Success fee excluded from agent and client award
A success fee for the conduct of litigation is a private, extrajudicial arrangement between solicitor and client, and not part of the process the expenses of which can be recovered, even when awarded on an agent and client basis, the Inner House has ruled.
Lord President Carloway, Lord Turnbull and Lord Pentland gave the decision in refusing an appeal by Catherine Weir from the Sheriff Appeal Court, which affirmed the sheriff who refused to allow recovery of a success fee allowed by the auditor.
Ms Weir had successfully defended a debt action by Cabot Financial Ltd, which the pursuers abandoned on the morning of a second diet of proof, having obtained discharge of a previous diet. The pursuers had failed to lodge documentation to vouch their claim, which they had been directed to by interlocutor of 27 October 2017. The sheriff awarded expenses to the defender on a party and party basis up to 26 October 2017, and on an agent and client, client paying basis thereafter.
Ms Weir had entered into a speculative fee agreement with her solicitors, Flexlaw, which set an hourly charge out rate, and also a success fee, stated as 70% of the solicitor/client fee but “will not be more than 25% of the damages or settlement you win”. A “win” was defined as “any resolution to the litigation that results in an agreement or a court award which reduces your liability to the pursuers”.
On the defender seeking reimbursement of the success fee, the auditor considered that the test to apply was whether the agreement “was one to which other prudent or sensible clients would have agreed”. He allowed solicitors' fees of £5,632 and a 70% success fee of £3,932, on the basis that the defender had not obtained damages or a settlement and the cap did not apply.
The sheriff distinguished a client account from a judicial account, holding that the “process rule” concerning expenses chargeable to another party applied only to the proper expenses of process. A success fee was not a sum incurred for conducting the cause but an extrajudicial expense which was not chargeable. He also held that the 25% cap applied. The Sheriff Appeal Court agreed.
Before the Inner House the defender argued that an agent and client, client paying award, required the other party to step into the shoes of the client and to pay the amount the other party had become obliged to pay their solicitor, otherwise the award was effectively one of third party paying. If the client entered into a success fee arrangement, that was an expense of process. The sheriff had also erred in holding that the cap applied.
Lord Carloway, delivering the opinion of the court, traced the emergence of the different bases of taxation, and the rules that now apply to each. The relevant rules in the present case, the General Regulations of 1993, limited the expenses to be charged to “proper expenses of process”, and set out that “only such expenses shall be allowed in the taxation of accounts as are reasonable for conducting it in a proper manner”.
He continued: “The upshot of all of this is that, in the taxation of any account in respect of which there has been a finding in expenses in the course of litigation, whether the scale is party and party or agent and client, the allowable expenses must relate directly to the litigation, i.e. the process.” The courts retained a supervisory role, and extravagant claims might be disallowed even where these had been agreed between agent and client.
Turning to the present case, he stated: “The 'success fee' in this case is not an expense which is part of, or directly related to, the process. It is a private arrangement between solicitor and client which is outwith the boundaries of the process; it is an extrajudicial item. It is a form of incentive to the agent to represent the client in the litigation. It is not related to the work which the solicitor does in carrying out that task... As such it is not an allowable item in the taxation of an account following upon an award of expenses, on whatever scale.”
As for the cap, “Construing the wording objectively, purposively, and in a manner which accords with common sense..., it must be given some meaning where the claim for £7,277.52 was successfully resisted in its entirety. That figure must be taken as the 'win' and the success fee cannot exceed 25% of it (i.e. £1,819.38).”