Solicitors who acted for a client claiming as damages the fees which the client owed them for work done for him in earlier proceedings should not be ordered to pay costs if it fails, the High Court has ruled.
Lady Justice Rose – sitting on a case she was handling before her elevation to the Court of Appeal – said the lawyers’ interests were not sufficiently different from those they commonly have in litigation to make them a real party to the case.
Willers v Joyce & Ors  EWHC 2183 (Ch)  followed an initial, unsuccessful claim (called the Langstone action) brought by the now late businessman Albert Gubay against barrister Peter Willers, with whom he worked for many years.
Mr Willers was awarded costs but, having claimed £3.46m, he accepted a part 36 offer to settle them for £1.45m.
Of the shortfall, nearly £1.1m was attributable to his solicitors, London firm De Cruz Solicitors, and the rest for barristers Hugo Page QC of Blackstone Chambers (£487,000) and Adam Chichester-Clark of 3 Stone Buildings (£453,000). They all acted under conditional fee agreements (CFAs).
Mr Willers then sued Mr Gubay for malicious prosecution and abuse of process. One of the heads of damages he sought was the £2m shortfall in costs.
The lawyers did not act on a CFA basis on that claim. The judge found that they had invoiced Mr Willers for their services, which he had not paid, and payment would not be enforced unless or until he somehow found the funds.
Rose LJ dismissed the claim last year and ordered Mr Willers to pay costs, which Mr Gubay’s executors put at £1.9m.
Mr Willers failed to make the interim payment on account of costs that was ordered and Rose LJ said the executors were likely to recover almost nothing, not least because Mr Willers had executed a charge over his 50% beneficial interest in his house in favour of De Cruz.
The executors then successfully applied to add De Cruz and the barristers as defendants for the purposes of costs.
The executors sought the non-party costs orders on the basis that the lawyers were the real parties to the malicious prosecution claim because its principal purpose was to recover their unpaid fees.
They argued that this interest went further “in a significant way” than the interest that any lawyer has in a successful outcome if providing services under a CFA.
They said that, despite there apparently being no arrangement to that effect, De Cruz had not pressed Mr Willers for payment of the costs shortfall, and the barristers had refrained from insisting that the firm pay the fees owed.
Further, they said the lawyers in effect acted without payment in the malicious prosecution claim, expecting to be paid only if Mr Willers won, meaning they would be the “principal beneficiaries” of any success in the claim. This made it different from the usual position of a solicitor operating on a CFA.
Rose LJ said the case law showed that legal representatives should not be at risk of a third-party costs order unless they were acting in some way outside the role of legal representative.
“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.”
The judge confessed that she found it “very difficult” to reach a decision, but on balance concluded that the lawyers had not acted outside the role of legal representatives to such an extent as to bring themselves within the non-party costs jurisdiction.
She gave various reasons, including that the additional interest the lawyers had in the success of the malicious prosecution claim was 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 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.”
The judge said the risk of a non-party costs order in these circumstances would in many instances force the client to instruct a new legal team, which would cost more as they would have to get up to speed.
“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.”
There was a policy question as to whether, despite the access to justice and equality of arms issues, the team which advised a successful defendant in this kind of “bitterly fought” litigation should also be the team advising him on the benefits and disadvantages of pursuing a further round of litigation against the same party.
Rose LJ said: “Would it be better for a fresh team to advise on the merits of that further round of litigation; a team that does not have quite as much of their own money at stake as the [lawyers] had?
“I have, however, concluded that it is not appropriate to take this factor into account in deciding whether to make the order in this application.
“It is a matter for a professional regulator to address if that is thought necessary and is not appropriately dealt with by creating the potential threat of a non-party costs order.”
Rose LJ added that De Cruz’s counsel, Jamie Carpenter, had provided a number of scenarios in which the damages claimed in second proceedings include the unpaid costs of the solicitors incurred in the first proceedings.
“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.”
The judge concluded: “The interest that the [lawyers] had in the success of the malicious prosecution claim was not so different from the direct financial interests that lawyers commonly have in litigation as to make them a real party in substantial and critical respects.”