England and Wales Court of Appeal (Criminal Division) Decisions

IN THE COURT OF APPEAL (CRIMINAL DIVISION)
ON APPEAL FROM THE CROWN COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		11/09/2014

Lord Thomas of Cwmgiedd, CJ:

Introduction

1. Virgin Media Limited (Virgin) brought a private prosecution against Munaf Ahmed Zinga and others. It was Virgin's case that Zinga and others had provided set top boxes where the encryption firmware had been compromised. This allowed the user to unscramble channels without authority or payment of fee and thus view all Virgin's television channels free of charge.
2. Zinga and two others were convicted of conspiracy to defraud in the Crown Court at Snaresbrook on 14 July 2011. Zinga appealed against his conviction but that appeal was dismissed by this court (Rafferty LJ, McCombe and Thirlwall JJ) [2012] EWCA Crim 2357. As a result of the conviction Virgin applied for an order that their costs be paid from Central Funds under s.17 of the Prosecution of Offences Act 1985 (the 1985 Act). The amount was assessed and awards of £871,310 and £92,531 were made for the trials; £28,017 was assessed and awarded in respect of the appeal.
3. A confiscation order was made against Zinga by HH Judge Bing on 25 September 2012 in the sum of £8,771,300 with 10 years imprisonment to be served in default of payment On 24 January 2014 this Court dismissed an appeal against confiscation brought by Zinga: see [2014] EWCA Crim 52.

The application for costs

4. At the conclusion of the appeal in relation to the confiscation order, Virgin applied for costs. This court directed that the application be set out in detail. The court said:

"The costs are likely to be substantial and the court will want to review the rates at which they are paid if they are to be paid out of central funds and the amount of work that it is reasonable central funds should bear that can be done in due course."

5. On 20 March 2014 a detailed bill of costs was submitted by Virgin's solicitors in the sum of £93,070.46.
6. In the note accompanying the bill of costs that was submitted it was stated that Virgin had instructed Mr Neil Parkes, a partner of Wiggin LLP, to bring the prosecution because of his specialism and experience in the narrow area of law with which the private prosecution was concerned. He had conduct of the successful criminal prosecution, subsequent confiscation proceedings and the appeal.
7. Messrs Wiggin acted with the assistance of counsel, Mr David Groome and Mr Ari Alibhai of QEB Hollis Whiteman chambers. It was said that the pursuit of the confiscation proceedings and the response to Zinga's appeal were extremely important to Virgin. That was in part because of the sums involved and the need for deterrence to be maintained. It was also in part because of the significant wider impact of any adverse judgment and the effect this would have on a private prosecutor's right to conduct confiscation proceedings.

The relevant legislation and Guidance

8. The power of a court to award prosecution costs from central funds is set out in s.17 of the 1985 Act. It provides:

"(1) subject to subsections (2) and (2A) below, the court may –

(a) in any proceedings in respect of an indictable offence; and

(b) in any proceedings before a Divisional Court of the Queen's Bench Division or the Supreme Court in respect of a summary offence;

order the payment out of central funds of such amount as the court considers reasonably sufficient to compensate the prosecutor for any expenses properly incurred by him in the proceedings.

(2) No order under this section may be made in favour of -

(a) a public authority, or

(b) a person acting –

(i) on behalf of a public authority; or

(ii) in his capacity as an official appointed by such an authority.

(2A) Where the court considers that there are circumstances that make it inappropriate for the prosecution to recover the full amount mentioned in subsection (1), an order under this section must be for the payment out of central funds of such lesser amount as the court considers just and reasonable.

(2B) When making an order under this section, the court must fix the amount to be paid out of central funds in the order if it considers it appropriate to do so and –

(a) the prosecutor agrees the amount, or

(b) subsection (2A) applies.

(2C) Where the court does not fix the amount to be paid out of central funds in the order –

(a) it must describe in the order any reduction required under subsection (2A), and

(b) the amount must be fixed by means of a determination made by or on behalf of the court in accordance with procedures specified in regulations made by the Lord Chancellor."

9. The procedure for making a claim for costs to be paid from Central Funds is set out in Part 3 of the Costs in Criminal Cases (General) Regulations 1986 as amended by the Costs in Criminal Cases (General) (Amendment) Regulations 2012. Regulation 7(1) provides that after consideration of the claim costs shall be allowed by the appropriate authority in respect of

"(a) such work as appears to it to have been actually and reasonably done; and

(b) such disbursements as appear to it to have been actually and reasonably incurred."

10. Regulation 7(2) and (5) provide as follows:

"(2) In calculating the costs under paragraph (1) the appropriate authority shall take into account all the relevant circumstances of the case including the nature, importance, complexity or difficulty of the work and the time involved.

(5).. The appropriate authority shall allow such legal costs as it considers reasonably sufficient to compensate the applicant for any expenses properly incurred by him in the proceedings."

11. Provision is also made in respect of costs by the Practice Direction (Costs in Criminal Proceedings) [2013] EWCA Crim 1632. Paragraph 2.6 makes specific provision in respect of private prosecutors' costs. Paragraph 2.6.1 provides as follows:

"….. An order should be made save where there is good reason for not doing so, for example, where proceedings have been instituted or continued without good cause."

12. The Ministry of Justice has issued the following Guidance in respect of determining costs:

"In determining… costs of a private prosecutor … National Taxing Team determining officers will be guided as to the reasonableness of hourly rates claimed, by the composite rates set out in the Senior Court Costs Office Guide to the Summary Assessment of Costs. These guidance rates can be found on the Senior Courts Costs Office website.

These rates usually apply to the location of solicitors' office and not to where the matter is tried. However, where a solicitor not local to the court of trial has been instructed, the determining officer may apply a test of reasonableness as to which rate may be considered as relevant. Where the rate claimed is in excess of the guidance rate indicated in the Senior Court Costs Office guide, further explanation should be provided in the narrative of the claim."

13. The rates set out in the Guidance issued by the Senior Court Costs Office were fixed in 2010; we take into account that some adjustment is required.

i) In respect of solicitors located in the City for a solicitor of over 8 years experience the hourly rates are £409 per hour. In central London, where Virgin's solicitors Wiggin LLP are based, the rate is £317 for a partner and for a trainee £126.

ii) The fees for counsel for "run of the mill" proceedings in the Queen's Bench and Chancery Division and in the Administrative Court are covered. The table gives figures for cases lasting up to an hour and up to half a day, in respect of counsel up to five years call, up to ten years call and over ten years call. It is emphasised that these figures are not recommended rates but it is hoped that they may provide a helpful starting point for judges when assessing counsel's fees. The appropriate fee in any particular case may be more or less than the figures appearing in the table, depending upon the circumstances. The table of fees for the Administrative Court (the highest of the three courts):

Administrative Court	1 hour hearing	½ day hearing
Junior up to 5 years call	£360	£550
Junior 5 - 10 years call	£660	£1,100
Junior 10+ years call	£935	£1,650

iii) If the paying parties were represented by counsel, the fee paid to their counsel is an important factor but not a conclusive one on the question of fees payable to the receiving party's counsel.

iv) In deciding upon the appropriate fee for counsel the question is not simply one of counsel's experience and seniority but also of the level of counsel which the particular case merits.

The submissions of Virgin

14. The essence of the submission made on behalf of Virgin was that Virgin were entitled to the costs claimed in accordance with Regulation 7 as they had acted reasonably in retaining Mr Parkes of Wiggin LLP, that Mr Parkes had acted reasonably in retaining Mr David Groome and Mr Ari Alibhai as counsel and that the work had actually and reasonably been done.

(a) The employment of specialist lawyers

15. The instruction of a specialist solicitor and specialist counsel was reasonable because:

i) The original trial had involved the prosecution of those who had infringed the intellectual property of Virgin by overcoming the encryption firmware for the set top boxes which had been developed and was jointly owned by Virgin and Nagra. Although the indictment charged Zinga and his co-defendants with conspiracy to defraud, it had been necessary to consider the law relating to the copyright in the firmware.

ii) In prosecuting defendants in trials where the underlying criminality had been the infringement of intellectual property, it was first necessary to simplify the case for a jury and then to ensure that the evidence was thoroughly prepared so that there was an overwhelming case against the defendants. These tasks could only be done by advocates experienced in prosecuting cases involving intellectual property. Such skilled preparation usually resulted in a plea of guilty and, if no such plea was entered, a conviction of the principal defendant was then almost invariably obtained.

iii) There were occasions when points on intellectual property law were taken by the defence in an attempt to de-rail the trial. A deep understanding of intellectual property law was essential if the prosecution was to deal with these points quickly so that the trial could proceed smoothly and without delay. That was in part because Crown Court judges required considerable help. It was only advocates experienced in intellectual property law who could quickly demonstrate that those acting for defendants had taken a point that was wrong. The experience of counsel for Virgin was that points had to be resolved that had not yet been decided by judges of the Chancery Division or which required a complete understanding of the E-Commerce Directive (2000/31/EC) or where a deep knowledge of a law of another jurisdiction was required. Members of the criminal bar or criminal advocates were not conversant with these issues.

iv) In the prosecution of Zinga significant experience was needed to understand the technical evidence in relation to the encryption, particularly the use of algorithms. This was not an area of expertise which advocates were capable of understanding without many years' experience of this type of subject. A member of the criminal bar or other criminal advocate would need a very long time to understand such evidence.

v) Enterprises, such as Virgin, who were engaged in the creative industries made a very significant contribution to the UK economy. They could only do so if they were profitable. That profitability had to be protected from counterfeiting by criminals who were able to make significant sums of money from the type of criminality exemplified by Zinga in infringing intellectual property rights. It was perceived as a low risk area of crime and thus attracted serious and organised criminals. Civil remedies were not effective against such persons. It was therefore in the public interest that such criminals be prosecuted.

vi) State prosecutors, including the CPS and its Central Fraud Division, had taken the view that they did not at present have the necessary expertise or, because of budgetary constraints, the requisite resources to prosecute complex and novel intellectual property cases. It would take them many years to acquire the necessary skill to prosecute anything other than the most simple and straightforward case.

vii) Thus private prosecution was the only means by which such criminals could be brought to justice.

viii) Considerable experience was also needed to act as a private prosecutor. There were a number of personal duties which rested on a private prosecutor - ensuring that the investigation was undertaken in accordance with best practice, that the prosecution was proportionate and that the prosecutor's obligations of disclosure were properly discharged. In short, a private prosecutor had to act as a "minister of justice" in the same way as a prosecutor appointed by the State. Prosecutors were always paid more than defence advocates to reflect these duties.

ix) Virgin had no financial interest in the appeal and submissions were made by solicitors instructed by Virgin on the basis that they were performing a service of a wholly public nature.

(b) The reasonableness of employing the solicitors and counsel instructed and the reasonableness of their charging rates.

16. Virgin had acted reasonably in instructing Wiggin, Mr Groome and Mr Alibhai as they had the necessary experience and the rates of remuneration they charged were reasonable.

i) Virgin had no specialist knowledge of criminal law. Their instruction of Wiggin was reasonable as they had to rely on external solicitors. The hourly rate charged by Wiggin for Mr Parkes was £445 per hour; the trainee solicitor has been charged at a rate of £145 per hour.

ii) Mr Groome had 20 years' experience and had been involved in a large number of prosecutions where the issue had involved breach of intellectual property rights. Mr Groome has charged generally at an hourly rate of £300 and Mr Alibhai at an hourly rate of £200. These were in line with the market for defence lawyers' fees; there was no real market for private prosecution fees. Given the additional duties imposed on prosecutors, the hourly rates were lower than the market.

The approach to the award of costs to private prosecutors

17. As Mr Andrew Post QC, on behalf of the Interveners, pointed out in his very helpful submissions, the general principles are set out in s.17 of the 1985 Act and the applicable regulations to which we have referred.
18. There is little case law on the provisions of s.17 of the 1985 Act. However the material wording of s.17 (1) was, until the recent amendment by the Legal Aid, Sentencing and Punishment of Offenders Act 2012, identical to s.16(6) of the Act which governs the recovery of defence costs where a defendant is acquitted and a defendant's costs order made that he recover the costs from Central Funds. S.16(6) provided:

"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. (emphasis added)."

19. It is clear from the decision of the Divisional Court in R v Dudley Magistrates Court ex p Power City Stores [1990] NLJR 360 on s.16(6) of the 1985 Act that in considering the costs recoverable under s.16 (6) there were two questions.

i) Whether it was proper and reasonable to instruct the solicitors and/or advocates actually instructed. It did not matter whether the work could have been done adequately by someone less experienced, provided it was proper and reasonable to instruct those instructed.

ii) If it was proper and reasonable, then the costs were recoverable, provided the costs were reasonable.

That decision was more recently applied by the Divisional Court in R v South Devon Magistrates Court (Transcript, 14 March 2000) and in Balchin v South Western Magistrates Courts [2008] EWHC 3037 (Admin). Even more recently in R (Law Society) v Lord Chancellor [2010] EWHC 1406 (Admin), (where the Law Society challenged Regulations made by the Lord Chancellor to limit recovery on the basis that the Regulations could not limit what was provided for in s.16) Elias LJ in giving the principal judgment reiterated the principle at paragraph 52:

"The obligation is to provide a sum of money which is reasonably sufficient to compensate the successful defendant. The word "sufficient" presupposes that there is some measure to determine whether the amount paid satisfies that criterion of sufficiency or not. It must be sufficient by reference to some particular criterion or criteria. In this case the relevant measure is the principle of compensation, albeit one which is constrained by considerations of what is reasonable and proper expenditure."

20. Although not binding on us, it is an approach that has been long understood as the correct approach to s.16(6) of the 1985 Act prior to its amendment by LASPO. There is, in our view, no good reason not to apply the same approach to identical language under s.17 of the same Act. As is apparent from the judgment of Elias LJ in R (Law Society) v Lord Chancellor, a deliberate decision was made by the Government not to seek an amendment so the provisions in s.17 governing the payment to a private prosecutor, as the Government did not want to deter private prosecutions (see paragraphs 65-66 of the judgment).
21. However, the way in which the legal profession is retained for work and the way in which it renders its charges has changed significantly since the decision in Dudley Magistrates.

i) As Elias LJ observed in R (Law Society) v Lord Chancellor

"48. [S.16(6)] requires that the compensation must be "reasonably sufficient". It should be such amount as is reasonably incurred for work properly undertaken. In my view, one can only sensibly ask whether the cost has been reasonably incurred by having regard to the prevailing market. The individual defendant seeking legal representation is a consumer in that market. The amount he or she will have to pay to secure the services of a lawyer will be determined by that market."

ii) The market in legal services continues to undergo significant change, particularly as a result of the Legal Services Act 2007 which has affected the scope of regulation and the type of entity which can provide legal services.

iii) The type of fee agreement and the rates charged will be influenced by the particular market in which legal services are required; fees vary significantly as between different segments of the market. Competition is greater. For example, firms which specialise in private prosecutions of cases arising out of intellectual property infringements advertise their services and the fact that legal and investigative costs can be recovered from central government.

iv) It is now commonplace for commercial clients to seek quotations or tenders and to negotiate the basis on which fees are charged.

22. Thus in relation to the test in Dudley Magistrates:

i) In determining the first question, namely whether a person, whether it be a corporate body or private individual, has acted reasonably and properly in instructing the solicitors and advocates instructed, the court will consider what steps were taken to ensure that the terms on which the solicitors and advocates were engaged were reasonable. It was submitted on behalf of the Interveners that they do not pursue private prosecutions lightly, but only where state prosecuting authorities are unwilling to prosecute or where the nature of the case makes it inappropriate; as this is the position of highly responsible industry bodies, a court may also have regard to the steps taken to involve State prosecuting authorities.

ii) In any significant prosecution the private prosecutor would be expected properly and reasonably to examine the competition in the relevant market, test it and seek tenders or quotations before selecting the solicitor and advocate instructed.

iii) We must emphasise that it will rarely, if ever, be reasonable in any such case, given the changes in the legal market to which we have referred, to instruct the solicitors and advocates without taking such steps. Although for the reasons we give at paragraphs 23 and 24 below that issue does not arise in this matter, it will be highly material on all future applications.

iv) In determining whether the costs which are charged are proper and reasonable in a criminal case, the court will also have regard to the relevant market and the much greater flexibility in the way in which work is done.

v) The court will also have regard to the Guidance given by the Ministry of Justice.

The application of that approach to this case

(a) The reasonableness of instructing Wiggin LLP and counsel

23. The question whether it was reasonable to instruct Mr Parkes of Wiggin LLP and Mr Groome and Mr Alibhai in the prosecution at the trial and confiscation before Judge Bing is not before us. We therefore make no comment on the reasonableness of that decision. As we have set out, payment has been made to Virgin in respect of those proceedings.
24. As to the decision to instruct Mr Parkes, Mr Groome and Mr Alibhai in the appeal, it is the usual practice to instruct the same team as has appeared at trial; it was therefore reasonable to instruct them.

(b) The reasonableness of the costs incurred

25. However, the reasonableness of the costs incurred must be judged by reference (1) to the proceedings in question – that is to say the conduct of an appeal before the Criminal Division of the Court of Appeal, (2) the nature of the issues before the court - issues of law relating to confiscation proceedings and (3) comparable market rates charged for similar work.

(i) The costs of the solicitor

26. It is not the practice in the Court of Appeal Criminal Division where the issues before the court are issues of law, unless special circumstances pertain, for solicitors to assist in the preparation of legal argument or to be in attendance. The advocate is expected to do all this work and, given the flexible way the court operates, to liaise directly with the court and to arrange for the filing of all documents.
27. No special circumstances pertained in this appeal. It was therefore not reasonable for the solicitors to assist in the preparation of the legal argument or to attend at the hearings of the appeal; the costs so incurred were significant. For example, prior to the first hearing, Mr Parkes charged Virgin 7 hours and 24 minutes for perusing and considering the skeleton of counsel for the appellant and reviewing the authorities, including debates in the House of Commons, cited; his trainee also carried out 3 hours and 36 minutes research. The fee for Mr Parkes' attendance at the first hearing of the appeal was £1,557.50.
28. In our judgment the only costs reasonably incurred were the costs of formally instructing counsel, attendances on and correspondence with the other parties to the appeal and attendances on Virgin. We direct that the Registrar of Criminal Appeals determines the amount for this work.
29. In the light of the Guidance to which we have referred at paragraph 13.i), these should be paid on the basis of the guideline rate applicable to a partner in a West End firm adjusted to £320 per hour to the extent that a partner was required and at the rate for a trainee of £125 per hour for the work which a trainee was required.

(c) The costs of counsel

30. The first hearing of the appeal occupied the time of the court for 2 hours. For that hearing, Mr Groome and Mr Alibhai had two conferences with Mr Parkes, drafted a Respondent's Notice, a Skeleton Argument, prepared the appeal and appeared. The combined fee of both counsel for this preparatory work and the hearing was over £17,500. For the second hearing, which occupied 2¾ hours, the combined fee was £19,140.
31. The response to the appeal could reasonably have been prepared and presented by one advocate; it did not follow from the fact that the court granted the appellant a representation order for leading and junior counsel that such representation was reasonable for the respondent, given the court's invitation to the DPP and Commissioner to appear and their appearance by counsel at the hearing. If prepared and presented by two, the reasonableness of the time taken must be judged in an appeal in the Court of Appeal Criminal Division on an issue of law, on the basis of the time it would have taken a single reasonably competent advocate with the requisite understanding of the law relating to confiscation to prepare the appeal, including the drafting of a skeleton argument.
32. In our judgment the reasonable time for preparation of the appeal and drafting the skeleton argument, the respondent's notice and the skeleton arguments by a reasonably competent advocate was 1 day for the first hearing and 1½ days for the second hearing. Conferences and discussions with the solicitor in relation to the arguments on the appeal were unnecessary in this type of criminal appeal and therefore not reasonable.
33. In addition, counsel prepared a respondent's notice; a reasonable time for that would have been three hours. Counsel also prepared after the second hearing further documents for which the time recorded was reasonable.
34. As to the rates, we consider that the proper approach is to consider the brief fee that should properly and reasonably have been charged for one experienced counsel to cover preparation, a skeleton argument and attendance at the hearing; an hourly rate is neither appropriate nor reasonable for this type of criminal appeal.
35. As we have set out, it was contended that those instructed on behalf of Virgin had performed a public service by attending as Virgin had no interest in the appeal. We would simply observe that that consideration is of no merit, as, if they had not appeared for the Crown, alternative counsel could have presented the response to the appeal with great skill at publicly funded rates for that public service.
36. We accept that the appeal was more complex than the type of case which we have set out at paragraph 13.ii) and more time for preparation, as we have indicated, would have been required. Using the rates set out as simply a guide, we consider that the reasonable cost of the conduct of the appeal by counsel of 20 years seniority in respect of the first hearing would have been a brief fee of £4,000 and in respect of the second hearing a brief fee of £6,500. In addition, the additional hours to which we have referred at paragraph 33 should be paid at the rate of £220 per hour.
37. As publicly funded rates for experienced junior counsel in criminal cases, including rates paid by the Financial Conduct Authority are considerably less, a substantial premium is being paid to experienced junior counsel instructed as a private prosecutor.

Observations for the future

(a) The importance of prosecuting economic crime

38. In R (Rawlinson & Hunter) v Central Criminal Court [2013] 1 WLR 1634, the Divisional Court observed that incalculable damage would be done to the integrity of the financial markets in London if fraud in those markets was not prosecuted; resource should be made available to ensure this was done.
39. We accept the submission of Virgin, The British Recorded Music Industry and the Federation against Copyright Theft that it is also in the general economic interest of the UK that those who engage in criminal misuse of intellectual property are effectively prosecuted.
40. At paragraph 58 of the judgment on the appeal in the confiscation proceedings, the court drew to the attention of the Ministry of Justice the benefits to the industry of bringing private prosecutions in place of civil proceedings and the detriment to the Ministry. We need not repeat that observation.

(b) The use of the CPS

41. We accept that in certain areas of criminal prosecutions, some specialist knowledge of an area of law is necessary; in Scopelight v Chief Constable of Northumbria [2010] 1 Cr App R 19, Leveson LJ observed at paragraph 51 that cases relating to infringement of the Copyright, Designs and Patents Act 1988 were complex; specialist knowledge would inevitably be required to pursue them; cases were likely to be time consuming and expensive. We also understand the position of Virgin has taken in relation to the CPS, as set out at paragraph 15.vi) above.
42. We have, however, been assured by the Director of Public Prosecutions that the CPS has in its Specialist Fraud Division the necessary expertise and experience to conduct complex and difficult cases involving intellectual property. The Division is working with the bodies representing the IP industry.
43. We have no doubt but that it is in the public interest that the CPS is properly resourced to conduct such difficult and complex proceedings. The consequence of the CPS not being so resourced is detrimental to the public purse. The costs of a private prosecution, whether successful or unsuccessful, are recoverable from the taxpayer; the use of private prosecutors will almost inevitably cost the State much more than the use of a State prosecutor, such as the CPS.
44. Properly resourced, the CPS is likely to be able through its Specialist Fraud Division to conduct such complex and difficult prosecutions properly and at a much more reasonable cost to the public purse:

i) The rates for private solicitors are much greater than those charged in the public sector. For example, the London Borough of Westminster charges for the principal solicitor who supervises its criminal work £140 per hour; the solicitors who carry out the more serious criminal cases are charged at £95 per hour. The CPS rates are of the same order.

ii) Where specialist knowledge of the law is required, the rates charged in the private market for counsel are likely to be significantly higher than those paid by the CPS which can exercise bulk purchasing power.

iii) We have no doubt that competent counsel at the criminal Bar can master the necessary expertise to understand complex technology or science. In our experience, competent counsel at the criminal Bar do master difficult areas of science for the purposes of criminal prosecutions; DNA is an example where a complex scientific area has to be presented to a jury and there are a number of counsel who do this well.

(c) The benefit to public finances

45. The experience of this court is that there is unlikely to be any difference in quality between a prosecution brought by the State and a private prosecution. In the present state of public finances and the funds available for the proper administration of justice, it cannot be right that resourses are deployed by the State in such a way that an opportunity is provided for prosecutions to be brought by private interests at a cost to the State that is likely to be far greater than if the prosecution were undertaken by the State. No doubt the savings to public expenditure can be used for the benefit of the proper administration of justice.