Mortgage – Possession proceedings – Legal costs – Appellant defaulting on mortgage – Mortgagee instructing respondent solicitor to recover possession – Mortgagee paying respondent’s costs in full – Mortgage providing appellant’s legal costs — Master conducting detailed assessment of costs at request of appellant and reducing legal bill – Whether master adopting correct approach on assessment – Whether master making appropriate remedial order — Appeal
The appellant borrowed money from a bank secured by a mortgage on property that was guaranteed by two of its directors. It defaulted on the mortgage and had sublet parts of the property in breach of the mortgage conditions.
The bank instructed the respondent solicitor to enforce the mortgage and recover possession. The respondent pursued a number of avenues for recovery, including bankruptcy proceedings. A statement of indebtedness purported to show that the appellant owed the bank £1.15m, including a sum by way of legal fees payable to the respondent. In September 2004, the bank transferred the mortgage to the guarantor directors in consideration of a payment of £1.15m. The bank approved the respondent’s fees and paid them in full. The mortgage deed contained required the appellant to pay the bank’s costs of enforcing its security. The appellant began proceedings against the respondent (but not the bank) seeking an assessment of the bill of costs under section 71(1) of the Solicitors Act 1974.
The master conducted a detailed assessment of the costs and reduced the respondent’s bill, ordering it to pay the balance of the bill to the appellant. The respondent’s subsequent appeal gave rise to two principal issues, namely: (i) the correct approach to be adopted by the costs judge on the assessment of a solicitor’s bill at the behest of a third party that was liable to pay it: and (ii) the appropriate remedial order if the costs judge were to conclude that the bill was excessive.
The High Court allowed the respondent’s appeal on the ground that the master’s assessment had been fundamentally flawed throughout: [2010] EWHC 2951 (Ch); [2010] PLSCS 295. The appellant appealed.
Held: The appeal was dismissed.
If a dispute arose between mortgagor and mortgagee as to what was owed by one to the other, the classic remedy was a claim for an account of what was due under the mortgage. Such proceedings would not normally involve the mortgagee’s solicitor as a party, but could involve a consideration of whether the solicitor’s bill of costs rendered to the mortgagee was recoverable, in full or in part, by the mortgagee from the mortgagor.
The purpose of section 71 of the 1974 Act was the same as under the Solicitors Act 1843, i.e. to allow for an assessment of the costs as between solicitor and client, in a case where a third party was liable to pay those costs and normally where there had not been an assessment under section 70. Apart from the fact that an assessment under section 71 had to be limited to costs which the third party was liable to pay, which might be more restricted in scope than those which the client was liable to pay to the solicitor, the certificate resulting from an assessment under section 71 had to be for the same amount as would be the result of an assessment under section 70.
The older cases decided under the 1843 Act demonstrated the variety of situations in which the point could arise and had found ways of ameliorating the effect of the limitations on a third party taxation, and the effect of the third party’s undertaking to pay the sum found to be due. The bankruptcy aspect of the present case had nothing to do with the bank’s position as mortgagee. Time and expense devoted to that ought not to have been included in the bill rendered in respect of the mortgages, and it fell to be excluded from the bill to be assessed under section 71, as it would be from any account taken under the mortgages: Re Longbotham & Sons [1904] 2 Ch 152 and Re Cohen & Cohen [1905] 1 Ch 345 considered.
A third party could not be at risk of liability to the client for a sum which was only recoverable by the solicitor from the client if the solicitor had advised the client that it would not be recoverable from the third party. Items were either allowed or disallowed in whole. Neither on the basis of precedent, nor as a matter of principle, was it open to the court on an assessment under section 71 to substitute a lower amount for a higher one, on the basis that something was allowable but the rate claimed was unreasonably high, unless that substitution could have been made on an assessment under section 70 as well. Where the client had agreed the bill and paid it, such a substitution was not possible under section 70. Accordingly, a third party assessment under section 71 was of limited use to a third party. It only allowed the costs judge to eliminate items which were outwith the scope of the third party’s liability and items allowable as between client and solicitor on a special arrangement basis, within CPR rule 48.8(2)(c). Re Gray [1901] Ch 239 considered.
If the client had paid the solicitor, and the third party had paid the client, the third party’s remedy lay against the client, not against the solicitor. It could not be right to require the solicitor to pay to the third party money which he received from his client and which his client was bound to pay to him, merely because the third party was not liable to pay the same amount to the client. The third party ought to bring proceedings against the client to establish how much was due from him to the client. In a mortgage case such as the present, the proceedings would be conventional proceedings for an account of what was due under the mortgage.
While some of the disallowances made by taxing master had been properly made under section 71, most of the amounts disallowed ought not to have been, and the master’s order for payment by the solicitor to the third party was plainly wrong, even as regards the items properly disallowed.
Faisal Saifee (instructed by Candey LLP) appeared for the appellant; Nicholas Bacon QC (instructed by Akin Gump LLP) appeared for the respondent.
Eileen O’Grady, barrister
