The door to third party assessments pushed opened by the Court of Appeal…. Or is it?

The Court of Appeal has delivered judgment in the case of Thomson Snell & Passmore v Kenig [2024] EWCA Civ 15. The case concerned two important issues, namely, whether a beneficiary may obtain an order for an assessment of Solicitor’s costs, pursuant to S.71(3) Solicitors Act 1974, and the extent of such assessment.

Background to Third Party Assessments

Section 71 (1) and (3) of the Solicitors Act 1974 make provision for the assessment of a Solicitor’s bill of costs by a party other than the party chargeable with the bill.

The provisions differ, with S.71 (1) dealing essentially with applications by third parties who wish to challenge costs which they are ultimately liable for because of a contractual relationship. Whereas S.71(3) deals with applications by third parties who are beneficiaries of an estate or trustees, and to whom a fiduciary duty is owed.

It is worth highlighting at this point that the provisions of S.70 Solicitors Act are also relevant for the purpose of third party Assessments. This is in respect of the timescales they place on individuals challenging a bill of costs. Pursuant to S.71(4), the Court shall have regard to these under any S.71 application, in so far as they are capable of being applied.   

The First Instance decision

The application for assessment was brought by Mr Kenig, who, along with another individual, was beneficiary to a will. The administrator of the estate had appointed his own firm of Solicitors to deal with the administration of the estate and had subsequently paid bills which were delivered, in the total sum of £54,410.99 from the estate funds. The last bill had been paid 8 months prior to Mr Kenig’s application, but others had been paid more than 12 months before his application.

Mr Kenig sought to challenge the fees, but his attempts were rebutted, on the grounds that the decision in Tim Martin Interiors Ltd v Akin Gump LLP [2011] EWCA Civ 1574, limited the scope of any assessment and therefore any such assessment would be fruitless and should not be allowed. That decision dealt with an application made pursuant to S.71(1), and arose as a result of a contractual relationship. It established that the approach to these assessments was very narrow and with regards to quantification of a bill, it only allowed an assessing judge to apply a ‘blue pencil’ approach and eliminate only items which fell outside of the scope of the retainer, or which would only be allowable on a special arrangement basis between a Solicitor and Client.

At first instance, Costs Judge Brown distinguished the decision in Tim Martin and ordered that there were ‘special circumstances’ for allowing an assessment of the bills.  He instead felt bound by the historic decision in re Brown (1867) LR 4 Eq 464, which had permitted an assessment of fees by a trustee of a will under the provisions of S.38 of the Solicitors Act 1843, which had essentially become S.71(3) of the 1974 Act.

Key to his decision were several factors. Namely:

• Lloyd LJ in Tim Martin dealt only with an application conducted under S.71(1) and where S. 71(1) provides limitations on the Court, akin to S.70, S.71(3) placed no such limitations and provided wider discretion
• There is a material difference between cases in which the legal relations between the person chargeable with the bill and the third parties are ones of contract, and those where fiduciary duties are owed to beneficiaries or trustees.
• Discrepancies in the case between initial fee estimates and the final charges required justification, and even if Tim Martin was directly applicable, there would still be a realistic prospect that material deductions might be made from the Solicitors’ bills

This was appealed by the Solicitors, on the grounds that the Costs Judge Brown had erred in distinguishing Tim Martin. Other grounds were refused permission or dropped.

The Appeal

At the appeal hearing, Lord Justice Stuart – Smith, with support from Lord Justice Nugee and Lord Justice Coulson , upheld the decision of the High Court, that the Courts were not bound by the principles in Tim Martin in relation to S.71(3) applications, and any observations about that section, or the historic provisions of it’s predecessor S.39 of the 1843 Act were obiter.

Lord Justice Stuart – Smith continued and confirmed that “there are material differences between applications under section 71(3) and those under section 71(1) because of the different nature of the interests of the third party that the different sub sections are intended to reflect. The consequence of Lloyd LJ’s mistaken assumption is that his judgment cannot be relied upon as saying anything authoritative about the position that obtains where an application and assessment are brought under section 71(3)”.

At paragraph 57 the importance of protecting the interests of the beneficiaries / estate was of the upmost importance, because of the fact the executor / trustee carried no risk because of their ability to pay fees out of estate funds.

Where does it leave us?

The decision, first and foremost, is a positive one for beneficiaries / trustees. Executors / Administrators are often in a professional capacity in these types of cases and choose to instruct other departments within their own firms to carry out the administration of the estate. The rights of beneficiaries who have no input in these appointments, to challenge final fees, seems only fair.

It must be remembered that the appeal was only on two limited grounds, whether the Court was bound to apply the principles in Tim Martin, and as a result that application was fruitless.   In the initial judgment (at paragraph 21), the Costs Judge considered issues in relation to the fact that some of the bills challenged had been paid 12 months previously and decided that the scope of S.71(3) was sufficient to allow him to exercise discretion to allow an assessment in any event. This is not the case where individuals chargeable with the bill seek an assessment, which would not be permitted pursuant to S.70(4).

Lord Justice Stuart-Smith (at paragraphs 54-55) comments on this issue, and whilst confirming that he was hesitant to comment beyond the ground of appeal, did acknowledge that this could be a point of jurisdiction. Could it therefore mean that in future cases, where there is a delay and the Court is asked to consider whether the Court’s requirement to consider the factors of S.70 (pursuant to S.71(4)), then an assessment would be barred? If beneficiaries were informed of these payments as and when they are made, does this strengthen any charging party’s case if taking this point?

The judgment also leaves doubt regarding the effects of fully informed consent and approval on any assessment, given the presumptions in CPR 46.9. Although in this case the Court sided with Mr Kenig’s submissions that informed consent was merely a ‘material factor’ and there should be no hard and fast rule when considering its effect. It was acknowledged that ‘fully informed consent by the executor (if proved) is likely to be a major consideration, which in many cases may prove to be determinative’ [58]. Given that bills were approved and paid, steps beyond this are clearly required to demonstrate approval, but if this can be done, could this also mean an assessment would be fruitless?

Only time will tell if third party assessments will now gather momentum and whether the decision really does extend the scope of any quantum reductions. It seems however, that this is still very much a debate for another day.

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