England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		29/06/2015

Mr Justice Cranston:

Introduction

1. This is an application for a protective costs order ("PCO") by Moazzam Begg ("the appellant") whose designation under the Terrorist Asset-Freezing etc. Act 2010 ("the 2010 Act" or "TAFA") has been revoked but who seeks to have the designation declared void from the outset. He does not qualify for legal aid but (he says) his assets are modest and he could not pay HM Treasury's costs should his claim fail. He contends that he has a strong case on the material known to him to have the designation quashed from the outset. That will clear his name and remove the practical consequences for him of having been designated, one of which is a difficulty to access financial services. However, there is material which it is not in the public interest to disclose, commonly referred to as "closed material". Without costs protection, he argues, he cannot pursue this case because on this closed material, which he will never see, his claim may prove to be ill-founded.

The background

2. The background, in brief, is this. In February 2014, the appellant was arrested by West Midlands Counter Terrorism Command and charged with seven offences under section 8(1) of the Terrorism Act 2006 and sections 17 and 57(1) of the Terrorism Act 2000. He was remanded in prison. The appellant denied that he was ever involved in terrorism. However, he accepted that he had been in Syria and had been involved between November 2012 and April 2013 in providing basic fitness training to "some of those individuals who might later become involved in resistance to an overwhelming military onslaught". He also accepted having had contact with named individuals and having endeavoured to provide a specific item to one of those individuals. In anticipation of the prosecution the Crown Prosecution Service ("the CPS") disclosed in the ordinary way material which fleshed out the details of the allegations against him.
3. On 14 March 2014 HM Treasury designated the appellant under section 2 of the 2010 Act for the same reasons given in the criminal allegations. That section reads as follows:

"2. Treasury's power to make final designation

(1) The Treasury may make a final designation 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.

…

(4) In this section…the reference in subsection (1)(b) above to financial restrictions includes a reference to restrictions relating to economic resources."

Section 11 then makes provision to freeze the funds and economic resources of designated persons and prohibits anyone (including designated persons themselves) from dealing with those funds. Sections 12-15 prohibit making available funds or economic resources to designated persons. The drastic consequences of designation were described in Ahmed v. HM Treasury [2010] UKSC5; [2010] 2 AC 534.

4. Some six months later, on 1 October 2014, the CPS stated that it would no longer proceed with the prosecution. It offered no evidence in relation to the charges brought, and the appellant was formally acquitted. 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". In its statement the CPS said 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 light of further material which had become available "there is no longer a realistic prospect of conviction". The appellant was released from prison where he had been since his arrest.
5. On 2 October 2014, the appellant's solicitors wrote to HM Treasury that "the designation… should be quashed ab initio". The letter said that the designation had been made unlawfully as the criteria for designation (that HM Treasury had a reasonable belief that one of the criteria set out in section 2(1) TAFA was met) had not been satisfied at the time the decision to designate was taken. On 14 October 2014 the appellant's designation was revoked, but not quashed ab initio. The appellant appealed under section 26 of the 2010 Act.
6. On 17 December 2014 the appellant's bank wrote to him and indicated that it intended to close his bank account. The explanation provided was that the appellant fell outside the "risk appetite" of the bank. Subsequently other banks have refused to continue to provide him banking facilities. Although he currently has banking services, he fears he may lose them at any time. In correspondence HM Treasury has stated that this is a contractual matter between the appellant and the banks involved but has provided a letter for presentation to them stating that his designation has been revoked.
7. The appellant seeks a protective costs order in relation to his section 26 appeal that the designation should be quashed ab initio. The issue before the court will be whether HM Treasury had reasonable grounds for believing at the time the appellant was designated that he was or had been involved in terrorist activity and it was, at the time, necessary to impose financial restrictions on him. There were detailed submissions before me about how that task is to be undertaken, some in written submissions after the hearing. Reference was made, inter alia, to BM v. Secretary of State for the Home Department [2011] EWCA Civ 366, [9], [39]. It is now common ground that the court will determine the issue by assessing the evidence before HM Treasury at the time of the designation, and also any evidence which has subsequently come to light showing that the designation was not necessary in terms of section 2(1)(b) of the 2010 Act.

Protective costs orders

8. Under section 51 of the Senior Courts Act 1981, the High Court has discretion as to making orders for costs in civil proceedings, subject to statutory provisions and the rules of court. The overriding objective of the Civil Procedure Rules ("CPR") is to enable the court to deal with cases justly and at proportionate cost, and dealing with a case justly includes ensuring that the parties are on an equal footing and that it is dealt with fairly: rr.1.1 (1), 1.2 (a), (d). The overriding objective enters when the court exercises its power under the rules, in particular to make orders to manage a case, which includes orders as to costs: rr.1.2, 3.1 (2)(m). It is common ground that the Senior Courts Act 1981 and the CPR as modified (but not in relation to the rules just mentioned), apply to appeals under section 26 of the 2010 Act.
9. A jurisdiction to make a PCO under section 51 was first identified in R v. Lord Chancellor ex p. Child Poverty Action Group [1999] 1 WLR 347. Dyson J identified the type of case where a PCO might be made as a public law challenge raising issues of general importance, where the applicant has no private interest in the outcome of the case: at 353 G-H. He added that the discretion to make a PCO even in cases involving public interest challenges should be exercised only in the most exceptional circumstances: 355F.
10. The leading authority on PCOs is R (Corner House Research) v. Secretary of State for Trade and Industry [2005] EWCA Civ 192; [2005] 1 WLR 2600, where the Court of Appeal endorsed the principle that the jurisdiction to make a PCO should be exercised only in the most exceptional circumstances (at [72]), and formulated guidelines to identify the circumstances in which a PCO should be made:

"[74]… (1) A protective costs order may be made at any stage of the proceedings, on such conditions as the court thinks fit, provided that the court is satisfied that: (i) the issues raised are of general public importance; (ii) the public interest requires that those issues should be resolved; (iii) the applicant has no private interest in the outcome of the case; (iv) having regard to the financial resources of the applicant and the respondent(s) and to the amount of costs that are likely to be involved it is fair and just to make the order; and (v) if the order is not made the applicant will probably discontinue the proceedings and will be acting reasonably in doing so.

(2) If those acting for the applicant are doing so pro bono this will be likely to enhance the merits of the application for a PCO.

(3) It is for the court, in its discretion, to decide whether it is fair and just to make the order in the light of the considerations set out above."

11. Subsequently, in R (Compton) v. Wiltshire Primary Care Trust [2008] EWCA Civ 749; [2009] 1 WLR 1436, Waller LJ stated that the Corner House criteria are not to be read as a statutory provision or to be read in an over-restrictive way: [23]. As to the third requirement in paragraph 74, the applicant's lack of private interest in the outcome, Waller LJ endorsed the remarks of Lloyd Jones J at paragraph 19 of R (Bullmore) v. West Hertfordshire Hospitals NHS Trust [2007] EWHC 1350 (Admin), that "its weight and importance in the overall context should be treated as a flexible element in the court's consideration of the question whether it is fair and just to make the order": [23]. Waller LJ held that "exceptionality" was not to be seen as an additional criterion to the principles set out at paragraph 74 in Corner House, but as a prediction as to the effect of applying those principles. Smith LJ agreed, stating that "it must be accepted that it will be a rare case which satisfies all five requirements". Buxton LJ dissented on the exceptionality point, regarding it as an additional requirement: [65].
12. In R (on the application of Buglife: The Invertebrate Conservation Trust) v. Thurrock Thames Gateway Development Corp [2008] EWCA Civ 1209, the Court of Appeal endorsed the principles in Corner House, as interpreted by Waller and Smith LJJ in Compton. In particular, they quoted paragraph 87 in Smith LJ's judgment in Compton, that "where the issues are of a lower order of general public importance and/or the public interest in resolution is less than compelling, a more modest order may still be open to the judge and a proportionate response to the circumstances": [20].
13. The jurisdiction to make costs protection (capping) orders in judicial review proceedings will be governed by sections 88 – 89 of the Criminal Justice and Courts Act 2015 when brought into force. In large part the statutory criteria reflect the case law.

Protective costs orders in closed material cases

14. During the course of the hearing it became apparent that protective costs orders may have been made in other closed material cases. Such examples are unusual since a not insignificant number of those affected by designation orders, control orders or Terrorism Prevention and Investigation Measures ("TPIM") have been legally aided. The combined efforts of both parties after the hearing uncovered the details in some cases, for which I am grateful, especially since this aspect of the relevant litigation has not been reported and there is no neutral citation. In short, while these cases are helpful, I do not regard them as addressing directly the issue before me.
15. In CF v. Secretary of State for the Home Department [2013] EWHC 843 (Admin), Wilkie J ruled on an application to vary restrictions imposed under a TPIM notice on CF, who was suspected of terrorism-related offences. CF was legally aided. At a subsequent hearing on 1 May 2013, Wilkie J ruled on costs. There is a transcript. In an ordinary case, he said, he would have awarded the Secretary of State 75 percent of her costs. Although the Secretary of State argued that the ordinary approach to costs was appropriate, since CF had initiated the challenge to the existing notice, CF contended that this was an appeal as of right against the imposition of a coercive sanction, when much of the reasoning and the evidence relied on by the Secretary of State only became available once he (CF) had launched the appeal, and that to an extent his (Wilkie J's) conclusion was affected by evidence and submissions in closed session. Wilkie J said:

"[17] In my judgment whilst the Court must have a residual discretion to award costs against an unsuccessful Appellant, in this context by reason of matters referred to by the Appellant, that is a discretion which has to be exercised most cautiously and sparingly."

Wilkie J then said that CF had raised significant issues, not unreasonably and abusively, and it was right for the Secretary of State to substantiate the measures in the TPIM notice: [18]. Consequently, he made no order as to costs, except for the detailed assessment of the CF's legally aided costs.

16. MF v. HM Treasury, CO/2513/2014, was an appeal under section 26 of TAFA against an asset freeze imposed under that Act on 10 May 2013, and renewed on 8 May 2014. The appeal was brought on 30 May 2014 and the freeze was still in force at the time of the appeal. By then MF was of limited means. Initially, he was represented under a conditional fee agreement. In advance of a directions hearing on 31 July 2014, MF sought a PCO but nothing was agreed. At the directions hearing, MF requested a PCO. He argued that HM Treasury had not provided him with sufficient reasons for the designation to enable a full assessment of the merits. Where the government sought to rely on closed material, it was said, an individual could not assess the prospects of success. CF v. Secretary of State for the Home Department was cited. HM Treasury argued that there should be an opportunity to revisit the question of the PCO once a proper application has been made. Ouseley J made a PCO, but noted that the question of the extent of MF's means was an important consideration. The order was as follows:

"19. There shall be no order for costs against the Appellant in these proceedings, save where costs are caused by unreasonable conduct by the Appellant or his solicitors, either in relation to the manner in which the appeal is conducted or in the substance of the arguments. The Respondent has liberty to apply in respect of this order should further evidence as to the Appellant's means become available."

17. In December 2014, MF obtained legal aid. HM Treasury had written to the Legal Aid Agency in general terms supporting the application. When the matter came to a hearing before Collins J, MF's legal aid had been discharged and his solicitors had come off the record when he had not contacted them or the court: R (on the Application of MF) v. HM Treasury [2015] EWHC 1424 (Admin), [3]. Collins J said that the security services believed that MF had in fact gone to Syria in order to engage in terrorist activities there. His support and funding of ISIL were the basis of the order, which Collins J held was properly made: [4]-[5]. The appeal was dismissed. Collins J said this in ruling on costs:

"[18] It is clear from the wording of paragraph 19 that Mr Justice Ouseley was making an order which related to costs of the appeal generally. I have no doubt that the action by the appellant in disappearing was unreasonable conduct. The result of his unreasonable conduct is that costs have been incurred, that is costs in attending as has been necessary to deal with the appeal before me and indeed the application before Mr Justice Ouseley back at the end of March 2015.

[19] In those circumstances it seems to me that it is appropriate that I should make an order for costs which cover the costs of the appeal generally."

18. Two other orders are available. First, on 10 March 2011, Ouseley J endorsed a consent order in a designation case, Rahim v. HM Treasury, CO/8264/2010, under which (i) the claimant was granted leave to withdraw a preliminary issue concerning EU law and (ii) the claimant was ordered to "pay the defendant's reasonable costs incurred as a result of the preliminary issue concerning EU law", an order not to be enforced without the leave of the court. Secondly, on 20 November 2014, in the case of DD v. Secretary of State for the Home Department, PTA/1/2014, PTA/2/2014 and PTA/8/2013, Ouseley J dismissed an appeal on the preliminary question whether the TPIM imposed on an individual violated Article 3 of the European Convention on Human Rights. While reserving the issue of costs to the trial judge, he ordered that "[i]t is appropriate for the appellant to pay the costs of the hearing and the question is not for the general discretion of the trial judge". The only exceptions were if the trial judge considered that either subsequent disclosure, if deployed at the preliminary hearing, "would probably have caused a different result", or if the Secretary of State's opposition to the preliminary issue was unjustified.

Discussion

19. For the appellant, Mr Squires contended that a protective costs order would further the interests of justice, recognise the importance of the issues at stake for the appellant, and acknowledge the appellant's inability to assess the prospects of success since HM Treasury sought to rely on closed material to justify its position. He referred to CF v. Secretary of State for the Home Department and MF v. HM Treasury as similar examples where persons were given costs protection. The appellant, he said, was of modest means and would be unlikely to continue the appeal if a PCO was not made. Closed material proceedings inevitably placed litigants at a disadvantage, and the unfairness would be compounded if a party faced the risk of an adverse costs order in a claim whose prospects they were unable to assess.
20. Mr Squires accepted that his submissions would result in the creation of a new category of costs protection. However, that was justified in his submission since this type of case was the converse of the position which the ordinary rules as to costs are designed to prevent: a person who knows, or who ought to know that a case is ill-founded should pay the costs of the other side. Here a party pursues a case which on the open material appears to be strong, but faces the risk of paying costs for reasons in the closed material he will never know about but which means it is ill-founded. It could not be right, in Mr Squires's submission, that the threat of an adverse costs order in this type of case should prevent access to the court.
21. The response of Mr Eicke QC for HM Treasury was that it would be a very bold step to establish a novel category of costs protection. In the past PCOs have been made in applications for judicial review, where the facts are generally assumed, not as here where there will be a closed examination to establish the facts and then decide whether they meet the requisite statutory standard. In his submission, any form of costs protection has to satisfy the public interest test of Corner House. That meant that such orders should be made only exceptionally and where the case raises an issue of general public importance. Here there is no matter of general public importance, since the relevant principles of law are fairly well established. Even the appellant's own concerns about banking services are unlikely to be resolved, when banks might continue to take the view that they wish not to undertake the appellant's business.
22. As in MF v. HM Treasury, Mr Eicke submitted, the issue should be determined at the end of the case, taking into account whether the person had acted reasonably in pursuing the litigation: CPR 44.2 (4)(a). Any unfairness in the closed material procedures could be taken into account then. HM Treasury considered that it had a very strong case. On the open evidence now available, the appellant should be able to assess his prospects. There was a difficulty in that he would know more about HM Treasury's at different stages in the process. All litigation had its uncertainties. At the very least no order should be made until HM Treasury serves its evidence against the appellant, including any gisting of the closed material. Another reason for not establishing a new category of protective costs orders, in Mr Eicke's submission, was that wealthy individuals and institutions could be the subject of asset freezes where it was obvious that the ordinary rules as to costs should obtain.
23. Mr Eicke QC sought to distinguish other cases. Thus the control order and TPIM cases are where the state takes the initiation against a person, but here the person is taking action against the state. As to MF v. HM Treasury: first, the appellant's means are greater than MF's, and, secondly, in this case the appellant has had extensive disclosure through the criminal proceedings, compared with MF, and is therefore in a position to assess the prospects of success. To those submissions, Mr Squires responded first, that MF's means are unknown, and in any event he subsequently obtained legal aid, suggesting that they were very modest, and secondly, that notwithstanding disclosure to the appellant in this case through the criminal proceedings, his experienced solicitor is still not able to advise him on the prospects of success. Mr Squires underlined that in this case the criminal prosecution had been dropped, the police stating that the appellant was innocent.
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.
26. In my judgment, a protective costs order should only be made in this type of case subject to strict conditions. 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.
27. In this case I am yet to be persuaded that the first condition is satisfied. The rights the appellant seeks to vindicate are said to be of real benefit to him, his reputation and his access to banking services. Yet his case rests heavily at present on the statement of the Assistant Chief Constable referred to earlier that he is innocent. There is no evidence, least of all from him, about how his reputation has been adversely affected. His solicitor also states that he currently has banking services, as does his wife. 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.
28. As to the third and fourth conditions, 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.

Conclusion

31. A protective costs order may be appropriate in this case. However, for the reasons I have given it is premature at this point.