England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
MR JUSTICE CRANSTON
PTA/7/2014

		Royal Courts of Justice Strand, London, WC2A 2LL
		23/06/2016

Master of the Rolls:

1. On 25 February 2014, the appellant was arrested by West Midlands Counter Terrorism Command and charged with seven offences under the Terrorism Acts, including offences under section 8(1) of the Terrorism Act 2006 and sections 17 and 57(1) of the Terrorism Act 2000. On 14 March 2014, he was designated by HM Treasury under section 2 of the Terrorism Asset-Freezing etc Act 2010 ("TAFA") which provides:

"(1) The Treasury may make a final designation order of a person for the purposes of this Part if—

(a) they reasonably believe –

(i) that the person is or has been involved in terrorist activity….and

(b) they consider that it is necessary for purposes connected with protecting members of the public from terrorism that financial restrictions should be applied in relation to the person."

2. He therefore became subject to an asset-freezing regime whose drastic consequences were described in Ahmed v HM Treasury [2010] 2 AC 534. The allegations that formed the basis of the designation included that the appellant had attended a terrorist training camp in Syria and that in July 2013 he had arranged for a generator to be sent to Syria.
3. The appellant was remanded in custody following his arrest. He remained in custody for seven months. The letter dated 14 March 2014 notified the appellant that he had been designated on the basis that:

"A Treasury Minister has considered your case and believes that you are a person who has been involved in terrorist activity and that it is necessary for purposes connected with protecting members of the public from terrorism that financial restrictions should be applied in relation to you."

4. In preparation for the criminal trial listed to start on 6 October 2014, the CPS disclosed to the appellant the "open" material on which the case against him was based and all relevant unused material. This amounted to some thousands of pages of documents.
5. In written submissions in support of an unsuccessful bail application, the appellant admitted that he had been in Syria between November 2012 and April 2013 and to having provided basic fitness training to "some of those individuals who might later become involved in resistance to an overwhelming military onslaught". The submissions also stated:

"While some of the underlying facts the prosecution is seeking to establish are not in dispute, namely his having been in Syria, having had contact with named individuals and having endeavoured to provide a specific item to assist one of those individuals, this challenging case will require detailed exploration of the legal and factual circumstances on which the prosecution seeks to base its case…"

6. Nevertheless, on 1 October 2014, the CPS announced that it would no longer proceed with the prosecution against the appellant and that it was offering no evidence against him. An Assistant Chief Constable of the West Midlands Police told the press on the steps of the Central Criminal Court that the appellant was "innocent". He was formally acquitted and released from custody. In a statement also made on that day, the CPS stated that at the time the charges were authorised there was sufficient evidence available to provide a realistic prospect of a conviction and that it was in the public interest to prosecute; but that in the light of further material which had become available there was no longer a realistic prospect of conviction. The statement continued: "If we had been made aware of all of this information at the time of charging, we would not have charged". The further material relied on by the CPS has never been disclosed to the appellant.
7. On 2 October 2014, the appellant's solicitors invited the Treasury to quash the designation ab initio on the footing that he had never met the criteria for designation because he had never been involved in terrorism and his designation had never been necessary. In its reply dated 14 October 2014, the Treasury said that a decision had been taken to "revoke" the designation. It gave no reasons for its refusal to quash it.
8. The appellant appealed against the refusal to quash the designation pursuant to section 26 of TAFA. His grounds of appeal were that (i) he had never been involved in terrorist related activity; and/or (ii) the designation was not necessary; and (iii) the designation was contrary to his rights under articles 6, 8 and A1P1 of the European Convention on Human Rights ("the Convention"); and (iv) the designation should therefore have been quashed ab initio.
9. On 23 March 2015, the Treasury wrote to the appellant's solicitors stating that it intended to oppose the appeal and that it would be relying on "closed" material. It provided no disclosure and did not explain the factual or legal basis on which it was resisting the appeal.
10. The appellant is not entitled to legal aid. He is being represented on a conditional fee agreement. He says that he could not afford to risk pursuing his appeal if he were potentially to become liable for the Treasury's costs if he lost. The Treasury has refused to make an estimate of its likely costs of the appeal or of conducting the disclosure exercise. The appellant's solicitor has attempted to estimate the Treasury's costs. His estimate for the entire appeal is a figure in excess of £200,000. This was accepted by the judge. The solicitor has advised the appellant that the Treasury's costs of the disclosure process could be in excess of £100,000.
11. The appellant sought an undertaking from the Treasury that it would not seek a costs order against him "should he lose at first instance". The Treasury refused to give such an undertaking "at this point in time". He therefore wrote to the Court and asked for the appeal to be listed for directions. A directions hearing took place on 19 May 2015 before Cranston J at which the appellant sought a protective costs order ("PCO") i.e. an order that he should not be liable for the Treasury's costs if he lost the appeal. In a careful judgment, Cranston J decided that a PCO might be appropriate, but that it was premature to make the order at this time. I need to set out some of the detail of his judgment.

Decision of Cranston J

12. The appellant argued before the judge that the court should recognise a new category of costs protection that would apply in cases in which, from the open material, it would appear that an individual had reasonable prospects of succeeding in an appeal, but that because closed evidence was being relied on against him he could not properly assess his prospects of success.
13. The Treasury argued that the judge should not take the "very bold step" of establishing such a "novel category of costs protection" and that costs protection should only be accorded in cases of "public interest" litigation pursuant to the principles established in R (Corner House Research) v Secretary of State for Trade and Industry [2005] 1 WLR 2600. The Treasury also argued that costs in cases involving closed evidence, as in any other, should be determined at the end of the proceedings, at which point the appellant would be liable to pay all of the Treasury's costs if he lost even if he was never able to be advised on his prospects of success.
14. The judge rejected the Treasury argument that costs protection should be limited to public interest litigation. He said:

"24. In my judgment, given the power of the court to make an order furthering the Overriding Objective of dealing with cases justly and fairly, and the orders made in comparable cases like CF v. Secretary of State for the Home Department and MF v. HM Treasury, it is time to recognise that a protective costs order may, in principle, be appropriate in this type of case where individuals have been accused of terrorism and reliance is placed upon closed evidence rendering it impossible to determine the merits of any challenge. For understandable reasons in this type of case the state is able to withhold its case from those individuals. The other side of the coin, however, is that if these individuals wish to vindicate important rights, such as reputation, they may be at risk of paying substantial costs since they cannot assess the strength of the case against them, with the result that they may be dissuaded from pursuing the matter.

25. As Mr Squires submitted, these are not ordinary cases in which the CPR rules mandate that the parties disclose all their case to the other side. Full disclosure is a requirement which is linked to the decision on costs, since in determining any costs application the court is required to consider the extent to which the parties followed the Practice Direction on pre-action conduct (CPR r. 44.1(4)(a) and 5(a)). This is not the case with closed-material procedures. These are recognised in our law for good reason but the plain fact is that they are not consistent with the ordinary principles of procedural fairness, in particular the rules of disclosure: see Al-Rawi v. Security Services [2011] UKSC 34, [2012] 1 AC 531, (CA) [30], [71], (SC), [10], [41], [72], [83], [95], [168]. See also Bank Mellat v. HM Treasury [2014] AC 700 [51]. In these circumstances, the orientation of the costs rules changes, and consistently with the Overriding Objection a protective costs order may be the fair and just way to dispose of the case. Without costs protection, access to justice may be denied. As was said in Corner House if those acting for the individual are doing so pro bono, that is a factor in favour of the order."

15. He then set out "strict conditions" that had to be satisfied if a PCO were to be made in a case of this kind. He said:

"26. … First, the case must be of real benefit to the individual bringing it. Secondly, the individual must not be able to assess the prospects of success in the ordinary way. In other words, it must appear from the open material that the case is such that a reasonable person would litigate, but because of the closed material on which the defendant relies, reputable and competent legal representatives cannot advise whether the prospects are, in fact, good. Thirdly, having regard to the financial resources of the individual and to the amount of costs likely to be involved it is fair and just to make the order. Fourthly, if the order is not made the applicant will probably discontinue the proceedings and will be acting reasonably in doing so. Finally, the individual should not benefit from the order if his conduct is later judged to be unreasonable or abusive."

16. He said that he was yet to be satisfied as to the first, third and fourth of these conditions since relevant evidence had not yet been provided. As regards the first condition, there was no evidence, least of all from the appellant himself, about how his reputation had been adversely affected by the designation. As regards the second condition, at para 27 he said:

"Nor is the second condition yet satisfied. I accept what the appellant's solicitor has said that, while on the open material his client appears to have good prospects of success, he does not consider himself properly able to advise on the overall prospects in light of the closed material on which HM Treasury is relying. The material disclosed during the criminal proceedings does not assist given the circumstances surrounding their discontinuance, outlined earlier, where something emerged to change the prosecution's view. It seems to me, however, that the appropriate point to consider whether the second condition is satisfied is once HM Treasury has served its evidence, including any gisting of the closed material. After all, HM Treasury is obliged to produce exculpatory material as well as evidence supporting its case. Any assessment of prospects at that point will obviously need to take into account the uncertainties associated with any litigation."

17. As regards the third and fourth conditions, the judge said:

"28. …the position at present is somewhat unsatisfactory. It is said on the appellant's behalf that while he has sufficient assets so as not to qualify for legal aid, he is a man of modest means. After the hearing some of the details have been filled with in a note from his solicitor about the two properties he owns and his sources of income. However, there is nothing from the appellant himself. In my view there needs to be a statement from the appellant, supported by a statement of truth, about his means and HM Treasury needs to be able to make submissions about this as well as the other conditions. It may be that on examination a limited form of costs protection would be appropriate, which a reasonable litigant would risk even if not able to assess fully the prospects of success.

29. As to the appellant's potential liability to costs should he litigate and fail, his solicitor estimates that it could be in excess of £200,000. HM Treasury have not provided any estimate on what their costs may be. If it does not do this I would be prepared to accept that estimate. It is said on the appellant's behalf that, should HM Treasury's costs be as his solicitor estimates, he would be required to sell the family home in which he lives with his wife and four children. Even if the Treasury's costs were lower, they would still be substantial, and being required to pay them would have a very detrimental impact upon him and his family. If he is not given costs protection, it is said, he will probably discontinue the proceedings. Again, in my view, these statements need to come from the appellant directly.

30. As to the final condition, that will be a matter for the judge who hears the case, after considering both the open and closed material. It seems to me that the judge could find the appellant's behaviour to be unreasonable if he concluded that the appellant knew of matters, or had access to material, which, as a reasonable person, he could have foreseen would have led HM Treasury to designate him."

18. In summary, the judge considered that a PCO might be appropriate in this case, but it was premature to make an order at this time.

Some common ground

19. It is common ground that the judge was right to decide that (i) a PCO may in principle be made where an individual who brings a claim has been accused of terrorism and reliance is placed against him on closed evidence rendering it impossible for him to determine the merits of his claim, but (ii) in such a case a PCO should only be made if the four "strict conditions" set out at para 26 of his judgment are satisfied.
20. The judge rejected the Treasury's argument that costs protection should only be accorded in cases of "public interest" litigation pursuant to the principles established in Corner House. He was right to do so. The Treasury contended that costs in cases involving closed material procedures ("CMPs"), as in any other, should be determined at the end of the proceedings. At that stage, the individual could be liable to pay all of the Treasury's cases if he lost even if he was never able to be advised as to his prospects of success. In relation to this, I would endorse what the judge said at paras 24 and 25 of his judgment. As I said in Al Rawi v Security Service [2011] UKSC 34, [2012] 1 AC 531 at para 12:

"Secondly, trials are conducted on the basis of the principle of natural justice. There are a number of strands to this. A party has a right to know the case against him and the evidence on which it is based. He is entitled to have the opportunity to respond to any such evidence and to any submissions made by the other side."

21. To allow a party to rely on closed evidence is to sanction a serious invasion on this important principle. It calls for compelling justification. Where it is justified, the resulting unfairness should be mitigated so as to ensure, so far as possible, that there is equality of arms. Given the disadvantage to which CMPs inevitably expose litigants, the courts should be vigilant to ensure that the procedures do not operate in any way that is more unfair, or exacerbates the inequality between the parties to a greater extent than is necessary. Mr Eicke QC for the Treasury did not seek to argue to the contrary.

Was it premature to consider whether the second condition was satisfied?

22. The main issue on this appeal is whether the judge was right to hold that it was premature to decide whether the second condition was satisfied. Mr Squires QC submits that he was wrong to hold that the litigation should proceed with the appellant being at risk of paying the Treasury's costs of the disclosure exercise (including any gisting of the closed material) before deciding whether to make a PCO. He submits that costs protection only mitigates the unfairness of a party not being able to obtain advice on his prospects of success if the protection applies from the outset. The effect of the judge's decision is that the appellant must face the risk of paying the substantial costs of the Treasury's disclosure and gisting exercise, in circumstances where his prospects of success cannot yet be assessed. That is to allow the very unfairness which the judge rightly held that it was necessary to avoid by making a PCO.
23. Mr Eicke submits that the judge was right (or at least entitled) to decide that the question of whether to make a PCO should be determined after the Treasury has served its evidence (including any gisting of the closed material). He makes the following three introductory points. First, the normal rule in litigation is that costs are determined at the end of the proceedings. PCOs are an exception to the normal rule and this should be borne in mind when deciding whether to make a PCO. Secondly, the court often does not make an order for costs against an unsuccessful litigant who brings a claim in litigation which is subject to CMPs. It recognises the difficulties posed by CMPs and the potential unfairness of penalising unsuccessful parties in costs in such cases. As an example of such an approach, he cites the ruling of Wilkie J in CF v Secretary of State for the Home Department (1 May 2013). Thirdly, if the submissions of Mr Squires are accepted, then, far from being exceptional, PCOs will become the rule in CMP cases.
24. Mr Eicke submits that the judge was right not to decide whether to make a PCO at the outset of these proceedings because (i) unusually the appellant was in possession of a significant amount of open evidence against him which had been provided to him in the course of the criminal prosecution; and (ii) the Treasury had not yet served its evidence in the present appeal, including any exculpatory material, together with any gisting of the closed material. All the material that has been disclosed to the appellant shows that the Treasury had reasonable grounds to believe that he had been involved in terrorist activity and that it was necessary to make a designation order. That is sufficient to enable the appellant to be advised as to his prospects of success. Although no respondent's notice was served, it became clear during the course of argument that Mr Eicke was seeking to challenge the judge's finding in para 27 that the existence of closed evidence (and the lack of gisting) made it impossible for the appellant's solicitor to advise on the overall prospects of success.
25. I cannot accept Mr Eicke's submissions. I see no basis for rejecting the judge's finding at para 27. He will have been aware of the fact that a great deal of open evidence was in the hands of the appellant. On the basis of that material, the judge accepted that the appellant appeared to have good prospects of success. It is true that the evidence necessary to mount a successful prosecution is not the same as the evidence required to justify the making of a designation order: the test in section 2 of TAFA is lower than the criminal standard of proof. The judge must have appreciated that distinction. More importantly, however, the judge knew that on 14 November 2014, the appellant's solicitors wrote to the Treasury setting out, from the material available to him, his case as to why his designation should be quashed. In its response dated 23 March 2015, the Treasury Solicitor's Department stated that the Treasury intended to defend the appeal and confirmed that "this is a case in which it is likely that our client will propose to rely on closed material in defence of its claim". In other words, the reason why the Treasury was contesting the appeal was because it intended to rely on closed material. And this was the very reason why the appellant's solicitor was unable to advise him as to his prospects of success in the appeal.
26. At para 27 the judge said that (i) on the basis of the open material, the appellant is able to assess the prospects of success "in the ordinary way"; but (ii) the existence of the closed material on which the Treasury is relying to defend the appeal makes it impossible to assess the prospects of success. So far so good. One would have thought that, consistently with the rationale expressed in paras 24 and 25 for holding that a PCO may in principle be appropriate in CMP cases, the judge would have said that a PCO should be made in this case, provided that conditions 1, 3 and 4 were satisfied. But he did not do that. He simply said, without giving any reasons, that the appropriate time to consider whether the second condition was satisfied was once the Treasury had served its evidence (including any gisting).
27. In my view, this was an error for the reasons given by Mr Squires. Adopting the words the judge used in para 26, this was a case in which it "[appeared] from the open material that the case is such that a reasonable person would litigate, but because of the closed material on which the defendant relies, reputable and competent legal representatives cannot advise whether the prospects are, in fact, good". At para 27, he found that this is precisely such a case. And yet for reasons unexplained, he decided that it was premature to decide whether to make a PCO. Mr Eicke has attempted to provide an explanation. But the judge's finding that it is not possible to assess the prospects of success without access to the closed material (or at least the gist of it) is fatal to his case. He seeks to persuade us to reject this finding. As I have said, there is no respondent's notice and the appellant has not had a proper opportunity of dealing with the point. In any event, I see no reason to reject the finding. It is a striking feature of this case that, as was made clear in the letter of 23 March 2015, the Treasury is likely to be relying on closed material in defending the appeal. In these circumstances, how can the appellant be properly advised as to his prospects of success at this stage of the appeal? The judge's decision means that the appellant is being required to embark on an appeal without the protection of a PCO at least until the Treasury has served its evidence (including any gisting of the closed material). That is the very kind of unfairness that the recognition that PCOs may, in principle, be appropriate in this kind of case was designed to overcome. It is no answer to say that, even if he is unsuccessful in the appeal, the court may in the exercise of its discretion decide not to order him to pay the Treasury's costs. The unfairness lies in the fact that the litigant is exposed to the risk of having to pay the Treasury's costs if he loses.
28. Nor do I consider that the fact that, if Mr Squires' submissions are accepted, PCOs will become the rule in CMP cases is a reason for upholding the judge's decision in relation to the second condition. It is implicit in the judge's approach that the usual rule is that a PCO will be made in CMP cases if the four conditions are satisfied. Mr Eicke accepts this. It follows that the third point made by Mr Eicke (summarised at para 23 above) does not contribute to the analysis.
29. For these reasons, I would allow this appeal and hold that the judge should have considered whether conditions 1, 3 and 4 were satisfied.

Should the appeal be remitted or should this court decide whether to make a PCO?

30. The judge held that these conditions were not yet satisfied principally because the relevant evidence that had been submitted was from the appellant's solicitor and not from the appellant himself. He did not conclude that the appellant was debarred from obtaining costs protection. As Mr Squires says, it is clear that the judge envisaged that the appellant would be given an opportunity to establish that the three conditions were met, but (wrongly as I have held) not until the time had come for considering condition 2.
31. Following the date of the judgment, the appellant produced a witness statement (dated 30 June 2015) in which (i) he remedied the shortcoming in his evidence identified by the judge by confirming a statement made by his solicitors about his finances and (ii) he sought to provide the other evidence which the judge held needed to come directly from him. In a statement dated 9 June 2016, he has updated the position.
32. In summary, the appellant's case in relation to condition 1 is that the case is of real benefit to him because if his appeal succeeds (i) he will have cleared his name; (ii) he will be able to establish a serious infringement of his rights guaranteed by article 8 and A1P1 of the Convention; (iii) this will aid his claim for damages which have been provisionally quantified in the sum of £38,913; (iv) banks will have no justification for refusing to provide him with banking services; and (v) the risk of (possibly unwitting) breaches of a designation order will cease. His case in relation to condition 3 is that, on the evidence as to the appellant's means and having regard to the amount of costs likely to be incurred, it is fair and just to make the order. His case in relation to condition 4 is that, if a PCO is not made, he will probably discontinue the proceedings and will be acting reasonably in doing so. In these circumstances, Mr Squires submits that the case could be remitted for a reconsideration by the High Court. But since this court is seized of the matter, the better course is for us to decide whether the three conditions are satisfied.
33. Mr Eicke submits that, if the appeal is allowed on the condition 2 point, the court should limit itself to so deciding. If the appellant wishes to apply for a PCO on the footing that the three conditions are satisfied, he should do so pursuant to a fresh application.
34. I do not consider that we should decide whether the three conditions are satisfied. The judge has not dealt with the substance of the appellant's case that the conditions are satisfied, since in each case he has rejected it for the threshold reason that there was no evidence from the appellant himself. There needs to be a compelling reason for this court to dispense with the need for a first instance decision. There is no such reason here. Furthermore, the appellant's statement of 9 June 2016 raises matters on which the Treasury has not had an opportunity to comment. On the other hand, I see no point in requiring the appellant to make a fresh application as suggested by Mr Eicke. The justice of the case is met by remitting the matter to the High Court (ideally, but not necessarily, to Cranston J) for a reconsideration of the question whether conditions 1, 3 and 4 have been satisfied.

Conclusion

35. For the reasons given above, I would allow this appeal and order the question of whether the three conditions have been satisfied be remitted to the High Court for reconsideration.

Lord Justice Longmore:

36. I agree.

Lord Justice Lloyd Jones:

37. I also agree.