Yenula Properties Ltd. v Naidu

On 17 March 2003 I heard submissions by Counsel concerning the following preliminary issue which I had identified for determination in this case:

At the conclusion of the hearing I reserved my judgment and informed the parties that this would be handed down in writing.

The background to the application concerns litigation between the parties involving a property at Flat 4, Bryanston Street, London, W1. The Claimant ("Yenula"), a subsidiary of British Land, owns the freehold and on 4 August 1995 let flat 4 to the Defendant ("Mr Naidu"). On 9 March 2000 Yenula issued proceedings for a declaration that the tenancy was an assured shorthold tenancy within the meaning of the Housing Act 1998. On 30 March 2000 Mr Naidu signed an application for legal aid. On 17 April 2000 this was granted. On 30 October 2000 His Honour Judge Bradley gave judgment in favour of Mr Naidu. On 18 July 2001 Lloyd J allowed Yenula’s appeal. On 23 May 2002 the Court of Appeal dismissed Mr Naidu’s appeal from the judgment of Lloyd J and refused permission to appeal. On 9 December 2002 the House of Lords dismissed Mr Naidu’s petition for leave to appeal against the judgment of the Court of Appeal. At first instance, before Lloyd J and in the Court of Appeal Mr Naidu had the benefit of public funding under certificate number TJBMENEICC 55/A/E/1.

Paragraph (2) of the Court of Appeal’s order dated 23 May 2002 provides:

On 13 September 2002 Yenula issued an application in Form N244 returnable before me on a date to be fixed for an order in the following terms:

On 25 September 2002 I gave directions of the court’s own initiative.

On 23 January 2003 the application was listed before me when I directed that the preliminary issue identified in paragraph 1 of this judgment should be determined by the court and I gave further directions for the lodging of skeleton arguments.

The preliminary issue was listed for hearing on 17 March 2003 when the Legal Services Commission ("LSC") was represented by Mr Gimlette and Yenula by Miss Windsor of Counsel. Before the Court was a bundle containing the skeleton arguments of both sides, the relevant orders in the case, a witness statement by Yenula’s solicitor, Charlotte Emma Biljani dated 13 February 2003, copies of relevant correspondence between the parties, transcripts of selected parts of the judgments of Judge Bradbury and Lloyd J and the various authorities relied on by both sides.

Before the implementation of the Access to Justice Act 1999 ("the Act") on 1 April 2000, jurisdiction to make an order for the payment of costs by the LSC (formerly the Legal Aid Board) was conferred by Section 18(1) to (4) Legal Aid Act 1988 ("the Statute"). Section 11 of the Act replaced Section 18 which was repealed (Section 106 and Part 1 of Schedule 15 of the Act). From that date the LSC took over the function of the Board and following the implementation of Section 11(4)(d), Regulations, rather than the Statute have governed the power to require the LSC to meet an unassisted party’s costs.

The following parts of S.11 are relevant to the issue I have to decide:

The regulations referred to in S.11(1)(3) are:

Section 11 itself came into force by virtue of Article 2(a)(i) and (ii) of the Access to Justice Act 1999 (Commencement No.3 Transitional Provisions and Savings) Order 2000 ("The Transitional Regulations").

Article 5 of the Transitional Regulations provide as follows:

Article 8 provides as follows:

In the Statute, S17(1) dealt with the liability of a legally assisted party under an order for costs made against him with respect to any proceedings and provided that such liability:

S.18 dealt with the costs of successful unassisted parties and at S.18(2) permitted the court to:

The relevant parts of Regulations 2 and 9 to 13 of the CLS Costs Regulations which govern the procedure for ordering costs against the LSC are in these terms:

The circumstances in which costs orders against the LSC may be made are set out in the Cost Protection Regulations. Regulation 5 provides:

It is convenient to set out the common ground. References to "paragraph" are to paragraph numbers in Yenula’s and the LSC’s skeleton arguments respectively.

Miss Windsor accepted that if the preliminary issue was to be answered in the affirmative, as she contended it should be, she would need to establish, first, that Regulation 5(3) of the Cost Protection Regulations applied and second, that Yenula could show a good reason for the delay within Regulation 4(1) of the Amendment No.2 Regulations. It is convenient to deal with each limb of Regulation 5(3) in turn.

In Miss Windsor’s submission, this part of the Regulation was satisfied because the order of the Court of Appeal dated 23 May 2002 was a S.11(1) order made against the client. It was not open to the LSC now to argue that it was not such an order, as the Commission had done in the correspondence put before the court. In the Court of Appeal, Mr Naidu had been an assisted party represented by Leading and Junior Counsel. A draft of the order had been agreed between the parties on 22 May 2002 and approved by the Court of Appeal the following day. In these circumstances, it was too late for the LSC to challenge its validity and accordingly paragraph 3(a) of Regulation 5 was satisfied.

Miss Windsor relied on the amendment which came into force on 3 December 2001 (adding the words "unless there is good reason for the delay") to overcome the fact that her client had missed the three month deadline. This expired on 23 August 2002, whereas the application for determination of the costs payable by the LSC to Yenula was made on 13 September 2002, 21 days late. In Miss Windsor’s submission, whether those words applied to the application in turn depended upon the true meaning of the amended Regulations. Paragraph 3 of the No.2 Amendment Regulations provides as follows:

What needed to be resolved was whether the application fell within the transitional provisions. Regulation 2(1) of the Cost Protection Regulations define "funded services" as:

Paragraph 2 of the No.2 Amendment deals with "interpretation" and provides at (2):

The words "applications for funded services" are not defined. Regulation 5 itself does not deal with applications for funded services by the legally aided party at all but with costs orders against the Commission. To that extent, in Miss Windsor’s submission, the expression "application for funded services" in the statutory instrument must be construed as "application for funds", viz funds payable out of the LSC’s funds. In other words, the reference to "applications" in paragraph 3 of the Amendment No.2 Regulations is to applications made by receiving parties for payment of their costs by the LSC on or after 3 December 2001 and not to applications by a client for funded services. This was the only way to make any sense of the transitional provisions, whilst preventing the amendments having retrospective effect. To construe "applications for funded services" narrowly, would result in a construction which made no sense because Regulation 5 is not dealing with applications by the funded party. Since Yenula had made an application for funds payable out of LSC funds after 3 December 2001, it had satisfied Regulation 5(3)(b) as amended.

As to the meaning of "good reason" Miss Windsor referred me to paragraph 19 of the LSC Manual. She drew attention to the fact that the LSC in certain circumstances allows solicitors acting for a funded party to make applications out of time. Where bills are submitted late for the assessment of an assisted party’s costs in favour of his own solicitors, the Regional Director of the LSC may extend the time beyond that provided for under the Civil Procedure Rules (see Manual Sections ID-031.56 to ID-03.62). In Miss Windsor’s submission, Regulation 5 is intended to mirror that regime. As a matter of policy it was difficult to see why solicitors acting for a successful non funded party should be in a different position to solicitors acting for an unsuccessful funded party.

Miss Windsor also referred me to Hansard and to the Parliamentary debates in both Houses prior to the coming into force of the Regulations. In her submission those debates took place on the premise that the amendments were instant and there was no suggestion of any delayed implementation. On the contrary, Baroness Scotland, the Minister for the Lord Chancellor’s Department, stated that changes were part of a large package of reforms of financial conditions for funding which were to come into effect in December 2001.

As to the actual reasons for the delay in making the application, Miss Windsor relied on Charlotte Bijlani’s witness statement. Three explanations were provided: first Miss Bijlani was fully occupied in dealing with three sets of proceedings involving Mr Naidu during the summer of 2002. These were very time consuming and as Miss Biljani put it "there was limited time to consider and prepare this application for costs by the claimant". Second, Yenula was contemplating a compensation claim against the LSC; it felt aggrieved that in other proceedings concerning a rent and service charge dispute, the LSC withdrew public funding only after the proceedings had run their course. Many hours had been spent by Miss Biljani, her supervising partner and her firms in-house costs draftsman preparing bills in support of the compensation claim, which prevented them working on the costs application. Third, S J Berwin lacked familiarity with the relevant area of law given that the firm acts predominantly for commercial clients, does not handle legal aid work, and their in-house costs draftsman and was unfamiliar with the Regulations. In any event the delay was short, only three weeks and a full apology had been made to the court.

Miss Windsor advanced an alternative case in the event that I decided against her on the issue of whether or not "applications for funded services" meant "applications for funds". The argument was this - any application for funded services should be construed as meaning all applications including those for an extension (eg. an authority to instruct a particular expert) and not just the initial application to the LSC for funding. Mr Naidu had had a number of extensions, the last of which was granted on 12 April 2002. It followed that an application for further funding must have been made in the weeks preceding that date. At the very least her clients should have their costs paid by the LSC from the date the last application for an extension was made.

Not relevant. The only costs pursued by Yenula were those incurred on appeal before Lloyd J and in the Court of Appeal.

Miss Windsor relied on Gunn on page 1649 at H that:

Mr Gimlette submitted that at the heart of the Defendant’s case was a failure to understand the Regulations and a continuing misconception about what came into effect and when. The crucial dates were the dates when the application for legal aid was signed by Mr Naidu and/or received by the LSC. In the present case:

It followed that as the application for legal aid was signed before 1 April 2000 and received before the May 2000 deadline, it was an "old" certificate and therefore an "old" case. Due to the operation of Article 5(1)(c)(i) of the Transitional Regulations, the substantive law applicable to the application was the old rules, viz Section 18 of the Statute. Accordingly, contrary to Miss Windsor’s argument, S11 of the Act did not apply. Neither did the Cost Protection Regulations.

Mr Gimlette did agree that the CLS Costs Regulations of the new regime were applicable to the procedures to be adopted. This was on account of Article 8(3) of the Transitional Regulations set out again here for convenience:

Notwithstanding that this was an "old" case, the procedure for ordering costs against the LSC would accordingly be determined by Regulations 2 and 9 to 13 of the CLS Costs Regulations. (Mr Gimlette and Miss Windsor were agreed on this point (see para 19(iv)and (v) above)). However, Mr Gimlette contended that as this was a Section 18 case Regulation 5 of the Cost Protection Regulations did not apply. Only Regulation 10 of the CLS Costs Regulations did via the operation of Article 8(3) of the Transitional Regulations. Sub-section (2) of Regulation 10 required Yenula to request a hearing date to determine the costs payable by the LSC within three months of the order made on 23 May 2002, that is to say by 23 August 2002. The existing application made on 13 September 2002 was out of time and, as the Master of the Rolls made clear in Gunn on page 1645 at G:

The only circumstances in respect of which there was some leeway for "old" cases was if the application for costs was being made against the client rather than the LSC. Regulation 12(3) permitted the court to extend time but even then a good reason to comply with Regulation 12(4) was needed, eg a change in the client’s circumstances through a legacy or windfall. This was not the situation here.

None of the documents required by Regulation 10(3)(a) to (c) of the CLS Costs Regulations had been served in time either. In short, the application was three weeks late and that was fatal.

Mr Gimlette next addressed the position had this been a "new" case, viz if Mr Naidu had signed his application for funded services after 1 April 2000 and the LSC had received it after 2 May 2000. In such a case Section 11 of the Act not S.18 of the Statute would have applied and the application would have been determined in accordance with the Cost Protection Regulations. Even then, Regulation 5(3)(b) (as amended) would not have availed Yenula. Mr Gimlette understood Miss Windsor to be arguing that in paragraph 3 of the (No.2) Amendment Regulations, "applications for funded services" meant applications by the successful unassisted party for costs against the LSC. The Amendment No.2 Regulations simply did not say that. In the definition of "funded services" it was the relationship between the client and the LSC which was pivotal and not the relationship between the receiving party and the LSC.

As to the alternative argument that an "application" included an application for an extension to the certificate, this too was misconceived. In Mr Gimlette’s submission, the rules which were to apply derived from the date of the certificate. An application for an extension merely meant that the solicitors for the assisted party were seeking authority to spend more LSC money. If the extension was refused, the client was still legally aided. In Mr Gimlette’s view, it was the application for the original certificate that defined the relationship at the start for all the parties.

As to "good reason", being busy and misunderstanding the law were simply not good reasons. Yenula was a substantial entity (according to its accounts) with retained profits of £95 million for 2002 and fixed assets exceeding £400 million. It had instructed a large firm of City solicitors which ought to have been capable of getting the application right.

As to Hansard, Mr Gimlette observed that all that was being debated was a general principle and start dates were not even discussed during the course of argument. He did not see what comfort Miss Windsor could draw from the Parliamentary debates.

Despite the tortuous trail which it has been necessary to follow through the Statute, the Act, the CLS Costs Regulations the Cost Protection Regulations, the Transitional Regulations and the Amendment No.2 Regulations, the answer to the preliminary issue can be stated quite shortly. Both sides agree, correctly in my view, that this is an "old" case, that is to say one to which the applicable law is Section 18 because Mr Naidu’s legal aid certificate was granted under Part IV of the Statute. They further agree that the procedures applicable to such a case are the "new" procedures to be found in Regulation 2 and 9 to 13 of the CLS Costs Regulations. They disagree, however, about whether the Cost Protection Regulations apply, in particular Regulation 5 which at paragraph 3(a) requires a Section 11(1) costs order to be made, before the LSC can be ordered to pay a non funded party’s costs.

For Yenula to succeed, I agree with Miss Windsor that she must establish that the order of 23 May 2002 was a Section 11(1) costs order and that the Cost Protection Regulations apply, including Regulation 5(3) as amended.

Miss Windsor’s case on Section 11 was that the order of 23 May 2002 stated, in terms, that it was a Section 11(1) costs order. Absent any application by the LSC to the Court of Appeal to have the order amended to include a reference to Section 18 of the Statute, that in itself was sufficient to bring Yenula within Regulation 5(3)(a).

I do not share that view. Whilst I accept that the order includes the words "the costs protection provided by Section 11(1) Access to Justice Act 1999", regard must also be had to Article 8 of the Transitional Regulations. As paragraph (4) of that Article makes clear, references in the CLS Costs Regulations to a Section 11(1) costs order and a costs order against the LSC are to be construed respectively as references to "Section 17(1) of the 1988 Act" and "an order under Section 18 of the 1988 Act". In other words, the new terminology in the Regulations must be construed by reference to the language in the Statute. The order of 23 May 2002 does indeed refer to Section 11 but I agree with Mr Gimlette that the effect of Article 8 is that Section 11 is used interchangeably with Section 17/18, where, as here, an "old" case is involved.

It follows, that in my judgment, Section 11 of the Act does not apply and of the new regime implemented in April 2000, only Regulations 2, 4 and 9 to 13 CLS Costs Regulations apply. Since it is common ground that Yenula did not comply with the three month time limit, if, as I find, Regulation 5 of the Cost Protection Regulations does not apply, then Yenula’s breach of the Regulation 10(2) deadline is incapable of remedy. Accordingly, the application to this court is fatally flawed and it is no longer open to Yenula to pursue its claim for costs against the LSC. That is sufficient to decide the preliminary issue against Yenula.

In case I am wrong, I propose to consider whether it would make any difference if, as Miss Windsor contends, Regulation 5 did apply.

It is clear that the unamended Regulation 5 is of no assistance because even if it did apply, Yenula would still have failed the three month test. It is only if Yenula can bring itself within the amendment introduced by the No 2 Amendment which added the words "without good reason for the delay" to Regulation 5(3)(b) that its application can be saved from certain failure.

As I have said in paragraph 18, the Amendment No.2 Regulations apply to "applications for funded services" made on or after 3 December 2001. If that means an application by the client for legal aid, the amendment would not assist Yenula because it is common ground that Mr Naidu made his application before 1^st April 2000. In my judgment, to avail herself of the amendment, Miss Windsor must demonstrate that these words refer to the timing of the successful unassisted party’s application for determination of its costs payable by the LSC and not to the assisted person’s application for legal aid.

I am not persuaded that Miss Windsor’s interpretation of the Amended Regulations is correct. I agree with Mr Gimlette that if it was intended that that should be the meaning, the Amended Regulations would have said so. Regulation 2 of the CLS Costs Regulations defines "funded services" as services provided directly for a client and funded by the LSC. If "funded services" was to mean something different in the Amended Cost Protection Regulations than in the CLS Costs Regulations, in my opinion the draftsman of the Amended Regulations would have made that clear in terms. In my judgment, "applications for funded services" simply means applications by clients for legal aid.

Moreover, for the amendments to have the meaning contended for by Miss Windsor, I would have expected the Explanatory Note to the Amendment No.2 Regulations to have said so, but it does not. I reach this view for the following reasons. In respect of cases litigated from 5 June 2000 onwards, it is the date of the application for legal aid that is crucial. For applications signed before 1^st April 2000 and received by the LSC by 1^st May 2000, S.18 of the Statute governs the law and Regulation 2 and 9-13 of the CLS Costs Regulations the procedures that apply; for applications signed on 1^st April 2000 and thereafter it is the Cost Protection Regulations (given effect by S.11(3) of the Act) that govern the law and the CLS Costs Regulations the procedures. To my mind it would be illogical and inconsistent with what had gone before if, in respect of applications made on or after 3^rd December 2001, the trigger was the date the receiving party applied for determination of his costs payable by the LSC, rather than the date the client applied for legal aid. Had such a volte face been intended, I consider the Explanatory Note would have made this clear, but as I have said, it does not.

It follows that I consider Miss Windsor’s interpretation of the amended Regulation 5(3)(b) is incorrect and she has not brought Yenula within the Amended Regulation. For that reason too, the preliminary issue must be answered in the negative.

If I am mistaken and the amended Regulation 5(3)(b) does apply and means an application made by the unassisted party after 3 December 2001, it is necessary to decide whether the three reasons advanced by Miss Windsor are "good reasons" for the delay. In my judgment, they are not. In essence they boil down to pressure of work and lack of familiarity with the Regulations, neither of which, in my opinion, are "good reasons". On the contrary, by the time Yenula’s application was made to this court on 13 September 2003, the Cost Protection Regulations had been in force for 2 years and the Amendment No.2 Regulations in place for over 9 months. In my judgment Yenula has not demonstrated a good reason for the delay and its application would fail on this ground too.

I am not satisfied, either, that because in certain cases, bills in matters in which the LSC are meeting the costs of the assisted person are permitted to be lodged late, is a valid reason for taking a generous view here. The CPR apply to such assessments whereas, on account of Rule 47.17, those Rules do not apply to the application before me. Accordingly, I derive no assistance from rules which are expressly stated not to apply to assessments of costs payable by the LSC against an unassisted party.

As to Miss Windsor’s alternative case that the "application for funded services" under Regulation 3 of the No.2 Amendment should be construed as including all applications for extensions to the certificate, I reject that argument too. In my judgment, the reference to "application" means the application for legal aid. Once that application is granted, it does not matter how many successful or unsuccessful applications are subsequently made for extensions, because costs protection by then will already be in place. I consider that it is the original application which is critical and not the dates upon which applications for extensions are made.

So far as the reference to Hansard is concerned, I agree with Mr Gimlette. The comfort which Miss Windsor sought to draw from the extracts she referred to me, I am afraid eluded me also.

This is an "old" case to which the substantive law applicable is Section 17/18 of the Statute and not the Cost Protection Regulations. Of the Regulations implemented on 1 April 2000 and thereafter, only Regulations 2 and 9 to 13 of the CLS Costs Regulations apply. Under Regulation 10(2) the time limit for requesting a determination of any costs payable by the LSC is a mandatory three months. As the Cost Protection Regulations do not apply the amendment to Regulation 5(3)(b) introduced by the No.2 Amendment Regulations is of no assistance. The application is therefore out of time and the preliminary issue must be answered in the negative.

The parties are at liberty to apply to me about the costs of the preliminary issue and permission to appeal.