ON APPEAL FROM MASTER CLARK
7 Rolls Buildings, Fetter Lane
London, EC4A 1NL
B e f o r e :
| EMW LAW LLP
|- and -
|MR SCOTT HALBORG
Mr Robert Marven (instructed by Deals & Disputes Solicitors LLP) for the Defendant
Hearing dates: 27 February & 3 March 2017
Crown Copyright ©
Mr Justice Newey :
"If the clients [i.e. the Halborg Claimants] win their claim, the Solicitors' agents [i.e. EMW] will be entitled to be paid by the Solicitors [i.e. Mr Halborg] our basic charges, our disbursements and a success fee provided the same have first been recovered in full from the Opponents [i.e. Savage Hayward] by the clients and/or the Solicitors; and without limitation it is a condition precedent to our receiving any payment to this Agreement that the clients and/or the Solicitors have first received payment in full from the Opponents in respect of any specific fees and/or disbursements of the Solicitors' agents (the 'pre-eminent condition precedent to this agreement'). The clients are entitled to seek recovery from the Opponents of part or all of the Solicitors' agents basic charges, disbursements, and success fee and insurance premium as set out in the document 'What the Solicitors need to know about a CFA'.
If the Solicitors end this agreement before the case is won or lost other than where it is reasonable to do so and/or they are entitled to do so due to our breach, subject to pre-eminent condition precedent to this agreement, we shall also claim the success fee.
We may end this agreement before the case is won or lost, provided that we shall not do so unreasonably and we shall forfeit all our entitlement to fees and/or disbursements should we do so without the clients' and the Solicitors' agreement."
i) Under the heading "Proportionality, conduct/ liability costs & costs estimate":
"It is evident that the principal lawyer in this matter, SH, and his firm, Halborg & Co, are not experienced in this kind of litigation. The inexperience of the solicitors increased the costs substantially and disproportionally in that assistance was required from a solicitor agent and five different counsel. The fact is that the only reason that the solicitors were instructed was because SH is son of the first and second claimants and sole shareholder of the third claimant";
ii) Under the heading "Hourly Rate":
"The inexperience of the solicitors in these kind of matters and the heavy reliance on others (counsel and solicitor agent) does not justify hourly rates in excess of the guidelines for Leicester.
The only reason that a grade A had conduct of this matter was that the solicitor involved was the son of the first and second claimants and had an interest in the third defendant company. The principal lawyer had no specialist experience …"; and
iii) Under the heading "Solicitor Agent":
"The work of the solicitor agent appears to be no more than 'handholding' no doubt due to the inexperience of the solicitors in these kinds of matters. The agent, also a grade A lawyer, has claimed 179.8 hours @ £300 per hour which is no more than duplication of effort by the principal solicitor. In any event, the principal solicitor has also claimed all his time for liaising with the agent which is also clear duplication between the two lawyers.
The agents' fees, inclusive of success fee, amount to £105,183 plus VAT which was a highly disproportionate step to take by a grade A lawyer charging rates up to £295 per hour who had already had the assistance of various counsel, including a senior junior ….
The defendants offer nothing for time spent by the solicitor agent and the subsequent time of principal solicitor on the same issues."
"We hereby give you notice that under CPR Part 47, particularly by reference to paragraph 32.10, that we, EMW Solicitors, consider ourselves to be a relevant person under CPR 47.5(2) as we have a financial interest in the outcome of the assessment in this matter.
Our fees are those with the Claimants, not Halborg and Co, see Pomeroy & Tanner  1 Ch 287 and so this firm will be dealing with its own negotiations in relation to the part of the Bill of Costs that relates to this firm's fees. Please be clear that only this firm has authority to negotiate in relation to our fees and so should you enter any agreement with anyone else it will not affect our fees."
On the next day, EMW sent Mr Halborg an email that read:
"Take this as written notice under CPR Part 47, Para 32.10, that EMW is a relevant person under 47.5(2) and has a financial interest in the outcome of the assessment and wishes to be a party to the assessment process and retains all its rights to negotiate its own fees with the Defendants."
"It is admitted and averred that since 21 November 2011 [Mr Halborg] has declined to provide to [EMW] particulars in respect of the costs position between the Halborg Claimants and the defendants to their claim, and has refused to give [EMW] authority to negotiate with the defendants to the substantive claim. [EMW] has no entitlement to the said particulars and/or to demand the said authority."
"Finally, in anticipation of receiving the defence of Mr Scott Halborg in the chancery claim, we wish to make clear that whilst we withdrew authority for Mr Halborg to negotiate this firm's costs (i.e. the amount), it is still the obligation of Mr Halborg that he will take all reasonable measures to recover our costs which as a matter of law are his costs. The only caveat to Mr Halborg's duty was and is that he does not have our authority to offer to accept any figure, or agree to accept any figure that is offered by the original defendants (Savage and Hayward and/or their insurers) and so this firm retains the final say in whether or not a figure is offered or is accepted as being acceptable. Other than that Mr Halborg is fully obligated to pursue EMW's cost and has our authority to do so. Given also that in law Mr Halborg is simply seeking to recover his costs from the other side, there is no obligation on EMW to pay anything for that and it Mr Halborg's cost to do so."
"As we believe you know, we remain in dispute with the solicitor agent, EMW.
As discussed with you, it may hence be quite some time until we can proceed to detailed assessment if there is no settlement of the costs in due course, but we will of course let you know once the position with the solicitor agent is resolved so that correspondence and/or discussions can recommence."
"(a) All correspondence (including for the avoidance of doubt emails or faxes), attendance notes or meeting notes, relating to communications between the Defendant [i.e. Mr Halborg] and Berrymans Lace Mawer (now BLM) from 22 July 2011 to date, relating to any discussion, negotiation or settlement of the Halborg Claimants' costs in claim no. HQ 07 X04098 ('the substantive claim') ["the Class A Documents"];
(b) Documents evidencing any payments including payments on account or in part settlement of costs made by Berrymans Lace Mawer (now BLM) or their clients to the Defendant in relation to the Halborg Claimants' costs in the substantive claim ["the Class B Documents"];
(c) Any correspondence, files notes, attendance notes, documents or other memoranda that substantiate the work done by the Claimant [i.e. EMW] for the Defendant ["the Class C Documents"];
(d) Any correspondence, notes, emails, advices or other communications passing between the Defendant and his costs draftsman in the substantive claim ["the Class D Documents"]."
i) was persuaded by an analogy that counsel for EMW drew with common interest privilege. The Master said (at paragraph 47 of the judgment):
"I agree that in the negotiations as to assessment of costs, the Halborg claimants, the defendant and the claimant all shared a common interest, and that this entitled the defendant to see otherwise privileged documents";
ii) considered that the documents were disclosable because there is a dispute as to whether without prejudice communications have resulted in a settlement. The Master said (at paragraph 48 of the judgment):
"[T]he claimant's counsel submitted that where, as here, there is a dispute as to whether without prejudice communications have resulted in a settlement, without prejudice material is admissible as to that issue …. I agree that there is an issue in the proceedings as to whether and if so, when a settlement was reached with Berrymans and that the correspondence of which disclosure is sought is relevant to that issue. In my judgment, therefore, it falls within an established exception to the without prejudice rule and is disclosable";
iii) considered that the principle in Muller v Linsley & Mortimer  1 PNLR 74 applied to render other relevant without prejudice material disclosable (see paragraph 49 of the judgment). The Master said (in paragraph 58 of the judgment):
"I do not consider that there is any public policy justification for withholding disclosure of these documents provided safeguards are put in place to prevent their release into the public domain."
In the previous paragraph of the judgment, the Master had said:
"There is in my judgment only one way in which the Halborg claimants (and the architects) could be prejudiced by the disclosure of this material. This could occur if (as the defendant asserts) there has been no settlement of the costs of the substantive claim; and the privileged material was put into the public domain by being referred to in open court. It would then be available for use in any assessment of costs of the substantive claim. However, this could be prevented by the court making directions under CPR 31.22 preventing further use of documents referred to in open court; or, if necessary, directing that the public are excluded from the relevant part of the hearing. So far as use by the claimant himself is concerned, he would be subject to the implied undertaking provided for by CPR 31.22(1)."
i) With regard to a submission to the effect that "in law the claimant and defendant are treated as one person, with the solicitor having no separate legal personality" (see paragraph 43 of the judgment), the Master said (in paragraph 44):
"In my judgment this argument overlooks the fact that the privilege is that of the Halborg claimants (and [BLM]), not that of the defendant. The defendant is not asserting the privilege on his own behalf, but arguing that the privilege to which the Halborg claimants are entitled precludes disclosure of the documents in question";
ii) As for a contention that EMW was "entitled to the documents by reason of an implied term in the agency CFA that he was to be kept informed of negotiations with [BLM] and entitled to see any correspondence passing between [BLM] in real time", the Master said (in paragraph 45 of the judgment):
"The difficulty with this argument [is] that it is based not on the defendant's disclosure obligations, but on a substantive entitlement that has not been established by the claimant, and which I cannot determine in this application."
ii) The without prejudice rule;
iii) Legal professional privilege; and
iv) Other matters.
Most of the argument was focused on the Class A Documents.
"It is well settled that between the client and the London agent of the country solicitor there is no privity. The relationship of solicitor and client does not exist between the client and the London agent. What is done by the London agent is part of the work done by the country solicitor for the client. The country solicitor does or may do part of the work personally. He does or may do part of his work through clerks whom he employs in the country. Or, if necessary - and the necessity occurred in this case - he may do part of his work through a London agent. But as between the country solicitor and the client the whole of the work is done by the country solicitor. It follows, therefore, that the items which make up the London agent's bill are not mere disbursements, but are items taxable in the strictest sense as between the client and the country solicitor, just as much as items in respect of work done by the country solicitor personally, or by the clerk whom he employs in the country."
In the Sharratt case, Ramsey J observed (at paragraph 44) that "the fees of the solicitor-agent are treated by convention as being fees of the solicitor-principal as if he carried out the work himself".
The Class A Documents
"21. On or around the end of November 2011 [Mr Halborg] settled the costs of the Substantive Claim [i.e. that against Savage Hayward] ('the Settlement').
22. Since that date [Mr Halborg] has refused to provide details of the Settlement. [Mr Halborg] has also refused [EMW] authority to negotiate its costs claim with the Defendant to the Substantive Claim. As a result the solicitors to the Defendants to the Substantive Claim have refused to deal with [EMW].
23. In breach of the implied terms pleaded at paragraph 14 above [Mr Halborg] has:
a. Failed to use all reasonable efforts to negotiate recovery of [EMW's] costs from the Defendants to the Substantive Claim.
b. Prevented [EMW] from recovering its costs from the Defendants to the Substantive Claim
c. Preferred his own costs recovery over that of [EMW].
d. Failed to ascribe to [EMW] a fair proportion of any global costs settlement.
e. (If, contrary to the above, all costs apart from those attributable to [EMW's] work had been settled) failed to pursue a costs settlement on behalf of [EMW], having apparently accepted at face value the ascription of [EMW's] work as being worth nothing.
f. Failed to keep [EMW] informed of all relevant developments in the recovery of [EMW's] costs.
g. Failed to disclose to [EMW] all documents relevant to the recovery of [EMW's] costs (including, in particular, negotiations over costs, and details of the settlement agreement over costs)."
"30. In my judgment, the allegations in paras 23a, b and c are not premised on the existence of the settlement alleged by the claimant. They are allegations that can still be made even if no settlement agreement had been entered into; and in such a case would be equally referable to the period after November 2011 as before.
31. Para 23d refers to 'any' global costs settlement and is thus expressly not confined to the November 2011 settlement alleged by the claimant; and is an allegation that extends in time beyond November 2011.
32. Para 23e is an express counterfactual, which is sufficient of itself to render post November 2011 correspondence relevant. Paras f and g are also referable to the post November 2011 period.
33. Finally, since whether a settlement agreement was ever entered into is an issue in the claim, in my judgment this also renders all correspondence with [BLM] relevant."
The Class B Documents
"As noted, [Mr Halborg's] evidence is that there has been no settlement of any costs of the substantive claim. He does not address the issue of whether any payments on account have been made by [BLM] to him, and as [EMW] points out, has not denied that payments have made. If any such payments have been made, then they are relevant to the issue of breach of the agency CFA, and the loss occasioned to [EMW] by the breach."
The Class C Documents
"Although [Mr Halborg's] counsel sought to argue that this material is irrelevant, the Defence makes no admission as to the extent of the work carried out by [EMW]; and in my judgment the material is relevant to that issue."
The Class D Documents
"Such correspondence would also be relevant to the issue of the extent and value of the work carried out by [EMW], and I agree with [EMW's] counsel's submission that the costs draftsman's perspective on the views of [Mr Halborg] and [BLM] as to the value of [EMW's] work would be useful to the trial judge."
The without prejudice rule
"But to dissect out identifiable admissions and withhold protection from the rest of without prejudice communications (except for a special reason) would not only create huge practical difficulties but would be contrary to the underlying objective of giving protection to the parties, in the words of Lord Griffiths in the Rush & Tompkins case  AC 1280, 1300: 'to speak freely about all issues in the litigation both factual and legal when seeking compromise and, for the purpose of establishing a basis of compromise, admitting certain facts.' Parties cannot speak freely at a without prejudice meeting if they must constantly monitor every sentence, with lawyers or patent agents sitting at their shoulders as minders."
"as a general rule the 'without prejudice' rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement."
In Avonwick Holdings Ltd v Webinvest Ltd  EWCA Civ 1436, Lewison LJ (with whom Sharp and Burnett LJJ agreed) said (at paragraph 22):
"The general rule however is still that stated in Rush & Tompkins Ltd v Greater London Council & Another …, namely that without prejudice negotiations once privileged remain privileged even after settlement."
"It of course goes without saying that admissions made to reach settlement with a different party within the same litigation are also inadmissible whether or not settlement was reached with that party."
"The decision is important because it establishes that not only the parties to the correspondence, but third parties also, are prevented from making use of the contents of without prejudice correspondence."
"(1) As Hoffmann L.J. noted in [Muller v Linsley & Mortimer], when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, those communications are admissible. Tomlin v. Standard Telephones and Cables Ltd.  1 W.L.R. 1378 is an example.
(6) In Muller's case (which was a decision on discovery, not admissibility) one of the issues between the claimant and the defendants, his former solicitors, was whether the claimant had acted reasonably to mitigate his loss in his conduct and conclusion of negotiations for the compromise of proceedings brought by him against a software company and its other shareholders. Hoffmann L.J. treated that issue as one unconnected with the truth or falsity of anything stated in the negotiations, and as therefore falling outside the principle of public policy protecting without prejudice communications. The other members of the court agreed but would also have based their decision on waiver …."
"facts identified during without prejudice negotiations which lead to a settlement agreement of the dispute between the parties are admissible in evidence in order to ascertain the true construction of the agreement as part of its factual matrix or surrounding circumstances".
Lord Clarke (with whom the other members of the Court agreed) said (at paragraph 46):
"I would hold that the interpretation exception should be recognised as an exception to the without prejudice rule. I would do so because I am persuaded that, in the words of Lord Walker in the Ofulue case  AC 990, para 57, justice clearly demands it. In doing so I would however stress that I am not seeking either to underplay the importance of the without prejudice rule …."
"I have come to the conclusion that the wiser course is to protect 'without prejudice' communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him. In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing."
A little later, Lord Griffiths said (at 1305):
"In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties."
The analogy with common interest privilege
"[C]ommon interest privilege arises where one party (party A) voluntarily discloses a document which is privileged in its hands to another party (party B) who has a common interest in the subject matter of the communication or in litigation in connection with which the document was brought into being. In such circumstances, provided disclosure is given in recognition that the parties share a common interest, the document will also be privileged in the hands of party B."
"It is worth noting at the outset that common interest privilege properly so-called does not give party B the right to obtain disclosure of otherwise privileged documents from party A and … it is misconceived to refer to common interest privilege as a 'sword' (over and above it acting as a 'shield'). The effect of common interest privilege is that, notwithstanding that he is not obliged to do so, in circumstances where party A voluntarily discloses an otherwise privileged document to party B, privilege will not be lost provided that a common interest exists between them at the time of disclosure."
The concluded agreement exception
"because the point was whether there had been a concluded agreement of any kind between the parties in accordance with that correspondence and it would be impossible to decide whether there was a concluded agreement or not unless one looked at the correspondence".
The implications of the Muller case
"If one analyses the relationship between the without prejudice rule and the other rules of evidence, it seems to me that the privilege operates as an exception to the general rule on admissions (which can itself be regarded as an exception to the rule against hearsay) that the statement or conduct of a party is always admissible against him to prove any fact which is thereby expressly or impliedly asserted or admitted. The public policy aspect of the rule is not in my judgment concerned with the admissibility of statements which are relevant otherwise than as admissions, i.e. independently of the truth of the facts alleged to have been admitted."
It followed, in Hoffmann LJ's view, that the without prejudice rule did not apply. He said (at 80):
"If this is a correct analysis of the rule, then it seems to me that the without prejudice correspondence in this case falls outside its scope. The issue raised by paragraph 17 of the statement of claim is whether the conduct of the Mullers in settling the claim was reasonable mitigation of damage. That conduct consisted in the prosecution and settlement of the earlier action.
The without prejudice correspondence forms part of that conduct and its relevance lies in the light it may throw on whether the Mullers acted reasonably in concluding the ultimate settlement and not in its admissibility to establish the truth of any express or implied admissions it may contain. On the contrary, any use which the defendants may wish to make of such admissions is likely to take the form of asserting that they were not true and that it was therefore unreasonable to make them.
I do not think that interpreting the rule in this way infringes the policy of encouraging settlements. It may of course be said that a party may be inhibited from reaching a settlement by the thought that his negotiations will be exposed to examination in order to decide whether he acted reasonably. But this is a consequence of the rule that a party entitled to an indemnity must act reasonably to mitigate his loss. It would, in my judgment, be inconsistent to give the indemnifier the benefit of this rule but to deny him the material necessary to make it effective."
"By bringing their conduct into the arena, and putting it in issue, the plaintiffs have, in my judgment, waived any privilege attached to without prejudice negotiations and correspondence."
"As a matter of principle I would not restrict the without prejudice rule unless justice clearly demands it."
In the same case, Lord Neuberger, having quoted from the first of the passages from Hoffmann LJ's judgment in Muller set out in paragraph 58 above, said (at paragraph 95):
"Despite the very great respect I have for any view expressed by Lord Hoffmann, and the intellectual attraction of the distinction which he draws, I am inclined to think that it is a distinction which is too subtle to apply in practice …. In any event, the observation appears to be limited to the public policy reason for the rule, and says nothing about the contractual reason, which plainly applies here."
"Whilst the result in the Muller case was undoubtedly correct, it is best analysed as another exception to the without prejudice rule."
i) Although not parties to the Agency CFA, the Halborg Claimants agreed to Mr Halborg using EMW on a conditional fee basis (see paragraph 5 above). There is a persuasive argument that if, as here, a client authorises his solicitor to employ an agent on the footing that the agent's remuneration depends on what (if any) agreement as to costs is reached with the other side, the client can hardly complain if his negotiations with the opposing party are susceptible to being revealed to and relied on by the solicitor-agent;
ii) While the Halborg Claimants are not parties to the present proceedings, the stance that Mr Halborg has taken must reflect their wishes. In fact, Mr Halborg's parents have explained in their witness statements that they "do not consent in any manner to the release of any documents or information at all to EMW", that they "do not waive any privilege … in any documents or correspondence (or anything else)" and that they "respectfully ask the High Court not to order the release of any privileged or confidential information or documents to EMW";
iii) Mr Halborg has himself made reference in his defence to the negotiations with BLM. Paragraph 19(a) of the defence explains that he informed EMW that BLM "ascribed no value at all to [EMW's] work";
iv) It is hard to see how EMW's claim would be justiciable without disclosure of Class A Documents. EMW and the Court would both, on the face of it, be in the dark as to, for example, what any payments Savage Hayward have made related to, how they came to be made on that basis, why nothing has been paid in respect of other items of costs and, should it prove to be the case that no settlement has been concluded, why not;
v) I see no likelihood that recognising that an exception to the without prejudice rule applies would deter parties from seeking to settle. Those undertaking negotiations will, if well informed, already be aware that the without prejudice rule will not apply if there is a dispute about whether they have reached agreement and that the facts of the Muller case have been held to fall within another exception. The existence of the Muller exception, moreover, means that communications otherwise protected by the without prejudice rule may become disclosable and admissible because the other party to negotiations unilaterally chooses, for reasons of his own, to put forward a case about the negotiations in litigation with a third party;
vi) Some of the reasoning on which Mr Halborg's case is based might suggest, not merely that a solicitor-agent could be prevented from seeing and using without prejudice communications, but that the same could be true of a solicitor whom a client had himself instructed on a conditional fee basis. That would be an even odder result; and
vii) Were there to be a need, the Court could consider making an order (as the Master did) under CPR 31.22(2) to prohibit or restrict the use of documents relating to the negotiations with BLM and/or excluding the public from part of a hearing.
Legal professional privilege
"To the extent that the material is subject to litigation/legal advice privilege, such privilege has plainly been waived by the Halborg claimants by reason of their agreement to or knowledge of [EMW] carrying out the work on their behalf."