Legal Profession


Costs - professional conduct - Solicitors Disciplinary Tribunal - suspension

Paul Baxendale-Walker v Law Society: CA (Civ Div) (Sir Igor Judge (President, Queen's Bench), Lords Justice Laws, Scott Baker): 15 March 2007

The appellant solicitor (B) appealed against a ruling ([2006] EWHC 643, [2006] 3 All ER 675) upholding a decision of the Solicitors Disciplinary Tribunal to suspend him from practice for three years, and against an order requiring him to pay 60% of the costs incurred by the respondent Law Society in the disciplinary proceedings.



The Law Society had complained that B's conduct had been 'unbefitting a solicitor' in two respects. First, it was alleged that he had given evidence in High Court proceedings which the judge in those proceedings had found to be 'manifestly untrue'. Second, it was alleged that he had provided a reference to a bank in circumstances that he knew or ought to have known were improper and unprofessional, or both. The tribunal found that the first allegation had not been established but upheld the second, stating that it 'was in no doubt that B gave a false reference, indicating that the person he referred to was a person of good standing when he neither knew nor had any opportunity to know whether that was accurate'. The tribunal suspended B from practice for three years. The tribunal ordered the Law Society to pay 30% of B's costs, on the basis that he had successfully defended the first allegation.



On appeal, the Divisional Court upheld the three-year suspension, but allowed the Law Society's cross-appeal on costs, requiring B to pay 60% of the Law Society's costs. B argued that the decision to suspend him for three years was plainly excessive, and that the court had not been justified in interfering with the tribunal's order for costs.



Held, the tribunal had been justified in imposing the penalty that it had. The reference had been sought by a bank, in the context of money-laundering regulations, which, although much less Draconian than they were now, were nevertheless directed at discouraging profitable criminal conduct.



B had known that the reference was critical to the proper discharge of the bank's duties, and had fully appreciated that the bank would naturally rely on the accuracy of any reference that he provided, just because he was a solicitor. Moreover, his reprehensible behaviour had occurred in the context of his lamentable absence of candour, and unsatisfactory evidence in the High Court proceedings. The tribunal had been fully entitled to conclude that B's conduct in relation to the reference represented 'extraordinary' recklessness, and that the consequent sanction should fully vindicate the profession, Bolton v Law Society [1994] 1 WLR 512 considered.



In respect of costs, the exercise of its regulatory function placed the Law Society in a wholly different position from that of a party to ordinary civil litigation. Unless a complaint was improperly brought or, for example, had proceeded as a 'shambles from start to finish', when the Law Society was discharging its responsibilities as a regulator of the profession, an order for costs should not ordinarily be made against it on the basis that costs followed the event.



The 'event' was simply one factor for consideration. It was not a starting point, and there was no assumption that an order for costs in favour of a solicitor who had successfully defeated an allegation of professional misconduct would automatically follow. One crucial feature that should inform the tribunal's costs decision was that the proceedings were brought by the Law Society in the exercise of its regulatory responsibility, in the public interest, and in the maintenance of proper professional standards. For the Law Society to be exposed to the risk of an adverse costs order simply because properly brought proceedings were unsuccessful, might have a chilling effect on the exercise of its regulatory obligations, to the public disadvantage, Bradford MDC v Booth (2000) 164 JP 485 and R (on the application of Gorlov) v Institute of Chartered Accountants of England and Wales [2001] EWHC Admin 220, [2001] ACD 73 applied.



The tribunal had misdirected itself when it ordered the Law Society to pay part of B's costs, on the grounds that the first allegation against him had failed, and that costs should follow the event. It would be wrong to interfere with the order for costs made by the Divisional Court.



Appeal dismissed



Roger Stewart QC (instructed by Irwin Mitchell) for the appellant; Timothy Dutton QC, Chloe Carpenter (instructed by Russell-Cooke) for the respondent.





Company Law



Breach of fiduciary duty - directors - duty to account - resignation - position of conflict after resignation

Foster Bryant Surveying Ltd v (1) Bryant (2) Savernake Property Consultants Ltd: CA (Civ Div) (Lords Justice Buxton, Rix, Moses): 13 March 2007
The appellant company (S) appealed against the decision that the respondent director (B) had not been in breach of his fiduciary duties before his resignation had taken effect.



S had been set up by a chartered surveyor (F), who was the majority shareholder. S had an agreement to carry out all the surveying and project management work for its largest client (C). F persuaded B, another chartered surveyor, to join him as a director and shareholder of S. B's wife also worked for S. Two years later, F had lost confidence in B and made B's wife redundant. As a result, B resigned his directorship. Before B's resignation took effect, C requested B to work for it under a retainer arrangement. C offered to share its work between B and S, but F declined. S brought a claim against B.



The judge found that B had been excluded from his role as director after his resignation, that there had been no breach of fiduciary duty by B and that, even if B had been in breach of fiduciary duty, the company had suffered no loss as a result. S submitted that the judge had been wrong to find that B had been excluded from discharging his role as a director of the company as from his resignation; that he had been wrong not to recognise that what B did during his notice period between resignation and departure was a breach of fiduciary duty; and that once that breach was established, then a duty to account was inevitable, and did not depend on the need to establish any loss.



Held, this case was not one in which a director had used corporate property, had resigned to make use of a corporate opportunity, had solicited corporate business in competition with the company, or had acted in bad faith, deceitfully or clandestinely. It was, however, at any rate arguably, a case where, by agreeing, while still a director, to work for C after he ceased to be a director, B was still obtaining for himself a business opportunity, possibly even existing business, of the company, or putting himself in a position of conflict with the company, before he was free to do so. The mere fact that a fiduciary had not sought to place himself in a position where his interest conflicted with his duty did not exonerate him from the obligation to perform that duty, In Plus Group Ltd v Pyke [2002] 2 BCLC 201 considered.



It was difficult to encapsulate accurately the circumstances in which a retiring director would or would not be found to have breached his fiduciary duty. The problem was highly fact sensitive. The decided cases showed that, in the context of retiring directors, the courts had adopted pragmatic solutions based on a common-sense and merits-based approach, Island Export Finance v Umunna [1986] BCLC 460, Balston Ltd v Headline Filters Ltd [1990] FSR 385, and Framlington Group Plc v Anderson [1995] 1 BCLC 475 considered.



B's resignation had had no ulterior purpose. The judge's finding that B had been excluded from his role as a director was not wrong. The judge had been entitled to conclude that there had been no breach of B's fiduciary duties. All that B did was to agree to be retained by C after his resignation became effective. He did not seek employment, or a retainer, or any business from C. It was offered to him. In that situation, where his resignation had already been tendered and was irrevocable, his acceptance of C's proposal was no different from at worst setting in train preparations for potential competition after his resignation had become fully effective.



If B or his company had profited from any breach by him of his fiduciary duties, then they would have been liable to account, even if S had itself suffered no loss, but there was no finding of any profit connected with any assumed breach, CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 considered.



Appeal dismissed



Richard Lord QC (instructed by Blandy & Blandy) for the appellant; Charles Douthwaite (instructed by Awdry Bailey Douglas) for the respondents.





Civil Procedure



Injunctions - publication - standard of proof - discharge of an injunction preventing publication of legal argument

Attorney-General v British Broadcasting Corporation: CA (Civ Div) (Sir Anthony Clarke (Master of the Rolls), Lords Justice Dyson, Thomas): 12 March 2007
The appellant broadcasting company (BBC) appealed against a decision refusing to discharge an injunction made in favour of the respondent Attorney-General.



An injunction had been granted, preventing the BBC from broadcasting the contents of a document in which it was alleged by the director of government relations that she had been asked by a Labour party peer to lie for him in the 'cash for honours' investigation. The injunction also prevented publication of any of the legal arguments put forward by the police and the Attorney-General. The Attorney-General subsequently agreed to vary the injunction, so that it only applied to the legal argument, and an order was made by consent to that effect.



The BBC applied for the injunction to be discharged. The judge treated the matter as an application by the Attorney-General to vary the injunction under rule 39.2(3)(c) and (g) of the Civil Procedure Rules, and held that the test that she had to apply was different to that applied by the judge making the wider injunction, who had had to be satisfied to a criminal standard whether publication would infringe the Contempt of Court Act 1981. The judge refused the application, and held that it was in the interests of justice for the legal argument, which went further than the subject matter of the document, to remain private. The BBC contended that the judge had erred in principle in holding that the test adopted by the judge in the wider injunction was significantly higher than under rule 39.2(3).



Held, it was possible that orders under rule 39.2 did not necessitate the criminal standard of proof but that would depend on the facts of the case, and it was unnecessary for that matter to be resolved in these proceedings. Where the Attorney-General sought to maintain part of the injunction, the same standard of proof applied as when he sought the wider injunction. The judge's conclusions could not be supported as she did not apply the correct test.



If, contrary to that view, she had applied the correct test, her decision on the facts was plainly wrong. The judge had failed to pay sufficient regard to the facts. Once the injunction that related to the document itself was discharged, there was no longer force in the Attorney-General's argument that without the injunction there was a substantial risk that the course of justice would be impeded or prejudiced.



Obiter, where an urgent application for interlocutory relief was made, the oral facts and evidence put forward should subsequently be put into statements and contain a statement of truth so there was no confusion at any later stage.



Appeal allowed



David Pannick QC, Manuel Barca (instructed by the in-house solicitor) for the appellant; P Havers QC, J Hyams (instructed by the Treasury solicitor) for the respondent.





Employment



Implementation - maternity leave - pregnancy discrimination - sexual harassment - statutory interpretation - vicarious liability

Equal Opportunities Commission v Secretary of State for Trade & Industry: QBD (Admin) (Mr Justice Burton): 12 March 2007
The claimant commission applied for judicial review of the Employment Equality (Sex Discrimination) Regulations 2005 introduced by the defendant secretary of state.



The regulations had made amendments to the Sex Discrimination Act 1975 to implement Directive 2002/73. The commission argued that the amendments did not properly implement the directive because the new section 4A(1) of the Act impermissibly imported causation into the concept of harassment by the words 'on the grounds of her sex'; that section 4A(1) wrongly required that the unwanted conduct had to be by reason of, or on the ground of, the complainant's sex; that the new section 4A(2) inappropriately imported an objective test into the definition of harassment; that they had failed to introduce liability on employers for discrimination by third parties; that they had impermissibly introduced the requirement for a comparator for the purpose of establishing discrimination on grounds of pregnancy; that, as it was not intended that there would still be a remedy for a woman complaining of discrimination by reference to pregnancy or maternity leave under section 1 in parallel with the new right under section 3A, the new section would offend against the principle of regression because it would reduce the protection previously available; that the new section 6A(7) excluded a claim for discrimination during compulsory maternity leave that the complainant had been deprived of a discretionary bonus; and that sections 6A(3) and 6A(4) placed a substantial limit on discrimination claims that could be made in respect of the additional maternity leave period.



Held, it was the court's duty to construe statutes and regulations passed by member states so as to render them compliant with a relevant directive. However, in this case, it was not appropriate to do so because of the degree of reading down or transposition that would be required to render the provisions compliant with the directive, or it was not possible to do so because such extreme application of the requirement to interpret national legislation in accordance with directives would not be effective or sensible because of the need for clarity, certainty and comprehensibility. Section 4A(1)(a) should be recast so as to eliminate the issue of causation, R (on the application of Amicus) v Secretary of State for Trade and Industry [2004] IRLR 430 considered.



There could be harassment of a woman if the effect of denigratory conduct, directed towards another party, not necessarily a woman, related to sex, but not of a sexual nature, had the effect of creating a humiliating or offensive environment for her. Section 4A(1) would have to be read down to produce that result and accordingly should be amended.



Under the law of discrimination prior to the introduction of section 4A, the test was properly to be regarded as objective, Driskel v Peninsula Business Services Ltd [2000] IRLR 151 applied. Therefore, no issue of regression arose.



So long as section 4A was framed in terms of unwanted conduct engaged in 'on the ground of her sex' by the employer, it was difficult, if not impossible, to see how an employer could be held liable for knowing failure to take steps to prevent harassment by third parties that created an offensive working environment for employees. Section 4A(1) should be recast to allow for such a claim.



Section 3A should be recast so as to eliminate the statutory requirement for a comparator who was not pregnant or who was not on maternity leave.



Section 6A should be recast so as to provide that discrimination claims that had previously been available should not be excluded, Lewin v Denda (C-333/97) [2000] All ER (EC) 261, and Land Brandenburg v Sass (C-284/02) [2004] ECR I-11143 applied.



Application granted.



Dinah Rose QC, Karon Monaghan (instructed by the in-house solicitor) for the claimant; David Pannick QC, Gerard Clarke (instructed by the Treasury Solicitor) for the defendant.





Costs



Costs-capping orders - costs estimates - personal injury claims - road traffic accidents - court's observations on ways to limit costs

Brenda Willis v Neil Alick Nicolson (by his mother and litigation friend Betty Nicolson): CA (Civ Div) (Lords Justice Buxton, Smith, Wilson): 13 March 2007
The appellant (W) appealed against a decision of a costs judge refusing to make a costs-capping order, but ordering that costs incurred from a certain date until the final determination of the claim should not exceed the estimate provided by the respondent (N).



N had brought an action for damages in relation to personal injury sustained in a road traffic accident. W had been found to be liable, though there was a finding of contributory negligence on N's part. A hearing of the issues of quantum was pending. On three occasions, N had provided estimates of costs. The most recent estimate for the future costs of the action was £459,496, which would bring the total costs for the whole action to £959,342. The judge expressed his unease at the extremely high level of costs incurred to date, but did not make a costs-capping order, instead ordering that the future costs of the action should not exceed £459,496. W submitted that the judge should either have ordered a lower limit than the estimate of £459,496 which N had provided, or should have remitted the case to a costs judge for him to set such a cap.



Held, there were no grounds on which the judge's decision could be disturbed. The judge had stated that one of the reasons for his refusal to make a costs-capping order was his concern about the time and costs that would be involved in having a costs judge determine what the cap should be. At the time, three out of the eight months for preparing the case had already expired, which would make any intervention by the judge or a costs judge difficult to apply in practice. The difficulty was much greater when, at an even later date, the instant court was asked to adjust N's costs, and adjust N's preparation of the case close to trial.



The court made general observations about costs-capping orders. There had been some observations by first instance judges that orders should only be made in limited circumstances, Smart v East Cheshire NHS Trust [2003] EWHC 2806, [2004]

1 Costs LR 124 considered. By contrast, there had been various indications in this court encouraging the use of costs capping, Solutia UK Ltd v Griffiths [2002] PIQR 176, Leigh v Michelin Tyre Plc [2003] EWCA Civ 1766, [2004] 1 WLR 846, and King v Telegraph Group Ltd [2004] EWCA Civ 613, [2005]

1 WLR 2282 considered.



The difference of opinion was in need of resolution. The high costs of civil litigation in England and Wales were a matter of concern not merely to the parties in a particular case, but for the litigation system as a whole. One element in the high cost of litigation was undoubtedly the expectation as to annual income of the professionals who conducted it. The costs system could not do anything about that, because it assessed the proper charge for work on the basis of the market rates charged by professionals.



It had been hoped, when the Civil Procedure Rules came into force, that that practice might change. However, no change had occurred. The reasonable amount per hour of a professional's time continued to be determined by the market. Therefore, the focus of costs limitation had to be on the way in which the professionals intended to conduct the case, because the amount recoverable on assessment was fixed, as to rates, by the standard amounts allowed. To limit the way in which professionals intended to conduct a case was a delicate matter. The court would have to be careful to select the right moment in the litigation process for the consideration of a costs cap.



There remained serious doubts as to whether further guidance on costs capping, if it were to be given at all, should emanate from a constitution of the court rather than being formulated by the Civil Procedure Rule Committee, after extensive consultation. It would be for the committee to decide whether to take up the issues that had been raised.



Appeal dismissed



Jeremy Morgan QC (instructed by Berrymans Lace Mawer) for the appellant; Nicholas Bacon (instructed by Harris Cartier) for the respondent.