Simms & Ors v The Law Society

When deciding whether to award indemnity costs, the court must distinguish proportionality from reasonableness. Proportionality is an express issue on the standard basis, with doubts resolved for the paying party. It does not govern assessment on the indemnity basis, although reasonableness remains relevant and doubts are resolved for the receiving party. A weak or unsuccessful case alone does not justify indemnity costs. The focus is principally on conduct which is unreasonable to a high degree. The choice of costs basis may itself be affected by the likely loss of proportionality arguments.

The Law Society intervened in Mr Simms’s solicitors’ practice under the Solicitors Act 1974, alleging grounds for suspicion of dishonesty. Mr Simms and five partners challenged the intervention in the High Court. The proceedings were postponed pending disciplinary proceedings, in which the Solicitors Disciplinary Tribunal upheld most charges, including findings of dishonesty. The Divisional Court later upheld that decision.

Evans-Lombe J entered summary judgment for the Law Society, awarded indemnity costs, ordered an interim payment of £150,000, and made a costs order involving the second and third claimants. The appeal concerned prematurity, the appropriate costs basis, the interim payment, and the order affecting the partner claimants.

The court unanimously dismissed the appeal against summary judgment and upheld the interim payment, but allowed the appeal on the basis of costs and on part of the order concerning the second and third claimants.

1. Intervention proceedings. A challenge under Schedule 1 to the Solicitors Act 1974 involves determining first whether the statutory grounds, principally reason to suspect dishonesty, are made out, and then whether the intervention should continue in light of all the evidence. The latter stage requires a balance between public protection and the serious consequences of intervention. The consent order postponing the pre-trial review did not stay the proceedings or remove the parties’ unqualified liberty to apply. The judge could therefore entertain the Society’s application before all possible disciplinary appeals had ended. The disciplinary proceedings had also removed the practical value of the High Court claim: even a successful appeal would not realistically have negated the Society’s reason to suspect dishonesty when the intervention was made.
2. Indemnity costs. Under rules 44.4 and 44.5 of the Civil Procedure Rules 1998, reasonableness is relevant on both bases. Proportionality is an issue on the standard basis, where doubts are resolved for the paying party. On the indemnity basis, proportionality is displaced and doubts about reasonableness are resolved for the receiving party. The court is concerned principally with the losing party’s conduct, and conduct must be unreasonable to a high degree; a merely weak, wrong, or misguided case is insufficient. The distinction was explained in Kiam v MGN (No2) [2002] 2 All ER 242 and Lownds v Home Office [2002] EWCACiv 365.
3. Application. The first-instance judge had treated proportionality as a matter only for assessment and had not appreciated that an indemnity order would exclude or substantially limit that argument. Given the exceptional volume of work, the short period available to challenge the intervention, its serious consequences, and the Tribunal’s refusal to award indemnity costs, the Court of Appeal substituted costs on the standard basis.
4. Other orders. Although a detailed costs schedule will generally be preferable before an interim payment is ordered, the payment remained within the judge’s discretion in the special circumstances. The order requiring Mr Simms to pay the costs of the second and third claimants was unsupported by the judge’s reasons and was set aside. Any separate claim arising from dealings between the partners would require separate proceedings.

1. Court of Appeal (Civil Division): In [2005] EWCA Civ 849, the appeal was allowed in part. Summary judgment and the interim payment were upheld; indemnity costs were substituted with standard-basis costs, and part of the order concerning the second and third claimants was set aside.
2. Chancery Division: Evans-Lombe J entered summary judgment for the Law Society, awarded indemnity costs, ordered an interim payment of £150,000, and made the relevant costs orders in [2004] EWHC 1706 (Ch).
3. Disciplinary proceedings: The Solicitors Disciplinary Tribunal upheld most of the disciplinary charges, including findings of dishonesty. The Divisional Court subsequently upheld the Tribunal’s decision.