Case No: 1993 W No.2079

SCCO Ref: PR0108754, 0108755

IN THE HIGH COURT OF JUSTICE

SUPREME COURT COSTS OFFICE

Supreme Courts Costs Office

Cliffords Inn

Fetter Lane

London

EC4A 1DQ

Date: 30 April 2002

B e f o r e :

MASTER ROGERS, COSTS JUDGE

- - - - - - - - - - - - - - - - - - - - -

	BONNIE LOUISE WOODS	Claimant
	- and -
	SHEILA CHALEFF & ORS	Defendant

- - - - - - - - - - - - - - - - - - - - -

Mr Jacob Dean (instructed by Allen & Overy for the Claimant)

Mr Jeremy Morgan (instructed by Hodkin & Co for the Defendant)

- - - - - - - - - - - - - - - - - - - - -

COSTS JUDGES RESERVED REASONS

FOR HOLDING CLAIMANTS’

CFAs TO BE UNENFORCEABLE

AS AGAINST DEFENDANTS

Master : Rogers

THE BACKGROUND

1. The Claimant, Bonnie Louise Woods, describes herself as a counsellor, and it is apparent that she actively sought to “de-programme” people who had become members of the Church of Scientology, based at East Grinstead.. As a result she attracted the venom of that organisation and its officers, so that, in 1993, they produced and circulated a pamphlet, which, she contended, was grossly defamatory of her. As a result she instituted proceedings for damages for defamation by writ, issued on 8 December 1993. In those proceedings, which were amended at least five times prior to trial, the Claimant sought aggravated damages, in addition to “ordinary” damages for defamation.

2. After strenuously contested proceedings, and with the trial of the action looming on 6 June 1999, with a time estimate of 19 days, negotiations between the parties to settle the matter, which had previously taken place and got close to success before breaking down a month or so earlier, were renewed, and this time were successful.

3. The terms of the settlement were that the Defendants would pay to the Claimant £55,000; would make a statement in Open Court, and give certain undertakings not to repeat the alleged defamatory material. They also agreed to pay the Claimant’s costs, to be assessed on the standard basis if not agreed.

THE CLAIMANTS REPRESENTATION

4. The Claimant started with a solicitor, Beverley Ryall from Chichester, who issued the writ, but for much of the protracted proceedings she was either acting for herself in person, or was represented by Messrs Allen & Overy through Liberty, who, with Allen & Overy, acted for her on a pro bono basis.

5. However, on 25 May 1999, the Claimant signed a CFA with Messrs Allen & Overy (herein referred to as A & O), A & O having previously entered into a CFA with Leading and Junior Counsel in December 1998.

THE CLAIMANT’S BILLS

6. Within a very short time of the settlement of the action the Claimant, through A & O, produced two bills for possible agreement by the Defendants, namely one for some £2,500, for the period when the Claimant was acting in person; and the second for £191,000 odd, for A & O’s costs and disbursements for the period from 25 May 1999 until the action settled on or about 6 June 1999, the period when they were acting under their CFA with the Claimant.

7. The Defendants were doubtless surprised by the size of the A & O bill, and their suspicions that things might not be quite as they should be were no doubt fuelled when they discovered, quite by chance, that A & O had passed the whole of the £55,000 to the Claimant, and had not deducted or kept back any part of that sum in respect of their substantial bill.

8. There was early correspondence at that stage between A & O and Hodkin & Co, the solicitors representing the Defendants, at which the latter questioned whether there had been any breach of the indemnity principle. At that stage the Claimant’s Solicitors seemed to be intent on progressing the matter rapidly, but there was then a gap of two years before the detailed assessment proceedings were actually started, and this gave rise to a claim by the Defendants in respect of delay, which, though it was an issue put to me, was ultimately agreed in respect of the Claimants’ litigant in person costs, but in the events which happened did not arise for decision in respect of the A & O bill.

9. The detailed assessment proceedings should have taken place in January, but were deferred at the request of the Claimant’s Solicitors, because the fee earner concerned was absent from the office. It was re-scheduled for 22 April, but prior to that the Defendants Solicitors made an application to me for disclosure of certain documentary material, including the CFAs in question. In his evidence in support of that application Mr Hodkin pointed to the suspicions, which he considered he and his clients reasonably had, not least being that neither the counsel CFA not the client’s CFA, if I can so describe them, had at that point been disclosed. Mr Francis, the Claimant’s costs draftsman, did exhibit both CFAs in his evidence prior to that hearing.

THE HEARING BEFORE ME IN MARCH

10. On 23 March I made an order under Rule 40.14 that the Claimant, through her solicitor, should disclose to me a number of categories of documents which had been specified by the Defendants in their witness statement, but I did not direct that this information should be disclosed to the Defendant’s Solicitors.

11. The Claimant’s Solicitors, A & O, duly lodged with me all the relevant documents. They said however that they only intended to rely at the hearing on 22 April on the CFAs, so it is neither necessary or desirable for me to comment on the other documents that were lodged, but if this case goes further, and my decision herein is overruled, then I would wish to have the opportunity to consider whether that aspect of the matter should be taken further.

THE CFAs

12. As indicated, both CFAs were exhibited to Mr Francis’ witness statement, but to make these reasons of manageable length I append both the Solicitor CFA and the Counsel CFA as Appendix 1 and Appendix 2 respectively to these reasons.

THE HEARING ON 22 APRIL

13. Shortly before that hearing Jeremy Morgan, Counsel on behalf of the Defendant, lodged with me a detailed skeleton argument, contending that neither CFA was enforceable because of breach of the relevant Regulatory provisions. I also received a skeleton from Counsel for the Claimant, Mr Jacob Dean, but this skeleton, though prepared at about the same time as Mr Morgan’s, did not take the latter into account, and therefore was of less value to me than it might otherwise have been. This is not in any way to attribute blame to Mr Dean, because of course he was not to know that Mr Morgan would be preparing a skeleton, or indeed how the Defendants were going to approach the hearing on 22 April. By the same token, Mr Morgan, and the Defendants’ Solicitors, could not have known the approach which would be adopted by the Claimants until they received the latter’s skeleton.

14. In the event both Mr Morgan and Mr Dean appeared before me, and a plethora of authorities and other material was placed before me. The arguments were well marshalled and presented, but, at the conclusion of those arguments, which took a full half day, I had come to the clear conclusion that the Defendants’ contentions were correct, and that neither CFA was enforceable, and I so informed the parties.

15. What follows therefore are my reasons for those decisions. In order to preserve the Defendant’s rights to seek to take this matter further, I indicated that their time for seeking permission to appeal would be extended until 14 days after receipt by them of these written reasons. There is also a subsidiary point on costs, which only arose after the lunch adjournment, and which I also deal with at the end of these reasons.

THE SOLICITOR’S CFA

16. It was common ground between Counsel that, so far as the Solicitor’s CFA is concerned, if it does not comply with the relevant Regulations then it is not enforceable. The Claimant’s Solicitor takes a different view in relation to Counsel’s CFA, and that is dealt with later in these reasons.

17. Mr Morgan says that at the time this CFA was written the relevant statute law was Section 58 of the Courts and Legal Services Act 1990, in its original form, and the CFA also had to comply with the Conditional Fee Agreements Regulations 1995. Regulation 2 of those Regulations reads:

“2. An agreement shall not be a conditional fee agreement unless it complies with the requirements of the following Regulations.”

Mr Morgan submitted that this particular CFA did not comply with Regulation 3(d), or with Regulation 4.

REGULATION 3

18. Regulation 3 reads:

“3. An agreement shall state –

(a) the particular proceedings or parts of them to which it relates (including whether it relates to any counterclaim, appeal or proceedings to enforce a judgment or order);

(b) the circumstances in which the legal representative’s fees and expenses or part of them are payable;

(i) upon partial failure of the specified circumstances to occur;

(ii) irrespective of the specified circumstances occurring; and

(iii) upon termination of the agreement for any reason;

(d) The amount payable in accordance with sub-paragraphs (b) or (c) above or the method to be used to calculate the amount payable; in particular whether or not the amount payable is limited by reference to the amount of any damages which may be recovered on behalf of a client.”

19. Mr Dean submitted that, whilst this was the case here, this was a “technical” breach of the Regulations, and ought not to prevent me from holding that the CFA was nonetheless enforceable. He also sought to draw comfort from the equivalent wording of the Conditional Fee Agreements Regulations 2000. Regulation 2(d) of that Regulation reads:

“The amounts which are payable in all the circumstances and cases specified or the method to be used to calculate them and, in particular, whether the amounts are limited by reference to the damages which may be recovered on behalf of the client.”

He placed significance on the omission of the words: “or not” after the word “whether” in the 2000 Regulations.

20. As to that, Mr Morgan submitted, in my view quite correctly, that whilst it might be permissible to use earlier Regulations as an aid for construction of later Regulations, it was impermissible to seek to use the wording of later Regulations to help to construe earlier Regulations. It is pure speculation as to why the words “or not” were omitted from the 2000 Regulations, but, in any event, it is the 1995 Regulations that I have to consider.

21. As to Mr Dean’s other point, this was developed in relation to other alleged breaches. He pointed to the movement towards the freer use of CFAs, and said that the court ought to construe them in a benevolent way, so as to allow them to be enforced rather than the reverse.

22. However, in my view if a statutory instrument lays down express provisions that have to be complied with, failure to comply with those provisions must make the agreement unenforceable, as indeed Regulation 2 of the 1995 Regulations makes quite clear. There cannot be any “equity” in these Regulations, as otherwise there would be no point in having them if parties could, after the event, seek to suggest that they mean something totally different from what they actually say.

REGULATION 4

23. Regulation 4 of the 1995 Regulations reads:

“Additional requirements

4-(1) The agreement shall also state that, immediately before it was entered into, the legal representative drew the client’s attention to the matter specified in paragraph (2).

The matters are:

(a) whether the client might be entitled to legal aid in respect of the proceedings to which the agreement relates, the conditions upon which legal aid is available and the application of those conditions to the client in respect of the proceedings;

(b) the circumstances in which the client may be liable to pay the fees and expenses of the legal representative in accordance with the agreement;

(d) the circumstances in which the client may seek taxation of the fees and expenses of the legal representative and the procedure for so doing.”

24. Mr Dean accepted that the agreement itself did not appear to recite any of those requirements, but he asked me to take account of an extract from the note book of Ian Thomas for 25 May 1999. This was a document which was disclosed to me, or at any event should have been disclosed to me, pursuant to my order of March, in a note book, but was not, prior to the hearing on 22 April, a document upon which the Claimant was seeking to rely.

25. The note is part of a longer note for 25 May, and appears to read:

“II Bonnie

Conditional fees - explaining agreement

You thought we had to send you a bill

I confirmed we would prob have to send you a bill.

Confirming deal with Liberty/charge out rates.

BW resettlement

Couple of words on apology you would like to change

you will let me know of comments.

Kent - confirmed but not to contact.

Media - ditto, explaining purpose and effect of press release.

6 units”

26. Whilst that extract from the note may well satisfy the court that Mr Thomas did indeed explain to Mrs Woods certain of the matters mentioned in paragraph 4(2), it does not meet the point made in paragraph 4(1), which requires that prior discussion to be recited in the agreement itself.

27. Mr Morgan made the very valid point, that the whole purpose of paragraph 4(1) was to ensure that there were no disputes such as have arisen in this case. Oral discussions can readily be misunderstood, and there is infinite scope for misunderstanding if there is no recording in writing of what has been discussed. It seems to me that the attendance note cannot remedy any breach of paragraph 4(1).

28. Even if it could be said to do so, however, in my opinion, the four limbs of paragraph 4(2) have not all been complied with. Mr Dean suggested there was no need to refer Mrs Woods to the fact that legal aid could not be obtained, because she must have known that legal aid is never available for defamation proceedings. Nevertheless, my reading of paragraph 4(2) is that it is the duty of the solicitor, prior to the signing of the CFA, to explain in a situation such as this that legal aid is not available, and then to record in the agreement that that point has been made.

29. It seems to me doubtful too whether paragraphs 4(2)(b) and 4(2)(c) have been expressly referred to, and certainly there is no reference to the client’s right to challenge the solicitor’s charges, which is my construction of paragraph 4(2)(d).

30. In his reply Mr Morgan asked me to take judicial notice of the fact that solicitors very rarely indeed explain to their clients the latter’s rights, other than in printed form, sometimes in very small print, on the back of the bill delivered. I reject Mr Dean’s submission that paragraph 4(2)(d) merely refers to the right of the defendants to have the costs assessed/ taxed, as between them and the Claimant.

31. During the course of the submissions I asked Mr Morgan whether Rule 3(9) of the CPR might provide an escape route for the Claimant. That rule entitles any Judge on an application for relief from any sanction to grant such relief, provided nine conditions are complied with, and the Court of Appeal has recently held that in coming to a decision on any such application the Judge must go through each of those heads individually, and come to a conclusion on them individually, (see Woodhouse v Consignia Plc; Stellou v Compton [2002] The Times 5 April (CA). However, as Mr Morgan rightly pointed out, paragraph 3.9 is restricted to sanctions imposed by any “rule, practice direction or court order”, and does not extend, nor indeed could it extend, to a statutory instrument.

32. For all the above reasons therefore I held that the Solicitor’s CFA is unenforceable, and, unless the Claimant’s Solicitors CFA with Counsel can be treated as a stand alone agreement at common law that must be the end of the Claimant’s case for recovery of any part of A & O’s costs or Counsel’s fees.

THE COUNSEL’S CFA: APPLYING THE STATUTORY INSTRUMENT

33. Mr Dean contended that the CFA between the Solicitors and Counsel could be considered independently of the Regulations, and was therefore enforceable, and sought an adjournment to enable Mrs Woods to give evidence about her understanding of that agreement. I did not consider it appropriate to grant such an adjournment, because I came to the conclusion that Mr Dean’s submissions in that respect were wrong. I deal however first with the attack on the Counsel’s CFA, on the basis that it is subject to the 1995 Regulations.

34. Mr Morgan submitted that this agreement breached paragraphs 3(a)(b) and (c). Mr Dean acknowledged that the wording of this agreement was not as satisfactory as the wording of the Solicitor’s CFA, but maintained that, nevertheless, even if there was not strict compliance with the Regulation, any breaches were of such a technical nature that I could readily overlook them, and allow the agreement to be enforceable.

35. In my judgment there is a clear failure to comply with Regulations 3(a)(b) and (c), which makes the agreement as between the Solicitors and Counsel to be unenforceable.

THE CIRCULATORY ARGUMENT

36. Mr Morgan drew my attention to the last paragraph on the first page of the letter of 14 December 1998 (Counsel’s CFA), and in particular the sentence that reads:

“Further, as you know, Allen & Overy are currently continuing to act on a pro bono basis pending the change in the Law Society’s rules to allow solicitors to enter into conditional fee arrangements with their clients. Allen & Overy clearly do not wish to face potential exposure to counsel’s fees unless we are put in funds by the defendants following a taxation or other settlement of costs. Allen & Overy do not therefore accept any liability for counsel’s fees in excess of the amount of any funds paid to Allen & Overy in respect of costs/ disbursements by the defendants.”

37. Mr Morgan submitted that that clause was fatal to any claim, because of the decision of Lord MacPherson of Cluney J in Customs & Excise Commissioners v Vaz, Porcullis (VAT Consultancy Ltd) Intervening reported at [1995] STC 14.

38. In that case in 1993 Mr Vaz successfully contested an assessment to value added tax, and was awarded costs in the sum of £905.60. His representative, Mr Rainer, a VAT consultant, had agreed to limit his consultant’s fee to the amount, if any, which was recovered by way of costs. If the Tribunal had made no award then there would have been no liability on Mr Vaz to pay Mr Rainer. The Commissioners appealed against the award of costs by the Tribunal, contending that the power to award costs under Rule 29 of the Value Added Tax Tribunal Rules 1986 was limited to sums which were ordinarily recoverable as costs at common law. The Judge held that the true situation was that Mr Vaz had no liability to pay Mr Rainer for his services in the absence of an award of costs. Accordingly, the Tribunal had no power to make an order for costs, since there was nothing which could be indemnified, and the Commissioner’s appeal was accordingly allowed, though the Judge expressed regret at being forced to reach that conclusion.

39. Mr Dean submitted that that case was not binding on me, or at least, could be distinguished, because it did not relate to a CFA. Mr Morgan in reply suggested that CFAs were not available at that time for Tribunal proceedings, but in any event he contended that the case was binding on me, and I accept that it is, and that it precludes counsel recovering any fees under the CFA because of the circularity argument.

40. Accordingly, if the validity of the Counsel/Solicitor’s CFA is to be judged by reference to the Regulations, then again, like the Solicitor’s CFA, it fails.

THE ALTERNATIVE CONTENTION THAT COUNSEL’S CFA IS VALID AT COMMON LAW

41. This argument was ably developed by Mr Dean on a close analysis of the speeches made by Lord Justice Schiemann and Lord Justice May in the case of Awwad v Geraghty & Co [2000] 1 All ER 608. He submitted that the principal reason that Lord Justice Schiemann found against the solicitor in that case was because, in 1993, conditional fees were not permissible, but that the situation was now changing rapidly in favour of CFAs. He also said that much of the decision was based on the failure by the earlier Court of Appeal in Thai Trading Co (A Firm) v Taylor [1998] 3 All ER 65, to take account of, and consider, the binding effect of the House of Lord’s decision of Swain v Law Society [1983] 1 AC 598.

42. In his reply, Mr Morgan acknowledged that much of the decision of the Court of Appeal in the Awwad case was based on this latter point, but he contended, on a careful analysis of what both Lord Justice Schiemann and Lord Justice May said, that the validity of CFAs at common law was not accepted. He particularly relied on the following passage from Lord Justice Schiemann’s judgment at page 628, starting at letter (c):

“I share Lord Scarman’s reluctance to develop the common law at a time when Parliament was in the process of addressing those very problems. It is clear from the careful formulation of the Statutes and Regulations that Parliament did not wish to abandon regulation and wished to move forward gradually. I see no reason to suppose that Parliament foresaw significant parallel judicial developments of the law. I add that, on the Judge’s findings in the present case, it appears that this understanding was shared by the solicitor who has successfully endeavoured to prevent the conditional normal fee agreement from being evidenced in writing.

I would therefore hold that acting for a client in pursuance of a conditional normal fee agreement, in circumstances not sanctioned by statute, is against public policy.”

43. He also relied on what Lord Justice May, in his shorter concurring judgment, said on page 634, starting just above letter (h):

“Since as I think, the law in 1990 and up to 1993 was as I have summarised it, I do not consider that it is strictly necessary for this court to reach any conclusion as to the balance of public policy which underlay that law. Public policy considerations are extensively discussed in the judgments in Trendtex Trading Corp and Wallersteiner cases. Insofar as public policy might enter the present debate, I agree with Schiemann LJ’s conclusion. I accept the general thesis in the judgment of Millett LJ in the Thai Trading case that the modern perception of what kinds of lawyers fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose my opinion, or that of any individual Judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties in delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has by what are now (Section 27 of the Access to Justice Act 1999) successive enactments modified the law by which any arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided. That applies with, if anything, greater force in 1993 than it does today.”

44. I agree with Mr Morgan’s analysis of those cases, that, at the time this Counsel’s CFA was entered into, it was not permissible to enter into such an agreement at common law, and the Claimant therefore fails on that head as well.

COSTS

45. The question of costs then fell to be considered, these costs including the costs of the hearing before me in March, which I had ordered to be the Defendants’ costs in the case. It was submitted on behalf of the Defendants, by Mr Morgan, that he having won the point must be entitled to his costs. Mr Dean however argued that on the particular interpretation of the wording of the consent order in this matter, such an order was impermissible.

46. The paragraph for the settlement upon which he relied was paragraph 8 in the schedule, which reads:

“Save as set out at 1(b) above there shall be no further order as to costs and no previous order as to costs in this action shall be enforced.”

47. He maintained that that wording was quite plain and unequivocal, and prevented my making any order of the sort sought by the Defendants. I suggested to him the absurdity of the situation which could arise, namely that if the claimant chose to appeal this decision all the way to the House of Lords (assuming leave were to be obtained for such appeals), she could do so without any risk as to costs, which would be a patently absurd construction of that paragraph. Mr Morgan added that if the Claimant’s contention was correct, it would mean that if an application was made for breach of paragraph 3 of the order, the court could visit the Defendants with punishment, but could not order them to pay any costs, and again that must be wrong.

48. Mr Dean’s answer to that was that a High Court Judge, or higher, could be asked to, and no doubt would, consider amending paragraph 8 of the order to permit such an application to be made, but it was not permissible for me to make any order for costs, because I could not order any amendment of the consent order.

49. Mr Morgan also submitted that, on a proper analysis of the decision of Gomba Holdings (UK) Ltd v Minories Finance Ltd (No.2) [1992] 3 WLR 723, as explained in the notes in the Civil Procedure Volume 1 to Rule 48.3, that this clause was no bar to the recovery of costs. The reference is at the bottom of page 891 and top of 892 of the Autumn 2001 Edition. I accept Mr Morgan’s submissions in that respect, and consider that paragraph 8 of the order did not prevent my making an order for costs in favour of the Defendants.

50. Those costs were summarily assessed in the gross sum of £11,078.06, from which is to be deducted the sum of £1,500, representing the agreed costs incurred by the Claimant when acting as litigant in person, inclusive of interest, taking into account the Defendant’s contentions in relation to delay.

CONCLUSION AND WAY AHEAD

51. For all the above reasons therefore I held that neither of the CFAs are enforceable as against the Defendants, so there will be no sums payable in respect of A & O’s bill of costs. To avoid the necessity for the parties to appear before me again I indicated that I would extend the Claimant’s time for seeking permission to appeal until 14 days after receipt of these reasons. If such permission is sought it should indicate which of my decisions is sought to be appealed, and the grounds upon which the appeal is sought to be brought, and a copy should be served upon the Defendants’ Solicitors. They should have an opportunity to put in their submissions within 14 days of receipt of the Claimant’s submissions, and I will then make a decision about whether or not to grant permission to appeal on the basis of those submissions, but without any further oral hearing.

PR\15\Woods v Chaleff