England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		6 February 2009

MR JUSTICE MACKAY:

1. This is an application against the respondent for a wasted costs order arising out of her conduct as counsel of a without notice application for a freezing order in this division of the High Court. I will refer to her as R.
2. On 26 July 2007 Butterfield J made the order and there are two bases for this application. The first is that it is one which should never have been made in the first place and that has not been the subject of any particular argument before me. The second is 17 allegations of improper, unreasonable and negligent conduct of that hearing by counsel under section 51(6) of the Supreme Court Act 1981. One of those allegations is now abandoned.
3. The salient features of the history have to be set out and are these. This arose out of a highly acrimonious ancillary relief battle between a Mr and Mrs Harrison, who though divorced I will call for convenience the husband and the wife. It culminated in a five-day hearing before Florence Baron QC (now Baron J) and a 50-page judgment delivered by her on 30 September 2002. Her findings were highly destructive of the wife's case and adverse to her as a witness and to the views of her expert witness. The deputy judge rejected the wife's valuation of a major disputed matrimonial asset, a company called Interchange, and found it had no real value because it was not saleable.
4. Among the many issues was this. The wife relied on certain documents, apparently emanating from the company, tending to suggest that it was more profitable than the husband was contending. These documents had come into her possession in what might be called the traditional brown envelope manner. The husband's response to them was to say that there had been a break-in at the company's premises and the documents now in the possession of the wife and relied on by her had been tampered with and should not be given any credence.
5. In her judgment, which I have read at the invitation of Mr Lenon, who says that Butterfield J also ought to have been required to read it or have it read to him, the important features so far as this application are concerned are these. She said that the wife had raised large question marks over the bona fides of the husband and of his disclosure of assets. As to the husband, her conclusion was that his presentation of his assets had been fundamentally correct throughout. He had not deliberately run the business down to deflate its value, there was no missing money, nothing had been salted away, there were no undisclosed assets, and the four employees he had called about the mysterious documents and the break-in had given honest evidence.
6. As to the wife, she said that she did not accept as likely her explanations as to the provenance of the brown envelopes. She found it was improbable that they had been produced by the husband or his employees and made extremely unfavourable comments on the wife's evidence and conduct of her application, which she categorised as wholly unreasonable, disproportionate and in effect obsessive in its approach. She called her expert's valuation based on those documents contrived and speculative. A complex division of assets order was then made.
7. In January 2007 the wife sought to revisit and set aside that order based on allegations that it had been obtained by fraud and perjury on the part of the husband and what amounted to fraudulent nondisclosure by him. To support this attempt she made energetic efforts to get hold of supporting evidence, which included a gagging order and a non-party disclosure order against the Royal Bank of Scotland, who were bankers to the company Interchange. This action was in the hands of leading counsel, a Mr John Wardell, and a junior (not at this stage R), and experienced solicitors.
8. R was not involved at all until March of that year when the junior became unavailable and she took his place. She exhibits her fee notes to the witness statement she has made. Some indication of her involvement can be gleaned from them. She had consultations with her leader and (I must therefore assume) her solicitors and perhaps (although I do not know) the wife on 21 and 24 May, 7 and 25 June and 23 July. This court has no idea what was discussed, what instructions were given and what advice was given because, as is her right, the wife has not waived her privilege in respect of those matters.
9. By 26 July R had drafted Particulars of Claim to set the judgment aside which included two allegations, which were really at the forefront of the claim but were not the entirety of it. First, that the husband had concealed the existence of a further bank account at RBS in which was £25,000 at a relevant time. Second, that there was now further evidence supporting her case about the documents, and which undermined the husband's case on the documents, showing that the break-in did not happen. She settled a skeleton argument. This was read by Butterfield J, because he said he had read it, and he said it was all he had read of the documents lodged on 26 July. It described the valuation of Interchange as a key issue in the matrimonial litigation and it set out what the husband had said as to its valuation being effectively nil.
10. As to the break-in, the skeleton described what the husband's case had been below, said that new evidence showed that he had not reported the break-in to police until much later than he had earlier claimed, and that the new date was after receipt of the wife's expert's report and the pre-trial review where certain disclosure had been ordered. The skeleton argument asserted that it was the husband's allegation of break-in that had convinced the court not to rely on the wife's expert witness. Secondly, the skeleton said that an undisclosed RBS account had now been obtained and was relevant. It had been produced by RBS in response to an order of Dobbs J of 6 February 2007 to produce "accounts in the name of Interchange".
11. As to risk of dissipation, R argued that the previous conduct of the husband, who had been subject to three previous freezing orders in different jurisdictions, was relevant and as to the £2 million limit of the freezing order she argued that it was reasonable in view of the large costs which the wife had incurred in the ancillary relief proceedings, the apparent state of the company and the alleged purchase by the husband of a substantial property.
12. There are 16 allegations made in this application of matters in respect of which R is said to have failed to draw to the judge's attention or said to have misled the judge, in plain breach of what I accept is the very well established principle that it is the duty of an advocate at a without notice hearing to point out to the judge possible or anticipated defences and objections which the opposing party would raise if present.
13. Moving to the hearing before Butterfield J, this is one which the leading counsel, Mr Wardell, said he would have conducted himself had he been available, but because of other professional commitments he was not. On the evidence of R it seems Butterfield J, whose first hearing of an application for a freezing order this was not, had about half an hour to read the skeleton argument of the wife. It was all he did read and he said so and there was then a 20-minute hearing of which I now have a full transcript. It is said that R's conduct at the hearing was improper, unreasonable and negligent and she should have made much more of the difficulties that her claim faced and the likely defences that would be raised. Contrary to what Mr Lenon QC for the husband, who represents him today, said at a later hearing to His Honour Judge Seymour, the judge was shown the recently disclosed RBS account and Mr Lenon properly acknowledges that and apologises for having made it an allegation that she had not. But that apart, his criticisms are maintained.
14. The judge was evidently not troubled by the validity of the claim, as he put it, in respect of certain of the allegations, by which I take him to have meant, in the context in which he was saying it, not concerned that there was not a good arguable case. R said that her two main planks were the RBS account and the fabrication of the break-in. As to the account, it was shown to the judge and R described it as being an account "in relation to Interchange", that it had £25,000 in it, which was not a lot of money. Mr Lenon says she should have said it may be an account of RBS and not of Interchange itself. Anyway to follow the matter through, the order having been made, over the weeks that followed the husband's solicitors achieved its discharge, initially by replacing it with two undertakings and then on an unconditional basis. On 24 October 2007 R, her leader and her solicitors all ceased to act for the wife. R is not at liberty to tell me why because as I have said the wife maintains her claim for privilege.
15. On 30 and 31 January 2008 His Honour Judge Seymour QC, sitting as a deputy High Court judge, heard the husband's application to strike this new claim out. He acceded to it and dismissed the claim on a summary basis. At that hearing the wife was unrepresented and acted in person. R was not present or represented. The order Judge Seymour made was that she pay the husband's costs of the claim on an indemnity basis, to be the subject of "a detailed assessment if not agreed". He also ordered an inquiry as to the damages caused by the freezing order. The wife sought to appeal. Her final application for permission to appeal was rejected by the Court of Appeal on 30 October of that year.
16. The husband had presented his bill of costs for the whole of the action in some £239,000 odd, of which it was said the proportion attributable to the cost of setting the freezing order aside was some £59,000 odd. This application was launched on 31 October 2008 claiming that latter sum.
17. On 21 November there was a hearing before Judge Seymour, who, at the request of R, recused himself from hearing the wasted costs application. In my judgment, that was a correct order. Though normally a trial judge is the obvious person to hear such applications, that was not the case here for reasons that do not need elaboration. I have therefore been at pains not to familiarise myself with or base myself on his earlier judgment. But his order on 21 November is of importance because he ordered that the matter be, as he put it, "fixed for a direction (sic) hearing" by a High Court judge, one day allowed, and he went on to give other directions about the exchange of evidence, witness statements and documents, which included giving information as to the steps taken by the husband against the wife for the recovery of his costs.
18. On 23 December 2008 there was a consent order between the husband and the wife, who had by then instructed other solicitors, recording that the costs awarded against the wife on 31 January 2008 were agreed at £205,000 and that the wife was to pay those forthwith, with interest at 8 per cent from 31 January until payment was made. That is the history so far as relevant.
19. What of the law? The jurisdiction for such an order is well known and is to be found at section 51(6) of the Supreme Court Act 1981. A wasted costs order is one defined as follows:

"'Wasted costs' means any costs incurred by a party --

(a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative."

20. The leading case on this jurisdiction is Ridehalgh v Horsefield [1994] Ch 205, still, as I understand it, authoritative in this area. At page 232C to 233B Bingham LJ (as he then was) set out how those three epithets should be construed in a way that is very familiar and which I will not set out so as to lengthen this judgment.
21. But also of possible relevance to this application are the following propositions which can be gleaned from that authority. First, the jurisdiction must not be used as a back door means of recovering costs not otherwise recoverable (226B to D). Second, it should not become a satellite branch of litigation or be disproportionate (225G). Third, it is essential that the applicant demonstrate a causal link between the conduct and the incurring of the costs (237E). Fourth, it is generally best left until after trial (238C). Fifth, the procedure to be adopted should be fair and as simple and summary as fairness permits (238G). Sixth, the burden is on the applicant to satisfy the court that the order should be made (239B). And seventh (which is really part of number 6), even if the court is satisfied, there is a discretion to decline to make the order.
22. What is plain from the tenor of that judgment is this: this is not a punitive and not a regulatory jurisdiction but a compensatory one and as a prerequisite persons seeking its exercise must show that the conduct has caused them loss.
23. Other cases give other relevant legal principles that help me potentially in my task. First, this is a remedy of last resort, as the House of Lords said in Medcalf v Mardell [2003] 1 AC 120, particularly Lord Hobhouse at 143 to 144, a passage which concluded that the remedy:

"By definition ... only arises once the damage has been done. It is a [weapon of] last resort."

24. That was followed by Sumner J in D v H [2008] EWHC Fam 559 and Silber J in Koo Golden v Bank of Nova Scotia [2008] PNLR 32 at 778 paragraph 92. Furthermore, the jurisdiction will only be exercised in cases which are "plain and obvious", Re Freudiana Holdings, Court of Appeal, 28 November 1995 per Millett LJ at 28; the applicant must "make good a strong prima facie case", Ward LJ in Hedrick v Standard Bank London(?) [2008] EWCA Civ 905 at 43; also it is a summary remedy which should be capable of being dealt with in "hours rather than days" (see paragraph 78 loc cit).
25. Therefore, even where impropriety, et cetera, is shown, there exists a discretion in the court as to whether any order should be made and the lack of proportionality of the remedy may, dependent on the facts of the case, disentitle the applicant to relief (see Chief Constable of North Yorkshire v Boardsley [2000] Lloyd's Rep PN 675). This is so even at what is sometimes referred to as stage 1 of a wasted costs order application, where the question is whether the respondent should even be required to show cause at all. The present hearing in this case is ill defined but capable of being either stage 1 or stage 2, as I think was acknowledged. I will return to that.
26. I turn to the recovery position in this case. When she settled her skeleton argument, which she signed on 4 February of this year, Miss Carr QC, acting for R, was aware that the costs had been agreed between the husband and wife at the figure I have set out above and that the wife had paid £125,000 towards them. When the skeleton of Mr Lenon QC was signed it was said that she had paid £185,000. Mr Lenon said that though the wife had told the husband (and I was shown a letter in which this was done) that she had substantial equity in her home and the husband had procured a final charging order over it to protect his costs entitlement, it was thought that there was no way that she would pay. Therefore the husband could not delay and therefore it was appropriate for him to launch this application. In fact, as it happens (he told me this on instructions and it is not in evidence but I happily accept it from him) she has remarried and to a man of means who would appear to be helping her to meet her obligations.
27. Mr Lenon in submission accepted in terms that it was likely that the husband would recover the balance of the £205,000. Therefore, unless the £59,000 originally claimed as the costs of setting aside the freezing order was to be treated as in effect ring-fenced, preserved in a non-reduced form and not scaled down pro rata as part of the total bill of £239,000 which was reduced to £205,000, there will be and there is no claim, as he has to accept. For my part I see no reason whatever to treat this £59,000 in this way. I have no evidence on which to base it and I see no justification for it. The only reasonable inference I can draw is that it sits within the now agreed overall costs figure and has therefore been reduced in the proportion in which other costs have been reduced. So I find that the applicant has failed to prove to a balance of probabilities that he will suffer any loss, even if every one of his allegations of impropriety are plain and obvious or he has a strong prima facie case in respect of them.
28. In any event if I am wrong about that, the numbers in this case and the scale of these proceedings are entirely out of proportion, the one against the other, and the proceedings are therefore disproportionate to any benefit they could possibly bring. The court was given about 800 pages of documents and witness statements, two bundles of authorities and skeleton arguments of 110 pages from the applicant and 76 from the respondent, with a half day pre-reading suggestion (which happily through fortunate events I was able to spend on the case). But much more to the point than this, the applicant's statement of his costs of this application are that they are £57,784. The respondent's estimate, and bearing in mind that new solicitors and counsel had to be instructed and had to read into the case, is higher and is estimated at £85,000. Even if it were the case, which I do not think it is, that some discernible four-figure or five-figure claim can be extracted from the wreckage of these figures, I have no hesitation in declining to exercise my discretion to grant the relief sought.
29. Mr Lenon accepted, while maintaining that there is still some provable loss (about which he was, I must say, uncharacteristically non-specific), however, that the prospects of further recovery and the recovery made to date were factors which went towards the court's exercise of its discretion, and I think he was entirely right so to concede. They do, and the effect they have on my exercise of discretion is to move me to deny relief. Though therefore I heard full argument on what might be called the stage 2 issues, the merits of the applicant's claim and the answers to it in the evidence filed by R, I did so because all parties were present, I had read the papers and the costs had been incurred and the time was available. However, for the reasons I have stated above, I decline to embark on an examination of the strength of the applicant's case on the 16 allegations under paragraph 7 and whether loss flows or can be shown to have flowed from them or any of them. It would serve no purpose for me to do so. Even if each was made good to the necessary standard, I would without hesitation have declined to exercise my discretion to make the order sought.
30. I should finally say this: I accept this course on my part may paradoxically disappoint R. She no doubt wanted her name cleared on the merits of the case, for non-financial reasons, and I would understand that view. Nevertheless, I confine myself to dismissing this application as one without merit, in my judgment, for the reasons I have given.