R (Law Society of England and Wales) v Lord Chancellor

Hearing date: 27 May 2010

Lord Justice Elias:

In these proceedings, The Law Society challenges by way of judicial review the lawfulness of a scheme which has been made by the Lord Chancellor for the award of costs out of central funds to defendants who have faced, and successfully resisted, criminal proceedings (“the New Scheme”).

The New Scheme was implemented by the Costs in Criminal Cases (General) (Amendment) Regulations 2009 (“the 2009 Regulations”) with effect from 31 October 2009. The 2009 Regulations amended the Costs in Criminal Cases (General) Regulations 1986 (“the 1986 Regulations”).

In making the New Scheme, the Lord Chancellor has exercised the discretionary power given to him under section 20 of the Prosecution of Offences Act 1985 (“the 1985 Act”). So far as is material, this is as follows:

“(1) The Lord Chancellor may make regulations for carrying this Part into effect and the regulations may, in particular, make provision as to —

(a) the scales or rates of payments of any costs payable out of central funds in pursuance of any costs order, the circumstances in which and conditions under which such costs may be allowed and paid and the expenses which may be included in such costs; and

(b) …

and any provision made by or under this Part enabling any sum to be paid out of central funds shall have effect subject to any such regulations.”

Any regulations so made have to be laid before Parliament and are subject to the negative resolution procedure.

Section 20 (3) provides that the regulations do not themselves have to lay down the rates and scales; the regulations may provide for these to be determined by the Lord Chancellor with the consent of the Treasury. Any rates and scales so fixed do not thereafter have to be laid before Parliament.

A court order to award costs out of central funds to a successful defendant is known as a defendant's costs' order (“DCO”). It is made pursuant to section 16 of the 1985 Act. In the New Scheme the Lord Chancellor has for the first time exercised the power given to him under section 20 to set rates and scales in relation to DCOs. He has set those rates and scales not in the regulations themselves but in a separate document entitled “Rates and scales in respect of defendant's costs orders” which is made pursuant to the power conferred by reg. 7(4) of the 1986 Regulations as amended in 2009.

The effect of the New Scheme is that DCOs will allow successful defendants to recover their costs only at legal aid rates. It is not disputed that this will result in payments which are in general considerably smaller than those made under the 1986 Regulations, and that the payments will necessarily fall short, and sometimes well short, of the costs actually incurred by the successful defendant. The central issue in this case is whether the 2009 Regulations, when read with the accompanying rates and scales document, are consistent with the principles of compensation reflected in section 16.

The statutory framework.

Section 16 of the 1985 Act sets out the circumstances in which the court may make a DCO. The order may be made by all courts who hear criminal cases. The following provisions set out the principles for determining how much should be paid:

“(6) A defendant's costs order shall, subject to the following provisions of this section, be for the payment out of central funds, to the person in whose favour the order is made, of such amount as the court considers reasonably sufficient to compensate him for any expenses properly incurred by him in the proceedings.”

Subsection (7) then provides for circumstances where it is not appropriate to pay the amount which would otherwise be payable under subsection (6):

“(7) Where a court makes a defendant's costs order but is of the opinion that there are circumstances which make it inappropriate that the person in whose favour the order is made should recover the full amount mentioned in subsection (6) above, the court shall –

(a) assess what amount would, in its opinion, be just and reasonable; and

(b) specify that amount in the order.”

Subsection (9) provides for two separate methods by which the amount may be determined: either a summary assessment by the court, provided the defendant agrees the amount, under paragraph (a); or by what the regulations term an “appropriate officer” under paragraph (b):

“(9) Subject to subsection (7) above, the amount to be paid out of central funds in pursuance of a defendant's costs order shall –

(a) be specified in the order, in any case where the court considers it appropriate for the amount to be so specified and the person in whose favour the order is made agrees the amount; and

(b) in any other case, be determined in accordance with regulations made by the Lord Chancellor for the purposes of this section.”

There are equivalent provisions in section 17 of the 1985 Act in relation to the costs of a private prosecutor who successfully prosecutes a criminal case. In sub-section (1) it is expressly provided that the court may in respect of certain specified proceedings (which do not include summary proceedings in a magistrates' court):

“order the payment out of central funds of such amount as the court considers reasonably sufficient to compensate the prosecutor for any expenses properly incurred by him in the proceedings.”

It will be seen, therefore, that the principles for determining the amount reflect precisely those found in section 16(6).

There is a similar provision in section 17(3) to that found in section 16(7), permitting the court in an appropriate case to reduce the amount that would otherwise be payable; and section 17(4) is cast in the same terms as section 16(9) above, except that it applies to orders in favour of the prosecution.

The Lord Chancellor made the first set of regulations under the 1985 Act in 1986. Part III contains regulations concerning costs payable out of central funds. Regulation 5 identifies the appropriate authority for determining which costs are to be awarded, and regulation 6 makes provision as to how claims must be submitted to the appropriate authority. Regulation 7 then identifies the principles for assessing those costs. It was as follows:

“(1) The appropriate authority shall consider the claim, any further particulars, information or documents submitted by the applicant under regulation 6 and shall allow such costs in respect of –

(a) such work as appears to it to have been actually and reasonably done; and

(b) such disbursements as appear to it to have been actually and reasonably incurred,

as it considers reasonably sufficient to compensate the applicant for any expenses properly incurred by him in the proceedings.

(2) In determining costs under paragraph (1) the appropriate authority shall take into account all the relevant circumstances of the case including the nature, importance, complexity or difficulty of the work and the time involved.

(3) When determining costs for the purposes of this regulation, there shall be allowed a reasonable amount in respect of all costs reasonably incurred and any doubts which the appropriate authority may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved against the applicant.”

It will be seen that the language of Regulation 7 reflects that in section 16(6): it is to provide an order for costs which is “reasonably sufficient” to compensate for the expenses properly incurred in the proceedings. Regulation 7(3) specifies that if there is a dispute as to what is reasonable, it will be determined against the payee.

There are also regulations which provide for the re-determination of costs in certain circumstances and for appeals against the determination by an appropriate authority.

The New Scheme.

The 2009 Regulations were approved and laid before Parliament on 8 October 2009. They came into force on 31 October 2009. Regulation 8 substitutes a new regulation 7 into the 1986 Regulations as follows:

“7.- (1) The appropriate authority shall consider the claim, any further particulars, information or documents submitted by the applicant under regulation 6 and shall allow costs in respect of –

(a) such work as appears to it to have been actually and reasonably done; and

(b) such disbursements as appear to it to have been actually and reasonably incurred.

(2) Any doubts which the appropriate authority may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved against the applicant.

(3) The costs awarded shall not exceed the costs actually incurred.

(4) The Lord Chancellor shall, with the consent of the Treasury and for the purposes of this regulation, determine the rates and scales of costs in respect of work and disbursements payable out of central funds.”

It is pertinent to note that this regulation applies only where the costs are fixed by the appropriate authority under section 16(9)(b). They do not directly apply to a case where the amount is summarily assessed by the court...