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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		The Rolls Building 7 Rolls Buildings Fetter Lane London EC4A 1NL
		5 June 2013

1. MR JUSTICE COULSON: This was to have been an application by the defendant for summary judgment in respect of 5 the claimant's claim. However, that application has now been abandoned and instead the parties are arguing about the costs and other consequences of the defendant's abandoned application. As is often the way with these situations, the argument has involved a detailed consideration, both of the procedural history and, indeed, some of the substantive matters. I will endeavour to summarise those as briefly as I can, but I fear that it is necessary to summarise them, at least to some extent.
2. These proceedings started on 11 December last year. The claimant, a well-known firm of solicitors, has two claims: a claim for £305,539.84 by way of outstanding fees (what has been referred to as the ordinary fee claim) and a second claim for $2.5 million, a further sum due, it is said, pursuant to a contingency fee agreement. All of these claims are said to arise out of litigation in Anguilla.
3. The defendant is based in the USA and so permission had to be sought to serve him outside the jurisdiction; that happened in January 2013, and the defendant acknowledged service on 13 February 2013.
4. Originally, the claimant agreed to an extension of time for the service of the defence to 25 March. On or shortly before 25 March, the defendant then applied to court for a further extension of time for the service of the defence. The extension was sought until 26 April and, with a certain amount of reluctance, the claimant's solicitors agreed to that further extension.
5. On 26 April 2013, instead of serving the defence, the defendant, without any prior warning or notification, served an application for summary judgment. That application was in respect of the claim for the further sum, that is to say the $2.5 million, only; it did not relate to the ordinary fee claim.
6. The basis of the application for summary judgment was that the contingency fee agreement was not enforceable under Anguillan Law; the application sought a hearing to last all day before a High Court judge.
7. The difficulty procedurally with the application was that, although it depended in its entirety on an expert opinion of the law of Anguilla; that expert opinion was not served with the application; it was not, in fact, served until about a week later, on 3 May.
8. The expert evidence relied on by the defendant in support of the application comprised a report prepared by Joyce Althea Kentish-Egan, an experienced barrister in Anguilla. I have been taken to parts of that report by both counsel. There is no doubt the report indicates that, on one view, the contingency fee agreement was unlawful and not enforceable. However, it is also clear on reading the report as a whole that that conclusion is rather more equivocal when looked at in the round. Indeed, it appears to be central to Ms Egan's report that the Anguillan case of Watts Associates v and George Knowles [2002] was wrongly decided. That, of course, is an important point because it seemed to me, that, on the face of it, when reading her report last night, whatever the ultimate rights and wrongs of her view it could not possibly be said that the claim should be struck out because the agreement was plainly unenforceable in law.
9. The difficulty, as I see it, at the heart of the defendant's case is that, even without having regard to any other expert material, Ms Egan's report could not, and was never going to, justify an application for summary judgment; it was too uncertain for that, as indeed any report would be on a matter of Anguillan law which is based on the suggestion by a barrister that a commercial judge in Anguilla had wrongly decided a particular case.
10. That point was therefore spotted by the claimant immediately. They wrote on 3 May to say that the report, having been belatedly supplied, did not support the application for summary judgment, however, the application was not withdrawn. In those circumstances the claimant had no alternative but to provide its own expert material, which it did on 29 May. In that material, amongst other things, the claimant's expert relies on the decision in Watt v Knowles and effectively says that it was rightly decided.
11. On 30 May, the defendant accepted that the summary judgment application was not going to succeed and they therefore abandoned that application. They did so on the basis that the costs of the application would be costs in the case, which was unacceptable to the claimant. That explains why the parties are before the court today. It is right to say that now the defendant accepts a qualified agreement to pay some of the costs but, as I have said, there are arguments about a number of elements of that.
12. I deal with the issues that arise in relation to costs. The first point of care is that costs follow the event, and the claimant has been successful because the summary judgment application has been refused. Prima facie, therefore, the defendant should pay the claimant's costs. The principle of that, as I have said, is not now in dispute.
13. The first matter which is in dispute is the basis of that assessment. The claimant seeks costs to be assessed on an indemnity basis, and the defendant says that costs should be assessed on the standard basis.
14. The parties are agreed on the law and, in those circumstances, it is unnecessary for me to set it out in any detail. The law relating to indemnity costs have been recently summarised in paragraphs 11 to 15 of the judgment of Gloster J, as she then was, in Euroption Strategic Fund Limited v Skandinaviska Enskilda Banken [2012] EWHC 749 (Comm) on 30 March 2012. In essence, what is required in order to justify an order for indemnity costs in circumstances like this is something in those circumstances or the conduct of a claimant which takes the case out of the norm and which makes the party's conduct unreasonable to a high degree.
15. In my view, the defendant's conduct, seen in the round, was indeed out of the norm. There are a number of reasons for that: first, the defendant twice sought extensions of time for the service of a defence and then, on the very day that the final extension expired, did not serve a defence but instead issued an application for summary judgment. There is no explanation in the material before me as to how and why the defendant had such a drastic change of heart. It is said by Mr Salzedo that this was simply a delaying tactic. In the absence of any other explanation, it seems to me that that is a reasonable inference. That view is strengthened by my conclusion that the summary judgment application was (and should have been seen to have been) hopeless.I have already indicated that, in my view, Ms Egan's report was never going to justify an order for summary judgment. I have already said it was, on its face, too equivocal for that.
16. There is no explanation in the material as to how and why an application for summary judgment was made when the defendant knew, or should have known, that the report that was provided in support of the application could not justify it. It is suggested that there may be privileged material going to this issue, but it seems to me that that is a critical point on which the burden rested with the defendant to explain how this situation had been arrived at. It is simply inappropriate in these courts to make an application for summary judgment based on an alleged point of law when the material that is available on that point of law does not support the application for summary judgment.
17. There are other reasons why I consider that the defendant's conduct was out of the norm: one is that the defendant never provided, and has yet to provide, any sort of defence to the remaining part of the claim, that is to say, to the £305,000-odd in relation to outstanding fees. True it is that that is only one-sixth of the total claim but, nonetheless, that is a not insignificant sum, and it does seem to me to be most unfortunate that the summary judgment application has obscured the fact that no defence to that amount has ever been stated.
18. Mr Salzedo very carefully suggested as a result of these various factors that the defendant had not litigated in good faith. On the balance of probabilities, it seems to me that that is a fair inference. It may be that the defendant had some ulterior motive for acting as he did, but the short point is that as a result of this hopeless application months have been lost, extensive costs have been wasted and there is still no pleaded defence.
19. There was an argument as to whether or not a defendant in the position of this defendant was required to serve a defence in any event, it being plain pursuant to CPR 12.3(3), that the issue of a summary judgment application meant that the claimant could not obtain a default judgment. Mr Salzedo said that that did not prevent the provision by the defendant of a defence, and as a matter of the rules that is plainly right, but as a matter of practicality it seems to me that a defence was required. That is not only because the summary judgment application did not deal with all of the aspects of the claim but also because in circumstances such as these a pleaded defence is very often the best possible way of setting out what the defence actually might be in advance of a hearing, such as today's would have been.
20. Mr Carpenter suggested that it might potentially have been a waste of costs to draft a defence if the summary judgment application had been successful, but that is not right for two reasons: one, because, as I have said, the summary judgment application did not deal with the whole claim, but secondly and more importantly, given that this was a point of law, the matter could have been very shortly stated and very easily conveyed by way of a pleaded defence. Of course, that then might have given rise to the difficulty that the defendant did not have any expert evidence to support such a pleaded defence, but that is a separate point.
21. For all those reasons, therefore, it seems to me that the claimant is entitled to the costs of this application to be assessed on an indemnity basis.
22. The next point concerns the question of the experts' fees. Mr Carpenter maintains that those experts' fees and the costs associated in relation to the experts may well not be wasted and that therefore those should be hived out of any order. There are a number of difficulties with that submission, so it seems to me. The first is that, when a defendant acts as this defendant did, the defendant takes a risk that the summary judgment application will fail and that he will bear the costs of that summary judgment application. The defendant has caused those costs to be incurred and it is very unattractive, for the defendant then to say that some of those costs might end up not being wasted, so he should not have to pay them.
23. In any event here, it seems to me likely that the costs incurred in relation to this particular point will be wasted in relation to the experts. That is because both parties are seeking, or will seek, orders in relation to experts for meetings, exchange of reports and so forth, and it is therefore entirely unclear as to what ultimate benefit these costs will have brought. Moreover, I accept Mr Salzedo's submissions that the experts may well modify their views as a result of the factual material as it becomes available. I take Mr Carpenter's point that these are experts on law and that therefore the position ought to be fixed, but one knows from experience that changing factual situations do change legal opinions.
24. Furthermore, as I suggested to Mr Carpenter, since he was not able to say that he was simply going to rely on the existing report and not put in any further material, he could not say that that report would ultimately be the report on which the defendant relied at trial; indeed, he could not even say that at trial the defendant would be instructing Ms Egan as the expert.
25. So for those reasons, it seems to me that it would be wrong to hive out of the costs of this application the experts' fees and the costs associated with the experts. It seems to me that those were a key element of the costs of this application. I have already said that in my view this application should never have been made and I think that, in all the circumstances, the claimant is entitled to its costs on an indemnity basis to include the experts' reports.
26. The next issue is the question of an interim payment on account of costs; that can be dealt with shortly. Mr Salzedo on behalf of the claimant seeks £40,000; that is to be measured against the costs incurred, which are said to be just over £100,000. That is broadly 40 per cent. As I pointed out in argument, 40 per cent was the baseline for an interim payment on account of costs taken by Jacob J, as he then was, in Mars v Te Knowledge [1999]. The 40 per cent is commonly used in the Rolls Building as a guide to the appropriate amount of an interim payment on account of costs and, therefore, the £40,000 is an appropriate figure. So there will be an interim payment on account of costs in the sum of £40,000.
27. The next issue concerns the provision of a defence. I am told by Mr Carpenter that is likely to include a counterclaim, although details of that counterclaim are as yet unavailable. The defence in counterclaim should, in my judgment, be served by 19 June.
28. On behalf of the claimant, Mr Salzedo seeks an order that the amount of the ordinary fees claim, that is to say the £305,539.84, should be paid into court, pursuant to CPR 3.1 or 3.5, on the basis that it is reasonable and proportionate for that sum to be paid into court. He submitted that that followed from the defendant's failure to act in good faith and will give the defendant an incentive to litigate properly in the future.
29. I have concluded that I should not make an order requiring that money to be paid into court. Although I have accepted that the defendant has not acted in good faith, I have penalised the defendant in consequence because I have ordered him to pay indemnity costs. It does not seem to me to be appropriate to penalise him again for the same default. In any event I am dubious as to whether an order requiring the defendant to pay that money into court would be an incentive to him to litigate properly in the future. I consider that this judgment and the other orders that I have made will be sufficient incentive.
30. However, what I do order is that the defence and counterclaim so advised should be provided by 19 June and, given the large amount of time that has gone by and my view that this pleading ought to have been served some time ago, I make that an unless order; that is to say, if the defence and counterclaim is not provided by the close of business on 19 June, the claimant will be entitled to judgment on the full amount.
31. The remaining point concerns the directions for trial. The claimant seeks various orders so as to give rise to a timetable towards trial. The defendant says that, other than making orders about the pleadings, this matter should then be transferred back to Master Yoxall to make orders, and it is said that that is at least in part because the case may change shape when the counterclaim is provided.
32. I have already explained my concerns about delays in this case. It does seem to me that if I do not make directions then there will simply be further delay, and I am unhappy at that prospect. It seems to me that I ought to make detailed directions and then, if those directions require modification (because, for example, there is a counterclaim) that can be addressed at the appropriate time. It does not seem to me to be a reason for me not to make detailed directions now. So we ought then to consider what directions I should make.