INDEMNITY BASIS COSTS : UNREASONABLE CONDUCT : DUTY OF CANDOUR : JUDICIAL REVIEW
- No consequences flowed from the claimants’ failure to file a costs schedule 24 hours before the hearing as given the factual complexity of the case, and the number and importance of the legal issues involved, it was realistically unlikely that costs would be considered on the day of the hearing of the claim. 
- It was appropriate for the High Court to determine costs both in respect of the proceedings before it and in the Magistrates Court. 
- It was not appropriate to make an order for costs out of central funds in relation to the proceedings in the Magistrates’ Court or in the High Court, nor to order that the Interested Party should only be liable for a portion of the costs given that he was the driving force in obtaining summonses in significant breach of his duty of candour, and in persuading the District Judge to act as she did. 
- It was appropriate to award costs on the indemnity basis to reflect that:
“The private prosecution was commenced on foot of culpable breaches of the fundamental duty of candour. The Interested Party then sought to continue the prosecution on a wholly inappropriate basis. When the case came before this Court there was deliberate non-disclosure of an obviously relevant document … from first to last, the Interested Party’s prosecution of the litigation has involved unreasonable conduct which has resulted, overall, in a significant waste of court time and resource.” 
On 23 May 2018 the Court allowed the Claimants’ claim for judicial review of the decision of District Judge (Magistrates’ Courts) Mallon who, on 7 October 2016 in the Leeds Magistrates’ Court, refused to:
(1) dismiss summonses for offences of fraud which had been issued against the Claimants on 19 May 2016, on the basis of an information laid on 7 April 2016 at the behest of the Interested Party, Mr Karwan, a private prosecutor who is the President of Adriana SA (“Adriana”), a company registered in Poland; or
(2) Stay the proceedings as an abuse of process – finding that the appropriate venue for the determination of that issue was the Crown Court.
In the course of his judgment the Mr Justice Sweeney made the following observations concerning Mr Karwan’s breach of his duty of candour (at para 37):
“… I have no doubt that when Mr Karwan’s lawyers applied on his behalf for summonses to be issued, both he and they were subject to the duty of candour that I have identified. However, the carefully crafted Information which was put forward failed to comply with that duty in each of the respects alleged by the Claimants. Whatever the views of Mr Karwan and his lawyers as to the ‘Settlement Agreement’, it should have been obvious, applying any of the formulations of the test that I have set out (in  &  above) that there was a duty to disclose to the court – in order to enable the court to properly carry out its duty to consider whether the application was vexatious, an abuse of process or otherwise improper; to consider whether to make further enquiries; to require the Claimants to be notified of the application; and to hear the Claimants.”
Written submissions as to costs followed and both parties indicated that they were content for the Court to assess costs summarily based upon the written submissions – including:
- the Claimants’ Application for Costs;
- the Claimants’ Amended Costs Schedules;
- the Interested Party’s Response;
- the Claimants’ Reply; and
- the Interested Party’s Further Response.
The Parties’ Respective Submissions
Breach of Practice Direction 44
The Court should take into account, as a factor, that without reasonable excuse (and thus in breach of paragraph 9.5 of Practice Direction 44) the Claimants failed to serve a costs schedule 24 hours prior to the judicial review proceedings.
The Interested Party also failed to serve a costs schedule no doubt for the same reason. In the result, in the terms of paragraph 9.6 of the Practice Direction, there was therefore a reasonable excuse for not filing a schedule in advance of the hearing, and thus no justification for any sanction on them.
Magistrates’ Court proceedings
- The costs of the Magistrates’ Court proceedings should be assessed and dealt with by the Magistrates’ Court. s.19 of the Prosecution of Offences Act 1985 provides Magistrates’ Courts with the power to make a costs order. The Magistrates’ Court would be able to make any order that it deemed appropriate arising from his breach of the duty of candour;
- The judicial review proceedings were entirely separate, and it should be borne in mind that the District Judge had considered the material that had not been disclosed originally and had ruled against the Claimants; and
- The judicial review proceedings related to the District Judge’s decision and whether she failed to engage with issues raised on behalf of the Claimants, and hence the costs of the judicial review were entirely separate to the costs incurred in the Magistrates Court.
- The Interested Party’s argument was misconceived. Whether by virtue of s.51 of the Senior Courts Act 1981 or s.66 of the Courts Act 2003 the High Court has the power to order costs for both the JR proceedings and the proceedings in the Magistrates’ Court and there was no good reason why it should not determine the application (which would avoid further time and expense being incurred by either party);
- The High Court had had the advantage of having seen, in the recent past, all the material that was relevant to the costs application (whereas the Magistrates Court gave its decision two years ago) and the High Court was therefore best placed in time to consider the question of costs globally.
- Given the basis upon which judicial review was granted, the High Court was far better placed to make a judgment on the conduct of the Interested Party in the Magistrates’ Court than the District Judge would be;
- The two sets of proceedings were not separate given that, after the Interested Party’s failure to comply with his duty of candour, when most (but still not all) of the relevant material was put before the District Judge, the Interested Party invited her to take the course that she eventually did and which the Interested Party tried (unsuccessfully) to defend in the High Court; and
- Ultimately, if the Interested Party had acted properly, and in accordance with the Court’s judgment, then the Claimants would not have incurred the costs in both courts that they have.
The extent to which the Claimants were successful
- Any costs order should reflect the fact that, whilst the Claimants’ application for judicial review was successful, not every argument advanced by them was successful;
- The principal point advanced by the Claimants in the judicial review was the assertion that it was not appropriate for the Magistrates’ Court to grant a summons to a private prosecutor in English criminal proceedings to commence a prosecution, when he had previously given the Defendant a formal undertaking not to do that very thing;
- Against the background that the agreement was governed by the Polish law of contract, this was a complex issue and a great deal of time was spent upon it in both the Magistrates’ Court and the High Court. However , the High Court’s judgment was silent on that issue;
- Thus, whilst the Claimants’ application was ultimately successful, they did not succeed in their principal submission, and any costs order, irrespective of the party against whom it is made, should reflect that fact.
- The remedy that they sought was the quashing of the summonses issued on 19 May 2016 and the quashing of the decision made by the District Judge on 7 October 2016 – which was precisely what they achieved. They were thus entirely successful in their claim;
- The fact that, in order to determine the claim as a whole, the High Court did not consider it necessary to adjudicate upon one of their arguments does not affect their ability to recover costs from the unsuccessful Interested Party.
- By reference to paragraph 44.2.13 of the White Book, to the decision of the Court of Appeal in Kastor Navigation v AGF M.A.T.  EWCA Civ 277 (in which the Claimants succeeded to the full extent of their claim, but on only one of the alternative ways in which they put it), and to the decision of Gloster J (as she then was) in HLB Kidsons v Lloyds Underwriters  EWHC 2699 (Comm), the successful party is the party successful in the proceeding, rather than successful on a particular issue;
- The general rule is that the unsuccessful party should pay the successful party’s costs and the Court can properly have regard to the fact that any winning party is likely to fail on one or more points in the case, unless they were unreasonably taken.
- Against that background, in fact, they did not fail on any part of their claim – rather, the Court did not need to uphold every argument for their claim to succeed. They succeeded in their claim as a matter of substance, reality and common sense and thus there was no lack of success to reflect in any costs order.
- The judicial review costs that are recoverable should be paid from central funds and not by the Interested Party;
- The High Court’s judgment made it clear that the application for judicial review was successful because of the non-disclosure of six matters set out in the judgment, the Interested Party’s breach of the duty of candour, and the District Judge’s failure to engage with that breach;
- It was important to recognise that the Claimants did make the District Judge aware of the non-disclosure at the hearing in the Magistrates’ Court – including the existence (but not the detail, as it had still not been disclosed) of the Polish Regional Prosecutor’s second written justification for discontinuing the investigation, and the appeal to the Regional Court;
- Thus, the District Judge was well aware of the entirety of the non-disclosure and of the breach of the duty of candour, including the fact of the Regional Prosecutor’s second written justification – despite which, she ruled against the Claimants;
- In the result, it was the District Judge’s failure to engage with whether the Interested Party’s breach of the duty of candour should result in the quashing of the summonses which resulted in the judicial review proceedings, and the Interested Party should not have to pay the costs which have resulted from her error;
- In the alternative, if the Court was nevertheless minded to make a costs order against him, he should only be liable for a proportion of the costs;
- The costs order should reflect the fact that the District Judge had had all the relevant information about the Interested Party’s non-disclosure before her and failed to dismiss the summonses.
- The Interested Party’s submission was untenable, given that:
- the failures identified by the High Court were those of the Interested Party and the District Judge followed his express invitation in her treatment of the application before her;
- the Magistrates’ Court did not defend the application in the High Court, whereas the Interested Party defended it vigorously;
- it was the Interested Party (not the Magistrates’ Court) who was responsible for the fundamental failures that the High Court identified in its judgment, for inviting the District Judge to adopt the course that she took, and for defending the claim;
- there was no good reason why the public should incur the expense of the proceedings (whether in the Magistrates Court or the High Court) which had come about entirely because of the Interested Party’s failure to comply with his duty of candour and to act as a Minister of Justice;
- in any event, in view of paragraph 23.11.3 of the Judicial Review Guideline, costs in Administrative Court proceedings are not recoverable from central funds;
- the Magistrates’ Court played no part at all in the proceedings in the High Court; and
- the High Court will generally not impose costs against a Court or Tribunal unless it has acted obstructively or improperly.
- Further, whether or not an order was available against central funds says nothing as to whether it is appropriate to make an award of costs against the Interested Party.
Standard / indemnity basis
- Mr Karwan’s conduct did not warrant costs to be assessed on the indemnity basis rather than the standard basis;
- His non-disclosure occurred during the original application for the summonses. Thereafter the non-disclosure was rectified by the Claimants and the District Judge was informed of all relevant matters;
- He did not deny that the material had not been disclosed and he provided an explanation for the non-disclosure;
- given that the District Judge had ruled in his favour, he was perfectly entitled to intervene in the judicial review proceedings;
- in those proceedings, he had conducted himself in a perfectly reasonable manner;
- not all of the Claimants’ arguments in the judicial review had been successful, and the Interested Party was perfectly entitled to advance the arguments that it did.
- The interests of the proper administration of justice require that a litigant should be penalised in costs where his unreasonable conduct has caused a waste of court time and resource;
- By reference in particular to the judgment of Henderson J in Franses v Somar  EWHC 2442 and to the proposition that the opportunity to go to court ex parte is a privilege the abuse of which the Court should be astute to prevent, it is well established that a culpable breach of a duty of full and frank disclosure should attract indemnity costs as a matter of public policy.
- The Claimants also relied on the cases cited in Volume 1 of the White Book at CPR44x4.3, and on paragraph 220.127.116.11 of the Judicial Review Guide which provides that the indemnity basis is reserved as a sanction, which the Court will apply in cases where the losing party has acted unreasonably in bringing or maintaining the claim, or in any other way.
- Against that background, the Claimants asserted that the Interested Party’s unreasonable behaviour had included:
(1) Failing to comply with either the duty of candour or the duty to act as a Minister of Justice in applying for the summonses.
(2) Inviting the District Judge to defer consideration of the Claimants’ application to the Crown Court, which invitation she accepted.
(3) Attempting to elicit an agreement from the District Judge in respect of his interpretation of her ruling, in ex parte communications with the Magistrates’ Court of which the Claimants were entirely unaware, in advance of the judicial review proceedings in this Court.
(4) Withholding the second written justification of the Regional Prosecutor from the Court and the Claimants, until the Court raised the issue.
(5) Submitting to this Court that a deemed costs order had been made – without addressing the correspondence between the parties and the Court, and the Order in respect of costs made by the Court.
Reasonableness of the amount
Based on their Amended Costs Schedules, the Claimants invited the Court, in the exercise of its discretion, to make an Order in the sum of £144,382.78 (including VAT) in relation to the proceedings in the Magistrates’ Court, and an Order in the total sum of £162,400.64 (including VAT) in relation to the proceedings in this Court. The total sum sought is therefore £306,783.42.
- Mr Karwan’s own total costs (for both the proceedings in the Magistrates’ Court and this Court) amounted to approximately £131,000;
- Some of the costs and disbursements claimed were neither reasonably incurred nor reasonable in amount, including:
- money spent on photocopying, travel fees, and meals in the Magistrates’ Court proceedings;
- the fees claimed for the Claimants’ Polish lawyer in both proceedings;
- the hourly rates of the Claimants’ solicitors;
- the fees paid to the Claimants’ counsel (particularly when compared with the fees paid to the Interested Party’s counsel); and
- the hours claimed in relation to the Claimants’ Costs schedules.
- For Orders on an indemnity basis, proportionality is irrelevant.
- Mr Kay was a man of 71 of impeccable good character who, when faced with serious charges of fraud, was entitled to instruct lawyers with the necessary skill and experience to deal with such a case, and that the amount of work that was carried out by his lawyers was entirely reasonable – including proper delegation with the majority of his solicitors’ work being done at associate rather than partner level.
- In R (Haigh) v City of Westminster Magistrates’ Court  EWHC 232 the Court made an Order for costs of £190,000 against a private prosecutor for the Magistrates’ court proceedings alone (albeit that two sets of defence lawyers were involved).
SWEENEY J AND GROSS LJ:
Breach of Practice Direction 44
11. Given the factual complexity of the case, and the number and importance of the legal issues involved, it was realistically unlikely that costs would be considered on the day of the hearing of the claim. It is therefore unnecessary to reach a conclusion on this submission, as nothing turns on it. While we draw back from holding that the Claimants had a reasonable excuse, no consequences followed from their failure to produce a schedule timeously. There is, accordingly, no justification for any sanction on them on this ground; the point is wholly arid.
Magistrates’ Court proceedings
14. For the reasons advanced by the Claimants, we agree that the Interested Party’s argument is misconceived. It is plainly appropriate for this Court, not the Magistrates’ Court, to determine the Claimants’ application for costs incurred below. It is time to bring these proceedings to a close, without either party incurring further delay and costs.
The extent to which the Claimants were successful
17. In our view, the Claimants are clearly right on this issue. The point on the undertaking was reasonably taken, it did not fail, and the Claimants were clearly the successful party in the proceedings. Looked at justly and overall, there is no warrant for reducing the costs payable to the Claimants on this ground.
21. In our view there is no merit in either the Interested Party’s principal or alternative submissions under this heading.
He was the driving force in obtaining the summonses in significant breach of his duty of candour, and in persuading the District Judge to act as she did (whilst still failing to disclose the content of the Polish Regional Prosecutor’s second written justification).
In all the circumstances we conclude that it is not appropriate to make an order for costs out of central funds in relation to the proceedings in the Magistrates’ Court or in this Court, nor to order that the Interested Party should only be liable for a portion of the costs. Put bluntly, these submissions are misconceived.
Standard / indemnity basis
25. The private prosecution was commenced on foot of culpable breaches of the fundamental duty of candour. The Interested Party then sought to continue the prosecution on a wholly inappropriate basis. When the case came before this Court there was deliberate non-disclosure of an obviously relevant document
, followed ultimately (when there had been a change of leading counsel for the Interested Party, but junior counsel and instructing solicitors remained the same) by a wholly inappropriate attempt to argue that a deemed costs order had been made. Thus,
from first to last, the Interested Party’s prosecution of the litigation has involved unreasonable conduct which has resulted, overall, in a significant waste of court time and resource. In those circumstances, and applying the principles that we have identified above, we have no hesitation in concluding that costs should be assessed on an indemnity basis.
Reasonableness of the amount
29. We have considered [the parties’] submissions and the Amended Costs Schedules, having regard to s.51 of the Senior Courts Act, CPR 44.2 and s.19 of the Prosecution of Offences Act 1985. In the result we have decided, in the exercise of our discretion, to assess costs summarily in the total amount of £250,000. We are satisfied that, looked at robustly and in the round, this figure does justice to both parties. Accordingly, we propose to make an Order in favour of the Claimants, here and below, in that total sum – payable within 28 days. The Claimants must draw up a draft Order accordingly.