Lake v Hunt Kid Law Firm LLP

The Appellant is a former client of the Respondent firm of solicitors. On or about 27 August 2008 the Respondent presented the Appellant with its bill of costs for work which it had undertaken for the Appellant in respect of proceedings in which the Appellant was involved in the Employment Tribunal. The total of the bills rendered by the Respondent to the Appellant was £223,215.42.

By a claim form under Part 8 CPR issued on 23 September 2008 in the Newcastle-upon-Tyne District Registry the Appellant sought an order in standard form for a detailed assessment of the bills. The Respondent's response was two-fold; it applied to have the assessment undertaken at the Supreme Court Costs Office in London; it also sought an order that the Appellant should pay the sum of £223,215.42 into court to await the detailed assessment of the costs.

On 14 May 2009 District Judge Bullock, sitting in Newcastle, made an order by consent. He ordered that the assessment be transferred to the Supreme Court Costs Office; he also ordered that the Claimant should pay into court the sum of £60,000 to be retained in court until conclusion of the assessment. On 1 June 2009 the Appellant paid the sum of £60,000 into court in accordance with the order of the District Judge. There is no explanation before the court as to why the Appellant agreed to make a payment into court.

The detailed assessment took place before Master O’Hare, a Costs Judge, on 16 and 17 August 2010, 4 October 2010 & 15 November 2010. At the end of the process he determined that the Appellant was obliged to pay the Respondent costs in the sum of £74,458.52 together with interest which was calculated at £12,713.28. Master O’Hare also directed that the costs of the detailed assessment and earlier proceedings in the Senior Court Costs Office (formerly the Supreme Court Costs Office) should be paid by the Respondent to the Appellant; he assessed those costs in the sum of £64,376.29.

Before the Costs Judge, Counsel for the Appellant, Mr James, argued that the interest payable upon the £74,458.52 should be assessed at a much smaller figure than £12,713.28; alternatively he submitted interest should be added to his costs of the detailed assessment. The reasons for this alternative submission will emerge in due course. The Costs Judge did not agree. At paragraph 8 of his order he directed:-

“8.

The Claimant's application for a disallowance of interest to the Defendant or an allowance of interest to the Claimant….is dismissed.”

The Costs Judge recognised, however, that this part of his decision involved a point of some significance. Accordingly he granted the Appellant permission to appeal to this court.

This order came into force on 1 November 1994. It has now been revoked. It applied to all non-contentious business for which bills were delivered on or after 1 November 1994 until the date of its revocation. It is common ground that the bills delivered by the Respondent in this case related to non-contentious business within the Order and that the Order was still in force at the time the bills were rendered.

Article 3 of the Order specifies that the costs payable to a solicitor in respect of non-contentious business shall be “such sum as may be fair and reasonable to both solicitor and [the client] having regard to all the circumstances of the case….”. The article then identifies a number of circumstances to which regard must be paid when assessing whether costs are fair and reasonable.

Article 6 of the Order provides that before a solicitor can bring proceedings to recover costs against a client on a bill for non-contentious business he must inform the client in writing of the matters specified in article 8 unless the bill has been taxed. The matters set out in article 8 and which are relevant to this appeal are to be found at sub-paragraphs (b) and (c).

“(b). that sections 70, 71 and 72 of the Solicitors Act 1974 set out the [client’s] rights in relation to taxation;

(c). that (where the whole of the bill has not been paid, by deduction or otherwise), the solicitor may charge interest on the outstanding amount of the bill in accordance with Article 14.”

It is common ground that the bills delivered to the Appellant in this case contained the information specified in article 8.

Article 14 of the Order is in the following terms:-

“Interest

14(1) After the information specified in article 8 has been given to [the client] in compliance with articles 6 or 7, a solicitor may charge interest on the unpaid amount of his costs plus any paid disbursements and value added tax, subject to paragraphs 2 and 3 below.

(2). Where an entitlement to interest arises under paragraph (1) and subject to any agreement made between a solicitor and client, the period for which interest may be charged may run from one month after the date of delivery of a bill,………

(3). Subject to any agreement made between a solicitor and client, the rate of interest must not exceed the rate for the time being payable on judgment debts.

(4). Interest charged under this article must be calculated, where applicable, by reference to the following:-

a)

….

b)

if an application is made for a bill to be taxed, the amount ascertained on taxation;

c)

….”

At first blush, and without reference to any authority, the meaning to be attributed to the relevant parts of article 14 seems to me to be as follows. First, by virtue of paragraph (1) a solicitor has the right to charge interest on the unpaid amount of his costs plus any paid disbursements and value added tax subject only to the qualifications upon that right contained within paragraphs (2) and (3) of the article. The solicitor may choose not to exercise that right but that is a decision for him. Second, if he exercises his right, an entitlement to the interest charged arises as recognised by paragraph (2). Third, again by virtue of paragraph (2), the period for which interest may be charged runs from one month after the date of delivery of a bill. Fourth, by virtue of paragraph (3) the maximum rate of interest which a solicitor can claim is the rate prevailing on judgment debts during the relevant period. Fifth, the period during which interest is to run and the rate of interest over that period can be agreed between solicitor and client. In the event of agreement upon these matters the agreement will prevail; if there is no agreement the terms of the article apply. Last, the interest charged must be calculated by reference to the amount of the bill as ascertained on taxation.

Mr James submits that article 14 should not be interpreted so restrictively. He submits that article 14 should be read as conferring a discretion upon a Costs Judge who is undertaking an assessment of a solicitor’s bill to reduce or even disallow the interest which the solicitor has claimed upon the unpaid costs. Mr James acknowledges that article 14 contains no express provision to that effect. However he submits that the power to reduce or disallow the amount of interest arises by necessary implication.

Not surprisingly, Mr James relies upon the decision of Coulson J (sitting with assessors) in Angel Airlines v Dean & Dean [2008] EWHC 1513 (QB). One of the issues which Coulson J addressed in that case was whether the Appellant firm of solicitors was entitled to interest “as of right” on the costs assessed to be due. The following extracts from the judgment of Coulson J bear upon this issue:-

“41.

When Tugendhat J gave leave to appeal on the issue as to interest, he did so expressly on the basis that paragraphs 25-35 of the skeleton argument provided by the Appellant were arguable. On analysis, those paragraphs contend that interest was chargeable as of right as a result of the provisions of the Solicitor’s (non-contentious) Remuneration Order 1994 and that the Costs Judge had been wrong to deal with the question of interest as a matter of discretion. The argument was based on the assumption that the Appellant had an entitlement to interest which was not removed or altered by any other statute. However, before me, the principal submission advanced by the Appellant was not linked to this point of principle, but was instead to the effect that the Costs Judge had wrongly exercised his discretion, because he had considered the parties’ conduct for various periods during the assessment itself and decided interest accordingly. It was asserted by Lord Brennan QC on behalf of the Appellant that this amounted to double jeopardy and that the Appellant had been penalised twice over as a result of this approach.

44.

The Costs Judge made no mention of the 1994 Order in his judgment of August 2006, and instead dealt with interest under section 35(A) of the Supreme Court Act 1981. That alleged omission is the principal criticism made of him in the Appellant's original skeleton argument. There are two separate reasons why I considered that this criticism is entirely unjustified.

45.

First, the Costs Judge was never asked to consider interest under the 1994 Order. At no time did the Appellant ever suggest that it was entitled to interest as of right pursuant to the Articles of that Order. It is therefore hardly surprising that the Costs Judge did not address it.

46.

Secondly, the Appellant was quite correct not to make a claim before the Costs Judge pursuant to the 1994 Order. As Mr Browne has comprehensibly demonstrated, interest is only due under Article 14 of the Order if sufficient notice has been given under Article 6, 7 and particularly 8(c). There was no evidence of any such notice having been given. At one point Lord Brennan QC asserted that the original bill had some pro-forma words on it which referred to the 1994 Order but the original bill was not produced to the court and this assertion was in any event contested by Mr Browne. Accordingly, on the material before the court, the argument under Article 14 simply does not get off the ground: it was not argued before the Costs Judge and it was not applicable any way, given the Appellant's failure to provide the information specified in Article 8.

47.

However, if I was wrong about that, so that the 1994 Order was of relevance, I must then address the important point of principle by which the Appellant's skeleton arguments appear to set much store. The suggestion was that, under the 1994 Order, interest arose as a matter of right. I reject that contention. If (which did not happen here) a solicitor provides the information identified in Article 6, 7 & 8, then, pursuant to Article 14, he “may” charge interest. Thus, so it seems to me, if the matter subsequently comes before a Costs Judge, the Costs Judge too “may” award interest on the unpaid costs. But there is nothing in the Order which makes the award mandatory.

48.

I consider that it is wrong in principle to suggest that the Order gives rise to a mandatory entitlement to interest. There is nothing in the Order which makes such a provision. Furthermore, the common law has viewed awards of interest with a certain amount of suspicion over the years, and both the Supreme Court Act 1981 and the Late Payment of Commercial Debts (Interest) Act 1998 contain provisions pursuant to which interest can be reduced or disallowed altogether at the discretion of the court. There is nothing in the words of this Order which would lead me to operate in a different way. Thus, to the extent that it matters, I would conclude that an award of interest under Article 14 of the 1994 Order is in the discretion of the court and is not a mandatory entitlement.”

Mr. James acknowledges that the views expressed by Coulson J as to the ambit of article 14 are obiter. Nonetheless, he invites me to adopt the same approach.

Mr Munro submits that the conclusions reached by Coulson J in paragraphs 47 and 48 of his judgment are wrong. He submits that the analysis of article 14 set out in paragraph 11 above is correct. In support of that submission he relies upon the decision of Mustill J (as he then was) in Walton v Egan [1982] 3 WLR 352.

Walton v Egan is not directly in point. However, there can be no doubt that the analysis of Mustill J does provide some support for the submissions advanced by Mr. Munro. The facts were these. The Claimant (a solicitor) presented his bill to a client in respect of non-contentious business on August 30 1979. The bill was not paid. On March 14 1980 the parties entered into a written agreement whereby the client would pay the costs by instalments plus interest at 15% retrospectively from October 1 1979. When no payment was made under that agreement the solicitor began proceedings to recover the sum which was alleged to be due. He obtained a judgment in default; however, the judgment was set aside by consent as he had omitted to inform the client of his right to require the solicitor to obtain from the Law Society a certificate that his bill of costs was fair and reasonable. On the same day that judgment was set aside the solicitor gave the relevant statutory notice and subsequently applied for and obtained a certificate from the Law Society that he was entitled to the sum of £3850 in respect of his costs. He then obtained summary judgment for the principal sum but the client was given leave to defend the claim for interest.

One of the issues canvassed before Mustill J was whether the solicitor was entitled to charge interest under article 5(1) of the Solicitors’ Remuneration Order 1972 after one month from the delivery of his bill.

Article 5 of the 1972 Order was, of course, the predecessor to article 14 in the 1994 Order. Article 5 was in the following terms:-

“5(1) After the expiry of one month from the delivery of any bill for non-contentious business a solicitor may charge interest on the amount of the bill (including any disbursements) at a rate not exceeding the rate for the time being payable on judgment debts, so, however, before interest may be charged the client must have been given the information required by Article 3(2) of this Order.

2.

If an application is made for the bill to be taxed or the solicitor is required to obtain a certificate from the Law Society, interest shall be calculated by reference to the amount finally ascertained.”

The wording of article 5 of the 1972 Order was somewhat different to that which later emerged in article 14 of the 1994 Order. Nonetheless there is no real basis for suggesting that the two provisions should be interpreted differently.

As is clear, Mustill J’s discussion of the meaning to be attributed to article 5 took place in a different context to that which prevails in the instant case. Nonetheless it seems clear from the reasoning which he deployed in page 356 of the judgment that Mustill J thought that provided the solicitor met the appropriate criteria about the giving of appropriate information to his client he had a “cause of action for interest” which was enforceable against the client – see in particular page 356 G and H. Such an approach, submits Mr Munro, is wholly inconsistent with the notion that article 5 of the 1972 Order conferred a power upon the court either to reduce or disallow the interest which had been claimed by a solicitor. If article 5 of the 1972 Order conferred no such power, neither did article 14 of the 1994 Order, submits Mr. Munro.

I agree with Mr. Munro that the approach of Mustill J militates against the view that article14 should be interpreted as empowering a court to reduce or disallow the interest claimed by a solicitor in accordance with the provisions of article 14.

Notwithstanding the views expressed by Coulson J in Angel Airlines I do not accept that article 14 of the 1994 Order confers a discretionary power upon a court to reduce or disallow interest which is claimed strictly in accordance with its provisions. As is obvious, no such power is conferred expressly and it does not seem to me that any basis exists for concluding that the power arises by necessary implication. I do not agree with Coulson J that the use of the word “may” in article 14(1) is significant in this context. In my judgment that word is used simply to permit the solicitor to claim interest if he chooses; it does not seem to me to be an indicator that the court is being given an implied power to reduce or disallow the interest if claimed.

It is also to be noted that article 14 expressly contemplates that a solicitor and client might agree a rate of interest between themselves; that rate of interest might exceed the judgment rate (see paragraph (3)). In my judgment this is a clear indicator that article is not intended to confer a power on the court to reduce or disallow interest. It does not seem to me to be permissible to interpret the article as conferring no power upon the court to intervene if the parties agree as to the rate of interest yet hold that such a power exists if no such agreement has been concluded by the parties. Further, I find it impossible to accept that the article is intended to confer a power upon the court to intervene in the face of an express agreement by the parties.

Mr James advances a number of submissions as to why it would be desirable for the implied power for which he contends to exist. With respect to him, essentially they amount to the submission that such an implied power would have the beneficial effect of preventing injustice in an appropriate case. Put in that way, of course, the submission is seductive. It would be unusual for a court to eschew the chance of putting right injustices. In my judgment, however, it is not permissible to interpret article 14 in the way advanced by Mr. James simply because cases may arise in which it would be desirable for the court to intervene to prevent injustice. It is worth remembering that the 1994 Order is intended to operate essentially in a context in which the court is not involved. In simple terms it lays down the basis upon which a solicitor may charge in the absence of an express agreement and it deals with consequential issues such as the charging of interest on unpaid costs. The court becomes involved with an assessment of a bill rendered by a solicitor to his client for non-contentious work only if section 70 Solicitors Act 1974 is invoked. It is within section 70 of the 1974 Act or in the rules relevant to an assessment of the bill that one would expect to find provisions relating to the court’s powers in relation to interest charged upon a bill of costs. Yet no such provisions are to be found in the Act or the rules.

The cases of Angel Airlines and Walton were not cited to the Costs Judge. Uninfluenced by authority of any kind the Judge concluded that the Respondent had an entitlement to interest upon the assessed costs subject only to the qualifications contained within article 14 of the 1994 Order. In my judgment he was correct so to decide.

Mr James also submits that it was open to the Costs Judge to reduce or disallow the interest claimed by the Respondent by virtue of section 35(A) of the Senior Courts Act 1981. The relevant parts of that section read as follows:-

“(1)

Subject to rules of court, in proceedings (whenever instituted) before the High Court for a recovery of a debt or damages there may be included in any sum for which judgment is given simple interest, at such rate as the court thinks fit or as rules of court may provide, on all or any part of the debt or damages in respect of which judgment is given, or payment is made before judgment, for all or any part of the period between the date when the cause of action arose and –

a)

in the case of any sum paid before judgment, the date of the payment; and

b)

in the case of the sum for which judgment is given, the date of the judgment.

ii)…

iii)

subject to rules of court where –

a)

there are proceedings (whenever instituted) before the High Court for the recovery of a debt; and

b)

the Defendant pays the whole debt to the Plaintiff (otherwise and in pursuance of a judgment in the proceedings),

the Defendant shall be liable to pay the Plaintiff simple interest at such rate as the court thinks fit or as rules of court may provide on all or any part of the debt for all or any part of the period between the date when the cause of action arose and the date of the payment.

(4)

Interest in respect of a debt shall not be awarded under this section for a period during which, for whatever reasons, interest on the debt already runs.”

There are a number of reasons why I consider Mr James cannot rely on section 35(A) of the 1981 Act. First, no reliance was placed upon this Act before the Costs Judge. Second, it is not mentioned in the grounds of appeal. Third, and perhaps most importantly of all, it does not seem to me that section 35(A) has any application to the proceedings which were launched by the Appellant. The proceedings instituted by the Appellant had as their objective the assessment of the costs which were properly payable by the Appellant to the Respondent in respect of the Respondent's legal services. I do not see how the proceedings can be described as proceedings “for the recovery of a debt or damages”. They are no such thing. Further, section 35(A) confers a power to award interest in appropriate circumstances; it is very difficult to read the section as conferring a power to reduce or extinguish interest which is payable as a consequence of a provision wholly independent of section 35(A). This last point is reinforced, in my judgment, when account is taken of section 35(A)(4). That sub-section precludes an award of interest upon a debt in respect of a period during which interest on the debt is already running. Significantly, however, no part of section 35(A) expressly permits a court to reduce or disallow interest upon a debt which has arisen independently of section 35(A).

I need deal with one further point in this section of the judgment. Mr James submits that if article 14 (or section 35(A)) cannot be invoked to reduce the interest payable to the Respondent there was available another method whereby what he submits a just result would be achieved. For reasons which I need not elaborate the Appellant was awarded the costs of and incidental to the detailed assessment together with earlier proceedings in the Senior Courts Costs Office. The costs, in total, were assessed as £64,376.29. Mr James submits that justice could have been achieved if the Costs Judge had made an order that the Respondent should pay interest on the first £60,000 of those costs at the judgment rate backdated to 1 June 2009.

The Master rejected this argument because he considered it would not be right to award interest to the Appellant on his costs since he had funded the proceedings under a conditional fee agreement. He had not had to pay his own solicitors anything for their services.

In my judgment there is much force in that approach. In any event, as will become apparent, I do not consider that the Appellant was the victim of any kind of injustice in having to pay interest upon the Respondent's assessed costs. For that reason, too, I would hold that it would not have right to award interest upon the costs awarded to the Appellant at the judgment rate.

If, contrary to my view, the court has power under article 14 of the 1994 Order to reduce or disallow the interest claimed should it do so in this case? Mr James submits that the answer to that question is yes. He says that the Appellant paid the sum of £60,000 into court on 1 June 2009 and, in consequence, he was deprived of the use of that money. Although interest would be payable on the £60,000 lodged in court almost all the interest would be calculated at the rate of 0.3% per annum. Mr James submits that it would not be just to award the Respondent interest at the rate of 8% per annum on the whole of the assessed costs when for a significant part of the time during which such interest was accumulating the Appellant was deprived of the use of £60,000 and that sum was attracting interest at a very low rate.

Mr James does not submit that the Respondent should be entitled to no interest. The submission advance by Mr James both in his skeleton argument and orally is that interest should be payable at 8% per annum on the whole of the assessed costs from 27 September 2008 to 1 June 2009 (the date of the lodgement of £60,000) and that thereafter interest should be payable at 8% per annum on only £14,458.52 (the balance of the assessed costs) until the date when the assessment was complete – 15 November 2010.

The Costs Judge dealt briefly with the position should it be the case that he had a discretion to reduce or disallow the interest. He expressed himself thus:-

“In case of an appeal I should say that I would have liked to do justice to the parties. The monies are not available to the Defendant to use and a fair sum in respect of the interest due is a price the Claimant has to pay. If I thought I had a discretion under Article 14 I would have exercised it in favour of the Claimant and allowed interest on the first £60,000 only at the rates payable under the Court Funds Rules.”

The Appellant was the Claimant before the Costs Judge. As I understand the passage set above the Costs Judge would have directed that interest was payable only on the sum of £60,000 and at a rate of 0.3%.

With respect to the Costs Judge, I simply cannot understand why he would have thought it just to limit the Respondent's interest to 0.3% per annum upon £60,000. That is not the suggestion which Mr James makes in this court and I can see no proper basis for an order to that effect.

Mr Munro submits that there was no proper basis to reduce the interest which was claimed. The mere fact that the Appellant was deprived of the use of £60,000 could not be a reason; nor could the fact that the interest payable to the Appellant on that sum was so low. The plain fact is that the Appellant owed more than £60,000 to the Respondent. If the Appellant had wished to protect himself against the claim for interest he could have paid the £60,000 to the Respondent as a part payment on account of the costs properly due and owing to the Respondent.

When a court makes an award of interest on a debt, damages or costs its primary purpose is to compensate the recipient for the fact that he has been precluded from obtaining a return on the money rightfully kept from him – see Fattal v Walbrook Trustees (Jersey) Ltd & Another [2009] EWHC 1674 (Ch) at paragraph 26 of the judgment of Christopher Clarke J. In my judgment there can be little doubt that the primary purpose justifying an entitlement to interest under the 1994 Order is the same.

I can see no basis on the facts of this case for concluding that the interest claimed by the Respondent should be reduced. The Respondent was entitled to interest at the rate and for the period specified in the 1994 Order to compensate for the fact that it had been kept out of the money lawfully due in respect of its legal services. The fact that under a consent order the Appellant paid a substantial part of the money owing into court ( earning less interest on that money than might otherwise have been the case) does not count as a sufficient reason to justify a reduction in the interest properly payable to the Respondent. Had I been persuaded that article 14 of the 1994 Order (or for that matter section 35(A) Senior Courts Act 1981) permitted me to reduce the interest claimed by the Respondent I would have declined to do so.

The consequence is that this appeal fails. As I indicated at the close of the oral hearing it seems to me to be virtually inevitable that the costs of this appeal should follow the event. However, I direct that the parties may file written submissions upon the principle and/or quantum of costs provided they do so by 4.00pm 1 April 2011. Following receipt of those representations I will determine all issues relating to the costs of this appeal without a further hearing. It may be, of course, that the issue of costs can be agreed by the time of the handing down of this judgment in which case the parties should submit an appropriate order.