In the Matter of the Arbitration Acts 2010

[2015] IELCA 5 IN THE MATTER OF THE ARBITRATION ACTS 2010 AND IN THE MATTER OF AN ARBITRATION BETWEEN MARK KILLILEA AND TONY REYNOLDS CLAIMANTS/PLAINTIFFS AND LIBERTY MUTUAL INSURANCE EUROPE LIMITED RESPONDENT/DEFENDANT

1. The costs of the Claimants, pursuant to Arbitrator’s Award dated 18 December 2013 were initially taxed by me on 22 January 2015. 2. The Claimants have carried in Objections confined to item no. 23 of the bill of costs which relates to the amount allowed in respect of the solicitors’ instructions fee. The sum claimed was €95,000 which I reduced to €17,500.00 3. The Claimants are solicitors and were formerly partners in the firm of Killilea Reynolds Whelan (‘the firm’). The Respondent Company provides insurance to, inter alia, firms of solicitors. 4. The background to the arbitration proceedings is succinctly set out at para 4 of the Arbitrator’s Award No. 1 dated 15 October 2013, as follows: “4. The firm acted for a number of parties including David Bean and Rose Bean (“the Beans”) and Edward Tynan. Five sets of proceedings have been commenced. a) On the 30th July, 2012 the Beans sued the firm seeking the delivery up of files and records. b) On the 13th September, 2012 the Beans instituted substantive proceedings against the firm claiming damages for breach of contract, negligence and breach of duty. c) On the 13th September, 2012 the Beans also issued a writ against Edward Tynan for damages for breach of contract, negligence and breach of duty. It appears that the parties had entered into a partnership agreement concerning lands in County Kildare. d) The Beans also commenced proceedings against Allied Irish Banks plc (“the bank”) on the 27th November, 2012 seeking inter alia declarations that they had no obligation on foot of a letter of sanction on the 27th March, 2009. e) The final set of proceedings (“the bank’s proceedings”) was commenced by the bank against the firm by Special Summons on the 30th November, 2012 under Special Summons bearing record number 2012/681SP.”

5. The Arbitration herein was concerned only with the indemnity which the Claimants asserted should be provided by the Respondent under the terms of a contract of insurance (‘the Policy’) provided by the Respondent to them and covering the period 1 December 2010 to 30 November 2011. The firm also completed a proposal form for insurance cover in the following year and the Respondent provided cover to it for the period 1 December 2011 to 30 November, 2012. 6. The Respondent denied it had any obligation to indemnify the Claimants in respect of the bank’s proceedings under the terms of the policy, as in accordance with the policy, it was asserted that the claim was not one, in respect of civil liability, first made against the firm and notified to the Respondent during the period of the policy. 7. The essential background to the dispute is that by letter of 4 October 2011, a firm of solicitors acting on behalf of the bank wrote to the Claimants’ firm alleging that it was in breach of four solicitors’ undertakings provided to the bank. The total of the advances made by the bank on foot of the loans in question, which had been provided to Edward Tynan, amounted to €5,787,005.10. Although demanded, the sum due had not been repaid to the bank. The bank’s proceedings against the firm allege that the firm failed to ensure that the bank obtained a valid first legal mortgage, failed to ensure execution of the necessary deeds of charge and failed to stamp and register the deeds. Compensation in regard to the banks’ losses was sought. 8. It was the Respondent’s case that the bank’s solicitors’ letter of 4 October 2011 was a notification of a claim first made against the firm which ought to have been notified to the Respondent during the period of insurance and in consequence of this not having been done the firm was not entitled, under the terms of the policy, to indemnity in respect of the claim. The firm had first written to the Respondent informing it of the bank’s claim on or about 20 August 2012. 9. It was common case that the letter of 4 October 2011 constituted a notification of a claim first made against the firm. 10. The Claimants’ Notice of Objections asserts that “a sum of 17,500 Euro does not represent a fair and reasonable fee taking account of all relevant criteria”. 11. The Claimants’ Submissions. In their submissions the Claimants note: a) That the responsibility factor related to a claim of €1.5 Million which could ‘translate’ into a negligence claim against their solicitors. b) The allowance of €17,500 rendered uneconomic the work undertaken. c) There should be reasonable proportionality between ‘the risk’ undertaken and the remuneration received. d) The fact that the Claimants are solicitors placed their solicitor under ‘higher scrutiny’ as opposed to a situation where the instructing client is a lay person. This is stated to be comparable to the “egg shell skull test”. e) As a fee of €17,500 would be recoverable “for a €75,000 assessment case” settled in advance of trial, the appropriate fee in the instant case must be significantly higher. A comparator is cited in support. f) The magnitude of the case has been fairly reflected in Senior Counsel’s brief fee which was allowed at €12,000. This sum, it is claimed, is five times the extent of the fee which would be recoverable in an assessment case with a value of €75,000. While acknowledging that the Claimant’s solicitor had a different role to play herein than Senior Counsel, it is asserted that the role is of equal importance and “the same criteria must apply”. g) It was unfair to reflect importance and magnitude and money when assessing the brief fee and not in relation to the instructions fee. h) The fee should have been allowed in the sum of €75,000. 12. The Respondent’s Submissions i. The Respondents note that the limit of cover under the policy was €1.5 Million and deny that the allowance of the instructions fee at €17,500 was disproportionate. Further that the Claimants had failed to acknowledge that the Taxing Master did have regard to the matter at issue and that the nature and extent of the work as evidenced by the solicitors’ file influenced the fee. ii. There is no logic to the Claimants’ submission at (d) above. iii. The citation of fees allowed in a High Court personal injury action by way of comparator is fundamentally flawed. Essentially the point made is that there is no like for like comparison between the work arising in either case. iv. The Claimants harbour a mistaken perception of the basis of the allowance of €12,000 by way of brief fee. The case by its nature was in Counsel’s domain as was stated by the Taxing Master. The reference to the brief fee being five times that applicable to the cited personal injury action is also fundamentally flawed. v. The factors such as money, importance and magnitude are not solely to be taken into account by a Taxing Master. The Taxing Master was correct in assessing the nature and extent of the work. Ruling 13. The period of work runs from 30 June 2013 to 3 October 2013. 14. I have again carefully considered the Claimants’ solicitors’ file and papers. 15. As of date of receipt of instructions the Claimants, being practising solicitors, had prepared a reasonably detailed ‘Summary of Events’ for their solicitors and provided copies of all background documentation, including the policies of insurance applicable to the two relevant years. 16. I can see no merit in the argument that the Claimants’ solicitors were on greater risk because of the status of their clients. If a solicitor provides negligent services to a client a liability in damages will probably arise regardless of the client’s station in life. The status of the Claimants herein served, if anything, to ease the burden on their solicitors. 17. The costs in this case were awarded as between party and party. The minimum reasonable sum must be measured by way of indemnity to the Claimants. A Taxing Master does not measure the Claimants’ solicitors’ remuneration as appears to be inferred at clause (1) of their submissions. Presumably the Claimants have already paid their solicitors’ fees in the matter. There is no question of the allowance rendering the work ‘uneconomic’. 18. There was preliminary correspondence with the insurers and their solicitors. It became clear that arbitration was inevitable. An Arbitrator was appointed. He gave directions as to preparation and service of points of claim and defence and fixed the hearing date for 24 September 2013. 19. It is clear that the points of claim were drafted by Junior Counsel who sent the draft directly to Senior Counsel on 26 August 2013. The book of relevant documents had been prepared by the solicitor and sent to Senior and Junior Counsel. The solicitor had also been in correspondence with the solicitor acting for the bank. 20. The points of claim were delivered on 27 August 2013. There is little, if any, evidence of solicitors’ work in relation to this aspect. This is not intended to be a criticism. The successful outcome of this arbitration was entirely dependant on legal argument essentially as to the proper construction of Clauses 1.1, 2.2 and 6.2 of the policy, the existence of ambiguity and conflict between two clauses and the resultant legal requirement of applying the contra proferentem rule. 21. These are matters within Counsel’s domain and there is no evidence of any substantial involvement therein on the part of the solicitor save that he did have discussion with an insurance expert on or about 18 September 2013 and received advices by email of the same date concerning this issue which he duly passed on to Counsel. The points of defence were received on 24 September 2013. 22. The brief was prepared and issued to Senior and Junior Counsel on 2 October 2013, the hearing having been rescheduled, to commence on the following day. The brief was comprised of (1) Index, (2) Book of documents and correspondence, (3) Book of Pleadings, (4) Submissions. 23. There was earlier contact with the Respondent’s solicitors in regard to agreeing the books of documents. 24. As stated in my original ruling there is no evidence of the solicitors’ involvement in formulating the Claimants’ legal submissions. It seems that no involvement arose in this regard. 25. Of course the responsibility and value factors are of importance but as observed in many previous cases, the value to be placed on these factors must be related to the extent of the work undertaken. In my view that is the criterion against which proportionality might be considered. This is the approach I adopted. 26. I observed in the course of my original ruling that there was a considerable sharing of responsibility between Counsel and solicitor. I am satisfied, in the circumstances of this case, that while the solicitors discharged their duties professionally and indeed with admirable efficiency, the burden of the case in terms of legal research and advocacy was undertaken by Counsel. I specifically stated in the course of my ruling that I was taking this into account. 27. In my view the reliance by the Claimants on the settlement of the costs issue in Bulczak v Brennan and Smith v Servier Laboratories (Ire) Ltd. & Anor. is misconceived as there is no comparison between the work undertaken by a Plaintiff’s solicitor in a personal injuries action and the work actually undertaken in the instant case. I accept the Respondent’s general submissions in this regard and I do not think that further explanation is necessary. The Claimant is essentially comparing ‘apples with oranges’. 28. It was unnecessary in any event to look to an action on the extreme periphery of possible comparison when a more suitable comparator was actually available namely Palace Joinery Ltd. V Arbitration Insurance Company Ltd. The Claimants’ costs which were taxed on 1 November 2011 by Taxing Master Flynn, arose out of an Award of an Arbitrator dated 22 April 2008. The Respondent insurer had refused indemnity to the Claimant in regard to any damages and costs associated with an assault and bullying action by an employee of the Claimant in the High Court against the said Claimant. 29. The refusal of indemnity was based on two clauses in the policy. One clause excluded indemnity for psychological damage except if caused through physical injury. The remaining clause relied upon excluded liability arising out of late notification of a claim. It seems from the bill of costs that evidence as to fact was required in regard to both aspects. I do not think this comparator can be considered as onerous or difficult as the instant case in terms of construction of the terms of the policy. However insofar as the solicitor’s work was concerned I think that the comparator is a reasonable one. The quantum involved is not clear. The instructions fee was allowed in the sum of €15,000 on the basis of the nature and extent of the Claimant’s solicitor’s work covering a period from September 2005 to August 2008 and included the costs associated with a solicitor from Co. Sligo attending in Dublin for the hearing of the Arbitration. The work period in the instant case was considerably shorter, running from January 2013 to December 2014. 30. I duly took into account the magnitude of the instant case, in my view, in the measurement of the instructions fee at €17,500. Unlike the Palace Joinery case I allowed the cost of briefing two Counsel given the nature of the arbitration. It is impermissible to apply a type of rule of thumb to the assessment of an instructions fee, more especially when it is based on a primary consideration as to the fees allowed to Counsel. The provisions of Section 27 (1), (2) of the Courts and Court Officers Act, 1995 require an entirely different approach. 31. In my opinion there was simply no reality to the fee of €95,000 originally claimed herein. Equally so, in regard to the reduced sum of €75,000 now advanced in the Claimants’ submissions. 32. I disallow the Claimants’ Objections. Dated the13th day of July 2015 Declan O’Neill Taxing Master.