Client’s Costs Dismissed Due to Law Firm’s Misconduct: GSD Law Ltd V Craig Wardman Of St Gobain Building Distribution & Ors (2017)

In the case of GSD Law Ltd v Craig Wardman Of St Gobain Building Distribution & Ors [2017] EWCA Civ 2144, the Court of Appeal upheld a previous decision that the claimant solicitor’s, GSD Law, costs should be disallowed on the basis that there had been misconduct on their part and that they should pay the costs of the assessment proceedings on the indemnity basis as per CPR 44.11.

The appeal arose out of 14 personal injury claims in which the claimants succeeded and so became entitled to costs. GSD Law was on the record for the claimants and undertook the work on the basis of CFAs. GSD prepared informal schedules of their costs in connection with the 14 cases which they sent to the paying parties. They paying parties declined to agree the costs and so GSD prepared formal bills of costs and detailed assessment proceedings were commenced. The paying parties responded with points of dispute.

The paying parties’ insurer, Allianz, instructed a costs lawyer, who, as a result of concerns that he had about the costs claimed, served a document headed ‘Particulars of Allegations’ on GSD Law by way of supplement to the points of dispute on 12 November 2012. This stated that it contained allegations of fraud and misconduct against GSD and put GSD on notice that the paying parties intended to argue that it had caused the claimants in the case to be guilty of gross misconduct within the meaning of CPR rule 44.14 (now CPR44.11) and as such they should both be denied their costs and they should pay the costs of the assessment.

The particulars of this accusation was that there had been a systematic attempt by GSD to claim more in without prejudice schedules than was properly claimable and had the attempt succeeded, GSD would have been personally enriched. GSD were said to have claimed hourly rates which were higher than those that were properly and honestly claimable, to have attempted to mislead the paying parties as to the status of the persons who carried out the work, to have claimed profit costs for work that was not done, to have claimed additional liabilities which were either not payable at all of which were less than the amounts claimed and to have claimed a ‘drafting fee’ that did not exist.

On 16 November there was a hearing before DJ Bedford during which he gave directions for all the detailed assessments to be case-managed together, for 2 sample cases to be picked so that certain preliminary issues could be determined and for the remaining cases to be stayed.

On 21 December 2012, GSD file a ‘Reply to Allegations’ which included evidence such as witness statements from the sole principle of GSD, Mrs Madhas.

On 7 May 2014, the preliminary issues were heard by DJ Neaves. At the hearing, Mrs Madhas gave evidence at the hearing and was cross examined at length. DJ Neaves adjourned the proceedings and requested that the paying party prepare an indictment of allegations as this would be more specific than the Particulars. This was done and Allianz added an allegation that GSD had made a complaint to the Costs Lawyers Standards Board regarding the costs lawyer that they had instructed with the only motivation being to gain the upper hand in litigation. During her cross examination, Mrs Madhas conceded that the contents of the allegations were false.

GSD again served a reply to allegations on 18 July 2014. The hearing before DJ Neaves was resumed on 8 September 2014 on which evidence was concluded and closing submissions made. It was at this point that GSD stated its acceptance that there had been unreasonable conduct in the sample files but that this was a case of carelessness as to administrative duties through ‘inadvertence’ and that as a result the court should allow the costs subject to assessment.

DJ Neaves handed down judgment on 15 December 2014. He said of Ms Madhas that she was a ‘wholly unreliable witness’ and that her evidence was ‘not only evasive and inconsistent, but dishonest’. He held all the allegations made against GSD to have been provided and agreed that the extent of the conduct and dishonesty of GSD was at the most serious end of the scale. He concluded:

‘The conduct of the receiving party’s solicitor is sufficiently egregious as to make the only appropriate sanction the disallowance of all costs on the sample files. The receiving party will also pay the costs of the assessment proceedings including the preliminary issues’.

GSD applied for permission to appeal and DJ Neaves granted it. The appeal came before HHJ Gosnell on 9 June 2015 and he dismissed the appeal on 8 July 2015.

The grounds of appeal brought by GSD were five-fold but those that remained before the Court of Appeal were as follows:

  1. DJ Neaves had purported to use the CPR 44.11 powers in a manner which was entirely inconsistent with their purpose to be an ancillary jurisdiction intended to be summary in nature and which does not require the consideration of detailed allegations of alleged dishonest conduct;
  2. The procedure that the DJ had adopted was unfair.

The Court addressed these in turn.

CPR 44.11, pursuant to which District Judge Neaves made his order, is headed “Court’s powers in relation to misconduct” and provides as follows:

‘(1) The court may make an order under this rule where—

(a) a party or that party’s legal representative, in connection with a summary or detailed assessment, fails to comply with a rule, practice direction or court order; or

(b) it appears to the court that the conduct of a party or that party’s legal representative, before or during the proceedings or in the assessment proceedings, was unreasonable or improper.

(2) Where paragraph (1) applies, the court may—

(a) disallow all or part of the costs which are being assessed; or

(b) order the party at fault or that party’s legal representative to pay costs which that party or legal representative has caused any other party to incur….’

Considering the first ground of appeal LJ Newey, sitting in the Court of Appeal noted at para 39:

‘In the case before us, as I have already indicated, it seems to me that it was right to entertain the application under CPR 44.11. The paying parties were contending that costs “which [were] being assessed” should be disallowed because of “unreasonable or improper” conduct in connection with the assessment of costs; the allegations could be addressed in the context of pending assessment proceedings; certain of the allegations (in particular, those relating to the bills of costs) would fall to be addressed anyway in those proceedings; there is no suggestion that legal professional privilege presented any difficulty; and the complaints made by the paying parties did not call for any inquiry into the merits of the substantive claims. It is also relevant that, as can be seen from what was said in Bailey v IBC Vehicles Ltd (for which, see paragraph 24 above), there is a strong public interest in ensuring that solicitors do not certify costs figures dishonestly: as Judge Gosnell noted, there would be unfortunate consequences if paying parties “lost confidence in the bona fides of solicitors signing these certificates”. Having regard both to seriousness of the allegations and to the sums potentially at stake, I do not think it was disproportionate to have a three-day hearing. I cannot see, moreover, how ordinary civil proceedings for fraudulent misrepresentation could have provided a satisfactory alternative to an application pursuant to CPR 44.11’.

As such this ground of appeal was rejected.

In relation to the second ground, GSD argued that even supposing that it was legitimate to entertain the paying parties’ allegations, the procedure that was adopted was unfair. In this they relied on the case of Salha v General Medical Council [2003] UKPC 80, 80 BMLR 169, where Lord Hoffman said:

‘It is a fundamental principle of fairness that a charge of dishonesty should be unambiguously formulated and adequately particularised’.

Judge Gosnell considered that ‘the proceedings overall were fair’, taking the view that GSD and Ms Madhas ‘had more than adequate notice of the allegations against them and were given a full opportunity to respond to them’.

The court agreed with this and held at para 44:

‘For my part, however, I agree with Judge Gosnell that the procedure was fair. Among other things:

  1. District Judge Bedford’s order of 16 November 2012 allowed GSD to join itself as a party whenever it wished. In the event, it elected to do so in September 2013, but it was evidently in the driving seat on the costs issues well before this. As mentioned in paragraph 8 above, the commercial interest always rested with GSD;
  2. The “Particulars of Allegations” served in November 2012 gave GSD and Ms Madhas sufficient notice of the case they had to meet at the hearing on 7 and 8 May 2014 and, in particular, the allegations of dishonesty. I am not entirely sure why District Judge Neaves proposed the “Indictment-Style” list of allegations (possibly, as Mr Smith suggested, to effect a “clearing of the decks”), but it in fact added little of substance to the “Particulars of Allegations”; and
  • The “bombshell” arose from GSD choosing to attach to its “Reply to Allegations” of 18 July 2014 a document that proved to be a forgery. The paying parties cannot be criticised for their failure to refer to this in their “Particulars of Allegations” or “Indictment-Style” list of allegations since these pre-dated the “Reply to Allegations” and the forged document had not yet featured in the case. It is also significant that GSD did not suggest at the hearing on 8 September 2014 that it needed an adjournment to deal with the document.

Therefore this ground of the appeal also failed.

The full judgment can be accessed here.