Peter Ian Brealey v Shepherd & Company Solicitors

Hearing date: 20 February 2024

Approved Judgment

This judgment was handed down remotely at 10.00am on 26 March 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

This is a second appeal by the defendant firm of solicitors against an order of Costs Judge Rowley dated 29 November 2021 which was made in third-party assessment proceedings brought by the claimant, Mr Peter Brealey (“Mr Brealey”), pursuant to section 71(3) of the Solicitors Act 1974 in relation to the administration of his late mother's estate.

In those proceedings Mr Brealey has challenged the entitlement of one of the executors, Mr Robin Shepherd (“Mr Shepherd”), to charge fees for the time spent by him in the administration of the estate. Mr Shepherd was a partner in the defendant firm until his retirement in November 2018. In order to explain the genesis of the claim and how it has been formulated a brief summary of the relevant factual background is necessary.

The claimant's mother, Mrs Ann Brealey, died on 15 April 2014. By clause 1 of her will dated 21 March 2014 (which was drawn up with the assistance of Mr. Shepherd) she appointed her brother Mr Peter Hayward (“Mr Hayward”) and Mr Shepherd as executors of the will together with “the partners at the time of my death in the firm of Shepherd & Co”. It is common ground that the effect of clause 1 was to appoint as a third executor Mr Edward Smyth (“Mr Smyth”) who was the only other partner in Shepherd & Co at the relevant time.

After making small gifts of personal chattels clause 3 of the will divided Mrs Brealey's residuary estate between her son, Mr Brealey, (as to 30%) and her daughter-in-law and grandchildren who received the remaining 70% in equal shares. The executors were given conventional powers in relation to the sale and investment of the estate but the will contain no express provision entitling her solicitor executors to charge for their own time spent in the administration of the estate nor any specific direction in relation to the instruction of Shepherd & Co.

Probate of the will was granted to Mr Hayward and Mr Shepherd on 23 June 2014 with power reserved to the other executor Mr Smyth. The value of the estate was certified as £878,680.

The main asset in the estate was Mrs Brealey's home, Park House, where the claimant also lived. He refused to move out thereby necessitating legal proceedings brought by the executors in order to obtain possession. There was also a dispute about the recovery of a loan of £40,000 which Mrs Brealey had made to her son. In order to deal with these matters and also more generally with the administration of the estate the executors entered into various retainers with Shepherd and Co. The terms of the first and principal retainer are set out in a letter to Mr Hayward from Shepherd & Co. (signed by Mr Shepherd) which is dated 30 May 2014. It relates to the obtaining of the grant of probate, the completion of the relevant forms for inheritance tax purposes, and more generally “the administration of the Estate and the distribution of the funds under the direction of the Executors and Trustees”.

Separate retainers were subsequently entered into in respect of the repayment of the loan and the recovery of possession of Park House. The various letters of engagement explained that the fees charged by Shepherd & Co. would be calculated by reference to the time spent and gave details of the charging rates that would apply. Mr Shepherd was to be the partner responsible for the day-to-day supervision of the instructions but he was to be assisted by other solicitors and trainee solicitors within the firm.

Most of the work carried out by Shepherd & Co. was done between 2014 and 2019. The fees billed totalled £153,507.38 of which a significant proportion related to time spent by Mr Shepherd up to his retirement in 2018. Mr Smyth took no part in the administration of the estate and retired from the defendant firm in July 2014. On 16 September 2019 Shepherd & Co. submitted 91 invoices for the work which they had carried out. The invoices were addressed either to Mr Hayward or to Mr Shepherd and Mr Hayward and it is not in dispute but they were approved by Mr Hayward.

The present dispute began in October 2019 when Mr Brealey issued a claim as a third-party for an assessment of the various bills delivered the previous month. The basis of the claim was not further particularised in the claim form and on 14 November 2019 an order was made by consent requiring Shepherd & Co. to provide a breakdown of their costs and for the claimant to serve points of dispute after service of the breakdown. We were not provided with copies of these further pleadings but it is apparent from an earlier judgement of Costs Judge Rowley that the claimant was then making a broad challenge to the level of costs claimed and to the approach taken by the defendant firm to the administration of the estate. This brought into focus the scope of any permissible challenge to fees in a claim under section 71(3) of the Solicitors Act and in particular whether the decision and reasoning of this court in Tim Martin Interiors Ltd v. Akin Gump LLP[2011] EWCA Civ. 1574, a case concerning a claim under section 71(1) of the Solicitors Act, also applied to a claim by a third party under section 71(3).

The significance of this issue for the present case was that in Tim Martin this court held that the court's power to reduce the quantum of the fees claimed was limited to cases where those fees either fell outside the scope of the agreed retainer or were only allowable on the basis of a special arrangement within the terms of what is now CPR 46.9 (3) (c). If applicable to a claim under section 71(3) this would mean that Mr Brealey could not challenge the defendant firm's fees simply on the basis that they were arguably excessive in amount having regard to what was required for the proper administration of the estate. The Costs Judge would be restricted to applying a kind of blue pencil test in order to disallow only such fees as fell within one of the two categories mentioned above.

In a judgement handed down on 10 May 2021 Costs Judge Rowley held that the reasoning in Tim Martin was equally applicable to a claim brought under section 71(3) and that the blue pencil test must be applied. As we now know the Costs Judge was wrong about this. In Kenig v. Thomson Snell & Passmore LLP[2024] EWCA Civ. 15 this court decided that the reasoning in Tim Martin was not applicable to a claim brought under section 71(3) so that a beneficiary in the position of Mr Brealey could mount a more extensive challenge to the fees based on whether it was reasonable and necessary for the work charged for to have been carried out.

None of these issues is before us because the defendant firm has not challenged the decision of Costs Judge Rowley on the section 71(3) point as part of the second appeal. But the decision of the Costs Judge on the scope of the challenge permissible under section 71(3) has led directly to the issues which are under appeal.

Following his judgement on the Tim Martin issue the Costs Judge allowed the parties to serve amended points of dispute and replies as a result of which the question emerged as to whether Mr Shepherd was entitled to charge professionally for his time spent on the administration of the estate in the absence of an appropriate charging clause in Mrs Brealey's will. The precise scope of the new challenge in terms of the fees which are claimed is less than clear although that will ultimately be a matter for the Costs Judge rather than for this court. It seems to be conceded by Mr Brealey that it was reasonable for the executors to have engaged the defendants to deal on their behalf with the disputes about the loan and possession of the house. There also seems to be no challenge to Shepherd & Co. charging for the work carried out by Mr Shepherd in connection with the administration of the estate more generally on the basis presumably that it was reasonable for the executors to instruct solicitors to carry out this work. What seems to be in issue is whether the fees claimed can properly include a charge by Mr Shepherd for acting as an executor during the period when the administration of the estate (for which he was responsible and for which he also charged) was being dealt with by Ms Sibley, another partner in the firm. The defendant's pleaded response to the charge of duplication of costs was that the role of executor (carried out by Mr Shepherd) and the work of administration carried out by Ms Sibley were very different. The resolution of this dispute and any examination of whether the distinction made is realistic must be matters for the Costs Judge and not for us. What we are concerned with on this appeal is the issue of principle as to whether Mr Shepherd is inhibited from charging for his time spent as an executor by the absence of any form of charging clause in Mrs Brealey's will.

In the absence of a charging clause Shepherd & Co. must rely either on the provisions of section 29 of the Trustee Act 2000 or in the alternative on the court exercising its inherent jurisdiction to permit Mr Shepherd to be remunerated for his time and services out of the...