Virdi v RK Joinery Limited

This is my judgment on the appeal, brought with permission granted by Peter Smith J, of Mr Amritpal Singh Virdi (“Mr Virdi”) against a third party costs order made against him on 13 January 2014 by His Honour Judge Powles QC in the Brentford County Court. Having heard argument on the appeal on 23 July 2014, I reserved my judgment. The respondent to the appeal is a company, the claimant in the underlying proceedings, called R K Joinery Limited (“RKJ”).

Mr Tim Calland of counsel appeared for Mr Virdi, and Mr Matthew Smith of counsel for RKJ. I am grateful to both of them for their concise and cogent submissions on a case which I have found to be of some difficulty. I will begin by filling in the relevant background.

Mr Virdi is a solicitor, with significant experience of residential and commercial property litigation and conveyancing. Since January 2013 he has been a consultant with Ronald Fletcher & Co, a small firm of solicitors which has its offices in Maida Vale, London W9. The sole principal of the firm is Mr D S Rosenblatt.

Until August 2013 Mr Virdi, his wife Ramneek Kaur Virdi (“Mrs Virdi”), and their teenage son lived in a house in West London (“the Property”). The address of the Property was 174 Jersey Road, Osterley, Isleworth, Middlesex. There is a history of litigation in relation to the Property which forms the backdrop to the present appeal. In outline, the relevant events were as follows.

The Property was originally owned, subject to a mortgage, by Mr Virdi. In the early 1990s he unfortunately suffered from severe depression, and also got into trouble with the Law Society in the conduct of his practice as a solicitor. This led to disciplinary proceedings. At a hearing on 11 March 1992 he was found guilty of unbefitting conduct in a number of respects, and fined a substantial sum. At a later date, having fallen into arrears with his mortgage and facing the threat of eviction proceedings, he sold the Property to RKJ. The principal shareholder and director of RKJ has at all material times been Mr Ranjit Singh. RKJ simultaneously entered into a tenancy agreement with Mrs Virdi, under which she agreed to pay the rent, so Mr Virdi and his family were able to continue living at the Property, although the legal basis for their occupation was now the tenancy granted to Mrs Virdi.

As the years passed, Mrs Virdi fell increasingly into arrears with the rent, and the relationship between Mr Ranjit Singh and the Virdis deteriorated. Mr Virdi also found himself in more serious trouble with the Law Society, to such an extent that in 2002 the Law Society intervened in his practice and (following further disciplinary proceedings) he was suspended from practice for three years. In about February 2003 he was declared bankrupt.

Eventually, RKJ served a notice in October 2009 terminating Mrs Virdi’s tenancy. She refused to leave, and defended the ensuing possession proceedings. She contended that, as a result of various alleged oral representations and agreements, RKJ held the Property in one way or another on trust for her husband and herself, she also had an option to purchase the freehold, and she was meanwhile entitled to remain in possession of the Property. The action came on for trial before Her Honour Judge Hazel Marshall QC in the Central London County Court. After a “hard fought battle” (as Judge Powles was later to describe it), judgment was delivered on 13 October 2011. The contentions raised by Mrs Virdi were comprehensively dismissed. RKJ was granted possession of the Property by 17 November 2011, together with a money judgment for approximately £115,000 and its costs of the proceedings, with an interim payment of £15,000 on account of the costs to be made by 27 October.

Following receipt of the judgment, Mrs Virdi instructed leading Chancery counsel (Mr Bernard Weatherill QC) to settle grounds of appeal, and sought permission to appeal from the judge. She refused permission by an order dated 4 November 2011, but extended time for seeking permission from the Court of Appeal until 17 November.

I should make it clear at this point that I have not been shown the statements of case, or the judgment of Judge Marshall, in the proceedings which I have just summarised. My description of them is mainly founded on the account given by Judge Powles in the judgment which he delivered on 4 July 2013 at the conclusion of the next stage in the litigation, to which I now turn.

The focus of the next stage was on the events which followed the refusal of permission to appeal by Judge Marshall, between November 2011 and January 2012. The central issue was whether, at a meeting which admittedly took place on 15 November 2011 (“the November 2011 meeting”), an oral agreement was reached between RKJ and Mrs Virdi, the principal terms of which were later alleged to be that:

The November 2011 meeting took place at the house of Mr Paul Bedi, a senior member of an organisation called the Sikh Forum which (among other objects) aims to facilitate the resolution of disputes within the Sikh community. Another so-called “mediator”, Mr Herdeep Singh, was also present in a similar capacity. The other persons attending the meeting were Mr Ranjit Singh, his son Mr Inderpal Matharu, RKJ’s accountant (Mr Bharj), and Mr and Mrs Virdi. In advance of the meeting, Mr Herdeep Singh sent an email to the parties saying that too much discussion had already taken place, and in his and Mr Bedi’s opinion the meeting would be “the final one where all matters should be concluded”, failing which their participation in resolution of the dispute would cease. The matters which needed to be concluded, according to Mr Herdeep Singh, were:

“(1)

The house and what to do with it: (a) sale (timescale), (b) lease (timescale), (c) rent (exclusive of repairs).

(2)

Debts incurred, debt through court or otherwise: (a) firm proposals how to settle this, (b) no suggestion or no wishy-washy talking, (c) firm and final proposals to be backed up with proof.

(3)

Apologies all round and shakes. Matter closed.”

Mr Bharj had also made some notes of his own before the meeting, of things which he thought were important. Under the heading “Conditions”, he listed the following items:

“(1)

Should not appeal.

(2)

Take possession of property.

(3)

Management to an agent.

(4)

Rent arrears. £100k immediately to show good faith.

(5)

Legal costs of £150k to be paid.

(6)

To give individual tenancy to all tenants.”

RKJ’s case was that no agreement of any kind was reached at the November 2011 meeting, although Mr Ranjit Singh was later prevailed upon to agree to grant a further shorthold tenancy to Mrs Virdi for six months. Consistently with this, RKJ later in November sent Mrs Virdi a six month assured shorthold tenancy agreement to sign. The draft agreement was then altered by Mr Virdi to one for 12 months and returned to RKJ, who noticed the alteration and changed it back to its original form, returning the document to Mr Virdi on 6 December. Mr Virdi had previously asserted in an email to Mr Ranjit Singh on 21 November that agreement was reached on 15 November to grant Mrs Virdi a one year assured shorthold tenancy, renewable for a further year. To that extent, therefore, his conduct in altering the draft agreement sent to his wife by RKJ was consistent with what later became her pleaded case on the contents of the agreement reached at the November 2011 meeting. It is notable, however, that the other main features of the pleaded agreement (namely the option to purchase the Property, and the delay in enforcement of the sums due under the October 2011 judgment) did not emerge in the correspondence until a later date.

Meanwhile, RKJ had taken action to enforce payment of the judgment sums. On 7 December 2011 they demanded payment of the judgment debt and interim costs from Mrs Virdi. On 9 January 2012 Mr Virdi wrote to RKJ, setting out a rather fuller version of what had allegedly been agreed at the November 2011 meeting. This was not accepted by RKJ, and on 25 January 2012 Mr Virdi wrote a further letter on behalf of his wife saying “We have started to pay the interim costs order now, £3,000, and will pay the balance by £250 a month”. He did not protest that this offer was in any way inconsistent with the agreement that had been reached in November.

In due course, RKJ served a statutory demand based on the judgment debt and, following contested bankruptcy proceedings, a bankruptcy order was eventually made against her on 17 January 2013.

RKJ also served a notice on Mrs Virdi seeking possession of the Property on expiry of the six month shorthold tenancy to which they agreed she was entitled, and which they said had begun on 1 December 2011. Possession proceedings were then commenced in the Brentford County Court. Mrs Virdi had separate solicitors acting for her in the bankruptcy proceedings, G J Templeman Solicitors of 49 Boston Road, Hanwell, and it appears that she also instructed them to act for her in the possession proceedings. Mr Calland was instructed to settle a defence, which he did on 26 July 2012.

The defence pleaded the terms of the November 2011 agreement as summarised in paragraph 10 above, and alleged that, in accordance with the agreement, Mrs Virdi had not made her intended application to the Court of Appeal for permission to appeal, and the time for her to do so had now expired. Her case was that RKJ had breached the agreement by: (a) failing to grant her a tenancy of the relevant part of the Property for a term of one year; (b) seeking possession from her prematurely; and (c) petitioning for her bankruptcy on the basis of her failure to make payments which it had been agreed would be deferred until exercise of the option. RKJ was accordingly estopped from claiming possession of the Property until at least 1 December 2012, and held the Property on a constructive trust to give effect to Mrs Virdi’s right to possession in accordance with the November 2011 agreement.

The possession proceedings came on for trial before Judge Powles on 3 and 4 July 2013. At the end of the second day he delivered an extempore judgment, anxious (as he said) to spare the parties the costs of a further attendance when they had already “spent a huge sum of money on litigation”. I have been provided with an approved transcript of his judgment, in the usual way. I have drawn on it for my account of the background history, but should again make it clear that I have not been shown the trial bundles or witness statements.

After recounting the background, the judge turned to the critical question of what had been agreed at the November 2011 meeting. He recorded that he had heard evidence from everyone who was present at the meeting, as well as from another senior member of the Sikh community, Mr Sarwan Singh Nahar, whose evidence broadly supported Mrs Virdi’s case. In paragraph 15 of the judgment, the judge said he was astonished that neither Mr Ranjit Singh nor Mr Virdi, who was a practising solicitor, had “thought to record in writing the terms of the agreement reached, if there was an agreement reached”. He then directed himself that, in order to test whether an agreement had been reached, it was important to examine the contemporary documents to see how far they were consistent with the rival cases.

It will already be apparent from my account of the events from November 2011 to January 2012 that the contemporary documents provided little in the way of support for Mrs Virdi’s case, and in certain important respects appeared to contradict it. Having heard the oral evidence, and the submissions of counsel for Mrs Virdi (who was not Mr Calland, but Mr Damien Powell), the judge had little hesitation in rejecting Mr and Mrs Virdi’s account of what had been agreed at the meeting. He preferred the evidence of the other witnesses, and stated his final conclusion as follows in paragraph 38:

“I find as a fact that there was no agreement as contended for at the meeting, indeed no agreement at all until Mr Ranjit Singh changed his mind and said he would grant a six months lease to Mrs Virdi.”

The judge’s conclusion was plainly one to which he was fully entitled to come on the evidence before him, and no appeal was brought against it. For present purposes, the main relevance of his judgment lies in his assessment of Mr and Mrs Virdi as witnesses, and the view which he took of Mr Virdi’s involvement in the running of his wife’s case.

In relation to Mrs Virdi, the judge said in paragraph 34 that he regarded her as “essentially truthful”. He continued:

“She was trying to help the court. She has been through great difficulties in her life. It cannot have been easy to have a husband who was in trouble with the Law Society in 1991, was severely depressed, taking, no doubt, medication, and was then struck off for three years for being involved in money laundering, I am told, later on. Now he is back in practice and is still plainly convinced that he had a case that was wrongfully determined by Her Honour Judge Marshall. Essentially, she is loyal. He has been the guiding hand in her witness statements, and while she wishes to tell me the truth I feel that she has become convinced by what her husband has been saying to her and inevitably her evidence is tainted by that, and I am afraid I do not feel I can rely upon it unless it is supported by other evidence. That is no reflection of her at all; it is entirely a reflection of what I am going to find in a moment about Mr Virdi.”

In fairness to Mr Virdi, I should at once state that the judge was in error when he said that Mr Virdi had been “struck off for three years for being involved in money laundering”. He was in fact suspended from practice for three years, and his offence was failure to comply with money laundering regulations, not active involvement in money laundering. That apart, however, the thrust of the paragraph is clear. The judge found that Mr Virdi had been “the guiding hand” in the preparation of his wife’s witness statements, and that she had become convinced of the truth of what her husband had been saying to her. The judge was therefore unable to rely on her evidence unless corroborated.

As to Mr Virdi, the judge said in paragraph 35 that he “can be very persuasive” and then found (in effect) that Mr Sarwan Singh Nahar had allowed himself to be persuaded that Mr Virdi’s version of events was correct. As a result, the judge was unable to attach much weight to his evidence.

The judge then said this:

“36.

What of Mr Virdi? I find that it is extraordinary that a solicitor who has just been through a bruising battle and lost it, in part because matters had not been properly put into writing, would after all his troubles, having secured an agreement, as he says, not have put it in writing, not have put it into the email when he was writing about the tenancy, and have taken the best part of six weeks, from December until 9 January to register his protest that the agreement was being broken in a most outrageous fashion by the Claimant. I am reinforced in this by the inherent unlikelihood of the agreement alleged for. Mr Virdi suggests that Mr Ranjit Singh, having spent £150,000 and two years of his life trying to get to a judgment about whether or not Mr Virdi had some interest in this property, would suddenly give him the interest of an option to purchase and a 12 month extendable tenancy purely on the abandonment of the appeal opportunity fast closing on Mr and Mrs Virdi.

37.

… It seems to me, likewise, wholly improbable that Mr Ranjit Singh would not have insisted on the agreement being in writing. He too had been through this bruising battle, and if he had just entered into an agreement, and learning what he had learnt from his experience, not to put it in writing would be an act of the greatest folly. The explanation that I am asked to accept is that it was done in the presence of the senior Sikhs “my word is my bond”, that sort of thing, and “it was not necessary”. Mr Virdi should have known better. He ought to know, in his many years practising as a solicitor, that while people say their word is their bond, remembering what word it was that they uttered in the first place, is often a very significant problem.”

By his order dated 3 July 2013 and sealed on 16 July, the judge ordered Mrs Virdi to deliver up possession of the relevant part of the Property by 1 August 2013. He declared that her defence had been “totally without merit”, and ordered her to pay RKJ’s costs of the proceedings on the indemnity basis. In response to an oral application by RKJ, he also directed that a preliminary hearing should take place before him on 13 August 2013, at which Mr Virdi should show cause why he should not be ordered to pay the claimant’s costs and be subject to an interim costs order. The judge directed that Mr Virdi should be joined as a defendant “for the purpose of costs issues only”.

At the hearing on 13 August, Mr Virdi was represented by Mr Calland. The application for a costs order against him was adjourned to the first open date before the judge, with a time estimate of half a day. The application was subsequently fixed for hearing on 13 January 2014.

The evidence before the court at the hearing on 13 January 2014 consisted of three short witness statements, two from Mr Virdi and one from Mrs Virdi. They were not cross-examined, and no oral evidence was given. Mr Virdi was again represented by Mr Calland, while RKJ was represented by a costs lawyer, Mr D Moran, who had not appeared at the trial. Having heard submissions, the judge again delivered an extempore judgment.

The jurisdiction to make an order for costs against a person who was not a party to the litigation is conferred by section 51 of the Senior Courts Act 1981, as amended. So far as material, the section provides as follows:

“51.

(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in –

…

(c)

any county court,

shall be in the discretion of the court.

…

(3)

The court shall have full power to determine by whom and to what extent the costs are to be paid.”

The court therefore has a wide discretion to determine “by whom and to what extent” the costs of and incidental to proceedings in a county court are to be paid. Since the decision of the House of Lords in Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965, it has been clear that the words “by whom” are to be given their natural meaning, and there is no implied limitation to the effect that costs may only be ordered to be paid by parties to the proceedings.

The relevant rules of court are now contained in CPR rule 46.2 (previously rule 48.2), which provides that:

“(1)

Where the court is considering whether to exercise its power under section 51 of the Senior Courts Act 1981 (costs are in the discretion of the court) to make a costs order in favour of or against a person who is not a party to proceedings, that person must –

(a)

be added as a party to the proceedings for the purposes of costs only; and

(b)

be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.”

It is not in dispute that these requirements have been complied with in the present case.

There is a considerable body of case law on the principles by which the court should be guided in deciding whether to make an order for costs against a non-party. I do not propose to examine this jurisprudence in any detail, because it is not contended that the judge misdirected himself in any way about the principles which he should apply. The central point is that the jurisdiction should only be exercised where it is just to do so, in accordance with the overriding objective.

The leading cases in the Court of Appeal include Symphony Group Plc v Hodgson [1994] QB 179 and Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723. The Privy Council has also considered the jurisdiction in Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39, [2004] 1 WLR 2807. In the Goodwood Recoveries case, Rix LJ reviewed the authorities relating to directors of companies, concluding at [59]:

“In my judgment, it is clear from these passages that the law has moved a considerable distance in refining the early approach of Lloyd LJ in Taylor v Pace Developments Ltd [1991] BCC 406. Where a non-party director can be described as the “real party”, seeking his own benefit, controlling and/or funding the litigation, then even where he has acted in good faith or without any impropriety, justice may well demand that he be liable in costs on a fact-sensitive and objective assessment of the circumstances. It may also be noted that in Lord Brown’s comments in the Dymocks case [2004] 1 WLR 2807, para 33 “the pursuit of speculative litigation” is put into the same category as “impropriety”.”

These conclusions were endorsed by the Court of Appeal in Petromech Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038 at [11], where Longmore LJ added that their application was not confined to directors. He also said, in an observation with which I respectfully agree, that:

“There is a danger that the exercise of the jurisdiction to order a non-party to proceedings to pay the costs of those proceedings becomes over-complicated by reference to authority.”

To similar effect, Laws LJ said at [19]:

“Section 51 confers a discretion not confined by specific limitations. While the learning is, with respect, important in indicating the kind of considerations upon which the court will focus, it must not be treated as a rule-book.”

Although it is well established that costs orders against non-parties are to be regarded as “exceptional”, Lord Brown explained in Dymocks at [25] that:

“… exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.”

The judge began his judgment by emphasising the need to have first read his earlier judgment in the main proceedings. He quoted his assessments of the evidence of Mrs Virdi and Mr Virdi in paragraphs 34, 36 and 37, and then said (paragraph 5 of the costs judgment):

“It is to be noted that I do not there find that Mr Virdi was lying to the court. It was not a necessary step for me to take … I am not going to revisit what I have said; I am not going to look beyond the situation that Mr Virdi’s evidence has not been accepted, his evidence has not been preferred to the other evidence in the case. Indeed, I have not been asked to say that his defence was dishonest. ”

The judge then directed himself on the law, referring to Goodwood Recoveries, Petromech and Dymocks. As I have said, Mr Calland accepts on behalf of Mr Virdi that the judge directed himself appropriately on the law.

The judge then considered submissions advanced by Mr Calland to the effect that Mr Virdi was not the “real party” to the litigation, and he had not funded his wife’s defence in any relevant sense. The evidence showed that, because they were husband and wife, their finances had inevitably been mingled to a certain degree, and when Mrs Virdi was made bankrupt her salary was for a time paid into Mr Virdi’s bank account. Some of the payments made to Mrs Virdi’s solicitors came out of their joint funds, but once Mrs Virdi had again got her own bank account her salary was paid into it, and payments to her solicitor were made from it. The judge was clearly sympathetic to Mr Calland’s submission that joint funding of the litigation, in a matrimonial context, was not in itself sufficient to justify a costs order against Mr Virdi. As he said in paragraph 15:

“I would not be minded to make this order if all he has done is behave like an ordinary husband making his financial contribution to the family as husbands do, and giving his advice and talking about the case to his wife, as we expect him to do.”

The judge then turned to the question of control. This part of his judgment needs to be read in the light of Mr Virdi’s evidence that he had introduced his wife to Ronald Fletcher & Co, the firm where he was a consultant. It appears that they acted for her in the possession proceedings from February 2013 onwards, if not earlier. According to Mr Virdi, it was decided that the principal of the firm, Mr Rosenblatt, should have conduct of the matter, and he (Mr Rosenblatt) then prepared the witness statements which were filed on Mrs Virdi’s behalf. Mr Virdi said that he helped Mr Rosenblatt from time to time, particularly when he was away from the office or on holiday. He exhibited copies of documents from the file with notes on them in Mr Rosenblatt’s handwriting at the top right hand corner. For her part, Mrs Virdi said in her statement dated 12 August 2013 that she had always taken the view that her husband “might be too close to the matter to be able to make an objective judgment”. She pointed out that her defence had been settled by counsel, and that she had also discussed her case with G J Templeman Solicitors.

The judge began his discussion of the question of control as follows:

“16.

The question, however, to my mind lies in whether [Mr Virdi] has been controlling this litigation such that the defence is not truly the defence of Mrs Virdi but is the defence of his own. I think it unfortunate that he did not engage a firm of solicitors to act on her behalf different from the one where he practised as a consultant. Had that happened, his submission that she was independently advised and he was not controlling the litigation for her would be easier to accept. Mr Calland says he could have advised her as a McKenzie friend, helped her with all the papers, prepared all the witness statements and would not have needed solicitors at all, given his undoubted expertise in these matters. But they chose to use solicitors for the express purpose of avoiding the criticism that he was not sufficiently arm’s length, if you like, from the claim; that he might not be able to offer the independent judgment because he was too closely involved; and that [he] therefore recognised that another firm should be used. He was right in that. It is unfortunate that the result of seeing that point led to a situation where, although a firm of solicitors was engaged and paid for, so far as I can see, all the work was being done by Mr Virdi.

17.

He had put in a recent statement in which he has exhibited, from the files of the firm no doubt, various papers in which the writing of the supervising partner [i.e. Mr Rosenblatt] can be seen, but there is nothing to suggest that there was ever a meeting between Mrs Virdi and the partner, no telephone conversation. I quite understand that she might not want to waive privilege in the content of those communications, but the fact of them should have been eminently provable. There is none. There is no bill with a narrative as to what has been done by the partner and what meetings there have been at all. Really, I can see nothing in this material to make me think that the finding I have already made in my judgment, that he was the guiding hand in her witness statement [is wrong, or words to that effect]. That does not go on to say that he had the conduct of the litigation but I think that is clearly implicit. I do not see any reason to revisit that, or change it in any way.”

With every respect to the judge, I have some difficulty with his approach in these paragraphs. He clearly considered that Mr Virdi had been the guiding hand in the preparation of his wife’s witness statements, and adhered to the finding to this effect which he had made in his earlier judgment. But the judge now had before him Mr Virdi’s unchallenged evidence (in his statement dated 9 January 2014) that Mr Rosenblatt had conduct of the case, and that Mr Rosenblatt “then prepared the witness statements filed on behalf of the Defendant which were typed by his secretary”. This evidence was not inherently incredible, and the exhibited extracts from the file showed that Mr Rosenblatt must at least have looked at some of the documents. In the absence of cross-examination, I do not think it was open to the judge to disbelieve this evidence, or to speculate that Mr Rosenblatt’s role in the conduct of Mr Virdi’s defence had been negligible.

It must be remembered in this context that (apart from the assistance which he gave to Mr Rosenblatt) Mr Virdi’s only formal involvement in the possession proceedings was as a witness. He had not been joined as a party to those proceedings in his own right, and it is not clear to me (from the limited material I have seen) whether there would in fact have been any valid cause of action which RKJ could have asserted against Mr Virdi. His evidence at the trial was therefore directed towards supporting his wife’s pleaded case, not to advancing a claim of his own or defending his own conduct. His wife’s defence had been settled for her by counsel, and no application had been made by RKJ to strike it out as unarguable or an abuse of process. Furthermore, Mr Virdi enjoyed the usual immunity from suit in respect of his evidence. As Balcombe LJ said in the Symphony Group case at 193H:

“One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v Durnford Ford [1992] QB 483, 497. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle.”

In his much-cited review of material considerations to be taken into account on an application for costs against a non-party, Balcombe LJ had already stressed that any application for such an order should be treated “with considerable caution”, that it was important to have regard to the basic principles of natural justice, and that although the judge’s earlier findings of fact might be admissible against a non-party, this was a departure from basic principles which could “only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule”: see 192H-193G.

Returning to the judgment, the judge went on to direct himself that he must be careful not to conflate “steps which Mr Virdi properly and sensibly took as a solicitor to promote the litigation” and “his activities in actually promoting the case that lost”. He continued (paragraph 18):

“If I do that I am very much left with what I have already found: that he has been the guiding hand in her witness statements; that he has become convinced in his own mind of the rectitude of his position; that he is entirely unjustified in having come to that position; that one can trace the development of his case over time – little accretions here and there, bringing a better and better defence; witnesses being affected by his enthusiasm and persuasive powers – Mr Sarwan Singh Nahar and indeed in his wife of whom I found regrettably, I was not able to accept her evidence unless I found it supported by other evidence in the case.”

The judge then asked himself whether Mr Virdi had been “controlling the litigation in the sense intended by the authorities”, or whether he had merely been helping his wife as any husband would. Referring to points advanced by Mr Calland on Mrs Virdi’s behalf, the judge seems to have accepted that there was nothing wrong in her reliance on her husband’s skills as a solicitor in guiding and helping her in the conduct of her case. He also reminded himself that litigation is always unpredictable, and nearly always results in a winner and a loser. As the judge rightly said, this did not take it out of the ordinary run of cases (paragraph 19).

The judge then continued:

“20.

I have not found that his [sic] losing case was formulated by him dishonestly, or not in good faith, but I clearly found culpability in him in failing to make proper notes and to handle correspondence in a proper way, taking the points as and when they should have been taken – all of which contributed to the finding against him.

21.

It seems to me that experienced property lawyer as he is, I find it unsurprising that Mrs Virdi should defer to him in such matters as property law and agreements about property. I am entirely satisfied, as I was at the hearing, that he made the running in the events that led up to the litigation and the discussions and so on, and that when the litigation started, he prepared the pleadings and the evidence. But as things turned out, in the order that I made, I declared that the defence was totally without merit.”

My comments on this passage are similar to those which I have already made in relation to paragraphs 16 and 17 of the judgment. The judge appears at times to have lost sight of the facts that the pleaded case which he rejected at trial was Mrs Virdi’s, not her husband’s, and that her defence had been settled for her by counsel, on instructions from G J Templeman Solicitors, and not by her husband or his firm. Nor was it open to the judge, in my opinion, to find that Mr Virdi had prepared the evidence, in the light of his unchallenged evidence that the witness statements were prepared by Mr Rosenblatt. The judge clearly took a dim view of the fact that Mr Virdi had failed to act with the diligence to be expected of a solicitor in relation to the November 2011 agreement and its aftermath, but the judge expressly acquitted him of dishonesty and acting in bad faith, and he again seems to have overlooked the fact that Mr Virdi’s involvement in those events had been in his personal capacity, not as his wife’s solicitor.

Later in his judgment, however, the judge did address the distinction between Mr Virdi’s personal and professional capacities. He said this (paragraph 23):

“Can he align himself with the picture put to me by Mr Calland that he is doing no different from any other husband up and down the land? I am satisfied that he cannot. He, after all, is an officer of the court who has a high duty to get things right. I am not here talking about the conduct of the litigation; I am talking about one’s approach to one’s own life and the world. People who have the – in this sense, I suppose – misfortune (you might say) to be lawyers (and may be doctors as well and other professional people) carry with them certain standards and one expects them to apply those standards to their every day life, and possibly that means they get judged slightly more harshly than other people. But I would say they are judged according to their own situation.”

In effect, therefore, the judge considered it appropriate to apply the same standards to Mr Virdi’s conduct of his personal affairs as would have applied to his conduct in a professional capacity. With respect to the judge, I consider that this was erroneous. I can see no justification for holding a solicitor, or any other professional person, to the same standards in the conduct of his private affairs as would apply to him when acting for a client in the course of his profession. The responsibilities and burdens of professional life are, quite rightly, of a stringent nature and subject to regulation in the public interest. But lawyers (or other professionals) are entitled to conduct their personal affairs as they choose, so long as they do not bring their profession into disrepute or otherwise infringe the code of conduct which governs their professional lives. The judge appears to have been judging Mr Virdi’s conduct as if he had been the solicitor on the record acting for Mrs Virdi, but that was not the position. His involvement in the November 2011 meeting and the negotiations which followed it was purely in his personal capacity, although he was of course free to give his wife the benefit of his skill and experience as a solicitor.

It is also relevant to distinguish a separate point. In his assessment of the evidence given at the trial, it was clearly open to the judge to take the view that, as a solicitor, and with his recent experience of the proceedings before Judge Marshall, Mr Virdi might reasonably be expected to have acted differently had the alleged agreement in November 2011 actually been made. This was no doubt one of the many factors which led the judge to dismiss Mrs Virdi’s defence, once he had heard and considered all the evidence. But in my judgment this was no more than a relevant factor in the fact-finding exercise which the judge had to perform. Where he erred, in my view, was in elevating this factor into a general principle which could be applied to the assessment of all Mr Virdi’s conduct in a non-professional capacity.

The judge then concluded his judgment as follows:

“24.

Mr Virdi has allowed himself to develop a case that had absolutely no merit and was totally without foundation. I ask myself: how has that come about? Is that because of the defendant, his wife? Is that because of what he did himself? It is clear from my judgment that it is because of what he did or did not do himself that he has generated this expensive litigation on behalf of his wife. No doubt he would seek to take benefit of it if it had been successful. He would have taken benefit from it purely because it was his home, and he undoubtedly has sought to take advantage of these proceedings.

25.

I find that the test set out in the cases to which I have referred: does he seek his own benefit? Yes. Was he controlling the litigation? Yes. Does justice demand that he is liable to costs? In my view, yes it does. I have also wondered whether this is a binary decision or whether it is one where I should say: he is only liable to an extent and I should express some percentage to meet the justice of the case. I have also been troubled by that, but at the end of the day, I see no reason to limit the amount of costs for which he should be liable. Therefore, I propose to make an order that he does pay the costs of the claimant on an indemnity basis as asked.

26.

I am asked to make an interim payment order. Mr Calland did not address me on that. The suggestion is that it should be between 80% and 90% of the total sum claimed, which of course will not be determined until there has been a taxation. The total sum claimed was some £107,000. I had got in mind a figure not as high as that, but of 60% and wondered if Mr Calland wanted to say anything to me about that before so deciding?”

In the event, after hearing further submissions the judge ordered Mr Virdi to pay RKJ’s costs of the proceedings, to be subject to detailed assessment on the indemnity basis if not agreed; to make an interim payment towards those costs of £36,000 within 21 days; and to pay the costs of the application on the standard basis, summarily assessed at £3,587. The judge refused permission to appeal. Mr Virdi filed his notice of appeal on 3 February 2014, asking for permission to appeal and a stay of the judge’s order. A stay was granted by Asplin J on 7 February 2014, and at a later date Peter Smith J granted permission to appeal. It is common ground that the correct destination of the appeal is the High Court, rather than the Court of Appeal, because the judge’s decision on the costs application was a final decision in proceedings that were not commenced under either Part 7 or Part 8 of the CPR: see Table 1 in paragraph 3.5 of PD 52A.

In my comments on the judgment under appeal I have already touched on many of the main points advanced by Mr Calland on Mr Virdi’s behalf. Mr Calland helpfully organised his written submissions under the following headings:

On behalf of RKJ, Mr Matthew Smith argued that the judge had reached his conclusion on fact-sensitive grounds which should not be disturbed by an appellate court. He stressed that this was an exceptional case, where Mr Virdi was involved as the defendant’s husband, as a witness for her, as a solicitor who had worked to a significant extent on her defence, and as the guiding hand behind the preparation of her evidence. The Judge carefully considered those circumstances, and was entitled to conclude that, in substance, it was Mr Virdi who had defended the proceedings. Since he lost, it is just and in accordance with the overriding objective that he should now pay the costs.

Mr Smith argued that the judge did not take irrelevant circumstances into account, and he was right to be influenced by the absence of any written record of the alleged agreement. Similarly, it was legitimate for the judge to appraise Mr Virdi’s conduct by reference to the standards that apply to professional people. It was clear that the judge had dealt appropriately with the question of funding, and that he did not decide against Mr Virdi on that basis. The culmination of his reasoning was to be found in paragraphs 24 and 25 of the judgment where, having directed himself correctly in law, he reached a conclusion which was unimpeachable.

In his oral submissions, Mr Smith reminded me that there is no closed list of the types of case in which it may be appropriate to make a third party costs order. The categories remain open, and section 51(3) of the 1981 Act provides a flexible tool which should be applied on a case by case basis. In an appropriate case, a costs order may be made against a non-party even if he was not guilty of any impropriety or dishonesty. The judge had the advantage, denied to an appellate court, of having heard all the evidence at trial and seen the witnesses giving evidence. Against that background, the court should be very slow to interfere with his assessment of the situation and the exercise of his discretion.

I have already drawn attention to what I respectfully consider to be some serious flaws in the judge’s reasoning on the application for a costs order against Mr Virdi. In the light of those flaws, I was initially inclined to think that the appeal would have to be allowed, or at least that the question should be remitted to the judge for further consideration. On further reflection, however, I have come to the view that the judge’s conclusion was, in essence, one which he was fully entitled to reach in the exercise of his discretion, and that it would be wrong for this court to interfere with it.

The crucial point, in my judgment, is the fact that (as the judge found) it was Mr Virdi, and he alone, who generated Mrs Virdi’s unsuccessful defence to the possession proceedings. With his legal knowledge and experience, he was clearly the dominant partner in at least this part of their marital relationship. The judge had been satisfied at the main trial that it was Mr Virdi who “made the running in the events that led up to the litigation” (paragraph 21 of the costs judgment). He also found that Mr Virdi had “allowed himself to develop a case that had absolutely no merit and was totally without foundation” (paragraph 24).

On the basis of the judge’s (possibly benevolent) refusal to find that Mr Virdi acted dishonestly, it must be accepted that Mr Virdi was somehow able to persuade himself subconsciously that an agreement was in fact reached at the November 2011 meeting, and that he then became convinced that the non-existent agreement had the features which were later pleaded in his wife’s defence. But none of this alters the fact that he was the sole progenitor of a defence which was always bound to fail once the evidence had been heard and tested.

Mrs Virdi’s role in the development of her defence was, on the judge’s findings, a purely passive one. She was loyal to her husband, and allowed herself in good faith to be persuaded of the truth of what he said had happened at the November 2011 meeting (paragraph 34 of the main judgment). Similarly, Mr Sarwan Singh Nehar (who had not been present at the meeting) was later persuaded by Mr Virdi of the rightfulness of his cause (paragraph 35 of the main judgment). The conclusion seems to me inescapable. Without Mr Virdi’s initiative and powers of persuasion, the version of events which underlay Mrs Virdi’s defence would never have seen the light of day.

It is important to stress that, once Mr and Mrs Virdi had persuaded themselves of the truth of this version of events, it was then entirely proper for Mrs Virdi’s case to be pleaded, prepared and presented at trial on that basis. Since the alleged agreement was an oral one, the questions whether it was made, and if so on what terms, were always going to require determination at a trial; and since it must be assumed that Mr and Mrs Virdi were both acting innocently and in good faith, their witness statements, and Mrs Virdi’s instructions to her solicitors, presumably reflected Mr Virdi’s faulty recollection of what had happened at the meeting. Thus the fact that Mrs Virdi had separate representation, and the fact that Mr Virdi played only a limited role in the preparation of her case for trial, do not detract from the central point against Mr Virdi, which is that he was solely responsible for the emergence of what turned out to be a hopeless defence.

The case for making a costs order against him would, of course, be much stronger if he had acted dishonestly and deliberately persuaded his wife to advance a defence which he knew to be false. As Mr Smith rightly reminded me, however, there is a wide spectrum of circumstances in which the discretion to make a third party costs order may legitimately be exercised. The authorities show that dishonesty is not a necessary ingredient, and (importantly) that the pursuit of speculative litigation falls into the same category as impropriety: see Goodwood Recoveries at [59], quoted in paragraph 32 above. Furthermore, although the benefit to Mr Virdi from a successful defence would, in a sense, have been parasitic upon his wife’s entitlement to remain in possession of the Property, the fact remains that he was solely responsible for the emergence of her defence. Thus I think he may reasonably be regarded, from an objective viewpoint, as the “real party” who defended the possession proceedings, and he certainly stood to benefit (together with his wife and son) from a successful defence.

To summarise, I think the judge was wrong to take the view that Mr Virdi controlled the litigation once it had started, and I also think he was wrong to hold Mr Virdi, in the conduct of his private affairs, to the same standards as would apply to him in his professional capacity. But I think the judge was entirely justified in regarding Mr Virdi as the person who was solely responsible for the emergence of a defence which never stood any reasonable prospect of success, and which originated in his self-delusion about what had happened at the November 2011 meeting. In those circumstances, justice seems to me to require that Mr Virdi should be held responsible together with his wife for the very considerable costs of the possession proceedings, subject of course to detailed assessment on the indemnity basis. I should add that, if I concluded (as I have) that the judge was in principle right to make a third party costs order against Mr Virdi, Mr Calland did not advance any separate argument that Mr Virdi should be liable for less than the full amount of those costs.

In the event, therefore, for reasons which differ in some significant respects from those given by the judge, I consider that this appeal must be dismissed.