SHOULD THE ASSESSMENT OF COSTS BE IN PUBLIC OR IN PRIVATE? WHEN IS LEGAL PROFESSIONAL PRIVILEGE WAIVED?
In Eurasian Natural Resources Ltd -v- Dechert LLP  EWHC 3389 Mr Justice Roth addressed the issue of whether an assessment of solicitor and own client costs should be in private or in public. The judgment also considers important issues in relation to the waiver of legal professional privilege on assessment and the nature of a solicitor and own-client assessment of costs.
IS THIS AN IMPORTANT ISSUE?
Well some idea of the importance of this issue can be gained from paragraph 2 of the judgment.
- The issue is clearly of importance for both parties. That is evident from the fact that for the hearing of this appeal, which took one day of court time, ENRC was represented by Lord Pannick QC, leading Richard Lissack QC, Benjamin Williams and Tamara Oppenheimer, whereas Dechert was represented by Charles Hollander QC, leading Simon Browne QC and Tony Singla *
(* I have been informed that the applicant’s costs schedule for the one day hearing came to £435,350.00).
Eurasian (ERNC) had applied for an order for the assessment of costs delivered by its former solicitors, Dechert LLP. The total amounted to £16.3 million. The work was done in relation to enquiries by the Serious Fraud Office.
In response to the application Dechert filed detailed evidence with 14 witness statements and 13 lever arch files of exhibits. Much of this evidence was described as “a mass of otherwise confidential and sensitive information which had come into its hands. Most of it would be covered by legal professional privilege.
However the SFO enquiry had developed into an active criminal enquiry. It was clear that if the assessment were heard in public the SFO would attend to gather information to assists its inquiry. ERNC made it clear that it was so concerned that, rather than allow the assessment to proceed in public it would withdraw its application.
An application before the Master that the assessment be heard in private was refused. Roth. J. heard the appeal.
THE LATE APPLICATION FOR ASSESSMENT
Section 70 of SA 1974
“(1) Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed.
(2) Where no such application is made before the expiration of the period mentioned in subsection (1), then, on an application being made by the solicitor or, subject to subsections (3) and (4), by the party chargeable with the bill, the court may on such terms, if any, as it thinks fit (not being terms as to the costs of the assessment), order—
(a) that the bill be assessed; and
(b) that no action be commenced on the bill, and that any action already commenced be stayed, until the assessment is completed.
(3) Where an application under subsection (2) is made by the party chargeable with the bill—
(a) after the expiration of 12 months from the delivery of the bill, or
(b) after a judgment has been obtained for the recovery of the costs covered by the bill, or
(c) after the bill has been paid, but before the expiration of 12 months from the payment of the bill,
no order shall be made except in special circumstances and, if an order is made, it may contain such terms as regards the costs of the assessment as the court may think fit.
(4) The power to order assessment conferred by subsection (2) shall not be exercisable on an application made by the party chargeable with the bill after the expiration of 12 months from the payment of the bill.”
THE NEED TO SHOW “SPECIAL CIRCUMSTANCES”
A large part of the disputed sum (£11.7 million) had been paid. The application was made within 12 months of the bills being presented but after payment.It was necessary for ERNC to show “special circumstances”
The judge considered the law in relation to “special circumstances”
- “Special circumstances” are not defined in the statute but have been considered in the authorities. The question whether special circumstances exist has been described as essentially a value judgment in which both the size of the bill and the fact that the bill called for an explanation are relevant factors: see generally Civil Procedure 2014, Vol 2, para 7C-118.
- Prior to the coming into force of the Civil Procedure Rules (“CPR”), applications for detailed assessment were ordinarily heard in private. That changed with the CPR and it is common ground that they are now heard in public, albeit that it is only in a very rare case that anyone other than the parties chooses to attend. However, such an application, in particular as between a solicitor and its (present or former) client, is not litigation in the ordinary sense. It is appropriate to consider the background to this special jurisdiction of the court.
- The power of the court to order a taxation of a solicitor’s bill has its origins in the disciplinary control which the court exercised as part of its inherent jurisdiction over its own officers. That jurisdiction became subject to successive statutory provisions, culminating in the SA 1974 which now prescribes exclusive time limits for an application for taxation: see the historical exposition in the judgments of the Court of Appeal in Harrison v Tew  QB 307 (appeal dismissed,  2 AC 523). Although now subject exclusively to statutory control, in substance it remains a form of regulation by the court of the conduct of its officers, which explains why there is no remotely equivalent regime applicable to the fees billed by other professionals.
- In Pamplin v Express Newspapers  1 WLR 689, concerning a review by the court of a taxing master’s decision on a party-and-party taxation following a libel action, Hobhouse J observed (at 694-695):
“Taxation is a hybrid procedure; it can include situations which are more administrative or supervisory than adversarial; but there can be no doubt that on a taxation inter partes arising out of civil litigation the proceedings are essentially adversarial. One party is claiming money from another. The outcome of the proceedings is a quantified monetary liability of one party to another.”
I would respectfully add that the adversarial nature of an inter partes taxation is also indicated by the fact that it arises out of an order of the court establishing a liability of the one party to the other for costs. By contrast, a solicitor-and-own-client taxation, although of course adversarial in the literal sense that the two sides are arguing against each other, is more supervisory: it flows from the long-established jurisdiction of the court to supervise its officers, now subject to a detailed statutory regime.
THE RULES RELATING TO PUBLIC HEARINGS
The judge reviewed the case law relating to the need for public hearings and the relevant criteria in the civil procedure rules.
“39.2 General rule – hearing to be in public
(1) The general rule is that a hearing is to be in public….
(3) A hearing, or any part of it, may be in private if–
(a) publicity would defeat the object of the hearing;
(b) it involves matters relating to national security;
(c) it involves confidential information (including information relating to personal financial matters) and publicity would damage that confidentiality;
(d) a private hearing is necessary to protect the interests of any child or protected party;
(e) it is a hearing of an application made without notice and it would be unjust to any respondent for there to be a public hearing;
(f) it involves uncontentious matters arising in the administration of trusts or in the administration of a deceased person’s estate; or
(g) the court considers this to be necessary, in the interests of justice.”
ONLY A VERY LIMITED WAIVER OF PRIVILEGE
Dechert argued that the information put forward to argue special circumstances amounted, in essence, to a waiver of privilege, relying on the principle arising in professional negligence cases when a client sues their former lawyer.
- In the present case, it is common ground that there is an implied waiver of privilege so as to enable Dechert to resist the argument of special circumstances under sect 70(3) SA 1974, and then contest the challenge to its charges on a detailed assessment. However, I consider that there is no ground for finding that privilege was thereby waived completely and for any use of the documents that is wholly irrelevant to that assessment. For example, the affairs of ENRC, as a former public company, have attracted some media interest and I think that the implied waiver to which the sect 70 application gave rise could not possibly entitle Dechert to hand over all the documents concerning their former client to an inquiring journalist. Once the potential of an implied waiver being limited is recognised, this seems to me a classic case for its application.
THE PREVIOUS HEARING DID NOT DEPRIVE THE EVIDENCE OF ITS CONFIDENTIALITY
The judge did not accept an argument that the circumstances of the hearing before the Master had the effect of depriving the evidence of its confidentiality. The judge reviewed the case law on this subject in some detail
- However, although these authorities demonstrate that when a judge has read, or is presumed to have read, documents for the purpose of a hearing that proceeds in open court, those documents may thereby enter the public domain, they also show that this is only the prima facie position. In some general observations at the conclusion of the judgment in the SKB case, Lord Bingham referred to the need for “suitable safeguards” in the context of enabling public access to documents referred to (but not read) in open court. And in the Court of Appeal’s subsequent judgment in Barings, as Lord Pannick emphasised, the Court included a proviso in para , where Lord Woolf expressly referred to “any circumstances of the particular case making it not in the interests of justice that this should be the position.”
- An example can be found in the frequent practice of the court when evidence contains commercially sensitive information. The judge states that he or she has read the evidence in advance, and counsel in argument refers to the relevant passage or paragraph that contains the information without reading it out. This approach is adopted specifically so as to prevent that information entering the public domain. Where the confidential information is in a disclosed document, the court can make an order under CPR rule 31.22(2), but that is not always the position. It may, for example, be included in a witness statement.
- I have no doubt that the present case is one where the interests of justice require that the reading by the costs judge of the papers should not have the effect of putting them into the public domain. It is notable that Master Haworth made an order pursuant to CPR 5.4C(4) that a non-party may not obtain a copy of any of the documents on the court file: see para 1 of his judgment. That order would have been futile if by reason of his stating that he had read the papers they had thereby entered into the public domain. So also would Master Haworth’s grant of permission to appeal against his refusal to direct that the costs application be heard in private. The purpose of seeking a hearing in private was of course to prevent public access to the documents but, if Dechert’s submission were correct, the pass had been sold on that issue once Master Haworth heard in public the application to decide whether the subsequent hearing should be in private. ENRC’s right of appeal, which the costs judge granted, would be rendered nugatory.
- Even if I were wrong in that conclusion, I consider that this court can still issue an order preventing further dissemination of the documents. Mr Hollander resisted that position, arguing that since the documents had “entered the public domain” they were effectively out in the open and could no longer be subject to restriction. I regard that submission as misconceived. When I put it to Mr Hollander that in that case once a judge entered court and said to the parties at the start of the hearing that he had read the papers, the documents were thereby in the public domain and could no longer be subject to restriction, he submitted that the court would retain power until the conclusion of the hearing to restrain dissemination. But I do not see any logical reason why a cut-off should come at that point, so as to deprive an appellate court from imposing a restriction if, for example, it considered that the judge below had wrongly decided this very point.
SHOULD THE HEARING THEN BE IN PRIVATE?
- Although I have found that the waiver of LPP was only limited, so that the material remains protected by LPP as regards third parties, there remains the question whether the court here should therefore order that the costs application be heard in private. CPR rule 39.2(3) gives the court a discretion, which I consider must be exercised in the interests of justice and the parties.
- Here, ENRC has a very real concern that a public hearing will expose much of the material to the SFO and thereby prejudice its position. Part of the retainer of Dechert in this case was to assist ENRC in the fraud investigation and its dealings with the SFO, and so some of the privileged documents were created for that very purpose. I consider that there is the potential for very real prejudice to ENRC if the matter were heard in public. That is illustrated by the declared position of ENRC that if the order below stands, it will not proceed with its application. The effective protection of ENRC’s rights therefore requires that the matter be heard in private.
- By contrast, what legitimate interest has Dechert that the application should be heard in public? This is addressed in a brief witness statement from Mr Richard Harrison, who is not himself a solicitor at Dechert but at its external solicitors instructed for the purpose of this action. Mr Harrison exhibits a bundle of press articles which he says include reports that ENRC is “suing Dechert for overcharging millions of pounds”. Mr Harrison continues:
“These proceedings, and the complaints being made by the Claimant about Dechert in relation to its fees, are accordingly so well documented in the press that it is vital that Dechert has the ability to clear its name of the allegations of gross and deliberate overcharging in a public court and that it is not dealt with by evidence and a judgment which are kept in private. Therefore, it is important to Dechert that these proceedings be heard in public.”
- I have read the exhibited articles, which mostly concern allegations about ENRC in a letter from Dechert to ENRC that was mysteriously leaked to the press. They do also report complaints by ENRC about Dechert’s “improper billing”, although I note that only one of the 11 articles exhibited includes the specific allegations to which Mr Harrison refers. Nonetheless, I recognise Dechert’s understandable concern to vindicate its reputation. But I consider that this concern will be entirely met by a public judgment determining the costs application. There is no question of this court directing that the costs judgment itself should be kept private, as Mr Harrison infers. I can see no need for the hearing itself to be in public, which is the issue on this appeal, in order adequately to protect Dechert’s interests. Indeed, I would have thought that a public hearing might have a contrary effect since all the allegations advanced by ENRC regarding its overcharging would then be rehearsed before a public audience.
- Finally, it is not suggested that there is some particular public interest on the facts of this case for holding the hearing in public. I also consider it of some relevance that this is not adversarial litigation but the exercise of a supervisory jurisdiction by the court over its officers.
- Accordingly, the appeal will be allowed and the court will order that the hearing of the application and any subsequent assessment pursuant to sect 70 SA 1974 be heard in private.
- Hearings in Private and Reporting Restrictions. The general rule is that hearings should be in public