Businessman awarded £1m interim payment of expenses in $210m claim against law firm

A judge in the Court of Session, who previously held that the claim by Robert Kidd against Burness Paull should be determined after proof and awarded the pursuer certain expenses in the action to date, made an order for interim payment before the account had been lodged for taxation.

Lord Tyre held that the size of the sum likely to be found due, the complexity and cost of the process of preparation and taxation of the account, and the ongoing cost of the litigation, were “sufficient reason” to grant the pursuer’s motion.

Action for damages

The pursuer, a former client of the first defender and its predecessor firm Paull & Williamsons (P&W), is seeking damages from the defenders for “breach of contract, fault and negligence, breach of fiduciary duty and fraudulent misrepresentation” following the sale in September 2009 of part of his interest in a company called ITS Tubular Services (Holdings ) Limited.

On 25 November 2016, Lord Tyre pronounced an interlocutor finding the defenders liable to the pursuer for (i) the expenses of a minute of amendment; (ii) the expenses of the discharge of a diet of proof; and (iii) one half of the expenses of the action to date except in so far as otherwise dealt with. Each of those awards was on an agent and client, client paying basis. The judge also found the pursuer entitled to an additional fee under various heads of Rule of Court 42.14(3).

The pursuer’s account of expenses was remitted, when lodged, to the Auditor of Court for taxation, and the interlocutor included a decerniture for payment of the expenses as taxed, but no account of expenses had yet been lodged.

The pursuer then enrolled a motion for payment within 14 days of £2m as an interim payment of expenses, with interest at the judicial rate from expiry of the 14-day period, but the defenders opposed the motion.

Motion for interim payment

On behalf of the pursuer it was submitted that the motion was “competent” and that the making of such an interim award was a matter for the “discretion” of the court.

If special reasons were required, they consisted here of the conduct of the defenders that had led to an award of expenses on an agent and client, client paying basis, the size of the sum due, the “complexity” of the process of making up the pursuer’s account, and the “prejudice” to him in having to continue to litigate without access to funds to which he had been found entitled.

As regards the sum sought, it was argued that it was “very unlikely” that a lower sum would be awarded after taxation.

On behalf of the defenders it was not contended that the motion was incompetent, but it was submitted that an interim award should only be made in “special circumstances”, of which there were none here.

In any event, it was argued that no award should be made at this time because if the defenders were ultimately successful in their defence to the action, there would be a very large contra-award to set against the pursuer’s award.

It was further contended that the sum sought was “excessive”.

Sufficient reason

However, after reviewing the authorities the judge granted the pursuer’s motion, but set the amount at £1m.

In a written opinion, Lord Tyre said: “I have already noted that it was not in dispute that it was competent for the court to order an interim payment of part of a party’s expenses before an account has been lodged and, if necessary, taxed by the Auditor of Court. There is equally, in my view, no difficulty with regard to the competency of ordering payment of a specified sum by way of interim payment. The cases of Cameron & Waterston v Muir & Sons and Jaffray v Jaffray provide examples of cases in which the court has, in particular circumstances of no current relevance, made orders for payment of specified sums by way of expenses.

“I see no reason why the practice should not be regarded as competent more broadly. The question that arises in the present case is whether, and if so in what circumstances, an order for interim payment should be made where expenses have been awarded but where the account has not yet been lodged and taxed.

“In the present case, four features were relied upon by the pursuer as special reasons for granting the motion for interim payment. The first was the defenders’ conduct which had justified the award of expenses on an agent and client, client paying basis. I reject that contention. The court has already expressed its disapproval of the defenders’ conduct by making an award on that basis; there is no good reason to order interim payment as, in effect, a further instalment of punishment.”

The other three features relied upon were: the size of the sum likely to be found due – the greater the amount of money which the receiving party is kept out of for an extended period, the greater the injustice; the scale, complexity and cost of the process of preparation and taxation of the account – the solicitors’ correspondence file ran to 50 volumes, with hundreds of thousands of pages of documents in electronic form; the litigation was ongoing and cost continued to accrue – there was no good reason for the pursuer to have to fund that cost while being kept out of the sum owed to him by the defenders.

The judge was of the view that these three features together afforded “sufficient reason” to grant the pursuer’s motion for an interim payment.

Lord Tyre explained: “The present litigation is exceptional in respect of the amount of documents that have been recovered and perused. If taxation of the pursuer’s account is required, this is likely to result in a very substantial award and/or a very lengthy process of taxation, depending on the extent to which the account is challenged. Having regard also to the pursuer’s need to fund the continuing litigation, it is not in the interests of justice that he should be deprived for an indefinite period of the whole of the expenses to which he has been found entitled.

“I am not persuaded by the defenders’ argument that the possibility of a substantial – and possibly equally large – contra-award were the pursuer’s case ultimately to fail constitutes a good reason for refusing an interim award. The fact that a litigation is continuing does not preclude a party from having an account of expenses taxed in order to enable him to obtain an extract decree and enforce it, even though a future contra-award remains a possibility.”

Alleged breach of contract

The court heard had previously heard that the pursuer was until September 2009 the owner of the whole share capital ITS Tubular Services (Holdings) Limited (ITS), which provided downhole tools and drilling equipment to the oil industry, together with ancillary services.

P&W were instructed in 2008 to act as solicitors in connection with the proposed sale of some of the pursuer’s shares in ITS to an American private equity firm called Lime Rock Partners.

However, it later emerged that while one Paull & Williamson partner Scott Allan was advising him on the deal, another partner Ken Gordon was “covertly” advising Lime Rock.

ITS subsequently went into administration in 2013 following “gross mismanagement” of its affairs by its executive directors and was eventually sold to a competitor and Mr Kidd lost his entire shareholding but received nothing from the sale proceeds.

Mr Kidd, who was a client of the P&W which merged with Burness LLP in December 2012 to become the larger firm of Burness Paull, sued the defenders jointly and severally in respect of loss and damage said to have been caused by their conduct.

The pursuer’s case, in so far as founded upon breach of contract and fault and negligence, was that the first defender failed to provide advice to and take instructions from the pursuer directly, but instead relied upon communication through persons whose interests conflicted with those of his own.