The Firm Of N. Peddanna Ogeti Balayya And... vs Katta V. Srinivasayya Setti Sons

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: Not extracted

Coram: B.K. Mukherjea

The case titled The Firm Of N. Peddanna Ogeti Balayya And … versus Katta V. Srinivasayya Setti Sons was decided on 9 October 1952 by the Supreme Court of India. The judgment was authored by Justice B. K. Mukherjea, who also constituted the bench hearing the matter. The application before the Court sought a review of a taxation order issued by the Taxing Officer. The request for review was presented through Shri S. Subramania, who acted as an Agent of this Court under the authority granted by Order 40, Rule 35 of the Supreme Court Rules. The factual matrix relevant to the review was undisputed and limited in scope. Shri Subramania had served as an Agent for the respondent in Civil Appeal No. 102 of 1949, a matter that this Court disposed of on 19 March 1951. The appeal was dismissed, and the Court ordered the appellants to pay the costs incurred by the respondent. Consequently, a taxation proceeding was initiated before the Taxing Officer. During those proceedings it emerged that Shri Subramania and his client had entered into an agreement stipulating that the Agent would receive a fixed remuneration of Rs. 300, to which all out-of-pocket expenses would be added, and that if the case were decided in the client’s favour the Agent would also benefit from the taxed costs awarded. The issue before the Court was whether, in assessing costs between the parties, the appellants should be required to pay the respondent only the amount agreed for the Agent’s services, namely Rs. 300 plus actual expenses, or whether the respondent should be entitled to the full quantum of taxed costs that are normally recoverable in such proceedings. The Taxing Officer held that the respondent could recover only the agreed sum of Rs. 300 together with the Agent’s out-of-pocket expenses, rather than the ordinary taxed costs. The propriety of this determination was the subject of the present application for review.

Both parties conceded that the Supreme Court Rules contain no specific provision directly addressing a situation of this nature. Consequently, under Order 40, Rule 2 of the Supreme Court Rules, the Taxing Officer was required to look to the Rules and practice of the Supreme Court of England for guidance. Mr. Umrigar, appearing in support of the application, advanced a two-fold argument on behalf of his client. Firstly, he contended that the English practice cited by the Taxing Officer and forming the basis of his decision was not a settled rule under the English Supreme Court Rules, noting that the practice derived from certain statutory enactments and remained a matter of controversy. Secondly, he argued that even if the Taxing Officer’s decision were correct, the Agent had entered into the remuneration agreement under a bona-fide mistake, and that no rule or authoritative pronouncement of this Court existed to direct the Agent in that circumstance; therefore, the Court should, in the exercise of its discretion, allow the respondent to claim the ordinary taxed costs, while leaving open the possibility that such a practice might be disallowed in future cases of a similar description.

The Court observed that the Agent had entered into the agreement under a bona fide mistake and that no rule or authoritative pronouncement of this Court existed to guide the Agent in such a situation. Accordingly, the Court held that, in the exercise of its discretion, it should allow the taxed costs in the present case, while noting that once the relevant practice becomes settled, similar costs might be disallowed in future cases of the same description. The Court then examined the two contentions raised. It found the second contention to be without substance. Regarding the first contention, the Court expressed the view that there was no doubt or controversy concerning the English practice on the point raised. Nevertheless, the Court indicated that the remaining question was whether the application of the English rule to the facts of the present case would lead to the same conclusion reached by the Taxing Officer. Because this was the first case of its kind to come before the Court, the Court emphasized that the matter required careful examination before a final determination could be made.

In addressing the historical background, the Court explained that, prior to any statutory provision, English general law did not prohibit a solicitor from entering into a remuneration agreement with a client; however, if such an agreement was unfavourable to the client, the Court would not enforce it unless it was satisfied that the agreement was made under circumstances that left no suspicion of an improper attempt to obtain a benefit at the client’s expense. The Court cited Clare v. Joseph, 1907-2 K B 369 (A), and the authority of Halsbury’s Laws of England, 2nd Edition, Vol. XXXI, page 165, to illustrate this principle. The Court then described the effect of the Attorneys and Solicitors Act of 1870, which sought to alter the law in this area. Under Section 4 of that Act, a written agreement of this kind was deemed valid and could be enforced by the solicitor against the client. Section 5 provided that such agreements should not affect the rights of third parties, and that any person bound to pay costs covered by the agreement could require those costs to be taxed according to the rules then in force. A proviso to Section 5 stipulated that a client who had entered into such an agreement could not recover from any other person, under any cost order, an amount exceeding what the client owed to his own attorney or solicitor under the same agreement. The Court noted that these provisions were later incorporated into Sections 59 and 60(1) of the Solicitors Act of 1932. Furthermore, Clause (5) of Section 60 of the 1932 Act provided that, where the business covered by the agreement concerned litigation, the solicitor could not receive remuneration under the agreement until the agreement had been examined and allowed by the Court’s Taxing Officer, if the Taxing Officer deemed the agreement unfair or unreasonable.

The Court observed that the relevant provision allowed a taxing officer to seek the Court’s opinion, to reduce the amount of a fee agreement, or to order cancellation of the agreement. That provision was fully incorporated in Rule 46 of Order 40 of the Court’s Rules, but the Court noted that it concerned a dispute solely between the agent and the client and therefore did not arise for consideration in the present matter. The rule that the Court found applicable was the rule providing that when a client enters into an agreement with an agent or solicitor that determines the amount or the method of the agent’s remuneration, the client cannot recover from the opposite party any sum that exceeds the agreed amount, even though taxation of costs might result in a higher figure. The Court explained that this rule rested on the English-law principle that “party and party costs are only an indemnity—an imperfect indemnity it is true—but never more than indemnity,” citing the observation of Fletcher Moulton, L.J., in Gundry v Sainsbury (1910-1 KB 645 at p. 650 B). Consequently, a successful party was not permitted to profit from a costs order made in his favour. While the Court affirmed the soundness of the principle underlying this rule and agreed that it ought to be applied in the absence of a specific provision in the Court’s own rules, the Court expressed doubt that applying the rule justified the taxing officer’s order in the present case. The Court explained that if the agreement between the agent and the client had been limited to a fixed remuneration of Rs 300 in addition to out-of-pocket expenses for the entire appeal work, the taxing officer’s order would have been appropriate. However, the Court observed that the agreement contained an additional clause that had not received proper attention. Under that clause, the agent was entitled, in the event that the client succeeded in the litigation, to recover from the client whatever amount might be awarded to the agent upon proper taxation. The Court described this clause as a contingent promise whose performance depended on an uncertain event; since the event had occurred, the contingent promise had become an absolute obligation. In the present circumstances, the Court concluded that the latter part of the agreement, not the earlier fixed-fee part, was operative, and that the English doctrine on party-and-party costs did not assist the appellants. Accordingly, the Court held that, because the contingency had occurred, the respondent was liable under the agreement to pay the agent whatever amount the taxing officer allowed as the agent’s fees, subject to proper taxation.

In this case, the Court explained that if the principle of indemnity was the correct rule to apply, the appellants could not argue that they ought to pay a lower sum than the amount that their opponent would be required to pay to his Agent. The Court observed that the Taxing Officer appeared to be of the view that the later portion of the agreement was not enforceable because it was not a genuine arrangement and was intended to facilitate gambling in litigation. The Court noted that, had the agreement been intended to relieve the client of his costs when the litigation failed, the law of maintenance might have been relevant, and the question of champerty could have arisen if a solicitor were to be paid from the proceeds of the suit. The Court found that none of those circumstances applied here. Nevertheless, the Court held that even if the agreement were considered void or unenforceable for any reason, the entire agreement would have to be ignored and the parties’ costs would have to be taxed as if no agreement existed. The Court further stated that it was not within its power to create a new contract for the parties, and that the first part of the agreement could not be treated as the whole contract while disregarding the second part entirely.

The Court also recalled that an issue might arise where an agreement between a client and an Agent regarding the Agent’s remuneration is found to be oppressive or unreasonable, in which case Order 40, Rule 46 of the Rules of Court allows the Taxing Officer to grant relief to the client. The Court observed that no such issue was present in the present matter. Consequently, the Court set aside the order made by the Taxing Officer and directed that the matter be sent back to the Taxing Officer for the purpose of taxing party-and-party costs in the appeal in the ordinary manner. Finally, the Court declared that there would be no order as to costs of the application itself.