Opinion: Show me the money, or not

Opinion: Show me the money, or not

In the case of Kirkwood v Thelem Insurance, 2023, the Inner House of the Court of Session shone a light on the recoverability of English solicitors’ costs for a litigation conducted in Scotland before the Court of Session, write Mark Hastings and Gavin Aitken.

In Kirkwood, the Inner House was faced with an appeal by the appellant in which she challenged the recent decision of the auditor of the Court of Session which ruled on an appeal against the decision of the auditor of court. The appeal followed on from a personal injury action in which damages were claimed for injuries the appellant had sustained in France. She instructed Irwin Mitchell, Birmingham (“the English agents”) to raise an action in the Court of Session, Edinburgh. The appellant resided in Scotland and, rather than referring the pursuer to a Scottish firm, or their own Scottish office, her English legal advisors instructed a firm of solicitors in Edinburgh to act as their agents on procedural matters.

The appellant’s claim succeeded, with and expenses being awarded against the respondent. The appellant’s account of expenses totalled £260,629.11. It comprised of £8,671.47 plus VAT for the Edinburgh agent’s fees. However, the main issue lay in the level of outlays claimed. The outlays stood at £250,233.35, a great deal of which comprised the English agents’ fees.

On taxing the account it became clear that the English agents were in full control of the litigation. They dealt with the instruction of experts, counsel and the conduct of consultations throughout the course of the litigation. The Edinburgh agents were employed simply to intimate and lodge documents prepared by the English agents.

One can picture the “Show me the money” scene from Jerry Maguire where the appellant sought to persuade the auditor that the costs were both recoverable and reasonable. In the final analysis, the auditor taxed the Account at £136,783.20. He disallowed the English agents’ entire fee of approximately £92,000. For those of a glass half full persuasion, you could argue that he did show the appellant the money, sort of.

The taxed account comprised the Edinburgh agents’ abated fee plus VAT and a number out outlays incurred by the English agents, including counsels’ fees. It should be said that it is fairly standard for there to be some abatement of a successful party’s account of expenses.

Standing the age of the case, it was taxed in line with the old rules on expenses, governed by Rule of Court 42.10(1) as the proceedings were initiated before the Act of Sederunt (Taxation of Judicial Expenses Rules) 2019 came into force. Rule 42.10(1) provides that “only such expenses as are reasonable for conducting the cause in a proper manner shall be allowed.”

The auditor reasoned it was not appropriate to instruct solicitors who were based in England when the appellant was based in Scotland and her case was raised before the Scottish courts. There were many Scottish agents with the required expertise to deal with the case. The instruction of English agents meant that the party who was found liable was required to pay expenses at a higher rate than they would have had the matter been dealt with by Scottish agents given that the costs regime in England is generally accepted to be far higher than the comparable costs in Scotland.

The appellant lodged a note of objections to the auditor’s report. The case was heard in the Outer House of the Court of Session. That judge did not accept that the auditor had exercised his discretion unreasonably, nor had he erred in law. The appellant (or more likely her English agents) was not satisfied with this and appealed to the Inner House where she submitted that it was reasonable to instruct English agents as they had a great deal of expertise in accidents occurring in foreign jurisdictions. It was argued that the auditor had wrongly decided that English agents’ charges were unreasonably higher than those in the Scottish market. Further, it was argued that the auditor should have gone through the Account entry by entry to assess the reasonableness of each entry.

The appeal was dismissed, with the Lord President delivering the opinion of the court. The first paragraph of his decision is worth quoting in full:

“It is important that litigation in Scotland is: (a) conducted by those whom the court has authorised to do so; and (b) subject to the expenses regime which the court has devised. The former is concerned with not only the efficiency of the system; that is that causes are conducted by those fully conversant with Scots law and procedure. It is also to ensure that those conducting it are subject to the disciplinary rules either exercised by the court itself of delegated by the court to the Faculty of Advocates or the Law Society of Scotland. It is manifest that this litigation was not being conducted by solicitors authorised by the court. On that ground alone, the auditor would have been bound to tax off Irwin Mitchell’s fees in so far as they related to the general conduct of the litigation.”

In this, the court delivered an eloquently put, yet fairly blunt rebuke to the appellant’s argument that, in the specific circumstances of her case, it was reasonable (1) to employ English agents and (2) that it was reasonable that the respondents should be liable for their fees.

The court emphasised that it had a duty to ensure access to justice. The regulation of fees and the institution of an expenses regime is designed to keep the costs of litigation at a reasonable level. However, the court was clear that, in holding that the auditor had not erred in determining that the instruction of the English agents was not recoverable, that was not to say that in a Scottish litigation the fees of English agents instructed will not be recoverable. Clearly there will be instances when the instruction of an English agent for a piece of work is reasonable. For example, securing evidence in England which is not accessible to a Scottish solicitor, or advising on English law and procedure.

In such a context, the key question for the auditor is and was whether the particular item(s) of work carried out by the English agents were reasonably instructed by the Scottish agents for conducting the case in a proper manner. If so satisfied, next the auditor has to consider whether the fees charged were reasonable, or not.

The auditor has wide discretion in how he determines the point of whether the fees charged were reasonably incurred for the proper conduct of the litigation. His decision could only be overturned if the appellant could establish that no reasonable auditor could have reached it on the facts presented. This was a very high bar for the appellant to reach. She failed to do so with the Inner House finding no fault in the auditor’s reasoning.

The decision is an interesting one and should serve as a cautionary tale for English agents seeking to control and run a litigation in Scotland from south of the border. It was doubtless a sobering lesson for the English agents in Kirkwood. This decision ought to serve as a reminder that the expectation of the Scottish courts is that litigations ought to be conducted by those authorised by the Scottish courts and ought to be subject to the disciplinary rules of the Faculty of Advocates or the Law Society of Scotland.

It is suggested that if a common-sense approach is taken, and foreign solicitors only deal with appropriate aspects of Scottish litigations, then there will be less scope to criticise the recoverability of their fees in principle.

The case arose from a reparation action. However, it has a broader application across areas of civil and commercial litigation in Scotland. It is suggested that firms based south of the border will now have to be mindful in determining when to conduct litigation north of the border if, objectively, a Scottish firm could deal with it. The risk being that, if they choose to conduct the litigation, they risk not recovering the costs of doing so, even if successful on the merits of the case.

Mark Hastings is a partner and Gavin Aitken is a solicitor at BTO LLP 

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