GSD Law Ltd v Wardman & Ors

By an order made on 15 December 2014, District Judge Neaves, sitting in the County Court at Leeds, made an order under which the claimants’ costs in two cases, Moriarty v Frodsham Sign & Display Ltd (“the Moriarty case”) and Ismail v Fibrelite Composites Ltd (“the Ismail case”), were disallowed on the basis that there had been misconduct on the part of the appellant, GSD Law Limited (“GSD”), who had acted for the claimants. District Judge Neaves further ordered GSD to pay the costs of the assessment proceedings relating to these cases on the indemnity basis.

An appeal was heard by His Honour Judge Gosnell, sitting in the County Court at Leeds, but was dismissed. GSD now appeals to this Court with permission from McFarlane LJ. The case raises issues relating to CPR 44.11.

The appeal arises out of 14 personal injury claims in which the claimants succeeded and so became entitled to costs. GSD was on the record for the claimants in nine of these cases and acted as agents for Sovereign Solicitors as regards the other five. GSD undertook the work on the basis of conditional fee arrangements.

GSD prepared informal schedules of their costs in connection with the 14 cases which they sent to the paying parties. The paying parties having declined to agree the costs, GSD prepared formal bills of costs and detailed assessment proceedings were commenced. The paying parties responded with points of dispute.

Mr Jon Williams, a costs lawyer, was instructed on the 14 cases by the paying parties’ insurer, Allianz. As a result of concerns that he had about the costs claimed, a document headed “Particulars of Allegations” was served on behalf of the paying parties by way of supplement to the points of dispute on 12 November 2012. This stated in terms that it contained allegations of fraud and misconduct against GSD and put GSD on notice that the paying parties intended to argue that it had:

Specific allegations were then set out in relation to various matters. As regards, for example, the Ismail case, the following was said:

Under the heading “Rates”:

Under the heading “Time”:

Under the heading “Notes”:

On 16 November 2012, there was a hearing before District Judge Bedford, then the Regional Costs Judge. He gave directions for all the relevant detailed assessments to be case-managed together, for the parties to choose two sample cases that were “indicative of the issues raised in the other cases”, for there to be a hearing to determine certain preliminary issues (including “the relevant jurisdictions that are open to the Court on the facts of this case, and in particular, whether the Court is able to reduce or limit the sums claimed on the grounds of misconduct or fraud, and if so, under which powers the Court may do so”) and for cases other than the sample cases to be stayed.

District Judge Bedford’s order also provided for GSD to have permission to join itself as a co-defendant at any time for the purposes of dealing with costs. GSD availed itself of this opportunity in September 2013, formally becoming a defendant to the proceedings. Mr David Berkley QC, who appeared for GSD before us (as he also did before Judge Gosnell), confirmed to us that, although the claimants in the proceedings were nominally the receiving parties, the commercial interest in the costs issues always rested with GSD.

A “Reply to Allegations” was served on 21 December 2012. By this point, the parties had selected Hussain, Khan & Mohammed v Powwow Water Company Ltd & Allianz Insurance plc (“the Powwow case”) and the Moriarty case as the sample cases. The document therefore provided a “GSD response in specificity in the Sample cases” as well as denying the allegations against GSD in more general terms.

The evidence filed by GSD included two witness statements from Ms Kirna Madhas, the sole principal of GSD, dated respectively 11 March 2013 and 21 October 2013. In the second of these statements, Ms Madhas commented both on the two sample cases (Powwow and Moriarty) and on other cases in respect of which the paying parties had made allegations. One of these was the Ismail case.

The preliminary issues came on for trial before District Judge Neaves, who had by then become the Regional Costs Judge, on 7 May 2014. At the start of the hearing, Sovereign Solicitors applied for, and were granted, permission to discontinue the detailed assessment proceedings in respect of the five cases in which they had acted. Since these included the Powwow case, that was replaced as one of the two samples by the Ismail case. GSD and the paying parties had known that Sovereign Solicitors would be applying to discontinue and so had agreed in advance of the hearing that Moriarty and Ismail should be taken as the sample cases.

A number of witnesses gave oral evidence over 7 and 8 May 2014. Amongst them were Mr Williams and Ms Madhas, who was cross-examined at some length but whose testimony had not been completed by the close of the second day. At that stage, Dr Mark Friston, by whom the paying parties were then being represented, said that he had put the majority of his points in general terms but would be happy to deal with each item individually. In the discussion that followed, District Judge Neaves said:

There was also reference at this stage to the files relating to the Moriarty and Ismail cases. In this connection, District Judge Neaves said:

An order was accordingly made that provided for the Moriarty and Ismail files to be lodged with the Court not less than 14 days before the next hearing, for the paying parties to serve a document “setting out the allegations of fraud and misconduct made against [GSD]” and for GSD to serve a response.

On 19 June 2014, the paying parties served a document headed “‘Indictment-Style’ List of Allegations of Fraud and Misconduct”. This sought to add one new allegation, in these terms:

GSD served a “Reply to Allegations” on 18 July 2014. This document included this:

The hearing before District Judge Neaves resumed on 8 September 2014. Dr Friston was by then taking a sabbatical for health reasons and so Mr Matthew Smith appeared for the paying parties (as he also did before Judge Gosnell and us). The oral evidence was completed and directions were given for each side to make closing submissions in writing, which they did. It is perhaps noteworthy that, in his submissions, Mr Craig Ralph, who then represented GSD, accepted that there had been “unreasonable conduct in the two sample files”. His position was that “GSD/Ms Madhas’ is a case of ‘carelessness’ as to her administrative duties through inadvertence” and that, in those circumstances, the Court should allow the costs in the sample files subject to assessment.

District Judge Neaves handed down a written judgment at a hearing on 15 December 2014. He said of Ms Madhas that she was “a wholly unreliable witness” and that her evidence was “not only evasive and inconsistent, but dishonest” (see paragraph 78 of the judgment). He held all the allegations made against GSD to have been proved (including two relating to the bills of costs rather than the schedules that preceded them) and agreed with Mr Smith that the extent of the conduct and dishonesty of GSD was at the most serious end of the scale. He concluded (in paragraph 83):

One of the allegations made in respect of the Ismail case merits specific mention. As expressed in the “Indictment-Style” list of allegations, this was that:

The £203 rate was, of course, consistent with the Ismail CFA attached to the “Reply to Allegations” (which District Judge Neaves termed “CFA 1”) (see paragraph 16 above). At the hearing on 8 September 2014, Ms Madhas was asked to produce the original of this document, in response to which she produced two sheets of paper which, unlike CFA 1, contained no handwritten date and gave an hourly rate of £180 and so (as District Judge Neaves noted) could not be the original of CFA 1. Nor could a third document found in a trial bundle that also purported to be the CFA for Mr Ismail and which the District Judge called “CFA 3”. As to this, the District Judge recorded that, in contrast to CFA 1, CFA 3 referred to an hourly rate of £180 and observed that “[t]he ‘6’ of the handwritten date on CFA 3 does not appear to match the ‘6’ that can be made out on CFA 1” (see paragraph 32 of the judgment). The District Judge went on (in paragraph 34):

GSD applied for permission to appeal, and District Judge Neaves granted it, taking the view that there was a “dearth of authority to guide the court in the manner as to which CPR 44.11 procedures should be conducted when serious allegations of dishonesty are made against a receiving party”. The ensuing appeal came before Judge Gosnell, himself a former Regional Costs Judge, on 9 June 2015 and he delivered a written judgment on 8 July. He concluded that the appeal should be dismissed.

Five grounds of appeal were advanced before Judge Gosnell. Those relevant to the appeal to this Court were essentially, first, that District Judge Neaves had “purported to use the CPR 44.11 powers in a manner which was entirely inconsistent with their purpose to be an ancillary jurisdiction intended to be summary in nature and which does not require the consideration of detailed allegations of alleged dishonest conduct” and, secondly, that the procedure that the District Judge had adopted was unfair. As for the latter point, Judge Gosnell considered that “the proceedings overall were fair”, taking the view that GSD and Ms Madhas “had more than adequate notice of the allegations against them and were given a full opportunity to respond to them” (see paragraph 28 of the judgment). With regard to the former issue, the Judge concluded (in paragraph 23):

Earlier in his judgment, Judge Gosnell had noted that certificates such as paragraph 5.21 of PD 47 requires “appeared on both the costs schedule and Bill of costs of [GSD] and the indemnity principle had in both documents been breached as found by the Judge below and conceded by counsel on behalf of [GSD]” (paragraph 20 of the judgment). He went on (in paragraph 21):

In Bailey v IBC Vehicles Ltd [1998] 3 All ER 570, to which Judge Gosnell referred in this passage, Henry LJ said (at 575-576):

The following issues arise on the present appeal:

Should District Judge Neaves have declined to entertain the allegations against GSD because CPR 44.11 is a summary jurisdiction, akin to that regarding wasted costs? [“The Summary Jurisdiction Issue”]

Was the procedure that was adopted unfair? [“The Unfair Procedure Issue”]

I shall take these in turn.

CPR 44.11, pursuant to which District Judge Neaves made his order, is headed “Court’s powers in relation to misconduct” and provides as follows:

It will be seen that this power extends to both a party and his legal representative. Among other things, conduct on the part of a legal representative can result both in the disallowance of costs that are being assessed and in the representative being ordered to pay costs incurred by another party.

The Court also has power to make a “wasted costs” order against a legal representative under section 51(6) of the Senior Courts Act 1981 and CPR 46.8. Section 51(6) of the Senior Courts Act explains that the Court “may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court”. The expression “wasted costs” is defined in section 51(7) to mean:

The circumstances in which the wasted costs jurisdiction should be exercised were considered by the Court of Appeal in Ridehalgh v Horsefield [1994] Ch 205. In the course of delivering the judgment of the Court, Sir Thomas Bingham MR said this (at 238-239):

Ridehalgh v Horsefield was approved by the House of Lords in Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120. Lord Bingham, however, noted (at paragraph 13) that it appeared that “the clear warnings given in that case have not proved sufficient to deter parties from incurring large and disproportionate sums of costs in pursuing protracted claims for wasted costs, many of which have proved unsuccessful”. Later in his speech, he said (at paragraph 24):

There was reference in both Ridehalgh v Horsefield and Medcalf v Mardell to the significance of legal professional privilege in the context of a wasted costs application. In Ridehalgh v Horsefield, Sir Thomas Bingham MR said (at 237):

In Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91, [2007] 1 WLR 998, the Court of Appeal drew an analogy between what has become CPR 44.11 and the wasted costs jurisdiction when considering the meaning of the word “unreasonable” in what is now CPR 44.11(1)(b). Dyson LJ, delivering the judgment of the Court, said (at paragraph 30):

Mr Berkley submitted that principles relating to wasted costs applications should also have been applied in the present context. It can be seen from Ridehalgh v Horsefield and Medcalf v Mardell, he said, that the wasted costs jurisdiction should be invoked only where summary determination will be possible. In the light of the guidance to be found in those authorities, District Judge Neaves ought not, so it was argued, to have entertained the paying parties’ allegations, which were by their nature unsuited to summary determination and required the Court to depart in more than one respect from that guidance (for example, by having a hearing measured in days rather than hours and extended oral evidence from Ms Madhas). The proper way for the paying parties to have advanced a complaint founded on allegedly dishonest costs claims would, Mr Berkley suggested, have been by way of an ordinary civil action, in particular by bringing a claim for fraudulent misrepresentation.

In contrast, Mr Smith supported Judge Gosnell’s comment that it would have been an abdication of the Court’s duty not to investigate the allegations against GSD. There was, he maintained, no question of the litigation being derailed: it was rather a matter of getting to the bottom of claims that GSD had chosen to put forward and was pursuing. Mr Smith recognised that the hearing before District Judge Neaves had not been “measured in hours” (as contemplated in Ridehalgh v Horsefield), but said that the process had to be sufficiently probing to allow the Court to decide whether it was appropriate to exercise the powers conferred on it by CPR 44.11. As for the suggestion that the paying parties’ complaints should have been pursued, if at all, in ordinary civil proceedings, Mr Smith both objected that such a claim would itself represent satellite litigation and disputed its viability.

One answer to Mr Berkley’s argument might be that it should have been raised much earlier. The point was not taken either at the hearing before District Judge Neaves or, as I understand it, in the context of the order made by District Judge Bedford on 16 November 2012 (which laid down the procedure for what followed) or the various further orders that were made in 2013. Further, there was no attempt to appeal any of these orders. There is also a persuasive argument that, the hearing before District Judge Neaves having in fact taken place, it could not be right to ignore the product of the exercise even if (because it could not be undertaken on a summary basis) it had not originally been appropriate to embark on it.

In my view, however, it was appropriate to embark on it. As was pointed out by Mr Smith, the wording of CPR 44.11 suggests that it might be possible to invoke the provision in situations far removed from that with which District Judge Neaves was concerned. On the face of it, the rule could, for example, be relied on in support of an application for a party’s legal representative to pay costs which the representative had caused another party to incur (pursuant to CPR 44.11(2)(b)) on the strength of unreasonable or improper conduct on the part of the representative “before or during the proceedings” and in a context unrelated to the assessment of costs (within CPR 44.11(1)(b)). An application of that kind would be indistinguishable from (or at least resemble closely) one under the wasted costs jurisdiction and the guidance given in Ridehalgh v Horsefield and Medcalf v Mardell would seem to be just as applicable as it would be to a conventional wasted costs application.

However, where (as in the present case) it is suggested that costs “which are being assessed” should be disallowed (under CPR 44.11(2)(a)) because of “unreasonable or improper” conduct in connection with the assessment of costs, it appears to me that the guidance found in Ridehalgh v Horsefield and Medcalf v Mardell is much less relevant. Doubtless, the Court should still have in mind the overriding objective and, specifically, proportionality, but there will not be the same risk of satellite litigation. It may well be possible and appropriate to deal with the application in the course of pending assessment proceedings and conduct put forward as justifying the disallowance of costs may also be relevant to how costs should be assessed if not disallowed. In contrast, a wasted costs application is essentially free-standing and is often made when the litigation is otherwise over. On top of that, it will be typically, I suspect, be easier to determine whether there has been “unreasonable or improper” conduct in relation to the assessment of costs than whether, say, a lawyer was justified in pleading fraud. Certainly, an application that is based on matters related to costs and addressed during assessment proceedings is less likely than a wasted costs application to be affected by the impact of legal professional privilege (since a costs judge can potentially see privileged material – see e.g. Phipson on Evidence, 18^th ed., at paragraph 26-13).

In the case before us, as I have already indicated, it seems to me that it was right to entertain the application under CPR 44.11. The paying parties were contending that costs “which [were] being assessed” should be disallowed because of “unreasonable or improper” conduct in connection with the assessment of costs; the allegations could be addressed in the context of pending assessment proceedings; certain of the allegations (in particular, those relating to the bills of costs) would fall to be addressed anyway in those proceedings; there is no suggestion that legal professional privilege presented any difficulty; and the complaints made by the paying parties did not call for any inquiry into the merits of the substantive claims. It is also relevant that, as can be seen from what was said in Bailey v IBC Vehicles Ltd (for which, see paragraph 24 above), there is a strong public interest in ensuring that solicitors do not certify costs figures dishonestly: as Judge Gosnell noted, there would be unfortunate consequences if paying parties “lost confidence in the bona fides of solicitors signing these certificates”. Having regard both to seriousness of the allegations and to the sums potentially at stake, I do not think it was disproportionate to have a three-day hearing. I cannot see, moreover, how ordinary civil proceedings for fraudulent misrepresentation could have provided a satisfactory alternative to an application pursuant to CPR 44.11. In the first place, such a claim could itself fairly have been described as “satellite litigation”. Secondly, the power to disallow costs which it has been thought appropriate to confer on the Court by CPR 44.11 would not have been available, with the result, presumably, that loss could have been established only if and to the extent that the paying parties could have shown that costs were assessed at too high a figure as a result of deceit on the part of GSD; it would not appear to have been open to them to contend that costs should have been disallowed in their entirety. Thirdly, it is by no means clear to me that it would have been proper for the paying parties to seek to impugn the figures held to be due in the assessment proceedings: that might be thought to have involved an illegitimate attack on a previous Court determination (compare e.g. Phipson on Evidence, 18^th ed., at paragraph 43-23, and Tibbs v Islington BC [2002] EWCA Civ 1682, at paragraphs 8, 15, 17-19, 21 and 22).

In short, I cannot accept this ground of appeal.

It is GSD’s case that, even supposing that it was legitimate to entertain the paying parties’ allegations (which, as I have said, I think it was), the procedure that was adopted was unfair. In this connection, Mr Berkley referred us to Salha v General Medical Council [2003] UKPC 80, 80 BMLR 169, a case involving disciplinary proceedings against two doctors, where Lord Hoffmann said (at 14):

Judge Gosnell considered that “the proceedings overall were fair”, taking the view that GSD and Ms Madhas “had more than adequate notice of the allegations against them and were given a full opportunity to respond to them” (paragraph 28 of the judgment). He also noted that “[n]o documents were relied on which did not emanate from [GSD]”, that GSD “was permitted to rely on and serve witness statements from five witnesses” and that GSD “saw the [paying parties’] witness evidence before the start of the hearing” (paragraph 27).

Mr Berkley disputed Judge Gosnell’s conclusions. He stressed in particular the fact that, by the time the “Indictment-Style” list of allegations was produced, much of the oral evidence had already been given and Ms Madhas herself had been cross-examined at length (albeit that her evidence had not been completed). The fact that District Judge Neaves felt that such a document was needed shows, Mr Berkley argued, that the paying parties’ allegations had not previously been spelt out adequately. More than that, Mr Berkley said, the “bombshell” was dropped on Ms Madhas during the resumed hearing on 8 September 2014 that she was being accused of forgery. Mr Berkley complained, too, that GSD was not joined to the proceedings until 10 months after the paying parties’ “Particulars of Allegations” were served.

For my part, however, I agree with Judge Gosnell that the procedure was fair. Among other things:

District Judge Bedford’s order of 16 November 2012 allowed GSD to join itself as a party whenever it wished. In the event, it elected to do so in September 2013, but it was evidently in the driving seat on the costs issues well before this. As mentioned in paragraph 8 above, the commercial interest always rested with GSD;

The “Particulars of Allegations” served in November 2012 gave GSD and Ms Madhas sufficient notice of the case they had to meet at the hearing on 7 and 8 May 2014 and, in particular, the allegations of dishonesty. I am not entirely sure why District Judge Neaves proposed the “Indictment-Style” list of allegations (possibly, as Mr Smith suggested, to effect a “clearing of the decks”), but it in fact added little of substance to the “Particulars of Allegations”; and

The “bombshell” arose from GSD choosing to attach to its “Reply to Allegations” of 18 July 2014 a document that proved to be a forgery. The paying parties cannot be criticised for their failure to refer to this in their “Particulars of Allegations” or “Indictment-Style” list of allegations since these pre-dated the “Reply to Allegations” and the forged document had not yet featured in the case. It is also significant that GSD did not suggest at the hearing on 8 September 2014 that it needed an adjournment to deal with the document.

In my view, therefore, this ground of appeal fails.

I would dismiss the appeal.

I agree.

I also agree.