England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
Evans-Lombe J
[2004] EWHC 1706 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		12/07/2005

Lord Justice Carnwath :

Background

1. This is an appeal against the decision of Evans-Lombe J dated 16th July 2004. The case concerns intervention proceedings brought by the Law Society against Mr Simms, commenced by notice dated 14^th February 2002. Mr Simms applied to the High Court challenging the intervention, and substantial witness statements were exchanged. However, following the commencement in September 2002 of disciplinary proceedings, it was agreed that the High Court proceedings should await the determination of the disciplinary proceedings. That agreement was embodied in a consent order by Lloyd J dated 22^nd November 2002. The Solicitor's Disciplinary Tribunal (SDT) gave its decision on 2^nd February 2004, upholding most of the charges. Mr Simms appealed against that decision to the Divisional Court.
2. Following the SDT decision, and before the hearing of the appeal, the Law Society applied for summary judgment in the High Court proceedings. Evans-Lombe J allowed that application, awarded costs in favour of the Law Society on the indemnity basis, and made an order for an interim payment of £150,000. Mr Simms applied for permission to appeal on the grounds (inter alia) that the judge should have awaited the final conclusion of the disciplinary proceedings, and that in any event his decisions on costs were unjustified. I gave permission to appeal on those grounds on 5^th August 2004. On 17^th March 2005 (a few days before the hearing of this appeal), the Divisional Court gave judgment unanimously upholding the decision of the SDT.

The legal framework

3. The intervention powers of the Law Society are conferred by Schedule 1 of the Solicitors Act 1974. The Society may intervene if it has "reason to suspect dishonesty" on the part of a solicitor (para 1(i)(a)). The powers available following intervention include the power to vest practice monies of the solicitor in the Society (para 6), and to require delivery up of practice documents to the Society (para 9). The intervention has the effect of suspending the Practising Certificate of the solicitor (section 15(1)(A)).
4. A solicitor who is served with a notice of intervention has a right to challenge it by applying to the Court within 8 days for an order directing the withdrawal of the intervention notice (para 6(4)). The application is made by a Part 8 claim. If the Court makes such an order, it may make "such other order with respect to the matter as it thinks fit" (see para 6(5)). At the hearing of the application the Court may have regard, not only to the material before the Society at the date of the intervention, but to any other relevant material before the Court (Buckley v The Law Society No 2 [1984] 1 WLR 1101). The Court conducts a "two-stage" process:

"First it must decide whether the grounds under paragraph 1 are made out; in this case, primarily whether there are grounds for suspecting dishonesty. Secondly, if the Court is so satisfied, then it must consider whether in the light of all the evidence before it the intervention should continue. In deciding the second question, the Court must carry out a balancing exercise between the need in the public interest to protect the public from dishonest solicitors and the inevitably very serious consequences if the intervention continues." (Holder v the Law Society 2003 1 WLR 1059, 1065, quoting Neuberger J in Dooley v the Law Society (unreported) 15^th September 2000)

The course of the proceedings

5. The Society's interest in the activities of the practice dates from 1998. The judge summarised the background to the intervention:

"… in September 1998 the Law Society, through the Office for the Supervision of Solicitors ("the OSS") mounted an inspection of the Bower Cotton Solicitors, the predecessor firm to the Bower Cotton Partnership ("the BCP"). On the 25^th February 1999, the OSS produced a report on this inspection, the decision was taken by the Law Society to take no further action, although further inspections were undertaken and assurance sought from the partners. In March 1999 representatives of the Law Society had a meeting with the partners of BCP at which advice was given that BCP should cease to permit its client account to be used in the furtherance of clients' transactions in financial instruments in order to protect the partners from the suggestion that the partnership was assisting in money laundering transactions. On the 22^nd April the partners in BCP wrote to the Law Society indicating that they would cease to act for clients promoting investment schemes and make their client account available for use by those clients for that purpose. Further inspections of the practice took place in 1999, 2000 & 2001 the last visit to the practice being on the 2^nd July 2001. Those inspections were not satisfactory so far as the Law Society was concerned and on the 14^th February 2002 the council of the Law Society through the Professional Regulation Adjudication Panel ("the Panel") of the OSS, to which its powers for the purpose had be delegated, passed a resolution to intervene in the practice of Mr Simms. On the 18^th February notice of the resolution was given the second to sixth Claimants and personally to Mr Simms on the 19^th February…

At the same time the claimants were provided with a copy of the report of Mrs Norton into the operations of BCP, and in particular Mr Simms, for the OSS upon the basis of which the decision to intervene in Mr Simms practice had been taken. On the 19^th February officials of the Law Society visited the office of BCP to take possession, inter alia, of clients money and client files held at their offices. On the 22^nd February the key documents referred to in the Norton report were delivered to the claimants…"

6. The present proceedings were commenced on 27^th February 2002 by Mr Simms, together with his five partners (claimants 2 to 6). The claim form asserted that the Law Society had acted outside its powers and unlawfully, and that the Law Society had no grounds to suspect dishonesty on the part of Mr Simms. The principal supporting evidence was an 81 page witness statement by Mr Simms, which challenged Mrs Norton's report in strong terms, accusing her of misleading statements, and misunderstanding of the nature of the transactions, which were said to be genuine project finance transactions. On 13^th March 2002, Lloyd J gave directions for exchange of evidence, with the hearing fixed for a week on the first available hearing date after 10^th May 2002. The Society's principal evidence was served, after extensions of time, consisted of substantial statements by Mrs Norton and John Gould (of Russell-Cooke, the Law Society's solicitors). Mr Gould's statement, with voluminous exhibits, reported the results of his lengthy investigation of the files obtained from Mr Simms. He concluded:

"The matters detailed in this statement and in the exhibited notes arising from Mr Simms' files give rise to a well-founded suspicion of dishonesty. Apart from the very numerous individual examples of conduct in which no honest solicitor would engage, an honest solicitor would have declined to act at all in relation to many of the transactions with which I have dealt."

7. In his response, dated 12^th June, Mr Simms took issue with this evidence. However, he accepted that it would not be sensible to seek to resolve the dispute in the context of the High Court proceedings, and that disciplinary proceedings were now inevitable. He proposed that the High Court proceedings should be stayed while the Society instituted such proceedings. This was accepted by the Society, which agreed a timetable for commencement of disciplinary proceedings. It was against this background that Lloyd J made the consent order of 20^th November, already referred to. The preamble noted that, the parties having agreed a timetable for the disciplinary proceedings, the order was made –

"with the objective that this claim should not proceed until after the result of the disciplinary proceedings is known."

The order provided –

"(1) that this claim is to be listed for a Pre Trial Review on the first available date not earlier than 14 days after the final conclusion of the Disciplinary proceedings

(2) that the First Claimant and the Defendant are not required to take any further steps in preparation for the trial of this Claim in the meantime

(3) that there be liberty to apply…"

8. The Tribunal hearing took place between 17^th November and 5^th December 2003. The Law Society confined its case to 11 "core" transactions. 13 witnesses gave oral evidence, including Mr Simms, who by this time was representing himself. The Tribunal gave its decision with outline reasons on 2^nd February 2004, followed by a detailed statement of reasons on 16^th April 2004. It is unnecessary for present purposes to examine their findings in any detail. They are summarised and discussed in the recent judgment of the Divisional Court ([[2002] EWHC (Admin) 408), in which their findings were upheld. The judge noted that five of the original charges involved allegations of dishonesty, of which all but one were upheld. He added:

"The SDT made specific findings of dishonesty against Mr Simms as a result of his part in transactions in relation to CAMC, Elite, Maxhurst, Hackar, IDI, WC Ltd and TK and Euro Hypotech."

In respect of costs, the Tribunal rejected an application by the Society for costs on the indemnity basis. They ordered Mr Simms to pay 90% of the Society's costs attributable to the allegations in the Rule 4 statement –

"… to the extent that they were particularised (in) and relevant to the transactions and other matters brought before the Tribunal, such costs to include the costs of the investigation accountant."

Prematurity

9. The first issue raised by the appeal is whether the judge was right to consider the application for summary judgment, while an appeal was still pending in the disciplinary proceedings. Mr Simms submits that the expression "final conclusion" as used in Lloyd J's order implied the conclusion of any appeals from the original decision.
10. That seems to me correct, as a matter of the ordinary use of language (as indeed Mr Dutton accepted). However, that is not determinative of the issue before us. The order did not take the form of a stay of the high court proceedings. Its effect was to direct when the pre-trial review was to take place, and in the meantime to absolve the parties from the duty to take any steps in the proceedings within the normal timescale. It did not in terms deprive either party of the right to apply for any form of relief for which a case could be made at an earlier stage. Indeed, it specifically gave each party "liberty to apply", without qualification. Thus there was nothing in the order which, in itself, precluded the Society's application.
11. The motives for the application were subject of some discussion before us. Mr Dutton told us that the Society was concerned to obtain an enforceable order for costs as soon as possible, because of concern about other creditors waiting in the wings. Mr Simms says, rightly, that there was no evidence about this before the judge, and that, it there had been, he would have challenged it. In my view, it is unnecessary to go into that question, because it did not form part of the judge's reasoning.
12. It would have been open to the judge, as a matter of discretion, to adjourn the application pending the conclusion of the appeal. However, he took the view that the outcome of the appeal could not affect the disposal of the high court proceedings. Even if the appeal were successful, it would not mean that the Law Society, in February 2002, had had no "reason to suspect dishonesty"; and that was enough to justify the intervention. Furthermore, he accepted the Society's submission that there was no useful relief which the court could now give. He said:

"Paragraph 6(5) empowers the court when making an order terminating an intervention 'to make such other order with respect to the matter as it may think fit.' I asked Mr Simms what order he would now be seeking in these proceedings if they were to go to trial. The only order which he was able to come up with was a declaration that the original intervention was unjustified. It seems to me that the costs and time involved in taking these proceedings to trial are not justified by that very limited objective which could only be achieved in circumstances where Mr Simms had successfully appealed all findings of dishonesty against him by the SDT. In those circumstances Mr Simms would have been fully justified by his success on appeal and a declaration would hardly benefit him." (para 18)

13. I agree with those conclusions. They are reinforced by the fact that the Tribunal's decision has now been upheld by the Divisional Court. Even if there were to be an attempt to appeal from that judgment (we understand that permission to appeal was applied for but has been refused) after two judgments in the Society's favour, it is difficult realistically to envisage any outcome which would lead to the conclusion that the Society did not have even "reason to suspect" dishonesty. Furthermore, I agree with the judge that, once the disciplinary proceedings had begun, the practical value of the high court proceedings disappeared. The only substantive issues remaining were those of costs, to which I now turn

Costs – the figures

14. The figures presented by the Law Society are very substantial. They include the costs of the intervention itself, the costs of defending the High Court proceedings (which are the subject of this appeal), and the costs of the disciplinary proceedings. In February 2004, figures were given in an affidavit sworn by their Head of Enforcement for the purposes of an application for an asset freezing injunction against Mr Simms before Blackburne J. They included estimated costs figures of £95,000 for the intervention, £355,000 for the High Court proceedings, and over £650,000 for the disciplinary proceedings. Following an inter partes hearing on 19^th February, Blackburne J made a freezing order for £850,000. Between February and the hearing before Evans-Lombe J the Society claimed to have incurred further costs of £90,000, bringing the total for the High Court proceedings to £445,000.

Indemnity costs

15. It is clear that, having succeeded in its application for summary judgment, the Society was in principle entitled to the award of the costs of the high court proceedings. Under CPR 44.4 the Court had a discretion to award costs on the "standard" or the "indemnity" basis. The judge explained his reasons for an award on the indemnity basis:

"21. I have no doubt at all that Mr Simms must pay the Law Society's costs of the Intervention Proceedings the only question being whether those costs should be on an indemnity basis. The normal rule that costs should follow the event should apply in this case. The arguments which Mr Simms raised in opposition to an order for costs where primarily based on "proportionality". He contended that the manner in which the proceedings have been defended by the Law Society was not proportionate to the issues in the case. Those are matters for assessment and do not justify my making any sort of special order.

22. As to the appropriate scale of costs it seems to me that the issue here is whether Mr Simms, with the knowledge he must have had of his operations, the subject matter of the charges brought against him by the SDT, should have launched a challenge to the intervention. Mr Simms is appealing findings of dishonesty against him in disciplinary proceedings. However the remaining claimants now accept that he was dishonest. It seems to me that at all material times, Mr Simms must have realised that the Law Society were justified at least in suspecting that he had been conducting part of his practice dishonestly. It follows that he must have known that a challenge to the intervention was likely to fail and that, now it has failed, he should pay the costs incurred on an indemnity basis."

16. The courts have declined to lay down any general guidance on the principles which should lead to an award of costs on the indemnity basis. However, the cases noted in the White Book (Vol 1 p 1085ff) show that costs will normally be awarded on the standard basis –

"… unless there is some element of a party's conduct of the case which deserves some mark of disapproval. It is not just to penalise a party for running litigation which it has lost. Advancing a case which is unlikely to succeed or which fails in fact is not a sufficient reason for the award of costs on the indemnity basis…" (p 1087-8)

Similarly, in Kiam v MGN (No2) [2002] 2 All ER 242, 246 Simon Brown LJ, while agreeing that –

"… conduct, albeit falling short of misconduct deserving of moral condemnation, can be so unreasonable as to justify an order for indemnity costs… "

added –

"To my mind, however, such conduct would need to be unreasonable to a high degree; unreasonable in this context does not mean merely wrong or misguided in hindsight…. "

Thus, when considering an application for the award of costs on the indemnity basis, the court is concerned principally with the losing party's conduct of the case, rather than the substantive merits of his position.

17. Turning to the present case, the Society supports this order on the grounds stated by the judge. This was not simply the advancing of a weak case by Mr Simms, but of a false one. Had he admitted reasonable grounds for suspicion, and chosen to fight the case only on the second limb of the test, indemnity costs might not have been appropriate. But he chose the option of all out attack, in the knowledge that there was reason to suspect him of dishonesty. By a respondent's notice they seek to uphold the decision for the additional reason that Mr Simms had made unfounded attacks on the bona fides of the Society and its witnesses.
18. In response Mr Simms points out that intervention is a "draconian remedy" which can put an end peremptorily to a solicitor's practice and career and have a dramatic effect on his partners. In this case the forensic report upon which the investigation was based was drawn up over a period of three years and followed an earlier inspection which had led to no direct action. Against that background the statutory procedure required a response within only eight days. The case which underlay his application to the court was essentially the same as that which he later advanced before the Solicitors' Disciplinary Tribunal, namely that the transactions with which the Law Society were complex but not dishonest. The Society's response to the application was wholly disproportionate in relation to what is intended to be a speedy and summary procedure. Instead of concentrating on the issues dealt with in the forensic report the Society unnecessarily broadened the areas of evidence. This involved the solicitor Mr Gould going through large numbers of files and producing a statement dealing with work carried out for 137 different clients, with documents running into hundreds of thousands.
19. Once the scale of this work became apparent to Mr Simms, he accepted (in his affidavit of 12^th June 2002) that the issues could not realistically be resolved in the context of the High Court proceedings and that it would be sensible for them to be stayed pending the outcome of any disciplinary proceedings. This position was in due course accepted by the Society and resulted in the order made in November 2002. He also relies on the fact that the Society applied for indemnity costs before the Tribunal on very similar grounds, including complaints of about his treatment of its witnesses, but the Tribunal did not accept that application.
20. This court is normally reluctant to interfere with the judge' exercise of discretion as to the basis on which costs are awarded. I should say, however, with respect to the Evans-Lombe J, that I would have regarded this as at most a marginal case for an award on the indemnity basis. He laid great weight on the finding of dishonesty against Mr Simms, but it was also important that the Tribunal, in spite of their strong findings made against Mr Simms, did not regard either his defence or his conduct of the case as justifying such an order. Mr Dutton seeks to distinguish the two sets of proceedings on the ground that, even if Mr Simms was justified in defending the disciplinary proceedings, he must have realised that the Society had at least reason to suspect dishonesty. I doubt if this is a real distinction in this context. Mr Simms' case, however implausible it now seems, was that the transactions were essentially honest, and that it was only the ignorance and lack of expertise of the Society and its advisers that led them to suspect anything untoward. That position has been consistent throughout. Given the very limited time available to him to respond to the initial intervention, and the potentially drastic consequences for both him and his partners, it is understandable that he should have sought to advance that case by the only means then available. Once the scale of the Society's response became clear, he sensibly accepted that the issues would have to be decided in the Tribunal proceedings.
21. In spite of those doubts, however, if there had been no other factor, I would have found it difficult to justify interfering with the order.

Proportionality

22. There is, however, another factor. It was not part of the case as presented by Mr Simms' but it emerged during the court's consideration of the matter after the conclusion of the hearing. Accordingly, the parties were given an opportunity to comment in writing. I take their written submissions into account in what follows.
23. Before the judge, Mr Simms made a strong attack on the proportionality of the Society's response to the High Court application, and the enormous costs which were generated. As has been seen, the judge noted that submission, but regarded those points as matters for assessment. He said:

"(Mr Simms) contended that the manner in which the proceedings have been defended by the Law Society was not proportionate to the issues in the case. Those are matters for assessment and do not justify my making any sort of special order."

Unfortunately, in making that comment, he does not appear to have had in mind (nor to have had drawn to his attention) the full significance of the distinction between the "standard" and "indemnity" bases. The Society now concedes that he fell into error in that respect.

24. CPR 44.4 provides:

"(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –

(a) on the standard basis; or

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(2) Where the amount of costs is to be assessed on the standard basis, the court will –

(a) only allow costs which are proportionate to the matters in issue; and

(b) resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.

(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party."

25. CPR 44.5 sets out factors to be taken into account in assessing costs on either basis. The general principle is that it must have regard to "all the circumstances", in deciding (a) (on the standard basis) whether costs were "proportionately and reasonably incurred" or "proportionate and reasonable in amount; or (b) (on the indemnity basis) whether they were "unreasonably incurred" or "unreasonable in amount".
26. Accordingly, "reasonableness" is an issue on both bases; what varies is the presumption in cases of doubt. Proportionality, as such, is an issue only on the standard basis. This was explained by Lord Woolf MR in Lownds v Home Office [2002] EWCACiv 365; [2002] 1 WLR 2450:

"6. The fact that when costs are to be assessed on an indemnity basis there is no requirement of proportionality and, in addition, that where there is any doubt, the court will resolve that doubt (as to whether costs were unreasonably incurred or were reasonable in amount) in favour of the receiving party, means that the indemnity basis of costs is considerably more favourable to the receiving party than the standard basis of costs.

7. Prior to the CPR coming into force it was already possible for a court to make an indemnity order for costs. This did no more, however, than to reverse the burden of proof in respect of disputed items of costs. The advantages of an indemnity order over a standard order are now far more significant.

8. The new requirement of proportionality, which is in mandatory and unqualified terms in Part 44.4(2), is important in itself, since it should discourage parties from incurring disproportionate costs as those costs will not be recoverable unless an indemnity order is made. This restriction on costs should encourage parties to conduct litigation in a proportionate manner, which is an important objective of the CPR…"

27. That judgment gives guidance as to the correct approach for the costs judge when considering issues of proportionality under the standard basis. In summary:

"31 In other words what is required is a two-stage approach. There has to be a global approach and an item by item approach. The global approach will indicate whether the total sum claimed is or appears to be disproportionate having particular regard to the considerations which Part 44.5(3) states are relevant. If the costs as a whole are not disproportionate according to that test then all that is normally required is that each item should have been reasonably incurred and the cost for that item should be reasonable. If on the other hand the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable. If, because of lack of planning or due to other causes, the global costs are disproportionately high, then the requirement that the costs should be proportionate means that no more should be payable than would have been payable if the litigation had been conducted in a proportionate manner. This is turn means that reasonable costs will only be recovered for the items which were necessary if the litigation had been conducted in a proportionate manner"

Thus, contrary to the judge's assumption, one of the effects of an order for costs on the indemnity basis is to displace the issues of proportionality which are expressly provided for on the standard basis.

28. In this case, the Society submits that, notwithstanding the judge's error in this respect, his findings in relation to the conduct of Mr Simms were sufficient to justify the award. Furthermore, he will not be precluded from raising issues as to the "reasonableness" of the costs, which in practice may overlap with issues of proportionality. I accept that, in many cases, this difference of treatment may not be a significant factor in deciding whether to award costs on the indemnity basis. However, in the present case, as the judge acknowledged, arguments about "proportionality" were at the heart of Mr Simms' case in relation to costs. They cannot be dismissed as entirely without substance, having regard to the massive volume of work undertaken by the Society in response to the High Court application, although the Society will no doubt vigorously defend its conduct of an exceptionally complex and difficult investigation. Had the judge realised that the effect of his order would be to exclude, or at least severely limit, the part which such issues could play in the assessment process, it is far from clear that he would have reached the same decision.
29. In view of the judge's admitted error in this respect, it is open to this court to exercise its own discretion. As I have said, I would not have regarded this as a clear case for an award on the indemnity basis, even having regard only to the conduct of Mr Simms. I regard the limit which such an order is likely to impose on the scope of the arguments in the assessment as an important additional consideration, which for me tips the balance in favour of an award on the standard basis.
30. I would allow the appeal in this respect, and substitute an order on the standard basis.

Interim payment

31. The Judge made an order for an interim payment towards costs of £150,000. We do not have a note or transcript of his reasons. We were told by Mr Dutton that he was referred to the evidence put before Blackburne J as noted above, and Mr Simms' statement that he had assets of £150,000.
32. Mr Simms challenges the order, principally on the grounds that the judge was given no detailed breakdown of the costs in question, and was not in any position to form a proper view of the likely level of costs following taxation. He repeats his arguments about what he regards as the gross disproportionality of the fees incurred by the Society in the High Curt proceedings.
33. He relies in particular of the judgment of Laddie J in Dyson Limited v Hoover Limited [2003] EWHC 624, where he considered the factors which should govern the exercise of the judge's discretion in making an interim payment. Laddie J noted the difficulty for a judge to make a fair and rational assessment of costs in a case where there has not been a full trial before him, and therefore "knows very little about what has gone on between the parties and the breadth of the dispute between them" (para 15, 29). In that case he was faced with a schedule of costs in support of an application for over £1.4m, where the schedule extended only to four pages and contained virtually no details as to how the costs were incurred. In the circumstances he declined to make any order for interim payment, in the knowledge that this matter could be dealt with by the Costs Judge who would be in a position to order an interim payment if appropriate. He said

"The sums of money involved in this dispute are far too large to justify shooting from the hip. It seems to me preferable for the Costs Judge to consider taking a more careful aim than that."

34. In this case, Mr Simms fairly says that the costs figures put forward by the Society are on the face of it surprisingly large, and they are not supported by any detailed schedules of any kind. I agree with Laddie J that in such a case it will generally be preferable to leave the matter to the Costs Judge. However this is a matter for the discretion of the judge. The background of this case is very different. The judge was entitled to take account of the consideration given to this issue by Blackburne J, who had made a freezing order based on an overall liability of £850,000. Even accepting Mr Simms' complaints about proportionality in relation to the High Court proceedings, he was entitled to take the view that they were unlikely to reduce the figure below £150,000. In the unlikely event that that proved excessive, there was no doubt about the Society's ability to repay the excess, or it could be set against the other liabilities in the disciplinary proceedings. Thus, in the special circumstances of this case, I find it impossible to say that the judge was not entitled as a matter of discretion to make the interim payment that he did.

Costs of Second and Third claimants

35. The last point taken by Mr Simms does not directly concern the Society. It concerns the second and third claimants who were partners of Mr Simms at the time of the intervention and had joined in the High Court proceedings. The judge rejected a submission made on their behalf that they had never been properly parties to proceedings and thus no order for costs should be made against them. He held that they were in principle liable for costs until the date of a letter written on their behalf on 5^th June 2002, in which they indicated that they would be applying for a discontinuance of the proceedings so far as they were concerned. The judge took the view that from the receipt of this letter it would be wrong to treat them as any longer pursuing the intervention proceedings for their own benefit since they had indicated that there was no relief which they were thereafter seeking. He accordingly ordered them to pay the Law Society's costs down to 7^th June 2002 when the letter was received on the standard basis.
36. Mr Simms' complaint is about the form of order which was then drawn up. This not merely ordered the second and third claimants to pay the Society's costs up to 7^th June 2002 but ordered Mr Simms to pay those costs to the second and third claimants. There is no reference to this part of the order or the reasons for it in the transcript of the judgment before us.
37. Although this matter was raised in Mr Simms' notice of appeal, which according to him it was served on the second and third claimants, there was no appearance on their behalf at the hearing of the appeal and no written representations from them. In these circumstances, the Society's solicitors sought confirmation that they were aware of the appeal on this ground. This in due course resulted in a letter dated 1st April 2005 on their behalf. In this they ask for the appeal on this issue to be dismissed and further that Mr Simms should pay their costs on an indemnity basis –

"Because he knew that he had fraudulently misrepresented to them in February 2002 that the Law Society had no basis for a reasonable suspicion of dishonesty against him and that the Law Society's forensic accountant, Miss Lawton, was out of her depth and did not understand complex international transactions and when they were properly examined her shortcomings would be obvious and the intervention into is practice would be set aside. C1 was dishonest with his then partners to whom he owed a duty of good faith."

38. The difficulty with this submission is that involves investigating the dealings between Mr Simms and his partners at the time of the intervention. There is no indication that this was the basis of the judge's order, and it is impossible for us to resolve any such issue on the material before us. It may be that Mr Simms' partners have a cause of action against him for costs they have incurred as a result of his dishonesty or breach of good faith. However, if they wish to pursue such a case it will have to be in separate proceedings, in which the necessary findings can be made. On the material before us, in my view, Mr Simms is entitled to say that this part of the order is unsupported and should be set aside.

Conclusion

39. Accordingly I would allow the appeal in relation to the orders for indemnity costs and for the order to pay the costs of the second and third claimants. On the other matters I would dismiss it.

Lord Justice Sedley

40. I agree in all respects with the judgment of Carnwath LJ.
41. In relation to paragraphs 22 to 27 of it, it may be relevant to note that the current (2005) edition of the Supreme Court's Guide to the Summary Assessment of Costs, in paragraphs 13 and 14, helps to clarify the distinction, for the purposes of CPR 44, between proportionality and reasonableness. Proportionality concerns the relationship of the costs claimed to such things as the amount of money at stake in the proceedings, the importance of the case, the complexity of the issues and the means of the parties. Whether costs, proportionate or not, were reasonably incurred is therefore a different question. Although the two may overlap, the object of an indemnity costs order is to take proportionality out of the picture and to place on the paying party the burden of persuasion on reasonableness.

Lord Justice Auld:

42. I agree with Carnwath LJ, for the reasons he has given, that the Court should dismiss Mr Simms' appeal against the Judge's order for summary judgment in favour of the Law Society against him, and that the Court should allow his appeal against the Judge's order that he should pay the costs of the second and third claimants.
43. I also agree with Carnwath LJ, for the reasons he has given in paragraphs 22 to 29 of his judgment as to the effect of CPR44.4 and 5 and the guidance of Lord Woolf MR in Lownds, that the Court should allow Mr Simms' appeal in relation to the order for indemnity costs.