IN-HOUSE COSTS RECOVER ON ASSESSMENT: THE INDEMNITY PRINCIPLE IS NOT BREACHED

The question on the indemnity principle and in-house lawyers was another costs issue considered by Mostyn J in Kuznetsov, R (On the Application Of) v London Borough of Camden [2019] EWHC 3910 (Admin). The judge rejected an argument that the successful party was confined to the actual costs incurred.

THE CASE

A litigant was appealing against an order that he pay the costs of a local authority.  The hourly rate allowed in the assessment of those costs was £317.00.   It was contended that the local authority used in-house lawyers, the actually costs were much lower and the indemnity principle had been breached.  This argument was rejected by the judge.

THE JUDGMENT ON THIS ISSUE

25. In his written materials, the claimant, over many pages, advanced seven reasons why the decision should be set aside or varied. However, he instructed Mr Burkitt late in the day and Mr Burkitt wisely abandoned six of those seven grounds, and confined his submissions solely to the one that the sums claimed, namely £11,614.20, breached the indemnity principle. The indemnity principle is very long-standing and reflects the obvious principle that when making an order for costs there should not be a windfall for the payee; nor should there be a penalty imposed on the payer. The costs can never exceed the value of the work done.
    1. The claimant has particularly focused on the hourly rate claimed by the in-house solicitor of the London Borough of Camden of £317. The solicitor who has had the conduct of this case, principally Mr Reihill, has claimed £317 being a standard hourly rate which has been formulated in circumstances which I will describe. No particular complaint is made as to the number of hours or units, because his hourly rate is divided into 10 units of six minutes at £31.70 per unit. No particular complaint is made about the number of hours, subject to one point. No particular complaint is made about the sums claimed in respect of counsel’s fees. Rather the focus of the objection has been on the hourly rate of £317.
    2. The claimant made a Freedom of Information request of the London Borough of Camden to discover the annual payroll budget of the London Borough of Camden and the pay grades and annual and hourly cost to the taxpayer of the employees of each pay grade. He discovered that the maximum hourly rate paid to an in-house lawyer of the London Borough of Camden is £41.75, which he points out is a very much lesser amount than the £317 which was claimed in the form N260. The Freedom of Information request shows that on employed lawyers the London Borough of Camden spent, in 2017/18, just under £2 million and that the annual payroll budget for legal services was £3 million – giving £1 million of payroll for ancillary staff. Mr Burkitt accepts that there would be appreciable further costs of an infrastructural nature but he says that even when those are taken into account it cannot inflate the base figure of £41.75 to anywhere near the sum claimed of £317.
    3. The figure of £317 is a suggested rate from the Supreme Court costs office, which is printed in the White Book, the Supreme Court Practice, at p.442 giving, for London pay grade A, £317 for Central London which is London W1, WC1, WC2 or SW1. I cannot help but observe in passing that it is surprising that the rates have not been increased since 2010. However that is where the figure of £317 comes from.
    4. Mr Burkitt argues that even though that may be the guideline rate for summary assessment as promulgated by the Supreme Court costs office that for that to be awarded it would breach the indemnity principle, having regard to the evidence which he had obtained.
    5. Ms Conlan has referred me to the decision of Re Eastwood (deceased) [1975] Ch, 112 where the Court of Appeal held, allowing an appeal from Brightman J, that the appropriate method of taxation of a bill of costs where party was represented by a salaried solicitor was to treat it as though it were the bill of an independent solicitor assessing the reasonable and fair amount of a discretionary item, having regard to all the circumstances of the case and the principle that the tax costs should not be more than an indemnity to the party against the expense he had incurred in litigation.
    6. In his judgment, Russell J stated, at p.132:

“There might be special cases in which it appears reasonably plain that the principle will be infringed if the method of taxation appropriate to an independent solicitor’s bill is entirely applied. But it would be impracticable and wrong in all cases of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the Department with a view to ensuring that the principle is not infringed, and it is doubtful to say the least whether by any methods, certainty on the point could be reached. To adapt a passage from the judgment of Sterling J in Re Doody [1893] 1 Ch. 129, 137,

‘To make taxation depend on such a requirement would, as it seems to us, simply be to introduce a rule unworkable in practice and to push abstract principle to a point at which it ceases to give results consistent with justice.'”

    1. Re Eastman has survived the advent of the Civil Procedure Rules. That is clear from the decision of Cole v British Telecoms PLC [2002] Costs LR, 310. In that case Buxton LJ at para.9 stated:

“9. The judgment of this court in In Re Eastwood establishes that the conventional method appropriate to taxing the bill of a solicitor in private practice is also appropriate for the bill of an in-house solicitor in all but special cases where it is reasonably plain that that method will infringe the indemnity principle. Such a special case will arise where some can be identified different from that produced by the conventional approach which is adequate to cover the actual cost incurred in doing all the work done. Such a sum may be identified by concession or presumably by the factual assessment of the taxing tribunal itself. But that possibility does not justify a detailed investigation in every case.”

  1. Mr Burkitt is candid enough to acknowledge that it would be highly exceptional for the court to depart from the suggested hourly rate from the Supreme Court costs office applicable to summary assessments involving solicitors in private practice. However, he says that there is good evidence deriving from the Freedom of Information request to show that the figure of £317 wildly exceeds the maximum possible costs that have been incurred by the London Borough of Camden, and that therefore the indemnity principle is being breached.
  2. Although the argument has been very persuasively put, I do not agree with it. The £317 encompasses a great deal more than just the costs, the payroll costs, of the people sitting in the offices of the London Borough of Camden. It extends to a contribution to the infrastructural costs of the borough itself. Certainly, it extends to the costs of maintaining not only all the equipment, utilities and all other office costs, but the capital costs of the building in which the legal department is itself housed. So, one would be reasonably expected to apply figures for notional rent for example. I cannot see that this case is, by virtue of the evidence that is before me, a special case allowing an exception to the general rule. I concur with Russell J that to investigate this matter would be unworkable in practice and to push abstract principle to the point where it ceases to give results consistent with justice.
  3. I therefore reject the challenge to the bill of costs, specifically to the hourly rate component of the statement of costs