Dean & Dean (A Firm) v Angel Airlines SA & Ors

This judgment deals with six applications which, on 17^th October 2008, Mann J ordered to be heard together. They all relate to a dispute between Angel Airlines S.A. (“Angel”) and its former solicitors, Messrs Dean & Dean, about the size of a bill rendered by Dean & Dean on 24^th May 2004 for work carried out between November 2001 and May 2004 in connection with a dispute between Angel and British Aerospace (“BAE”). The bill was in the sum of £444,705.

Angel is a Romanian company now in liquidation. In November 2001 it instructed a London solicitor, Mr Jami Tehrani (who practised on his own account under the name Tehrani & Co), to act for it in the dispute with BAE. In March 2002 Mr Tehrani changed the name of his practice to Dean & Dean but continued as a sole practitioner. After litigation in Romania, the dispute with BAE was eventually compromised and on 23^rd April 2004 Angel and BAE entered into a deed of settlement under which Angel returned two aircraft leased from BAE and BAE agreed to pay the sum of US$529,609.37 to Angel. Out of this sum various expenses including payments of fees due to airport authorities were to be met with the balance being retained by Angel.

On 6^th May 2004 BAE paid the sum into Dean & Dean’s client account pursuant to the settlement agreement. Dean & Dean thereupon issued and sent to Mr Azad (Angel’s majority shareholder) what was described as an interim bill for £140,000 endorsed with the words “transferred from client account with thanks”. This was followed by a letter of 11^th May in which Dean & Dean estimated their costs to be in excess of £200,000 and then by the bill for £444,705 issued on 24^th May.

After deducting payments made under the settlement agreement, the amount held to Angel’s credit in Dean & Dean’s client account was reduced to US$398,702. Faced with Dean & Dean’s claim to apply this sum in settlement of the fees due to them, an extraordinary meeting of Angel’s shareholders took place in Bucharest on 10^th May 2004 at which resolutions were passed appointing Messrs Lyndales to take over conduct of the dispute with BAE and for all files relating to that matter to be transferred to them from Dean & Dean. The company also resolved to transfer the funds received from BAE to Lyndales’ client account and to withdraw Dean & Dean’s instructions.

It is common ground that this was effective to terminate Dean & Dean’s retainer but it left unresolved the dispute about their fees. On 11^th May 2004 Lyndales wrote to Dean & Dean saying that they had been instructed by Angel in their place. This led to an exchange of correspondence in which Dean & Dean accused Angel of changing solicitors in an attempt to avoid payment of their fees. On 12^th May Angel informed Dean & Dean that the company was unwilling to pay the amounts billed and on 13^th May Lyndales wrote to Dean & Dean complaining about the level of fees charged and saying that it was professionally improper for the firm to seek to transfer the £140,000 from its client to its office account without Angel’s approval. On the same day they notified Dean & Dean that an application would be made for an injunction to restrain them from dealing with the funds.

This application came before Grigson J on 14^th May when he made an order requiring Dean & Dean to pay the US$398,702.37 held to Angel’s account into court pending judgment in the intended proceedings. The claim form in these proceedings (claim number HQ04X01461) was issued on 17^th May (“the 2004 action”) and seeks an account of all monies in the possession or control of Dean & Dean and an order for their delivery up. It does not include a claim for a Solicitors Act taxation of Dean & Dean’s bill but Dean & Dean gave an undertaking as part of the order made on 14^th May to serve on Angel a Solicitors Act bill of costs. Under s.69 of the Solicitors Act 1974 the delivery of such a bill is, of course, a pre-requisite to an action by the solicitor to recover his costs but the client may apply under s.70(1) for the bill to be taxed.

The order made by Grigson J had a return date of 28^th May. An order was then made by consent by Hughes J that the monies should remain in court and for there to be a Solicitors Act taxation of Dean & Dean’s bill which had been delivered on 24^th May pursuant to the earlier undertaking. The next stage in the claim was therefore the taxation of Dean & Dean’s bill which needed to be resolved before any further steps could be taken in the action to determine whether and to what extent Dean & Dean were obliged to deliver up the BAE monies to their former clients.

Hughes J gave directions requiring Dean & Dean to serve a breakdown of their costs. The breakdown subsequently filed was in the sum of £463,235.30. The taxation of this bill took place before Master Seager Berry pursuant to the order of Hughes J made in the 2004 action, although the taxation proceedings were also given a Supreme Court Costs Office reference (TSB 0406239). On 23^rd November 2004 the Master gave directions including one for the service of reports by a forensic document examiner. By then Angel had applied in Romania for judicial administration on grounds of its insolvency and an order was made on 30^th September 2004 appointing S.C. Deloitte & Touche as judicial administrators of the company. On 25^th November they were replaced as judicial administrators by S.C. Conexpert Consulting.

The insolvency process initiated by the Bucharest Court on 30^th September 2004 is described variously in the evidence as both judicial administration and liquidation. For convenience, I shall refer to it as the liquidation of the company but, for the purposes of these applications, nothing really turns on the precise nature of the insolvency process. As explained later in this judgment, its significance in the present proceedings lies in the effect which it had on the retainer given to Lyndales in May 2004 and in whether any (and, if so, what) steps needed to be taken for those instructions to be continued by the liquidator.

The Solicitors Act taxation of the May 2004 bill was finally concluded by Master Seager Berry on 30^th May 2006 after hearings spread over some 10 days between 16^th January and 22^nd May. The Master reduced the amount of fees recoverable from the £444,705 claimed to £99,449.55. His decision involved findings that the charging rates claimed had never been agreed and that many of the attendance notes on the solicitors’ files had been made up and written after the order had been made for a taxation of the 2004 bill. On 30^th May 2006 the Master ordered Dean & Dean to pay the costs of the assessment proceedings together with the costs of the hearings before Grigson J and Hughes J on 14^th and 28^th May 2004 and directed an interim payment of £45,000 to be made by 6^th June 2006. He also gave directions for the lodging of bills and points of dispute in relation to the detailed assessment of the costs orders which he made.

There was no challenge by way of appeal to most of the Master’s findings on quantum but, both before and after the hearing and order made on 30^th May 2006, Dean & Dean sought to contest the Solicitors Act taxation of their bill and the ancillary costs orders made in the 2004 action on the ground that Lyndales had no authority to conduct the proceedings on behalf of Angel. If right, it is said that this would mean that the company, both before and since its liquidation, has had no liability to pay Lyndales’ fees and, on the application of the indemnity principle, were not entitled to recover them from Dean & Dean as costs in the 2004 action.

This argument about lack of authority turns on the scope of the retainer conferred by the shareholders’ resolutions of 10^th May 2004 and, more particularly, on the effect on that retainer of the subsequent liquidation of the company. Dean & Dean contend that even if Lyndales were retained in May 2004 to conduct the 2004 action (including the Solicitors Act taxation) on behalf of Angel, that authority was automatically terminated under Romanian law by the liquidation of the company. Thereafter Lyndales had no authority to continue to act unless and until they received a new retainer to do so from the liquidator. His power to give such instructions (and to recover the costs as an expense of the liquidation) was conditional under Romanian law upon first obtaining the approval of the creditors and, secondly, obtaining the approval of the Court in Bucharest charged with the supervision of the liquidation. These steps, say Dean & Dean, were never taken.

The position, as it stands today, is that the Master has completed the Solicitors Act taxation of the May 2004 bill and also of a number of the costs orders made against Dean & Dean in the course of those proceedings. These include costs relating to various attempts to strike out or stay the costs proceedings on the grounds of Lyndales’ lack of authority to conduct them which have resulted in unsuccessful appeals both to the High Court and to the Court of Appeal. Although not all of the costs ordered to be paid by Dean & Dean in the course of these proceedings have yet been assessed, there are no outstanding appeals against the Master’s order of 30^th May 2006 or his determinations made on 15^th February and 11^th September 2006 that Lyndales did have authority to conduct the 2004 action (including the Solicitors Act taxation) on behalf of Angel. Mackay J refused permission to appeal against the orders of 30^th May and 11^th September 2006 on 3^rd April 2007 and the Court of Appeal affirmed the Master’s order of 15^th February 2006 when it dismissed an application for permission to appeal from his decision on 24^th October 2006. Similarly, on 22^nd February 2008 at an oral hearing Dobbs J dismissed applications for permission to appeal against the order of 11^th September and another order of the Master dated 23^rd May 2007 striking out points of dispute raised by Dean & Dean in relation to the assessment of a further bill of costs dated 12^th January 2007. These points of dispute were based on the same issue of authority which the Master held had been concluded against Dean & Dean by his own previous decisions of 15^th February and 11^th September 2006 and the subsequent decision of the Court of Appeal in which his judgment of 15^th February 2006 had been upheld.

Consequently the liquidator has now sought to recover the costs from the partners in Dean & Dean by serving upon them statutory demands as the first step in bankruptcy proceedings. The first such demand was served on Mr Tehrani on 2^nd March 2007 in the sum of £115,319.88. This relates to some twenty costs orders made between May 2004 and November 2006, in respect of which there has been a detailed assessment. The amount of the statutory demand is the balance of the sum due to the liquidator under these orders after giving credit for the sum of £99,449.65 and interest in respect of the amount found due to Dean & Dean following the Solicitors Act taxation of the May 2004 bill and also for various costs awarded to Dean & Dean under some of the twenty specified orders. The period covered by the demand is intended to be limited to the period during which Mr Tehrani remained as either the principal of or a partner in the firm of Dean & Dean. His evidence is that he ceased to be a partner in November 2006 when the practice was acquired by Dr Shahrokh Mireskandari who had previously worked for Mr Tehrani in the firm of Tehrani & Co and then became a partner with Mr Tehrani in Dean & Dean on 1^st November 2005.

Mr Tehrani applied on 13^th April 2007 to set aside the statutory demand. In his affidavit in support of the application he relied upon what he described as the indemnity issue: this is the argument about Lyndales’ lack of authority referred to above. At that time Dean & Dean had made an application (dated 26^th March 2007) to the Court of Appeal to re-open its decision of 24^th October 2006 dismissing Dean & Dean’s appeal from the order of the Master of 15^th February 2006. That application was made on grounds of fresh evidence and was supported by a skeleton argument from Lord Brennan QC and Mr Nicholas Bacon. The application was still awaiting a decision from the Court of Appeal and it was not until 1^st August 2007 that Rix LJ refused the application.

On 4^th April 2007 Mr Tehrani had been informed by the Civil Appeals Office that Mackay J (on a consideration of the papers) had refused Dean & Dean’s application for permission to appeal against the orders of Master Seager Berry of 30^th May and 11^th September 2006. On 12^th April 2007 Dean & Dean had requested an oral hearing of the permission application but, as of 13^th April 2007, no date for the hearing had been given. This application was also supported by a skeleton argument from Lord Brennan and Mr Bacon along the lines of the one submitted in support of the application to the Court of Appeal. As far as I am aware, no further steps were taken to pursue this application for permission to appeal once Rix LJ had refused permission to re-open the earlier decision of the Court of Appeal of 24^th October.

Mr Tehrani’s application to set aside the statutory demand was therefore based upon Dean & Dean being able to establish a lack of authority on the part of Lyndales for the entirety of the period covered by the statutory demand; an issue which the Master had ruled against in his decisions of 15^th February and 11^th September 2006. Now that the Court of Appeal has refused to re-open its dismissal of the appeal from the order of 15^th February and Mackay and Dobbs JJ have refused Dean & Dean permission to appeal against the order of 11^th September, Mr Tehrani accepts that he has no answer to the statutory demand unless he is able in some other way to challenge the costs orders which have been made.

On 30^th September 2008 Dean & Dean issued a claim form in a new High Court action against Angel and Lyndales (“the 2008 action”) in which they again allege that Lyndales acted without the necessary authority to conduct the 2004 action on behalf of Angel both before and after its liquidation. On 30^th September 2008 particulars of claim settled by Lord Brennan and Mr Christopher Semken of Counsel and endorsed with a statement of truth from Dr Mireskandari were served on the defendants. The relief sought is an order against Angel that all orders made in the 2004 action since 30^th September 2004 should be set aside and (against Lyndales) damages for breach of warranty of authority.

On 13^th October 2008 both Angel and Lyndales issued an application to strike out and dismiss the 2008 action under CPR 3.4(2)(a) or, alternatively, under CPR Part 24 on grounds of res judicata, issue of estoppel and abuse of process or, alternatively, because the particulars of claim disclose no cause of action. In short, it is said that the matters relied on in the particulars of claim to support the case that Lyndales had no authority have all been previously decided against Dean & Dean by a court of competent jurisdiction. They are therefore res judicata as between Dean & Dean and the company and it would be an abuse of process for Dean & Dean to be permitted to challenge those findings in order to support its claim for damages against Lyndales. This is the first of the six applications which I have to determine.

Mr Tehrani accepts that the grounds relied upon in his affidavit for setting aside the statutory demand are now no longer available to him following the decision of Rix LJ of 1^st August 2007. But he now (without objection from Angel) seeks to rely upon the 2008 action and the matters pleaded therein as the grounds for setting aside the demand. He therefore accepts that if I accede to the application to strike out and dismiss the 2008 action it follows that his own application must fail. This is the second of the six applications.

On 24^th July 2008 the liquidator served a statutory demand on Dr Mireskandari in the sum of £265,014.16. It relates to costs orders made in the 2004 action against Dean & Dean between 1^st November 2005 (when Dr Mireskandari became a partner in the firm) and 14^th July 2008 after giving credit for two sums which the liquidator was ordered to pay by way of costs to Dean & Dean. As in the case of Mr Tehrani, the various costs orders have all been the subject of either detailed or summary assessment.

Unlike Mr Tehrani, Dr Mireskandari made no application to set aside the statutory demand. As a consequence, Angel presented a bankruptcy petition against him based on the statutory demand on 19^th November 2008. Dr Mireskandari has served a witness statement dated 28^th August 2008 in opposition to the petition in which he also asked for an extension of time in which to apply to set aside the statutory demand. In his witness statement he refers to the dispute with Angel about Lyndales’ authority to conduct the 2004 action and says that Lord Brennan and Mr Semken have been instructed to settle proceedings which (if successful) “will provide a complete defence to the judgment debts claimed in the statutory demands”. He then proceeds to explain the reasons for the delay in the preparation of those proceedings and to summarise the basis of the new claim. This is, of course, a reference to what has now become the 2008 action.

As a result of the directions given by Mann J on 17^th October 2008, both the application for an extension of time and the bankruptcy petition itself have been listed for hearing as two of the six applications. In so far as Dr Mireskandari’s argument in both turns on the authority issue, his grounds of opposition are (as in the case of Mr Tehrani) largely dependent on my decision on the strike out application. One complication which does, however, exist in relation to the hearing of the bankruptcy petition is that notice has been received from another creditor of Dr Mireskandari (a Mr Philip Sinel) of his intention to appear on the hearing of the petition. The debt due to him appears to be unrelated to the claims in these proceedings and he may therefore wish to be substituted as a petitioning creditor even if the liquidator is unsuccessful in relation to his own claim on the petition. It appears that Mr Sinel was not given notice of this hearing and I have therefore indicated that he should be notified of the handing down of this judgment so as to enable him to make any applications he wishes in the light of my decision on Dr Mireskandari’s application.

I should mention for completeness that, according to his evidence and that of Mr Tehrani, Dr Mireskandari resigned from Dean & Dean in November 2008 and Mr Tehrani then became a partner in the firm for the second time on 5^th December with (according to Mr Tehrani) Miss Caroline Turbin as his joint partner. On 15^th December the Solicitors Regulatory Authority (“the SRA”) intervened in the practice of Dr Mireskandari and Dean & Dean and Messrs Russell-Cooke were appointed as the intervention agents. Dr Mireskandari has issued applications against the SRA seeking to recover various files and papers which he says are personal to him and has raised allegations of discrimination and victimisation against the SRA. None of this is relevant to what I have to decide but it led to applications by Dr Mireskandari, Mr Tehrani and Miss Turbin to adjourn the hearings of these applications, which I have refused.

On 23^rd July 2008 the liquidator served statutory demands on both Miss Turbin and Mr Bell in the sums of £37,279.52 and £293,334.55 respectively. The demand served on Miss Turbin relates to costs orders made in the 2004 action between 10^th December 2007 and 14^th July 2008. These were the costs of unsuccessful High Court appeals by Dean & Dean to Dobbs and Coulson JJ. Miss Turbin filed no evidence in support of her application to set aside the demand. Her practice was intervened in on 18^th December 2008. Until the hearing she indicated that she would also rely upon the 2008 action as the basis of her application but her position changed once Mr Francis had outlined the basis for Mr Bell’s application to set aside the demand served on him.

That demand relates to the period between 16^th October 2006 and 16^th July 2008 during which the Court made a number of costs orders against Dean & Dean in the 2004 action including the costs of the unsuccessful appeals against the Master’s orders of 15^th February and 11^th September 2006. As in the other cases, all these costs have been the subject of either detailed or summary assessment.

Mr Bell’s application to set the statutory demand aside was supported by a witness statement in which he is described as a partner in the firm of Dean & Dean and relies on the grounds set out in Dr Mireskandari’s witness statement of 28^th August 2008 as the basis of the application. But on 12^th January 2009 he instructed Messrs Pitmans to act for him and they filed notice of change and served a second witness statement from him in which very different grounds of opposition are set out. Mr Bell now places no reliance on the 2008 action to support his application. In his second witness statement he says that he spent the whole of his career in the Crown Prosecution Service from which he retired in March 2006. He then agreed to become a consultant to Dean & Dean. From 1^st November 2006 he allowed himself to be represented as a partner on the firm’s letterhead but says that he did so on the basis that Dr Mireskandari would remain responsible for all the debts and liabilities of the firm. He was neither an employee of Dean & Dean nor an equity partner with a share of profits. According to his witness statement, he remained self-employed and received a fixed consultancy fee of £4,000 per month for working 2 days a week. He intended to leave the firm in October 2008 but was persuaded to stay on. When the SRA gave notice in November 2008 that it wished to inspect the files and accounts, he left with immediate effect.

On the basis of this evidence, Mr Francis contends that Mr Bell has never been a partner in the firm except and to the extent that he was held out as such. Although this can give rise to liability under s.14 of the Partnership Act 1890, it would require Angel to prove that it had “given credit” to the firm in reliance upon his being a partner. In the context of the 2004 action, it is said that this would be difficult to prove. But his primary submission is that, whether or not a partner between October 2006 and July 2008, none of the costs orders was binding on him. The 2004 action was commenced between Angel and Dean & Dean at a time when Mr Tehrani was the sole principal of the firm. The identity of the defendant was, he submits, fixed at that time and Mr Tehrani has therefore remained the only defendant to the proceedings thereafter.

I will come to the detail of this argument later in this judgment but if Mr Francis is right about the identity of the defendant in the 2004 action remaining unchanged throughout the proceedings, this would obviously affect the liability not only of Mr Bell but also that of Dr Mireskandari and Miss Turbin. Dr Mireskandari has not appeared before me in person on these applications and, as explained earlier, his witness statement relies on the authority issue and the 2008 action. But Miss Turbin has now indicated that she, too, wishes to rely on Mr Francis’s argument and I think that I am bound to apply it to Dr Mireskandari if it appears to me to be correct.

The liquidator contends that the various costs orders made against Dean & Dean between 2004 and 2008 should be treated as being made against whoever was a partner in the firm at the relevant time. If this is right then they would, of course, bind Dr Mireskandari between 2005 and December 2008 because there is, on the evidence, no doubt that he was either the sole principal of or a partner in the firm during that time. But both Mr Bell and Miss Turbin have the additional argument that they were not partners even if the costs orders were not limited to Mr Tehrani. Miss Turbin has put in a witness statement dated 20^th January 2009 in which she says that she was an assistant solicitor in the firm from October 2004 until October 2007 when she became a salaried partner. From then on her name appeared as a partner on the firm’s letterhead. Like Mr Bell, she says that she was never a partner within the meaning of the Partnership Act and that the requirements of s.14 could not be satisfied in relation to the 2004 action.

At the commencement of the hearing I was informed by Mr Robins that the liquidator had agreed to withdraw the statutory demand served on Mr Bell because he accepted that the debt was disputed by him on substantial grounds within the meaning of rule 6.5(4)(b) of IR 1986. This concession is based upon the dispute as to whether Mr Bell was ever a partner in Dean & Dean. The argument that the costs orders were only ever made against Mr Tehrani is not conceded. Nor does the liquidator accept that there is a substantial dispute on the evidence as to whether Miss Turbin was ever a partner.

In relation therefore to Mr Bell the only issue is one of costs which I shall deal with later in this judgment. But Mr Francis’s arguments about which individuals were included in the 2004 action by the use of the firm name is a live issue in respect of the applications made by Dr Mireskandari and Miss Turbin as is the question of whether Miss Turbin was ever a partner in the firm.

It is perhaps worth observing at this stage that Mr Francis’s argument about the parties to the 2004 action has a number of potential consequences. If only Mr Tehrani was ever a defendant to the 2004 action then, in relation to the 2008 action, he will be issue estopped by what was decided in the earlier proceedings. But that will also mean that he is the only person with any locus to bring proceedings (in the form of the 2008 action) to challenge the costs orders made in the 2004 action. The 2008 action was, however, commenced in September 2008 when Mr Tehrani was not a partner in the firm and (according to Mr Bell and now Miss Turbin) Dr Mireskandari was the sole principal. This would suggest that Dr Mireskandari was the sole claimant in the 2008 action or, alternatively, that the claimants identified by the use of the firm name were Dr Mireskandari, Miss Turbin and Mr Bell. On this basis, it is difficult to see how Mr Tehrani can rely on the 2008 action in the absence of any application by him to be added or substituted as a claimant or how any of the three other possible claimants can themselves resist the application to strike out the proceedings. For this reason, it seems to me logical to deal first with the question of who was or were the defendants to the 2004 action.

As mentioned earlier, the 2004 action was commenced with the issue of the claim form on 17^th May 2004. Hughes J gave directions for a Solicitors Act taxation of the 24^th May 2004 bill and that began in the SCCO with the order for directions of Master Seager Berry dated 23^rd November 2004. Throughout this period Mr Tehrani remained the sole principal of Dean & Dean.

Until October 2006 the rules governing actions brought by or against the partners in a firm using the firm name were contained in RSC O.81. Since October 2006 they have been contained in CPR r.7.2A and 7 PD paragraphs 5A and 5B.

So far as material, RSC O.81 provided as follows:

The ability to commence an action against the partners in a firm of solicitors by using the firm name to describe the Defendants was therefore limited under RSC O.81, r.1 to cases where the parties alleged to be liable were partners in the firm at the time when the cause of action accrued. Mr Tehrani was a sole practitioner at the time when the 2004 bill was rendered and the BAE monies were paid into Dean & Dean’s client account. He remained a sole practitioner long after the 2004 action had been commenced. By the time Dr Mireskandari became a partner in the firm in November 2005 there had already been one unsuccessful attempt by Dean & Dean to strike out the assessment proceedings on grounds of Lyndales’ lack of authority and points of dispute had been filed by Dean & Dean in relation to one of Angel’s bills of costs in the proceedings in which the same point had been taken.

Mr Francis submits that the use of the firm name Dean & Dean to describe the Defendants in the 2004 action cannot have operated to include anyone not permitted to be included under RSC O.81, r.1 and that, for the reasons already given, the only defendant was therefore Mr Tehrani. Strictly speaking, of course, RSC O.81 had no application to the position in 2004 because Mr Tehrani had no partners at that time. But that aside, the use of the firm name could and did not (it is said) extend beyond Mr Tehrani himself. The use of a firm name under RSC O.81 or CPR 7.2A operates simply as a shorthand to describe all those who were partners at the time when the cause of action accrued: see e.g. Ernst & Young v Butte Mining Plc (No. 2) [1997] 1 WLR 1485 at page 1491E-1492C.

This has particular consequences when it comes to the enforcement of a judgment obtained in such an action. Under RSC O.81, r.5 execution could issue against the property of the firm but, in the case of an individual partner, one of the conditions set out in O.81, r.5(2) had to be satisfied. I have assumed that Mr Tehrani did acknowledge service of the proceedings on behalf of Dean & Dean or, at the very least, was served with the claim form. But in relation to Dr Mireskandari and the others, none of the four conditions appears to be satisfied with the result that under O.81, r.5(5) and (6) there would have to be an adjudication as to whether they were partners in the firm at the relevant time. The evidence, of course, is that they were not.

CPR 7 PD.5A preserves the requirement that defendants sued in the firm name must have practised as partners in the firm at the time when the cause of action accrued. CPR 70 PD.6A effectively repeats the provisions of RSC O.81, r.5. If therefore, as Mr Francis contends, the 2004 action as originally constituted was brought against Mr Tehrani alone there is nothing in the CPR which would entitle the Claimants to execute any costs orders against Dr Mireskandari, Miss Turbin or Mr Bell in the absence of proving that one or more of them were partners with Mr Tehrani in Dean & Dean in May 2004. It would follow from this that the statutory demands served against them on the basis that they were liable under those orders must be set aside.

Mr Robins seeks to resist this conclusion by relying on the provisions of ss.9 and 20 of the Partnership Act 1890 which provide as follows:

He contends that the debt due to Dean & Dean from Angel in respect of the fees charged under the 2004 bill was partnership property which devolved on the surviving partners following Mr Tehrani’s retirement from the firm in late 2006. It thereupon ceased to be recoverable by anyone except the surviving partners who became its owners both at law and in equity. The interest of the outgoing partner, Mr Tehrani, and his property became a debt due to him at the date of dissolution from the surviving partners under s.43 of the Partnership Act and nothing more.

On this basis the taxation of those costs (at least from December 2006) related to partnership property in which Mr Tehrani no longer had any interest. Mr Robins submits that costs orders made in the assessment proceedings as part of the 2004 action should not therefore be treated as relating back to the commencement of the proceedings. They should be regarded as made against those individuals who were partners at the time when they were made. These were in fact the persons (he says) who continued to pursue the defence of the proceedings in order to recover the full amount alleged to be due. Section 9 confirms that they (and not Mr Tehrani) are liable for the debts and obligations of the firm incurred while they were partners and these must include liability under the costs orders made during those periods.

The difficulty, however, about this argument is that it assumes that the fees due from Angel originated as a partnership asset. In fact, as already indicated, the work was done and the fees billed when Mr Tehrani was in practice alone. The provisions of s.20 therefore have no application to this case unless the debt became an asset of the partnership when it came into existence in November 2005. There is no evidence to indicate whether or not this was the case.

But even if the debt was assigned to the new partnerships in 2005 it does not follow from this that the costs orders made in the 2004 action took effect as orders against the continuing partners from time to time. In relation to an ongoing action to recover debts due to a firm, the current partners obviously have an interest in the continuing property of their firm and could (if necessary) be added as additional claimants to the proceedings. In practice, this will seldom prove to be necessary because, once recovered by the partners in those proceedings, the assets will be held for the benefit of all the partners at the relevant time. In the case where all the original partners at the time when the proceedings began have ceased to be partners in the firm, any attempt by a defendant to resist a judgment on these grounds could be met by the addition of the current partners as claimants under CPR 19.2 if necessary even after judgment.

Where the firm name is used to denote the defendants to a claim the position is essentially the same. Its use will be effective only to join as defendants those persons who were partners at the time when the cause of action accrued and a change in the composition of the firm will not ipso facto effect a change in the composition of those originally joined as defendants. To do this the machinery of CPR 19.4 will have to be operated. Clearly in an action by a claimant against a firm of solicitors to recover money held in the firm’s client account there can be no doubt that the partners from time to time remain liable to account for the sums which they retain. But in a case where none of the partners at the time of the original claim remains a partner in the firm, there does not appear to me to be any alternative to joining the current partners under CPR 19.2 in order to make the judgment effective against them.

The 2004 action is an action by Angel against Dean & Dean seeking an account of the monies received from BAE. Taxation of the bill under the Solicitors Act was merely part of the accounting process designed to identify what sums Dean & Dean were entitled to recover from Angel and therefore to set-off against the monies in their clients account. There have been no orders for the addition of Dr Mireskandari or the other alleged partners as Defendants and, although the costs proceedings appear to have been conducted by Dr Mireskandari and Miss Turbin (and perhaps Mr Bell) on behalf of the firm, the orders made against Dean & Dean seem to me to affect Mr Tehrani alone. Although costs orders do not relate back as such, they can only bind the parties to the action against whom they are made.

Mr Francis’s point, though technical and in one sense without merit, seems nonetheless to be a good one. Angel is not without remedy against Dr Mireskandari and any other partners in the firm at the relevant time because they can be made to show cause under CPR 48.2 as to why they should not be made liable under s.51 of the Supreme Court Act 1981 for the costs for which they were responsible. On the face of it, they would have no obvious answer to such a claim. But those steps have yet to be taken and, as things stand, both Dr Mireskandari and Miss Turbin do have an answer in my judgment to the claims made in the statutory demands.

I propose therefore to set the statutory demand against Miss Turbin aside. It therefore becomes unnecessary for me to decide whether she could succeed on her claim that she was never a partner in the firm. The position of Dr Mireskandari is more complicated because of his failure to apply to set aside the statutory demand served on him. Although he has now applied for an extension of time in which to set aside the demand, the application was not issued within three weeks of the service of the demand and before the bankruptcy petition was presented. Doubts have therefore been raised as to whether I can now or should grant such an extension of time.

Whether or not the power contained in rule 6.4 of the Insolvency Rules can still be exercised, the consequence of my acceptance of Mr Francis’s argument is that there is not and never has been any judgment debt outstanding against Dr Mireskandari in respect of the costs order relied on. It follows from this that the conditions set out in s.267(2)(a) and (b) IA 1986 for the presentation of the bankruptcy petition were not satisfied and that the Court has no power to make an order on the petition: see s.271(1)(a). I propose therefore to dismiss the petition unless Mr Sinel applies to be and is substituted as the petitioning creditor and seeks a bankruptcy order based on the debt due to him.

This brings me to the strike-out application and to Mr Tehrani’s application to set aside the statutory demand served on him.

There are obvious problems of locus and procedure arising out of my decision about the parties to the 2004 action which I referred to earlier in paragraph 33 of this judgment. The present partners in Dean & Dean are attempting by the 2008 action to set aside orders made not against them but against Mr Tehrani in an action to which they were not parties. Mr Tehrani is not himself a claimant in the 2008 proceedings. Those grounds are probably sufficient in themselves to justify the striking out and dismissal of the action. There is also, I think, an issue as to whether an action of this kind is the correct procedure for seeking to set aside the orders made in the 2004 action. But having heard detailed argument on the issues, I propose to concentrate for the moment on the principal grounds relied upon for striking out the claim. They are that it constitutes an abuse of process either because the issues which the action seeks to raise about the orders made in the 2004 action are res judicata between the parties or because they amount to a collateral attack upon previous decisions on the points made by a court of competent jurisdiction.

Before turning to the principles to be applied, it is necessary to set out some more of the procedural history of the 2004 action so far as it has involved the raising of the issues of Lyndales’ authority to act on behalf of Angel in relation to the recovery of the BAE monies and the taxation of Dean & Dean’s 2004 bill.

The first significant attempt to raise the issue of Lyndales’ authority came in the form of Dean & Dean’s application notice of 12^th April 2005 by which they sought to strike-out the assessment proceedings. The point had surfaced earlier in relation to an unless order sought by Angel to compel Dean & Dean to serve the evidence of its handwriting expert but in his witness statement in support of the strike-out application Mr Tehrani expressly raised the question whether Angel through its liquidator had authorised the continuation of the 2004 action. He set out the background to the litigation and then turned to the correspondence between Dean & Dean and Lyndales in which the issue of the latter’s authority was raised.

On 10^th March 2005, the day before a directions hearing in front of Master Seager Berry, Lyndales wrote to Dean & Dean confirming that they had express authority from the liquidator that any steps taken in relation to the detailed assessment of the bill of costs were binding on Angel. Mr Tehrani says that at the hearing Counsel for Angel also submitted to the Master that there was in any case the solicitors’ implied warranty of authority which could be sued upon if it subsequently turned out that Lyndales did not in fact have the authority they maintained.

In the particulars of claim in the 2008 action Dean & Dean set out the history of the communications between Lyndales and Angel which preceded the 10^th March letter. It is pleaded that after 30^th September 2004 the liquidator was solely responsible for all aspects of the company’s affairs and was the only person with power to cause it to enter into contracts (para 28). After SC Con Expert Consulting had replaced Deloitte & Touche as liquidators on 25^th November 2004 further correspondence took place between Lyndales and the Romanian lawyers acting for Mr Azad, the majority shareholder, in which Mr Azad was informed of a security for costs application which came before Butterfield J on 14^th January 2005. Lyndales told Mr Azad’s lawyers that they were experiencing difficulties in obtaining written instructions from the liquidator (Mr Ion) and that they were being pressed by Dean & Dean to produce evidence of the current status of Angel and who precisely they were taking their instructions from.

Butterfield J ordered Angel to provide security in the sum of £75,000. Lyndales contacted Mr Azad through his lawyers and sought some instructions. Dean & Dean’s pleaded case (para 52) is that, up to this time, they had had no direct contact with the liquidator or any authority from him to continue the proceedings. They rely on a passage from Mr Lacombe-Shaw’s witness statement of 1^st February 2005 made in support of an application to extend time for the provision of the security in which (at para 4) he states that he is not receiving instructions direct from the liquidator but from the shareholders and that it has not been easy to obtain instructions from either.

On 9^th February 2005 Lyndales wrote to the liquidator summarising the steps taken to date in the 2004 action and asking for his confirmation that they might continue to act on behalf of the company. On 15^th February a meeting of creditors took place at which the order for security was discussed and it was agreed that Mr Azad should provide the security at his own risk. This was followed by a court hearing in Bucharest on 17^th February when the liquidator reported on the situation in the 2004 action regarding the provision of security by Mr Azad and the court approved this. Dean & Dean plead that no mention was made at the hearing of the continued representation of the company by Lyndales.

The letter of 10^th March 2005 was preceded by a letter from Mr Azad’s lawyer (Dr Floresco) to Lyndales which again expressed the view (contained in earlier correspondence between them) that unless the liquidator or the court cancelled or reversed the instructions given by Mr Azad prior to the liquidation those instructions remained in force. It was on this basis that the letter of 10^th March 2005 was apparently written. This caused Dean & Dean to take their own legal advice in Romania and on 17^th March they retained Popescu & Associates and asked them to contact the liquidator.

A meeting took place with Mr Ion on 23^rd March when, according to the particulars of claim (para 68), Mr Ion informed Ms Dobrescu of Popescu & Associates that he had not been contacted directly by Lyndales and was first aware of the litigation with Dean & Dean in England when Mr Azad requested approval of the payment of the security for costs. Mr Ion then signed a declaration dated 4^th April 2005 in which he stated that he had not instructed Lyndales to act for him as liquidator and had not had any contact with them. In the declaration Mr Ion also expressly disavowed the contents of Lyndales’ letter of 10^th March.

On 20^th April 2005 Lyndales wrote again to Dean & Dean about the question of their authority to act. They said that the contents of Mr Ion’s declaration of 4^th April was inconsistent both with the circumstances of the meeting of creditors held on 15^th February at which the possibility of a debt of $398,702.37 being recovered in English High Court proceedings was discussed and with Mr Ion’s report to the court in Bucharest on 17^th February asking for approval of the provision by Mr Azad of the security for costs ordered by Butterfield J. They took the point that their authority to pursue the action on behalf of Angel pre-dated the liquidation and had never been revoked.

They also enclosed a copy of a letter from Mr Ion dated 20^th April 2005 (with a certified translation) in which he confirmed (contrary to his earlier declaration) that Lyndales had been authorised by the shareholders of Angel to conduct the litigation on behalf of the company. The letter stated:

This was followed by a further letter from the liquidator to Lyndales dated 25^th April 2005 in which Mr Ion confirmed that he had been aware of the English litigation from January 2005 and that both the creditors and the Court had approved the expenses and the provision of security for costs on the basis that the litigation should go ahead. He then stated:

This view about the continuing validity of Lyndales’ original retainer by the shareholders was confirmed by an Opinion of Drd. Mirela Sabau (instructed by Lyndales as an expert witness), which is dated 3^rd May 2005. She expressed the view that Lyndales’ authority was not automatically terminated by the liquidation of Angel and did not require the approval of the creditors or the consent of the court in order to remain valid. The court had the power to terminate the authority at the request of the creditors but this had not been done. In fact the creditors at the meeting on 15^th February supported the continuation of the English proceedings conducted by Lyndales and the Judge approved the provision of security for costs on that basis. Lyndales therefore, she said, retained authority throughout to represent Angel in the proceedings.

Following a hearing on 10^th May 2005 HHJ Seymour QC dismissed the application to strike-out the detailed assessment proceedings. As part of his judgment he did not attempt to (nor could he) resolve the issue of Romanian law as to whether Lyndales required the approval of creditors and the Romanian court before they could act for Angel following its liquidation. He expressed the view that the strike-out application was not the appropriate means of challenging Lyndales’ right to recover its costs of acting from the monies belonging to Angel. Dean & Dean should, he said, allow the detailed assessment of their bill to be concluded and once the amount of the recoverable bill was determined they could then recover their unpaid costs either from the monies in court or (if the monies in court were insufficient) by suing Lyndales on their implied warranty of authority to act for Angel.

The other important development which occurred on 10^th May was that the Romanian court made a specific order in relation to Lyndales’ authority to conduct the English proceedings. The liquidator sought permission from the Court to grant Lyndales power of attorney to conduct the English action on behalf of the company. The court in its ruling stated:

The reference to 15^th May is a reference to the date on which the strike-out application was due to be determined.

In the 2008 action Dean & Dean plead that this order, on its true construction, only related to expenses incurred between 10^th and 13^th May in relation to the strike-out application. Given the nature of the liquidator’s application, that seems to me to be an unlikely construction of the order but this is not something which I need to decide on this application. What is important to note is that Dean & Dean’s position has always been that the original retainer given to Lyndales by the shareholders terminated on the liquidation of the company and, in order for it to be revived by the liquidator, the appointment had to be approved both by the creditors and by the court. In her report of 6^th May 2005, relied on by Dean & Dean in the 2004 action, Dr Gheorge Piperea expressed the view that creditor and court approval were necessary and that at the hearing on 17^th February no such court approval had been given. The same point was made in the witness statement of Ms Dobrescu of 11^th April 2005 and is now included in the particulars of claim in the 2008 action.

Prior to the hearing of the strike-out application Dean & Dean applied to Master Seager Berry to stay the assessment proceedings relying in part on Lyndales’ alleged lack of authority to conduct the assessment. The Master dismissed the application on 5^th May and proceeded to try various preliminary issues raised in relation to the assessment of the 2004 bill. On 26^th September 2005 he handed down judgment on a number of these issues. By then Lyndales had taken steps to recover the costs awarded to Angel in relation to various orders made in the assessment proceedings including the costs of the unsuccessful strike-out application. In relation to the assessment of these costs which covered the period from May 2004 to 26^th September 2005, Dean & Dean served points of dispute on 7^th November 2005 which again included a challenge to Lyndales’ authority to act from 30^th September 2004 (the date of the liquidation) up to 20^th April 2005 (the date of the liquidator’s letter confirming Lyndales’ authority).

On 5^th December 2005 Master Seager Berry ordered the trial of four preliminary issues in the assessment of these costs including the determination of the status of the retainer of Lyndales by Angel between 30^th September 2004 and 20^th April 2005. The Master was asked to consider the reports of the experts on Romanian law referred to earlier and Lyndales’ own evidence about the circumstances in which they came to be instructed. He was invited by Counsel for Dean & Dean (Ms Kennedy-McGregor) to prefer the evidence of her clients’ experts to that of Dr Sabau. Counsel for Angel submitted that Dr Sabau’s view of the law was supported by Mr Ion in his letter of 25^th April but that the Romanian court had in any event clearly ratified Lyndales’ authority to act when it authorised the payment of security for costs in accordance with what had been agreed at the creditors’ meeting on 15^th February.

The Master preferred the evidence of Dr Sabau on these issues and held that Lyndales had continuing authority throughout the period covered by the costs in issue. In para 43 of his judgment he said this:

Dean & Dean then applied to the High Court for permission to appeal against the Master’s order. In the grounds of appeal it was contended that the conflict of expert evidence about Romanian law could not be resolved on a summary basis but required a hearing at which each side’s expert witness could be cross-examined. The decision of the Master to prefer the evidence of Dr Sabau was also said to be against the weight of the evidence.

On 28^th March 2006 Holland J gave Dean & Dean permission to appeal and directed that the appeal should take the form of a re-hearing with directions being given for oral expert evidence. Those directions were given by Treacy J on 17^th July 2006 and included the grant of permission to Dean & Dean to amend their points of dispute so as to expand the period covered by the alleged lack of authority by making it open-ended. This involved the removal of the original cut-off date of 20^th April 2005. Orders were also made for disclosure by Lyndales and for the service of further evidence.

The additional evidence included the order of the Bucharest court dated 10^th May 2005 referred to earlier and a witness statement from Mr Ion dated 26^th July 2006 which traces the history of the liquidation; explains his initial denial of Lyndales’ retainer and refers to the order of 10^th May 2005 as follows:

Lyndales sought permission to appeal against the order of Treacy J. The appeal was principally concerned with his grant of permission to amend the points of dispute. In their Notice of Appeal Lyndales pointed to the fact that at the hearing before Master Seager Berry, Dean & Dean were asked whether they wished to amend the points of dispute in the way permitted by Treacy J but specifically declined to do so.

Rix LJ considered the application on paper on 17^th October 2006 and directed that the permission application should be heard by the full court with the appeal to follow if permission were granted. In his reasons he noted that the expert reports relied on by Dean & Dean all pre-dated and therefore did not consider the effect of the liquidator’s letter of 20^th April 2005. He also referred to the failure of Dean & Dean to seek to amend the points of dispute when asked about this at the hearing. The amendment permitted by Treacy J therefore, he said, deleted Dean & Dean’s acceptance of an authorised retainer from 20^th April 2005 onwards.

The full hearing took place on 24^th October 2006 when the Court of Appeal gave permission to appeal, allowed Lyndales’ appeal and revoked the original grant of permission to appeal by Holland J. They held that Dean & Dean’s acceptance of the 20^th April 2005 letter as limiting their argument about lack of authority to that period was inconsistent with their current reliance on the same expert evidence in support of their claim based on an open-ended period. Ms Kennedy-McGregor did not seek to go beyond 20^th April 2005 in her skeleton argument and merely invited the Master to prefer Dean & Dean’s expert evidence to that of Dr Sabau. The argument for Lyndales did not therefore depend on choosing between the experts in relation to the whole period covered by the costs orders under assessment. It seemed to be common ground in the assessment proceedings that there was authority after 20^th April. The only issue therefore was whether (on Dean & Dean’s case) authority had been given earlier than 20^th April or (on Angel’s case) whether it had been revoked at any time before that date.

At para 22 of his judgment Rix LJ refers to the grant of permission to appeal by Holland J on 28^th March:

The reasons for allowing the appeal against the order of Treacy J and for revoking the original grant of permission to appeal are contained in the following paragraphs of Rix LJ’s judgment:

On 25^th October 2006 Mr Semken, Counsel for Dean & Dean on the appeal, wrote to the Court of Appeal asking for the hearing to be re-opened for further argument. The issue raised for possible re-consideration was whether the original permission to appeal should be set aside in its entirety or only so far as (by amendment of the points of dispute) Dean & Dean sought to challenge the question of authority after 20^th April 2005. In relation to the period up to 20^th April 2005 Dean & Dean still wished to contend that the Master was wrong to have attempted to decide the issue of Romanian law about Lyndales’ authority to act without hearing oral evidence from the experts. There was therefore a sound basis, he contended, for the appeal in respect of the period dealt with by the Master in his judgment.

The three members of the Court of Appeal (Auld, Rix and Moses LJJ) responded on 27^th October 2006 and rejected the request:

These have to be treated as additional reasons for allowing the appeal in respect of the entire period and they are important in the context of the present strike-out application because it is clear that the Court of Appeal did in part base their decision on their own view that there was no reasonable prospect of success in arguing that the liquidator’s letters of 20^th and 25^th April 2005 did not confer authority on Lyndales or that such authority was not retrospective. These are precisely the points which Dean & Dean have now sought to raise in the 2008 action: see particulars of claim at paras 77-79.

By then Dean & Dean had filed further points of dispute in the assessment proceedings in which they again took the retainer point but for the entire period from 30^th September 2004. Lyndales in their points of reply (dated 4^th February 2006) stated that the point had already been decided by the Costs Judge in the proceedings but relied in any event on the two April letters and the order of the Bucharest Court of 10^th May 2005. On 11^th September 2006 Master Seager Berry (without the benefit of the later decision of the Court of Appeal) held that authority also existed for the periods not dealt with by his earlier judgment of 15^th February: i.e. before 30^th September 2004 and after 20^th April 2005. He found that Lyndales had been retained by the company (through its shareholders) in May 2004 and that the retainer had continued unbroken thereafter.

Dean & Dean sought permission to appeal which the Master refused on 4^th January 2007. On 25^th January 2007 they issued a notice of appeal against the 11^th September 2006 ruling. The grounds of appeal were familiar and raised essentially the same points as had been raised in the notice considered by Holland J and in Mr Semken’s letter requesting the Court of Appeal to hear further argument in the appeal. Paragraphs 1-2 of the grounds of appeal read as follows:

But at about the same time a new and important issue was raised by Dean & Dean in relation to the expert evidence. Notwithstanding the unsuccessful appeal to the Court of Appeal against the Master’s order of 15^th February 2006, they applied to set aside that and other orders made in connection with the issue about Lyndales’ lack of authority on the basis that they were obtained by what Mr Tehrani described in his 16^th witness statement as inaccurate and misleading evidence. This was a reference to the report of Dr Sabau dated 3^rd May 2005. By then Dean & Dean had in their possession a witness statement dated 18^th October 2006 of a Mr Brian Healy, a private investigator, who says that on the instructions of Dean & Dean he went to Bucharest armed with a copy of Dr Sabau’s (unsigned) report and visited her on 15^th February 2006. In short, his evidence is that Dr Sabau denied knowledge of the report when questioned about it and asked him to leave. On the basis of this evidence the report is said to be a fabrication and to undermine the orders of the Costs Judge based upon his acceptance of its conclusions.

It is, I think, significant that no attempt was made to use this material earlier notwithstanding that the visit is said to have occurred in February 2006. It was not in fact used until 26^th March 2007 when Dean & Dean applied to the Court of Appeal for permission to re-open its earlier decision on Taylor v Lawrence grounds.

In the meantime, Lyndales had served a further bill of costs relating to orders made in the assessment proceedings and on 8^th February 2007 Dean & Dean again served points of dispute raising the issue of Lyndales’ alleged lack of authority. On 2^nd March 2007 the statutory demand was served on Mr Tehrani.

The application to the Court of Appeal of 26^th March 2007 included an application for permission to appeal against the Master’s order of 11^th September 2006 dealing with the issue of authority in the earlier and later periods of time. The earlier application to the High Court for permission to appeal appears not to have been dealt with by this time but on 3^rd April 2007 Mackay J refused permission to appeal on paper. His reasons were that the grounds of appeal were repetitive of issues already decided on a final basis. It is not, however, clear whether he was aware of the pending application to re-open the earlier decision of the Court of Appeal. I assume that he was not.

Whilst the application to the Court of Appeal remained to be dealt with, a number of other procedural steps occurred. On 13^th April 2007 Mr Tehrani applied to set aside the statutory demand. On 9^th May Master Seager Berry of his own initiative ordered Dean & Dean to show cause why the points of dispute served on 8^th February raising the authority issue should not be struck out. A hearing took place on 21^st May. The Master was told of the concerns about Dr Sabau’s evidence but ruled that the points of dispute raised the same issues as already decided by him in the assessment proceedings. They were, he ruled, therefore res judicata between the parties and he ordered the relevant points of dispute to be struck out.

The application to the Court of Appeal was supported by a long and detailed witness statement from Dr Mireskandari extending to some 84 paragraphs which fully set out the history of the assessment proceedings and the issues raised in them. It also alleged bias against the Master. In particular, the witness statement refers to the importance for the Claimants of Dr Sabau’s evidence and the reasons to doubt its veracity. Mr Healy’s statement was provided to the Court of Appeal together with a further statement from Dr Piperea confirming her view of the position under Romanian law.

On 1^st August 2007 Rix LJ dismissed the application. His reasons do not deal expressly with the issue about Dr Sabau’s evidence. What he said was that:

It is therefore suggested by Mr Tehrani that Rix LJ’s refusal to re-open the earlier decision of the Court of Appeal turned on the grounds that Holland and Treacy JJ had been misled and that an appeal in respect of the period up to 20^th April 2005 was marginal in financial terms. But on 30^th November 2007 McCombe J refused permission to appeal against the order of Master Seager Berry of 23^rd May 2007 and on 22^nd February 2008 Dobbs J at an oral hearing dismissed Dean & Dean’s application for permission to appeal both against that order and against the Master’s earlier order of 11^th September 2006.

The points of dispute (dated 8^th February 2007) struck out by the Master on 23^rd May 2007 included an allegation that he had been misled by false evidence to make the rulings of 15^th February and 11^th September 2006. This point was picked up in the Skeleton Argument of Lord Brennan QC and Mr Semken in support of the application which relied on the evidence of Dr Mireskandari referred to earlier. The Judge was therefore invited to find that, even if issue estopped by earlier decisions, there were special circumstances under the principles set out in Arnold v National Westminster Bank plc [1991] 2 AC 93 which made it just to allow the point about Lyndales’ authority to be litigated on the appeal.

Although there is no note in the papers of the Judge’s reasons, I have to assume that she rejected these arguments in refusing permission to appeal.

The claim form in the 2008 action was issued on 30^th September 2008 and was followed by the issue of the strike-out application on 13^th October 2008. Angel and Lyndales submit that the issue of Lyndales’ retainer has been decided by Master Seager Berry both in respect of the period between 30^th September 2004 and 20^th April 2005 and in relation to the earlier and later periods in his judgments of 15^th February and 11^th September 2006. Dean & Dean’s applications for permission to appeal against those decisions have been dismissed and in the case of the judgment of 15^th February 2006 following a hearing before the full Court of Appeal.

The issue, they say, is therefore res judicata between Dean & Dean and Angel and Lyndales assert that they are Angel’s privies for this purpose. If they are wrong about that then they rely upon broader grounds for saying that the 2008 action constitutes an abuse of process: i.e. that it amounts to a collateral attack on the reasoned decision of a court of competent jurisdiction following two unsuccessful appeals.

Privies are traditionally grouped into three classes: privies in blood, privies in title and privies in interest. To succeed Lyndales have to bring themselves within the third class. They seek to do so by relying on a passage from the judgment of Sir Robert Megarry in Gleeson v J. Wippell & Co [1977] 1 WLR 510 at page 515C-G where he said: -

I am not convinced that a party’s solicitors are privies in interest even within this test because, apart from anything else, they are not merely the agents of the party whom they represent. They remain officers of the court who, whilst fiduciaries for their clients, retain a separate identity and standing. This certainly seems to have been the provisional view of Buxton LJ in Laing v Taylor Walton [2007] EWCA Civ 1146 who, at paragraph 32 of his judgment, said that:

Ultimately, however, the point is not, I think, critical to this application. The express purpose of the 2008 action is to set aside the earlier costs orders made against Dean & Dean by Master Seager Berry on the basis of what Dean & Dean say was the false and misleading evidence of Dr Sabau. That relief can only be sought against Angel in whose favour the costs orders were made. If the liquidator succeeds on his application to strike-out on the basis that the issues raised in the new action are res judicata as between Dean & Dean and Angel it must follow that the claim against Lyndales should also be struck out. The challenge to the firm’s retainer is necessarily based on the same facts and matters as the challenge to the orders. They stand or fall together.

The issue therefore is whether the 2008 action is an abuse of process either because it seeks to raise matters which are res judicata between Dean & Dean and Angel or, more broadly, because it constitutes an attack upon the decision on the same point of a court of competent jurisdiction. In relation to the former, the principle that deems it an abuse for a party to seek to re-open in subsequent proceedings against the same party issues already decided in earlier proceedings extends also to facts and matters which could have been determined in those earlier proceedings but were not brought forward by the party in question: see Henderson v Henderson 3 Hare 100. Angel’s case that the present proceedings are an abuse of process extends therefore not merely to the issues of Romanian law about whether Lyndales’ original retainer survived the liquidation of the company or was preserved by the subsequent actions of the liquidator and the Romanian court, but also to the reliability of Dr Sabau’s evidence. As mentioned earlier, Dean & Dean were in possession of the evidence about Mr Healy’s visit as early as February 2006 and could have used it at the hearing before Master Seager Berry on 11^th September as well as before the Court of Appeal in October.

In Arnold v National Westminster Bank plc [1991] 2 AC 93 the House of Lords recognised that, even apart from cases where the earlier decision was obtained by fraud, there might be an exception to the otherwise absolute effect of cause of action or issue estoppel where special circumstances existed in the form of material relevant to the point which the party now seeking to raise it could not with reasonable diligence have adduced in those proceedings. That particular exception is not available to Dean & Dean in this case for the reasons just stated and if the retainer issue is now the subject of issue estoppel at least between Angel and Dean & Dean then they are compelled to rely on the fraud exception. However, although the allegation is that the costs orders were obtained by false evidence, the 2008 action does not go so far as to plead a case in fraud against either the liquidator or Lyndales. There is no allegation that they put forward Dr Sabau’s report knowing or believing that it had not been made by her or that they did so with a view to representing to the court a false account of the position under Romanian law. Their case is simply that the report was not made by the expert whom the Defendants had been permitted to call and should not therefore have been received in evidence by the Master when making his decisions on the retainer issue.

In Johnson v Gore Wood & Co [2002] 2 AC 1 the House of Lords reviewed the principle in Henderson v Henderson. After comprehensive examination of the earlier authorities, Lord Bingham (at page 31 A-F) summarised the correct principles as follows:

In the present case the issue of whether Lyndales’ retainer continued under Romanian law after the date of liquidation on 30^th September 2004 is undoubtedly res judicata between Dean & Dean and Angel. It was decided by Master Seager Berry both on 15^th February and 11^th September 2006 when he preferred the evidence of Dr Sabau to that of Dr Piperea and his decision of 15^th February 2006 (on which his later decision was based) was expressly upheld by the Court of Appeal.

The only new element in the 2008 action which was not before the Master on 15^th February and 11^th September is the allegation in paragraph 121 of the particulars of claim that the report of Dr Sabau is false and incorrect because it was not prepared by her. This allegation is based solely on the evidence of Mr Healy. It is alleged that, but for her evidence, the Master would have ruled in Dean & Dean’s favour on the retainer issue.

This issue was certainly not raised before the Master. Nor was it raised before the Court of Appeal on 24^th October or in Mr Semken’s letter requesting the Court of Appeal to hear further argument. The first occasion on which the allegation emerged was when Dean & Dean applied in 2007 to set aside the orders of 15^th February and 11^th September 2006 on the basis of Mr Healy’s evidence and to re-open the 24^th October 2006 decision of the Court of Appeal on Taylor v Lawrence grounds. Neither the witness statement of Mr Tehrani nor that of Dr Mireskandari used to support these applications give any explanation as to why this material was not deployed much earlier in the proceedings and no such explanation has been provided in response to the strike-out application.

Notwithstanding the deployment of this new evidence, Rix LJ refused to re-open the appeal and on 23^rd May 2007 Master Seager Berry himself struck out the points of dispute dated 8^th February 2007 which again raised the retainer issue but this time included the allegations about Dr Sabau’s report based on Mr Healy’s evidence. Permission to appeal from that decision and the Master’s earlier order of 11^th September 2006 was refused by Dobbs J following an oral hearing.

It is, I think, important to remember that Mr Healy’s evidence remains at the moment untested and Dr Sabau’s alleged denial of her report may be no more significant (if true) than Mr Ion’s earlier denial of his dealings with Lyndales. What is, however, significant is that these allegations have now been raised both in High Court hearings in the 2004 action and on the 2007 application to the Court of Appeal, on each occasion without success. Although Rix LJ did not in terms refer to Mr Healy’s evidence, his reference to new material indicates that he took the view that it was not such as to undermine the basis of the earlier decision.

As was made clear in the letter from them refusing to re-open the October 2006 hearing, the Court of Appeal took the view that the April letters from the liquidator referred to earlier together with the evidence of what occurred in Bucharest on 15^th and 17^th February 2005 established that the liquidator had, as a matter of fact, given Lyndales authority to act in the 2004 action and that such authority was retrospective over the period of the liquidation. The importance of the debate between the experts as to whether a fresh retainer was necessary became therefore secondary.

Even if one therefore applies the broader merits based test set out by Lord Bingham in Johnson v Gore Wood & Co rather than seeking to identify issues which are strictly speaking res judicata, it becomes clear in my judgment that the 2008 action would, if allowed to continue, amount to an abuse of process. It would involve the Court effectively ignoring not only the substantive decisions of the Master of 15^th February and 11^th September 2006 in which the question of Lyndales’ retainer was determined in the applicants’ favour, but also Dean & Dean’s unexplained failure to raise the allegations they now rely upon about Dr Sabau’s evidence both before the Master and before the Court of Appeal. Unless Dean & Dean can offer a satisfactory explanation for this (which Mr Tehrani and the others have not sought to do), it seems to me that it would be oppressive for the liquidator and now Lyndales to have to face further expensive litigation based on unproven allegations which appear not to have been regarded as sufficiently important to be relied upon earlier. The liquidator has limited funds available to meet the costs of this litigation which is Dean & Dean’s only challenge to an otherwise unanswerable claim for the return of the BAE money. Until March 2007 when Mr Healy’s evidence was first produced, Dean & Dean made repeated attempts to raise the same issue of authority regardless of the earlier decision of the Master and this continued even once the decision of the Court of Appeal was known. All of these steps need to be considered when weighing up the merits of their present arguments.

The point does not, however, end there. As already explained, what I shall call the false evidence point was in fact made the basis of the application to Rix LJ to re-open the Court of Appeal’s earlier decision and the Master’s order of 11^th September 2006. He refused permission to do so and Dobbs J rejected the same argument when considering whether to grant permission to appeal against the Master’s orders of 11^th September 2006 and 23^rd May 2007. It seems to me that to allow the 2008 action to proceed would be to subvert those decisions taken in the appeal process at a time when the false evidence material was fully deployed. For these reasons also the prosecution of the new action would in my judgment constitute an abuse of process.

It follows that the entire action including the claims against both Angel and Lyndales will be struck out and Mr Tehrani’s application to set aside the statutory demand served on him will be dismissed.

I will deal with the question of costs generally when this judgment is handed down but, in order to reduce the expense of the hearing for Mr Bell, I did invite Mr Francis and Mr Robins to address me on the discrete issue of the costs of Mr Bell’s application to set aside the statutory demand served on him and I propose therefore to deal with that as part of this judgment.

Mr Francis submitted that if he succeeded (as he has) on his primary argument that Mr Bell was not bound by the costs orders which formed the basis of the statutory demand then it followed that the statutory demand was misconceived and he should have all of his costs of the application to set it aside. Although, as mentioned earlier, Mr Bell originally relied on Dr Mireskandari’s witness statement of 28^th September 2008 which is largely based on the claims in the 2008 action and only changed tack early in 2009, Mr Francis says that this should not be allowed to provide the liquidator with grounds for seeking a reduction in costs due to having to deal with issues which I have ruled do not provide Mr Bell with an answer to the statutory demand.

Mr Robins contends that the liquidator should have his costs from 28^th August 2008 (the date of the application to set aside the statutory demand) until 12^th January 2009 when Mr Bell set out his present case. There should be no order in respect of Mr Bell’s costs because the argument on which he has succeeded was not raised until Mr Francis’s Skeleton Argument was received shortly before the hearing. By then a decision had been made not to rely on the statutory demand due to the issues relating to Mr Bell’s status in the firm. Had Mr Bell’s true position been made clear earlier, the costs of the hearing could have been avoided.

It seems to me that any costs order should reflect the fact that there was, as a matter of law, no proper basis for the statutory demand served on Mr Bell and he should therefore have his costs of the application to set aside the demand less any costs which are wholly attributable to issues which, on a proper analysis, should not have been raised. The liquidator will therefore pay the costs of Mr Bell’s application to set aside the demand but not including the costs of preparing his witness statement of 28^th August 2008 or any other costs incurred by him prior to the preparation of his witness statement of 12^th January 2009. I do not intend to make any order in respect of the liquidator’s costs.