England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE
(MASTER ROGERS)

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th April 2009

Lord Justice Dyson:

1. This is an appeal from the decision of Master Rogers by which, in the course of cost proceedings, he determined two preliminary issues in favour of Mr Afzal and against the Legal Services Commission ("LSC"). Master Rogers gave permission to appeal directly to the Court of Appeal. The costs proceedings arise in an election petition under the Representation of a People Act 1983 ("the 1983 Act") brought by the petitioner Mr Aehmed, who was an unsuccessful candidate in the election for Birmingham City Council in May 2007. Mr Aehmed, who was in receipt of public funding for the election petition proceedings, had unsuccessfully sought to challenge the election of Mr Afzal as councillor for the Aston Ward. Mr Afzal was the "official Labour Party candidate". After a hearing which lasted 24 days, Mr Commissioner Straker QC dismissed all the allegations made by Mr Aehmed and ordered him to pay Mr Afzal and the returning officer -- the other respondent to the petition -- "amounts to be determined by costs judge". The first question for the costs judge was to decide whether in principle the LSC should be ordered to pay the whole or any part of the costs incurred by Mr Afzal, insofar as they were not recoverable from Mr Aehmed.
2. Mr Afzal has the benefit of an indemnity from the Labour Party in respect of any liability he may have for costs in the election petition proceedings. In its turn, the Labour Party is indemnified against any such costs by a policy of costs insurance. Before I identify the two preliminary issues which were determined by Master Rogers, I need to refer to the relevant provisions of regulation 5 of the Community Legal Service (Costs Protection) Regulations 2000. These are:

"(2) The court may, subject to the following paragraphs of this regulation, make an order for the payment by the Commission to the non-funded party of the whole or any part of the costs incurred by him in the proceedings […].

(3) An order under paragraph (2) may only be made if all the conditions set out in sub-paragraphs (a), (b), (c) and (d) are satisfied:

(a) a section 11(1) costs order is made against the client in the proceedings, and the amount (if any) which the client is required to pay under that costs order is less than the amount of the full costs;

(b) unless there is a good reason for the delay, the non-funded party makes a request under regulation 10(2) of the Community Legal Service (Costs) Regulations 2000 within three months of the making of the section 11(1) costs order;

(c) as regards costs incurred in a court of first instance, the proceedings were instituted by the client, the non-funded party is an individual, and the court is satisfied that the non-funded party will suffer severe financial hardship unless the order is made; and

(d) in any case, the court is satisfied that it is just and equitable in the circumstances that provision for the costs should be made out of public funds.

(8) Where the non-funded party is acting in a representative, fiduciary or official capacity and is entitled to be indemnified in respect of his costs from any property, estate or fund, the court shall, for the purposes of paragraph (3), have regard to the value of the property, estate or fund and the resources of the persons, if any, including that party where appropriate, who are beneficially interested in that property, estate or fund."

The Preliminary Issues

3. The first issue is whether regulation 5(8) was engaged on the facts of this case. That raises the questions of whether Mr Afzal was 1) acting in the litigation in an "official capacity" within the meaning of regulation 5(8) (the official capacity point); and 2) entitled to be indemnified in respect of his costs "from any particular property, estate or fund" within the meaning of regulation 5(8) (the fund point). The second issue, which only arises if regulation 5(8) was engaged, is whether, on the assumption that the financial position of the Labour Party was to be considered by virtue of regulation 5(8), it (the Labour Party) could be shown to have suffered hardship so as to permit the making of a costs order against the LSC under regulation 5(3)(c). Regulation 5(8) lies at the heart of this appeal. It is common ground that the condition of regulation 5(3)(c) would not be satisfied if regard was to be had to the financial position of Mr Afzal as an individual. He would not suffer financial hardship if an order was not made against the LSC because he had the benefit of a full indemnity from the Labour Party.
4. The condition of regulation 5(3)(c) could only be satisfied on the facts of this case if regulation 5(8) applied and the Labour Party would suffer financial hardship if an order was not made against the LSC.

The First Issue

5. Before the costs judge the LSC conceded two points. First, that Mr Afzal was acting in an "official capacity" within the meaning of regulation 5(8); and secondly, that the assets of the Labour Party were a "fund" within the meaning of regulation 5(8). The costs order was resisted by the LSC because, once the existence of the insurance was taken into account, the assets of the Labour Party were said to be ample, and there was no financial hardship on it. The LSC seeks permission to withdraw in this court the concessions which it made below. Mr Afzal does not object and, since they concern questions of statutory construction, I would give LSC permission to withdraw the concessions. On behalf of Mr Afzal, Mr Williams, who has argued this appeal with conspicuous skill and moderation, submits, however, that the concessions were rightly made.

The Official Capacity Point

6. In relation to the official capacity point, Mr Williams puts his argument in two ways. First, he submits that Mr Afzal was acting in the proceedings in an official capacity because he was joined as a party to the petition by virtue of his office as the elected candidate. By reason of section 128(2) of the 1983 Act, the respondents to an election petition may only be (1) the elected candidate, and (2) the returning officer. Joinder of the former is mandatory, regardless of whether there is any complaint as to his conduct or the conduct of those for whom he is responsible (see Absolom v Gillett [1995] 1 WLR 128 134H to 138F. In the Absolom case, only the returning officer was joined in an election petition, and this was held to be fatal to the petition although it was the behaviour of the returning officer alone which was challenged. The elected parties have to be joined as respondents to the petition, given their position as official democratically returned representatives. In the present case there were two respondents to the petition. Mr Williams submits that Mr Afzal was joined in his capacity as the elected official. The second respondent was joined as the returning officer. Both respondents were joined to the litigation in consequence of their official position. Thus Mr Afzal was acting in an official capacity in the litigation. He was a party to that litigation by virtue of his office as a duly returned representative.
7. The second way the Mr Williams puts his argument is that Mr Afzal was acting in the proceedings as the "official" Labour Party candidate. His position as official Labour Party candidate was not simply a status awarded by that political party; it was an official status recognised by law pursuant to paragraph 5 of schedule 2 of the Local Elections (Principal Areas) (England and Wales) Rules 2006 (SI 2006/3304) ("the 2006 Rules"), Labour being a registered political party under section 28 of the Political Parties Elections and Referendums Act 2000.
8. I cannot accept either of the ways that Mr Williams puts his case, attractively though he developed his arguments. As Mr Chamberlain and Ms Wakefield point out in their skeleton argument, the phrase "in a representative, fiduciary or official capacity" appears in a number of statutory contexts concerned with public funding of litigation. Of particular relevance is the legislation which governs applications for the public funding and litigation. Regulation 10 of the Communities Legal Service (Financial Regulations) 2000 provides:

"Application in representative, fiduciary or official capacity

Where the client is acting only in a representative, fiduciary or official capacity, the assessing authority shall, in calculating his disposable income and disposable capital, and the amount of any contribution to be made:

(a) assess the value of any property or estate or the amount of any fund out of which he is entitled to be indemnified; and

(b) unless it considers that he might benefit from the proceedings, disregard his personal resources."

9. This substantially reflects the previous position under regulation 33 of the Civil Legal Aid (General) Regulations 1989 and regulation 6 of the Civil Legal Aid (Assessment of Resources) Regulations 1989. It is unnecessary to set out these provisions. Under the Legal Aid Act 1988, legal aid was only available to "persons". "Person" was defined in section 2(1) of the 1988 Act as follows:

"In this Act 'person' does not include a body of persons corporate or unincorporate which is not concerned in a representative, fiduciary or official capacity so as to authorise advice, assistance and representation to be granted to such a body."

10. Companies were therefore excluded unless concerned "in a representative fiduciary or official capacity". In R v Chester and North Wales Legal Aid Area Office (No 12), ex parte Floods of Queensferry Ltd [1998] 1 WLR 1496, this court had to consider the meaning of this phrase in the context of an application for legal aid by a company. At page 1501C Millett LJ said:

"I take the expression 'representative, fiduciary or representative capacity' [I think 'representative' is an error for 'official' capacity] to be a compendious expression which is not susceptible of close analysis or divisible into its component parts.

In my judgment the legislative intention is to make legal aid available to bodies corporate, but only in limited circumstances, where the applicant is concerned, to obtain legal aid in order to act not on its own behalf but on behalf of another. That other must be an individual and not a company ineligible for legal aid. This does not appear from the subsection itself, but it follows from the decision of the Court of Appeal in Wallersteiner v Moir (No. 2) [1975] QB 373. The question is one of substance rather than form and is to be approached without undue technicality.

In my judgment, therefore, the correct test in the present case, to be applied at the time of the company's application for legal aid, was: 'Is the company concerned to obtain legal aid in order to bring the action as a nominal plaintiff on behalf of Mr Flood, the 'real' plaintiff?' The question is not: 'Who will benefit from the action?' but, 'In what capacity is the company bringing the action?'"

11. At page 1503G Hobhouse LJ said:

"Taking the question of the understanding of the Act first, I agree that the relevant expression should be construed as a whole; in other words the phrase 'in a representative, fiduciary or official capacity' is a composite expression which does not gain from being broken down into its constituent parts. If one does so, one immediately runs into difficulties … In my judgment, the phrase should be read as a whole and it is not inappropriate to describe it as relating to a nominee capacity, though in my judgment that does not exhaust its full meaning."

12. Mr Williams concedes, rightly in my judgment, that the phrase "in a representative, fiduciary or official capacity" in regulation 5(8) should be construed in the same way as the same phrase was construed in ex parte Floods of Queensferry Limited. As regards the first way Mr Williams puts his case, it should be borne in mind that regulation 5 is of application to litigation generally. It was not drafted specifically for the purpose of election petitions. Moreover, it seems to me that the phrase "official capacity" in regulation 5(8) should be construed eiusdem generis with "representative capacity" and "fiduciary capacity". All three categories of capacity are cases where a person is acting in a capacity on behalf of another body or bodies, or other person or persons, where that person is entitled to be indemnified in respect of his costs from any property, estate or fund. As was stated in ex parte Floods of Queensferry Limited, an obvious example of a person acting in an official capacity – rather than in a representative or fiduciary capacity -- is a person who is acting in litigation as nominee for the real party.
13. In my view, a person who is acting on his own behalf is not acting in an official capacity within the meaning of regulation 5(8) merely because he is a party to the proceedings by virtue of the office which he holds. He must be acting on behalf of another or others in an official capacity. This conclusion is reinforced by the fact that regulation 5(8) contemplates that the party acting in an official capacity is someone who is, or is at least capable of being, entitled to an indemnity in respect of his costs from any property, estate or fund by reason of his acting in that capacity. A person who is joined as a party to litigation merely by virtue of the office that he holds would not, without more, be entitled to an indemnity in respect of his costs from any property, estate or fund.
14. As regards the second way that Mr Williams puts his case, Mr Afzal was not acting as nominee for the Labour Party or indeed anyone else. He was required to be, and was named as, the respondent to the petition, because he personally was the successful candidate and because he personally was alleged to have committed electoral misconduct. The fact that Mr Afzal was the "official Labour Party candidate" did not mean that he was acting in the litigation in a representative, fiduciary or official capacity. The action lay against him personally as the successful candidate. It could equally have been brought against him if he had been the candidate of any other party, or indeed if he had been the candidate of no party at all. The fact that the 1983 Act requires an election petition to be served on the successful candidate merely reflects a fundamental principle of natural justice that, if the court is to entertain a petition which may result in the elected candidate losing his seat, he is entitled to be heard before it does so. That was what was decided in Absolom. Nor do the 2006 Rules assist the argument of Mr Williams. They do not support the proposition that an official candidate of a party is acting in an official capacity when he or she is joined as a party to an election petition. Rule 5, which is relied on by Mr Williams, serves the important but limited purpose of regulating the descriptions of candidates that may be used in nomination papers for elections. It provides that:

"(5) A nomination paper may not include a description of a candidate which is likely to lead electors to associate the candidate with a registered political party unless the party is a qualifying party in relation to the local government area and the description is authorised by a certificate --"

15. It follows, in my judgment, that Mr Afzal was not acting "in a representative, fiduciary or official capacity" within the meaning of regulation 5(8), and regulation 5(8) was therefore not engaged. That conclusion is determinative of this appeal.

The Fund Point

16. In relation to the fund point, Mr Williams submits that Mr Afzal was entitled to an indemnity from the Labour Party and that for this purpose its assets are a "fund" within the meaning of regulation 5(8). He argues that the intention behind regulation 5(8) is that, where a person has been joined to litigation other than in his personal capacity and is entitled to an indemnity from an outside body, the resources of that body, or those with a beneficial interest in it, will be taken into account in deciding whether a costs order should be made against the LSC. In my judgment regulation, 5(8) could have been framed so as to apply to any case where the non-funded party was entitled to be indemnified by another person. It was not so framed. Instead, it only applies where the non-funded party is entitled to be indemnified from "any property estate or fund". This wording is apt to cover the situation of a trustee who is ordinarily entitled to indemnity out of the trust property, or an executor who would normally be entitled to recover his costs in defending proceedings from the estate. It is precisely because the non-funded party is acting to protect interests other than his own that it is appropriate to take into account the resources of those who are "beneficially interested in that property estate or fund".
17. The wording of regulation 5(8) is not, however, apt to cover the situation where an individual is entitled to an indemnity by virtue of a contract of insurance, since in that situation there is no right to be indemnified out of any particular property, estate or fund. For the same reason, it is not apt to cover the situation of an individual who has a contractual right to be indemnified by a third party such as the present, where Mr Afzal has a contractual right to be indemnified by the Labour Party. I would therefore reject the submissions made by Mr Williams on the fund point, and for this reason too would conclude that regulation 5(8) does not apply to Mr Afzal. In the result, regulation 5(8) is irrelevant in the present case. It follows that no order for costs could be made in favour of Mr Afzal against the LSC because the conditions of regulation 5(3)(c) were not satisfied since Mr Afzal was fully indemnified by the Labour Party against any liability for costs. The court could not be satisfied that he would suffer financial hardship unless an order was made against the LSC.

The Second Issue

18. In these circumstances the second issue does not arise and I propose to say nothing about it.

Conclusion

19. For these reasons, I would allow this appeal.

Lord Justice Sedley:

20. I entirely agree and have nothing to add.

Lord Justice Maurice Kay:

21. I too agree.

Order: Appeal allowed