General of Berne Insurance Company v Jardine Reinsurance Management Ltd
| Jurisdiction | England & Wales |
| Judge | Hirst,May L JJ,Sir Brian Neill |
| Judgment Date | 12 February 1998 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 February 1998 |
Court of Appeal (Civil Division).
Hirst and May L JJ and Sir Brian Neill.
Sydney Kentridge QC and Terry Mehigan (instructed by Herbert Smith) for the appellant.
John Lockey (instructed by Barlow Lyde & Gilbert) for the respondent.
The following cases were referred to in the judgments:
Deeny v Gooda Walker (unreported).
Eastwood, ReELR [1975] 1 Ch 112.
Gundry v SainsburyELR [1910] 1 KB 645.
Universal Thermosensors Ltd v HibbenWLR [1992] 1 WLR 840.
Taxation of costs — Contentious business agreement — Whether receiving party could claim on taxation hourly expense rates greater than those payable to own solicitors — Solicitors Act 1974, s. 59, 60(3).
This was an appeal from an interim decision upon a taxation of costs.
The respondent was one of 13 insurance companies which brought proceedings against the appellant (“Jardines”) in connection with the management of underwriting pools. The actions were settled by acceptance of payments into court and orders were made by consent providing among other things for the payment by Jardines of the insurance companies' costs on a standard basis to be taxed if not agreed. A draft bill of costs was produced which claimed a total amount of £3,370,753.97 inclusive of disbursements. More than £3m of that was solicitors' profit costs. The bill was lodged for taxation. During the litigation, various costs orders were made in favour of Jardines for interlocutory matters. Bills for those costs had been lodged on behalf of Jardines in a total of £73,610.06.
The insurance companies were represented in the litigation sequentially by two firms of solicitors. Their agreement with the second firm, “BLG”, was a “contentious business agreement” (“CBA”) within s. 59 of the Solicitors Act 1974 which provided for BLG to charge the clients at various specific hourly rates for different classes of people working on the case. Some of the rates claimed on taxation, including percentage uplifts for care and conduct to reflect the difficulty and complexity of the work, were greater than the equivalent rate which BLG was entitled to recover from its clients, although the total account of BLG to the clients exceeded the amount claimed on taxation.
Jardines contended that as a matter of principle (“the indemnity principle”) costs were normally to be paid in compensation for what the receiving party had or was obliged himself to pay and should not enable the receiving party to make a profit. The indemnity principle was enshrined in s. 60(3) of the 1974 Act which provided that a client was not entitled to recover from any other person under an order for the payment of any costs to which a contentious business agreement related more than the amount payable by him to his solicitor in respect of those costs under the agreement. Section 60(3) was to be applied on an item by item basis. The insurance companies contended that s. 60(3) only provided a global cap, so that the receiving party could recover on taxation uplifted hourly expense rates which are judged to be reasonable even if they exceeded the rates which BLG was entitled to receive from the client, provided that the total amount allowed on the taxation did not exceed the total amount which BLG was entitled to recover from the client. the insurance companies relied on Universal Thermosensors Ltd v HibbenWLR [1992] 1 WLR 840.
The master accepted the insurance companies' submissions and Tuckey J, sitting with assessors, upheld the master's decision. Jardines appealed. The judge also held that where Jardines had obtained discrete costs orders in its favour, the amounts payable by the plaintiffs under the CBA in respect of those matters fell to be deducted from the total paid under the CBA in order to make a proper comparison since such costs did not come into the reckoning under s. 60(3). The insurance companies challenged that part of the judge's decision by respondent's notice.
Held allowing the appeal and dismissing the respondent's notice:
1. Tuckey J was right to conclude that costs referable to parts of the litigation for which the receiving party did not have the benefit of an order for costs had to be taken out of account in determining the application of s. 60(3). That was the natural and necessary construction of the words “under an order for the payment of any costs” and “in respect of those costs”. “Those costs” referred back to the costs payable under the order. If a CBA encompassed more than one action, it would be necessary to exclude costs payable by the client to his solicitor for any action in which he had recovered no costs from another party. The same applied where the order for costs was for part only — it might be a small part — of the total costs of a single action. A comparison was to be made between the costs to which the order related and the amount payable by the receiving party to his solicitor “in respect of those costs”.
2. There was no proper distinction to be made between costs disallowed by an order made in the proceedings and costs disallowed on taxation. A party would not be entitled to recover costs which were disallowed on taxation, so that “any costs” and “those costs” referred to costs allowable on taxation before consideration of the limitation imposed by s. 60(3). Where applicable, the figures in the CBA provided both a measure and a ceiling for each recoverable item of costs. Thus the comparison was not global and circumstances might require an item by item comparison. The exact nature of the comparison would depend on the nature of the CBA. If the CBA itself was not itemised but for a gross sum and if the costs order related to the entire action with no items at all disallowed, there would be single comparison. That would rarely be the case, since in most litigation there would be items of work properly chargeable to the client but which would be disallowed on taxation. If the agreement was itemised, there could and should be an itemised comparison. If the agreement was for a gross sum, there would in appropriate circumstances have to be an apportionment of that sum. Receiving parties would receive either what was reasonable or the relevant amount which they had agreed to pay their own solicitors, whichever was the less. (Universal Thermosensors Ltd v HibbenWLR[1992] 1 WLR 840overruled.)
May LJ: This is an appeal from an interim decision upon a taxation of costs. By an interim certificate dated 7 April 1997, 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 July 1997, 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 s. 60(3) of the Solicitors Act 1974.
The respondent is one of 13 insurance companies which brought proceedings against the appellants (“Jardines”) in connection with the management of underwriting pools. The pools sustained losses and the 13 insurance companies each started actions against Jardines. These actions which started in 1988 were conducted together. On 10 April 1990, the actions against the third defendants were stayed. On 31 July 1991, one action was discontinued with no order as to costs. In January 1994, ten of the actions were settled by acceptance of payments into court. On 18 January 1994, orders were made by consent in those ten 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 February 1994 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 September 1996. 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 s. 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...
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