Lawyers who had “direct interest” in case face costs hearing

High Court: Agreement to use ‘without prejudice’ material

A ruling about ‘without prejudice’ correspondence has brought to light a claim against a group of lawyers who now face having to pay the costs of a case they facilitated.

London law firm De Cruz Solicitors, Hugo Page QC and junior Adam Chichester-Clark (collectively “the lawyers”) represented Peter Willers, himself a barrister, in proceedings against leading businessman Albert Gubay, and subsequently his estate, for malicious prosecution and abuse of process.

This was the first action of its kind to go to trial in England and Wales, and only after the existence of a cause of action for malicious prosecution of civil proceedings was established when the Supreme Court ruled on the case in 2016.

The underlying action that was alleged to have been brought maliciously was a claim against Mr Willers by Langstone Leisure, a company in the group that was founded by Mr Gubay.

The lawyers had represented Mr Willers in the Langstone action under conditional fee agreements (CFAs).

Langstone discontinued its claim and was ordered to pay Mr Willers’ costs, but on detailed assessment the claimed costs of £3.4m, including success fees, were ruled disproportionate. Mr Willers settled for £1.45m.

In the malicious prosecution action, one of the heads of damages sought from Mr Gubay’s estate was the shortfall.

Ruling in Willers v Joyce & Ors [2019] EWHC 937 (Ch), Mrs Justice Andrews said: “The lawyers who represented Mr Willers in the malicious prosecution action had a substantial financial interest in its outcome.

“That interest went beyond the realistic prospect faced by any lawyers acting for an impecunious client that they would not be paid their fees incurred in that action unless their client succeeded and recovered them pursuant to an order for costs against the executors, or else reached a settlement that was large enough to enable him to pay them.

“They had a direct interest in the damages, to the extent that they comprised the indebtedness which their client had already incurred in respect of their fees in the Langstone action, and which he was clearly unable to pay from his own existing limited resources.”

Mediations in February 2017 and again in 2018 shortly before trial last October failed, and in December Mrs Justice Rose dismissed the malicious prosecution action.

She ordered Mr Willers to pay the executors’ costs, and a £1m payment on account by the end of January. The Court of Appeal refused permission to appeal and a stay of execution.

“He has not complied with the order for an interim payment. He does not have the means to do so, and never had,” Andrews J said. His only asset was his share of the equity in his “heavily mortgaged” home, which has now been charged in favour of De Cruz.

Also in December, on the application of the executors, Rose J ordered that the lawyers be joined as parties under CPR 46.2 for the purposes of making a claim for indemnity costs against them.

According to Andrews J, this was because the executors argued that the lawyers had a direct personal interest in the outcome of the proceedings and were in a position to influence that outcome, “despite ostensibly being cloaked in the neutral garb of officers of the court”.

She recorded that the executors said the lawyers provided substantial financial support to Mr Willers in the conduct of the malicious prosecution action by failing to enforce payment of the sums allegedly due to them under the CFAs in connection with the Langstone action, and continuing to provide legal services without requiring staged payment or entering into any agreements regarding the late payments of their fees, or into any further CFAs.

Further, they argued that the lawyers had a very significant influence over the strategy for the conduct of the litigation and, significantly, had a large amount of control over their client’s ability to settle the malicious prosecution action and the terms on which he could do so.

The substantive costs application is now due to be heard by Lady Justice Rose LJ (as she now is) after Easter.

The case before Andrews J was whether four letters from De Cruz to Laytons, the executors’ solicitors, about what happened during and shortly after the first mediation, were admissible.

Though the mediation was agreed to be ‘without prejudice’, the first letter from De Cruz had been deliberately marked ‘without prejudice as to costs’, as were the other three.

The judge ruled there was an agreement that what was said and done in the context of ‘without prejudice’ discussions about settlement in February 2017 “could be deployed in the context of an argument about costs”.

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