Third party costs assessments reconsidered

Third party costs assessments are rare beasts. The context in which they commonly arise is in the context of challenging a solicitor’s costs for administering an estate, when disappointed beneficiaries find that the residuary pot from which their legacies have been drawn, has been depleted rather more than they had hoped.

The starting point is to note that the work is non-contentious business and accordingly as a point of substantive law pursuant to section 56 (7) of the Solicitors Act 1974 the assessment of a bill of costs of a solicitor in respect of non contentious business is to be subject to the provisions of any Remuneration Order made under the section.

The Solicitors (Non-contentious Business) Remuneration Order 2009 is the order currently in force and this provides crucially at article 3 the criteria by which a solicitors fees or costs are to be judged.

In particular there is a requirement that a solicitor’s costs must be fair and reasonable having regard to all the circumstances of the case and in particular; to the complexity of the matter or the skill or novelty of the questions raised; the skilled labour specialised knowledge and responsibility involved; the time spent on the business; the number and importance of the documents prepared or considered, without regard to length; the place where the circumstances in which the business or any part of the business is transacted; the amount of value of any money or property involved; whether any land involved is registered land within the meaning of the Land Registration Act 2002; the importance of the matter to the client; and the approval (express or implied) of the entitled person and the express approval of the testator to the solicitor undertaking all or any part of the work giving rise to the cost; or the amount of the costs.

In the “interpretations” contained in article 2 an entitled person means a client or an entitled third-party and an entitled third-party means the residuary beneficiary absolutely and immediately and not contingently entitled to an inheritance where a solicitor has charged the state for his professional costs for acting in the administration of the estate and the only personal representatives are solicitors or their like.

It is open to  residual beneficiaries to apply for a assessment known as a third-party assessment under section 71 (3) of the Solicitors Act 1974.

The case of Tim Martin Interiors Ltd-v-Akin Gump LLP [2011] EWCA Civ 1574 is particularly interesting,  given that purportedly it applies in respect of personal representatives who hold estates and beneficiaries who wish to challenge the amount of costs incurred and paid out of the fund per paragraph 2 of Lord Justice Lloyd’s judgement which reads as follows:

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.

In particular terms paragraphs 82 to 84 of the judgement of Lord Justice Lloyd which seems to truncate horribly the scope of an assessment under section 71 are of concern:

None of the older cases seems to show that the court allowed the recovery of a lesser amount for some item in the bill on the basis that some expenditure on it was proper but that too much had been claimed. The cases all appear to me to show that items were either allowed or disallowed in whole.  In particular what Cozens-Hardy J said in Re Gray at page 246, quoted at paragraph [46] above, is inconsistent with Mr Saifee’s submission that on a third party taxation under section 38 of the 1843 Act, the amount allowable in respect of given work could be reduced as regards the liability of the third party even if it could not be reduced as regards the liability of the client under section 37.

Neither on the basis of precedent, therefore, nor as a matter of principle does it seem to me that it is open to the court on an assessment under section 71 to substitute a lower amount for a higher one, on the basis that something is allowable but that the rate claimed is unreasonably high, unless that substitution could have been made on an assessment under section 70 as well. Where the client has agreed the bill and paid it, such a substitution is not possible under section 70.

Thus, I accept Mr Saifee’s argument to the extent (but no further) that on an assessment under section 71, the court can strike out of a bill (a) any item which relates to business for which the third party is not liable at all (e.g. here the bankruptcy, which is outside the scope of liability under the mortgages) and (b) any item which, as a whole, would only be allowable as against the client on the basis of advice that it would not be recoverable against the third party, and therefore is to be treated as subject to a special arrangement between client and solicitor. I do not accept that either the cases or the statute allow the court to alter the amount of an item in the bill in respect of which something is properly chargeable, but where the court considers that the amount claimed is excessive and unreasonable, so that a lower amount should be allowed, unless that could be done on an assessment under section 70, as between the solicitor and the client directly.  I therefore agree with Lewison J who said at paragraph 34:

“On an assessment under section 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.”

He went on to point out that in a case where the client had agreed the rate there was very little scope for such interference, because of the presumption under CPR rule 48.8(2)(b).

That is a serious limitation on the scope of an assessment under section 71 for determining the question what is properly due from the third party to the client. In his submissions Mr Saifee invoked the words of Kekewich J in Re Longbotham & Sons, quoted at paragraph [48] above, in support of the argument that the courts had been able to construe the section in a more constructive way, so as to be more useful to a third party, and that this approach should be maintained.  It is a fair comment that the courts were able to go quite a long way towards helping a third party in this situation, and also that, if this cannot be applied in present circumstances where the dispute is likely to include matters such as the proper hourly rate, then resort to an assessment under section 71 will rarely be of use to a third party.  Nevertheless, it seems to me that what Mr Saifee invited the court to sanction is not within the scope of the section.  I therefore agree with Lewison J that, while it was correct for Master Campbell to exclude from the assessment under section 71 matters to do with actual or possible bankruptcy proceedings against the guarantors, it was not open to him to reduce the amount chargeable in respect of items which, as such, were within the scope of the liability for costs under the mortgages.  In particular it was not open to him to assess the bill on the basis that no more than £225 per hour should be allowed for a Grade A fee earner’s time spent on the matter.  The Bank as client had agreed to these charges and could not itself have challenged them on an assessment, even if it had wanted to do so.  It follows that the third party could not challenge them by way of a section 71 assessment.

Indeed it contemplates that were for example an executor, to have agreed a bill of costs rendered to him by the solicitor, if this case applies to an application for an assessment by residuary beneficiaries there will be very little indeed that can be challenged by way of assessment as the executor, is of course, the client.

But this judgement can be distinguished on another ground. In particular it seems to me that there is a clear distinction to be drawn between the position of a mortgagor under section 71(1) of the Solicitors Act 1974 and section 71 (3) which is the section we are concerned with concerning the rights of residual beneficiaries.

This latter section lacks the crucial wording “as if he were the party chargeable with it”, indicating that the assessment under section 71(3) is wider in scope than that which applies under section 71(1).

That would be quite sensible: a beneficiary is not subject to the contractual obligations contemplated by section 71(1) and is never “liable” for the bill. That would serve as a point of distinction although  the wording of paragraphs 101 and 102 of the judgement  again contemplates that it is applicable to claims arising out of the administration of an estate.

Instead of seeking an assessment under section 71, therefore, in almost all cases a mortgagor or other party seeking to challenge the costs claimed and received by a mortgagee should bring a claim for an account of the sums due under the mortgage. I doubt that such proceedings for an account nowadays would be much more complex than assessment proceedings.  In practice the mortgagor would issue a claim form, perhaps under Part 8, in the Chancery Division or, where appropriate, in the county court, and on the first hearing before the Master or District Judge he would apply for an order that the costs in dispute be referred for assessment, normally to the SCCO.  From then on, the procedure would be as for an assessment under section 70, but with the right parties contesting it, namely the mortgagor and the mortgagee.  The costs judge will have the necessary expertise, and will be able to decide the dispute, on ordinary principles and processes of assessment, in an economical and efficient manner.  Once the assessment is complete, the result would be reported to the Master or District Judge, and the account would proceed on that basis.  Somewhat more by way of steps in the proceedings would be necessary than for an ordinary assessment, but not a great deal.  If there are other issues in dispute as well they can be dealt with in whatever is the appropriate way, by the Master or District Judge or, if necessary, by a judge.

A claim for an account may be the right approach for several situations which can throw up this sort of problem, for example in the case of a trust or the administration of an estate. In other cases that may not be the right approach, and it may be necessary to claim a declaration as to the amount properly due, especially if the amount claimed has had to be paid by the third party, no doubt under protest.

In the light of this judgment it may be anticipated that third party assessments will become rare, whereas claims for an account, and like proceedings in other types of case, where the real issue is as to the reasonableness of legal costs, best resolved by those experienced in the assessment of costs, may become much more frequent. With that in mind, it seems to me that it might be sensible for a dispute which is only, or mainly, about legal costs to be able to be commenced as an application for an account directly in the SCCO, rather than having to go via the Chancery Division.  So far as the jurisdiction of the county court is concerned, as regards an assessment under section 70 or 71 it is limited to a case where the bill relates wholly or partly to contentious business in the county court and where the bill does not exceed £5,000: see article 2(7) of the High Court and County Courts Jurisdiction Order 1991.  So far as I am aware, none of the financial limits on the jurisdiction of the county court in that article applies to a claim for an account under a mortgage.  It seems to me that the appropriate procedure for a dispute of this kind is a subject worthy of the attention of the Civil Procedure Rules Committee. 

It may be then that there is a simpler solution than prodding that sleeping Leviathan the Rules Committee: given that the Court of Appeal appear not to have noticed the difference in wording between sections 71(1) and (3) and were not concerned with a claim for costs arising from the administration of an estate, the comments could be said to be obiter dicta and per incuriam in any event.

2 thoughts on “Third party costs assessments reconsidered

  1. Interesting post – although I see no reference in it to the distinction between costs of (1) solicitors who are instructed in the administration of an estate by other (non-solicitor) Personal Representatives and (2) solicitors who are themselves Personal Representatives?

    • Indeed. You have to leave me some mysteries I can sell to people wanting advice on this topic Timothy. It’s a hard world out there at the moment and words are the currency I trade in.

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