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Court of Appeal upholds decision to disallow costs in full for misconduct – GSD Law Ltd v Wardman & Others [2017] EWCA 2144
There have, in the past, been occasions where allegations have been made that a receiving party has incorrectly or even inappropriately included work in between the parties costs claims, such allegations being most normally vented within correspondence or in Points of Dispute. Often such are innocent oversights and are conceded in fairly short order once brought to the attention of the receiving party, but very occasionally the Court’s intervention (and subsequent adjudication) is required to resolve the issue.
Very rarely is such a matter the subject of a reported or published decision, nor often are such decisions handed down at much more than first instance. A prime example of this rare animal was the widely circulated decision of District Judge Deurden, sitting as a Regional Costs Judge in the County Court at Bury, in the matter of Ramsay v InStore Plc (Bury County Court 29 April 2008), in which the claimant’s solicitors had served five grossly inflated costs schedules marked “without prejudice”, only to significantly reduce their costs claims when formal bills were served.
The Regional Costs Judge ordered, at a preliminary hearing, that the ‘without prejudice’ protection normally afforded to schedules be removed so that they could be used as evidence.
As a result, the claimant’s solicitors withdrew all five bills and agreed to pay the defendant’s costs in full.
More recently, in the matter of Penny v ABV Systems, the claimant’s solicitors served a costs schedule of over £52,000, the same being considered excessive in the opinion of the paying party in comparison to the substantive matter, and an offer of just £16,886.00 was made.
This was not agreeable to the receiving party, who issued Part 8 proceedings and thereafter served a formal Bill of Costs. Within the assessment process, the claimant’s solicitors failed to provide a reasonable explanation for the difference between the schedule which had been served, containing elements of duplication between the Grade B conducting fee earner and the Grade A supervising partner, as a result of which the paying party sought Counsel’s advice as to whether to take the matter to an assessment hearing.
The schedule of costs (as in the matter of Ramsay) did not contain a statement of truth and Counsel’s opinion considered the paying party’s offer would likely be bettered at any assessment, therefore the decision was taken that the matter should proceed with the offer being maintained. The matter did not, however, reach a hearing, as the receiving party accepted the paying party’s offer and paid their costs.
More recently still, the legal press have widely reported the demise of Asons who agreed to pay AXA Insurance £113,000.00 (comprising £70,000 plus interest and approximately £40,000 in legal costs) to settle disputed costs after admitting that it ‘falsely and systematically’ exaggerated its claim for costs in 65 personal injury cases.
These examples, it should be stressed and as noted at the outset, are by far the exception rather than the rule, and are extremely rare, with the overwhelming majority of firms submitting entirely forthright and justifiable claims for costs. It is therefore almost entirely unknown for such matters to come before the Court of Appeal, and to do so truly represents an extraordinary scenario.
The matter of GSD Law Ltd v Wardman & Others [2017] EWCA 2144 originated in the County Court at Leeds, before District Judge Neaves, and involved 14 personal injury claims in respect of which GSD were on the record for the claimants in 9 and acted as agents for Sovereign Solicitors in respect of the remaining 5, with the work being undertaken in all matters under CFAs. Upon successful completion of the substantive claims, informal schedules of costs were served on behalf of all 14 receiving parties, and these proving incapable of agreement, formal Bills of Costs were prepared and served under Notices of Commencement. The paying party then served Points of Dispute to all 14 matters, however such contained the rather unusual title “Particulars of Allegations” and specifically alleged fraud and misconduct against the claimants and put them on notice that the paying parties intended to argue that it had:
“…caused the receiving parties [i.e. the claimants in the substantive proceedings] to be guilty of (gross) misconduct within the meaning of CPR rule 44.14 [now, CPR 44.11] and … as such they should both be denied their costs and they should pay the costs of the assessment”
further alleging
“…a systematic attempt by GSD to claim more in without prejudice schedules than is properly claimable…“, which if successful would lead the claimants to be personally enriched;
that they had “…claimed hourly rates which were higher than those that were properly and honestly claimable…“;
“…attempted to mislead the paying parties as to the status of the persons who carried out the work…“;
“…claimed profit costs for work that was not done…“;
“…claimed additional liabilities which were either not payable at all or which were less than the amounts claimed…“; and
to have “…claimed a ‘drafting fee’ that did not exist…“
all of which gave rise to some very serious allegations requiring to be answered by the claimants.
On 16 November 2012, District Judge Bedford, Regional Costs Judge gave directions for all 14 of the detailed assessments to be case-managed together, and for the parties to choose two sample cases that were “…indicative of the issues raised in the other cases…” and for the remaining matters to be stayed. It was also ordered that there be a hearing for certain preliminary issues such as “…the relevant jurisdictions that are open to the Court on the facts of this case, and in particular, whether the Court is able to reduce or limit the sums claimed on the grounds of misconduct or fraud, and if so, under which powers the Court may do so…”.
The claimants served a “Reply to Allegations” on 21 December 2012, responding to the specific allegations as well as containing more general denials and, by that stage, two cases had also been selected.
On 7 & 8 May 2014, the preliminary issues came before District Judge Neaves, Regional Costs Judge, with Sovereign Solicitors applying for, and being granted, permission to discontinue the detailed assessment proceedings in respect of the five cases in which they had acted. Oral evidence was heard across the two days, however the total required testimony of the witnesses could not be completed by the close of the second day. As a result of this, and the need to reconvene at a later date District Judge Neaves suggested
“I am just throwing this open as a suggestion but it would deal with the matter if in between now and that adjourned hearing, Mr Friston, if you were to effectively draft something akin to an indictment? That is perhaps not entirely the appropriate word but I do think we need that level of specificity because I am clearly going to be invited to make specific findings on all of these cases and I need to be very clear as to what those findings are. The witness needs to be equally clear as to what exactly is being put to her in each of those cases.”
and on 19 June 2014, the paying parties served their further document headed “‘Indictment-Style’ List of Allegations of Fraud and Misconduct” seeking to add one new allegation as follows
“On 17 January 2014 GSD, instructed their agents, Blacks LLP, to make a complaint to the Costs Lawyer Standards Board about the Defendants’ costs lawyer (Mr Williams); that complaint was made in the context of the whole of this litigation, including the test cases. That complaint was a blatant attempt to discredit Mr Williams for the purposes of getting the upper hand in this litigation. GSD’s principal has confirmed under cross-examination that the allegations contained within it were false and that she knew that they were false. This was (gross and serious) misconduct within the meaning of CPR rule 44.11(1)(b).”
GSD served a “Reply to Allegations” on 18 July 2014 which, inter alia, stated
“The ‘hourly rate’ point is answered by reference to the retainers. These are attached hereto.”
enclosing an attachment which, on the face of it, appeared to be a signed conditional fee agreement (“CFA”) which referred to an hourly charging rate of £203.
This aspect of the charging rate was one specifically addressed in some detail by way of example, within the “Indictment-Style” list of allegations, noting
“In the Schedule, GSD claimed an hourly rate of £203 per hour, this being a false representation of what was reasonably claimable. This was for one or both of the following reasons: (i) it was a rate that exceeded the rate set out in Mr Ismail’s fee agreement, and (ii) it was a rate that was grossly excessive given the fact that much of the work was carried out by a junior fee earner.”
and the rate of £203 per hour was consistent with the sample “Ismail” CFA attached to the “Reply to Allegations” (which District Judge Neaves termed “CFA 1”) so, on the face of it, it appeared that there was a reasonable response to an otherwise serious allegation.
The hearing resumed on 8 September 2014, oral evidence was completed with, during the course of the same, Ms Madhas being asked to produce the original of CFA 1, however she produced 2 sheets of paper which unlike CFA ,1, contained no handwritten date and gave an hourly rate of £180, causing the District Judge to conclude that this could not be the original of CFA 1.
Equally, a third document found in a trial bundle that also purported to be the CFA for Mr Ismail and which the District Judge called “CFA 3”, recorded that it also referred to an hourly rate of £180 and, the District Judge observed “…[t]he ‘6’ of the handwritten date on CFA 3 does not appear to match the ‘6’ that can be made out on CFA 1…”.
Following completion of the oral evidence, directions were given for both parties to give closing submissions in writing in which, the claimant accepted that there had been “…unreasonable conduct in the two sample files…” but that “…GSD/Ms Madhas’ is a case of ‘carelessness’ as to her administrative duties through inadvertence…” and therefore the Court should allow the costs in the sample files subject to assessment, following which District Judge Neaves handed down his written judgment at a hearing on 15 December 2014.
Within that judgement, he found that Ms Madhas (on the topic of CFA 1)
“…accepted that CFA 1 was a forgery. She was unable to explain how that forged document came to be appended to the reply, although earlier during the hearing she had suggested that her administrative team had copied and sent over documents. To the extent that that is tendered as an explanation, I do not accept it. It is inconceivable that a solicitor, facing such serious allegations, would delegate to others the task of ensuring that the correct documents were before the courts.”
was “…a wholly unreliable witness…” with her evidence “…not only evasive and inconsistent, but dishonest…”, further finding that all the allegations made against GSD to have been proved, and that the extent of the conduct and dishonesty of GSD was at the most serious end of the scale, concluding
“The conduct of the receiving party’s solicitor is sufficiently egregious as to make the only appropriate sanction the disallowance of all costs on the sample files. The receiving party will also pay the costs of the assessment proceedings including the preliminary issues.”
The claimants applied for permission to appeal to the District Judge who, in granting permission, noted that there was a
“…dearth of authority to guide the court in the manner as to which CPR 44.11 procedures should be conducted when serious allegations of dishonesty are made against a receiving party…”.
Upon the appeal, 5 grounds of appeal were put forward, inter alia, that the District Judge had “…purported to use the CPR 44.11 powers in a manner which was entirely inconsistent with their purpose to be an ancillary jurisdiction intended to be summary in nature and which does not require the consideration of detailed allegations of alleged dishonest conduct…” and, further, that the procedure that the District Judge had adopted was unfair.
The appeal was dismissed by HHJ Gosnell in a written judgment on 8 July 2015, finding that, in respect of the allegation that the procedure had been unfair, that they had not and that the claimants “…had more than adequate notice of the allegations against them and were given a full opportunity to respond to them…“, that in respect of the certifications to the bills that it was apparent that it “…appeared on both the costs schedule and Bill of costs of [GSD] and the indemnity principle had in both documents been breached as found by the Judge below and conceded by counsel on behalf of [GSD]…” and that
“In my view it was incumbent on the Judge to investigate factually whether these numerous alleged breaches of the indemnity principle and the consequent signing of misleading certificates were part of a habitual or systemic scheme to obtain unreasonable amounts of costs or were mere coincidences caused by genuine errors. The signing of a certificate on the bill of costs certifying its accuracy is very important. If paying parties lost confidence in the bona fides of solicitors signing these certificates the consequences for civil litigation as a whole would be significant. Paying parties would be reluctant to negotiate informal settlement of costs and would insist on a Bill being served and they would then insist on seeing the document which evidences the retainer to ensure the indemnity principle had not been breached. This was the very evil which Bailey v IBC Vehicles was intended to address. The allegations made in this case were serious and went to the heart of the detailed assessment process. Many of the documents which had to be examined would have been examined as part of the detailed assessment process anyway (in particular the documents evidencing the retainer). In my view it would have been an abdication of the court’s duty not to investigate these allegations.”
and further concluding in respect of the CPR 44.11 point
“The alleged misconduct in this case goes to the very heart of the detailed assessment process and examination of some of the issues would be called for on a detailed assessment in any event. The Court has an important role in maintaining professional standards and ensuring that parties behave fairly and honestly towards each other in the litigation process. In my judgment the Judge below was right to investigate this conduct under the summary procedure envisaged by CPR 44.11 and certainly cannot be said to be out with the wide discretion open to him when deciding how to deal with this issue.”
referring to Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, in which Henry LJ, at 575-576, observed
“RSC Ord 62, r 29(7)(c)(iii) requires the solicitor who brings proceedings for taxation to sign the bill of costs. In so signing he certifies that the contents of the bill are correct. That signature is no empty formality. The bill specifies the hourly rates applied, and the care and attention uplift claimed. If an agreement between the receiving solicitor and his client (here the trade union) restricted (say) the hourly rate payable by the client, that hourly rate is the most that can be claimed or recovered on taxation (see General of Berne Insurance Co v Jardine Reinsurance Management Ltd [1998] 2 All ER 301). The signature of the bill of costs under the rules is effectively the certificate by an officer of the court that the receiving party’s solicitors are not seeking to recover in relation to any item more than they have agreed to charge their client under a contentious business agreement.
The court can (and should unless there is evidence to the contrary) assume that his signature to the bill of costs shows that the indemnity principle has not been offended….
… And the other side of a presumption of trust afforded to the signature of an officer of the court must be that breach of that trust should be treated as a most serious disciplinary offence.”
Dissatisfied with the judgment of HHJ Gosnall, the claimants appealed to the Court of Appeal, raising two issues (as per [25])
Should District Judge Neaves have declined to entertain the allegations against GSD because CPR 44.11 is a summary jurisdiction, akin to that regarding wasted costs? [“The Summary Jurisdiction Issue”]
Was the procedure that was adopted unfair? [“The Unfair Procedure Issue”]
which issues were dealt with in order by the court in its judgment, published on 15 December 2017.
Giving judgment Newey LJ noted, in respect of “The Summary Jurisdiction Issue”, that (at [39])
“…it was right to entertain the application under CPR 44.11. The paying parties were contending that costs “which [were] being assessed” should be disallowed because of “unreasonable or improper” conduct in connection with the assessment of costs; the allegations could be addressed in the context of pending assessment proceedings; certain of the allegations (in particular, those relating to the bills of costs) would fall to be addressed anyway in those proceedings; there is no suggestion that legal professional privilege presented any difficulty; and the complaints made by the paying parties did not call for any inquiry into the merits of the substantive claims. It is also relevant that, as can be seen from what was said in Bailey v IBC Vehicles Ltd (for which, see paragraph 24 above), there is a strong public interest in ensuring that solicitors do not certify costs figures dishonestly: as Judge Gosnell noted, there would be unfortunate consequences if paying parties “lost confidence in the bona fides of solicitors signing these certificates”. Having regard both to seriousness of the allegations and to the sums potentially at stake, I do not think it was disproportionate to have a three-day hearing. I cannot see, moreover, how ordinary civil proceedings for fraudulent misrepresentation could have provided a satisfactory alternative to an application pursuant to CPR 44.11. In the first place, such a claim could itself fairly have been described as “satellite litigation”. Secondly, the power to disallow costs which it has been thought appropriate to confer on the Court by CPR 44.11 would not have been available, with the result, presumably, that loss could have been established only if and to the extent that the paying parties could have shown that costs were assessed at too high a figure as a result of deceit on the part of GSD; it would not appear to have been open to them to contend that costs should have been disallowed in their entirety. Thirdly, it is by no means clear to me that it would have been proper for the paying parties to seek to impugn the figures held to be due in the assessment proceedings: that might be thought to have involved an illegitimate attack on a previous Court determination (compare e.g. Phipson on Evidence, 18th ed., at paragraph 43-23, and Tibbs v Islington BC [2002] EWCA Civ 1682, at paragraphs 8, 15, 17-19, 21 and 22). ”
and accordingly that aspect of the appeal was dismissed.
Furthermore, in respect of “The Unfair Procedure Issue”, Newey LJ opined (at [44]) that
“For my part, however, I agree with Judge Gosnell that the procedure was fair. Among other things:
District Judge Bedford’s order of 16 November 2012 allowed GSD to join itself as a party whenever it wished. In the event, it elected to do so in September 2013, but it was evidently in the driving seat on the costs issues well before this. As mentioned in paragraph 8 above, the commercial interest always rested with GSD;
The “Particulars of Allegations” served in November 2012 gave GSD and Ms Madhas sufficient notice of the case they had to meet at the hearing on 7 and 8 May 2014 and, in particular, the allegations of dishonesty. I am not entirely sure why District Judge Neaves proposed the “Indictment-Style” list of allegations (possibly, as Mr Smith suggested, to effect a “clearing of the decks”), but it in fact added little of substance to the “Particulars of Allegations”; and
The “bombshell” arose from GSD choosing to attach to its “Reply to Allegations” of 18 July 2014 a document that proved to be a forgery. The paying parties cannot be criticised for their failure to refer to this in their “Particulars of Allegations” or “Indictment-Style” list of allegations since these pre-dated the “Reply to Allegations” and the forged document had not yet featured in the case. It is also significant that GSD did not suggest at the hearing on 8 September 2014 that it needed an adjournment to deal with the document.”
and thus the appeal as a whole was unanimously dismissed, with Hamblen and Longmore LLJ concurring.
The judgment handed down is striking by its findings. However, such issues are, in the writer’s experience, absolutely the exception within a profession which is dedicated to the very highest standards of integrity.
It also, once again and in stark relief, demonstrates the necessity for straightforward and transparent billing practices.
To find out how we can help with all your firm’s Legal Costs issues, from Bills to Assessment and all aspects in between, please call us on (01772) 435550 or (01604) 604035.