England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE

		Royal Courts of Justice Strand, London, WC2A 2LL
		10/06/2009

Mr Justice Morgan:

The applications

1. This judgment concerns an application made by the Claimant, which I will call "Mastercigars", and an application made by the Defendant, which I will call "Withers". Mr Brown appeared on behalf of Mastercigars and Mr Morgan QC appeared on behalf of Withers.
2. The procedural history in relation to Mastercigars' application is a little confused.
3. On 8^th December 2008, Mastercigars applied for an order that a specific sum which was the subject of a charge, created by an order of 22^nd March 2007, should be released from that charge. The grounds of the application were stated to be that Mastercigars was without funds to resist appeals which had been brought by Withers against Mastercigars. As I understand it, the appeals there referred to were the appeals which I heard in January 2009 and which were the subject of my judgment delivered on 30^th March 2009. I have not been shown any order made in relation to that application.
4. On 5^th March 2009, Mastercigars applied for an order pursuant to CPR Rule 44.3(8) on the ground that Master Simons had made an order for costs in its favour on 13^th February 2009 and Mastercigars contended that Withers should pay a sum on account of the costs which would become due pursuant to that order. That application seems to have come before Master Simons on 13^th March 2009 but I have not been shown any order made on that date.
5. On 17^th April 2009 there was a further hearing before Master Simons. It seems that Mastercigars applied informally on that occasion for a release of the specific sum which was the subject of the charge pursuant to the order of 22^nd March 2007. The basis of Mastercigars' application seems to have been that Mastercigars ought to have that sum released to it to enable it to fund an appeal against my judgment of 30^th March 2009. Withers pointed out that the matters which were the subject of that judgment were due to be further considered by me on 22^nd April 2009. In the upshot, on 17^th April 2009, Master Simons ordered that Mastercigars' application of 5^th March 2009 be adjourned to be heard by me on 22^nd April 2009. He did not make any order in relation to the application of 8^th December 2008.
6. It will be remembered that the application of 5^th March 2009, transferred to be heard by me, was an application under CPR Rule 44.3(8). However, Mastercigars did not present any such application to me. What it did instead was to invite me to make an order releasing the specific sum from the charge of 22^nd March 2007 on the grounds that Mastercigars needed to have that money to deal with the various matters arising in its litigation with Withers and, in particular, its proposed appeal against the judgment of 30^th March 2009. Withers did not take any point on the difference between the application notice of 5^th March 2009 and the way in which Mastercigars presented its case at the hearing on 22^nd April 2009.
7. In these circumstances, I will proceed on the basis that the application made by Mastercigars, with which I have to deal, is an application to release monies from the charge of 22^nd March 2007.
8. There is a second application before me, which application was made by Withers on 9^th February 2009. That application notice refers to an earlier order made on 16^th October 2008. It is said that on 16^th October 2008, Master Simons ordered that enforcement of all interim costs certificates that had been issued in favour of Withers be stayed until further order. Withers applied for that stay to be lifted so that they could take steps to enforce those costs certificates. Withers also applied on 9^th February 2009 for the specific sum, which was the subject of the charge of 22^nd March 2007, to be paid over to Withers, absolutely. Withers' application also came before Master Simons on 17^th April 2009 and he ordered that the application be adjourned to be heard by me on 22^nd April 2009.

Some procedural history

9. The dispute between Mastercigars and Withers has now developed a long procedural history. In order to make this present judgment intelligible, it is necessary to describe a little of that history. I will attempt to do so as briefly as possible.
10. The dispute arose out of earlier litigation between Mastercigars and Hunters & Frankau Ltd and another. That litigation is described in [5] to [13] of a judgment which I gave on 23^rd November 2007 and which is now reported at [2009] 1 WLR 881. That litigation resulted in certain orders being made, on 8^th March 2007, by the Court of Appeal in Mastercigars' favour. In summary, Mastercigars obtained orders for its costs against the other parties to that litigation. In addition, a total sum of £383,000 was ordered to be paid to Mastercigars, on account of the orders for costs, and that sum was paid.
11. On 13^th November 2006, Master Rogers made an order that certain bills which had been served by Withers on Mastercigars (but not all such bills) should be assessed. (On 23^rd November 2007, I varied that order and reduced the number of bills to be assessed.)
12. On 22^nd March 2007, Master Rogers made an order under section 73 of the Solicitors Act 1974 whereby the costs payable to Mastercigars by the other parties to the litigation, pursuant to the Court of Appeal's order of 8^th March 2007, in respect of work done and disbursements after 31^st May 2005, were charged to Withers. The reference to work and disbursements after 31^st May 2005 meant that not all of the benefit of the order for costs in favour of Mastercigars was the subject of the charge. The order of 22^nd March 2007 expressly stated that the charge extended to the sum of £383,000 ordered to be paid to Mastercigars on account of its costs.
13. The sum of £383,000 was paid into an account in the joint names of the solicitors for Mastercigars and Withers. Since March 2007, there have been further orders, as a result of which sums were released from that joint account in favour of Mastercigars. In particular, I have seen orders to that effect made on 15^th May 2007, 31^st August 2007 and 28^th December 2007. Furthermore, sums were released from the joint account in favour of Withers. In addition, the effect of the order of 22^nd March 2007 and later orders was the subject of an appeal which I determined in a judgment, which I gave in private, on 23^rd November 2007.
14. Withers have asserted a lien in relation to documents which are otherwise the property of Mastercigars. An order made by Master Rogers on 18^th July 2007 recites that Mastercigars applied for a release of those documents from the lien. On 18^th July 2007, Master Rogers dismissed that application. There was no appeal against that dismissal. Mastercigars have not subsequently applied for a release from the lien. In particular, no such application was made to me on the 22^nd April 2009.
15. I understand that all of the bills presented by Withers to Mastercigars which were to be assessed have now been assessed. In the course of the assessment, an issue arose as to the appropriate assessment of two bills, in particular, bills numbered 139405 and 140598. I will refer to these two bills as "the two bills".
16. In relation to the two bills, Mastercigars pointed out that the profit costs in the two bills greatly exceeded the profit costs shown in Withers' estimate provided to Mastercigars on the 6^th May 2005. The relevance of that estimate was the subject of a judgment given by Master Rogers on 25^th April 2007. On 23^rd November 2007, I set aside the decision which he made and directed that the assessment of the two bills was to be dealt with again. Mastercigars initially sought permission to appeal that decision. There is an issue between the parties as to whether it is still open to Mastercigars to pursue such an appeal.
17. Those two bills were then the subject of a judgment of Master Simons on 11^th July 2008 and of his order on 14^th November 2008. On 22^nd April 2009, following my judgment given on 30^th March 2009, I set aside the decision and order of Master Simons and gave directions as to how the issue, as to the impact of the estimate on the assessment of the two bills, was to be determined. I also granted a stay in relation to those directions, pending an application by Mastercigars to the Court of Appeal for permission to appeal against my order of 22^nd April 2009. (Further, Mastercigars asserts that it remains entitled to, and wishes to, appeal against my decision of 23^rd November 2007.)
18. In the meantime, the matter had gone back to Master Simons on 13^th February 2009. The Master was asked to deal with the costs of the detailed assessment. He expressed considerable unease about being asked to deal with that topic on that occasion when the result of the appeals against his decision of 11^th July 2008 and his order of 14^th November 2008 was still not known. However, he did deal with the matter before him and he ordered that Withers should pay to Mastercigars all of its costs of the detailed assessment. Withers sought permission to appeal against that decision and, since the hearing on 22^nd April 2009, I have adjourned the determination of that application until the outcome of the appeals against the decision of 11^th July 2008 and the order of 14^th November 2008 is finally known. That outcome will depend upon the fate of the application to the Court of Appeal for permission to appeal against my order of 22^nd April 2009 (and any appeal against my decision of 23^rd November 2007) and/or what happens pursuant to the directions I gave in that order.

The sums allegedly due to and from each party

19. In order to decide on my response to the two applications before me, I need to consider the position of each party as regards the sums due to or from that party.
20. Withers say that as a result of the assessments of the costs which have been made, they are entitled to unpaid fees of £217,781.74. Withers say that they are entitled to contractual interest under their terms of business of £88,569.61. These figures total £306,351.35. These figures include the costs assessed on 14^th November 2008 in the sum of £37,830.92, which order I have set aside on 22^nd April 2009. In view of that order of 22^nd April 2009, Withers say that they might be entitled to more than the above figures when the effect of the estimate is reconsidered. Mastercigars wishes to say that it might conceivably turn out that Withers will be entitled to a smaller sum than the costs so far assessed. In addition, Mastercigars does not accept other parts of Withers' calculations and has submitted a rival calculation.
21. In addition to the sums which Withers say they are entitled to as the costs of the earlier litigation where Withers acted for Mastercigars, Withers also point to the orders for costs made in Withers' favour in the litigation between Mastercigars and Withers. Withers have submitted two bills of costs in relation to the orders for costs in their favour. These bills total £114,391. These bills have not been assessed. Withers have already received a payment on account of £35,000 in relation to some of the orders for costs in their favour. Withers therefore say that they are entitled to approximately £80,000 in respect of these orders for costs. Mastercigars say that the figures which make up the sum of £114,391 are inflated and will be significantly reduced on assessment.
22. Mastercigars says that Withers owe it substantial sums pursuant to the order of Master Simons of 13^th February 2009. By that order, Withers were ordered to pay Mastercigars their costs of the detailed assessment of the relevant bills. Those costs have not been assessed. Mastercigars has not yet presented a bill for assessment. However, it has provided a breakdown of the costs it has incurred. The breakdown states that Mastercigars has already paid fees of £261,401 in relation to the assessment of the bills and that it owes further fees of approximately £160,000. Those sums total £421,401. Mastercigars accepts that these figures include hearings at which it failed and where it was ordered to pay Withers' costs. It says that some £80,000 is to be deducted to reflect that point and that leaves a sum of £341,401 which it says will be payable to it by Withers, pursuant to the order of 13^th February 2009. Mastercigars also refer to costs which it intends to expend in the future in appealing my order of 22^nd April 2009 but those sums have not yet been expended and, in any case, they are not the subject of an order for costs in favour of Mastercigars.
23. In relation to the order for costs made on 13^th February 2009, Withers say that the figures put forward by Mastercigars are extraordinarily high and have not been the subject of detailed bills explaining how they have been arrived at. They say that the figures of £160,000 and £80,000 are very broad approximations and therefore unreliable. Further, Withers intend to appeal the order of 13^th February 2009. In relation to that proposed appeal, I have directed that Withers' application for permission to appeal should await the outcome of the appeal against the assessments of the two bills. It might be the case that Mastercigars retains the benefit of the order of 13^th February 2009 or it might be the case that that order is set aside and, further, an order for costs made in favour of Withers.
24. I have set out the various figures which have been put forward by the parties. All or nearly all of these figures are in dispute. Some of them will be the subject of future assessment but that has not yet occurred. Withers point out that there is a difference between one of the sums it puts forward (£217,781) where the amount payable has been assessed and other figures, in particular the sum of £341,401 put forward by Mastercigars, which have not been assessed. It is entirely possible that these unassessed figures will later be significantly reduced. Nonetheless, it is not straightforward for me to do some rough and ready assessment in order to predict what might be the result of a detailed assessment. In addition, I do not think that it would be appropriate for me to make any predictions as to the outcome of the appeal against my order of 22^nd April 2009 (nor even an appeal against my decision of 23^rd November 2007), nor the outcome if my order of 22^nd April 2009 is left undisturbed and the relevant costs are assessed in accordance with that order, nor as to the outcome of the appeal against the order of 13^th February 2009. I conclude that I ought to proceed on the basis that the present position is one where one cannot say with any real confidence what the ultimate outcome will be as regards the sums due from one party to the other.

The value of the charge

25. The charge imposed by the order of 22^nd March 2007 is a charge on part of Mastercigars' entitlement to costs against the other parties and, in particular, on the payment on account of £383,000. That sum was paid into a joint account and, following payments out, the sum remaining in the joint account is £18,160.68. Withers have put before me a detailed calculation as to what the subject matter of the charge is worth, in addition to this sum in the joint account. The calculation is based on the assessment of Withers' bills which has so far been carried out, on a reduction from the figures as so assessed to reflect the fact that the costs payable to Mastercigars by the other parties to the litigation will be assessed as between the parties rather than as between solicitor and client, and Withers have then deducted from the resulting figure the payment of £383,000 which has already been made. The result of that calculation is that the sum which might emerge as subject to the charge (in addition to the money in the joint account) will be £99,710.07. Withers' calculation is not accepted by Mastercigars.

Mastercigars' application

26. Mastercigars applies for an order releasing the sum in the joint account (£18,160.86) from the charge in favour of Withers. Mastercigars submits that it needs to have access to this fund in order to advance its case in the present dispute with Withers. Withers respond that no such order should be made. They say that their entitlement, which is protected by the charge, is in the sum of £306,351.35, or possibly more if there is a re-assessment of bill 139405 pursuant to my order of 22^nd April 2009. Withers say that their security for this entitlement is at present inadequate, being only £18,160.86 plus £99,710.07, and the security should not be made even less adequate by releasing £18,160.86 from the charge. They submit that when the court on earlier occasions ordered that sums might be released from the charge, that was on the basis that the sums which would remain the subject of the charge would provide adequate security for Withers' entitlement. It is submitted that the situation is now seen to be different.
27. In my judgment, Withers have a powerful argument that I should not release monies from the charge if that would leave Withers without adequate security for what appears to be their entitlement to be paid their fees. On the figures set out above, Withers do not at present have adequate security for the payment of their fees and an order releasing any part of the £18,160.86 from the charge would reduce the security even further. In addition, the nature of the security represented by a charge on the sum of £18,160.86 in a joint account is more attractive than a charge over a right to pursue a claim which might turn out to be worth £99,710.07. In the former case, the money exists in a joint account whereas in the latter case, the potential sum has to be pursued with resulting cost, delay and uncertainty.
28. Mastercigars argued that I should adopt the approach which is taken in relation to funds which are the subject of a freezing order. The practice in such a case is to allow a release of part of those funds to enable the relevant party to obtain and pay for legal advice and representation. In my judgment, that practice does not provide any guide in the present case. It is of the essence of the reasoning in the cases concerning freezing orders that the order does not give the party obtaining the order any security interest in the frozen funds. The position is different in the case of a charging order under section 73 of the Solicitors Act 1974. There the charge does create a security in favour of the solicitor.
29. I do not necessarily go so far as to say that the court is powerless to release any monies from the section 73 charge merely because Withers has a security interest in those monies. However, I do hold that whatever power the court might have to do so in an appropriate case, there are no grounds in the present case why I should make such an order.
30. In these circumstances, I am not prepared to release any part of the sum of £18,160.86 from the charge to enable Mastercigars to use that money to obtain legal advice and representation.
31. As I have explained, Mastercigars did not apply to me for an order under Rule 44.3(8) for Withers to make a payment on account of the order for costs made against them on 13^th February 2009. For the avoidance of doubt, I can say that it is my view that it would not have been appropriate to make such an order. On the figures which are currently in play, Mastercigars might owe Withers some £306,000 (or possibly more) plus some £80,000 (or possibly less) and the order for costs of 13^th February 2009 might conceivably result in Mastercigars being entitled to recover some £341,000. On those figures alone, it would not be right to order Withers to make a payment on account. That view makes it unnecessary to consider any other points that might arise such as whether Mastercigars would be in a position to repay to Withers any payment on account in the event that the order of 13^th February 2009 is set aside on appeal.

Withers' application

32. Withers' application relates to the stay contained in the order of 16^th October 2008. I have not been provided with a copy of that order. As I understand it, there was no similar stay in the order of 14^th November 2008 when it was stated that there would be a further interim certificate in the amount of £37,830.92. However, my order of 22^nd April 2009 has set aside the order of 14^th November 2008.
33. I have not been told the reason why Master Simons imposed a stay on 16^th October 2008. I can speculate that his reason was that the final outcome of the dispute could not be predicted and that it would not be right to allow Withers to enforce the interim certificates which had been issued when it might later emerge that Withers owed Mastercigars a substantial sum which might erode or even over-top the fees certified as due to Withers.
34. On the figures set out earlier in this judgment, if I add up the total amount of the interim certificates, with or without the sum which is the subject of the order of 14^th November 2008, then add contractual interest, then add something for the orders for costs made in favour of Withers in the present litigation and then subtract the sums which might become payable to Mastercigars pursuant to the order of 13^th February 2009, and then consider the pending appeals against the various orders that have been made, it remains very far from clear what sum, if any, would result as the sum indisputably due to Withers.
35. The above reasoning supports the conclusion that I should not remove the stay imposed by Master Simons. Withers asked for the stay to be lifted in its entirety. They did not ask in the alternative for the stay to be lifted so as to enable them to enforce for a specified sum which was a part only of the sums certified as due. If they had done so, I would have had difficulty in ascertaining whether there was any sum indisputably due to them but, in any event, no such application was made.
36. Further, Withers were not very specific as to the form of execution which they would wish to pursue. There were passing references to the possibility of a charging order which went beyond the order of 22^nd March 2007 and/or a third party debt order, but these possibilities were not further elaborated. That makes it difficult for me to assess the impact on Mastercigars of any steps which Withers might decide to take and whether it would be right to continue a stay which prevented Withers from taking such steps. I note for the sake of completeness that Withers were prepared to undertake not to take steps to wind up Mastercigars.
37. I have considered whether it would be right on this application to give to Withers some further security for their entitlement to fees but which did not permit Withers to proceed at this stage to execution against Mastercigars. I can see various difficulties in achieving a result which gives Withers that further security. When Withers applied for a charge under section 73 of the Solicitors Act 1974, the charge was limited to part only of Mastercigars' entitlement to costs against the other parties to the litigation and Withers have not applied for a wider charge under section 73. Further, as regards a charge under the Charging Orders Act 1979, I have not been given any information as to whether Mastercigars has any property which could be the subject of a charging order under that Act. Further, there may be difficulties in using a third party debt order so as to give Withers security but in a way which prevents them from taking further steps by way of execution. In any event, Withers did not present their application as an application for further security and I do not think it would be fair to Mastercigars for me to fashion an order granting some security of that kind when it has not been sought by Withers.
38. In these circumstances, I am not prepared to lift the stay imposed on 16^th October 2008. For essentially the same reasons as above, I am not prepared to order that the sum of £18,160.86 in the joint account should be paid out to Withers.

The overall result

39. The result is that I dismiss the application made by Mastercigars, whether it is pursuant to the application notice of 8^th December 2008 or 5^th March 2009. Further, I dismiss the application of Withers made by their application notice of 9^th February 2009.

Consequential matters

40. As I indicated at the hearing, in the interests of saving costs, it will not be necessary for the parties to attend when this judgment is handed down. I direct that if either party seeks any consequential order (apart from the dismissal of the applications) then that party should apply to me in writing, with a copy served on the other party, not later than 4.30 p.m. on the 19^th June 2009.