COSTS DISALLOWED IN FULL DUE TO MISCONDUCT IN ASSESSMENT PROCESS: COURT OF APPEAL DECISION

In GSD Law Ltd v Wardman & Ors [2017] EWCA Civ 2144 the Court of Appeal upheld a decision whereby the claimants’ costs were disallowed because of misconduct during the assessment process.

“The alleged misconduct in this case goes to the very heart of the detailed assessment process and examination of some of the issues would be called for on a detailed assessment in any event. The Court has an important role in maintaining professional standards and ensuring that parties behave fairly and honestly towards each other in the litigation process. In my judgment the Judge below was right to investigate this conduct under the summary procedure envisaged by CPR 44.11 …”

THE CASE

The court was considering a number of bills in personal injury cases. Prior to the assessment the claimants’ solicitors sent a “schedule of costs” seeking payment.  Costs were not agreed and bills of costs were set out which were lower than the figures in the schedules. The paying party made allegations that there had been an attempt at gross overcharging and that the claimants should not recover costs at all.  The matter proceeded to assessment with two cases being selected. The solicitors were joined as parties and the fee earners gave evidence at the assessment,  The costs claimed were disallowed in full. The claimants were ordered to pay the costs of the assessment on an indemnity basis.

THE JUDGMENT OF THE DISTRICT JUDGE

 The Court of Appeal considered the judgment of the District Judge.

1. 1. District Judge Neaves handed down a written judgment at a hearing on 15 December 2014. He said of Ms Madhas that she was “a wholly unreliable witness” and that her evidence was “not only evasive and inconsistent, but dishonest” (see paragraph 78 of the judgment). He held all the allegations made against GSD to have been proved (including two relating to the bills of costs rather than the schedules that preceded them) and agreed with Mr Smith that the extent of the conduct and dishonesty of GSD was at the most serious end of the scale. He concluded (in paragraph 83):

“The conduct of the receiving party’s solicitor is sufficiently egregious as to make the only appropriate sanction the disallowance of all costs on the sample files. The receiving party will also pay the costs of the assessment proceedings including the preliminary issues.”

He said that he would hear further submissions as to how to deal with the remaining cohort of cases.

1. 1. One of the allegations made in respect of the Ismail case merits specific mention. As expressed in the “Indictment-Style” list of allegations, this was that:

“In the Schedule, GSD claimed an hourly rate of £203 per hour, this being a false representation of what was reasonably claimable. This was for one or both of the following reasons: (i) it was a rate that exceeded the rate set out in Mr Ismail’s fee agreement, and (ii) it was a rate that was grossly excessive given the fact that much of the work was carried out by a junior fee earner.”

1. 1. The £203 rate was, of course, consistent with the Ismail CFA attached to the “Reply to Allegations” (which District Judge Neaves termed “CFA 1”) (see paragraph 16 above). At the hearing on 8 September 2014, Ms Madhas was asked to produce the original of this document, in response to which she produced two sheets of paper which, unlike CFA 1, contained no handwritten date and gave an hourly rate of £180 and so (as District Judge Neaves noted) could not be the original of CFA 1. Nor could a third document found in a trial bundle that also purported to be the CFA for Mr Ismail and which the District Judge called “CFA 3”. As to this, the District Judge recorded that, in contrast to CFA 1, CFA 3 referred to an hourly rate of £180 and observed that “[t]he ‘6’ of the handwritten date on CFA 3 does not appear to match the ‘6’ that can be made out on CFA 1” (see paragraph 32 of the judgment). The District Judge went on (in paragraph 34):

“Upon further questioning by Mr Smith [Ms Madhas] accepted that CFA 1 was a forgery. She was unable to explain how that forged document came to be appended to the reply, although earlier during the hearing she had suggested that her administrative team had copied and sent over documents. To the extent that that is tendered as an explanation, I do not accept it. It is inconceivable that a solicitor, facing such serious allegations, would delegate to others the task of ensuring that the correct documents were before the courts.”

THE APPEAL TO THE CIRCUIT JUDGE

The claimants appealed to the Circuit Judge. The appeal was dismissed by His Honour Judge Gosnell. He stated:-

“The alleged misconduct in this case goes to the very heart of the detailed assessment process and examination of some of the issues would be called for on a detailed assessment in any event. The Court has an important role in maintaining professional standards and ensuring that parties behave fairly and honestly towards each other in the litigation process. In my judgment the Judge below was right to investigate this conduct under the summary procedure envisaged by CPR 44.11 and certainly cannot be said to be out with the wide discretion open to him when deciding how to deal with this issue.”

THE APPEAL TO THE COURT OF APPEAL

There were two issues on appeal

i) Should District Judge Neaves have declined to entertain the allegations against GSD because CPR 44.11 is a summary jurisdiction, akin to that regarding wasted costs? [“The Summary Jurisdiction Issue”]

ii) Was the procedure that was adopted unfair? [“The Unfair Procedure Issue”]

The claimants failed on both issues.

THE CPR 44 POINT

1. In the case before us, as I have already indicated, it seems to me that it was right to entertain the application under CPR 44.11. The paying parties were contending that costs “which [were] being assessed” should be disallowed because of “unreasonable or improper” conduct in connection with the assessment of costs; the allegations could be addressed in the context of pending assessment proceedings; certain of the allegations (in particular, those relating to the bills of costs) would fall to be addressed anyway in those proceedings; there is no suggestion that legal professional privilege presented any difficulty; and the complaints made by the paying parties did not call for any inquiry into the merits of the substantive claims. It is also relevant that, as can be seen from what was said in Bailey v IBC Vehicles Ltd (for which, see paragraph 24 above), there is a strong public interest in ensuring that solicitors do not certify costs figures dishonestly: as Judge Gosnell noted, there would be unfortunate consequences if paying parties “lost confidence in the bona fides of solicitors signing these certificates”. Having regard both to seriousness of the allegations and to the sums potentially at stake, I do not think it was disproportionate to have a three-day hearing. I cannot see, moreover, how ordinary civil proceedings for fraudulent misrepresentation could have provided a satisfactory alternative to an application pursuant to CPR 44.11. In the first place, such a claim could itself fairly have been described as “satellite litigation“. Secondly, the power to disallow costs which it has been thought appropriate to confer on the Court by CPR 44.11 would not have been available, with the result, presumably, that loss could have been established only if and to the extent that the paying parties could have shown that costs were assessed at too high a figure as a result of deceit on the part of GSD; it would not appear to have been open to them to contend that costs should have been disallowed in their entirety. Thirdly, it is by no means clear to me that it would have been proper for the paying parties to seek to impugn the figures held to be due in the assessment proceedings: that might be thought to have involved an illegitimate attack on a previous Court determination (compare e.g. Phipson on Evidence, 18^th ed., at paragraph 43-23, and Tibbs v Islington BC [2002] EWCA Civ 1682, at paragraphs 8, 15, 17-19, 21 and 22).

THE UNFAIR PROCEDURE POINT

1. 1. It is GSD’s case that, even supposing that it was legitimate to entertain the paying parties’ allegations (which, as I have said, I think it was), the procedure that was adopted was unfair. In this connection, Mr Berkley referred us to Salha v General Medical Council [2003] UKPC 80, 80 BMLR 169, a case involving disciplinary proceedings against two doctors, where Lord Hoffmann said (at 14):

“It is a fundamental principle of fairness that a charge of dishonesty should be unambiguously formulated and adequately particularised.”

1. 1. Judge Gosnell considered that “the proceedings overall were fair”, taking the view that GSD and Ms Madhas “had more than adequate notice of the allegations against them and were given a full opportunity to respond to them” (paragraph 28 of the judgment). He also noted that “[n]o documents were relied on which did not emanate from [GSD]”, that GSD “was permitted to rely on and serve witness statements from five witnesses” and that GSD “saw the [paying parties’] witness evidence before the start of the hearing” (paragraph 27).

   2. Mr Berkley disputed Judge Gosnell’s conclusions. He stressed in particular the fact that, by the time the “Indictment-Style” list of allegations was produced, much of the oral evidence had already been given and Ms Madhas herself had been cross-examined at length (albeit that her evidence had not been completed). The fact that District Judge Neaves felt that such a document was needed shows, Mr Berkley argued, that the paying parties’ allegations had not previously been spelt out adequately. More than that, Mr Berkley said, the “bombshell” was dropped on Ms Madhas during the resumed hearing on 8 September 2014 that she was being accused of forgery. Mr Berkley complained, too, that GSD was not joined to the proceedings until 10 months after the paying parties’ “Particulars of Allegations” were served.

   3. For my part, however, I agree with Judge Gosnell that the procedure was fair. Among other things:

i) District Judge Bedford’s order of 16 November 2012 allowed GSD to join itself as a party whenever it wished. In the event, it elected to do so in September 2013, but it was evidently in the driving seat on the costs issues well before this. As mentioned in paragraph 8 above, the commercial interest always rested with GSD;

ii) The “Particulars of Allegations” served in November 2012 gave GSD and Ms Madhas sufficient notice of the case they had to meet at the hearing on 7 and 8 May 2014 and, in particular, the allegations of dishonesty. I am not entirely sure why District Judge Neaves proposed the “Indictment-Style” list of allegations (possibly, as Mr Smith suggested, to effect a “clearing of the decks”), but it in fact added little of substance to the “Particulars of Allegations”; and

iii) The “bombshell” arose from GSD choosing to attach to its “Reply to Allegations” of 18 July 2014 a document that proved to be a forgery. The paying parties cannot be criticised for their failure to refer to this in their “Particulars of Allegations” or “Indictment-Style” list of allegations since these pre-dated the “Reply to Allegations” and the forged document had not yet featured in the case. It is also significant that GSD did not suggest at the hearing on 8 September 2014 that it needed an adjournment to deal with the document.

1. In my view, therefore, this ground of appeal fails.