The development of the law of costs is premised on the assumption that both parties are presented by solicitors. The parties have a liability to their own solicitors for work done on their behalf and, if they win the case, they are entitled to be indemnified for this liability by the losing party, at least to the extent that it is reasonable. However, the position is not so clear where one of the parties is not acting via a solicitor and the recent case of Cuthbert v Gair and Anor( t/a The Bowes Manor Equestrian Centre) (2008) considered the issue.

Background

The Claimant brought a claim arising from a collision between herself and a horse at an equestrian event at the Defendant’s premises on the 16th December 2004. A letter of claim was sent on the 3rd February 2005 alleging negligence and/or breach of statutory duty under the Occupiers Liability Act 1957. Proceedings were issued in February 2006 and a defence was filed denying liability. The matter was allocated to the Fast Track and matters progressed to a trial date being set for 1st November 2006. Just before the trial, on 31st October 2006, the Claimant filed a Notice of Discontinuance and, by virtue of CPR 38.6, the Defendant was entitled to their costs on the standard basis.

A Bill of Costs was prepared and matters could not be agreed and so the costs were assessed by Costs Officer Martin in the Supreme Court Costs Office (SCCO), following transfer of the assessment proceedings from Middlesborough County Court. Costs Officer Martin assessed the costs at £10,235.17.

The contentious issue was the allowance of £1,850 plus VAT for work done on behalf of the Defendant by a firm of loss adjusters, Questgates. The Claimant appealed on the basis that this sum should not have been payable. The appeal came before Master Haworth in the SCCO under the provisions of CPR 47.20.

The contested issue

The issue in contention was whether work done by the loss adjusters was properly recoverable as part of the Defendant’s costs. In principle, costs can only be recovered if they form part of a solicitors costs, that is work done as profit costs by an agent or a disbursement, or as costs of a litigant in person in accordance with CPR 48.6.

It was argued by the Claimant that the costs incurred by Questgates did not fall into either of these categories and should not therefore be recoverable.

What work was done by Questgates?

The work done by Questgates was covered by 2 invoices: Invoice dated 7th July 2005

Correspondence with the insured (the Defendants); corresponding with the Claimant’s solicitors; investigating fully; obtaining witness statements and documentation; reporting to the insurer.

Invoice dated 5th July 2006 Disclosure of documents to solicitors; repudiating liability; further work on witness statement; considering medical reports; nominating solicitor and sending papers to solicitor; requesting weather report; further enquiries as requested by solicitor; dealing with enquiries regarding weather report.

The Claimant’s arguments

The Claimant argued that as Questgates were neither solicitors nor instructed by solicitors, their fees could not form part of the Defendant’s legal costs. Furthermore, it was argued that their fees could not be considered costs of the Defendant as a litigant in person. The costs recoverable by a litigant in person are limited by CPR 48.6(3):

CPR 48.6(3) The litigant in person shall be allowed (a) costs for the same categories of: (i) work; and (ii) disbursments, which would have been allowed if the work had been done or the disbursement had been made by a legal representative on the litigant in person’s behalf.

This provision was considered by the Court of Appeal in the case of Agassi v Robinson (HM Inspector of Taxes) (2005) in the context of fees paid by a litigant in person for work carried out by a non-solicitor. Lord Justice Dyson held, at paragraph 73,

‘The Rule (CPR 48.6) contemplates allowing as costs only those categories of disbursements which would normally have been made by a legal representative. If the expenditure is for work which a legal representative would normally have done himself it is not a disbursement within the language of CPR 48.6(3)(a)(ii).’

It was therefore argued that, as the work done by Questgates was work which a solicitor would normally have carried out, it could not be recovered as a cost of a litigant in person under CPR 48.6.

It was further argued that the Defendant did not have a personal liability for the costs incurred by Questgates and therefore, in accordance with the indemnity principle, they should not be recoverable as part of the Defendant’s costs.

The Defendant’s arguments

The Defendant argued that the Defendant insurer, by virtue of their right to bring a subrogated claim, were in the same position as the Defendant in relation to costs.

‘The costs of the loss adjusters were incurred by the insurers and these costs must be treated in the context of costs recovery as costs incurred by the insured, namely the Defendants’ (at paragraph 17)

It was further argued that the instruction of loss adjusters by the Defendant would fall within the ambit of legal costs which a court can allow under section 51 of the Supreme Court Act 1981.

‘There was no reason in principle why such expenditure should not be recoverable as costs. The costs claimed are the Defendants' costs and disbursement. It is an expense or disbursement by the Defendants/insurers for specialist expertise and must be recoverable under s.51 of the 1981 Act and CPR.’ (at paragraph 17)

It cannot be right, argued the Defendant, that work properly done in relation to the claim should be recoverable if done by a solicitor or under their instructions, but not recoverable if done by a non-solicitor.

‘Recovery cannot turn on a bookkeeping exercise, routing the instruction and invoicing through a solicitor merely for the purposes of costs recovery which by its nature is cumbersome and in itself costly.’ (at paragraph 19)

The Court’s decision

The Court considered the conflicting arguments and held that the fees should not be recoverable. The costs could not be considered as recoverable litigant in person costs for the reasons given in the Agassi case. The work done by Questgates was work which would normally be done by a solicitor and, therefore, it could be recovered under the provisions of CPR 48.6(3). Furthermore, the fees were neither work done by a solicitor nor a disbursement nor agency fees incurred on behalf of the solicitor. There was no letter of instruction to the adjusters and the invoice was delivered to and paid by the insurer. Finally, it was held that the Defendant had no personal liability for the fees of Questgates and therefore the fees could not be recovered in accordance with the indemnity principle.

‘There is no basis on the facts of this case for saying that the Defendant has any direct liability, either through her insurers or directly to Questgate for their fees and that being the case, the Defendant has suffered no loss for which her insurer is entitled to be subrogated. I accept the submission by Mr Mallalieu that the inter parties recovery is therefore in breach of the indemnity principle.’ (at paragraph 32)

Conclusion

This case is a very good example of both the application of the principles that underpin legal costs and the harsh outcomes that this can produce. From a commercial standpoint, why should a Defendant insurer be obliged to instruct a solicitor to defend a claim in order to recover their costs if the claim is defeated, if the work can be done just as effectively by non-solicitors? The question is part of a much broader debate regarding the future of the legal system. One of the aims of the government commissioned Clementi Report in December 2004 was:

To consider what regulatory framework would best promote competition, innovation and the public and consumer interest in an efficient, effective and independent legal sector.’ (Report of the Review of the Regulatory Framework for Legal Services in England and Wales – Final Report - December 2004)

The report was followed, eventually, by the Legal Services Act in 2007 which allows the provision of legal services by organisations which are not traditional firms of solicitors. In the future, this may allow organisations as diverse as banks, insurers and retailers to offer legal services direct to the public. In this future climate, loss adjusters and other organisations may well be able to be instructed by insurers to deal with claims and recover their costs in exactly the same way as solicitors. However, we are not there yet and, for now, the distinction between recovery of costs of solicitors and non-solicitors will continue. The big question is, for how long?
Cases Cited: Cuthbert v Gair and Anor( t/a The Bowes Manor Equestrian Centre) [2008] EWHC 90114 (Costs) Agassi v Robinson (HM Inspector of Taxes) [2005] EWCA Civ 1507