General of Berne Insurance Co v Jardine Reinsurance Management Ltd

Under section 60(3) of the Solicitors' Act 1974, a party recovering costs under a contentious business agreement may recover only the lesser of the reasonable amount allowed on taxation and the corresponding amount payable to its own solicitor.

The comparison is confined to the costs covered by the costs order. Costs disallowed by an order or on taxation must be excluded from both sides. Where the agreement specifies hourly rates or other items, the statutory cap operates item by item. A gross-sum agreement may instead require apportionment. The receiving party cannot use liability for irrecoverable work or disbursements to enlarge the cap for recoverable costs.

Thirteen insurance companies brought related proceedings concerning the management of underwriting pools. Following settlements, Jardine Reinsurance Management Ltd was ordered to pay their costs on the standard basis. The companies' solicitors had a contentious business agreement specifying hourly rates, but the bill claimed some hourly expense rates and uplifts exceeding the corresponding contractual rates.

Master Campbell held that section 60(3) of the Solicitors' Act 1974 imposed a global cap. Tuckey J upheld that ruling, while holding that costs outside the relevant costs orders had to be excluded from the comparison. Jardine appealed the global-cap ruling. The companies' respondents' notice challenged the exclusion of costs relating to matters outside their costs orders.

The central issue was whether section 60(3) required a global comparison or a comparison between each recoverable cost and the corresponding contractual liability.

1. Appeal allowed unanimously; respondents' notice dismissed. May L.J. gave the leading judgment. Sir Brian Neill agreed and added supporting reasons. Hirst L.J. agreed with both judgments.

2. Section 60(3) of the Solicitors' Act 1974 requires a comparison between the costs recoverable under the relevant order and the amount payable by the receiving party to its solicitor in respect of those same costs. The words “those costs” refer back to the costs payable under the order. Costs attributable to another action, an unsuccessful issue, a discrete adverse costs order or any other part of the litigation outside the receiving party's order must therefore be excluded.

3. May L.J. held that there was no proper distinction between costs excluded by an order and costs disallowed on taxation. In both cases they are irrecoverable. They must be left out of both sides of the statutory comparison. The receiving party may recover the reasonable amount allowed on taxation or the corresponding amount payable to its solicitor, whichever is less.

4. The cap is not invariably global. Where the contentious business agreement specifies hourly rates or itemised charges, the contractual figures provide a ceiling for the corresponding recoverable items. Sir Brian Neill described them as both a measure and a ceiling for each item. If the agreement provides for a gross sum, the court may need to apportion that sum to the recoverable costs. A single comparison is appropriate only where the agreement and costs order make that sufficient.

5. The court followed the indemnity principle stated in Gundry v Sainsbury [1910] 1 KB 645: inter partes costs compensate the receiving party and cannot confer a bonus or profit. It rejected the treatment of disallowed disbursements in Universal Thermosensor v Hibben and held that decision wrong insofar as it permitted such expenditure to contribute to a global cap.

6. The application for leave to appeal to the House of Lords was refused.

• Court of Appeal: Allowed Jardine's appeal and dismissed the insurance companies' respondents' notice. The application for leave to appeal to the House of Lords was refused.

• High Court, Commercial Court: Tuckey J upheld Master Campbell's ruling that the contractual liability operated as a global cap, but held that costs outside the relevant costs orders had to be excluded from the comparison.

• Taxation: Master Campbell held by interim certificate dated 7 April 1997 that the receiving parties could claim reasonable hourly expense rates and uplifts exceeding the corresponding rates payable to their solicitors, provided total recovery did not exceed their relevant contractual liability.