LEGAL COMPANY ENTITLED TO CHARGE FOR ITS TIME: SHACKLETON EXPLORES NEW GROUND

February 23, 2017 · by · in Assessment of Costs, Costs

In Shackleton -v-Al Shamsi [2017] EWHC 304 (Comm) Mr Justice Teare considered the question of whether a company providing legal services  which was the claimant in the action could recover costs for the time of its “proprietor”  spent in bringing the action.

THE CASE

The claimant was a limited company. Its sole business was to provide the services of Mr Shackleton as counsel or arbitrator in international arbitration. Mr Shackleton is a solicitor advocate.  The claimant brought an action for his fees against the defendants for acting in a ICC arbitration.  An arbitration award was made in his favour.  Enforcement was resisted by the defendants. The hearing was in relation to the costs of reserved applications and the basis on which costs were to be assessed.  The court upheld most of the claimant’s claim for costs and ordered they be paid on an indemnity basis

THE JUDGMENT ON THIS ISSUE

“Mr. Shackleton’s time
    1. The Claimant is a company. Its sole business is, I am told, to provide the services of Mr. Shackleton as counsel or arbitrator in international arbitration. He is a solicitor advocate. The Claimant earns fees from its clients for so doing. In this case the Claimant has claimed its fees from the Defendants in an ICC arbitration and has obtained an arbitration award in its favour. In this jurisdiction the Claimant has sought to enforce the arbitration award and has faced resistance from the Defendants. In the course of overcoming that resistance the Claimant has incurred legal costs by instructing two firms of solicitors and counsel to represent it. Mr. Shackleton has also worked on the proceedings in this jurisdiction but is not paid for his work by the Claimant because, as he puts it, he benefits in any event as its sole shareholder. He has said that there would be no sense in requiring the Claimant to employ outside solicitors to enable it to recover the cost of work which he can undertake more efficiently and that the arrangement between the Claimant and himself and the outside solicitors is an economical and appropriate way to divide the work required for the conduct of this litigation. The Claimant therefore seeks an order that the Claimant can recover as part of its costs compensation for the time spent by Mr. Shackleton on this case notwithstanding that the Claimant has no liability to pay such compensation to Mr. Shackleton. The Defendants resist such an order. They say that it breaches the indemnity principle pursuant to which a successful party cannot recover more than it is liable to pay; see The White Book at note 44.2.5. They also point out that Mr. Shackleton’s charge out rate of £800 per hour is more than double that of the solicitor acting for him at Gateleys.
    2. I have not been taken to the Claimant’s bill of costs but I have noted that it is formidable document of some 203 pages. I suspect that this question of the recoverability of costs in relation to Mr. Shackleton’s work is a substantial one in terms of the sums involved.
    3. Mr. Snider accepted that if there was any duplication of work by Gateleys and Mr. Shackleton then account could not to be taken of Mr. Shackleton’s time. But such matters were to be resolved on a detailed assessment and did not concern the court on this occasion. He submitted that since there was no applicable rule in the CPR dealing with this situation (the Claimant was not a litigant in person and so CPR 46.5 did not apply) the common law applied. He said that, pursuant to principles developed by the common law, where a solicitor advocate bestows his professional skill and care on the Claimant in the conduct of the Claimant’s litigation, his time, which can be measured, is properly to be allowed as part of the Claimant’s costs. In support of that proposition he relied on, in particular, London Scottish Benefit Society v Chorley [1884] 13 QBD 874 and Malkinson v Trim [2003] 1 WLR 463.
    4. In London Scottish Benefit Society v Chorley the question was whether solicitors who had been sued but had been successful in their defence could recover anything other than their out of pocket expenditure or whether they could recover as costs the time they spent acting on their own behalf as solicitor. It was held that they could. Brett MR stated that the headnote of the report of the case in the Queen’s Bench Division at 12 QBD 452 accurately expressed the law. That headnote read:
“Where an action is brought against a solicitor who defends it in person and obtains judgment he is entitled upon taxation to the same costs as if he had employed a solicitor, except in respect of items which the fact of his acting renders unnecessary.”
    1. Bowen LJ said at p.877
“Professional skill and labour are recognised and can be measured by the law; private expenditure of labour and trouble by a layman cannot be measured. It depends upon the zeal, the assiduity, or the nervousness of the individual. Professional skill, when it is bestowed, is accordingly allowed for in taxing a bill of costs; and it would be absurd to permit a solicitor to charge for the same work when it is done by another solicitor and not to permit him to charge for it when it is done by his own clerk. “
    1. London Scottish Benefit Society v Chorley was considered and explained by the Court of Appeal in Malkinson v Trim [2003] 1 WLR 463 where the question was whether the principle established by London Scottish Benefit Society v Chorley applied where the defendant, although a solicitor, does not expend his own time and skill in defending the claim but the defence is undertaken by one of his partners or by others within the firm of which he is a member. It was held that it did. Chadwick LJ said at paragraph 14:
“The reasoning which led this court to the conclusion which it reached in the London Scottish Benefit Society case must lead to the same conclusion in a case where the solicitor litigant carries on his practice as a solicitor in partnership. The successful litigant is entitled to an indemnity; there is no difficulty in measuring the cost of legal professional time and skill; and there is likely to be some saving of costs if the work is done within his own firm rather than if he is encouraged in practice to instruct another firm. “
    1. At a later stage in the judgment when dealing with an argument based upon the CPR (now expressly dealt with by CPR 46.5(6)) Chadwick LJ said at paragraph 22:
“…the basis of the principle that a solicitor who acts for himself in litigation is entitled to compensation, by way of costs, for his time and trouble is a recognition that (in common with any other litigant) he ought to be indemnified against the expense to which….he has been unjustly put. The special position of a solicitor is that he does not need to employ others to provide professional skill and knowledge in the conduct of litigation. He can provide that skill and knowledge himself. Further, there is no difficulty in measuring what it costs him to do so; and there is a potential saving in costs if he is not discouraged from doing so. “
    1. Finally, at paragraph 24 Chadwick LJ said:
“A partner who is represented in legal proceedings by his firm incurs no liability to the firm; but he suffers loss for which under the indemnity principle he ought to be compensated, because the firm of which he is a member expends time and resources which would otherwise be devoted to other clients. The only sensible way in which effect can be given to the indemnity principle is by allowing those costs.”
    1. It is to be noted from these two cases that the indemnity principle does not require the litigant to be under a liability to pay for the legal services which have been bestowed upon him. It is sufficient if he suffers a loss. If he does so there is no breach of the indemnity principle because an award of costs indemnifies the litigant in respect of that loss. Moreover, “loss” for this purpose can be broadly defined. In Malkinson v Trim loss was established because the firm of which the solicitor litigant was a member expended time and resources on his case which would otherwise have been devoted to other clients.
    2. A similar broad definition of loss is indicated by In re Nossen’s Letter Patent [1969] 638 which concerned the question whether costs could be recovered in respect of the work of an in-house expert. The taxing master had allowed costs to be recovered in respect of the fees and salaries of the in-house expert but had not allowed overhead expenses. Lloyd-Jacob J. said at p.643:
“In this he was plainly right, covering as he did the actual and direct costs of the work undertaken in the sense of indemnifying the respondents for the salaries, materials and out-of-pocket expenses of those engaged in the conduct of the experiments. No part of the respondents’ expenditure on overheads was occasioned by this litigation and it would be unreasonable to transfer to the applicant the burden of meeting some part of it by reason only of the respondents’ decision to prefer the services of their own staff to those of independent experts. “
    1. In In re Eastwood [1975] 1 Ch. 112 the Court of Appeal had to consider the basis upon which costs could be recovered by the Attorney General in respect of work done by a senior solicitor in the Treasury Solicitors’ office. Russell LJ said at p.132:
“(1) It is the proper method of taxation of a bill in a case of this sort to deal with it as though it were the bill of an independent solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all the circumstances of the case …………….(3) It is a sensible and reasonable presumption that the figure arrived at on this basis will not infringe the principle that the taxed costs should not be more than an indemnity to the party against the expense to which he has been put in the litigation…..”
    1. Russell LJ warned against requiring in all cases of employed solicitors a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the indemnity principle was not infringed. To do so would
“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. Two comments may be made about this decision. First, it is unclear what the lord justice had in mind was the “expense” of the Attorney General which had been incurred. He probably had in mind the salary which the solicitor was paid. Second, the warning against pushing abstract principle to the point where injustice is caused suggests that one should not apply the indemnity principle too rigorously and that one should always seek to achieve a just result.
    2. Finally, reference should be made to Ultraframe v Eurocell 31 July 2006 (unreported), a decision of Master Campbell, in which he held that costs could be recovered in respect of the work done by an in-house solicitor in circumstances where an independent solicitor was also instructed, provided that there was no duplication. Duplication was a matter of quantum, not of principle.
    3. A cogent argument can be made in this case that, although Mr. Shackleton has bestowed his professional skill upon the Claimant and that the time he spent doing so can be measured, the principle established by London Scottish Benefit Society v Chorley does not apply. The Claimant is the litigant, not Mr. Shackleton. The court cannot ignore the separate personality of the Claimant. The Claimant has not expended its own “time and trouble” in respect of which it claims to be indemnified. It has suffered no loss. Mr. Shackleton has expended his own “time and trouble” and has suffered loss but he has no status in the litigation as a party and has chosen not to charge the Claimant for his services. The cases on in-house solicitors or experts do not assist because the Claimant does not employ Mr. Shackleton and so does not suffer a loss by paying him a salary.
    4. But a cogent argument can be made the other way. The Claimant has suffered a loss because as a result of Mr. Shackleton spending his time on the Claimant’s pursuit of its fees the Claimant cannot use his services to earn fees for the Claimant in other cases. There is no doubt that at least some of the services performed by Mr. Shackleton were not duplicated by the solicitor and counsel instructed by the Claimant. For example he appeared as counsel before Flaux J. and he prepared the Skeleton Argument for this application. If the Claimant had instructed a solicitor and counsel to do that work there is no doubt that it would recover the costs of so doing. It would be odd if by using Mr. Shackleton to do that work the Claimant could recover nothing in respect of his work. That suggests that a just result would be one which enabled the Claimant to recover a reasonable and fair amount of his time.
    5. This is an unusual case and none of the cases to which I was referred deal with its circumstances. I suspect that in legal practice, at any rate in this jurisdiction, it is unusual for a lawyer to provide his services through a company in the manner in which Mr. Shackleton does. Having considered the opposing arguments I have reached the conclusion that the Claimant can recover a reasonable and fair amount in respect of Mr. Shackleton’s services. I do not consider that such a conclusion breaches the indemnity principle because a broad understanding of “loss” is appropriate in this field. Further, to disallow his time would risk pushing “abstract principle” to a point where the result was not consistent with justice.
    6. What is a reasonable and fair amount to be recovered in respect of Mr. Shackleton’s services must be considered on assessment, in the event that the parties cannot settle the matter. On assessment it seems to me that at least three matters will have to be considered. First, there will be the question of duplication with work done by the solicitor at Gateleys. It is likely that there was some. Second, there will be the question of the appropriate rate to use when assessing Mr. Shackleton’s services. His rate of £800 is more than double the rate of the solicitor at Gateleys. Her rate appears to be within the guideline rate. The guideline rate can be exceeded when the matter is sufficiently complex but proceedings to enforce an arbitration award do not fall into that category. There would appear therefore to be a cogent argument for saying that the rate charged by Gateleys is an appropriate rate at which to assess Mr. Shackleton’s time. Third, there will be the question whether items of Mr. Shackleton’s work were not reasonably necessary. My knowledge of this case suggests that there will be some items of work which were not reasonably necessary. The 97 page statement in response to the Defendants’ application was not necessary. All that was necessary was a statement by an independent expert on French law as to the prospects of the success of the appeal to the Cour de cassation.
Conclusion
    1. On the three matters which I have been asked to resolve my conclusions are
i) the Claimant may recover 80% of the costs of the hearing before Flaux J. with no order as to the remaining 20%;
ii) the Claimant’s costs shall be assessed on the indemnity basis;
iii) the Claimant is entitled to recover costs in respect of the work done by Mr. Shackleton in a reasonable and fair amount.”

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