Blog - Friday 10 July 2015

Prima facie "fraudulent" costs claims not to be struck out without trial

The Court of Appeal has dealt with the question of how Courts should handle with allegations of the fraudulent misclaiming of costs where there is strong prima facie evidence in support of the allegations.

Background

In Alpha Rocks Solicitors v Alade [2015] EWCA Civ 685the Defendant had been a client of the Claimant firm of solicitors in relation to a number of disputes. The Defendant had sought to challenge the costs that had been billed to him. Two of the bills raised by the Claimant had caused the Defendant particular concern.

The first related to a County Court claim brought against the Defendant by his brother (“the Rufus Claim”) in which the costs were said to be £131,514.56. The second related to a claim brought against the Defendant by his wife before the Adjudicator to HM Land Registry (“the Catherine Claim”) in which costs were said to be £43,732.50.

It was the Defendant’s position that the Claimant’s case was based on documents which had been fabricated and that the bills included time which had been deliberately exaggerated. The Defendant had considered that the claims for costs were so tainted by the Claimant’s misconduct that they should be struck out.

The High Court Proceedings

An application to strike-out the claim had been made to a Deputy Judge of the Chancery Division by the Defendant.

Both parties had adduced witness evidence in support of their positions, but the witnesses had not been called or cross examined.

There was strong prima facie evidence that the bills of costs did not accurately reflect the work that had been done. On the basis of this evidence, the Deputy Judge made a number of findings which were tantamount to concluding that the claim had been advanced on the basis of a fraud.

In relation to the Rufus Claim, it was concluded that a claim for 115.5 hours spent preparing trial bundles was false and that this time had not been spent.

In relation to the Catherine Claim, the Deputy Judge found that the bill of costs relating to this work did not exist at the time the Claimant had said it had been served. The Deputy Judge also concluded that the evidence of the Claimant’s own costs draftsman was that this bill had been knowingly inaccurately drawn, although he had not found that the evidence supported a finding that the bill was exaggerated.

In view of the findings made, the Deputy Judge held that the Claimant was guilty of an abuse of process and that the Court had the power to strike out the claim in its entirety to reflect this abuse. The fact that this was a draconian step was acknowledged, but it was concluded that there was a serious risk that a fair trial would be impossible, and that it would be unfair to subject the Defendant to the time and cost involved in a detailed assessment of these bills. The claim was therefore struck out insofar as it related to the Rufus Claim and the Catherine Claim.

The Court of Appeal Proceedings

The Defendant appealed against the strike out on five separate grounds.

The Court acknowledged the power which existed to strike out a claim and concluded that the application to strike out was not, in itself, improper. However, it was emphasised that such a power should be used sparingly. Strike out at an early stage should only be considered where the misconduct is so serious that it would be an affront to the Court to permit the claim to continue and where the claim should be struck out in order to avoid the further waste of resources on proceedings which a Claimant has forfeited the right to have determined.

As the Court is not easily affronted, the emphasis should be on the availability of a fair trial of the issues. Simply finding that a case cannot be satisfactorily proved will not affront the Court. An analogy was drawn with Denton v White and it was reiterated that any remedy should be proportionate to the abuse.

The Court concluded that the Deputy Judge had conducted an inappropriate mini fraud trial in the absence of witnesses. The Deputy Judge had reached conclusions that a solicitor had lied and that other witnesses had been untruthful without hearing their evidence. It was concluded that the Deputy Judge should not have reached conclusions where statements were directly contradictory without hearing the oral evidence of the witnesses.

It was also concluded that the Deputy Judge had failed to give consideration to whether the striking out of the entire bills was proportionate to the abuse which related to a relatively small percentage of the costs claimed.

The Court concluded that, had the Deputy Judge applied the correct test, he would not have been satisfied that the Claimant had been guilty of such serious misconduct that it was an affront to the Court to allow it to continue its claim.

The claim was remitted back to the High Court.

Analysis

This case does not represent a ‘get out of jail free card’ for parties who make fraudulent claims for costs. The Court of Appeal spelled-out the “real and not illusory” risks of costs penalties, proceedings for contempt of Court, criminal prosecution and disciplinary action which could follow a finding that a claim for costs was fraudulent.

However, the seriousness of a finding that any claim was fraudulent means that the Court must properly test the evidence which speaks to such allegations. A summary strike out at an interlocutory hearing in the absence of a trial is not appropriate.

The Court of Appeal gave guidance as to how issues such as this should be resolved. It is necessary to properly define the issues and then subject them to a proper trial after disclosure and on the basis of oral evidence.

By Alex Bagnall - Advocate

 

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