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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Murray WS v Arakin Ltd [2006] ScotCS CSOH_64 (28 April 2006)
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Cite as: [2006] CSOH 64, [2006] ScotCS CSOH_64

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OUTER HOUSE, COURT OF SESSION

 

[2006] CSOH 64

 

     

 

 

 

 

 

 

 

 

 

 

 

OPINION OF

LORD MACKAY OF DRUMADOON

 

in the cause

 

TODS MURRAY W.S.

 

Pursuers;

 

against

 

ARAKIN LIMITED

 

Defenders:

 

 

________________

 

 

 

Act: Hodge, Q.C.; Simpson & Marwick, W.S.

Alt: Frost, Party; McNamara, Party

 

28 April 2006

 

Introduction

 

[1] This is an action for payment. The pursuers, who are a firm of solicitors, sue for payment of professional fees and outlays. The pursuers claim that those fees and outlays are due in respect of professional services that they carried out for Arakin Limited ("Arakin"), who formerly carried on business as contractors.

[2] The action was raised against Arakin in 1996. On 29 May 2001, Martin Frost and Andrew McNamara were sisted as parties to the action. They were sisted as defenders in room and in place of Arakin, having taken from Arakin an assignation of Arakin's interests in the action. Mr. McNamara is a director of Arakin and was involved in setting up and running the business carried on by Arakin. Mr. Frost and Mr. McNamara are the only defenders to the action, in which a counterclaim has also been lodged. The current written pleadings of the parties are to be found in a Closed Record dated May 1999 (No.37 of Process).

[3] This Opinion follows upon a hearing on Notes of Objections relating to the taxation of three accounts of expenses, which had been prepared and lodged in process by the pursuers. Those accounts of expenses are Nos. 6, 12 and 36 of Process.

 

History of action

[4] The history of this action has been long and complicated. The summons was signetted on 27 May 1996. The sum initially concluded for was £32,696.75. Although the summons did not state this explicitly, by reference to an account of expenses (No. 7 of Process), which was lodged in process and incorporated into the terms of the summons, that sum was sought by the pursuers on the basis that it constituted the balance of fees and outlays due in respect of professional services provided to Arakin between 5 August 1993 and 3 July 1995, in connection with litigation between Arakin and McLachlan & Brown in Glasgow Sheriff Court. Shortly after the action was raised, the summons was served on Arakin and arrestments were lodged, in furtherance of a warrant for arrestment on the dependence that had been granted when the summons was signetted.

[5] On 4 September 1996, shortly after the action called, an unopposed motion on behalf of the pursuers was granted allowing the summons to be amended in terms of a Minute of Amendment (No. 5 of Process). That had the effect of deleting the sum concluded for and substituting the sum of £41,767.38. The terms of the Minute of Amendment contained no explanation for the making of that amendment.

[6] On 19 December 1996, during a motion roll hearing at which the pursuers and Arakin were both represented, the pursuers were again allowed to amend the summons in terms of a further Minute of Amendment (No. 8 of Process). This added a second conclusion in the sum of £204,594.13. That second conclusion related to a separate claim for fees and outlays, in respect of professional services which the pursuers had provided to Arakin in connection with an arbitration between Arakin and the City of Glasgow District Council.

[7] Defences had not been lodged by 19 December 1996. That did not happen until 7 February 1997. It would appear, however, that following upon the amendment of the summons on 19 December 1996, the summons was adjusted informally to link the recently introduced second conclusion to the claim for fees and outlays in respect of professional services provided in connection with Arakin's arbitration with the City of Glasgow District Council. That claim was also reflected in the terms of the defences that were lodged (No. 10 of Process).

[8] On a number of occasions when this action has been before the court, senior counsel for the pursuers has informed the court that the pursuers also claim that since May 1996 Arakin have been due £9,070.63 in respect of professional services the pursuers carried out for Arakin in connection with an action between Arakin and Harvie Construction. This is illustrated in a number of productions lodged in process by the pursuers, including No. 292 of Process. Notwithstanding that further claim, no reference to Harvie Construction is to be found in the written pleadings for the pursuers, as set out in the Closed Record dated March 1999 (No. 37 of Process). Neither when the action was raised nor since have the pursuers sought to introduce into their written pleadings any reference to professional services provided in connection with Arakin's dispute with Harvie Construction.

[9] The matter is further complicated by the fact that the pursuers admit that they made an error when the summons was amended to include the second conclusion. That error involved the pursuers leaving out of account sums which they accept that Arakin had paid them prior to the action being raised. On that basis the pursuers' position before the court (although not in their written pleadings) is that the sum second concluded for should be £62,860.77, as opposed to £204,594.13. That position was explained to Mr. Robert Grieve, Arakin's Law Accountant, in a letter dated 1 August 1997, which forms part of No. 292 of Process. Notwithstanding the terms and date of that letter, when the Closed Record was lodged in process on 11 May 1999 the sum second concluded remained as £204,594.13.

[10] In summary the pursuers now maintain that when the action was raised the sums Arakin were due them were (a) £32,696.75 in respect of the McLachlan & Brown case, (b) £9,070.63 in respect of the Harvie Construction Limited action and (c) £62,860.77 in respect of the arbitration involving the City of Glasgow District Council.

 

Opinion of Lady Smith dated 31 October 2003.

[11] It is appropriate that I mention that between the allowance of a hearing on the Notes of Objections and that hearing taking place, a proof took place before Lady Smith. Following that hearing, she issued an Opinion dated 31 October 2003. In that opinion, Lady Smith addressed a number of allegations that had been raised by the current defenders, Mr. Frost and Mr. McNamara, relating to certain items of process, including the accounts of the expenses which are Nos. 6 and 12 of Process. Between pages 43 and 49 of her Opinion, Lady Smith sets out her findings in respect of Nos. 6 and 12 of Process. At this stage it is not necessary for me to do any more than indicate that the findings made by Lady Smith were before me during the hearing on the Notes of Objections over which I presided.

 

The three accounts of expenses - Nos. 6, 12 and 36 of Process.

(a) No. 6 of Process

[12] No. 6 of Process is a time and line account that relates to professional services which the pursuers carried out in connection with an arbitration between Arakin and the City of Glasgow District Council. After the proof she heard, Lady Smith held that the account of expenses that constitutes No. 6 of Process is the document that was lodged in process on 23 October 1996, apart from the front page (which is a photocopy), an addendum to the account (which was drafted subsequently) and various additions and notations (which the Auditor added to the account, when the account was being taxed). On one view these findings may be difficult to reconcile with the terms of the interlocutor pronounced by Lord Kingarth on 7 February 1997 in which he ordained "the pursuers to submit detailed time and line accounts in relation to work the pursuers carried out on behalf of the defenders in respect of a dispute and arbitration between the defenders and the City of Glasgow District Council, (being the subject matter of conclusion 2 of the summons as amended)". The interlocutor also remitted the accounts to the Auditor of Court for taxation in terms of Rule of Court 42.7.

[13] If, as Lady Smith held, the account of expenses, which now constitutes No. 6 of Process, had been lodged in process on 23 October 1996, it is unclear why Lord Kingarth should have been invited to order that time and line accounts be submitted, before being remitted to the Auditor for taxation. However, it is not necessary to explore that historical question further. What is important is that on 7 February 1997 the account of expenses relating to the work carried out by the pursuers in relation to the arbitration between Arakin and the City of Glasgow District Council was remitted for taxation. That remit took place two days after written defences were lodged and long before the Closed Record came into existence. The taxation of this particular account, which lasted 8 days, was completed more than a year before the Closed Record dated March 1999 was lodged in process. The auditor who taxed that account was the former Auditor of the Court of Session, J. Haldane Tait, W.S. His Report on the taxation is dated 27 March 1998 (No. 19a of Process).

[14] The pursuers lodged a Note of Objections (No. 27(a) of Process) to the Auditor's Report on his taxation of No. 6 of Process. By interlocutor dated 12 October 2001 there were allowed to amend that Note of Objections, in terms of a Minute of Amendment (No. 104 of Process).

[15] The defenders also lodged a Note of Objection (No. 22 of Process) to the Auditor's Report on his taxation of No. 6 of Process. By interlocutor dated 19 March 1999, the defenders were allowed to amend that Note of Objections in terms of a Minute of Amendment (No. 35 of Process), under deletion of paras. 7(d) - 7(f) of that Minute. The defenders' Note of Objections (No. 22 of Process) was further amended in terms of a Minute of Amendment lodged by Mr. McNamara (No. 241 of Process). That further amendment was allowed by interlocutor dated 31 May 2004.

[16] The Auditor was invited to comment on the Notes of Objections to his Report on the taxation of No. 6 of Process. He did so in two Minutes dated 5 May 1998 and 13 July 1998 (neither of which appear to have been allocated Nos. of Process, when they were lodged, but both of which are filed in a folder with Nos. 27(a)-(d) of Process) and a further Minute dated 18 December 2001 (No. 128 of Process).

 

(b) No. 12 of Process

[17] No. 12 of Process is an account of expenses that relates to professional services which the pursuers claim were carried out in connection with actions in Glasgow Sheriff Court between Arakin and McLachlan & Brown. It covers professional services that were provided between 5 August 1993 and 3 July 1995. The account, which is a time and line account, was lodged in process on 20 February 1997. It is reasonable to assume that occurred in furtherance of an interlocutor pronounced by Lord Coulsfield on 8 October 1996, which ordained the pursuers to lodge detailed time and line accounts in relation to work carried out by the pursuers on behalf of Arakin in actions raised against Arakin by McLachlan & Brown and Harvie Construction and to submit those accounts to the Auditor of Court for taxation in terms of Rule of Court 42.7.

[18] No. 12 of Process was lodged by the pursuers on the basis that it would supersede another account, which had been lodged previously as No. 7 of Process and which was not a time and line account. The taxation of No. 12 of Process was also undertaken by the former auditor, Mr. Tait. He produced his Report in respect of that taxation on 27 March 1998 (No. 19(b) of Process).

[19] The defenders lodged a Note of Objection (No. 23 of Process) to the Auditor's Report on his taxation of No. 12 of Process. By interlocutor dated 19 March 1999, the defenders were allowed to amend that Note of Objections in terms of a Minute of Amendment (No. 34 of Process), under deletion of paras. 2(v) - 2(vii) and 7 of that Minute. The Minute of Amendment appears to have superseded a document in virtually identical terms, which had been lodged on behalf of the defenders (Supplementary Note of Objections (No. 27(d) of Process)). The Note of Objections (No. 23 of Process) was further amended in terms of a Minute of Amendment lodged by Mr. McNamara (No. 240 of Process). That further amendment was allowed by interlocutor dated 31 May 2004.

[20] The Auditor was invited to comment on the Note of Objections to his Report on the taxation of No. 12 of Process, which had been lodged on behalf of Arakin. He did so in Minutes dated 5 May 1998 (No. 27 (b) of Process) and 18 December 2001 (No. 128 of Process).

 

(c) No. 36 of Process

[21] No. 36 of Process is an account of expenses that relates to professional services which the pursuers carried out in connection with actions in Glasgow Sheriff Court between Arakin and McLachlan & Brown. It covers professional services that were provided to Arakin between 4 August 1988 and 1 July 1993. The account, which is a time and line account, was lodged in process on 23 March 1999 and borrowed out the same day, for onward transmission to the Auditor for taxation of the account. Such taxation had been authorised by the interlocutor dated 7 February 1997, to which I have already referred. The taxation of this account was carried out by the Auditor of the Court of Session, Neil J. Crichton W.S., who produced his Report on the taxation on 26 October 1999 (No. 42 of Process).

[22] The defenders lodged a Note of Objection (No. 53 of Process) to the Auditor's Report on his taxation of No. 36 of Process. By interlocutor dated 31 May 2004, the defenders were allowed to amend that Note of Objections in terms of a Minute of Amendment lodged by Mr. McNamara (No. 242 of Process).

[23] The Auditor was invited to comment on the Note of Objections to his Report on the taxation of No. 36 of Process, which had been lodged on behalf of the defenders. He did so by Minute dated 18 December 2001 (No. 129 of Process).

 

Action taken in advance of the hearing on the Notes of Objections.

[24] Sometime after the court allowed a hearing on the Notes of Objections, I was asked by senior counsel for the pursuers if I would provide guidance to the parties as to the scope of the forthcoming hearing and the procedure which I would wish to see followed during the hearing. I agreed to do so. Having heard submissions from parties, in amplification of their Notes of Arguments (No. 142 of Process for the pursuers and No. 148 of Process for the defenders), I issued an Opinion on 5 April 2002. In that Opinion, I endeavoured to deal with the scope of the forthcoming hearing and the procedure that should be followed during the hearing. Since the hearing on the Note of Objections took place, another case has been decided that provides guidance as to the scope of a hearing on notes of objections to a report by the Auditor of Court. That case is Gupta v Ross 2005 SLT 548. The decision in that case is in line with the authorities to which I was referred during the hearing that led to my issuing my Opinion of 5 April 2002. Para. [6] of the Opinion of the Court in Gupta reaffirms that the scope of a hearing on a note of objections should be limited to considering the reasons of the Auditor for his decisions in relation to the items to which objection has been taken.

[25] In order to provide further assistance to parties in advance of the hearing, I arranged for composite versions of their Notes of Objections (as amended) to be prepared. The parties were offered the opportunity to comment on drafts of these composite versions of the Notes of Objections and the hearing proceeded on the basis that the terms of the composite versions had been agreed.

[26] Unfortunately during the course of preparing this Opinion, I noticed for the first time that certain errors have crept into the preparation of the composite version of the Note of Objections on behalf of the defenders in respect of No. 6 of Process. That exercise had involved marrying up the provisions of the original Note of Objections (No. 22 of Process) with those of the subsequent Minutes of Amendment (Nos. 35 and 241 of Process). That exercise was not an easy one. As prepared, the composite version of the Note of Objections on behalf of the defenders in relation to No. 6 of Process included two objections numbered '5'. Having reconsidered the terms of the two Minutes of Amendment, I suspect that the first of these two objections was included in error in the composite version. What I have decided to do, however, is to renumber the objections as Objection '5A' and Objection '5B'. I have also included some additional lines at the beginning of the composite versions of each of Objections 2 and 5A, as it would appear they may have been omitted in error, when the composite version was being prepared. For the avoidance of any doubt, I should also indicate that in reviewing the composite version of the Note of Objections on behalf of the defenders to No. 6 of Process, I experienced some difficulty in working out whether or not the terms of Para. 3 of the original Note of Objections (No.22 of Process), as amended by the terms of Para. 3 of the first Minute of Amendment (No.35 of Process), had been deleted by the terms of page 2 of the second Minute of Amendment (No. 241 of process). Having regard to the terms of second Minute of Agreement, I reached the view that they had been and that they were replaced by what is now Objection 3.

[27] In this Opinion I intend to quote from the composite versions of each Note of Objections and set out in italics the terms of each of the objections that have been taken in respect of the three accounts of expenses. I intend to deal with each objection in turn. Whilst this approach has resulted in lengthening my Opinion, I trust that it will prove to be of assistance to those who may be involved in identifying the issues that require to be addressed before this action can be concluded.

 

General issues that arose during the hearing on the Notes of Objections.

[28] During the course of the hearing, a number of issues emerged which involved broader discussion than an examination of how the Auditors had dealt with specific items of work in the individual accounts of expenses. It is appropriate that I should record and comment briefly on a number of these general issues, before turning to deal with the terms of the individual objections.

[29] One of these general issues might be said to have been foreshadowed by a paragraph entitled "Clients' lack of access to files", on page 4 of the Auditor's Report on his taxation of No. 16 of Process (No. 19(a) of Process). It arose out of the fact that when Mr. Tait was auditing the Account of Expenses No. 6 of Process, he was allowed access to the pursuers' files and indeed provided by the pursuers with what was described as being a "Box of Additional Papers". I was informed by senior counsel for the pursuers that these files and additional papers were made available to the Auditor at the conclusion of the hearing before him. Senior counsel understood that the files and papers had been present in the room where the taxation had taken place, during at least part of the hearing before the Auditor.

[30] It became clear from what I was informed by senior counsel for the pursuers and Mr. McNamara that during the taxation of No. 6 of Process the pursuers had not been prepared to afford Mr. McNamara any opportunity to consider the contents of the files and papers, which the pursuers subsequently made available to the Auditor. Senior counsel for the pursuers indicated that the pursuers had offered to allow a professional representative of Arakin to study their files. The Note lodged by the pursuers as No. 275 of Process states that was confirmed by a letter dated 13 May 1997, which the pursuers sent to Balfour & Manson, who were at that stage acting for Arakin. I understand that the pursuers adopted a similar position in relation to their files and papers, when No.12 of Process was taxed. Mr. McNamara confirmed that he had not been allowed access to the pursuers' files and papers. He informed me that as far as the law accountant, who had represented Arakin during the taxations of Nos. 6 and 12, was concerned, all that he had been allowed to see were documents relevant to photocopying charges that were being claimed. It was only after the taxation of Nos. 6 and 12 of Process had been completed that Arakin sought to recover documents from the pursuers' files. They did so in terms of a specification of documents that was lodged on 15 April 1998 (No. 21 of Process). Commission and diligence in respect of that specification of documents, which did not cover any internal office memoranda and aides-memoir kept by or on behalf of the pursuers, was granted by interlocutor dated 30 April 1998. When No. 36 of Process was before the Auditor for taxation, the pursuers sent the Auditor four files of papers. By a letter dated 12 July 1999, which the pursuers sent to the Auditor, it was made clear that the files were to be made available in the Auditor's Office for inspection by Arakin's Law Accountant alone and that Mr. McNamara was not to be permitted access to the files (see No. 263/4/73 and 78 of Process).

[31] In anticipation of the hearing on the Notes of Objections, I pronounced an interlocutor dated 26 August 2004, in which I ordained parties to lodge in process all copies in their possession of any documents that had been submitted to the Auditors in connection with the taxations of the three accounts and of any correspondence that had passed between the Auditors and those acting for the pursuers and those acting for Arakin during the taxations. Various documents were lodged in response to that interlocutor. In addition, a large box of papers, described as having been received from the Auditor, was lodged on 1 November 2004 (No. 274 of Process). Despite the volume of documents that now form parts of process, it remains unclear as to whether all the documents covered by that specification of documents have been recovered by the defenders and are now lodged in process.

[32] Any auditor taxing an account of the nature of Nos. 6, 12 and 36 of Process would have been likely to have compared at least some of the entries in the account with the contents of the solicitor's file. In any event, it is clear from the documents placed before me that during the taxation of No. 6, 12 and 36 of Process the Auditors involved, Mr. Tait and Mr. Crichton, took the opportunity to consult at least parts of the files and some of the papers with which they had been provided by the pursuers. Moreover, there is no suggestion that the Auditors allowed Mr. McNamara to look at the files and papers, which they had been given by the pursuers. Indeed, at one stage during his submissions, senior counsel for the pursuers informed me that he understood that the Auditors had refused to allow those acting for Arakin during the taxations, who were Mr. McNamara and a law accountant, Robert Grieve, to see the pursuers' files, as opposed to productions and other documents that may have been copied.

[33] When I raised the possible ramifications of this issue with senior counsel for the pursuers, he acknowledged that if Arakin and those acting for them at the taxations had not been given access to the files and other documents, which the Auditors had seen, the taxations of Nos. 6, 12 and 36 of Process might require to start again from scratch. In acknowledging that, senior counsel was no doubt conscious of his own submissions to the effect that in taxing the pursuers' accounts the Auditors had required to check at least some of the entries in the account with the documents that the pursuers had made available to them, including their files. Senior counsel for the pursuers also acknowledged that whilst Arakin would have had copies of some of the correspondence passing between the pursuers and themselves, those acting for Arakin at the taxations would not have had copies of everything within the pursuers' files, in particular file notes relating to the items of work carried out by the pursuers and charged for in the accounts.

[34] There was a related issue which emerged from senior counsel for the pursuers' reference to Nos. 28/4 and 28/5 of Process. No. 28/4 of Process is a Schedule of Queries, which the Auditor prepared and submitted to the pursuers prior to completing his taxation of Nos. 6 of Process. No. 28/5 of Process, which is dated 24 February 1998, contains the pursuers' Answers to that Schedule of Queries. These documents were lodged as productions as long ago as 11 June 1998, but it is unclear whether they were seen by Arakin and those representing them prior to the Auditor completing his taxation of Nos. 6 of Process on 27 March 1998. Further copies of the Schedule of Queries and the Answers thereto were lodged in advance of the hearing before me (No. 249/5/4 and 5/5 of Process).

[35] There is, as I have indicated, a measure of dispute between the parties as to which papers were made available to Arakin and to those acting for Arakin, in particular during the course of the taxations of Nos. 6, 12 and 36 of Process. There is also a dispute as to whether the Schedule of Queries and Answers were intimated to those acting for Arakin during the course of the taxation of No. 6 of Process. I have not found any correspondence amongst the productions to suggest that they were. However these are not factual issues that I can resolve in the context of a hearing on a note of objections.

[36] Whilst I received very helpful submissions from senior counsel for the pursuers (including reference to the Human Rights Act 1998 sections 7(1)(b) and 22(4) and R v Lambert [2002] 2 AC 545) as to the law which would apply to a situation in which an auditor taxing an account had been provided with papers by one party to the taxation, which had not been made available to another party, I do not consider that at this stage I can make any ruling as whether the procedure followed before the Auditors was flawed to the extent that it would preclude the court from granting decree against the defenders in respect of sums calculated by reference to the Auditors' decisions at taxation. If the defenders are minded to pursue this issue, it will require to be focused and resolved after a hearing of evidence, before any question could arise of Nos. 6, 12 and 36 of Process being remitted back to the Auditor for re-taxation of the accounts, in whole or in part.

[37] During the hearing on the Notes of Objections it also became clear that what has happened in this case is that the accounts of expenses proceeded to taxation prior to the parties considering whether the court should be given the opportunity to determine the validity or otherwise of at least some of the grounds upon which the action is being defended. Some, but not all, of those grounds of defence are focused in the pleadings. As will become clear when I turn to deal with the individual objections to the Auditors' Reports, during the taxations of all three accounts issues were raised that were not matters for the Auditors to resolve. When issues relating to grounds of defence to the action were raised before the Auditors, they, for the main part, took the view that the issues involved were not for them to deal with. The raising of such issues undoubtedly complicated the taxations that took place.

[38] In my opinion, some of these issues, such as the claims about "gross mismanagement of the cause" on the part of the pursuers, could, and arguably should, have been resolved by the court before the taxations began. That is because the issues involve contentions by the defenders that the pursuers acted without instructions from Arakin or contrary to instructions from Arakin. Those are contentions which the pursuers strenuously dispute. The issues to which they relate could only be resolved by the court after a hearing of evidence. It is unclear whether the parties paused to consider whether in relation to any of the three accounts the taxation of the account ought to be delayed until the court had been invited to determine any issues that could profitably have been resolved before the taxation got underway. A possible explanation as to why such issues were not addressed prior to the taxations may lie in the chronology of the dates on which (i) the pursuers were ordained to lodge time and line accounts, (ii) the accounts of expenses were lodged and (iii) the accounts were remitted to the Auditor of Court. I have already summarised that history. Whatever the explanation, the problems which the raising of such issues caused for the Auditors were considerable.

[39] The taxations were further complicated by other issues being raised before the Auditors, which were not for them to decide and which can only be decided once the taxation of the individual accounts has been finalised. These include issues such as the application of the doctrine of settled accounts to the sums claimed by way of fees and outlays by the pursuers, the VAT chargeable and recoverable in respect of those sums, whether the pursuers' rights to pursue any of those sums have prescribed and a final accounting as to what sums, if any, remain recoverable by the pursuers. These are matters, which in my opinion, will require to be determined by the court after the taxations of all three accounts have been concluded and any other issues raised in the principal action have been resolved by agreement between the parties or by ruling by the court.

[40] Although the application of the doctrine of settled accounts cannot be determined at this stage of the action it might nevertheless be useful to set out the pursuers' position in respect of that issue. It has been very helpfully summarised in a Note which the pursuers lodged on 9 November 2004 (No. 275 of Process) in response to an interlocutor I pronounced on 30 September 2004:-

"The pursuers do not seek through the taxation of their accounts to receive payment of sums in excess of those they had invoiced for the work covered by the particular invoices. Thus for any given period where an invoice has been submitted and paid in full the pursuers are not arguing that after taxation they should be paid in excess of the sum invoiced in respect of that period. When ordered to produce time and line accounts the pursuers are entitled to re-frame their accounts in the time and line form and the only constraint on the pursuers is that they will not seek a further payment in relation to any period where the sum due after taxation in respect of a period which has been invoiced and fully paid exceeds the amount in the paid invoice. Where Arakin has not paid invoices in full or where invoices have not been rendered in respect of work undertaken after the periods in respect of which invoices have been submitted and paid, the pursuers are entitled to payment of the sums due on taxation."

That explanation is illustrative of how a number of issues were raised before the Auditors, rather than deferred to a much later stage in the action. As far as the defenders' position on the application of the doctrine of settled accounts is concerned, that is less clear. On more than one occasion during the hearing, Mr. McNamara suggested that at all times when the pursuers had been acting for Arakin he had wished to keep open the possibility of having the pursuers' invoices and accounts of expenses taxed. Accordingly, whatever may have been submitted by the law accountant acting for Arakin before the Auditors, if the defenders still wish to found on the doctrine of settled accounts as part of their defence to the action they will require to seek to focus that in their pleadings.

[41] On a number of occasions when this case has been before me, both Mr. Frost and Mr. McNamara have advanced submissions relating to VAT. The topic is complicated. There are factual questions involved, such as which invoices have been VAT invoices. There are also legal questions, such as whether Arakin has been or would be entitled to recover from H.M. Revenue and Customs the VAT already paid to the pursuers in respect of the invoices submitted to Arakin and paid before the action was raised or the VAT sought by the pursuers in respect of the fees and outlays sued for in the present action.

[42] Before this action can be concluded, it will be necessary for the court to carry out a detailed accounting, which takes into account, amongst other matters, (i) the fees and outlays, which the pursuers were entitled to be paid by Arakin, (ii) the VAT properly chargeable by the pursuers on VAT invoices submitted to Arakin in respect of those fees and included within those outlays, (iii) the payments to account, whether of fees, outlays or VAT, made by Arakin to the pursuers following upon their receipt of those invoices, (iv) any payments by Arakin to parties other than the pursuers in settlement of outlays, including VAT on such outlays, which had been referred to in VAT Invoices submitted by the pursuers to Arakin, (v) the VAT which can be charged by the pursuers and recovered by Arakin in respect of fees incurred by Arakin, which remain due by them and which have not yet been the subject of a VAT Invoice submitted by the pursuers, (vi) the VAT included within any outlays incurred by the pursuers on behalf of Arakin, which remain due by Arakin and which have not yet been the subject of a VAT Invoice, (vii) the interest (if any) which the pursuers are entitled to claim from the defenders, in respect of any sums due by the defenders, and (viii) the interest (if any) which the defenders are entitled to set-off against any sums due to the pursuers, in respect of payments made by Arakin to the pursuers. The exercise will involve questions of fact and questions of law, including construction of the relevant VAT legislation, the defenders' plea of prescription and the application of the doctrine of settled accounts to the agreed and established facts of the case. Before this exercise could be completed, the pursuers will require to lodge, amongst other documents, the invoices received by them in respect of those outlays they incurred which included an element for VAT. It is probable that many of the vouchers are already in process and are to be found within the multitude of productions that have already been lodged. However, before the exercise could be completed, the vouchers will require to be inventoried and, preferably, copied and collected together in files which could be read in conjunction with the Accounts of Expenses to which the outlays relate.

[42] It is against that background that I turn to deal with the terms of individual objections in the Notes of Objections.

 


Note of Objection by Pursuers to Report by the Auditor of Court on the Pursuers

Account of Expenses (No. 6 of Process)

[43] The Pursuers object to the Report by the Auditor of Court dated 27th March 1998 upon the Pursuers' Account of Expenses number 6 of process in respect of the following items:

1. Details of Entries Disallowed by the Auditor in regard to the Scott Schedules.

Page No.

Item No.

Amount

66

4

Deduction of £55.50

66

8

Deduction of £72.25

67

3

Deduction of £133.70

68

6

Deduction of £83.25

75

8

Deduction of £55.80

85

7

Deduction of £589.00

89

4

Deduction of £12.40

92

4

Deduction of £136.40

93

1

Deduction of £261.20

93

5

Deduction of £124.00

96

7

Deduction of £108.50

97

1

Deduction of £62.00

98

7

Deduction of £117.00

99

2

Deduction of £155.00

100

8

Deduction of £62.00

101

6

Deduction of £201.50

 

In respect of these items, the Auditor's Report commented: "The Auditor, however, has restricted the charges for perusal of the Scott Schedules considered that it was the primary responsibility of the clients and Rand Associates to complete them accurately from the information held by them, although the solicitors would require to have an awareness of them."

The Pursuers contend that these were competent and proper charges and should have been allowed in full on the ground that they were competently and properly incurred as a result of:

(a) The Pursuers' need to acquire a thorough working knowledge of the Scott Schedules since they were part of the Arbitration process;

(b) The Defenders' express instructions requiring Mr.  Simpson of the Pursuers to have a working knowledge of the Scott Schedules; and

(c) The Pursuers' need to have a working knowledge of the Scott Schedules (a) to ensure that they reflected the correct legal consequences of agreements reached in 1988 with Glasgow District Council that the Council would pay for works which enured to the benefit of the contract works even if not formally instructed, and (b) as they required to discuss the contents of the Scott Schedules and their relationship to the 1988 agreements in two Procedure Meetings in the Arbitration in 1990.

Mere awareness or familiarisation was not sufficient for the performance of the pursuers' duty to the Defenders and would not have been consistent with the Defenders' express instructions. Reference is made to Rule of Court 42.7(6)(d)(i). The Pursuers' files demonstrated those instructions. The Pursuers' files (including the Defenders' letter of 7 December 1992) also revealed that the Defenders acknowledged the major role which the Pursuers played in relation to the final account."

The Auditor erred in disallowing the said items and failed to have regard to material considerations (a)-(c) above and also in:-

(d)              His failure to act upon and take proper account of the Arbiter's Note of December 1992 (hereinafter referred to as "the Arbiter's Note") to which he was referred in argument and which stated inter alia; "In all these circumstances, I (the Arbiter) am not prepared to grant the Motion (for an Additional Fee) in the terms expressed, nor will I make any further recommendations to the Auditor with regard to the factors suggested as being appropriate to an Additional Fee as contemplated by Rule 347(d). I do however recognise that there may be circumstances in Phase I of the Arbitration which would cause the Auditor to vary the hourly charge he may choose to apply, and in that regard, I would intimate that either my clerk or I will be pleased to confer with the Auditor as he may require"; and

(e)               His misapplication of the section of the Arbiter's Note which stated inter alia: "I do not consider that any particular specialist knowledge is required in the instruction of Scott Schedules". Specialist knowledge was not in issue in relation to the entries in the account relating to the Scott Schedules. The entries related to charges measured by the time spent working on the Scott Schedules and did not involve any addition for specialist knowledge.

[44] In developing this objection, senior counsel for the pursuers referred me to certain documents that had been lodged as productions, at an early stage in the case (Nos. 28/1 and 28/2 of Process), and to other documents, which had been lodged with the specific purpose of their being used during the hearing on the Notes of Objection (No. 249/5/4, 249/5/5, 249/7 and 249/11 of Process). Senior counsel submitted that all these documents touched on the role that the pursuers had played in connection with the arbitration relating to the City of Glasgow District Council. He submitted that when taxing that part of the Account of Expenses, No. 6 of Process, the Auditor had required to check the entries in the account with the documents made available to him, including the entries in the pursuers' files.

[45] Senior counsel accepted that the role that the pursuers had played in relation to the Scott Schedules was a question of fact. However, he argued that it had not been limited to the pursuers merely familiarising themselves with those schedules. Because Arakin and Mr. McNamara had raised issues as to the contents of those documents, the pursuers had required to become involved in the compilation of the documents. Senior counsel submitted that when the Auditor was applying the presumptions to be found in Rule of Court 42.7(6)(d)(i) and (ii), he had erred in law in failing to address precisely what the pursuers' role had been and what instructions the pursuers had been given by Arakin. The Auditor had also erred by failing to take into account the Arbiter's recognition that there had been circumstances, during Phase 1 of the Arbitration, which might have merited the Auditor, who taxed the account of expenses against the City of Glasgow District Council, varying the pursuers' hourly rate (see No. 28/2 of Process). Finally the Auditor had erred by taking into account a suggestion by the Arbiter that specialist knowledge had not been required for the pursuers' work on the Scott Schedules (see No. 28/2 of Process).

[46] In responding to these submissions, Mr. McNamara stressed that the pursuers had not been instructed to prepare the Scott Schedules. He had been able to prepare the Scott Schedules himself. Mr. McNamara also alleged that some of the work relating to the Scott Schedules, for which the pursuers sought payment, had been carried out by the pursuers contrary to the instructions he had given them. This was one of a number of areas in which he contended that the pursuers had been guilty of "gross mismanagement of the cause".

[47] Mr. Frost responded to similar effect. He argued that whilst the pursuers were entitled to be paid for what they had done, that depended on it being established, as a matter of fact, what that work had amounted to. In his view, this objection illustrated how the cart had been put before the horse, in the taxation of the accounts of expenses.

[48] When the Auditor was asked to comment on the pursuers' Note of Objections to his taxation of No. 6 of Process, he responded to this particular objection to the effect that he considered that he had allowed sufficient time for the pursuers to familiarise themselves with the Scott Schedules (page 2 of the Minute of 13 July 1998). That comment does, of course, have to be read with what the Auditor stated in the passage about Scott Schedules, on page 4 of his original Report on the taxation of No. 6 of Process (No. 19 of Process). A quotation from page 4 of that Report is set out in the terms of the Objection.

[49] It is clear from the papers before me that during the taxation the Auditor was faced with competing contentions as to what the pursuers had been instructed to do and what work they had carried out in relation to the Scott Schedules. Before making decisions on the entries relating to these schedules, the Auditor appears to have considered the detail of the entries, some of which he has abated, and to have done so in light of his perusal of the papers before him, including the pursuers' files.

[50] Leaving aside for the meantime whether is was appropriate for the Auditor to be looking at files to which Arakin and those acting for them were not being allowed access, in my opinion the manner in which the pursuers seek to have this objection addressed involves their raising questions of fact that could only be resolved by a hearing of evidence. As was made clear by Lord Reed in Urquhart v Ayrshire & Arran Health Board 2000 SLT 829, Rule 42.4, which deals with the procedure for taking objection to a report of the Auditor, does not envisage that there will be disputed questions of evidence during a hearing on a Note of Objections to an Auditor's report. The Extra Division in Gupta v Ross 2005 SLT 548 agreed with that view.

[51] This objection proceeds upon, and indeed its terms include reference to, a number of factual contentions which Mr. McNamara and Mr. Frost do not accept. Those contentions include reference to the instructions the pursuers received. The objection, by inference, draws a distinction between the pursuers "familiarising" themselves with the Scott Schedules and a need for the pursuers to acquire a "thorough working knowledge" of those schedules. Standing the factual dispute between the parties, the Auditor took the view that the primary responsibility for the completion of the Scott Schedules lay with Arakin and Rand Associates, the experts that Arakin had engaged. The Auditor also took the view that what the pursuers required was an awareness of the contents of the schedules. In my opinion, in reaching those views, the Auditor clearly concluded that certain of the items of work claimed for by the pursuers had not been reasonably incurred. Indeed, as I have already mentioned, in his Minute commenting on the Note of Objections he expressly states that he considered he had allowed sufficient time for the pursuers to familiarise themselves with the Scott Schedules.

[52] In adopting such an approach, the Auditor did not require to resolve the factual dispute between the parties as to what instructions the pursuers had received in relation to the Scott Schedules. In my opinion, standing the information that was before him, it was open to the Auditor to proceed on the basis that it had been demonstrated to his satisfaction that not all of the items of work claimed in respect of the Scott Schedules had been reasonably incurred because primary responsibility for those schedules had lain elsewhere.

[53] In my opinion, this particular objection to the Auditor's taxation of No. 6 of Process cannot be sustained. It is substantially dependent on questions of fact, which cannot be ventilated and determined during a hearing on a Note of Objections. On those factual issues, the parties were and indeed remain in dispute. In my opinion, the Auditor was entitled to proceed on the approach he adopted namely that what the pursuers required to do was to familiarise themselves with Scott Schedules, because others had primary responsibility for those documents. It is not clear whether the letter of 7 December 1992 mentioned in the objection was drawn to the attention of the Auditor. But even if it was, I do not consider that its terms support the construction placed on it in the objection. The Auditor acknowledges that he was referred to the Arbiter's Note, but I am not persuaded that he either misunderstood or misapplied the terms of that Note in reaching the decisions he did in deciding how to tax the items of work relating to the Scott Schedules. In these circumstances, I am not prepared to sustain this objection.

 


[54] 2. Details of Entries disallowed by the Auditor in respect of telephone calls.

Page No.

Item No.

Amount

2

1

Deduction of £3.75

3

6

Deduction of £11.00

6

2

Deduction of £14.55

7

4

Deduction of £9.70

7

5

Deduction of £14.55

8

5

Deduction of £2.42

11

2

Deduction of £29.10

11

3

Deduction of £9.70

11

4

Deduction of £9.70

11

6

Deduction of £9.70

12

5

Deduction of £4.85

13

1

Deduction of £24.25

14

4

Deduction of £4.85

14

5

Deduction of £4.85

15

2

Deduction of £24.25

15

5

Deduction of £24.25

16

3

Deduction of £97.00

16

7

Deduction of £4.85

17

4

Deduction of £9.70

24

2

Deduction of £14.55

24

3

Deduction of £9.70

26

3

Deduction of £9.70

26

5

Deduction of £8.08

28

4

Deduction of £15.75

30

8

Deduction of £11.40

31

3

Deduction of £5.55

31

7

Deduction of £23.70

32

2

Deduction of £12.00

32

6

Deduction of £3.15

33

7

Deduction of £46.80

34

1

Deduction of £27.75

35

5

Deduction of £1.80

35

7

Deduction of £2.62

37

6

Deduction of £9.00

39

11

Deduction of £2.10

40

7

Deduction of £1.20

41

1

Deduction of £15.75

43

1

Deduction of £18.15

44

1

Deduction of £28.75

45

1

Deduction of £2.40

45

7

Deduction of £17.25

58

2

Deduction of £69.38

58

6

Deduction of £33.30

59

1

Deduction of £111.00

62

2

Deduction of £38.85

63

2

Deduction of £61.05

63

6

Deduction of £44.40

65

2

Deduction of £11.10

66

2

Deduction of £72.25

66

8

Deduction of £72.25

67

5

Deduction of £55.50

68

2

Deduction of £16.25

68

4

Deduction of £5.55

72

2

Deduction of £55.50

74

2

Deduction of £68.20

74

3

Deduction of £31.00

75

8

Deduction of £55.80

76

1

Deduction of £18.60

77

5

Deduction of £62.00

78

5

Deduction of £186.00

79

5

Deduction of £27.90

79

7

Deduction of £12.40

79

8

Deduction of £12.40

79

9

Deduction of £15.50

81

2

Deduction of £24.80

81

3

Deduction of £31.00

81

4

Deduction of £62.00

83

4

Deduction of £68.20

86

2

Deduction of £3.10

87

1

Deduction of £12.40

89

2

Deduction of £49.60

89

4

Deduction of £12.40

89

5

Deduction of £62.00

91

1

Deduction of £446.40

92

4

Deduction of £136.40

94

7

Deduction of £62.00

95

5

Deduction of £74.40

96

7

Deduction of £108.50

98

7

Deduction of £117.00

101

6

Deduction of £201.50

106

1

Deduction of £161.20

107

4

Deduction of £6.20

111

5

Deduction of £115.60

115

3

Deduction of £183.60

129

6

Deduction of £170.00

139

1

Deduction of £40.80

141

9

Deduction of £40.80

142

3

Deduction of £102.00

142

4

Deduction of £136.00

144

10

Deduction of £20.40

156

4

Deduction of £27.20

160

3

Deduction of £47.60

161

5

Deduction of £153.00

168

6

Deduction of £225.00

172

2

Deduction of £75.00

174

6

Deduction of £56.50

194

5

Deduction of £37.50

201

4

Deduction of £30.00

203

6

Deduction of £80.00

205

3

Deduction of £20.00

207

1

Deduction of £16.00

208

1

Deduction of £8.00

208

4

Deduction of £16.00

204

6

Deduction of £56.00

208

7

Deduction of £8.00

210

6

Deduction of £20.00

211

8

Deduction of £8.00

212

4

Deduction of £16.00

214

5

Deduction of £80.00

219

1

Deduction of £16.00

219

8

Deduction of £16.00

220

1

Deduction of £16.00

224

2

Deduction of £48.00

226

5

Deduction of £16.00

 

In respect of these items, the Auditor's Report commented: "NOTE: Throughout the files there is constant reference to long telephone calls with Mr. McNamara, many on the same day or within days, and apparently going over the same subject matter but with no record of actual time spent on the calls. While the Auditor has observed that Mr. McNamara is naturally voluble, the Auditor is of the opinion that a solicitor has a responsibility to his client to curtail telephone calls and meetings when they are not advancing the client's business, and constantly to remind the client of that. The Account and file notes record that telephone calls with Mr. McNamara on occasions lasted almost an hour or longer. The Auditor, therefore, has abated time charges to what appears to be reasonable having regard to the information noted in the file entries, which are often uninformative. In the Auditor's opinion a file entry should record the essential information exchanged between the parties so that, should occasion require another solicitor to take up the work, a reading of the file will enable him to appreciate all that has gone before."

The Pursuers contend that these were competent and proper charges and should have been allowed in full on the ground that they were competently and properly incurred as a result of:

(a) The fact that most of the calls were initiated by Mr. McNamara of the Defenders who refused to curtail said calls after Mr. Simpson advised him that he was being charged for the telephone conversations;

(b) The fact that the attempts of Mr. Simpson of the Pursuers to curtail or avoid telephone conversations with Mr. McNamara of the Defenders were unsuccessful and led to:

(i) attempts by Mr. McNamara to speak to other Partners (and especially to Mr. Dobie of the Pursuers);

(ii) abusive telephone conversations between Mr. McNamara and the Pursuers' receptionist/secretarial staff; and

(iii) a complaint from Mr. McNamara to the Pursuers' Senior Partner.

(c) The determination of Mr. McNamara to express and repeat his personal hostility against representatives of Glasgow District Council despite repeated advice from the Pursuers that this was irrelevant; and

(d) The absence of any suggestion that the Defenders had queried or complained about the costs of the calls when they received the Pursuers' bills during the currency of the agency contract (Reference is made to the fact that Mr. McNamara persisted in making the long telephone calls notwithstanding the receipt of accounts which showed that the calls were subject to a professional fee for the time spent discussing the Arbitration);

(e) The fact that the Pursuers were able to provide for the Auditor a detailed break down of the time spent talking to the Defenders (Reference is made to points 17 and 18 of the Pursuers' "Answers to the Auditor's Enquiries");

(f) The fact that the time recording system relied upon by the Pursuers is an accurate and fair basis for recording time and evaluating its cost which is approved by the Law Society of Scotland;

The Auditor erred in disallowing the said items and misdirected himself as a result of his disregard for factors (a) to (f) above and:

(g) The fact that, whatever may have been the ideal or preferred situation, long telephone calls did take place at the insistence of the client (Reference is made to Rule of Court 42.7 which provides inter alia (in paragraph 6(d)) that in taxing the account the Auditor shall presume (unless the contrary is demonstrated to his satisfaction) that - (i) an item of work or outlay was reasonably incurred if it was incurred with the express or implied approval of the client); and

(h) His failure to take proper account of the fact that:

(i) The client was demanding;

(ii) The Defenders were in a position to afford the professional services which Mr. McNamara instructed and insisted upon; and

(iii) The Defenders were and are a commercial undertaking capable of taking an informed view of how long they should spend discussing the Arbitration with their legal advisers.

(i) The fact that although not all of the calls were necessary for the conduct of the Arbitration, the overwhelming majority of such calls were initiated by Mr. McNamara of the Defenders and prolonged at his insistence.

[55] This is another objection in relation to which there is a factual dispute between the parties. When commenting on this objection, in his Minute dated 13 July 1998, the Auditor stated that he allowed such time for calls as appeared to be reasonable, having regard to the contemporaneous file notes. He indicated, in relation to telephone calls which are said to have been prolonged at Mr. McNamara's insistence, that contention involved a "dispute in fact on which the Court will require to rule."

[56] Senior Counsel for the pursuers recognised that in advancing this particular objection all the pursuers could do was to seek a hearing of evidence. He suggested that affidavits could be lodged in advance of a hearing of evidence, which could address the history of the calls between the pursuers and Mr. McNamara, the pattern and nature of the telephone calls, who normally initiated them, and whether any written or oral warnings were given to Mr. McNamara, as to the likely cost of the calls.

[57] In responding to these submissions, Mr. McNamara referred to a document that he had prepared and had lodged in process on 19 November 2001 (No. 119 of Process). The document is entitled "Tods Murray's erroneous telephone entries" and purports to be a comparison between the entries for telephone calls in the Accounts of Expenses founded upon by the pursuers and itemised telephone accounts, which Mr. McNamara has obtained from BT. Mr. McNamara was agreeable to the suggestion of fixing a hearing of evidence in relation to this dispute, as was Mr. Frost.

[58] Notwithstanding the guidance in the authorities to which I have previously referred, I have reached the view that I should allow a hearing of evidence in relation to the factual issues that are raised by this objection. Whilst that is an unusual course of action to follow, I am prepared to adopt it because it is one which all parties seek. A hearing on the factual issues relating to the telephone calls between the pursuers and Mr. McNamara is a hearing the parties could bring about at some future stage in the action. It seems sensible to allow it to take place now, for the reason it should place the court in the position of being able to make findings in fact that may assist the parties to reach agreement on the items of work covered by this objection, failing which the court will require to determine the objection. Such a determination might result in the account being remitted back to the Auditor. When the case is put out By Order, I will discuss with parties the fixing of and procedure for a hearing of evidence in relation to the factual issues that lie behind this objection. I trust that by the date of that By Order hearing parties will have considered the economics of their failing to reach a compromise agreement on the sums involved in the items of work to which this objection relates.

 

[59] 3. "1991

JAN. 15 Fee for considering and checking of Inventories and Productions for claimant and Respondent over a period of time calculated on a basis of 100 sheets per hour £4,488.00"

 

In respect of these items, the Auditor's Report commented: "The Auditor regrets to note that in the taxation of this Account and subsequent perusal of the solicitor's files, a variety of errors in the Accounts became apparent, the principal ones being as follows:

"(i) The inclusion of charges for items of work which either did not take place or for which there were no supporting file entries. The Auditor was particularly concerned to note an omnibus entry on Page 111 of the Account representing 66 hours of unrecorded time which was presumably to cover time engaged on work for the clients not otherwise noted in the Account".

The Pursuers contend (i) that the Auditor had no factual basis for his speculation that the work did not take place, (ii) that the Auditor failed to take into account the existence of vouching of the charges, of which he had been informed (see paragraphs 3(b) and 4 below) and (iii) that these charges were competent and proper charges and should have been allowed in full on the ground that they were competently and properly incurred as a result of:

(a) The fact that the Pursuers did carry out the work which was also charged and described in the judicial account (for which the Defenders have been paid by Glasgow District Council) notwithstanding that there were incomplete file entries in respect thereof (the Pursuers having been under extreme time pressure in preparing for the Arbitration during the relevant period had a legitimate excuse for the absence of file entries);

(b) The fact that the Pursuers operate a system of daily time sheets and weekly time returns whereby the Partners and staff fill out sheets detailing the number of chargeable units (6 minutes = 1 unit) attributable to a particular file and said time returns are fed into a computer. The Auditor had before him the computer time sheets generated by that process and was informed that the Pursuers could produce the manually produced weekly time sheets from which the computer time sheets were compiled and which revealed the time spent on the case on a daily basis and in most cases a short summary notation of the work which was carried out.

(c) The fact that the system employed by the Pursuers for time recording (hereinafter referred to as "the system") and the method of charging a set fee per hour for perusing a known number of documents are methods which are approved by the Law Society of Scotland and by the Scottish Legal Aid Board; and

(d) The fact that the system provided vouching for the time charges to the Defenders;

The Auditor erred in disallowing the said items and misdirected himself by failing to take account of factors (a)-(d) above and as a result of:

(e) The fact that the Auditor deleted this entry in its entirety on the basis of his said speculation without asking the Pursuers to produce vouching (which he knew was available in the form referred to in (c) above) to support it as he could have done in his Schedule of Queries; and

(f) The fact that esto there was insufficient vouching (which is denied) there was no basis of alleging that the Pursuers had not carried out the work.

[60] In arguing this particular objection, senior counsel for the pursuers explained that the charge has been calculated on the basis that the work of considering Inventories of Productions had been carried out at the rate of 100 sheets an hour. That was said to be a recognised method of charging for such work. The Auditor had rejected this method of charging out of hand, without giving the pursuers any notice of his intention to do so or seeking clarification from them as to how the sum claimed had been calculated. Had the pursuers been given notice of the Auditor's concerns, they could have provided him with time recording sheets. These would have indicated a reasonably accurate record of the work that had been carried out. Examples of such time recording sheets had been lodged in process, in anticipation of the hearing before me (No. 249/14 of Process).

[61] In responding to these submissions, Mr. McNamara intimated that he was challenging that 66 hours had been spent on this item of work. In doing so he referred to other productions, No. 76 of Process at page 19, No. 217/1 of Process and No. 256 of Process.

[62] In his submissions, Mr. Frost suggested that he could see merit in a concession being made to the pursuers in respect of this item of work, but submitted that it was premature to do so. Issues relating to the alleged mismanagement of the cause required to be "sorted out", before the pursuers' accounts of expenses could be properly taxed.

[63] I repel this objection. I do so for a variety of reasons. In the first place, it would be very difficult, if not impossible, to sustain this objection and order an amendment of the Auditor's Report, without hearing evidence. There is no agreement between the parties that I should do so. On the contrary, there is a significant dispute between the parties as to what work was involved in the pursuers considering and checking the productions in the arbitration. Indeed the pursuers' charge for doing so was not claimed on the basis that the pursuers had actually spent 66 hours carrying out such work. On the contrary, the charge was put forward on the basis that by reading 100 sheets an hour, it would have taken the pursuers 66 hours to read through and consider the productions.

[64] Secondly, there is the problem that having quantified the charge for £4,488 on one basis, namely the 100 sheets an hour basis, the pursuers now complain that they were not given the opportunity to vouch the charge on another basis, namely by reference to time sheets kept by their partners and qualified staff.

[65] All of that suggests this particular objection goes beyond the scope of objections to an Auditor's Report, as envisaged by the provisions of Rule of Court 42.4.

[66] As the Auditor explained at pages 7-8 of his Report (No. 19(a) of Process), he was concerned about a number of charges in No. 6 of Process. Those charges included charges for items of work which either did not take place or for which there were no supporting file entries. The entries to which he was referring included the item of work amounting to £4,488, which is the subject this objection. As he makes clear at the top of page 8 of his Report on the taxation of No. 6 of Process (No. 19(a) of Process), the Auditor disallowed that particular charge for the reason that there were no supporting entries in the pursuers' files. He did not assert that no work had ever been done in considering and checking productions. He assumed that the entry covered work which was not otherwise noted in the Account of Expenses. In these circumstances, I reject the argument advanced on behalf of the pursuers that even if there was insufficient vouching for the item of work, there was no basis for alleging that they had not carried out the item of work. The Auditor made no such allegation in relation to this entry in the Account.

[67] Rule of Court 42.7(6)(e) entitled the Auditor to disallow any item of work, which was not vouched to his satisfaction. In my opinion, that Rule entitled the Auditor to disallow any entry for an item of work, which may well have been carried out, but was not vouched in a manner that enabled the Auditor to determine from the papers placed before him what the carrying out of the item of work had involved and when and over what period of time the item of work had been carried out by a partner, legally qualified assistant or other member of staff of the pursuers. The item of work, which is the subject of the present objection, appears to fall within this category. How the Scottish Legal Aid Board may be prepared to treat claims of this nature does not have a bearing on how the Auditor was required to proceed. Nor was the Auditor bound by what the City of Glasgow District Council had agreed in respect of the account of expenses they required to settle. It is clear that the Auditor did not flag up his concerns about this item of work when he submitted his Schedule of Queries to the pursuers (No. 249/5/4). However, it is also clear from the terms of the Written Submissions on behalf of Arakin, which were spoken to at the conclusion of the hearing before the Auditor (No. 263/3/2 at page 3), that this particular item of work had been the subject of discussion before the Auditor. That discussion proceeded on the basis that the pursuers accepted there were no entries in their files to support the entry for £4,488 in the account of expenses No. 6 of Process. Before the Auditor, the law accountant for the pursuers explained the claim for £4,488 on the basis that it was to "take account of time not otherwise recorded". It would appear, therefore, that during the hearing the pursuers were afforded an opportunity to justify this fee. They clearly failed to do so. Looking at the taxation procedure as a whole, I am not persuaded the approach the Auditor took before disallowing this entry was tainted by procedural unfairness. In these circumstances I am not prepared to sustain this objection.

 

[68] 4. In refusing to take account of the Pursuer's computer time sheets and in failing to verify or even give the Pursuers the opportunity to vouch those time sheets when the Pursuers had informed him that the weekly time sheets could be produced, the Auditor erred in law. He failed to take account of a relevant consideration, namely that the Pursuers had these manually produced time sheets (which as above averred the Law Society considered to be an important element in the calculation of a fee). These provided the best evidence in relation to the factor list in Rule of Court 42.7(6)(c)(iii), namely the time spent on the item of work and on the cause as a whole. He acted unfairly in disregarding the computer time sheets without requesting the Pursuers to produce the manually produced time sheets of which he had been made aware. While he produced a Schedule of Queries in which he requested the Pursuers to vouch certain items and to produce certain documents before making his determination, he did not in that Schedule of Queries or otherwise give any notice of his intention to disregard the computer time sheets. His acting in this way amounted to procedural unfairness which has caused the Pursuers material prejudice. Further and in any event he acted unreasonably (a) in disregarding the computer time sheets and failing to request production of the manually produced time sheets, (b) in relying solely on the files and papers (viz. his criticisms (v), (vi) and (viii) on page 8 and criticisms (ix) and (x) on page 9 of his report), (c) in failing to take account of the Pursuer's explanation of the way in which the computer printouts were compiled (viz. his comments on page 9 of his report) and in failing to have regard to the reality of acting for the defenders on the instructions of Mr. McNamara, which the Pursuers explained to him. The Auditor also failed properly to consider the files to which he did have regard. On pp. 3-4 of the report he records an assertion on behalf of the defenders that there were no lists of papers accompanying the instructions sent to counsel at various times throughout the whole of the arbitration and he appears to accept the assertion. That assertion was incorrect as an examination of the file for this purpose would have revealed."

[69] As senior counsel for the pursuers pointed out during the course of his submissions, the subject matter of this objection was not addressed by the Auditor in his Report on the taxation of No.6 of Process. However, in his Minute dated 13 July 1998, in para. 3b, the Auditor commented on this particular criticism. It is clear from what he said that he did not find the pursuers' weekly time returns to be of assistance. That was because they did not identify the work carried out and the time claimed for individual items of work. The Auditor clearly did not regard them as being the best evidence of the time that may have been spent on individual items of work. Having regard to the form and contents of Nos. 249/14 of Process such views are understandable. In my opinion, the Auditor was entitled to take the view that the time sheets and returns before him did not provide a suitable basis for charging and that he should use his own judgement as to what was a suitable fee for each item of work.

[70] There are other reasons why this particular objection falls to be criticised. It is an objection taken to the procedure followed by the Auditor rather than one as to how he dealt with specific items or work in the account he was taxing. Such an objection falls within the category of objection discussed in the Opinion of the Court in Gupta v Ross 2005 SLT 548 at paras. [6] and [7] as involving matters that can not competently be dealt with in a hearing on a Note of Objections. It may be of importance to note that the terms of this objection illustrate the extent to which the pursuers expected the Auditor to consider the terms of their files, which they had lodged with him, but which they had prevented Arakin and their advisers from having full access to. In the whole circumstances, I repel this objection.

 

[71] 5. The entries in the account subject to Uplift in the Pursuers' contention are those relating to the conduct of the clients' business but excluding charges for photocopying. The Pursuers applied to the Auditor for an uplift in respect of these entries.

The Auditor failed to exhaust his remit in respect that:

(a) Although he had refused an uplift on Part 1 of the Arbitration the Arbiter granted an uplift in respect of Part 2 (Reference is made to the Interlocutor of 5th September 1994 which was available for the use of the Auditor);

(b) The Defenders received the benefit of the uplift on Part 2 of the Arbitration when they received an award of expenses on a party and party basis from Glasgow District Council;

(c) The Pursuers made submissions to the Auditor applying for an uplift; but

(d) Notwithstanding said submissions, the Auditor made no ruling in respect thereof.

In his Minute the Auditor refers to Rule 42.14 and suggests that an uplift is irrelevant to the taxation of a solicitor client account. The Pursuers applied for an uplift in fees to reflect the responsibility which they had undertaken including their involvement in work outside the normal work of a solicitor. While the Pursuers referred to grounds similar to those in Rule 42.14 in support of their application, they did not make or purport to make an application under that Rule. As revealed in his Minute, the Auditor erred in law in treating it as such an application and in ignoring his power to grant an additional fee as a responsibility fee in taxation of a solicitor client account. He made no ruling on the application. As a consequence he failed to exhaust his remit.

[72] I agree with the Auditor that the allowance of an additional fee, determined under reference to the factors enumerated in Rule of Court 42.14, is apposite to the taxation of a party and party account, not the taxation of a solicitor and client account under Rule of Court 42.7. Whilst it is correct that the pursuers did not make or purport to make their application for an uplift in their fees under Rule of Court 42.14, they justified their application under reference to certain of the factors to be found within the terms of that Rule. The importance of the matter to the client, the amount of money involved, the complexity and difficulty of the subject matter, the requirement of the skill and experience of a solicitor versed in building contract matters, the number of documentary productions were amongst the factors relied upon.

[73] As the Auditor points out in para. 4 of his Minute dated 13 July 1998, when he was taxing the pursuers' account of expenses what he allowed was what the provisions of Rule of Court 42.7.-(6)(b) required him to allow, namely " in respect of each item of work and outlay, such sum as may be fair and reasonable having regard to all the circumstances of the case". Rule 42.7 makes no provision for the Auditor to allow or award a further fee or percentage uplift for an item of work, which is to be additional to such sum as the Auditor has allowed to the solicitor for that item of work in terms of Rule of Court 42.7.-(6)(b). Furthermore Rule of Court 42.7.-(6)(b) explicitly refers to and requires the Auditor to have regard to "all the circumstances of the case". The provisions of Rule of Court 42.7-(6)(c) also require account to be taken of the various factors upon which the pursuers based their application for a percentage uplift of their fees The Auditor has made clear that in respect of the taxation of No. 6 of Process those factors were taken into account in his fixing, for particular items of work, "such sum(s) as may be fair and reasonable". In respect of individual items of work, the sums he allowed were sums which he considered to be "fair and reasonable". Nor, in my opinion, can the provisions of any other parts of Rule of Court 42.7, in particular Rule of Court 42.7-(6)(a), be construed as permitting the award of a percentage uplift additional to the total fees allowed for individual items of work under Rule of Court 42.7-6(a). In such circumstances, I am not persuaded that the pursuers had the right to seek, in addition to the sums the Auditor allowed in respect of individual items of work, an additional fee or percentage uplift based on those same factors. In my opinion, it would have been incompetent for the Auditor to have granted such an uplift.

[74] The factual situation in the present case is, in my opinion, significantly different from that which existed in Davidson & Syme W.S. v Booth and Another 1972 SLT 122. In that case, the Auditor had taxed an account of expenses of a firm of solicitors, which had been prepared on the basis that the work covered by the account was regulated by the Table of Fees approved by the Council of the Law Society of Scotland and applicable from 1st October 1964 (as amended in 1966). In respect of certain categories of work that table of fees allowed the recovery of fees "chargeable according to circumstances", which entitled a solicitor to charge such sums as were fair and reasonable. However, the table also set out rates for other categories of work, under headings such as "Documents and Papers", "Engrossing and Copying", "Time Occupied" and "Correspondence, etc.". Some of these prescribed rates related to what could be charged for the pages and sheets involved in items of work and others related to the charge for the periods of time involved in carrying out items of work. In relation to the fees under such categories, the Table of Fees made no provision for the fees chargeable and recoverable by solicitors requiring to be assessed as being fair and reasonable or being subject to increase on account of the nature and extent of the responsibilities placed on the solicitor. In Davidson & Syme W.S. v Booth and Another in addition to allowing fees calculated in accordance with the rates set out in the Table of Fees, the Auditor allowed the solicitors a responsibility fee on the basis that would be fair and reasonable, having regard to the nature of the work done and the responsibility undertaken by the solicitors. The allowance of that responsibility fee was upheld by the court on the basis that the implied contract between the solicitor and the client was that the solicitor would be remunerated at the rate that is reasonable for the work that was done (see Lord Ordinary, at page 126, and Lord President Clyde, at page 128). Taxing the solicitors' account solely by reference to the Law Society's Table of Fees would not have achieved the fixing of reasonable remuneration. In the present case, the situation is different. The Auditors were directed by the court to tax the three accounts of expenses in terms of Rule of Court 42.7 and required to apply the statutory provisions set out in that Rule. Those provisions, and in particular those of Rule of Court 42.7-(6)(b), required the Auditors to allow in respect of each item of work and each outlay "such sum as may be fair and reasonable having regard to all the circumstances of the case". In my opinion, those provisions required the Auditors to look at each item of work and outlay separately and, on an entry by entry basis, determine sums that were fair and reasonable in respect of each item. In my opinion it was not open to the Auditor to determine sums that were fair and reasonable on the understanding that those sums were liable to be augmented by an additional fee in the form of a percentage uplift. The terms of Rule of Court 42.7-(6)(c), which required the Auditor to take into account certain specified factors in determining sums that were fair and reasonable, reinforce me in my opinion as to the approach the Auditor required to follow. For these reasons, I repel this objection.

 

[75] 6. "1991

FEB. 1 Attendance at preliminary Consultation with Counsel prior to the pre-Proof Consultation. 25 units £170.00"

 

The Auditor's Report commented on these charges as follows: "However, as the Auditor has taxed off as unreasonable a pre-Consultation meeting between the solicitors and Counsel held on 1st February 1991, Account page 114, and for which Counsel had included a fee in his omnibus fee of £13,500.00, exclusive of Value Added Tax, paid direct by the clients, The Auditor is of the opinion that the clients should, therefore, receive a cash refund of £230.00, inclusive of Value Added Tax, in the final cash reconciliation between the solicitors and clients."

The Pursuers contend that these were competent and proper charges and should have been allowed in full on the ground that they were competently and properly incurred as a result of:

(a) The fact that the consultation of 1st February 1991 (hereinafter referred to as "the consultation") was necessary and reasonable when there was insufficient time for a Note on the Line of Evidence and Counsel required to be briefed and discuss preparations for the Arbitration in advance of a lengthy consultation with Mr. McNamara of the Defenders; and

(b) There was no challenge by the Defenders to Counsel's fees for the Consultation.

The Auditor erred in excluding the entry from the Pursuers' account and has given no reason for concluding that the meeting was unreasonable.

[76] This objection was not insisted upon.

 

[77] 7. The Pursuers also object to the Auditor's unjustified comments about (i) work wrongly charged at a qualified solicitor's rates and (ii) photocopying charges (both on p. 8). In respect of the former the Defenders had been charged on a correct basis in the Pursuers' fee notes and the error in the Account of Expenses (which was prepared when the Defenders required a taxation) was recognised and conceded before the taxation. In relation to the latter, the photocopying by Rand Associates had correctly been included in the judicial account but had incorrectly been transposed into the Account of Expenses. Again this was conceded before the taxation. The said items (i) and (ii), the compromise on other photocopying charges agreed between the parties, and the discovery that the Defenders had paid certain outlays which remained as debit items in the Pursuers' Account (including Counsel's fees and room hire charges) accounted for over sixty per cent of the adjustment to the Pursuers' Account recorded in the taxation. In respect of the other forty per cent, the matters challenged in paragraphs 1-5 above and the Auditor's unwillingness to have regard to the Pursuers' time sheets, which are now a standard method of recording and evaluating professional time as above explained, has resulted in an unfair assessment of the Pursuers' Account.

[78] This objection was not argued.

 

Note of Objection by Defenders to Report by the Auditor of Court on the Pursuers

Account of Expenses (No. 6 of Process)

[79] 1. (A) The Auditor misdirected himself through his misunderstanding of VAT Regulations by allowing Tods Murray to recover VAT on items of alleged work that were not supported by invoices and by allowing VAT on the agreed photocopying costs. The Auditor should or ought to be aware that Arakin Limited was unable to recover VAT, refer to No. 75 of process for details.

(B) On page 5 of No. 164 of process Mr. Anderson informs the reader that Tods Murray did not render VAT invoices for the sums sued for, as this would have attracted VAT. This is an open admission that Tods Murray and Simpson & Marwick raised a false summons and submitted a false account to the Court. I refer to page 4 of No. 237 or Process that demonstrates the lengths Tods Murray went to in pretence that VAT invoices existed for the sums sued for. Abatement required that Tods Murray's account known as No. 6 of process is restricted to the value and date of all invoices rendered as the Statute of Limitations Act 1973, section 18A, this Act is binding on a Court and is referred to in the Pleas-in-Law, page 56 of the Pleadings.

[80] Para. (A) of this objection refers to a line of argument that the defenders have sought to raise on a number of occasions since I became involved in dealing with this action. That line of argument relates to how much VAT the pursuers have been entitled to recover, and remain entitled to recover, from Arakin and the defenders in addition to the fees and outlays which the pursuers have been paid or which they sue for, in respect of professional services they carried out for Arakin. The line of argument is set out in some detail in No. 75 of Process, which is an affidavit sworn by Martin Gill, C.A., to which are attached a number of schedules. To some extent, the line of argument is based on the form of the invoices that the pursuers submitted to Arakin before the action was raised. However, it also involves the related issue as to whether Arakin would be entitled to recover from H.M. Revenue and Customs any VAT which has been paid to the pursuers by Arakin or which the pursuers claim is still payable by the defenders.

[81] Senior counsel for the pursuers accepted that the defenders are perfectly entitled to raise as part of their defence to the action the issue of how much VAT the pursuers have been or remain entitled to receive from Arakin and the defenders. He submitted, however, that that issue was not one for the Auditor to resolve, whether it related to the VAT referred to in the invoices submitted to Arakin before the action was commenced or to the VAT payable on the sums brought as due to the pursuers at the conclusion of the taxation of No. 6 of Process. I agree.

[82] In my opinion, the Auditor had no role to play in resolving and ruling upon any dispute between the parties as to the VAT payable to the pursuers or the VAT recoverable by Arakin and the defenders. Having said that, issues relating to VAT can only be resolved once it is clear, whether as a matter of agreement between the parties or by ruling of the court, what professional fees and outlays the pursuers have been and remained entitled to recover from Arakin and the defenders. Even then, the issues may require to be focused in the parties' written pleadings.

[83] In my opinion Para. (B) of this objection also raises questions of fact and, more importantly, questions of law which were not for the Auditor to resolve. Indeed, as reference to page 4 of No. 237 of Process makes clear, the defenders are seeking to found on evidence given during the hearing before Lady Smith, which took place long after the taxation of No. 6 of Process finished. Questions of prescription are for the court rather than the Auditor to rule upon, subject of course to those issues being properly focused in the pleadings. For these reasons, I repel this objection to the Auditor's Report. It is a matter for the defenders to decide whether and, if so, by what procedure they intend to raise in their pleadings in this action the issues that lie behind this objection.

 

[84] 2. Details of entries allowed by the Auditor in relation to the Pursuers' failure to comply with the clients' instructions.

Page Nos

Item Nos

Amount Already

Taxed Off

Reduction Sought

All

All

 

All Sums

The Auditor has failed to rule on Objection G, failure to recover documents and conduct arbitration in accordance with the client's instructions. Rule 42.7(6)(d)(1) states that "in taxing an account submitted to him under Paragraph 1 the Auditor shall presume (unless the contrary is demonstrated to his satisfaction) that an item of work or outlay was reasonably incurred if it was incurred with the expressed or implied approval of the client". The corollary to that rule must be that if work was carried out contrary to the clients' instructions or that if charges are included in the account in relation to work carried out emanating from a failure to comply with clients' instructions the Auditor must presume that the charges have not been reasonably incurred and tax them off.

[85] The Report by the Auditor on his taxation of No. 6 of Process (No. 19(a) of Process) narrates a number of objections that were raised on behalf of Arakin during the taxation. These included "G. That unnecessary charges are included as a result of the Agents' failure to comply with the Client's instructions with regard to recovery of documents". On page 4 of his Report, the Auditor indicates that in his opinion it was not for him to comment as to how the arbitration was conducted or might have been conducted. He observed that decisions as to (i) when to obtain and lodge productions, (ii) when to take precognitions and (iii) the need for Scott Schedules, which together with other matters were the subject of much criticism on behalf of Arakin, were essentially matters of professional judgement for the pursuers, in advancing the interests of their clients.

[86] This particular objection is framed in fairly general terms. Nevertheless, it is clear from certain of the productions lodged, and in particular from the terms of the written submissions spoken to on behalf of Arakin at the conclusion of the taxation, that the Auditor was invited to consider a number of allegations to the effect that the pursuers had failed to act in accordance with Arakin's instructions or had acted contrary to their instructions. Alleged failures on the part of the pursuers to follow instructions to recover documents from the City of Glasgow District Council and when dealing with the solicitors acting for the Council were amongst the matters complained about.

[87] In making submissions in respect of this objection, Mr. McNamara indicated that he wished me "to deal with the pursuers' failures to follow instructions" and then send the Account back to the Auditor to be-taxed. Such a course of action was warranted because the pursuers had been guilty of "gross mismanagement of the cause" (see Hastings on Expenses in the Supreme and Sheriff Courts, at pages 118-119).

[88] Senior counsel for the pursuers submitted that the Auditor had been quite correct in deciding that it was not appropriate for him to determine issues of alleged mismanagement of the cause. For that reason, they were not issues that could be resolved during a Hearing on Notes of Objections to the Auditor's Report.

[89] In my opinion, the Auditor was perfectly entitled to take the view that it was not for him to comment on how the arbitration had been conducted or might have been conducted. In terms of Rule 42.7-(6) the Auditor required to consider the individual items of work charged for and address whether they were reasonably incurred and reasonably charged for. Issues as to whether the pursuers acted contrary to instructions in their whole approach to the conduct of the arbitration, or at least to significant parts of it, are entirely different matters. Ideally these matters should have been raised before the account of expenses was remitted for taxation or at least before the taxation took place. That did not occur.

[90] The defenders wish to rely on such matters in defence of that part of the pursuers' claim which is founded on the account of expenses No. 6 of Process. The matters are to some extent already raised in the written pleadings, in Answer 3(b) of the Defences. They will require to be addressed by the Court, possibly in the context of a proof or a hearing of evidence restricted to discrete issues. In these circumstances, I repel this objection.

[91] 3. (A) The Auditor misdirected himself on 19A of Process by stating he did not investigate Junior Counsel's costs for No. 6 of Process despite concern showed by R. Grieve at the Diet of Taxation. The Auditor is fully aware that the charges levelled against Arakin by Junior Counsel are at least 300% higher than normal in 1991/92. Abatement required, that Junior Counsel costs are restricted to a maximum of £350.00 per day for a maximum of five days, refer to pages 15/16 of No. 27 of Process and to page 48, item D of the Record.

(B)              The Auditor misdirected himself in 19A of Process by stating it was not for him to decide if the Solicitor had competently run the case and I refer to page 33 of No. 6 of Process, 15th March, concerning Mr. Simpson classifying phase 1 of the Arbitration as a pantomime. This pantomime was caused by Mr. Simpson who failed to inform Arakin that when a contract is at large the only requirement is to submit weekly time-sheets, refer to No. 48 of Process and pages 43/44 of the Record for a full explanation. Abatement required all costs incurred by Arakin Limited for phase 1 of the Arbitration.

(C)              The Auditor misdirected himself in page 4 of his report by stating the Solicitor's performance was a matter for the Solicitor's judgement and again I refer to page 33 of No. 6 of Process where Mr. Simpson and Counsel were aware that Arakin was owed £180,000.00 by Glasgow District Council in March 1988. No attempt was made by Mr. Simpson to raise this matter before a Sheriff in Glasgow District Council where he should have sought recovery of the £180,000.00 immediately as Glasgow District Council was contractually bound to pay any sums outstanding. Mr. Simpson should have aborted Arbitration proceedings immediately and sought a meeting with Glasgow District Council's Chief Executive to have Arakin restored to Glasgow District Council's list of approved contractors, refer to page 47 of the Record. Abatement required, that all costs incurred by Arakin for the dispute be paid by Tods Murray for gross-mismanagement-of-cause.

[92] Dealing first with Objection 3(A), the documents lodged in process include a letter dated 2 March 1998, which Robert Grieve, the law accountant acting for Arakin, wrote to the Auditor (No. 24/4 of Process). It is clear from the terms of that letter that Arakin had challenged and were continuing to challenge the fees of counsel who the pursuers had instructed. Arakin sought to have the counsel's fees included in No. 6 of Process taxed off, or at least reduced, partly on the basis that Arakin had already settled some of those fees, partly because of double counting and partly because the pursuers had failed to provide full clarification of the work the fees covered and the rates that had been charged.

[93] Senior counsel for the pursuers stated that those who had represented the pursuers at the taxation had no recollection of counsel's fees having been challenged during the taxation. It was accepted that many of the fees charged by counsel had been paid by Arakin, before the action had been raised. Those payments had been made as part of the settlement of invoices, which had pre-dated the preparation of the time and line account (No. 6 of Process). The only reduction in counsel's fees brought about by the taxation had been made in respect of a pre-consultation meeting on 1 February 1991, which the Auditor had taxed off on the basis that the holding of the meeting was unreasonable. The meeting had not dealt with any matters which could not have been addressed at the consultation which the clients attended.

[94] Whilst there is a measure of uncertainty as to the extent to which the fees of counsel were challenged during the course of the taxation, the terms of the letter of 2 March 1998 satisfy me that the Auditor failed to address matters that had been raised before him, prior to issuing his Report on the taxation (No. 19(a) of Process) on 27 March 1998. Accordingly I sustain Objection 3(A). The account will require to be remitted back to the Auditor to allow this outlay to be reconsidered.

[95] Objection 3(B) raises the same issue of principle as I addressed in relation to Objection 2. This objection is based on another allegation of gross mismanagement of the cause, which could not have been dealt with during the taxation nor can it be dealt with during a hearing on a Note of Objection to the Auditor's Report. Indeed reference to the defenders' averments in Answer 3, on pages 43 - 44 of the Closed Record, and to the terms of No. 84 of Process, a document lodged by Mr. McNamara and entitled "Draft Report on the actions in The Arbitration of Arakin v Glasgow of Tods Murray Solicitors", makes that clear. I am quite satisfied that I should repel this objection, for the same reasons and on the same basis on which I repelled Objection 2.

[96] Similar comments can be made in respect of Objection 3(C). It is clear from the terms of this objection and of Arakin's pleadings in the Closed Record that criticisms of some significance have been advanced and are being maintained in respect of the manner in which the pursuers acted for Arakin in connection with Arakin's dispute with the City of Glasgow District Council. In my opinion it is quite clear that it was not for the Auditor to determine whether or not the pursuers should have aborted the arbitration proceedings and raised proceedings in Glasgow Sheriff Court. I repel this objection for the same reason and on the same basis as I repelled Objection 2.

 

[97] 4. The Auditor misdirected himself by not reporting Tods Murray to the Court for gross overcharging in No. 6 of Process that was easily established from Tods Murray's computer time-records, refer to pages 10-15 of No. 237 of Process. Abatement required, that No. 6 of Process to the date of the last invoice be restricted to £36,871.00 excluding outlays and that 68% of £36,871.00 be abated from £36,871.00 to make No. 6 of process legal, valid and accurate when the correct rates are applied, refer to pages 11-15 of No. 237 of Process for explanation.

The Auditor has failed to address the defenders' submissions regarding as to the level of fees charged by Counsel. The Auditor was informed that the Defenders had for some time, been seeking assurance that there had not been an element of double charging in Counsel's "omnibus" invoices. The Auditor ought to have fully investigated the matter so that his taxation might provide a definitive liability. Reference is made to the letter from Grieve & Co. to the Auditor dated 2nd March 1998. Furthermore the amounts stated for Counsel's fees in the Account do not correspond with the amounts claimed in Invoices rendered to the Defenders. The Pursuers are called upon to produce the Invoices from Faculty Services Ltd and to explain the inconsistencies.

The Pursuers are further called upon to produce their letter to Faculty Services Ltd dated 1.4.92, which the defenders aver may assist in clarifying the question of possible duplication of charges.

[98] In the first part of this objection, the defenders invite the court to overturn the Auditor's taxation of the account by reference to time-records of the pursuers (No. 217 of Process), which I understand to have become available to the defenders since the taxation took place. The reference in the objection to No. 237 of Process is to a document entitled "Minute of Amendment to Notes of Objections for the Defenders", which was lodged in process but never moved. It appears to have been a precursor to the Minute of Amendment (No. 241 of Process) that was moved and given effect to. In addition to containing proposed amendments to the Notes of Objections on behalf of the defenders, No. 237 of Process contained a number of written submissions, including some based on the contents of the time-records.

[99] In my opinion, it would be quite inappropriate, and well beyond the scope of a hearing on a Note of Objection to an Auditor's Report, for the court to scrutinise the detail of a solicitor's account of expenses, which has been taxed by the Auditor, and compare the individual items of work and charges in that account against the internal time records of the solicitor concerned. The Auditor taxed the account in accordance with the provisions of Rule of Court 42.7. Those provisions directed the Auditor to allow such sums, as might be fair and reasonable, in respect of such work and outlays as had reasonably been incurred by the pursuers. The Auditor was also entitled to presume (unless the contrary was demonstrated to his satisfaction) that an item of work was reasonably incurred and the fee charged was reasonable, if the item of work was done with the express and implied approval of Arakin and the amount of the fee charged had been expressly or impliedly approved by Arakin. If it is being alleged that any of the items of work contained in No. 6 of Process are false, in the sense that they were never carried out or that the length of time charged for them has been grossly and deliberately exaggerated, such allegations would require to be pled as parts of the substantive defence to the action. Moreover, if any such allegations were to be substantiated, it would probably be necessary to remit the account of expenses back to the Auditor to enable a further taxation to take place. For these reasons, I repel the first part of this objection.

[100] As I understand it, in the context of this objection, the defenders also seek to challenge how the Auditor dealt with their request that he clarify which fees were charged by counsel and which of those fees had been paid by Arakin. These were issues raised in a letter dated 2 March 1998 (No. 24/4 of Process), which Arakin's law accountant wrote to the Auditor. In particular the Auditor was requested to seek clarification of (a) whether there has been any duplication in the fees actually charged by counsel and included in invoices submitted to the pursuers by Faculty Services Limited, (b) the work covered by and the amounts of those fees, (c) which of those fees have been paid to Faculty Services Limited and (d) when and by whom such payment of fees has been made. As I understand the defenders' position, what they sought and still seek is no more than an accounting exercise, which could have been carried out before the taxation took place. It will require to be carried out in respect of the fees of counsel that are included in the Account of Expenses No. 6 of Process and the invoices that preceded that account of expenses. No. 251 of Process, which was lodged on 8 June 2004, bears to be a table setting out the result of such an exercise. Insofar as the contents of No. 251 of Process are challenged, or require to be clarified further, it is not appropriate to do so in the context of a hearing on a Note of Objection to the Auditor's Report on his taxation of No. 6 of Process. On that basis, I repel this objection.

[101] Having regard to what I explained earlier, in Para. [26], about the preparation of the composite version of the Note of Objections on behalf of the defenders to the taxation of No. 6 of Process, I should stress that I do not understand that the defenders wished to insist on an objection to the effect that that the Auditor erred in failing to tax the reasonableness of all of the fees of counsel that are included in No. 6 of Process.

 

[102] 5A. Details of entries allowed by the Auditor in relation to recovery of Judicial expenses.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

192

1

 

75.00

193

9

 

22.50

193

10

 

37.50

194

1

 

18.75

194

3

 

18.75

194

5

37.50

18.75

195

5

225.00

525.00

 

6

45.00

105.00

 

7

45.00

105.00

 

8

122.00

28.00

197

4

 

15.00

198

3

 

37.50

200

3

 

18.75

 

6

 

7.50

201

2

 

7.50

202

5

 

30.00

203

2

 

3.75

 

3

 

18.75

 

4

 

32.00

 

5

 

8.00

204

5

 

24.00

 

6

 

32.00

205

1

 

16.00

 

3

20.00

40.00

 

4

 

16.00

206

1

 

48.00

 

 

2

 

16.00

 

 

4

 

4.00

 

 

5

 

8.00

 

207

2

 

8.00

 

207

3

 

8.00

 

208

1

8.00

16.00

 

 

2

 

8.00

 

 

3

 

32.00

 

 

5

 

8.00

 

 

6

56.00

24.00

 

209

5

24.00

24.00

 

210

6

20.00

40.00

 

 

8

 

16.00

 

211

1

 

16.00

 

 

2

 

8.00

 

 

4

 

200.00

 

 

5

 

8.00

 

 

6

 

480.00

 

212

2

 

8.00

 

 

3

 

16.00

 

 

5

 

16.00

 

 

6

 

160.00

 

 

7

 

8.00

 

213

1

 

40.00

 

 

2

 

4.00

 

 

4

 

48.00

 

 

5

 

20.00

 

 

6

 

40.00

 

 

7

 

24.00

 

214

1

 

16.00

 

 

2

 

8.00

 

 

3

 

3.00

 

 

4

 

48.00

 

 

5

80.00

16.00

 

215

1

 

8.00

 

 

2

 

32.00

 

 

5

 

24.00

 

 

7

 

20.00

 

216

2

 

20.00

 

 

3

 

16.00

 

 

4

 

8.00

 

 

6

 

120.00

 

 

7

 

8.00

 

 

8

 

16.00

 

 

9

 

16.00

 

217

1

 

16.00

 

 

2

 

16.00

 

 

3

24.00

16.00

 

 

4

 

40.00

 

218

3

 

16.00

 

 

4

 

8.00

 

 

5

 

8.00

 

 

6

 

1.20

 

 

7

 

8.00

 

219

1

16.00

24.00

 

 

2

 

8.00

 

 

3

 

8.00

 

 

5

 

16.00

 

 

6

 

4.00

 

 

7

 

1.60

 

 

8

16.00

16.00

 

220

1

16.00

8.00

 

 

2

 

8.00

 

 

3

 

8.00

 

 

4

 

32.00

 

 

5

 

4.00

 

 

6

 

59.20

 

 

8

 

16.00

 

221

1

 

16.00

 

 

2

 

8.00

 

 

3

 

8.00

 

 

5

 

48.00

 

 

1

 

8.00

 

222

1

 

8.00

 

223

3

 

48.00

 

224

1

 

32.00

 

 

2

48.00

80.00

 

 

3

 

40.00

 

 

5

 

320.00

 

 

6

 

40.00

 

 

7

 

48.00

 

225

1

 

8.00

 

 

2

 

1.20

 

 

3

 

40.00

 

225

4

 

8.00

 

 

6

 

40.00

 

 

7

 

8.00

 

 

9

 

24.00

 

226

6

 

32.00

 

 

7

 

8.00

 

 

8

 

4.00

 

227

6

 

8.00

 

228

2

 

8.00

 

With regard to the Judicial account for phase 1 of the Arbitration, the Auditor has failed to adhere to the terms of his remit in refusing to tax-off the charges emanating from the Pursuers' failure to comply with the client's instructions to have the Account taxed. It is the Solicitor's duty to maximise a recovery of Judicial Expenses on behalf of the Defenders. Reference is made to the Closing Submissions to the Auditor. In any event the Court is invited to find that the Pursuers ought to have sought expenses in relation to Phase 1 on an Agent/Client basis and in so finding to ordain the Auditor to tax-off items relating to the work involved in adjusting the Judicial Expenses and to restrict the charges in the Account to the levels of fees recovered in the Judicial Account for like work.

[103] This is another objection that is based upon allegations which the defenders make against the pursuers, in respect of the professional services the pursuers provided to Arakin. It is alleged that the pursuers failed to implement instructions from Arakin to proceed to taxation of the account of the expenses awarded in favour of Arakin in the arbitration. The pursuers are also criticised for having failed to seek that the award of expenses in favour of Arakin should be on an agent and client, client paying, basis. During the taxation, the Auditor was asked to restrict the sums payable to the pursuers to those that would have been recoverable on a party and party, party paying, basis. However, the Auditor took the view that, as he was being asked to tax the account of expenses No. 6 of Process on an agent and client basis, such contentions could not be accepted by him. If the contentions raised during the taxation and in this objection are going to be pursued by the defenders, that cannot be done in the context of this hearing. They will have to be focused in the defenders' written pleadings and pursued as part of their substantive defence to this action. For these reasons I repel this objection.

 

[104] 5B. "Details of entries allowed by the Auditor in relation to Rand Associates.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

26

4

 

4.85

 

6

 

52.50

27

4

 

115.50

 

6

 

5.25

 

7

55.00

56.00

29

7

 

15.75

 

8

2.25

0.90

30

1

 

210.00

 

2

 

(outlay) 33.73

 

9

 

10.50

31

1

 

52.00

 

2

6.00

105.00

 

4

 

78.75

32

1

22.50

5.25

37

2

9.00

157.50

61

7

 

18.77

62

1

 

11.10

63

2

 

27.75

64

10

 

2.78

65

3

 

177.60

 

5

 

61.05

66

1

 

99.90

 

3

 

5.55

 

4

55.50

55.50

 

5

 

5.55

 

6

 

1.11

 

7

 

2.75

 

8

72.25

6.10

67

6

 

33.30

68

4

5.55

16.65

 

5

 

20.00

 

6

83.25

83.25

 

7

 

27.75

69

2

 

11.10

70

1

 

11.10

71

1

83.25

83.25

76

2

 

31.00

80

3

 

18.60

84

1

 

12.40

87

8

 

12.40

89

1

 

6.20

91

2

 

43.40

92

5

 

6.20

97

3

 

93.00

98

6

 

6.20

 

7

117.00

62.80

100

5

 

12.40

 

8

62.00

93.00

101

8

 

3.10

112

1

27.20

109.40

114

3

 

3.40

 

6

 

6.80

122

7

 

6.80

124

7

 

186.00

126

2

 

3.40

128

1

 

61.20

129

3

 

3.40

131

4

4.80

2.00

131

5

 

3.40

134

7

 

20.40

135

8

 

40.80

137

1

 

27.20

139

2

40.80

34.00

 

5

 

13.60

141

8

 

3.40

144

8

 

3.40

146

1

 

13.60

155

3

 

3.40

 

6

 

5.44

 

7

 

13.20

156

1

 

34.00

 

2

 

17.00

158

3

 

13.20

 

4

 

47.60

162

9

 

13.60

164

1

 

15.00

165

1

 

142.50

 

2

 

172.50

 

5

 

7.50

166

5

 

15.00

169

3

 

30.00

170

6

 

3.75

171

4

 

3.75

 

8

82.50

225.00

174

10

 

15.00

175

6

 

75.00

176

10

 

165.00

177

2

 

37.50

 

7

 

30.00

179

2

 

15.00

 

3

 

1.50

 

6

 

1.50

81

3

 

1.50

 

4

 

3.75

182

4

 

22.50

184

4

 

15.00

186

1

 

3.75

188

2

 

37.50

188

3

 

18.75

 

5

 

75.00

 

6

 

18.75

195

2

 

7.50

201

5

 

3.75

 

6

 

1.58

 

The Auditor has failed to rule on the Defenders' objection. The Court is invited to find that Rand were instructed on the advice of the Pursuers and that the Defenders were not advised that Rand's fees would not be recoverable. The Court is invited to ordain the Auditor to off-set the amount of Rand's fees not recovered judicially against the amount of the taxed account. Reference is made to a Letter from the Pursuers to Arakin dated 28th Jan 1991, produced herewith, wherein they state "in my view most, if not all of the Rand expenditure by the Company will be recoverable". Reference is also made to the Auditor's decision on the matter of Scott Schedules. The Court is invited to find that the Pursuers ought not to have involved themselves in matters pertaining to Contract conditions - matters which were the specific domain of Rand Associates - and to tax-off all charges in relation thereto. The Arbiter in his findings refused to allow Rand to be certified as Expert Witnesses and in doing so made reference to the fact that the Defenders' Director Mr. McNamara was skilled in the preparation of Final Accounts. The costs of Tods Murray's involvement in these matters and those incurred by their insistence in producing a final Account by this method ought to be taxed-off as no legal skill was required. Reference is made to a letter from Arakin to Tods Murray dated 12.10.92. Outwith Tods Murray's in-put into Phase II, the only additional contribution of a qualified Solicitor was in attending only 21/2 days of the 55 day Hearing.

[105] This is another objection that is based on factual contentions by the defenders that are disputed by the pursuers. During the course of the arbitration between Arakin and the City of Glasgow District Council, Rand Associates were instructed to assist Arakin. Mr. Downing and Mr. Miller of Rand Associates gave evidence during the arbitration. Having made a finding of expenses in favour of Arakin, the Arbiter declined to certify Mr. Downing and Mr. Miller as skilled witnesses. The Arbiter's reasons for doing so are quoted on page 6 of the Auditor's Report (No. 19(a) of Process). At the taxation, Arakin contended that, before Rand Associates were instructed, the pursuers should have advised them that the recovery of Rand's fees was unlikely, that the pursuers had not done so and that the pursuers should bear those costs of instructing Rand which had not been recovered from the City of Glasgow District Council.

[106] In this objection to the Auditor's Report, the defenders argue that the Auditor ought to have taxed off the fees in respect of all the items of work in No. 6 of Process, which related to the work carried out by Rand Associates, including the pursuers' meetings with members of Rand's staff and their consideration of and advising on documents produced by Rand. That objection is predicated on the contention that the pursuers gave Arakin advice that turned out to be erroneous.

[107] In my opinion, the Auditor was in no position to resolve the factual and legal issues that lie behind this objection. If the defenders seek to pursue their contentions that the pursuers gave Arakin negligent advice, prior to the instruction of Rand Associates, which the averments at page 54 of the Closed Record suggest they do, and that such advice had a bearing on whether or not Rand Associates should have been instructed, those are matters that will require to be pursued in the defenders' defence to the action. For these reasons, I repel this objection.

 


[108] 6. Entries allowed by the Auditor in relation to the Pursuers' photocopying charges of Productions C1, C2, C3, C, C28 and R1-22.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

235

6

 

£6,641.25

 

7

 

£2,026.88

 

The Auditor erred in allowing a figure of £7,500 plus VAT in respect of the photocopying of Productions C1, C2, C3, C, C28 and R1-22 referred to at pages 109, 110 and 235. The defenders maintain that any agreement reached in the course of the taxation between the Pursuers and the Defenders was for £7,500 inclusive of VAT. The Defenders also maintain that the £7,500 was to cover all photocopies, not just the copying of productions. The Auditor has added VAT. The Auditor has also allowed for photocopying throughout the account. In the absence of any clear consensus in idem between the parties, the matter should be remitted back to the Auditor. In any event, the Defenders allege that the Pursuers misled the Defenders' Director Mr. McNamara in the course of the taxation. They initially represented to the Defenders per their account at pages 109 and 110 that they had made 8 copies of Productions C1, C2, C3, C, C28 and R1-22, a total in excess of 40,000 sheets. In the course of the taxation they represented that they had in fact copied about 30% of these papers, i.e. about 16,000 sheets. On the basis of said representations the Defenders agreed to a cumulo figure of £7,500. All of these copies were in fact taken by Rand Associates and not the Pursuers. The Defenders only became aware at the close of the taxation that the Pursuers had only copied a total of approximately 1464 sheets. The account should be remitted back to the Auditor and the Pursuers should be ordered to produce to the Auditor said photocopies.

[109] It is clear from the terms in which this objection is framed that it is based on the allegation that Arakin's agreement to a cumulo figure of £7,500 in respect of photocopying charges resulted from their having been misled by representations made by the pursuers. There is also a factual dispute as to whether the figure of £7,500 was intended to be inclusive or exclusive of posts and incidents and VAT. The Auditor's Report (No. 19(a) of Process) deals with this latter point by stating it had been reported to him at taxation that those charges had been agreed by the parties on a "commercial basis" at the restricted figure of £7,500 in total, but that subsequently dispute arose as to posts and incidents and VAT.

[110] Having regard to the nature of the issues raised by this objection, it would be impossible for me to hold that the Auditor erred in law in not having taxed off the two entries on page 235 of No. 6 of Process, which are referred to in the objection. However, I do not understand how the Auditor considered it was appropriate for him to implement an 'agreement' between the parties, if there was a dispute between them as to whether or not the figure of £7,500 was inclusive of posts and incidents and VAT. Accordingly I sustain this objection, on the basis that at some stage the entries in No. 6 of Process relating to photocopying charges will require to be re-taxed. In so ruling, I wish to make clear that I am not suggesting that it would be for the Auditor to rule on every allegation of misrepresentation that the defenders may choose to advance. Depending on which allegations the defenders wish to pursue, it may be necessary for particular allegations to be raised in the pleadings and resolved by the court before the account is remitted back to the Auditor. On the other hand, once the account is remitted back to the Auditor, in terms of Rule of Court 42.7-(6).(e) he may disallow any item of work or outlay which is not vouched to his satisfaction.

 

[111] 7. Entries allowed by the Auditor in relation to the Pursuers' communings with Glasgow District Council

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

42

6

 

5.25

48

2

 

10.50

48

3

 

1.05

48

4

 

15.75

48

5

 

13.12

48

6

31.50

26.25

48

7

 

5.25

49

6

 

26.25

50

1

 

262.50

50

2

 

2.10

50

3

 

11.73

51

3

 

63.00

51

6

 

8.50

52

3

 

325.50

42

4

 

13.11

52

5

2.62

2.62

52

6

 

1.05

53

6

 

36.75

53

8

 

10.50

56

4

 

199.80

57

5

 

83.25

57

6

149.85

321.90

57

8

0.10

27.75

58

1

 

11.10

58

5

 

11.10

60

1

 

66.60

60

3

 

5.55

62

5

 

16.65

63

3

 

5.55

63

6

44.40

11.15

66

9

 

5.55

69

3

 

5.55

73

5

 

12.40

73

6

 

3.10

74

6

 

18.60

75

3

 

6.20

75

9

 

6.20

76

5

 

6.20

77

1

 

18.60

78

1

 

12.40

82

6

 

12.40

83

1

 

6.20

83

3

 

24.80

84

4

 

37.20

85

5

 

12.40

86

5

 

527.00

86

6

 

12.65

86

7

 

12.40

87

3

62.00

434.00

87

4

 

12.65

87

5

 

80.60

88

4

 

3.10

88

5

 

6.20

89

3

 

6.20

89

4

12.40

6.20

90

6

 

6.20

92

2

 

12.40

93

3

 

55.80

93

4

 

4.96

94

1

 

2.48

94

3

 

4.96

94

8

 

24.80

97

5

 

24.80

99

5

 

74.40

99

6

 

6.20

105

1

 

18.60

107

1

 

43.40

113

3

 

210.80

115

4

 

6.80

116

1

 

61.20

121

4

 

13.60

121

5

 

6.80

 

The Auditor erred in allowing the above items. Where work has been carried out contrary to the clients' instructions then charges in respect of such work must be taxed off. Reference is made to Hastings on Expenses at page 119. The Pursuers were given specific instructions not to enter into dialogue with Glasgow District Council. The Pursuers failed to comply with those instructions.

[112] As this objection is based on the allegation that the pursuers acted contrary to instructions, an allegation that the pursuers deny, it is clear that this objection must be repelled. If the defenders wish to pursue this allegation they will require to seek to amend their pleadings, so that this particular issue of alleged mismanagement of the cause is properly focused.

 

[113] 8. The details of entries allowed by the Auditor in relation to mismanagement of the cause by the Pursuers.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

 

The Auditor erred in holding (on page 4 of his report) that the manner in which the arbitration was conducted or might have been conducted was essentially a matter of professional judgement for the clients' solicitors. Reference is made to Hastings on Expenses at page 119. The Auditor failed to appreciate that he had the discretion to disallow charges incurred where there had been mismanagement of the cause. The Auditor declined to make any ruling concerning mismanagement of the cause. Reference is made to Hastings at page 119.

There was mismanagement of the cause in the following respects:-

(a)               The Pursuers failed to appreciate that the contract was "at large" due to liquidated and ascertained damages being levied and the Architects having issued additional instructions. They accordingly failed to advise the Defenders that the valuation could have been prepared on a day work basis to conclude the final account. Had they identified that timeously, it would have taken at that stage a clerkess approximately 4 hours to value said outstanding works up to the determination of the contract, none of the Defenders' day works being disconform to the contract or bill rates. A day work valuation could have taken place quickly and easily. The costs in connection with phase 1 of the arbitration being measurement or works were unnecessary and could have been avoided. Further, the delay in the arbitration caused by phase 1 would have been avoided. Phase 1 held up the arbitration by approximately four years. If the arbitration had proceeded directly to phase II, the arbitration would have been completed well before 1993. By the conclusion of the Arbitration of 1993 the Defenders had lost their core trading business. In any event, the Auditor therefore erred in allowing the costs relative to phase I.

(b) The Pursuers delayed unreasonably in recovering documents from Glasgow District Council ("GDC"). The Pursuers were instructed in 1987 to recover documents. These were not recovered until 1991. Certain documents (particularly the GDC Clerk of Works diary and internal memos passing between the GDC surveyor and architect) showed that GDC employees had acted in a highly improper manner. Had the Pursuers recovered these documents timeously in about 1987, it would have been apparent that

(i) GDC were aware that the Defenders were owed £90,000 although they outwardly denied this and that the surveyor had been directed not to pass payment;

(ii) GDC were wrongly directing the Architect on what to pay and not to pay;

(iii) The Architect wrongfully directed the Clerk of Works not to sign for day works;

(iv) GDC had falsely withheld £16,000 from the Defenders alleging bad workmanship whereas the loss had been caused by frost damage when the site had been the responsibility of GDC;

(v) The Architect was aware of additional sums due to the Defenders of £8,000.

Had GDC been faced with these documents recovered in 1987 it is unlikely that the arbitration would have proceeded. Had the Defenders been aware of these documents in 1987, they could have avoided the matter proceeding to arbitration and could have raised Court proceedings against GDC in respect of the breach of contract. The documents showed that the total value of the final account was approximately £271,500 being the above figures of £90,000, £16,000 and £8,000; £6,500 being a refund to liquidate and ascertained damages wrongly applied and £151,000 of stage payments made prior to termination. The Arbiter in his award found that the total final value of the contract was £273,000.

(c) The Pursuers in their closing submissions at the taxation accepted that the main purpose of the arbitration was to save the Defenders. The main threat to the Defenders' business was their removal from the Council list of approved contractors. When the Defenders first consulted the Pursuers in 1986/87, the defenders were faced with removal from the list. On 24th February 1987, a partner of the Pursuers met the GDC solicitor and stressed to GDC the importance of the Defenders of restoration to the list. The Pursuers (in page 6 of their letter dated 20th April 1995 to the Law Society of Scotland) admitted that at the end of 1987 it had been made clear to them that the Defenders would not be restored to the general building tender list. The Pursuers failed to tell the Defenders of this. Had the Defenders been made aware of this they would not have continued to commit themselves to the substantial costs of the arbitration.

(d) (deleted from Minute of Amendment No. 35 of Process, when it was lodged)

(e) (deleted from Minute of Amendment No. 35 of Process, when it was lodged)

(f) (deleted from Minute of Amendment No. 35 of Process, when it was lodged)

(g) The Pursuers failed properly to warn the Defenders about the costs and the potential costs of the arbitration. They gave them insufficient information and advice upon which to make a sound and informed commercial decision as to whether or not ultimately to proceed with the arbitration. The Pursuers had informed the Defenders' Accountants in 1987 that the total costs of the arbitration to the Defenders would be as high as £60,000 if they lost. The Defenders ultimately won the Arbitration. The Defenders' total expenses claimed were £485,000 against which the Defenders only recovered £207,000 from GDC, resulting in a shortfall in excess of £275,000. The Defenders would not have proceed with the Arbitration had they been informed of the true level of potential costs.

(h) There was excessive delay in the appointment of the Arbiter. The Defenders had stressed to the Pursuers the importance of a speedy resolve to the matter. It took the Pursuers in excess of 21/2 years to have an Arbiter appointed.

(i) There had been serious misconduct and impropriety on the part of GDC Officers. This should have been referred to and included in the Deed of Submissions prepared by the Pursuers. The Pursuers failed to do so. The Arbiter in his final award accordingly refused to deal with that issue. The Pursuers offered to rectify matters by lodging an application for a Stated Case. As by this time (1993) the Defenders had lost their core business, they required to take an economic decision not to pursue that particular head of claim further.

[114] The terms of this objection include various allegations of mismanagement of the cause, directed against the pursuers. For the reasons I have previously explained, it was not for the Auditor to rule on the validity or otherwise of such allegations during the course of the taxation. Nor can I rule on them in the context of a hearing on Notes of Objection to the Auditor's Report. I accordingly repel the objection, on the understanding that it will be for the defenders to decide whether or not they wish to pursue these allegations as part of their defence to the action.

 

[115] 9. The Auditor misdirected himself by allowing costs for trainees as they are not qualified, refer to page 5, item 2 of No. 237 of Process. Abatement required, all costs for trainees be abated from No. 6 of Process and as Tods Murray was charging throughout their account £74.00 per hour for solicitors and trainees, referred to in their time-records No. 217 of Process, that the number of hours for trainees be removed from No. 6 of Process at an hourly rate of £74.00 per hour. For years Tods Murray has been making illegal profits by charging Arakin advanced rates for solicitors and applying that advanced rate to trainees rates, refer to No. 217 of Process.

[116] As I understand the position, the law accountants who drafted the Account of Expenses No. 6 of Process originally charged all attendances by the pursuers at the arbitration hearing at the same rate, irrespective of whether an attendance was by a partner of the pursuers or by a qualified solicitor or trainee solicitor employed by the pursuers. I also understand that mistake was identified before the taxation got underway and that some adjustments in respect of the mistake were conceded by the pursuers during the course of the taxation. In his Report (No. 19(a) of Process) the Auditor makes clear that he taxed the charges claimed by the pursuers to reflect which attendances were by qualified solicitors and which by trainees. The Auditor indicates that he proceeded on the basis that the decision as to whether a qualified solicitor or a trainee should be in attendance was a matter for the professional judgement of the pursuers. It was for them to ensure that the interests of Arakin were reasonably safeguarded. In my opinion, the Auditor was correct to proceed on that basis. Subject, of course, to their professional charges being subject to taxation in accordance with the provisions of Rule of Court 42.7, it was, in my opinion, a matter for the pursuers to decide whether one of their partners or some other member of their staff should be in attendance during the arbitration hearing. Moreover, Mr McNamara was obviously aware that the representatives of the pursuers were in attendance during the hearing. No objection on behalf of Arakin appears to have been taken at the time to a partner or other representative of the pursuers being in attendance during the arbitration. In these circumstances, it was for the Auditor to tax the charges claimed in respect of the attendances at the arbitration and to do so in accordance with the provisions of Rule of Court 42.7. Having considered the terms of this objection, No. 217 Process and the Auditor's Report (No. 19(a) of Process), I am unable to identify any error on the part of the Auditor, which would entitle me to uphold this objection. In these circumstances, I repel this objection.

 

[117] 10. The Auditor misdirected himself by allowing Tods Murray to recover as an addition, posts, incidents and telephone calls in No. 6 of Process. As all VAT invoices submitted by Tods Murray are inclusive of posts, incidents and telephone calls abatement required of posts, incidents and telephone calls from No. 6 of process. NB. It is established from No. 119 of Process, BT Records that Tods Murray was erroneously charging 660% (on average) higher for telephone calls in No. 6 of Process.

[118] It was for the Auditor to decide whether to allow the pursuers' claim for an appropriate allowance for posts and incidents, in addition to the figures taxed in respect of each item of work. In my opinion, there is no merit in that part of this objection. The charges recoverable in respect of telephone calls I have already dealt with. The terms of No. 119 of Process merely confirm that the disputes between the parties as to the length and need for the telephone calls, which took place between Mr. McNamara and the pursuers, are not matters that the Auditor could have been expected to resolve. I repel this objection.

 

[119] 11. The Auditor misdirected himself through allowing Tods Murray costs for entries with no vouchers for alleged work in No. 6 of Process. As the Auditor was aware that Tods Murray had erroneous charges on No. 6 of Process, refer to Rand Associates letter of 22nd August 1986, pages 17-29 of No. 76 of Process and item B, page 10 of No. 237 of Process. The Auditor is in breach of Rule 42.2.3. Abatements required, all entries without vouchers in No. 6 of Process be abated.

[120] Rule 42.7 - (6)(e) provides that the Auditor may disallow any item of work or outlay that is not vouched to this satisfaction. I have considered the terms of the letter of 22 August 1986 (No. 76 of process) and the Minute of Amendment for Mr. McNamara (No. 237 of Process). In passing I should note that at the motion roll hearing on 13 May 2004 Mr. McNamara informed the court that he was not insisting upon the Minute of Amendment. Having done so, it remains unclear which items of work or outlays the defenders complain were not adequately vouched. Moreover, in terms of Rule of Court 42.7(6)(e) the Auditor had a discretion as to whether he will disallow an item of work or outlay that is not vouched to his satisfaction. In these circumstances, I repel this objection.

 

[121] 12. The Auditor misdirected himself by allowing Tods Murray to recover costs for an Addendum as there is no Court Interlocutor granting Tods Murray authority to include an addendum. In any event Tods Murray have not raised a VAT invoice to support an addendum and any sums owed are now prescribed.

[122] The Addendum to the Account of Expenses No. 6 of Process has never been lodged in process as a separate item of process. It was prepared by the pursuers and presented to the Auditor shortly before he began his taxation of No. 6 of Process. Since the Auditor completed the taxation of No. 6 of Process, the Addendum has been bound as part of No. 6 of Process. All this appears to have occurred without objection from Arakin. Indeed it was only when the second Minute of Amendment to Note of Objections (No. 241 for Process) was lodged on 21 May 2004 that objection was first taken to the taxation of the Addendum. Those acting for Arakin during the taxation must have been given a copy of the Addendum, because it contents were considered during the taxation. Indeed, a significant number of the fees for items of work in the Addendum were taxed off by the Auditor. Of the fees claimed, which amounted to £9677, a total of £8233.67 was taxed off. The fees allowed all related to periods of time when trainee solicitors were engaged in dictating notes of the evidence that had been led during the arbitration hearing. No suggestion is made by the defenders that such work was not carried out.

[123] The objection proceeds upon two grounds. The first is that the court has never pronounced an interlocutor granting authority to the pursuers to "include an addendum". As a matter of fact, that is correct. In my opinion that did not prevent the Auditor from taxing the Addendum on the basis that it was part of the account(s) of expenses relating to the work which the pursuers had carried out for Arakin in respect of the dispute and arbitration between Arakin and the City of Glasgow District Council. The Auditor was authorised to tax the account(s) by the interlocutor of 7 February 1997. Moreover, in view of the fact that those acting for Arakin at the taxation did not object when the Auditor was presented with the Addendum and the Addendum was referred to during the taxation, I consider that the defenders are now barred from seeking to rely on the fact that no interlocutor was pronounced allowing the pursuers to add an addendum to No. 6 of Process. Had issues been raised, when the Addendum was first submitted to the Auditor, about the production of the Addendum or about whether the Auditor was authorised to tax the Addendum, I have little doubt that the court would have been prepared to pronounce any interlocutor that was deemed to be necessary to allow the Auditor to tax the Addendum. In my opinion, both the pursuers and the Auditor were perfectly entitled to rely on the fact that those acting for Arakin failed to take any objection to the Addendum being considered by the Auditor. The pursuers and the Auditor having done so, it is too late for the defenders now to argue that the Auditor should not have dealt with the Addendum

[124] The objection also raises issues relating to VAT and prescription. As I have already made clear, such issues were not for the Auditor to deal with. It is open to the defenders to raise them as part their defence to the action. In these circumstances, I repel the objection.

 

[125] 13. The Auditor misdirected himself by not checking invoices to verify costs in No. 6 of process, if he had he would have discovered that Tods Murray was making an illegal profit from Counsel's costs of £661.00, refer to page 16, item 10 of No. 237 or process. Abatement required, £661.00 be abated from No. 6 of Process.

[126] The objection involves, as I understand it, a challenge to whether the fee of £661 has (a) been properly charged, (b) is encompassed within any of the large sums for counsels' fees which are included, as outlays, within No. 6 of Process and (c) has been paid by Arakin. It is quite impossible for me to resolve such issues in a Hearing on Objections. Insofar as the objection relates to the Auditor's Report on his taxation of No. 6 of process, I must repel the objection. As I have already indicated, in the fullness of time there will require to be a reconciliation between the sums claimed by the pursuers and those paid by Arakin, whether to the pursuers themselves or directly to Faculty Services Limited. When that reconciliation takes place, the court will, in the absence of agreement between the parties, require to decide on the available evidence which fees have been charged by counsel, which fees were recoverable by the pursuers and which fees have been paid by Arakin, whether to the pursues or directly to Faculty Services Limited.

 

[127] 14. The Auditor misdirected himself in page 19A of his report by failing to deduct sums paid by Arakin for No. 6 of Process and he further failed to allow Compound Interest in his reconciliation as he was aware Tods Murray and Arakin agreed interest would be paid on over-payments, refer to page 10 of No. 237 of Process. Agreement is required from Tods Murray that No. 75 of process is the correct value of the state of the account when abatements are deducted and Compound Interest is applied before any other objections are heard.

[128] This objection also illustrates the need for a reconciliation between the sums that the pursuers were entitled to have paid by Arakin and those that have been paid by Arakin. It is contended on behalf of the defenders that on the date the action was raised, far from Arakin being due sums to the pursuers, Arakin had overpaid the pursuers and were due sums by the pursuers. It is also contended that in carrying out the necessary reconciliation compound interest should be allowed on the over-payments made by Arakin. In my opinion, none of these matters were for the Auditor to resolve. On the contrary, in the absence of agreement between the parties, they are matters which the court will require to resolve.

[129] In the course of taxing No. 6 of Process, the Auditor has compared the fees and outlays claimed in respect of specified periods with the fees charged in certain invoices that the pursuers had previously submitted to Arakin and sums paid by Arakin before No. 6 of Process was drafted and lodged in process. Those periods relate to parts, but not all, of the total period covered by No. 6 of Process. Useful though that comparative exercise may be, an overall accounting as between the pursuers on the one hand and Arakin and the defenders on the other is a matter the Court will ultimately require to determine.

 

[130] 15. It is noted that items 7, D to F have been removed from No. 35 of process. I have just become aware of this by reference to Lord Mackay's note and was not informed by Arakin's legal team of these omissions that are salient to the cause of A. McNamara. I refer to page 1351 of Spoors Legal Encyclopaedia, Volume 13 and ask the Court to re-introduce these items in No. 35 of Process as they are recorded from pages 43 to 54 in the present Record.

[131] I am not prepared to re-instate the averments that were deleted from No. 35 of Process, by the interlocutor of Lord Osborne dated 19 March 1999. In pronouncing that interlocutor, Lord Osborne allowed the defenders' Note of Objections to the Auditor's Report on his taxation of No. 6 of Process (No. 22 of Process) to be amended in terms of the Minute of Amendment (No. 35 of Process) under the exclusion of paragraphs 7(d) to (f) thereof. It would not be competent for me to make a ruling whose practical effect would be to overturn Lord Osborne's decision. In these circumstances, I repel this objection.

 

[132] 16. The Auditor misdirected himself on various matters and was unreasonable in ignoring Arakin's relevant instructions to Tods Murray, he was unreasonable in using his discretion on non vouched entries and on these issues as a consequence he failed fully execute his remit.

[133] This objection summarises other objections with which I have dealt. For example it is broad enough to encompass the submissions Mr. McNamara made about the entries relating to telephone calls and work in connection with Scott Schedules. However, the objection is not focused on particular entries in the No. 6 of Process and when I was addressed in respect of this objection neither Mr. McNamara nor Mr. Frost directed me to specific entries. In these circumstances, I have no alternative but to repel this objection.

 


Note of Objection by Defenders to Report by the Auditor of Court on the Pursuers

Account of Expenses (No. 12 of Process)

[134] 1A. Details of Entries Allowed by the Auditor in relation to Settled Fees/Paid Invoices.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

8 - 41

All

 

13,305.88

 

Pages 8 to 41 of the Account cover the period from 1st January 1994 to 25th March 1994. The Pursuers' Fee Note 66028 (fee Note II) dated 19th April 1994 in the sum of £53,500 covered the same period. Said Fee Note has been paid. The Pursuers own ledgers show that said invoice had been paid. Reference is made to the ledger entries dated 16th June 1994. The Auditor erred in holding that it had not been paid. (Reference is made to page 11 of the Auditor's Report). Accordingly, the Auditor ought to have proceeded upon the basis of the doctrine of Settled Accounts.

In the event, for the period covered by said Fee Note, the Auditor disallowed charges totalling £13,305.88. Said figure was deducted by the Auditor without regard to Fee Note II. It is submitted that the figure of £13,305.88 ought to have been deducted from the Fee note Total of £53,500 on the basis that the fees therein fell to be treated as maxima fees recoverable.

Separatim. The Defenders contend that subject to the outcome of the other objections set out herein, the Account, insofar as it concerns pages 8-41, ought to be remitted back to the Auditor to tax of new.

[135] This is one of a number of objections that involve disputes between the parties as to whether, prior to this action having been raised, Arakin had paid in full invoices which the pursuers had submitted to them. All of these invoices are to be found within the productions, although some of them have been lodged as appendices to or parts of other productions. Against the background of such factual disputes, the objections touch on the application of the doctrine of settled accounts.

[136] The Auditor stated, on page 2 of his Minute in respect of this Note of Objections (No. 27(b) of Process), that when disputed matters of fact arose during the taxation he either took a view on the dispute or reserved the matter for the court's decision. He also observed that after the completion of the taxation procedure there will require to be a final cash reconciliation between the parties to demonstrate that no duplication of charges has occurred.

[137] In relation to this particular objection, there is a dispute between the parties as to whether Arakin settled in full the fees, outlays and VAT that the pursuers sought in their Invoice No. 66028 dated 19 April 1994 (a copy of which forms part of No. 75 of Process). The pursuers contend that Arakin did not and that, in particular, the VAT included within the invoice has never been paid. They make reference to a letter dated 5 April 1995, which is attached to No. 27(b) of Process.

[138] I have already set out the pursuers' approach to the application of the doctrine of settled accounts in the circumstances of this case. On account of the fact that there is a dispute between the parties as to whether Invoice No. 66028 has been settled in full, I have reached the view that in the context of ruling on the defenders' Note of Objection to No. 12 of Process I could not, and in any event should not, reach any final decision as to the application of the doctrine of settled accounts in respect of the fees and outlays claimed on pages 8 - 41 of the No. 12 of Process. That is a matter that will require to be addressed when a final reconciliation is carried out between the sums the pursuers have been entitled to recover from Arakin and the sums they have been paid. Having said that, I do not accept the defenders' argument that the figure of £13,305.88, being the total of the sums the Auditor taxed off from pages 8 - 41 of No.12 of Process, falls to be deducted from the figure of £53,000 for fees in Invoice No. 66,208. If the doctrine of settled accounts did not apply, the Auditor of Court did not err in deducting the figure of £13,305.88 from the fees and outlays claimed in No. 12 of Process, for the period from 1 January 1994 to 25 March 2004, rather than from £53,000. On the understanding that a reconciliation is going to be required at a later stage, I repel this objection.

 

[139] 1B. The Auditor misdirected himself by stating fee note 66028 had not been paid, that fee note had been paid in full and over and above this amount Tods Murray had £75,000 of additional sums Arakin paid without invoice. The Auditor misdirected himself by taxing No. 12 of Process after March 1994, the date of the last invoice until Tods Murray raised a VAT invoice refer to No. 75 of Process. Since the Diet of Taxation Arakin Limited and a number of Solicitors have written to Tods Murray to asking them to supply VAT invoices for the sums sued for, despite these requests Tods Murray has failed to supply invoices. Abatement required all sums in No. 12 of Process be abated after March 1994 as under Statute of Limitation Act 1973, section 18A the sums in No. 12 of Process after March 1994 are prescribed.

[140] This objection also touches on the factual issue as to whether Invoice No. 66028 was paid in full. However the main thrust of the objection relates to another issue, namely whether the pursuers' claim to fees and outlays in No. 12 of Process, in respect of the items of work dated after March 1994, has prescribed. The defenders contend that it has, by reason of the fact that the pursuers have never submitted VAT invoices in respect of such items of work, despite being requested to do so.

[141] In my opinion, it was not for the Auditor to consider issues such as whether the pursuers have abided by the relevant VAT Regulations and whether any part(s) of the pursuers claims for fees and outlays have prescribed. Such issues are for the court to rule on and will, if necessary, be addressed, at a later stage in the action. On that understanding, this objection is repelled.

 

[142] 1C. The Auditor misdirected himself by ignoring the £75,000.00 paid by Arakin as Tods Murray has never raised a VAT invoice to support the £75,000.00. The Auditor should have directed Mr. Dobie to amend No. 12 of process as Solicitors (Scotland) Account Rules 1995, section 6(1)d. The impact on the Account Rules up to the Diet of Taxation can be ascertained in No. 75 of Process, which also takes into account the present abatements for No. 12 of Process, further more the Auditor was fully aware that Arakin and Tods Murray had agreed that Tods Murray would pay interest on overpayments. Abatements required that on all sums overpaid by Arakin Judicial Compound Interest is applied from the date the overpayment is identified until Tods Murray pays A. McNamara.

[143] This objection also touches on issues that are for the court, rather than the Auditor, to determine. How any payment of £75,000 made by Arakin should be deemed to have been allocated against any unpaid invoices previously submitted by the pursuers to Arakin was not for the Auditor to rule on. Similarly the application of the Solicitors (Scotland) Account Rule 1995 is a matter for the court, as are issues relating to interest. On that basis, and acknowledging that the court may require to rule on such issues at a later stage in the action, the objection is repelled.

 

[144] 2. Details of Entries allowed by the Auditor in relation to actions contrary to clients' instructions.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

All

All

Taxed off

All sums

 

At page 5 of the report the Auditor declined to rule on the proposition that the Pursuers acted contrary to and without instructions from the Defenders. (Reference is made to Hastings on Expenses at page 119). In this regard it is submitted that the Account ought to be remitted to the Auditor to tax of new.

The Pursuers were under standing instructions by the Defenders that any proposed amendments to the record should be sent to the Defenders for approval prior to lodging. The Defenders made it clear to the Pursuer that they expected this by inter alia letters dated 10/7/91, 30/10/91, 1/11/91, 22/11/91, 27/1/92 & 13/2/92. Notwithstanding this, the Defenders only became aware of the precise details and the import of the Pursuers' amendments to the Closed Record in about July 1994, a number of months after the amendment procedure had occurred.

These amendments were based on agreements reached with the opponents' Agents (Messrs Brechin Robb) and were on the basis of valuations by the opponents' Accountants ("KPMG"). Those agreements were not based on valuations or the opinion of the Defenders' own Accountants Pannel Kerr & Forster ("PKF"). Agreements were reached between the Pursuers and Brechin Robb in about February/March 1994. On 31 May 1994 Brechin Robb advised the Pursuers that agreements had been reached and were binding. Said agreements were reached without the defenders' knowledge or consent. The Defenders only became aware of the amendments made to the record and the agreements when they were shown the amended Closed Record on 27/7/94. In particular the Pursuers, without the Defenders' knowledge or consent, wrongly reached agreement on and undervalued the Defenders' claims as follows:-

(i) The 1993 Corporation Tax loss claim was withdrawn when it should not have been;

(ii) They wrongly ignored the 1984 company losses;

(iii) There was incorrect deduction of Corporation Tax from 1985 and 1986 Bonuses;

(iv) They wrongly agreed to the reduction of interest on corporation tax due to the Defenders;

(iv) Refer to No. 239 of Process, meeting of 13th September 1996 Counsel states he was unaware Mr. Dobie had all information concerning Corporation tax and that he was unaware that Mr. Dobie had a higher valuation for Duchess Estate. I refer to Mr. Dobie's fax to PKF where Mr. Dobie admits to using Arakin's opponent's figures.

Agreement was reached regarding all of the above or reductions were made to the Defenders' claims in respect of all the above without the Defenders' knowledge or consent.

Further the Pursuers failed to follow the Defenders' instructions to obtain guidance from the Defenders' Accountants, PKF on issues of tax. PKF had given the Pursuers clear and correct guidance on how the sums claimed would be treated as to tax, namely that any sums awarded would be subject to tax and would therefore have to be grossed up. The Pursuers failed to follow said guidance. The Pursuers failed to advise Senior Counsel of said specialist and correct tax advice.

The Auditor failed to rule on the issue of the Pursuers failing to follow the Defenders' instructions.

[145] This objection is another example which raises issues which it would have been quite inappropriate for the Auditor to have to deal with. The provisions of Rule of Court 42.7(6)(d)(i) do admit the possibility of it being demonstrated to the satisfaction of the Auditor that an item of work, in respect of which fees are claimed, was carried out by a solicitor contrary to the instructions of the client. In my opinion, however, where the resolution of such an issue involves adjudicating on factual questions of complexity, involving questions as to the reliability of the recollection, and possibly also the credibility, of those involved in the giving and taking of instructions, it would be inappropriate to expect the Auditor to resolve the issue. In the present case, the issues involved, including whether the pursuers acted contrary to instructions and, if so, whether they should be remunerated for work they were explicitly instructed not to carry out, are of such complexity that even if they were explicitly raised during the hearing before the Auditor he was perfectly entitled not to deal with them. If the defenders wish to pursue such allegations, that will require to be done before the court, as part of the defenders' defence to the action. Their defences include averments to similar effect as the contentions involved in this objection. The court will require to deal with these averments in due course. On that basis, I repel this objection.

 

[146] 3. Details of Entries allowed by the Auditor in relation to quantification work carried out contrary to clients' instructions.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

28

6

 

230.00

 

31

10

 

11.50

 

32

1

 

11.50

 

32

2

 

11.50

 

34

3

 

603.75

 

35

4

 

11.50

 

35

12

345.00

575.00

 

35

13

 

126.50

 

35

14

 

15.40

 

35

15

 

5.75

 

35

16

 

5.75

 

36

1

 

11.50

 

36

2

 

11.50

 

42

4

 

57.50

 

42

5

12.00

22.50

 

43

2

 

103.50

 

43

3

 

12.00

 

44

1

 

27.00

 

44

2

 

11.50

 

44

3

 

11.50

 

45

3

 

345.00

 

45

5

 

34.50

 

45

6

 

230.00

 

45

7

 

56.16

 

45

8

 

11.50

 

45

9

 

5.75

 

48

4

 

5.75

 

48

5

 

23.00

 

48

6

 

23.00

 

49

2

 

11.50

 

49

6

 

57.50

 

49

9

 

92.00

 

50

3

 

11.50

 

50

4

 

80.50

 

50

5

 

46.0

 

50

6

 

23.00

 

51

6

 

69.00

 

52

3

 

23.00

 

53

2

 

115.00

 

53

4

 

69.00

 

54

4

 

69.00

 

56

3

 

92.00

 

56

5

 

57.50

 

57

9

 

69.00

 

58

1

 

46.00

 

59

1

 

46.00

 

59

6

 

11.50

 

59

7

 

34.50

 

59

8

 

46.00

 

60

3

 

11.50

 

60

4

 

11.50

 

 

At page 5 of his report, the Auditor declined to rule on the proposition that the Pursuers acted contrary to and without instructions from the Defenders. (Reference is made to Hastings on Expenses at page 119).

The Pursuers were instructed that, for the purpose of the McLachlan & Brown action, quantum was to be dealt with exclusively by Pannell Kerr & Foster, Chartered Accountants. The Pursuers were specifically instructed not to become involved in assessing or agreeing evidence regarding quantum. The Pursuers contravened these instructions and involved themselves in matters of quantum without the Defenders' authority to do so and in particular between about February and December 1994 spent considerable time and resources preparing schedules quantifying the heads of claim. As a consequence, unnecessary expense was incurred by the Pursuers, prior to and after Proof. The necessary calculation ought to have been carried out by Accountants qualified to do so rather than by the partner of the Pursuers dealing with the matter. The carrying out of the necessary calculations took the Defenders' Accountants approximately 5 hours which was all that was necessary. The Auditor failed to rule on the issue of the Pursuers failing to follow the Defenders' instructions.

[147] This objection covers in greater detail the same ground as that covered by the last objection. For the same reasons I gave in respect of the last objection, and on the same basis as I repelled that objection, I repel this objection.

 

[148] 4. Details of entries allowed by the Auditor in relation to perusal of charges.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

5

6

263.50

653.50

11

2

460.00

230.00

11

3

 

345.00

14

9

 

690.00

18

7

 

115.00

33

11

345.00

345.00

23

1

225.00

120.00

34

2

 

345.00

 

The Auditor erred in allowing charges representing 50 hours for perusal of documentation.

(i) It was not established that the work was carried out by the Pursuers;

(ii) Without sight of the Pursuers' Account for the period preceding 5th August 1993, the Auditor could not properly assess whether the perusal charges sought were reasonable, justified and free from duplication; and

(iii) In any event, the Pursuers were instructed in 1991 to send all relevant documentation to Pannell Kerr Forster, Chartered Accountants. They failed to comply with said instructions. The perusal charges through the period from 1991 to the Proof in 1994, if incurred (which is denied) were incurred without and contrary to the express instructions of the Defenders.

[149] This objection raises a number of issues. The first is whether the work covered by the specified items of work was carried out. In sub-paragraph (i) it is contended that it was not established that the work was carried out by the pursuers. The approach which the Auditor states he adopted was to allow "reasonable charges for work done so far as supported by file entries or reasonably inferred from such entries". In following that approach he had access to all the pursuers' files for the period covered by No. 12 of Process. Leaving aside the issues of whether the Auditor should have been given access to files that Mr. McNamara was not being allowed to see and whether the pursuers were acting contrary to instructions, the Auditor was perfectly entitled to examine the items of work specified in this objection and to tax them in accordance with the provisions of Rule of Court 42.7. It is clear from the Auditor's Report that he did so and that in the process he satisfied himself that the items of work had been carried out. In my opinion, the Auditor was entitled to reach such a conclusion. I repel the objection in paragraph (i).

[150] The issue raised in paragraph (ii) of this objection is slightly different. It is based on the fact that when the Auditor taxed the Account of Expenses No. 12 of Process, he did not have before him the Account of Expenses No. 36 of Process. As I have previously explained, No. 12 of Process relates to work carried out by the pursuers for Arakin, from 5 August 1993 to 3 July 1995, in connection with the actions in Glasgow Sheriff Court involving Arakin and McLachlan & Brown. No. 12 of Process was taxed by Mr.Tait, the previous Auditor of Court, with his Report being dated 27 March 1998. No. 36 of Process relates to work carried out by the pursuers between 4 August 1988 and July 1993, in connection with the same actions. The terms of No. 36 of Process indicate that the account was not drafted until February 1999, which was after No. 12 of Process had been taxed. The account was prepared after Lord Eassie pronounced an interlocutor dated 18 December 1998, which granted a motion that had first been enrolled on behalf of Arakin on 12 June 1998 and had sought that the pursuers be ordained to lodge detailed time and line accounts in relation to the litigation between Arakin and McLachlan & Brown prior to 5 August 1993. The interlocutor of 18 December 1998 ordained the pursuers to lodge such accounts by 28 February 1999. By interlocutor dated 4 March 1999, the period for lodging the accounts was extended to 25 March 1999 and No. 36 of Process was lodged on that date. The Account was subsequently taxed by Mr. Crichton, the present Auditor, on 26 October 1999.

[151] When Mr.Tait taxed No. 12 of Process he was aware that the pursuers had acted for Arakin prior to 5 August 1993. Indeed he was aware that four fee notes in respect of such earlier work had previously been submitted to and paid by Arakin. Against that background, he records in his Report that he was asked during the taxation to consider the work that had been carried out prior to 5 August 1993 to ascertain "to what extent, if any, there might be duplication of charges in respect of work performed in the earlier period'. In his Report he indicates that he perused the pursuers' files, in respect of the earlier period, and the four fee notes. He then stated:

"As these four Fee Notes are all in narrative form it has not been possible for the Auditor to determine precisely what work was carried out in the respective periods and which may have been duplicated to any extent in the Account before the Auditor for taxation. It is noted that included in the earlier work there was copying of documents, and precognitions taken, but any continuing value of that work is not known and the clients' case appears to have been altered subsequently by Minute of Amendment and substantial adjustments made to it.

The Auditor has had to proceed on the basis that the work in the present Account was reasonably required to be done when it was done."

[152] Against that background, the second issue raised in the objection is whether, when he was taxing the Account of Expenses No. 12 of Process, Mr. Tait could have properly assessed whether the perusal charges sought in the Account of Expenses No. 12 of Process were reasonable, justified and free from duplication, when he did not have sight of the Account of Expenses No. 36 of Process, which had yet to be drafted.

[153] In my opinion, there is no reason why, as a matter of principle, the Auditor could not have taxed the items of work detailed in this objection in accordance with the provisions of Rule of Court 42.7. On the question as to whether the items of work in No. 12 of Process were done on the dates that they bore to be done, the Auditor was, as I have previously indicated, entitled to reach the conclusions he did. It was obviously open to those representing Arakin during the taxation to raise before the Auditor any concerns they had about whether the individual items of work complained of were justified, reasonable and constituted duplication in respect of work carried out prior to 5 August 1993, for which Arakin had been previously charged and had paid. Those representing Arakin did so. Thereafter it was for the Auditor to proceed in accordance with the provisions of Rule of Court 42.7 and in particular those of Rule of Court 42.7-(6). The approach the Auditor followed is explained by him in the passage from his report which I have quoted. In my opinion, in respect of the issues raised in paragraph (ii) of this objection, the Auditor did not err in law. The approach he followed was in accordance with the provisions of Rule of Court 42.7-(6). In particular, once he was satisfied that the individual items of work had been carried out, it was open to him to presume, unless the contrary was demonstrated to his satisfaction, that the items of work were reasonably incurred if they had been incurred with Arakin's implied approval. Subject to the issue of whether the pursuers acted contrary to instructions, which I deal with next, approval could be implied from the fact that the pursuers were acting for Arakin in connection with the actions involving McLachlan and Brown. In these circumstances, I repel the second leg of this objection. In doing so I note that notwithstanding the fact that the account of expenses for the work done prior to 5 August 1993 is now available (No. 36 of Process), the defenders have made no attempt to identify individual items of work in the later account which support the contention that in the preparation of the Account of Expenses No. 12 of Process certain items of work constituted the duplication of charges for work that had already been charged and paid for.

[154] The issue raised in (iii) of this objection is a further allegation that the pursuers acted contrary to instructions. It is unclear whether this particular allegation was raised before the Auditor. Whether or not it was, the allegation is not one that it would have been appropriate for the Auditor to have dealt with. The objection is repelled, on the understanding that the allegation is one that the defenders may be able to pursue before the court as part of their defence to the action.

 

[155] 5A Details of entries allowed by the Auditor in relation to rates of charge.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

8 - 63

All

 

 

 

The Auditor erred at page 7 in his Report by inferring that agreement had been reached as to the rates of charge for the period 1st January 1994 to close of the Account. At pages 5-7 in his Report, the Auditor refers to correspondence between the parties. Item 4 is an excerpt from the Defenders' letter addressed to the Pursuers, dated 31st December 1993. The Defenders accepted the Pursuers' rates of charge, subject to taxation. Excerpts from the correspondence confirm the position adopted by the parties. The Auditor further erred by allowing a rate increase as a Solicitor is not allowed a higher rate when he is subordinate to Counsel, Rule of Court 42.14.2(b).

Separatim. The Defenders submit that the Pursuers are not entitled to charge enhanced rates given their failure to act in accordance with the Defenders' instructions.

It is submitted that the Account ought to be remitted back to the Auditor to be taxed (I) for the period 1st January 1994 to 31st December 1994 on the basis of an hourly rate of £80; and (ii) for the period of 1st January 1995 to 3rd July 1995 on the basis of an hourly rate of £81.

[156] This objection involves a factual issue which may have financial implications of some significance. That issue is whether, during December 1993, the pursuers and Arakin reached an informal agreement as to the rates of fees that would be charged by the pursuers for items of work carried out from 1 January 1994. Before the Auditor the pursuers contended that such an agreement had been reached and founded on letters, which they had sent to Arakin during December 1993. The defenders contended that Arakin had accepted the pursuers' rates of charge, subject to taxation.

[157] The issue was dealt with in a passage between pages 5 - 7 of the Auditor's Report, at the conclusion of which the Auditor indicated that, having considered the items of correspondence to which he refers, he had inferred that an informal agreement as to rates had been reached between the pursuers and Arakin. Having stated that conclusion, the Auditor then indicated that 'the Court may determine otherwise'.

[158] After enquiry by my Clerk as to what papers, if any, had been retained in the offices of the Auditor, following the taxations of Nos. 6, 12 and 36 of Process, the contents of No. 274 of Process were lodged in court on 1 November 2004. As I have mentioned, No. 274 of Process is a large box containing a number of files of papers and numerous loose papers, which appear to relate to work covered by the three Accounts of Expenses Nos. 6, 12 and 36 of Process. The box also contains copies of correspondence between the Auditors and the parties relating to the three taxations. The contents of the box are not inventoried in any way. Within the box I found copies of the three letters sent by the pursuers, which are referred to by the Auditor, a copy of the first page of Arakin's letter of 23 December 1993 (which is referred to in the pursuers' letter of 29 December 1993 and which the Auditor may not have seen) and a copy of the letter dated 31 December 1993, which Arakin sent to the pursuers and to which the Auditor refers.

[159] Within the context of a hearing on a note of objections to a report by the Auditor, it is clearly not for me to determine whether or not the pursuers and Arakin entered into an informal agreement. Were I to do so would involve my resolving, on the basis of oral submissions and my perusal of some documents, a factual dispute between the parties. It would be inappropriate for me to do so.

[160] In determining this aspect of this objection, the questions I have to consider are (i) whether it was open to the Auditor to resolve the dispute between the pursuers and Arakin as to the existence and terms of an informal agreement between them as to fees, (ii) if so, whether it was open to the Auditor to infer from the documents and other information before him that such an agreement had been reached and (iii) if he did, what the Auditor considered the terms of that agreement to have been.

[161] During the hearing, Mr. McNamara's submissions were limited to referring me to correspondence between the pursuers and Arakin, which he said I would "find in the box" ( No. 274 of Process). Senior counsel for the pursuers, for his part, argued that the questions should be determined in favour of the pursuers.

[162] As far as the first question is concerned, it is clear that the terms of Rule of Court 24.7 are such as to permit the Auditor, when he is taxing an account under that Rule, to consider whether or not an informal agreement relating to fees exists and, if so, what the terms of any such agreement are. Turning to the second question, the Auditor was in my opinion entitled to conclude that an informal agreement had been entered into. Indeed, in their Note of Objections the defenders accept that an informal agreement was entered into.

[163] The third question as to what the Auditor considered the terms of the informal agreement to have been is, however, more difficult. Those terms must be found in the four letters to which the Auditor refers in his Report (No. 19(b) of Process). As the Auditor observes, the first of those letters, dated 17 December 1993, was sent when the six week diet of proof, which at that stage was scheduled to begin on 1 February 1994, was rapidly approaching. The pursuers contend that the agreement was to the effect that the rates specified on the second page of the letter of 17 December 1994 had been agreed, as had the fact that any taxation of the pursuers' account to Arakin would be "on the agreed basis, including rates" set out in that letter. The pursuers contend that Arakin accepted such terms, during the discussions between Mr. Dobie of the pursuers and Mr. McNamara, in his capacity as a director of Arakin. Those discussions are referred to in the pursuers' letters of 22 and 29 December 1993 and in Arakin's letter of 31 December 1993, which Mr. McNamara signed. The defenders, on the other hand, contend that Arakin accepted the rates detailed in the letter of 17 December 1993 "subject to taxation" and subject to their right to challenge whether or not the rates were reasonable.

[164] The Auditor states in his Report that he had not seen any letter from Arakin specifically accepting or rejecting the rates proponed (sic). That statement was made after he had read Arakin's letter of 31 December 1993. His Report then indicates that he inferred that an agreement as to the rates proponed (sic) had been reached. However, he does not set out the factual basis on which that inference was drawn, nor does he explicitly detail what he understood the full terms of the informal agreement to be.

[165] If an informal agreement as to fees existed, as the Auditor held it did, the Auditor was not bound by its terms. The Auditor was, however, required to take those terms into account, in determining whether a sum charged in respect of an item of work was fair and reasonable (Rule of Court 24.7-(6)(c)). Obviously, before taking into account the terms of any agreement, the Auditor required to decide what he considered the terms of the agreement to have been. Was the agreement to the effect that the pursuers and Arakin had agreed that the rates set out in the letter of 17 December 1993 were the rates that the pursuers would be entitled to charge and, which failing recovery of expenses from McLachlan & Brown, would be paid by Arakin? Or was the agreement limited to agreeing the rates that the pursuers would employ, when calculating their charges for work they had carried out, those being rates which Arakin would be free to challenge as being unreasonable, if it was necessary for the pursuers' account of expenses against Arakin to proceed to taxation?

[166] Such a distinction has, of course, to be viewed against the background of the terms of Rule of Court 24.7-(6)(c) that require the Auditor in determining whether a sum charged in respect of an item of work is fair and reasonable to take into account an informal agreement relating to fees. For an Auditor to take into account the terms of an agreement as to rates is, of course, a different matter from the Auditor automatically adopting and applying those rates when determining the fees recoverable in terms of the account he is taxing. Likewise, whatever the rates were to be, the Auditor had a duty to consider, in accordance with the provisions of Rule of Court 24.7 whether each item of work was reasonably incurred.

[167] Having carefully considered the terms of page 7 of the Auditor's Report (No. 19(b) of Process), I construe from what the Auditor states that he concluded the terms of the informal agreement fell within the first of the two alternatives I have articulated, rather than the second. Bearing in mind, in particular, the terms of the sixth paragraph of Arakin's letter of 31 December 2005, the Auditor was, in my opinion, entitled to reach such a conclusion and on that basis apply the provisions of Rule of Court 42.7-(6)(c).

[168] Accordingly I repel this objection, insofar as it is based on the argument that the Auditor erred by inferring an informal agreement had been reached as to the rates of charge for the period 1 January 1994 to the close of the account. Those rates are to be found in the letter dated 17 December 1993.

[169] The objection also alleges that the Auditor erred by allowing a rate increase as a solicitor is not allowed a higher rate, when he is subordinate to counsel. Reference is made to Rule of Court 42.14.2(b). I reject this argument. Rule of Court 42.14.(b) came into effect on 5 September 1994. Its provisions relate to the granting of an additional fee to a successful party in a litigation. Rule 42.14 had no application to the taxation of No. 12 of Process.

[170] The terms of the objection also allege that the pursuers are not entitled to enhanced rates on account of the fact that they acted without instructions. As I have already indicated, that was not an issue that the Auditor could have been expected to address.

[171] The contention that the account should be re-taxed on the basis of hourly rates of £80 or £81 I reject, on account of the conclusions I have reached about the informal agreement as to fees. In these circumstances, I repel this objection.

 

[172] 5B.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

1 - 7

All

 

 

 

In the absence of any agreement as to rate of charge, the Auditor erred in applying an hourly rate of £100 for the period August 1993 to December 1993. The hourly rate ought to have been £80.

[173] As far as the entries in the account for the period prior to 31 December 1993 are concerned, it was for the Auditor to determine fair and reasonable sums for the items of work involved. No reason was advanced as to why an hourly rate of £80 was adopted. In these circumstances, I see no reason for holding that the Auditor erred in law in adopting an hourly rate of £100. I repel this objection.

 


[174] 6. Details of entries allowed by the Auditor in relation to photocopying.

Page Nos.

Item Nos.

Amount Already Taxed Off

Reduction Sought

30

4

 

12,306.80

There was no proper information before the Auditor upon which he could be satisfied as to what if anything, had been copied to the extent that such copying gave rise to a charge of £12,306.80.

At page 9 of his Report, the Auditor records the fact that he had made an independent inquiry with "a partner of Messrs Alexander Stone & Co, Solicitor, Glasgow ...". It is submitted that said inquiry was inadequate. The Auditor has failed to make sufficient investigation as to what was actually copied by the Pursuers. The defenders call upon the Pursuers to produce sets of all the documents said to have been copied and invite the Court in the event of failure so to produce, to tax-off the charges claimed in the Account. Separatim in any event, it is believed that the photocopying of productions was carried out by Tods Murray and Brechin Robb. The Pursuers have failed to specify which productions were copied by them and which were copied by Brechin Robb. Separatim, it is believed that the photocopying or in any event a substantial quantity thereof was carried out by Xpress Print. The Pursuers' ledger entry dated 15/2/94 refers to productions being "copied and bound". The Pursuers are called upon to produce the Xpress Print invoice and their failure to do so will be founded upon. Further and in any event, it is believed that said photocopying was charged to the Defenders by the Pursuers under the Pursuers' invoice of 16th July 1993. Said invoice was paid on 13th August 1993.

[175] As framed this objection appears to raise a number of questions of fact, including whether the pursuers had themselves copied all the documents detailed in the entry on page 30 of No. 12 of Process or whether the copying had been carried out by a firm called Xpress Print. The pursuers had paid the sum of £554.80 to that firm, which they sought to recover as an outlay incurred in binding extensive productions. By the date of the taxation the relevant voucher for the outlay had been mislaid. At the taxation, it had also been questioned by Arakin whether it had been necessary for the pursuers carry out the extensive copyings claimed for.

[176] During the course of Mr. McNamara's submissions he referred to pages 32 -35 of a Report prepared by him (No. 76 of Process) and a bundle of miscellaneous correspondence and statements lodged on behalf of the defenders (No. 279 of Process). The burden of his submissions was that before the Auditor it had been unclear what copying the pursuers had carried out themselves and that the copying undertaken had been more extensive than was necessary or reasonable. He submitted such issues remained.

[177] Senior counsel for the pursuers submitted that before the Auditor the challenge had been limited to whether the copying carried out had been reasonable, which it had been for the Auditor to determine.

[178] As with many of the issues raised during the hearing before me, the factual issues mentioned by Mr. McNamara when dealing with this objection include some issues that it would be impossible for the court to resolve in the context of a hearing on a Note of Objection to the taxation of an account of expenses. His references to the documents I have detailed merely had the effect of increasing the number of such issues.

[179] The Auditor dealt with the item of work, which is the subject of this objection, on pages 8-9 of his Report (No. 19(b) of Process). It is clear from what the Auditor says in his Report that he proceeded on the basis that the photocopying covered by the item of work that is challenged had been carried out by the pursuers. Indeed the Auditor states that he was informed that issue was not being taken to the amount of the copying done, as distinct from the need for the copying to be done.

[180] In my opinion, the Auditor was entitled to reach the view that he should tax this item of work on the basis that the pursuers had themselves carried out the photocopying specified in the item of work. As I have indicated, in his Report the Auditor records that it was conceded, on behalf of Arakin, that issue was not being taken to the amount of copying that had been carried out. That concession was made after the law accountant acting for Arakin had been given the opportunity to inspect the documents copied. Accordingly whilst the enquiries the Auditor himself made to quantify the actual extent of the copyings were limited in scope, I am persuaded that it was open to him to reach the view he did as to the extent of the copyings carried out.

[181] As far as the issue of whether it was reasonable for the pursuers to have carried out a large amount of photocopying is concerned, that was another issue which it was for the Auditor to determine. The Auditor has explained why he reached his decision on that issue. He relied on enquiry made of a partner of another firm of solicitors, who subsequently acted for Arakin and who confirmed that the documentation in the case was substantial. His decision on this issue appears to have been taken without his having looked at the documents that had been lodged as productions on behalf of Arakin only 14 days before the start of the proof. It was the lodging on behalf of Arakin of the extensive number of productions that gave rise to the large claim for photocopying. Standing the fact that the pursuers lodged those productions after consulting with the senior counsel acting for Arakin, it might have been difficult to have argued during the taxation that the lodging of the productions was an unreasonable course of action for the pursuers to have taken. It would not appear that any such argument was advanced before the Auditor. Once decisions had been reached as to which productions should be lodged on behalf of Arakin, the need to make copies of those productions would have automatically arisen.

[182] Why the Auditor chose not to look at the documents that had been copied by the pursuers is unclear. They were available to and had been seen by the parties' law accountants during the course of the taxation. However, when regard is had to the entries in No. 12 of Process, which precede the entry for the photocopying charges and which detail the discussions, consultations with counsel, meetings and other steps that led to the lodging of extensive productions on behalf of Arakin, it is clear that it was open to the Auditor to take the view that he was satisfied that the charge for making four copies of Arakin's productions was a reasonable one for the pursuers to include in their account. In these circumstances and bearing in mind the provisions of Rule of Court 42.7-(6), I have reached the view that it was open to the Auditor to proceed in the manner he did. I repel this objection.

 

[183] 7A. Tods Murray have never given Arakin Limited any invoices to support outlays and Arakin is unable to recover VAT, of note, the variance of outlay costs on invoices submitted to what is contained in No. 12 of Process is highlighted by the last invoice submitted, 66028 in which Tods Murray submitted a cash account that identifies Counsel costs of £52,675.00 net of VAT and in No. 12 of Process the figure for Counsel costs inclusive of VAT is £76,762.00. Abatements required that under the Statute of Limitation Act, 1973, section 18(A) all outlays in No. 12 of process are prescribed and be abated from No. 12 of Process.

[184] It is one of the lines of defence to the action that part of the sum first concluded for, which relates to the sheriff court actions involving McLachlan & Brown, embraces sums in respect of which no VAT invoices or fee notes have been issued by the pursuers. On that basis the defenders contend that certain of the sums claimed by the pursuers have prescribed with the passage of time (see Closed Record 21D-E).

[185] In taxing the Account of Expenses No. 12 of Process, the Auditor has made some provision for VAT on pages 63 and 64 of the account. It is also clear that the figure allowed for outlays includes certain amounts of VAT, some of which are detailed and some of which are subsumed within omnibus figures.

[186] Notwithstanding the provisions of Rule of Court 42.7-(6)(e), it was not for the Auditor to address the issues referred to in this objection. These involve matters that the court will require to address in due course. On that basis, I repel this objection.

 

[187] 7B. The Auditor misdirected himself by not investigating the entry on page 6 of No. 12 of Process concerning Counsel's costs. The Auditor further erred by accepting Mr. Dobie's word that there was no prior fee arrangement for Counsel's costs, refer to details on page 7/8 of No. 237 of Process. Abatements required Counsel's preparation costs restricted to £3,800.00 and the 2 days overcharged for Counsel's days at proof be abated.

[188] The Auditor indicates at pages 7-8 of his Report that he did not consider the reasonableness of counsel's fees. Before me, Mr. McNamara indicated that the Auditor had been asked to abate the fees of junior counsel in their entirety and to abate the fees of senior counsel to a more limited extent.

[189] The abatement of junior counsel fees was sought on the basis that when a previous junior counsel had required to withdraw from the litigation and a replacement junior counsel had been engaged in January 1994 that had been done without the agreement of Arakin. That issue was raised before the Auditor and is dealt with in his Report. However, it was not raised in the Note of Objections to the Auditor's Report. Accordingly, it is not an objection I am prepared to deal with.

[190] As far as senior counsel's fees are concerned, this particular branch of objection proceeds on the factual assertion that Mr. Dobie of the pursuers had been instructed to provide Mr. McNamara with details of the fees that would be paid to senior counsel for preparing for the sheriff court proof and the first day of the proof and that the figure of £5000 had been mentioned by Mr Dobie and had agreed between them. More details of how and when this alleged agreement was reached are set out in No. 237 of Process, to which I was referred by Mr. McNamara. Reference was also made to entries on page 110 of No. 36 of Process and pages 6 and 57 of No. 12 of Process. In the event, the Account of Expenses No. 12 of Process indicates that senior counsel was paid £21,650, together with some provision for VAT, for preparing for the proof, and £1,200, together some provision for VAT, for the first day of the proof. It should be noted in passing that the figures for fees paid to counsel included in the Account of Expenses No. 12 of Process are difficult to reconcile with the entries in the pursuers' cash account of their dealings with Arakin during the period between 29 December 1993 and 18 April 1994. A copy of that cash account is to be found within No. 75 of process. For example, the entry on page 6 of No. 12 of Process bears to be the payment of an outlay of £5,000 to Faculty Services Limited on 21 December 1991 "to account of Counsel's fees for Proof Preparation", which is additional to the payments to senior counsel detailed on page 57 of the same account, whereas the cash account suggests that the £5,000 was paid to account. All this illustrates how the vouchers relevant to the amount and payment of counsel's fees will required to be carefully considered by the court in due course, as part of the accounting exercise to which I have referred. However, I am not prepared to sustain the objection to the Auditor's decision at the taxation to decline to tax off the payment of the outlay of £5,000. The objection proceeds on factual assertions that it would be inappropriate for me to address during the course of a hearing on objections to the Auditor's Report. It is for the defenders to decide whether they wish to pursue these allegations by seeking to amend their defences to the action. Accordingly I repel the objection.

 

[191] 7C. Mr. Dobie made illegal profit from Counsel's preparation costs; refer to pages 7/8 of No. 237 of Process. Abatement required from No. 12 of Process £12,313.00.

[192] I understand this objection to be relate to the previous objection and I repel it for the same reasons.

 

[193] 7D. It is now known that Mr. Dobie misled Counsel, refer to minute of meeting 13th September 1996 of No. 239 of Process and Counsel may have to do additional work in which he charged £17,000.00 plus VAT, refer to Faculty Services invoice No. 239 of Process. Arakin was penalised twice by paying the sum of £17,000.00 plus VAT, refer to page 8 of No. 237 of Process.

[194] Insofar as this objection raises a point that has not already been raised, it is limited to contending that the defenders are being required to pay the sum of £17,000 plus VAT, sought by Faculty Services Limited in respect of senior counsel's fees for preparing for the proof, notwithstanding that fact that the sum has already been paid, by Arakin, as part of a payment Arakin made to Alexander Stone & Co. in 1995. They claim that assertion is vouched by the copy of the Faculty Services' invoice dated 14 July 1995, receipted as paid on 29 November 1995, which forms part of No. 239 of Process. As I have already made clear, issues such as those raised by this objection will require to be addressed by the court at a later stage in the action. On that basis, this objection must be repelled.

 

[195] 7E. Junior Counsel. Mr. Dobie misled Junior Counsel that he had the authority to deal in quantum and duped Junior Counsel into signing minutes-of-agreements that were irreversible, refer to Brechin & Robb's letter in No. 239 of Process and pages 8/9 of No. 239 of Process. Abatement required all Junior Counsel's costs abated from No. 12 of Process.

[196] This objection involves factual issues, which the Auditor could not have been expected to resolve. Disputes as to the nature and terms of the instructions the pursuers received and as to whether those instructions were carried out will require to be resolved by the Court at a later stage in this action. On that basis I repel the objection.

 


[197] 8. The Auditor misdirected himself by allowing charges for a trainee refer to page 5, item 2 of No. 237 of Process.

[198] Reference to No. 237 of Process makes clear that in this objection the defenders are contending that when taxing the Account of Expenses No. 12 of Process (and indeed the Account of Expenses No. 6 of Process) the Auditor should have taxed off the fees claimed for all items of work carried out by the pursuers' trainee solicitors. The defenders contend this particular issue was raised during the taxations before the Auditor, but that is difficult to reconcile with the terms of the Auditor's Reports (Nos. 19(a) and 19(b) of Process). Whilst both reports mention the question of fees for work carried out by trainees, in neither instance does the report indicate that Arakin had argued that under no circumstances were the pursuers entitled to recover fees for work carried out by trainees. Rather the issues before the Auditor appear to have been (a) when it was appropriate for trainees to be in attendance, (b) whether the pursuers could recover fees for the attendance of solicitors and trainees and (c) the rate(s) at which the attendance of trainees should be charged, if any fee for their attendance was going to be recoverable.

[199] In arguing this objection, Mr McNamara referred to Hastings on Expenses in the Supreme and Sheriff Courts Hastings at page 120, where the author indicates that one of the exceptions to the right of a solicitor to remuneration from his client is "when he is unqualified or lacks a practising certificate"'. In my opinion that passage provides no support for this objection. In the present case it is not the trainee solicitors who are seeking remuneration for the work they did, it is the pursuers who are doing so. A qualified solicitor is perfectly entitled to employ members of staff, whether or not they have any legal training or qualifications, to assist in the carrying out items of work, which fall within the instructions they have received from their client. For that reason, I repel this objection.

 

[200] 9. The Auditor misdirected himself by not challenging Mr. Dobie to explain why there was 146 hours less in No. 12 of Process for trainees than there was in No. 7 of Process. No. 7 of Process is the missing part of the summons and this is the benchmark in which No. 12 of Process was created. Abatement required 146 hours at trainee rate be abated from No. 12 of Process.

[201] The history of No. 7 of process was addressed during the proof before Lady Smith and I refer to her findings in respect of that history in paragraph [49] of her Opinion dated 31 October 2003. The production bears to be an account of expenses submitted by the pursuers to Arakin in connection with the McLachlan & Brown litigation. It covers the period from 5 August 1993 to 3 July 1995. Lady Smith held that the account which constitutes No. 6 of Process was lodged in process on 23 October 1996, having previously been intimated to Arakin's then solicitors, Alexander Stone & Co., on 27 July 1995.

[202] In No. 237 of Process the defenders state that during the taxation of No.12 of Process Mr. McNamara and Mr. Grieve, who were representing Arakin, did not have a copy of No. 7 of Process available to them. It is maintained that was because it was taken out of process. It is unclear from the Inventory of Process whether No. 7 of Process was borrowed out of process whilst the taxation of No. 12 of Process was underway. That taxation was concluded on 27 March 1998. In paragraph [49] of her Opinion Lady Smith indicates that No. 7 of Process was missing from process for a while. It appears from the evidence she heard that No. 7 of Process was absent from process between 24 April 1998 and 23 October 2000. That period post-dates the taxation. The Auditor's Report makes no mention of the Auditor having seen No. 7 of Process. Nor is any mention made of it in his subsequent Minute on the Note of Objections (No. 27(b) of Process). All that can be inferred from what the defenders state in No. 237 of Process is that during the taxation Arakin's representatives did not refer the Auditor to the contents of No. 7 of Process. In these circumstances, it would be impossible for me to hold that the Auditor misdirected himself in the manner alleged in this objection.

[203] Furthermore, even if the Auditor had been referred to what is said on page 7 of No. 7 of Process about the number of hours expended by a partner and the number expended by a trainee, it is extremely doubtful that would have required him to alter the approach he took to the taxation of the Account of Expenses No. 12 of Process. The Auditor explains on page 4 of his Report the approach he took to the assessment of the reasonableness of the times claimed in respect of individual items of work. That approach was not based on what was shown on time sheets that were placed before him, but rather on his consideration of the files and case papers he saw. In my opinion, the Auditor was perfectly entitled to adopt that approach. In these circumstances, I repel this objection.

 

[204] 10. The Auditor misdirected himself by allowing costs in No. 12 of Process that had no vouchers to support these costs. The most glaring examples are telephone calls; refer to No. 119 of Process where it is established that Tods Murray was charging for calls that never took place. Under Rule 42.2.3 the Auditor has a duty to abate costs that are non-vouched. Abatement required non-vouched costs in No. 12 of Process be abated.

[205] This objection alleges that the Auditor misdirected himself by allowing costs in No. 12 of Process that were not supported by vouchers. In my opinion the objection is misconceived. In No. 12 of Process the entries relating to telephone calls are not outlays. Rather they relate to items of work, in respect of which the pursuers seek recovery by way of fees of such sums as are allowed by the Auditor as fair and reasonable. As far as telephone calls are concerned, I need not elaborate on what I have said earlier in this Opinion. I repel the objection.

 

[206] 11. The Auditor misdirected himself by allowing costs for post, incidents and telephone calls. On all invoices paid by Arakin posts, incidents and telephone calls are inclusive, of note, No. 7 of Process, the missing part of the summons, post, incidents and telephone calls are abated from No. 12 of Process.

[207] In my opinion this objection is also misconceived. In the Account of Expenses No. 12 of Process the entries relating to posts, incidents and telephone calls are not outlays. Rather they relate to items of work, in respect of which the pursuers seek recovery by way of fees of such sums as are allowed by the Auditor as fair and reasonable. As far as telephone calls are concerned, I need not elaborate on what I have said earlier in this Opinion. As far as posts and incidents are concerned, the practice adopted by the Auditors, when taxing time and line accounts, is to add on at the end of an account a percentage of the fees that have been approved during the taxation. That percentage is to cover the cost of postage and other incidental expenditure incurred in carrying out the items of work previously taxed. That is the approach that was followed when the Account of Expenses No. 12 of Process was taxed. The fact that a different approach may have been adopted by the pursuers when they prepared No. 7 of Process or any of the other invoices that they submitted to Arakin prior to the present action being raised is irrelevant. I repel the objection.

 

[208] 12. The Auditor correctly stated in 19B page 3 "matters not for the Auditor has to be a decision for the Court", therefore I ask the Court to decide on Gross-mismanagement of Cause by referring to page 2, item 5 of No. 237 and to consider the following.

The dispute between McLachlan & Brown and Arakin Limited was a simple case of negligence as McLachlan & Brown misled Arakin that they had a £210,000.00 tax liability. Arakin had committed its reserves into a leisure complex in the East-End of Glasgow and had no funds to pay £210,000.00. McLachlan & Brown advised Arakin to dispose of Duchess Estate to release capital to meet its liabilities to HMIT. After they had sold Duchess Estate to SDA Arakin had a meeting with HMIT and at that meeting HMIT discovered that McLachlan & Brown had double entered a contract for Monklands District Council of £485,000.00.

McLachlan & Brown sued Arakin for unpaid fees of £20,000 and when the new accountants PKF entered negotiations with HMIT it was agreed that Arakin did not owe £210,000.00 for tax and due to other mistakes by McLachlan & Brown in Arakin's accounts HMIT paid Arakin £30,000.00 for previous over-payments. Thereafter Arakin counter-claimed McLachlan & Brown for negligence and Consequential Losses based on Arakin's expert's ascertainment of loss.

The fees incurred by Arakin for legal work in the McLachlan & Brown dispute is absurd as negligence was prima facie when HMIT repaid Arakin £30,000.00. Abatement required all costs incurred by Arakin in the McLachlan & Brown dispute and Judicial Compound Interest be applied when payment was made until payment is received by A. McNamara, refer to Boots Chemists v GA Estates 1992 SC 485.

[209] As I have already indicated, issues falling within the description of gross mismanagement of the cause are for the court to rule on. The court cannot do so in a hearing on Notes of Objection to the Auditor's Report. It is for the defenders to decide whether they wish to pursue the issues mentioned in this objection. If they do, they will require to ensure that the issues are properly focused in their pleadings to allow the issues to be dealt with after legal debate or proof. I repel this objection.

 

Note of Objection by Defenders to Report by the Auditor of Court on the Pursuers

Account of Expenses (No. 36 of Process)

[210] The Defenders object to the Report by the Auditor of Court dated 26th October 1999 for the reasons hereafter condescended upon:

1. The Auditor has failed to apply the "doctrine of paid accounts". Reference is made to the Reports by the Auditor of Court dated 27.3.98 and to the Auditor's Note in relation thereto. All of the fees in the present account fall to be treated in the same manner as the auditor taxed those Accounts. Invoices were rendered and paid by the Defenders in respect of the period of the account. The Auditor ought to have taxed the relevant portions of this Account at no more than the fee paid on Invoice. Furthermore, should any particular period of the Account on taxation amount to less than the amount paid on Invoice that should be the amount at which that period of the Account is taxed, and the amount of overpayment should be identified.

[211] In taxing the Account of Expenses No. 36 of Process, the Auditor, Mr. Crichton, made no reference to the doctrine of paid (or settled) accounts. In that regard, he adopted a different approach to that adopted by Mr. Tait, when taxing Nos. 6 and 12 of Process. He has fully explained his reasons for doing in the Minute dated 18 December 2001(No.129 of Process), which he prepared in response to my interlocutor of 20 November 2001. As I have already indicated, the consideration of what application (if any) the doctrine of settled accounts has in the circumstances of this case will be a matter for the court to deal with, once a number of other factual and legal issues have been resolved. On that basis, I repel this objection.

 

[212] 2. On pages 1-94 of the Account (to 12.7.92) charges are applied in terms of Table of Fees of Solicitors in the Sheriff Court as regulated by Act of Sederunt. However, on P94 a Percentage Increase has been applied at the rate of an addition 75%. The Auditor has applied a minimal abatement to that increase. The defenders submit that in terms of the Act of Sederunt applicable at the date only a Sheriff has the authority to allow an increase in the level of fee. Had this Account been taxed in the Sheriff Court, the Sheriff Court Auditor would have had no authority to apply an increase. The Pursuers are not entitled to circumvent the terms of an Act of Sederunt simply by choosing to raise proceedings in the Court of Session. The Auditor ought to have taxed the Account in terms of the Act of Sederunt applicable to Sheriff Court proceedings. The entire additional fee claimed should be taxed off. Quoad Ultra should the Court fund that the Auditor is entitled to allow an additional fee it is submitted that the Pursuers' actings throughout do not justify any additional fee. The Note of Objections to the Account No. 12 of process is referred to for its terms.

The Auditor misdirected himself by quoting Rule 42.7.6(a) on page 5 of No. 42 of Process; he had no right to allow a rate increase under that rule. I refer to Rule 42.14 that clearly states before an Auditor can increase a fee he has to have an Interlocutor. The Auditor further misdirected himself by allowing a rate increase as solicitors are not allowed a higher rate when they are subordinate to Counsel, Rule of Court 42.14.2(B). The Auditor further misdirected himself by allowing a rate increase, as a rate increase is only applicable to a Party - Party Account. Abatement required that the rates in No. 36 of Process be reduced to these relevant to the Act of Sederunt.

The Auditor misdirected himself by allowing a reduced sum for entries in the account that were non-vouched and was in breach of Rule of Court 42.2.3. During the Diet of Taxation Mr. McNamara gave the Auditor No. 119 of Process (BT Records) that identifies gross over charging by Mr. Dobie on telephone calls and it is noted that most of the abatements in No. 36 of Process are telephone entries that never took place. This glaring example of false entries relating to telephone calls should have alerted the Auditor to apply Rule 42.2.3 strongly and abated any entry that was non-vouched. Abatement required all non-vouched entries abated from No. 36 of Process.

[213] This objection concerns the same issue I considered in paras. [72]-[74] of this Opinion when dealing with Objection 5 in the pursuers' Note of Objections to the taxation of the Account of Expenses No. 6 of Process. In my opinion, Mr. Crichton erred in law in awarding a 75% percentage increase in the total of fees. My reasons for reaching that conclusion are based on the views I expressed when dealing with the earlier objection. I need not repeat what I said then. In short I agree with Mr. Tait's approach to the construction of Rule of Court 42.7 - (6). I accordingly sustain this objection in so far as it relates to the uplift in the fees, which the Auditor allowed. That part of the objection referring to telephone calls and other unspecified entries relating to outlays is repelled, for the reason that it raises questions of fact that cannot be resolved during a hearing on a Note of Objections. It is possible that parties could agree to address the dispute between them about phonecalls, within the context of the hearing of evidence that I am prepared to allow in respect of Objection 2 of the pursuers' Note of Objections to the taxation of No. 6 of Process.

 

[214] 3. Necessary adjustments to posts and incidents and VAT should be made to reflect the foregoing.

[215] This objection is superseded.

 

[216] 4. The Auditor misdirected himself by allowing any costs for post, incidents and telephone calls as these items have been included on each invoice paid by Arakin Limited. Abatement required all post, incidents and telephone calls abated from No. 36 of Process.

[217] This objection mirrors Objection 11, which the defenders took to the taxation of No. 12 of Process. For the reasons I gave in respect of that earlier objection, I repel this objection.

 

[218] 5. Outlay. Arakin has never received any invoice to support outlays, refer to page 4 of No. 237 of Process, and was unable to recover VAT. Attempts were made to recover VAT on all Tods Murray time-and-line account but Custom & Excise insisted on invoices made out to Arakin Limited from Tods Murray. Despite requests Tods Murray have never given Arakin Limited any VAT invoice for outlays. Abatement required under the Statute of Limitations Act 1973, section 18(A) all outlays in No. 36 of Process are prescribed.

[219] This objection returns to the issues that were raised by Objection 7A, which the defenders took to the taxation of the Account of Expenses No. 12 of Process. For these reasons and on the basis I repelled that objection, I repel this one.

 

[220] 6. The Auditor misdirected himself by allowing costs for Mr. Dobie dealing in quantum and perusal of accountancy matters. Tods Murray was under standing instructions not to become involved in quantum and accountancy matters and to deal only on matters of Law, refer to page 110 of No. 36 of Process, Mr. Dobie failed to comply with instructions and negotiated and reduced Arakin's experts (PKF) figures, refer to page 54 of No. 12 of Process. Abatement required all entries in No. 36 of Process that involves dealing in quantum and perusal of accountancy papers that were for Arakin's experts PKF and Rand Associates, to be abated from No. 36 of Process.

[221] This objection is founded on one of the allegations of mismanagement of the cause, which the defenders make against the pursuers. In particular it is alleged that Mr. Dobie acted contrary to instructions and should not be remunerated for doing so. It is unclear from the Auditor's Report (No. 42 of Process) and his Minute (No. 129 of Process) whether or not those issues were raised before the Auditor. However, even if they were, the issues were a matter for the Court to decide. For that reason, and on the basis, that it would open to the defenders to seek to pursue these matters before the Court, I repel this objection.

 

Summary

[222] In these circumstances I am intend to pronounce an interlocutor dealing with the various objections in the Notes of Objections to the taxations of the three accounts of expenses, Nos. 6, 12 and 36 of Process. In respect of the Note of Objections by the pursuers to the taxation of No. 6 of Process that interlocutor will repel objections 1, 3, 4, 5, 6 and 7 and allow a hearing on evidence in respect of objection 2. In respect of the Note of Objections by the defenders to the taxation of No. 6 of Process that interlocutor will repel objections 1, 2, 3B, 3C, 4, 5A, 5B, 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16 and sustain objections 3A and 6. In respect of the Note of Objections by the defenders to the taxation of No.12 of Process that interlocutor will repel objections 1A, 1B, 1C, 2, 3, 4, 5A, 5B, 6 , 7A, 7B, 7C, 7D, 8, 9, 10, 11 and 12. In respect of the Note of Objections by the defenders to the taxation of No. 36 of Process that interlocutor will repel objections 1, 3, 4, 5 and 6 and sustain objection 2 in part and repel it in part.

[223] Before I pronounce that interlocutor, I intend to put the case out By Order to allow further procedure to be discussed.

 


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