Falmouth House Freehold Company Ltd & Anor v Morgan Walker LLP

Morgan Walker are solicitors. They acted for a number of years on behalf of Falmouth House Ltd (“House”) and its parent company Falmouth House Freehold Ltd (“Freehold”). Their instructions came from the board of directors of each company. Until 2 February 2009 the directors of each company were Mr Panyotov, Mr Moumena and Mr Al Sanie. Mr Panyotov appears to have been the director most closely in touch with Morgan Walker. On 2 February 2009 an EGM of each company took place, at which the board was removed; and new boards were appointed for each company. The validity of the EGMs is in dispute, so that there is some doubt about who are the directors of each company.

On 11 February 2009 Morgan Walker appeared at the first hearing of winding up petitions against company. The petitioner in each case was Mr Panyotov; and Morgan Walker appeared as a supporting creditor. In the case of Freehold the witness statement in support said that Morgan Walker were owed £8,190 in legal fees. In the case of House the witness statement in support said that Morgan Walker were owed £201,417.07, but that in an informal meeting with the directors Morgan Walker had agreed to reduce that sum to £200,000 if it were paid promptly.

According to Mr Woodland, the current solicitor for both companies, it was only on 22 October 2009, just before the adjourned hearing of the petition, that he received copies of two documents, dated 20 November 2008 and 9 February 2009 which purported to be invoices from Morgan Walker to House and Freehold respectively. The document dated 20 November 2008 was addressed to House. It is headed “Invoice – Professional Fees”. It includes a “Statement of Costs attached to this invoice”. Attached to the document is a printed sheet containing information about what the recipient may do to challenge the fees. The identified methods of challenge include assessment under the Solicitors Act 1974. The total amount of the statement of costs is £201,417.07. It relates to two litigious matters and one item headed “company matters”. The document dated 9 February 2009 is addressed to Freehold. It too is headed “Invoice – Professional Fees”. It too refers to a Statement of Costs attached to the invoice. Again, attached to the document is a printed sheet containing information about what the recipient may do to challenge the fees. It is in the same terms as that attached to the document dated 20 November 2008.

The evidence in support of the petitions had been preceded by a statutory demand served by Morgan Walker on House. The particulars of the debt stated that the debt was incurred on 20 November 2008 and payable on 21 December 2008; and that it arose pursuant to an invoice dated 20 November 2008. The amount of the debt was said to be “at least” £31,417.07. That was because Morgan Walker were holding £170,000 which, together with the amount specified in the statutory demand, made up the total of £201,417.07 claimed in the invoice.

On 19 November 2009 House and Freehold issued a claim form in which they claimed a detailed assessment of the bills dated 9 February 2009 and 20 November 2008. That claim came before Master Simons on 11 February 2010. Mr Sancheti of Morgan Walker had made a witness statement in opposition to the claim. He exhibited a large number of invoices. They appear to have been rendered at monthly intervals and itemised professional fees incurred “up to” the month in which they were issued. In addition to these there was also an invoice dated 11 November 2008 referring to a case between Mr Sabawi and Freehold.

Master Simons ordered a detailed assessment of the bills dated 11 November 2008, 20 November 2008 and 9 February 2009. With the permission of Mann J Morgan Walker appeal. I have sat with Master Campbell and Mr Todd as assessors to determine the appeal. I am grateful to them for their assistance; but the decision is mine alone.

Under the terms of Mann J’s order the appeal is limited to the issue of “special circumstances” only; although part of Mann J’s reasoning in giving permission to appeal was that it was at least arguable that Master Simons had given inadequate reasons on that issue.

The significance of the issue arises under section 70 (3) of the Solicitors Act 1974. That section limits the court’s statutory power to order the detailed assessment of a bill. Special circumstances must be shown if the application for an assessment is made more than 12 months after delivery of the bill, or after the bill has been paid.

The first question is to identify the bills to which this restriction applies. Plainly it cannot apply to the bill of 9 February 2009. Nor, on the face of it, can it apply to the bill of 20 November 2008, since the claim form was dated the day before the expiry of one year from the date of the bill. Neither the grounds of appeal nor the skeleton argument in support of the appeal identify the grounds upon which it is said that special circumstances must be shown in relation to the bill of 20 November 2008. However Mr Sancheti’s witness statement suggests that the bill of 20 November 2008 was issued at the request of the board of House for the purposes of settlement only; and had been preceded by the series of invoices to which I have referred. That might have given rise to an argument that each of the series of invoices was a statute bill rather than an interim bill. If so, then time would have started to run when each of the invoices was delivered. If not, then time began to run from delivery of the final bill. However, that point was not argued before Master Simons. Mann J refused permission to appeal on the question whether the document was an invoice or not. It is implicit in that decision that the bill of 20 November 2008 was the final bill in respect of which the client was entitled to a detailed assessment. It could not be argued that that bill had been paid, since the non-payment of that bill was the foundation of the statutory demand; and of Morgan Walker’s support of the winding up petition. It had, at best, been partly paid. It follows, therefore, that no special circumstances needed to be shown in relation to that bill.

That leaves the bill of 11 November 2008. It is clear from the transcript of the hearing before Master Simons that discussion of special circumstances was limited to that bill. On the question of special circumstances Mr Hackett (then appearing for Morgan Walker) said to the costs judge that the invoice had been served on and approved by the old board of the company, although it had not been paid. Master Simons continued:

“… have the claimants not got a fairly downhill task in proving special circumstances simply because the whole essence of what has been going on here when there are disputes between the companies etc and there are large sums involved and the whole extent of Mr Sancheti’s witness statement appears to be the situation is not clear and certainly confused, that it will not be at all difficult for me to find that there are special circumstances why this is assessed?”

Mr Hackett replied “Yes, and I cannot argue with [inaudible] defence”. This appears to be a concession that special circumstances exist. If that is how Master Simons understood Mr Hackett’s response to his question then, in the relative informality of a costs hearing to determine whether a bill should be assessed, it is not surprising that he gave no further reasons for his decision. In essence, though, the reason he gave (or the question that he put) was his own response to Mr Hackett’s point that the fees had been approved by the old board. Master Simons’ point was that there was a dispute between the old board and the new (“there are disputes between the companies etc”) so that this was not a straightforward case of the client having approved the fee. Morgan Walker argue that the fact that there are large sums involved is not a special circumstance and rely for that proposition on the decision of Mr John Martin QC in Winchester Commodities Group Ltd v RD Black & Co [2000] BCC 310. However, in that case Mr Martin held that the stark level of the fees in issue was “at first sight a good point”; but that for seven particular reasons on the facts of that case the point turned out to be of little substance. That case is not authority for the proposition that the amount of fees in issue is irrelevant to the question whether there are special circumstances. In Re Robinson (1867-68) LR 3 Ex 4 the Court of Exchequer held that a large charge calling for explanation was a special circumstance. In my judgment Master Simons was entitled to take it into account. The third point was that Mr Sancheti’s witness statement was confusing. That point refers back to the Master’s earlier point, recorded on the transcript, that when he looked at the various invoices he could not “marry anything up”. In other words he was not satisfied that the invoices gave proper details of what had been charged and why. In essence he considered that the bill called for explanation. This was reinforced later in the hearing when Master Simons was told that Morgan Walker had no papers. On page 17 of the transcript he said

“… what you are telling me enforces [reinforces?] the reasons why I should order a detailed assessment. So if you cannot provide a breakdown or a detailed breakdown, there has to be an explanation as to why you have … ”

The fact that a bill calls for explanation is a legitimate consideration for the costs judge to take into account. Mr Evans argued that this was not part of the Master’s decision. But this again overlooks the relative informality of the hearing, which takes the form of a dialogue rather than a series of reasoned judgments. In my judgment the Master’s remarks were plainly part of his overall reasoning process.

Whether special circumstances exist is essentially a value judgment. It depends on comparing the particular case with the run of the mill case, in order to decide whether a detailed assessment in the particular case is justified despite the restrictions contained in section 70 (3). In Re Cheeseman [1891] 2 Ch 289 the Court of Appeal held that it would not interfere with the decision of the first instance judge on whether special circumstances existed except in a strong case. All the more so, in my judgment, where the value judgment has been made by a specialist costs judge. In my judgment the case has not been made out that Master Simons was wrong to find that special circumstances existed. The appeal will be dismissed.