The First-tier Tribunal was wrong to launch an investigation into the overheads of an in-house solicitor in dealing with a series of leases when determining what legal costs the leaseholders should pay, the Upper Tribunal has ruled.
In Sidewalk Properties Ltd v Twinn [2015] UKUT 0122 (LC), the claimant company had sought £6,615 for the work of its in-house solicitor on the grant of seven new leases in Bury St Edmunds to the defendant, in accordance with section 60 of the Leasehold Reform, Housing and Urban Development Act 1993. However, the First-tier Tribunal (Property Chamber) had only awarded £1,105.
Though the Court of Appeal ruling in Re Eastwood (Deceased) [1975] Ch 112 had established a presumption that in-house costs should be determined on the same basis as those of a private practitioner, the lower tribunal described this and other authorities as “old cases” dating back to a time when the assessment of costs by reference to the overheads of the claiming solicitor’s firm had been “very haphazard”. Now there were the evidence-based guideline hourly rates, but it said these were only for solicitors in private practice.
The lower tribunal purported to apply Eastwood in light of the “present system” and said there needed to be evidence of the claimant’s overheads. Though the claimant failed to provide this, the First-tier Tribunal came up with an hourly rate of £150 and, slicing down the time claimed given that each lease was all but identical, reached a total of £1,150 (including disbursements).
On appeal, the Upper Tribunal (Lands Chamber) said the lower tribunal had embarked on “precisely the inquiry which had filled the Court of Appeal in Eastwood with horror. It was in order to avoid a detailed investigation of the overheads of a business, only a small part of which was engaged in conducting legal work”.
Martin Rodger QC, Deputy President of the chamber, ruled: “The approach which the First-tier Tribunal should have adopted was to give the appellant the benefit of the presumption in Eastwood and to take the costs which would have been charged by a solicitor in private practice as its guide when assessing what were the reasonable costs of and incidental to the tasks referred to in section 60(1) of the 1993 Act.
“It should not have given the direction which it did for the filing of evidence of the appellant’s overheads, because that evidence was both irrelevant to the task it was required to undertake and disproportionate to the costs it was required to assess.”
On the rates, Mr Rodger said the tribunal had to consider whether Sidewalk “would have been willing to agree to pay a bill of the magnitude claimed in this case if it had been unable to pass that bill on to the respondents”.
The lower tribunal found that in such circumstances, Sidewalk would have negotiated a fixed fee and could have used a local solicitor in Bury St Edmunds rather than London – and used that to push down the London rates. This would have led to a fee at the bottom end of the band A scale of approximately £230 per hour, Mr Rodger said. This meant, after adding a small amount of time that the lower tribunal did not, costs of £1,680 including disbursements.
This figure, he concluded, would “properly reimburse the appellant, without yielding a profit, for the legal services it reasonably required as a result of the exercise by the respondents of their right to acquire new leases”.