Law Society avoids indemnity costs order

The Competition Appeal Tribunal (CAT) has rejected a bid for indemnity costs against the Law Society by a successful claimant that was trying to escape the confines of its approved budget.

Last month, the CAT ruled that the society abused its dominant position by requiring more than 3,000 law firms to buy its own anti-money laundering and financial crime training in order to maintain their Conveyancing Quality Scheme (CQS) accreditation. The claimant was a training company, Socrates Training, which said it had lost business as a result of the society’s actions.

In the first case to use the CAT’s fast-track procedure, last June Mr Justice Roth, president of the tribunal, capped the Law Society’s recoverable costs at £350,000 after finding that its proposed budget of £637,000 was disproportionate. Socrates put forward a budget of £220,000, which the judge capped at £200,000. The caps were subsequently increased to £402,500 and £230,000 respectively.

In the costs ruling that followed the main judgment, Socrates submitted that its costs should be assessed on the indemnity basis, and therefore not subject to the cap, and, further, that it should be entitled to additional costs because of disclosure of particular documents by the Law Society after trial, which should have been disclosed before trial.

Roth J said: “It seems to us that the clear implication of a costs cap is that those costs are the maximum recoverable on the standard basis. If the conduct of a party, however outrageous during trial, giving rise to substantially increased costs, could not be reflected in an order for indemnity costs then the operation of a costs cap could work an injustice.

“Accordingly, we think that if a party should be entitled to indemnity costs, then the limit in the costs cap should not, in those unusual circumstances, operate as a constraint.

“Secondly, we consider that if there should be a material change in circumstances which adds significantly to the overall costs reasonably and properly incurred by the receiving party after the time at which the costs cap was imposed, then the tribunal would be justified in amending the limit of the costs cap to reflect the effect of that change.

“Subject to those considerations, it must be emphasised that the costs cap is set as part of the fast-track procedure for a purpose: that is, in order that both sides should know the extent of financial risk and exposure to which they are subject.”

The existence of the undisclosed documents emerged during the hearing as a result of questioning by one of the tribunal members, and the Law Society submitted them after the trial. The tribunal said this had prevented the claimant from asking a key Law Society witness, former president Jonathan Smithers, about them.

Roth J said the explanation for the failure put forward by the society was “not merely regrettable… but deeply unimpressive”.

But he said it was not so serious as to take the case out of the norm and justify any order of indemnity costs. “It is a very extreme step to displace the normal requirement that the recoverable costs should be limited to what is proportionate, and this is just one particular, limited incident in the course of proceedings that, although under the fast-track procedure, nonetheless involved disclosure of a substantial number of documents.

“Aside from any question of indemnity costs, we have considered whether this particular matter should justify an additional award of costs beyond the cap to cover the costs incurred post-trial. If it had involved substantial work that would not otherwise have been incurred, there might be a basis for finding that there had been such a material change in the circumstances that that exceptional step should be taken.

“However, it seems to us that if the business case had been disclosed when it should have been, the work that was done by [Socrates managing director, Bernard George, himself a solicitor] after trial would have been done in the preparation for trial. It is very much part of the trial work that was envisaged when the costs cap was imposed and revised. We do not think this is something that has caused such a serious increase in costs that it materially changes the position to a degree that the tribunal would be justified in allowing additional costs over and above the amount of the cap.”

In the main judgment, the tribunal criticised the figures provided by the society to claim that CQS was loss-making overall and subsidised by practising certificate income, which it emerged were “materially understated”.

The tribunal said: “We are bound to record that it is disappointing, to say the least, that the Law Society produced a schedule of figures in purported compliance with the tribunal’s orders which was wholly unsatisfactory.”

But in the costs judgment, Roth J described this as “sloppy, rather than wilfully misleading, and certainly does not justify taking the case out of the norm so as to entitle Socrates to indemnity costs”.

The tribunal ordered that costs were to be on the standard basis and subject to the cap of £230,000, to be assessed if not agreed.

 

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Costs News
Published date
15 Jun 2017

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