of Berne Insurance Company v Jardine Reinsurance Management Ltd
| Jurisdiction | England & Wales |
| Judge | May L.J.,Sir Brian Neill,Hirst L.J. |
| Judgment Date | 12 February 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0212-30 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 February 1998 |
| Docket Number | QBCMI 97/1171/B |
[1998] EWCA Civ J0212-30
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Lord Justice Hirst
Lord Justice May
Sir Brian Neill
QBCMI 97/1171/B
MR. S. KENTRIDGE Q.C. and MR. T. MEHIGAN (instructed by Messrs Herbert Smith, London, EC2) appeared on behalf of the Appellants/Defendants.
MR. J. LOCKEY (instructed by Messrs Barlow Lyde & Gilbert, London, EC3) appeared on behalf of the Respondents/Plaintiffs.
This is an appeal from an interim decision upon a taxation of costs. By an interim certificate dated 7.4.97, Master Campbell held that the plaintiffs are entitled to claim from the defendants on taxation hourly expense rates including uplift which are greater than they themselves are obliged by contract to pay to their own solicitors. By order dated 25.7.97, Tuckey J., who sat with assessors, upheld Master Campbell's decision. He granted the defendants leave to appeal. The appeal turns on the construction of Section 60(3) of the Solicitors' Act 1974.
The Respondent is one of thirteen insurance companies which brought proceedings against the Appellants ("Jardines") in connection with the management of underwriting pools. The pools sustained losses and the thirteen insurance companies each started actions against Jardines. These actions which started in 1988 were conducted together. On 10.4.90, the actions against the third defendants were stayed. On 31.7.91, one action was discontinued with no order as to costs. In January 1994, 10 of the actions were settled by acceptance of payments into court. On 18.1.94, orders were made by consent in those 10 actions providing among other things for the payment by Jardines of the insurance companies' costs on a standard basis to be taxed if not agreed. The remaining two actions were settled by acceptance of payments into court on 3.2.94 and orders by consent in similar terms were made.
In February 1994, Jardines made a voluntary interim payment of £1.5m. towards the insurance companies' costs. In August 1995 a draft bill of costs was produced which claimed a total amount of £3,370,753.97 inclusive of disbursements. More than £3m. of this was solicitors' profit costs. The bill was lodged for taxation on 18.9.96. In October 1996, the claim for costs in one of the actions was settled. The claim for costs in the remaining actions remain unresolved. The taxation is due to continue in February 1998 after a decision of this court on the point raised in this appeal.
During the litigation, various costs orders were made in favour of Jardines for interlocutory matters. Bills for these costs have been lodged on behalf of Jardines which seek recovery of a total of £73,610.06.
The insurance companies were represented in the litigation sequentially by two firms of solicitors, Freshfields and then Barlow Lyde & Gilbert. Their agreement with Freshfields did not stipulate identifiable charging rates. Their agreement with Barlow Lyde & Gilbert did so stipulate. This was a "contentious business agreement" within Section 59 of The Solicitors' Act 1974. Master Campbell was shown the relevant parts of the agreement confidentially. We are told that it provides for Barlow Lyde & Gilbert to charge their clients at various specific hourly rates for different classes of people working on the case. Whether it should remain confidential may be a matter for future consideration.
The method stipulated by Rules of Court for assessing solicitors' costs on a taxation is to assess appropriate hourly expense rates which may then be increased by various percentage uplifts for care and conduct to reflect the difficulty and complexity of the work—see Order 62 rule 12 and Appendix 2 to Order 62 at 62/A2/4 and 62/A2/17ff. These rates are then multiplied by the time taken by each person involved. This method has been used in the bill lodged on behalf of the insurance companies. Some of the rates thus claimed including the percentage uplift are greater than the equivalent rate which Barlow Lyde & Gilbert are entitled to recover from their clients. The question which this appeal raises is whether the difference must be disallowed on taxation. It is suggested that sums in excess of £700,000 turn on this question. But the total account of Barlow Lyde & Gilbert to their clients exceeds the amount claimed on taxation.
Section 59 of The Solicitors' Act 1974 provides:
"(1) Subject to sub-section (2), a solicitor may make an agreement in writing with his client as to his remuneration in respect of any contentious business done, or to be done, by him (in this Act referred to as a "contentious business agreement") providing that he shall be remunerated by a gross sum or by reference to an hourly rate, or by a salary, or otherwise and whether at a higher or lower rate than that which he would otherwise have been entitled to be remunerated."
The words " … or by reference to an hourly rate" were added by Section 98(5) of the Courts and Legal Services Act 1990, which however made no change to section 60(3)—see below.
Section 60 of the 1974 Act provides:
"(1) Subject to the provisions of this section and to sections 61 to 63, the costs of a solicitor in any case where a contentious business agreement has been made shall not be subject to taxation or (except in the case of an agreement which provides for the solicitor to be remunerated by reference to an hourly rate) to the provisions of Section 69.
(2) Subject to sub-section (3), a contentious business agreement shall not affect the amount of, or any rights or remedies for the recovery of, any costs payable by the client to, or to the client by, any person other than the solicitor, and that person may, unless he has otherwise agreed, require any such costs to be taxed according to the rules for their taxation for the time being in force.
(3) 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."
The appeal turns, as I say, on the construction of Section 60(3) of the 1974 Act. It is said to enshrine a common law principle to which the label "the indemnity principle" has been given. The principle is simply that costs are normally to be paid in compensation for what the receiving party has or is obliged himself to pay. They are not punitive and should not enable the receiving party to make a profit. Another guiding principle of taxation is that contained in Order 62 rule 12, which provides that on a taxation of costs on the standard basis there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts which the Taxing Officer may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the paying party. Thus amounts which the receiving party is obliged to pay his own solicitors may nevertheless not be recovered on a taxation on a standard basis if they were not reasonably incurred or not reasonable in amount.
Jardines contend that the indemnity principle as it appears in Section 60(3) of the 1974 Act is to be applied, where appropriate, on an item by item basis. The insurance companies contend that it only provides a global cap, so that the receiving party may recover on taxation uplifted hourly expense rates which are judged to be reasonable even if they exceed the rates which Barlow Lyde & Gilbert are entitled to receive from their client, provided that the total amount allowed on the taxation does not exceed the total amount which Barlow Lyde & Gilbert are entitled to recover from their client.
In Gundry v. Sainsbury [1910] 1K.B.645, a solicitor acted for a client in a county court action having agreed verbally with the client that the client should not pay the solicitor any costs. The client recovered damages in the action. But he recovered no costs. This was on the grounds that under the proviso to Section 5 of The Attorneys and Solicitors Act 1870, the client was not entitled to recover from the defendant more costs than were payable by him to his solicitor under the agreement. The proviso to Section 5 of the 1870 Act was in much the same terms as Section 60(3) of the 1974 Act but significantly did not include the words "in respect of those costs" which are now in section 60(3) of the 1974 Act. The Court of Appeal held that, apart from the 1870 Act, the plaintiff could not recover from the defendant more costs than he was liable to pay his solicitor, since party and party costs were awarded as an indemnity only. They also held on the construction of the 1870 Act that the county court judge had made the correct costs order. Cozens-Hardy M.R. said at page 649:
"I think that the common law point made by counsel for the respondent, which has not been dealt with by counsel for the appellant in his reply is a good point and is sufficient to dispose of this case. What are party and party costs? They are not a complete indemnity, but they are only given in the character of an indemnity. I cannot do better than read the opinion expressed of Bramwell B. in Harold v. Smith 5 H. & N. 381 at 385: "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...
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