Jemma Trust Company Ltd v Liptrott & Ors

The third defendants, Messrs Kippax Beaumont Lewis (“KBL”) are solicitors. They appeal against the decision of Costs Judge Rogers on a preliminary issue in the detailed assessment of the costs charged by KBL in relation to the administration of the estate of the late Sir Geoffrey Hulton Bt. KBL rendered to the estate bills which claimed two sets of charges; one set of charges was based on the time that they had spent administering the estate, the other on the value of the estate. Costs Judge Rogers held that they were not entitled to charge a percentage of the value of the estate at the same time as charging for the time they spent on the administration.

Sir Geoffrey Hulton died on 20th November 1993. His estate was worth a little less than £10 million.

The first and second defendants are the executors of the estate. The first defendant, Mr Liptrott, is a former partner in KBL. The second defendant was Sir Geoffrey’s land agent. The executors instructed KBL to undertake the administration of the estate. No express agreement was made as to the terms on which KBL would act or, in particular, as to the basis on which they would charge the estate for their work. The claimant is the trustee of the Igloo Trust of Jersey to whom the residuary beneficiary has assigned his interest.

The first category of charge is based on the time actually spent by KBL’s fee earners (Mr Liptrott, a partner in the firm, and Mr Marriott, an employed barrister) in relation to the administration of the estate. Those bills are said to have amounted to £386,459 (although it is not clear whether this includes VAT). However KBL have also rendered a separate category of charge which is not based on the time spent by the fee earners, but on the value of the estate. Those bills are said to amount to £227,689.31 plus VAT, a total of £267,534.93. Thus the total sum charged by KBL in relation to the administration of this £9.5 million estate is £653,993. (That figure is for KBL’s own work alone; it does not include an additional £140,000 charged by counsel. It should also be noted that Mr Post, for the Respondent, asserted at the hearing that further bills had been rendered.)

The appeal relates primarily to the second category of charge, that rendered in relation to the value element. KBL’s position before Master Rogers was that they were entitled to charge the estate, in addition to the sums charged for the time they spent on the case, 1.5% of the value of the estate, save for the value of the deceased’s residence which was be charged at 0.75%. The residence was worth £265,000. 0.75% of that sum is £1,987.50. The balance of the estate on the basis of the defendants’ valuation (as set out in their bills) was worth £9,361,668. 1.5% of £9,361,668 is £140,425. Thus the total that should, on the face of it, have been charged for the value element, on the basis of KBL’s own case, is £142,412.50. KBL have in fact rendered value element bills of £227,689.31. This is said to be because the estate has increased in value. But this is a matter for the costs judge and does not arise on the preliminary issues so far decided.

Three issues arise on this appeal:

(a)

are solicitors engaged in relation to the administration of an estate entitled, in the absence of any agreement with interested parties, to charge not only for the time they spend on the administration of the estate but also a scale fee based on the value of the estate? Costs Judge Rogers found that they were not because the element of value is (or should be) subsumed in the total hourly rate;

(b)

if a solicitor is entitled to charge in this way, how should that value element fee be calculated? In particular should it be based on the reducing scale proposed in the case of Maltby v D J Freeman [1978] 1 WLR 431?

(c)

Did the Judge assess an appropriate hourly rate, if he was right that no separate charge based on value should be made?

The significance of these issues extends beyond the present case. The most recent authorities as to solicitors’ charges in relation to non-contentious work date back to the 1970s and the claimant’s case, with which Costs Judge Rogers agreed, is that these do not properly reflect the realities of contemporary legal practice. As counsel for KBL has said in his skeleton argument the case has attracted considerable attention throughout the solicitors’ profession, and the Law Society has been given leave to intervene in the appeal.

Solicitors’ remuneration in relation to non-contentious business is governed by The Solicitors’ (Non-Contentious Business) Remuneration Order 1994 which was made pursuant to section 56 of the Solicitors Act 1974 and came into force on 1st November 1994. The first two of KBL’s eight bills were rendered on 27th April 1994 and therefore it is the predecessor statutory instrument which, strictly, applies to them but nothing turns on the slight difference of wording in the instruments and we need quote only parts of paragraphs 2 and 3 of the 1994 Order:-

“ 2. In this Order:-. . . .

“entitled person" means a client or an entitled third party;

"entitled third party" means a residuary beneficiary absolutely and immediately (and not contingently) entitled to an inheritance, where a solicitor has charged the estate for his professional costs for acting in the administration of the estate, and either

(a)

the only personal representatives are solicitors (whether or not acting in a professional capacity); or

(b)

the only personal representatives are solicitors acting jointly with partners or employees in a professional capacity;

. . . . . .

3.

A solicitor's costs shall be such sum as may be fair and reasonable to both solicitor and entitled person, having regard to all the circumstances of the case and in particular to:-

(a)

the complexity of the matter or the difficulty or novelty of the questions raised;

(b)

the skill, labour, specialised knowledge and responsibility involved;

(c)

the time spent on the business;

(d)

the number and importance of the documents prepared or perused, without regard to length;

(e)

the place where and the circumstances in which the business or any part thereof is transacted;

(f)

the amount or value of any money or property involved;

(g)

whether any land involved is registered land;

(h)

the importance of the matter to the client; and

(i)

the approval (express or implied) of the entitled person or the express approval of the testator to:-

(i)

the solicitor undertaking all or any part of the work giving rise to the costs or

(ii)

the amount of the costs.”

It is thus apparent that the amount or value of any money or property involved in the estate being administered is a matter to which regard is to be had in assessing the fair and reasonable remuneration to which solicitors are entitled.

On 17th August 2001 Master Moncaster ordered that the costs of the administration of the estate be assessed by the court. The matter was referred to the Supreme Court Costs Office and allotted to Costs Judge Rogers. Both the Claimant and KBL, through their advocates, submitted that the parties would be assisted by the determination of two preliminary points and an order was made on 24th June 2002 in the following terms:-

“A preliminary issue is to be tried as to the value element and the hourly rates applicable to the bills issued by Kippax Beaumont Lewis”

In his judgment on these issues the Judge considered the issues in the reverse order and so dealt first with the hourly rates claimed. The hourly rates claimed by KBL were £85 per hour in 1994 rising to £150 per hour in 2000; their rates were upheld by the Judge because, as it was put in KBL’s skeleton argument which the Judge adopted, those rates constituted an increment of between 25-35% on the hourly rates used by District Judges in the Bolton area for the “Broad Average Direct Cost”. They compared favourably with the rates allowed for Bolton County Court matters which started with the same base rate but then gave a 50% uplift for what used to be called “care and conduct”.

The Judge then turned to the second preliminary point, viz. value, and decided that, in spite of authorities dating from the 1970s in which a percentage of the value of the estate was allowed, it was now anachronistic and wrong to include an element of value because hourly rates were invariably calculated on the basis of time recording material which was more sophisticated than in the 1970s. He held that a solicitor should therefore charge either on the basis of an hourly rate or on the basis of value but not both.

There is a tension between these two parts of the judgment because it is not clear, in the result, whether the judge has had any regard to the value or amount of the estate, as he is required by the 1994 Order to do in reaching a conclusion as to what is fair and reasonable. It might be permissible to allow for the value of an estate in assessing the hourly rate but the judge’s approval of the hourly rate as claimed by KBL does not, at any rate expressly, take that value into account.

Mr Post for the respondent Claimant supported the judge’s conclusion. He submitted that it was now well-recognised that in contentious work the hourly rate charged by solicitors was supposed to reflect accurately not merely what KBL’s skeleton called the direct cost or the hourly expense rate but also what used to be called the uplift for the “care and conduct” element of a solicitor’s remuneration. As Hobhouse J put the matter in Finley v Glaxo Laboratories (1989) Costs Law Reports 106, at page 112, adverting to what had been previous practice at any rate in the north-east of the country:-

“. . . I would not lend support to the adoption of an unduly low hourly rate and then seeking to put it right by applying a higher uplift percentage. The right approach is that which I have emphasised, namely to adopt a realistic approach to the hourly rate to reflect the actual cost of the fee earner involved, and then to apply an appropriate but not excessive uplift”. (See also Hobhouse J’s comments in Loveday v Renton and another (No 2) [1992] 3 AER 184, 188 a-c.)

Hobhouse J had already made clear in the Finley case that the uplift factor was to include the elements required to be taken into account by the Rules of Court for contentious work, including, then as now, “the amount of money involved” (see now CPR Part 45.5(3)(b)).

If, therefore, the combined hourly rate (combined for expense and uplift) were to include the appropriate factor for the value of what was at stake in contentious litigation, why, submitted Mr Post, should the position not be the same for non-contentious business? There was no need for the solicitor to obtain a windfall separate from the appropriate factor in the hourly rate. He then submitted that, since the judge had decided what the appropriate hourly rate was, the appeal should be dismissed.

Mr Fenwick QC, for KBL, submitted that the judge had not taken value into account in the hourly rates assessed and, secondly, that the separate charge based on the value of the estate was properly made and should be upheld. He submitted that it was much easier in contentious business to include an amount in respect of value in the hourly rate because the assessment was often done at the conclusion of litigation when all relevant factors were known and could be taken into account. In non-contentious business, at any rate where it was appropriate to render interim bills in a lengthy administration, all relevant factors, and particularly the complexity of the exercise, would not be known. For solicitors to be restricted to an hourly rate would almost inevitably lead to the client, or “the entitled person” within the meaning of the 1994 Order, being under-charged or over-charged.

In his helpful submissions on behalf of the Law Society, Mr Richard Drabble QC drew attention to a booklet called the Revised First Edition of the Society’s publication “An Approach to Non-Contentious Costs” (February 1995). Paragraph 10.1(b) states “If it appears that the value factor is going to be very much larger than the expense, then consider section 12 and absorb the expense wholly or partly in the value factor”. Paragraph 11.9.2 deals with the “expense rate” prior to any mark-up. Section 12 of the booklet is headed “How do you treat value?”. It refers to the decision of Donaldson J sitting with assessors in Property and Reversionary Investment Corporation Ltd v Secretary of State for the Environment [1975] 1 WLR 1504 in which that learned judge, in the context of compulsory purchase of a central London building, commented on the various factors which the 1972 Solicitors’ Remuneration Order required to be taken into account. In relation to “the amount or value of any money or property involved” he said this at page 1511:-

“This is an objective test of the importance of the transaction and strongly influences the responsibility factor: see paragraph (ii) above. In the present case it is, without doubt, the weightiest single factor. However, I should utter a word of warning. In taking account of high values, while it is right in principle to apply a value factor, this factor will vary according to the particular circumstances, and it should be remembered that the burden of responsibility on the solicitor does not increase in direct proportion to the value. The effect of increased value is regressive and the rate of regression increases with the value. Furthermore, it is a matter of broad bands of value, rather than precision. Others might select different bands, but I and the assessors would suggest that, in the light of the current value of money, the divisions between the higher bands might be taken as being at £¼ m.; £1 m.; £2½ m.; £5 m. and £10m. Finer tuning can be achieved by considering whether the value is at the bottom, the middle or the top of the relevant band, and there could be even more refined categorisation, if it was thought appropriate. But the essence of the approach is that it involves classification and not enumeration.”

Paragraph 12.5 of the Law Society booklet then sets out updated “suggested regressive yardsticks” for non-contentious business except for mortgages and probate. Paragraphs 12.12 and 13 then deal with “Value in probate and the administration of estates” and provide:-

“12.12

The first step is that you must consider not only the value of the assets, but also their nature and number. You cannot apply a yardstick percentage to an aggregate sum without thought – and that must particularly be so where a share in the matrimonial home inherited by the surviving spouse forms the major part of the estate. Where the home is concerned it would be usual to discount the value factor of the deceased’s interest in the residence by one half, i.e. one half of the yardstick percentage in paragraph 12.13 if solely owned by the deceased or one quarter if jointly owned, or more if you consider that appropriate. The reason is that, with the increase in house prices in some parts of the country, many people die leaving a highly priced house and very little else. In such circumstances, a full value factor will be too large in relation to the responsibility involved and to the weight of the matter.

12.13

The next step is that having considered the assets you apply the following suggested percentages to them, regarding them as appropriate for property of a type normally to be found in the general run of estates, but making an allowance for simplicity, or even an increase for difficulty which is not taken into account under another head . . . .

Solicitor sole executor or joint executor with any other person

Gross estate less residence 1½%

Residence ¾%.”

Section 13 asks the question “ How do you apply a mark-up?”. Paragraphs 13.1, 13.2 and 13.5 provide as follows:-

“13.1

Guidelines

(a)

Consider whether the transaction has a relevant and ascertainable value factor, and then refer to paragraphs 13.4 or 13.5.

(b)

Decide what percentage mark up is appropriate.

(c)

Apply that percentage to the figure you have established for the value of chargeable time in accordance with paragraph 11.9.2.

13.2

The mark-up is a method of expressing the weight to be attached to the factors in the Order, apart from value and time, and of other relevant circumstances in the general run of work. It is not the only method, nor is it always the most suitable, but it has become widely accepted and it has this merit; it enables you to distinguish degrees of skill etc. between one file and another in work of similar type and thereby establish a reference point to take into account when finally deciding what the charge should be. It does not represent an addition to expense to which you are automatically entitled. It may be that, at the end of your review, you may decide its addition would produce too high a charge; that is a matter of judgment.

. . . . . .

13.5

Cases (other than in domestic conveyancing) where there is a relevant and ascertainable value factor

(a)

freehold and leasehold conveyancing matters in which there is valuable consideration;

(b)

probate and administration of estates;

(c)

setting up and termination of trusts where there is a significant value element;

(d)

commercial matters involving property or money assets or other valuable consideration.

In these cases the mark-up is commonly in the region of 25 per cent to 33 per cent.”

The figure of 25 – 33 per cent is comparable to the figure of 25 – 35% referred to in paragraph 46 of KBL’s skeleton adopted by the Judge. But it is to be noted that this figure is stated to be the appropriate figure where there is an ascertainable value factor. It is a lower mark-up than appropriate for cases where there is no ascertainable value factor precisely because that value factor will have been given separate weight pursuant to section 12 of the Guidance. The effect of the Judge’s judgment in relation to the hourly rate is, on the face of it, not merely to exclude the value element as a separate chargeable factor but also to exclude it from the hourly rate insofar as the uplift is allowed at only 25 – 35%.

It is, moreover, a feature of this booklet that no encouragement is given to regressive bands of the kind referred to by Donaldson J in the Property and Reversionary case, in cases of probate and estate administration. This aspect had, however, been addressed in Maltby v D J Freeman [1978] 1 WLR 431 in the context of an administration of an estate with a value of nearly £2 million in 1973. Walton J there said at page 436:-

“In general, however, when one comes to translate value into terms of the legal bill, the approach involves two ingrained habits of legal thought. There is nothing strictly logical about either, but they are so ingrained that all approaches have to take them into consideration. The first is that the correct method of charging is by means of a method of percentages, and the second is that the percentage is not a flat rate applied throughout the scale, but declines on a regressive scale as the value of the matters involved increases. In the Property and Reversionary Corporation case a strenuous effort was made to persuade the court, in the light of the fact that that Order - very similar in terms to the rules in the present case - did not prescribe any bands or percentages, that a flat rate ought to be taken over the whole. This was rejected by Donaldson J. in accordance with the general feeling of the profession.

I am therefore left with the twin problems of where the bands lie and what the percentages should be. In the Property and Reversionary Corporation case [1975] 1 W.L.R. 1504, 1511 Donaldson J. indicated that the divisions between the higher bands, when one is dealing with property approaching £2m. as a minimum in value, should fall at £¼m., £1m., £2½m., £5m. and £10m. Although the value of money has changed considerably, even since 1975, I would not quarrel with these divisions in any way. I do not, however, take it that Donaldson J. intended that the first band should be a simple band up to £¼m. at a low figure. It must, I think, "dovetail" into the charges for estates made up to £¼m. and in this regard I refer, by way of illustration rather than strict guidance - since the figures have since been withdrawn - to the suggested charges for obtaining grants and administration set out in the Law Society's Gazette for March/April 1971.

I therefore think that (i) in the case of an estate of the size of the present one, (ii) compounded of the large number of separate elements of which the present estate is compounded, the first band (to £¼m) would be at 1½ per cent.; the second band (£¼m. to £1m.) at ½ per cent.; and the next band (£1m. to £2½m.) at 1/6 per cent. I must emphasise that these bands cannot be made to apply, and are certainly not intended to apply, to any other classes of work carried on by solicitors: they have no relevance whatsoever to ordinary straightforward conveyancing, for example, where there is only one asset to deal with at a time.”

This omission of any reference to a regressive yardstick in relation to probate and administration has been considered subsequently in a further Law Society booklet of November 1999, called Practice Advice Service, which is, however, not intended to be a fully comprehensive guide to non-contentious costs but attempts to cover those areas that generate the most inquiries from solicitors. The 1995 (wrongly said to be 1994) booklet is stated to be still the place where detailed guidance is to be found. It repeats the suggested “regressive yardstick” (with the same bands) for non-probate work and then (page 5) has a heading “Guidelines for charging in probate/estate”. It states that the hourly rate should be an inclusive figure incorporating the fee-earner’s expense rate and any care and conduct uplift. It then says that account may be taken of the value of the assets in the estate and sets out the Law Society guidelines as before, viz. for present purposes 1.5% for the value of the gross estate less the principal residence and 0.75% for the value of the residue. It reminds the profession that this is only a guideline and that the overall consideration must be that the charges are fair and reasonable having regard to all the circumstances. A fourth paragraph then deals with high value estates in the following terms:-

“When dealing with high value estates, consideration should be given to reducing the value element percentage charged in order to ensure that the overall level of charge is fair and reasonable. For general guidance on this point, see the case of Maltby v D J Freeman & Co.”

Mr Drabble supported the guidance given in the Law Society booklets and submitted that there was no reason why solicitors should not render a bill which made a charge by way of a percentage of the value of the estate being administered or by way of an increased hourly rate to reflect the value of the estate or by way of a combination of the two methods of charging provided that value was not charged twice over.

The first question is whether the judge was right to say that there is now no room for a separate valuation charge in non-contentious business. We have no doubt that time recording material is considerably more sophisticated than it was in the 1970s. We also agree with Mr Post that in the 1970s solicitors’ hourly rates allowable on taxation (or assessment as it is now) were artificially low so that there may then have been particular reasons to permit solicitors to charge by reference to the value of the property. We further agree (indeed there was no dispute about it) that in contentious business it is now normal for the value of the claim or the property in issue to be taken into account when assessing a global hourly rate which is to be neither artificially depressed nor artificially increased.

Nevertheless even when one takes all these factors into account, we see no reason to say that it is no longer appropriate for solicitors to make a separate charge based on value, provided always that one remembers that the solicitor is entitled only to what is fair and reasonable remuneration, taking all relevant factors into account.

In an estate of small or medium-value, it may be appropriate for a solicitor to limit his charges to a percentage of the estate’s value or to charge a percentage together with an appropriately modest hourly rate. For a high-value estate it may also be appropriate to charge a percentage together with an hourly rate because, if one is to take value into account, as the Order entitles the solicitor and requires the costs judge to do, that will mean that the charges will have one element of comparative certainty. An hourly rate, although certain of itself, is subject to the variable that the number of hours worked cannot be ascertained until the business is completed. It must always be remembered that, once the business is completed, it is the solicitor’s duty to have charged no more than is fair and reasonable in all the circumstances and the costs judge will be able to look at the matter in the round.

The authorities in the 1970s do not, moreover, merely permit solicitors to charge by reference to a percentage of value; they indicate that, in relation to non-contentious business, charging by reference solely to an hourly rate is to be resisted. Thus in the Property and Reversionary Investment case, Donaldson J, having said at [1975] 1 WLR 1509F that the object of the exercise is to arrive at a sum which is fair and reasonable, having regard to all the circumstances and in particular the matters specified in the numbered paragraphs of the relevant remuneration Order, stated:-

“It . . . follows that it is wrong always to start by assessing the direct and indirect expense to the solicitor, represented by the time spent on the business. This must always be taken into account, but it is not necessarily, or even usually, a basic factor to which all others are related.”

Similarly in Treasury Solicitor v Regester [1978] 1 WLR 446, a case of a lease of a valuable commercial property, Donaldson J said, in relation to the time spent on the business which was the third factor in the 1972 Order, at page 450:-

“The magnetic attraction of factor (iii) as a foundation for assessment of fair and reasonable remuneration is that, in the absence of an approved scale applied to value, it is the only figure which is readily calculable. It is an attraction which must be sternly resisted in cases of this sort where one or more of the other factors is such as to dwarf it into insignificance.”

In the present case the high value of the estate may not render the time spent on administration insignificant but the general caution against treating the hours spent as determinative is, in our judgment, a point of some importance.

Nor do we consider it in any way decisive that, in an assessment of costs in contentious litigation, it is now usual to incorporate the value element of any money or property into the hourly rate. There are significant differences in the circumstances in which charges are made for contentious and non-contentious business and the approach to such charges can properly differ even though the same factors fall to be taken into account. In a litigation context it may be difficult to say what the “value” is eg in claims for declarations or injunctions; a claimant’s claim may transgress the bounds of permissible optimism even if it is expressed in money terms. Moreover the parties have to decide what hourly charging rates they intend to claim at the outset of contentious business for a number of reasons. Costs will usually be payable by one or other of the opposing parties both at stages of the litigation (where the costs will be summarily assessed) and at the end (where there will be a detailed assessment). The charging rates to be claimed in respect of the costs payable by the opposing party will therefore have to be known both for the summary and the detailed assessments and they will also facilitate settlement because the parties will be able to predict with reasonable accuracy what further costs are likely to be incurred if the case proceeds. Also, the court will ordinarily require the parties to give particulars of costs incurred and to be incurred at various stages of the proceedings for the purposes of case management. The hourly rates to be claimed by one party from the other in contentious business can be adjusted retrospectively in the light of factors known at the time of the assessment.

By contrast, solicitors rendering bills to personal representatives over a period of time are not in the same position. When in the process of performing non-contentious business, they may find it impossible to forecast what amount of time will have to be spent on the business. It may assist the client or other entitled person to have the certainty of a charge embracing a separate value element (even if in monetary terms the appropriate charge by reference to value is small compared with the overall charge), since they will then know that the further charges for time will depend on the hours spent on the business and that such further charges will exclude any element based on value. There is the further advantage that a charge by reference to value will highlight the amount of the solicitor’s charge which is, in fact, attributable to the value of the estate; it will not be subsumed in the hourly rate where it is not so readily ascertainable.

For these reasons we cannot agree with the Judge that the time has come when charges by reference to the value of the estate should no longer be made by the profession. We think it is still open to solicitors to make such charges and, indeed, to make such charges (initially) at the rates recommended by the Law Society for solicitors acting as sole executor or jointly with another person, provided that it is remembered that, at the conclusion of the business, the question is whether the overall remuneration is fair and reasonable taking into account all the relevant factors set out in the Order.

We would, however, say that it will usually be right to reduce the value element percentage by reference to a regressive scale in some such way as was done by Walton J in Maltby v D J Freeman. In this respect, the advice given by the Law Society to the profession is, in our judgment, insufficiently firm. The 1995 booklet makes no reference to this possibility in probate and administration matters. The 1999 booklet suggests merely that “consideration should be given to reducing the value element percentage” when dealing with high value estates.

There remains the question how the regressive scale should be calculated. In the present case the 1993 value of the principal residence is relatively modest at £265,000 and there is no need for any regressive scale in relation to that. It might be different for a property in the south-east of England at today’s prices. The remainder of the estate was valued at about £9 million and there is, in our judgment, room for a regressive scale of some sort. In Maltby v D J Freeman Walton J adopted the following bands:-

(1)

Up to £250,000 1½%

(2)

250,000 - £1 million ½%

(3)

£1 million – £2.5 million ¹/₆%

The Judge in the present case, on the supposition that he was wrong on the general point, adopted those bands (save that he changed £2.5 million to £2 million) and then added two more bands:-

(4)

£2 million – £5 million ¹/₁₂

(5)

£5 million - £10 million ¹/₂₄

It seems to us that, in agreement with Mr Fenwick’s suggestion, some increase in the bands should be allowed for inflation occurring between 1978 when Maltby was decided and 1993 when the bills in the current case were rendered. We do not disagree with Mr Post’s figures for the 1993 position; one would then have the following bands, applicable to cases such as this:

(1)

Up to £750,000

(2)

£750,000 - £3 million

(3)

£3 million - £6 million

(4)

above £6 million.

That would suggest that the appropriate figures for bills rendered for work done in 2003 would be:-

(1)

£1 million

(2)

£4 million

(3)

£8 million

(4)

£12 million.

There was no dispute that if a regressive scale was right at all (as we think it is) the appropriate percentages should be 1½%, ½%, ¹/₆% and ¹/₁₂%. That will then lead to the following figures:-

£750,000 x 1.5% = £11,250

£2.25 million x 0.5% = £11,250

£3 million x 0.1666% = £5,000

£3.362 million x 0.08333% = £2,800

£30,300

We would, however, emphasise the importance of looking at the final figure in the round in order to ensure that the appropriate factors are taken into account in every individual case to arrive at no more than a fair and reasonable remuneration overall.

We have already made clear our view that the Judge has assessed too low an hourly rate, if he was right to conclude that a valuation element should not appear separately in the bills. If the value element is addressed separately, the Law Society guidance contemplates an uplift factor of 25 – 33% over the expense rate. By adopting KBL’s skeleton argument, the Judge gave KBL that rate but no more, at any rate for the years 1994 – 1996. The last years seem to be assessed at slightly more, but only minimally so. In these circumstances we are not satisfied that the Judge has given any sufficient allowance for the value of the estate at all. The parties agreed that, in the event of this conclusion being reached, the matter would have to be remitted to the costs judge. He will be able to consider our judgment, as a whole, and make his final assessment in the light of it.

We have been asked to give the profession such guidance as we can for the future in the light of the issues to which the appeal has given rise. This is difficult and, for our part, we cannot do better than to suggest that it would be appropriate for solicitors to adhere to the following principles:-

(1)

Much the best practice is for a solicitor to obtain prior agreement as to the basis of his charges not only from the executors but also, where appropriate, from any residuary beneficiary who is an entitled third party under the 1994 Order. This is encouraged in the 1994 booklet and letter 8 of Appendix 2 to the 1999 booklet provides a good working draft of such agreement. We support that encouragement;

(2)

in any complicated administration, it will be prudent for solicitors to provide in their terms of retainer for interim bills to be rendered for payment on account; this is, of course, subject to the solicitor’s obligation to review the matter as a whole at the end of the business so as to ensure that he has claimed no more than is fair and reasonable, taking into account the factors set out in the 1994 Order;

(3)

there should be no hard and fast rule that charges cannot be made separately by reference to the value of the estate; value can, by contrast, be taken into account as part of the hourly rate; value can also be taken into account partly in one way and partly in the other. What is important is that

(a)

it should be transparent on the face of the bill how value is being taken into account; and

(b)

in no case, should it be taken into account more than once;

(4)

in many cases, if a charge is separately made by reference to the value of the estate, it should usually be on a regressive scale. The bands and percentages will be for the costs judge in each case; the suggestions to the costs judge set out in paragraph 30 may be thought by him to be appropriate for this case but different bands and percentages will be appropriate for other cases and the figures set out in paragraph 30 cannot be any more than a guideline;

(5)

it may be helpful at the end of the business for the solicitor or, if there is an assessment, for the costs judge, when a separate element of the bill is based on the value of the estate, to calculate the number of hours that would notionally be taken to achieve the amount of the separate charge. That may help to determine whether overall the remuneration claimed or assessed is fair and reasonable within the terms of the 1994 Order.

(6)

it may also be helpful to consider the Law Society’s Guidance in cases where there is no relevant and ascertainable value factor which is given in the 1994 booklet at paragraph 13.4. If the time spent on the matter is costed out at the solicitors’ expense rate (which should be readily ascertainable from the Solicitors’ Expense of Time calculations) the difference between that sum (the cost to the solicitor of the time spent on the matter) and the final figure claimed will represent the mark-up. The mark-up (which should take into account the factors specified in the 1994 Order including value) when added to the cost of the time spent must then be judged by reference to the requirement that this total figure must represent “such sum as may be fair and reasonable to both solicitor and entitled person”.

I gratefully adopt the statement of the facts and issues contained in the judgment of Peter Gibson and Longmore LJJ. I agree with them in the result, but not in every step in the reasoning.

The preliminary issue was ordered “as to the value element and the hourly rates applicable to the bills issued” by the appellants. I agree with Peter Gibson and Longmore LJJ that the judge erred, in (a) allowing the appellants to charge an hourly rate involving a relatively low rate of uplift (some 25% to 33 or 35%) above a basic expense rate and at the same time (b) excluding entirely all sums billed by the appellants on a percentage basis by reference to the value of the estate. By so doing, he said (in his paragraph 45) that he was preventing overpayment, but in fact he was failing in any way to take account of “the amount or value of [the] money or property involved”, as required by paragraph 3(f) of the 1994 Order.

The terms in which a preliminary issue was ordered risked overlooking that, under the 1994 Order, the ultimate test of the appellants’ entitlement to the costs which they billed is whether these were “fair and reasonable to both solicitor and entitled person”, having regard to all the circumstances of the case, and in particular those listed in paragraph 3(a) to (i) of the Order. The importance of checking any computations against this ultimate test was stressed in Treasury Solicitor v. Regester [1978] 1 WLR 446 and Maltby v. D J Freeman[1978] 1 WLR 431, both concerned with non-contentious business. In the first case, the taxing master had made separate calculations on an hourly basis and a percentage of value basis, and had simply added the resulting figures. Donaldson J made clear that this was inappropriate. Although he suggested a value based calculation based on bands and percentages, its purpose was no more than to provide a check on the reasonableness of the relationship between the fees and the value of the property (cf p. 454A). In the Maltby case again it is clear from the bands and percentages, there developed in greater detail, that there was no simple addition. Indeed a percentage of value calculation would by itself have led to somewhat larger sum (£8,833) than that (£8,500) which the judge ultimately thought fair and reasonable.

The Law Society’s approach in the two booklets, to which Peter Gibson and Longmore LJJ have referred, encourages a dual basis of computation, whereby the first step is to arrive at an hourly rate, with a relatively low mark-up of 25-30% excluding any value element, and the second step is a percentage of value calculation, the resulting figures being added together. Under the Law Society’s approach the percentage of value calculation would be very simple in the case of lower value estates (1% flat on the value of the principal residence, with ½% flat being charged on the residue), but would involve in the case of “high value estates” a reduced “value element percentage”. Maltbyisreferred to in this connection for “general guidance”. The Law Society’s booklets do point out that the ultimate question is whether the overall level of charge is fair and reasonable. In the light of that test, our task can only be to give broad consideration to the costs judge’s approach, and some general guidance.

In the absence of any agreement on the basis of their fees, the present appellants rendered interim and final bills for sums computed on a dual basis, that is to say (a) charging an hourly rate involving a relatively low rate of uplift above a basic expense rate and also (b) purporting to take account of “amount or value of [the] money or property involved” by making a further, separate charge based on the value of the estate. The respondent’s case, accepted by the judge below, is that, in modern times, the only appropriate charging basis is an hourly rate with an uplift which is itself sufficient to take account of the value of the estate. It is not however suggested that this case receives any positive support from the statutory language, which makes the ultimate test simply whether the costs billed were “such sum as may be fair and reasonable to both solicitor and entitled person, having regard to all the circumstances of the case …..”. In theory, it may also be said that it should, in the light of that test, make no difference one way or the other which approach is right, or how a solicitor chooses to calculate his fees and express his bill. But methods of calculation may influence outcomes in practice, and, if solicitors can calculate fees in their bills on a basis including a percentage of value, that may be to their benefit. Not all bills are in any event questioned by the clients to whom they are rendered.

The benefits are not, however, necessarily all one way. In some circumstances, the certainty of a charge based purely on a percentage of value could well have advantages for clients. Some legal systems (e.g. the German, absent written agreement to the contrary: Bundesgebührenordnung für Anwälte; 26 July 1957) fix lawyers’ fees on the basis of the value of the subject-matter even in contentious cases. One feature of hourly charging, for which even the most skilled costs judge may, I imagine, find it difficult to allow, is its propensity to reward “plodding” work or – and this is, I suspect, as if not more relevant - its propensity to encourage and reward excessive diligence, whether by an individual or in the form of excessive deployment of man- or woman-power. I can therefore see why it might be appropriate for solicitors to be able to charge on a pure percentage of value basis, even without agreement. However, the dual basis of charging adopted by the solicitors in this case, in computing their fees, does not involve fees fixed purely or even mainly by reference to the value of the estate.

In contentious work, the elements required to be taken into account are stated in the Civil Procedure Rules, and include, under what is now CPR 44.5(3)(b) (the successor to RSC Order 62(2)(f)), “the amount of any money or property involved”. In this context the general practice developed of calculating fees by reference to an initial hourly rate. In a line of authorities between 1974 and 1991, the courts identified the two elements making up such a rate, the first (A) reflecting the expense of time and the second (B) reflecting a percentage mark up applied to take account of amongst other matters the amount of any money or property involved. In re Eastwood[1980] 1 WLR 396 and Leopold Lazarus v. Secretary of State for Trade and Industry (1976) Costs Law Reports, Core Volume 62, the courts took these two elements as the general principle governing taxation in contentious work. In R. v. Wilkinson [1980] 1 WLR 396, Robert Goff J was attracted by the Law Society’s submission that the same principle governed court attendances during litigation, but felt unable to go so far in the light of certain problems about the then current edition of the Law Society’s booklet, The Expense of Time. In 1986 the booklet was as a result modified, RSC Order 62 was amended (with Order 62(2)(f) appearing in the form indicated above) and Masters’ Practice Notes were published endorsing the dual approach of assessing and adding (A) and (B) in all contentious work: see Johnson v. Reed Corrugated Cases Ltd. [1992] 1 AER 169, where the dual approach was applied. The appropriateness of this approach and the need for (A) and (B) to be calculated realistically were emphasised by Hobhouse J in Loveday v. Renton (No. 2) [1992] 3 AER 184, 188 and Finley v. Glaxo Laboratories (1989) Costs Law Reports 106, 112. In the light of this line of authority relating to contentious work, the respondents raise the question why non-contentious work should, in the absence of any agreement about the basis of fees, be any different. For my part, I find this a not altogether easy question to answer.

The appellants and the Law Society in their submissions have sought to distinguish the two in principle, by identifying factors which make it appropriate to charge on a dual basis in non-contentious work, but inappropriate to do so in contentious work. There are certainly practical considerations which may distinguish much contentious and non-contentious work. In litigation, the issue may not even be monetary, e.g. where an injunction or declaration is sought, and, where the claim is monetary, its initial size may be little guide to its real or likely worth and the possibility of a counter-claim may complicate the picture. The Law Society’s booklets identify such a distinction in relation to non-contentious business, when they refer to transactions in which there is and is not “a relevant and ascertainable value factor” (emphasis added). But these considerations seems to me primarily reasons why it is generally more likely, in non-contentious work (estate work in particular), to be feasible to identify a value, by reference to which to make a separate percentage charge, than it is in contentious work. They are not, to my mind, real justifications for including such a charge in such work, or for not including it in those contentious cases where the amount in issue is clear.

Mr Fenwick QC for the appellant solicitors submitted that costs are assessed at the end of litigation, when the amount in issue and other factors are known, while in non-contentious matters clients benefit if they have an idea of costs from time to time. The latter part of this submission matches the interim bills submitted by his clients in this case. They included stated numbers of hours at stated rates and a stated percentage of part (e.g. a quarter) of a stated value for the estate, and were not “on account”. We were however informed by our assessor that it would not be uncommon for solicitors to an estate to render interim bills “on account”. Further, Mr Fenwick’s submission regarding litigation costs has been overtaken by the frequency with which summary assessments of costs are now undertaken at intermediate stages in litigation. The hourly rates used on such intermediate assessments must reflect the amount involved and all other factors. The suggested difference between contentious and non-contentious work is not clear-cut and, in any event, affords no particular positive reason for calculating fees on a dual basis, rather than purely by reference to an hourly rate (allowing for the value in the uplift), as in contentious work.

Equally, I am not persuaded that the receipt in a non-contentious matter of an interim bill charging a percentage of an estate’s assessed value can be said to provide the person billed with much if anything by way of “certainty”. If (as here) the number of hours spent to a certain date is quantified and charged at a stated rate, then certainty as to the past could also have been achieved by omitting any charge based on a percentage of the value of the estate, and charging a higher hourly rate. All that the dual method adopted by the appellants could cater for is any residual uncertainty, at the dates of the interim bills, about the estate’s value. This would certainly be the case if the interim bills made clear that the stated value was an estimate, open to revision in the event that the estate proved to be worth more. This is a (relatively limited) benefit which may be said to flow from the possibility of rendering interim bills including a percentage of value element.

As to future costs, however, it seems to me that, under a dual system of charging, clients have no certainty in either contentious or non-contentious business as to what future costs may be incurred. All they know is that they will be billed for an uncertain number of future hours work at an hourly rate. The fact that they will also be billed for the balance of sums due on a percentage of value basis does not significantly reduce the uncertainty. The position would be different if we were concerned with a proposal to bill exclusively or even mainly by reference to a percentage of value, but we are not. I take the point, made at the end of paragraph 27 of Peter Gibson and Longmore LJJ’s judgment, that a percentage charge based on value highlights that element of charges which the solicitor has attributed to value. This seems a limited justification for dual basis charging in non-contentious, as opposed to contentious, business; no such transparency exists, even in non-contentious business, with regard to the other factors (listed in paragraph 3 to the 1994 Order) which all contribute to the level of mark-up adopted in fixing the hourly rate. I think that one natural reaction of many clients, on receiving a dual basis bill would be to take the total percentage of value charge, divide it by the number of hours worked and so work out the level of mark-up per hour being attributed to value. But the same transparency could be achieved by providing a breakdown of an hourly rate.

I do not dissent from Peter Gibson and Longmore LJJ’s guidance with regard to the bands and percentages that could be appropriate in 1993, when the present bills were rendered, if charging on a dual basis was itself appropriate. But it is worth looking at their practical effect - whilst repeating that the ultimate test to be applied by the costs judge is what overall sum would be fair and reasonable to both solicitor and entitled person, having regard to all the circumstances of the case. The four bands suggested in paragraph 30 of Peter Gibson and Longmore LJJ’s judgment lead, as he has said, to the following figures:

£750,000 x 1.5% = £11,250

£2.25m x 0.5% = £11,250

£3.0m x 0.166% = £5,000

£3.362m x 0.0833% = £2,800

TOTAL = £30,300

This compares with the figure of £142,412.50, which the appellants have charged on a percentage basis taking an estate value of £9,362,000, and with further fees of some £386,459 (it being unclear whether or not they include VAT) which they have charged on an hourly basis. The knowledge that there would be charges totalling £30,300 (or even £142,412) cannot have added to the “certainty” of the position of the person billed, bearing in mind the far greater exposure to future hourly fees. This is not a case, like Maltby, where the value element could give some guidance as to the appropriate overall costs; the appellants here made clear throughout that they were charging on a dual basis.

Moreover, the relative smallness of the figure arising from a percentage calculation based on the updated bands given in paragraph 30 is capable of leading to questions about the utility of such a basis of charging, at least in a case such as this. If one considers what percentage uplift on the basis hourly rate would have been necessary to achieve an extra £30,300, without any separate charge based on a percentage of value, the answer also appears to be a little under 10%. All these points may of course suggest to the costs judge that some other bands or percentages or a different approach should be adopted in the circumstances of this case, but they do appear to undermine any general suggestion that charging on a dual basis offers any particular advantage to the client in terms of certainty.

The question before us is, however, whether the judge was right to conclude that in today’s world there is no longer any place in any circumstances for a system of billing, which incorporates a percentage of value element. Although I find the distinction, which at present apparently exists, between contentious and non-contentious work difficult fully to rationalise, the authorities in 1975 and 1978, Property and Reversionary Investment Corp. Ltd. v. Secretary of State for the Environment [1975] 1 WLR 1504, Regesterand Maltby, all indicate the existence of a role for value computations by reference to bands and percentages in non-contentious cases. There may still be cases, like Regesterand Maltby, where the value element of a non-contentious transaction is the dominant element, and may constitute the largest influence on the appropriate fee. I see no reason why in such a case the solicitor should not calculate and render a bill on that explicit basis, although the ultimate test of recoverability of the fees charged would be their fairness and reasonableness. That being so, I also see no reason why a solicitor should not calculate and bill on a dual basis, that is to say both on an hourly basis (excluding any value element) and separately by reference to a percentage of the value of the estate. The Law Society’s booklets confirm that this is a long-standing and well-established practice, even though the guidance which they give is not wholly satisfactory – see paragraph 28 of Peter Gibson and Longmore LJJ’s judgment. The practice in contentious work, of charging at a realistic hourly rate, fixed to take into account the amount of the money or property involved, was also well-established by 1992: see the line of authority to which reference has already been made in paragraph 40.

It was against the background outlined in the preceding paragraph that the 1994 Order was introduced by, and under powers possessed by, the Lord Chancellor, the Lord Chief Justice, the Master of the Rolls, the President of the Law Society, the president of the Holborn Law Society and the Chief Land Registrar. They must be taken to have been aware of the previous authorities and practice, in both contentious and non-contentious work. Had they intended to alter the previously established position in the latter field, they could and would have done so expressly. Neither improvements in time costing nor any other circumstances seem to me in these circumstances any reason for concluding that either fee calculations either on the basis or of incorporating a percentage of value are not appropriate. On whatever basis or bases bills are rendered, the ultimate safeguard remains the costs judge’s duty to allow only such costs as are fair and reasonable in all the circumstances.

I should add that I agree with the guidance given in paragraph 32 by Peter Gibson and Longmore LJJ, subject to the qualification that I do not think that the calculation suggested in point (5) is likely to be of real assistance, at least in many cases. It gives a purely abstract figure, unrelated to the number of hours actually spent on the work. It gives therefore no indication as to the extent to which the lower mark-up to the hourly expense rate (applied in accordance with the Law Society’s guidance in its booklets) is being redressed by a value element. That is of course the subject of point (6).