B2/01/0411
Neutral Citation Number: [2002] EWCA Civ 112
IN THE SUPREME COURT OF JUDICATURE                            
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(Mr Justice Gray)
                                     Royal Courts of Justice
                                    Strand
                                    London WC2
 
                          Friday, 25th January 2002
B e f o r e :

LORD JUSTICE POTTER

SIR MURRAY STUART SMITH

- - - - - - - -

JOHANNES ADAMS

- v -

(1) CHRISTOF GEORG PAETZOLD
(2) TERENCE MACINNIS
(3) PERSONS UNKNOWN

- - - - - - - -
(Computer Aided Transcript of the Stenograph Notes
of Smith Bernal Reporting Limited
190 Fleet Street, London EC4A 2AG
Telephone No: 0207-421 4040
Fax No: 0207-831 8838
Official Shorthand Writers to the Court)
- - - - - - - -

MR. MACINNIS appeared in Person.
- - - - - - - -
J U D G M E N T
1.	LORD JUSTICE POTTER: This is an application for permission to bring a second appeal. It is an application by Mr. Macinnis for permission to appeal from a decision of Gray J on 7th November 2001, by which decision the judge allowed in part Mr. Macinnis's appeal against an order of Master Seager Berry dated 2nd July 2001. The appeal relates solely to issues of costs. It concerns the liability of Mr. Macinnis for the assessed costs of Mr Adams, the successful claimant against Mr. Macinnis, in an action concerning a dispute over the ownership of a property. Mr Adams' solicitors were the firm of Stephens Innocent, subsequently Stephens Innocent Finer.
2.	Mr. Macinnis lost the action after a 15 day trial before His Honour Judge Levy at the Central London County Court, with judgment being given on 4th February 1999. He was ordered to pay 90 per cent of the costs of the action, together with a further order for costs made by His Honour Judge Cook arising out of Mareva injunction proceedings taken against him on 31st March 1999. Those two bills were assessed by Master Seager Berry after the assessment had been transferred to him at the Supreme Court Costs Office by District Judge Lightman, who had commenced the hearing in relation to the costs of the Mareva injunction proceedings but owing to administrative difficulties, and the fact that the costs in relation to the main action were in any event to be taxed elsewhere, did not proceed to finish any hearing of the matter but transferred it to the Supreme Court, as I have mentioned. In the course of that early hearing he made a number of remarks encouraging to the applicant in terms of what he may have hoped for when the matter was considered in more detail later, and his submissions to us have been based to a large extent on some of those observations.
3.	In the decision to which Master Seager Berry came on the assessment, he rejected Mr. Macinnis's contention that there had been breach of the indemnity principle on the part of Stephens Innocent under what amounted to an unlawful contingency or champertous fee arrangement. The bills were assessed by Master Seager Berry ultimately at £162,107.63 for the main action and £20,049.94 for the Mareva proceedings. Mr Macinnis succeeded in part in his appeal to the judge. Although represented during the main proceedings and for some of the time thereafter, Mr. Macinnis appears in person before us now. I merely observe that the first and third defendants have not featured in the case for years. Their position is not relevant to the application.
4.	Mr. Macinnis filed his appellant's notice on 3rd December 2001 out of time. He attributes the delay to the delay of Mr Adams' counsel in obtaining the order and I would approach the case on the merits rather than on the basis of any blameworthy delay.
5.	The matter was and is complicated by the fact that, at the outset of the relationship between Mr. Adams and his solicitors in February 1990, the retainer letter, which was written in relation to the fee arrangement which would govern the contentious business involved, has been lost. There is no evidence as to its precise contents. The evidence of Mr. Lockyear, the partner of Stephens Innocent who had conduct of the action, was recited by the judge in his judgment. I do not propose to quote it at length, but it was Mr Lockyear's assertion that a particular fee structure and procedure had been followed for a number of years and that the original letter would have contained arrangements as to an expense rate and the way in which uplift would be dealt with over the ordinary rates charged. Stephens Innocent submitted regular interim bills for costs plus expenses from 1990 to December 1998. Prior to August 1994 those bills quoted the time spent but did not quote charging rates. However, Stephens Innocent wrote a further retainer letter dated 10th August 1994 which was before the Master, and before the judge and is before us. That did set out their current expense rate and stated that they would normally charge a percentage uplift based on the complexity of the matter and various factors. It said to Mr Adams:
“We would usually inform you of our intention to render an uplift at or near the conclusion of the case when the above circumstances can be ascertained.
... We shall . . . also require payments on account through the continuation of the matter [which] will of course be credited against the bills rendered. ...
We will request payments on account based on our expense rate on a regular basis and, at the end of the matter, a final bill which will include all costs (including uplift) and disbursements not previously billed.”
6.	It was the evidence of Mr. Lockyear in broad terms that that was no more than the type of information which would have appeared in the original letter which had been lost. After that Stephens Innocent submitted interim bills on a time basis. After the first three had been submitted, from 29th May 1996 onwards the bills stated at the bottom, with a slight word change:
“This is an interim bill charged on the basis of our expense rate on account of costs and disbursements. We reserve the right to charge a markup on this amount at a later date.” 
7.	On 3rd December 1996 Stephens Innocent agreed to continue charging at the existing hourly rate despite the solicitor concerned having become a partner, but they reserved the right to “charge the full expense rate at the conclusion of the case which, again, will be on notice to you.” Stephens Innocent submitted a final bill to Mr Adams on 29th August 2000 which included the mark up for the whole of the case and Mr Adams paid it.
8.	On 14th January 2000, as I have already indicated, District Judge Lightman transferred the assessment of costs to the Supreme Taxing Office when Master Seager Berry assessed them in the sum which I have mentioned. In doing so, he reduced the uplift which was claimed in the overall bill by Stephens Innocent from 80 per cent to 65 per cent.
9.	Prior to the detailed assessment before Master Seager, Mr. Macinnis had raised an issue of principle before District Judge Lightman relating to the nature of the interim bills rendered by Stephens Innocent. It was that Stephens Innocent's interim bills appeared to be statute bills to a specified number of hours at specified charging rates plus disbursements, rather than mere interim bills on account in respect of contentious business. In parenthesis, I observe that Mr. Macinnis had not at that stage seen Stephens Innocent's retainer file containing their bills and retainer letter, to which he only got access at the hearing before Gray J. Until then he had to work on what District Judge Lightman had said about the bills on 14th January 2000 and the description in the bill of costs.
10.	The nature and importance of the distinction between the two types of interim bill is best set out in Cook on Costs. I quote the relevant passage:
“There are two kinds of interim bill, and the difference between them is crucial:
(a) Interim statute bills.
These are called statute bills because they comply with all the requirements of the Solicitors Act 1974 and result in all the consequences which flow from such compliance - the solicitor can enforce payment by suing the client, the client can obtain an order for a detailed assessment.. . .
Although they are interim bills they are also final bills in respect of the work covered by them. There can be no subsequent adjustment in the light of the outcome of the business.
(b) Interim bills on account
... The Solicitors Act 1974, s65(2) provides that in respect of contentious business a solicitor may request the client to pay a reasonable sum on account of costs ...
A bill on account is really nothing more than a request for payment on account in fancy dress. Not being a statute bill it cannot be sued upon by the solicitor, the client cannot apply for a detailed assessment of it ...
One advantage to the solicitor of rendering a bill on account is that it need not be the final quantification of all the work included in it, but is merely the minimum amount of his charges to date. It also avoids the risk of limiting any between-the-parties costs recoverable in respect of this period to the amount of the bill on account on the indemnity principle ... and any risk of appearing to charge by results. For this reason it is important to make it clear to the client that the bill on account is simply a request for payment on account of the statute bill which will be delivered later. Wording on the following lines will achieve this:
'There is statutory provision for various discretionary factors to be taken into account when calculating solicitors' fees, some of which cannot be assessed until all the work is completed; these will be taken into account in our final bill when we shall be able to make an overall evaluation of the matter.”
11.	Elsewhere in the text Cook makes clear his view that it is appropriate to set out for the client an estimate of what might be described as a 'ball-park' figure for uplift, for instance, 50 per cent, but to make clear that there may be an increase in relation to that rate. No such estimate was in fact contained in the wording of the bill of August 1994 in this case. That has given rise to a number of submissions to us by the applicant.
12.	Before Master Seager Berry, Mr. Macinnis argued that either all the bills or the markup on those bills should be disallowed because (a) they were statute bills which Stephens Innocent were not permitted to revisit when they came to issue a final bill to Mr Adams and therefore for Mr Macinnis to pay the markup would breach the indemnity principle, and/or (b) the substance of the arrangement was that Stephens Innocent were to bill Mr Adams for the uplift only if he won the case and that was champertous. Master Seager Berry held on 21st September 2001 that, on the balance of probabilities, the initial retainer in February 1990 was in substantially similar terms to that of 10th August 1994, and on 2nd July 2001 that the interim bills “were interim statute bills on account and that (the solicitors) were entitled to add the enhancement at the conclusion of the matter.”The Master allowed Mr Adams to recover a markup on all Stephens Innocent's bills, although he reduced it from 80 per cent to 65 per cent.
13.	Mr. Macinnis appealed to Gray J, in essence repeating his arguments before the Master. Gray J does not seem to have had before him the Master's judgment of 2nd July 2001 (which he wrongly referred to as 21st July 2000). He invited Mr Adams' counsel to waive privilege in relation to the August 1994 retainer letter, and it is clear that that was done. It was also done in respect of the actual bills rendered to the client. The judge held, and I cannot do better than quote from his judgment as follows:
“In my judgment this appeal turns on questions of fact rather than propositions of law. I do, however, accept the proposition that the receiving party cannot recover from the paying party costs exceeding those which the receiving party was contractually bound to pay his solicitor, whether by way of mark-up or otherwise. I accept also that it is permissible for a solicitor to charge at or towards the conclusion of contentious business an uplift upon the amounts charged in interim invoices, provided of course that the interim invoices were indeed interim invoices and not final bills. Finally, I accept that it is unlawful for a receiving party to recover from the paying party costs which he had agreed at the outset with his client would be payable only in the event of success in the litigation.
The question I have to decide is how to apply those principles to the facts of this case. I accept that, as the Master found, Stephens Innocent sent to the claimant on the 10th August 1994 a letter in the terms which I have recited;even if a copy of that letter was not countersigned, it appears to me that those terms were accepted by conduct on the part of the claimant, in particular by his paying invoices clearly reserving the right to charge an uplift later on. I do not accept that it is possible for me to conclude that that letter of August 1994 is a sham as Mr Macinnis invited me to do. The letter states what factors were to determine whether an uplift was to be applied and those factors did not include the outcome of the litigation. Accordingly I reject the contention of the second defendant that in relation to the period after August 1994 there was an unlawful champertous agreement or that there was a breach of the indemnity principle.
In arriving at that conclusion I have not overlooked the fact that two of the bills submitted after the 10th August, 1994 did not state on their face that they were interim bills only, nor did they make any reference to an uplift being charged later on, but that was, in my judgment, because within Stephens Innocent it took time to implement the new way in which invoices were drafted and submitted. I accept the submission from Mr Hutton that the terms of the letter of the 10th August 1994 applied to those two bills. So much for the period from August 1994 onwards.
I come now to the period from the original retainer in February 1990 up to 1st August 1994. It is the case of the claimant that throughout that period the terms of the retainer were broadly similar to the terms contained in the August 1994 letter. I accept that there is evidence that a retainer letter of some sort was sent to the client under cover of Stephen Innocent's letter of the 1st February, 1990. The letter has been mislaid. What were its terms?Mr Lockyear, in the passage from his affidavit which I have already quoted, deposed that the fee structure in the February 1990 letter was essentially the same as the fee structure described in the 1994 letter. Mr Lockyear was not cross-examined in the course of the hearing before the Master, although it may well be that Mr Macinnis and those assisting him at that stage were unaware of the possibility of doing so. The fact of the matter is that, for whatever reason, both the original and the copy of that 1990 letter have gone astray. There is no evidence that the claimant did ever sign or return it. Moreover, Mr Hutton has told the court that it has proved impossible to find any letter sent by Stephens Innocent to any client dating back to 1990 which would indicate clearly what precisely were the standard terms of the firm in those days. I have to say I find this to be most unsatisfactory.
Furthermore, it is to be noted that none of the interim invoices rendered from 1st February 1990 to August 1994 purports on its face to be an interim invoice, nor is any reference made to the possibility of an uplift being charged at a later stage. To the contrary, there is at the foot of each of those invoices a printed note which is in the following terms:
'There are provisions in sections 70, 71 and 72 of the Solicitors Act 1974 relating to taxation of costs which give you the right to have the bill checked by an officer of the High Court.'
That note would appear to me to be inconsistent with the reservation of a right on the part of a solicitor later to charge an uplift: See Cook on Costs, 2000 at pages 5 to 8.
In these circumstances I have come to the conclusion that, notwithstanding the broad assertion in the affidavit of Mr Lockyear, it is not established that the invoices rendered prior to August 1994 were interim invoices. Accordingly Master Seager Berry was wrong to have permitted a 65% uplift in respect of the invoices submitted prior to August 1994. It follows that this appeal is allowed to the extent that I order that the final certificate issued by Master Seager Berry be amended in accordance with this judgment.”
14.	Mr. Macinnis in the skeleton argument submitted to us before the hearing on this application relies on grounds which raise the following issues. Was the August 1994 letter a valid variation of the retainer? Was Mr. Adams and therefore Mr. Macinnis obliged to pay the full amount of Stephen Innocent's fees given that District Judge Lightman had felt that they could not recover a markup unless they specified it in the retainer? Was the agreement with Stephens Innocent's champertous? Mr Macinnis argued that Stephens Innocent added a high markup at the end of the case once they knew that their client had won and a complaint that he, Mr. Macinnis, was not given time to assess the solicitors' retainer file when given it at the hearing before Gray J. At the hearing before the Master he was not told that he was entitled to cross-examine Stephens Innocent's solicitor. Was the procedure unfair to him?
15.	I find no error in the judge's findings or view of the law. Applying the principles stated in Cook, as the judge held, the references in the pre-1994 bills to the right to tax them under the Solicitors Act suggested strongly that those bills were interim statute bills. So did the lack of a time calculation. On the other hand, the August 1994 letter and the endorsement on the post-May 1996 bills signify in the clearest terms that those bills were bills on account. The position is less clear in relation to the three bills rendered between August 1994 and May 1996 which did not contain that endorsement and also appear to have included the reference to taxation under the Solicitors Act. The judge was perhaps generous to Stephens Innocent in concluding that within the firm “it took time, nearly two years, to implement the new way in which invoices were drafted and submitted.”Nevertheless, I think that he was correct in concluding that the terms of the August 1994 letter applied to those bills.
16.	Turning to the issues raised by Mr. Macinnis, was the August 1994 letter a valid variation of the retainer? As the judge found, the August 1994 letter was not a sham. There is no signed acceptance by Mr Adams on file, but he accepted the offer by conduct in allowing Stephens Innocent to bill in the way it proposed and it appears by paying the bills as and when received. There can be no reason why the terms of the retainer should not have been validly varied in that way.
17.	As to the indemnity principle, Mr. Macinnis relied on the comments of District Judge Lightman that the retainer letter should have indicated at least the range of the uplift that would be applied on the recommendation which I have mentioned to be contained in Cook. If, as a result of their failure to include a figure in the letter, Stephens Innocent would have been unable to enforce the markup against Mr Adams, Mr Adams would be unable to recover it from Mr. Macinnis. It seems to me that, as a matter of client care, the August 1994 letter may by current standards be regarded as failing to provide to the client the best possible information about likely costs within the Solicitors Costs Information and Client Care Code. But Master Seager Berry, who has great experience in this area, clearly rejected in July 2001 a detailed argument that this meant that Mr Adams was not liable for any markup. He appears to have differed from the provisional views expressed by District Judge Lightman at an earlier stage, but he was in a far better position than this court to adjudicate on the question, being versed in, and intimate with, solicitors' practice in this area.
18.	At page 22 of the 2000 edition, Cook refers to a case in which the OSS prevented solicitors recovering any markup because their retainer letter did not mention at all that a markup would be charged, but there is no indication that the same result would follow where the right to charge a markup was clearly spelt out, albeit no indication of range given, as in this case. This is especially relevant in relation to 1994, before the Law Society Practice Rules and Codes came out, and at a time when all solicitors were far more reticent about their charging bases than they are now. Nor was such a drastic form of protection for the client obviously necessary, given that both the client and the other party had the right to ask the court to assess the reasonableness of the markup charged.
19.	On a pragmatic level I note that the charging rate charged during the final period of the bill was reduced to £165 from the £185 which, on a reasonably generous view, District Judge Lightman contemplated might be appropriate; also that the markup eventually awarded of 65 per cent was not unreasonable, and that Mr Adams paid all Stephens Innocent's bills at a time when it was not clear that Mr. Macinnis would pay them. Finally, there is always the protection afforded by the assessment procedure. That is not a matter in which it is appropriate for the Court of Appeal to become immersed. So far as the unfairness of the procedure was concerned, it seems to me to have been an unfortunate irregularity that Mr Adams was not obliged to disclose the August 1994 retainer letter to Mr Macinnis before the hearing before Gray J. The Court of Appeal said in Bailey v IVC Vehicles [1998] 3 All ER 570, in the course of a judgment given before the start of the assessment in this case, that the receiving party should attach any retainer letter to the bill of costs. It is less surprising that the bills were not disclosed as that would not be normal, though, again, once the indemnity principle was put in question, it would have been open to the taxing master to order their disclosure to Mr. Macinnis. If application was made before Master Seager Berry (and I am not clear whether it was or not) I am surprised that the order was not made. Nonetheless, I do not consider that late disclosure can be demonstrated to have worked an injustice in the end. This is a second appeal. In earlier times, the question of whether use of interim bills on account should be treated or presumed to be a device intended to permit champerty would have been of some general interest. However, matters have moved on. There has been an introduction of conditional fee agreements. There has been a recent survey of the field and consideration of the question in more modern times by the Court of Appeal in the case of Awwad v Geraghty. The Lord Chancellor's Department has already stated its intention to abolish the indemnity principle. Mr. Macinnis's case is weak on the merits. He has raised a number of suspicions before us as to the bona fides of the solicitors in the rendering of their bills and in relation to the assessment of their charges in the light of their ultimate victory. Those suspicions are perhaps not surprising in the case of an unsuccessful party faced with a large bill. However, we have no reason to think that they are suspicions which could be established, or would be regarded as having substance, in an appeal before this court. Accordingly, I do not consider that this application can be said to raise an important point of principle or practice. I do not see any other compelling reason why the appeal should be heard. I therefore conclude that permission to appeal should be refused.
20.	SIR MURRAY STUART-SMITH: I agree.
Order: Application for permission to appeal refused.