Where a party (the 'Receiving Party') in litigation seeks an inter parties costs order[1] against another party in the litigation (the 'Paying Party'), and the Receiving Party's costs claim includes a claim for a sum for costs of an in-house solicitor (i.e. a salaried solicitor, employed by the Receiving Party), how does the Court assess the recoverable hourly rate, in light of the indemnity principle costs rule? 

This article will consider this topic, in light of: (1) Re Eastwood (Deceased) (also known as Lloyds Bank Ltd v Eastwood) [1975] Ch. 112; [1974] 3 WLR 454 ('Eastwood'), Court of Appeal (Russell LJ; Stamp LJ; Lawton LJ) on 12.7.74; (2) Cole v British Telecommunications Plc [2000] 2 Costs LR 310 ('Cole'), Court of Appeal (Buxton LJ; Hooper J) on 4.7.00; (3) Sidewalk Properties Ltd v Twinn [2015] UKUT 122 (LC); [2016] 2 Costs LR 253 ('Sidewalk'), Martin Roger QC, Deputy President in the Upper Tribunal (Lands Chamber) on 10.3.16; and (4) R. (on the application of Kuznetsov) v Camden LBC [2019] EWHC 3910 (Admin); [2020] Costs LR 1113 ('Kuznetsov'), Mostyn J in the High Court on 21.11.19.

As to these authorities, while Eastwood sets down the principle and was described in Sidewalk as '...the leading authority on the proper approach to the assessment of costs incurred by inhouse solicitors...' (paragraph 2), Kuznetsov is, in the author's view, the 'go to' recent authority.

Use of Solicitors 

Parties in litigation are free to represent themselves (as 'litigants in person'), but many choose to instruct solicitors (whether with or without counsel) to advice, assist and represent them. Such solicitors might be:

(1) external solicitor(s);

These are solicitors in private independent practice, typically in an independent firm of solicitors, hired to advise, assist and/or represent the party. In the normal way, the independent firm of solicitors will have agreed with party instructing it, how the firm will be remunerated for the legal services it provides[2].

(2) internal solicitor(s)

Solicitors who are employed on a salary, by the party using them. Many large organisations, companies and public bodies, employ solicitors in house, as part of legal department. These types of solicitors are called 'in-house solicitors' or 'employed solicitors'

Inter Parties Costs Orders 

Where a Court is asked to make an inter parties costs order, the Court will usually[3] approach it in three stages: (1) the principle of costs[4]; (2) the basis of assessment[5]; then (3) quantum of costs[6].

Whether the basis of the assessment of costs is: (a) standard basis, or (b) indemnity basis, when the Court reaches the the third stage, the quantum of costs stage, the Court will only award a sum of money if to do so would be in accordance with the Indemnity Principle.

Costs Rule - The Indemnity Principle 

So, what is the Indemnity Principle? In Kuznetsov, Mostyn J said, at paragraph 25:

'The indemnity principle is very long-standing and reflects the obvious principle that when making an order for costs there should not be a windfall for the payee; nor should there be a penalty imposed on the payer. The costs can never exceed the value of the work done.'

In other words, the Receiving Party cannot recover, on an inter parties costs order, more than the Receiving Party has incurred on its own lawyers - here, solicitors. It does not matter whether the Receiving Party has actually paid the solicitor the sum of money, or just owes the solicitor the sum of money. The logic is, that the Receiving Party should be reimbursed by the Paying Party, for money the Receiving Party has not actually incurred. It is a principle that many people might consider to be rather obvious and unsurprising.

Indemnity Principle and Solicitors Costs

Where the Receiving Party has instructed external solicitors, the Receiving Party will claim, under the Indemnity Principle, for the cost of the work the external solicitors are charging the Receiving party. Contractually, the Receiving Party is obliged to pay the external solicitors for the work the external solicitors actually did for the Receiving Party on the matter, and so, the Receiving Party can claim this amount from the Paying Party. That will be the combination of the number of hours worked, and the fee earner solicitor's hourly rate. Such hourly rate likely to have been agreed in advance as part of the initial instruction, and recorded in the solicitor's initial client care letter. So far, so straightforward, but what if the solicitors are not external solicitors, but internal. How is the hourly rate to be calculated for the in-house solicitor. Will it just be a specified hourly rate or will there need to be an detailed analysis as to quite how much a hour of the in-house solicitor's time, really cost the Receiving party, based on the in-house solicitor's salary, plus certain linked overheads (office space) etc.

Turning to the case law.

Eastwood 

In Eastwood, Russel LJ, reading out the judgment of the Court of Appeal, started by posing the question of principle which arose for determination. At 129, he asked, what is the correct approach to awarding inter parties costs against a Paying Party (then called 'taxation of costs') for solicitors costs, where, in essence, an organisation[7] had been:

'...conducting litigation through its own legal department of which all the expenses, including the salaries of solicitors, assistant solicitors and legal executives, are paid by it, and not by instructing an independent solicitor or firm to act for it'?

Russell LJ, at 130-131, made four initial points:

(1) firstly, in such a situation:

'It is ... quite clear on authority that it is not permissible to say that consequently the party is limited to disbursements specifically referable to the particular litigation on the ground that the salaries of employees and other general expenses of the department would have been incurred by the party in any event.'

In other words, it would be wrong to argue that a Receiving Party that had used its own employed in-house solicitors, could not recover on an inter parties costs order, reimbursement for the cost of employing those employed in-house solicitors, but would just be limited to recovering any disbursements[8] it had incurred.

(2) secondly, Russell LJ noted that, up until 1960's, the in-house solicitor's '...bill was treated in the same manner as would have been the case had an independent solicitor been instructed by the party...and we observe that...:the system seems to have worked without objection, and without a suggestion that in such cases some detailed and complicated method should be adopted of breaking down the activities of the legal department so as to arrive in some other way at a proper attribution of the total expense of the department to the particular litigation.'[9]

So, as to the proper attribution of the total expense of the department to the particular litigation, two approaches were identified, which can be labelled:

(a) the 'treat in the same manner' approach (i.e. treat independent solicitor hourly rates and in-house solicitors hourly rates the same); as against,

(b) the 'detailed, breakdown and attribution' approach (i.e. breaking down the activities of the legal department, to determine the actual cost of each in-house solicitor hour worked).

(3) thirdly, Russell LJ expressed the view it would be a 'perfectly sensible presumption' (132) to make, that the costs of the Receiving Party's own legal department '...analysed and broken down and apportioned...' would not be less than '...the figure of reasonable costs to be allowed had it been a case of the use of an independent solicitor.'[10]

(4) fourthly, the daunting complexity of the 'detailed, breakdown and attribution' approach meant it must be confined to rare cases; it could not apply in all cases where the successful party had used an in-house solicitor. Russell LJ said, '...we view with horror the immensity of the complication which would be introduced into an already complicated system of taxation. It may be said that without such an added complication there may be rare cases in which the taxed costs of a successful party will exceed what is needed to indemnify him. Even so, this is preferable to requiring the successful party to prove in all cases in detail the contrary, that is to say, that the other party has not obtained a fortuitous benefit by the use by the successful party of a salaried solicitor and not an independent solicitor.' (132)

The 'treat in the same manner' approach on the other hand, benefits from its relative simplicity. Russell LJ said:

'In our view, the system of direct application of the approach to taxation of an independent solicitor's bill to a case such as this has relative simplicity greatly to recommend it, and it seems to have worked without it being thought for many years to lead to significant injustice in the field of taxation where justice is in any event rough justice, in the sense of being compounded of much sensible approximation.' (132)

Summary of the General Position

With the above points in mind, Russell LJ set down the law as follows, at 132 (splitting the bullet point into separate paragraphs):

'In summary... in our opinion.

(1) It is the proper method of taxation of a bill in a case of this sort to deal with it as though it were the bill of an independent solicitor, assessing accordingly the reasonable and fair amount of a discretionary item such as this, having regard to all the circumstances of the case.

(2) There is no reason to suppose that the conventional A B method is other than appropriate to the case of both independent and employed solicitor.

(3) It is a sensible and reasonable presumption that the figure arrived at on this basis will not infringe the principle that the taxed costs should not be more than an indemnity to the party against the expense to which he has been put in the litigation.

(4) There may be special cases in which it appears reasonably plain that that principle will be infringed if the method of taxation appropriate to an independent solicitor's bill is entirely applied: but it would be impracticable and wrong in all cases of an employed solicitor to require a total exposition and breakdown of the activities and expenses of the department with a view to ensuring that the principle is not infringed, and it is doubtful, to say the least, whether by any method certainty on the point could be reached. To adapt a passage from the judgment of Stirling J. in In re Doody [1893] 1 Ch. 129, 137, to make the taxation depend on such a requirement would, as it seems to us, simply be to introduce a rule unworkable in practice and to push abstract principle to a point at which it ceases to give results consistent with justice.'

Concession Exception

However, the 'treated in the same manner' approach need not apply, Russell LJ opined, where a Receiving Party concedes that a lower hourly rate figure would be 'adequate to cover the actual cost incurred in doing all the work done' - that is, the Receiving Party concedes (accepts) that the outcome of a detailed breakdown and analysis of the activities of the Receiving Party, would produce the lower hourly rate figure. The Court is permitted to decide the issue on this concession (i.e. at the lower figure). Seemingly, this is because, the objection to the 'detailed, breakdown and attribution' approach is avoided, because the concession means the detailed enquiry and analysis are avoided.The Court of Appeal in Eastwood appear to have accepted that this aspect of the law did not arise in Eastwood, on the basis that the Receiving Party had not made any such concession (thought there had been a dispute as to whether such a concession had been made however[11]).

Cole

In Cole, Buxton LJ summarised what Eastwood established, as follows, at paragraph 9:

'The judgment of this court in [Eastwood] establishes that the conventional method appropriate to taxing the bill of a solicitor in private practice is also appropriate for the bill of an in-house solicitor in all but special cases where it is reasonably plain that that method will infringe the indemnity principle. Such a special case will arise where a sum can be identified, different from that produced by the conventional approach, which is adequate to cover the actual cost incurred in doing all the work done. Such a sum may be identified by concession (see [1975] 1 Ch at pp 130G-131A) or, presumably, by the factual assessment of the taxing tribunal itself: but that possibility does not justify a detailed investigation in every case (ibid, at p. 132E).'

In Cole, the claimant brought unsuccessful proceedings against the defendant BT, and as a result, was ordered to pay BT's costs. At the costs assessment stage, BT claimed in house solicitor costs at £168 per hour. This was because, during the proceedings, BT '...had acted throughout by an employed, “in-house”, solicitor, in respect of whose work a charge of £105 per hour together with a “mark-up” of 60 per cent was included in the bill of costs.' (paragraph 1) producing the hourly rate of £168.

At first instance, a Deputy Master followed Eastwood, and (a) assessed the 'employed solicitor's bill as if it were the bill of an independent solicitor' (paragraph 1)(sometimes labelled in Cole: the 'conventional approach' (paragraph 3); or 'generalised approach' (paragraph 7)); and (b) held that the 2 components to the figure £168, i.e. (i) expense rate (figure A); and (ii) percentage uplift (figure B), were justified, meaning the aggregate figure of £168 was justified. The claimant appealed, not '...to challenge...the basic principle laid down in [Eastwood]' (paragraph 1), but to argue that '...any conclusion reached on the basis of the A and B figures must be subject to the overriding principle that the receiving party must not recover more than the actual cost to it of employing the solicitor: that is, the indemnity principle.' (paragraph 1). In essence, the claimant argued that the facts in Cole (discussed below), made it appear 'reasonably plain' (Eastwood, point (4); Cole, paragraph 2) that, to use the 'treated in the same manner' approach, would infringe the Indemnity Principle, such that it was a special case, 'treated in the same manner' approach was not to be applied.

Special Case? - First Basis

As to those facts, the claimant argued that, on the facts in Cole, it was 'reasonably plain' that 'treated in the same manner' approach , if deployed, would breach the Indemnity Principle, because, if you took the £168 and multiplied it by the number of hours the solicitor would be expected to work in one year, 'an annual cost of his services to BT of some £300,000 would be produced' (paragraph 2) and that 'It was not credible that one solicitor could have cost that much to employ, particularly at the time when the litigation was in process in 1993.' (paragraph 2). The Deputy Master rejected this argument, as containing an 'obvious fallacy' (as per Buxton LJ, paragraph 3), namely that it '...assumed that the solicitor would be generating a “chargeable” hour for every hour that he worked under his contract of employment.' (paragraph 3). The upshot was that, the Deputy Master found that it was not 'reasonably plain' that, to use the 'treated in the same manner' approach, would result in the Indemnity Principle being infringed, such as to trigger a 'more detailed enquiry' (paragraph 3) into the matter.

Buxton LJ in Cole said, at paragraph 3:

'In reaching that conclusion the Deputy Master drew attention to the warnings of this court in In Re Eastwood as to the impracticality and undesirability of requiring a breakdown of all the activities and expenses of an in-house solicitor's department: a process that, in the world of practical justice in which the taxation process moves, the adoption of the conventional approach was designed to avoid.'

However, a second basis emerged for arguing that it was 'reasonably plain' that, to use the 'treated in the same manner' approach, would infringe the Indemnity Principle.

Special Case? - Second Basis

This second basis came from some evidence that BT filed, in order to rebut the claimant's case. BT had tendered 'a table headed "Hourly Rate for Grade ILRS" [the Hourly Rate table], that set out the total pay and associated expenses attributable to all solicitors in the solicitor's grade within BT, and then divided that figure by the "target" chargeable hours expected of such a solicitor. That calculation produced an "hourly rate" of £160.' (paragraph 4). It was this second basis, the importance of the Hourly Rate table, became the focus of the case thereafter. At first instance, the Deputy Master said of the Hourly Rate table:

'Although based upon “chargeable hours” that is not an hourly rate which [the solicitor] includes in any bill which he or BT's legal department send to BT for his services in this litigation. It is also not clear whether BT's legal department [is] expected to cover their own costs or are run at a loss within the company. To raise these matters is to recognise the scale and complexity that would be involved in identifying with any certainty whether and to what extent the indemnity principle had been breached. In Eastwood the Court of Appeal clearly felt that such a complex and intricate accounting exercise was to be avoided except in the case where the breach was reasonably plain. That exercise in the case of an organisation as large as BT would be time consuming, complex and costly particularly in relation to an action which spread over some 8 years.' (paragraph 4)

Accordingly, the Deputy Master saw not reason in the Hourly Rate table, for departing from the 'treated in the same manner' approach.

The claimant unsuccessfully appealed (the first appeal). And the claimant then appealed again (the second appeal).

On the second appeal, Buxton LJ:

(1) rejected certain claimant arguments, saying that they did not give '...proper weight to the approach to taxation adopted in In Re Eastwood, or the respect that that approach accords to the judgement of taxing masters and assessors.' (paragraph 8); and

(2) summarised Eastwood, at paragraph 8 (quoted above);

(3) found that BT had made not concession (paragraph 10) - that the the Hourly Rate table did not make such a concession (paragraph 10) - the Deputy Master had found it to be an incomplete statement[12]

(4) held that, 'In those circumstances, it is a matter for the judgement of the expert tribunal as to whether it is satisfied that the material is such as to create a special case in the terms of the guidance in In Re Eastwood.' On the facts of Cole, 'Neither of the tribunals in this taxation so concluded' (paragraph 10)

(5) in respect to the appeal from the first appeal decision[13], Buxton LJ said:

'[The claimant's] complaint that the figures in the hourly rate table show that the indemnity principle has been infringed is misconceived, first because the hourly rate table is insufficient to demonstrate that as a matter of fact; and second and more fundamentally because In Re Eastwood requires it to be assumed that, except in a special case, the indemnity principle is not infringed by the application of the conventional approach. That latter assumption may in some cases strain logic...but, as this Court emphasised in In Re Eastwood, it has the merit of simplicity, and of avoiding the burden of detailed enquiry in any but a special case.'[14]

So far, it is possible to frame the point as follows:

Eastwood requires the Court to assume that the indemnity principle is not infringed by the application of the conventional approach, except in a special case. What amounts to a special case (since the assumption will not apply, for special case)? Seemingly, a special case is where it is 'reasonably plain' that the indemnity principle is being infringed. On the facts of Cole, it was not 'reasonably plain' because the Hourly Rate table, the evidence, was an 'incomplete statement' (it did not deal with all relevant circumstances).

Sidewalk

Sidewalk involved an appeal to the Upper Tribunal from a first tier tribunal ('FtT') decision to 'apply' Eastwood in a new way[15], and decide that 'the charges recoverable by the appellant should not be based on the charging rates of solicitors in private practice but on the tribunal's own assessment of an appropriate inhouse rate.' (paragraph 2).

In Sidewalk, the appellant was the freeholder/landlord; the respondents were the leaseholders, to 7 flats (paragraph 10). The respondents served s.42 of the Leasehold Reform, Housing and Urban Development Act 1993 ('1993 Act') notices, seeking the grant of new leases on 1993 Act terms. Following counternotices, the premium for the new leases was agreed upon, but the parties were unable to agree upon what the respondents were obliged to pay the appellant, in terms of reasonable legal and valuation fees, pursuant to s.60 of the 1993 Act (paragraph 14). The respondents refused to pay the solicitor fees claimed ('...all of which had been carried out by a solicitor employed by a company within the same group of companies as the appellant itself...' (paragraph 1)), and the respondents applied to the FtT for a determination as to the sums which the appellant was reasonably entitled (paragraph 15). As part of its case management power, the FtT directed (amongst other things) that the appellant do provide a document setting out 'as the solicitor is 'inhouse', details of the overheads of the company so that an hourly rate can be calculated' (paragraph 16). The appellant neither complied with this direction (paragraph 17), nor appealed it (paragraph 28).

In its determination, the FtT held that:

(1) it could 'apply' Eastwood in a new way, and undertake an analysis of the overheads of the relevant appellant (paragraphs 19 to 23[16]). The FtT felt able to do this, because:

'Eastwood and the other authorities relied on by the tribunal in [Re OM Property Management Ltd [2012] UKUT 102 (LC) and Re Arora [2013] UKUT 362 (LC)] were described by the FtT as “old cases”. It explained that in the 1970s the assessment of costs by reference to the overheads of the claiming solicitor's firm had been “very haphazard”. That situation was contrasted with “the present system” of “evidencebased rates” derived from the audited accounts of large numbers of solicitor firms which had been provided to the Senior Courts Costs Office. But these evidencebased rates were, it was said, “only for solicitors in private practice”. The FtT did not explicitly refuse to follow the leading decision of the Court of Appeal; instead, it purported to apply the Eastwood principle in light of “the present system”, as it explained in para 26 of its decision:

“Thus, the principle that the charging rates for solicitors both in private practice and ‘inhouse’ would be assessed on the same basis has never changed. What has changed since [Eastwood] is that the starting points for rates allowed to solicitors in private practice is evidencebased i.e. is based on what their overheads would usually be. That is precisely the reason for ordering the [appellant's] representatives in this case to provide evidence of their overheads so that the same evidencebased process could be used.”' (paragraph 22, Sidewalk); and

(2) £150 per hour was 'reasonable' (paragraph 19; FtT decision, paragraph 21), rather than the hourly rate claimed by the appellant, of £275 per hour (paragraph 14)[17]

On appeal in the Upper Tribunal, Martin Rogers QC:

(1) accepted, yes, that there had been some evolution in the assessment of hourly rates for solicitors in private practice, recognising, at paragraph 26, that:

'...since the decision in Eastwood the method adopted by costs judges when assessing hourly rates for solicitors in private practice has evolved. Rather than aggregating an A rate (reflecting the direct costs of employing the individuals undertaking the work and an appropriate share of the general overheads of the firm attributable to them) and a B rate (covering indirect expenses and other matters which cannot be calculated on an hourly basis together with a profit element) guideline hourly rates are now published by the Senior Courts Costs Office. These provide an indicative range of charges, reflecting a wide variety of work, for solicitors in different bands, (A) to (D), based on levels of experience and with regional gradations (including three bands within London). These rates were last published in 2010 at which time the guideline hourly rate for a Band A solicitor was £201 in Bury St Edmunds and was £229 to £267 in outer London.'[18]

(2) held however, that the FtT had been wrong to purport to apply Eastwood in the new way it contended was permissible/correct. In reality, the FtT were 'adopting a wholly different approach' (paragraph 29), for which there was 'no justification' (paragraph 29). Martin Rodger QC said, at paragraphs 29 to 31:

'The FtT was not provided with the material it had requested, but nevertheless considered that the indicative or guideline rates for solicitors in private practice were not applicable to salaried solicitors undertaking legal work inhouse on behalf of their employer. The reasons it gave were that the overheads of an inhouse solicitor were not comparable to those of a private practitioner. But the same could have been said of the Treasury Solicitor in Eastwood and of BT's inhouse solicitor in Cole and, in my judgment, provides no justification for adopting a wholly different approach. The overhead structure of a commercial enterprise will inevitably differ substantially from that of a professional firm, and it is nothing to the point that there are expenses of an independent solicitor's practice which will not be incurred by an inhouse lawyer. There will equally be expenses of the inhouse employer not found in the accounts of the private practice but for which some claim might be made (which Buxton LJ referred to in Cole as the “controversial allocation of costs” which nevertheless “would have to be taken into account to achieve a statement of the full cost”). In some cases, as the Court of Appeal recognised in Cole, it may “strain logic” to make the assumption that the indemnity principle is not infringed by the Eastwood approach. Nevertheless, in almost all cases, and most particularly in routine cases of very modest value, disbelief must be suspended and strained logic must be tolerated for “the merit of simplicity and of avoiding the burden of detailed enquiry”.

The FtT's approach in this case ignored the pragmatic justification underlying the Court of Appeal's conclusion that a detailed inquiry into inhouse overheads must be avoided. It did not have the material necessary to determine whether this was a special case, one in which it was reasonably plain that the indemnity principle would be infringed by adopting the Eastwood approach, nor had it been invited by the respondents to view this as such a case. It had no evidence justifying the assumptions it made about the actual costs and overheads incurred by the appellant. Its conclusions were therefore unsupported by evidence and contrary to principle and must be set aside.

The approach which the FtT 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 s 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.'

(3) reaffirmed the orthodox formulation of the law, as set down in Eastwood and reaffirmed in Cole[19] - summarising this, at paragraph 7 of Sidewalk, as:

'...the proper approach to the assessment of the costs of an inhouse legal department is to follow the method of assessment adopted for the bills of solicitors in private practice unless it is reasonably plain, either from a concession or from material before the court or tribunal, that this would infringe the principle that a party is not entitled to recover more than its actual expenditure.'

Kuznetsov

In Kuznetsov, a local authority ('Camden LBC') decided that a person (the claimant) did not qualify for housing allocation under Housing Act 1996, part 6 (paragraph 2). The claimant obtained permission to proceed with judicial review proceedings against that decision, but it failed at the substantive hearing (paragraph 6); a costs order was made against the claimant and in favour of Camden LBC for £11,614, which the claimant then applied for an order, setting aside this costs order (paragraphs 1 and 8), which was dismissed, but relisted for oral reconsideration at a hearing (paragraph 11). The sole challenge pursued (paragraph 25) was that the Indemnity Principle had been breached (paragraph 25):

'The claimant has particularly focused on the hourly rate claimed by the in-house solicitor of the [Camden LBC] of £317. The solicitor who has had the conduct of this case, principally Mr Reihill, has claimed £317 being a standard hourly rate which has been formulated in circumstances which I will describe. ... the focus of the objection has been on the hourly rate of £317.' (paragraph 26)

As to where the £317 figure came from, Mostyn J in Kuznetsov said, at paragraph 28:

'The figure of £317 is a suggested rate from the Supreme Court costs office, which is printed in the White Book, the Supreme Court Practice, at p. 442 giving, for London pay grade A, £317 for Central London...that is where the figure of £317 comes from.'

The claimant's challenge was that, in essence, because of certain evidence the claimant had obtained through a Freedom of Information request on Camden LBC, the facts in Kuznetsov fell within the exception in Eastwood. After quoting from Eastwood and Cole, Mostyn J said, at paragraph 33:

'[Counsel for the claimant] is candid enough to acknowledge that it would be highly exceptional for the court to depart from the suggested hourly rate from the Supreme Court costs office applicable to summary assessments involving solicitors in private practice. However, he says that there is good evidence deriving from the Freedom of Information request to show that the figure of £317 wildly exceeds the maximum possible costs that have been incurred by [Camden LBC], and that therefore the indemnity principle is being breached.'

That Freedom of Information request:

(1) was '...to discover the annual payroll budget of [Camden LBC], and the pay grades and annual and hourly cost to the taxpayer of the employees of each pay grade.' (paragraph 27) 

(2) '...discovered that the maximum hourly rate paid to an in-house lawyer of the [Camden LBC], is £41.75...' (paragraph 27) - which the claimant pointed out was '...very much lesser amount than the £317 which was claimed in the form N260.' (paragraph 27).

(3) showed '...that on employed lawyers the [Camden LBC], spent, in 2017/18, just under £2 million and that the annual payroll budget for legal services was £3 million – giving £1 million of payroll for ancillary staff.' (paragraph 27) - as to which the claimant accepted '...that there would be appreciable further costs of an infrastructural nature...' but argued that '...even when those are taken into account it cannot inflate the base figure of £41.75 to anywhere near the sum claimed of £317.' (paragraph 27)

Mostyn J however, rejected claimant's challenge to the £317 hourly rate, holding, at paragraph 34, that:

'The £317 encompasses a great deal more than just the costs, the payroll costs, of the people sitting in the offices of [Camden LBC]. It extends to a contribution to the infrastructural costs of the borough itself. Certainly, it extends to the costs of maintaining not only all the equipment, utilities and all other office costs, but the capital costs of the building in which the legal department is itself housed. So, one would be reasonably expected to apply figures for notional rent for example. I cannot see that this case is, by virtue of the evidence that is before me, a special case allowing an exception to the general rule. I concur with Russell J that to investigate this matter would be unworkable in practice and to push abstract principle to the point where it ceases to give results consistent with justice.'

It was on this basis, that Mostyn J 'rejected the challenge to the bill of costs, specifically to the hourly rate component of the statement of costs.' (paragraph 35)

Conclusion

Two key summaries of the law are:

(1) 'The judgment of this court in [Eastwood] establishes that the conventional method appropriate to [assessing] the bill of a solicitor in private practice is also appropriate for the bill of an in-house solicitor in all but special cases where it is reasonably plain that that method will infringe the indemnity principle. Such a special case will arise where a sum can be identified, different from that produced by the conventional approach, which is adequate to cover the actual cost incurred in doing all the work done. Such a sum may be identified by concession (see [1975] 1 Ch at pp 130G-131A) or, presumably, by the factual assessment of the taxing tribunal itself: but that possibility does not justify a detailed investigation in every case.' (Cole, paragraph 8)(substituting 'taxing' for 'assessing' in the above quotation, to bring the phraseology up to date)

(2) '...the proper approach to the assessment of the costs of an inhouse legal department is to follow the method of assessment adopted for the bills of solicitors in private practice unless it is reasonably plain, either from a concession or from material before the court or tribunal, that this would infringe the principle that a party is not entitled to recover more than its actual expenditure.' (Sidewalk, paragraph 7)

In addition, in the 'Guide to the Summary Assessment of Costs' 2021 Edition (based on work undertaken by the Civil Justice Council), under the heading 'In-house lawyers', paragraph 32 provides:

'The costs of in-house legal staff should be assessed as if they were in private practice, attributing to them a notional hourly rate based on the guideline rates for the relevant location. Unless it was reasonably plain that the indemnity principle would be infringed by this approach, it would not be practical to require a breakdown of the expenses of obtaining the services in-house: Re Eastwood [1975] Ch 112.'

Three further points can be made:

(a) for a concession to qualify as a way of establishing that the case is a special case, the concession must be complete, addressing all aspects that go to formulating/calculating the true cost of the in-house solicitor, to the Receiving Party;

(b) where there is no qualifying concession, it will be a very rare case that is found to be a 'special case', because it is reasonably plain that the Indemnity Principle would be infringed by applying the 'treat in the same manner' approach. The merit of simplicity and of avoiding the burden of detailed enquiry, are so strong that, in almost all cases, and most particularly in routine cases of very modest value, disbelief must be suspended and strained logic must be tolerated. Such investigations threat to be unworkable in practice.

(c) in the first instance, the court ought not to order that the Receiving Party to disclose evidence as to the true cost of its in-house solicitors. That would be to start the burdensome evidential stage, when such evidence would not be relevant. Whether disclosure might be ordered by the Receiving Party, if there is sufficient evidence already, rendering it arguable that it is 'reasonably plain' that the Indemnity Principle will be infringed, is an open question.

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