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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ON APPEAL FROM THE ORDER OF DEPUTY MASTER KEENES ON 27TH MAY 2010

		Royal Courts of Justice Strand, London, WC2A 2LL
		15/06/2011

Mrs Justice Slade:

1. Paul Culkin applied for permission to appeal a costs order made on 27^th May 2010 by Deputy Master Keenes, with the appeal to follow if the application for permission to appeal were granted. Paul Culkin was assisted by his father Joseph Culkin, acting as a McKenzie friend. Angus Piper appeared for the Wirral Independent Appeals Panel ('WIAP') instructed by Weightmans LLP.
2. By order of 27^th May 2010 made by Deputy Master Keenes following a hearing before him on 20^th May 2010, Paul Culkin was required to pay to WIAP costs of £15,376.70, including £2,996 costs of the detailed assessment. Deputy Master Keenes refused Paul Culkin's application for permission to appeal his order for costs of the assessment before him and his ruling as to no breach of the indemnity principle on the grounds that it had no realistic prospect of success. Costs were assessed pursuant to an order of Nicol J made on 24^th April 2009 by which he dismissed Paul Culkin's claim for judicial review of the decision of WIAP to uphold on 21^st March 2006 his exclusion from St Mary's Catholic College, Wallasey and ordered the Claimant to pay to WIAP's solicitors the costs of the claim for judicial review. Such costs were to be subject to a detailed assessment if not agreed. On 11^th March 2010 Hooper LJ refused a renewed application for permission to appeal the dismissal of Paul Culkin's claim for judicial review, such permission having been refused on the papers on 14^th January 2010 by Sullivan LJ.
3. On 30^th July 2010 Paul Culkin lodged a Notice of Appeal from the order of Deputy Master Keenes. Paul Culkin contended in paragraph 6 of the skeleton argument in support of his appeal against the order of Deputy Master Keenes that WIAP was improperly constituted and therefore 'the agreement between Wirral MBC and Weightmans is tainted with illegality.' In context this is likely to be a reference to an agreement by Wirral MBC for them to pay the solicitors' charges relating to WIAP's defence of the judicial review proceedings. Rightly Paul Culkin did not pursue his challenge to Deputy Master Keenes' order on this basis. As was pointed out in paragraph 23 of the skeleton argument on behalf of WIAP, this would have been a collateral challenge to the dismissal of the judicial review proceedings. The challenge pursued on appeal is that the order for Paul Culkin to pay WIAP the costs of resisting his claim for judicial review was an infringement of the indemnity principle.
4. On 4^th October 2010 Foskett J granted permission to appeal out of time. Foskett J observed at paragraph 2 of his order that a transcript of the judgment of Deputy Master Keenes was dispensed with

"(on the grounds that the essential issue appears to be the argument concerning the indemnity principle and the Deputy Master's reasoning appears in the letter from Weightmans LLP of 1 June 2010)."

5. In the letter of 1^st June 2010 to Paul Culkin referred to by Foskett J as setting out the reasoning of the Deputy Master on the 'essential issue', Weightmans LLP, WIAP's solicitors, wrote:

"The gist of the judgment, was that there was no breach of the indemnity principle by the WIAP and Wirral MBC, which you had claimed in your submissions as the said parties were duly bound by the statutory provisions, placed under s159 of the Education Act 1996 and also s5 and s6 of the Education (Pupils Exclusion on Appeal) (Maintained Schools) Regulations 2000.

The Deputy Master, noted that the Wirral MBC through statute, provided an indemnity in relation to decisions made by panel members which were provided by them in good faith and as such this indemnity provided a clear retainer for the recovery of costs from paying parties. The Deputy Master was provided at hearing with Weightmans LLP interim bills, that gave clear evidence, as to the payment of costs and he found, that it was correct procedure, for the Wirral MBC legal department and subsequently Weightmans LLP to be instructed in this action."

6. In refusing on 4^th April 2011 Paul Culkin's application to stay this appeal because of his intention to try to re-open his application for permission to appeal the dismissal of his claim for judicial review, Foskett J observed of this appeal:

"If he succeeds and obtains a reduction in the bill, so be it. If he does not, so be it."

7. In the course of the hearing before us Paul Culkin made it clear that he was no longer seeking leave to appeal from the amount of costs assessed. He had alleged that the Deputy Master erred in failing to take into account his impecuniosity and proportionality in making an order in the sum of £15,376.70.

The relevant statutory provisions

8. Pursuant to the Education (Pupils Exclusion and Appeals) (Maintained Schools) (England) Regulations 2002 (SI No. 3178) Regulation 6(1) Wirral established the WIAP to hear and determine appeals from decisions of school governors not to reinstate an excluded pupil. The Schedule to SI No. 3178 provides:

"5. Any local education authority required to make arrangements under regulation 6(1) shall indemnify the members of any appeal panel required to be constituted for the purposes of those arrangements against any reasonable legal costs and expenses reasonably incurred by those members in connection with any decision or action taken by them in good faith in pursuance of their functions as members of that panel."

9. Paul Culkin contended that the making an order that he pay costs to WIAP was wrong on the following grounds:

1) The order infringed the indemnity principle because:

a) WIAP had no contractual obligation to pay Weightmans;

b) WIAP were not party to any agreement with Wirral for Wirral to take up their case and place it in the hands of solicitors the Council may instruct;

c) The Deputy Master erred in interpreting the words 'shall indemnify' in paragraph 5 of the Schedule to SI 2002/3178 as necessarily implying or creating not only a statutory indemnity for WIAP but also a statutory costs liability on WIAP;

d) The words 'shall indemnify' in paragraph 5 of the Schedule to SI 2002/3178 imply a term into the contract with Wirral to the effect that WIAP members would under no circumstances pay the costs incurred;

2) The Deputy Master erred because he failed to hold that WIAP would not be liable to Weightmans because the Solicitors Act 1974 Section 60(3) would be infringed by the firm in that no sums were payable by WIAP to Weightmans in the absence of a contentious business agreement with them;

3) The agreement between Wirral and Weightmans for the solicitors to provide legal services to WIAP is unlawful and unenforceable because:

a) Weightmans committed breaches of paragraphs 3, 4 and 5 of the Solicitors' Costs Information and Client Case Code 1999 ('the Code') and thereby breached Rule 15(a) (Costs Information and Client Care) of the Solicitors' Practice Rules 1990. The alleged breaches included failure by Weightmans to discuss costs with WIAP members and did not explain to them that they were potentially liable for costs. Nor did they provide any written costs information to Panel members or written confirmation of any retainer. The interim bills which Weightmans produced during the detailed assessment proceedings do not constitute compliance with the Code as they were sent to Wirral and not to Panel members.

10. Having heard Paul Culkin, permission was given to appeal the costs order of Deputy Master Keenes on the ground that it was reasonably arguable that it infringed the indemnity principle. The appeal from the amount of the order was not pursued.
11. Failure by Weightmans to provide WIAP with the information referred to in the grounds of appeal summarised in paragraph 7 (3) above does not render the contract for provision of their services unlawful. Mr Culkin contended that Weightmans were in breach of the Code because costs information and bills had not been given by them to WIAP. It was said that provision of interim bills to Wirral did not satisfy their obligation. Since Wirral had the ultimate obligation under the Statutory Indemnity to meet Weightmans' fees for acting for the WIAP it is unsurprising that interim bills were sent to them. There was no finding of fact that required information had not been given to Wirral or that there had been no agreement for a retainer. In my judgment it is not reasonably arguable that the Deputy Master erred in that he failed to find that the contract for Weightmans' services was unenforceable.

The contentions of the parties

12. Joseph Culkin was permitted to speak for Paul Culkin. Costs are awarded on the indemnity principle. If WIAP had no liability to pay legal costs they could not recover such costs from Paul Culkin. Joseph Culkin submitted that the existence of the statutory indemnity relieved WIAP of any liability to pay legal costs. The absence of any costs communication between Weightmans and WIAP was evidence that there was no contractual relationship between them and no contractual liability for WIAP to pay Weightmans. The fact that no client care letters or costs bills were sent to WIAP shows that they were under no obligation to pay the solicitors. Further submissions made on behalf of Paul Culkin are summarised in the grounds of appeal on the indemnity point set out above.
13. Angus Piper for WIAP contended that, as the author of Cook on Costs (2010 edition) states at paragraph 17.9:

"Where solicitors go on the record for a party there is a prima facie inference on the balance of probabilities that there exists a relationship whereby the solicitors can look to the party for payment of their costs. It is for the paying party to prove otherwise."

Weightmans LLP were the solicitors on the record for WIAP. It was said the principle set out in Cook applied to their relationship with WIAP.

14. Further, Mr Piper placed reliance on Thornley v Lang [2003] EWCA Civ 1484 as establishing that a promise by a funder (in that case a trade union) to pay legal costs does not breach the indemnity principle unless it is accompanied by a bargain that in no circumstances will the litigants themselves have to pay costs. In this case it was said that no such assurance was given. The statutory indemnity covers only legal costs which have been reasonably incurred and are reasonable in amount. If the costs incurred by WIAP did not satisfy those conditions WIAP members would have to pay them.
15. Mr Piper submitted on behalf of WIAP that Wirral's expenditure on legal fees of Weightmans and its in house legal expenses was incurred solely because the Council have a statutory duty to indemnify panel members against legal costs.

Discussion and conclusion

16. Costs as between party and party are awarded as an indemnity to the party entitled to them. They are not a bonus for the receiving party. As Lord Phillips (then MR) observed in Thornley at paragraph 5:

"There is, however, a well established principle, known as the indemnity principle, that governs the basis upon which a court can properly make an award of costs. Subject to any statutory exceptions, an award of costs can only be made in order to indemnify a litigant against legal costs and expenses that he has paid, or become liable to pay."

17. Lord Phillips went on to hold:

"6. It is common for a potential litigant to enter into an agreement with a third party under which the third party agrees to fund any costs of litigation that may be incurred by the potential litigant. Pursuant to such agreements trade unions, bodies such as the Royal Automobile Club, and insurance companies customarily instruct solicitors to act for their members or assured. When defeated by such a litigant, unsuccessful parties have, on occasion, invoked the indemnity principle in an attempt to avoid paying costs. The argument advanced has been that the successful litigant is not liable for his costs and, therefore, has no right to recover them. The courts have had no truck with such arguments. They have defeated them by finding that, in the circumstances under consideration, the litigant comes under an independent obligation, albeit one that is unlikely to be enforced, to pay the fees of the solicitor who is acting for him.

7. The leading case is Adams v London Improved Motor Coach Builders, Ltd. [1921] 1 KB 495. The plaintiff's trade union instructed solicitors to act for him in a claim for wrongful dismissal. He made no express agreement to retain them, but permitted them to act for him. The claim succeeded and he sought to recover the solicitors' costs from the defendant. The defendant resisted the claim, contending that it was the union, and not the plaintiff, who was liable for these costs. Bankes LJ held at p. 501:

"When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs, and that liability would not be excluded merely because the Union also undertook to pay the costs. It is necessary to go a step further and prove that there was a bargain, either between the Union and the solicitors, or between the plaintiff and the solicitors, that under no circumstances was the plaintiff to be liable for costs. In my opinion the evidence falls short of establishing that necessary fact, without which the defendants are not entitled to succeed."

Atkin LJ agreed. He held that the fact that the plaintiff had 'ratified the act of the solicitors in acting as his solicitors' carried with it, in the absence of express agreement to the contrary, the obligation to remunerate them."

18. In Thornley the claimant had received a client care letter which informed him that this would involve a liability to pay legal costs. Lord Phillips remarked at paragraph 16 that this was a stronger case than Adams:

"Adams demonstrates that all that was required was that he should acquiesce in the instruction of these solicitors on his behalf by his union."

Absence of a client care letter does not affect the liability of the recipient of the services of a solicitor to pay for them if he has acquiesced in the instruction of the solicitors on his behalf by a third party.

19. In Davies (AP) (Suing as Widow and Administratrix of the Estate of Kenneth Stanley Davies, deceased) v Taylor (No. 2) [1974] AC 225 Lord Reid held at page 235:

"No doubt if it were shown that the respondent's solicitor had agreed with him that in no circumstances would he hold him liable to pay any part of them then the costs, though incurred by the solicitor in defending the case, would not be costs 'incurred' by the respondent, but it was not suggested that any such agreement (which would be most unusual) was made in this case. If there was no such agreement then the fact that the insurance company had undertaken to indemnify the respondent against his liability for these costs would not mean that they were not costs 'incurred' by him (see Adams v. London Improved Motor Coach Builders Ltd. [1921] 1 K.B. 495)."

20. Weightmans were the solicitors on the record for WIAP. The prima facie inference referred to in Cook applies. Wirral met the WIAP's costs of instructing solicitors because they were statutorily obliged to do so under the indemnity. Payment under an indemnity is not payment by the party with the primary liability to pay but payment to meet that party's obligations.
21. Paragraph 5 of the Schedule to SI No. 3178 does not relieve WIAP of all obligation to pay solicitors acting for them. If WIAP incur legal costs and expenses which are unreasonable or if legal costs and expenses are incurred by them in connection with any decision or action taken by them not in good faith or not in pursuance of their functions as a member of the Panel, Wirral cannot indemnify them. The solicitors would look to WIAP for payment.
22. Just as in Adams, in this case a party to litigation, WIAP, had received an indemnity against their liability for legal costs. As in Adams, there was no client care letter provided by the solicitors to the party claiming costs. However the Court of Appeal has held in Thornley and Adams that all that is required for liability of a party to pay solicitors to be found is that he should 'acquiesce in the instruction of these solicitors on his behalf…'. Further the statutory indemnity did not provide in the words of Bankes LJ in Adams at page 501:

"that under no circumstances was the plaintiff [party] to be liable for costs."

23. The order of Deputy Master Keenes of 27^th May 2010 that Paul Culkin pay to WIAP's solicitors costs in the sum of 15,376.70 does not infringe the indemnity principle. The appeal from the order of Deputy Master Keenes of 27^th May 2010 is dismissed.
24. On behalf of WIAP Mr Piper sought an order that Paul Culkin pay their costs of this appeal in the sum of £4,189. This is the figure which appears on a Statement of Costs dated 1^st April 2011.
25. On behalf of Paul Culkin, Joseph Culkin contended that his son's financial position and the overriding objective should be taken into account. He referred to Home Office v Lownds [2002] EWCA Civ 365 to point out that CPR 1.1 provides that dealing with cases justly includes, so far as is practicable:

"(c) dealing with the case in ways which are proportionate

(i) to the amount of money involved

…and

(iv) to the financial position of each party."

26. Mr Culkin submitted that no money was claimed in this case and that Paul Culkin was in a poor financial position. He had pursued libel proceedings for which he faced a costs bill of £50,000. He has been working as a web developer for the past year earning £20,000 per annum.
27. There is no reason to depart from the general rule that the losing party pay the costs of the successful party. Paul Culkin is ordered to pay WIAP's costs of this appeal.
28. In assessing the amount of costs of this appeal I have had the expert assistance of the two costs assessors, Master Simons and Colin Jaque Esq. I have considered the Statement of Costs prepared by solicitors for WIAP dated 1^st April 2011 which amounted to £4,189. Bearing in mind the issues on appeal, proportionality and the itemised costs I order that Paul Culkin pay to the solicitors for the Wirral Independent Appeal Panel their costs of the appeal in the sum of £3,018.
29. Notwithstanding assistance from assessors sitting with me, this judgment is mine alone.