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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McFarlane v. Wrights Insulation Co Ltd [2003] ScotCS 267 (17 October 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/267.html Cite as: [2003] ScotCS 267 |
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OUTER HOUSE, COURT OF SESSION |
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A2170/99
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OPINION OF LORD CARLOWAY on the note of objections for the pursuer in the cause JANETTE YOUNG McFARLANE or PURDON or McNAIR, ALEXANDER McNAIR'S EXECUTRIX Pursuer; against WRIGHTS INSULATION CO. LTD. Third Defenders:
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Pursuer: Allardice; Thompsons
Third Defenders: Ferguson Q.C.; Simpson & Marwick W.S.
17 October 2003
1. Background
[1] The pursuer is the executor dative of her deceased husband, Alexander McNair. Mr McNair worked as an insulator with the five employers convened as defenders. In each employment, it was averred, he used asbestos to create insulating material. He developed bilateral pleural plaques and became aware that these were related to his exposure to asbestos in the course of 1997. He became concerned that he might develop asbestosis or some other potentially fatal condition. He died on 23 March 1998 as a result of causes unrelated to asbestos. This action was raised on behalf of his estate in November 1999 for solatium in respect of his suffering prior to death. It was ultimately settled. On 15 July 2002 the defenders were assoilzied but some, including the third defenders, were found liable to the pursuer in the expenses of process. In due course, the pursuer lodged an account of expenses containing most of the usual charges and totalling £3,217.76. However, one of the outlays specified read as follows: "Paid Compensure Premium : £115.00". The third defenders objected to this element on the basis that it was not a recoverable charge on a party and party taxation. [2] Compensure was a scheme set up under the auspices of the Law Society of Scotland whereby a litigant could insure against any liability to pay his opponent's expenses in the event of his claim proving unsuccessful. The particular scheme no longer operates for future business, having closed on 30 June 2003, but other similar schemes remain in existence. The certificate setting out the details of the scheme is headed: "The Speculative Fees Insurance". Such schemes have the effect of enabling a much larger number of cases to be pursued upon a "no win, no fee" basis than has been raised hitherto. Despite the heading on the certificate, the cases to be pursued using the schemes are not limited to those which traditionally fell into the category of actions permitted to be pursued, and which in practice were pursued, on a speculative basis. There was much discussion, notably in England, on the policy behind the introduction of such schemes, especially with reference to the perceived benefit of encouraging middle income clients, ineligible for legal aid, to litigate rather than decide that the risks of failure were too great (Callery v Gray (Nos. 1 and 2) [2002] 1 WLR 2000, Lord Bingham at paras. 1 and 2). The schemes are not without their critics, however, and it was interesting to observe, as the third defenders' counsel did in submissions, that the pursuer's counsel referred to the schemes being entered into by the solicitors rather than parties! Perhaps all that needs to be said in the present context is that, in certain cases at least, there may be mutual benefit to agents and clients. [3] The Compensure certificate imposed certain conditions upon the pursuit of the litigation. In particular, it provided that the insurance could be cancelled should the client disagree with the solicitor's view on settlement or if the balance between failure and success chanced at any time to tip against the client. So far as the client having an option on whether to proceed under the Compensure scheme, it transpired that the insurers had imposed a condition on all solicitors doing work under the scheme. This was that, if such a solicitor wanted to do any work at all under the scheme, all cases in which the solicitor had agreed to act on a "no win, no fee" basis had to be pursued under the scheme. This condition, sensible enough from the commercial point of view of an underwriter, was designed to avoid a situation whereby only cases carrying some real risk of failure were pursued under the scheme. "The many would pay for the few" (Callery v Gray [2001] 1 WLR 2112, Lord Woolf CJ at para 67). The effect of this was that a client, consulting a solicitor offering "no win, no fee" services using the Compensure scheme, would either have to agree to proceed under the scheme or discontinue his instructions and seek out an agent offering similar services but outwith the scheme. [4] The initial effect of such a scheme, on one view, is to oblige, in practical terms, litigants whose cases may involve minimal risk of failure to fund, through payment of insurance premiums, those pursuers whose cases will and do fail. In England, where legal aid for ordinary personal injuries litigation has seemingly all but vanished, that situation has been redressed by section 29 of the Access to Justice Act 1999. This provision permits recovery of the premium as part of the award of expenses against a defender in a successful case. This has, in turn, the indirect effect of obliging unsuccessful defenders, or their insurers, to fund the costs of successful defenders (see again Lord Woolf CJ (supra) at para 93)! The cost of the former legal aid system has ultimately been thrown, at least in some measure, upon persons who pay premiums for indemnity insurance of one sort or another (Callery v Gray (Nos 1 and 2) per Lord Hope at para 54). [5] The issue in this case came before the Auditor for determination at a taxation on 8 November 2002. Having considered written and oral submissions, the Auditor taxed off the £115 premium. In setting out his reasoning, the Auditor chose as his starting point the words of the critical Rule of Court 42.10.(1) which provides:"Only such expenses as are reasonable for conducting the cause in a proper manner shall be allowed."
The Auditor noted that the phraseology used in the Rule differed from the previous tests of necessity and the need for economy in ordinary actions (Ahmed's Trustee v Ahmed (No 1) 1993 SLT 390, per Lord Penrose at 393; City of Aberdeen Council v WA Fairhurst 2000 SCLR 392 (note), per Lord Penrose at 392, not entirely following Malpas v Fife Council 1999 SLT 499, per Lord Bonomy at 501, but under reference to Cooper and Wood v North British Railway Co (1863) 2M 346, per Lord President (McNeill) at 347). The Auditor felt that the duty to protect litigants from "ruinous expense" might result in him abating the cost of a premium if the cumulative burden of premiums in a succession of cases became ruinous. He was also concerned about his ability to determine the reasonableness of a premium in a given case. He referred to the distinction between the expenses of process and those of an "extra-judicial" nature (Milligan v Tinne's Trustees 1971 SLT (notes) 64, per Lord Thomson at 65). He commented that the test under English law considered by Lord Scott of Foscote in Callery v Gray (Nos 1 and 2) (supra at para 130) was quite different from that in Rule 42.10.(1). The Auditor concluded:
"In this case judicial expenses have been awarded. The wording in the cover note from Compensure makes it clear that the policyholder is insuring against an award of judicial expenses...This cannot be construed, even in the loosest sense, as a step in process to conduct the case in a proper manner. It falls into the same category as a Legal Aid Application and the fact that it is an outlay and not a fee is irrelevant."
2. Submissions
[6] Whilst recognising that the determination of the Auditor was akin to the verdict of a jury (Wood v Miller 1960 SC 86, per Lord Justice-Clerk (Thomson) at 98; Malpas (supra), per Lord Bonomy at 500), the pursuer focused on the terms of Rule 42.10.(1) and maintained both that the Auditor had misdirected himself and that his decision had been unreasonable. It was common for outlays incurred before the commencement of litigation to be allowed as recoverable expenses on a party and party taxation. Examples were the costs of police reports, administration fees for the arrangement of police precognition facilities, and copying charges levied by doctors for medical reports. Over time, the incidence of outlays could change and Compensure premiums were an example of this. The Scottish system was sufficiently flexible to permit recovery of such premiums upon taxation without the need for legislation, as had occurred in England. It was accepted that fees for making a legal aid application and for executing diligence on the dependence of an action were not allowed but these differed from the premium under consideration here. The situation might be different had there been an outlay involved in applying for legal aid. In respect of diligence, that did not primarily concern an action but involved security in respect of any final decree. The premium did fall within the terms of the Rule and the Auditor would be able to assess the reasonableness of the amount given a period of time during which a series of premiums might be considered. By allowing the premium, a more level playing field would be created, given that most defenders either required or acquired insurance cover. The history of the Rule had been set out in Ahmed's Trustee v Ahmed (No 1) (supra) but the test set out in Malpas v Fife Council (supra) was correct as was that in City of Aberdeen v WA Fairhurst (supra). There was only one test and that was whether the expense was reasonably incurred. If the obtaining of the insurance by the solicitor was something which a competent solicitor acting reasonably might do, the premium could not be disallowed. Since it was effectively compulsory for the solicitor to arrange payment of the premium, if he wanted to offer the "no win, no fee" service, it could not be said to be unreasonable to pay it. Many other firms of solicitors had been part of the scheme and had also paid the premiums. The court had to have regard to realities and to the manner in which litigation was now conducted. Guidance could be obtained from Callery v Gray (Nos. 1 and 2) (supra) even although the system in England was different in respect that legal aid was no longer available for actions of the type under consideration here and speculative cases had been unlawful until recently. The ideology and rationale present in both jurisdictions was the same (Lord Bingham (supra) at paras 1 et seq) and the expense of the premium ought to be part of the expenses recoverable (Lord Scott (supra) at para 130). [7] The third defenders submitted that the Auditor's decision was correct. Rule 42.10.(1) set out a single objective reasonableness test to determine what items were allowable. Lord Penrose's analysis in Ahmed's Trustee v Ahmed (No 1) (supra) and City of Aberdeen v W A Fairhurst (supra) was sound but Lord Bonomy's test of the competent solicitor acting reasonably in Malpas v Fife Council (supra) was not. The Court should be slow to interfere with the Auditor's determination given that he applied the correct test (Wood v Miller (supra); Macnaughton v Macnaughton 1949 SC 42, per Lord President (Cooper) at 46). As an outlay, the premium was in respect of an insurance against failure. It was in a wholly different category from the type of charges normally recoverable under the Table of Fees for work done by solicitors. Such charges related to the investigation of a claim and preparations carried out with a view to proving it or rebutting an opposing party's contentions. The premium was not paid by a pursuer in order to afford to litigate but so that he could afford to lose. There was a difference between an expense incurred in order to conduct a case in a proper manner and one incurred incidentally in the course of a litigation (Milligan v Tinne's Trustee (supra)). There was no distinction to be made in respect of this type of insurance premium and one paid by a party for any other form of legal expenses insurance. The obtaining of such insurance was not something incurred for the purposes of the proper conduct of the cause. It may be prudent to obtain such insurance but, even if it were compulsory to do so, that did not make the expense reasonable. The situation in England was quite different given the legislation in place there (see Lord Scott (supra) at para 81, Lord Woolf (supra) at 2118 to 2123). It would be dangerous to take anything from the English position without getting to grips with the English law of costs. In Scotland, legal aid remained available and there existed a system of speculative actions. In this case the issue was a narrow one but the Auditor's reasoning that the premium was not an expense of process in terms of the Rule was correct. He had not erred in law and the objection should be repelled
3. Decision
[8] The issue is a narrow one. The sole question is whether the outlay of the premium is, in terms of Rule 42.10.(1), an expense reasonably incurred for conducting the cause in a proper manner. The test begins and ends with the phraseology used in the Rule. The test is one of "objective reasonableness" (City of Aberdeen v W A Fairhurst (supra) per Lord Penrose at 398; Ahmed's Trustee v Ahmed (No 1) (supra) per Lord Penrose at 393) and the phraseology in the Rule is not, as a generality, improved upon by incorporating language and ideas based on superseded formulations (City of Aberdeen v W A Fairhurst (supra) at 399). However, it is not without note that in Macnaughton v Macnaughton (supra) the Court was not dealing with the old "necessity" and "economy" tests but with what was then the consistorial scale which, in a manner not too dissimilar from the present, allowed "all expenses so far as not unreasonable or extravagant". The interesting feature of that case (see its use in Malpas v Fife Council (supra) per Lord Bonomy at 501) for present purposes is the approach of the Lord President (Cooper) (at 47) in dealing with expenses, and their reasonableness, with reference to the subject matter of the cause and not to any personal speciality of the party. Leaving aside areas where anti-discrimination considerations might apply, the range of reasonable actions and the levels of fees and outlays recoverable upon the party and party scale ought to be "more or less recognised" in a given type of case irrespective of the economic condition of a party to it (Lord President (Cooper) in the slightly different context of levels of fees at 47). This is so albeit that, of course, the types and levels of fees and outlays incurred may legitimately vary to a degree according to the particular approach of the law agent to preparation and, most notably, in the event of an additional fee being deemed appropriate. There are ranges of reasonable actings and reasonable charges. [9] Although the Auditor has a wide discretion to determine what is reasonable in a given case and the Court will rightly be cautious before interfering with the exercise of that discretion (Wood v Miller (supra) Lord Justice-Clerk (Thomson) at 98), the Court is not constrained so much by such considerations when dealing with an issue such as the present one. The issue is not one for the application of a discretion on whether the level of premium is reasonable. Rather it is one which calls for a determination, as a matter of law, of whether the premium itself is a legitimate expense of process. By using the words "of process" (see Milligan v Tinne's Trustees (supra) Lord Thomson at 64 on an agent and client taxation) no restrictive meaning is intended other than that the outlay must be in respect of work reasonably undertaken, as the Rule says, to conduct the cause; that is to say to prepare and to pursue the litigation to a conclusion, including the rebuttal of the contentions of an opponent. In that respect, a recoverable outlay may have been incurred long before the action commenced. But in a party and party taxation, what is reasonably undertaken to conduct a cause cannot normally vary according to the economic circumstances or needs of the litigant. [10] Like the Auditor, I do not consider that an arrangement to secure insurance against a contra award of expenses can, even giving the words of the Rule the broadest possible interpretation, be classified as an expense "for conducting the cause". It is an entirely extra-judicial step adopted, no doubt quite reasonably and legitimately in certain situations, to protect the economic interests of the client and indeed possibly also the agent in a case pursued on a "no win, no fee" basis. As such it is not recoverable as an expense of process in a party and party taxation. Although the general reasonableness of the actings of an agent may be relevant in determining whether a fee should be allowed in certain circumstances (Malpas v Fife Council (supra) per Lord Bonomy at 501), such reasonableness can only come into play once it is determined that the work undertaken or outlay incurred is at least potentially part of the conduct of the cause. The mere fact that a solicitor has acted reasonably in relation to a client does not automatically result in the fees for such actings being recoverable against his opponent upon a party and party taxation; hence the continued distinction between the party and party and agent and client scales. [11] The pursuer's contention would, as remarked above, have the curious effect of obliging an unsuccessful defender to pay not just the expenses of his successful opponent in pursuing the claim against him but also, through payment of the cost of the premium, a proportion of the expenses of successful defenders in completely different cases. This could involve uninsured defenders also since the effect of the contention must apply generally and not just to a class of actions. The contention would have to apply to a variety of premiums if such came to be available to litigants generally. It may be that the Auditor could look at a range of premiums and put himself in a position whereby he might gauge the reasonableness of a range at least in personal injuries litigation. But if the type of outlay under consideration were to be permitted as a generality then there may indeed be major problems in determining reasonableness in all cases, especially those where an underwriter has decided to afford cover but at an extremely high cost. [12] The policy adopted in England and Wales may be something which the Government in Scotland could revisit under reference to the effect of section 29 of the Access to Justice Act 1999; but that may appear unlikely given the experience of legal aid in this jurisdiction as set against that described as formerly occurring in England and Wales in personal injuries litigation and as set out in Callery v Gray (Nos 1 and 2) (supra) and Callery v Gray (supra). Even although the Court does obviously have consider the realities of modern litigation, the allowance of the payment of the premium here as a legitimate outlay on a party and party taxation is certainly not something which is currently sanctioned by the Rules. It might also be seen as sitting uncomfortably with the current legal aid system and traditional practice relative to speculative actions. [13] It follows that I do not consider that the Auditor has misdirected himself in law or reached an unreasonable decision. For these reasons the objection in the pursuer's note is repelled. It was not disputed that the expenses would follow success in the procedure on the note. I will therefore find the pursuer liable to the third defenders in the expenses of that procedure.
