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IN THE SUPREME COURT OF JUDICATURE No CCRTI 96/1383/C

Royal Courts of Justice

Strand

London WC2

Thursday, 31st July 1997

B e f o r e:

LORD JUSTICE KENNEDY

LORD JUSTICE WAITE

LORD JUSTICE AULD

TRUSCOTT

- v -

TRUSCOTT

WRAITH

- v -

SHEFFIELD FORGEMASTERS LTD

(Handed down judgment prepared by

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

MISS E GUMBEL (Instructed by Alison Trent of London) appeared on behalf of the Appellant (Truscott v Truscott)

MR G MANSFIELD (Instructed by Marsh Ferriman & Cheale of Littlehampton, West Sussex) appeared on behalf of the Respondent (Truscott v Truscott)

MR J MORGAN (Instructed by Nelson & Co of Leeds) appeared on behalf of the Appellant (Wraith v Sheffield Forgemasters)

MR G SANKEY QC and MR P KILCOYNE (Instructed by Russell Jones & Walker of Bristol) appeared on behalf of the Respondents (Wraith v Sheffield Forgemasters Ltd)

J U D G M E N T

(As Approved by the Court )

(Crown Copyright)

LORD JUSTICE KENNEDY:

1. General

These two appeals, which we heard on the same day, raise the same important issue in relation to taxation of costs, which it is easiest to formulate by reference to the facts of the cases themselves.

2. Truscott

Mr and Mrs Truscott were divorced in 1986. Custody of their two children was awarded to Mrs Truscott, and there was an order for periodic payments in favour of each child. In February 1989 that order was registered in the Crowborough Magistrates’ Court. On 1 ^st November 1990 Marsh, Ferriman and Cheale (MFC), solicitors acting for Mrs Truscott, obtained in the Brighton County Court a charging order nisi in relation to the house in which Mr Truscott was living with his second wife. The sum claimed as arrears of maintenance was £5156.38, but it was not a judgment debt, and Mr Truscott did not admit liability. It is now common ground that the Crowborough Magistrates’ Court having been given the task of enforcing the order for periodical payments Mrs Truscott was not entitled to take enforcement proceedings in any other court (See section 3(4) of Maintenance Order Act 1958 and the Charging Order Act 1979). The application for a charging order nisi was therefore misconceived. That was at once drawn to the attention of MFC by the Magistrates’ Court, but surprisingly MFC went ahead and on 10 ^th December 1990 the charging order was made absolute. Mr Truscott appeared in person at the County Court, but not being a lawyer did not take the jurisdictional point. On 5 ^th August 1991 MFC applied for an order for sale, and Mr Truscott then consulted Alison Trent & Co (ATC) solicitors of Fleet Street, London. He had previously been represented by solicitors in East Grinstead with whom he had become dissatisfied, and a friend who had been in similar difficulties had recommended that he consult ATC. ATC obtained legal aid and wrote to MFC explaining why the charging order should never have been sought. Neither to that letter nor to either of two reminders was there a reply. ATC then on 29 ^th November 1993 obtained an order striking out the order for sale, and on 10 ^th August 1994 Judge Hammerton made a wasted costs order in favour of Mr Truscott. The costs were taxed by District Judge Merrick on 15 ^th December 1994, when he allowed ATC’s charges at the rate they claimed, namely £95 per hour. It is accepted that it was an appropriate rate for a firm of their size and standing practising from their address, but on behalf of MFC it was contended that Mr Truscott should not have used London solicitors. He should have gone to solicitors in the Brighton area as the charging order had been obtained in the Brighton County Court, or he should have consulted solicitors in Tunbridge Wells where he lived. On 5 ^th June 1995 District Judge Merrick conducted a review, but he adhered to his original decision. MFC, as they were entitled to do, appealed, and on 13 ^th February 1996 Judge Coltart on this issue ruled in their favour. There were two other issues which he was asked to consider, namely the basis of taxation and the uplift. On the first of those issues he ruled in favour of MFC and on the second issue in favour of ATC. Neither of those rulings have been challenged before us, but they may be of some significance when we come to consider the final order made by Judge Coltart, namely his order in relation to costs.

3. Wraith

In 1985 Mr Wraith was employed by Sheffield Forgemasters Ltd at their premises in Sheffield. He fell from the walkway of an overhead crane, and sustained very serious injuries. He consulted his trade union, which instructed their solicitors, Russell, Jones and Walker (RJW), a well-known London firm, to act on the plaintiffs behalf. Proceedings were commenced in London, but by consent they were transferred to Sheffield. In May 1993, on the third day of the trial, the action was settled. The defendants submitted to judgment in the sum of £350,000 and costs. RJW then submitted their bill of costs in which they claimed remuneration at a normal rate for a firm of their size and standing in London, but the rate was substantially more than the average charged by Sheffield firms. The defendants’ solicitors - based in Leeds - objected, contending in substance that the plaintiff’s solicitors should only be entitled to recover what would have been charged by a Sheffield firm. Neither before the District Judge nor before Potter J (sitting with assessors) did the defendant’s solicitors prevail.

4. The Issue

So the issue which arose, both in the Brighton County Court and in the High Court at Sheffield, was whether the liability of the unsuccessful party ordered to pay costs should be restricted to what a reasonably competent solicitor practising in the area of the court (or in the area where the successful party lived) might have been expected to charge, or whether the successful party should be entitled to recover the sums claimed by the solicitor who was in fact instructed to act on his behalf.

In both cases costs fell to be taxed on the standard basis, and Order 62 Rule 12 (1) of the Rules of the Supreme Court applies to actions both in the High Court and in the County Court (see Order 38 Rule 1(3) of the County Court Rules). As far as material Rule 12(1) provides :-

“On a taxation of costs on the standard basis there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts which the taxing officer may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the paying party.”

This rule has only been in its present form since 1986, and authorities prior to that date have to be read with due regard to the wording of the rule which was in force at the relevant time. Rule 32 of Order 40 of the Consolidated General Orders of the Court of Chancery, so far as material, provided that :-

“Where costs are to be taxed as between party and party, the Taxing Master may allow to the party entitled to receive such costs all such just and reasonable expenses as appear to have been properly incurred in - "

various steps in an action are then listed, and the rule continues :-

“but in allowing such costs, the Taxing Master shall not allow to such party any costs which do not appear to have been necessary or proper for the attainment of justice or for defending his rights, or which appear to have been incurred through over-caution, negligence or mistake or merely at the desire of the party.”

So the test seems to be an objective one, to be applied by the Taxing Master after the event, allowing only costs he considers to have been “necessary or proper for the attainment of justice”. That it has been urged upon us by Mr Mansfield Q.C., for Mrs Truscott (in reality MFC) and by Mr Morgan for Sheffield Forgemasters, is the approach which we should adopt, because it seeks to safeguard the interests of both parties, and tends to keep down the costs of litigation by limiting so far as possible the costs which a party even if successful can recover.

In the patent action of Smith v Buller (1875) LR 19 EQ 473 Sir R. Malins V-C, said at 475 :-

“It is of great importance to litigants who are unsuccessful that they should not be oppressed by having to pay an excessive amount of costs.”

The plaintiff in that case was held liable to pay the costs, and the Vice-Chancellor continued :-

“I think he ought to bear no more than the necessary costs. I adhere to the rule which has ready been laid down, that the costs chargeable under a taxation as between a party and party are all that are necessary to enable the adverse party to conduct the litigation, and no more. Any charges merely for conducting litigation more conveniently may be called luxuries and must be paid by the party incurring them. The plaintiff is the attacking party, and has failed, and he must therefore pay all charges necessary to the litigation. But if the Defendants give greater facilities for the conduct of the case than are strictly necessary, they ought not to be allowed to throw them upon the plaintiff.”

As Mr Sankey Q.C. for Mr Wraith pointed out, what was said by the Vice-Chancellor cannot be applied directly to the rule with which we are concerned, because it was said in relation to a rule which in significant respects was quite differently worded.

In the 1959 version of Rules of the Supreme Court Order 62 Rule 28 dealt with Assessment of Costs and Rule 28(2) provided that :-

“Costs to which this rule applies shall be taxed on the party and party basis, and on a taxation on that basis there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.”

The ensuing sub-rules deal with the possibility of awarding costs on a common fund basis, etc. In Simpsons Motor Sales (London) Ltd v Hendon Corporation (no2) (1965) 1 WLR 112, a case about fees for leading counsel, Pennycuick J said in relation to Rule 28(2) at page 118B :-

“The words ‘or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed’ must, I think, now be read in after the word ‘necessary’ in the statement of principle made by Malins V-C”.

Miss Gumbel for Mr Truscott submitted to us that even under the 1959 Rule objective necessity was no longer the test for party and party costs, and where costs were awarded on a common fund basis that was expressly stated by Rule 28(4) to be “a more generous basis” which allowed “a reasonable amount in respect of all costs reasonably incurred”. It was that common fund basis which in 1986 became the standard basis, as can be seen from the current wording of Order 62 Rule 12(1).

In R v Dudley Magistrates’ Court ex parte Power City Stores Ltd (1990) 154JP 654 the Divisional Court of the Queen’s Bench Division considered an order of a Justices’ Clerk which disallowed the fees of leading counsel when assessing the costs to be paid out of central funds pursuant to the order of the court. Where such an order was made section 16(6) of the Prosecution of Offenders Act 1985 provided that the costs recoverable should be “ ... of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings”. Section 16(7) then provides :-

“Where a court makes a defendants costs order but is of the opinion that there are circumstances which make it inappropriate that the person in whose favour the order is made should recover the full amount mentioned in subsection (6) above, the court shall -

(a) assess what amount would, in its opinion, be just and reasonable; and

(b) specify that amount in the order.”

Woolf L.J. said at 657G that the effect of those two subsections, the wording of which is reminiscent of the wording of RSC Order 62 Rule 12(1), is to require the taxing officer to carry out a two stage test. First he must consider whether the expenses claimed were properly incurred by the defendant. If so what amount will be reasonably sufficient to compensate the defendant for those costs? Only if there are untoward circumstances will section 16(7) come into play.

Pursuant to section 20(1) of the 1985 Act regulations were made by the Lord Chancellor to assist those who had to implement the provisions of the Act, and regulation 7(3) of those regulations provides :-

“when determining costs for the purposes of this regulation, there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubt which the appropriate authority may have as to whether the costs are reasonably incurred or were reasonable in amount shall be resolved against the applicant.”

It will be appreciated at once that those words are precisely the same as the words used in Order 62 Rule 12(1). In the Dudley case the Divisional Court held that in seeking to apply the statute and the regulations the clerk to the justices was asking himself the wrong question. He asked himself if a junior counsel or a senior solicitor could reasonably have conducted the case on behalf of the applicants, and answered that question in the affirmative. What he should have asked himself was “whether the applicant acted reasonably in employing leading counsel”. If the answer to that question was in the affirmative then the expenses were properly incurred for the purposes of section 16.

In KPMG Peat Marwick McLintock v HLT Group Ltd (1995) 2 All ER 180 the plaintiffs claimed for professional fees, and the defendants counter-claimed alleging negligence. The plaintiffs obtained summary judgment under Order 14 with an order for costs on the standard basis, to be taxed if not agreed. The plaintiffs had instructed solicitors in the City of London to represent them in the litigation and there was an issue as to the amount charged by those solicitors for the work which they had undertaken. The plaintiffs sought a review of the Taxing Master’s decision, and so the matter came before Auld J and two assessors. At page 186a the Judge said :-

“If, as I find, it was reasonable for the plaintiff to have instructed Travers Smith Braithwaite in the litigation, then the firm’s costs on taxation should be taxed by reference to the broad average direct costs for such a firm in that area. The fact that the plaintiffs could have obtained the same services at a much lower price than that average elsewhere is irrelevant.”

He referred to the decision in the Dudley case as support for the approach which he adopted. Although Mr Mansfield and Mr Morgan were at first disposed to take issue with the second sentence in the passage which I have just quoted, on reflection they recognised that it takes as its premise what appears in the preceding sentence. In other words availability of services outside of the City of London at a lower price may have been relevant in relation to the question of whether it was reasonable to instruct those who were in fact instructed, but once it was concluded that it was reasonable for them to be instructed that availability ceased to be relevant. The focus then shifted to a comparison between the charges of the solicitors actually instructed and the broad average of charges made by similar firms practising in the same area.

In L v L (1996) 1 FLR 873 Neill L.J. having considered recent authorities as to the principles to be applied by the taxing officer, discerned five propositions which at 877C he listed thus :-

(1) the general principle of taxation is that a solicitor’s remuneration should consist of two elements - first a sum computed on the basis of an hourly rate which represents what is called the “broad average direct cost” of undertaking the work; and secondly, a sum, usually expressed as a percentage mark-up of the broad average direct cost for care and conduct:

(2) the broad average direct cost is to be assessed by reference to an average firm in the relevant area at the relevant time:

(3) the relevant time means the time at which the work was done. No allowance should be made for the consequences of later inflation:

(4) the District Judge can draw on his own experience and on information which is provided to him by local firms; the District Judge can also take account of surveys.

(5) an artificially inflated figure for uplift should not be used to correct or compensate for inadequate hourly rates: accordingly the appropriate hourly rates should be the rates which “represented the actual cost to the solicitor at the relevant time doing the relevant work (assuming always that the solicitor has acted reasonably and the costs are incurred at the appropriate level).

Neill L.J. then added two qualifications. First, he emphasised that the words of Order 62 Rule 12(1) contain the key test “ a reasonable amount in respect of all costs reasonably incurred” and, secondly, he said at 878C :-

“I would also wish to leave open the question, which does not arise in this case, as to whether it is always correct to consider only firms in the relevant area. There may cases where it might be arguable that though the costs were reasonable for the solicitor instructed, it was not reasonable to instruct a solicitor practising in an expensive inner city area rather than one practising, for example, in a suburb.”

That second qualification is of course the issue in this case.

Aldous L.J. said at page 884A :-

“The task of the taxing officer under Order 62 Rule 12 is to allow ‘a reasonable amount in respect of all costs reasonably incurred’. That requires two decisions. First, whether costs were reasonably incurred and secondly - what is the reasonable amount that should be allowed? We are not concerned with the first matter, as there is no dispute before us as to whether any particular work carried out should or should not have been carried out nor whether it should have been carried out by a partner or some other employee. The only issue before us is whether the reasonable amount should be calculated using as the Part A figure £45 per hour for a partner and £30 per hour for a legal executive.”

The last sentence is important because that was the issue in the case. The appellants were contending for £60 per hour for a partner and £50 per hour for a legal executive on the basis that costs had risen and the figures put forward by the respondents no longer represented the true cost of doing the work. It is in that context that Aldous L.J. said at 885A :-

“The reasonable amount is not necessarily the amount that a solicitor might charge, but is the reasonable amount that a party ordered to pay costs should actually pay. Thus the expense rate of certain solicitors may be totally irrelevant as their overheads and therefore their expense rate far exceeds that which other solicitors doing the relevant work would charge. A party ordered to pay costs should not be liable for the particular choice of solicitor of the winning party, but should pay the reasonable costs of the sort of solicitor that a person would have instructed with a view of the proper conduct of his case and minimising the costs of the litigation.”

Mr Mansfield and Mr Morgan naturally invite our attention to the last sentence, but, as I have made clear, Aldous L.J. was not in fact addressing the issue with which we are concerned.

Other than the two decisions under appeal the only other case cited to us is a recent decision of Buckley J. in Jones v Secretary of State for Wales (1997) 1 WLR 1008. There the facts were very different and nothing was said which seems to me to be relevant in relation to these appeals.

7. Back to Truscott

It is accepted on all sides that Judge Coltart in Truscott and Potter J. in Wraith were in no way fettered by the taxing officer’s decision. Their obligation was to determine the rights of the parties as though the matter came before them without any determination having already been made (see Kawarindrasingh v White (1997) 1 WLR 785). There can therefore, in my judgment, be no real criticism of Judge Coltart’s assertion that once the issue is raised the burden of establishing the reasonableness of instructing ATC lay upon Mr Truscott. The words of Order 62 Rule 12(1) show that the court can only allow a reasonable amount in respect of costs reasonably incurred, and that any doubts must be resolved in favour of the paying party. However, then, as it seems to me, Judge Coltart fell into error because he said:-

“I am not satisfied that it can be regarded as reasonable for the First Defendant to have instructed Alison Trent and Company on this matter if their rates are higher than would be found locally.”

So that was the sole reason for concluding that the burden of proof had not been discharged. As Mr Mansfield pointed out, other matters were canvassed in the judgment, but they were only canvassed as submissions advanced by counsel, and, as Miss Gumbel submitted, Judge Coltart made the same error that was made by the Clerk to the Justices in the Dudley case. Instead of asking himself whether Mr Truscott had acted reasonably when he instructed ATC and seeking to answer that question having regard to all relevant considerations the judge answered it by applying one simple and in my judgment inappropriate test, namely a comparison between the rates charged by ATC and the rates charged by firms in the locality of the court and the locality in which Mr Truscott lived. The following are matters which, as it seems to me, the judge should have regarded as relevant when considering the reasonableness of Mr Truscott’s decision to instruct ATC :-

“(1) the importance of the matter to him. It was obviously of great importance. It threatened his home.

(2) the legal and factual complexities, in so far as he might reasonably be expected to understand them. Due to the incompetence of MFC the matter had taken on an appearance of some complexity.

(3) the location of his home, his place of work and the location of the court in which the relevant proceedings had been commenced.

(4) Mr Truscott’s possibly well-founded dissatisfaction with the solicitors he had originally instructed, which may well have resulted in a natural desire to instruct solicitors further afield, who would not be inhibited in representing his interests.

(5) The fact that he had sought advice as to who to consult, and had been recommended to consult ATC.

(6) The location of ATC, including their accessibility to him, and their readiness to attend at the relevant court.

(7) What, if anything, he might reasonably be expected to know of the fees likely to be charged by ATC as compared with the fees of other solicitors whom he might reasonably be expected to have considered.”

If ATC have some particular experience in relation to professional negligence that I accept would not be relevant, because that was not why Mr Truscott consulted them. The advice he received was simply that they would be able to handle his case.

If the judge had taken account of the matters which I have listed it seems to me to be obvious that he would have reached a different conclusion, namely that it was reasonable for Mr Truscott to instruct ATC. This is not a question of discretion, it is a question of the proper approach to be adopted to the matter under consideration. There being no issue as to the reasonableness of the charges of ATC once it is accepted Mr Truscott was acting reasonably in instructing that firm it follows that in my judgment his appeal must be allowed. I would therefore in his case set aside the decision of Judge Coltart and restore the order of the District Judge.

8. Back to Wraith

When giving judgment in Wraith Potter J said at (1996) 1 WLR 624D :-

“In relation to the first question ‘Were the costs reasonably incurred?’ it is in principle open to the paying party, on a taxation of costs on the standard basis, to contend that the successful party’s costs have not been ‘reasonably incurred’ to the extent that they had been augmented by employment of a solicitor who, by reason of his calibre, normal area of practice, status or location, amounts to an unsuitable or ‘luxury’ choice, made on grounds other than grounds which would be taken into account by an ordinary reasonable litigant concerned to obtain skilful competent and efficient representation in the type of litigation concerned.......... However, in deciding whether such an objection is sustainable in practice the focus is primarily upon the reasonable interests of the plaintiff in the litigation so that, in relation to broad categories of costs, such as those generated by the decision of a plaintiff to employ a particular status or type of solicitor or counsel, or one located in a particular area, one looks to see whether, having regard to the extent and importance of the litigation to a reasonably minded plaintiff, a reasonable choice or decision has been made. If satisfied that the choice or decision was reasonable, it is the second question ‘what is a reasonable amount to be allowed?’ which imports consideration of the appropriate rate or fee for a solicitor or counsel of the status and type retained. If not satisfied the choice or decision was reasonable, then the question of ‘reasonable amount’ will fall to be assessed on the notional basis of the costs reasonably to be allowed in respect of a solicitor or counsel of the status or type which should have been retained.

In either case, solicitors’ hourly rates will be assessed, not on the basis of the solicitor’s actual charging rates, but (in a case where the decision to retain was reasonable) on the basis of the broad costs of litigation in the area of the solicitor retained or (in a case where the choice made was not reasonable) of the type or class of solicitor who ought to have been retained.”

That in my judgement is right. I do however take issue with the way in which the principle was applied to the facts of the case. I accept that it was reasonable for Mr Wraith to consult his trade union, but the trade union knew or ought to have known what sort of legal fees it would have to expend to obtain competent services for Mr Wraith, who lived in Sheffield and had sustained a serious accident there. Once Mr Wraith consulted his union that knowledge must be imputed to him. As Potter J accepted “no doubt there were firms of solicitors in Sheffield or Leeds well qualified to do the work” and in reality the only reason why the work went to London solicitors was that the union had adopted the practice of sending all their work to those solicitors. That connection seems to me to be of limited relevance on taxation in an individual case. It means of course that, like competent solicitors in Sheffield or Leeds, the solicitors actually instructed were well qualified to do the work, and that the union, as advisers to Mr Wraith, knew the solicitors to be competent and trusted them to exercise the necessary expertise, but that is all.

None of what I have just said is intended to put pressure on trade unions or insurers to change their policy and parcel out work so that different solicitors act for them in different areas. Some insurers and some unions already operate in that way. Others use one solicitor who has local branches, as is now the case with RJW, but whatever approach is adopted it seems to me that it is the duty of unions and insurers in each individual case to keep down the costs of litigation, and that may well mean that if they go to London solicitors who charge London rates for a case which has no obvious connection with London, and which does not require expertise only to be found there, they will, even if successful, recover less than the solicitors have charged.

In the case of Wraith I would therefore allow the appeal and in default of agreement remit the matter for further consideration by the Deputy District Judge. His conclusion may be that it was reasonable for Mr Wraith to get his union to instruct RJW, but only on the basis that they would charge fees appropriate to their Leeds office. That however is only a tentative suggestion which goes somewhat further than for present purposes it is necessary to go.

LORD JUSTICE WAITE: I agree.

LORD JUSTICE AULD: I also agree.

Order: Appeals allowed. In the case of Truscott v Truscott order of District Judge restored. The costs of application on 7th May 1996 recoverable by March Ferriman & Cheale. Legal aid taxation. In the case of Wraith v Sheffield Forgemasters remitted to the Deputy District Judge for further consideration. Costs of appeal at hearing below will follow the event. Costs before the judge hereafter to be a matter for that judge. Leave to appeal was refused in Wraith v Wraith.