Outer House decision on expenses

An Outer House decision has clarified what may be covered by an award of expenses occasioned by preparation for and conduct of a proof, and the role of the auditor in taxing an account.

An interesting decision has come out recently in relation to the issue of expenses. The opinion of Lord Menzies in McCallion v McCallion [2022] CSOH 36 follows on from the court’s interlocutor after a proof in August and September 2019. The pursuer was found liable to the defender in respect of 50% of the expenses of and occasioned by the preparation and conduct of the proof.

An account of expenses prepared for the defender was subject to taxation by the Auditor of the Court of Session. The auditor refused to allow anything in respect of several items in the defender’s account. The defender lodged a note of objections to the auditor’s report. The auditor lodged a minute in response.

The auditor’s position was that his role was not limited to considering matters raised by paying parties. He was also of the opinion that preparation for proof can only truly commence after parties have finalised their pleadings, ingathered and lodged all their evidence and attended to all incidental procedural matters required in advance of a proof. The auditor held that some of the entries did not constitute work undertaken in the preparation for or conduct of the proof. He said this was because there would then be no distinction to be made between an award of expenses for the preparation and conduct of a proof and an award of the expenses of process, on the basis that all of the required work in conducting a court action could be said to have been undertaken “in preparation” for the definitive hearing in that court action.

Decision on the objections

The first ground of objection by the defender to the auditor’s report related to “paid court dues for proof”. The auditor did not allow this. In his minute he noted that his role is not limited to considering and determining matters raised by parties (with which Lord Menzies agreed). However, Lord Menzies held that the auditor failed to justify his decision in not allowing this item, the judge reasoning that paying the court dues for a proof is a necessary precondition of proceeding with the proof. He noted that the auditor’s minute did not provide a reason or justification for the decision not to allow this item.

The next ground related to a charge for instructing counsel for a pre-proof case management hearing, attending that hearing, paying counsel’s fees for attendance and paying court dues. This hearing was assigned by the court at the same time as it assigned a four day proof. The auditor did not uphold this item. Lord Menzies noted that the auditor did not deal with this ground of objection individually, but simply made a general observation that the highlighted work was not work undertaken in preparation for or conduct of the proof and that otherwise there would be no distinction between this award and an award of the expenses of process. Lord Menzies held that this was a misunderstanding of the position and a misinterpretation of the court’s award. Likewise, he held that the auditor’s decision to abate an entry for instructing counsel for and attending at a pre-proof hearing was an error of law based on his misunderstanding of the court’s award.

Another ground related to charges for a pre-proof consultation with counsel. This took place eight days before the first day of proof. The auditor in his minute failed to address this point specifically. Lord Menzies held that this is a normal (possibly essential) step in preparation for a forthcoming proof and falls within the award of expenses.

Just as an aside, it is vital to obtain sanction from the sheriff court for the involvement of counsel in that court as soon as possible after the decision is made to instruct counsel. Failure to do so will make it very hard to get an award of expenses which covers their fees.

The next ground related to the affidavit of a supporting witness for the defender. The court had appointed parties to lodge affidavits of witnesses which would stand as their evidence in chief. If the defender had not lodged this witness’s affidavit, the witness’s evidence would not have been available to the court. Lord Menzies disagreed with the auditor’s decision not to include it and felt that it clearly fell within the category of an expense as referred to in the interlocutor. Likewise, Lord Menzies also upheld entries in relation to the defender perusing affidavits of the pursuer and his witnesses and for preparing an affidavit for the defender and perusal of an affidavit by a witness for the pursuer.

Lord Menzies did not, however, uphold the defender’s ground of objection in relation to charges for an incidental hearing which took place after the proof. This hearing was assigned by the Lord Ordinary on the last day of proof, on 17 September 2019. His opinion was issued on 23 October and the hearing in question took place on 29 November. At that hearing, various detailed orders were made, including the award of expenses. Lord Menzies did not accept the defender’s submission that this hearing was a continuation of the diet of proof and should properly be characterised as forming part of that diet.

What to seek?

The decision is helpful when considering seeking expenses generally, the interpretation of an award of expenses, and the role of the auditor (including whether or not it is worthwhile lodging a note of objections to the auditor’s report). Having a good law accountant is also important.

In the first place, it is important to take care when framing a request for expenses. For example, it is not enough just to seek a blanket award of expenses of the proof. Rather, the wording should make clear that what is sought is the expenses of and occasioned by the preparation for and conduct of the proof. Consideration should be given as to whether it is appropriate to seek an award of the expenses of process. That is much wider (since not tethered to a specific hearing such as the proof), and in turn harder to obtain. An award of expenses of and occasioned by the preparation and conduct of the proof is different from, and more restrictive than, an award of the expenses of process.

The auditor’s role

In terms of the role of the auditor, Lord Menzies makes clear that it is necessary for the auditor to consider each item in an account of expenses and determine whether that item falls within the specified category (per the terms of the award of expenses), and if so, to go on to determine whether the charges are reasonable. The auditor must be able to justify that decision. Lord Menzies held that the auditor in this case did not carry out that exercise properly.

He referred to the earlier case of Stuart v Reid [2015] CSOH 175. This case was an action for damages following a fatal road traffic accident. The court repelled the deceased’s family’s note of objections to the auditor’s taxation of accounts where the auditor had sufficiently set out the reasons for his decisions. Lord Woolman observed that in taxing a party and party account, the auditor’s task is to determine whether the proposed fee is fair and reasonable. He noted that there is a substantial body of case law which has developed in relation to challenges to the auditor’s decision. He helpfully summarised salient points from those cases:

• The auditor acts essentially as a valuer.
• He is expected to apply his knowledge and experience in carrying out his task of assessing a fair and reasonable fee.
• The court will be slow to disturb his decision if he has properly exercised his discretion.
• It will not substitute its own views for those of the auditor.
• It will not attempt to tax an account itself.
• The court will, however, intervene if the auditor did not have sufficient materials on which to proceed, or his decision is unreasonable.

Wider category

While it is likely that many or most of the expenses after a proof has been allowed will fall to be categorised as expenses of and occasioned by the preparation for and conduct of the proof, it does not necessarily follow that all such items will fall into that category. For example, late changes to the pleadings by way of minute of amendment may not.

Lord Menzies in McCallion noted that preparation of written pleadings, and any discussions or challenges to the relevancy or specification or particular legal challenges, will not normally fall within the category of “expenses of and occasioned by the preparation and conduct of the proof”. So, the drafting of the summons or defences, adjustments to the pleadings, minutes of amendment or answers thereto, specifications for the recovery of documents and preparations for and attendance at the debate will not normally be recoverable in terms of the interlocutor in this case (but would normally be recoverable under the wider award of expenses of process).

The judge reiterated the dicta in Stuart v Reid, that the court should be slow to disturb the auditor’s decision if the auditor has properly exercised his discretion, that the court will not substitute its own views for that of the auditor and will not attempt to tax an account itself. The court will however intervene if the auditor did not have sufficient materials to proceed or if his decision is unreasonable. Lord Menzies intervened because he reached the decision that the auditor’s decision was unreasonable and flowed from a misunderstanding of the court’s award.

Lord Menzies remitted the matter back to the auditor to tax the elements of the account which he had not included within the award of expenses and which Lord Menzies decided should be included.