Alpha Rocks Solicitors v Alade

This case raises the question of when it is appropriate to strike out a claim on the grounds that the claimant has abused the process of the court. It arises in the context of a claim by a firm of solicitors to recover their costs and expenses from their client in circumstances in which the client alleges that the bills were fraudulently exaggerated or misstated.

Mr Kevin Prosser QC, sitting as a deputy judge of the Chancery Division, found that two of the bills presented by Alpha Rocks Solicitors, the claimants and appellants (the “solicitors”), to Mr Benjamin Oluwadare Alade, the defendant and respondent (the “client”), were, in the first case, partly false and deliberately exaggerated, and in the second case, brought on the basis of fabricated documents and of a bill of costs that was known to be inaccurate. The judge made these findings on a strike out application brought under CPR Part 3.4(2)(b) and under the inherent jurisdiction of the court, at which no oral evidence was called, on the basis only of written evidence and the documents.

The two bills were in respect of separate pieces of litigation in respect of which the solicitors had acted for the client. The first was a claim in the Central London County Court brought against the client by his brother, Mr Rufus Alade, concerning property in London (the “Rufus claim”), and the second was a claim before the Adjudicator to HM Land Registry brought against the client by his wife, Mrs Catherine Alade, concerning registration of the wife’s home rights notice against the title to a London property (the “Catherine claim”). The fees in issue in the bills were £131,514.56 in respect of the Rufus claim (the “Rufus fees” and the “Rufus bill”), and £43,732.50 in respect of the Catherine claim (the “Catherine fees” and the “Catherine bill”).

Mr Prosser struck out the solicitors’ claims for the entirety of the Rufus fees and the Catherine fees, though he left in place two other claims for smaller amounts of fees. He acknowledged that the step he was taking was draconian, but held that the abuses which he had identified both involved a serious misuse of the court’s procedure, rendered further proceedings thoroughly unsatisfactory, and created a serious risk that a fair trial of the claims would be impossible.

The solicitors appeal on essentially 5 grounds. First, they submit that the application to strike out was itself an abuse of process. Secondly, they say that the judge ought not to have conducted a mini-trial. Thirdly, in relation to the Rufus bill, the judge was wrong to find that the solicitors had not prepared the trial bundles for which they charged, and the order was anyway disproportionate. Fourthly, the Catherine bill should not have been struck out when the judge could not conclude that it was exaggerated, and when he had misunderstood “paid counsel” as meaning counsel had been paid rather than “not pro bono counsel”. Finally, the solicitors appeal the costs and other orders made by the judge on a number of grounds.

The judge set out the lengthy history of the relationship between the solicitors and the client. Little of that background is relevant to the appeal which is now advanced. The judge then rejected the solicitors’ contention that the strike out application itself was an abuse of process or vexatious, drawing attention to the difference between the function of the Senior Court Costs Office to decide what sums are properly due to the Solicitors for services rendered, and his own task which was to decide whether the claim should be struck out.

The judge then reminded himself at paragraph 21 that he should avoid undertaking a “mini-trial or a lengthy and detailed examination of the facts”, and that he was aware of the “dangers of coming to factual conclusions without the benefit of disclosure and oral evidence where the credibility of witnesses is at stake”. He then rejected the argument that the claim should be struck out for non-service of the bills in compliance with section 69 of the Solicitors Act 1974. There is no Respondent’s Notice re-instating this or any other point.

The judge then considered various allegations of “recent creation of documents”, which were really allegations that new documents were being put forward by the solicitors as if they had been created and relied upon at an earlier date. He rejected this allegation in respect of certain documents relating to the Rufus bill and another bill, but accepted it in relation to a letter from the solicitors dated 16^th January 2012 (the “16^th January letter”) and the 6-page bill of costs (the “6-page bill”) supposedly enclosed with it relating to the Catherine fees. He found that these documents were created by the solicitors after the event, and that a witness statement of a Mr Abimbola Adetoye (a partner in the solicitors’ firm) dated 4^th October 2013 stating that these documents had been served on the client on 16^th January 2012 was untrue. He made these findings primarily on the basis that the Catherine litigation was not concluded before 16^th January 2012 and that the 16^th January letter referred to the court dismissing the application on 28^th February 2012, and the 6-page bill itself charged in respect of several items of work that post-dated 16^th January 2012.

The judge then found that the Rufus bill but not the Catherine bill included deliberate exaggeration of the fees. The Catherine bill was, however, produced by the solicitors knowing it to be inaccurate. The deliberate exaggeration of the Rufus bill was found to be the charging for 8 hours work on 22^nd March 2010 for preparing trial bundles and for 107.5 hours work (which I note totals nearly 3 weeks work) between 23^rd March and 7^th April 2010 on perusal and preparation of trial bundles. The judge’s decision was founded on the findings that (i) the opposing party in the Rufus litigation had prepared the trial bundles in accordance with an order of the court, (ii) that had been confirmed by the opposing party’s solicitors to the client’s solicitors in emails and a witness statement during this litigation, and (iii) the contemporaneous correspondence between the solicitors and the opposing party’s solicitors showed that the solicitors knew they were not preparing the bundles. The judge rejected the argument and the evidence of Mr Adetoye that the solicitors had indeed prepared parallel bundles on the grounds that it was “wholly unconvincing” for seven forensic reasons concerned with the quality of Mr Adetoye’s knowledge and the contemporaneous documents. The judge was shown a number of files that were said to be the parallel bundles, but he said they were just unpaginated documents collated from the other side’s draft index. The judge also rejected the suggestion that the Rufus bill was referring to searching for documents for inclusion in the other side’s bundles. He concluded that the entries in the Rufus bill to the effect that the solicitors had spent 115 hours preparing bundles was simply false.

In relation to the Catherine bill, the judge found that it was drawn up knowing it to be inaccurate in a number of respects as to the work done and the fee earners in respect of whom charges were made, relying on the evidence adduced by the solicitors themselves from Mr Wasui Abiola Otunga, the solicitors’ costs consultant. He also found that it was inaccurate in stating that the solicitors had paid Mr Holland QC’s fees of £8,750 plus VAT, when there was in fact £5,000 plus VAT outstanding.

Mr Prosser’s conclusion on the strike out was expressed as follows:-

“74.

In my opinion, [the solicitors] are guilty of abuse of process in bringing the Rufus claim in reliance on deliberately exaggerated fees, and in bringing the Catherine claim in reliance on fabricated documents and on a bill of costs which was drawn up knowing it to be inaccurate.

75.

In these circumstances I have power to strike out those claims. In considering whether or not to do so, I bear in mind that it is a draconian step because it would extinguish substantive rights. However, the abuses which I have identified both involve a serious misuse of the court's procedure. Moreover they render further proceedings thoroughly unsatisfactory and create a serious risk that a fair trial of the claims would be impossible. In addition, it would be unfair on [the client] to subject him to the time and cost involved in a detailed assessment of the claims. In these circumstances I have no hesitation in refusing to allow [the solicitors] to take further part in the proceedings so far as those claims are concerned, and I shall strike them out accordingly”.

On 12^th December 2014, the judge therefore ordered that the claims for the Rufus and Catherine fees be struck out and that the solicitors should pay 75% of the client’s costs of the strike out on the indemnity basis, with £20,000 on account pending assessment. He ordered the solicitors to pay 75% of the costs because the client had failed on certain other issues, and he ordered indemnity costs because he had found that the solicitors had been guilty of serious impropriety.

I have already set out the solicitors’ main grounds of appeal. In response, Mr Robert-Jan Temmink, counsel for the client, reiterated many of the arguments relied upon by the judge and made a series of detailed criticisms of the conduct of the solicitors. The burden of his submission was that the judge had repeatedly reminded himself in argument and in his judgment of the need to avoid conducting a mini-trial, and that the evidence before him was clear cut in that it was obvious that no bundles had actually been prepared by the solicitors in the Rufus claim, and that the 6-page bill in the Catherine claim was plainly and knowingly inaccurate. Mr Temmink provided a very helpful bundle of authorities which he took us through with great skill and insight. I shall refer in a moment to these cases, which Mr Temmink used to support his submission that it was proportionate to strike out the claims for the entirety of the Rufus and Catherine bills where the court could place no reliance on the signature of the solicitor in delivering the bills, and massive court resources would need to be used to resolve what, if anything, was really due.

The judge mentioned no authority in his judgment, but Mr Temmink told us that all (or at least most) of the authorities cited to us were cited to him.

CPR Part 3.4(2) provides that “[t]he court may strike out a statement of case if it appears to the court … (b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings”. CPR Part 44.11 (previously Part 44.14) makes specific provision in relation to costs assessment proceedings, providing that where “it appears to the court that the conduct of a party … before or during the proceedings or in the assessment proceedings was unreasonable or improper”, the court may “disallow all or part of the costs which are being assessed”.

I shall deal first with the two main authorities on this kind of strike out. It should be noted, however, that in both of them, the applications to strike out were made after a trial, rather than at an early stage in the proceedings. In Masood v. Zahoor (Practice Note) [2009] EWCA Civ 650, Mummery, Dyson and Jacob LJJ held at paragraph 71 (relying on Arrow Nominees Inc v. Blackledge [2000] BCLC 167) that “where a claimant [was] guilty of misconduct in relation to proceedings which is so serious that it would be an affront to the court to permit him to continue to prosecute the claim, then the claim may be struck out for that reason”. The question depends on the particular circumstances of the case. The court also held that it would be a very rare case where, at the end of the trial, it would be appropriate to strike the case out rather than dismiss it in a judgment on the merits. At paragraph 73, the court pointed out that one of the objects to be achieved by a strike out was to “stop the proceedings and prevent the further waste of precious resources on proceedings which the claimant has forfeited the right to have determined” (original emphasis). The court concluded in paragraph 75 that the sole question for Peter Smith J below ought to have been “whether by reason of Mr Masood’s forgeries and fraudulent evidence the claimants had forfeited the right to have an adjudication of their claims”.

In Summers v. Fairclough Homes [2012] 1 WLR 2004, the Supreme Court approved Masood supra, and refused to strike out, after a trial on quantum, a massively over-stated personal injury claim, when the defendant discovered that the claimant had been playing football, working and leading a normal life, despite claiming to be grossly disabled, on crutches and unable to work. In paragraph 33, Lord Clarke giving the judgment of the Supreme Court said that they had concluded that as a matter of principle, cases should only be struck out on these grounds after a trial in very exceptional circumstances. The Supreme Court did not think that the conclusions to be reached would be different whether under CPR Part 3.4(2) or under the inherent jurisdiction of the court. In paragraph 49, Lord Clarke said this:-

“The draconian step of striking a claim out is always a last resort, a fortiori where to do so would deprive the claimant of a substantive right to which the court had held that he was entitled after a fair trial. It is very difficult indeed to think of circumstances in which such a conclusion would be proportionate. Such circumstances might, however, include a case where there had been a massive attempt to deceive the court but the award of damages would be very small”.

Lord Clarke discussed at paragraphs 50-53 other ways in which fraudulent conduct could be deterred including “ensuring that the dishonesty does not increase the award of damages, making orders for costs, reducing interest, proceedings for contempt and criminal proceedings”. Moreover, he pointed out that “[a] party who fraudulently or dishonestly invents or exaggerates a claim will have considerable difficulties in persuading the trial judge that any of his evidence should be accepted”. He referred expressly to an expectation that, in the ordinary way, in such a case, one would expect the judge to penalise the dishonest and fraudulent claimant in costs. In conclusion, Lord Clarke noted at paragraph 62 that his judgment did not affect the correct approach in a case where an application is made to strike out a statement of case in whole or part at an early stage, since one of the objects then is to stop proceedings and prevent a further waste of precious resources on proceedings which the claimant has forfeited the right to have determined, and said at paragraph 65 that the strike out power should only be exercised where it was just and proportionate to do so which would only be in very exceptional circumstances.

In Fari v. Homes for Haringay 9^th October 2012, Judge Mitchell struck out a county court personal injury claim at an early stage where the claimant had manifestly exaggerated her injuries, pointing to the waste of taxpayers’ money. In giving permission for contempt proceedings to be brought against the errant claimant in Fari [2013] EWHC 757 (QB), Holroyde J held that there was a strong public interest in contempt proceedings being brought in such circumstances (see Moses LJ in South Wales Fire and Rescue Service v. Smith [2011] EWHC 1749 (Admin) at paragraphs 2-7).

Finally, in Katherine Morgan v. Spirit Group Ltd (t/a Squares) 5^th April 2012, DJ Sparrow sitting in the Norwich County Court struck out a bill of costs totalling some £113,000 because an ATE premium of £4,260 had been falsely claimed in it, and not removed until the “last gasp” when queried by the client and the court. The District Judge held that the signature on the bill was impugned and the whole bill was tainted. He relied on the need to meet the overriding objective, to marshal the court’s resources and to allocate only an appropriate share to each case. It all arose because of the “claimant’s solicitor failing to deal with a very simple point”.

It is important first to emphasise, as did Lord Clarke in Summers supra, the range of available remedies when a situation arises in which a party to litigation thinks that his opponent has exaggerated his claim, whether fraudulently or otherwise. Establishing fraud without a trial is always difficult. And it is open to a defendant to seek summary judgment on the claim under CPR Part 24.2(a)(i), without seeking a strike out for abuse of process. As Masood and Summers supra also demonstrate, striking out is available in such cases at an early stage in the proceedings, but only where a claimant is guilty of misconduct in relation to those proceedings which is so serious that it would be an affront to the court to permit him to continue to prosecute the claim, and where the claim should be struck out in order to prevent the further waste of precious resources on proceedings which the claimant has forfeited the right to have determined. The other available remedies for such a default follow the proceedings once they have run their course, but are nonetheless important. They include costs and interest penalties and proceedings for contempt of court or criminal prosecution.

Returning to the early stages of proceedings, it is, of course, always open to the court to strike out or grant summary judgment in respect of the impugned part of the claim, as opposed to the whole. In my judgment, the court should exercise caution in the early stages of a case in striking out the entirety of a claim on the grounds that a part has been improperly or even fraudulently exaggerated. That is because of the draconian effect of so doing and the risk that, at a trial, events may appear less clear cut than they do at an interlocutory stage. The court is not easily affronted, and in my judgment the emphasis should be on the availability of fair trial of the issues between the parties. As CPR Part 3.4(2)(b) itself says, “[t]he court may strike out a statement of case if … the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings” (emphasis added).

There is an analogy with the court’s approach in Denton v. TH White Ltd. [2014] 1 WLR 3926, where the court considered the circumstances in which relief from sanctions should be granted under the new CPR Part 3.9. That rule says that the court “will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need — (a) for litigation to be conducted efficiently and at proportionate cost; and (b) to enforce compliance with rules, practice directions and orders (“factors (a) and (b)”). The first two stages recommended by the court require the court to consider the seriousness or significance of the breach and any explanation offered for it. At paragraph 32, Lord Dyson MR and I said this in relation to the third stage of the process:-

“Although the two factors may not be of paramount importance, we reassert that they are of particular importance and should be given particular weight at the third stage when all the circumstances of the case are considered. That is why they were singled out for mention in the rule. It is striking that factor (a) is in substance included in the definition of the overriding objective in r 1.1(2) of enabling the court to deal with cases justly; and factor (b) is included in the definition of the overriding objective in identical language at rule 1.1(2)(f). If it had been intended that factors (a) and (b) were to be given no particular weight, they would not have been mentioned in rule 3.9(1). In our view, the draftsman of rule 3.9(1) clearly intended to emphasise the particular importance of these two factors”.

The cases I have mentioned were right to emphasise in the context of striking out what is effectively factor (a), namely the need for litigation to be conducted efficiently and at proportionate cost. The need for compliance with rules and orders is equally important. But it must be remembered that the remedy should be proportionate to the abuse. In the context of this case, it is also worth emphasising before I turn to the particular circumstances that litigants should not be deprived of their claims unless the abuse relied upon has been clearly established. The court cannot be affronted if the case has not been satisfactorily proved. This aspect is obviously inter-related with whether or not a fair trial remains possible. Moreover, the fact that solicitors have signed bills that appear to be inaccurate or worse is obviously a matter for concern, but that concern does not abrogate the need for the issue of whether the bills were indeed inaccurate to be fairly resolved between the parties, if that remains possible.

In my judgment, it is perfectly apparent from a reading of the judgment itself that the judge forgot his own repeated warnings to himself about not conducting a mini-trial and about the draconian nature of what he was contemplating doing. He did conduct an inappropriate mini fraud trial without hearing any witnesses. He decided that a solicitor was lying and that other witnesses were untruthful without their being cross-examined. In my judgment, that was a most unsatisfactory state of affairs. Of course, it can very occasionally be appropriate to conclude that there has been fraud without oral evidence being heard, but in this case the judge relied on forensic deduction in a case where oral evidence at least might have put a different complexion on the allegations made.

Moreover, whilst the judge said that the abuses he had identified were a serious misuse of the court’s procedure, he did not consider whether it was proportionate to strike out the entirety of the claims for the Rufus and Catherine fees on the basis of alleged exaggerated and inaccurate claims amounting to no more than a relatively small percentage of them. The judge held that it would be unfair to the client to subject him to the time and cost involved in a detailed assessment without giving any reason for that conclusion. He did not consider whether there were truly exceptional circumstances justifying the course of action he proposed. Moreover he concluded only that the abuses created a risk that a fair trial would be impossible without giving reasons for that conclusion. It was not clear from what he said how he thought that the further conduct of the claims for the Rufus and Catherine fees was likely to obstruct the just disposal of the proceedings.

In my judgment, whilst the case against the solicitors on the preparation of the bundles in the Rufus claim may look and have looked very bleak, it was not appropriate to find that the Rufus bill was fraudulently exaggerated without directing cross-examination. The fact that the possibility of cross-examination may have been discussed in solicitors’ correspondence does not ameliorate the problem. There was a direct conflict of evidence between the solicitors’ witnesses saying bundles had been prepared and the client’s witnesses saying they had not. The judge could not properly resolve that conflict at an interlocutory hearing without oral evidence.

Moreover, whilst it appears logical to conclude that the 16^th January letter and the 6-page bill have been back-dated, in the absence of cross-examination or even a real explanation for the facts that the judge described, I am not sure that the documents are necessarily falsified by the finding. It is doubtful whether simply back-dating a bill of costs would normally justify striking out a claim for the fees charged if they were otherwise genuine. Moreover, I cannot really see why the now admitted inaccuracies in the Catherine bill cannot properly and fairly be dealt with on a detailed assessment. The confusion arose because the solicitors presented a different bill for the same total amount to the Land Registry Adjudicator, on the basis of which the client was awarded a significant proportion of the costs against his wife. When it came to presenting the bill to the client, the breakdown had changed dramatically, but there was a clear conflict of evidence between the witnesses as to what was the correct position. In particular, there was a serious issue as to which fee earners had actually worked on the case. I do not see why that conflict could not be resolved at a trial, nor do I see how the judge could conclude without cross-examination that the 6-page bill, rather than the bill presented to the Land Registry Adjudicator, was inaccurate.

Many of the problems in this case have been caused by the procedure adopted. It seems that new points were raised on both sides as the proceedings before the judge progressed. He should, in my judgment, have realised that striking out was too blunt an instrument to deal with the heavily conflicting evidential accounts of the parties.

Applying the appropriate test, I do not think the judge can properly have been satisfied that the solicitors were guilty of misconduct in relation to these proceedings which was so serious that it was an affront to the court to permit them to continue to prosecute their claims. Even bearing in mind the need for litigation to be conducted efficiently and at proportionate cost, I do not think that it was clear at the stage the proceedings had reached that the solicitors had forfeited their right to have an adjudication of their claims to the Rufus and Catherine fees and a detailed assessment of their bills. I cannot see that the judge was justified in saying that the abuses created a serious risk that a fair trial would not be possible or that it would be unfair to subject the client to the time and cost involved in a detailed assessment; there was no reason why there could not (and cannot) be a determination on the evidence of the disputes that the judge considered in relation to the Rufus and Catherine bills and a perfectly normal detailed assessment of the other parts of them.

In these circumstances, I have concluded that the judge should not have decided these issues of fraud without disclosure and cross-examination, and the appeal from his judgment must, I think, be allowed. I have not found it necessary to deal with the solicitors’ other grounds of appeal. Suffice it to say, however, that I do not think the application to strike out was itself an abuse. The client was fully entitled to raise the questions he did, but those questions could not be fairly determined without a proper trial.

If it later turns out that the solicitors have indeed been behaving fraudulently and advancing false claims, they will undoubtedly face the likelihood of penalties in costs and interest, and the serious possibility of proceedings for contempt of court or even criminal prosecution. Moreover, it would call into question the solicitors’ fitness to practice. These risks are real and not illusory. The burden of this judgment, however, is that such a case needs, where there is starkly conflicting witness evidence, to be evaluated after disclosure and the hearing of oral evidence and not by a process of forensic deduction from apparently unsatisfactory documentation.

As for the future conduct of this case, it seems to me that in the first instance the solicitors should, in the light of the strike out arguments, be given an opportunity to reduce their bills to take account of the points made against them if they wish to do so. If they refuse to do so, then the remaining issues of exaggerated claims, fraudulent claims, and manufactured documentation, raised by the strike out application, will have to be defined and tried after disclosure and on the basis of oral evidence in the usual way.

In my view, the case should go back to a Chancery judge for directions. That hearing should take place after the solicitors have, if so advised, revised their bills to remove any items that they no longer wish to rely upon. The judge can then decide whether there should be an immediate detailed assessment by the costs judge or how any outstanding challenges to the bills should be determined in the light of this judgment.

For the reasons I have given, I would allow the appeal. The costs order below cannot, in these circumstances, stand. Mr Temmink asked that, if this were the result, that he be allowed an opportunity, in the light of our judgments, to make written submissions on the proper orders for costs here and below, and I am content that both sides should do so.

I agree.

I also agree.