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
		25/05/2018

MR JUSTICE FOSKETT:

1. The background to the present proceedings is to be found in the litigation between Mr Thavatheva Thevarajah and the four Claimants. (Of those claimants, only the first and fourth remain truly involved in the litigation, but I will simply refer to all the claimants as "the Claimants" in this judgment.) That litigation ended when the Supreme Court upheld the decision of the Court of Appeal in allowing an appeal by Mr Thevarajah against the decision of a Deputy High Court Judge who granted relief to the Claimants against a debarring order. That background can be seen from the report of the judgment of the Supreme Court reported at [2015] UKSC 78.
2. The net effect of that litigation was that the Claimants were liable to Mr Thevarajah in respect of the judgment he obtained (a little over £2.2 million) and costs (including enforcement costs) in the sum of nearly £3.5 million. Mr Thevarajah had obtained a freezing order in respect of the Claimants and various properties they owned at an early stage in that litigation.
3. On any view, from the Claimants' perspective, the outcome of this litigation was most unwelcome. The debarring order was made by Hildyard J on 9 August 2013 (see [2013] EWHC 3464 (Ch)) at a stage when they had been represented by a firm of solicitors in Gateshead. They blame the making of that order by having followed the advice of that firm. Shortly before that decision was made they instructed the Defendant in these proceedings. The Defendant represented them (with the assistance of Leading and Junior Counsel) until the retainer was terminated on 30 March 2015. Leave to appeal to the Supreme Court had been given at that stage, but the appeal was not heard until 17 November 2015. The judgment of the Supreme Court was given on 16 December 2015.
4. As will appear below, the Claimants blame both the first set of solicitors and the Defendant for the overall outcome of that litigation. The step taken by the Claimants in that other litigation that led to the further proceedings was a second application for relief from sanctions (the first application having been rejected by Hildyard J) which was heard by the Deputy High Court Judge. The claim they wish to pursue against the Defendant is that negligently it failed to appeal against the imposition of the debarring order and/or to apply to vary or revoke it, but issued the second application for relief from sanctions without the relevant evidence in support. They propose to assert that, but for this negligence, there would have been a good chance that the debarring order of 9 August 2013 would have been reversed on appeal and/or would have been varied or revoked if such an application had been made supported by the relevant evidence. It is to be alleged that various direct losses totalling "at least £5,500,000" have been incurred.
5. That essential case in negligence against the Defendant was set out in the First Claimant's witness statement dated 2 March 2018. This was served on that day which was the Friday before the hearing before Master Haworth (which led to the order under appeal) on Monday, 5 March 2018.
6. That same day a letter constituting the Preliminary Notice under the Professional Negligence Pre-Action Protocol was emailed to the Defendant by Cubism Law. It runs to 13 pages and 64 paragraphs and contains the assertion that "in all, our clients estimate that they have lost substantially over £23,000,000 as a result of the combined negligence of the [Defendant] and [the original solicitors]." It is asserted that the figures are "only very preliminary." No proceedings have yet been issued.
7. It is necessary to retrace the history after the Defendant terminated its retainer on 30 March 2015. On 31 March 2015 the Defendant rendered a bill to the Claimants for just over £1.2 million for the work it had done. On 1 April 2015 it came off the record. No payment against that bill was made and the Defendant has accounted for VAT of over £200,000 and there is a little over £582,000 (plus VAT) owing to Counsel.
8. On 18 March 2016, and thus just within the prescribed maximum period of 12 months from the delivery of the bill, the Claimants issued a Part 8 Claim Form seeking a detailed assessment of the bill under section 70 of the Solicitors Act 1974. At the first hearing of this claim on 15 June 2016, Master Simons ordered the Claimants to file and serve evidence in support of the claim by 4pm on 27 July 2016. No evidence was filed or served and the claim for detailed assessment was not prosecuted. On 17 August 2017 (a little over a year later) Master Haworth struck out the claim of the court's own motion since the Claimants had failed to comply with the order of 15 June 2016.
9. The Claimants issued an application for relief from sanctions on 6 September 2017 and that led to the making of the consent order (approved by Master Haworth) on 19 October 2017 that lies at the heart of the appeal I have heard.
10. The relevant parts of the order are as follows:

"IT IS ORDERED BY CONSENT:

1. The Strike Out Order is set aside.

2. There be a detailed assessment of the Bill, provided that the Claimants do pay the sum of £650,000 in cleared funds without set-off or deduction, on account of the Bill by 4.00pm on 02 February 2018.

3. In the event that the payment provided for in the previous paragraph is not made, this claim shall be dismissed with costs to be subject to detailed assessment if not agreed without further order.

4. In the event that the Claimants comply with the proviso in paragraph 2 … the directions in CPR 46.10 shall be modified [in the respects indicated].

…

6. Save as provided for above, the claim is dismissed.

7. Permission to apply in respect of the date in paragraph 2 above but such application must be on notice to the [Defendant] and served on them and a copy of the application and evidence in support sent by email to [a named partner in the Defendant] by 4pm on 5 January 2018, unless the parties reach agreement in that respect. Such hearing shall not be listed for hearing on or between 5 January and 12 January 2018.

8. The Claimants do pay the Defendant's costs of the Application, agreed in the sum of £2,600."

11. The agreement embodied in the order is tolerably clear: if the Claimants wanted to proceed with the detailed assessment, they were required to pay £650,000 "in cleared funds without set-off or deduction" by 4 pm on 2 February 2018 unless they made an application for an extension of time by no later than 4 pm on 5 January 2018 (subject to any alternative agreement), the application to be emailed to the named partner in the Defendant. If the time for payment (whether the time specified in paragraph 2 of the order or such other time as may have been agreed or ordered by the court pursuant to paragraph 7 of the order) passed without payment being made, the claim for a detailed assessment would be dismissed. I will return to the effect of the agreement embodied in the order below, but to complete the narrative it should be noted that on 4 January 2018 the Claimants (through Mr Riordan) issued an application seeking an extension of time for compliance with paragraph 2 and he signed a witness statement that day in support of the application. The application was sealed on 9 January 2018 and a hearing before Master Haworth set for 1 hour on 5 March 2018.
12. There was, as I understand it, a dispute before the Master about whether that application was in time and valid. If I understand the transcript correctly, Mr Mallalieu contended that it was in time (because the application was served within the period specified in paragraph 7 of the order); Mr Munro submitted that it was not in time because the application had not been dealt with by 4 pm on 5 January and that it was not valid because it did not specify any date for payment. If he was right about that, then, subject to any application for relief from sanctions, the proceedings for a detailed assessment would have come to an end with the automatic dismissal under paragraph 3 of the order if, as was the case, the sum of £650,000 was not paid by 4 pm on 2 February 2018.
13. The Master did not consider the application for an extension of time because of the decision he made which is under appeal (see paragraph 33 below), but he did hold that the application had been made in accordance with paragraph 7 of the order and the failure to make payment by that date was not a breach of the condition in paragraph 1 of the order because the court's determination of the application was still outstanding as at that date. The parties had agreed in the consent order that the court should have the jurisdiction to hear such an application in default of agreement and until it made its decision following any contested hearing, the Claimants could not be in breach of the condition for payment of the sum of £650,000. I respectfully agree with that view. It follows that, as at the hearing before the Master on 5 March 2018, the Claimants' claim for a detailed assessment had not come to an end in the sense of having been dismissed. That the Claimants were in breach of paragraph 8 of the order, though inexcusable so far as I can judge, is of no relevance to this issue.
14. Accordingly, there was an effective consent order still in existence, one provision of which (namely, paragraph 7) was still executory – in other words, there was an issue awaiting the court's determination as to when the relevant sum should be paid. Until then, it could not be said that the condition in paragraph 2 was unfulfilled. I will return to the potential significance of this below (see paragraph 32).
15. In order to complete the procedural picture at the date of the hearing before the Master, it should be noted that on 26 February 2018 (and thus 7 days before the hearing before him) the Claimants, through their solicitors, issued a further application seeking a variation, revocation or stay of the consent order pursuant either to the Court's case management powers under CPR 3.1(7) or (in the case of a stay) CPR 3.1(2)(f), the purpose of the application being expressed to be to obtain a stay of the costs proceedings "pending the outcome of the [Claimant's] professional negligence claim against the [Defendant]". The application sought the adjournment of the hearing listed for 5 March to be adjourned to be re-listed for a 5-hour hearing.
16. The basis upon which the order was sought was that "there has been a material change in circumstances in that the [Claimants] have only recently come to appreciate that they are in a position to articulate a substantial claim for professional negligence … against the [Defendant] and that such claim, if successful, may eclipse any costs due to the Defendant." The nature of that proposed claim was articulated in Mr Riordan's third witness statement and the Preliminary Notice letter (see paragraphs 5 and 6 above).
17. The Master felt that the issue could be dealt with without adjourning the matter and concluded that he should stay the proceedings for a detailed assessment pending the outcome of the proposed professional negligence claim. His reasoning can be seen from the following brief extract from his ex tempore judgment:

"… on reading the initial protocol letter, the letter raises serious allegations in substantial litigation, not only in relation to the costs but also in relation to the litigation itself.

I am satisfied that, on the evidence, that represents a material change in circumstances. I am also satisfied that I have the case management powers to amend, alter or vary the Consent Order in such manner as I consider appropriate in view of changed circumstances."

18. It is right to say, as Mr Munro has emphasised, that the Master was led to believe that it was only in September 2017 that the Claimants were able to consider formulating a professional negligence claim against the Defendant. Mr Mallalieu (plainly acting on the basis of the instructions he had received) said this:

"But we say the matters [raised by the application dated 4 January 2018] are all superseded by the fact of the second application which raises the matters you've seen in the professional negligence pre-action letter, drafted with the assistance of counsel and specialist solicitors. Now … this retainer ended in April 2015 but from my client's point of view they were before the Supreme Court until December of 2015. Their circumstances have been difficult. Yes, they have had benefit of counsel, but that was counsel on a direct access basis only, on occasional instruction, and only in relation to the cost proceedings. As Mr Riordan has put in his witness statement, it wasn't until September of 2017 that they were able to instruct solicitors to begin looking at professional negligence matters. Those solicitors followed matters in a chronological fashion, looking at the first solicitors who'd been involved in the underlying litigation and, as you may have seen, a substantial pre-action letter, a letter of preliminary notice letter, has been sent to those solicitors at an earlier stage …." (Emphasis added.)

19. That preliminary notice was in November 2017 and Mr Mallalieu continued thus:

"Ongoing investigations then in relation to the [Defendant] which results in the preliminary notice that's been sent now. That preliminary notice … raises very serious and significant issues. My client may or may not be right about those issues, but it's a serious and substantial claim that is being brought."

20. I think Mr Munro was justified in saying that the Master would have been under the impression that a potential professional negligence action against the Defendant was a new feature in the landscape of the litigation and, accordingly, represented a "material change in circumstances" from the time the consent order was agreed. However, it emerged after the hearing before the Master that the Claimants had, by their then solicitors (YVA Solicitors), sent a letter to the Defendant dated 9 October 2015 making a very broad allegation of negligence. The relevant paragraph of the letter read as follows:

"We are instructed that our clients consulted you in relation to the proceedings issued by Thavatheva Thevarajah following our clients being debarred from defending the proceedings. Our clients proceeded to issue two applications seeking relief from the sanction being debarred based on your advice that our client's (sic) had good grounds for making such applications. Though it is fair to say that at the hearing before [the Deputy High Court Judge] our clients were granted relief, that decision was reversed by the Court of Appeal. Given the decision of the Court of Appeal it is clear that the advice given was both wrong and negligent."

21. Apparently, in the haste of dealing with the Claimants' new material in support of their application in relation to the consent order, the Defendant also overlooked the existence of this letter.
22. In his first witness statement, Mr Riordan said this at [51]:

"When I agreed to the consent order of 19 October 2017, I was simply seeking to be in a position to have the Defendant's costs assessed as I believed these to be vastly excessive. I was however not at all happy with the conduct of the Defendant in its representation of myself and the other Claimants, and in my view they had been negligent in several respects."

23. That was the only hint in the material before the Master of consideration having been given to a negligence action against the Defendant.
24. However, the effect of the letter of 9 October 2015 is that a potential claim for professional negligence was in the contemplation of the Claimants at the time the consent order was made and the Defendant must have known this. Indeed, it may have been the reason for the inclusion of the words "without set-off or deduction" in paragraph 2 of the order. However, the significance of this was not brought into relief before the Master.
25. In a general sense, it is the case that the mere development in scale of something that was known about or foreseen at the time a consent order was made cannot constitute a "supervening event" or material change in circumstances sufficient to set aside the consent order: see S v. S [2003] Fam. 1, [47] – [51]. Mr Munro submitted that the potential professional negligence claim referred to in the application for a stay was not a "supervening event" and was not unforeseeable; indeed it was, he submitted, an obvious possibility. On that basis he contended that the Master was wrong to interfere with the effect of the consent order.
26. Mr Mallalieu contends that the Defendant is relying on the wrong line of authority for the purposes of its position in this appeal. He submits that the relevant jurisdiction is the jurisdiction that the court exercises from time to time in, in effect, relieving a party from failing to meet the deadline imposed in a consensual "unless (or debarring) order". This well-established jurisdiction (see, e.g., Siebe Gorman & Co Ltd v Pneupac Ltd [1982] 1WLR 185) was reviewed by the Court of Appeal in Safin (Fursecroft) Limited v The Estate of Dr Said Ahmed Said Badrig (Deceased) [2015] EWCA Civ 739. In that case the judge below had extended the time for the defendant (the respondent to the appeal) to comply with certain conditions contained in a consent order. It was a landlord and tenant case (with a substantial history) and the consent order afforded to the defendant relief from forfeiture provided that certain conditions were complied with by specified dates. The conclusion on the effect of the authorities reached by Sir Terence Etherton, then Chancellor of the High Court, was expressed as follows:

"43. [Pannone LLP v Aardvark Digital Ltd [2011] 1 WLR 2275] is clear authority that CPR r.1.1 (the CPR are a new procedural code with the overriding objective of enabling the court to deal with cases justly), r.1.2 (the court must seek to give effect to the overriding objective when it exercises any power given to it by the CPR ), r.1.4 (the court must further the overriding objective by actively managing cases) and r.3.2(a) (the court may extend the time for compliance with any order) conferred on the Judge a real discretion whether or not to extend the time in the Consent Order and not merely a discretion which … could only properly be exercised as a matter of settled practice as well as on the facts by refusing an extension.

44. Prior to the CPR, under the former Rules of the Supreme Court ("the RSC"), the court's power to vary a consent order depended on which of two types of consent order was in issue. As Lord Denning MR explained in Siebe Gorman (at p.189), where the consent order gave effect to a real contract between the parties, the court would only interfere on the same grounds as any other contract (such as misrepresentation or mistake); where, on the other hand, the consent order was no more than an order to which the parties did not object, the order could be altered or varied by the court in the same circumstances as any other order made by the court without the consent of the parties.

45 It was Neuberger J in [Ropac Ltd v Inntrepreneur Pub Co (CPC) Ltd [2001] L & TR 93], who first expressed the view that, following the coming into effect of the CPR, the court had a discretion to extend time limits in both types of consent order."

27. Sir Terence Etherton went on to refer further to the case of Pannone and to what Tomlinson LJ said in that case. Sir Terence said this:

"52. Tomlinson LJ referred to the two types of consent order described by Lord Denning MR in Siebe Gorman at p.189. He said (at [27]) that, although Lord Denning's observations were made in the context of the old RSC, and the distinction between the two types of consent order are no longer relevant so far as concerns jurisdiction to grant relief from the "agreed" consequences of non-compliance with an order, the distinction remains of importance in the context of the court's exercise of its discretionary power. He said there is a world of difference between a case management decision made at the instance of one party to which the other party makes no objection, such as occurred in the Siebe Gorman case, and a genuine settlement of a substantive dispute as to the parties' rights. He said that, where a settlement is embodied in an order of the court, it can rarely be appropriate for the court to intervene further than to the extent to which the contract can, by its own terms or pursuant to general contractual principles, be modified or discharged in the light of changed circumstances.

…

54. Although Tomlinson LJ agreed with Neuberger J on the issue of jurisdiction, there was an important aspect of the exercise of the discretion on which he qualified what Neuberger LJ said in Ropac. That concerned Neuberger J's statement … that the court should be slow, save in unusual circumstances, to depart from what the parties have agreed. Having referred to Ferrotex and certain observations of Tuckey LJ in that case, Tomlinson LJ said as follows (at [32]):

"The presence of "unusual circumstances" is plainly not a prerequisite of the jurisdiction to extend time or to grant relief, which is expressed in the CPR in general terms. In the Ropac case … Neuberger J was, if I may respectfully so put it, feeling his way in the light of the newly introduced procedural code, and he was certainly not, I think, intending to formulate a rule as to the circumstances in which an extension of time might be granted in the face of a consent order. I think he meant no more than to emphasise that appropriate weight should be given to the parties' agreement."

55. Tomlinson LJ said (at [33]) that the weight to be given to the consideration that an order is agreed will vary in accordance with the nature of the order and therefore the agreement: where the agreement is the compromise of a substantive dispute or the settlement of proceedings, that factor will have very great and perhaps ordinarily decisive weight, and where the agreement is no more than a procedural accommodation in relation to case management, the weight to be accorded to the fact of the parties' agreement as to the consequences of non-compliance, while still real and substantial, will none the less ordinarily be correspondingly less, and rarely decisive. He continued:

"Everything must depend on the circumstances, and CPR r.3.9(1) prescribes that on an application for relief from a sanction for a failure to comply with a court order the court will consider all the circumstances, including those enumerated in the following sub-paragraphs. Beyond noting that where an order is made by consent, that is one of the circumstances which the court will take into account, it is not I think necessary to impose any further gloss on the Rules, which are already adequately drafted so as to ensure that all proper considerations must be taken into account.""

28. Whilst the master addressed the issue of a material change in circumstances in the way indicated above (see paragraph 17), he also said that, having regard to the part of the White Book to which he was referred, he had "all the powers [he needed] in relation to varying the consent order". In one sense, the order he made (simply staying the consent order) does not constitute a variation at all. But I have no doubt (as is confirmed in Safin) (i) that the court does retain a jurisdiction to intervene (to use a more neutral expression than "vary") with the implementation of an order notwithstanding that it was made by consent and (ii) that the grounds for such intervention are not confined to the court being satisfied that there has been a material change of circumstances since the order was agreed although the fact of the prior agreement is relevant. As Tomlinson LJ said in Pannone, and as confirmed by Sir Terence Etherton in Safin, the weight to be attributed to the prior agreement will depend on the circumstances and where the consent order embodies the final resolution of a substantive dispute, it is likely that "ordinarily decisive weight" will be given to it, whereas the weight to be attached to an agreed procedural accommodation would "ordinarily… be correspondingly less, and rarely decisive."
29. It might be said that there was a discrete substantive dispute in this case about the need for a detailed assessment which was resolved finally by the consent order. However, I think it would be very difficult to characterise the agreement reflected in the consent order as other than a "procedural accommodation" and, accordingly, the jurisdiction to intervene in appropriate circumstances could arise. Here, as the Master said, there is now (which there was not before) a fully articulated claim for professional negligence which, he said, "raises serious allegations in substantial litigation." Whilst it is quite possible to see that the assertion of such a case now is very late in the day and arguably simply a tactical move, that is not a conclusion to which the Master, or I, could come at this stage and indeed we are not called upon to do so. At face value there are issues to be tried which go to the conduct of the litigation for which the Defendant is seeking to charge.
30. The Master, who is very experienced in these matters, was of the clear view that, given the assertion of this professional negligence case, it would not be appropriate at this stage to shut out a detailed assessment of the Defendant's bill of costs: it is possible that the issues raised in the forthcoming litigation may have a bearing on the detailed assessment in due course. In my view, it was not strictly necessary to look for a "material change in circumstances" since the consent order was made to justify such a decision. It was sufficient to say that the order should not be implemented in the situation prevailing at the time the court was invited to consider the issue. However, if it was necessary to look for a "material change in circumstances", on the material before him, the Master was certainly entitled to come to that decision. He did not have the letter of 9 October 2015 before him and so it is impossible to know what influence that might have had on his decision. For my part, had I been considering the issue, I might have been less persuaded that there was such a change of circumstances (in the sense of a supervening event) for the reasons mentioned by Mr Munro, although, at the end of the day, the difference between the position taken in the 9 October 2015 letter and the most recent letter is stark: in the former, there is a wholly unspecific and general allegation of negligence; in the latter there is a fully particularised case. That could well be seen as a significantly changed position.
31. Subject to one reservation (to which I will refer in paragraph 33 below), in my judgment, the decision the Master reached was well within his powers and indeed I respectfully consider it to have been correct.
32. I might just add one matter in passing. The case of Thwaite v Thwaite [1982] Fam 1, a decision of the Court of Appeal in a matrimonial finance case, was not referred to in Safin. It is authority for the proposition (see pp. 8-9) that where an order, even made by consent, is still executory "and one of the parties applies to the court to enforce the order, the court may refuse if, in the circumstances prevailing at the time of the application, it would be inequitable to do so". Reliance for this proposition was placed upon Mullins v Howell (1879) 11 Ch D 763 and Purcell v F C Trigell Ltd [1971] 1 QB 358, 366-367. These cases were, of course, all pre-CPR, but the approach may still have a role to play now. If so, it would, in my view, have been a jurisdiction that could have been invoked in this case (see paragraph 14 above).
33. The Master's order was for an indefinite stay "pending resolution of the Claimants' proposed claim for professional negligence against the Defendant" subject to the right to apply to the court in relation to this provision. Given the history, I would myself have been strongly minded to impose a time limit on the stay by reference to an appropriate date for the commencement of the proposed action. However, as Mr Mallalieu has reminded me, this did not form the subject of the appeal and, in any event, should be seen as a case-management decision which could not said to be wrong. With some reluctance, I accept those contentions. The Defendants' protection in this regard must come from the "liberty to apply" provision.
34. For those reasons, the appeal is dismissed.