England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		25th November 2003

Mr Justice Lightman:

INTRODUCTION

1. This appeal raises questions as to the application and effect of section 11 of the Access to Justice Act 1999 ("the 1999 Act") and the Community Legal Service (Costs) Regulations 2000 (SI 2000 No 441) ("the 2000 Regulations") made thereunder. These statutory provisions apply where a party is awarded costs against an assisted person or a Legal Services Commission funded client. They protect the assisted person or funded client from having to pay an amount exceeding "a sum which is a reasonable one for him to pay having regard to all the circumstances ..." The principal question before me is whether they also prevent a party awarded costs from setting off those costs against costs and other sums awarded in favour of an assisted person or funded client.

BACKGROUND

2. The parties now before the court were at one time in partnership together as solicitors in the South East of England. In July 1989 the Claimant Mr Hill commenced partnership proceedings against the defendant Mr Bailey and two other persons seeking an order for the payment of £120,086, an account and other remedies. The other two defendants are no longer involved in these proceedings. I can treat Mr Bailey as sole defendant and refer to him as "the Defendant" for the purposes of this appeal. During part of those proceedings the Claimant was, but is no longer, an assisted person.
3. On the 16th March 1993 the Claimant obtained an order for an account. Master Dyson took the account and after a lengthy hearing by his order dated the 13th November 1996 Master Dyson made various findings, orders and directions. He found the amount due to the Claimant on the taking of the account was some £36,740 plus interest. He ordered the Defendant to pay the Claimant's costs up to the date on which an account had been directed, (namely the 16th March 1993) and the Claimant to pay to the Defendant two thirds of his costs from that date (but not before that date). He directed the taxing officer to set off these orders one against the other and certify the balance due.
4. Both sides brought appeals against that order. The appeals were heard by His Honour Judge Levy QC (sitting as a Judge of the High Court) on the 28th February 1997. By an order of that date he dismissed both appeals.
5. The Claimant thereupon proceeded at two separate hearings to have his costs taxed both as between the parties and as between himself and the Legal Aid Board. The Defendant did not lodge his bills for taxation. The Defendant attended the first of these hearing. A certificate of taxation was issued on the 4th December 1998 certifying the Claimant's taxed costs totalling £40,598.86. Interest on that sum accrued from the 13th November 1996. The total liability of the Defendant to the Claimant exceeded £77,000.
6. The reason why the Defendant decided not to lodge his bills for taxation was that he took the view that the costs payable to him under Master Dyson's order were likely substantially to exceed the sums he owed to the Claimant, that the Claimant did not have the funds to pay any balance due to the Defendant, and that it was accordingly a waste of resources (which in any event he could not afford) to spend further sums on any taxation of costs. Instead, by a letter dated the 5th August 1998, the Defendant wrote to the Legal Aid Board at its London Area Office inviting them to take no further proceedings against him. That letter included the following paragraphs.

"In simple terms, to pursue the Board I would first have to tax my inter partes bills and pay a substantial taxing fee that I simply cannot afford. Thereafter I would have to bear the further costs of proceedings to obtain the necessary order.

It seems to me that there is great injustice in a system that supports someone in a fruitless piece of litigation and expects the hapless opponent to fork out yet further costs to be entitled to a set off of awarded costs.

I simply cannot afford to enforce my rights and trust that in the unusual circumstances of this case you will not seek to take unfair advantage of my situation."

7. A little over four years later, in January 2003, the Claimant caused a statutory demand to be served on the Defendant requiring payment of the amount found due on the taking of the account and the assessed costs. There is a dispute of fact as to the reasons for this lengthy delay which I cannot resolve on the material before me. The Defendant applied to the Croydon County Court to set aside the statutory demand. On the 13th May 2003 Deputy District Judge Kubik dismissed this application and on the 3rd October 2003 His Honour Judge Levy QC dismissed the Defendant's appeal.
8. Meanwhile the Defendant applied to the Costs Office to have a detailed assessment of his costs which Master Dyson had ordered. The matter was assigned to Master Wright. On the 11th March 2003, Master Wright took the provisional view that Section 11 of the 1999 Act and the 2000 Regulations applied and that the Defendant therefore could not (as he sought) proceed under the ordinary detailed assessment rules. Master Wright accordingly made a provisional order to this effect. The order contained the usual liberty to apply to set aside or vary the order. The Defendant did so apply. But on the 1st May 2003 Master Wright confirmed his previous decision and held further that an assessment under the provisions of Section 11 of the 1999 Act and the 2000 Regulations was time barred. He accordingly dismissed the application. A note of his decision states as follows:

"In my judgment the position is that my order of 11 March 2003 must stand ...

It seems to me a result which could well be regarded as an unjust result, but I have not been able to see where I can find a way through the situation so as to enable me to carry out a detailed assessment of this bill. The Civil Legal Aid Regulations and Costs Practice Regulations as well as Rule 47.17 of the Civil Procedure Rules do not, it seems to me, provide a way out. Therefore with considerable regret I feel I am obliged to dismiss this application ..."

9. In the circumstances Master Wright properly gave the Defendant permission to appeal and that appeal is now before me.
10. At the hearing I was assisted by two assessors, Master O'Hare and Mr Graham Humby and I must acknowledge my debt to them both. Most particularly before the hearing of the appeal began, Master O'Hare drew to my attention the unreported decision of Robert Walker LJ in Hicks v Russell Jones & Walker ("Hicks") (27th October 2000) which provides guidance on the issue before me. Hicks quite understandably (since it is not reported) had not been noticed by Master Wright, Counsel for the Claimant or the Defendant and did not figure in either party's skeleton arguments. I immediately caused a copy to be supplied to Counsel for the Claimant. When the appeal was called on at 10.30 a.m. I informed the parties of the guidance which I was minded to derive from Hicks and adjourned until 2 p.m. to enable them to consider the position generally. At 2 p.m. both sides put in further written submissions. Before I say anything further about Hicks, I should first say something about the statutory background to this case.

STATUTORY MATERIALS

11. In November 1996, when Master Dyson made the order for costs in favour of the Defendant, the order was subject to section 17 of the Legal Aid Act 1988 ("the 1988 Act") which (so far as is material) stated as follows:

"(1) The liability of a legally assisted party under an order for costs made against him with respect to any proceedings shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute.

(2) Regulations shall make provision as to the court, tribunal or person by whom that amount is to be determined and the extent to which any determination of that amount is to be final...."

12. The regulations referred to in section 17 of the 1988 Act included Regulations 124 to 130 of the Civil Legal Aid (General) Regulations 1989 (SI 1989 No 339) ("the 1989 Regulations). Regulation 124 of the 1989 Regulations stated as follows:

"(1) Where proceedings have been concluded in which an assisted person (including for the purpose of this regulation, a person who was an assisted person in respect of those proceedings) is liable or would have been liable for costs if he had not been an assisted person, no costs attributable to the period during which his certificate was in force shall be recoverable from him until the court has determined the amount of his liability in accordance with section 17(1) of the Act.

(2) Where the assisted person's certificate does not relate to, or has been amended so that it no longer relates to the whole of the proceedings, the court shall nevertheless make a determination under section 17(1) of the Act in respect of that part of the proceedings to which the certificate relates.

(3) The amount of an assisted person's liability for costs shall be determined by the court which tried or heard the proceedings".

13. Thus under Master Dyson's order, although a taxing officer was to set off the taxed costs payable by each party against the other and to certify any balance due, if that set off produced a balance payable to the Defendant, the Defendant could not enforce payment of the balance without first referring back to Master Dyson for a decision whether the amount of the balance was a sum which it was reasonable for the Claimant to pay. Regulation 124(3) of the 1989 Regulations required that this decision was made by the court which "tried the proceedings", that is to say took the account, and accordingly by Master Dyson or (if he was not available) some other Chancery Master.
14. Had any such application to a Chancery Master been made, the procedure to be followed was set out in Regulation 128 of the 1989 Regulations, unless the Master decided to refer the application elsewhere for enquiry and report (Regulation 127 of the 1989 Regulations). Had Master Dyson or one of his colleagues made a limited order for payment, the Defendant could in certain circumstances have asked the court to vary that limited order later. But such a variation application would have had to have been made within six years of the limited order for payment (see Regulation 130 of the 1989 Regulations). Although no such applications were made in this case, I mention here the 1989 Regulations (including Regulation 130) because their successor in the current 2000 Regulations, namely Regulation 12(5), is relevant to the appeal before me.
15. In this case the Defendant has not ever sought an order that the Claimant should pay any sum to him for the reasons which I have already stated. But there was nothing in the 1989 Regulations to which I have referred which would have prevented the Defendant obtaining a taxation of his costs in 1998 at the same time that the Claimant's costs were taxed, and obtaining (as provided for in Master Dyson's order) a set-off of his taxed costs against the Claimant's taxed costs, and thereby using his entitlement to costs as a shield against his liability to make any payment to the Claimant. The provision for set off in Master Dyson's order merely reflected the fact that, although the 1989 Regulations placed restrictions on the making of orders for payment against the Claimant, they did not prevent the Defendant seeking to set off the claimant's liability to him against his liability to the Claimant. The existence of this right of set off, if it could otherwise ever have been in doubt, was confirmed by the Court of Appeal in Lockley v National Blood Transfusion Service [1992] 1 WLR 492 ("Lockley"). In his judgment in Lockley (with which the other two Lords Justices agreed) Scott LJ said:

"For present purposes, the importance of the distinction between set-off and other cross claims is that set-off operates, as Sellers L.J. pointed out, to reduce or extinguish the other party's claim. It operates as a defence. A mere cross-claim does not.

Let me try and apply these principles to the language used in section 17(1) of the Act of 1988 and regulation 124(1) of the Regulations of 1989. The reference to section 17(1) to "The liability of an assisted party" must, in my judgment, be construed as a reference to a liability to pay. The reference in regulation 124(1) to "a person who ... is liable ... for costs" must be construed as "liable to pay costs."

The operation of a set-off does not place the person whose chose in action is thereby reduced or extinguished under any obligation to pay. It simply reduces or extinguishes the amount that the other party has to pay. The operation of a set-off in respect of the liability of a legally assisted person under an order for costs does not require the legally aided person to pay anything. It does not lead to any costs being recoverable against the legally aided person. Accordingly, in my judgment, there is nothing in section 17(1) or in regulation 124(1) to prevent set-off. An assessment of the amount that it would be reasonable for the legally aided person to pay is not, therefore, a precondition of, and indeed has nothing to do with, set-off."

16. As from April 2000 the 1999 Act repealed the 1988 Act and replaced it with a new regime under which Legal Services Commission funded "clients" (as they are now to be called). Such clients still obtain protection in respect of adverse orders for costs, but the procedure for securing that protection is substantially different. In particular the task of deciding what amount is a reasonable sum for the Legal Services Commission funded client to pay now falls to the Costs Judge or District Judge of the appropriate court. It does not now fall to the court making the award of costs unless that court happens to be the Costs Judge or District Judge.
17. Section 11 of the 1999 Act, so far as is relevant in this case, states as follows:

"(1) Except in prescribed circumstances, costs ordered against an individual in relation to any proceedings or partial proceedings funded for him shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances ..."

18. The 2000 Regulations made under that statute provide a procedure by which a determination can be made by a Costs Judge or District Judge of the full costs of the receiving party and of the sum, if any, which it is reasonable for the assisted person to pay. The procedures are set out in Regulations 9 and 10 of the 2000 Regulations. Regulation 10(2) of the 2000 Regulations requires the application to be made "within three months after a Section 11(1) costs order is made". Regulation 12(3) of the 2000 Regulations allows a receiving party to make a late application if he can establish certain specified grounds. But Regulation 12(5) of the 2000 Regulations provides a final deadline; it states:

"Any application under paragraph (3) shall be made by the receiving party within six years from the date of which a Section 11(1) costs order is first made."

19. In cases to which Section 11 of the 1999 Act and the 2000 Regulations apply, the ordinary rules for detailed assessment do not apply. This is made plain by CPR 44.17 which states as follows:

"This part and Part 45 (fixed costs), Part 46 (fast track trial costs), Part 47 (procedure for detailed assessment of costs and default provisions) and Part 48 (special cases), do not apply to the assessment of costs in proceedings to the extent that -

(a) Section 11 of the Access to Justice Act 1999, and provisions made under that Act; or

(b) Regulations made under the Legal Aid Act 1998;

make different provision. (The Costs Practice Direction sets out the procedure to be followed where a party was wholly or partially funded by the Legal Services Commission.)"

20. The Access to Justice Act 1999 (Commencement No.3, Transitional Provisions and Savings) Order 2000 contains provisions which, in effect, apply the new regime to any cases previously governed by the old regime but which are still outstanding. Article 8 of that Order states as follows:

"(1) In this article,

(a) "Legal Aid General Regulations" means the Civil Legal Aid (General) Regulations 1989; and

(b) "CLS Costs Regulations" means the Community Legal Service (Costs) Regulations 2000.

(2) Paragraph (3) applies where services mentioned in article 5(1)(c) have been provided in proceedings, and the amount of the assisted person's liability for costs falls to be determined under regulation 124 of the Legal Aid General Regulations.

(3) With effect from 5th June 2000, subject to paragraph (4), regulations 127 to 130 and 134 to 147 of the Legal Aid General Regulations shall not apply, and the amount of the assisted person's liability and any application for an order under section 18 of the 1988 Act shall be determined in accordance with regulations 2 and 9 to 13 of the CLS Costs Regulations.

(4) References in the CLS Cost Regulations to "client", "section 11(1)" and "a costs order against the Commission" shall be construed, respectively, as references to "assisted person", "section 17(1) of the 1988 Act" and "an order under section 18 of the 1988 Act".

21. The "services mentioned in article 5(1)(c)" to which Article 8 applies include all cases in which legal aid was either granted or applied for before the 2nd May 2000. Accordingly, to the extent that the Claimant in this case is still entitled to the protection given to him by section 17 of the 1988 Act, the procedure applicable to that protection is now that set out in the 2000 Regulations, not in the 1989 Regulations.

DETERMINATION

22. Master Wright's order dated the 11th March 2003 states as follows:

"(1) By virtue of Article 8 of the Access to Justice Act 1999 (Commencement No.3, Transitional Provisions and Savings) Order 2000 the procedure for determining the costs liability of assisted persons and LSC funded clients is now the same and Regulations 127-130 and 134-147 of the Civil Legal Aid (General) Regulations no longer apply and the amount of the assisted person's liability and any application for an order under Section 18 of the Legal Aid Act 1988 will be determined in accordance with Regulations 9-13 of the Community Legal Service (Costs) Regulations 2000.

(2) Accordingly any application for determination of the First Defendant's costs which are payable by the Claimant pursuant to the orders referred to ... above must be made in accordance with the said Regulations of the Community Legal Service (Costs) Regulations 2000.

(3) The Claimant is entitled under the said orders to costs protection under Section 11 of the Access to Justice Act 1999 and procedure for detailed assessment of the costs payable does not apply because of the provisions of CPR Part 44.17 and the Costs Practice Direction, Sections 21-23."

23. If, as held by Master Wright, Section 11 of the 1999 Act did apply, it would be theoretically possible for the Defendant to request the court to treat his detailed assessment proceedings as if they were proceedings under the Section 11 and the 2000 Regulations, but having regard to the six year limitation period set out in Regulation 12(5) which I have quoted above there would be no point in doing so. In my judgment, however, Section 11 of the 1999 Act does not apply.
24. The position remains the same now after 1999 as it was before 1999 that, whilst an "assisted person" remains protected against the making of enforceable orders for payment of costs, that protection is not available in respect of orders for costs to be used as a shield or set off and that the principles stated in Lockley remain good law. This is made plain by the judgment of Robert Walker LJ in Hicks. In his judgment he states:

"10. [Although] Section 17 and 18 of the Legal Aid Act 1988 have been replaced by provisions in Section 11 of the Access to Justice Act and the Regulations made under it, it remains the case that there are severe restrictions on how much claimants, if ultimately unsuccessful, could be ordered to pay (and I emphasise that word also) in costs ...

11. Mr Matthew Parker, for the defendants solicitors, has ... referred to the possibility of one award of costs being set off against another. It is clearly established that a set off of costs, where costs orders have been made both ways in a case involving legal aid, does not amount to a payment of costs by a legally aided litigant: see the decision of this court in Lockley v National Blood Transfusion Service [1992]1 WLR 492. That case was not cited, but the principle is well known to practitioners."

25. Robert Walker LJ emphasised the words "to pay" which appears in Section 11 of the 1999 Act and held that the principle stated in Lockley continues to apply.
26. The Defendant only seeks an assessment to take advantage of the right of set off. Indeed he offers to the court an undertaking not otherwise to seek to enforce any right to the sum assessed. In these circumstances Section 11 of the 1999 Act and all the problems which its application would involve, including the six year limitation period, do not apply to the detailed assessment sought by the Defendant against the Claimant, even though the Claimant is an assisted person, for the assessment is merely for the purpose of setting off the costs assessed against any other sums which the Defendant is liable to pay the Claimant. I am comforted in reaching this conclusion (if comfort is needed) by the fact (of which I am assured by the assessors) that this reflects the current practice of the Supreme Court Costs Office.
27. The basis for Master Wright's decision accordingly cannot stand. The question arises whether there is any other ground on which the Claimant can object to the assessment proceeding.
28. The one matter of complaint on which the Claimant can focus is the delay by the Defendant in proceeding with the assessment of his costs which Master Dyson plainly contemplated should proceed hand-in-hand with the assessment of the Claimant's costs. The Defendant's application plainly is not statute barred. The general law relating to limitation in respect of orders for costs is not governed by the 1989 or 2000 Regulations but by section 24 of the Limitation Act 1980 ("the 1980 Act") which states as follows:

"(1) An action shall not be brought upon any judgment after the expiration of six years from the date on which the judgment became enforceable.

(2) No arrears of interest in respect of any judgment debt shall be recovered after the expiration of six years from the date on which the interest became due."

29. Section 24 of the 1980 Act was considered by the House of Lords in Lowsley v Forbes [1999] 1 AC 329 and its operation in relation to assessed costs was considered by the Court of Appeal in Times Newspapers Ltd v Chohan [2001] EWCA Civ 964. In the latter case the Court of Appeal held that the time limit for enforcement of orders for costs cannot begin until the costs have been assessed and certified. That exercise has only just begun. There is no restriction upon a receiving party commencing a detailed assessment late, even six years late, but, if he does so, the paying party may seek sanctions such as disallowance of the costs of the detailed assessment or the withholding of interest otherwise payable on costs (CPR 47.8, 44.3(6) and 44.14 and Costs PD 45.5). The existence of these very limited sanctions confirms that the delay by the Defendant cannot disentitle the Defendant to the detailed assessment which he seeks. I should add that, even if I had the jurisdiction to impose greater sanctions than those specified, I would not do so in this case. For the Defendant had well understandable reasons for wishing to avoid delaying the costs of proceeding to taxation and stated them fully and clearly in his letter dated the 5th August 1998 to the Legal Aid Board. The proposal he then made appears on its face to be eminently sensible and indeed I am quite uncertain how or why the Legal Aid Board did not accept his invitation.

RESULT OF APPEAL

30. For the reasons indicated above I allow this appeal and set aside the orders of Master Wright dated the 11th March 2003 and the 1st May 2003. As regards the costs of this appeal, my provisional view is that they should be awarded to the Defendant and be summarily assessed. That sum should not to be enforced without permission, but may be taken into account in any final costs certificate is`sued. If this is not agreed I will hear argument on this question when I hand down judgment.

FURTHER PROCEEDINGS IN THIS MATTER

31. Although I am remitting this matter back to Master Wright for detailed assessment, I nevertheless urge the parties to seek now to try to settle their differences and thereby avoid any further expense and delay. They should take into account (amongst other matters): (1) what, if any, interest penalty Master Wright may impose on the Defendant because of delay; (2) the amount of interest claimable by the Claimant; and (3) the costs of the detailed assessment.
32. In deciding what, if any, costs of the detailed assessment Master Wright may award having regard to the Claimant's delay, regard should be had to the assessment fee payable by the Defendant. Paragraph 10 of the Supreme Court Fees Order 1999 (SI 1999 No 687) states as follows:

"Where a bill of costs or a request for detailed assessment ... is filed pursuant to an order made by the court before the coming into operation of this Order [ie before 26 April 1999] ... the fees payable shall be those which apply immediately before this Order came into force."

Under the previous Fees Order a lodgement fee of 3.75% of the sum claimed is payable in advance and, on completion of the detailed assessment, an assessment fee of 7% of the sum allowed is payable less the sum paid by way of lodgement fee. On this point Master O'Hare has confirmed to me that the fee paid by the Defendant (£180) is incorrect and that a further fee is likely to be payable.

33. One other matter is relevant in respect of the costs of the assessment. Master Wright should take into account the fact that, if (as contemplated by Master Dyson) the Defendant had proceeded with his taxation of costs at the same time as the Claimant, that exercise may have been more expeditious and cheaper than a separate assessment today long after the events in question. Any waste of costs should be borne by the Defendant.