Tim Martin Interiors Ltd v Akin Gump LLP

An assessment requested by a third party under section 71 of the Solicitors Act 1974 remains an assessment between solicitor and client. The costs judge may remove items outside the third party’s liability and items recoverable from the client only under a special arrangement of which the client required advice. The judge cannot reduce the amount of an otherwise proper item merely because it is excessive as against the third party, unless it could also be reduced on a section 70 assessment.

Where the client paid the solicitor and the third party reimbursed the client, any repayment claim lies against the client. Section 71 does not justify requiring the solicitor to refund money properly received from the client. The third party should ordinarily seek an account or declaration against the client.

The appellant mortgagor reimbursed the Bank of Ireland for a sum which included legal costs charged by the respondent solicitors. The Bank had approved and paid the solicitors’ bills. On the appellant’s application under section 71 of the Solicitors Act 1974, Master Campbell excluded bankruptcy costs, reduced hourly rates and other charges, and ordered the solicitors to repay the disallowed amount.

Lewison J allowed the solicitors’ appeal in [2010] EWHC (Ch) 2951. He set aside the certificate and payment order and remitted the assessment. The mortgagor appealed. The central questions were how far a section 71 assessment could determine the mortgagor’s separate liability to the mortgagee and whether the solicitors could be ordered to repay an excess to the mortgagor.

1. The appeal was dismissed unanimously. The Court agreed with Lewison J that section 71 of the Solicitors Act 1974 permits an assessment as between the solicitor and client. Except for matters outside the third party’s liability, the resulting amount must be the same as on a section 70 assessment.

2. Section 71 permits a limited “blue pencil” exercise. The costs judge may eliminate an item relating to business for which the third party has no liability, such as the bankruptcy proceedings in this case. The judge may also eliminate an item recoverable from the client only under a special arrangement made after advice that it would not be recoverable from the third party. This reflects CPR rule 48.8(2)(c).

3. The costs judge may not reduce the amount of an otherwise proper item merely because the rate or amount is excessive as against the third party. Such a reduction is permissible only if it could also have been made between solicitor and client under section 70. Because the Bank approved the bills and hourly rates, the presumptions in CPR rule 48.8(2) left the appellant unable to challenge those amounts through section 71.

4. The availability of a payment order depends on who paid the bill. If the third party paid the solicitor directly, an excess identified on assessment may be repaid by the solicitor. If the client paid the solicitor and the third party paid the client, the third party’s claim lies against the client. It would be unjust to require the solicitor to surrender money properly due from and paid by the client.

5. A mortgagor wishing to challenge the reasonableness of costs already paid to the mortgagee should ordinarily claim an account against the mortgagee. That procedure places the correct parties before the court and permits the substitution of a reasonable amount, including a lower hourly rate. The disputed costs may then be referred to a costs judge for assessment.

6. The Master’s payment order was wrong, including as to properly excluded items. The Court questioned whether the ordered reassessment would serve any useful purpose but left the appellant free to bring account proceedings against the Bank.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously in [2011] EWCA Civ 1574. The court agreed with Lewison J in all respects.
2. High Court, Chancery Division: Lewison J allowed the solicitors’ appeal in [2010] EWHC (Ch) 2951, set aside the Master’s order and final costs certificate, and remitted the assessment to another costs judge.
3. Senior Courts Costs Office: Master Campbell substantially reduced the bills and ordered the solicitors to pay the assessed excess and assessment costs to the appellant.