England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CROWN COURT AT KINGSTON
HHJ PRICE QC
T20057421

		Royal Courts of Justice Strand, London, WC2A 2LL
		06/07/2012

Lord Justice Hooper :

1. On the 20 January 2010 this Court made a defendant's costs order in favour of Mr Patel, following an oral application by Mr Pownall QC on 12 November 2009 and a written application by his solicitors, Neumans, dated the same day. The order related to the costs incurred by Mr Patel in the Magistrates' Court, the Crown Court and the Court of Appeal Criminal Division. We are only concerned with the costs incurred by Mr Patel in the Crown Court.
2. The prosecution made no observations about the making of the order.
3. Mr Patel asked for his costs to be assessed. Unfortunately Mr Patel did not comply with Crim. P. R. 76.4 (4) (b) which (with effect from 5 October 2009), provides that where a person wants the court to make a defendant's costs order that person must "outline the type of costs and the amount claimed, if that person wants the court to direct an assessment".^[1] Unfortunately the Court did not insist on compliance with that Rule.
4. Steps have now been taken to ensure compliance with the Rule in the Court of Appeal Criminal Division and we invite other courts to take similar steps.
5. Following lengthy and complex proceedings in the Crown Court and a ruling by the judge that he had no defence, Mr Patel pleaded guilty to two counts, was fined and made subject to a substantial confiscation order. The prosecution offered no evidence on more serious charges, including allegations of distributing counterfeit Viagra. Mr Patel appealed his conviction on the basis that the judge was wrong in law. Following a two-day hearing which involved complicated issues of European Union Law, we announced on 30 October 2009 that the appeal would be allowed. Reasons for our conclusion were handed down on 12 November 2009: [2009] EWCA Crim 2311.
6. Following the making of the defendant's costs order, Mr Patel, through his solicitors, submitted a bill of costs on June 27 2011. The bill sought payment from central funds of £3,487,953.12. Neumans certified the Bill to be "accurate and complete" and that, in respect of work done in the Crown Court and the Court of Appeal, "the costs claimed herein do not exceed the costs which [Mr Patel] is required to pay" the firm.^[2]
7. These proceedings concern a sum of £2,373,205.76 claimed under the heading "Profit Costs" and representing the costs said to have been owed by Mr Patel to Neumans for work in the Crown Court, excluding counsel's fees (which amounted to some £208,000) and excluding some other incidental expenses.
8. It transpired in August 2011, following a request from the determining officer for further documents, that in January 2007 Mr Patel and Neumans had agreed orally that Mr Patel's liability for Neumans' profit costs in the Crown Court should be capped at £275,000
9. During the course of the proceedings before us, Mr Pownall showed us a transcript of the sentencing hearing in the Crown Court for July 25 2008. During that hearing Mr Pownall told the sentencing judge that Mr Patel had paid £275,000 to his solicitors in respect of their fees "and there is no other payment outstanding".
10. The oral agreement in January 2007 to cap the fees varied an agreement to be found in a letter dated January 30 2006. Mr Patel had at that time agreed, amongst other things, to pay the following rates for work done by his solicitors:

senior solicitors/partners, an hourly rate of £250;

junior solicitors/non-practising barristers an hourly rate of £180 and;

trainee solicitors an hourly rate of £150.

11. The letter also stated:

Once we have exhausted the monies on account, we will immediately revert to public funding, as agreed during our meeting on 26^th January 2006.

12. The documents which were sent to the determining officer in August 2011 also revealed that the cap had purportedly been lifted in 2009 by an oral agreement made on 9 March 2009, entered into some nine months after Mr Patel was sentenced and after what are described as "extensive discussions". There are, we are told, no contemporaneous notes of those discussions.
13. The terms of that alleged oral agreement and the background facts were set out in a letter from Neumans to Mr Patel dated 12 March 2009. The copies which we haves seen are unsigned. That letter read, in part, and as typed:

As per our extensive discussions on 9^th March 2009, you have agreed that you will now pay the firm's fees in full for all the past work to date given that we are pursuing the appeal; and you will appreciate that we have undertaken a mammoth task at negligible cost to you. I attach our original agreement for the substantive case dated 12^th January 2006 and confirm the subsequent variation at your meeting with Mr Sheikh, Lawrence Selby, Chira Selby and Sirwa Sabir in or around January 2007 to charge a fee of £275,000.00 plus VAT. At that meeting you also agreed to a variation of counsel's fees from the original retainer of 12^th January 2006 to the extent that you would pay revised brief fees: £100,000.00 plus VAT for Mr Pownall QC, £75,000.00 for Mr Selby respectively (as opposed to the original 12^th January 2006 agreement (£50,000.00 and £20,000.00 respectively). In addition, there were agreed refresher fees for counsel's past attendances. There is no agreement to vary any of those past counsel's fees so those fees are to date discharged, and our agreement is only in respect of a variation to the firm's past fees to date so that in effect we revert to our original agreement of 12^th January 2006, save for the agreed change in hourly rates to £600/hr for Mr Sheikh and £275/hr for Mr Krishnasamy. This is effectively a retrospective agreement, and as discussed we will in due course we may wish [sic] to check the position with specialist costs counsel albeit there seems to us to be no issue whatsoever with such a retrospective variation to our agreements, given the recent High Court decision in the case of Birmingham City Council v Rose Forde in January 2009 that we discussed as a precursor to bringing in the agreement to vary.

14. In manuscript the "6" in the £600 per hour for Mr Sheikh had been altered to "5", so that the letter reads £500 per hour and that was the figure used in the June 27 2011 bill of costs.^[3] There had been a manuscript change to the figure £275 per hour for Mr Krishnasamy. The "2" had been changed to "3" and there had been a further change which is difficult to read. It appears from the deed to which we refer shortly, that the figure was meant to read £350 per hour. In the bill of costs submitted in June 2011, the work of Mr Krishnasamy, described as a paralegal, was charged at the rate of £350 per hour.^[4]
15. It will be remembered that under the terms of the agreement dated January 30 2006, the equivalent agreed fees were respectively £250 and £180 per hour. The fees purported to have been agreed in 2009 were double the fees as originally agreed in January 2006 and were retrospectively payable from about that date.
16. Neumans were concerned about the validity of the March 2009 agreement and instructed Mr Mallalieu, a costs counsel, to advise. We do not know precisely which documents Mr Mallalieu saw and whether the issue of a possible defendant's costs order was discussed. It is difficult to understand why Neumans thought it was necessary to go to the expense of preparing a deed presumably at their expense. Possibly there was a concern as to the apparent lack of consideration to support the alleged agreement.
17. Mr Mallalieu advised that Neumans and Mr Patel sign a deed. The deed, drafted by Mr Mallalieu, bears on its first page the date 13 October 2009, a few days before the hearing of the appeal. We have no evidence of when it was signed and we are told that there are no contemporaneous notes relating either to discussion concerning the deed or to its signature
18. The preamble to the deed refers to the original retainer "which was subsequently varied orally in or around January 2007" and also states:

(C) ... there have been discussions and agreements in principle between you and us as to the possibility of:

(i) the firm charging its fees for all of the work done at normal hourly rates of (a) Partner/Consultant at £500 per hour plus VAT; (b) Solicitors or equivalent at £350 per hour plus VAT; (c) Trainee Solicitors or equivalent at £180 per hour plus VAT as opposed to the reduced rates as set out in the original retainer of (a) Partners/Senior Solicitors at £250 per hour plus VAT; (b) Solicitors or non-practising Barristers at £180 per hour plus VAT; (c) Trainee Solicitors or equivalent at £150 per hour plus VAT; and

(ii) the firm dealing with all past and future work undertaken in civil proceedings on the basis of a retrospective and/or prospective Conditional fee Agreement (CFA) on the basis of at reduced rates of (a) Solicitors or equivalent with 4 years PQE or above at £150 per hour plus VAT; (b) Solicitors or equivalent with 0-4 years PQE or equivalent at £100 per hour plus VAT; and Trainees or equivalent at £50 per hour plus VAT for all work from 1^st January 2008 for you and any of your businesses for the remainder of your life.

19. As to the sub-paragraph (ii), Mr Patel wrote in his affidavit:

69. ... [The deed] included a clause agreeing reduced CFA work which was not part of nor discussed at the time of the Final Agreement in March 2009.

20. Mr Patel goes on to say that this clause formed no part of the March agreement and the clause, in any event, did no more than express the status quo. We can only speculate as to why it was thought necessary to include this clause. Mr Patel wrote:

70. That clause was inserted by Neumans at its own suggestion at the time of the final drafting, though of course I was happy to agree to it. It was not something that was even discussed in March 2009 and certainly formed no part of the agreement reached then. In fact, all other legal work which I was sending to Neumans was already being carried out on this basis (subject to Neumans being prepared to accept it on its merits) and my understanding is that Neumans inserted it into the written documents in September 2009 because they wished to record that that arrangement would continue and also, as I understand it, because they wished to give me the reassurance that that would be the position for future work. I understand it was put in as an afterthought, and certainly from my point of view it did not seem necessary or make any significant difference to the existing position.

21. The deed evidences that Mr Patel had been advised of his rights to seek independent legal advice. Mr Patel did not seek independent advice.
22. The deed continues:

1. In so far as there have been any agreements in principle in relation to fixed fees for work done or to be done (such agreements in principle never having been reduced to writing):

(a) the same do not represent any concluded or binding agreement on you or us sufficient to vary the original retainer and basis of retainer;

(b) further or alternatively, that no additional consideration was in any event provided by either you or us in relation to any such agreement (in principle or otherwise) and in relation to fixed fees for work done or to be done (such agreements in principle never having been reduced to writing);

(c) accordingly, any such agreement is of no effect.

23. Mr Patel was hereby agreeing that the oral agreement of January 2007 to cap the fees was not binding on Neumans and further or alternatively that there had been no consideration for the cap. We do not know whether the cap agreement was entered into as an alternative to Mr Patel seeking legal aid, as canvassed in the letter of 30 January 2006.
24. The deed continues by stating that because of the invalidity of the January 2007 oral cap:

2. ... the basis of retainer between you and us is and has always been on the basis of that set out in the original retainer, but specifically subject to variations in the Firm's hourly rates (as agreed in March of this year with retrospective effect) or disbursements (not including counsel's fees)(the new agreed rates set out herewith at C(i) above). It is agreed that the agreement in respect of counsel was varied in January 2007 to the effect that Leading Counsel would be paid an increased brief fee of £100,000 plus VAT; and Junior Counsel an increased brief fee of £75,000 plus VAT. For the avoidance of doubt that agreement remains unchanged and any liability to Leading and Junior Counsel has since been discharged.

25. Thus the deed purported to declare the January 2007 oral cap of no legal validity but preserve that part of the oral agreement which related to counsel's fees. Since counsel's fees had already been discharged, one wonders why it was necessary specifically to note an obligation on Mr Patel to pay those fees. Was this done in case a defendant's costs order was made?
26. The deed continues:

If, contrary to the foregoing and your and our expressly stated understanding and agreement as to the basis of retainer, the retainer is not as set out above, you hereby agree (for the avoidance of doubt) that such agreement as does exist (whether on a fixed fee basis or otherwise and whether for part or all of the period of instruction) shall be varied with immediate effect such that the retainer for all work, whether done or to be done, in relation to your case (but excluding any appeal in relation to the same which shall be the subject of a separate retainer if required) shall be on the basis as set out in the original retainer as signed by you and us Annex 1 [January 30 2006 letter], subject to the increases in the hourly rates to be charged or the disbursements (not including counsel's fees) payable, such as are set out in Annexe 2 [12 March 2009 letter].

27. It will be noted that there was no variation of counsel's fees and Mr Pownall told us that he was unaware, when he made the application for a defendant's costs order, that the figure of £275,000 about which he had told the judge in July 2008, had retrospectively been varied upwards. He told us that if there had been compliance with Crim. P. R. 74(4), the existence of an agreement removing the cap would have become apparent to him.
28. Mr Patel in his affidavit said that he had been forced in January 2007 to impose the cap for financial reasons. By March 2009, with the appeal approaching, he and his company, Smartway, were in a much better financial state and he wanted to recompense Neumans at standard commercial rates for all that they had so well done on his behalf. His affidavit reads:

67. To correct things, we agreed (I am told it was on 9^th March 2009 but I cannot recall the precise date myself) that I would pay Neumans' fees at commercial rates for all its past work. The letter of 9^th March 2009 ... , despite reflecting what was agreed in this regard ("the Final Agreement"), is in fact also a separate retainer letter for the appeal. I was unaware that the Final Agreement did not waive my rights to have Neumans' bill independently assessed if I thought it excessive. I was aware from Mr Sheikh that the figure was likely to be a couple of million and this seemed in line with the sort of costs I was aware other defendants had been incurring. Although this is a very substantial sum, I was content with that in broad terms because I considered that the service I had been provided with was value for money. In addition, the huge improvement in my finances which was in part linked to what Neumans did for me meant that I was able to make such a payment.

68. In fact, I had in my mind a figure of £2.5-3 million as the final bill, so when I received Neumans' final bill it was actually less than anticipated.^[5] Smartway has accounted with HMRC for those fees in the tax year in which I received the final bill. I understand Neumans has paid VAT over on the final bill. There can be no suggestion that the Final Agreement is anything other than proper and to be honoured.

69. I was told that, although we had entered the Final Agreement, Neumans still wanted to check the legal position because of the changes so would instruct counsel once the urgent appeal work was concluded. I am led to believe a conference took place with counsel on 24^th September 2009, as a result of which counsel drafted a document, the basis of which led to the document I along with Neumans formally signed to signify what was agreed in March 29 at p.64-70. I attach a two page letter from counsel to the Master and his fee note which has been discharged for that work at Tab 6 p.71-73. I myself did not see the need for this as I agreed what I agreed and would honour it, but I did appreciate the fact that Neumans wanted to make sure it was correct in law. That Final Agreement as documented in the memorandum at Tab 7 p.74-77 included a clause agreeing reduced CFA work which was not part of nor discussed at the time of the Final Agreement in March 2009.

70. That clause was inserted by Neumans at its own suggestion at the time of the final drafting, though of course I was happy to agree to it. It was not something that was even discussed in March 2009 and certainly formed no part of the agreement reached then. In fact, all other legal work which I was sending to Neumans was already being carried out on this basis (subject to Neumans being prepared to accept it on its merits) and my understanding is that Neumans inserted it into the written documents in September 2009 because they wished to record that that arrangement would continue and also, as I understand it, because they wished to give me the reassurance that that would be the position for future work. I understand it was put in as an afterthought, and certainly from my point of view it did not seem necessary or make any significant difference to the existing position.

29. Upon the Court being told the history of what had happened, the Court ordered Mr Patel to swear an affidavit and, of its own motion, then ordered a hearing. The Court was concerned that it had not been told, at the time of the application for a defendant's costs order, anything about the cap, its purported removal and the purported retrospective increase in the solicitor's fees from 2006. We accept, as we have said, that Mr Pownall was also in ignorance.
30. The Court was concerned that what had allegedly happened in March 2009 and following might be a sham designed, should the appeal succeed, to obtain from central funds a far larger sum than would otherwise be due. The fact that the determining officer had first learnt about what had happened only in August 2011 after he had requested documents further to those initially submitted, also gave us cause for concern.
31. At the hearing Mr Pownall submitted that there was no obligation to disclose the history of what had happened either at the time of the application or at the time in June 2011 when the bill of costs was submitted. It was inevitable, he submitted, that the determining officer would have asked questions about the retainer and, having asked those questions, the history would have been revealed.
32. At the hearing Mr Pownall submitted that we had no jurisdiction to reopen the decision to make a defendant's costs order. Issues such as the validity of removal of the cap and the retrospective increase in the solicitor's fees were, under the statutory regime, for the determining officer and not for us. Mr Bedenham took what can be described as a neutral stance on the issue of jurisdiction.
33. We turn to the statutory provisions. Section 16 sets out the circumstances in which a court may make a defendant's costs order and continues:

(6)     A defendant's costs order shall, subject to the following provisions of this section, be for the payment out of central funds, to the person in whose favour the order is made, of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings.

(7)     Where a court makes a defendant's costs order but is of the opinion that there are circumstances which make it inappropriate that the person in whose favour the order is made should recover the full amount mentioned in subsection (6) above, the court shall—

(a)     assess what amount would, in its opinion, be just and reasonable; and

(b)     specify that amount in the order.

(8)     . . .

(9)     Subject to subsection (7) above, the amount to be paid out of central funds in pursuance of a defendant's costs order shall—

(a)     be specified in the order, in any case where the court considers it appropriate for the amount to be so specified and the person in whose favour the order is made agrees the amount; and

(b)     in any other case, be determined in accordance with regulations made by the Lord Chancellor for the purposes of this section.

34. As sub-section (6) makes clear, a defendant's costs order is an order for the payment out of central funds of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings. The word "court" means the court making the order. In this case, that was the Court of Appeal Criminal Division. Mr Pownall submitted that the court, if it decides not to exercise the powers in sub-section (7) and (9)(a) to specify an amount, should leave to the determining officer both the reasonableness of the expenses and whether the person, in whose favour the order is being made, has properly incurred them. Mr Pownall also submitted that once the court has made a defendant's costs order that is final and, even if the court were misled, the determining officer has the sole jurisdiction to determine the amount, subject to the appeal procedures laid down in the Costs in Criminal Cases (General Regulations) 1986.
35. We have no doubt that if we had known about the cap, its purported removal and the retrospective increase in fees, we would have been required under sub-section (6) either to determine the issue whether the applicant had properly incurred £2,373,205.76 of fees (rather than the £275,000 he had agreed to pay in January 2007 and had paid) or direct the determining officer to consider the matter.
36. We do not accept the argument that we have no jurisdiction to reconsider the application for a defendant's costs order. Without needing to consider the "exceptional circumstances" test under Taylor v Lawrence [2003] QB 528, Neumans failed (whether deliberately or otherwise) in their duty to make disclosure in an ex parte hearing of information solely within their own knowledge. References to the many civil cases which impose obligations of disclosure on parties obtaining ex parte orders are conveniently to be found in the White Book, 25.3.5. For an example of the consequences of the use of deception in obtaining leave to appeal in a criminal case, see R. v Shiraj Patel [2009] EWCA Crim 1133.
37. Having decided that we do have jurisdiction, we have decided to let the assessment take its course. Mr Bedenham told us that there are circumstances in which on a costs assessment a retrospective increase in fees may be recognised and Mr Mallalieu mentioned the case of Kellar and Carib West Ltd v. Williams [2004] UKPC 30; [2005] 4 Costs LR 559.
38. We are also minded to let the Registrar of Criminal Appeals, who is the determining authority,^[6] continue the process so that, should it be concluded that prima facie there was deliberate deception, then the Registrar could refer the matter to the appropriate authorities. We are not in a position to resolve that issue without further investigation.
39. No doubt the Registrar will wish to investigate, amongst other matters, the circumstances in which the oral agreement to vary (which is said to have been made on 9 March 2009 and evidenced in a letter written shortly afterwards) was made, together with the circumstances in which the deed which bears the date of 13 October 2009 was signed by Mr Patel and his solicitor and witnessed by a member of staff at Neumans and another individual.
40. We wish to add that in respect of the non-disclosure on June 27 2011 of the cap, its purported removal and the retrospective increase in fees, Regulation 14(4) of the Costs in Criminal Cases (General) Regulations 1986 requires that, when making a claim:

Where there are any special circumstances which should be drawn to the attention of the appropriate authority, the applicant shall specify them.

41. It is our view that Neumans on behalf of Mr Patel failed to comply with this requirement.
42. The order which we shall make is to confirm the making of the defendant's costs order whilst drawing the attention of the Registrar to this ruling and inviting him to make such enquiries as he deems appropriate.

Note 1   This requirement was introduced in the light of Brewer v. SCCO [2009] EWHC 987 (QB).    [Back]

Note 2   Mr Patel has so far paid to his solicitors about one-third of the total amount which is £3,487,953.12, using funds of a company, Smartway, which Mr Patel runs and through which it was alleged the criminal offences had been committed. He will, we are told, pay a further £600,00 in 2013. Mr Bedenham, on behalf of the Lord Chancellor, told us that the fact that the fees were paid by Mr Patel’s company was not relevant provided that Mr Patel owed the money himself to the solicitors. Mr Patel tells us in his affidavit (para. 68) that “Smartway has accounted with HMRC for those fees in the tax year in which I received the final bill”, whatever that may mean. We do not know about the accounting arrangements between Mr Patel and Smartway in relation to the fees.     [Back]

Note 3   This is significantly more than the hourly rate for a partner in Charles Russell and Co who represented Mr Patel at the Magistrates’ Court in 2005. The SCCO Guidance currently specifies an hourly rate of £409 for a partner in a Central London firm.    [Back]

Note 4   Mr Krishnasamy attended the lengthy trial of the co-defendants (which preceded the trial of Mr Patel) to take notes.     [Back]

Note 5   In fact the £275,000 had increased by over 8 times to £2,373,205.76.    [Back]

Note 6   See Regulation 5(2)(a) and (3) of the Costs In Criminal Cases (General) Regulations 1986.    [Back]