EMI Records Ltd v Ian Cameron Wallace Ltd and another

[1982] 2 All ER 980
[1983] Ch 59
[1982] 3 WLR 245

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(Decision by: Sir Robert Megarry V-C)

EMI Records Ltd
v Ian Cameron Wallace Ltd and another

Court:

Judge:
Sir Robert Megarry V-C

Hearing date:
Judgment date: 15 March 1982

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Decision by:
Sir Robert Megarry V-C

These applications for the review of taxations of costs raise important points of principle: I therefore give leave for this judgment to be reported. First, there is the question whether the court has any power to order a defeated litigant to pay costs to the winner on an indemnity basis, or on the basis of solicitor and own client. Many such orders have been made over the years, but their validity has now been vigorously attacked. Second, if such orders are valid, it is far from clear what statutory or other authority there is for making them, and so the question is what that authority is. Third, it is also far from clear what each of these orders means, and this, too, requires examination. The law, which affects county courts as well as the Supreme Court, is in a strange tangle.

These questions arise on two orders for costs on an indemnity basis made on successive motions for contempt in the same case. The first was an order made by Mr Vivian Price QC, sitting as a deputy High Court judge, on 4 July 1980, and the second was an order made by Foster J on 28 November 1980: I shall call these the 'first order' and the 'second order' respectively. I heard the applications for review with the assistance of the Chief Taxing Master and Mr Harvey Crush, sitting as assessors. Under the first order, the defendants were required to pay the plaintiffs their costs of the motion 'on the footing of an indemnity', with an immaterial exception. Under the second order, the defendants were required to pay the plaintiffs their costs of the other motion 'on an indemnity basis'. Nothing turns on the slight difference in wording.

The costs of the two motions were taxed by different taxing masters. On the first order, Master Razzall rejected the defendants' objection, which had contended that the taxation ought to be on a common fund basis, saying that he knew of no authority for allowing the costs on that basis. He ruled that the taxation should be on a solicitor and own client basis so that the costs would 'provide a complete indemnity'. He did not amplify his reasoning. He issued his certificate on 23 February 1981, and on 9 March 1981 the defendants issued a summons seeking to have objections allowed to virtually the whole bill of costs.

On the second order, Master Clews treated the question as a preliminary issue. The plaintiffs had contended for a solicitor and own client basis of taxation, while the defendants argued that the right basis was party and party, or alternatively common fund. In a long and careful reserved judgment which takes some 11 pages of transcript, the master reached the conclusion that neither solicitor and own client, nor party and party, nor common fund, was the right basis. Having rejected these bases, he proceeded to evolve a new basis of taxation as defining what was meant by an order for costs on an indemnity basis. This was that he should apply the general principles of taxation, and in doing this he was to exclude nothing reasonable and include nothing unreasonable, whether in nature or amount. He also held that he ought to have regard to the clear intention of the judge that the plaintiffs should recover as much of their expenses as might be possible without thereby oppressing the defendants. This latter comment refers to the discussion on costs before the judge, though I am not sure about what words of the judge the master had in mind. The judge had found that a gross contempt had been committed, and he had fined the second defendant £10,000; and then, on the question of costs, the defendants had submitted that there was no jurisdiction to order costs on an indemnity basis, and that the most penal basis of costs that could be imposed, and the one which came nearest to an indemnity, was the common fund basis. After some five or six pages of thrust and counter thrust, the judge had ordered costs on an indemnity basis.

Having decided the preliminary point in this way on 13 April 1981, the master then taxed the costs accordingly, and issued his certificate on 17 July 1981. On 24 July 1981 the defendants issued their summons seeking to have their objections to the basis of the taxation allowed, and alternatively seeking the reduction of certain specific items. On 30 July 1981 the plaintiffs issued a summons to review the taxation and have increases made to certain items that had been taxed down. Before me, counsel for the plaintiffs and Mr Cook of Messrs Ward Bowie for the defendants agreed that no submissions should be made on the individual items until the points of principle had been settled; and in that the assessors and I fully concurred.

Before turning to the rival contentions, I think it is convenient to set out the main bases of taxation and their principal features. The starting point must be the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1), which is now reproduced, without any amendment material to this case, by the Supreme Court Act 1981, s 51(1). In the Act of 1925 the subsection runs-

'Subject to the provisions of this Act and to rules of court and to the express provisions of any other Act, the costs of and incidental to all proceedings in the Supreme Court, including the administration of estates and trusts, shall be in the discretion of the court or judge, and the court or judge shall have full power to determine by whom and to what extent the costs are to be paid.'

I shall have to return to this subsection, but for the present I need do no more than observe, first, that the power is very wide, particularly having regard to the words 'full power' and 'to what extent'; second, that the width is nevertheless confined by the words 'costs of and incidental to all proceedings in the Supreme Court', so that nothing outside this phrase can be included; and third, that the power is made 'Subject ... to rules of court.

With that, I turn to the RSC Ord 62, which deals with costs. The process of reading through the main body of the order, even without the appendices, is one that brings to mind Oliver Cromwell's phrase, 'an ungodly jumble'. Matters of principle and substance lie cheek by jowl with details of procedure; and if one day there is to be a rewritten order, there will be little difficulty in achieving an improvement on the present drafting. In the case before me, r 28 is at the centre of the dispute; but I must also refer to rr 29 and 31 before turning to the indemnity basis that is in issue.

On that footing, there are five main bases of taxation to be considered. I shall take them in turn.

(1) The party and party basis . By r 28(2), where costs are taxed on the party and party basis, there are to be allowed 'all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed'. The essence of this head is thus what is 'necessary or proper'; and this, of course, is the strictest of the normal heads of taxation.

(2) The common fund basis . Under r 28(3), (4), the court may direct a taxation on the common fund basis; and this is stated to be 'a more generous basis' than the party and party basis. In place of 'necessary or proper', what is to be allowed is 'a reasonable amount in respect of all costs reasonably incurred'. On such a taxation 'the ordinary rules applicable on a taxation as between solicitor and client where the costs are to be paid out of a common fund' are to be applied, even if in fact the costs will not be paid out of any common fund. The common fund basis seems to have been intended to replace the old 'solicitor and client' basis (in one of the four meanings of the phrase 'solicitor and client': see Gibbs v Gibbs [1952] 1 All ER 942 at 949, [1952] P 332 at 347), though in doing so it not very happily uses the very phrase itself. In the end, the practical result seems to be that taxation on the common fund basis is little more than a party and party taxation conducted 'on a more generous scale': see Giles v Randall [1915] 1 KB 290 at 295, [1914-15] All ER Rep 285 at 286, per Buckley LJ. It is sometimes said that on average a common fund taxation produces a figure some 5 to 10% higher than a party and party taxation; and that may be so.

(3) The trustee basis . Under rr 28(5) and 31(2), costs may be given on a trustee basis if the costs are to be paid out of a fund, or the person to whom the costs are to be paid was a party to the proceedings qua trustee or personal representative; and in such cases 'no costs shall be disallowed, except in so far as those costs or any part of their amount should not, in accordance with the duty of the trustee or personal representative as such, have been incurred or paid, and should for that reason be borne by him personally'. No question of any such order arises in the present case, and I need not discuss it; but it will be observed that here the thrust of the taxation has been shifted from what is to be included to what is to be excluded; it is no longer a question of allowing only those items which are necessary or proper, whether on a more generous scale or not, but instead has become a matter of prohibiting the disallowance of any item unless it falls within the words of exception.

(4) The solicitor and own client basis . By r 29, provision is made for the taxation of a solicitor's bill to his own client for contentious work, apart from legal aid cases. Under r 29(1), on such a taxation, 'all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred'. This resembles the trustee basis in that it allows everything except any items which fall within the words of disallowance; but it differs from all the other three heads in that it is dealing with what a litigant must pay his own solicitor, and not what he must pay the other side. The essence of the rule lies in the two phrases 'unreasonable amount' and 'unreasonably incurred'; and these phrases are qualified by two presumptions made by other paragraphs. First, by para (2), all costs incurred with the client's express or implied approval are 'conclusively presumed' to have been reasonably incurred; and similarly as to amount, if the client has expressly or impliedly approved it. These conclusive presumptions, however, take effect subject to para (3). Second, by para (3), there is a rebuttable presumption that any costs which in the circumstances are of an 'unusual nature', and would not be allowed on a party and party taxation, have been unreasonably incurred, unless the solicitor expressly informed his client before they were incurred that they might not be allowed. In due course I shall have to return to these presumptions.

(5) The indemnity basis . The Rules of the Supreme Court contain no express mention of any such basis, and there seems to be no clear statement of what such a basis means. Yet for many years the courts have been making such orders, particularly against contemnors, and the taxing masters have been having to do their best to tax costs under such orders. I bear in mind, of course, that the present version of Ord 62 (apart from subsequent amendments) was brought into force at the beginning of 1960 (see RSC Amendment (No 3) 1959, SI 1959/1958), and so what was said under the former rules does not necessarily apply today. Yet the practice of making such orders, long a commonplace before 1960, has continued to this day; and often such orders have been more or less equated with orders for costs as between solicitor and own client. I may refer to Giles v Randall [1915] 1 KB 290 at 295, 298, [1914-15] All ER Rep 285 at 286, 288; Reed v Gray [1952] 1 All ER 241 at 245, [1952] Ch 337 at 347('a solicitor and own client taxation; or, in other words, an indemnity'; and see [1952] Ch 337 at 348); and Gibbs v Gibbs [1952] 1 All ER 942 at 949, ([1952] P 332 at 347 quoting a note stating 'The expression "Solicitor and own client costs" has been disapproved by judges. It is more accurate to direct taxation on the footing of an indemnity'). As examples of the practice since 1959 there are not only the orders in the present case, but also cases such as Hoffman-La Roche & Co AG v Sieczko [1968] RPC 460 at 472. There, Harman LJ, speaking for himself and Danckwerts and Sachs LJJ, reversed the court below and held that a contempt had been committed. He then ordered the defendant to pay the costs in that court and below 'on an indemnity basis'. Again, in Chanei Ltd v 3 Pears Wholesale Cash & Carry Co [1979] FSR 393 at 394-395, Walton J ordered a contemnor to pay costs on an indemnity basis, emphasising that this was different from the common fund basis, and higher. There can be no doubt that orders to, pay costs on an indemnity basis, eo nomine , were and are common, at any rate in contempt cases in the Chancery Division. I may say that despite the headnote in Faith Panton Property Plan Ltd v Hodgetts [1981] 1 WLR 927 , I do not think that that case establishes any separate basis of 'a full indemnity', for the order seems to have been made on an ordinary 'indemnity basis': see [1981] 2 All ER 877 at 880, 882, [1981] 1 WLR 927 at 929-930, 933.

These five heads do not, of course, exhaust the possibilities, for there are other orders that can be made in special cases: see eg rr 28A, 30. I think, however, that they cover the general orders for costs that are to be found in litigious practice. I can therefore turn to the contention that the court has no power to order costs to be paid on an indemnity basis; and I must also consider the further contention that the court cannot, in inter partes proceedings, make any order for costs on a solicitor and own client basis. Mr Cook's basic contention is that the court is restricted to the orders to be found in r 28, so that with the trustee basis being obviously inapplicable the only possible orders in a case like this are either common fund or party and party.

As I have mentioned, the starting point is the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1); and this is in very wide terms. Not only are the costs in the discretion of the court, but the court is to have 'full power' to determine 'to what extent the costs are to be paid'. As Willmer J once said: 'Reading these words in their natural and ordinary sense, it appears to me that standing by themselves they are prima facie sufficient to empower me, in a proper case, to order the payment of costs to be taxed as between solicitor and client, and even as between solicitor and own client': Thomason v Swan, Hunter and Wigham Richardson Ltd [1954] 2 All ER 859 at 863, [1954] 1 WLR 1220 at 1225. However, as the judge then pointed out, this power is 'subject ... to rules of court', and so it must be seen how far the rules have qualified this wide statutory discretion.

The argument is as follows. By para (1), r 28 'applies to costs which by or under these rules or any order or direction of the Court are to be paid to a party to any proceedings ... by another party to those proceedings ... ' This applies to the costs in these motions. Paragraph (2) then provides that subject to the following provisions of the rule, 'costs to which this rule applies shall be taxed on the party and party basis ... ' Again that applies to the costs in these motions. However, para (3) provides that in awarding costs under the rule the court 'may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on the common fund basis'. In the present case, the court has not done this, and so this does not apply. Then para (5) empowers the court, in a limited class of case which admittedly does not apply here, to order costs on a trustee basis. That is all; no other basis for costs is comprised in r 28, and so all costs are confined to the three bases there set out. Solicitor and own client costs appear nowhere in r 28, but are dealt with in r 29; and by contrast with the trustee basis in r 31, there is nothing in r 28 which incorporates r 29 by reference. Apart from the limited category of cases in which the trustee basis can be ordered, the only two bases open to the court are party and party and common fund. Solicitor and own client is a recognised basis as between a solicitor and his own client, but the terms of r 28, as well as the inherent unsuitability, preclude the court from ordering an unsuccessful litigant to pay costs on that basis to the winner. The indemnity basis is not even a recognised basis; but even if it were, the court would have no power to make such an order, for similar reasons.

At first sight this is indeed a cogent argument. Nevertheless, it is to be observed that there are no positive words of prohibition against adopting any basis except those in r 28. The argument really depends on the word 'shall' in para (2) as excluding any other basis of taxation, and negativing the wide discretion given by the statute. If one leaves on one side the limited class of case in which costs may be ordered on the trustee basis, the contention is that the 'shall' in para (2) has cut down the apparent width of the statute to giving the court a choice between party and party and common fund, and excluding everything else.

There is some support for this view in the authorities. Re Kingsley (decd ) (1978) 122 SJ 457 is a decision of Payne J which is only shortly reported; but Mr Cook kindly supplied us with a copy of the transcript of the relevant part of the judgment. The passages on which Mr Cook relied are plainly obiter, since the dispute arose under an agreement that the costs of one of the parties should be taxed on a solicitor and own client basis; it was not a case in which the court, in the exercise of its discretion, had ordered costs to be paid on that basis. If the registrar had made such an order, the judge said, this 'would have exceeded the limits of the discretion afforded to him by RSC Ord 62, r 28, and would have been ultra vires'. He then referred to there being 'ample authority for this view', and cited certain cases.

The first case cited was Re Fisher [1894] 1 Ch 450. However, the passage in the judgment of Kay LJ which is cited does no more than state that the statutory power is subject to any limitation in the rules or other Acts; and with due respect I cannot see how this advances the matter. The next case cited was Thomason's case [1954] 2 All ER 859 , [1954] 1 WLR 1220 , which I have already mentioned. What arose there was the taxation of costs in a case under the Fatal Accidents Acts in which the plaintiff was seeking to recover costs from the defendants 'to be taxed as between solicitor and own client, ie, on a full indemnity basis' (see [1954] 2 All ER 859 at 860, [1954] 1 WLR 1220 at 1221); and the defendants contended that there was no power to make such an order. Cases under the Fatal Accidents Acts were then subject to a special code of rules as to costs; and those rules, in an expanded form, now appear as part of Ord 62, r 30. These included a mandatory provision that 'no costs other than those so certified shall be payable to the solicitor for any plaintiff in the cause or matter'; and see now r 30(2). This and other provisions led Willmer J to say that he was 'driven to the conclusion that, so far at any rate as actions under the Fatal Accidents Acts are concerned, the discretion of the court under s 50(1) of the Supreme Court of Judicature (Consolidation) Act, 1925, is limited by the rules of Court ... ' (see [1954] 2 All FR 859 at 864, [1954] WLR 1220 at 1227). A little earlier the judge had also referred to the predecessor of the present r 28(2), and to provision in it that does not appear in the present rule. This provided that 'no cost' should be allowed which appeared to have been 'incurred or increased through over-caution, negligence or mistake ... ' In this, too, there was an express prohibition which the judge considered had precluded him from directing a taxation as between solicitor and own client. The judge was thus concerned with a special class of case subject to special rules, and with express prohibitions in the rules. With all due respect I do not see how this supports any general proposition that an order for solicitor and own client costs would be ultra vires.

Finally, Payne J cited Giles v Randall [1915] 1 KB 290, [1914-15] All ER Rep 285, and Morgan v Carmarthen Corp [1957] 2 All ER 232 , [1957] Ch 455. These cases both reach the not very surprising conclusion that if an order is made for solicitor and client costs it will not be treated as if it were an order for solicitor and own client costs. However in the latter case Lord Evershed MR doubted whether the court could order a taxation inter partes as between solicitor and own client, even in a contempt case; but he expressly refrained from stating a final view on the point: (see [1957] 2 All ER 232 at 237, [1957] Ch 455 at 469. Apart from that doubt, I find it difficult to see how these cases provide authority for the view that to order solicitor and own client costs inter partes would be ultra vires. I think, however, that Payne J was citing these last two cases only for the much more limited proposition that the rules of court provide certain fetters on the wide statutory discretion; and this is beyond doubt.

One case which does not seem to have been cited to Payne J is his own decision it Castillejo v Castillejo (1974) Times , 12 December, some 3 1/2 years earlier. That was a divorce case in which certain orders of the court were varied in accordance with revised terms agreed between the parties, and the husband was ordered to pay the wife's costs on a solicitor and own client basis. On a review of taxation, Payne J said that in the High Court there was no reason why the parties should not agree, or why the judge should not order, as between party and party, that the costs should be taxed as between solicitor and own client although they were to be paid by the other party. The taxing officer had taxed the costs on an indemnity basis, subject to the restraint imposed on him by the Solicitors' Act 1957, s 73(4); and it was held that the application for review failed.

Since then, the Court of Appeal has decided Greenhouse v Hetherington (1977) 122 SJ 47, [1977] CA transcript 450. That concerned a county court order inter partes for costs to be paid by the defendants on a solicitor and own client basis; and on appeal the defendants contended that there was no power to make such an order. In the County Court Rules Ord 47, r 1 provided that subject to the provisions of any Act or rule, 'the costs of proceedings in a county court shall be in the discretion of the court'. That correspond's to the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1). Then CCR Ord 47, r 49 applies RSC Ord 62, rr 28, 29 and 31 to the taxation of county court costs as thee apply to High Courts costs, with the necessary modifications. The defendants argued, as Mr Cook has argued here, that there was no power to order costs to be paid on any basis save one or other of the bases set out in r 28. Roskill LJ, who delivered the leading judgment, did not find it necessary to go through that rule in any detail because, as he pointed out, solicitor and own client costs were dealt with by r 29. He said that counsel for the defendants had accepted, albeit a trifle reluctantly, that if his argument were right, no High Court judge could order the unsuccessful party in High Court litigation to pay costs to the successful party on a solicitor and own client basis. He then said:

'That submission seems to me quite untenable. The position is absolutely plain. In the county court, all costs are in the discretion of the trial judge: it is for him to determine upon what basis, whether party and party, common fund, solicitor and own client, or whatever he may think best, the assessment will take place in accordance with the relevant rule applicable to that class of order.'

Accordingly, he said that he would dismiss the appeal; and Browne and Megaw LJJ agreed, saying nothing further on this point.

Now as Mr Cook emphasised, no authorities were cited in the judgment, although both sides were represented by counsel. Whether any authorities on costs were cited in argument is not known; it is at least possible that the case was argued without their aid. Mr Cook says that had there been a proper citation of authority, the result would have been different, whereas counsel for the plaintiff says that it would have been the same. Nor is much known about the arguments which were advanced. However, there it is. I certainly cannot see that the decision was contrary to any authority binding on the Court of Appeal. If cited, Lord Evershed MR's doubts in Morgan v Carmarthen Corp [1957] 2 All ER 232 , [1957] Ch 455, would obviously have been considered with care; yet doubts on a point expressly left unresolved are very far from being a binding authority. The decision that the county court judge had power to order the defendants to pay costs on a solicitor and own client basis plainly has, as part of its ratio, the conclusion that this can be done under the Rules of the Supreme Court. If, then, such an order can be made, the submission that, the trustee basis apart, the only orders that can be made are party and party and common fund cannot be right.

It seems to me that the decision of the Court of Appeal can be rested on reasoning on the following lines. The wide general discretion given by the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1), can be curtailed by rules of court, because the subsection is expressed to be subject to them. Where there are rules which express a plain prohibition, as in Thomason's case [1954] 2 All ER 859 , [1954] 1 WLR 1220 , then the discretion cannot be exercised so as to disregard that prohibition. On the other hand, where there is no express prohibition, but merely an affirmative provision in the rules, then even if that affirmative is expressed in imperative terms, as by the word 'shall', the court is not deprived of its statutory discretion to order costs on some basis other than that set out in the affirmative provision. On this footing, the provision that all taxations 'shall' be on a party and party basis operates as a provision that all taxations shall be on that basis unless the court either exercises the express powers given by the rules to direct some other basis of taxation, or else exercises its statutory discretion to go outside r 28. In my judgment, the wording of the rules is not strong enough to confine the courts to making orders within r 28 and exclude their discretionary power to make orders on other bases.

Now I can well see that such a process of reasoning is open to attack, just as I accept that this might not be the process which the Court of Appeal itself would have expressed. I also accept that, sitting at first instance, it is a delicate matter to provide reasons for decisions or orders of the Court of Appeal which that court has not given. But I have to consider the alternative, which is to say that the decision of the Court of Appeal on solicitor and own client costs in Greenhouse v Hetherington (1977) 122 SJ 47, [1977] CA Transcript 450, and the Court of Appeal order for costs on an indemnity basis made in Hoffman-La Roche & Co AG v Sieczko [1968] RPC 460 were wrong, quite apart from many other decisions or orders made at first instance. Indeed, within the last three months the Court of Appeal has made an order for 'costs on solicitor and client basis': see Z Ltd v A [1982] 2 WLR 288 at 314, cf [1982] 1 All ER 556 at 578. Yet if the defendants' submissions are right, and the only orders that can be made inter partes are those authorised by r 28, an order for solicitor and client costs goes to join the orders for solicitor and own client costs and for costs on an indemnity basis as orders which cannot be made inter partes. No doubt it may not be very difficult to construe an order for solicitor and client costs as being an order for costs on a common fund basis: but orders, and not least orders of the Court of Appeal, ought not to need translation into other terms before they can be said to be within the powers of the court. I think that it is my duty to carry out and apply what the Court of Appeal has done. I know that there was a time when Vice-Chancellors enjoyed the luxury of refusing to follow a decision of the Court of Appeal that they considered to be 'clearly erroneous': Dugdale v Dugdale (1872) LR 14 Eq 234 at 235 (Sir John Stuart V-C); and see Farquharson v Floyer (1876) 3 Ch D 109. Yet I would be most reluctant to consider applying this precedent unless I were very sure of myself; and I am not. On the contrary, I would respectfully agree with the decisions and orders of the Court of Appeal, and give them full faith and credit. My only hesitation is about the process of reasoning that is required to support them. Whatever the Court of Appeal may say hereafter, I do not think that it is for me to suggest that these orders, made in the Court of Appeal per curiam, were nevertheless made per incuriam.

In the result, therefore, I reject Mr Cook's clear and forceful contentions on this point, and hold that the court has power in contentious proceedings to order the unsuccessful party to pay the successful party's costs on bases other than those contained in r 28; and these include orders for costs on the solicitor and own client basis, on the solicitor and client basis, or on an indemnity basis. I do this, first, on the footing of the Court of Appeal decisions that I have mentioned. Second, the circumstances of litigation are so various that it is a matter of high importance that the judge should have a wide discretion as to the basis of costs, and not be subjected to the Procrustean bed of r 28. Even in party and party taxations or in common fund taxations it is important for the judge to be able to order that particular items which otherwise would be included should be excluded, and vice versa, so that the taxing master will not be confined to a rigid application of the formulae set out in the rule.

I also bear in mind that, as appears from Andrews v Barnes (1888) 39 Ch D 133, [1886-90] All ER Rep 758, the High Court succeeded to the inherent discretionary jurisdiction of the old Court of Chancery in equity matters to order costs as between solicitor and client; and the judgment of Fry LJ sets out a selection of the phrases used in the past, such as 'full costs', 'very good costs' and 'utmost costs (see (1888) 39 Ch D 133 at 138, [1886-90] All ER Rep 758 at 760)'. It may be that the wide and flexible inherent jurisdiction may provide some aid in holding that r 28 has not confined the court to making party and party and common fund orders (in addition, of course, to the trustee basis). At the same time, I think that the court should be chary of departing from the settled types of orders for costs, and should lay down new bases only if there is a real need which cannot otherwise be met. I may add as a footnote that since the conclusion of the argument I have become aware of the Patents Act 1977, s 65(2). This at least demonstrates that there are some circumstances in which costs on a solicitor and own client basis may be payable inter partes; for in cases within the subsection the litigant is entitled to his costs or expenses 'as between solicitor and own client' unless it is otherwise ordered. In bankruptcy, too, an order for solicitor and own client costs may be made inter partes: see Bankruptcy Rules 1952, r 92(1).

With that, I turn to the meaning of an order for costs on the basis of an indemnity. No such basis appears to have been laid down in the rules, or, for that matter, elsewhere. On the footing that there is jurisdiction to make such an order, what does it mean?

One possible meaning is that the successful party is to have every penny of his costs reimbursed to him, however absurd, extravagant or unreasonable they were. On this footing, the only limiting factor would be the words 'of and incidental' in the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1): costs that were neither 'of' the proceedings nor 'incidental' to them would be excluded, but everything else would be let in. I should be very slow to reach this conclusion, simply on the score of unreasonableness. I do not see why the loser should have to pay for absurd extravagances of the winner, however stringent the order.

Another possible meaning is that put forward by Master Clews. This is a new formula, which is not to be found in the rules, and is of uncertain ambit; and as I have indicated, would deprecate laying down a new basis of taxation by judicial fiat unless there was no reasonable alternative. The question, then, is whether there is such an alternative. I think that there is. Subject to any provision in the order, I do not see why the basic rule for solicitor and own client costs which is set out in r 29(1) should not be applied, thereby giving to the successful party the indemnity that the court is seeking to give him. To say that on a taxation 'all costs shall be allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred' seems to me to be giving the litigant a complete indemnity, shorn only of anything that is seen to be unreasonable. The litigant does not have to establish that the costs were necessary or proper, or that the costs were of a reasonable amount and reasonably incurred. Provided they are costs of and incidental to the proceedings, he is entitled to recover them, subject only to the qualification that they are liable to be reduced in respect of anything that the taxing master considers to fall within the headings 'unreasonable amount' or 'unreasonably incurred'. In a word, the difference is between including only the reasonable and including everything except the unreasonable. In any taxation there must be many items or amounts that are plainly allowable, and many others which are plainly not allowable. In between, there must also be many items or amounts which do not fall clearly within either extreme. On a party and party taxation, or on a taxation on the common fund basis, many such items may fail to be allowed; on a taxation on an indemnity basis, they will all be included.

I do not think that it would be right to express this difference in terms of the burden of proof being shifted from the winner to the loser, though no doubt in many matters much of the argument during the taxation will proceed on these lines. But during a taxation the taxing master sees many things which are not revealed to the party against whom the order for costs has been made, and so that party will lack some of the relevant material. Instead, it is more a question of who gets the benefit of any doubt in the mind of the taxing master. On a party and party taxation, nothing will be included unless the taxing master reaches the conclusion that it satisfies the requirement of 'necessary or proper'. Similarly, where the taxation is on the common fund basis, the taxing master will include nothing unless he considers that it satisfies the requirement of 'a reasonable amount in respect of all costs reasonably incurred'. On neither basis do the rules give the benefit of any doubt to the party in whose favour the order has been made. Nothing is included unless it satisfies the words of inclusion. The indemnity basis, as I would construe it, is the other way round. Everything is included unless it is driven out by the words of exclusion, namely, 'except in so far as they are of an unreasonable amount or have been unreasonably incurred'. I should add that in applying to an opposing party a rule intended for taxations as between a solicitor and his own client, I think that it is open to the paying party to take any point and make any objection which the client could have raised, had he been taxing the bill.

That seems to me to be a workable basis of taxation. However, it may be asked why it is right to resort to r 29 at all, and if r 29(1) is to be applied, why r 29(2), (3), should be excluded. My answer would be that such a view accords, at least in part, with various dicta in the cases (I have already mentioned a few) which equate an indemnity basis with solicitor and own client. Further, it avoids a proliferation of bases of taxation: a known formula is adopted in place of fabricating a new and untried formula. It thus avoids having to draft and make workable some new definition of what 'indemnity basis' means as a separate head. On this, I would observe that, valiant though Master Clews's definition is, a rule that excludes nothing reasonable and includes nothing unreasonable makes no provision for items or amounts which stand on the borderline between reason and unreason, so that it fails to indicate who is to have the benefit of any doubt. Under an order for costs on an indemnity basis I feel no doubt that it is the successful party who should get this.

What, then, of r 29(2) and (3)? By para (2), all costs and all amounts which the client has expressly or impliedly approved are 'conclusively presumed' to have been reasonably incurred. Under para (3) there is a rebuttable presumption that costs which 'are of an unusual nature' and would not be allowed on a party and party taxation have been unreasonably incurred, unless the solicitor expressly informed his client before they were incurred that they might not be allowed. Such provisions, if I may say so, seem to be entirely just and proper as between a solicitor and his own client. The client ought not to be allowed to complain about what he has authorised his solicitor to do, and the solicitor ought not to be allowed to claim payment for unusual items unless he has first given his client due warning of risk. Where, on the other hand, the costs are to be paid not by the client to his own solicitor but by another party to the litigation, these provisions seem entirely inappropriate. It would be monstrous if the loser could complain of nothing that the winner had authorised. Confident of success (as many are, when moving for contempt), the winner may have authorised half a dozen conferences with three expert witnesses, when two conferences with a single expert would plainly have been ample. He may have needlessly employed the most expensive experts, two of the most fashionable silks and a pair of juniors. He may throughout have insisted on his case being conducted by two of the senior partners in his solicitors' firm, instead of one. He may have done dozens of other things which to a greater or lesser extent were costs unreasonably incurred to an unreasonable amount. Some of these matters (such as the array of counsel) may be visible to the judge when he makes his order, so that he could insert some appropriate provision in his order; but much may lie concealed until disclosed on taxation. Yet if para (2) is applied, all that the victor authorised will be conclusively presumed to be reasonable, and the vanquished must pay for it all. It does not matter whether the reason for the excesses was a superabundance of caution or a desire to run up a punitive bill of costs for the loser to meet; in either case para (2) would make the loser pay. Nor can I see the relevance, in cases inter partes, of any authorisation by the client: if an item is utterly unreasonable, why should the loser's liability to pay for it depend on whether or not the winner authorised it?

If, then, a judge makes an order for costs on an indemnity basis, is the order to be taken as bringing para (2), or anything like it, into play? I do not think that any answer save No is possible; and the same applies to para (3). If the judge were to be asked to amplify his order, I would expect him to say that it meant that the loser must indemnify the winner against the whole of his costs except those that were beyond reason, or words to that effect; but I would be dumbfounded if he were to add any words which expressed anything like the thoughts to be found in para (2) or (3). It seems to me that para (1) clearly expresses, in well-known language, the intention that any judge would be likely to have when ordering costs on an indemnity basis; and certainly that would be my intention in making any such order. For that reason, coupled with the others that I have given, I hold that an order for costs on an indemnity basis takes effect as an order for costs on the basis set out in Ord 62, r 29(1). If it is to mean anything more than that, possibly in some wholly exceptional case, the order should make this explicit.

As for an order inter partes for costs on a solicitor and own client basis, I do not have to decide anything. I say nothing about taxation on that basis as between a solicitor and his own client, where the client is the paying party. Nor need I say much about cases in which there is some agreement for one party to pay the costs of another party on a solicitor and own client basis. In such cases the meaning and effect of such an agreement depends on the terms of the agreement; and if on its true construction the agreement applies the whole of r 29, including paras (2) and (3), then the whole of r 29 applies. All that I need do is to draw attention to the width of the rule, and the need for the person liable or potentially liable to pay such costs to realise that he may have to pay for any needless extravagance authorised by the other party. There remains, however, the effect of the decision of Master Razzall in the present case that taxation should be on a solicitor and own client basis; and I think that I should also mention the order for costs on a solicitor and own client basis that was upheld in Greenhouse v Hetherington (1977) 122 SJ 47, [1977] CA Transcript 450.

If Master Razzall meant that the taxation should be on the whole of the solicitor and own client basis as set out in r 29, then for the reasons that I have given I think it was wrong. Only if the basis set out in r 29(1) alone is taken do I think that it was right. I do not have to construe the order made in Greenhouse v Hetherington , and I shall not presume to attempt to say whether it applied the whole of r 29, as it might on the face of it be thought to do, or whether it applied only r 29(1). For the future, however, if an application for solicitor and own client costs against the other side in litigation is being made or resisted, I hope that counsel will bear in mind not only that there may well be some uncertainty about the meaning and effect of such an order, but also that such an order, in its wider meaning, may have drastic and far-reaching consequences. There are grounds for thinking that some members of the profession assume that the solicitor and own client basis is merely the old solicitor and client basis, but a bit better; the operation and effect of r 29(2) and (3), are not appreciated. In fact, an order for solicitor and own client costs seems to be not only the most stringent order that can be made but also an order which, by virtue of r 29(2), is capable of being severely penal in its effect. Those who seek such an order should realise that they are asking that the other side should pay not only all their costs which are not unreasonable, but also all their other costs, however unreasonable or extravagant they are, so long as their clients approved them; and well might they hesitate if they were required to seek such an order in terms. In most cases of contempt I would have thought that an order for costs on an indemnity basis would be both adequate and also more appropriate than an order for solicitor and own client costs, with the uncertain and unforeseeable operation of r 29(2) and (3). Indeed, I cannot see that it would be any great loss if orders for solicitor and own client costs disappeared altogether inter partes, and were confined to their own proper sphere as between solicitors and their own clients. Nor, I may add, would I mourn the return to desuetude of orders for solicitor and client costs, assuming that I am right in my tentative assumption that they operate as orders on the common fund basis.

It may be convenient if I summarise my conclusions. In doing this I confine myself to orders for costs in litigation; and for the sake of simplicity I leave on one side the orders for costs on the trustee basis which can be made in appropriate circumstances. My views are as follows.

(1) The Supreme Court Act 1981, s 51(1) (replacing the Supreme Court of Judicature (Consolidation) Act 1925, s 50(1)) gives the court a wide discretionary power over costs, and this has not been cut down by Ord 62, r 28, so as to confine the court to making orders only on the party and party basis or the common fund basis, and on no other basis.

(2) The court has power to order costs to be paid on an indemnity basis.

(3) The effect of an order on an indemnity basis is, unless otherwise provided, that the rule laid down in Ord 62, r 29(1) applies, but not the presumptions set out in r 29(2) and (3). In brief, the result is that all the costs incurred will be allowed except any which have been unreasonably incurred or are of an unreasonable amount; and in applying these exceptions the receiving party will be given the benefit of any doubt.

(4) The court has power to order costs to be paid on the solicitor and own client basis as between litigating parties; but as the meaning and effect of such an order does not arise for decision in the present case, I decide nothing on it.

(5) If in litigation an order for solicitor and own client costs is to be sought, those concerned to apply for or resist the order should consider carefully the uncertain meaning and effect of the order, and in particular whether the presumptions set out in r 29(2) and (3) will apply, and, if so, what their effect will be. It would be no great loss if such orders ceased to be made inter partes.

(6) The court appears still to have power to make an order for solicitor and client costs; and although the effect of such an order is not clear, it may well be the same as that of an order on the common fund basis. If this is so, there is much to be said for expressing the order as being made on the common fund basis instead.

(7) The court has power to make other forms of order, though it should be slow to evolve a new basis of taxation unless there is a real need which cannot otherwise be met. In most cases one of the recognised forms of order will suffice; but if some new basis is to be laid down, it is desirable to make explicit what the meaning and effect of that basis is.

I return to the orders made in this case. My conclusion is that under both the first order and the second order the costs should have been taxed on the footing set out in r 29(1), without the rest of the rule, that being the basis on which costs on an indemnity basis should, in my judgment, be taxed. Under the first order, Master Razzall's ruling that the taxation should be on a solicitor and own client basis was right only if r 29(1) alone was to be applied, without the rest of the rule. Under the second order, Master Clews put forward a basis of his own with which I cannot agree, though I am indebted to him for his long and detailed examination of the problem. In this case, too, I hold that the right basis of taxation is that provided by r 29(1). Any decision on what order I should make, and how the detailed items should be dealt with will, as arranged, be deferred until the parties have been able to consider this judgment and put forward their submissions as to the disposition of these cases: I decide only the question of principle. This I do by holding that an order for costs on an indemnity basis should be carried out by taxing the costs on the basis of Ord 62, r 29(1), without any of the other paragraphs of r 29.

I would add two points. First, there is a valuable note to r 29 in The Supreme Court Practice 1982 , vol 1, p 1064. This points out the difficulty in applying Greenhouse v Hetherington , assuming, as 1 think the note does, that the order in that case made not only r 29(1) applicable, but also r 29(2) and (3). The note states the result as being that the paying party will be liable for costs which were beyond his knowledge and contemplation, which may have been unreasonably incurred, and which may be unreasonable in amount or unusual in their nature. On that footing, the note suggests that such an order should be made or consented to only in wholly exceptional circumstances. With that suggestion I entirely agree. Indeed, I would go further, and express the hope that such orders, mystifying in their language and effect, will be replaced inter partes by orders for costs on an indemnity basis. The note then suggests an alternative form of order for such cases. This is to make a common fund order and to combine with it a direction to the taxing master to exercise his discretion under r 32(2), thereby providing for the payment of a reasonable amount for all costs reasonably incurred, and also removing any restriction on amount imposed by the scale in Appendix 2 to Ord 62, and any limitation to items included in the scale. In view of what I have decided I do not think that I need pursue this point. Certainly I do not think that an order for costs on an indemnity basis could be construed as being that sort of order, and so it does not arise in this case. But the suggestion should not be overlooked should there be difficulty about costs on an indemnity basis.

That leads me to the second point. I understand that revisions to RSC Ord 62, perhaps on a substantial scale, have for some while been under active consideration. Costs are complicated, and these things take time. It seems to me that without waiting for any general revision of Ord 62, some amendment should be made to the present Ord 62 which would put the position of inter partes orders for costs on an indemnity basis and on a solicitor and own client basis beyond doubt. As I have indicated, I would welcome the disappearance of the solicitor and own client basis as between opposing litigants, keeping it only for what it is designed for, namely, taxation between a solicitor and his own client. But I say this on the footing that the rules will properly define the indemnity basis and confirm it as being available inter partes. In particular, it is needed in cases of contempt. In such cases, nothing should be done to deter a person from bringing a contempt to the notice of the court; and the risk of having to bear any of the costs will often be a real deterrent: see Morgan v Carmarthen Corp [1957] 2 All ER 232 , particularly at 240, [1957] Ch 455, particularly at 474. Accordingly, I would express the hope that Ord 62 will soon be amended on this point, in advance of any general revision; for orders for costs in cases of contempt are being made all the time, and they ought not to be left in any state of doubt.