Claim No: HQ 05X02523
Neutral Citation Number: [2008] EWHC 90096 (Costs) 
IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE

Clifford’s Inn, Fetter Lane
London, EC4A 1DQ

Date:  14 January 2008 

Before :

MASTER WRIGHT, COSTS JUDGE
- - - - - - - - - - - - - - - - - - - - -
Between :

	LEGAL SERVICES COMMISSION	Claimant/
Respondent	
	- and -		
	FRANCIS JOEL AARONSON
LINDA FRANCES AARONSON
AARONSON & CO SOLICITORS (A FIRM)	
Defendants/
Appellants	

- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - -

Mr Mukhtiar S Otwal and Mr Silas Catling (instructed by the Legal Services Commission) for the Claimant/Respondent
Miss Alison Trent (instructed by Alison Trent & Co) for the Defendants/Appellants

Hearing dates: 27 to 30 November 2007

- - - - - - - - - - - - - - - - - - - - -
Judgment

Master Wright:
 
THE BACKGROUND
1.	On the morning of 29 November 2007 I gave my judgment on the preliminary issue of proportionality.    I found that, having regard to all the factors to which CPR 44.5(3) refers and having heard the submissions of the parties, the costs claimed in Parts 1, 2 and 3 of the bill of £364,953.80 appeared to me to be disproportionate.   Accordingly in this detailed assessment the Court will want to be satisfied that in relation to each item the work was necessary and, if necessary, the cost of the item is reasonable. 
2.	Part 1 of the bill consists of the costs claimed by Cripps Harries Hall while they were acting for the Defendants/Appellants.    Part 2 consists of the costs claimed by the Defendants/Appellants while they were representing themselves and Part 3 consists of the costs claimed by Alison Trent & Co while they were acting for the Defendants/Appellants.
3.	The Order which is the authority under which the bill is to be assessed is the Order of Jack J dated 26 May 2006 which says: 
“Upon hearing Counsel for the Claimant and the Defendants and reading the written evidence filed by the parties. 
IT IS ORDERED that: 
1.		The Defendants do have permission to appeal from the Order of Deputy Master Hoffman of 14 February 2006 dismissing the Defendants’ application that the Claimant’s claim herein be stayed. 
2.		The Defendants’ appeal be allowed and pursuant to Section 9 of the Arbitration Act 1996 all further proceedings in this claim be stayed until further order. 
3.		The Claimant do pay the Defendants’ costs of this claim including the costs of the application such costs to be the subject of immediate detailed assessment if not agreed. 
4.		The Claimant do pay to the Defendants the sum of £45,000 on account of costs by the 9th day of June 2006.”
4.	The Claimant’s claim is dated 26 August 2005.   So far as is relevant it says: 
“This is a Part 8 claim and Part 8 applies. 
The Claimant considers this claim is suitable for the Part 8 procedure. 
The facts are set out in the Witness Evidence of Elizabeth Long with exhibit attached in the Red Ring Binder.
Details of Claim.
The Claimant seeks the following relief: 
1.		An Order pursuant to Regulation 3 of the Legal Services Commission (Disclosure of Information) Regulations 2000 (as amended) and/or Clause 3.8 and Clause 3.15 of the Standard Terms of General Civil Contract, that the Defendants provide to the Claimant or its agents at such time and place as the court may determine, all publicly funded client files in their possession, custody or power, which are open, or are closed and have not as yet been billed. 
2.		Any further or other orders as the Court thinks fit. 
3.		That the Defendants pay the costs of and occasioned by this claim including the costs of any interim proceedings.”
5.	The Witness Statement of Elizabeth Long is dated 26 August 2005.    The exhibit to that Witness Statement comprises a chronology of events between September 2003 and August 2005 and numerous copy documents listed in its Index beginning with the Minutes of the Legal Services Commission’s Contract Review Body dated 17 December 2003 and ending with Cripps Harries Hall’s letter to the Legal Services Commission dated 19 August 2005 and copies of the General Civil Contract (Solicitors) Standard Terms 2003 and the Legal Services Commission (Disclosure of Information) Regulations 2000 (as amended). 
6.	The Defendants’ Application Notice was issued on 12 October 2005 although I understand it had been prepared and a copy of it served in September 2005.  So far as is relevant it says:
“Part A
We Aaronson & Co Solicitors on behalf of the defendant intend to apply for an order (a draft of which is attached) that the Claimant’s claim herein be stayed pursuant to Section 9 of the Arbitration Act 1996 because the claim has been brought in breach of an arbitration agreement.    The Defendants have not taken any substantive steps in response to the claim.
Part B 
We wish to rely on: 
the attached witness statement.”
7.	The draft Order attached to the Application says: 
“IT IS ORDERED that: 
1.		The Claimant’s claim be stayed until further Order pursuant to Section 9 of the Arbitration Act 1996. 
2.		The Defendant must pay the Claimant’s costs of the application.”
8.	The witness statement attached to the Application is made by the First Defendant Francis Joel Aaronson and is dated 26 September 2005.   Exhibited to the statement is a bundle of copy documents which are referred to in the statement. 
9.	In paragraph 3 of his Witness Statement Mr Aaronson says: 
“This is an application to stay the present proceedings brought pursuant to Section 9 of the Arbitration Act 1996.  The Defendants have not taken any substantive step in this claim.   Our only step to date has been to challenge jurisdiction.    I make this application because I believe that the present claim relates to matters which either are already, or under the contract between Aaronson & Co and the LSC ought to be, referred to arbitration.”
10.	In paragraphs 5 to 10 of his Witness Statement, Mr Aaronson explains why he believed that the attempt by the LSC to ask the Court to order delivery up of files on the basis of a contractual provision is in breach of the arbitration agreement contained in the General Civil Contract and why for that reason alone that the claim should be stayed. 
11.	He explains that the LSC’s claim relates to existing arbitrations and that the question whether Aaronson & Co is indebted to the LSC and the validity of the LSC’s attempt to show that there is such a debt and the value of Aaronson & Co’s unbilled files are all issues in the arbitrations.    He says that if an application could properly be made for delivery up of files, that was an application which should be made in the arbitration and not by way of a claim to the Court.   He says in paragraph 12: 
“Indeed it seems to me, for reasons which I shall explain, that those files will in any event be in evidence in the arbitrations.”
12.	Mr Aaronson goes on to explain that there were three arbitrations on foot and he explains their subject matter.   With regard to the LSC’s reliance on the Disclosure of Information Regulations he says: 
“I note that the LSC’s claim is also brought under certain Regulations.  Since, for the reasons I have given, I believe that this claim overlaps with the issues in the arbitration, I do not believe that reliance on the Regulations adds anything to the claim.   In any event, the only reason why there is a relationship between the LSC and Aaronson & Co is the contract between the parties.”
13.	Mr Aaronson concludes his Witness Statement as follows:
“48.	I believe that the LSC is not entitled to request delivery up of all unbilled files and that its request is in breach of contract and its statutory functions and duties.   Aaronson & Co has sought internal review of the request to gain access and audit these files.  That is a dispute which, unless otherwise resolved, should go to arbitration in accordance with the arbitration agreement between the parties.    I believe that it is a breach of the arbitration agreement to bring a claim in Court.
49.	Apart from the proposed arbitration resulting from the LSC’s attempt, in breach of contract, to gain access to unbilled files, there are other arbitration proceedings on foot between Aaronson & Co and the LSC.   The issues in those arbitrations concern the allegation that Aaronson & Co is indebted to the LSC and the question what value of unbilled files is outstanding.    Since all these issues are before the Arbitrator, I believe that it is a breach of the arbitration agreement to bring this claim.”
14.	On 3 October 2005 the LSC wrote to inform the Court that in its action it would rely solely on the Regulations and not on the Standard Terms of Contract.   In his judgment given on 24 May 2006 Jack J commented: 
“That has remained its position.   The intention behind this is no doubt to weaken the firm’s case that the claim for delivery up should be stayed.”
15.	The Defendant’s application to stay the claim was heard by Deputy Master Hoffman on 3 February 2006.  He delivered judgment on 17 February 2006.   His Order says:
“UPON HEARING the First Second and Third Defendants’ application notice dated 26 September 2006 applying for a stay of all proceedings against it under the Arbitration Act 1996 and/or the inherent jurisdiction of the court. 
AND UPON HEARING Mr Rabinder Singh QC for the First Second and Third Defendants and Mr Mukhtiar Otwal for the Claimant. 
IT IS ORDERED AND DECLARED THAT:
1.		The Court does have jurisdiction to hear the Claimant’s claim and is prepared to exercise such jurisdiction as it has.
2.		If the Defendants choose to file an acknowledgment of service they must do so by 28 February 2006 and shall be treated as having accepted that the Court has jurisdiction to try the claim and by 28 March 2006 must file any further written evidence they wish to rely on and serve a copy on the Claimant.
3.		The Claimant may if so advised by 14 April 2006 serve any further evidence in reply to the Defendants’ evidence. 
4.		The Part 8 claim shall be treated as allocated to the multi track and trial is to take place in the trial window of April to May 2006. 
5.		The Claimant is by 4.00 pm on 3 March 2006 to attend upon the clerk of the lists to make a listing appointment to fix a trial period in the trial window and give notice of the appointment to the Defendants.   Mode of trial:   before judge alone:  London:  Category B with a time estimate of one day.   Hearing to be expedited. 
6.		The parties agree an indexed and paginated trial bundle and exchange skeleton arguments not less than 7 days before the start of the trial.   The trial bundle and skeleton arguments are to be lodged not more than 7 and not less than 3 working days before trial.
7.		Liberty to apply. 
8.		The costs of and occasioned by the Defendants’ application to stay be paid by the Defendants to the Claimant, such costs to be agreed and failing agreement to be subject to detailed assessment.
9.		The costs of and occasioned by these directions be costs in the case.   
Dated this 17 February 2006.”
16.	The Defendants asked for permission to appeal.   Permission was refused.  The statement of reasons for refusing permission to appeal says:
“Nature of hearing:    Case Management.
Result of hearing:    Part 8 Procedure adopted and directions given for trial. 
Defendants’ application for permission to appeal refused. 
Brief reasons for decision to refuse appeal: 
(1)	There is no substantial dispute of fact on the issue to be tried. 
(2)	An expedited hearing procedure has been adopted for the claim.
(3)	Disproportionate to appeal these case management decisions.”
17.	The Defendants served an Appellant’s Notice.  So far as is relevant this says: 
“The Applicants apply for permission to appeal:
(1)	The judgment of Deputy Master Hoffman dated 14 February 2006 and handed down on 17 February 2006 that the court has jurisdiction to hear the Claimant’s (henceforth “the Respondent’s”) Part 8 claim (“the Jurisdiction Issue”);  and 
(2)	the Deputy Master’s determination at the hearing on 17 February 2006 that the Part 8 procedure is appropriate for this claim (“the Appropriate Procedure Issue”).  
The Appropriate Procedure Issue will only fall for determination in the event that the Appellants are wrong on the Jurisdiction Issue. 
The above definitions are for assistance only.   For the avoidance of doubt, the whole order is appealed.”
18.	The Appellant’s Notice also asked for a stay of the proceedings and for permission to rely on further evidence in support of (i) their appeal and (ii) their application for a stay.
19.	By an Order of MacKay J of 28 February 2006 the provisions of the Order of Deputy Master Hoffman as to the further conduct of the action were stayed.   Further evidence in support of the appeal was given by the First Defendant in his Second Witness Statement dated 28 February 2006.   In this Statement, Mr Aaronson explained that the Defendants had now served Lists of Documents in the arbitration proceedings and that this would lead to inspection of documents, a matter which he said the Deputy Master appeared to have misunderstood.
20.	He also referred to the Claimant’s Skeleton Argument before the Deputy Master which he said had been served the day before the hearing raising, he said, matters for the first time.   He put forward the Defendants’ position in relation to those matters.    He also drew attention to the impracticability of releasing files required for the Arbitrations.    Mr Aaronson exhibited correspondence from 2 September 2003 to 2 February 2006. 
21.	Ms Holly Stout of Counsel prepared Grounds of Appeal dated 28 February 2006.   In addition to setting out the Grounds of Appeal in respect of the Jurisdiction Issue, under the heading “The Appropriate Procedure Issue”, the Grounds of Appeal said: 
“The Appellants contend that the Deputy Master was wrong to determine that the Part 8 Procedure was appropriate and that there was “no substantial dispute of fact on the issue to be tried”.   As at 17 February 2006 the Appellants had not returned the Acknowledgment of Service in which the question of the appropriateness of Part 8 would have been raised, nor had they pleaded to the issue, nor put in evidence on that issue.   The Deputy Master’s determination was accordingly premature, contrary to the procedure envisaged by CPR Part 8 and/or unlawful and/or perverse and/or in breach of natural justice.”
THE CLAIMANTS’ SUBMISSIONS
22.	Jack J heard the appeal on 15 and 16 May 2006.  At paragraphs 2 to 7 of his judgment dated 24 May 2006, he sets out the background to the proceedings.   Mr Otwal who represented the Claimant submitted that it was necessary for him to address the background in order to explain the nature of the contractual relationship between the parties and to put into context the LSC’s request for the files having terminated the immigration contract between it and the Defendants.   He submitted that the disputes between the parties to which Jack J referred in his summary of the background are not a part of the proceedings (ie, the LSC’s claim for delivery up of files and the Defendants’ application to stay that claim) but are part of an ongoing arbitration.   He submitted that this was clearly acknowledged by Jack J at the beginning of paragraph 8 of his judgment where he states: 
“With that abbreviated summary of the disputes which have arisen and which are included in the arbitration …”
23.	Mr Otwal said that in his judgment at paragraph 8 Jack J turned “to the events which led to the Commission’s claim for delivery up of the firm’s files …”    He submitted that Jack J had correctly stated that those events commenced on 25 February 2005 after the LSC had terminated the Defendants immigration contract and by a letter dated 25 February 2005 asked the Defendants for a list of all current unbilled publicly funded immigration files.   Jack J had then dealt with various events including a disputed audit and the repeated requests concerning the files.   However, Mr Otwal submitted, Jack J went on to state that by a letter from the LSC dated 30 June 2005, a request was made that the Defendants should deliver to it all open and unbilled publicly funded files by 11 June 2005 with reliance being placed upon the Legal Services Commission (Disclosure of Information) Regulations 2000.   The Defendants had responded by a letter dated 11 July 2005 in which they said that the LSC did not have lawful authority to see the files.   
24.	Mr Otwal then referred to paragraphs 11 to 13 of the judgment which relate the LSC’s letter of 2 August 2005 which referred to the failure to provide the files or a list of the files and said that the LSC would attend the Defendants’ offices on 22 August 2005 for an audit of all files on controlled or certified work which were open or unbilled.  The letter said that if the files were not provided, an order would be sought from the court. 
25.	The Defendants responded on 18 August 2005 requesting an internal review of the decision to conduct an audit and Cripps Harries Hall wrote to the LSC on their behalf on 19 August 2005 stating that the LSC had no authority to conduct an audit as the purpose was to advance their position in the arbitration.  It was stated that Mr and Mrs Aaronson would be away on holiday on 22 August.   It also said that in all the circumstances the Commission was “not welcome [at] our client’s office”.
26.	Mr Otwal said that those paragraphs of Jack J’s judgment show that the dispute concerning the delivery up of the files escalated over the months of July and August 2005, with the outcome that the claim for delivery up of the files was issued on 26 August 2005 and in response the Defendants issued the application for a stay. 
27.	Mr Otwal submitted that it was the exchange of correspondence following the LSC’s letter of 30 June 2005 which gave rise to the dispute resulting in the claim for delivery up.   The LSC had made a request for delivery up and the Defendants refused.
28.	In the light of the above, Mr Otwal said that it is disputed by the LSC that the costs of any item of work undertaken prior to receipt of the LSC’s letter of 30 June 2005 could possibly be considered as costs of the proceedings.    It was, he submitted, only after the termination of the Defendants’ immigration contract in February 2005 that the LSC initially sought information relating to their unbilled publicly funded immigration files, and only by its letter dated 30 June 2005 that it sought delivery up of their files.   He submitted that there was simply no dispute about the LSC entitlement to delivery up of their files until the Defendants refused the same in their letter of 11 July 2005. 
THE DEFENDANTS’ SUBMISSIONS
29.	Ms Trent, representing the Defendants, said that the LSC’s approach of setting the starting point so soon before the issue of the claim was misconceived.   She referred to Elizabeth Long’s Witness Statement which set out the factual matrix as starting in September 2003.   She said this all went to the conduct of the LSC and the work was recoverable under the principles laid down by Sir Robert Megarry VC in Re: Gibson’s Settlement Trusts [1981] 1 Ch 179. 
30.	She referred me to pages 186 to 188 of that judgment.    In that case the proceedings had been commenced by the trustees of the settlement issuing a summons seeking directions from the Court.    The Summons had been issued in December 1976.    At the hearing in January 1978 the Court dismissed the Summons and provided for the taxation of the costs.    The question arose as to whether those costs could include costs incurred before the Summons was issued.   Sir Robert Megarry VC said (at page 188 F to G): 
“There are obvious complications in making the proper attributions of the various letters and other documents and all the telephone conversations and attendances and so on.   Matrimonial disputes were being dealt with at the same time, and many matters call for some form of apportionment between what was the subject of the litigation and what was not.  But in my judgment, subject to all proper attributions and apportionments, the Taxing Master was perfectly entitled to go back to December 31, 1974, the last date for compliance with the undertaking, and include in the costs to be taxed all costs that in his opinion were reasonably incurred for the purpose of the litigation as it came to be framed by the trustees.”
31.	Ms Trent submitted that the judgment showed (at page 186 at D) that costs would include pre-action costs of obtaining “materials ultimately proving of use and service in the action”.    It also showed (at page 186 at G) that the materials had to be “relevant to some of the issues which had to be tried and in respect of which justice was sought” and the costs had to be “fairly attributable to the conduct of the defendants”.     
32.	Ms Trent referred to page 187 of the judgment where (at B) it said: 
“Nor would it be right to penalise the successful litigant for obtaining materials which appeared likely to be of use in the action but which, in the event, were never used because the other party did not contest the point.”
She also referred to page 187 at H where it said: 
“If a prospective litigant goes into a number of matters outside the immediate area of the dispute, but he then finds that those matters fall within the widely framed scope of his adversary’s proceedings, it seems to me that those proceedings will almost of necessity make the costs of those matters part of the costs of the proceedings, subject always, of course, to the Taxing Master considering the costs to have been reasonably incurred.”
33.	Ms Trent submitted that following Re: Gibson’s Settlement Trusts, and usual principles, the Defendants are entitled to the costs of investigating and disputing along the way the allegations on which the opponent chooses to found its claim.  The Claimant here, she submitted, was relying on a history of alleged attempts to see files and other purported concerns as to quality and quantum of billing/work done in order to found its claim to be entitled to delivery up of 2,000 files.   She said that the Defendants rely on the allegations in the Statement of Elizabeth Long, the appeal statement of Francis Aaronson and the narrative. 
34.	Ms Trent said that Mr Otwal had been wrong to say that the letter of 30 June 2005 was the first occasion upon which the LSC had asked for delivery up of the files.   In their letter of 25 February 2005 the LSC had asked for a list of the files “in order that I may make arrangements for these to be transferred to other suppliers.” 
35.	Ms Trent referred to the Defendants’ Appellants’ Notice (see paragraphs 17 and 18 above).  She said that the appeal related not only to the dismissal of the stay application but also to the evidence relevant to the claim so that, if required, the Appropriate Procedure Issue could be addressed. 
CONCLUSION 
36.	By the time Deputy Master Hoffman came to hear the Defendants’ stay application there had been three arbitrations on foot between the parties for a considerable time.   The Statements of Claim had been served on, respectively, 28 June 2005, 27 October 2005 and 19 December 2005.   
37.	The Defendants’ application to stay the claim was supported by the First Defendant in his Witness Statement dated 26 September 2005.   In paragraphs 9 to 13 above attention is drawn to the arbitrations and Mr Aaronson’s view that if an application could properly be made for delivery up of the files, it should be made in the arbitration and that “those files will in any event be in evidence in the arbitrations”. 
38.	In my judgment Mr Aaronson was correct about that.   I was referred in the course of argument to another passage from the judgment of Sir Robert Megarry VC in Re: Gibson’s Settlement Trusts.   At page 186 at A to B he says: 
“However reasonably incurred costs which are neither costs “of” the proceedings nor “incidental” to them cannot be awarded under the order for costs.    It is thus important to identify the proceedings.  This involves not only taking the correct stage of the proceedings, as is shown by Wright v Bennett [1948] 1 KB  601, but also determining the nature of those proceedings.   Only when it is seen what is being claimed can it be seen what the proceedings are to which the costs relate.”
39.	The Defendants rely on the fact that the Witness Statement of Elizabeth Long (see paragraph 5 above) sets out a factual matrix of events between September 2003 and August 2005.  However, as Mr Otwal submitted, paragraph 5 of the Witness Statement makes it clear that it was “in order to give this application some context I touch on some of the background matters below”.   Mr Otwal also submitted that the matters set out in the narrative to the Defendants’ bill of costs were matters being disputed in the arbitration.    In paragraph 5 of her Witness Statement Ms Long said: 
“I can see that the matters I discuss may be highly contentious to the Defendants.   However in this application I am not asking the Court to adjudicate on such matters.   I merely set them before the Court so that the Court is able to grasp why the audit of the files is so important and necessary for the Claimant to discharge its public duties.”
40.	I agree with Mr Otwal’s submission that the facts set out in Elizabeth Long’s Witness Statement are set out to explain to the Court the context of the LSC’s claim and that the adjudication on those matters is the subject of the ongoing arbitration.   They are not part of the costs incidental to the claim and the application.
41.	I also agree with Mr Otwal’s submission that the matters described in paragraphs 2 to 7 of Jack J’s judgment dated 24 May 2006 are set out as a background only.   It is an “abbreviated summary of the disputes which have arisen and which are included in the arbitration”.    (See paragraph 8 of the judgment).
42.	Mr Otwal submitted that the LSC’s letter of 30 June 2005 asking for the delivery up of the Defendants’ files was the start point for the purposes of the Defendants’ costs in this detailed assessment.    He said this was the first request for the files to be delivered up.   However Ms Trent pointed out that in the LSC’s letter of 25 February 2005 they had asked for a list of the files “in order that I may make arrangements for these to be transferred to other suppliers”.   
43.	In my judgment the correct start point is the LSC’s letter of 30 June 2005 because that is the first request for the delivery up of all the Defendants’ unbilled publicly funded files to the LSC.   Whether or not the LSC had effectively requested delivery up of the Defendants’ unbilled immigration files in its letter of 25 February 2005 (and in my judgment the letter did not amount to such a request), this goes further than that.   The letter of 30 June 2005 says: 
“The Commission intends to exercise its right to see all open and unbilled publicly funded files of your client without exception.   Please ensure that all files are delivered to my office no later than 11 July 2005.”
44.	The earlier correspondence and attendances form part of the evidence in the arbitrations (now consolidated) and do not form part of the costs of these proceedings. 
45.	With regard to Ms Trent’s submission (paragraph 35 above) that the Defendants had to be prepared to deal with the Appropriate Procedure Issue and that this necessitated consideration of all the background facts, I have referred to the Defendants’ Grounds of Appeal, the Appellants’ notice and the reasons given by Deputy Master Hoffman for refusing permission to appeal. 
46.	Paragraph (2) of the Appellants’ Notice (see paragraph 17 above) refers to the Deputy Master’s determination that the Part 8 procedure is appropriate for this claim.   The Notice goes on to say that the Appropriate Procedure Issue will only fall for determination in the event that the Appellants were wrong on the Jurisdiction Issue. 
47.	The Grounds of Appeal (see paragraph 21 above) under the heading “The Appropriate Procedure Issue” show that the Defendants were well aware that the question of the appropriateness of the Part 8 procedure could only be raised in the Acknowledgment of Service and (because of the provisions of Section 9 of the Arbitration Act 1996) this could only be lodged if the LSC were to be found to be successful on the Jurisdiction Issue.    In the meantime MacKay J had stayed the case management provisions of the Deputy Master’s Order. 
48.	The Defendants would have been well aware that if Jack J had found for the LSC in the Jurisdiction Issue, he would have made further case management Orders dealing with the date by which the Defendants should lodge their Acknowledgment of Service. 
49.	In my judgment it was not necessary for the Defendants to consider the background facts for the purpose of contesting the Part 8 procedure before an order had been made about lodging the acknowledgment of service.    This detailed assessment requires that it should be necessary for the solicitors to take a step before considering whether the costs of that step were reasonable.