Evans & Ors v The Serious Fraud Office

The background to the costs applications now before me is set out in my judgment dated 12 February 2015, and I need not repeat it at length here.

However, briefly, on 18 February 2014 in the Crown Court at Cardiff, prior to arraignment, I dismissed the single charge of conspiracy to defraud on which the Serious Fraud Office (“the SFO”) sought to try the six Applicants (now reported as R v Evans and Others [2014] EW Misc 5 (Crown C); [2014] 1 WLR 2817) (“the Dismissal Application”). I adjourned issues of costs generally. On 14 November 2014, Fulford LJ sitting as a Judge of the Queen’s Bench Division, refused the SFO’s application for a voluntary bill of indictment containing two counts, one in identical terms to that which I dismissed and a second count, also of conspiracy to defraud but with different particulars (now reported as Evans & Others v Serious Fraud Office [2014] EWHC 3803 (QB); [2015] Lloyd’s Rep FC 59) (“the VB Application”). Fulford LJ remitted consequential matters, including costs, to me.

The Applicants each applied for one or more of the following costs orders against the SFO, namely:

The costs claimed under (i) are small and largely uncontroversial. In relation to (ii) and (iii), on 12 February 2015, following a three-day hearing, I handed down judgment on two preliminary issues (now reported as [2015] EWHC 263 (QB)) (“the Costs Preliminary Issues Ruling”), finding as follows:

It had been agreed that submissions on quantum should await the judgment on the preliminary issues, as it was expected that I could deal with any further issues (notably the assessment of any costs found to be due, and any interim payments to be made in respect of the costs of the VB Application) on the basis of written submissions only.

Thus, since handing down that judgment, I have received written submissions on the three matters that remain to be dealt with by me, namely:

Very weighty submissions have been lodged, which set out the respective parties’ positions more than clearly. I am quite satisfied that, with one exception, following determination of the preliminary issues, as expected I can deal with the issues between the parties and make the required determinations properly and justly on the basis of the oral and written submissions to date, without a further hearing; and that, given the historic levels of costs at every stage of this case to date, a further hearing would be disproportionate and is unnecessary. The one exception is the section 19 claim made on behalf of Mr Whiteley. For the reasons I briefly set out below (paragraphs 53-58), that claim gives rise to a point of law which has been the subject of very recent further submissions – including submissions made today – and, in my view, it requires further consideration. I have therefore adjourned that issue to be considered at an oral hearing.

As I explained in the Costs Preliminary Issues Ruling (at [85]-[87]), section 16 provides that, where a defendant is charged and he successfully defends that charge, he is generally entitled to his defence costs from central funds. However, in respect of criminal proceedings commenced between 1 October 2012 and 27 January 2014 – including, as is common ground, these proceedings – paragraph 2(2) of Schedule 10 to the Legal Aid, Sentencing and Punishment of Offenders Act 2012 inserted a section 16A(1) into the 1985 Act, which provides that, subject to exceptions not presently relevant:

“A defendant’s costs order may not require the payment out of central funds of an amount that includes an amount in respect of the accused’s legal costs…”.

Therefore, in respect of criminal proceedings commenced in that period, under section 16, a successful defendant was able to recover only out-of-pocket expenses, such as fares to court. Section 16 costs are thus limited in these proceedings. (For completeness, I should say that the Costs in Criminal Cases (Legal Costs) (Exceptions) Regulations inserted a new section 16A(5A) into the 1985 Act under which, for proceedings commenced after 27 January 2014, legal costs are again recoverable but effectively only at legal aid rates.)

However, the 1985 Act provides for a number of special costs orders. Section 19 – the relevant statutory provision in this case – provides for costs orders against a party where costs have been incurred as a result of unnecessary acts or omissions on his part, in the following terms:

“The Lord Chancellor may by regulations make provision empowering magistrates’ courts, the Crown Court and the Court of Appeal, in any case where the court is satisfied that one party to criminal proceedings has incurred costs as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, to make an order as to the payment of those costs.”

The relevant regulations are the Costs in Criminal Cases (General) Regulations 1986 (SI 1996 No 1335) (“the 1986 Regulations”). Regulation 3 provides (so far as relevant):

“(1)

… [W]here at any time during criminal proceedings [the court] is satisfied that costs have been incurred in respect of the proceedings by one of the parties as a result of an unnecessary or improper act or omission by, or on behalf of, another party to the proceedings, the court may, after hearing the parties, order that all or part of the costs so incurred by that party shall be paid to him by the other party.

(2)

Before making an order under paragraph (1), the court shall take into account any other order as to costs (including a legal aid order) which has been made in respect of the proceedings.

(3)

An order made under paragraph (1) shall specify the amount of costs to be paid in pursuance of the order…”

That regulation is complemented by CrimPR rule 76, which sets out the relevant procedure (see CrimPR rule 76.1(1)(a)). Rule 76.8 concerns the procedure in respect of “Costs resulting from unnecessary or improper act etc”, i.e. an order under section 19. Rule 76.8(7), reflecting regulation 3(3) of the 1986 Regulations, specifies that “if the court makes an order, it must assess the amount itself…”. Rule 76.8(5) provides:

“Where the court considers making an order on its own initiative, it must—

(a)

identify the party against whom it proposes making that order; and

(b)

specify –

(i)

the relevant act or omission,

(ii)

the reasons why that act or omission meets the criteria for making an order, and

(iii)

with the assistance of the party who incurred the costs, the amount involved.”

However, particularly relevant to the matters before me is CrimPR rule 76.2, “Costs orders: general rules”, which applies to all costs orders including those made under section 19. That rule provides, so far as relevant to these applications:

“(3)

In deciding what order, if any, to make about costs, the court must have regard to all the circumstances, including –

(a)

the conduct of all the parties; and

(b)

any costs order already made.

(4)

If the court makes an order about costs, it must –

(a)

specify who must, or must not, pay what, to whom; and

(b)

identify the legislation under which the order is made, where there is a choice of powers.

(5)

The court must give reasons if it –

(a)

refuses an application for a costs order; or

(b)

rejects representations opposing a costs order.

(6)

If the court makes an order for the payment of costs –

(a)

the general rule is that it must be for an amount that is sufficient reasonably to compensate the recipient for costs—

(i)

actually, reasonably and properly incurred, and

(ii)

reasonable in amount; but

(b)

the court may order the payment of—

(i)

a proportion of that amount,

(ii)

a stated amount less than that amount,

(iii)

costs from or until a certain date only,

(iv)

costs relating only to particular steps taken, or

(v)

costs relating only to a distinct part of the case.

(7)

On an assessment of the amount of costs, relevant factors include –

(a)

the conduct of all the parties;

(b)

the particular complexity of the matter or the difficulty or novelty of the questions raised;

(c)

the skill, effort, specialised knowledge and responsibility involved;

(d)

the time spent on the case;

(e)

the place where and the circumstances in which work or any part of it was done; and

(f)

any direction or observations by the court that made the costs order.”

Rule 76 is reinforced by the Lord Chief Justice’s Practice Direction (Costs in Criminal Proceedings) [2013] EWCA Crim 1632 (“the Costs PD”). Reflecting the analysis of Lord Woolf CJ in R (HM Commissioners of Customs and Excise) v Leicester Crown Court [2001] EWHC 33 (Admin) at [12]), paragraph 4.1 states:

“The court may find it helpful to adopt a three-stage approach (a) Has there been an unnecessary or improper act omission? (b) As a result have any costs been incurred by another party? (c) If the answers to (a) and (b) are ‘yes’, should the court exercise its discretion to order the party responsible to meet the whole or any part of the relevant costs, and if so what specific sum is involved?”.

In relation to the section 19 applications before me, the preliminary issues left stage (c), i.e. the assessment of the specific sum.

Given the difference between the amounts of costs claimed and those conceded by the SFO in this case, Mr Richard Christie QC and Miss Lisa Arbon-Donovan for the SFO urged me to employ the services of the National Taxing Team (“the NTT”) or the Senior Court Costs Office (“the SCCO”) to make enquiries and prepare a report on the likely amount of the costs incurred by each of the relevant Applicants (paragraphs 3-8 of their Written Submissions dated 23 March 2015). In support of that submission, they relied upon paragraph 4.2.6 of the Costs PD, which provides, in the context of wasted costs orders under section 19A of the 1985 Act:

“Though the court cannot delegate its decision to the appropriate authority, it may require the appropriate officer of the court to make enquiries and inform the court as to the likely amount of costs incurred. By [CrimPR rule 76.9(5)], the court is entitled to the assistance in this respect of the party who incurred the costs incurred.”

CrimPR rule 76.9(5) is in the same terms as CrimPR rule 76.8(5) quoted above, save that, in (a), it refers to “the representative [rather than ‘party’] against whom it proposes making that order”.

Mr Christie and Miss Arbon-Donovan submit that:

However, in their Written Submissions dated 30 April 2015, Mr John Charles Rees QC and Mr Jonathan Elystan Rees for Mr Humphreys – supported to an extent by other Applicants – submitted that the jurisdiction to refer a matter to the NTT or SCCO is anything but clear, in terms of scope or even existence. The Crown Court, although a senior court, is a creature of statute and the status of any inherent jurisdiction is therefore, at best, dubious. In respect of its statutory powers, CrimPR rules 76.8(5) and 76.9(5) apply only to cases in which the court is considering making an order on its own motion, not (as in this case) on an application by one or more defendants. Further, the jurisdiction appears to be restricted to one in which the relevant officer is asked to inform the court of the amount of costs in fact incurred by the defendants – clear in this case – rather than (e.g.) to assist with the assessment of the amount that it would be reasonable for them to have incurred, which is the non-delegable function of the Crown Court judge.

In the event, I do not have to determine this issue of jurisdiction: I am confident that, on the basis of the material the parties have lodged, I am able properly and justly to assess the section 19 costs of the relevant defendants. Therefore, I have not sought the assistance of the NTT or the SCCO. However, given that further section 19 applications in which significant sums are claimed are likely to arise in the future – particularly with the continuing restriction in respect of section 16 costs – the jurisdiction of Crown Court judges to seek assistance from the NTT and/or the SCCO when required to assess section 19 costs may well be worthy of further consideration by the Criminal Procedure Rules Committee (or, possibly, by the Lord Chief Justice in the context of the Costs PD), so that the scope of any such jurisdiction is clarified.

There was much common ground with regard to the correct approach of the court in assessing costs under section 19.

On the basis of the relevant provisions of the statutory scheme, the following propositions can be made.

The relevant factors in the assessment before me include:

In relation to the sums claimed, a substantial part is of course attributable to counsel’s fees and solicitors’ costs. Whilst of course, in the open market, it is open to a solicitor and his client to agree the scope of work that will be done, and any package of charges for solicitors and counsel in respect of that work, such charges are only recoverable from an opponent if they are reasonably incurred and reasonable in amount.

With regard to counsel’s fees, the assessment of criminal costs is still usually based upon a basic brief fee and refreshers (see Part II of the Taxing Officers’ Notes for Guidance (2002)), with hours of preparation being only one factor to be taken into account rather than forming the basis of a mathematical calculation. On an assessment, a determining officer “must, in the exercise of his discretion, determine a sum which, with the refreshers and any subsidiary fees he considers proper, would provide reasonable remuneration” (paragraph 2.7 of the Taxing Officers’ Notes for Guidance). In whatever form counsel’s fees have been agreed, on any assessment it is the court’s primary task to assess reasonable remuneration for the job.

Guidance as to the correct approach to counsel’s fees was given by Pennycuick J in Simpsons Motor Sales (London) Limited v Hendon Corporation [1965] 1 WLR 112, a review of a taxation of the defendant corporation’s bill of costs. He said (at page 118E-F):

“… [O]ne must envisage an hypothetical counsel capable of conducting the particular case effectively but unable to or unwilling to insist on the particularly high fee sometimes demanded by counsel of pre-eminent reputation. One must then estimate what fee this hypothetical character would be content to take on the brief…. There is, in the nature of things, no precise standard of measurement…”.

The judge went on to say that the assessment of the fee would be fact-specific (“… the same measure may not always be applicable in the infinite variety of cases which can arise…”, at page 118G); and that the appropriate figure must be assessed by the master or judge “using his knowledge and experience” (also at page 118G).

I was referred to a number of other authorities. Because they are necessarily fact specific, they are of limited assistance, although the following points can be drawn from them.

Whilst complexity of course may warrant a higher fee, where a case involves particularly heavy hours over a lengthy period of time, that may warrant a reduction in the hourly rate to reflect the likely if not guaranteed hours involved. On the other hand, the rate must also reflect the inability of counsel to take on other work during the relevant period, if that indeed be the case.

In the case before me, the leading and junior counsel who appeared for Stephen Davies QC did so on the basis of an hourly rate of £250 and £125 respectively. The SFO, rightly, does not suggest that those rates are unreasonable: they are rates which were agreed by the Bar Mutual Indemnity Fund who supported Mr Davies’ defence of the charge, which are recognised as being less than commercial rates to which counsel agree because they are acting for a fellow barrister. As such, nor are they benchmark rates.

The leading counsel for the other Applicants worked on a rate of between £600 (Mr Patrick Harrington QC for Mr Evans) and £750 (Mr Phillip Hackett QC for Mr Whiteley, Mr John Kelsey-Fry QC for Mr Walters, and Mr Rees QC for Mr Humphreys). Junior counsel worked on the following rates: £375 (Mr David Hassall for Mr Whiteley), £350 (Mr Ben Douglas-Jones for Mr Evans), £300 (Mr Jonathan Barnard for Mr Walters), and £250 (Mr Rees for Mr Humphreys). Some counsel have charged a lower rate for travel time etc.

I accept that this case warranted counsel of particular calibre, experience and expertise. However, on the basis of my knowledge of the case – and my knowledge and experience of counsel’s fees generally – I do not consider that the rates charged are reasonable in the context of a section 19 assessment. I consider that the hypothetical counsel referred to by Pennycuick J in Simpsons Motors would have reasonably been charged out at approximately £480 per hour, and his hypothetical junior at a rate of approximately £240. I stress that I consider those rates are “top end” rates for criminal work: and, whilst I do not say that in another case they might not be exceeded – although, I suspect, not by very much – they take into account the especial experience and expertise of particularly eminent leading counsel, from which flows more efficient working than would be the case with less experienced and expert counsel.

With regard to solicitors’ charges, although designed for summary assessment in civil claims, the starting point is the guideline hourly rates for summary assessment. For the reasons I have given, I consider those Applicants who instructed solicitors in London were reasonable to do so; and, given the complexity of the issues involved, where a solicitor has done particularly challenging work, higher rates might be warranted. However, the solicitors’ hours claimed in this case have to be considered in the light of the heavy input from counsel – particularly in respect of the dismissal application, which involved essentially legal issues, albeit against a complex factual background.

Costs in respect of the VB Application are subject to the Civil Procedure Rules and, following the Costs Preliminary Issues Ruling, the SFO has been ordered to pay the costs of the relevant Applicants, those costs to be the subject of a detailed assessment on the indemnity basis in due course.

CPR rule 44(2)(8) provides:

“Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs unless there is good reason not to do so.”

In this case, the SFO do not contend that there is any good reason not to make such an order; indeed, in its response to the application it “readily [accepted] that an interim payment is appropriate in respect of the VB [Application] costs” (paragraph 50 of Written Submissions dated 23 March 2015).

In assessing a “reasonable sum” for these purposes, although in the past the courts have calculated the figure in a mathematical way (e.g. in Mars UK Limited v Teknowledge Limited [1999] 2 Costs LR 44, where Jacob J made an interim order in an amount comprising 60% of the sum he considered likely to be awarded on a detailed assessment), it is now clear that the court is not bound to apply such an approach. The current view is that, whilst adopting a generally cautious and conservative approach, the court does not have to determine the irreducible minimum that is likely to be ordered but rather a reasonable estimate of what is likely – some cases say, “very likely” or even “reasonably certain” – to be awarded (see Dyson Appliances Limited v Hoover Limited [2003] EWHC 624 (Ch), United Airlines Inc v United Airlines Limited [2011] EWHC 2411 (Ch) and Blakemore v Cummings [2009] EWCA Civ 1276). In making that assessment, the court has a wide discretion, a number of the cases referring to the necessarily “rough and ready” basis upon which the assessment needs to be made. The taxing officer who performs the detailed assessment is, of course, not bound or guided in any way by the interim order made – which is one reason why an interim order should be conservative, as it may be that the taxing officer will in due course take a different, more stringent line with regard to assessment of the costs as a whole than does the judge making the interim order.

I now turn to the individual claims.

In respect of the section 19 claims, as I have indicated (see paragraph 20(ix) above), it is open to defendants to claim the costs of the section 19 applications themselves as section 19 costs. In respect of the applications in respect of the costs preliminary issues, it would be all but impossible to tease out the costs spent on the section 19 application (the large majority) from the costs of the application that the VB Hearing costs be paid on an indemnity basis (the small minority), I propose summarily to assess the costs of both, initially together. Whilst the assessments have different foundations – the former in section 19 and the CrimPR, and the latter in the CPR – that appears to me to be the most efficient course, to which no party objected. I then propose to apportion the aggregate sum 80% as to the section 19 application and 20% as to the VB application for indemnity costs, to reflect the time and effort spent on each.

Therefore, in respect of each Applicant, I shall deal with in turn:

In respect of VAT, for Mr Davies and Mr Walters, VAT is recoverable and so is not claimed against the SFO. For Mr Evans, Mr Whiteley and Mr Humphreys, VAT is not otherwise recoverable and so is claimed from the SFO.

Most of the Applicants have lodged certificates confirming that the charges and disbursements claimed are no higher than those charged to their clients. On all the evidence before me, I am satisfied that none of the claims breaches the indemnity principle.