Hare -Brown & Anor v Trent & Anor, Court of Appeal - Supreme Court Cost Office, March 30, 2011, [2011] EWHC 90202 (Costs)

Resolution Date:March 30, 2011
Issuing Organization:Supreme Court Cost Office
Actores:Hare -Brown & Anor v Trent & Anor

Case No. 10.P8.3883Neutral Citation Number: [2011] EWHC 90202 (Costs)IN THE HIGH COURT OF JUSTICESENIOR COURTS COSTS OFFICEClifford's Inn, Fetter LaneLondon, EC4A 1DQDate: 30 March 2011 Before :MASTER CAMPBELL, COSTS JUDGE- - - - - - - - - - - - - - - - - - - - -Between :- - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -The Claimants appeared in PersonMs Alison Trent (Solicitor) (instructed by Alison Trent & Co) for the DefendantsHearing date: 13 January 2011- - - - - - - - - - - - - - - - - - - - -JudgmentMaster Campbell: 1. This judgment concerns S.71 of the Solicitors Act 1974 (``the Act'') in so far as it involves a landlord, Alison Trent (to be referred to as ``the Landlord'' or ``the party chargeable''), her solicitor, Alison Trent & Co (``the Solicitors'') and the Landlord's tenant, QCC Information Security Limited (``QCC''), in proceedings commenced by the QCC in a Claim Form under Part 8 of the Civil Procedure Rules (``CPR'') on 14 October 2010. 2. The details of QCC's claims are as follows: ``QCC Information Security Ltd dispute the amounts of all three of the invoices received from Alison Trent & Co relating to these matters on the basis that they are too high or have been unfairly charged. After analysis of each invoice we refute the validity of charges where we are being charged for work carried out in Alison Trent's capacity as our landlord, no charge for works in this capacity having ever been declared by her or agreed by us. We also find times allocated to tasks undertaken in Alison Trent's capacity of conveyancing solicitor to be excessive for the work involved. We hope that the bill assessment office will understand our position and find in our favour that the invoice amount should be greatly reduced.''3. The reference to ``the invoices'' is to three documents sent by the Solicitors to QCC requesting payment in the sums of, respectively, £1,352.90, £5,335.80 and £9,845.10. The document claiming the largest sum is undated and is simply headed ``QCC sub-let/ abortive assignment''. The others both bear the date 9 December 2007 and are addressed to QCC at 149 Fleet Street London EC4. 4. According to the Claim Form, these documents, (which I shall call ``the Invoices''), relate to the following three matters: (1) Our [QCC's] takeover of another floor within the building requiring surrender of the sitting tenant's lease and a new lease being issued to us. (2) Rectification of our existing leases where we had effected a company name change. (3) Sub-letting (with the landlord's permission) of some of our space Gillham's Solicitors).5. The parties named in the Claim Form are, under ``Claimant'', Neil Hare-Brown and QCC Information Security Ltd; under ``Defendant'', Alison Trent and Alison Trent & Co. It was explained to me that Mr Hare-Brown is a Director of QCC and he was included on the Claim Form simply because it was believed that the name of the person representing his Company needed to be stated; for that reason, QCC has applied for Mr Hare-Brown to be removed from as a party. Alison Trent is the landlord of premises at 149 Fleet Street, London EC4 and Alison Trent & Co are solicitors that she instructed, albeit that Ms Trent is also the principal of that firm. On 1 November 2010, the Solicitors acknowledged service of the Claim Form on behalf of the Landlord opposing the relief claimed in the Claim Form. The acknowledgment does not state in terms that it was also lodged on behalf of the Solicitors, but no point is taken on that. 6. On 13 January 2011, I heard argument about whether the Invoices should be assessed by detailed assessment. Ms. Alison Trent appeared as a solicitor on behalf of herself as landlord and in her capacity as a solicitor for her own firm. Mr. Hare-Brown represented QCC as a Director of the Company. The documents before the Court included a witness statement made by Ms Trent on 1 November 2011 as Principal of the Solicitors, a skeleton argument she had prepared and a bundle lodged by QCC entitled ``Response to Counter-Claim by Alison Trent''. As I did not have an opportunity to read this ``Response'' in advance of the hearing, I reserved judgment. BACKGROUND7. It is common ground that during the time with which this matter is concerned, QCC was the tenant of Alison Trent in respect of part of the second floor, the third floor and fifth floor of offices at 149 Fleet Street London EC4. These premises were demised under the terms of three separate leases from Alison Trent to QCC, which, in order of time, related respectively, to the three floors I have described (see her witness statement paragraph 6). On 8 April 2009, it came to the Landlord's notice that QCC had ``swapped'' names with another company that had been set up called ``QCC Technologies Limited''. This had potentially adverse consequences for Alison Trent as landlord. First, as income had been directed by QCC to the new company, there was a risk that QCC would be unable to pay the rent. Second, the presence of the ``new'' company was likely to cause problems as it was a requirement of Alison Trent's lender that the demised premises be contracted out of the Landlord and Tenant Act Part II (1954). Third, another company, QCC Interscan, had been permitted by QCC to use the premises in breach of covenant. Finally, there was a security issue about electronic security fobs that had been issued to named personnel of QCC which had then been distributed to other individuals who had no right to enter the demised premises.8. In Alison Trent's view (witness statement 11), these were all matters that breached the terms of the leases and between 8 April 2009 when she had found out about them, and 14 July 2009 when they were made good, she had been put to significant work and expense in her capacity both as landlord and solicitor in order to remedy the breaches. This had been achieved by granting licences to assign and/or variations of the leases. Following completion, Ms Trent looked, as she was entitled to do, to QCC for the costs due to her in her capacity as landlord (see skeleton 4 (c)), QCC's liability having arisen under clause 17 of the leases which `` required the tenant to pay the landlord's costs, inter alia, in relation to any breaches or applications'' (witness statement 14). THE RELIEF SOUGHT9. The claim form does not mention the Solicitors Act 1974, but in my view it is plain that the relief QCC is seeking is an order for detailed assessment of the Invoices under Section 70 or Section 71 of the Act (see paragraph 11 post). The fact that the Claim Form is silent on this point does not prevent this Court from making an order for assessment (see Szekeres v Alan Smeath & Co [2005] 4 Costs LR 707) (Pumfrey J). I reach this conclusion because the factors which persuaded Pumfrey J at paragraph 7 to make such an order in that case are present here: i) There is a list of the bills. ii) There is a clear statement that the bills are disputed. iii) The parties are properly identified. iv) There is a duly signed statement of truth (by Mr Hare-Brown). 10. It follows that there is no reason, in my judgment, why an order for assessment should not be made under the Act. THE SOLICITORS ACT 1974 (AS AMENDED BY THE COURTS AND LEGAL SERVICES ACT (2007)11. This provides where relevant as follows: ``Assessment on Application of Party Chargeable 70. - (1) Where before the expiration of one month from the delivery of a solicitor's bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed ... (2) Where no such application is made before the expiration of the period mentioned in sub-section (1) then, on an application being made by the solicitor or, subject to sub-sections (3) and (4) by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit ... order - (a) that the bill be assessed ... (3) Where an application under sub-section (2) is made by the party chargeable with the bill - (c) after the bill has been paid, but before the expiration of 12 months from payment of the bill, no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit. ...(7) Every order for the assessment of a bill shall require the Costs Officer to assess not only the bill but also the costs of the assessment and to certify what is due to or by the solicitor in respect of the bill and in respect of the costs of the assessment. Assessment on Application of Third Party 71.- (1) Where a person other than the person chargeable with the bill for the purposes of Section 70 has paid, or is or is liable to pay, the bill either to the solicitor or to the party chargeable with the bill, that person ... may apply to the High Court for an order for the assessment of the bill as if he were the party chargeable with it, and the court may make the same order (if any) as it might have made if the application had been made by the party chargeable with the bill. (2) Where the court has no power to make an order by virtue of sub-section (1) except in special circumstances it may, in considering whether there are special circumstances sufficient to justify the making of an order, take into account circumstances which may affect the applicant but do not affect the party chargeable with the bill.''12. When the Court carries out an assessment under either of these sections of the Act, the indemnity basis applies under the Civil Procedure Rules (``CPR''). These provide as follows:- ``Basis of assessment44.4(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs -(a) on the standard basis; or(b) on the indemnity basis,but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.(Rule 48.3 sets out how the court decides the amount of costs payable under a contract)...(Factors which the court may take into account are set out in rule 44.5)(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party..... Amount of costs where costs are payable pursuant to a contract48.3(1) Where the court assesses (whether by the summary or detailed procedure) costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which -(a) have been reasonably incurred; and(b) are reasonable in amount, and the court will assess them accordingly.(The Costs Practice Direction sets out circumstances where the court may order otherwise)(2) This rule does not apply where the contract is between a solicitor and his client.Solicitor and client costs48.8(1) This rule applies to every assessment of a solicitor's bill to his client except a bill which is to be paid out of the Community Legal Service Fund under the Legal Aid Act 1988 or the Access to Justice Act 1999 - and(1A) Section 74(3) of the Solicitors Act 1974(a) applies unless the solicitor and client have entered into a written agreement which expressly permits payment to the solicitor of an amount of costs greater than that which the client could have recovered from another party to the proceedings.(2) Subject to paragraph (1A), costs are to be assessed on the indemnity basis but are to be presumed -(a) to have been reasonably incurred if they were incurred with the express or implied approval of the client;(b) to be reasonable in amount if their amount was expressly or impliedly approved by the client;(c) to have been unreasonably incurred if -(i) they are of an unusual nature or amount; and(ii) the solicitor did not tell his client that as a result he might not recover all of them from the other party.''WHICH OF S. 70 AND S. 71 APPLIES?13. For Section 70 to apply, QCC must have instructed Alison Trent & Co. to act for it under a contract of retainer. QCC contend this is what happened in respect of the smallest and largest invoices. The details of the claim say this: ``In matter (1) [take over of another floor] Alison Trent was appointed our solicitor upon her suggestion ... In matter (3) [rectification of existing leases] Alison Trent's refusal to acknowledge our request to use our own solicitor to draw up documents for the matter meant that we tacitly accepted we were to use her to do the work.''14. The ``Response to Counterclaim by Alison Trent'' develops this submission at paragraphs 4(b) and 4(d) as follows: ``Given that ACT [Alison Trent] is a solicitor and nominated herself for the fourth floor conveyancing we believed we were expected to use her ... A bill for works of a legal nature was provided to us for each transaction ...'' 15. In her skeleton argument, Ms Trent rejects this submission. At paragraph 2(a), she says this: ``So far as can be ascertained, this claim has been brought as a solicitor/own client assessment (see response 4B, 14 and 25). QCC and D on opposite sides of proposed transaction and, manifestly, D never acted as solicitor for C or any QCC company ...[emphasis added](3)(a) In any event, costs previously agreed and paid ... (b) In order of transactions: (i) 4th floor (commencing February 20090 costs of £1,352.90) were paid from the £3,500 received on 3/2/10 (D statement paragraph 33); (ii) 2nd / 3rd / 5th alienation/assignment costs of £5,355.80 paid from (1) and next cheque of £3,500 delivered per QCC email ... (iii) 3rd floor sub-letting/assignment costs up to the date of the breakdown (£9,845.10 but capped at £7,950 per 10/2/10 email ...) paid from £9,338 delivered for that purpose per QCC email 19/2/10 ...''16. Ms Trent reinforced her view in her witness statement, as follows:-``4 - (c) The costs that the Claimant now seeks to challenge relate to costs due pursuant to leases and other commitments arising from applications under the leases, and breaches of the leases, by the tenants. The costs are due to me in my capacity as landlord. I have never acted as solicitor for any of the tenants regarding matters relating to 149 Fleet Street.17. I agree with Ms Trent's submission. There is nothing in the papers before me to support the view that Alison Trent & Co. as solicitor, was acting for QCC in a solicitor/client relationship. In particular, there is no letter of instruction, engagement letter or ``client care'' letter, setting out the nature of the work to be undertaken and the rates of charge, etc. I also agree with the skeleton argument at paragraph (2)(ii) that the ``fact that one party prepares to draft documents does not render that party the solicitor of the other party'' In my judgment, QCC is simply mistaken in what it believes the contractual situation between itself and Alison Trent & Co. to have been. That rules out Section 70 of the Act. 18. What of Section 71? As I have said, in her witness statement, Ms Trent states that ``the costs are due to me in my capacity as landlord''. At paragraph 23 she continues:-``...the claim proceeds on the false premise that Alison Trent & Co acted as solicitors for the Claimant. Not a shred of evidence is offered in support of the novel suggestion that I was appointed as solicitor for any of the QCC companies. Or of the matters related to applications by QCC to me in my capacity of landlord or to the requirements necessary for QCC to remedy breaches and the obligation in the leases and in subsequent documentation, to pay the landlord's costs. The solicitors practice, Alison Trent & Co, acted for the landlord....[Emphasis added](24) - (b) ... in any event, the requirement to pay my costs arises initially in the leases (in particular clause 17) ...''19. Clause 17, which I understand is identical in the three leases, says this:-``Landlord's CostsThe Tenant covenants with the Landlord:17.1 To pay the Landlord's rent on demand on an indemnity basis all fees, charges, costs and other expenses incurred by the landlord in relation to:· Enforcing or requiring the tenant to remedy a breach of the provisions of this Lease.''20. Under this clause it is plain in my view, that the tenant is obliged to indemnify the landlord for any costs that the landlord incurs in requiring the tenant to remedy breaches of any covenants in the lease. In other words, whilst the landlord is primarily liable to pay the solicitor's costs, clause 17 permits the expense thereby incurred by the landlord to be passed on to and recovered from the tenant on the indemnity basis; as Ms Trent expressed the position in her witness statement, ``the costs are due to me in my capacity as landlord''. 21. It follows, in my view, that the Claim Form, when properly and purposefully interpreted, seeks a detailed assessment under Section 71 of the Act; Alison Trent is the party chargeable and QCC is the third party liable to pay the costs but in this capacity has the right under S.71 to have the costs assessed as if it were the party chargeable. 22. Ms Trent she contends that ``the Claimant has no capacity to bring this claim, so it should be struck out'' (witness statement paragraph 4.a). She further submits at 4.d that:-``I have not at any stage delivered a solicitor's bill of costs. I have provided breakdowns from time to time of some of the costs which are due to me as a landlord, one case in request of the tenants to assist them to seek a contribution from another party to a transaction.''23. I disagree. As it seems to me, Ms Trent cannot, as she has done, require the tenant to pay the costs to which she has been put as landlord arising from breaches of covenant and at the same time, deny that her tenant has any entitlement to a detailed assessment of those costs under the Act (see Pine v Law Society (2002) EWCA Civ 175). Moreover it is common ground that the sums sought in the Invoices have been claimed from and paid by QCC. Whilst it is right to say that the Invoices were not printed on the Solicitor's headed notepaper, nonetheless, Ms Trent has accepted in her witness statement that her firm acted for the Landlord. In these circumstances, I am satisfied that there was a solicitor/client relationship between Alison Trent as landlord and Alison Trent & Co as solicitor and that the firm rendered invoices to Alison Trent which, in her capacity as landlord and party chargeable, she has passed on to the QCC for payment as tenant and third party. It follows, in my judgment, that QCC is in principle entitled to an assessment under s.71 of the Act.SPECIAL CIRCUMSTANCES24. It is common ground that the bills in question have been paid and that less than 12 months have elapsed from the date of the bills to the date of payment. Accordingly, it is necessary for the tenant to show ``special circumstances''. Under 71(2). Ms Trent contends that there are no special circumstances which justify an order for assessment (witness statement paragraph 27).25. I am satisfied that the requirements of the rule are met here. Firstly, payment was made ``under protest''. On 19 February 2010, QCC wrote to Alison Trent by email as follows:-``Further to the provision of two cheques today as specified in my earlier email today, we are paying under protest.''26. Second, in my view, the charges call for explanation since a number of items might be susceptible to reduction, for example the hours spent preparing the assignment of the lease, collating documents, considering and preparing emails, etc. Third, the bills have been paid and an order for assessment would not create any adverse cash flow problem for the Solicitors which potentially would be the case were the charges to remain unpaid for a further significant period of time. Fourth, there is here the unusual situation that Ms Trent is both the landlord and solicitor, so she has, in effect, rendered bills to herself. Finally and most importantly, this is not a case in which the solicitor can contend that the making of such an order would cause unfairness and hardship as might arise, where, for example, the client has long since agreed and paid the bill and any responsibility for repayment of any overcharge would fall not upon the client , but upon the solicitor. Such a situation might arise where the client is no longer a client of the firm or has ceased trading or where the third party has delayed unreasonably in making the application under the Act and the solicitor has already closed his file. They might be reasons for not ordering an assessment under section 71 since it would involve the solicitors in standing the loss in respect of any items disallowed but which the client had previously agreed and paid. But that is not the situation here. On the contrary, QCC applied promptly under section 71 and Alison Trent & Co. can rely on its retainer with Alison Trent to reimburse it for any sums that cannot be passed on to QCC under clause 17, it being remembered in this respect that Alison Trent has not actually paid any costs to Alison Trent & Co.; QCC has. For these reasons, I am satisfied there are special circumstances in this case which justify an order for assessment.WHAT PRINCIPLES APPLY ON AN ASSESSMENT UNDER S.71? 27. Having decided that Section 71 applies and that the purpose of these proceedings is for the Court to decide the level QCC's liabilities in costs which arise under clause 17 of the leases, the next point to address is how the assessment should proceed. 28. In so far as Alison Trent as landlord wishes to pass costs on to QCC as tenant, there must be a liability for their payment as between the party chargeable and the solicitors retained by that party, since it is trite law under the indemnity principle, that a party paying costs is not obliged to reimburse any more than the sum which his opponent is liable to pay his own solicitor (see Gundry v Sainsbury (1910) 1KB 645). If the client is under no obligation to pay anything to the solicitor, nothing is payable by the paying party, because there are no costs to indemnify. It follows that in the present case, the Invoices must be the primary liability of Alison Trent, with a right of indemnity from QCC. 29. Ms Trent has stated that her firm acted for herself in her capacity as landlord. Accordingly, it is to be inferred that the requirements of the indemnity principle were met when she raised the Invoices. It does not matter for that purpose that the party chargeable has not paid the costs, only that (s)he is liable to pay them (see judgment of Morland J in Joyce v Kammac (1996) 1 WLR 805 at 809 F and although Ms Trent submitted that in her capacity as solicitor, she never rendered a bill to herself as landlord, I disagree with her for the reasons given in paragraph 23 above. For these reasons, I am satisfied that Alison Trent is in principle entitled to pass on to QCC as tenant, those costs which in her capacity as landlord she has incurred with her own firm.30. It is important next to decide whether the assessment should proceed as between Alison Trent and Alison Trent & Co., that is to say, between client and solicitor or as between Alison Trent & Co. and QCC, that is to say, between solicitor and third party. The reason for this is that it will make a difference to the amount that QCC has to pay, since it is implicit that Alison Trent would not have done the work for which she has claimed an indemnity from QCC, had she not authorised it in her capacity as client. It follows that if, when making the application as the party chargeable, QCC cannot object to items sought to be passed on to it because they have been approved by Ms Trent, no purpose will be served in having the assessment since in that event, the Invoices will be assessed as drawn. In other words, if QCC is limited to making only the challenges to the Invoices that Alison Trent could make, the assessment will achieve nothing because Ms Trent as client can be taken as having authorised all the work that she did as solicitor and the costs will be allowed in full. 31. To address this point, it will be necessary to examine how a third party such as QCC is to be treated when in the position of the party chargeable on an assessment under s.71 of the Act and whether the fact the Ms Trent is both client and solicitor makes any difference. 32. The guidance in Civil Procedure Volume II (White Book) at notes 7C-127 refer to pre CPR cases which consider s.38 of the Solicitors Act (1843). This is a forerunner of s.71 and provided that: ``...where any person not the party chargeable with any such bill....shall be liable to pay or shall have paid such bill... it shall be lawful for such person... to make such application for a reference for the taxation and settlement of such bill as the party chargeable therewith might make...'' 33. How this section was applied by the Courts can be traced back to Re Massey (1865) (34 Beav. 463) in which Sir John Romilly MR referred with approval to Lord Langdale's judgment in Re Fyson (9 Beav. 117) when he had said this:-``First, it is to be observed that the Petitioner has fallen into a mistake, which has been of very frequent occurrence: mortgagors think that where they call for a taxation of a mortgagee's solicitor's bill, they have a right to alter the relation of solicitor and client, and are not bound to pay more than the mortgagees could establish as against them, the mortgagors. There is nothing in the Act of Parliament which warrants this notion and it is not so. The bill may be taxed at the instance of the mortgagor, who is liable to pay it; but it is the bill between the mortgagee and his solicitor and the mortgagor desiring to tax it must do it on the condition of paying what is due to the solicitor from his client the mortgagee, which possibly may be more then the mortgagee, if he had paid it, could have recovered from the mortgagor. The mortgagor asking the taxation against the solicitor has merely the right to tax the bill as between the solicitor and his client the mortgagee'' [Emphasis added]34. Suppose, therefore, that in proceedings between mortgagee and mortgagor about a mortgage, the Court ordered the mortgagee to be responsible for the costs of an amendment to its pleadings. Absent an application under section 38 of the Act, such a cost would not be recoverable from the mortgagor. However, by bringing proceedings under section 38, the mortgagor would have made himself liable for such a cost because it was a charge which it was reasonable for the mortgagee to pay to his solicitor. Accordingly by applying for a third party order under section 38, a mortgagor would make himself liable to pay costs to the mortgagee which the Court in the mortgage proceedings had already said that he did not need to pay.35. That practice, that on an assessment under s.38, the third party was entitled merely to a taxation of the bill as between the client and the solicitor and not between himself and the solicitor, continued until at least 1900. However, in Re Gray (1901) 1 Ch. 239, in answers to Objections which the lessee of a mine had carried in against the taxation of costs he was liable to pay to the lessor as a third party , the Master had said this:-``In this case, the lessee obtains an order to tax the lessor's solicitor's bill under s.38...as a party liable to pay. What is he liable to pay? His liability covers all charges which the lessor is liable to pay his solicitors, in the matter of the lease, as between the solicitor and the party chargeable and not as between the party liable to pay and the party chargeable ...I have taxed the bill on these lines....''36. The lessee appealed. In his submissions for the lessee, Counsel contended that where (as there) his client had obtained a third party order to tax under s.38 and was bound to pay what was due to the solicitor from his own client, (following Re Massey and Re Fyson), that did not prevent the Master from considering the question of the liability of the third party. In other words, by obtaining a third party order to tax, he argued that the third party did not become liable to pay the costs of other proceedings and matters for which he would not have been liable had no such order under s. 38 been obtained. 37. Counsel for the lessor submitted that under Re Massey, the lessee simply stood in the shoes of the lessor and was liable for all the costs that the lessor was primarily liable to pay the solicitor.38. Cozens-Hardy J was not persuaded that standing in the shoes of the client meant that the third party, if he applied for an order under s.38, thereby rendered himself liable to pay the amount properly due as between the solicitor and his own client. At 248 he said this:-``The governing idea of Chitty J's judgment [in Re Negus (1895) 1Ch 73] is that even on a third party taxation, the court is bound to look at the nature of the items and to consider whether, apart from the order, the applicant is under any liability to pay them. In other words, although the solicitor may put in one bill as against his client, a series of items, some of which may go beyond the liability of the third party, the third party does not by obtaining an order to tax render himself liable to the whole bill. With respect to matters falling within his liability under a contract express or implied, he cannot dispute the amount properly payable as between the solicitor and his own client, but in other respects his liability is not increased by obtaining a third party order to tax''.39. It followed, in that case, although the lessee could not challenge the fees charged by the solicitor to the lessor for the counterpart lease, he was liable to pay only the scale fee for the work in question; the mere fact that he had obtained an order under s. 38 did not increase his liability to pay the higher fee that the client had agreed he would pay the solicitor. Accordingly the lessee, as third party, did not, by obtaining the order to assess the bill, render himself liable to pay everything that the lessor and the solicitor had agreed was payable. 40. Re Gray was considered in Re Longbotham and Sons (1904) 2 Ch. 152. This concerned costs payable to a mortgagee by a mortgagor under a mortgage. Kekewich J (at first instance) had sought a certificate from the Master about the practice of the Taxing Office when taxing references under s.38 of the Act. The Master's certificate had said this:-``Your Lordship having desired a certificate from the Masters of the Supreme Court (Taxing Office) of the practice generally in cases between the mortgagor and the solicitor of the mortgagee, I beg respectively to report to your Lordship.That the practice followed by the Masters in taxations under Section 38 ... , up to within recent years, was to tax as between the solicitor and the client (the party chargeable in the first instance) [emphasis added] and not as between the solicitor and the party liable to pay [emphasis added], effect, however, being given, as far as possible to the cases of in Re Negus and in Re Abbott and of the observations of Cotton LJ in Re Morecroft.The principles, however, laid down by these cases, were, in the opinion of the Masters, suitably extended by the case of in Re Gray, and since that case the practice in the Taxing Office in taxations under the Section has been to tax, apart from the order, as between the solicitor and the party or estate liable to pay [emphasis added]41. Having received the Master's certificate, Kekewich J said this at 153:-``It was contended on behalf of the mortgagee's solicitors that the taxation of their bill of costs by the mortgagor must proceed according to the rules which would govern a taxation of the same bill by the mortgagee, the direct client of the solicitors. That seems on the face of it, a rather useless dealing with a bill of costs, because a mortgagor, in ordinary circumstances, does not care to know what the liability of the mortgagee to his solicitor is, but desires to know what his own liability is to the mortgagee's solicitor, that is, to the mortgagee through his solicitor. He wishes to know what he has to pay per principal, interest and costs, and to ascertain what is to be charged against him; and it is of very little advantage to him to know what may be charged by the solicitor against the mortgagee, some part of which may not be chargeable against himself''. 42. At 154, Kekewich J continued:-``But the cases which have been decided on the construction of Section 38 clearly went upon this - that the taxation must proceed as between solicitor and client, that is to say as between the mortgagee and his solicitor ... but there is a recent decision of Cozens-Hardy J in Re Gray, which, though it does not purport to overrule the older cases, it certainly did direct taxation on an entirely different footing and, as it seems to me, a useful footing. [Emphasis added]'' 43. Kekewich J declined to disturb the Taxing Masters' certificate which had been given on the basis of the practice in Re Gray. 44. Against this decision to uphold the Master's certificate, the solicitors appealed to the Court of Appeal.45. In his submissions to the Court, Counsel for the solicitors contended that the taxation ought to have proceeded in exactly the same way as if it had been a taxation between the solicitor and his own client:-``that is, all the items which the solicitor is entitled to charge as against his own client, the mortgagee, in connection with the mortgage transaction, ought to be allowed on taxation as against the mortgagor, even though as between mortgagor and mortgagee, the mortgagor is not liable to pay them. If on the taxation the mortgagor is charged with any items which stands between himself and the mortgagee he is not liable to pay, the matter can be set right in the account between the mortgagor and mortgagee.''46. Such a taxation would, in Counsel's submission, be in accordance with the practice of the Taxing Masters ``for a long series of years after the passing of the Solicitors Act 1843: in Re Fyson and re Massey''.47. Counsel for the third party was not called upon and the Court dismissed the solicitor's appeal. 48. Romer LJ said this:-``I will at first deal with this case on principle.When a third party taxes a bill under Section 38 of the Act of 1843, it is clear, both from the wording of the Section itself and the authorities, that the taxation must be on the footing of a taxation between the solicitor and the client. But the third party is not for all purposes in connection with the taxation to be treated as if he were himself a client ... [emphasis added]. If the third party be only interested in and liable to pay the costs of one matter, it is clear in my opinion, as a matter of principle, that under Section 38 he can obtain taxation of the bill, so far as concerns that one matter only, and on the footing of being liable to pay only the taxed costs of that matter. And that principle really decides this case and shews that the appeal should fail. For in the present case the third party is a mortgagor and he is only interested in the relations between the solicitor and his client so far as they concern position of the client strictly in his character of mortgagee. The mortgagor is therefore entitled under Section 38 to have taxation of the solicitor's bill limited to the items of costs incurred by the client strictly in his position of mortgagee. And it is on that principle that the Taxing Master has proceeded. It may well be that the client as between himself and the solicitor, is liable for costs incurred in relation to the mortgaged property with which the mortgagor is not concerned, and for which the mortgagor is not liable. Those will be costs incurred by the mortgagee in his personal capacity so far as concerns the mortgagor and not costs incurred by him in the capacity of mortgagee strictly and properly considered, and accordingly would not have to be taxed or considered by the Taxing Master in a taxation by the mortgagor as third party. And I add, although it may not be necessary to do so for the purposes of the present case, that if the mortgagee chose to sanction a charge by his solicitor beyond what he and the solicitor knew, or must be taken to have known, could be properly charged as against the mortgagor, though the mortgagee might be bound for the excess by reason of his sanction, the mortgagor would not be bound, for the sanction by the mortgagee would be held as given by him in his personal capacity and not in his capacity as mortgagor .....The principle on which this judgment is based is not, in my opinion, contrary to any express decision that has been cited. And that principle has been recognised, and I think rightly so, in re .... Gray ...''49. Vaughan-Williams LJ concurred and said this at 157:-``In the first place I assent entirely to every word of the judgment which has been read by my brother Romer, in so far as it deals with the question which relates to matters which did not, strictly speaking, concern the mortgagor and which involves costs incurred by the mortgagee otherwise than as mortgagee strictly speaking. I mean by that, such costs are outside the costs for which the mortgagor would be liable. As far as I am concerned, I do not wish to go beyond that. It seems to me that when we go that length, we are only affirming the judgment of Chitty J in Re Negus and the Judgment of Cozens- Hardy J in Re Gray. 50. Later at 158, he said this:-``... I wish to add that I do think that in any of the cases it has been forgotten that what is authorised on behalf of the third party by Section 38 of the Solicitors Act 1843 is a taxation obtained by the third party against the solicitor. What I mean is that the proceeding which is sanctioned by s.38 is a wholly different proceeding from that which is described by Lord Romilly in Re Massey.'' [emphasis added].51. Cozens-Hardy LJ agreed with both judgments. 52. It follows that Re Longbotham approved the principle in Re Gray that taxation under s.38 should proceed not as between solicitor and client as Counsel for the solicitors had contended that it should under Re Massey, but as between solicitor and third party. To do otherwise, as Kekevich J had observed, ``would be a rather useless dealing with a bill of costs''.53. In re Cohen & Cohen (1905) 2 Ch 137, Romer and Vaughan Williams LJJ sitting with Stirling LJ, reviewed their decision in Re Longbotham. This was an appeal by solicitors against the decision of Swinfen Eady J (1905) 1 Ch 345, upholding the Taxing Master's certificate under s. 38 which had said this:-``I have followed the Practice in the Taxing Office on taxations under this section and I have taxed apart from the order as between the solicitor and the party liable to pay and I have disallowed several items which did not come in my opinion within the scope of the said agreement [between the parties]''.54. The Master had also held that on the true construction of the agreement between the party chargeable and the third party, ``there was only to pay the client's costs that were reasonably and properly incurred and that unusual charges and luxuries must be borne by the client''. He further found that the disallowed items were extra costs increased through over-caution ; special fees paid (such as King's Counsel) were unusual and unnecessary expenses and were luxuries, the expense of which were to be borne by the client ordering them.55. On appeal to Swinfen Eady J, Counsel for the appellant solicitors contended that the Taxing Master had taxed on the wrong principle and that under Section 38, the third party was precluded from objecting to any item allowable as against the client and within the scope of the agreement; that the Master had taxed the bill as between the solicitors and the third party in accordance with the Office Practice certified in Re Longbotham; that that practice was directly contrary to earlier decisions, all of which required the taxation to be between the solicitor and the client. 56. Swinfen Eady J was not satisfied that the Taxing Master had proceeded on the wrong principle. On page 351, he said this:-``Under the agreement a third party is liable to pay the client's costs, as between solicitor and client relating to the matters in dispute in the two said actions. And it is those costs that have to be taxed; but, in my opinion this is not an indemnity taxation, and it does not follow that because on this taxation items from which the third party is not liable are disallowed, those items have not been authorised by the client. It may well be that the solicitors will be entitled to recover them against their client, but the liability of the third party is not enlarged or increased by his obtaining the third party order.''[It is right to point out that Swinfen Eady J also said at 352 that Romer LJ in Re Longbotham had stated that the taxation must be ``on the footing of a taxation between the solicitor and client'' and that that is repeated in the head-note of the law report, but (i) that extract must also be read in the context of what Romer LJ said later in his judgment which is reproduced in paragraph 47 above and with due regard being given to the judgment of Vaughan Williams LJ with which Cozens-Hardy agreed- see paragraphs 48-50 above) and (ii) had that been correct, the Taxing Master's certificate would have been set aside as it had been given on the basis of a taxation between solicitor and third party and not a taxation between solicitor and client].57. On appeal to the Court of Appeal, Counsel for the appellant solicitors contended that:-``On such an agreement as this, a person who obtains under Section 38 of the Act of 1843 a third-party order for taxation is in the same position as the client would have been. Mr Edwards [the third party] is, therefore, liable to pay everything which the solicitors could have called upon Mrs Cotton [the party chargeable] to pay. He was not under any obligation to apply under Section 38. If he wished to dispute any items as unreasonable, he should have refused to pay the bill and waited until an action was brought against him. But he elected to tax under Section 38 and thus put himself in the position of Mrs Cotton. The bill must be taxed as between her and the solicitors, not as between the third party and the solicitors'' [emphasis added]. 58. Counsel for the third party respondent was not called upon: the submissions failed and the solicitor's appeal was unanimously dismissed. 59. Romer LJ expressed the position thus at page 144:-``That being the construction of the agreement, Mr Edwards was a third party and entitled to obtain this order under Section 38. Since the full discussion of these third party orders in In re Longbotham & Sons (1) and in the cases there cited, it is clear at the present day that a third party obtaining such an order does not make himself liable to pay such items as I have referred to, which could not be charged for by the solicitors as between solicitor and client except by virtue of a special arrangement. To hold otherwise would be to prevent a third party from obtaining the benefit of Section 38. Either he would have to forego taxation, or if he obtained it would find himself liable to pay sums which could not be anticipated by him, and for which as third party he was not liable. Applying the general principle of In re Longbothan & Sons (1) to this case, it is clear that the items disallowed by the Taxing Master were items for which Mr Edwards was not liable. They were items for which the lady would not have been liable to her own solicitors but for the special arrangement between them. Unless the solicitors had explained these items to Mrs Cotton, shown her that they could not be properly charged against her, and would not be allowed on a party and party taxation, and obtained her special authority, these items could not have been charged against her by them. Therefore, the third party is not liable for these items under the agreement, and his liability is not increased because he has obtained an order under Section 38.''60. Stirling LJ was of the same opinion. At 145 he said this:-``The agreement is that the third party is to pay the client's costs ``as between solicitor and client relating to the matters in dispute to the two said actions, such costs to be agreed or taxed''. To my mind that seems to me ordinary, proper and reasonable costs relating to the matters in dispute, and does not extend the costs which the solicitors could only recover from their client if they showed that they had obtained a proper authority from her after giving her an explanation.''61. At 143, Romer LJ gave an example of the third party rule at work when he said this:-``In my view he [the third party] did not make himself liable for items which could not be properly charged by the solicitor against his own client except by virtue of some special agreement. Test it in this way: suppose the lady had agreed to pay £50 to the solicitors as a retaining fee and assuming it was paid in the circumstances which precluded her from getting it back again, could it be said that it was within the contemplation of the parties to this agreement that Mr Edwards should be liable to pay such an item as that? To my mind, no. I think he has contracted to pay solicitor and client costs to be taxed in the ordinary way without regard to any special arrangement which may have extended the client's ordinary liability''62. Accordingly, the Court of Appeal rejected the proposition that Mr Edwards was liable to pay everything that Mrs Cotton could be called upon to pay and that he was precluded from taking any objections to the bill which it was not open to her to do because she had authorised the fees. Had that not been the case, items such as King's Counsel's fees which the Master had disallowed would, instead, have been payable by Mr Edwards because of the ``special arrangement'' Mrs Cotton had reached with her solicitors for their payment. In that event, he would have been obliged to meet everything that the solicitors could have called upon her to pay. Instead, the third party (Mr Edwards) was permitted to challenge as unreasonable, costs which were reasonable as between ``the lady'' (Mrs Cotton) and the solicitors. 63. In Hirst v Capes (1908) 1K.B. 982, there is a reference on page 986 to inquiries by the Court of Appeal to which Master Macdonnell had given the following answer: ``having regard to taxation at the instance of a third party ...that of late there had been a series of decisions, among which were In re Gray..., In re Longbotham and Sons... and In re Cohen & Cohen...which direct the Master to disallow in third party taxations items which he thought might once have been allowed, the principle being clearly stated in In re Cohen and Cohen at pp. 142 and 143.''64. It follows from this line of cases, that whilst a third party, as a stranger to the contract between the client and his solicitor, could not dispute the amount that they had agreed inter se was payable, he did not, in obtaining an order under s.38, make himself responsible for sums for which he would not have been liable but for his application under the Act. Accordingly, in seeking an order under this section, the third party no longer risked being unable to challenge items which the client and solicitor had agreed and which he could not have anticipated. On the contrary, they could be disputed and the third party was able argue that they should not be passed on to him , albeit that it was not open to him to contend that , as between the client and his solicitor, such charges were unreasonable.65. The notes in volume II of the White Book currently do not contain any further cases (in particular post CPR cases) on this point and it has been the practice of the Senior Courts Costs Office since the Act was passed in 1974, to follow the guidance given in Re Longbotham rather than in re Massey and to assess costs under s.71 as between solicitor and third party and not as between solicitor and client. As a result, with the indemnity principle limiting the third party's liability to those costs which are payable by the client to the solicitor, the actual figure changing hands has often been less than this where the Court has decided that costs which the solicitor and client agreed by ``special arrangement'', should not be visited on the third party ; this will have happened, where, for example, the costs in question have been luxuries such as the instruction of Leading Counsel (as happened in Re Cohen & Cohen), or where the hours spent by the solicitors in carrying out their instructions have been excessive, the complaint QCC makes here. In short, therefore, the obtaining an order under s.71 of the Act has not made the third party liable for costs that were incapable of being challenged by the client because he had agreed to pay them.66. Recent authority, however, has held that the task of the Court under s.71 is to assess the costs as between the solicitor and client, as used to be the practice under re Massey and only upon completion of that task, should the Court determine to what extent those costs can be legitimately passed on to the third party; the latter exercise would be carried out either under CPR 48.3 (Amount of costs payable under a contract- see paragraph 12 above) , which could be simultaneous with the assessment under s.71, or by an action for an account by the third party (see Tim Martin Interiors v Akin Gump LLP (2010) EWHC 2951 (Ch) (Lewison J) at paragraph 24. This is because:-``... [under] the long established principle, as approved in Re Cohen and Cohen itself, that on an assessment of a solicitor's bill on the application of a third party liable to pay it the court must assess the bill as if the client himself had required the assessment. The third party is entitled to raise such objections as the client himself could have raised; and only such objections. As a preliminary to the assessment, the court must decide what items it must assess. That is the point of construing the agreement (if there is one). If it decides that there are items in the bill that it need not assess, then they are isolated and left out of consideration. It is only in that limited sense that they are ``disallowed''. But in my judgment construction of the agreement is not to be used as itself as an alternative method of assessing the costs on a basis that is less generous to the solicitor then an assessment at the client's behest would have been''.67. In Akin Gump, a borrower, TMIL, had breached its banking covenants with its bankers which had instructed its solicitors, Akin Gump, to enforce its security and to recover the bank's outlay in costs from TMIL. On assessment of the solicitor's invoices under s.71, Lewison J continued at paragraph 31:-``Thus TMIL [the third party] would have been entitled to take any point that the bank [the client] could have taken if it (rather than TMIL) had required the costs to be assessed. That is the extent and the limit of the court's jurisdiction under section 71. However, what was passed on to TMIL under the mortgage was not passed on by Akin Gump. It was passed on by the bank. So issues arising under that question were not issues as between the Akin Gump and the bank; or between Akin Gump and TMIL (standing in the shoes of the bank). They were issues as between TMIL and the bank. The bank was not a party to the proceedings begun by TMIL.''68. He continued at paragraph 34:-``On an assessment under s.71 the court is entitled to interfere with the hourly rate agreed between the solicitor and the client; but only to the extent that it could have interfered with it at the behest of the client. The circumstances in which the court could have interfered with an hourly rate agreed between client and solicitor on an assessment at the behest of the client are extremely limited; not least because under CPR 48.8(2)(b) costs whose amount has been agreed by the client are presumed to be reasonable''. 69. And at 35:-``...His [the costs judge's] task under section 71 was to determine what costs the bank was liable to pay Akin Gump in respect of matters falling within their retainer as solicitors for the bank acting strictly in its capacity as mortgagee....it would not have lain in the bank's mouth to complain about Akin Gump's hourly rates which it had itself agreed; any more than a traveller who hails a taxi can expect to get away with proffering the bus fare''. 70. It follows that Akin Gump will place QCC in difficulty since in ascertaining what is properly payable as between Alison Trent (as client) and Alison Trent & Co. (as solicitor), QCC will be entitled to take points against the level of the Invoices only to the extent that Alison Trent herself is able to do so. Since it is inconceivable that Ms Trent would wish to challenge the fees for the work that she, Ms Trent, as solicitor, undertook on behalf of herself as client, QCC will be unable to raise any objection to its liability for the charges sought to be passed on. This will also apply to the quantum of the charges since if the client sanctions the quantum, that precludes any challenge to their amount by the third party (see Akin Gump paragraph 22). In these circumstances, it might appear inevitable that the Invoices will be assessed as drawn and QCC will need either to bring a claim for an assessment under CPR 48.3 or to institute a fresh action in the Chancery Division for an account.71. If that be right, the proceedings as presently formulated, may be incapable of enabling QCC to achieve the relief sought in the Claim Form since will be of no interest to QCC to learn what the reasonable costs are as between Ms Trent as landlord and Ms Trent as solicitor. What QCC needs to know is the level of its own liability to Alison Trent & Co., that is to say, to Alison Trent as landlord, through her firm as solicitor. It will be necessary, therefore, to consider, whether this can be achieved within the existing proceedings.DISCUSSION AND DECISION72. It is Ms Trent's submission that these proceedings should be dismissed. In her view, the bills have been agreed and paid and concerned transactions that were completed over 12 months ago. To re-open now, costs that have been paid, would be to allow the tenants to re-write history and the Court's discretion should be exercised against making an order for assessment. For its part, QCC's case is simple; it contends that Alison Trent & Co's charges are excessive and that the Court should check the level of the fees that it is reasonable to pass onto to the Company for payment, there being nothing presently outstanding since the Invoices have been settled, albeit ``under protest''.73. As I have said, if QCC is restricted to raising such objections as Alison Trent & Co. could have raised and only such objections to the Invoices, then no quantum challenges can be made, since Ms Trent as landlord, has implicitly sanctioned the charges for the work which she, herself, undertook as solicitor. However, for the reasons which follow, I do not consider that QCC is precluded from raising objections and that on the unusual facts of this case, the guidance given in Akin Gump is distinguishable.74. First, Akin Gump concerned costs as between a mortgagor and mortgagee where the bank and the solicitors were separate entities. Here the position is different. Alison Trent is...

To continue reading