NO COSTS ORDER AGAINST SOLICITORS OR COUNSEL WHO WERE ACTING ON A CONDITIONAL FEE BASIS

In  Willers v Joyce & Ors [2019] EWHC 2183 (Ch) Lady Justice Rose dismissed an application for costs against solicitors and counsel who had represented an unsuccessful party on a conditional fee basis.

“… there is a strong public interest in ensuring that impecunious claimants can have access to justice even if that means that successful defendants are left substantially out of pocket. Because of this, legal representatives should not be at risk of a third party costs order unless they are acting in some way outside the role of legal representative.”

THE CASE

The claimant had brought an unsuccessful action for malicious prosecution and abuse of process  against the defendant.  After the case the defendant joined in, as costs defendants,  the solicitors, leading counsel and junior counsel who had acted for the claimant. It was alleged that the primary motivation for the action had been the claimant’s lawyers desire to recover unpaid fees arising from earlier actions.

THE JUDGMENT

The judge rejected the defendants’ arguments.

1. 1. In my judgment the principle that emerges clearly from the decisions of this Court in Tolstoy, Floods and Hamilton v Al Fayed is that there is a strong public interest in ensuring that impecunious claimants can have access to justice even if that means that successful defendants are left substantially out of pocket. Because of this, legal representatives should not be at risk of a third party costs order unless they are acting in some way outside the role of legal representative. The nature of the role of the legal representative means that the indicators useful in considering the liability of, for example, a pure funder, such as whether he has been closely involved in making decisions about the conduct of litigation or whether he has a substantial financial interest in the success of the litigation do not work. The legal representative will always be closely involved in taking decisions about the conduct of the litigation and will always have a financial interest in the outcome, particularly where he is working under a conditional fee agreement or because although he is invoicing the client regularly for work done, he knows that in practice he will never be paid unless the client wins the case.

   2. The key question at the heart of this case is whether the fact that the damages claimed in the Malicious Prosecution Claim included a substantial amount of money still owed to De Cruz and the Barristers from the Langstone Action makes a difference. Mr Mitchell argues that it does because there was a debt undoubtedly owed (though of unknown amount) to the legal team and that was the primary purpose of bringing the Malicious Prosecution Claim. It makes all the difference because in effect the litigation was being conducted for the benefit of the Costs Respondents rather than for the benefit of Mr Willers. Mr Willers was not, it appears, going to be pursued by the Costs Respondents for the Costs Shortfall unless he came into some funds.

   3. I confess I have found a decision in this case very difficult. On balance I have concluded that this is not a case in which De Cruz and the Barristers have acted outside the role of legal representatives to such an extent as to bring themselves within the costs jurisdiction under section 51(1) and (3).

   4. First, it is significant, in my view, that the additional interest that the Costs Respondents had in the success of the Malicious Prosecution Claim over and above the recovery of their fees for their work on that claim was also an interest in recovering fees for providing legal services to Mr Willers to defend himself in the Langstone Action. The Supreme Court in the preliminary issue decision held that it was not an abuse of process for Mr Willers to claim the Costs Shortfall as a head of damage in the malicious prosecution claim. Lord Toulson JSC said (at 58) that the notion that the costs order made by Newey J at the end of the Langstone Action has necessarily made good the injury caused by Mr Gubay’s prosecution of the claim was almost certainly a fiction and the court should try if possible to avoid fictions, especially where they result in substantial injustice.

   5. Secondly, there is a more particular aspect of access to justice arising in this case than the general point discussed in the cases which I have cited. The risk that the legal team which acted successfully to defend the client in the earlier civil claim is potentially liable to pay the costs of the defendant to the malicious prosecution claim if some of those costs remain unpaid would in many instances force the client to instruct a new legal team. It would be expensive for Mr Willers to instruct a new legal team to fight the Malicious Prosecution Claim rather than use the existing legal team who are already familiar with the background. In a malicious prosecution claim, the claimant is always going to have been the successful defendant in the earlier proceedings which he now alleges were maliciously prosecuted against him. It is always going to be preferable from his point of view to be able to engage lawyers who understand the background and what happened in the earlier claim rather than instruct new lawyers who will then need to get up to speed with all the previous history before being able to advise on what is often going to be a speculative claim. There is also an equality of arms point in that the Executors would have no restriction on using their same legal team with their high level of familiarity with all the issues, whether or not they had paid all the fees incurred in the earlier proceedings.

   6. Thirdly, it is important that legal representatives know when they first take on a client whether they are exposing themselves to the potential claim for costs from the opposing party at the end of the day. Litigation takes many twists and turns and it would be unsatisfactory for a legal representative who takes on a client without suspecting that such a risk existed then to be placed in the dilemma of whether to continue acting once the risk becomes apparent. That was not the case here, of course, because at the date the Malicious Prosecution Claim was brought it was already likely that there would be a costs shortfall although the extent of that differential was not yet known. Everyone was also already aware at the time the Malicious Prosecution Claim was lodged that Mr Willers had no funds to pay either his ongoing legal expenses or the Costs Shortfall. But there may be cases in which the facts are not so clear cut. I agree with the comment of Hale LJ in Hamilton v Al Fayed that it is better to have a general approach to these cases rather than for liability to turn on nuances of fact in particular cases – even though in a particular case it may lead to a hard result.

   7. Fourthly, Mr Mitchell urged that the judgments of this court have stressed that every application for a non-party costs order must be decided on its own facts and that limited assistance is to be derived from citation of earlier authorities. He pointed to the way that Lloyd LJ had limited the scope of the decision in Myatt (at 27) to cases involving the invalidity of a CFA. In the same way, he argued, any order made in this case could be expressly limited to cases involving claims for malicious prosecution of an earlier civil claim so that there was no real danger of creating some widely applicable exception to the Tolstoy line of cases.

   8. I was initially attracted to the idea that the distinction that Mr Mitchell drew between this case and the Tolstoy and Floods cases did justify a further, narrowly confined, exception to the general principle that legal representatives who, formally or informally, forego payment of their fees are not thereby liable for the successful party’s costs. This is the first case in which an action for malicious prosecution has been brought for the allegedly malicious prosecution of an earlier civil claim. In a more conventional malicious prosecution claim where the previous prosecution was criminal, it is very unlikely that the acquitted defendant would have a large liability for unpaid fees owing to his defence legal team which he then claims as part of his loss arising from the malicious prosecution. There is a policy question as to whether, despite the access to justice and equality of arms points made earlier, the team which advised a successful defendant in this kind of bitterly fought litigation is also then the team advising him on the benefits and disadvantages of pursuing a further round of litigation against the same foe. Would it be better for a fresh team to advise on the merits of that further round of litigation; a team that does not have quite as much of their own money at stake as the Cost Respondents had? I have however concluded that it is not appropriate to take this factor into account in deciding whether to make the order in this application. It is a matter for a professional regulator to address if that is thought necessary and is not appropriately dealt with by creating the potential threat of a non-party costs order.

   9. Further I must not fall into the trap of assuming that the Costs Respondents were encouraging Mr Willers to bring and pursue the Malicious Prosecution Claim. It is clear from cases such as Hodgson v Imperial Tobacco Ltd [1998] 1 WLR 1056 that a solicitor or barrister who enters into a CFA still owes to the client exactly the same duties that he would owe to the client and to the court if he were being paid on a conventional basis. He must disregard his own interests in giving advice to the client: see Lord Woolf MR at p, 1065. Mr Willers has refused to waive privilege in respect of his communications with and advice from his legal team either in the Langstone Action or in the Malicious Prosecution Claim. Mr Lawrence reminded me of the authorities arising in the wasted costs jurisdiction which make clear that where the legal representatives are prevented, by the refusal of their client to waive privilege, to rely on what passed between them in order to defend themselves against a costs application, the court should give them the benefit of any doubt arising as to what is likely to have occurred: see Ridehalgh v Horsefield [1994] Ch 205 and Medcalf v Mardell [2001] 2 AC 678. Given their inability to reveal what advice they gave, I should assume that they gave honest advice unaffected by their financial interest in Mr Willers recovering the Costs Shortfall just as one must assume that it was unaffected by their recognition that they would not get their fees for their services in the malicious prosecution claim itself unless that claim was successful.

   10. I doubt whether Mr Mitchell is right in submitting that the making of an order in these circumstances would remain confined to its narrow facts. Mr Carpenter in his concise and persuasive submissions on behalf of De Cruz has convinced me that it would not be right to try to carve out a further exception because there are a number of scenarios in which the damages claimed in second proceedings include the unpaid costs of the solicitors incurred in the first proceedings. For example, the client may have entered into a commercial contract which has been carelessly drafted for him by his solicitors so that there is an ambiguity that on one construction makes him subject to an onerous financial obligation which he did not intend to undertake. The client goes to new litigation solicitors who act for him in the contract claim against the contract counterparty. The contract claim may be expensive and the litigation solicitors may extend credit to him if he is impecunious. Suppose he loses the contract claim and has to perform the onerous obligation to his counterparty as well as pay the counterparty’s costs for the contract claim. He may wish to pursue his former solicitors for professional negligence in drafting the contract. He would include in his claim his own reasonably incurred fees owed to his litigation solicitors. It would not be right for the litigation solicitors to have to insist that the client pays all their outstanding fees before they could agree to act because there is a risk that they will be considered a “real party” to the professional negligence claim if some of those fees cannot be paid until the drafting solicitor pays up. Mr Carpenter gave further examples of a disputed will where there might be expensive litigation between beneficiaries over the terms of the will and the losing party may then sue the solicitor who drafted the will in negligence. If the losing beneficiary then wishes to use in the negligence proceedings the same solicitors who acted for him in the beneficiary proceedings, he should not be precluded from doing so just because he wishes to claim in the negligence proceedings the fees charged by them for the unsuccessful litigation and some of those fees are outstanding because of his impecuniosity. A similar situation may arise in respect of the negligent conveyancing of a house where there may be litigation, for example over a disputed right-of-way which the conveyancer did not notice and the same solicitors may be used in the proceedings between the neighbours and the later proceedings in negligence against the conveyancer.

   11. These examples satisfy me that it is not possible to make an exception to the protection that the authorities clearly confer on legal representatives in this case without opening up solicitors to potential non-party costs applications in many spheres in which they act for a client who is claiming as damages the fees which the client owes them for work done for him in earlier proceedings. There is no principled way to draw a line between those cases and the present case. In each case it would be unfair either to deprive the client of the services of his former lawyers or in effect to require those lawyers to pursue the outstanding earlier costs by, for example insisting that the client sell his house, cash in his pension, or dispose of other assets in order to pay their fees.

   12. The question in this application does raise as a matter of principle whether the fact that the fees riding on the success of the claim are not only the fees for work in that claim but also fees outstanding from an earlier claim means that the solicitor to whom those fees are owed is acting in the subsequent claim as a “real party” or acting outside the scope of his role as a legal representative. In my judgment he is not.

   13. Fifthly, the Executors argued that this case was marked by a particular feature, namely that there was a conflict of interest between the Costs Respondents and Mr Willers arising from the terms of the CFA between De Cruz and Mr Willers. Although this was dealt with in relation to indemnity costs, the passage I have quoted above from the judgment of Mr Donaldson QC in Harcus Sinclair indicates that a congruence or lack of congruence between the interests of the solicitors and the interests of the client is a factor when considering whether the solicitor has acted outside his role as solicitor for his client.

   14. Mr Mitchell argued that there was a conflict of interest in that it was in De Cruz’ interest for Mr Willers to assert that he owed them every penny of the Costs Shortfall. Mr Mitchell referred to Mr Willers’ statement (quoted in paragraph 24 (ii) above) that he had not challenged De Cruz’ bill of costs because he believes the bill of costs to be fair and reasonable. He described this statement as extraordinary given the extent to which those costs were disallowed by Master O’Hare and the terms of the Master’s rulings on those costs. He points also in particular to the term of the CFA which, he says, gives Mr Willers an unanswerable defence to any attempt by De Cruz to claim from him anything more than the 43% success fee allowed by the Master: see paragraph 18 above.

   15. I regard this point as unrealistic. It would be wrong to speculate as to what would have happened as regards the claim for the Costs Shortfall if the Malicious Prosecution Claim had succeeded on liability. I described the difficulties and the further legal and factual issues that would have arisen in paragraphs 323 – 326 of the Judgment. If the quantum awarded at the end of the trial had been substantially less than the total Costs Shortfall it seems to me unlikely, given the extremely generous stance that the Costs Respondents have so far adopted towards Mr Willers, that they would have pursued him for the shortfall of the shortfall. If they did demand payment of the whole sum, I do not accept Mr Mitchell’s suggestion that Mr Willers would somehow be prevented or estopped from pursuing his rights under the Solicitors Act on the basis of what he had said about the reasonableness of the fees in the course of the Malicious Prosecution Claim. I consider that it was in Mr Willers’s interests to seek in the claim to recover from Mr Gubay as much as possible of his own liability to the Cost Respondents and I do not see that he had, at least before the conclusion of the Malicious Prosecution Claim, a non-congruent interest in getting into an argument over fees with his legal team.

   16. It could be said that there was a divergence of interest between the Costs Respondents and Mr Willers because it was a matter of indifference to Mr Willers whether the claim for the Costs Shortfall succeeded. If it did succeed he would pay the outstanding fees; if it did not succeed he had no reason to think that the Costs Respondents would press him for payment when they had forborne to press him so far. However that would not be right as a matter of fact. At the time the Malicious Prosecution Claim was brought, Mr Willers was pursuing his counterclaim in the Isle of Man Proceedings claiming millions of pounds from Mr Gubay and then his Executors in the Isle of Man: see paragraphs 143 to 146 of the Judgment. If he had succeeded in that counterclaim he may well have been required to pay the Costs Shortfall from those damages and then would clearly have an interest in pursuing the Malicious Prosecution Claim for reimbursement of those sums. This case is different from the Myatt claim where the interest of the coal miner claimants was very clearly a small amount financially as compared with the much larger sum in jeopardy for the solicitors. The value of the Costs Respondents’ interest in the outcome of the litigation is not many times greater than the value of Mr Willers’ interest as was the case in Myatt. Further, in Myatt the ability of the solicitors to recover their profit costs from the claimants was an interest at least different from, if not actually in conflict with, the interest of the Claimants who would not be liable to their solicitors for those profit costs if the appeal failed. The recovery of the Costs Shortfall in the Malicious Prosecution Claim cannot be described as of no interest or concern to Mr Willers, to adopt Lloyd LJ’s wording in Myatt para 26.

   17. Allied to the question of conflict of interest is the question of who was in control of this litigation. The Executors rely on the text of a letter sent in September 2018 by Mr Thomas of Laytons to Mr De Cruz setting out the terms of a conversation they had had on 17 February 2017 shortly after a failed mediation but as part of ongoing negotiations to settle the Malicious Prosecution Claim. The admissibility of this letter in this application was the subject of a judgment by Andrews J on 12 April 2019: [2019] EWHC 937 (Ch). It included the following paragraph: (VDC being Mr De Cruz)

“VDC then turned to what seemed to be the main purpose of the call. He said Mr Willers (PW) owes ‘us’ £3.5M. He said that any settlement would need to include that as otherwise PW would retain liability to his lawyers. He asked if there was any sum in excess of £3.5M that the executors would be willing to offer on the ‘clean break’ basis. He explained that PW would need ‘something for himself’ as well as the £3.5M. VDC explained that the £9M offer comprised the £3.5M plus £5.5M for PW. VDC explained that PW would need to pay off the £3.5M in full and that anything else was for him.

I said the parties were a long way apart. I explained that the executors were fed up at the end of the mediation and that they felt they had gone as far as they could. They had their own responsibilities and were prepared to fight the case.

VDC seemed to take that on board but repeated his comment that PW would need to pay off the lawyers in full. I commented that the lawyers themselves would need to take a view as to PW’s solvency (the point being that the lawyers themselves are at risk). VDC initially queried this and said “lack of liquid assets” but then when I made the point that DeCruz and PW had given us extensive details as to PW’s lack of solvency he did not demur further (maybe further investigation needed). VDC again said there was no way of bridging the gap without PW discharging his liability to his lawyers.

1. 1. The Executors argued that this showed that it was the Costs Respondents who were in control of the litigation and appeared to have been put in a position where they could dictate the amount of damages at which Mr Willers could settle and had determined that that amount could not be less than the £3.5 million he owed them. This showed that the Costs Respondents had overstepped the role of legal representatives and were the real parties to the dispute as they firmly intended that the litigation should continue regardless of Mr Willers’ preferences unless the damages offered covered the totality of their outstanding costs.

   2. Mr Carpenter downplayed the significance of the Attendance Note arguing that it should not be taken out of context, that context being it was one conversation in a lengthy negotiation between the parties’ solicitors. He memorably described it as “self-evidently the tip of an iceberg floating in an ocean of privilege”. That privilege covered not only the without prejudice discussions between the solicitors and more importantly what passed between Mr Willers and his lawyers none of which has been disclosed.

   3. I agree with Mr Mitchell that it is difficult for the Costs Respondents to dismiss the relevance of the attendance note given that they fought tooth and nail before Andrews J to keep it private. However, I do not accept that the note can bear the weight that the Executors seek to place on it. It would not be right to conclude on the basis of Mr De Cruz’s negotiating position in this particular telephone conversation that the Costs Respondents had been given a veto by Mr Willers over the terms on which a settlement of the Malicious Prosecution Claim could be reached. Mr Carpenter also points out that subsequently, on 17 September 2018, in the course of correspondence about the possibility of having a second mediation, De Cruz wrote to Laytons that Mr Willers was prepared to mediate in good faith on the basis that he might accept less than £9 million in settlement of his claims and less than £3.5 million in respect of his costs of the Langstone Action. There was apparently no agreement or arrangement between the Costs Respondents and Mr Willers as to how any lump sum received in settlement would be allocated as between Mr Willers and the Costs Respondents. In my judgment the Attendance Note is not sufficient to establish that if Mr Willers had wearied of the proceedings and decided to settle for a modest nominal payment, the Costs Respondents would have refused to allow him to abandon the claim if that meant the Costs Shortfall would never be met.

   4. The Costs Respondents also argued that the application must fail because the Executors have not established causation. They submitted that in order to succeed the Executors need to show that if the Costs Respondents had not acted for Mr Willers then the Executors would not have incurred the costs which they now claim from the Costs Respondents. Mr Carpenter referred me to Excalibur Ventures LLC v Texas Keystone Inc [2014] EWHC 3436 (Comm), at para 140 and to the observations of Morritt LJ in Globe Equities Ltd v Globe Legal Services Ltd 1999 WL 477655 at para 28 where he stated that it had not been disputed that the conduct of the non-party must have been a cause of the applicant incurring the costs it seeks to recover at least to some extent.

   5. I find it difficult to discern from these cases what the nature of the counterfactual is that the court is required to consider when deciding whether the respondent to the non-party costs application has caused the costs claimed to be incurred. Is the counterfactual that no other solicitor would have been prepared to take on the conduct of the litigation if the cost respondent had refused or is it just that a different solicitor might have had the conduct of the litigation and pursued it differently? The causation element appears to have been discussed primarily in cases where the application is made against a funder who can show that even without his funds there was sufficient money contributed to ensure that the litigation would have been pursued: see Hamilton v Al Fayed and Excalibur Ventures. That is a very different situation from the current case. It is difficult to see what role causation can have where the basis of the solicitors’ liability to pay costs is that because they stepped outside their role as legal representatives, they were a “real party” to the proceedings even if they do not have to be the only real party. If I had otherwise been minded to make the order against these Costs Respondents I would not have been deterred from that course by a problem with causation. I regard it as doubtful that the Malicious Prosecution Claim would still have been brought if Mr Willers had had to find a different legal team to act for him.

   6. I therefore dismiss the application for a non-party costs order against the Costs Respondents. The interest that the Costs Respondents had in the success of the Malicious Prosecution Claim was not so different from the direct financial interests that lawyers commonly have in litigation as to make them a real party in substantial and critical respects.

Other issues

1. Since I have found that this is not a case where it is just to make a non-party costs order I do not need to deal with the ancillary issues that arose, as to whether there is any proper distinction to be drawn between the Firm and the Company, or between De Cruz and the Barristers or whether it would have been appropriate to order costs to be paid on the indemnity basis.