General Of Berne Insurance Company v Jardine Reinsurance Management Ltd

Factual and Procedural Background

This appeal arises from an interim decision concerning the taxation of costs in litigation between thirteen insurance companies ("Respondents") and a reinsurance management company ("Appellants"). The insurance companies brought multiple related actions against the Appellants regarding underwriting pool losses, which were mostly settled by payments into court and consent orders for costs on a standard basis with taxation if not agreed. The dispute concerns the appropriate hourly expense rates recoverable on taxation of costs, specifically whether the rates including uplifts can exceed those payable by the insurance companies to their own solicitors under a contentious business agreement. The litigation involved detailed costs assessments and interlocutory cost orders, with the taxation process ongoing and this appeal addressing a key point of statutory construction under the Solicitors' Act 1974.

Legal Issues Presented

1. Whether, under Section 60(3) of the Solicitors' Act 1974, a receiving party can recover on taxation hourly expense rates (including uplifts) that exceed the rates payable by that party to its own solicitor under a contentious business agreement.
2. Whether the indemnity principle embodied in Section 60(3) applies on a global basis to the total costs or on an item-by-item basis when comparing recoverable costs with the amount payable under the solicitor-client agreement.
3. How costs disallowed on taxation or costs orders in favour of the paying party affect the calculation of the cap on recoverable costs under Section 60(3).

Arguments of the Parties

Appellants' Arguments

• The indemnity principle requires a comparison of costs on an item-by-item basis, not just a global comparison.
• Hourly expense rates claimed on taxation should not exceed the agreed rates payable to their own solicitors under the contentious business agreement.
• Applying the cap globally could allow recovery of costs disallowed on taxation or unrelated to the costs order, resulting in a profit contrary to the indemnity principle.
• It would not be impractical to apply the cap item by item, despite the taxing master’s view that it would be painstaking.
• The decision in Universal Thermosensor v. Hibben was wrongly decided, particularly regarding the treatment of disbursements in the cap.

Respondents' Arguments

• The cap in Section 60(3) operates as a global ceiling on the total amount recoverable, not on individual items.
• The receiving party may recover reasonable costs on taxation even if some hourly rates (including uplifts) exceed those payable to their own solicitors, so long as the total does not exceed the amount payable under the contentious business agreement.
• Section 60(3) does not require an itemized breakdown when the costs order relates to the entire proceedings or when costs orders are for parts of proceedings.
• The decision in Hibben was correctly decided and supports a global approach to the cap.
• The taxation process results in a singular certificate amount which should be compared to the total amount payable under the agreement.
• Applying the Appellants’ approach could create unnecessary complexity and inefficiency.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gundry v. Sainsbury [1910] 1 K.B. 645	Established the indemnity principle: party and party costs are an indemnity only, not a profit or bonus.	Confirmed the principle that a client cannot recover more costs from an opponent than he is liable to pay his own solicitor under an agreement.
Re Eastwood [1975] Ch. 12	Method of taxation for parties represented by salaried solicitors; costs should not exceed indemnity.	Confirmed that costs should be assessed reasonably and fairly, and that the indemnity principle applies, but did not address itemized versus global cap.
Universal Thermosensor v. Hibben (unreported, 6.3.92)	Cap on total costs recoverable under a contentious business agreement for a gross sum plus disbursements.	Supported a global cap approach; allowed recovery up to the total payable under the agreement, including disbursements, although some aspects were not fully analyzed.
Denny v. Gooda Walker (unreported)	Costs must not exceed agreed hourly rates payable to solicitors.	Held that the bill of costs should reflect the agreed charge out rates, supporting item-by-item comparison.

Court's Reasoning and Analysis

The court focused on the construction of Section 60(3) of the Solicitors' Act 1974, which caps the amount a client can recover from another party to the amount payable by the client to their own solicitor "in respect of those costs" under a contentious business agreement. The court emphasized the indemnity principle, which prevents a receiving party from recovering costs exceeding what they actually pay their solicitor. The court reasoned that the phrase "those costs" refers specifically to the costs covered by the relevant costs order, not all costs payable under the agreement.

Rejecting the Respondents' global approach, the court held that the cap must be applied with reference to the particular costs to which the order relates, requiring exclusion of costs not recoverable under the order, including disallowed items. This entails that the comparison may need to be itemized rather than global, depending on the nature of the agreement and the costs order.

The court found that applying the cap globally could allow recovery of costs disallowed on taxation or unrelated to the costs order, violating the indemnity principle. The court also disagreed with the decision in Hibben regarding disbursements contributing to the cap, preferring the Appellants' approach for consistency with statutory language and principle.

The court acknowledged the taxing master's concerns about the complexity of item-by-item application but held that such difficulty does not outweigh the need for proper application of the indemnity principle as expressed in the statute.

Ultimately, the court concluded that the costs recoverable must not exceed the amount payable under the contentious business agreement in respect of the specific costs ordered, requiring a potentially itemized comparison rather than a simple global cap.

Holding and Implications

The appeal is allowed and the Respondents' Notice is dismissed.

The court's decision clarifies that under Section 60(3) of the Solicitors' Act 1974, the indemnity principle requires the cap on recoverable costs to be applied with reference to the specific costs to which a costs order relates, rather than on a global basis. This means that costs disallowed on taxation or unrelated to the costs order must be excluded from the comparison with the amount payable under the contentious business agreement.

This ruling ensures that receiving parties cannot recover more than they are obliged to pay their own solicitors for the relevant costs, preventing profit from costs orders. The decision may require more detailed, itemized assessments in future taxations where contentious business agreements specify hourly rates. The judgment does not establish new principles but reinforces the indemnity principle in the context of contentious business agreements and costs taxation.