1
TAXATION OF JUDICIAL ACCOUNTS
If a litigant is awarded ‘expenses’ against another litigant in a Court case (called ‘costs’ in England), the successful litigant’s solicitor makes up a Judicial Account of Expenses, itemizing the work done, and tries to agree it with the paying litigant’s solicitor. If they cannot agree, the Court remits the Account to an Auditor, who listens to both parties at an oral hearing (‘a diet of taxation’) and advises the Court on how much should be paid. For ease of reference, the following talk assumes that the Pursuer has been awarded expenses against the Defender.
The Society of Sheriff Court Auditors has, for many years, guided its members on how to ‘tax’ Accounts and, if asked by a litigant’s solicitor, has offered advice on the preparation and taxation of Accounts. Proposals by the Scottish Government, well advanced at the date of this note (March 2016), altering the way in which Auditors function, will end my own involvement. Some of those to whom I have given talks, over recent years, have asked me to make publicly available the material I used for these talks.
A typical talk covered fifteen areas, and was directed equally to those who prepared Accounts and to those who opposed them:
(1) Scrutinize the Interlocutors
(2) Update your Table of Fees
(3) Preparing an Account
(4) Check the Vat
(5) Lodging an Account
(6) Intimating a diet
(7) Cancelling a diet
(8) Preparing for a diet
(9) Attending a diet
(10) After a diet
(11) Taxation without a diet
(12) Party Litigants
(13) ‘Skilled persons’
(14) Notes of Objections
(15) ‘Powder and shot’
(1) Scrutinize the Interlocutors
Whether you’re preparing an Account for the successful litigant, or challenging someone else’s Account on behalf of the paying litigant, first of all check the wording of the relevant Interlocutors.
If an Advocate or a Solicitor Advocate was involved, has their employment been sanctioned by the Court? If an ‘expert witness’ was instructed, has he or she been certified by the Court? If not, the fee paid to them may not recoverable from the paying litigant – section 13 below.
If there was an Amendment, does the Interlocutor award the successful party ‘the expenses of the Amendment’, or (more generously) ‘all the expenses occasioned by and incidental to the amendment procedure’ or some similar phrase – the exact wording will determine how much of the activity surrounding the Amendment is covered. If there is no Interlocutor, following an Amendment, look at General Regulation 9 in the Sheriff Court Table, about a successful party not recovering expenses occasioned by his own fault. Ask yourself, why was there an Amendment? If it followed a deterioration in the Pursuer’s medical condition, or a change of address, it is probably allowable against the Defender; if, however, it was to improve the Pursuer’s case, or to answer some criticism of it made in the Defender’s pleadings, it is probably not a valid charge against the Defender.
Another example – check the date from which expenses were awarded. If they were ‘from the raising of the action’, instead of the more usual phrase ‘the expenses of Process’, it means that the paying litigant has persuaded the Court to exclude all preparatory work – if you put it in, it’s likely to be taxed off.
Does it matter if you put in everything that occurs to you, and some of it is taxed off? Yes, it does; it matters by 5%, because, the person lodging an Account pays audit fees of 5% on the Account as lodged, but recovers, from the paying party, only 5% of the Account as taxed, so every abatement costs the successful party 5% of the figures taxed off. (That is a generalisation, because audit fees are ‘rounded up’ to the nearest £100, so it depends whether the abatements bring the total into the lower band.)
If the Court has expressed its displeasure at the opponent’s conduct of the case by awarding your client ‘agent and client expenses’, which are more generous than the usual ‘party/party’ expenses, that requires a different approach to preparing the Judicial Account – more about this under section (11) below.
On looking at a file, you may find a straightforward final Interlocutor in an Ordinary action, giving your client expenses, but if the Principal Sum awarded was £5,000 or less, you must use the Summary Cause scale of expenses, unless the Interlocutor provides otherwise. I had one recently, where the Pursuer in an Ordinary Personal Injuries action had recovered less than £5,000, but this Pursuer had persuaded the Court to award him (I quote): ‘expenses on the Summary Cause personal injury scale with Court dues on the Ordinary Cause scale.’
If a Defender lodges a Tender, the Pursuer usually has only a limited time in which to decide whether or not to accept it. I had a taxation recently where the Pursuer had taken an inordinately long time to accept a Tender, but had persuaded the Court to pronounce an Interlocutor giving him ‘the expenses of Process to the date of Tender, including the expenses of the Minute of Acceptance of Tender’.
I mention these to illustrate the importance of scrutinising the exact wording of the Interlocutors.
Likewise,if you’re acting for the paying litigant, make a note to object to everything not covered by the Interlocutors. MacPhail’s Sheriff Court Practice, third edition (2006), 19.36, says: ‘The Auditor may himself raise questions and tax off, or on, any sums although not moved to do so.’ Auditors will check the arithmetic, and check whether the fees charged were the fees in force at the date when the work was done, but if the case went to Proof, Auditors probably won’t check whether all the witnesses precognosed gave evidence at the Proof. I believe that it is your job, not the Auditor’s, to challenge entries such as precognitions from people who did not give evidence, and the cost of obtaining Reports that were not lodged in Process, etc. The position might be different if the Account was payable by an unrepresented lay person, but if solicitors or Law Accountants are appearing for the paying party, I believe that it is their duty, not the Auditor’s, to challenge entries which are not errors in law - by ‘errors in law’ I mean, for example, claiming Vat in an Account where the successful party is Vat-registered, which, I believe, an Auditor should pick up – more about that under heading (4) below.
(2) Check that your copy of the Table of Fees is up-to-date.
Not infrequently, Judicial Accounts come to me for taxation with figures taken from Tables of Fees that have not been updated. Solicitors’ fees are regularly (although not for some years, now) increased annually, usually in April, by Statutory Instruments giving new figures for the various Chapters and Tables. The problem may be that if you go to Statutory Instruments on the web site, you will usually be given the original Instrument without any amendments to it. When this happens, at an unopposed diet of taxation, I don’t feel able to increase the fees which have been intimated to the paying party, but I usually give the person lodging the Account the option of withdrawing it, and starting again with a new one, at a fresh diet; if they wish to proceed, they have to accept less than the going rate.
Before you protest that a very old case[1] says that ‘it is the duty of the Auditor not only to tax off items which are excessive or unnecessary, but also to make additions to the Account and to increase items that he considers understated or to add items which have been altogether omitted,’ I would not be comfortable at increasing fees after they have been intimated, because, for all I know, the paying party may have looked over the Account and said to himself or herself: ‘that seems okay, so there is no point in my opposing the taxation’. I believe it is not for me to increase fees, even justifiable fees, without the knowledge of the paying party.
(3)Preparing an Account
Start by deciding which Chapter to use – you can’t, in the same Account, mix block fees (Chapter II) with detailed fees (Chapter III). However, you can use one Chapter for the main action, and the other for an appeal in the same Process, provided the Accounts are lodged as separate documents. More debatable, is whether you can use different Chapters for different stages of the main action – e.g., use block fees for an Amendment and detailed fees for the rest of the main action? Provided you put them into separate Accounts, it may be alright – General Regulation 7 reads ‘a solicitor may charge an Account either on the basis of (and it lists the Chapters) but not charge partly on the one basis and partly on the other’. The argument is that every Interlocutor is a separate award, and the Regulation says ‘charge an Account’, not ‘charge every Account in one Process’, so a separate Account might be prepared for every Interlocutor; every time that two Accounts in the one Process have come to me for taxation, the representative of the paying party hasn’t objected, so I’ve never had to adjudicate on it.
There is no particular style for Sheriff Court Judicial Accounts, but to quote the notes in the Court of Session Rules: ‘the details of the work should be succinctly stated, giving sufficient information to show the nature of the work carried out for which the charge is claimed.’[2] Note the word ‘succinctly’ – sometimes, in an itemised Account, virtually the whole contents of a letter seems to be narrated, which is quite unnecessary to give fair notice to the paying party of ‘the nature of the work carried out’. I am sympathetic to a challenge that not all of the sheetage claimed for framing a detailed Account, which runs to many, many sheets, should not be recoverable from the paying party.
Travelling time and travelling expenses
Two aspects of this, (1) travel from a solicitor’s office to Court and (2) a solicitor’s travel to another Sheriff Court.
This applies only in detailed accounts, not in block ones. Charging for travel from a solicitor’s office to the local Sheriff Court is a comparatively recent innovation in Edinburgh but it is now generally accepted. More contentious is a solicitor's travel to Courts in different parts of Scotland. This may happen for one of two reasons. (a) Some large commercial organisations instruct one firm of solicitors, often in Glasgow, to deal with all their Scottish litigation. That firm uses local agents for formal appearances, but tries to recover travel time and expense for conducting Debates and Proofs themselves. I usually disallow this, as agent/client, not party/party, although logically I should give them the time from the local agent's office to the Court.
Two Appendices are attached to this talk. One is a précis of a decision by a Sheriff Court Auditor, which you may find useful as it sets out both sides of the argument and then applies the principles to the unusual situation in that case. The other is a Reported Decision where the Auditor did not allow travelling expenses and the Sheriff Principal said that it was entirely a matter for the Auditor’s discretion.
(b) The other reason for a solicitor travelling to another Court is that there is no solicitor in that Sheriffdom with expertise in a specialist area. Every such case has to be taken on its merits. When a principal solicitor travelled out of his own Sheriffdom to a diet of taxation, Sheriff Principal Bowen at Edinburgh ruled there was nothing in the Account of Expenses which required specialist or particular knowledge and he allowed only for the time of a local agent.[3]
In either of these situations, how does one deal with the local agent appearing on formal occasions? In a detailed Account, some Auditors allow the attendance fee as an outlay in the Judicial Account, but what if there is also a lengthy letter of instructions to the local agent? Some Auditors allow this, or part of it, on the basis that the local solicitor should be fully instructed, in order to answer any questions that arise; others say it is subsumed in the ‘preparation time’ entry in the main Account; this is not often challenged but if it is, I take every case on its merits.
Coming back to travel time, I would not normally allow the local agent any travel time for formal appearances, because solicitors doing agency work usually have a batch of instructions for the same Court.
(4) Check the Vat position
Remember to apportion Vat, 17.5%, 20%, or whatever, because if you simply add 20% to the total fees, and half of the work was done in 2010, two and a half percent comes off – and you lose the difference between the audit fees paid and the audit fees recovered.
A surprising number of accounts come to me where Vat has been added to the fees although it is obvious that the successful party is registered for Vat. Whether or not you add Vat to a Judicial Account depends almost entirely on the Vat position of the successful party. If the successful party, whose Account you are preparing, is not Vat-registered, or if he is registered but the litigation was not in respect of his business,[4] you must add Vat, at the appropriate rate, to the fees and travelling expenses of the solicitors, and include the Vat element of outlays incurred, in order to recover the Vat from the paying party. On the other hand, if the successful party is Vat registered and the litigation was in respect of his business, you do not add Vat to the Judicial Account - the successful party himself pays the Vat on the Judicial Account and recovers it as input tax by deducting it from his output tax in his own Vat return.[5]
The same principles apply to the Vat on outlays – for example, fees charged for providing a Report. Solicitors’ travelling expenses attract Vat, and so do the lodging dues and audit fees in Sheriff Court Accounts in Edinburgh and Glasgow, because the Auditors there are in business and required to add Vat to their charges.
I said it depends ‘almost entirely’ on the Vat position of the successful party, but there are exceptions, for example if the solicitor is not Vat-registered, or if the successful party is not resident in the United Kingdom - if there is doubt, check the Vat position - 20% plus or minus on a Judicial Account can be a large sum of money if you wrongly put Vat in or wrongly leave it out.
If Accounts come to me for taxation, with Vat added, where it seems possible that the successful party may be Vat registered, I ask to see an invoice or other stationery from the client. If, after consulting the file, and finding a Vat number on the client's stationery, the agent agrees that the successful party is registered, I have to tax off all the Vat. If a look at the stationery does not make the position clear, and if you are challenging an entry, you are entitled to ask for a certificate from the party’s Accountant. As I said earlier, this is an aspect which I believe an Auditor should raise, even if the point is not taken by the person challenging the account, so be prepared to answer questions – if a Vat-registered business suffered fire-damage, obtained professional Reports on the damage, then reduced the size of their business and ceased to be Vat registered before the action was raised, should Vat be included in the Account?
(5) Lodging an Account
There is at present no time limit in the Sheriff Court for lodging your Account, unless and until the paying party enrols a motion to ordain an Account to be lodged. There is talk of bringing Sheriff Court Accounts Rules into line with the Court of Session, where an Account has to be lodged within four months from the final Interlocutor, but that’s not the position yet in the Sheriff Court.
Sheriff Court Rule 32.3(1) says that when an Account is lodged for taxation, the Sheriff Clerk shall transmit it and the Process to the Auditor. Sometimes solicitors send me, direct, their Judicial Accounts and ask me to arrange a diet of taxation. I might go along with this, if there is some urgency to arrange a diet, but, generally, it is better to lodge the Account with the Sheriff Clerk, because the whole Process is then transmitted to the Auditor, along with the Account, and the Auditor has all the Interlocutors, steps of Process, etc.
(6) Intimating a diet
Three comments on intimating the diet. First, in the Sheriff Court, the Auditor informs only the successful party, whose duty it is to intimate the diet to the paying party.
Secondly, there no set style of letter for intimating a Sheriff Court taxation. Some letters simply say that there will be a taxation at a given time and place, which is all very well when the letter goes to solicitors or Law Accountants, but in my letter assigning a diet, I ask the successful party to make two things clear to lay people, first that they are entitled to be present or represented, and, secondly, that the diet will go ahead, in their absence, if they do not attend or send a representative.
Thirdly, many firms intimate the diet to lay people by Recorded Delivery letter, which is commendable although not required. If you do that, send an ordinary First Class letter as well, because if the occupant is out and the RD letter is returned, there is no valid intimation, whereas an ordinary letter will be left in the letterbox and that is sufficient. If the RD letter is returned, and a Sheriff Officer is then asked to intimate the diet, again that is commendable but as it is not required, the cost will not be recoverable in the Judicial Account.