Case No: A2/2016/3038
Neutral Citation Number: [2017] EWCA Civ 1010
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT (QUEEN’S BENCH DIVISION)
THE HON MR JUSTICE WARBY
[2016] EWHC 1600 (QB)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 14/07/17

Before :

LORD JUSTICE HICKINBOTTOM

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Between :

	(1)	ALEJANDRA FRADE
(2)	BRUCE ST CLAIR
(3)	GHEKO FILMS SL
(4)	GHEKO FILMS SUR SL	

Appellants	
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	(1)	MICHAEL RADFORD 
(2)	THE MICHAEL RADFORD PARTNERSHIP

Respondents	

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Benjamin Williams QC (instructed by Taylor Hampton Solicitors Limited) 
for the Appellants
Alexander Hutton QC (instructed by Simons Muirhead & Burton) for the Respondents

Hearing date: 13 July 2017

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Judgment
Lord Justice Hickinbottom: 
1.	This is a renewed application for permission to appeal against the Order of Warby J dated 8 July 2016 dismissing two appeals against Orders of Master Haworth (“the Costs Judge”) in proceedings for the detailed assessment of the costs of the Appellant Defendants (“the Defendants”) payable by the Respondent Claimants (“the Claimants”).  On 24 November 2016, Lewison LJ granted permission to appeal on some grounds.  Through Benjamin Williams QC, the Defendants now renew their application for permission in respect of those grounds he did not.  Alexander Hutton QC for the Claimants appeared in the application to oppose it.  
2.	For the purposes of this application, the underlying facts are uncontroversial, and are helpfully summarised in Mr Williams’ skeleton argument.
3.	The underlying dispute concerned a Spanish film called “La Mula”.  The First Claimant was commissioned to direct the film.  The Second Claimant was the corporate vehicle through which he traded.  The Defendants, with others, financed the production of the film.  Shortly before filming was complete, a dispute arose, and the First Claimant left the set.  Another director was hired to complete the project, and the Claimants and Defendants have been dispute since.  
4.	The film contracts were subject to an exclusive jurisdiction clause in favour of the Spanish courts.  However, in July 2010, the Claimants issued proceedings against the Defendants here, advancing a wide range of complaints including defamation and unlawful means conspiracy.  On 2 August 2010, Sweeney J granted the Claimants an interim injunction restraining the Defendants from distributing the film and repeating alleged defamatory statements.  That injunction was continued from time-to-time, until discharged by Tugendhat J on 23 May 2012.  
5.	All the Defendants were resident outside the jurisdiction.   In the early stages, they did not participate in the English litigation, at first because they did not know about the proceedings and later because they disputed service.  Throughout 2011, the Claimants sought and obtained extensions of time for service.
6.	Taylor Hampton Solicitors were instructed by the Defendants in July 2011, when the focus of the proceedings was still on the issue of service.  On 4 July 2011, Taylor Hampton sent the First and Second Defendants (“the Individual Defendants”) a retainer letter, accompanied by their standard terms of business.  These provided for payment, win or lose, at an hourly rate of £395.  The retainer letter noted the possibility of funding the case under a conditional fee agreement (“CFA”), but stated that consideration of such an agreement was premature because “… the facts are simply too complicated to form an early assessment on the merits…”.  The Individual Defendants countersigned the retainer letter on behalf of the Fourth and Fifth Defendants (“the Corporate Defendants”), as well as themselves.  They returned the countersigned letter the same day.
7.	Taylor Hampton instructed Augustus Ullstein QC of Counsel (“Counsel”), and he entered into a CFA with them on or about 6 July 2011.  His CFA covered the whole proceedings; but it named only the Individual Defendants as his clients.  
8.	On 8 August 2011, Taylor Hampton sent the Defendants a draft CFA.  Unlike Counsel’s CFA, it named as clients the Corporate Defendants as well as the Individual Defendants.  However, it had limited scope.  The covering letter noted the exclusive jurisdiction clause nominating Spain, and explained: “Counsel and my role is to deal with the procedural position in England and not to consider your rights under the film contracts”.  
9.	The Taylor Hampton CFA was based on the standard Law Society CFA terms.  The agreement stated that it covered: “Your claims… to have the proceedings against you dismissed, to set aside the interim injunction, any assessment of damages under the cross undertaking, and any ancillary applications such as seeking an anti-suit order …”.  The reference to “your claims” reflected the fact that the standard terms were designed primarily for use by claimants.  However, it has always been common ground that the phrase was to be construed in this case as referring to applications by the Defendants to have the proceedings against them dismissed at an interim stage.  The CFA also covered “any appeal by your opponent”.  
10.	The CFA expressly excluded:
“Any claim against you by your opponent or counterclaim by you to the claim as opposed to a claim for damages under the cross undertaking”.
Again, because the agreement was based upon a standard form for use by claimants, the terminology is not ideal: but it has always been common ground that the proper construction was that the CFA excluded any requirement for Taylor Hampton to act in the substantive defence of the proceedings, as well as any counterclaim, as opposed to interim applications “… to have the proceedings against you dismissed…”.
11.	The CFA was accompanied by a risk assessment, which recorded that the Defendants’ aim was “… to have the injunction lifted, to bring an end to the English proceedings and to seek damages under the cross undertaking”.  
12.	The Defendants entered into the CFA with Taylor Hampton on or about 10 August 2011.  The covering letter referred back to the original retainer letter, and specifically extended it to cover the claims of the Corporate Defendants.
13.	Thereafter, Taylor Hampton and Counsel represented the Defendants in the English proceedings.  In February 2012, Taylor Hampton issued an application to set aside the injunction, and for a declaration that proceedings had not been served.  Eventually, the Claimants accepted that there had been no service on the Individual Defendants, and that the injunction as against them should be discharged.  On 23 May 2012, Tugendhat J made a consent order to that effect.  The Individual Defendants thereafter played no part in the substantive claim. 
14.	However, proceedings against the Corporate Defendants continued.  There was an unsuccessful mediation in July 2013.  The Defence and Counterclaim, drafted by Counsel, was served in October 2013.  The Claimants were late in filing a Defence to the Counterclaim, and judgment in default was entered.  This gave rise to prolonged interlocutory activity.  Although the judgment was regular, it was eventually set aside by the court as a matter of discretion.  
15.	In March 2013, the Corporate Defendants applied to strike out the claim.  That application was granted by Master Eyre on 7 February 2014, who concluded that the claim was “hopeless”.  That order was confirmed on appeal by Sir David Eady sitting as a Judge of the High Court, on 28 July 2014.  Master Eyre awarded the Defendants the costs of the claim, and Sir David Eady awarded them the costs of the appeal.  
16.	In the course of the detailed assessment of those costs, the Claimants raised a number of issues.  For example, they contended that the Taylor Hampton CFA only covered the application to dismiss for want of service, and not the later application by the Corporate Defendants to dismiss on other grounds.  
17.	The Claimants also submitted that the fact that Counsel’s CFA did not name the Corporate Defendants as his clients meant that those clients had no liability to pay Counsel for any work done – so that, on the inter partes assessment, there should be disallowance of half of Counsel’s fees before 23 May 2012 (because half of his work was said to be attributable to the Corporate Defendants), and all of his fees thereafter (because from that point the claim only continued against the Corporate Defendants).  
18.	In response to this, it was accepted by Counsel and Taylor Hampton (on behalf of the Defendants) that an oversight had occurred.  Taylor Hampton’s retainer had been expressly extended in August 2011 so as to cover the Corporate Defendants, but no corresponding change was made to Counsel’s CFA.  Hence, on 30 July 2015 (of course, after the inter partes costs orders were made), Counsel and Taylor Hampton executed a “deed of rectification” whereby his CFA was expressly extended, with retrospective effect, to cover the proceedings against the Corporate Defendants.
19.	Insofar as costs fell outside the CFAs, in the detailed assessment, the Claimants contended that there was no agreement between the Defendants, Taylor Hampton and Counsel for the payment of any fees; and thus there could be no liability to pay under the inter partes costs order.
20.	In relation to these various issues, Warby J made the following findings, in most respects replicating those of the Costs Judge:
i)	On its proper construction, Taylor Hampton’s CFA only applied to the application to dismiss the proceedings for non-service which was envisaged at the point it was made.  Therefore, the CFA did not cover the subsequent application “… to have the proceedings against you dismissed …” or the subsequent appeal to Sir David Eady (see Warby J’s judgment at [18]-[29]).
ii)	Notwithstanding Taylor Hampton’s re-promulgation of the retainer letter with the CFA, no conventional retainer enured alongside the CFA so as to cover work done outside its scope, because the CFA discharged the original retainer generally and not only in respect of the work to which it applied (see [33]-[34]).
iii)	Nor could a valid implied retainer be found to exist in respect of work done outside the CFA, despite the well-established principle enunciated in Adams v London Improved Motor Coach Builders Limited [1921] 1 KB 495 that, if a party instructs a lawyer to perform work, that party will (at least for the purposes of inter partes assessment) be deemed liable to pay for that work unless it can be positively proved that the lawyer agreed not to charge.  On this issue, the judge’s reasoning differed from that of Master Haworth.  Warby J concluded that there was an implied retainer in respect of non-CFA work, but that it was on terms which replicated the CFA; and was therefore unlawful because CFAs are required to be in writing (see [36]-[44]).
iv)	As to Counsel’s CFA, Warby J rejected the contention that it rendered the Individual Defendants liable to pay for the defence of their companies, so that they could recover the resulting costs; because, as at the date of Counsel’s CFA, Taylor Hampton had not been retained to defend the Corporate Defendants (see [56]-[59]).
v)	The judge similarly rejected the argument that work done by Counsel outside the scope of his CFA was subject to a valid, implied retainer.  Here, too, he concluded that work done outside the CFA was itself subject to an implied CFA which was unenforceable for want of writing (see [60]-[61]).
vi)	Warby J found the deed of rectification to be irrelevant inter partes.  While he accepted that it was effective to cure the position as between Counsel and his clients, and does not appear to have thought that it was unreasonable of the parties to remedy an oversight in respect of Counsel’s position, he concluded that events subsequent to the costs order against the Claimants were to be disregarded for the purpose of assessing their liability – at least if those events increased rather than diminished that liability (see [62]-[68]).
21.	The Defendants sought to appeal the Order of Warby J on seven grounds.  Grounds 1, 2, 5 and 6 largely related to the construction and specific circumstances of the two CFAs.  Grounds 3, 4 and 7 were challenges to the judge’s findings made on the basis that the relevant costs were not covered by the CFAs, the Defendants contending that the judge was wrong to find that, in those circumstances, there was no free-standing obligation, outside their CFAs, to pay for the work done.  
22.	Lewison LJ granted permission to appeal on those three last-mentioned grounds, considering that they gave rise to a point of some general importance, namely, on the basis that the additional work fell outside the scope of the CFA, whether the judge was right to imply a contract that would in the event be unenforceable rather than a contract that would be enforceable and/or a quantum meruit.  He otherwise refused permission.
23.	The Defendants now renew their application for permission in respect of the remaining four grounds.
24.	As Ground 2, Mr Williams submitted that Warby J erred in finding that it was open to the Claimants, as strangers to the relevant contract between the Defendants and Taylor Hampton, to take points about the construction of the CFAs which the parties to the contract had not taken and/or about which the parties were agreed and/or which it would be “unreasonable” for a non-party to take.  It is said that, irrespective of the true construction of the contract between them as found by the court (see Ground 1 below), the Defendants and their solicitors were and still are ad idem as to the solicitor-and-client costs that should be paid, which include the post-23 May 2012 costs.  Mr Williams submitted that, in those circumstances, this case could be distinguished from cases in which the contract as between solicitor and client was found to be illegal and/or unenforceable.  Here, there was no such issue.  The issue was more nuanced; and it is arguable, he submitted, that the Defendants could not lawfully have refused to pay the post-23 May 2012 costs – for example, some form of collateral agreement or estoppel may have arisen to prevent the Defendants denying that that payment under the Taylor Hampton CFA was due – and, therefore, there was no risk that the Defendants would personally obtain a windfall.  Thus, the indemnity principle would not be breached.
25.	There are a number of strands of argument there.  However, I am unpersuaded by them, individually or in combination.
i)	Ground 1 is that, properly construed, the Taylor Hampton CFA itself did not legally require the Defendants to pay Taylor Hampton relevant costs (e.g. those post-23 May 2012).  Ground 2 is based upon the premise that, properly construed, the CFA did not legally require the payment of those costs.
ii)	The prevention of a windfall profit for the receiving party is not the indemnity principle’s only driver, hence the need for statutory intervention to enable inter partes costs orders to be made in pro bono assisted cases (see section 194 of the Legal Services Act 2007, which abrogates the indemnity principle in such cases).  The indemnity principle, simply put, is that a receiving party is entitled to be indemnified for, and only for, his actual legal liability to his solicitor for costs.  
iii)	It is long- and well-established law that, on an assessment, a paying party is entitled to take any point with regard to the liability of the receiving party to pay his own solicitor’s costs which, coupled with the indemnity principle, affects his liability to reimburse.  The authorities do not suggest that a paying party’s ability to rely upon points in an assessment is restricted to points which the receiving party would or might have taken against his own solicitors.  It is clearly not so restricted.  
iv)	In relying upon “unreasonableness”, Mr Williams sought to draw a distinction between clear unenforceability of a retainer – upon which, he accepts, a paying party can rely – and what he calls “speculative arguments of a CFA as if [the paying party] were a party to it, which fly in the face of the construction which the parties to the CFA are themselves agreed upon” (paragraph 17 of his skeleton argument).  
v)	Insofar as Mr Williams relied upon there generally being a “reasonableness” constraint on points the paying party could take on an inter partes assessment, there is no authority for such a proposition; and, in any event, Warby J expressly concluded that “… there is no room here for a finding that the point at issue here is one lacking in broad merit that is not properly open to the paying party to take” (see [46]).
vi)	Orally, Mr Williams developed this submission on a somewhat narrower basis.  He submitted that this case was distinguishable from cases such as Hollins v Russell [2003] EWCA Civ 718; [2003] 1 WLR 2487 in which a paying party took exception to reimbursing costs under a CFA which was unenforceable because of a failure to comply with the requirements of the statutory regime.  In this case, there was simply an ambiguity as to the terms upon which costs were payable on a solicitor-and-client basis; which was, in practice, resolved by the consensus between solicitor and clients as to the costs that were payable.  However, in my view, in this context, there is no arguable difference in principle between a CFA which is unenforceable because it fails to comply with the requirements of the statutory regime, and one which, on its true construction, excludes certain costs so that the CFA is, in respect of those costs, unenforceable.  In each case, the focus has to be upon the costs which the receiving party is legally liable to pay his own solicitors.  
vii)	In cases in which there is an issue as to the costs that are legally due from the receiving party to his solicitors – and thus are liable to be indemnified by the paying party – the assessment procedure is sufficiently flexible to ensure that such issues are dealt with fairly and justly.  As Hollins v Russell makes clear, in an appropriate case, the court may order disclosure to ensure that that is the case.
viii)	In this case, as I understand it, there was no argument before Warby J that, if, on the true construction of the Taylor Hampton CFA, the relevant costs were not covered, then Taylor Hampton could nevertheless recover their costs from the Defendants because, if the costs were claimed, the Defendants would be unable to deny recoverability by their solicitors under the CFA on other grounds.  It is too late to raise such issues now on appeal.
ix)	I do not consider that the observations of Christopher Clarke J in Forde v Birmingham City Council [2009] EWHC 12 (QB); [2009] 1 WLR 2732 especially at [111], in a very different context – notably a CFA which had been potentially voidable on grounds of undue influence – or any attempted analogy with subrogated claims in an insurance context give any support to Mr Williams’ arguments on this ground.
26.	For those reasons, in my view, this ground fails at the first hurdle: it is not arguable.  
27.	Grounds 1 and 5 can be taken together, and shortly.  Mr Williams submitted that Warby J was wrong to conclude that, on their true construction, (i) the Taylor Hampton CFA did not cover the (ultimately successful) dismissal application before Master Eyre and Sir David Eady and (ii) Counsel’s CFA did not cover the Corporate Defendants’ costs of defending the proceedings.  However, he accepted that (a) this is an appeal to which the second appeals criteria in CPR rule 52.7(2) apply, (b) these grounds do not satisfy the criteria in rule 52.7(2)(a) because neither raises any important point of principle or practice, and (c) unless Ground 2 proceeds, it could not be said that there is any other compelling reason for the Court of Appeal to hear it within CPR rule 52.7(2)(b).  
28.	The application in relation to Ground 2 having failed, Grounds 1 and 5 thus fall with it.
29.	That leaves Ground 6: the judge was wrong to hold that the deed of rectification was ineffective inter partes.  
30.	Mr Williams accepted that, under the CFA on its face, the Defendants would not have been legally liable for Counsel’s fees in respect of work on behalf of the Corporate Defendants.  However, he submitted that the evidence powerfully supports the proposition that Counsel’s CFA did not name the Corporate Defendants as a result of mere oversight on the part of Taylor Hampton.  In those circumstances, the contract between Taylor Hampton and the Defendants ought to be rectified so that it reflects the true agreement between them; and, he submitted, there is no rule of law that such a deed of rectification is ineffective inter partes, whenever it is executed.  Mr Williams noted that Warby J had found that Taylor Hampton and Counsel had acted reasonably in entering into a deed of rectification, albeit after the inter partes order had been made. 
31.	In response, Mr Hutton submitted that, whilst cases such as King v Telegraph Group Limited [2005] EWHC 90015 (Costs), Holmes v Alfred McAlpine Homes (Yorkshire) Limited [2006] EWHC 110 (QB) and Forde provide ample authority for the proposition that there is nothing wrong in principle with a retrospective CFA, in Kellar v Williams [2004] UKPC 30 at [20], Lord Carswell (giving the opinion of the Judicial Committee) made clear that a variation in the charging basis as between receiving party and his solicitor made after the relevant order for inter partes costs has been made is ineffective as against the paying party, at least if it results in a larger costs burden.  That being a Privy Council case, it is of persuasive authority only; but it appears to have been cited with approval and followed by costs judges (see, e.g., Brennan v Associated Asphalt Limited [2005] EWHC 90052 (Costs) at [17] (Senior Master Hurst); Oyston v Royal Bank of Scotland plc [2006] EWHC 90053 (Costs) at [50] (again, Senior Master Hurst); and Various Claimants v MGN Limited [2016] EWHC B29 (Costs) (Master Gordon-Saker)).
32.	I see the force in Mr Hutton’s submissions; but I am persuaded that it is arguable that the circumstances of this case are distinguishable from Kellar v Williams and the domestic authorities, as this case concerns the rectification of a contract to give effect to its meaning from the outset rather than a variation of a contract after the event.  In my view, it is arguable that the principle set out in Kellar v Williams does not apply in the circumstances of this case; and that this case raises a point of general importance which ought to be considered by this court.
33.	For those reasons, I grant permission to appeal on Ground 6, but refuse it on Grounds 1, 2 and 5.