Tim Martin Interiors Ltd (Claimant Appellant) v Akin Gump LLP (Defendant Respondent)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Kitchin,Lord Justice Ward |
| Judgment Date | 21 December 2011 |
| Neutral Citation | [2011] EWCA Civ 1574 |
| Docket Number | Case No: A3/2010/2853 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 December 2011 |
[2011] EWCA Civ 1574
Lord Justice Ward
Lord Justice Lloyd
and
Lord Justice Kitchin
Sitting With Senior Costs Judge Hurst as Assessor
Case No: A3/2010/2853
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE LEWISON
ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE
MASTER CAMPBELL
Royal Courts of Justice
Strand, London, WC2A 2LL
Faisal Saifee (instructed by Candey LLP) for the Appellant
Nicholas Bacon Q.C. (instructed by Akin Gump LLP) for the Respondent
Hearing date: 3 November 2011
Introduction
The points at issue in this appeal arise from a situation which, in one form or another, is of common occurrence. A bank takes steps to enforce a mortgage against its borrower, using solicitors in the process. It claims to be entitled to recover all of its costs from the borrower, including those for which it is liable to the solicitor. It can do so directly or sometimes, more easily, by deduction from the proceeds of the sale of the mortgaged property. It may have no particular incentive to query the amount of the solicitor's bill of costs. It agrees those costs, and pays them. The borrower wishes to challenge the amount recoverable from it by way of the solicitor's costs. The question is how it can do so. In particular, does section 71 of the Solicitors Act 1974 help the borrower, with its provision for an assessment of a solicitor's bill of costs on the application of a party who, though not the party chargeable with it (here the bank), is liable to pay it (here, the borrower)? I will refer to the party chargeable with the bill as the client, and the party liable to pay it as the third party.
The same problem may arise in other situations. A purchaser may be liable to pay costs incurred by a vendor, a tenant the costs incurred by a landlord, an insurer may have to pay costs incurred by its insured, or one party the costs incurred by another in some other kind of transaction. By analogy, the liability to bear the burden of the costs may arise because the solicitor's client is a fiduciary, a trustee or personal representative holding a trust fund or estate, or an office-holder in an insolvency or a receivership, and a beneficiary or creditor may wish to challenge the amount of the costs incurred and paid out of the fund.
Ever since 1843 the Solicitors Acts have included provision for the bill of costs to be taxed (or, now, assessed) as between the solicitor and the client, and also provision for a third party to require the bill to be taxed or assessed. The effect of the decision under appeal, by Lewison J on appeal from Master Campbell in the Senior Courts Costs Office (SCCO), [2010] EWHC 2951 (Ch), is that the statutory provision is of limited value to the third party. With permission to appeal granted, as it happens, by myself, the third party appeals, seeking to establish that the ambit of enquiry on the third party assessment is much wider than the judge held it to be.
The appeal was argued admirably well for the appellant by Mr Faisal Saifee, who had appeared below with a leader, and for the respondent by Mr Nicholas Bacon Q.C. I mean no slight to Mr Bacon, who is known for his experience in this field, in paying special tribute to Mr Saifee for the excellence of his clear and sustained oral submissions.
The facts
The appellant, TMIL, borrowed money from the Bank of Ireland (the Bank), on the security of mortgages of several properties, and of guarantees given by two directors, Mr Martin and Mrs Jankovic. TMIL defaulted on the mortgages. The Bank instructed the respondent, a firm of solicitors, to take steps to enforce the mortgages and recover possession. In the course of this process a statement of indebtedness was prepared in August 2004 showing overall liability of some £1.15 million, including £114,216 by way of legal fees payable to the respondent. In September 2004 the Bank transferred the mortgages to Mr and Mrs Jankovic on payment of £1.15 million. That amount included the sum said by the Bank to be due to it from the appellant, so as a result of that the Bank was no longer out of pocket as regards its legal costs, to the tune of the £114,216. The respondent's final bill came to £123,984. The Bank approved the bill and paid it in full in 2004. It has not sought to recover the difference of £9,768 from the appellant. It seems that the assignment of the mortgages to Mr and Mrs Jankovic was done by prior arrangement between them and the appellant, and that soon afterwards the appellant reimbursed to them the sum paid to the Bank. In that way it was, in the end, the appellant that paid the sum demanded by the Bank, including the £114,216 for legal costs.
The mortgages included a covenant for payment which extended to "all legal and other costs, charges and expenses incurred by the Bank or any receiver in relation to the Mortgagor or the Mortgaged Property…on a full indemnity basis". This was reinforced by clause 25 which covered the same point at greater length, but again used the phrase "on a full indemnity basis". The effect of the decision of the Court of Appeal in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 ( Gomba Holdings) is that such a clause entitles the mortgagee to recover its actual costs charges and expenses except for any which were not reasonably incurred or which were unreasonable in amount: [1993] Ch at 187G.
The Bank instructed the respondent to advise and act for it in relation to the appellant's default in February 2004. On the Bank's behalf it pursued a number of avenues for recovery. These included bankruptcy proceedings against Mr Martin with respect to his liability under the guarantee, and actual or contemplated bankruptcy proceedings against Mrs Jankovic on the same basis. The respondent rendered two bills to the Bank, one for £106,504.62 and the other for £17,480.01, dated 30 September and 12 October 2004 respectively. The smaller bill related to the bankruptcy aspect. The larger included one or two items relevant to the bankruptcy but otherwise was concerned with other aspects of the matter. Both bills charged time for several different fee-earners, including Mr Drew, a partner who took primary responsibility for the matters, whose hourly rate was £360 throughout the relevant period. The larger bill reflected over 225 hours of his time.
In 2009 the appellant, acting by its director Mr Martin, applied in the SCCO for an order for the assessment of the costs under section 71 of the 1974 Act. On 10 November 2009 Master Campbell made an order accordingly, requiring the respondent (among other things) to serve on the appellant the bills and a breakdown of them, and for the appellant then to serve points of dispute. The respondent served both bills, and its breakdown covered the substance of both of them.
The points of dispute relied, among other things, on the point that the bankruptcy proceedings were nothing to do with the mortgages, so that the costs referable to them could not be the liability of the appellant. They also challenged the employment of a City firm (especially one which was said, at the time, —to the knowledge of the Bank—to have had no associates with insolvency experience, which accounted for the very extensive use of a partner) rather than a firm local to the mortgaged property, or at any rate outside the City. They therefore challenged the hourly rates charged as unreasonable, suggesting maximum rates of £205 per hour. They took a lot of detailed points about what they said was the unreasonableness of particular amounts charged, as being excessive in respect of attendances on or communications with the Bank, including the proposition that, absent unusual circumstances, a solicitor's travelling time to go to a meeting at the client's premises could not be charged for as against a third party.
The assessment was conducted by Master Campbell over two days. As is common in the course of such hearings, he gave rulings from time to time as points were argued. I do not need to mention more than a few of the salient points.
i) He accepted the objection that the use of a City firm, and of partner time charged on that basis, was unreasonable, and therefore beyond the limit of what was chargeable under the mortgages. He allowed an hourly rate of £225 for any time properly allowable on the part of a Grade A fee-earner.
ii) He accepted that costs relating to bankruptcy proceedings were not within the scope of the liability under the mortgages.
iii) He accepted many of the objections as regards the charging of too much time, including the point that, if a client requires his solicitor to travel to meetings with him, it cannot expect a third party to pay for that travelling time, unless there are special reasons for it.
iv) Leaving that point aside, he disallowed a number of detailed items for particular reasons. In some instances his disallowance appears to have been on the basis that he did not accept it as proved that the time had been spent, especially in the absence of attendance notes of meetings or long telephone calls. In other cases it was on the basis that, even if the time had been spent, the particular meeting was not something that could properly be charged to a third party; one example was what was described as a brainstorming meeting at the Bank's premises. It is not always easy to distinguish between disallowance on the basis that the time was not spent (or not proved to have been spent) on the one hand,...
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