Fowler De Pledge (a firm) v Smith

At the outset of the hearing on 14^th March 2003 there were two applications before the court by the defendant Geoffrey Paul Smith for permission to appeal. The first related to a decision by Garland J on 31^st July 2002 whereby he held he had no jurisdiction to hear an appeal by Mr Smith against an order made by Judge Thompson in the Ipswich County Court dated 5^th February 2002 directing him to pay £36,136.51 by 4pm on 13^th February 2002. The second related to the decision of Judge Thompson itself and was advanced on the basis that the challenge to Garland J’s refusal of jurisdiction had been unsuccessful. On this basis Mr Smith sought permission to appeal to this court as a second appeal out of time.

During the course of the hearing we said that we would allow his appeal against the order of Garland J, for reasons we would give in due course. The first part of this judgment sets out our reasons for that decision. In the second part of the judgment we will explain how this court then assumed jurisdiction to hear the appeal from the substantive decision of Judge Thompson. We will then set out our judgment on that appeal.

The background to the appeal against the decision of Garland J can be stated quite briefly. The claimants are Mr Smith’s former solicitors, and their claim against him for unpaid fees was compromised on 18^th May 1999 when Judge Brandt made an order by consent that Mr Smith should pay them an agreed sum of £25,000 (which sum was duly paid four months later) together with their costs on Scale 2. He directed that the determination of Mr Smith’s liability for their costs pursuant to section 17 of the Legal Aid Act 1988 should be remitted to a district judge. The amount of those costs was determined under a default costs certificate in the sum of £26,183.44 in May 2000. In January 2001 District Judge Evans struck out with costs Mr Smith’s application to set aside that certificate, and the section 17 issue came for determination before District Judge Skerritt on 17^th May 2001.

Section 17(1) of the 1988 Act provides that:

“The liability of a legally assisted party under an order for costs made against him with respect to any proceedings shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute.”

On 17^th May 2001 District Judge Skerritt decided that it was reasonable for Mr Smith to pay the whole of the amount of the default costs certificate. He assessed the sum due, including interest to date, at £30,885.87, and gave the claimants leave to enforce this judgment forthwith. Mr Smith sought permission to appeal, and his application came on before Judge Brandt on notice on 7^th August 2001.

Unfortunately the court tape recording apparatus at the Cambridge County Court had not been working on 17^th May 2001, and there was only an inadequate note of the district judge’s judgment before Judge Brandt. He was of the opinion, however, on the basis of that note, that he should grant permission to appeal, and he directed that the appeal be allowed to the extent that the claimants’ application was to be reheard by a different circuit judge. The relevant part of his order was drawn up in these terms:

“It is ordered that:

(1)

The application for leave to appeal be allowed.

(2)

This hearing be treated as the hearing of the appeal.

(3)

This appeal be allowed to the extent that the Claimant’s application is to be reheard before a Circuit Judge other than His Honour Judge Brandt.

(4)

The costs of this application be reserved to the Judge trying the application.”

On 30^th January 2002 Judge Thompson conducted that rehearing. He began his judgment by saying that this was an appeal against the decision of District Judge Skerritt by way of a hearing de novo. Towards the end of his judgment he said that for the reasons he had given he was going to uphold the original order which was made by District Judge Skerritt. When his order was drawn up, however, it simply directed that the sum of £36,136.51 (being the amount of the original default costs certificate, with accumulated interest and additional assessed sums ordered to be paid as costs) be paid by 4pm on 13^th February 2002.

After his Notice of Appeal had been originally lodged in this court, where the office staff took the view that the appeal properly lay to the High Court, Mr Smith’s appeal against that order was then lodged at the Norwich District Registry of the High Court. On 15^th May 2002 Bell J advised the staff at that District Registry that the appeal was properly lodged there. Six days later the claimants lodged an application for an order that Bell J’s order be varied so as to make it clear that the proposed appeal was a second tier appeal and that the correct jurisdiction for any further appeal (and hence application for permission to appeal) was the Court of Appeal.

On 18^th June 2002 Garland J dismissed that application on paper. It appears that the claimants requested that his decision be reconsidered at a hearing in court. It was in these circumstances that on 31^st July 2002 Garland J heard the claimants’ arguments on jurisdiction before he went on to consider the merits of the proposed appeal on the assumption that he possessed jurisdiction. He concluded that the rehearing before Judge Thompson was a hearing at appeal court level as an alternative under CPR 52.11 to a review because of the lack of any reliable record of the district judge’s findings and reasons. Although it would have been more usual for Judge Brandt to have proceeded to rehear the matter himself, in the event Judge Thompson was simply to be regarded as his alter ego for this purpose.

CPR 52.11 provides, so far as is material:

“(1)

Every appeal will be limited to a review of the decision of the lower court unless –

(b)

the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing.

(2)

Unless it orders otherwise, the appeal court will not receive –

(a)

oral evidence; or

(b)

evidence which was not before the lower court.”

Garland J therefore considered that Judge Brandt had decided that in the circumstances of this individual appeal it was in the interests of justice to hold a re-hearing, and that Judge Thompson had conducted the appeal by way of that re-hearing as opposed to conducting the more familiar review of the lower court’s decision.

The trouble with this conclusion is that it does not correctly reflect either what Judge Brandt said or what he ordered. As a matter of law it ought to be possible for us to determine this question without going further than the order itself. If the order did not correctly reflect the judge’s intention, then the proper remedy would take the form of an application to the judge to correct his order under the slip rule. It is the unhappy experience of this court, however, to see many orders in the county court which have been ineptly drawn, no doubt through the inexperience of county court staff grappling with the quite complicated matters that are now the daily fare of that court. It therefore seemed appropriate that we should ourselves read the transcript of the hearing before Judge Brandt, just in case we were of the view that the order itself did not correctly reflect his intention.

The order itself (see para 6 above) could not have been clearer. After granting permission to appeal, Judge Brandt treated the hearing as the hearing of the appeal and allowed the appeal in the manner set out in paragraph (3) of his order. In so doing he was exercising his powers under CPR 52.10(2)(a) to set aside the order made by the district judge and under CPR 52.10(2)(c) he was ordering a rehearing of the claimant’s application before a circuit judge, not a district judge. He could have granted permission to appeal and directed that the hearing of the appeal be listed before a circuit judge as a rehearing, by way of appeal, rather than as a review (see CPR 52.11(1)(b)), but he did not. He unquestionably allowed the appeal. His order says so. It was the claimants’ application, not the defendant’s appeal, which was to be reheard (see paragraph (3) of his order).

The transcript of Judge Brandt’s judgment shows that the order correctly reflected his intention. It is clear that he was of the view that the order of the district judge could not stand. He also stated clearly on two occasions (at p 12E-F and pp 13G – 14C) the order he was making, and his intention is correctly reflected in the order drawn up by the court. He even went on to make it clear that if he had still been concerned with an appeal he would not be disposed to admit new evidence (see p 14D), but that “if there is to be a rehearing, then the parties are entitled to put before the Circuit Judge who rehears the matter any relevant material which they see fit” (see p 14B).

Garland J was influenced in coming to an opposite conclusion, in what he did not find to be “an altogether easy matter”, by the fact that Judge Brandt ordered the rehearing to be before a circuit judge and not before a district judge. He found that the hearing before Judge Thompson was a hearing at appeal court level as an alternative under CPR 52.11 to a review because of the lack of any reliable record of the district judge’s findings and reasons. He also recited, without adverse comment, the claimants’ reliance on the opening sentence of Judge Thompson’s judgment, which was to the effect that this was an appeal against the decision of the district judge by way of a rehearing de novo. It would of course have been open to Judge Brandt to make an order of the type suggested by Garland J, and if he had done so the Byzantine complexities relating to the correct route for a further appeal would never have arisen. But there can be no doubt in our judgment, from an examination of the wording of his order (confirming as it did the words he spoke in court), that this was not the order he made. In those circumstances the appeal from Judge Thompson’s order is a first tier appeal, and the order of Garland J must be set aside.

On 11^th November 2002 Lord Justice Brooke directed that these two applications should be heard on notice with the appeal to follow if permission was granted. He told the parties that he would be seeking a direction from the Master of the Rolls to transfer the appeal from Judge Thompson to the Court of Appeal as a first appeal if this court were to find that Garland J was wrong to decline jurisdiction. He therefore warned the parties that they must be prepared to argue both jurisdiction and the appeal on its merits. On 28^th February 2003 the Master of the Rolls duly directed that whether or not Garland J had jurisdiction, this appeal should be heard by the Court of Appeal. The way was therefore open to us to hear the appeal from Judge Thompson on its merits as a first appeal. We granted the defendant permission to appeal during the course of the hearing, since there was a real prospect of success on the appeal. We also extended time because the original notice of appeal was filed timeously, albeit in the wrong court.

The claimants’ application was listed for rehearing on 30^th January 2002. Five days earlier Mr Smith had attended court to apply for an adjournment of the hearing on medical grounds. Judge Thompson refused this application on the basis that the evidence he submitted did not justify an adjournment. Mr Smith then decided not to attend court on 30^th January. He was represented by counsel in his absence. The judge said that he was satisfied that if Mr Smith had chosen to attend court that day he could have. The claimants had not applied and did not now apply for an order whereby they might have cross-examined Mr Smith on the contents of two witness statements which he had filed in March and June 2001. The judge therefore proceeded to determine the application on written evidence alone.

The claimants were applying for a determination of Mr Smith’s liability for their costs under Judge Brandt’s order dated 18^th May 1999 pursuant to section 17 of the Legal Aid Act 1988. This section provides that:

“The liability of a legally assisted party under an order for costs made against him with respect to any proceedings shall not exceed the amount, if any, which is a reasonable one for him to pay having regard to all the circumstances, including the financial resources of all the parties and their conduct in connection with the dispute.”

We will refer in paragraphs 32-35 below to the way this section has been interpreted by this court. It is first necessary, however, to say a little about the background history, because this clearly influenced the judge in deciding that Mr Smith, although a legally assisted party, should pay the whole of the claimants’ costs in a sum, inclusive of accrued interest, of over £36,000.

Mr Smith is now about 66. He was seriously injured in a road traffic accident in 1964, and he was obliged as a result to take early retirement in 1986. One of the documents before the court was a consent order made in his favour on 11^th June 1986 by Mr Justice Hoffmann (as he then was) on his minority shareholder’s petition in relation to a company called Blythe Holdings Limited. Mr Smith said he received £235,000 at that time. However he maintained that things had then gone consistently downhill and that he had only been involved in loss-making activities. He said he had to keep on borrowing for various purposes and his assets became very seriously depleted.

The claimants acted for him as his solicitors in connection with a number of transactions in the early 1990s. In particular they acted for him on another minority shareholder’s petition which culminated in a very long trial (lasting more than 20 court days) before Judge Bromley QC in the Cambridge County Court. Mr de Pledge of the claimant firm acted as Mr Smith’s advocate at this trial. In his judgment dated 7^th April 1995 Judge Bromley said:

“Mr Smith is an older man who made a lot of money out of selling a computer business in which to put money, or at least in the present case for which he might seek to procure substantial funds, with of course some concomitant financial benefits for himself. He is an entrepreneur with a broad business experience and background … [W]ere [two of the three defendants] and Mr Smith to be described as ‘hard nuts’ I would not dissent.”

In his second witness statement Mr Smith said that this litigation arose out of what was in effect a fraud that had been worked on him. Although he won the proceedings it was a pyrrhic victory, because the two defendants who were ordered to repay the management fees they had taken did not have sufficient money. He had had to pay two thirds of the third defendants’ costs and he was also left with a substantial legal bill submitted by the claimants. An action for damages for professional negligence was still being pursued against Messrs Henniker-Major, who had acted for the company in question, and Mr Smith said that the company had assigned to him all its rights in connection with that action.

Mr Smith was awarded legal aid to defend the claim which the claimants brought against him for their unpaid fees. The evidence does not reveal the grounds on which his lawyers persuaded the Legal Aid Board that he had a meritorious defence (and/or set-off by way of counter-claim). Judge Thompson said that it was clear that he had resisted the claim on the basis that the claimants had been negligent and that, no doubt, their fees were too great. At all events the action was settled on the first day of the trial on the terms set out in paragraph 3 above. As part of the settlement the claimants had agreed to accept £25,000 in respect of a claim they had valued at £44,000. They had to issue a bankruptcy petition before they recovered the £25,000 four months later.

The judge was influenced by the fact that Mr Smith subsequently made allegations of professional negligence against two other firms of local solicitors. The first of these firms was Messrs Hobbs and Durant, who had acted for him when he was defending himself against the claimants’ claim for unpaid fees. He maintained that he had received negligent advice from them in connection with the settlement of that claim which he had understood to constitute a once and for all payment of £25,000, to be paid out of the funds he anticipated receiving in the Henniker-Major litigation. The other was Messrs Lloyd Barnes who were said to have acted negligently in connection with the events that led up to the claimants obtaining a default costs certificate in these proceedings (see para 3 above).

Mr Smith’s substantive evidence before Judge Thompson consisted of a witness statement he signed on 29^th June 2001, to which there were numerous attachments evidencing his financial position. (This was the witness statement Judge Brandt would have refused to admit if he had been hearing an appeal against District Judge Skerritt’s order in the ordinary way). In this statement Mr Smith said that his only significant asset was his half-interest (with his wife) in a cottage they had bought in 1999 for £195,000 with the help of a mortgage for £120,000. They had had to sell their former home to pay off debts, and they had invested what was left of the proceeds of sale in their new home.

He said that his total annual income, derived from a private pension of £9,660 and various social security benefits, amounted to about £14,000, and that his outgoings were about £16,000. On this basis Mr Nesbitt had argued that it could not be shown for the purposes of section 17 that he had the means which could be used to pay the costs, particularly as his dwelling-house could not be taken into account when assessing his means for legal aid purposes.

The claimants did not seriously challenge what he said, backed up as it was by a considerable amount of documentary evidence. Their case as to his means was that he had owned substantial properties in the past, that he had produced £25,000 in September 1999 in response to their bankruptcy petition without explaining the source of his funds, and that he was the beneficiary of private pension arrangements. They also relied on matters relating to his conduct. They complained that he had always been evasive regarding his financial affairs, that he had a history of not paying legal fees, that he was involved in litigation against Messrs Henniker-Major, that the costs they were claiming had all been caused by his unreasonable behaviour, that he had received substantial monies from the sale of properties in 1997 and 2000, and that he had the ability to pay substantial sums when pressed. They maintained, among other things, that “the costs of the judgment of 18^th May 1999” were unreasonably caused by his failing to admit that he owed them any money at all, after they had acted for him in the Companies Act litigation for more than 20 days.

The judge appears to have accepted that all the material evidence which Mr Smith had put before the court suggested that he was now a person of limited means and that he was a person who could not pay the costs being claimed against him. He noted that the claimants had not challenged what he had said in his witness statement, supported as it was by the documents he exhibited. He said they were simply saying that:

“He is a man who will always find money when his back is against the wall. He is a man who will always say that he can’t afford to pay, and his history shows that every time he’s asked to pay, especially legal costs, he avoids paying them and makes defences to the claims and counterclaims against the solicitors.”

The reason why the judge decided that Mr Smith should not be entitled to the protection which section 17 would otherwise have afforded him was that he made adverse findings against him in relation to his conduct. These findings were made on three main grounds:

The judge later said that he was satisfied that Mr Smith was untrustworthy, and that he was a person who would wriggle and squirm to try to get out of his liabilities in every way he could. He summed up his conclusion in these terms:

“I am satisfied on the evidence before me that Mr Smith is not entitled to the protection of Section 17 because I do think that it is reasonable, in all the circumstances of the case, and in the light of his conduct, to order him to pay the costs which are sought by the applicant, Fowler de Pledge.”

It will be noted that he made no findings as to Mr Smith’s means. He accepted that he could not take into account his interest in his dwelling-house. He noted that the claimants did not challenge his documented statement about his means, other than to say that he was untrustworthy. And he did not say why he believed Mr Smith had access to funds such as to enable him to pay a bill of over £36,000. Mr Nesbitt pointed out in this context that in 2000-2001 the Legal Aid Board’s Special Investigations Unit had conducted a special investigation of Mr Smith’s means at the claimants’ request and had concluded that he continued to meet the financial criteria for legal aid.

We have set out the terms of section 17 of the Legal Aid Act 1988 in paragraph 18 above. In Crystall v Crystall [1963] 1 WLR 574, a case decided on the almost identical terms of section 2(2)(c) of the Legal Aid Act 1949, Willmer LJ said at p 579:

“It is, I think, impossible to avoid the conclusion that one of the circumstances, and, indeed, a most compelling circumstance, is the means of the party himself. Whatever one may think of the conduct of a party it would still not be right to make an order for costs against him which was unreasonable having regard to his means.”

In Gooday v Gooday [1968] 3 All ER 611 Diplock LJ said at p 615 that although he would not quarrel with the judge’s view that the wife should not have persisted in bringing a hopeless case against the husband:

“when one comes, however, to the other matter which he is expressly required by the Act of 1949 to consider, viz the means of all the parties, it does seem to me that the order he made for £200 was more than was reasonable in the circumstances.”

More recently, in Chaggar v Chaggar [1997] 1 All ER 104 Aldous LJ, with whom Phillips LJ agreed, counselled judges against feeling that the protection afforded by section 17 produced an unfair result. He said (at p 110d-e):

“The task of the court is set out in s 17: it is to decide the assisted parties’ liability for costs. Those costs must not exceed that which it is reasonable for the party to pay in all the circumstance. Thus, all the circumstances have to be taken into account, but particular reference has to be paid to the financial resources of both parties taking into account regulation 126. In essence, the court should consider the parties’ disposable income and disposable capital excluding the assets referred to in the regulations.”

Aldous LJ went on to refer to the “conduct of the parties in connection with the dispute”, but he accurately reflected the earlier caselaw on section 17 when he laid stress on the importance of identifying the parties’ disposable income and disposable capital.

In our judgment the judge’s order cannot stand. He was overly influenced by the adverse view he took of Mr Smith’s conduct, and he paid insufficient attention to his duty to make explicit findings as to Mr Smith’s means. He was, of course, faced with the difficulty that the claimants had not sought or obtained an order requiring Mr Smith to attend court to be cross-examined on his witness statement, but in our judgment he was not entitled on the evidence to make an implied finding that Mr Smith still had access to funds which would enable him to pay over £36,000 out of his own resources. Whatever the judge’s doubts about the provenance of the £25,000 in September 1999 the claimants themselves had produced as part of their evidence a letter from Mr Smith to them dated 15^th September 1999 in which he had told them that a colleague of his had advanced this sum to him in the knowledge that he would eventually repay him from any possible outcome of his claim against Messrs Henniker-Major.

In our judgment there was simply no adequate evidence to justify a finding that Mr Smith himself possessed sufficient means to pay the full amount of the costs order against him. In those circumstances the sum ordered by the judge was not a reasonable one for Mr Smith to pay within the meaning of section 17. It was not suggested to us that we should substitute a different amount, and if the parties are unable to reach a compromise the matter must be remitted to a different circuit judge to consider the matter afresh.

During the course of his submissions Mr Nesbitt drew our attention to article 8 of the Access to Justice Act 1999 (Commencement No 3, Transitional Provisions and Savings) Order 2000 and Regulations 10(2) and 12(3) of the Community Legal Service (Costs) Regulations 2000. On the face of it these provisions appear to place considerable difficulties in the claimants’ path, but we did not hear full argument on their effect, and the claimants did not have the opportunity of filing any evidence on the issues they raise. In these circumstances it appears to us that it would be better to say nothing about their effect at this stage. It will of course be open to Mr Nesbitt’s client to rely on them, if so advised, when the application is heard again.

It would be wrong to leave this appeal without stressing how important it is that appeal courts, at all levels, should make clear on the face of their orders for a rehearing whether they are ordering a rehearing at appeal court level (in which case any subsequent appeal would be a second appeal) or whether they are ordering a rehearing of the original application at first instance. This is the second time this year in which litigants’ time was wasted while an appeal went to and fro between the High Court and the Court of Appeal looking for a home. On the other occasion this court had set aside an order of a circuit judge sitting as an appeal court, but it did not make it clear whether the rehearing it was ordering was a rehearing of the appeal or a rehearing of the original application. If there is clarity in the appeal court’s order directing a rehearing, we should have no more cases of later appeals wandering about looking for a home.