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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Watson & Ors v Perotti & Anor [2002] EWCA Civ 771 (25 April 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/771.html Cite as: [2002] EWCA Civ 771

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(Neuberger J)

		Royal Courts of Justice Strand London WC2 25th April 2002

25th April 2002

1. LORD JUSTICE CHADWICK: This is a further appeal in extensive litigation between Mr Angelo Perotti and Mr Kenneth Watson and others in relation to the estate of the late Mr Lorenzo Perotti. Mr Watson is the attorney administrator of the estate. Mr Angelo Perotti, who is a nephew of the testator, is a beneficiary under the will.
2. In May 1996 Mr Watson made application to the High Court for permission to take remuneration from the estate in respect of his services as administrator. The application was made in the circumstances that, although the will had been professionally drawn indeed had been drawn by Mr Watson, himself a solicitor it contained no professional charging clause. The application was opposed by Mr Perotti on his own behalf and on behalf of at least one other of the beneficiaries.
3. The application was heard by Neuberger J on 5th July 2001. He directed himself to three questions: first, whether he had jurisdiction to make the order sought; second, if he did have jurisdiction, whether he should make such an order in the exercise of his discretion; and, third, if he should make such an order, in what sum should he permit remuneration.
4. He answered the first two of those questions in the affirmative. Mr Perotti has been refused permission to appeal to this court in respect of the judge's decisions on those first two questions and I need say no more about them. The issue on this appeal arises out of the judge's decision as to the amount of remuneration which Mr Watson should be permitted to take out of the estate. That issue must be approached in this court on the basis that the judge was right to hold that he had jurisdiction to make an order permitting the attorney administrator to take remuneration out of the estate; and that he was right to take the view that this was a case in which such an order should be made in principle.
5. The amount of the remuneration sought by Mr Watson was £52,000. The judge was told that Mr Watson had already taken some £44,400 on account of remuneration. Whether that was correct is a matter to which I shall return. The judge thought that the £52,000 claimed was made up of three elements, which he identified. First, solicitor's time charges up to 29th January 1992 in the sum of £35,750. Second, a draft bill, also based on time charges, in respect of work done since that date in the amount of £8,600 or thereabouts. Third, the balance, which on those figures would amount to £7,650 or thereabouts, representing an uplift to take account of the Law Society's recommendations as to the adjustment of charges by reference to the value of the estate.
6. The judge accepted that, if the will had contained a charging clause and if Mr Watson's conduct as attorney administrator had not been open to justifiable criticism, he would have been entitled to take remuneration in the amount, £52,000-odd, which he sought. The judge took that figure as a starting point. But he made two deductions from that figure. First, he deducted an amount to reflect the fact that Mr Watson had accepted office as an administrator under a will which contained no professional charging clause; and that he must be taken, therefore, to have accepted office on the basis that he expected to incur a reasonable amount of unchargeable costs. The judge put the amount which Mr Watson might reasonably have expected to incur by way of unchargeable costs in the administration of the estate at £5,000. That figure was, as the judge put it, a "spot" figure. The judge concluded that, had he been exercising his discretion in a case where no criticism could be made of Mr Watson, he would have allowed him to take £47,000 by way of remuneration.
7. The second deduction was to reflect the fact that, in what may be described as the main proceedings in which Mr Perotti had sought, unsuccessfully, to remove Mr Watson as administrator, Rimer J had been critical of Mr Watson's conduct as administrator in an number of respects. Neuberger J directed himself that he should arrive at a figure which:

"Looks the right figure from the point of view of the beneficiaries in the light of all the work done by Mr Watson and in the light of the disappointment and worries that he may have caused them and in the light of the fact that they expect to pay him for proper work not for inept work."

8. He directed himself, further, that the deduction to reflect inept conduct should be a reasonable deduction from Mr Watson's point of view "bearing in mind his failings". The judge held that the appropriate deduction in the circumstances under that second head was £12,000.
9. Those deductions brought the amount which Mr Watson was to be permitted to take by way of remuneration down to £35,000: that is £52,000 less £17,000.
10. At the time when he gave his judgment on 5th July 2001 the judge thought that the amount of £52,000 sought by Mr Watson did not include any element of Value Added Tax. He intended that the deductions of £5,000 and £12,000 should be on the same basis -- that is to say, that those figures should also include no element of Value Added Tax. He made it clear in his judgment that that was the basis upon which he was addressing the matter of remuneration: see page 23 at lines 18 and 19. He confirmed that in the last paragraph of his judgment, when he said this:

"In my judgment, the appropriate deduction to make from the £47,000 I would otherwise have awarded is £12,000, that produces a figure of £35,000 plus VAT. I think that is a reasonable figure for the estate to pay Mr Watson in all the circumstances. Accordingly, the figure I propose to award is £35,000 plus VAT."

11. Shortly after the judgment of 5th July 2001 had been delivered -- and before the order had been drawn up -- counsel and solicitors for Mr Watson appreciated that the judge had misunderstood the basis upon which the £52,000 claimed had been computed.
12. In a letter to the judge, dated 16th July 2001 and written to deal with other matters at the invitation of the judge counsel for Mr Watson, Mr Roger Horne, set out the true position. He is to be commended for taking the view, very properly, that the judge should be told that he had proceeded on the basis of a mistake notwithstanding that the result of the mistake was in his client's favour. The sums billed to 29th January 1992 were costs of £35,750 and disbursements of £539.32, a total of £36,289.32 before VAT. That figure included within it the percentage uplift allowable under the Law Society's recommendations. The VAT chargeable on that figure of £36,289.32 was £5,531.88. Value Added Tax was not chargeable at 17.5 per cent in respect of the whole figure because, in relation to charges made in earlier years, the rate of Value Added Tax was 15 per cent. The amount of the draft bill for work done since January 1992 was £8,631.25 before Value Added Tax; and the Value Added Tax chargeable on that sum was £1,501.57. So the total claimed was £51,963.02, which included an amount of £7,042.45 in respect of Value Added Tax. The amount exclusive of Value Added Tax was £44,893.57.
13. On the basis of those figures the proper starting point for the exercise carried out by the judge in his judgment of 5th July would have been, say, £45,000, (rounded up) and not the figure of £52,000 which the judge actually took. If the two deductions of £5,000 and £12,000 which the judge thought appropriate in his judgment of 5th July had been applied to a starting figure of £45,000, the result would have been that the judge would have allowed remuneration of £28,000 before Value Added Tax.
14. Counsel recognised this in his letter -- see paragraph 10 on page 5 of that letter, particularly at subparagraph (a). But counsel submitted in that letter that, in view of the lower amount of remuneration actually charged, a lesser reduction would be appropriate. He suggested a total reduction of £12,000. That would have had the effect of bringing the remuneration allowed down from £35,000, excluding VAT, to £33,000, excluding VAT. Counsel included with his letter a draft order which included £33,000 as a provisional figure.
15. A copy of counsel's letter of 16th July 2001 was sent Mr Perotti. On 20th July 2001 Mr Perotti wrote to the judge to say that he was "severely oppressed with court time limits" and was unable to address the points made by counsel in his letter or the draft order. He wrote:

"There are many inaccuracies (I would say perverse conduct) in said documents which will need to be addressed at a hearing before you. Given the above, please fix a date for hearing some time between Monday 30th July and Monday 6th August. Alternatively some time after 9th August."

16. The judge did not take the course which Mr Perotti had requested. Instead -- without any further hearing or without any invitation to Mr Perotti after 20th July to put his observations or submissions in writing -- the judge handed down, on 1st August 2001, and sent to the parties, a judgment in writing described as "addendum to judgment made on 5th July 2001".
17. In paragraph 2 of that further judgment, the judge referred to counsel's letter of 16th July 2001. He went on to say this:

"Although Mr Perotti has written to say that he was not in a position to deal with the letter, two weeks have now elapsed, and particularly as I have formed a clear view as to the course I should take, I propose to deal with the issues raised in that letter now rather than letting this matter, which has already dragged on for far too long, remain unresolved."

18. The judge then addressed the question what adjustments, if any, should be made in the light of the figures set out in the letter of 16th July 2001 and the misunderstanding, incorporated in the earlier judgment, that the £52,000 claimed had been exclusive of Value Added Tax. He said this in paragraphs 3 and 4 of the judgment of 1st August:

"Very property Mr Horne has drawn my attention to the fact that I proceeded under a misapprehension as to the basis upon which Mr Watson had rendered bills. The reason for the misunderstanding is not material, but it is right to say that I did check my understanding with Mr Horne before giving judgment. In effect the error under which I have proceeded was to assume that the bills established a total charge of £52,000-odd exclusive of VAT, whereas in fact that figure is inclusive of VAT. On the basis of my misunderstanding I came to the conclusion that Mr Watson should be entitled to £35,000. As Mr Horne says, now that the misunderstanding has been pointed out, it logically appears to suggest that the correct figure, according to my reasoning as applied to the correct figure, would be £28,000 plus VAT. However, I agree with him that while a reduction in the figure of £35,000 would be appropriate, a reduction of £7,000 would be excessive. First, the reduction I made (namely £5,000 as an approximate appropriate figure for the costs of administering the estate as it would have been expected to be and £12,000 to take into account Mr Watson's failings) were by no means absolute figures. They were arrived at by reference to the total amount claimed i.e they were at least in part assessed on proportionate basis.

Secondly, as Mr Horne mentions, I had in mind the fact that Rimer J took the view albeit a passing and provisional view, that around £20,000 did not appear to be an unreasonable sum for dealing with the issue of domicile. Given that I thought and think that Mr Watson is entitled a substantial sum in respect of the work he has done, but that there must be a significant reduction from the amount to which he would have been entitled if he had been able to charge, the amount that I think it right to accord to him is inevitably assessed on a 'broad brush' basis.

In my judgment, in the light of the information now available, the right figure to accord to him is £32,500, plus VAT i.e a reduction of £2,500 ignoring VAT."

19. The difficulty with the judge's approach in that passage is that it is impossible to ascertain how the judge reached the figure of £32,500, consistently with the reason which he had set out in his earlier judgment of 5th July 2001.
20. To be consistent with the reasoning in the earlier judgment there were two questions to be addressed in the light of the corrected starting figure of £45,000. First, whether either or both of the two deductions -- £5,000 and £12,000 -- should be varied or reduced? Second, if so, by what amount should each be varied or reduced? If there were to be the same proportionate reduction applicable to both deductions then -- at least prima facie -- the appropriate proportion would be a factor of 45 over 52. That is the proportion which the true starting figure, £45,000, bears to the figure £52,000 which the judge had taken as the starting point in his first judgment. The aggregate deduction of £17,000, reduced proportionally at that rate, would reduce to £14,700. A deduction of £14,700 from a starting figure of £45,000 results in allowable costs of £30,300; not the £32,500 which the judge allowed on 1st August 2001.
21. The judge's decision on 1st August 2001 led him to make an order of which the relevant paragraphs are these:

"... UPON THE CLAIMANTS UNDERTAKING to pay to the Estate of the above named Lorenzo Perotti Deceased ['the testator'] the sum of £4,446.20 ['the Returned Sum'] together with interest thereon from 17th April 1991 until the date of payment at the rate of 2 per cent per annum over the base rate from time to time of Barclays Bank plc the total of such interest being £4,043.45.

...

... IT IS ORDERED THAT:

1. The Claimants have permission, notwithstanding that the First Claimant and the late Peter De Villiers Rudolph were Partners in such firms at material times, to retain remuneration in the sum of £32,500 plus VAT [together totalling £41,821.20] in respect of costs charged by the firms of Mackrell & Company and Mackrell Turner Garrett in respect of the services of those firms as Solicitors to the personal representatives of the Testator."

22. The order is dated 5th July 2001, although not entered until 27th September 2001. There is a patent inconsistency in the order as drawn. Taking Value Added Tax on the figure of £32,500 mentioned in paragraph 1 of that order at 15 per cent, the gross amount, including Value Added Tax, must be £37,375, not the figure of £41,821.20 which appears in square brackets in that paragraph. The gross figure would be marginally higher if a rate of 17.5 per cent or a composite rate of Value Added Tax were taken, but there is no basis on which the gross figure could be as high as £41,821.20.
23. The likely origin of the figure of £41,821.20 is that that figure is the gross amount billed to 29th January 1992. That is to say it is the sum of the two amounts, £36,289.32 and £5,531.88 mentioned in counsel's letter of 16th July 2001 and to which I have already referred. The sum of £4,446.20, which is the subject of the undertaking to pay contained in the undertaking recorded in the order of 5th July 2001, is, as a matter of arithmetic, the difference between £41,821.20 and £37,375 -- the correct gross figure in paragraph 1.
24. That figure of £4,446.20 is understandable if Mr Watson and his co-claimants are treated as having taken from the estate the gross amount for which they were billed by Mr Watson's firm down to 29th January 1992. On that basis, the undertaking is an undertaking to repay the difference between the gross amount taken and the gross amount allowed, with interest. But the figure which is the subject of the undertaking is not understandable if the amount actually taken by Mr Watson and his co-claimants was £44,400, as the judge thought it was -- see page 24 lines 1 and 2 in the transcript of his judgment of 5th July 2001.
25. Be that as it may, the difficulty in reconciling the figure of £32,500 -- which the judge allowed as remuneration in his judgment of 1st August 2001 -- with the reasoning which he had set out in his earlier judgment of 5th July 2001, led me to give permission to appeal on the question whether the judge was entitled to make the adjustment to the quantum of remuneration which he did make in his judgment of 1st August without having heard submissions from Mr Perotti on that point.
26. In a judgment which I gave on 20th December 2001 on the hearing of Mr Perotti's application for permission to appeal against the whole of the order of 5th July2001, I said this at paragraphs 14 and 15:

"14. Mr Perotti submits, with some force, that the judge's adjustment from £35,000 to £32,500 (both ex VAT) did not properly reflect the misapprehension under which he had made his first decision. If the judge was going to allow for the fact that he had been working on figures which were gross figures instead of net figures, the logical reduction would have been down to about £28,000 ex VAT. Mr Perotti says that, if the judge was going to depart from the logic in his first judgment when making the adjustments which he made in his second judgment, he should have had an opportunity to be heard.

15. In my view that that is a point on which permission to appeal should be granted. It seems to me that there is force in the point that the judge should not have made the adjustment which departed from the logic of his first judgment without giving Mr Perotti the opportunity to address him. If Mr Perotti did not have that opportunity, it seems to me the Court of Appeal should have the opportunity to look at that."

27. That is the issue, and the only issue, before us on this appeal: was the judge entitled to make the adjustment to the quantum of remuneration which he did make on 1st August 2001 without hearing Mr Perotti?
28. In my judgment, that question must be answered in the negative. The adjustment which the judge made cannot be regarded as merely consequential on the realisation that a figure which he had taken to be exclusive of VAT in his judgment of 5th July -- that is to say the starting figure of £52,000 -- was (on a proper understanding of the position) inclusive of VAT. The consequential adjustment would have been to reduce the remuneration allowed to £28,000. If the judge had done that Mr Perotti would not, I think, have had any ground for complaint.
29. A proportional adjustment, as I have explained, would have led to the reduction of the remuneration allowed to a figure of £30,300. The judge reached a figure which differs from both those figures. It must be assumed, therefore, that he was proceeding on a different basis from the basis set out in his judgment of 5th July. If, as he said, he was applying a broad brush to the problem, then it seems to have been a different brush from the brush which he had been using on 5th July.
30. In those circumstances, it seems to me that, at the least, the judge should have indicated to Mr Perotti what he was minded to do in the light of Mr Perotti's letter of 20th July seeking a hearing; and should either have arranged a hearing, if Mr Perotti persisted in his request, or, at the least, have given Mr Perotti an opportunity to make written observations on the adjustment which the judge proposed to make. To make an adjustment which does not follow logically from previous reasoning, without giving the party against whom the difference in approach operates an opportunity to make observations on the different reasoning which must underline it seems to me to be a course which the judge was not entitled to take.
31. If that issue is decided in favour of Mr Perotti .
32. -- as I think it should be -- the second question which arises is whether this court should now undertake the task of making the appropriate adjustment, or whether that is a matter which must be sent back to the judge.
33. For my part, I would be very reluctant to send the matter back to the judge on that short question. As Mr Perotti has told us -- and as his previous record in this litigation bears out -- the likely consequence of sending the matter back to the judge is that it would be back in this court on at least an application for permission to appeal against whatever order the judge made.
34. In the circumstances, and having regard to the fact that the point is a very short one and the material is before us, I take the view that this court should itself decide what the proper adjustment should be in the light of the figures.
35. That raises the third question, what should the proper adjustment be? I would take as a starting point the methodology adopted by the judge. That is to say to make deductions from the amount claimed, now seen to be £45,000, to reflect, first, the fact that Mr Watson entered upon this administration in circumstances in which there was no professional charging clause in the will and may therefore be taken to have expected to bear reasonable costs without being able to recover them, and, secondly, to make an adjustment to reflect Rimer J's criticisms.
36. But I do not think that a proportionate reduction across the board is the right approach. If there is to be a deduction to reflect the fact that Mr Watson undertook this administration in circumstances in which he must be taken to have appreciated that the will had no professional charging clause -- and so to have accepted that (absent an order of the court) he would bear unrecoverable charges of a reasonable amount -- I can see no basis upon which what that reasonable amount is should depend on the overall costs at the end of the day. If, as the judge held, a reasonable expectation at the time when Mr Watson entered the administration was £5,000, then that continued to be a reasonable expectation on the facts known to him at the time when he entered upon the task. So, for my part, I would not vary the deduction of £5,000. But I would make a proportionate reduction to the figure of £12,000. The proportion applicable to that figure is a factor of 40 over 47; that being the proportion which the starting point after deduction of £5,000 from the actual costs claimed (£40,000) bears to the comparable starting point (£47,000) taken by the judge. Applying that proportion to £12,000, gives a figure of £10,200. So that the allowable remuneration would be £29,800. That, of course, compares closely with the £30,300 that would be reached by applying a proportionate reduction across the board. Given that fixing the appropriate deduction cannot be an exact science, I would propose that the remuneration allowable, exclusive of Value Added Tax, be reduced from £32,500 to £30,000.
37. On the basis of that reduction there will be a consequential amendment in paragraph 1 of the order. £30,000 plus VAT at 15 per cent gives a gross figure of £34,500. That figure should be substituted in paragraph 1 for the figure of £41,821.20, which, for the reasons which I have explained, is (on any basis) the wrong figure.
38. There will then need to be a consequential adjustment to the amount of any undertaking to be given. That is not an adjustment which this court can calculate on the material before it. There are two reasons why it cannot do so. First, because there now appears to be doubt whether the amount which the administrator took from the estate is the £44,400 which the judge thought, or the £41,821.20 which counsel has given to us in this court. Until that question is resolved, there is no starting point for calculating the figure -- after deducting the £34,500 which is allowable gross -- which should be the subject of the undertaking.
39. Further, in calculating the interest on whatever figure that may turn out to be, it is necessary to have regard to the fact that the figure of £4,446.20 in the order -- and the interest calculated on that figure in the order -- have, we are told, already been paid. So any further calculation of interest will need to take that payment into account.
40. If there is dispute about the figure which is to be the subject of any undertaking, then, in my view, that is a dispute which should be resolved by the judge within the narrow parameters that I have explained. There is no scope for a further dispute in relation to the rate of interest payable, or in relation to the question whether interest is simple or compound. The only matter to be resolved is the amount actually retained by the administrators and the consequential arithmetic calculation having regard to the date of the payment already made pursuant to the undertaking actually given.
41. That leaves two matters to which I should refer. At the commencement of the hearing of this appeal Mr Perotti sought to reopen a matter decided on his application for permission to appeal on 20th December 2001; that is to say, whether he should have permission to appeal in relation to the other issues decided against him by Neuberger J on 5th July 2001.
42. As my order of 20th December 2001 makes clear, in paragraph 2, permission to appeal on other points had been refused him on that day. In those circumstances, it would be a wholly exceptional course to reopen the matter in this court and an application to do so would have to be made -- and (if made) would have been considered first in writing. If refused in writing, there would have been no right to an oral hearing.
43. I do not decide the point on that procedural ground; but on the wider ground that this is not a case of that exceptional nature which justifies the Court of Appeal in reopening one of its existing orders. The position in this case is quite unlike the position in Taylor v Lawrence in which the principles were considered recently.
44. The second matter to which I should refer is that Mr Perotti applied to be allowed to record the hearing today on his own personal recording equipment. We refused that application. For my part I refused it on the ground that there is already a recording apparatus active in court which produces a recording on a master tape. If it be necessary -- and it is by no means clear to me why it should be in a case of this nature -- recourse can be had to that master tape on application. The tape can be listened to; and, on payment, a transcript can be obtained. To have a different tape of the same proceedings seems to me likely to be a recipe for confusion and dispute. The court provides an authorised tape recording system for its proceedings and that is the system which should be used.
45. LORD JUSTICE CLARKE: I agree.
46. LORD JUSTICE PILL: I also agree. Permission to appeal was given in this case on a specific and limited ground. It is whether the appellant should have had an opportunity to make submissions to Neuberger J before the judge reduced the sum in which the respondents were held entitled to retain the remuneration in respect of services as personal representatives. The sum was reduced from £35,000 to £32,500. The judge's change of mind on that point resulted from a disclosure, very properly made on behalf of the respondents and against their pecuniary interest, that the sum of £52,000 claimed had included the Value Added Tax to be charged by the respondents.
47. I agree that, having regard to the basis on which the reduction was made, which involved a departure from the logic followed by the judge when the sum of £35,000 was calculated, the appellant should have been given the opportunity to make the oral representations he requested, or at least to have the opportunity, if that application was to be refused, to make written submissions. I also agree that it is appropriate for the court itself to reassess the figure of £32,500 calculated by the judge.
48. The appellant has been given every opportunity to address the court as to the figures concerned in the course of a hearing which has now lasted for well over three hours. The appellant has not made detailed submissions as to the basis upon which the figure of £35,000 should be reduced. He has not made detailed submissions in spite of the opportunity to do so and the several efforts of myself and Chadwick LJ to encourage him to do so, and in spite of the fact that possible ways of calculating the figure were canvassed in the course of the submissions of Mr Horne, who appears for the respondents, to the court.
49. That the appellant understood the point is clear from the judgment of Chadwick LJ when permission to appeal on this single point was given on 20th December 2001. Paragraph 14:

"Mr Perotti submits, with some force, that the judge's adjustment from £35,000 to £32,500 (both ex VAT) did not properly reflect the misapprehension under which he had made his first decision. If the judge was going to allow for the fact that he had been working on figures which were gross figures instead of net figures, the logical reduction would have been down to about £28,000 ex VAT."

50. I agree with Chadwick LJ that an appropriate deduction would have been from the sum of £35,000 to the sum of £30,000 for the reasons which Chadwick LJ has given. Mr Horne accepts that the reduction has a consequential effect upon the figure contained in the undertaking which formed the basis for making the order under appeal. The adjustment of that figure is not merely a matter of arithmetic for the reasons which Chadwick LJ has stated.
51. Permission to appeal was on a single ground. The appellant must recognise that the decision of the judge on other points is final, permission to appeal having been refused in this court.
52. The appellant has made wide ranging submissions in this court. He submits that figures, which ought to have been made clear by the respondents, have not been made clear. He has sought to raise points other than those upon which he has permission to appeal.
53. Clarke LJ has raised concerns about other aspects of the order. It is right to say that the figures upon which the judge was working are in certain respects confused.
54. What has happened at this hearing reinforces the conclusion that the judge should have permitted submissions to have been made to him by the appellant. The judge had before him the request for an oral hearing and a seven page letter written by counsel on behalf of the respondents, the contents of which were necessarily detailed and in some respects complex.
55. Queries about the figures have been debated in this court. In my judgment, these are figures which should have been resolved, with the help of the parties, in the court below. I am conscious of Neuberger J's concern to achieve finality in this very protracted litigation. I am conscious of the difficulty he may have had in foreseeing the complications which have occurred. It remains that, there have been points raised in this court which, in my judgment, ought to have been resolved in the court below. They have been the subject of lengthy discussion in this court, which, in my view, has been an unacceptable use of the court's time.
56. I also agree with Chadwick LJ as to the refusal to reopen the application for permission to appeal and the court's declining to allow the appellant to have his own recording of the hearing. I do so for the reasons which Chadwick LJ has given.
ORDER: Appeal allowed. Costs to follow the event.