Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd & Anor

In this detailed assessment, the Claimants (“Ultraframe”) are receiving their costs from the Defendants (“Eurocell”) under the terms of an order of the Court of Appeal dated 7 July 2005. In their points of dispute, Eurocell raised the following issue in relation to Part B of the bill ;

In his skeleton argument in reply, Dr Friston for Ultraframe identified the legal issue arising out of this point of dispute in the following way : -

“Subject to those costs being reasonably incurred and reasonable in amount, are the costs of work done by a Solicitor employed by a corporate litigant recoverable on a between-the-parties basis if at the material time that litigant had other Solicitors on the record?”

The legal issue was expressed in these terms because it is common ground that throughout the period covered by Part B of bill, Ultraframe has claimed costs not only for the Solicitors on the Court record acting for them (Hammonds of Manchester) but also for two “in-house” Solicitors, Mr Ed Smethurst and Mr Graham Chambers, (the former is also the Company Secretary).

It was agreed between the parties (Mr Killeen for Eurocell and Dr Friston for Ultraframe) that I should deal with this issue (as refined by Dr Friston) at the outset of the assessment. Having heard argument, I told the parties that in my judgment, the costs of the “in-house” Solicitors were, in principle, recoverable from Eurocell notwithstanding that at all material times, Hammonds had been on the Court record as their Solicitors. I also agreed I would provide written reasons for my decision.

Where litigants seek recompense for their own time, the starting point for the Court’s approach is the decision of the Court of Appeal in the London Scottish Benefits Society v Chorley [1884] 12QBD 452. At 876 Bowen L J said this: -

“A great principle, which underlies the administration of the English Law is that the Courts are open to everyone, and that no complaint can be entertained of trouble and anxiety caused by an action begun maliciously and without reasonable or probably cause; but as a guard and protection against unjust litigation, costs are rendered recoverable from an unsuccessful opponent. Costs are the creation of statue. The first enactment is the Statue of Gloucester, 6 Edw. 1,c. 1, which gave the costs of the “writ purchased”. There is a passage in Lord Coke’s commentary, 2 Inst 288, which it is worthwhile to examine, as it affords a key to the true view of the Law of Costs. That passage is as follows:

“Here is express mention made but of the costs of his writ, but it extendeth to all the legal cost of the suit but not to the costs and expenses of his travel and loss of time, and therefore “costages” comth of the verb “conster”, and that again of the verb “ constare” for these “costages” must “constare” to the Court to be legal costs and expenses.”

What does Lord Coke mean by these words? His meaning seems to be that only legal costs which the Court can measure are to be allowed, and that such legal costs are to be treated as expenses necessarily arising from the litigation and necessarily caused by the course it takes. Professional skill and labour are recognised and can be measured by the Law; private expenditure of labour and trouble by a layman cannot be measured. It depends on the zeal, the assiduity, or the nervousness of the individual.”

Similar sentiments were expressed by Brett M R who said this at page 875: -

“I should have thought that a person wrongly brought into litigation ought to be indemnified against the expenses to which he is unjustly put; but there cannot be a perfect indemnity, because it is impossible to determine how much of the costs is incurred through his own over-anxiety. Where an ordinary party to a suit appears for himself, he is not indemnified for loss of time; but when he appears by a Solicitor, he is entitled to recover for the time expended by the Solicitor in the conduct of the suit. When an ordinary litigant appears in person, he is paid only for costs out of pocket.”

It follows that costs are limited to legal costs and it is convenient at this point to describe that this general principle as Dr Friston has done in his skeleton as the “general prohibition”.

The general prohibition is subject to exceptions. One such exception was identified in Chorley where the Defendants were Solicitors who did not instruct Solicitors but instead conducted the litigation in person. Notwithstanding the general prohibition, at 878, Fry L J said this: -

“...under the rule of practice laid down by us, a Solicitor who sues or defends in person will be entitled, if he is successful, to full costs, subject to certain deductions, of which his unsuccessful opponent will get the benefit.”

In Buckland v Watts [1970] 1QB 27, the Court of Appeal cited the exception in Chorley with approval. At page 37 Sir Gordon Willmer said this: -

“It is because there has been an exercise of professional legal skill that a Solicitor conducting his own case successfully is treated differently from any other successful litigant in person conducting his own case... nobody else, however, except a Solicitor has been held entitled to make any charge, as I understand it, in respect of the exercise of professional legal skill...”

It followed that the Appellant litigant in person in that action was not permitted to recover any costs in respect of his own expenditure of time and labour in preparing his case. Sir Gordon Wilmer expressed the position in this way at 38: -

“I can find no ground, either in principle or on authority, for allowing him anything by way of remuneration for the exercise of a professional skill which he has not got.”

Had Buckland v Watts been decided five years later, the outcome would have been different as the Litigants in Person (Costs and Expenses Act 1975) now permits costs to be recovered by litigants in person.

In Jonathan Alexander Limited v Proctor [1996] 1WLR 518 the court considered a claim for costs by a Claimant company whose interests had been successfully represented at trial by one its Directors. On page 523, at D, Hirst L J: -

“It follows, in my Judgment, that Mr Dyer can only succeed if he can bring his case within the Act of 1975. Ingenious although Mr Dyer’s submission was, I found it very difficult to reconcile with the ordinary meaning as I understand it, of the description “litigant in person” viz an unrepresented individual. To extend this description to a company would require clear words, yet there is nothing in the Act of 1975 which enlarges the ordinary meaning... I would therefore dismiss this appeal, although I do so with great regret, as it seems to me that this case reveals a serious lacuna in the Law and results in a considerable injustice to the company which properly incurred very substantial costs in defeating a grossly inflated counterclaim”.

Once again, had Jonathan Alexander been decided three years later, the outcome would have been different, as changes to the rules of Court under the Civil Procedure Rules (“CPR”) now permit a company to be treated as if it were a litigant-in-person.

Further exceptions apply in the case of the costs of employed Solicitors who are acting in the course of their employment. In Re Eastwood (1975) 1 Ch 112, the successful party was represented by a salaried Solicitor in the Department of the Treasury Solicitor not by by an independent Solicitor. On page 132 Russell L J said this: -

“It is the proper method of taxation [assessment] of a bill of this sort to deal with it as though it were the bill of an independent Solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all circumstances of the case”.

Categories of work done by non-lawyers have also been held to be exceptions to the general prohibition. In Nossen’s Letter Patent (1969) 1WLR 638 at page 643 Lloyd-Jacob J said this: -

“The established practice of the Courts has been to disallow any sums claimed in respect of the time spent by the litigant personally in the course of instructing Solicitors. In the case of litigation by a corporation, this has not been strictly applied, for it has been recognised that, if expert assistance is properly required, it may well occur that the corporation’s own specialist employees may be the most suitable and convenient experts to employ. If the corporation litigant does decide to provide expert assistance from its own staff, as happened in this case, the Taxing Master has to determine the appropriate charge to allow...”.

Nossen’s Patent was followed in Admiral Management Service v Para-Protect Europe [2003] 1 Costs LR page 1. At paragraph 34 Stanley Burnton J said this: -

“To permit recovery of a reasonable sum for work of employee experts which, if done by someone who was not an employee would be recoverable as an item of costs, is a relatively minor inroad into the general principle that payment for work done by employees of a litigant is not recoverable as costs, does not strike me as unjust or imposing an unfair burden on the paying party.”

This exception to the general prohibition has not been extended to costs incurred by an individual or partnership. This clear from Admiral Management Services at paragraph 28 when Stanley Burnton J said this: -

“I find it curious that a more liberal principle for the recovery of costs should be applied to a corporation than to an individual or to a partnership but since the Claimant in the present case is a corporation I do not have to consider this aspect of the decision in Nossen’s further”.

What is more, the principle in Nossen’s Patent is also a narrow one – see Admiral Management at paragraph 40.

Modern authorities also support the policy which underlies the general prohibition. In Sisu Capital Fund v Tucker [2005] EWHC 2321 (CH), Warren J said this: -

“Since the decision in the London Scottish Benefits Society case, the rule of practice which it established has been applied only in the context of litigants in person who are Solicitors... the principle has been applied consistently on that basis for many many years: and there are many Judicial dicta to the effect that generally speaking, a litigant in person cannot recover for his time.”

In Malkinson v Trim [2002] EWCA Civ 1273 the Court of Appeal reviewed the reasoning which underlay the decision in Chorley. In paragraph 11, Chadwick L J said this: -

“...an ordinary litigant – that is to say a litigant who is not a Solicitor – cannot recover as costs, compensation for the expenditure of his own time and trouble. That it is because “it is impossible to determine how much of the cost is incurred through his own over anxiety” – per Sir William Brett, Master of the Rolls... or, as it was put by Lord Justice Bowen “...because private expenditure of labour and trouble by a layman cannot be measured. It depends on the zeal, assiduity and the nervousness of the individual”.

Applying these principles to the facts before the Court, whilst it can be seen that the general principle is that a litigant cannot be recompensed in costs for his own time, the rule is subject to exceptions. The refinement in the present case is that both Hammonds as the independent lawyers and Messes Chambers and Smethurst of Ultraframe worked on the case simultaneously and all seek recovery of their costs for so doing. Surprisingly, neither Dr Friston nor Mr Killeen were able to unearth any authority on the point save for Master O’Hare’s decision in McIlwraith v McIlwraith [SSCO website 21 July 2005] which in my Judgment is not on all fours with the facts here for reasons I shall give.

The case for Eurocell

Mr Killeen contended that the Court should not permit any further inroads into the general principle set out in Chorley which would permit a receiving party with Solicitors on the record also to make a claim for the costs of its “in-house” Solicitors. For his part, it would be unreasonable for his clients to have visited upon them, not only the costs Hammonds who Ultraframe put on the Court record but also the costs of the work undertaken by Messrs Smethurst and Chambers. That was tantamount, as a principle, to the paying party being required to meet the costs of two firms of Solicitors where only one had served a notice of acting.

Mr Killeen accepted that where the Solicitor on record instructed an agent Solicitor to undertake work, (for example the proofing of witnesses) this was, in principle, recoverable. But the situation here was different. Having placed a Solicitor on the Court record, Ultraframe were also seeking to recover the full costs of their own “in-house” legal department. Not only did that department fail to fall into the category of “experts” which might have brought them within the Admiral Management exception, but also a claim was being made for communications between Hammonds and Ultraframe, all of which had gone through the “in-house” Solicitors and been charged for. The duplication thereby occasioned ought not to recoverable as between a paying party and a receiving party.

Mr Killeen did not accept either, that Re Eastwood was on all fours with the facts before the Court. In that case the Court was concerned with the costs of a salaried “in-house” Solicitor at the Department of the Treasury Solicitor. The situation here was different because, as well as having two “in-house” Solicitors, Ultraframe had placed Hammonds on the Court record. Put shortly, the Court should not permit a receiving party such as Ultraframe to recover the costs of its “in-house” Solicitors when it had also chosen to instruct independent Solicitors on its behalf.

On behalf of Ultraframe, Dr Friston submitted that the categories in Re Eastwood and Nossen’s had merged to form a wider category which no longer drew a distinction between corporate and personal litigants. He summarised this submission in paragraphs 21 of the skeleton argument: -

“...now that litigants who are acting on their own behalf have access to such aids as the internet, BAILLI , HMSO online, Citizens’ Advice Bureau and the like, they operate in a very different sphere to that which existed even ten years ago. It is submitted that litigants who are acting on their own behalf no longer win their cases by unquantifiable factors such as “zeal and assiduity”, but by spending (quantifiable) time carrying out legal research and sitting in front of a computer doing much the same work that fee-charging lawyers do. This is particularly so if that work is carried out in the corporate setting”.

That said, Dr Friston accepted that two post CPR decisions (Sisu and Malkinson v Trim) support the proposition which underlies the general prohibition against non-Solicitors recovering for their own time. In the present case, however, Dr Friston submitted that the facts were different in that Ultraframe was a corporate client which wished to recover the costs of its “in-house” Solicitors for doing some of the work and its out-of-house Solicitors for doing the rest. Dr Friston drew attention to the judgment of Chadwick L J in Malkinson v Trim in which the learned Lord Justice had stated that a rule of practice which enabled a litigant who is a Solicitor to recover as costs, compensation for his own time and trouble, is beneficial, because it is likely to lead to a reduction in the amount which the unsuccessful opponent will pay under an order for costs (see Judgment of Chadwick LJ at paragraph 11).

Dr Friston also relied on a series of cases in which the cost of time wasted by employees as a result of a Defendant’s wrong doing (e.g. investigating) has been allowed as a head of special damages. In his submission there was an analogy to be drawn between such cases and the facts before me, where the issue was the quantification of the “in-house” costs incurred investigating the Defendant’s wrong.

In Amec Process and Energy Limited v Stork Engineers and Contractors BV [2002] BLR 70 ((QBD T&CC)). H H Judge Thornton had come to the following conclusions: -

“ [112] Amec engaged its own personnel and agency staff to undertake much of the work involved in collating, analysing and presenting the primary evidence and the supporting evidence of Mr. Prudhoe. These personnel also undertook much of the preparation of the visual evidential aids such as isographs, histograms, graphs, bar charts, photographs ,tables, as built programmes and overlays. Had this work been undertaken at greater expense and with the use of many more hours of time by legally qualified personnel employed by Masons as Amec’s Solicitors, this work would in principle be recoverable. However, Stork maintains that it is irrecoverable in principle because of the impact of [Richards and Wallington] case decided in 1984 and the even older case of Re Nossen’s Patent . Both these cases are of no assistance in determining this question under the CPR,even if the wording of the relevant rules is similar.

[113] CPR 43.2 (1) (a) defines costs as including

“fees, charges, disbursements, expenses, remuneration”.

In principle, the time charges, involved in employing these personnel fall within each of these categories of costs. It is a matter for detailed assessment whether the tasks performed, on an hour by hour basis, the number of hours claimed, the personnel involved and the hourly rate for other disbursements, were incurred at all and if so, were properly and reasonably incurred. However it would be contrary to the overriding objective if necessary expenditure which was incurred at less than would have been involved had Amec’s Solicitor’s employees undertaken the work was not recoverable in principle.

[114] I find that the claimed expenses are recoverable in principle”.

The reference to Richards and Wallington was to Richards & Wallington v Monk & Co. Ltd (1984) Costs LR (Core Volume) 79.

Whilst Dr Friston accepted that Warren J had chosen not to follow Amec in Sisu and instead had preferred Admiral, in R + V Versicherung AG v Risk Insurance and Re Insurance Solutions SA (No. 3) [2006] EWHC 42 QBT (COM) Gloster J had stated that she had had some difficulty with the reasoning of Stanley Burton J in Admiral. She said this: -

“Why should there be any difference in principle between the recoverability of damages in respect of time spent by employees in the departments specifically set up to investigate and mitigate anticipated and actual breach of an Association’s conditions of trade (as in British Motor Trades Association v Salvadori [1949] (CH 556)), and the recoverability of damages in respect of time spent by employees investigating actual torts committed against the Claimant where there is not such a department? In each case, the “wasted time costs” is incurred in anticipation of, or as a result of, the Defendant’s wrong, and the employee resource is pro tanto not available to the employer. It would indeed be a strange result if a Claimant could recover the costs if he chose to subcontract the work, but not if he chose his own employees to carry it out. In my Judgement, as a matter of principle, such a head of loss (i.e. the costs of wasted staff time spent on the investigation and or mitigation of the tort), is recoverable, not withstanding that no additional expenditure “loss”, or loss of revenue of profit can be shown. However this is subject to the proviso that it has to be demonstrated with sufficient certainly that the wasted time was indeed spent on investigating and/or mitigating the relevant tort; i.e. that the expenditure was directly attributable to the tort”.

The reference to British Motor Trades was to a pre CPR case which represented a parallel line of authority which was and remained less restrictive than that begun by Chorley. In that case a specialist unit had been set up to investigate trade wrong doing. Roxborough J had said this: -

“To resist such a counter attack and also counter attacks from various other directions, the Plaintiffs maintain, and must maintain, a large investigation department and the money actually expended in unravelling and detecting the unlawful machinations of the Defendants which have been proved in this case before any proceedings could be taken must have been considerable. I can see no reason for not treating the expenses so incurred which could not be recovered as part of the costs of the action as directly attributable to their tort or torts. That these expenses cannot be precisely quantified is true, but it is also immaterial. Accordingly, the Plaintiffs have proved the damage which is essential to the tort of conspiracy, and they are entitled to an enquiry according.”

Whilst Dr Friston accepted that in British Motor Trades the Court was dealing with damages rather than costs, in Tate and Lyle Distribution v GLC [1982] 1WLR 149 and 152, Forbes J had come to a very similar conclusion: -

“I have no doubt that the expenditure of managerial time in remedying an actionable wrong done to a trading concern can properly form the subject matter of a head of special damage. In a case such as this case it would be wholly unrealistic to assume that no such additional managerial time was in fact expended. I would also accept that it must be extremely difficult to quantify. But modern office arrangements permit of the recording of the time spent by managerial staff on particular projects”.

British Motor Trades had also been cited with apparent approval by Dillon LJ in the Lonrho PLC v Fayed (No. 5) [1993] 1WLR 1489: -

“...British Motor Trades indicates the time spent in detecting and countering a conspiracy can be included in a claim for damages, at any rate, if, as in that case, there is also other pecuniary loss; in a simple case where there is other pecuniary loss, that seems elementary justice”.

It followed, Dr Friston submitted, that the exceptions to the general prohibition were wider than textbook analysis would suggest. In particular, provided that an employee’s extra work had actually been caused by the litigation and provided that the associated costs were capable of quantification, an additional exception to the general prohibition would be made out. In particular there was nothing to prevent a corporate litigant from dividing work between its in-house legal department and its out-of-house lawyers as it thought fit. Where, as here, some of the tasks has been outsourced to Hammonds and others had been dealt with “in-house”, both sets of costs were potentially recoverable. In short, if the costs were capable of quantification, had been reasonably incurred, were reasonable in amount and had been caused by the litigation, they were recoverable. As such they would fall within the Re Eastwood exception.

It is common ground that the general principle is that a litigant is unable to recover costs of work he undertakes himself where this could have been done by a Solicitor. This is, however, subject to exceptions and if Buckland v Watts or Jonathan Alexander v Proctor had been decided today, the outcome in both cases would have been different. As I have said, in the former the Litigant in Person (Costs and Expenses) Act would have availed the successful Litigant in Person. In the latter, the new rules of Court would have enabled the Limited company to have recovered its costs.

Do these exceptions extend still further so as to cover the situation here where a corporate litigant, Ultraframe, wishes to recover the costs of its “in-house” Solicitors as well as those of the Solicitors it has placed on the court record?

It is surprising that there is no authority on this point. In paragraph 21, I said that I would return to McIlwraith. That case was concerned with whether costs could be recovered for work done personally by a litigant who was a Solicitor during periods of the litigation in which he was represented by a firm of Solicitors (see Master O’Hare’s judgement at paragraph 1).

In my judgment McIlwraith is of no assistance (indeed Mr Killeen did not even rely on it) because Mr McIlwraith had dealt with himself, both as a Solicitor with the firm of Solicitors on the Court record (which employed him) and as an executor client of the same firm; indeed he even wrote letters to himself on the firm’s notepaper. The facts there are far removed from those which exist here and I derive no assistance from the decision.

It is common ground that Eurocell is only required to pay reasonable costs reasonably incurred and whilst Mr Killeen concedes the costs of one firm of Solicitors, he does not accept that it is reasonable for his clients additionally to be burdened with the costs of the in- house solicitors. So far as Re Eastwood is concerned, he also submits, with force, that this is not analogeous at all. That case involved the costs of an “in-house” Solicitor in circumstances where there was no other independent firm on the Court record. Accordingly Re Eastwood did not help Ultraframe .

Mr Killeen’s submissions are persuasive, but in my Judgment they only go to quantum rather than to principle. In his submissions, Dr Friston conceded very frankly that in so far as there had been any duplication as between Hammonds and the “in-house” department, any overlapping costs would need to be separated out.

The issue of principle with which I am faced is whether Ultraframe can, in effect, recover two sets of Solicitors’ costs, one for its in-house team and the other for Hammonds. The answer to that, upon a strict application of Chorley, is that Ultraframe cannot recover anything because of the general prohibition against a litigant recovering the costs of doing his own work (See judgment of Bowen L J at page 876). But, as I have said, that principle is subject to exceptions, albeit that none of those exceptions appears to fit the facts here.

Are those exceptions too rigid, in which case should they be applied in a more liberal way, as Dr Friston submits? As I indicated at the conclusion of the hearing, I consider that there is nothing in the general prohibition or, more accurately, within the exceptions to it, which, in principle, prohibit a receiving party from recovering costs for its “in-house” Solicitors as well as for the Solicitors it has placed on the Court record. These are my reasons:

For these reasons, I agree with Dr Friston. In my judgment part B of the bill is recoverable in principle, where the tasks undertaken by Ultraframe “in-house” can be measured and are distinct from those undertaken by Hammonds. If, and to the extent that there is no distinction and the work is duplicated, this will be irrecoverable, but that is a matter of quantum not principle. It follows that my answer posed by the point of dispute, as refined by Dr Friston, is in the affirmative.