Meretz Investments NV & Anor v ACP Ltd & Ors

On 30 January 2006, Lewison J gave judgment in this action; it is reported at [2007] Ch 197. The trial took 15 days of court time; the judgment runs to 435 paragraphs. The action concerned a property development relating to the rooftop space of a block of flats. The parties are described in paragraph 1 of the judgment:

Things went badly wrong. The property was sold in the purported exercise of the power of sale conferred by the first charge. The Claimants brought proceedings against all five Defendants seeking different heads of relief against one or more of the Defendants as follows: (a) a claim against the first and second Defendants for damages for breach of the contracts which had been entered into (b) a claim that the mortgagee had exercised its power of sale for improper purposes, so that the sale could be set aside and (c) a claim that the Defendants together had committed economic torts. As part of their defence, the Defendants argued that, by virtue of certain previous proceedings, the Claimants were precluded from advancing certain allegations concerning the exercise of the power of sale as a result of estoppel and abuse of process. This was a matter concerning principally the mortgagee. The Defendants were successful in that element of their defence.

As to the economic torts, Lewison J identified these at paragraph 200 as follows:

It can readily be seen that these issues had at their root the underlying claims of breach of contract and wrongful exercise of the power of sale which also formed the basis of (other) substantive claims against ACP and FP.

At paragraph 417ff, the Judge expressed his conclusions thus far:

He went on to reach his conclusions in relation to the contract claims. This was the result:

Mr Sachdeva, who appears for the Claimants on the appeals now before the Court, accepts, as he has to, that there would be considerable overlap between the contractual and equitable claims on the one hand, and the economic tort claims on the other hand, but he does not accept that it would have been necessary to go into anything like the detail in which the former were in fact gone into in order to deal with the economic torts had those been the only claims. It is not possible for my assessors and me to take a fully informed view on that in these appeals but, for my part, I very much doubt that he is correct in what he says.

What one certainly cannot do is to judge that issue by the amount of time which the judge spent on the economic torts in his judgment since, having made his findings on the equitable claims, he did not need to go over it all again when discussing the economic torts.

Nor, I consider, would it be correct to say that the costs attributable to the economic torts issue were simply the extra costs incurred over and above those which would have been necessary to deal with the contractual and equitable claims. There would be no more justification for saying that than for saying that the costs of the contractual and equitable claims were simply the extra costs over and above those which would have been necessary to deal with the economic torts. In reality, it may simply be impossible to separate out the costs and that really one ought to regard the vast majority of the costs as generic or common costs.

Lewison J made the following costs orders:

ACP was to pay 35% of Meretz’s costs.

Meretz was to pay 85% of FP’s costs.

Britel was to pay 85% of ACP’s and FP’s costs.

Meretz and Britel were to pay 100% of Mr Olsson’s and Mrs Olsson’s costs.

These orders, of course, reflected the different outcomes of the different claims, although I do not precisely follow the reasoning which led to these orders and in particular why paragraph b provides for 85% rather than 100% given that Meretz failed entirely against FP. These are not, to any extent, issue-based orders and, to give effect to paragraphs b, c and d, it is necessary only to ascertain what were the costs of each of ACP, FP, Mr Olsson and Mrs Olsson.

The firm of Berwin Leighton Paisner (“BLP”), were solicitors on the record for ACP, FP, Mr Olsson and Mrs Olsson. They clearly acted for all four of them in the litigation.

A bill of costs was prepared by BLP. The bill did not identify the costs incurred by ACP, PF, Mr Olsson and Mrs Olsson separately, but dealt with them as one global amount. During the course of the detailed assessment, the Costs Judge, Master O’Hare decided, on 1 May 2007, that the costs set out in the bill should be apportioned equally between the four of them. He made a ruling, recorded in his order of that date (“the 1 May Order”), that

Master O’Hare would have had all the files available to him. He would have been a position to judge the involvement of the different defendants in the litigation. He gave very brief reasons for his decision having heard argument:

Although BLP clearly acted for all of ACP, FP, Mr Olsson and Mrs Olsson, there was, however, only one retainer letter and that was addressed by BLP to FP alone. That letter was dated 20 March 2002. It predated commencement of proceedings (the claim form being issued on 24 March 2004) and, according to the opening paragraph of the letter, the instructions were “to assist First Penthouse in connection with the disputes over the consideration and introductory payments to be made in connection with your acquisition of the roof space at Albert Court”. There was, accordingly, at that stage, no suggestion that BLP were acting for anyone other than FP, and certainly not for Mr and Mrs Olsson in connection with allegations of economic torts, although it might be noted that the writer (Mr Bretherton) says that, if needs be, he “will involve one of the partners in my litigation department” and that he will be the partner responsible for all aspects of the firm’s relationship “with First Penthouse as our client”.

Meretz and Britel submitted to Master O’Hare that there was no contractual retainer with ACP, Mr Olsson and Mrs Olsson. He decided in the course of the detailed assessment that BLP were retained by them as well as by FP. This is recorded in paragraph 1 of his Order dated 18 June 2007 (“the 18 June Order”). Master O’Hare gave permission to appeal against that.

In support of that conclusion, Master O’Hare relied on the decision of Briggs J in Bulmer v Owlett. That case is not reported and there is available only a rather inadequate note of the decision. It does not appear to add anything to the well- established principle that the existence of a retainer may ordinarily be inferred from the fact that a solicitor is on the record for a party to litigation (although it is, of course, an inference which can be rebutted). Master O’Hare said this:

So far as concerns the bill of costs, a certificate was signed by Mr Cox of BLP (on a standard form) that “the costs claimed do not exceed the costs which the receiving party is required to pay to me/my firm”. It will be noted that this is a reference to “the receiving party” when in fact there were four receiving parties. However, Mr Cox signed the certificate as a partner in “Solicitors for the first, second, third and fourth defendants”. There can be no doubt at all, to my mind, that the reference to “the receiving party” is to be read as “the receiving parties” namely ACP, FP and Mr & Mrs Olsson. Master O’Hare was, it seems, troubled by this as, in paragraph 4 of the 18 June Order, he directed BLP

On 19 June 2007, Master O’Hare made a further preliminary ruling in the detailed assessment in relation to the costs claimed in respect of work done by Mr Hawkins. Mr Hawkins was a former partner of BLP. He was not a litigation partner. He was a property lawyer who had advised in relation to the transactions which gave rise to the litigation. He was involved in the litigation in two ways: first by giving factual evidence about the transactions and secondly in assisting the litigators to progress the case. He did not give expert evidence. In relation to his factual evidence, he himself spent a considerable amount of time preparing his witness statement as well as attending at court. An issue arose whether any of the costs claimed in respect of work done by Mr Hawkins should be allowed. Master O’Hare decided that they should not be allowed save in relation to the actual giving of evidence in court. This ruling is recorded in his order dated 19 June 2007 (“the 19 June Order”) in this way:

There are before the court three appeals from the orders of Master O’Hare. They are, in order of time:

An appeal brought by the Claimants by notice dated 18 May 2007 from the 1 May Order concerning the equal apportionment of costs between ACP, FP, Mr Olsson and Mrs Olsson.

An appeal brought by the Claimants by notice dated 5 July 2007 from the 18 June Order ruling that BLP were retained by all of ACP, FP, Mr Olsson and Mrs Olsson.

An appeal brought by ACP, FP, Mr Olsson and Mrs Olsson by notice dated 10 July 2007 from the 19 June Order disallowing certain of the costs claimed in relation to Mr Hawkins.

I deal with the retainer point first. Authority shows that, once it is established that a firm of solicitors is acting for a receiving party, a presumption arises that the client in liable to pay the solicitor. The onus is on the paying party to rebut that presumption. That approach is shown in Adams v London Improved Motor Coach Builders[1921] 1 KB 495 at p 501 (per Bankes LJ) and at pp 502-3 (per Atkin LJ). The presumption thus arises (subject to rebuttal) where the solicitor is on the record for the client in the litigation: see for instance, R v Miller and Glennie[1983] 3 All ER 186. In the present case, BLP were on the record for ACP, FP, Mr Olsson and Mrs Olsson. It is clear on authority that the fact that payment of the solicitor’s bill is made by a third party, even where there is an expectation that that will happen, is not enough to rebut the presumption. Rather, in order to rebut the presumption, it has to be shown that there are no circumstances in which the solicitor would be able to look to the client for payment. An example of this approach in practice can be found in Lewis v Avery [1973] 2 All ER where a member of the Automobile Association had instructed solicitors through the AA. The AA undertook the appeal, instructed solicitors and paid their fees. Nonetheless, the member was the client and, in the last resort, liable to the solicitor for his fees. The same applies where a trade union deals with litigation (commonly personal injury or employment cases) on behalf of a member, although whether the social conditions of the 21^st century and the expectations of members, unions, solicitors and others might lead to a different result on the facts of a particular case is, perhaps, debateable.

Mr Sachdeva submits that the facts of the present case are unusual and sufficient to rebut the presumption. I summarise (taking this from his skeleton argument) the special features which he relied on in this way:

There was only one client care letter which was with FP. This, of course, is not determinative but is, he says, a factor.

It was FP’s power of sale which was being challenged in the litigation and the gravamen of the allegations primarily concerned FP.

So far as the Claimants are aware, the only payments made to BLP have been made by FP.

The commercial sense of the instructions to BLP was to protect the interests of FP and its directors (Mr and Mrs Olsson) who had been sued as well as the interests of ACP. It would, he says, be most surprising if directors who had been sued, and who maintained throughout that they had been acting for the purposes of the company, would consider that they were incurring personal liability for legal costs.

There was no evidence that Mr and Mrs Olsson possessed directors’ liability insurance; such insurance would be expected if they considered themselves liable for BLP’s fees.

The terms of the certificate refer to “the receiving party” thus implicating only one party.

There was no compliance (at least not until the very last moment) with Master O’Hare’s direction in the 18 July Order to clarify the certificate. This, Mr Sachdeva says, leads to the natural inference that the partner of BLP is unable to put his name to a certificate which does aver that there was a retainer with any parties other than FP.

On 22 October 2007, BLP did, or at least purported to, comply with the direction (although I understand Mr Sachdeva to say that the relevant letter from BLP does not comply with the direction, or at least with its spirit).

Master O’Hare decided, as a matter of fact, that the inference which arose as a result of BLP acting as solicitors on the record for ACP, FP, Mr Olsson and Mrs Olsson, was not rebutted. It is not clear which of the matters now relied on by Mr Sachdeva were raised before Master O’Hare. They were all points which could have been taken. In my judgment, the conclusion which Master O’Hare reached, even assuming that all these points were raised, is not one which can be said to be clearly wrong. He had to weigh all the facts and arguments as presented to him and had to reach a conclusion. Even if different minds might differ on the correct conclusion, his conclusion was not one which is open to challenge. Moreover, were the matter for me, I would reach the same conclusion on the evidence before me in the light of the arguments which Mr Sachdeva has raised. Dealing with his specific points, taking them separately initially (and following the lettering above):

This client care letter was at a time before the commencement of the litigation (although whether threats to sue not only FP but also ACP, Mr Olsson and Mrs Olsson on the basis of economic torts had been made I do not know). That BLP were retained by FP alone in 2002 to handle a commercial dispute does not lead me to think that, when litigation was commenced in 2004, BLP were not acting for all four defendants. BLP clearly went on the record for all of them; the previous express retainer by FP is not enough to rebut the presumption.

I would not accept the categorisation of the litigation in the way suggested. The underlying complaint concerned the power of sale, but the legal complaints concerning the exercise of that power were directed as much at Mr and Mrs Olsson (by way of the allegations based on economic torts) as they were at FP itself. But that is not, I think, the point: the point is that on any view serious allegations were made against ACP, Mr Olsson and Mrs Olsson which had to be defended; matters could not simply be left to FP.

This factor is certainly not conclusive. It was, in any case, raised for the first time in Mr Sachdeva’s skeleton argument and is not supported by evidence. Indeed, Mr Post, appearing for ACP, FP and Mr and Mrs Olsson, tells me on instructions that it is not correct. But even if it is correct, it might then reflect expectations but not necessarily a lack of obligation on Mr and Mrs Olsson as payers of last resort.

Contrary to this submission, I do not find it in the least bit surprising that Mr and Mrs Olsson would consider that they were incurring personal liability. BLP were acting for them and clearly expected to be paid. ACP and FP might have been unable to meet all their liabilities if they had lost the litigation – a substantial damages award and the Claimants’ costs, as well as their own costs. BLP would, in those circumstances, have wanted to recover their bill from Mr and Mrs Olsson. It would be surprising if they could not recover at least the proper proportion of the costs attributable to defending the action on behalf of Mr and Mrs Olsson.

The question of directors’ liability insurance was, again, raised for the first time in Mr Sachdeva’s skeleton argument. On instructions, Mr Post informed me that such insurance was in fact in place. After some debate, Mr Sachdeva accepted that position and did not require evidence formally to be introduced to confirm what Mr Post had told me.

I have already dealt with the terms and effect of the certificate. It does not, I consider, cast any doubt on the proposition that BLP were retained by all of ACP, FP, Mr Olsson and Mrs Olsson. If anything, it supports that proposition by referring to the firm as solicitors for “the First, Second, Third and Fourth Defendants”.

and h. go together. The fact that BLP were retained by all of ACP, FP, Mr Olsson and Mrs Olsson does not tell one for what costs each of them is liable to BLP. Further, a certificate which states that the four of them collectively are liable to BLP for 100% of the bill of costs does not tell one for what proportion of the bill each of them is liable. That will depend on the terms of the retainer which might (although it is not suggested that it did) have made each of them liable for 100% with an agreed apportionment as between them. Master O’Hare ruled on 18 June that there was a retainer by all of them. He had previously ruled on 1 May 2007 that the costs in the bill should be apportioned equally between each of them. It is not, in the light of those two rulings, entirely easy to see why he required further clarification of the certificate. It is, I suppose., logically possible to accept (a) that there was a retainer by all four and (b) that the costs owing to BLP were owing in equal shares whilst at the same time (c) that the certificate was defective in not properly indicating the retainer and the apportionment. It is, however, surprising to read the certificate in that way given the earlier rulings. Be that as it may, such deficiencies as there may have been in the original certificate, or as may remain in the recent letter, do not persuade me that there is any doubt that BLP held a retainer from all of ACP, FP, Mr Olsson and Mrs Olsson.

These points, taken separately, are not sufficient to establish that Master O’Hare was wrong in deciding that the presumption (that there was a retainer) was not rebutted. Nor, I consider, are they sufficient to do so taking them all together. Again, were the matter for me, I would conclude that the presumption is not rebutted. Accordingly, the appeal from the 18 June Order is dismissed.

Mr Post submits that it is established by authority that, absent an express agreement to the contrary, each client will be liable to pay an equal share of the costs. He refers the court to the decision of Alverstone CJ in Beaumont v Senior [1903] 1 KB 282. That was a case, however, where there was nothing to suggest that the costs incurred were not all for the benefit of both clients; if there were material to show that work was carried out exclusively for one client which was of no benefit to the other, then the costs of that work ought to be the responsibility of the former to the exclusion of the latter. In any event, the case was remitted to the Registrar who had not enquired into the position of the successful defendant with regard to his liability for costs to the solicitor employed. I do not think that the case is particularly helpful in resolving the present appeal.

Mr Post also relied on the decision of the Court of Appeal in Russell Young & Co Brown [2007] EWCA Civ 43 where the issue was the recoverability of generic costs where no group litigation order had been made. Notwithstanding the absence of written agreement, the generic costs were held to be shared equally between each of the clients. Again, I do not find that decision particularly helpful in the context of the present appeal.

Mr Sachdeva referred me to Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567. The Court of Appeal held that, on the authorities, each client was only liable to the solicitors for half of the costs of the joint items of defence and the whole of any separate items of defence. Mr Sachdeva notes that this finding was only possible after the case had been remitted by the court below to the Master to report what the nature of the retainer was.

He also referred the court to Korner v Korner & Co [1951] 1 Ch 10. There it had been submitted by the receiving parties (being 7 out of 8 defendants) that they should receive an equal portion of the total costs of the defendants by number, that is to say 7/8ths. The taxing master disagreed, permitting each defendant 7/8ths of the general costs of the action, and costs relating to their defences and such part of the fee for instructions for brief and counsel’s fees as may be attributable to their defences.

The Court of Appeal regarded that approach as a rule of thumb, convenient in an ordinary case. But they saw the main contest, the real fight, as being between the plaintiff and the other, unsuccessful, defendant. There was no authority which compelled the court to allow simply a share of the overall costs of the action in every class of case, even if to follow it would result in injustice. To do so would

What one can derive from these authorities is that where there is no express agreement concerning the division of costs, a general rule of thumb is to divide them equally between the relevant parties. But that is only a general rule and is not to be allowed to produce injustice. Where costs can be shown to be attributable to one party rather than another, the liability falls only on that party. And where the real contest is between one party A and another party B, injustice could arise if that were not recognised in the way in which the costs of B and other parties employing the same solicitor are apportioned.

The real questions in the present case are whether Master O’Hare could properly determine (i) the proportionate liability for general costs and (ii) an assessment of whether all costs could be treated in the same way. Mr Sachdeva submits that it is simply inconceivable that significant amounts of work were not done for one defendant rather than another and that the bill should show a breakdown of those separate costs. In other words, he rejects what was expressly said by the defendants, namely that all of the cost claimed in the bill of costs was common to each of them and that there was no work which could be identified which was solely for the benefit of one or more of them but not for the others. He also suggests, as I understand it, that the apportionment of general costs is not sustainable, on the basis that the real point at issue was the validity of the exercise of the power of sale, a matter principally concerning FP rather than the other defendants.

In my judgment, the challenge to Master O’Hare’s apportionment does not succeed. The apportionment which he adopted was essentially a factual determination that an equal apportionment represented a fair assessment, on the facts of the case, that all of the work was carried out for all of ACP, FP, Mr Olsson and Mrs Olsson, whether by the lawyers or the accountants, Piper Thompson. There was material on which Master O’Hare could properly reach that conclusion. This was not an apportionment which was one which no reasonable costs judge could have made. Unlike this court, Master O’Hare had the entire file; and he had the judgment of Lewison J. He thought that there were not going to be any costs peculiar to particular defendants which would be any larger than the costs peculiar to other defendants and thought that most of these costs would be common costs.

I am bound to say that, having looked at the judgment without the benefit of all the papers which Master O’Hare had before him, I am not surprised at that conclusion. It seems to me highly likely that most, if not the entirety, of the work which was done was indeed common. Thus, if both ACP and FP had been companies without assets, and if the Claimants had decided just to sue Mr and Mrs Olsson, not wanting to waste money in obtaining a worthless judgment against ACP and FP, I venture to think that all the work which was in fact carried out would have had to be carried out in the course of the attempt to establish the economic torts. The work done was therefore of use to all of the defendants. It is no answer to that to say that the claim against Mr and Mrs Olsson was in some way an add-on and might never have been brought as a separate claim. The fact is that the Claimants saw fit to sue Mr and Mrs Olsson who were entitled to defend the claim. This may not produce a precisely accurate result. But as Master O’Hare said, “In the end costs are never minutely accurate.” And having looked at the matter arithmetically in several ways, he considered it disproportionate to redraw the bill in case there might be a small difference.

Accordingly, I dismiss the appeal against the ruling contained in the 1 May 2007 Order. I would only add this. The present case highlights the problems which can arise if solicitors acting for more than one client do not record in writing the details of their remuneration. It would be wise for solicitors to set out expressly the liability of each of their clients both to the solicitors and as between themselves.

The bill of costs does not provide a breakdown of the costs incurred in respect of Mr Hawkins’s different activities. Mr Post submits that no breakdown is necessary because all of these costs are, in principle, allowable. Thus, it was not necessary that Mr Hawkins should be a litigator in order that costs incurred in assisting in the litigation should be allowable. Further, work on the preparation of his witness statement should, Mr Post submits, be allowed just as his attendance to give evidence is allowed. If Mr Hawkins had not done the work which he did in producing his witness statement, a solicitor within BLP would have had to do so, in which case the costs referable to that solicitor would clearly be allowable.

Mr Sachdeva does not submit that the work performed by Mr Hawkins in assisting the litigation (in contrast with preparing his witness statement) cannot be recovered as a matter of principle and to that extent he accepts that Master O’Hare was not correct. But what is actually recoverable is, he says, subject to proof that it was reasonable to employ Mr Hawkins and that the hours claimed were reasonable.

He does submit, however, that the costs incurred in preparing the witness statement are not allowable. As with any witness of fact, it is only his costs of attending to give evidence which are allowable, and nothing is to be allowed for the expense of the witness himself in preparing his evidence.

It follows, if Mr Sachdeva is correct, that there needs to be a breakdown of the time spent by Mr Hawkins on three tasks namely (a) assistance/general preparation on the case as a solicitor (b) producing the witness statement and (c) cost of attendance at court. The costs incurred in relation to (a) and (c) are, in principle, allowable.

As to (b), the position is more complex. There are, at least in theory, two components of the work involved in producing the witness statement. This can be illustrated by considering the position had Mr Hawkins not been involved, in his capacity as a practising solicitor, in preparing the witness statement but had, instead, been treated in the same way by the legal team as any other witness of fact. In that case, Mr Hawkins would have needed to spend time and effort (including, possibly, being proofed) in producing for the legal team the material for them to turn into the witness statement. The cost attributable to first component, the work done by Mr Hawkins, would not be allowable (any more than it would be allowable in the case of any other witness of fact); the cost attributable to the second component, the work done by the legal team, would be allowable.

I do not know precisely how Mr Hawkins prepared his evidence. There may be elements of the work which he did in producing the final witness statement that, on any reasonable view, fall within the second component rather than the first, for instance supervising the compilation of the final draft for signature. But I would expect most of the work to be work that would fall within the first component. In particular, the fact that Mr Hawkins might have been able to go straight to a draft witness statement as the method of providing the information necessary would not mean that the cost of producing the draft fell within the second, rather than the first, component. Accordingly, there needs to be a further breakdown of the costs of task (b). I consider that the costs of task (b) are not allowable save to the extent that the work done in completing that task was attributable to work done by Mr Hawkins in his capacity as a solicitor rather than in his capacity as a witness of fact.

The boundaries between what is, and what is not, allowable on this approach may not be clear: it will be for Master O’Hare in the continuing detailed assessment to determine what is to be allowed and what is not. To enable him to do so, there needs to be an identification by the defendants of the items of the bill which, on this approach, they say are to be allowed and the amounts claimed in respect of that work. It may be that the defendants will recognise that the amounts which turn on this point are, in the context, insignificant and that it would be disproportionate to carry out this further breakdown. In that case, the costs attributable to task (b) are to be disallowed.

It follows, in my view, that it is necessary to break down the bill to show how much is attributable to task (b). The relevant element of cost is to be disallowed save to the extent that the defendants can, on a further breakdown of the work involved in task (b), show that some of the work was work which could properly have been carried out by a solicitor without any further input from Mr Hawkins. The defendants’ appeal from the 19 June Order succeeds to that extent.

I record that there is no appeal from the decision of Master O’Hare concerning the rate at which Mr Hawkins costs of appearing at the trial are to be allowed.

Insofar as Master O’Hare ordered costs of the hearings before him to be costs in the detailed assessment, I do not propose to alter those orders. In relation to the costs order contained the 19 June Order, I substitute and order that these costs, too, should be costs in the detailed assessment.

The results of the appeals are as follows:

The Claimants’ appeal against the ruling as to apportionment of costs in the 1 May Order is dismissed.

The Claimants’ appeal against the order as to retainer in the 18 June Order is dismissed.

The first to fourth Defendants’ appeal against the ruling as to the disallowance of the costs claimed in respect of Mr Hawkins in the 19 June Order is allowed to the extent indicated in this judgment. The costs of the hearing before Master O’Hare on that day are to be costs in the detailed assessment.