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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McLean v Zonal Retal Data Systems Ltd [2009] ScotCS CSOH_12 (30 January 2009)
URL: http://www.bailii.org/scot/cases/ScotCS/2009/2009CSOH12.html
Cite as: [2009] ScotCS CSOH_12, [2009] CSOH 12, 2009 GWD 6-100, 2009 SCLR 763

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OUTER HOUSE, COURT OF SESSION

[2009] CSOH 12

P2633/06

OPINION OF LORD HODGE

in the Petition

ROBIN ANDREW McLEAN

Petitioner;

for

Orders relative to

ZONAL RETAIL DATA SYSTEMS LIMITED

Respondents:

ннннннннннннннннн________________

Petitioner: MacColl, Advocate; McGrigor Donald

Respondents: Sandison, Advocate; Brodies LLP

30 January 2009


[1] This is a hearing on a Note of Objections under Rule of Court 42.4 in relation to the report by Mr Neil Crichton, the Auditor of Court who retired last year, on the taxation of the respondents' account of expenses.


[2]
The scope of such a hearing is limited as the Auditor has a wide discretion and the court will interfere with that discretion only if it is satisfied that the Auditor has misdirected himself in its exercise. Thus if the Auditor has taken account of an irrelevant consideration or has failed to take relevant material into account, or if he has misunderstood the factual information before him or misdirected himself on a point of law or has reached an unreasonable decision the court may uphold the challenge. Similarly the Auditor's report may be challenged if he has not carried out his remit under RC 42.1 by taxing the account in accordance with the court's interlocutor. See Wood v Miller 1960 SC 86, Lord Justice Clerk Thomson at 97-98, Tods Murray WS v Arakin Limited (No 2) 2002 SCLR (Notes) 759, Lord Mackay of Drumadoon at paragraphs 9 and 12.


[3]
In older case law it has been suggested that the court has jurisdiction where some issue of principle is involved (Thoms v Thoms' Trustee 1907 SC 343, Lord Stormonth Darling at 346). I understand that formulation not to envisage a materially wider jurisdiction than that which I have summarised in the preceding paragraph but to reflect the view that the court may interpret the Rules of Court which give guidance to the Auditor in accordance with their spirit and not as strictly as a statute: Mica Insulator Company Limited v Bruce Peebles & Company Limited 1907 SC 1293, the Lord President (Dunedin) at 1301. There is therefore scope for the court, or at least the Inner House, to use the jurisdiction, which is otherwise akin to that of judicial review, to give guidance in relation to questions of expenses.


[4] The proceedings involved a petition under sections 459-461 of the Companies Act 1985 in relation to Zonal Retail Data Systems Limited. The petitioner was a minority shareholder and the respondents were shareholders in the company. On
4 October 2007 Lord Reed appointed a proof to proceed on 19 February 2008 and allocated eight days to the hearing. At a By Order hearing on 14 January 2008 I discharged the proof as the petitioner, who had not prepared for the hearing, intimated an intention to abandon his application. Thereafter the petitioner lodged a Minute of Abandonment and on 11 February 2008 I dismissed the petition. On the opposed motion of the respondents I found the petitioner liable to the respondents in the expenses of process (a) on a party and party basis up to 7 October 2007 and (b) on an agent and client, client paying basis from that date onwards.


[5]
In the Note of Objections the petitioner challenges the Auditor's report in relation to two entries in the respondents' account of expenses, namely his allowance of an entry dated 15 March 2007 for the perusal by solicitors of a draft report prepared by KPMG and an entry dated 26 March 2007 relating to an outlay to KPMG for the preparation and discussion of the draft expert report dated 15 March 2007. The Auditor accepted the first entry at the sum of г123.00 as stated in the account of expenses. He taxed down the second entry, which was for г11,842.47 and г2,072.43 of VAT, by approximately twelve per cent, deducting г1,390.47 and г242.33 respectively. The petitioner challenges the recoverability of these entries on the basis that they related to a draft report which was not lodged in court but was used for discussion with clients and to inform the later expert report for which KPMG billed separately. Mr MacColl, who appeared on behalf of the petitioner, referred the court to a letter from KPMG dated 24 July 2008 to the respondents' solicitors, which had been produced to the Auditor. In that letter the expert, Mr Milliken, stated:

"I provided our mutual clients with a draft report dated 15 March 2007 ('my earlier report'), which provided a range of valuation options which could be taken as at 28 February 2007. This report was the basis of a subsequent discussion with the clients but was not at that stage in a format suitable for lodgement in a court of law. The thinking was used to inform the later, formal expert witness report".


[6]
In his Note of Objections the petitioner also challenged the allowance of charges by solicitors for the perusal and consideration of incoming e-mails. He asserted that a solicitor was not allowed to charge for perusing and considering incoming correspondence on either the party and party basis or the agent and client, client paying basis. But Mr MacColl did not insist upon this argument.


[7]
Mr MacColl advanced three arguments in relation to the first and surviving ground of challenge. The first submission was that the court had awarded the respondents "the expenses of process" and that charges relating to the preparation and discussion of the draft report which was not the report eventually lodged in court were not expenses of process. I was not referred to any authority on the meaning of the expenses of process. Such expenses are the expenses of the judicial process as distinguished from extra-judicial expenses (viz. Lord Thomson in Milligan v Tinne's Trustees 1971 SLT (Notes) 64) but that observation does not advance the argument in this case.


[8] I am satisfied that the first ground of challenge has not been made out. I do not accept the proposition that the costs relating to a draft report can never form part of the expenses of process and am aware of no authority to vouch that proposition. A person who is engaged to be an expert witness may be instructed to consult with counsel on the scope and content of his intended evidence. The expenses so incurred are expenses in the process and are frequently recovered at least in part. In complex cases the evidence of an expert witness which is set out in a report may be revised over time and thus several drafts of the report may fall to be considered by the party's legal team. The extent of the recoverability of the charges relating to that work will depend on the judgement of the Auditor as to (a) whether the work was reasonably required and, if it was, (b) what is a fair and reasonable charge for that work. In this case the petitioner has not demonstrated that the draft report was in a category of services, the costs of which are irrecoverable, or that otherwise the Auditor has erred in law. The former Auditor had seen both the draft report and the final report. It is not for this court but it is a matter within the Auditor's jurisdiction to decide how far it is fair and reasonable to allow charges in relation to that report.


[9] Mr MacColl's second submission, which may have arisen from a comment which I made during the hearing, was that the former Auditor had erred in that he appeared to have taxed the whole account on the agent and client, client paying scale and therefore had not carried out the remit in the interlocutor of
11 February 2008. While I was initially attracted by this submission as an interpretation of the Auditor's Note attached to his Minute on the Note of Objections I am satisfied that the submission is unsound.


[10]
In the Note, which was signed by the current Auditor, Mr Kenneth M Cumming, but prepared by the former Auditor, who taxed the account, the former Auditor stated:

"The Auditor respectfully responds to the Note of Objections No. 17 of process as follows:

Rule of Court 42.13.2 states: 'where it was reasonable in any cause to employ a skilled person to make investigations or to report for any purpose, any charges for such investigations and report and for any attendance at any proof or jury trial shall be allowed in addition to the ordinary witness fee of such a person at such rate as the Auditor shall determine is far and reasonable'.

1. This instructs the Auditor to allow fair and reasonable charges to a skilled witness for the investigation and preparation of a report. The Petition clearly sets out the Petitioner's concerns that the Respondents conducted the affairs of the company, "in a manner which has caused and continues to cause unfair prejudice to the interests of the Petitioner as shareholder." This is a claim which requires detailed investigation by an expert witness so that a full report may be prepared to be lodged with the court and on which the expert will give evidence. The Auditor has had the benefit of seeing the reports in this matter and is satisfied that in the circumstances of this case it is reasonable that [sic] the cost of and work involved in the draft report is (a) reasonable and (b) forms a proper recover[y] against the [petitioner].

2. MacLaren on Expenses at p 510 deals with the allowance of agent and client, client paying expenses states 'In the taxation of an agent's account against his own client, therefore, employment having been satisfactorily established or admitted, the only question is whether the work was done. This is settled before the Auditor, who has the process before him and who will see whether the agent was entitled to make professional charges for the items which are charged in his account. As Lord President Inglis has said, (Hamilton v Brown, 1890, 17 R. 505; 27 S.L.R. 406) "Every item charged as outlay must be duly vouched, and after it is proved to the satisfaction of the Auditor that the work was done and the vouchers are produced there is an end to the plea that the work was not done," and Lord McLaren remarked in the same case, 'In the case of a law agent's account against his client the fact that the work was done is to be established, not by evidence adduced to the judge, but by vouching the account before the Auditor. I would only add that this is not a rule which lawyers have made for their own benefit, but that it results from the nature of the contract of agency, in which the proof must depend almost always upon documentary evidence.''

Essentially this indemnifies the parties for costs incurred in the action. The client signed terms of engagement which show clearly that his agent's fees were to be charged on the basis of time expended. The Auditor had the opportunity of considering the files, papers and time records and is satisfied that the work charged for in the account was properly incurred. The Note of Objections appears to proceed on the basis that this was an award on a party and party basis.

In reaching these conclusions the Auditor acted reasonably and in accordance with the authorities and taxed the account in terms of Rule of court 42.10.-(1)."


[11]
There is in my opinion some ambiguity in the wording and layout of the Note as the former Auditor (a) did not specify that in his application of Rule of Court 43.13(2) to the circumstances of this case, he taxed the account on the party and party basis in relation to the challenged items and (b) did not make it clear that his comments in the penultimate paragraph related only to the second challenge referred to in paragraph 6 above. But I am persuaded, as Mr Sandison submitted on behalf of the respondents, that, on a correct reading of the Note, the quotation of the Rule of Court and the paragraph numbered (1) were the former Auditor's answer to the first challenge in the Note of Objections (paragraph 5 above) while the paragraph numbered (2) and the penultimate paragraph addressed only the second challenge which the petitioner has now withdrawn. I am supported in that view by a consideration of the taxed account of expenses. The law accountant who prepared that account emphasised in bold type on page 4, after the entries relating to the court hearing on 4 October 2007, that that was the time from which the expenses were to be taxed on the agent and client, client paying basis. The Auditor could scarcely have overlooked that when taxing the account. I am satisfied that he did not do so by a comparison of the number and extent of his abatements of the entries in the account before 4 October 2007 and the paucity of abatements thereafter.


[12]
Mr MacColl's third submission was that the Auditor had no jurisdiction to allow the challenged entries because the court had not pronounced an interlocutor empowering him to do so. He submitted that the Auditor's quotation from Rule of Court 42.13(2) (see paragraph 10 above) omitted the important opening proviso: "Subject to paragraph (3)". That is a reference to Rule of Court 42.13(3) which is in the following terms:

"The Auditor may make no determination under paragraph (2) ... unless the court has, on granting a motion made for the purpose, before or at time at which it awarded expenses or on a motion enrolled at any time thereafter but before the diet of taxation -

(a) certified that the witness was a skilled witness;

(aa) certified that it was reasonable to employ that person to make investigations or to report; and

(b) recorded the name of that witness in the interlocutor pronounced by the court".


[13]
Mr MacColl's submission was a simple one. The Rule of Court gave the Auditor jurisdiction in relation to the additional charges of a skilled person only if the court had pronounced an interlocutor which contained a certificate under each of the three heads of that Rule. Thus, unless the court certified that it was reasonable to employ the person to make investigations or to report, the Auditor could not consider a claim for an additional charge beyond his fee as a witness. If that submission were incorrect, he submitted that the person who had been certified under head (a) but not head (aa) could claim a fee as a skilled witness but not for his investigation or the preparation of a report. In this case the relevant interlocutor in relation to the skilled person was that of Lord Menzies dated 4 March 2008. It stated: "The Lord Ordinary, on the unopposed motion of the respondents, certifies Mr Ken Milliken as a skilled witness for the respondents". This interlocutor did not expressly certify that it was reasonable to employ him to make investigations or to report. As the challenged charges related to the preparation of a draft report the Auditor had no jurisdiction to consider them.


[14]
I am not prepared to uphold this submission for two reasons. First, the submission was not foreshadowed in the Note of Objections and is therefore not before me in terms of Rule of Court 42.4. Lest I am wrong in that view, I am in any event satisfied that the submission is unsound on its merits.


[15]
In relation to the merits of the submission it is necessary to consider (a) whether the court's certificate was necessary to allow the Auditor to consider the charges and (b) whether the interlocutor gave the needed certification.


[16]
The rules which have governed the payment of expenses in relation to skilled witnesses have been amended over time. The current wording of Rule of Court 42.13(2) and (3), which was introduced in 2006, widened the basis on which a skilled person could obtain a fee for making investigations or preparing a report. Before that amendment was made the relevant rule, since 1998, authorised certification only when it was necessary to employ the skilled person to make investigations in order to qualify himself to give evidence in a prospective proof or jury trial.


[17]
Although I was not referred to authority on the issue, I am satisfied that it was necessary for the court to certify Mr Milliken as a skilled witness if the disputed charges were to be considered by the Auditor. It appears that once a skilled person falls to be treated as a witness the current Rules provide that the court must grant a certificate under Rule 42.13 in order that those instructing the skilled person as a witness may recover a charge for his investigations or report in addition to a witness fee. When, formerly, the rule requiring certification did not apply if parties settled a case before a proof or jury trial had taken place (or, latterly, had been allowed), the Auditor had authority before that stage in the proceedings was reached to allow reasonable remuneration to skilled persons: Clements v The Corporation of Edinburgh (1905) 7F 651; Earl v Kvaerner Energy Limited 2002 SLT 1167. The extent to which the Auditor may now do so without certification by the court depends, it seems to me, upon whether and from when in the progress of an action the skilled person falls to be treated as a witness.


[18]
When a skilled person is a witness Rule 42.13 applies. The 2006 amendments have extended the scope of Rule 42.13(2). By (a) substituting a test of reasonableness for one of necessity, (b) referring to the preparation of reports as well as investigations and (c) removing the stated link between the investigations and the skilled person's qualification to give evidence at the prospective court hearing, the 2006 amendments have extended the circumstances in which the court certifies the work of a skilled person. It appears to me, nonetheless, that the Rule as now drafted envisages that the skilled person must be someone who is a witness or is expected to be a witness if a proof (or trial) were to take place in the proceedings. Rule 42.13, as its title states, is concerned with charges for witnesses. As that is only a heading I attach limited weight to it in interpreting the Rule. But the reference in Rule 42.13(2) to charges in addition to the ordinary witness fee and the reference back to the skilled witness by the use of the phrase "that person" in Rule 42.13(3)(aa) support the view that the Rule is concerned only with the certification of skilled witnesses. Thus if the skilled person is, or is expected to be, a witness at such evidential hearings and if it is reasonable to employ him to make the investigations or to report, the agents instructing him are, on certification, entitled to recover extra charges for such work and for his attending any proof or jury trial in addition to his ordinary witness fee.


[19]
In this case the proof had been allowed and was scheduled to commence shortly after the petitioner lodged his Minute of Abandonment. I am satisfied that Mr Milliken is to be treated as a skilled witness and that he falls within certification regime of Rule 42.13. It is not necessary in this case to determine at what earlier point in an action, if any, a skilled person falls within that regime.


[20]
Lord Menzies's interlocutor of 4 March 2008 contains the standard wording used by this court in granting a motion for certification under Rule 42.13. Under the previous rule, which required certification that the witness was a skilled witness who made investigations, attended or gave evidence at the proof or jury trial a similar wording was used in the court's interlocutors. While a literal reading of the current Rule 42.13(3) could form the basis of a submission that the court's interlocutor is defective because it does not contain an express certification that the employment of the person was reasonable, I am satisfied that it is implicit in the interlocutor that the reasonableness test has been met. That is a component of the test which the court applies to motions under Rule 42.13. I also note that the Rule in head (b) requires that the interlocutor record the name of the witness but otherwise the Rule does not lay down the form of the certification. I do not interpret heads (a) and (aa) as requiring the use of specific words in an interlocutor. Thus I consider that the court's standard interlocutor is to be read as a "shorthand" certification under heads (a) and (aa) in Rule 42.13(3).


[21]
I therefore repel the petitioner's objections and reserve the question of the expenses incurred in the procedure on the Note of Objections.


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