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
		30th January 2014

Mrs Justice Andrews:

1. This case raises an interesting and important issue as to the meaning and scope of the phrase "special circumstances" in section 70(10) of the Solicitors Act 1974. Section 70 sets out the rules by which a costs judge, carrying out the assessment of costs between a solicitor and the party chargeable (his client or former client), must approach the assessment of the costs of that assessment. It provides as follows:

"(7) Every order for the assessment of a bill shall require the costs officer to assess not only the bill but also the costs of the assessment and to certify what is due to or by the solicitor in respect of the bill and in respect of the costs of the [assessment]

...

(9) Unless—

(a) the order for assessment was made on the application of the solicitor and the party chargeable does not attend the assessment , or

(b) the order for assessment or an order under subsection (10) otherwise provides,

the costs of an assessment shall be paid according to the event of the assessment, that is to say, if the amount of the bill is reduced by one-fifth, the solicitor shall pay the costs, but otherwise the party chargeable shall pay the costs.

(10) The costs officer may certify to the court any special circumstances relating to a bill or to the assessment of a bill, and the court may make such order as respects the costs of the assessment as it may think fit."

Under the Interpretation Act 1978, the word "bill", in the singular, includes the plural, "bills", unless a contrary intention appears.

2. CPR 46 Practice Direction 6.19 provides that:

"After the detailed assessment hearing is concluded the court will –

...

(c) award the costs of the detailed assessment hearing in accordance with Section 70(8) of the Solicitors Act 1974; and

(d) issue a final costs certificate [showing the amount due following the detailed assessment hearing]."

3. The Claimant in this case applied for the detailed assessment of 15 bills of costs, totalling approximately £33,000. As regards five of those bills, which totalled around £20,000, the Claimant contended that it was not liable to pay because the Defendant was in repudiatory breach of the retainer, which the Claimant had accepted. That issue generated significant costs in the context of the assessment. There was also an issue as to whether the Defendant had agreed to a significant reduction in its hourly rates, plus the rather more usual type of dispute about whether the costs charged were excessive.
4. The matter was due to be heard before a senior and vastly experienced costs judge, Master O'Hare, on 23rd and 24th April 2013, together with the detailed assessment of bills of costs relating to another client of the same Defendant. Before any hearing took place, the parties reached a compromise by which the Claimant agreed to pay £23,700, thereby achieving an overall reduction of just over 29%, comfortably above the one-fifth rule.
5. However, despite that, Master O'Hare held that there were special circumstances under subsection (10). Instead of awarding the Claimant its costs, he ordered the Claimant to pay the Defendant 70% of its costs of the assessment.
6. The matter comes before the court by way of a rolled up hearing of an application by the Claimant for permission to appeal against the costs judge'sorder, with the appeal to follow if permission is granted. However, as a preliminary matter, the court has had to determine whether the Appellant's Notice was filed out of time and, if so, whether a retrospective extension of time should be granted.
7. I am satisfied that this is a case in which, if there was an error at all, it was not the fault of the Claimant. Certainly it should not be visited with a sanction that precludes it from advancing what is plainly a meritorious appeal.
8. CPR PD 52B 2.1 provides that:

"… appeals within the High Court to a judge of the High Court must be brought in the appropriate appeal centre and all other notices (including any respondent's notice) ... must be filed at that appeal centre."

9. Table B to CPR 52B describes the relevant appeal centre as the Royal Courts of Justice. The actual office in which the Appellant's Notice is to be filed is not specified. It was formally the practice that the Senior Courts Costs Office would deal administratively with appeals to the High Court in costs matters. However, due to internal administrative changes, such appeals now have to be filed in the High Court Appeals Office.
10. On 9th October 2013, which was the last day for filing the Notice of Appeal under an extension of time granted by Master O'Hare, the solicitor with conduct of the matter, Ms Anna Goodwin, attended the Senior Courts Costs Office to issue the Appellant's Notice. She spoke to the clerk to Master O'Hare and to another lady in the office who was familiar with the case and recognised her from her previous attendance at the court. She explained thatthe court fee had been paid back in May 2013 and asked to see the court file for proof of payment. The lady to whom she spoke got the file and agreed that there was evidence of payment marked on a previous Appellant's Notice, which had not been issued, and it was confirmed that she did not need to go to the fee room and pay another fee.
11. Next, the solicitor asked how she should go about issuing the Appellant's Notice in Form N161 and both of the ladies to whom she was speaking said that they would deal with it then and there. They stamped the front of the N161 with the date of 9th October 2013, assured Ms Goodwin that the timescale had been complied with, and said "leave it with us and we will deal with it". A copy was given to the solicitor, Ms Goodwin, for her records.
12. Unfortunately, it then transpired that the wrong office had been used to issue and file the Appellant's Notice. On 14th October, a letter was sent from the appropriate office, stating incorrectly that documents were missing and that an application for an extension of time was needed. On 18th October, Ms Goodwin spoke to Mr Jenkins in the Appeals Office and he then advised that she had gone to the wrong place and that there was an error. He suggested amending the Form N161 and re-issuing it.
13. On the next working day, which was the following Monday, 21st October, the Claimant's solicitors immediately set about trying to put things right. The upshot of that was that, instead of being issued out of the right office, administratively, on 9th October, which was in time, the Appellants' Notice was finally issued out of the correct office 12 days later.
14. The Respondent objected to the court receiving the evidence set out in section 10 of the Form N161, which explained what had happened, on the basis of an alleged non-compliance with the requirements of the Practice Direction to CPR Part 32. In particular, the evidence was criticised because the person who had signed the Statement of Truth, a Mr Raanan Berlad (another solicitor in Berlad Graham), had not deposed to the source of his information and belief. If a witness statement is non-compliant with the requirements of CPR Part 32 or the Practice Direction to it, then under 32 PD 25.1 the court may refuse to admit it as evidence and refuse to allow the costs arising from its preparation.
15. In the present case, this would be the equivalent of applying a judicial sledge hammer to crack a very small nut. The objection lacks all sense of proper proportionality. In my judgment, it would be extremely unfair for such a technical objection to be used to preclude somebody from giving an explanation of the reasons why they are out of time, if they are out of time at all. To do so would be to deny proper access to justice and would probably fall foul of the requirements of Article 6 ECHR.
16. In any event, I am not prepared to accede to the application not to receive this evidence. I have considerable doubt as to whether it is non-compliant at all. It is quite clear, from the evidence in support of the application to extend time that it is written in the third person, in that it refers to "the Applicant's solicitor" attending the Senior Courts Cost Office and to "the solicitor" speaking to the clerk there, and so forth, although she is not named. It is also quite clear that the person who has signed the Statement of Truth is not thatsolicitor; if he were, then the evidence would have been written in the first person.
17. It is equally obvious that the solicitor referred to in the body of the evidence must be the source of the information and belief of the person signing the statement of truth, who is a solicitor within the same firm. The fact that that source is not spelled out expressly in a separate paragraph does not mean that the evidence is unreliable or that the rules of procedure have not been sufficiently complied with. In any event, it so happened that Ms Goodwin was in court. Therefore, the court was able to ask her directly to confirm the truth of the contents of the evidence in section 10, which she did. I am satisfied that it is truthful and that that is what happened.
18. Whether or not there was a failure to issue in time is a difficult point to determine. Frankly, it seems to me that the Appellants did everything they could to issue within the timescale and they issued the Appellant's Notice out of the designated appeal centre. They are not to be criticised for going to the Senior Courts Costs Office when that was the previous practice. The fact that there have been administrative changes of which they were unaware is not to be laid at their door. If the person to whom Ms Goodwin spoke on the day concerned had been aware of the change, no doubt Ms Goodwin would have been directed to the correct Appeals Office and everything would have been issued from there on the relevant date.
19. It is true that, in the current climate, a more stringent approach is taken to the question of whether relief should be given from sanctions. In cases such as Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1526 andDurrant v Chief Constable of Avon and Somerset Constabulary [2013] EWCA Civ 1624, the Court of Appeal has made it very clear that there is to be a shift away from exclusively focusing on doing justice in the individual case and that the court has to concentrate, in particular, on the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with Rules, Practice Directions and Orders. What that signifies is that there will no longer be any judicial tolerance of a laissez-faire attitude to the rules of procedure, especially when non-compliance attracts an express sanction. Such tolerance is no longer going to extend to someone who says "I am only one or two days late and no one has been hurt by it. There is no prejudice and, therefore, you should grant me an extension". However, that does not mean that cases such as Mitchell should be used as granting parties carte blanche to take excessively technical objections of the kind in this case, so as to preclude their opponents from either trying to explain their behaviour or from raising cases which otherwise have considerable merit.
20. In my judgment, both of these objections are unsustainable and, even if there has been a technical non-compliance, it is not of the order for which a sanction should be imposed upon the solicitors concerned. I take the view, therefore, that, if an extension of time is required (which I very much doubt) I will grant it retrospectively and the application for permission to appeal is to be treated as having been brought in time. I am satisfied that the evidence gives a proper explanation and a sufficient foundation for exercising my discretion in that way, should there be a need for it.
21. I move on, therefore, to the substance of the appeal. I have already referred to section 70 of the Solicitors Act. The impact of that section is that, if the client manages to get a reduction in the assessment of more than one-fifth, he gets the costs; he is to be treated as the winner. If he does not, then the defendant, the solicitor, gets the costs of the assessment and is to be treated as the winner. There is no room in the rule for near misses. As Master O'Hare rightly observed in his judgment:

"In applying what we call the one-fifth rule, one ordinarily looks at the aggregate reductions to get the reduction per court hearing, rather than per bill ..."

He went on to state that:

"... on that basis the one-fifth rule would indicate the Claimants should receive their costs unless there are special circumstances ..."

22. That approach of looking at the aggregate of all the bills is the approach that is applied day in day out in the Masters' corridor where costs are dealt with. It is also in accordance with the approach that was endorsed by the Court of Appeal in Devereaux v White (1896) 13 TLR 52. The issue in that case was whether or not the one-fifth rule (then a one-sixth rule) should have been applied to the cumulative total of two separate bills of costs or whether the Master in that case was right to apply the rule to each bill of costs separately. Two actions had been brought originally but they were later consolidated. Notwithstanding this consolidation, there were separate orders for taxation of each of the bills of costs. The Master therefore taxed them separately. Lord Esher MR said:

"It was objected that there ought not to have been separate bills but only one bill, but though the actions have beenconsolidated, there had been separate orders for taxation and the taxation has been in accordance with the orders. The Master therefore had been right and this objection failed also."

23. What that case makes clear is that, although there may be one action, it is possible that there may be separate orders for assessment within that action. For the purposes of the one-fifth rule one looks at the total under each order for assessment. Thus if there is only one action and one order for assessment, then even though that order may provide for the assessment of more than one bill, for the purposes of the one-fifth rule, the costs judge will add up the total of the amounts of the fees that he has awarded, and the total of how much was claimed under all of the bills, and will then compare those two figures to see if the client has reduced the overall amount by more than one-fifth. That is the normal practice, and that is how it should be done.
24. In the present case, there was one order for the assessment of a number of bills, fifteen in all, and the order was made in one action. Mr Kirby QC, who appeared for the Respondent, sought to persuade me that, on its true interpretation, the order of Master O'Hare was, in fact, to be interpreted as separate orders for the detailed assessment of each bill. I do not accept that submission. It is true that there is reference on the face of the Order to "assessments" but that is simply reflective of the fact that there are a number of bills that will all have to be looked at individually for the purposes of the detailed assessment. However, the order is entitled "Order for assessment" and, therefore, the Master was entirely right when he approached the matter initially, in accordance with section 70, by looking at the totality.
25. The real issue in this case is whether the Master erred in finding that he should depart from the rule by finding special circumstances. That begs the question of what is meant by "special circumstances". There is very little previous judicial guidance on the meaning of that phrase in subsection (10), although it does appear in another subsection of section 70, subsection (3). The case law in relation to that subsection suggests that "special circumstances" means something that is exceptional: see the commentary on s.70(3) in Vol 2 of the White Book at Section 7C-118 and the cases there referred to. Thus for example in Falmouth House Freehold Co Ltd v Morgan Walker LLP [2010] EWHC 3092(Ch), [2011] 2 Costs LR 292 Lewison J said at para 13 "whether special circumstances exist is essentially a value judgment. It depends on comparing the particular case with the run of the mill case in order to decide whether a detailed assessment in the particular case is justified, despite the restrictions contained in Section 70(3)".
26. That approach is of limited assistance in the context of Section 70(10) because that subsection deals with circumstances justifying depriving the party regarded as the overall winner of the prescribed benefit of his success, whereas a finding of "special circumstances" under Section 70(3) operates so as to confer the right to a detailed assessment upon someone who would not ordinarily be entitled to it. In the context of subsection (10), and on the normal understanding of the language of the phrase, it would appear that there should be grounds which would make it unfair for the normal consequences prescribed by the Statute to apply; and those grounds would have to be exceptional. Therefore, the question that the costs judge has to ask himself is whether or not there is something that has happened in the case which,exceptionally, makes it unfair that the claimant should not get the costs to which it is presumed he is entitled because he has succeeded in reducing the overall bill by more than 20%.
27. Previous cases give some indication of the types of situation in which a claimant will be deprived of the ordinary costs order in this context. They include a situation where the claimant has failed to beat an offer to settle, which is made without prejudice save as to costs; where the claimant has unreasonably failed to engage in negotiations; and, in one recent case, where the claimant, although successful, had racked up the costs of the hearing of the detailed assessment by spending at least two days in arguing pointless matters of law which, at the end of the day, did not avail her. The arguments in that case were described by Proudman J as "tortuous" and it was felt that it was unfair to visit those costs of the prolonged hearing upon the solicitor. In those circumstances, the successful claimant was still awarded costs but at a reduced amount, so as to reflect the non-recovery of the costs that had been racked up by the tortuous arguments.
28. One thread that runs through all of these cases is that they focus upon behaviour by the claimant which is in some way either reprehensible or unreasonable or which causes costs unnecessarily to be incurred. I would not go so far as to say that "special circumstances" must exclusively cover behaviour by the claimant, because it is always possible that there may be exceptional cases which fall outside the scope of that remit, but it is difficult to think of examples.
29. However, I am satisfied that "special circumstances" cannot extend to a situation in which, on examination of the individual bills that make up the total, or some of them, it transpires that the defendant would have been the winner if they had been assessed separately and the one-fifth rule had been applied to each of them. Nor is there anything exceptional about the fact that the issues raised in respect of those bills are more complex or generate more costs in the assessment than the issues in respect of other bills. That is something which could occur in any case like this one, in which the order for assessment covers numerous bills. Examining the outcome on the individual bills is the error into which this very experienced costs judge fell in the present case.
30. Master O'Hare approached the issue of whether there were "special circumstances" by accepting an argument by the Defendants that, as to the majority of those costs where 100% reduction was sought, the Defendants and not the Claimants were the victors. That was because, as regards four of the five bills to which I have referred earlier as representing most of the money at stake, as part of the compromise the Defendants had recovered everything that they were claiming. It was only in relation to the fifth of those bills that the Claimant had succeeded, because it was agreed that those fees would not be recovered.
31. That approach involved the costs judge going into the minutiae of the merits of the issues on assessment, which had now been compromised, and working out who was the "winner" in relation to each of the bills concerned (which were only a small selection from the 15 that were the subject of the order forassessment). He then came to the view that, because the Defendant was the "winner" in relation to the handful of bills on which most of the costs rode, the costs of the assessment should be awarded against the Claimant, notwithstanding that the Claimant had still managed to reduce the bill overall by more than a fifth.
32. In my judgment, that approach drives a coach and horses through section 70. It is doing precisely what section 70 does not allow. Because the proper approach is one of totality, one must look at the overall amounts and apply the one-fifth rule to that. There is nothing special about these particular circumstances. There may be many cases in which it would be open to a Defendant to say "I was the overall winner on the bill which was the hardest one that was fought and on which most of the costs were expended".
33. Mr Kirby, very eloquently, sought to persuade the court that this case was analogous to the case of Bentine v Bentine [2013] EWHC 3098 (Ch). That was the decision of Proudman J to which I have already referred and in which the Claimant had expended two days unnecessarily in tortuous argument. He argued that here the Claimant had racked up costs on the "repudiatory breach" argument, which it then conceded in respect of four out of the five bills to which it pertained; therefore those costs were unnecessarily incurred. That ignores the fact that the same argument was successful in respect of the fifth bill.
34. In my judgment, one cannot run that analogy. It is impossible for the court to come to the conclusion that the Claimant has unnecessarily brought about costs on the assessment, in circumstances such as these. Nor is there anyevidence upon which the court could legitimately conclude that the detailed assessment would not have taken place but for the dispute over those five bills.
35. If the Defendant had wanted to protect itself against the possibility that actually arose, which is that despite its achieving capitulation on the four large bills the one-fifth rule came into play, it could have made an offer "without prejudice save as to costs". If that offer had not been beaten, then it would have been possible to have raised the argument that there were special circumstances. However, unfortunately, this is a case in which it appears that there is such bad blood between the two parties concerned that it was not possible for there to have been such an offer. In fact, it was only through the good offices of counsel that common sense prevailed and a settlement was achieved.
36. In the light of my finding that there were no special circumstances and the costs judge was not entitled to find that there were, it is possible for the court to say that this decision should be overruled. I say that, of course, with great deference to Master O'Hare. If this had been a case where it was simply a question of his exercising a discretion, then this court would not become involved in second-guessing that discretion. Had there been special circumstances, whilst the court might not have reached the same view as the learned costs judge as to the justice of the award of 70% of the costs of the assessment to the Defendant, it would have felt inhibited from doing anything to interfere with that very proper exercise of discretion. Once special circumstances are shown then the costs are entirely a matter for the discretionof the costs judge, and he is always best placed to determine what the fair outcome should be.
37. Nevertheless, as I have said, there were no special circumstances and the costs judge approached the issue by looking at success or failure by reference to individual bills, which was something that the law does not permit. The effect of that error is that the appeal must be allowed, the normal one-fifth rule must apply and it follows that the Claimant is entitled to the costs of the assessment. Although Mr Kirby did try to persuade me that the matter should be remitted to the costs judge, that was on the basis of the submission that the costs judge's original order for assessment was, in fact, several orders and that his initial approach of looking at matters in the round was erroneous. There is no Respondent's Notice to seek to uphold the decision of the costs judge on different grounds and, as I have already indicated, I do not agree with that interpretation of the Master's Order for assessment.
38. In the event, it seems to me that the appropriate thing to do (and indeed the only thing that this court can do in the circumstances, having found that there is no reason to apply the exception in subsection (10)) is to grant permission to appeal, allow the appeal, and award the Claimants the costs of the assessment and, of course, the costs of this appeal.

- - - - - - - - - - - - - - - - - - - - -