Tim Martin Interiors Ltd v Akin Gump LLP

The points at issue in this appeal arise from a situation which, in one form or another, is of common occurrence. A bank takes steps to enforce a mortgage against its borrower, using solicitors in the process. It claims to be entitled to recover all of its costs from the borrower, including those for which it is liable to the solicitor. It can do so directly or sometimes, more easily, by deduction from the proceeds of the sale of the mortgaged property. It may have no particular incentive to query the amount of the solicitor’s bill of costs. It agrees those costs, and pays them. The borrower wishes to challenge the amount recoverable from it by way of the solicitor’s costs. The question is how it can do so. In particular, does section 71 of the Solicitors Act 1974 help the borrower, with its provision for an assessment of a solicitor’s bill of costs on the application of a party who, though not the party chargeable with it (here the bank), is liable to pay it (here, the borrower)? I will refer to the party chargeable with the bill as the client, and the party liable to pay it as the third party.

The same problem may arise in other situations. A purchaser may be liable to pay costs incurred by a vendor, a tenant the costs incurred by a landlord, an insurer may have to pay costs incurred by its insured, or one party the costs incurred by another in some other kind of transaction. By analogy, the liability to bear the burden of the costs may arise because the solicitor’s client is a fiduciary, a trustee or personal representative holding a trust fund or estate, or an office-holder in an insolvency or a receivership, and a beneficiary or creditor may wish to challenge the amount of the costs incurred and paid out of the fund.

Ever since 1843 the Solicitors Acts have included provision for the bill of costs to be taxed (or, now, assessed) as between the solicitor and the client, and also provision for a third party to require the bill to be taxed or assessed. The effect of the decision under appeal, by Lewison J on appeal from Master Campbell in the Senior Courts Costs Office (SCCO), [2010] EWHC 2951 (Ch), is that the statutory provision is of limited value to the third party. With permission to appeal granted, as it happens, by myself, the third party appeals, seeking to establish that the ambit of enquiry on the third party assessment is much wider than the judge held it to be.

The appeal was argued admirably well for the appellant by Mr Faisal Saifee, who had appeared below with a leader, and for the respondent by Mr Nicholas Bacon Q.C. I mean no slight to Mr Bacon, who is known for his experience in this field, in paying special tribute to Mr Saifee for the excellence of his clear and sustained oral submissions.

The appellant, TMIL, borrowed money from the Bank of Ireland (the Bank), on the security of mortgages of several properties, and of guarantees given by two directors, Mr Martin and Mrs Jankovic. TMIL defaulted on the mortgages. The Bank instructed the respondent, a firm of solicitors, to take steps to enforce the mortgages and recover possession. In the course of this process a statement of indebtedness was prepared in August 2004 showing overall liability of some £1.15 million, including £114,216 by way of legal fees payable to the respondent. In September 2004 the Bank transferred the mortgages to Mr and Mrs Jankovic on payment of £1.15 million. That amount included the sum said by the Bank to be due to it from the appellant, so as a result of that the Bank was no longer out of pocket as regards its legal costs, to the tune of the £114,216. The respondent’s final bill came to £123,984. The Bank approved the bill and paid it in full in 2004. It has not sought to recover the difference of £9,768 from the appellant. It seems that the assignment of the mortgages to Mr and Mrs Jankovic was done by prior arrangement between them and the appellant, and that soon afterwards the appellant reimbursed to them the sum paid to the Bank. In that way it was, in the end, the appellant that paid the sum demanded by the Bank, including the £114,216 for legal costs.

The mortgages included a covenant for payment which extended to “all legal and other costs, charges and expenses incurred by the Bank or any receiver in relation to the Mortgagor or the Mortgaged Property … on a full indemnity basis”. This was reinforced by clause 25 which covered the same point at greater length, but again used the phrase “on a full indemnity basis”. The effect of the decision of the Court of Appeal in Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171 (Gomba Holdings) is that such a clause entitles the mortgagee to recover its actual costs charges and expenses except for any which were not reasonably incurred or which were unreasonable in amount: [1993] Ch at 187G.

The Bank instructed the respondent to advise and act for it in relation to the appellant’s default in February 2004. On the Bank’s behalf it pursued a number of avenues for recovery. These included bankruptcy proceedings against Mr Martin with respect to his liability under the guarantee, and actual or contemplated bankruptcy proceedings against Mrs Jankovic on the same basis. The respondent rendered two bills to the Bank, one for £106,504.62 and the other for £17,480.01, dated 30 September and 12 October 2004 respectively. The smaller bill related to the bankruptcy aspect. The larger included one or two items relevant to the bankruptcy but otherwise was concerned with other aspects of the matter. Both bills charged time for several different fee-earners, including Mr Drew, a partner who took primary responsibility for the matters, whose hourly rate was £360 throughout the relevant period. The larger bill reflected over 225 hours of his time.

In 2009 the appellant, acting by its director Mr Martin, applied in the SCCO for an order for the assessment of the costs under section 71 of the 1974 Act. On 10 November 2009 Master Campbell made an order accordingly, requiring the respondent (among other things) to serve on the appellant the bills and a breakdown of them, and for the appellant then to serve points of dispute. The respondent served both bills, and its breakdown covered the substance of both of them.

The points of dispute relied, among other things, on the point that the bankruptcy proceedings were nothing to do with the mortgages, so that the costs referable to them could not be the liability of the appellant. They also challenged the employment of a City firm (especially one which was said, at the time, - to the knowledge of the Bank - to have had no associates with insolvency experience, which accounted for the very extensive use of a partner) rather than a firm local to the mortgaged property, or at any rate outside the City. They therefore challenged the hourly rates charged as unreasonable, suggesting maximum rates of £205 per hour. They took a lot of detailed points about what they said was the unreasonableness of particular amounts charged, as being excessive in respect of attendances on or communications with the Bank, including the proposition that, absent unusual circumstances, a solicitor’s travelling time to go to a meeting at the client’s premises could not be charged for as against a third party.

The assessment was conducted by Master Campbell over two days. As is common in the course of such hearings, he gave rulings from time to time as points were argued. I do not need to mention more than a few of the salient points.

He accepted the objection that the use of a City firm, and of partner time charged on that basis, was unreasonable, and therefore beyond the limit of what was chargeable under the mortgages. He allowed an hourly rate of £225 for any time properly allowable on the part of a Grade A fee-earner.

He accepted that costs relating to bankruptcy proceedings were not within the scope of the liability under the mortgages.

He accepted many of the objections as regards the charging of too much time, including the point that, if a client requires his solicitor to travel to meetings with him, it cannot expect a third party to pay for that travelling time, unless there are special reasons for it.

Leaving that point aside, he disallowed a number of detailed items for particular reasons. In some instances his disallowance appears to have been on the basis that he did not accept it as proved that the time had been spent, especially in the absence of attendance notes of meetings or long telephone calls. In other cases it was on the basis that, even if the time had been spent, the particular meeting was not something that could properly be charged to a third party; one example was what was described as a brainstorming meeting at the Bank’s premises. It is not always easy to distinguish between disallowance on the basis that the time was not spent (or not proved to have been spent) on the one hand, and time treated as either excessive or inherently improper to be allowed as against a third party. For example he cut down the allowance of some items charged at more than one six-minute unit, on the basis of their being “routine items for which a six-minute allowance would have been appropriate”. That is consistent with saying either that the extra time was not spent or with saying that, even if it was, it should not have been, and that, at any rate as against the third party, only a single unit should be allowed.

The upshot was that, instead of the figure of £114,216 which the appellant had paid to the Bank, he assessed the bills at £31,447.50 (including VAT), and ordered the respondent to pay £5,500 in respect of the costs of the assessment to the appellant. That led to him issuing a final costs certificate to that effect, and ordering the respondent to pay the sum of £82,768.97 to the appellant. At first the certificate required payment of the sum into court. Mrs Jankovic agreed to payment being ordered in favour of the appellant, and the certificate was amended to make that provision. Thus, the appellant having (indirectly) paid the sum demanded for costs to the Bank, the solicitors were ordered to pay to the appellant the amount disallowed.

The appellant contends that the respondent’s bill submitted to the Bank was far in excess of what the Bank could call upon the appellant to pay towards its legal costs and expenses. In some respects it argues that the bill covered matters which were wholly outside the scope of the appellant’s liability. In other respects the point made is that the sums claimed are far more in amount than is reasonable. To some extent this may overlap with an argument that the bill is excessive even as regards what the respondent sought to charge to the Bank, but the appellant made it clear before Master Campbell that it challenged the amount of its liability even if the amount was correct and unchallengeable as between the respondent and the Bank. Consistently with that, a number of points on which Master Campbell disallowed costs as against the appellant were decided on the express basis that the Bank might well have been liable to the respondent for the relevant costs in the full amount charged.

On that footing it seems surprising that the result of the appellant’s success before Master Campbell should have been that the respondent solicitors were required to pay to the appellant part of the amount which the appellant had paid to the Bank. That is a major part of the respondent’s criticism of the procedure adopted by the appellant. However, the Bank was not a party to the assessment proceedings, so there was no basis on which an order for repayment could be made against the Bank.

The question is whether (and if so to what extent) the provision for an assessment of a bill of costs on the application of a third party who is liable to the client to pay the bill permits the Taxing Master or other costs judge who conducts the assessment, first, to consider the separate basis of the liability of the third party to the client, and, secondly, if the bill has been paid by the third party and is found to have been excessive, to order repayment of the excess by the solicitor to the third party. Master Campbell considered that the legislation does permit this. Early in his sequence of rulings in the course of the assessment he said this:

Lewison J held otherwise, on the basis that the issue of the extent of the client’s rights against the third party ought to be raised in proceedings as between the third party and the client.

Mr Saifee put the issue to us as being whether section 71 is no more than a statutory substitution of the third party for the client, for the purposes of an assessment of the costs liability, or whether it allows a third party to challenge the reasonableness of costs agreed to by the client. He argued that the costs to be assessed under section 71 should be assessed at no more than the amount that is proper as between solicitor and client having regard to the fact that a third party is to be liable for the costs in question. Mr Bacon’s position was that the section does not allow the third party to make any such challenge, except in respect of matters which are only allowable as between solicitor and client by a special agreement after advice by the solicitor that they would or might not be recoverable from a third party. In all other respects, he contended, the assessment should be identical under section 71 to that which would occur under section 70. It is common ground that the Taxing Master has jurisdiction to decide any issue as to the scope of the third party’s liabilities under a contract for the purposes of the assessment.

Section 71 of the Solicitors Act 1974 is as follows:

Section 70 provides for assessment as between the client and the solicitor. An assessment is as of right for the client if requested within a month after delivery of the relevant bill. Otherwise there are some limits. The client may not obtain an order for assessment on an application made more than 12 months after having paid the bill, and special circumstances must be shown if the application is after 12 months from delivery of the bill, or after, but within 12 months of, payment. Every order for assessment is to require the costs officer to assess not only the bill but also the costs of the assessment, and to certify what is due to or by the solicitor in respect of the bill and the costs of the assessment: subsection (7). The outcome of an assessment is a final costs certificate which, under CPR rule 47.16(5), is to include an order for payment of the costs to which it relates, unless the court orders otherwise.

The provisions of sections 70 and 71 go back to the Solicitors Act 1843, sections 37 and 38. These were much longer, but their substance was essentially the same (though the provisions about time limits were less elaborate). In the 1843 Act section 37 provided for a reference to taxation, and for an order to be made on that reference. Section 38 allowed for a third party to apply for the same purpose, and provided that “the same reference and order shall be made thereupon, and the same course followed in all respects as if such application was made by the party chargeable with such bill”. The legislation became sections 66 and 67 of the Solicitors Act 1932, and then sections 69 and 70 of the Solicitors Act 1957, before coming into its present form. Subject to one argument as to the wording, to which I will refer later, each version of the sections is identical in substance on the points which matter for present purposes.

It is also necessary to be aware of provisions of the Civil Procedure Rules which deal with assessments as between solicitor and client, above all rule 48.8(2). The rule applies to every such assessment except a legal aid assessment.

Assessment on the indemnity basis is governed by rule 44.4. By rule 44.4(1), even on the indemnity basis the court will not allow costs that are unreasonably incurred or unreasonable in amount. Rule 44.4(3) provides that where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party. The presumptions in rule 48.8(2) apply for that purpose.

It seems clear that the presumptions in rule 48.8(2) are rebuttable, and that the presumption in paragraph (c) can prevail over those in paragraphs (a) and (b). Subject to that, however, if the client has expressly or impliedly approved of the incurring of the costs for which the bill is rendered, and their amount, there seems to be no scope for contending that the costs ought to be disallowed as between solicitor and client.

I must also note rule 48.3:

This therefore does not cover an assessment as between solicitor and client, but it would cover the position as between mortgagee and mortgagor.

Section 50 of the Costs Practice Direction supplements that rule. It provides that the court may disallow costs payable under the contract if satisfied by the paying party that the costs have been unreasonably incurred or were unreasonable in amount. Paragraph 50.3 sets out the effect of Gomba Holdings, with its emphasis on the point that the power of the court to disallow a mortgagee’s costs sought to be added to the mortgage security is derived from the power of the courts of equity to fix the terms on which redemption will be allowed. Paragraph 50.4 supplements this:

If in proceedings for an account between mortgagor and mortgagee there were an issue as to the reasonableness of costs claimed, that could be directed to be determined by a costs judge. As regards litigation costs, this is clear from paragraph 50.4. As regards non-litigious costs, RSC Order 62 rule 24 contained a specific provision for costs to be directed to be taxed for the purposes of taking an account. This was relied on in Gomba Holdings: see [1993] Ch 189.

At that time, the Taxing Masters were not part of the court as defined: see RSC Order 1 rule 4(1) and (2). The rule was needed to allow the Taxing Masters to be given authority to deal with the particular costs issue. Now the costs judges (who are the Taxing Masters of the SCCO, under CPR rule 43.2(1)(b)) are within the definition of the court: see CPR rule 2.3(1) and 2.4, as interpreted by Christopher Clarke J in Fattal v Walbrook Trustees (Jersey) Ltd [2009] EWHC 1674 (Ch) at paragraphs 42 to 44. A costs judge can therefore deal with an account or enquiry under CPR PD40A paragraph 9.

In specific terms, the rules as to costs set out in Parts 44 to 48 apply to costs payable by one party to another under a contract (such as the mortgages) if the court orders the assessment of those costs: see CPR rule 43.2(2)(b). Thus, the court must be taken to have power to make such an order. Accordingly, just as was said in Gomba Holdings at page 189 (but updating the language to that of the present rules):

The present case concerns a mortgagor third party and mortgagee client. The rights and obligations as between them are regulated by the terms of the mortgages and by the general law as to mortgages. In particular, the mortgagee’s right to add its costs and expenses is dealt with expressly in the mortgage, but even if it were not it would be governed by the well developed rules of equity concerning mortgages.

If a dispute arises between mortgagor and mortgagee as to what is owed by the one to the other, then the classic remedy is a claim for an account of what is due under the mortgage. This is the correct forum for many disputes, such as what payments have in fact been made, and how they are to be dealt with in the account, what interest is due, and equally what sums are due and secured by way of costs and expenses. The Court of Appeal’s decision in Gomba Holdings arose in the course of a claim for an account as between mortgagor and mortgagee. Such proceedings would not normally involve the mortgagee’s solicitor as a party, but they could well involve a consideration of whether the solicitor’s bill of costs rendered to the mortgagee was recoverable in full or only in part, and if in part as to what amount, by the mortgagee from the mortgagor. An issue of that kind, involving questions of the reasonableness of the incurring of particular costs, and their amount, could be determined by a costs judge, as already mentioned, but proceedings for an account cannot be brought directly in the SCCO.

Sir John Romilly MR in Re Abbott (1861) 4 LT 576 said that, before section 38 of the 1843 Act was introduced, the payment of the mortgagee’s costs was a matter of account between the mortgagee and the mortgagor, and the section was introduced in order to shorten the remedy.

Section 71(1) entitles the third party to obtain an assessment of a bill as if he were the client. It is therefore an assessment as between the solicitor and the client. For the respondent, it is argued that this shows the difficulty which the appellant faces. Essentially Lewison J upheld this objection.

We were shown a succession of cases decided under the 1843 Act. Since, subject to one contention for the appellant, the legislation is in substance the same, the decisions of the Court of Appeal on section 38 of the 1843 Act bind us in relation to section 71. The position adopted as to the scope of the enquiry on a taxation under section 38 developed over time. It is necessary to look at the way it developed.

Under the 1843 Act if a client applied for a taxation under section 37, or if a third party applied under section 38, the applicant was required, in the petition, to submit to pay whatever was found to be due to the solicitor. At that time, in order to enforce the result of the taxation, the solicitor had to make the certificate an order of the court. The submission to pay was presumably required in order to avoid arguments on the application to make it an order of the court. This practice continued until 1986, when as a result of an amendment of the law the Taxing Masters had power to deal with all applications under the relevant provisions, so they could themselves make an order to pay. Now the system is different, because the certificate itself contains an order to pay, unless the court orders otherwise.

The former practice is reflected in a passage in the judgment of Lord Langdale MR in Re Fyson (1846) 9 Beav 117, which I will mention shortly, and in several others of the early cases. I take as an illustration Re Cohen & Cohen [1905] 1 Ch 345 (Swinfen Eady J) where the report states:

In relation to a third party taxation, the incidental effect of this practice could be to make the third party liable to pay to the solicitor more than he could have been required to pay by the solicitor’s client. Lord Langdale MR pointed this out in Re Fyson at page 119:

That is not encouraging for the appellant. It makes the basic point that what is being determined is the same as it would be if the client sought the taxation, and it points out that this may be more than the client could recover from the third party. The third party was bound to pay this, possibly higher, amount because of the undertaking, required at that time, to pay what is found to be due to the solicitor. Because that undertaking is no longer required, and because the court can order that the final costs certificate on an assessment should not include an order to pay, it would not necessarily follow now that the outcome of the assessment is that the third party is required to pay the higher amount due from the client to the solicitor. For that reason the assessment should not increase the amount payable by the third party. But it certainly does not support the idea that the assessment is a way of determining what is due from the third party to the client.

Lord Langdale made the same point in Re Harrison (1847) 10 Beav 57, at page 60:

Sir John Romilly MR had to consider a similar point in a different situation in Re Massey (1865) 34 Beav 463. Mr Massey, a solicitor, had been retained by the intended directors of a company yet to be formed, which was to have bought mining property in Chile from a Mr Waters and another man, and to work the mines. At one stage Mr Waters and the other entered into a guarantee to cover the preliminary expenses of the intended company, in case it were not established, as turned out to be the case. Mr Massey, without rendering a proper bill of costs, stated to the intended board that his claim for work done would be £1,300. The board agreed to this, directed it to be paid, and paid it accordingly, without receiving a bill or requiring a taxation. Mr Waters was one of the intended directors, but did not attend the meetings at which Mr Massey explained what he claimed, and had no notice of this or of any intention to pay the sum claimed without more. Mr Waters then sought to have the bill taxed under section 38, in order to resist or limit a claim against him under his guarantee. Sir John Romilly held that, the clients having paid voluntarily and with full knowledge, could not have had the solicitor’s costs taxed, and that the third party could not do so either. He said that Mr Waters might be able to bring proceedings against the directors for an account of the moneys properly paid by them on his account, in the course of which they would have to prove that the sum paid to the solicitor was properly paid, and they might for that purpose have to submit a bill to the Taxing Master, in which case the amount determined by the Taxing Master would be all that Mr Waters would have to pay. He referred to section 38 but said that it gave no remedy against the directors or “to dispense with a bill in equity”. He went on to say this about the scope and usefulness of the section, at pages 470-471 (by the trustees he means those whom I have described as the intended directors):

However, two years later in Re Brown (1867) LR 4 Eq 464 Lord Romilly MR (as he was by then) had to consider a taxation under section 38 of the bill of a solicitor acting for the trustee under a will. (Section 39 of the 1843 Act was the predecessor of the present section 71(3) and (4), which appear to govern such a process, but nothing seems to turn on whether it was section 38 or section 39 that was relevant.) Mr Brown had acted as solicitor to a trustee under a will, had delivered to the trustee a bill of costs and had been paid in full. One of the beneficiaries then obtained an order for taxation of the bill, on which the Taxing Master disallowed “a considerable number of items”. The solicitor applied for a review of the taxation, submitting, in terms anticipating the argument in the present case, that “if it was improper in the trustee to require the solicitor to write so many letters, or to attend on him so often, the remedy of the cestui que trust is to object to the allowance of the items in the account between the trustee and himself”. Lord Romilly MR refused the application. He accepted that the taxation was as between solicitor and client but he added a qualification to that. Since it is a short and graphic judgment, I will set out the major part of it here, starting with his statement of the qualification:

As to issues of detail, whether to allow one amount or another for an interview, and whether to allow for ten or for twelve interviews, he held that he would not interfere with the Taxing Master’s judgment.

The report does not disclose what order had been made, but since the trustee was not a party to the taxation, there cannot have been an order against him. Presumably, therefore, the order was that the solicitor should refund money to the trust fund, or to the beneficiaries directly. That is therefore more promising for third parties, and for the appellant in the present case, and it shows a rather different attitude from that adopted in the earlier cases which I have cited.

A different point arose in Re Morecroft (1885) 29 SJ 471. There a purchaser of land had agreed that if he required the land to be conveyed in more than one lot by several conveyances he would pay the costs and charges of the vendor of the perusal and execution of every additional conveyance after the first. The purchaser chose to require a separate conveyance of one lot, and the vendor received a bill from his solicitor which he then paid. The purchaser sought to have the bill taxed, and the Taxing Master disallowed certain items. The solicitors objected to this, but the Taxing Master overruled the objection on the basis that, even if the charges were reasonable and proper, they were not within the terms of the contract under which the third party was liable for the vendor’s costs and were therefore not proper to be charged against the purchaser. The decision was affirmed by Kay J and by the Court of Appeal (Cotton, Lindley and Fry LJJ). Cotton LJ said that even if the items were properly charged by the solicitor to his client, it did not follow that they were properly charged as against the third party:

In Re Holliday & Godlee (1888) 58 LT 301, North J had to consider another case of the liability of a purchaser for the vendor’s costs, under an agreement which defined the category of costs in question (including costs of an arbitration to determine the price payable) and specified the Schedule under the then relevant order as to the remuneration of solicitors by reference to which the costs were to be paid. The bill included payments to expert witnesses at the arbitration which were said to be excessive, but whose engagement and charges the vendor was said to have expressly approved. North J said that this agreement would have precluded any objection to the charge on a taxation as between solicitor and client, and that under section 38 the same must apply. As to the argument that it was hard on the purchasers to have to pay whatever costs the vendor might choose to authorise, the judge said that the purchaser was not liable to pay more than that which was properly incurred, but that if the vendor demanded more, the purchaser’s proper course was either to refuse to pay and await an action by the vendors, or to have the bill referred to an expert for arbitration. In that situation the remedy would not have been an action for an account, since the vendor was not liable to account to the purchaser, but the point is the same as was made in the mortgage cases, and the judge clearly considered that a taxation under section 38 was not the right way to have determined the rights and obligations as between the client and the third party.

The next case on which reliance was placed before us is Re Negus [1895] 1 Ch 73, decided by Chitty J, a case where a tenant was liable for certain costs of the landlord in relation to the grant of the lease. Two points of detail arose. At that time the Taxing Master was bound to tax “according to scale” if applicable, in the absence of a prior written agreement to the contrary, and even if the solicitor’s bill had been delivered as an “item bill”. There had been no such agreement, but the bill delivered was an item bill. The Taxing Master taxed it according to the relevant scale. The tenant objected that the scale did not apply, for a particular reason which was rejected, and that certain items were not within his liability, including the cost of the counterpart lease. Chitty J rejected the first objection that it ought to have been taxed as an item bill, not according to the scale, and also the objection as to the scale applicable. He upheld the objection that the tenant was not liable for the cost of the counterpart lease, thereby reducing the bill by 18 shillings for the counterpart and five shillings for stamp duty on it. More generally, he said at page 80 that although the general rule was that the third party stands, in relation to the taxation, in the position of the client as against the solicitor, that rule “does not prevent the Taxing Master from considering the question of the liability of the third party”, for which he referred to Re Brown.

The next case in the sequence is of more general importance: Re Gray [1901] 1 Ch 239, decided by Cozens-Hardy J, on a dispute concerning the costs payable by a lessee in respect of the lessor’s legal costs in the preparation of a mining lease. The bill had not been paid. The lessees objected to certain items as being costs of negotiations for the lease, which they contended they were not liable to pay. The Taxing Master overruled the objection, stating that the lessee was liable to pay all charges which the lessor was liable to pay to his solicitor in the matter of the lease. On appeal Cozens-Hardy J said that if the lessor had paid his solicitors and sued the lessee, he could not have recovered anything antecedent to the instructions for the lease, and in particular not for the costs of instructing a mining expert at the stage of negotiation. As regards the position under section 38 he observed that the third party was fixed with the consequences of any special agreement between the client and the solicitor within the scope of that for which the third party was liable:

Later he said that the third party order did not alter the nature or enlarge the scope of the liability upon the existence of which the order is based. At the end of the judgment, having referred to Re Negus, he said this, at pages 248-9:

Three years later, the same point had to be addressed on an application by a mortgagor, by Kekewich J and then by the Court of Appeal: In re Longbotham & Sons [1904] 2 Ch 152. The judge had requested a certificate as to the practice of the Taxing Masters, who explained (see page 153) that the practice had for many years been to tax as between solicitor and client, though giving effect to what had been said in Re Negus and Re Morecroft, but that since Re Gray the practice was to tax as between the solicitor and the third party. Kekewich J said, of the proposition that the taxation had to be exactly the same as would arise as between client and solicitors:

He then mentioned Re Gray which he said directed taxation on “an entirely different footing and, as it seems to me, a useful footing”. Since the taxation was said to have been carried out on the basis of Re Gray he declined to disturb the certificate, but he gave leave to appeal. The judgments of the Court of Appeal are important. Romer LJ started from the position that the taxation was as if between solicitor and client, but that the third party was not in every respect in the same position as the client. In particular, if the solicitor had acted for the client in several matters, and if the third party was only liable for the costs of one of those matters, then costs relating to the other matters should not form any part of the bill to be taxed under section 38, since the third party is not liable for those extraneous matters. At page 157 he said this, in a passage which I have divided into three paragraphs (not in the original text as reported) in order to make it easier to make comments on the different parts of the text:

The first of those paragraphs states the principle, by then reasonably well established, that the scope of a taxation under section 38 was limited to the solicitor’s bill to the client in relation to matters for which the third party was liable. The second paragraph elaborates on that point, applying it to the possibility that the client may have incurred legal costs in relation to the mortgaged property for which the mortgagor is not liable. The third makes a different point, and one which was not necessary for the decision, so it is obiter. This touches on the possibility that the client may sanction the incurring of a charge which he and the solicitor know or must be taken to have known could not properly be charged to the third party, and indicates that, even though this would have been incurred by the mortgagee in his capacity as such, it would be treated as having been incurred by him personally, and not as mortgagee, so that the third party would not be liable for it. In support he cited cases including Re Brown, Re Morecroft, Re Negus and Re Gray.

Vaughan Williams LJ agreed with Romer LJ as to the result, but in carefully chosen terms:

He too relied on Re Negus and Re Gray, anticipated by Re Brown, quoting with specific approval the passage from Re Gray which I have set out at paragraph [47] above. Moreover, he referred to the distinction noted by Lord Romilly in Re Massey between a taxation under the section and a reference to a Taxing Master to moderate the bill in the context of an action by the third party against the client. (The old Chancery practice of moderation has fallen into disuse and does not require explanation. The historically-minded may consult paragraph 62/24/3 of the Notes to the White Book for 1999.)

Cozens-Hardy LJ said no more than that he agreed, since he saw the appeal as lying, in substance, against his own decision in Re Gray. He cannot be taken to have endorsed anything which was not necessary for the decision. Likewise, it seems to me, Vaughan Williams LJ did not agree with the third of the paragraphs set out at paragraph [49] above from the judgment of Romer LJ.

For the appellant Mr Saifee submitted that Romer LJ’s third paragraph was part of his reasoning and was concurred in by Vaughan Williams LJ. He also submitted that the reference to what “could be properly charged as against the mortgagor” itself envisaged that the taxation could go into the quantum of the costs claimed, as to whether there were excessive as against the third party, even if they had been agreed to by the client. I disagree. As a matter of decision, it seems to me that the case is limited to an affirmation of the decision in Re Gray. Romer LJ’s third paragraph was obiter, and was not endorsed by the other members of the court. However, this is not quite the end of the sequence of cases.

The point had to be considered again in Re Cohen & Cohen [1905] 1 Ch 345 (Swinfen Eady J) and [1905] 2 Ch 137 (Court of Appeal). In that case litigation was settled on terms that the third party would pay the client’s costs “as between solicitor and client relating to the matters in dispute” in the litigation, to be agreed or taxed. The client’s solicitor’s bill included “many unusual items” incurred on the client’s express instructions, such as employing King’s Counsel as well as junior Counsel to settle the pleadings and to advise on evidence. The Taxing Master disallowed a significant amount as unusual and unreasonable for the third party to pay. He is reported as having said that unusual expenses ought to have been notified to the third party before the agreement was entered into. He held that on the true construction of the agreement the third party was only to pay costs that were reasonably and properly incurred, and that unusual charges and luxuries must be borne by the client. The items disallowed were not reasonably incurred but were extra costs incurred through over-caution, and the special fees were unusual and unnecessary expenses, and luxuries the expense of which must be borne by the client ordering them. The solicitors applied for a review of the taxation. Swinfen Eady J referred the matter back to the Taxing Master, but only because he was in doubt on the language of the certificate, from which it appeared that the taxation had been conducted as if between the solicitor and the third party, rather than the solicitor and the client, as the Act required. He did, however, refer with approval to Re Brown and Re Negus as showing that the taxation was as between solicitor and client, but that it should not include matters for which the third party was not liable to pay. The Taxing Master provided further clarification as follows (see [1905] 2 Ch at 138):

On the basis of that answer, the judge dismissed the application to vary the certificate. The solicitors then appealed to the Court of Appeal. The court held that the Taxing Master had been right to construe the agreement as not amounting to an indemnity, and as obliging the third party only to pay such costs as were reasonable and proper and necessary for the client to have incurred in the litigation. On this occasion the first judgment was given by Vaughan Williams LJ. He endorsed Re Gray, as upheld in Re Longbotham & Sons, saying that he regarded the instant appeal as an attempt to challenge the decision in Re Longbotham & Sons. Romer LJ said this at page 143:

On the facts of the given case, he said that the items which had been disallowed were such that the client would not have been liable for them to the solicitor but for the special arrangement between them, because unless they had explained these items to her, shown that they could not be properly charged against her (without her special authority) and would not be allowed on a party and party taxation, and had obtained her special authority, they could not have recovered those items from her. On that basis he held that they were not within the scope of what the third party had made himself liable for under the agreement.

Clearly the solicitors had argued that this result exposed them to hardship. Romer LJ disagreed, explaining himself as follows, at pages 144-5:

Sterling LJ agreed, quoting the passage from Re Gray which I have set out at paragraph [47] above.

That is the last in the chain of cases in which the scope of the jurisdiction on a third party taxation was explored and developed. I will mention a few other cases of incidental relevance. The first is Re Hirst & Capes, [1908] 1 KB 982 in the Court of Appeal, and as Hirst & Capes v Fox at [1908] AC 416 in the House of Lords. This too arose from an agreement by way of compromise of litigation, under which the defendants agreed to pay out of the estate of a deceased, of whom they were the executors, the costs incurred by the plaintiff and other parties. A dispute arose as to whether these costs should be taxed in the action or separately under the 1843 Act. The plaintiff paid her solicitors’ bill of costs and sought immediate payment of it from the defendants. The defendants then applied for taxation of the bill, but such an order was refused. Then the plaintiff started another action against the defendants seeking payment of the amount of the bill. The defendants appealed against the refusal of an order for taxation, and the court directed that the plaintiff (who was not, in the ordinary way, a party to the taxation) should be added as a respondent to the appeal. It was argued that one issue that would arise was as to the correct interpretation of the compromise agreement, as to the scope of the liability for costs, and it was said that it was not open to the Taxing Master to determine that question. Farwell LJ and Kennedy LJ both held that such a question was within the jurisdiction and power of a Taxing Master to decide, and therefore allowed the appeal and ordered taxation. Vaughan Williams LJ was hesitant about this but not so strongly as to dissent.

The appeal by the solicitors and the plaintiff to the House of Lords was dismissed, save that the solicitors were to pay the costs to the exclusion of their client the plaintiff. As can be seen from their brief unreserved judgments, their Lordships were understandably fed up at having to devote a now unimaginable two days of hearing to the appeal. Lord Loreburn LC observed that if the taxing officer felt any difficulty in the matter he could bring the plaintiff in as a party to the taxation, if she wished to be (“which it is scarcely conceivable she can, provided she is properly advised”): see page 417. Lord Macnaghten revealed a degree of uncertainty as to whether “the new practice in regard to taxations under section 38 is in accordance with the directions contained in the Act of Parliament”, though not expressing an opinion on the point one way or the other as, in his view, the point did not arise: see page 418.

The next case to be mentioned arises from a different aspect of the matter, namely the rule under section 38 that if on a taxation the bill was not reduced by more than one sixth then the client or the third party at whose request the taxation was made had to bear the costs of the taxation. The position under the present legislation is now similar save that the critical point is whether the bill is reduced by more than a fifth, and there is scope for a different order to be made in special circumstances: section 70(9) and (10) of the 1974 Act as it now stands. In In re Taxation of Costs, In re a Solicitor [1936] 1 KB 523 a bill was rendered to two clients, but it included charges for matters on which one of the clients had never retained the solicitor. That client was therefore able to secure the removal from the bill, so far as he was concerned, of all of those charges. The Court of Appeal held that the elimination of those extraneous items did not constitute taxing them off for the purposes of deciding whether the (then) one sixth rule had been satisfied. By analogy, it is argued, the elimination from a bill, as against a third party, of matters not within the scope of his liability does not count towards the one fifth by which the bill must be reduced on assessment if the third party is not to be liable for the costs of the assessment, subject to special order.

Last I mention Forsinard Estates Ltd v Dykes [1971] 1 W.L.R. 232, decided by Stamp J. The plaintiff had borrowed money on mortgage from a lender. The lender exercised its power of sale over the mortgaged property and instructed the defendants, a firm of solicitors, to act for it, as well as a Scottish firm (the property being in Scotland). The deposit was paid to estate agents who, after deducting their commission, paid it over to the defendants who, to the knowledge of the plaintiff, deducted the costs which they claimed from it and paid the balance to the lender. The plaintiff then went into liquidation and the liquidator applied for a third party taxation order under section 70 of the 1957 Act. Such an order was refused because the bill had been paid, to the knowledge and with the consent of the plaintiff, more than 12 months previously. The judge noted that this did not preclude the plaintiff from claiming an account against the lender. However he added some observations which, although obiter, are worth noting in the present context.

Stamp J was shown some but by no means all of the cases to which we have been referred, and I have no reason to suppose that he had any need to examine the precise scope of a third party taxation. However, his observations are of interest given that the aim of the appellant in the present case, which it achieved from Master Campbell, was to obtain payment from the solicitors of part of the sum which they had paid to the mortgagee in respect of its costs, just as the plaintiff contended for in that case.

The two issues on the appeal may be referred to, for short, as quantification and payment (in which I include repayment). The cases decided in the 19^th and early 20^th century were concerned with quantification. So far as I can see they were not concerned with payment, not least because of the undertaking, required at that time as a condition of obtaining the order for taxation, to pay what was found to be due on the taxation, discussed at paragraph [34] above.

The issue of payment could arise in a number of different circumstances. If the bill has not been paid at all, then the taxation will determine what the third party must pay under it, and it would be right for the third party to be required to pay whatever is found to be due as a result of the assessment. If the bill has been paid by the third party, rather than by the client, and it is found on assessment that the amount paid is more than was due from the third party, then there would be no objection to an order requiring the solicitor to repay the excess to the third party. If, however, the bill has been paid by the client, then on the face of it the issue as to payment or repayment ought to lie between the client and the third party, not between the solicitor and the third party. The exclusion or disallowance of items as against the third party may well not mean that the excluded items were not properly recoverable by the solicitor from the client. If so, and where the client has paid the bill, there is no obvious reason why the issue of payment should be raised between the solicitor and the third party, rather than between the client and the third party.

The present case is one in which the third party paid money to the client in respect of the claim for legal costs, and the client later paid the solicitor the amount claimed by the solicitor. It is shown, indeed it is accepted between the parties to these proceedings, that certain items in the bill were foreign to the mortgage relationship and ought not to have been included in a bill in respect of liability under the mortgages (that is true, at least, of the items relating to bankruptcy proceedings). That does not show, however, that those items were not properly chargeable by the solicitor to the client. If they were properly so chargeable, then it is not clear that there is any basis for the solicitor to be ordered to repay sums to the third party. Thereby, on the face of it, he would be deprived of money paid to him by his client which was properly due from the client. Since the exclusion of the bankruptcy items from the exercise of assessment is on the basis that they were simply not within the scope of section 71 at all, because the third party was not liable for them, it is not clear to me that the provisions as to a final certificate, and a consequent order for payment, apply to those sums, either way. I will revert to the issue of payment later, but I must say something about the effect of the cases as regards quantification, and also deal first with a point taken by Mr Saifee on the statutory language.

That point arises in this way. As noted above, section 38 of the 1843 Act provided that “the same reference and order” was to be made on an application by a third party “and the same course pursued in all respects” as if the application had been by the client. The later Acts use (with minimal variations of drafting) the formula “the court may make the same order (if any) as it might have made if the application had been made by” the client: see 1974 section 71(1). The omission of the word “reference” merely follows the change in the principal section which, after the 1843 Act, did not speak of making a reference of the bill for taxation, but of an order for taxation. Mr Saifee argued that the later language gave the court greater scope than had the 1843 Act on a third party assessment, prescribing that the court could make the same kind of order as it could on an assessment on the application of the client but not necessarily the identical order, in the same amount. He pointed to the omission of the words “in all respects” in the later Acts.

I do not accept this argument. The purpose of the provision for third party assessment is the same as it was under the 1843 Act. It is still to allow for an assessment of the costs as between solicitor and client, in a case where a third party is liable to pay those costs and (normally) where there has not been an assessment under section 70. The differences in the statutory language are purely presentational, resulting from a different approach to the drafting of statutes. They do not change the substance of what the court can do under the section. Apart from the fact that an assessment under section 71 must be limited to costs which the third party is liable to pay, which may be more restricted in scope than those which the client is liable to pay to the solicitor, the certificate resulting from an assessment under section 71 must be for the same amount as would have been the result of an assessment under section 70. It also follows that, for what they do decide, the cases in the Court of Appeal – particularly Re Longbotham & Sons and Re Cohen & Cohen – are binding on us as to the effect of the statute.

I turn next to the effect of the older cases as regards identifying that for which the third party is not liable, for the purposes of a third party assessment.

The cases decided under section 38 of the 1843 Act demonstrate the variety of situations in which the point can arise: mortgagee and mortgagor, vendor and purchaser, landlord and tenant, parties to litigation under a compromise, creditor, principal debtor and guarantor, and trustee and beneficiary.

They show a tension or conflict between, on the one hand, the clear position under the statute, that the bill is to be taxed as if between solicitor and client, and on the other the proposition that the liability of the third party to the client in respect of the client’s legal costs may be for a lesser amount than the amount for which the client is liable to the solicitor in respect of costs and disbursements. This was recognised at a very early stage. At the time when the various cases were decided the position of the third party was affected by the requirement of an undertaking to pay whatever was found to be due to the solicitors on the taxation. For this reason the liability on the taxation might turn out to be more than would have been found due on an account as between the client and the third party, such as mortgagee and mortgagor.

This tension led to the development in the course of the cases, starting with Re Brown, by which the judges found a number of ways of ameliorating the effect of the limitations on a third party taxation, and the effect of the third party’s undertaking to pay the sum found to be due. One, which is not controversial, is that there is to be excluded from the bill anything relating to a matter for which the third party is not liable at all. An example of that in the present case is the bankruptcy aspect. This has nothing to do with the bank’s position as mortgagee. Time and expense devoted to this ought not to have been included in the bill rendered in respect of the mortgages, and it falls to be excluded from the bill to be assessed under section 71, as it would be from any account taken under the mortgages.

The cases went further than that in disallowing items which, though incurred in relation to the relevant matter, were excessive and unreasonable. A real example was the cost of having the pleadings settled by leading Counsel, rather than only junior Counsel, in Re Cohen & Cohen. A hypothetical example was the £50 retaining fee postulated by Romer LJ in his judgment in the same case. The justification for this is different. It is not that it was incurred on a matter for the costs of which the third party is not liable at all, but that the third party’s liability is limited to that which is reasonably and properly incurred, and in particular that it does not extend to items which, as between solicitor and client, would only be recoverable on the basis of special authority given after proper advice: see Re Cohen & Cohen and paragraph [57] above. The possibility of such items being called into question is not in doubt, and the presumptions under CPR rule 48.8(2) are directly in point in such a case. A third party cannot be at risk of being liable to the client for a sum which is only recoverable by the solicitor from the client if the solicitor has advised the client that it would not be recoverable from the third party.

At the time of the older cases, and for many years after the last of them, a solicitor’s bill of costs to his client was charged either by reference to standard amounts (or amounts within a defined range) per item (of which, as I understand it, there were or came to be up to 215) or as a scale fee. In those circumstances it may well always have been possible to eliminate amounts for which the third party should not be regarded as liable simply by excluding the relevant item from the bill. Either the amount was due, or it was not. Leading Counsel’s fee for settling the pleadings in Re Cohen & Cohen could be struck out, leaving junior Counsel’s fee which was, presumably, properly allowable and allowed.

Now, however, with solicitors charging at hourly rates according to time spent, calculated in units of 6 minutes, and with argument about both the correct rate and the justifiable amount of time, it is rarely, if ever, possible to get to the amount which should properly be allowed as between the client and the third party by deleting one or more of the entries from the solicitor’s bill. That can be done as regards extraneous matter, such as the bankruptcy in the present case. But where an aspect of the dispute (as here) is to the effect that the hourly rate was unreasonably high, the amount which the third party can properly be required to pay cannot be identified merely by striking out one or more items from the bill. It requires the relevant entries to be recalculated, once the correct hourly rate has been decided.

Mr Saifee submitted that in some of the older cases a dispute about the appropriate amount of an item, allowable in itself, was decided by the court on a third party taxation, or was at least envisaged as capable of being so decided. Undoubtedly the court sometimes decided as between an item-based charge and a scale-based charge: Re Negus is an example of that. However, I do not regard that as comparable to the sort of dispute as to reasonable amount which is involved in the present case. In turn what Cozens-Hardy J said in Re Gray, quoted at paragraph [46] above, does not support Mr Saifee’s contention.

He submitted that in the hypothetical example of a £50 retaining fee, given by Romer LJ in Cohen & Cohen in the passage quoted at paragraph [56] above, the objection was not necessarily to the fee as such but to its amount. However, it does not seem to me that this can be discerned from what the judge said about it in the passage quoted.

He also relied on references in the older cases to costs “properly” payable as between solicitor and client, such as in Re Gray, in the passage quoted at paragraph [46] above. There are other such references, by Romer LJ in the third of the paragraphs quoted at paragraph [49] above from Re Longbotham & Sons, and again by Romer LJ in Re Cohen & Cohen quoted at paragraph [56] above. In this context he showed us a passage from Re Dickson (1856) 8 De GM&G 655, before the Lords Justices, where Turner LJ said at page 661:

Mr Saifee sought to draw a distinction between what was “properly” chargeable and what was actually chargeable by the solicitor to the client. I do not accept this interpretation of what was said in those cases. In my judgment references to the amount “properly” chargeable in this context are to the amount which would be allowed on an assessment under section 70, subject only to one qualification, namely the exclusion of sums for which the client would only be liable on the basis of advice from the solicitor such as is mentioned in CPR rule 48.8(2)(c), which of their nature are not (or at any rate may not be) recoverable from a third party. Where a bill is assessed under section 70, not having already been agreed by the client, then items or parts of the amount claimed for items may well be disallowed as being excessive as against the client. That is the exercise of assessment which is available under section 70 as it is also under section 71. Incidentally, it is only amounts disallowed on that basis which are relevant for the purposes of section 70(9) – the liability for the costs of the assessment if less than one fifth is taken off the bill. Items removed because they are irrelevant to the third party do not count for this purpose, as is apparent from the case cited at paragraph [62] above.

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:

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.

If the bill which is to be taxed or assessed under the third party provision has not yet been paid, no problem arises. Under the old practice the third party would have been required to undertake to pay what should be found due, whether it was the full bill or a reduced amount. No issue of repayment would arise. Re Negus seems to be an example of such a situation. That gave rise to a risk that the third party mortgagor might have to pay more than he would have been liable for as between himself and the mortgagee. That risk no longer exists. Now, the third party would be ordered to pay the amount fixed on assessment by the final certificate under CPR rule 47.16(5). There is no reason to suppose that a section 71 assessment can increase the third party’s liability for costs to the mortgagee.

Equally, if the bill has been paid by the third party to the solicitor, and it is then reduced on assessment, whether because the full amount could not have been recovered against the client himself, or because it includes items for which the third party is not liable at all, then there is no problem in principle in requiring the solicitor to repay sums overpaid by the third party. That would not prejudice the solicitor’s right to recover from his client the appropriate amounts in respect of matters for which the third party is not liable but for which the client is liable.

Thus in Re Barrow (1853) 17 Beav 547 the mortgagee’s solicitor’s bill had been paid by the mortgagor, who promptly applied for it to be taxed under section 38. The report of Sir John Romilly’s decision is concerned with the question whether the bill should be ordered to be taxed at all, but a note at page 560 records that the bill was reduced from £21/16/3d to £2/7/-. The costs of the taxation amounted to £59/2/4d and the solicitor had to pay them and (more pertinently for present purposes) to refund £20 to the mortgagor, as well as bearing his own costs. (It can be seen, incidentally, that already in the nineteenth century not only did some solicitors seek to charge far too much, but also there might be a notable disproportion between the costs of litigation and the amount at stake.)

Re Morecroft is also an example of repayment to a third party who had paid the bill, there a purchaser who had to pay in order to obtain the conveyance.

The difficulty arises when it is the client who has paid the bill, but the third party has it assessed and reduced. If the third party has not yet paid the client, then all may be well; the third party should be able to resist a claim by the client to pay more than the amount certified. However, if the third party has paid the client an amount exceeding that amount certified (as here), on what basis can the third party properly recover the excess from the solicitor rather than from the client? In Re Brown the bill had been paid by the client, a trustee, and a beneficiary obtained an order to tax under section 38, and succeeded in getting items disallowed on the taxation. The solicitor’s appeal failed, but the report does not record what happened as regards payment or repayment. As mentioned at paragraph [42] above, it may be that the solicitor had to refund the money to the trust fund or to the beneficiaries directly. That seems to be the only case which might be a precedent for the order sought in the present case. Given that the report is silent as to what happened, it is a slender support at best.

Mr Saifee referred us to obiter comments in a judgment of Langley J, in Barclays plc v Villers, [2001] Lloyd’s Rep IR 162, in which, in turn, the judge referred to obiter comments of Ralph Gibson LJ in Ingrams v Sykes, 12 November 1987 [1987] NLJ Rep 1135. In both those cases reference was made to the court’s inherent jurisdiction to order payment on the part of solicitors. However, in neither case, so far as I can see, had the third party paid anything in respect of the costs claimed against it, so these do not seem to me to be to the point.

As a matter of jurisdiction, under section 70, on an assessment directly between the client and the solicitor, subsection (7) provides that the order for the assessment shall require the costs officer “to certify what is due to or by the solicitor in respect of the bill” as well as for the costs of the assessment. Taken with CPR rule 47.16(5), this will normally result in an order for payment of the amount shown as due by the certificate. Applying that to a third party assessment under section 71, it is the task of the costs officer to find (if appropriate) that money is due by (i.e. from) the solicitor and to certify that it should be paid. On making such a finding, it is presumably open to the officer to direct to whom it is to be paid, that is to say whether to the client (even if not a party to the assessment) or to the third party, or into court if there be doubt as to the proper recipient.

It seems to me therefore that the issue is not as to jurisdiction but as to whether, on the particular facts, it is proper to direct repayment.

No case, other than (perhaps) Re Brown, provides an example comparable to the present, where the third party has paid the client (in effect), the client has then paid the solicitor, and the third party then seeks to recover what he says is an overpayment, not by a claim (here it would be for an account) against the client but by an assessment against the solicitor. Master Campbell recognised that an order against the solicitor to repay sums for which the third party was not liable but for which the client was liable would leave the solicitor out of pocket, and having to have recourse to his client to be paid again, as a result of proceedings to which the client was not a party. The Master thought that the solicitor would be entitled to recover the disallowed amounts, as having been paid under compulsion, but it seems to me that this cannot safely be assumed. I agree with Lewison J that to order the solicitor to pay sums to the third party in these circumstances is not justified. It could only possibly have been justified if the disallowance of items on the assessment had been on the basis that they could not have been justified as between solicitor and client.

Therefore, despite Mr Saifee’s able submissions, I agree with Lewison J that, if the third party seeks to recover sums which he has paid to the client, who has paid the costs claimed to the solicitor, then, even if the third party were able to demonstrate that the bill was excessive as against him (whether because of the inclusion of items for which he is not liable at all, e.g. the bankruptcy aspect here, or because it includes items which are only allowable against the client under a special arrangement), it is not open to the court to require the solicitor to refund the balance to the third party. The liability to repay lies with the client, not with the solicitor.

The effect of my conclusions as regards both quantification and payment is that a third party assessment under section 71 is of limited use to a third party. As regards quantification it only allows the costs judge to follow what might be called a blue pencil approach. He can eliminate (a) items which ought not to be laid at the door of the third party at all because they are outwith the scope of his liability, here as mortgagor, and (b) items which are only allowable as between client and solicitor on a special arrangement basis, within the terms of CPR rule 48.8(2)(c). He cannot either eliminate any other item or reduce the quantum of any item which is properly included in itself, but for which he considers that the charge made is excessive, unless he could have done so as between client and solicitor on an assessment under section 70.

As regards payment, if the third party has not yet paid anything in respect of the bill (or only sums on account which are less than the amount properly allowable) then the section 71 assessment may be useful to the third party, because he should not be liable to pay more than the amount so certified. Formally the client, not being a party to the assessment, will not be bound by the result but in practice it may be as effective as against the client as it is as between the third party and the solicitor. The same would be true if the third party has paid the costs but has done so directly to the solicitor.

If, however, the client has paid the solicitor, and the third party has paid the client, then it seems to me that the third party’s remedy must lie against the client, not against the solicitor, because it cannot be right to require the solicitor to pay to the third party money which he received from his client and which his client was bound to pay to him, merely because the third party was not liable to pay the same amount to the client.

In those circumstances, the third party ought to bring proceedings against the client to establish how much was due from him to the client. In a mortgage case such as the present, the proceedings would be conventional proceedings for an account of what was due under the mortgage. Such proceedings would enable the court to determine the correct issue as between the correct parties, and if appropriate to order repayment by the mortgagee to the mortgagor. In such proceedings it would be possible for the court to do what cannot be done under a section 71 assessment, namely to disallow part of an amount claimed on the basis that something was due, but not as much as is claimed – for example by substituting a lower hourly rate.

I realise that, on this basis, what Sir John Romilly said was the purpose of the provision for third party assessment, namely to shorten the remedy, will have been achieved in only a small minority of cases, probably rather unusual ones. I see no alternative to that, given the nature of the issues that tend to arise on quantification in relation to costs bills drawn in modern circumstances, and also given the issue about repayment, which seems to have arisen only rarely if at all in the older cases.

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.

As for the present case, however, while some of the disallowances made by Master Campbell were correctly made under section 71 (the extraneous matters such as bankruptcy), most of the amounts disallowed ought not to have been, and the Master’s order for payment by the solicitor to the third party was in my judgment plainly wrong, even as regards the items properly disallowed.

I have taken a good deal longer that Lewison J did to explain my reasons for coming to the same conclusion as he did. Mr Saifee’s interesting submissions drew me into a more detailed exposition of the older cases than Lewison J found necessary, and we have also had invaluable assistance on the relevant history and practice, and the implications of the case, from our assessor, Senior Costs Judge Hurst.

I agree with the judgment of Lewison J in all respects. I would therefore dismiss the appeal. Lewison J’s order set aside the final costs certificate as well as the Master’s order. It also remitted the matter to another costs judge for the assessment to be carried out again, on the correct basis. As to that, it seems doubtful whether a new assessment would be of any use to either party, in the light of the judge’s judgment, as confirmed on this appeal. It might be sensible for that provision of the order to be deleted.

It remains open to the appellant, if it wishes, to bring proceedings for an account against the Bank. It is common ground, as between the parties before us, that certain items in the bills were not the responsibility of the appellant under the mortgage, in particular those relating to bankruptcy matters. On the face of it, the Bank ought to refund those to the appellant. It seems to me that there ought to be scope for the resolution of the issues as between the appellant and the Bank by mediation, rather than by incurring the costs of a full scale action for an account.

I agree.

I also agree.