Mortgage – Possession proceedings – Legal costs – Claimant defaulting on mortgage – Mortgagee instructing defendant solicitor to recover possession – Mortgagee paying defendant’s costs in full – Mortgage providing claimant’s legal costs — Master conducting detailed assessment of costs at request of claimant and reducing legal bill – Whether master adopting correct approach on assessment – Whether master making appropriate remedial order — Appeal allowed
The claimant 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 defendant solicitor to enforce the mortgage and recover possession. A statement of indebtedness purported to show that the claimant owed the bank £1.15m, including a sum by way of legal fees payable to the defendant. In September 2004, the bank transferred the mortgage to the guarantor directors in consideration of a payment of £1.15m. The bank approved the defendant’s fees and paid them in full. The mortgage deed contained required the claimant to pay the bank’s costs of enforcing its security. The claimant began proceedings against the defendant (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 defendant’s bill, ordering it to pay the balance of the bill to the claimant. The defendant’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.
Held: The appeal was allowed.
The master’s assessment was fundamentally flawed because he had asked the wrong question throughout.
In considering the effect of the extraneous arrangement or agreement that entitled a client to pass on costs, the court was not determining how much the client was liable to pay under its retainer with the solicitor, but which items of the bill could be passed to the third party. To the extent that items could not be passed on, the solicitor was entitled to look to its client for payment. The contract to which the solicitor was a party was the contract of retainer between it and its client. Its personal entitlement to fees could not be affected by a different contract to which it was not a party: Re Gray [1901] 1 Ch 239, Re Longbotham & Sons [1904] 2 Ch 152 and Re Cohen & Cohen [1905] 1 Ch 245 (Ch); [1905] 2 Ch 137 (CA) considered.
If the court were asked to assess a solicitor’s bill on the application of the third party that was liable to pay it, it had to do so as though the client himself had required the assessment. The third party was entitled to raise only such objections as the client could have raised. As a preliminary to the assessment, the court had to decide which items it had to assess. That was the point of construing the agreement. If the court decided that the bill included items that it did not have to assess, those items would not be considered; only in that limited sense would they be disallowed. However, the construction of the agreement was not to be used as an alternative method of assessing the costs on a basis that was less generous to the solicitor than an assessment at the client’s behest would have been: Re Cohen & Cohen followed.
The master had erroneously conflated two questions, namely what was properly payable as between the defendant and the bank and what sums (in terms of quantum) could be passed on to the claimant. In considering the first question the issue was only between the defendant and the claimant, which stood in the shoes of the bank. Thus, the claimant would have been entitled to take any point that the bank could have taken if it (rather than the claimant) had required the costs to be assessed. That was the extent and the limit of the court’s jurisdiction under section 71 of the 1974 Act. However, what was passed on to the claimant under the mortgage was passed on by bank, not the defendant. Issues arising under that question were therefore issues as between the claimant and the bank. The bank was not a party to the proceedings that the claimant had initiated.
The claimant’s complaint was that the bank’s charges were too high. In order to deal with that complaint, two separate assessments had to be made: (i) how much the defendant could have legitimately charged the bank for dealing with the matters falling within the scope of its retainer by the bank acting strictly in its capacity as mortgagee; and (ii) how much of that sum the bank could legitimately pass on to the claimant.
The first of those assessments should have been carried out under section 71, as between the defendant and the bank, although the claimant was entitled to require the assessment to be made. The second was between the bank and the claimant, which could have been carried out by one of two mechanisms: (i) an assessment under CPR 48.3; or (ii) an action for an account by the claimant.
The claim form that the claimant had issued claimed an assessment under CPR 48.3 which enabled the court to assess the costs payable under a contract. However, CPR 48.3(2) excluded from its scope a contract between a solicitor and his client. It followed that the parties to an assessment under CPR 48.3 would be the parties to the contract in question, and that section 71 (which dealt only with the contract of retainer between solicitor and client) was not a substitute for an assessment under CPR 48.2. However, there could have been no objection to an assessment under section 71 and an assessment under CPR 48.3 taking place simultaneously, provided that the costs judge recognised that they were conceptually distinct.
Since the manner in which the master’s assessment had been carried out was flawed, his order could not stand. The defendant’s contract was a contract of retainer between it and the bank. The claimant was a stranger to that contract and was not entitled to interfere with it. The liability to pay the defendant under that contract belonged to the bank. If the claimant, under compulsion, had paid such a liability, itwould be subrogated to whatever claim the bank would have had against the defendant for the overpayment of fees. However, the master did not find that the defendant had overcharged the bank. There was therefore no claim by the bank to which the claimant could have been subrogated. Consequently, the master’s order requiring the defendant to make a repayment to the claimant was wrong in principle.
Geoffrey Cox QC and Faisal Saifee (instructed by Candey LLP) appeared for the claimant; Nicholas Bacon QC (instructed by Akin Gump LLP) appeared for the defendant.
Eileen O’Grady, barrister
