Crehan v Inntrepreneur Pub Co Ltd & Anor

Lord Hoffman, in his opinion in the House of Lords dated 19 July 2006 [2006] UKHL 38, summed up these long running proceedings in the following way:

Before Park J Mr Crehan’s case failed. The Judge found there was no infringement of Article 81(1). In the Court of Appeal, however, to which Mr Crehan appealed, the Court found that the Judge had been wrong not to follow the Commission’s opinion expressed in the recitals to its decision in an earlier case involving Whitbread. The Court of Appeal decided [2004] EuLR 693 that, on the facts of the case, sincere co-operation required the Judge not to entertain a submission that the view of the Commission in Whitbread had been wrong.

In order to understand the tenor of the various judgments the meaning of “Delimitis 1 and 2” must be borne in mind. It is explained by Lord Hoffman at paragraph 26 of his opinion:

On 19 July 2006 the other Law Lords agreed with Lord Hoffman’s opinion that:

On 31 January 2007 the House of Lords made a further order on the question of costs:

On 23 April 2007 the Defendants made an application pursuant to Section 11 of the Access to Justice Act 1999 and/or Regulations 9 and/or 10 of the Community Legal Service (Costs) Regulations 2000 in respect of the Defendants’ costs in the proceedings in the Court of Appeal finalised by the Court of Appeal’s Order of 1 July 2004 as amended by the House of Lords, in the judgment on the 19 July 2006 and/or their Order of 31 January 2006. On the same date a similar application was made to the House of Lords in respect of the costs of the proceedings in the House of Lords. That application has yet to be heard.

It is common ground between the parties that the Claimant’s liability under the Court of Appeal Costs Order should be assessed at nil in the light of his means (he has been unemployed for 12 years and is in receipt of benefits).

It was further agreed that the instant hearing should be confined to whether or not any order should be made against the Commission. The assessment of any costs ordered to be paid to take place on another occasion. The total claimed by the Defendants in respect of costs in the Court of Appeal is £886,784.54. In the House of Lords the costs claimed total £1,171,544.25.

The original legal aid certificate in these proceedings was issued on 23 July 1993 to Mr Crehan. The combined effect of Articles 5(1)(c) and 8 of the Access to Justice Act 1993 (Commencement No.3 Transitional Provisions and Savings) Order 2000 is that for most purposes the law governing legally aided cases, where a certificate had been granted before April 2000 remains unaffected by the coming into force of the 1999 Act. The procedure applying to applications for costs against an assisted party, or the Legal Aid Board/Legal Services Commission, is however subject to the new regime. The relevant law for the purposes of this application is therefore contained in Section 18 of the Legal Aid Act 1988, which so far as relevant provides:

Under the Transitional Provisions any application for an order under Section 18 of the 1988 Act must be determined in accordance with Regulations 2 and 9 to 13 of the Community Legal Service (Costs) Regulations 2000.

Regulation 5(6) of the Community Legal Service (Cost Protection) Regulations 2000 requires the court to have regard to the resources of the non funded party. However those Regulations do not apply in the present circumstances.

In the light of the above the issue to be decided is whether the Defendants can establish that it is just and equitable in all the circumstances that provision for their costs should be made out of public funds.

Mr Morgan calls attention to the opinion of Lord Bingham, in this case in the House of Lords:

Mr Morgan points out that there is no difference between the parties on the facts, and very little difference between them on the law. He suggests that it is a difference in emphasis which is ultimately a question of “feel”. He puts his case under three heads:

what is the nature of the discretion;

the relevance of the non funded party’s means; and

cases in which the House of Lords has refused to award costs to the successful party.

Mr Morgan argues that the combined effect of the authorities, particularly Davies v Taylor (No.2) [1974] AC 225 and Din v Wandsworth (No.2) [1982] 1 WLR 418, is that there is an untrammelled discretion. In Davies, Lord Dilhorne stated (at 231B):

Based on these authorities Mr Morgan argues that there is no “normal rule or presumption” that costs should be awarded against the Commission.

Mr Pooles’ position is that the decision of the Court of Appeal in R (Gunn) v Secretary of State for the Home Department [2001] EWCA Civ 891; [2001] WLR 1634, is an up to date and accurate guide to the law, and that the guidance given by me, with the approval of the Master of the Rolls following that decision (White Book 2007 48.14.9 ff), is still relevant advice. The decision in Gunn, however, contains the kernel of the dispute between the parties. At paragraph 46 of the judgment in Gunn the Court quoted from the decision of Lord Woolf MR in In Re: O (Costs: Liability of Legal Aid Board) [1997] 1 FLR 465 at 470:

Mr Pooles points out that in Gunn the Court of Appeal were responding to an argument by Mr Morgan on behalf of the Commission that In Re: O was no longer good law, and that the introduction of the relevance of the successful parties’ means (under Regulation 5(6) of the Cost Protection Regulations) had altered the position to make it harder for the receiving party to satisfy the court that it was “just and equitable” to make an order against the Commission.

Lord Phillips MR, when giving the judgment of the Court, stated:

In Mr Morgan’s submission these Court of Appeal dicta were made per incuriam in ignorance of binding decisions of the House of Lords. In Gunn the Court was not referred to the House of Lords decisions in Saunders v Anglia Building Society (or Gallie v Lee (No.2)) [1971] AC 1039; Davies v Taylor or Din v Wandsworth LBC. Since Mr Morgan appeared for the Commission in Gunn he was able to explain that he had been “too economical” with his authorities, assuming that he would get home on his interpretation of the new Regulations. He does however rely on the first sentence of paragraph 48 of Gunn, quoted above. He suggests that the correct approach has not been changed and that the earlier House of Lords authorities are binding.

Mr Morgan argues that the discretion of the Court is a very wide one to do what is just and equitable in all the circumstances. He relies on the dicta in Saunders v Anglia Building Society and in Davies v Taylor in support of that contention. In Saunders Lord Reid stated (at 1047f):

Lord Dilhorne stated (at 1050h):

Mr Morgan goes on to argue that it would not be in accordance with the statute for orders to be made as of course for payment out of public funds whenever a non funded party is successful. He relies further on Lord Wilberforce in Din v Wandsworth:

Mr Morgan accordingly submits there is no rule that something more than mere success is required to make it just and equitable to make an order that the Commission should bear the defendants’ costs, although he acknowledges that success is “a very important circumstance”. He argues, however, that it is obvious from the fact that there is a discretion that mere success is not inevitably a passport to an order against the Commission.

Mr Pooles accepts that, following Saunders v Anglia Building Society and Davies v Taylor, there is a wide discretion to do what is just and equitable in the circumstances where an application is made against the Commission for costs in the appellate courts. With regard to Din v Wandsworth he suggests that this is authority for the proposition that the court has to consider in each case whether it is just and equitable that an order should be made. The fact that the unassisted party has succeeded being only one of the circumstances to be taken into account.

Mr Pooles referred to Maynard v Osmond (No.2) [1979] 1 WLR 31 CA, in which the dictum of Lord Reid in Saunders v Anglia Building Society was applied. Lord Denning MR said this (at 35A):

Maynard v Osmond was referred to in the judgment in Gunn (paragraph 43 – 44). Mr Pooles submits that Gunn is the only authoritative guidance as to how the relevant provisions are to be approached in terms of when it is “just and equitable” to make an order out of public funds, namely that it will “normally be just and equitable” to make an order against the Commission in circumstances such as the present, on an appeal where costs cannot be recovered from the funded party.

He refers to Lord Dilhorne in Davies v Taylor (at 231H):

Mr Pooles submits that the existence of a wide discretion for the court to determine whether an order is just and equitable, is not inconsistent with the proposition that it will normally be just and equitable to make an order against the Commission as the funder of the unsuccessful assisted party on an appeal, to the extent that its costs cannot be recovered from the assisted party.

Mr Morgan argues that although Maynard v Osmond was before the Court of Appeal in Gunn, if any point arising in any of the other authorities was not in Maynard, it could not be said that the Court of Appeal had taken that other authority into account. In Maynard the only passage cited from Saunders v Anglia relates to “the whole vexed matter of non est factum”. Lord Denning MR goes no further than to say (at 35C):

This, says Mr Morgan, is far from laying down the normal outcome, nor can it be said that there is any presumption that such an order will be made. In Mr Morgan’s submission the decisions in both In Re: O and Gunn show an incremental shift away from the untrammelled discretion towards the suggestion that such an order should normally be made, which in his submission is inconsistent with the dicta of the House of Lords. He suggests that the Court of Appeal has put an impermissible gloss on the principle, and introduced impermissible trammelling of the court’s discretion.

Mr Morgan accepts that in Saunders there was no difference of judicial opinion that the non funded party’s means were potentially relevant, but that there was a difference as to whether they would always be so. In Saunders Lord Reid stated (at 1047G):

Lord Dilhorne (at 1051D) stated:

And Lord Pearson (at 1054G) said:

Mr Morgan points out that Lord Reid was, on this issue, in a 2:1 minority of the Judges who gave reasoned judgments. In his submission details of the financial resources of the non funded party were part of the information sought under the old practice, precisely because they were a relevant circumstance (see Din v Wandsworth at 419C).

Mr Morgan submits that the Defendants’ assets have been and are more than sufficient to meet their costs of this litigation. The details of the Defendants’ means are set out in the statements of Mr Rupert Croft, the solicitor instructed on behalf of the Commission who had the conduct of the case on behalf of the Claimant, Mr Crehan, and of Mr Colin Redford, who is a director of the Grand Pub Company, the holding company whose subsidiaries include the First Defendant, Inntrepreneur. There is no dispute between the parties that the Defendants have a substantial cash balance still available, having made provision in their accounts over the years to cover the cost of this litigation. See for example exhibit RLC12 at pages 86, 87 where the notes to the accounts for the year ended September 30^th 1997 set out the position with regard to contingent liabilities arising from the litigation. The note concludes:

Later accounts have similar statements (see for example exhibit RLC12 at page 171) until 2004 when no further provision was made.

At paragraph 28 of his statement of 11 July 2007 Mr Croft suggested that in the mid to late 1990s Inntrepreneur had publicly announced that sufficient assets had been “ring fenced” to pay damages and costs to the tenants of Inntrepreneur in the event that their defence to the claim under Article 81 was unsuccessful. In his statement of 17 July 2007 Mr Redford stated that Inntrepreneur did not at any time “ring fence” money to pay potential damages and costs. He continues:

In my judgment this may be more a difference in emphasis, rather than a conflict of evidence, in that money kept in the bank may well be thought to be ring fenced. It is, however, clear from the accounts that provision was made over the years so that the company would be in a position to meet its liability for costs should the need arise. Mr Morgan agreed that this was sensible management, and that he was not suggesting any criticism of the company for doing this.

Mr Pooles suggests that Mr Morgan’s submissions in respect of the Defendants’ means are no more than an effort to re-introduce the severe financial hardship test (which applies in respect of first instance cases) by the back door. Mr Pooles submits that there is no requirement for the Defendants to prove that they would suffer hardship if they had to pay their costs themselves, but points out that Mr Redford in his statement of 17 July 2007 suggested that the litigation “threatened the existence of the company”. Although Mr Crehan lost before Park J, the Judge had found that he would have been entitled to £1.3 million if successful; given that there were approximately 600 other claims the potential impact on the company is clear. In the Court of Appeal Mr Crehan’s damages were reduced to £130,000.

A further difficulty for the company was that a substantial number of its tenants stopped paying their rent on the public houses on the basis that they were entitled to set-off their future damages against their rent, they also stopped buying their beer from Courage. This diminished cash flow and caused problems for the company, which was required to pay off large loans for which it used the rents which it received. The company’s purpose was to receive the rents and commission on beer sold by Courage. If those income streams ceased the only income of the company would disappear, and the company would be unable to continue. In Mr Pooles’ submission this was not a company which was so rich that the outcome of the litigation would not have made much difference to it, on the contrary the litigation “meant everything to it”. Had the company been unsuccessful, and been found to be in breach of Article 81, it would inevitably have faced large fines in addition.

As a sub-text to the relevance of the Defendants’ means Mr Morgan also introduced the question of the Commission’s resources. He makes the uncontroversial point that there are considerable pressures upon the legal aid budgets, as a result of which there have been reductions in the scope of legal aid and new forms of contracting have been introduced to control costs, as recommended in Lord Carter’s report. There is also a limit on the extent of funding for future major multi party actions in the Lord Chancellor’s directions to £3 million per year. Mr Morgan relies upon these facts to suggest that in the circumstances it would not be just and equitable for these limited resources to be spent indemnifying the Defendants against the legal costs which have, in his submission, “predictably resulted from their commercial decision”. This is a topic to which I shall return.

Mr Pooles points out correctly that there is no reference in the Act, or in the Regulations, to the Commission’s resources. In his submission if those resources are a relevant factor in exercising the discretion, they cannot be a central factor since otherwise the matter would have been specifically brought into account by the legislation. He submits that the Commission is protected by the severe financial hardship requirement at first instance, in addition to which there is no evidence before me of the Commission’s finances or how it chooses to spend its money.

Mr Pooles points out that the Commission has had effective financial control of this litigation from the outset. By the end of the Court of Appeal hearing, in June 2004, the Claimants’ costs were already £2.5 million (see Mr Redford’s statement, 17 July 2007, paragraph 15). The Commission continued to grant funding to resist Inntrepreneur’s appeal to the House of Lords. The Commission must have known, he submits, that were the Claimant to lose, the Commission could well be ordered to pay the Defendants’ costs. This possibility must, he suggests, have been taken into account by the Commission in deciding to fund the litigation.

Mr Pooles goes on to argue that the fact that the Commission’s resources are not unlimited could be used as a reason why they should not pay costs in unsuccessful appellate proceedings in every case.

Mr Morgan points out that the House of Lords has not invariably awarded costs out of public funds in both the House of Lords and the Court of Appeal where, as in this case, the parties have had mixed results on the way to ultimate success, although it appears that costs have always been awarded in the House of Lords, but not necessarily in the Court of Appeal. In both Saunders and Din the Court of Appeal costs were not awarded. In Saunders Lord Reid stated (at 1048A):

Lord Dilhorne, also in Saunders (at 1051A) set out a number of instances which might affect the award of costs out of public funds:

And Lord Pearson (at 1054F):

Their Lordships made an order for the building society to receive its costs in the House of Lords, but not in the Court of Appeal.

In Din there is merely the statement:

Mr Pooles points out that Saunders was very different from the present case, because the building society could recover its costs from the assisted person by adding the cost to its security. In the case of Din there is no explanation why costs were not ordered against the Commission in the Court of Appeal in that case. He further points out that in Saunders, it was the building society which had brought the appeal in the Court of Appeal, whereas in the present case it was the assisted party who chose to appeal and the Commission who decided to fund it. In his submission the Commission is therefore the direct cause of the defendants’ costs in the Court of Appeal.

Based on his arguments that the House of Lords does not always allow costs of successful unassisted parties in the Court of Appeal as well as the House of Lords, Mr Morgan recognises that the Court might feel that it would be just and equitable for there to be some provision for the costs of both appeals from public funds, but that not all should be so provided. Mr Morgan’s primary submission is that the Defendants have not shown that it is just and equitable that their costs should be paid by the Commission, but appears to be suggesting that if that contention did not succeed the just and equitable test might be satisfied by awarding the Defendants a percentage only of their costs. Mr Pooles submits that any decision to make a partial order must necessarily flow from the conclusion that it is just and equitable to make an order of some sort. In his submission a partial order would have to be founded on some conduct or impropriety on the part of the Defendants, but on the facts of this case there is no basis for such an order.

Mr Morgan acknowledges that the Defendants’ ultimate success represents a “very important circumstance” to be taken into account in their favour in this application. Mr Pooles, relying on Lord Dilhorne in Davies v Taylor (at 231G), submits that this is a case in which success alone suffices to render it just and equitable to make an order, or to make it unjust and inequitable not to do so. He points out that the Defendants have already had to bear their first instance costs of more than £3 million despite being successful. If the Defendants were then unable to recover their costs in the Court of Appeal from the Commission, without whose financial support the appeal could never have proceeded, and in a case where the Defendants were ultimately vindicated in the House of Lords on the very same point that Park J had determined in their favour at first instance, there would be obvious injustice.

Mr Morgan, however, argues that there are a number of factors which should dissuade the Court from deciding that an order for payment of costs by the Commission would be just and equitable in all the circumstances. Briefly those points are:

The history of the litigation is set out in the witness statement of Mr Croft at paragraphs 4 to 12, and in what Lord Hoffman calls the “full and admirably lucid narrative in the judgment of Park J”.

In respect of the lease Mr Morgan makes the following points:

the Inntrepreneur lease was an innovation in the trade;

the lease, with its requirements to buy beer from Courage, was for much longer periods than had previously been the practice (20 years as opposed to 3 to 5 years);

the prices at which the tied beer was sold were considerably higher than those available on the open market;

the rents were higher than those for other tied pubs and the tenants’ covenants included full repairing obligations;

there were complaints under Article 81(1) more or less from the inception of the Inntrepreneur tied estate;

the failure rate among Inntrepreneur tenants was significantly higher than for other pub landlords.

Thus, Mr Morgan argues, the litigation was the almost inevitable result of the commercial decision of Inntrepreneur to adopt leases in this form, coupled with the particular balance of rents and beer prices which went with them. Although he accepts that the Defendants were ultimately successful, having regard to the position of the European Commission and the decision of the Court of Appeal, he argues that this is not a case in which the challenge could be said to be hopeless, without foundation or ill-judged. It was, in his submission, clearly in the public interest that the challenge be mounted.

Mr Pooles relies on the judgment of Park J, particularly at paragraph 44:

With regard to Mr Morgan’s points listed above, Mr Pooles submits:

it is true that the Inntrepreneur lease was an innovation in the trade, there were new provisions moving tenants from short term to longer term leases of 20 years, see Park J at paragraph 33:

The beer ties of 20 years were in essence the innovation introduced by the lease.

It is true that the beer prices were higher than those available elsewhere, but the prices charged were the recommended list prices. This was part of Inntrepreneur’s business plan and not in any respect culpable. The price of the beer was set by Courage, not by Inntrepreneur.

The fact that the rents were higher than for other tied pubs and the covenants more onerous, was because the leases were entirely different. There are no repairing covenants in the short 3 to 5 year lease, whereas the 20 year lease has to be treated differently and is essentially a saleable asset. There was no culpable conduct on the part of Inntrepreneur.

Although there were complaints under Article 81 from the outset, the history of this case shows that the complaints were misconceived as demonstrated both in the judgment of Park J and in the House of Lords. Inntrepreneur had tried to resolve matters outside the litigation, but the European Commission refused to engage in reasoned debate, so that Inntrepreneur never had a satisfactory opportunity to argue its case to the Commission (see Park J, 147(ii)).

It is correct that the failure rate among the Inntrepreneur tenants was significantly higher than for other pub landlords. This was a fact taken into account by Park J, and not a consequence of any conduct by the Defendants.

As Mr Redford says in his statement, the Defendants would not willingly promote this situation where rents were withheld and commission lost, with a consequential reduction in the company’s cash flow. In Mr Pooles’ submission the litigation was concerned with the operation of Article 81, and was not the inevitable consequence of the Defendants’ lease. He resists any suggestion that the Defendants brought this litigation on their own head, and he relies on the judgment of Park J at paragraph 44 which I have quoted above.

As to Mr Morgan’s point that the legal costs “have predictably resulted from [Inntrepreneur’s] commercial decision” Mr Pooles argues that this cannot survive the judgment of Park J. He relies on Park J’s comments about the company’s intentions, and the fact that the Claimant was proved wrong to pursue the litigation by its outcome. In spite of the 600 Claimants there were a large number of successful Inntrepreneur tenants which enabled the company to remain in business. It would be absurd for directors of the company to adopt a business plan which was designed to fail. Finally, Mr Pooles suggests that even if the litigation was “inevitable” it could not be said to be inevitable that the Claimant would appeal, or that the LSC would fund such an appeal. In his submission where the Legal Services Commission agrees to fund litigation, the Commission must, in making that decision, factor in the risk of exposure to adverse costs. The burden of those costs should not be visited upon the Defendants, who, having been successful at first instance, then had no option but to go to the Higher Courts.

Mr Morgan argues that the LSC does not put its case as the Defendants suggest. He says there is no suggestion of conduct or culpable misconduct on behalf of the Defendants. He relies on the Defendants’ decision to introduce a different form of lease as a commercial and profitable exercise. The difficulties which arose for Mr Crehan and other tenants were inherent in the lease terms, beer prices etc. He does not say that the Defendants were deliberately trying to make the businesses fail. The introduction of the new lease was a commercially innovative decision (see Park J, paragraphs 45 to 47), but he submits the lease cannot be considered away from the rents and beer prices which imposed a squeeze on the tenants and led to a high rate of failures. This was not as a result of deliberate company policy, but the new lease was designed to make substantial profit for the company and led to the litigation. Therefore, in his submission, the litigation is the inevitable result of the new lease.

The suggestion that the proceedings were clearly in the public interest was raised at paragraphs 13 to 17 of Mr Croft’s statement. He points out that the Court of Appeal was unanimous in giving permission to appeal to the House of Lords to both sides. The case was one of approximately 600 similar claims, and the damages awarded to Mr Crehan were a fraction only of the company’s potential liability. Mr Croft suggests that the public interest of the case went beyond the claims against Inntrepreneur, and concerned the recoverability of damages for infringement of competition law. Mr Morgan suggested that this was the use of private law litigation to enforce public competition law. He referred to the OFT’s discussion paper dated April 2007 (OFT 196) “Private actions and competition law: effective redress for consumers and business”, in particular paragraphs 2.3 setting out the policy objective and 3.4 dealing with costs. These paragraphs do not, in my view, advance his case. He also referred to the letter from the DCA dated 5 April 2005 to Mr Croft (exhibit RLC11 page 36) informing Mr Croft that the Department had authorised the Commission to make a grant of funding, and he points to the criteria which had to be met for exceptional funding. Those criteria are:

He submits that funding was granted because those criteria were met, and this case was about testing an important point of competition law.

Mr Morgan referred to the case of Baxendale Walker v The Law Society [2007] EWCA Civ 233, in which the decision of Moses LJ in the Divisional Court was upheld by the Court of Appeal:

In respect of this Mr Pooles submits that if private anti trust litigation was to be subject to a different regime Parliament would have introduced legislation to deal with it. He suggests, and I agree, that Baxendale Walker contains no guidance which will assist me in this case.

In any event, argues Mr Pooles, the fact that this case raised issues of more general public importance, not just in relation to the large number of Inntrepreneur tenants with pending claims, but also the wider constitutional question of the proper approach for the National Court to take to the views of the European Commission is a factor in favour of making an order for costs against the Commission. There was at the time no guidance from the Court of Appeal on the constitutional issue at stake. He therefore relies on Lord Pearson in Saunders (at 1055):

He argues that the Court should not impose a duty on the other party (Inntrepreneur) to self fund, because the LSC deems the case to be in the public interest. He submits that there is no element of fault or culpable conduct on the part of the Defendants which might be thought to disentitle it to an order for costs where the Defendants have succeeded at trial, and ultimately on appeal to the House of Lords; appeals initiated by the Claimant, with the assistance of the LSC, without which the Claimant would undoubtedly have been unable to proceed further.

The House of Lords authorities Saunders v Anglia Building Society, Davies v Taylor and Din v Wandsworth make it clear that the courts have a very wide discretion to do what is just and equitable in all the circumstances. As Lord Dilhorne said in Davies, the court is entitled to have regard to “any relevant circumstances”. This would include both the conduct of the applicant, and, in the majority of cases, of the legally assisted person. That discretion is, as Mr Morgan submits, untrammelled. It seems that those authorities were so well known that Lord Phillips MR in Gunn was able to refer to “the now well established meaning of “just and equitable”” and he expressed the view that that meaning did not require any change by reason of the introduction of the new Regulations.

The Court has always had a very wide discretion in relation to the award of costs, not only in S11 of the Access to Justice Act 1999 cases, but also in respect of the costs of litigation generally. The “English Rule” that costs follow the event is the normal starting point rather than the finishing point. See for example, Lord Woolf MR in A.E.I.Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR1507 CA, where he explains the correct approach to the award of costs under the CPR. Following the introduction of the CPR the courts are more ready than previously to depart from the costs follow the event rule but the House of Lords, in the cases cited by Mr Morgan found no reason to depart from it, nor do I find any reason to do so in this case.

With regard to Mr Pooles’ submission that the existence of a wide discretion is not inconsistent with the proposition that it will normally be just and equitable to make an order against the Commission in such circumstances it is certainly arguable, but, in my judgment, it is not necessary for me to decide in the circumstances of this case whether or not there is a presumption that it will normally be just and equitable to make an order against the Commission; or indeed to decide whether the decisions of the Court of Appeal in Re: O and Gunn were given per incuriam. The statute under which I have to decide this issue is the Legal Aid Act 1988. In Gunn the Court of Appeal was dealing with Section 11 of the Access to Justice Act 1999. The question whether it is just and equitable in all the circumstances for the Defendants to receive their costs from the Commission is one which can be decided on the particular facts of this case, in the light of the principles laid down in the House of Lords authorities which I have quoted.

The Defendant company sensibly made provision to cover the costs of these proceedings, and accordingly has assets which are sufficient to meet their costs. That of itself is not, in my judgment, sufficient to reach the conclusion that it would be unjust and inequitable for them to recover some or all of their costs from the Commission. It is well known that the resources of the Commission are strained, and that the Government is making strenuous efforts to contain the legal aid budget. This has been a problem over many years. The question of the legal aid budget is essentially a political one. It is for the Government to decide to what extent it is prepared to finance the Legal Services Commission and to decide what level of protection it wishes to provide to the Commission against adverse orders for costs. At the moment the Commission is protected at first instance by the severe financial hardship requirement, and in the appellate courts by the fact that any costs ordered to be paid by the Commission will have been assessed and will be no more than is reasonable and proportionate in all the circumstances.

In my judgment the different provisions relating to the recovery of costs from the Commission at first instance and on appeal provide a clear indication of Parliament’s intention as to the relevance of the means of the applicant and the LSC in all but exceptional cases. At first instance no application against the LSC is possible unless (since 2003) the successful defendant is an individual who has suffered financial hardship. Thus a successful defendant such as Inntrepreneur is prevented from recovering its costs. On appeal a successful unassisted party may, provided it is just and equitable for it to do so, recover its costs unless the application is made late or there is an order for the assisted party to pay. Thus, at first instance poverty does not normally assist a defendant such as the defendant in this case (and post 2003, will never assist them) whilst, on appeal, strong solvency has never, by itself, prevented the making of an order against the LSC.

Although it is clear that the House of Lords has, on occasion, been persuaded not to award a successful unassisted party its costs in the Court of Appeal, whilst awarding them in the House of Lords, the two authorities cited, Saunders and Din, do not in my judgment greatly assist. In Saunders the building society was able to add its costs to its security, added to which it was the building society which had initiated the appeal in the Court of Appeal. In Din no indication is given in the note as to the reason why costs in the Court of Appeal were not awarded.

As Mr Pooles points out the Defendants in these proceedings were Respondents in the Court of Appeal, and were originally Defendants before Park J; and indeed had tried to resolve the matter outside the litigation by approaching the European Commission.

I do not accept that the terms of the Inntrepreneur lease led inevitably to this litigation. The squeeze put on the tenants by the terms of the new lease was exacerbated by the recession. The judgment of Park J makes it clear that large numbers of tenants were interested in the lease, and that a significant number made a success of the business. I accept Mr Pooles submission (at paragraphs 67 and 68 above) that, even if it could be said that the claim at first instance was the inevitable result of the new lease, the same cannot be said for the appeals to the Court of Appeal, or indeed the House of Lords.

For the reasons I have given, taking into account all the circumstances, I am of the view that it would be unjust and inequitable if Inntrepreneur were not to recover their reasonable costs in the Court of Appeal from the Commission. The Defendants were Respondents in the Court of Appeal, and had originally been Defendants before Park J at first instance. They had attempted to avoid the litigation by engaging (unproductively) with the Commission (see judgment of Park J at 47 (ii)). There has been no sustainable criticism of the Defendants’ conduct. The Defendants’ ultimate success was based on exactly the same grounds on which they were successful at first instance.

Given the decisions which I have set out, there is no basis for the making of a partial order in respect of the costs of the Court of Appeal.