Haji-Ioannou v Frangos & Ors

Although this appeal from Lindsay J sitting with two assessors is a second appeal and, moreover, relates only to the assessment of costs, permission to appeal has been granted so that this court can give some guidance as to how the discretion vested in the costs judge by CPR 44.14(2)(a) should be exercised. CPR 44.14 is contained in the Part entitled “General Rules about Costs” and is headed “Court’s powers in relation to misconduct”. It provides that in certain circumstances, the court may disallow all or part of the costs which are being assessed. The Part (Part 47) dealing with the “Procedure for Detailed Assessment of Costs” provides for detailed assessment proceedings to be begun within 3 months of the judgment by which such costs were ordered to be assessed and that, if the receiving party does not do so, the court may disallow all or part of the interest otherwise payable to the receiving party, but must not impose any other sanction except in accordance with rule 44.14. It is the inter-relationship between rule 44.14 and rule 47.8 that lies at the heart of this appeal. It is said that the rules have received different interpretations from different judges at first instance.

It will be convenient at once to set out the precise terms of the relevant provisions. As I have said, rule 44.14 is headed “Court’s powers in relation to misconduct”. It provides:-

The facts giving rise to this appeal are not likely to be typical of cases where a successful (and therefore a receiving) party has delayed instituting proceedings for a detailed assessment of his costs; nevertheless we will, with the assistance of our assessor, give what guidance we can.

The Facts

Detailed assessment should, therefore, have been commenced (to use the wording of the rule) by 30th June 1999. On 5th May 1999 the defendant’s solicitors, Messrs Holman, Fenwick & Willan (“Holmans”) asked the claimant’s solicitors, Messrs Ince & Co (“Inces”) to confirm that plans were in hand to deal with the defendant’s costs and that a payment on account would soon be paid. Inces’ response on the following day was to say that $49 million remained due under Greek law and, in due course, to launch a petition to appeal to the House of Lords. Later that year the claimant launched proceedings in Piraeus against the defendant to recover the amount of $49 million allegedly due. Those proceedings were originally scheduled to be heard on 20th January 2006. On 23rd February 2000 the House of Lords refused leave to appeal. In June 2000 Holmans asked for Inces’ proposals for payment of the defendant’s costs but the reaction was that “the hearing had been transferred to Greece”. Despite Mr Bacon’s strenuous argument to the contrary on the claimant’s behalf, the defendant and his solicitor would, in my judgment, have reasonably interpreted this response as a refusal to pay costs until the termination of the proceedings in Greece. Any judgment for costs, as assessed in England, would, of course, ultimately have to be enforced in Greece.

Not only had Holmans not commenced assessment proceedings by 30th June 1999; they did not in fact commence those proceedings until 1st July 2004. That is a delay of 5 years, although one could indulgently call it a delay of 4 years and 3 months if one counted time from the dismissal of the petition to the House of Lords. This court not unnaturally inquired what the spur to that commencement was; the answer given by Mr Morgan QC for the defendant was that the defendant had come to realise that the claimant’s Greek proceedings were not going to be dropped but were going ahead. We were also informed that the Greek proceedings could not be heard on 20th January 2006 since they had had to be adjourned because of the snow from which Piraeus was then suffering. They have apparently been adjourned to January 2007. The court is thus presented with the somewhat surprising spectacle of a claimant complaining about a five year delay in the assessment of the costs of his failed English proceedings, when his own Greek proceedings have already been outstanding for seven years and he has already intimated that the costs due in respect of the English proceedings are not to be paid until the Greek proceedings have been terminated. It is perhaps not surprising that, after he had given permission to appeal, Dyson LJ made it a condition of allowing the appeal to continue that the claimant should pay £250,000 on account of the defendant’s costs in respect of which a costs certificate has now been issued in the sum of £326,996.48.

After Holmans had initiated the proceedings for assessment, Inces served Points of Dispute. Holmans served a Response and Inces then served a 168 page Points of Rejoinder. 4 days after that document was served, Inces also, on 9th September 2005, applied for relief by way of disallowance of interest and a proportion of the defendant’s costs. 10 days later Holmans accepted that, in the light of the delay, the defendant would forgo interest on the costs (which still remained to be certified) from 31st March 1999 (the date of the Court of Appeal judgment) until 1st April 2004 (3 months before they had instituted the assessment proceedings). On 26th September 2005 Costs Judge Seager Berry dismissed the disallowance application save to the extent that Holmans had conceded the disallowance of interest. On 12th October he issued his certificate for the sum I have already mentioned. On 24th February 2006, Lindsay J dismissed the claimant’s appeal from the Costs Judge’s decision.

Construction of the Rules

The judge then proceeded, rightly, to hold that there is no inconsistency between Part 44.14 and 47.8. It may, however, be said that there is a certain tension between them. A failure to commence detailed assessment within the 3 months required by Part 47.7 may fairly be described as a failure to comply with a rule and, therefore, at least be included in the general term “fails to comply with a rule” within the words in 44.14(1)(a). Yet it can scarcely be supposed that, when Part 47.8 provides the court “must not impose any” sanction other than the disallowance of interest “except in accordance with rule 44.14 (powers in relation to misconduct)”, every failure to commence detailed assessment proceedings should be regarded as misconduct and permit the disallowance of costs as well as interest.

It seems to me that the clue to resolving the tension is in the word “misconduct”. That word does not occur in the body of rule 44.14 but does occur in the title. There is no reason to suppose that the words in parenthesis “(powers in relation to misconduct)” limit the court’s jurisdiction but they do point to the nature of the court’s discretion. Some breaches of the rules can be more readily described as misconduct than others and the rules trust the Costs Judges, in the course of exercising their discretion, to recognise such misconduct when it occurs. It is difficult to be more helpful than to say that a “bad” breach of a rule viz (for present purposes) the rule requiring detailed assessment proceedings to be commenced within 3 months will enable a Costs Judge to exercise the power to disallow some or all of the costs which he is assessing. In other words there will usually have to be a breach of the rule which can properly be categorised as “misconduct”. An inordinate and inexcusable delay which has prejudiced the paying party may well come within this category; excusable, although inordinate delay may not, especially if it has caused no prejudice. The important point is that, while a non-compliance with a rule, practice direction or court order is the only jurisdictional requirement for the exercise of the power contained in Rule 44.14, it will usually be appropriate as a matter of discretion to consider the extent of any misconduct which has occurred in the course of such non-compliance. I deliberately refrain from saying anything further about the circumstances in which it may be appropriate for the powers under Rule 44.14 to be exercised.

It is said that differing judges at first instance have given different interpretations of these Rules. I do not so read their judgments and, since none of them is binding on us, a detailed analysis of them would serve no useful purpose. The decision of Park J in Re Homes Assured Plc [2002] Costs LR 71 depended largely on the provisions applicable to Legal Aid Taxation which are different from those in play in the present case. In Botham v Khan [2004] EWHC 2602 (QB), [2005] Costs LR 259, where there were claims and cross-claims and Richards J held that not all blame was on one side, the judge referred to the need for misconduct and decided that on the facts no disallowance of costs should be made despite the lengthy delay that had occurred in commencing the detailed assessment. In Less v Benedict [2005] EWHC 1643 (Ch) Warren J thought that “mere delay” would not be enough to justify the exercise of the power to disallow costs unless there were “exceptional circumstances”. Inordinate and inexcusable delay causing prejudice to the paying party might well constitute “exceptional circumstances“ and I would not therefore disagree with what Warren J said, while preferring to say that it will only be in the event of a breach of the rule which can properly be categorised as misconduct that it will usually be appropriate to use the power to disallow costs.

The present case has, of course, two particular features which the court has to bear in mind when it comes to exercising its discretion; first the claimant has always accepted that the delay has caused him no prejudice and indeed Costs Judge Seager Berry seems to have had no particular difficulty in proceeding with the detailed assessment; secondly, there is the argument that, even though the delay is inordinate, it is not inexcusable, since it was clear that no money to pay any assessed costs would be available until the claimant’s Greek proceedings had come to some conclusion which has not yet happened.

The Judge’s Exercise of Discretion

To deal with the matter in this cursory way, however, would not do justice to the arguments addressed to us in a case where the guidance of this court is sought and I shall, therefore, say a little more.

Wider considerations

In answer Mr Morgan QC for the receiving party submitted that the position was more complex than Mr Bacon suggested. First, the new CPR includes a specific provision (CPR 47.8(1)) for the paying party to apply for an order requiring the receiving party to commence detailed proceedings within a specified time. This provision is considerably less cumbersome than the equivalent process in RSC Order 62 Rule 29(3). Second it is a fundamental feature of the CPR that the parties should co-operate to achieve the over-riding objective (CPR Part 1.3). Third, the history leading to the enactment of the CPR showed that a more sophisticated approach than that of Mr Bacon was appropriate. Under the RSC the only sanction usually available was to strike out the proceedings for inordinate and inexcusable delay; this gave rise to considerable satellite litigation on the question when and in what circumstances it was appropriate for the court to make such an extreme order. That was, as Biguzzi itself recognised (page 1932F), exacerbated by the provision in the County Court Rules for an automatic strike-out if a relevant step was not taken by a relevant date. That led to even more satellite litigation in order to avoid such a draconian consequence. The intention of the CPR was that, in accordance with the overriding objective of dealing with cases justly, the penalty should be proportional to the offence. Usually that has meant that costs orders (payable within 14 days) will be imposed if an order or rule of court is not complied with. Where, therefore, the relevant rule provided for a particular time limit (here 3 months) and a particular sanction (the disallowance of interest) the court should not, even if permitted by the Rule, be astute to introduce further sanctions other than for very good reason especially if such sanctions could only be imposed after a court hearing which could itself be categorised as liable to lead to satellite litigation.

I prefer Mr Morgan’s submissions. Of course delay is to be deprecated but where the relevant rule not only gives to the party at the receiving end of the delay the option of preventing further delay by himself taking the initiative but also spells out the normal sanction for penalising such delay (as Rule 47.8 does), it seems to me that the court should be hesitant to exercise further powers to impose further penalties by way of reducing otherwise allowable costs.

There is, moreover, a real danger of encouraging satellite litigation. As Arden LJ observed in the course of argument, the prescribed sanction of the disallowance of interest is likely to be both comparatively uncontroversial and also calculable without unnecessary dispute. A deprivation of costs already incurred will be likely to be controversial in two quite separate ways. First, the opposing parties in the case are unlikely to agree what proportion in relation to what category of costs should be disallowed. Secondly once a deduction or diminution of costs is ordered, there is likely to be considerable controversy between a solicitor and his own client (who will often have paid his solicitors on an on-going basis and will be looking to recover the costs of having done so from the paying party) as to who should bear the primary responsibility for the deduction. On any view the onus, as a matter of practical reality, will be on the client to sue his solicitor for recovery of the fees already paid by him which, as the result of any order, he is now unable to recover. This is a potentially undesirable situation.

In these circumstances we asked our assessor whether there were approximately the same numbers of applications to Costs Judges on the ground of delay since the introduction of CPR as there had been pre-CPR. He has informed us that since the introduction of CPR there have been distinctly fewer applications in relation to delays in assessment. I would infer from this that

To my mind these considerations reinforce the good sense of the decision of Lindsay J and, for these reasons also, I would dismiss this appeal.

I agree.

I also agree.