THIRD PARTY COST ORDERS: NO SPECIAL STANDARD FOR SOLICITORS AS LITIGANTS

For the third time in recent weeks there has been an interesting decision on non-party costs orders. In Virdi -v- R K Joinery Ltd [2014] EWHC 3492 Mr Justice Henderson upheld an order for costs against a non-party.  However the judgment contains some interesting observations on the nature of these orders and the duties owed by solicitors when they are involved in litigation in a personal capacity.

THE FACTS

A non-party costs order was made against Mr Virdi. He was a solicitor and in 1992 he sold the property to R K Joinery but continued to live in the premises and pay rent, the tenancy being granted to his wife Mrs Virdi.

In 2009 possession proceedings were brought against Mr Virdi who opposed them on the grounds, inter alia, that the property was held on trust. After a “hard fought” battle possession was granted together with a judgment for £115,000.

Whilst an appeal was pending the parties met. It was alleged that an agreement was reached at this meeting whereby Mrs Virdi could continue to live in the property and the judgment would not become payable until an option to purchase was realised.

RKJ’s case was that no agreement at all had been reached. It served a statutory demand and a bankruptcy order made against Mrs Virdi and possession was sought.

The possession proceedings were defended on the grounds of the alleged agreement.

THE JUDGMENT AT TRIAL

The judge found that there was no agreement reached at the meeting. He made an order to show cause why Mr Virdi should not pay the costs of the trial.

THE APPEAL

When considering the judgment Henderson J did not agree with some of the observations made by the trial judge.

  1. In effect, therefore, the judge considered it appropriate to apply the same standards to Mr Virdi’s conduct of his personal affairs as would have applied to his conduct in a professional capacity. With respect to the judge, I consider that this was erroneous. I can see no justification for holding a solicitor, or any other professional person, to the same standards in the conduct of his private affairs as would apply to him when acting for a client in the course of his profession. The responsibilities and burdens of professional life are, quite rightly, of a stringent nature and subject to regulation in the public interest. But lawyers (or other professionals) are entitled to conduct their personal affairs as they choose, so long as they do not bring their profession into disrepute or otherwise infringe the code of conduct which governs their professional lives. The judge appears to have been judging Mr Virdi’s conduct as if he had been the solicitor on the record acting for Mrs Virdi, but that was not the position. His involvement in the November 2011 meeting and the negotiations which followed it was purely in his personal capacity, although he was of course free to give his wife the benefit of his skill and experience as a solicitor.
  2. It is also relevant to distinguish a separate point. In his assessment of the evidence given at the trial, it was clearly open to the judge to take the view that, as a solicitor, and with his recent experience of the proceedings before Judge Marshall, Mr Virdi might reasonably be expected to have acted differently had the alleged agreement in November 2011 actually been made. This was no doubt one of the many factors which led the judge to dismiss Mrs Virdi’s defence, once he had heard and considered all the evidence. But in my judgment this was no more than a relevant factor in the fact-finding exercise which the judge had to perform. Where he erred, in my view, was in elevating this factor into a general principle which could be applied to the assessment of all Mr Virdi’s conduct in a non-professional capacity.

THIRD-PARTY COSTS ORDER STAYED IN PLACE

Despite his view that there were some serious flaws in the judge’s reasoning Henderson J did not interfere with the non-party costs order.

OBSERVATIONS AS TO THE EVIDENCE

Henderson J’s closing observations are of interest. Not only in relation to the exercise of this discretion but also in relation to the way that witness evidence is scrutinised. It is not uncommon for witnesses, and parties, to convince themselves that their account is correct.

  1. ve come to the view that the judge’s conclusion was, in essence, one which he was fully entitled to reach in the exercise of his discretion, and that it would be wrong for this court to interfere with it.
  2. The crucial point, in my judgment, is the fact that (as the judge found) it was Mr Virdi, and he alone, who generated Mrs Virdi’s unsuccessful defence to the possession proceedings. With his legal knowledge and experience, he was clearly the dominant partner in at least this part of their marital relationship. The judge had been satisfied at the main trial that it was Mr Virdi who “made the running in the events that led up to the litigation” (paragraph 21 of the costs judgment). He also found that Mr Virdi had “allowed himself to develop a case that had absolutely no merit and was totally without foundation” (paragraph 24).
  3. On the basis of the judge’s (possibly benevolent) refusal to find that Mr Virdi acted dishonestly, it must be accepted that Mr Virdi was somehow able to persuade himself subconsciously that an agreement was in fact reached at the November 2011 meeting, and that he then became convinced that the non-existent agreement had the features which were later pleaded in his wife’s defence. But none of this alters the fact that he was the sole progenitor of a defence which was always bound to fail once the evidence had been heard and tested.
  4. Mrs Virdi’s role in the development of her defence was, on the judge’s findings, a purely passive one. She was loyal to her husband, and allowed herself in good faith to be persuaded of the truth of what he said had happened at the November 2011 meeting (paragraph 34 of the main judgment). Similarly, Mr Sarwan Singh Nehar (who had not been present at the meeting) was later persuaded by Mr Virdi of the rightfulness of his cause (paragraph 35 of the main judgment). The conclusion seems to me inescapable. Without Mr Virdi’s initiative and powers of persuasion, the version of events which underlay Mrs Virdi’s defence would never have seen the light of day.
  5. It is important to stress that, once Mr and Mrs Virdi had persuaded themselves of the truth of this version of events, it was then entirely proper for Mrs Virdi’s case to be pleaded, prepared and presented at trial on that basis. Since the alleged agreement was an oral one, the questions whether it was made, and if so on what terms, were always going to require determination at a trial; and since it must be assumed that Mr and Mrs Virdi were both acting innocently and in good faith, their witness statements, and Mrs Virdi’s instructions to her solicitors, presumably reflected Mr Virdi’s faulty recollection of what had happened at the meeting. Thus the fact that Mrs Virdi had separate representation, and the fact that Mr Virdi played only a limited role in the preparation of her case for trial, do not detract from the central point against Mr Virdi, which is that he was solely responsible for the emergence of what turned out to be a hopeless defence.
  6. The case for making a costs order against him would, of course, be much stronger if he had acted dishonestly and deliberately persuaded his wife to advance a defence which he knew to be false. As Mr Smith rightly reminded me, however, there is a wide spectrum of circumstances in which the discretion to make a third party costs order may legitimately be exercised. The authorities show that dishonesty is not a necessary ingredient, and (importantly) that the pursuit of speculative litigation falls into the same category as impropriety: see Goodwood Recoveries at [59], quoted in paragraph 32 above. Furthermore, although the benefit to Mr Virdi from a successful defence would, in a sense, have been parasitic upon his wife’s entitlement to remain in possession of the Property, the fact remains that he was solely responsible for the emergence of her defence. Thus I think he may reasonably be regarded, from an objective viewpoint, as the “real party” who defended the possession proceedings, and he certainly stood to benefit (together with his wife and son) from a successful defence.
  7. To summarise, I think the judge was wrong to take the view that Mr Virdi controlled the litigation once it had started, and I also think he was wrong to hold Mr Virdi, in the conduct of his private affairs, to the same standards as would apply to him in his professional capacity. But I think the judge was entirely justified in regarding Mr Virdi as the person who was solely responsible for the emergence of a defence which never stood any reasonable prospect of success, and which originated in his self-delusion about what had happened at the November 2011 meeting. In those circumstances, justice seems to me to require that Mr Virdi should be held responsible together with his wife for the very considerable costs of the possession proceedings, subject of course to detailed assessment on the indemnity basis. I should add that, if I concluded (as I have) that the judge was in principle right to make a third party costs order against Mr Virdi, Mr Calland did not advance any separate argument that Mr Virdi should be liable for less than the full amount of those costs.

SEE ALSO