The Jersey Law Review - October 2002

SHORTER ARTICLES AND NOTES

THE ENGLISH DISEASE AND THE JERSEY CURE: MAKE THE STATES PAY!

Paul Matthews

Introduction

The powers of the Jersey courts to determine by whom the costs of legal proceedings should be paid have been part of Jersey law for many years.  The current provisions are contained in the Court of Appeal (Jersey) Law 1961, article 16 (for the Court of Appeal), and in the Civil Proceedings (Jersey) Law 1956, article 2(1)(for the Royal Court).  The former provision reads –

“The costs of and incidental to all proceedings in the Court of Appeal under this part of this Law shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.”

The latter provision reads -

“Subject to the provisions of this part of this Law and to Rules of Court made under the Royal Court (Jersey) Law 1948, the costs of and incidental to all proceedings in the Royal Court shall be in the discretion of the Court, and the Court shall have full power to determine by whom and to what extent the costs are to be paid.”

It will be seen that, in substance, these rules are the same.  The only difference is the opening phrase in the latter case “Subject to the provisions of this part of this Law and to Rules of Court made under” the 1948 Law.  Both provisions are based on the equivalent English provision, which was originally enacted as section 5 of the Supreme Court of Judicature Act 1890, and then as section 50(1) of the Supreme Court of Judicature (Consolidation) Act 1925, but is now contained in Section 51 of the Supreme Court Act 1981.[1]  Indeed, the English provision also includes an opening phrase practically identical to that in the 1956 Law for the Royal Court.

In the context in which these provisions appeared, it seemed for many years that they merely enabled the court to order one party to the proceedings to pay the costs of the other.  But, in a landmark case in 1986, the House of Lords held that the English provision empowered the court generally to order a non-party to the proceedings to pay the costs of a party to them.[2]  But the House made clear that the opening phrase would allow the rule making body to control the exercise of the Court’s discretion.  In addition, their Lordships contemplated that the Court of Appeal would subsequently establish principles upon which that power might be exercised.[3]

There are still no English rules dealing with the exercise of the discretion, but the English courts have had a number of occasions to consider the matter, and to lay down applicable principles.[4]  But until recently the Jersey courts have had no similar opportunity.  Now, however, there are two Jersey cases of non-party costs orders: Drake v Gouveia, decided by the Royal Court on December 1st, 2000, and Channel Islands Knitwear Limited v Hotchkiss, decided by the Court of Appeal on October 22nd, 2001.  Unfortunately, the former decision was not cited in the latter, and we are therefore deprived of the Court of Appeal’s comments on the Royal Court’s approach to its own costs provision.  It is, however, useful to begin by considering the earlier decision.

Drake v Gouveia[5]

Following a traffic collision in 1994, Mr Drake sued Mr Gouveia for damages.  Some five years later, the action not having advanced much in the meantime, Mr Drake died, and Mrs Drake was substituted as plaintiff.  Another law firm took over the conduct of the case.  The Master however struck out the action on the grounds of delay, and Mr Gouveia sought his costs from Mrs Drake.  Mrs Drake asked that her former lawyers be convened and be ordered to pay the costs.  The Master refused to convene them, and ordered Mrs Drake to pay the costs of the action to Mr Gouveia.  Mrs Drake appealed to the Royal Court.

The Royal Court allowed the appeal, holding that the court had jurisdiction under Article 2(1) of the 1956 Law to order the former lawyers – who were non-parties – to pay the costs, and that this was an appropriate case in which to do so.  The lawyers had argued that to order them to pay the costs would prejudice them in the event that any negligence action was brought against them later.  However, the court held that the question of paying these costs was different from the question whether the lawyers had been negligent.  In addition, they did not help their case by declining to make any submissions to the court on the question as to who should pay the costs of the abortive action.  The court emphasised that no negligence action had been instituted against the lawyers, and it might be that none ever would be.  So the court in effect did robust justice in ordering the lawyers to pay the costs, which otherwise their former client would have had to pay, and (it may be) sue to recover in a separate action from the lawyers. 

A number of comments can be made on this decision.  First, the Court referred more than once in its judgment to the “wasted costs” of the action.^[6]  Jersey has no express statutory jurisdiction similar to the “wasted costs” provisions in section 51(6) and (7) of the Supreme Court Act 1981 in England, introduced by the Courts and Legal Services Act 1990.  The Royal Court had decided on one earlier reported occasion^[7] that indeed it did have power to order that costs against a party be paid by that party’s lawyer, but as part of the powers to discipline officers of the Court.  In fact, the Royal Court was probably wrong on the latter point.  In England, there is House of Lords authority for saying that the court’s inherent jurisdiction to make a wasted costs order against a solicitor is quite different from the disciplinary jurisdiction exercised over solicitors.^[8]  In any case it was doubted by the Royal Court in the present case that the Master would have been able to exercise the disciplinary power of the Royal Court, and accordingly that jurisdiction was not pressed.  Instead, the wide power to order the costs to be paid as the court determined was relied on, but essentially to the same end, i.e. to supply a specific jurisdiction to order a party’s lawyers to pay wasted costs. 

This is certainly creative, but it rather skates over the fact that the very reason why the statutory provisions were introduced in England was because it was doubted – even after the House of Lords decision in 1986, referred to above – that the earlier provision (which was almost identical to the Jersey rule) was wide enough to cover the case.^[9]  Certainly the English rule did not cover barristers at all, and the jurisdiction to make solicitors pay costs was inherent, dating from at least the eighteenth century,^[10] and had nothing to do with section 51 of the Supreme Court Act 1981 and its predecessors (which in any event only went back to 1890).^[11]  Whether this difference in treatment between the two branches of the legal profession was because solicitors are officers of the Court and barristers were not, or on the other hand because barristers provided advocacy services (and were then immune from liability in so providing)^[12] and solicitors did not, is not clear.  Advocates in Jersey, of course, fall into both categories, which does not make it easy to transplant the English experience to this jurisdiction.

Second, the Royal Court in Drake insisted that the question of who should pay the costs was different from the question of whether anyone had been negligent.  At a formal level that is true.  But if (as the court thought) this was being used as a kind of “wasted costs” jurisdiction, it should be noted that the equivalent English (inherent) jurisdiction to order solicitors to pay “wasted costs” was until recently only exercised where it could be shown that the solicitor was in breach of his duty to the court.  Mere mistake was not enough: misconduct, default or serious negligence was needed.^[13]  It is difficult to see how a non-negligent solicitor could ever be ordered to pay “wasted costs” under that jurisdiction.  (The position in England is now different, first because of a rule change, and now because of the new statutory provisions.)

Thirdly, even if, strictly speaking, the question of “Who pays the costs?” is not the same as “Were the lawyers negligent?” it may be thought rather optimistic for the Royal Court simply to assert that “We cannot see how any unfair prejudice will be caused to [the lawyers] by resolving that first question [i.e. who pays the costs] now”.^[14]  Given that the original basis for making a wasted costs order against a solicitor in England was the decision by the court that the solicitor had been in serious breach of his duty to the court, and had committed either deliberate misconduct or serious negligence, it is hard to see how  such a decision would not prejudice the lawyers in any subsequent litigation.  And it seems certain that, under the European Court of Human Rights jurisprudence, Article 6(1) (fair determination of civil rights and obligations) would have been engaged.^[15]  Perhaps all that the Royal Court meant to do was simply to accept the fact, and to assert that such a summary method of determining the rights and wrongs of the situation, giving an appropriate opportunity to the lawyers to participate in the proceedings (as indeed was done), was simply the right way to deal with that matter, even if (like any judicial decision on breaches of duty) it had a potentially prejudicial effect in relation to any further proceedings.  In other words, there might be prejudice, but it would not be unfair prejudice.

Channel Islands Knitwear v Hotchkiss[16]

The Court of Appeal case, however, raises other concerns.  It arose out of a claim by Miss Hotchkiss for damages for personal injuries allegedly suffered by her at work.  The claim was that the breaches of duty by her employer had caused the medical condition from which she now suffered.  The Royal Court held however that the breaches of duty by the employer had merely exacerbated an existing condition.  Curiously, however, it also refused the plaintiff leave to amend her pleading to put forward this alternative case.  On that basis, the plaintiff should have failed.  However, and totally inexplicably, it then gave judgment for the plaintiff on the unpleaded basis of exacerbation and, more inexplicably still (if such a thing can be imagined), then awarded damages to her on the basis of full causation.  The Court of Appeal, not surprisingly, allowed the employer’s appeal by cutting the damages awarded to the plaintiff to the exacerbation level.^[17]  They did this on the basis that the Royal Court should have allowed the plaintiff to amend her case by pleading the alternative of exacerbation, and then should have found for her on that basis. 

The employer thereupon argued that it should have the costs of the appeal, made necessary by the serious errors of the court at first instance.  This application was rejected, but that left the question of Miss Hotchkiss’ costs of the appeal, to which she also should not have been put.  The Court of Appeal indicated in a separate costs judgment^[18] that it was minded to order that Miss Hotchkiss’ costs of the appeal should be paid out of public funds.  (It does not appear to have considered ordering the employer to pay them.)  Accordingly, the Attorney General was permitted to address the Court on the question at a subsequent hearing.  Ultimately, the Court of Appeal held, by a majority, that article 16 of the 1961 Law was wide enough to enable that Court to order that another person should pay the costs of Miss Hotchkiss, but not that they should be paid out of “public funds,” since that did not identify the person concerned.  Thus (said the majority) there was jurisdiction to order the States to pay, but this jurisdiction was only to be exercised (said the same majority) in the most exceptional cases, where there had been serious injustice in the lower court, causing severe financial hardship to the litigant seeking the order.  By a different majority, however, the Court of Appeal held that neither condition was satisfied here, and ultimately no order was made.

That bare summary, however, conceals a wealth of differing reasoning on the part of the three appellate judges, which in turn makes it difficult to assess the significance of the decision for the future.  Here we briefly expand on some of those differences.  Smith JA held that article 16 was wide enough to permit an order to be made against the States for Miss Hotchkiss’ costs and that on the facts the Court should do so.  Southwell JA  agreed on the width of article 16, but held on the facts that he was not satisfied that Miss Hotchkiss had suffered serious injustice through the Royal Court’s errors, or that severe financial hardship had been caused to her, because she had recovered significant damages and interest in any event, out of which she could pay the costs.  Carey JA held that article 16 did not extend to ordering the States to pay, though perhaps it ought to do so, but that in any event the injustice was not sufficiently glaring to justify the States paying.  The only point on which all three members of the Court unequivocally agreed was that it would be quite wrong to make any order against the individual members of the Royal Court, for public policy reasons, i.e. that they should be totally free to make decisions without any fear that an appellant might seek an order for costs against the judge.^[19]

Another point of difference was the majority (Smith, Southwell JJA) refusing to follow another English House of Lords’ case dealing with costs in criminal cases,^[20] on the basis that it was clearly distinguishable, first in dealing with the Crown (rather than, as here, the States), and with there being a different legislative history in England compared with Jersey, whilst the third judge (Carey JA) would have followed it, on the basis that the supposed points of distinction relied on by the other judges were irrelevant.

We should also notice the view of Southwell JA that Miss Hotchkiss could not be said to have suffered severe financial hardship “because she had recovered a substantial sum in damages and interest in accordance with the earlier judgment of this court”. There was no suggestion that this view was based on Miss Hotchkiss having any other resources.  Let us test this view.  First, suppose that Miss Hotchkiss, instead of obtaining substantial damages, had obtained an injunction to restrain some supposed infringement of her rights.  But suppose also that the judge went too far, and, through the kind of errors seen in this case, the defendant had successfully appealed part of the judgment, reducing the extent of the order.  If Miss Hotchkiss had no other assets, the costs she had incurred in resisting the appeal would cause her severe financial hardship.  So it is only the substantial damages which, on Southwell JA’s view, make the difference.  But Miss Hotchkiss received those in compensation for the personal injuries she suffered. 

Let us therefore vary the facts slightly.  If Miss Hotchkiss had through her employer’s negligence been injured such that she lost a leg, and received damages for the lost leg, she would be no better off than she was before.  She would have the money in the bank, it is true, but she would also be one leg down.  That money in the bank would represent the leg which she used to have.  So, test it this way.  We would not refuse to recognise Miss Hotchkiss as suffering severe financial hardship in the injunction example just given merely because, being sound in wind and limb, she could gain a lot of money by losing a leg through the negligence of another and recovering substantial damages for it.  Her sound leg is not a financial resource. Or, to put it even more starkly, we would not say that Miss Hotchkiss had valuable financial resources in having two healthy kidneys, one of which she could sell without impairing her health.  It is respectfully submitted that, if the test is to be severe financial hardship (which, for the reasons given below is open to question) we must exclude from the calculation any money damages obtained for loss to non-pecuniary interests of the plaintiff.

Moreover, even if that is wrong, and we should include such damages in assessing the resources of the payee, they must surely be included only once actually paid.  At this inchoate stage the order may turn out to be worthless.  Yet the costs question must be decided now.

But all this is a sideshow.  The real problem with this case is that whilst it establishes – just – that the statutory jurisdiction to order costs is wide enough to order the States of Jersey - or any one else, for that matter – to pay the costs of a party to litigation, it ignores the need to establish some relevant basis for making the States (or that other person) liable for something with which it may have had nothing to do.  If a non-party funds or assists or directs litigation, he or she can be said to have done something, which may justify an order.  It was on this basis that the Guernsey Court of Appeal in 1998 ordered a non party to pay the costs of the appeal.^[21]  If a lawyer conducts a case badly, he or she has done something to justify the order, as in Drake v Gouveia.  But here the argument is that the States can be liable even though it has done nothing at all (not even appointed the judge that caused all the bother).  Instead, the only criteria are stated to be criteria outside the control of the potential payer, that is whether the position of the payee justifies it.  And if the court can make an order against The States, although it does nothing, then according to the majority of the Court of Appeal the statute must allow the court to make an order against anyone else who also does nothing.  So why not pick a millionaire at random from the phone book (after all, Jersey has a few)?

The answer is that discretions of this width must be exercised on some rational, judicial basis.  The fact that the payer has lots of money – and will not miss it – is plainly not enough.  But on what other basis is the States to be made liable?  It had nothing to do with the court or its members being appointed, it was not involved in any way in – nor did it benefit from – the litigation, and it had next to no interest in the result (we could perhaps find something if we really looked for it in future tax liability or in social security, but that is about it).  The discretion given to the Court is surely there to respond to a deep-seated feeling that payment of costs should have something to do with responsibility and not with mere visibility.  There was surely more basis to order the employer to pay Miss Hotchkiss’ costs than there was to order the States to do so.  With great respect, it seems that the majority of the Court of Appeal have succumbed to the disease noted by Lord Bridge to infect some of the English judiciary, i.e. the delusion -

“that it is just for a successful litigant, and perhaps a fortiori a successful appellant, to be able to recover his costs from someone.  But unfortunately it is not always so”.^[22]

Quite.

The English cases

Finally, it is worth mentioning that the English cases decided since 1986 on the equivalent English provisions have laid down the rule that a non-party should only be ordered to pay the costs where the case was sufficiently exceptional to warrant it.  In one case the test was expressed as one of closeness of connection of the non-party to the original proceedings.^[23]  Other factors that have been identified include the management or financing of an action,^[24] and wanton and officious intermeddling with the disputes of others.^[25]  None of these applies to The States in relation to the case of Miss Hotchkiss and her employer.  None of them refers simply to the financial position of the intended payee.  Indeed, in the original House of Lords case itself, Lord Goff himself said this:

“I cannot imagine any case arising in which some order for costs is made, in the exercise of the court’s discretion, against some person who has no connection with the proceedings in question.”^[26]

Whilst these wise words were heeded by the Royal Court in Drake, we may regret that they seem to have been ignored by the Court of Appeal in Channel Islands Knitwear.  It is accordingly to be hoped that, before too long, the Court of Appeal will have the opportunity of reconsidering its decision.

Paul Matthews is a solicitor of the Supreme Court of England and Wales and a consultant with the firm Withers, 16, Old Bailey, London, EC4M 7EG.

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