The Third Man - Costs against non-parties in Licensing Act 2003 appeals

Having posted my Journal of Licensing article on licensing costs on this blog yesterday, I am grateful to David Dadds of Dadds LLP Solicitors for reminding me that since that article appeared in July’s issue, the High Court has confirmed in the case of Aldemir v. Cornwall Council [2019] EWHC 2407 (Admin) that magistrates do have jurisdiction under s.181 of the Licensing Act 2003 to make costs orders against non-parties to licensing appeals.

A company, Eden Bar Newquay Limited (“EBNL”) held a premises licence in respect of (you guessed it) the Eden Bar in Newquay. At the material time the premises were owned by Mr Memet Aldemir. He leased those premises to EBNL (whose sole shareholder and director was his brother, Nimetullah, a resident of Cyprus). Mr Aldemir owned the fixtures and fittings of the bar; he was employed by EBNL as general manager; he was also the designated premises supervisor.

Upon the hearing of an application for review, the licensing authority revoked the premises licence on 25 April 2018. EBNL appealed, that appeal being heard on 19-21 November 2018.

After the decision to revoke, EBNL had applied to transfer the premises licence to Max Leisure Limited, a company of which Mr Aldemir was the sole director. The licensing authority refused that application; Max Leisure Limited appealed, but then withdrew that appeal. A new arrangement was then said to have been put in place the day before the appeal hearing begun, whereby Mr Aledmir was said to have leased the premises to Newquays Limited (“Newquays”) and sold that company the fixtures and fittings and goodwill of the bar. It was suggested that this transaction to Newquays of itself now meant that the decision to revoke should be overturned.

The District Judge was highly critical of Mr Aldemir’s conduct at the premises both before and after the decision to revoke, as well as the Newquays transaction, which she was not convinced was genuine. Mr Aldemir was present at the appeal hearing but chose not to give evidence, on the basis that this would be “inappropriate” given the arrangements made with Newquays.

The District Judge dismissed the appeal on 21 November 2018. The Council then applied for costs against Mr Aldemir, both in relation to the EBNL appeal and the appeal withdrawn by Max Leisure Limited. No notice had been given that a costs application would be sought against him personally. Mr Aldemir was not in court; Mr Dadds was present as solicitor for EBNL. The District Judge refused to grant any substantive adjournment so Mr Aldemir could have notice of the application and an opportunity to respond to it. Instead Mr Dadds was allowed 15 minutes to take instructions by telephone. The District Judge then granted the order sought.

Mr Aldemir appealed by way of case stated.

Swift J. allowed Mr Aldemir’s appeal.

He held that the court did have jurisdiction to make a costs order against a non-party [20]. He considered that the wording of s.181(2) of the Act, which provides that the court “may make such order as to costs as it thinks fit” was framed in the widest of terms [18] and that although, unlike s.51 of the Senior Courts Act 1981 it did not expressly refer to a power to determine “by whom” costs were paid, that power was inherent in any power to make any costs order at all. He was not persuaded that the prescriptive nature of Schedule 5 as to who could be a party to an appeal made any difference, and relied on the inherent power, confirmed in R (Chief Constable of Nottinghamshire Police) v. Nottingham Magistrates Court [2009] EWHC 3182 (Admin) to allow third parties to participate in appeals [19].

Unsurprisingly, Swift J. went on to find that a fair procedure was not followed when the costs orders were made against Mr Aldemir. Where are third party costs order was applied for, it was important that such an application was heard and determined in accordance with a fair procedure [23]. There was no need for anything elaborate, nor were there any hard and fast rules, but it was important that the principles of natural justice be applied. What happened on the day was not fair. Swift J. said:

In most if not all cases it will be good practice for the grounds on which a non-party costs application is made to be reduced in writing; to be provided to the respondent to the application before the application is made; and for the application to be heard and determined only after the non-party has had the chance to consider the grounds and respond to them.

This of course is familiar turf in the civil courts: see for example the case of Sony/ATV Music Publishing LLC v. WPMC Ltd [2018] EWCA Civ 2005 (CA), referred to in my article, where Floyd L.J. held at [86] that the absence of any form of warning was fatal to an application for a non party costs order, as it deprived the respondent of realistic opportunities to settle the limitation, to protect himself against the effects of a non party costs order (which, I interpose, might include taking out ATE insurance) or to abandon the litigation at an earlier stage.

A fair procedure not being followed, Swift J. therefore quashed the costs orders against Mr Aldemir and ordered that they be reconsidered.

One of the questions stated for the High Court was whether the total costs awarded were reasonable. It was suggested that the hourly rates claimed where high by reference to rates paid by the Attorney General to provincial panel counsel. Swift J. said that he could not see how to order a higher rate than panel rates (which range between £60-110 per hour depending on which band is paid) entailed any error of law. Reliance on Attorney General’s panel rates (which are notoriously low) is a novel argument; it is more usual for rates to be judged against the Guideline Hourly Rates published by the Supreme Court Costs Office, although unfortunately these have not been updated since 2010. A recent and pithy review of the relevant principles under the CPR can be found in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2504 (TCC), where O'Farrell J. said:

14. As to the first point, the hourly rates of the defendant's solicitors are much higher than the SCCO guideline rates. It is unsatisfactory that the guidelines are based on rates fixed in 2010 and reviewed in 2014, as they are not helpful in determining reasonable rates in 2019. The guideline rates are significantly lower than the current hourly rates in many London City solicitors, as used by both parties in this case. Further, updated guidelines would be very welcome.

15. The dispute in this case concerns claims and counterclaims arising out of the development and implementation of a digital online platform for buying and selling investment funds. Although the value of the case is not particularly high for this Court, the technical nature of the dispute justifies the engagement of solicitors with the appropriate skill and expertise to ensure proper and efficient conduct of the litigation. Solicitors providing such skill and expertise are entitled to charge the market hourly rate for their area of practice. The hourly rates charged cannot be considered in isolation when assessing the reasonableness of the costs incurred; it is but one factor that forms part of the skill, time and effort allocated to the application. It may be reasonable for a party to pay higher hourly rates to secure the necessary level of legal expertise, if that ensures appropriate direction in a case, including settlement strategy, with the effect of avoiding wasted costs and providing overall value.

Returning to Aldemir, it is heartening for me, although not for Mr Aldemir, to see the High Court confirming what was suggested to be in my article: there is jurisdiction under s.181 to make non-party costs orders, but notice has to be given of applications if they are to be entertained. Aldemir is also one further example of costs going wrong because they are treated as an afterthought rather than as an important issue to be determined. As I said in July, and I say again now:

Preparing costs applications well in advance, including detailed costs schedules with supporting representations, can pay dividends. It prevents complaint being made by the other side that they are being ambushed, and puts the court in the mind-set that costs is not some irritating loose end, but a substantial issue that needs to be determined.

… often, licensing authorities do not appreciate the full scope of recoverable costs that can be pursued, nor the steps that can be taken when an impecunious appellant threatens a cost loss.