England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (HARMAN J & RIMER J)

		Royal Courts of Justice Strand, London, WC2A 2LL Tuesday 30th January 2001

LORD JUSTICE ROBERT WALKER:

Introduction

1. This court has heard two appeals from orders made in the same proceedings by two judges of the Chancery Division. One appeal (brought with the permission of Chadwick LJ given on 15 June 2000 on an application made out of time) is from an order as to costs made by Harman J on 20 March 1998 when he dismissed a strike-out application made by Mr Thomas Koshy and a company called Lummus Agricultural Services Co Ltd, now in liquidation ("Lasco"). Mr Koshy and Lasco are the first and second defendants in an action commenced by DEG-Deutsche Investitions und Entwicklungsgesellschaft MBH ("DEG"). The other appeal (brought with the permission of the judge) is from an order of Rimer J made on 17 February 2000 dismissing (on the ground of lack of jurisdiction) an application to vary Harman J's order of 20 March 1998. It was Rimer J's dismissal of that application which led to the late application for permission to appeal from the original order.
2. This matter has a long, complex and contentious history but for present purposes it is not necessary to set out the background at length. Indeed it is better to say little about the background because these appeals are concerned only with technical points (although they are points of some general importance) on an order relating to the costs of two interlocutory applications, and the trial of the action has still to take place. It is due to begin at the end of next April with an estimated duration of six weeks.
3. Mr Koshy was the managing director of a Zambian company called Gwembe Valley Development Company ("GVDC") which was involved in agricultural development in Zambia. Lasco, an English company controlled by Mr Koshy, was also involved in the project. DEG is a German company owned by the German government which provides finance for private-sector projects in the third world. It lent money to GVDC.
4. DEG's case is that Mr Koshy and Lasco have been guilty of fraud and are liable to it in damages. DEG launched proceedings in England on 8 November 1996 and on the same day obtained from Harman J a world-wide freezing order against Mr Koshy and Lasco. On 18 December 1996 those defendants (who already had a pending application to discharge the freezing order) applied to strike out the action.
5. On 27 or 28 February 1997 an emergency legal aid certificate was granted to Mr Koshy. During March and April 1997 there were several interlocutory hearings relating to the applications. During August 1997 (with the applications still not determined) correspondence began between Mr Koshy's solicitors and the Legal Aid Board as to his eligibility for legal aid. That led, eventually, to the Legal Aid Board's decision (on 16 September 1998) to revoke the emergency legal aid certificate on the ground that Mr Koshy's financial resources made him ineligible. It is of central importance to note that revocation of a legal aid certificate is a more drastic step than discharge of a certificate, since (under statutory provisions set out in the next section of this judgment) it has retrospective effect. Mr Koshy has challenged the revocation in judicial review proceedings but his challenge has not so far been successful.
6. In the meantime Harman J had on 6 February 1998 handed down a draft judgment in relation to the two applications which he had heard in 1997. He dismissed both applications (the strike-out had by then already been abandoned). Neither of the counsel who appeared in this court had appeared before Harman J, and it has been impossible to piece together exactly what happened between 20 March (when there was a hearing to determine the terms of the order to give effect to Harman J's handed-down judgment) and 31 March (when the order was entered in Chancery Chambers). However there is a transcript of what was said in court on 20 March, and counsel appearing in this court (Mr Andrew Thompson for DEG, and Mr Hugo Page for Mr Koshy) have sensibly tried to limit the area of disagreement.
7. It appears from the transcript that Harman J was disposed to make an order against both defendants for costs to be taxed (on the standard basis) and paid forthwith, and an order in those terms was made against Lasco, as appears from the perfected order. The transcript shortly states Harman J's reasons for making such an order. But in relation to Mr Koshy (who had the benefit of the emergency legal aid certificate) junior counsel for DEG became aware, shortly after the hearing on 20 March, of RSC 0.62 r.8(3), which provided that the court should not make an order for immediate taxation "in a case where the person against whom the order for costs is made is an assisted person".
8. For that reason the form of order signed by both junior counsel provided for Mr Koshy to pay the costs on the standard basis of both applications, "save that no costs attributable to the period after 27 February 1997 be recoverable from [Mr Koshy] until the court has determined the amount of his liability in accordance with section 17(1) of the Legal Aid Act 1988". The form of order also provided for Mr Koshy to attend on a date to be fixed for oral examination as to his means and other relevant matters, and for determination of his liability to be postponed until after the examination. Harman J appears to have initialled the draft signed by counsel, but there is uncertainty as to whether, and how far, this aspect of the matter was explained to him.
9. After the revocation of Mr Koshy's emergency legal aid certificate DEG's advisers wished to apply for a variation of Harman J's order so as to take account of the retrospective effect of the revocation. Harman J was no longer available and the application came before Rimer J, who held that he had no power to make the order sought, either under the statutory scheme of the Legal Aid Act 1988 ("the Act") and regulations made under it, or under the court's inherent jurisdiction. Before examining his reasons it is necessary to refer to some provisions of the Act and the Civil Legal Aid (General) Regulations 1989 ("the Regulations").

The statutory provisions

10. Many of the relevant provisions have been repealed by the Access to Justice Act 1999 but they continue to be applicable to this matter by reason of the Access to Justice Act 1999 (Commencement No.3, Transitional Provisions and Savings) Order 2000 (S.I. 2000 No.774) para 5. Section 17(1) of the Act laid down the basic rule that the liability of an assisted party for costs ordered against him

"shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute."

Section 17(2) required regulations to make provision for the determination of the amount "and the extent to which any determination of that amount is to be final". Section 18 provided for the circumstances in which the Legal Aid Board was to be liable for the costs of a successful unassisted party.

11. Part X of the Regulations deals with the revocation and discharge of legal aid certificates. Regulation 74 is in the following terms:

"(1) An Area Director may terminate a certificate by revoking or discharging it under this Part of these Regulations.

(2) Subject to this Part of these Regulations, a person whose certificate is revoked shall be deemed never to have been an assisted person in relation to those proceedings except for the purposes of section 18 of the Act; and a person whose certificate is discharged shall, from the date of the discharge, cease to be an assisted person in the proceedings to which the certificate related."

The deeming provision in regulation 74(2) is of central importance to the appeal from Rimer J and it has been the subject of various submissions from counsel.

12. Regulation 75 requires an area director to revoke an emergency legal aid certificate (granted under Part III of the Regulations) where it appears that an assisted person's disposable income makes him ineligible for legal aid, or his disposable capital exceeds the amount mentioned in regulation 75(2). Regulation 85 preserves the statutory charge (under s.16 of the Act) after revocation or discharge of a certificate, and regulation 86(1) makes an assisted person whose certificate is revoked liable to the Legal Aid Board for costs incurred on behalf of that person (for which the Board remains liable under regulation 84(b)). The effect of regulations 84, 85 and 86 is anticipated by the opening words ("Subject to this Part of these Regulations ... ") in regulation 74(2).
13. Part XIII of the Regulations deals with costs awarded against an assisted person. Paragraph 130 (headed 'variation of order for costs') is another provision which is of central importance to the appeal from Rimer J. It is in the following terms:

"The party in whose favour an order for costs is made may, within six years from the date on which it was made, apply to the court for the order to be varied on the ground that -

(a) material additional information as to the assisted person's means, being information which could not have been obtained by that party with reasonable diligence at the time the order was made, is available; or

(b) there has been a change in the assisted person's circumstances since the date of the order;

and on any such application the order may be varied as the court thinks fit; but save as aforesaid the determination of the court shall be final."

The appeal from Rimer J

14. It is appropriate to consider first the appeal from Rimer J, since if a judge of the Chancery Division had power to vary the order of Harman J there was no necessity for the Court of Appeal to have to hear an appeal from that order.
15. Rimer J heard DEG's application together with an application of a quite different sort made by Mr Koshy in a related action in which GVDC was the claimant. Rimer J's ruling on DEG's application occupies the last few pages of a long reserved judgment mainly concerned with a disputed appointment of receivers. Rimer J recorded that DEG's counsel relied mainly on regulation 130, and in particular in a change of circumstances within paragraph (b) of that regulation. The judge decided, with regret, that regulation 130 was not in point, for two main reasons. He expressed the first as follows:

"The first, and immediate, difficulty is that it is directed to variations of costs orders which have been made against an "assisted person". But the effect of regulation 74(2) is that Mr Koshy is not now, and is deemed never to have been, an assisted person; and although it provides for certain express exceptions to the width of its deeming effect, it does not include an exception enabling DEG to invoke regulation 130 in the way it seeks to do."

Rimer J's second (and to my mind related) reason was that Part XIII of the Regulations is concerned exclusively with the assessment of costs against legally aided parties, and associated matters. The judge concluded that Part XIII (including regulation 130) had nothing to do with the liability for costs of persons such as Mr Koshy who are deemed never to have had legal aid.

16. Mr Thompson criticised the judge's reasoning as having overlooked the need, in applying a deeming provision (and especially one which amounts to a statutory fiction) to have regard to the legislative purpose underlying the provision. Outside the scope of that legislative purpose, there may be no reason to prefer fiction to the truth. Mr Thompson referred to the principle stated in Bennion, Statutory Interpretation 3rd ^ed p.736. In addition to the authorities cited in that passage there is the well-known decision of this court in Murphy v Ingram [1974] Ch 363, in which Russell LJ said (at p.370),

"It has been remarked on high authority that in considering "deeming" provisions in statutes it is important to have in mind what appears to be the purpose of their enactment: see, for example, Hill v East and West India Dock Co (1884) 9 App Cas 448, 454-456, and the passage quoted in Leitch v Emmott [1929] 2 KB 236, 248 from James LJ in In re Levy, Ex parte Walton (1881) 17 Ch D 746, 756."

Bennion summarises the effect of the authorities as being that the statutory hypothesis is to be carried as far as is necessary to achieve the legislative purpose, but no further.

17. Building on this foundation of principle, Mr Thompson submitted that the legislative purpose of regulation 74(2) was to ensure that where a legal aid certificate was revoked (as a mark of disapprobation of the veracity or conduct of the person whose certificate was revoked) that person should lose the protection of s.17(1) of the Act, not only for the future, but also for the period during which the certificate was in force. The judge's interpretation of regulation 130 frustrates that legislative purpose by preserving the protection afforded to Mr Koshy by Harman J's order. Rimer J's approach was too mechanical in applying the statutory fiction to the reference to "the assisted person" in regulation 130 (where the reference is, as Aldous LJ suggested, no more than an identification).
18. Mr Thompson also submitted that although Part XIII of the Regulations is primarily concerned with the assessment of the contribution to costs to be made by a legally aided person, there is no reason to limit it to that exclusive purpose. In particular, regulation 130 is in terms dealing with an order for costs - that is, the main order for costs referred to in s.17(1) of the Act - rather than simply with the process of determining liability. Moreover the reference to the assisted person's "circumstances" in regulation 130(b) is a wider expression than "means" (used in regulation 130(a) and also, for instance, in regulations 125(1) and 128(1)).
19. Mr Page, on behalf of Mr Koshy, supported and relied on the reasoning of Rimer J. In particular, he submitted that "circumstances" in regulation 130(b) means financial circumstances, and that Part XIII as a whole is concerned solely with the determination of the liability of assisted persons. He said that DEG's problem arose from its having obtained an order in a form which it now found disadvantageous, and that that was no reason to strain the language of regulation 130.
20. The point has been fully and skilfully argued but it is in the end quite a short point. I accept the submissions put forward by Mr Thompson on behalf of DEG. The legislative purpose of the statutory fiction is to withdraw protection from the person whose certificate is revoked (as is emphasised by regulations 85 and 86) and the achievement of that purpose does not require (or permit) the fiction to be applied indiscriminately to every reference to an assisted person (such as the references in regulations 81 and 82, where it would produce absurdity). There is no reason to restrict "circumstances" in regulation 130(b) to financial circumstances, although they are no doubt included. The fact that an assisted party has lost his legal aid with retrospective effect is arguably the most significant change of circumstances which could happen to him. So far from regarding that as a strained construction I think that it would require considerable mental contortions to exclude it.
21. I understand that Aldous LJ concurs in this conclusion and it is not therefore necessary for this court to express any definite view on the issue of inherent jurisdiction. It is common ground that there is no general power for the court to vary an order after it has been passed and entered. Rimer J identified four real or apparent exceptions: first, the correction of obvious errors under the slip rule; second, supplementing (rather than varying) an order; third, cases where the order itself provides for its variation; and fourth, where there is a statutory right of review by a court of co-ordinate jurisdiction (for instance under s.375 of the Insolvency Act 1986). The judge did not suggest that his list was exhaustive and there appears to be a further exception where an order requires to be worked out, and a material change of circumstances occurs before it has been worked (see Jordan v Norfolk CC [1994] 1 WLR 1353, 1358-9). If regulation 130 did not apply here there would be fairly strong arguments for inherent jurisdiction either to make a supplemental order or to take account of the change of circumstances in working out the order. But it is better not to express any final view.
22. I would therefore allow the appeal against Rimer J's decision that he had no jurisdiction to vary the order of Harman J. Exercising a discretion which Rimer J thought that he lacked, I would vary the order so as to direct that Mr Koshy should pay the costs of the two applications, to be the subject of immediate detailed assessment on the standard basis and to be paid as soon as they have been assessed. I would make this order for the same reasons as would have led Harman J to make that order if it had been open to him to do so: that is, that the applications were a discrete (and, I would add, substantial) part of the litigation and that the applications had wholly failed. The fact that the lengthy affidavits used on the applications have now been ordered to stand as witness statements does not affect that conclusion. Nor does the fact that the start of the trial is now relatively close, as there may be no decision before next October.

The appeal from Harman J

23. Had Rimer J acceded to the application to vary Harman J's order, there would have been no need for DEG to embark on an appeal from Harman J's order. Our decision on the appeal from Rimer J makes the appeal from Harman J unnecessary, but it was a reasonable precaution for DEG to take, as Chadwick LJ went some way to recognising when he granted permission to appeal out of time.
24. It is unnecessary for this court to express any final view about the points which have been argued on this appeal. But I think it right to say that I am extremely sceptical about Mr Page's wide submission as to the effect of CPR rule 52.11(3). This provides as follows:

"The appeal court will allow an appeal where the decision of the lower court was -

(a) wrong; or

(b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court."

Mr Page submitted that the use of the word "wrong" implies that the Court of Appeal no longer has power to allow an appeal in any case where the lower court's decision was correct on the law and evidence as they stood before the lower court even though a change in the law, or fresh evidence, or supervening events, show it (with hindsight) to have been wrong. I am not persuaded that any such change was intended.

Conclusion

25. I would therefore allow the appeal from Rimer J, substituting an order on the lines which I have mentioned. I would dismiss the appeal from Harman J as having proved unnecessary.

LORD JUSTICE ALDOUS:

26. I agree.
ORDER: Appeal from the order of Rimer J allowed; appeal from the order of Harman J dismissed; the costs relating to that part of the appeal before Rimer J to be paid by the Defendant's to the Claimant, and be the subject of a detailed assessment; costs of the appeal from the order of Rimer J to be paid by the Defendant's to the Claimant, assessed in the sum of £5,000; the Defendant's to pay the costs of the appeal from the order of Harman J, assessed in the sum of £10,000; the order not to be drawn up because of the need to decide a further point; Claimant to lodge a skeleton argument as to the form of the order within 14 days of today; the Defendants' skeleton argument in answer to be lodges 14 days thereafter; both skeleton arguments to be served on the Legal Services Commission, who have leave to intervene; any skeleton argument that the Legal Services Commission wish to rely on should be lodged within 21 days from receipt of the Defendants' skeleton argument; the matter then to beset down to be heard by this court on a convenient day, if possible before Mr. Justice Aldous and Lord Justice Robert Walker; but if not, by another court consisting of at least two Lord Justices. (Order does not form part of Approved Judgment)