The dog days

This month whilst most of the legal world had relocated to the Mediterranean an interesting decision was handed down on the application of the non-party costs jurisdiction to solicitors and counsel. The case is Willers v Joyce and Nugent exp De Cruz Solicitors and others [2019] EWHC 2183 (Ch) and is worth reading not just for prurient interest, but because it illustrates some of the countervailing considerations which apply in such applications.

Stepping back from the case and the context of an application made against lawyers, in conceptual terms it is hard to conclude that the non party costs jurisdiction is anything other than a mess.

On the one hand the appellate courts emphasise the discretionary nature of the jurisdiction muting the development of bright lines as to when it will and won’t result in an order.

On the other hand they carve out separate principles relating to lawyers, directors or insolvency practitioners and pure funders and simply ignore the uneasy relationship which might otherwise exist in relation to the concept of limited liability.

The Willers case is interesting because although at first blush it appears to involve a doomed attempt to fix the lawyers with a non party costs liability, the case drew an analogy due to an alleged financial interest in the result by the lawyers, with the decision in the Court of Appeal in Myatt v National Coal Board (No 2) [2007] EWCA Civ 307 where it will be remembered a non party costs order was made, as the appeal to the Court of Appeal in that case had been pursued for the lawyers financial benefit case, making them a “real party”.

Lady Justice Rose summarised the issues in succinct terms:

5. At base the Executors’ application that the Costs Respondents pay the Executors’ costs of the failed Malicious Prosecution Claim is based on the assertion that the Costs Respondents were the real parties to the claim because the principal purpose of the claim was to recover as damages for the tort of malicious prosecution an amount equal to the unpaid fees owed by Mr Willers to the Costs Respondents for the legal services they provided to him in the Langstone Action. Those unpaid fees are the costs which were disallowed when Mr Willers’ costs of the Langstone Action, which Langstone had been ordered to pay him, were subject to detailed assessment by the costs judge. The Executors assert that the direct, personal financial interest that the Costs Respondents had in the Malicious Prosecution Claim means that that claim having failed, they as well as Mr Willers should be liable to pay the Executors’ costs. Their interest went further in a significant way than the interest that any lawyer has in a successful outcome if he is providing services under a conditional fee agreement. The claim on which they were working was itself a claim for their unpaid fees in the earlier proceedings. The Executors also ask for the non-party costs order against the Costs Respondents to direct that the costs be assessed as against them on the indemnity basis even though the costs order made against Mr Willers when the Malicious Prosecution Claim was dismissed was an order that the costs be paid on the standard basis. Evidence in support of the application was filed primarily by Mr Thomas, the partner in the firm Laytons LLP who had conduct of the Malicious Prosecution Claim on behalf of the Executors.

6. The Costs Respondents say that the interest of De Cruz and the Barristers in the Malicious Prosecution Claim is no different in kind from the interest which a lawyer has who is either working under a conditional fee arrangement or who is working on a conventional fee arrangement in the knowledge that, realistically, he is unlikely to be paid for his services unless his client wins. The fact that success in the Malicious Prosecution Claim might result in them being paid not only for their services in the Malicious Prosecution Claim itself but also the unpaid fees in respect of their services in the earlier Langstone Action does not, they say, make any difference. That additional factor did not make any difference to the way in which the Malicious Prosecution Claim was conducted from start to finish and it should not make any difference to the analysis as to whether this is one of the rare situations in which legal advisers should be made subject to a non-party costs order. As an ancillary matter, De Cruz argue that any non-party costs order should be made against the Company only and not against the Firm. The Barristers take an additional point that they were led to believe at an earlier stage of the litigation that they would not be the subject of a non- party costs application. They rely on that as additional reason why it would be unjust to make them subject to such an order now.

The Learned Judge considered the earlier case law and drew certain matters of principle together when assessing the approach a court should take when looking at non party costs orders sought against lawyers:

54. In my judgment the principle that emerges clearly from the decisions of this Court in Tolstoy, Floods and Hamilton v Al Fayed is that there is a strong public interest in ensuring that impecunious claimants can have access to justice even if that means that successful defendants are left substantially out of pocket. Because of this, legal representatives should not be at risk of a third party costs order unless they are acting in some way outside the role of legal representative. The nature of the role of the legal representative means that the indicators useful in considering the liability of, for example, a pure funder, such as whether he has been closely involved in making decisions about the conduct of litigation or whether he has a substantial financial interest in the success of the litigation do not work. The legal representative will  always be closely involved in taking decisions about the conduct of the litigation and will always have a financial interest in the outcome, particularly where he is working under a conditional fee agreement or because although he is invoicing the client regularly for work done, he knows that in practice he will never be paid unless the client wins the case.

So much for the scenario where the lawyer’s financial interest is simply winning under a conditional fee agreement. The factual situation was somewhat different in the instant scenario as the judge focused on the distinguishing feature from the normal case:

55. The key question at the heart of this case is whether the fact that the damages claimed in the Malicious Prosecution Claim included a substantial amount of money still owed to De Cruz and the Barristers from the Langstone Action makes a difference. Mr Mitchell argues that it does because there was a debt undoubtedly owed (though of unknown amount) to the legal team and that was the primary purpose of bringing the Malicious Prosecution Claim. It makes all the difference because in effect the litigation was being conducted for the benefit of the Costs Respondents rather than for the benefit of Mr Willers. Mr Willers was not, it appears, going to be pursued by the Costs Respondents for the Costs Shortfall unless he came into some funds.

The judge thought the issue was finely balanced:

56. I confess I have found a decision in this case very difficult. On balance I have concluded that this is not a case in which De Cruz and the Barristers have acted outside the role of legal representatives to such an extent as to bring themselves within the costs jurisdiction under section 51(1) and (3).

57. First, it is significant, in my view, that the additional interest that the Costs Respondents had in the success of the Malicious Prosecution Claim over and above the recovery of their fees for their work on that claim was also an interest in recovering fees for providing legal services to Mr Willers to defend himself in the Langstone Action. The Supreme Court in the preliminary issue decision held that it was not an abuse of process for Mr Willers to claim the Costs Shortfall as a head of damage in the malicious prosecution claim. Lord Toulson JSC said (at 58) that the notion that the costs order made by Newey J at the end of the Langstone Action has necessarily made good the injury caused by Mr Gubay’s prosecution of the claim was almost certainly a fiction and the court should try if possible to avoid fictions, especially where they result in substantial injustice.

58. Secondly, there is a more particular aspect of access to justice arising in this case than the general point discussed in the cases which I have cited. The risk that the legal team which acted successfully to defend the client in the earlier civil claim is potentially liable to pay the costs of the defendant to the malicious prosecution claim if some of those costs remain unpaid would in many instances force the client to instruct a new legal team. It would be expensive for Mr Willers to instruct a new legal team to fight the Malicious Prosecution Claim rather than use the existing legal team who are already familiar with the background. In a malicious prosecution claim, the claimant is always going to have been the successful defendant in the earlier proceedings which he now alleges were maliciously prosecuted against him. It is always going to be preferable from his point of view to be able to engage lawyers who understand the background and what happened in the earlier claim rather than instruct new lawyers who will then need to get up to speed with all the previous history before being able to advise on what is often going to be a speculative claim. There is also an equality of arms point in that the Executors would have no restriction on using their same legal team with their high level of familiarity with all the issues, whether or not they had paid all the fees incurred in the earlier proceedings.

59. Thirdly, it is important that legal representatives know when they first take on a client whether they are exposing themselves to the potential claim for costs from the opposing party at the end of the day. Litigation takes many twists and turns and it would be unsatisfactory for a legal representative who takes on a client without suspecting that such a risk existed then to be placed in the dilemma of whether to continue acting once the risk becomes apparent. That was not the case here, of course, because at the date the Malicious Prosecution Claim was brought it was already likely that there would be a costs shortfall although the extent of that differential was not yet known. Everyone was also already aware at the time the Malicious Prosecution Claim was lodged that Mr Willers had no funds to pay either his ongoing legal expenses or the Costs Shortfall. But there may be cases in which the facts are not so clear cut. I agree with the comment of Hale LJ in Hamilton v Al Fayed that it is better to have a general approach to these cases rather than for liability to turn on nuances of fact in particular cases – even though in a particular case it may lead to a hard result.

The key point was to consider whether a secondary or indirect financial interest in the damages, as they would practically be used to discharge the costs indebtedness of the client to the lawyers constituted an interest different in kind to the unexceptional interest a lawyer has in their fees under a conditional fee agreement, or whether it was simply “more of the same” albeit once removed. The conceptual argument for the lawyers that it was “more of the same” was buttressed by a strong argument on the practical difficulties and chilling effect that categorising the indirect interest as giving rise to “real party” status would have:

63. I doubt whether Mr Mitchell is right in submitting that the making of an order in these circumstances would remain confined to its narrow facts. Mr Carpenter in his concise and persuasive submissions on behalf of De Cruz has convinced me that it would not be right to try to carve out a further exception because there are a number of scenarios in which the damages claimed in second proceedings include the unpaid costs of the solicitors incurred in the first proceedings. For example, the client may have entered into a commercial contract which has been carelessly drafted for him by his solicitors so that there is an ambiguity that on one construction makes him subject to an onerous financial obligation which he did not intend to undertake. The client goes to new litigation solicitors who act for him in the contract claim against the contract counterparty. The contract claim may be expensive and the litigation solicitors may extend credit to him if he is impecunious. Suppose he loses the contract claim and has to perform the onerous obligation to his counterparty as well as pay the counterparty’s costs for the contract claim. He may wish to pursue his former solicitors for professional negligence in drafting the contract. He would include in his claim his own reasonably incurred fees owed to his litigation solicitors. It would not be right for the litigation solicitors to have to insist that the client pays all their outstanding fees before they could agree to act because there is a risk that they will be considered a “real party” to the professional negligence claim if some of those fees cannot be paid until the drafting solicitor pays up. Mr Carpenter gave further examples of a disputed will where there might be expensive litigation between beneficiaries over the terms of the will and the losing party may then sue the solicitor who drafted the will in negligence. If the losing beneficiary then wishes to use in the negligence proceedings the same solicitors who acted for him in the beneficiary proceedings, he should not be precluded from doing so just because he wishes to claim in the negligence proceedings the fees charged by them for the unsuccessful litigation and some of those fees are outstanding because of his impecuniosity. A similar situation may arise in respect of the negligent conveyancing of a house where there may be litigation, for example over a disputed right-of-way which the conveyancer did not notice and the same solicitors may be used in the proceedings between the neighbours and the later proceedings in negligence against the conveyancer.

64. These examples satisfy me that it is not possible to make an exception to the protection that the authorities clearly confer on legal representatives in this case without opening up solicitors to potential non-party costs applications in many  spheres in which they act for a client who is claiming as damages the fees which the client owes them for work done for him in earlier proceedings. There is no principled way to draw a line between those cases and the present case. In each case it would be unfair either to deprive the client of the services of his former lawyers or in effect to require those lawyers to pursue the outstanding earlier costs by, for example insisting that the client sell his house, cash in his pension, or dispose of other assets in order to pay their fees.

Moving away from the result in the instant case, which is an encouraging decision for lawyers and their professional indemnity insurers, one is struck by the head on collision of policy and principle in this area of law, which surely must be straightened out at some point by the Supreme Court.

The policy is plain: no win, no fee litigation as a statutory exception to the principles of maintenance and champerty must be made to work, as otherwise access to justice is curtailed. But in other contexts, for example the director of an insolvent company which defends a claim unsuccessfully, it is hard to see why policy demands that the principle of limited liability be sacrificed on the altar of access to justice.

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