Beechwood Construction Ltd v Afza & Anor

Introduction

This is an appeal against an order made by DJ Anderson on 4^th July 2008. On that day she made a number of orders including a final third party debt order against the Judgment Debtor. As will appear below the facts are straightforward and it is somewhat surprising that this situation has not arisen before. The Judgment Debtor seeks to appeal against the order. A number of the grounds are or became uncontroversial during the course of the hearing. Indeed it is accepted that DJ Anderson’s order cannot stand in its present form. It was for that reason that I granted permission to appeal during the course of the hearing.

There remains, however, a fundamental dispute between the parties. It arises because the moneys due to the Judgment Debtor from the Third Party are the fruits of successful litigation in respect of which the Judgment Debtor had the benefit of public funding. In the result it is common ground that the Legal Services Commission (“LSC”) are entitled under section 10 of the Access to Justice Act 1999 to a first charge on property recovered or preserved as a result of the litigation . The Judgment Debtor contends that the statutory charge and regulation 18 of the CLS (Costs) Regulations 2000 means that the court cannot make a Third Party Debt Order against her. The Judgment Creditor disputes this and contends that DJ Anderson was correct to make the order.

Representation

The Judgment Creditor was represented by Miss Christin Toman; the Judgment Debtor by Mr Ian Pennock. Both parties produced skeleton arguments for which I am grateful

The Facts

The relevant facts can be stated quite shortly.

On 3^rd March 2006 the Judgment Debtor obtained a default judgment against the Third Party in the Bradford County Court for £10,260 inclusive of interest. At that time she was a litigant in person.

On 20^th November 2006 the Judgment Creditor and the Judgment Debtor compromised the trial of an action in the Leeds District Registry of the TCC Court which was due to be heard by Judge Cockroft. Under the terms of the compromise the Judgment Creditor obtained judgment for £15,000 against the Judgment Debtor payable by 5 monthly instalments of £3,000. None of the instalments were paid with the result that the whole outstanding balance became due.

On 30^th October 2006 the Judgment Debtor obtained public funding from the LSC in respect of the claim against the Third Party. On 19^th December 2006 an application by the Third Party to set aside the judgment in default was dismissed by DJ Lingard. The order records a public funding direction in relation to the Judgment Debtor’s costs but does not contain any order requiring the Third Party to pay the Judgment Debtor’s costs. At the hearing before me Mr Pennock suggested that this was a mistake in drawing up the order but no application has been made to have the order amended under the slip rule.

On 27^th September 2007 Judge Hawkesworth QC granted the Third Party permission to appeal on condition that £2,500 was paid into Court before 22^nd October 2007. No sum was paid into Court pursuant to the order.

On 15^th November 2007 Judge Hawkesworth QC struck out the Appeal and ordered the Third Party to pay the Judgment Debtor’s costs. There is no transcript of the hearing before me but according to Mr Pennock who appeared for the Judgment Debtor Judge Hawkesworth QC did consider the merits before making the order he did.

No sums have been paid by the Third Party either in respect of the judgment debt, interest or costs. There must be significant doubt as to whether he has any assets and as to whether there is any point in the litigation before me.

On 25^th January 2008 DDJ Caswell made an interim Third Party Debt Order in favour of the Judgment Creditor in respect of £16,435.65 being the sum then due under its judgment.

After a directions hearing before DJ Fairwood, the matter came on before DJ Anderson on 19^th May 2008. After a contested hearing she prepared a full and helpful reserved judgment which was handed down on 4^th July 2008.

DJ Anderson’s order

The order was in the following terms:

“1.

The Third Party, Stan Battye, is to pay to the Defendant (Applicant), Beechwood Construction (“the Judgment Creditor”) on or before the 18^th July 2008 £10,260 plus any amount which it is liable to pay Nudrat Afza in respect of the costs of proceedings 6BD01193.

2.

The Judgment Creditor is to pay all sums recovered from the Third Party pursuant to paragraph 1 of this Order to its solicitors to be held in his solicitors client account not to be paid out except by agreement between the Judgment Creditor and the Legal Services Commission or pursuant to further order of the court.

3.

The Judgment Creditor’s costs of this application £1,502.50 are to be retained out of the money recovered by the Judgment Creditor under this Order in priority to the Judgment Debt which shall not be paid to the Judgment Creditor until after the court has given directions referred to in paragraph 2 above and any sums which the court subsequently orders the Judgment Creditor to pay to the Legal Services Commission shall be paid in priority to such costs.

4.

The Judgment Debtor (Mrs Afza) is by no later than 4 p.m. on 2^nd August 2008 disclose the following documents by serving copies on the solicitors for the Judgment Creditor :-

a)

any draft bill of costs prepared in respect of proceedings 6BD01193;

b)

all records held by Mrs Afza or the solicitors of Mrs Afza’s costs and disbursements of proceedings 6BD01193;

5.

Mrs Afza shall co-operate with the Judgment Creditor in all steps necessary for quantification of the costs which the Third Party was ordered to pay to Mrs Afza in proceedings 6BD01193.

6.

The Judgment Creditor is to file and serve on the Legal Services Commission by no later than 4 p.m. on 18^th July 2008 copies of :-

a)

the application;

b)

the evidence;

c)

this Order.

7.

Mrs Afza has liberty to apply to discharge the Order set out in paragraph 1 of this Order :-

a)

if after six months the Judgment Creditor has not succeeded in recovering sufficient funds to cover the sum payable by Mrs Afza to the LSC in respect of costs of proceedings 6BD01193;

b)

if the LSC seeks to recover any costs payable to it in proceedings 6BD01193 directly from Mrs Afza.

8.

The matter be listed for a further hearing on the first available date after (no date given) with a time estimate of 30 minutes. At that hearing the court will consider the question of whether any sums recovered from the Third Party by the Claimant shall be paid to the Legal Services Commission.

9.

If the parties are able to resolve the matter by consent, the parties have liberty to apply by letter to vacate the further hearing of this matter and for approval of any consent order.

10.

On the basis that the Legal Aid Statutory Charge does not apply in this case, there may be a direction for assessment of costs of Mrs Afza as a public funded party.”

A number of points can be made about the order:

Paragraph 1 of the order relates not only to the judgment debt of £10,260 but also to the costs of the proceedings. These costs remain unquantified.

The order for costs in paragraph 3 of the order does not take into account the provisions of section 11 of the Access to Justice Act 1999

The provisions of paragraphs 4 to 9 of the order are, on any view, highly unusual. They appear to be a scheme set up by DJ Anderson (with some help, I was told from Miss Toman) to enable the Judgment Creditor to enforce the judgment debt and get round the difficulties caused in particular by Regulation 18.

Relevant provisions

The source of the Court’s power to make a Third Party Debt Order is CPR 72.2

The effect of a final Third Party Debt Order is set out in CPR 72.9

Under section 10(7) of the Act:

Concessions during the hearing.

During the hearing Miss Toman made 2 helpful concessions. She accepted that it was not possible for there to be a Third Party Debt Order in respect of unassessed costs. She made the point that this was not a specific ground of appeal. However she informed that the pre-1999 White Book referred to a case reported only in the English reports to that effect in respect of garnishee orders. She accepted that there was no relevant distinction between Garnishee and Third Party Debt Orders. In addition Miss Toman accepted that DJ Anderson should not have made the order for costs that she did. She accepted that DJ Anderson was entitled to assess the costs in the sum of £1,502.20 but accepted that the Judgment Debtor should have been ordered to pay that sum without considering the factors set out in section 11 of the Access to Justice Act 1999 and, in particular considering the Judgment Debtor’s means.

I am content to accept those concessions and accordingly the appeal will in any event be allowed in respect of those 2 matters.

Third party debt Order

Mr Pennock submitted that regulation 18 made it impossible for there to be a Third Party Debt Order against the Judgment Debtor. He submitted that the debt was due to the LSC in the first instance and the surplus was due to the Judgment Debtor. A similar submission was made to DJ Anderson and rejected by her in paragraphs 22 to 24 of her very clear judgment. As DJ Anderson pointed out the debt from the Third Party is due to the Judgment Debtor. That is the effect of the judgment in the Bradford County Court. In so far as it is collected or recovered it is subject to a charge in favour of the LSC. Regulations 18 to 20 are procedural regulations designed to enable the LSC to enforce its charge. Whilst they provide that the debt can only be collected by the solicitor with the benefit of the CLS Funding Certificate that does not in my view affect the fact there is a debt from the Third Party to the Judgment Debtor.

It is, of course, trite law that the Judgment Creditor can be in no better position than the Judgment Debtor in relation to the Third Party Debt. This does not, however mean that there can be no Third Party Debt Order in relation to the Third Party Debt. It simply means that it remains subject to LSC charge and to the method of collection prescribed by regulation 18.

Thus the judgment debt must still be collected by the solicitor with the benefit of the CLS Funding Certificate. However if and in so far as he is able to satisfy the LSC charge any surplus is held by the solicitor for the Judgment Creditor. For my part I see no difficulty in this interpretation of the Act and regulations. It also means that litigants with the advantage of LSC funding are in no better position than other litigants in relation to Third Party Debt Orders.

Mr Pennock also submitted that the Judgment Creditor should have issued Third Party Debt proceedings either against the LSC or against the solicitors acting for the Judgment Debtor. I disagree. The short answer to this submission is that there is currently no debt due or accruing due to the Judgment Debtor from either her solicitors or from the LSC. Thus no Third Party Debt Order can be made against either of them. Mr Pennock mentioned (without citing it) a case where a garnishee order was made against the Law Society My researches reveal that this case was Dawson v Preston [1955] 3 AER 314. However in that case the money had actually been paid over to Law Society with the result that there was a debt owed to the Judgment Debtor.

In my view DJ Anderson was correct in holding that she had jurisdiction to make a Third Party Debt Order. In agreement with her I agree that it was a proper case for such an order. However, with respect to both her and Miss Toman, I part company from her in the remainder of her order.

As I have indicated I do not think it was open to her to by pass regulation 18 and, in effect provide for payment direct to the Judgment Creditor or its solicitor. Such a person cannot give a good discharge for the payment. Thus the order should have provided for payment of the judgment sum and any costs to the Judgment Debtor’s solicitor in accordance with regulation 18. After the satisfaction of the statutory charge the balance, if any would be payable to the Judgment Creditor.

It is to be noted that CPR 72.9 contemplates that the order might be enforced against the Third Party. I can see no reason why the Judgment Creditor cannot take such enforcement action (including for example an application for a charging order). However any such enforcement would have to make clear that any payment made by the Third Party would be to the Judgment Debtor’s solicitors.

Costs

I have not heard submissions on costs. Furthermore I am told that there is without prejudice correspondence that I have not seen. I am however concerned at the costs of the proceedings in what may well turn out to be an academic exercise. I propose to express some provisional views on costs.

the Judgment Creditor obtained a Third Party Debt Order in relation to the Third Party debt and has therefore succeeded in the application. In my view (and subject to section 11 of the Access to Justice Act 1999) the Judgment Debtor should pay the costs of the Judgment Creditor in relation to the application before DJ Anderson. There is no reason to interfere with her assessment of £1,502.50

the position on appeal is more difficult. Both sides have had some success. The Judgment Creditor has succeeded in upholding a Third Party Debt Order. However there have been a number of respects in which the order will have to be varied relating to costs and to the ancillary orders made by DJ Anderson. In my view the fair order is that there be no order as to costs of the Appeal.

It is plain that in the proceedings in the Bradford County Court the Judgment Debtor will have recovered any sum that is ultimately paid by the Third Party. In those circumstances costs incurred by the Judgment Debtor’s solicitors are plainly within and caught by the statutory charge under section 10 of the Access to Justice Act 1979.

The position with regard to the Leeds proceedings for a Third Party Debt order is however quite different. In those proceedings the Judgment Creditor sought to attach the Third Party debt and succeeded. In no way can it be said that the Judgment Debtor preserved or recovered any assets. She lost the right to the fruits of her judgment. In those circumstances any costs incurred by the Judgment Debtor’s solicitors are not in my view within the statutory charge. They are costs that will have to be recovered by under the CSL Funding Certificate for the Third Party Debt proceedings.

I was told that the costs of the Judgment Debtor’s solicitors were about £7,000 when the matter was before DJ Anderson. I do not know how this sum is made up. If it includes (as I suspect it may) the costs of the Third Party Debt proceedings then it includes costs that are not within the statutory charge. If it simply includes the costs of the 2 hearings in the Bradford case then the costs seem to be disproportionately high. I was also told that the Judgment Debtor’s solicitors are looking for a charging rate of £174 per hour. It has to be remembered that this case involved a dispute over £10,000. In those circumstances it must be very arguable that such a charging rate was disproportionate to the work involved.

Conclusion

I would dismiss the appeal against the making of the Third Party Debt Order. I would however vary the order of DJ Anderson in the following respects:

I would omit the reference to the costs of the Bradford proceedings in paragraph 1 of the order. I would add to paragraph 1 an order that the moneys are to be paid to the Judgment Debtor’s solicitors pursuant to regulation 18.

I would omit paragraphs 2, 4 – 9 of the order

I would provisionally make an order for costs in the following terms