QB/2008/PTA/0108
Neutral Citation Number: [2008] EWHC 2662 (QB) 
IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION

Royal Courts of Justice
Strand
London WC2A 2LL

Friday, 25th July, 2008

BEFORE:

MR JUSTICE IRWIN
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BETWEEN:

MEGANTIC SERVICES LTD

Applicant
-v-

DORSEY & WHITNEY
Respondent

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Tape Transcript of Wordwave International, a Merrill Communications Company
PO Box 1336, Kingston-Upon-Thames KT1 1QT
Tel No: 020 8974 7300  Fax No: 020 8974 7301
Email Address: Tape@merrillcorp.com
(Official Shorthand Writers to the Court)
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Mr Bacon (instructed by Locke & Co) appeared on behalf of the Claimant/Respondent.
Mr Williams (instructed by Dorsey & Whitney) appeared on behalf of the Defendant/Applicant.

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J U D G M E N T
1.	MR JUSTICE IRWIN:  The background to this case is that the defendant company, Megantic Services Ltd, it has been alleged, has been active in multi-trader intra-community fraud (“MTIC fraud”), a form of carousel fraud involving mobile telephones being imported and re-exported through a chain of vendors and purchasers into and out of the UK and to other countries within the European Union.  As we shall see later, some of the details of the allegations against Megantic are set out in a letter from the National Compliance Office of the Revenue & Customs dated 9th March 2007.  

2.	There is no need for present purposes to recite the detail of the allegations, although they are set out extensively in that letter.  For the avoidance of any doubt, of course there is no question that in the course of these proceedings I shall make any judgment or that the master made any judgment which has the effect of saying whether or not those allegations are made out. They remain the subject of proceedings before the Tribunal, and the accuracy or otherwise of them is not material to my decision on this appeal.

3.	What is material is the size of the alleged fraud.  It is alleged that this is a VAT fraud involving many tens of millions of pounds and, as we shall see, it is agreed by the director of Megantic, Mr Brookfield, that said to be owing to Megantic from the Revenue is some £38 million to which it is alleged by Megantic they are entitled and which it is alleged by the Revenue represents VAT on fraudulent trading. 

4.	As we shall also see in a little more detail later, in the course of the time when the claimants represented the defendants in connection with the VAT proceedings of various kinds, some £8 million is alleged to have been recovered whilst the claimants were acting for the defendants. There have been judicial review proceedings compromised following the grant of permission, and there have been various dealings before the relevant VAT tribunals and appeals to them.  There has been an extensive range of lawyers involved, instructed by the claimants, Dorsey & Whitney (“Dorsey”) on behalf of Megantic.  It is relevant also to state that Dorsey are a multinational partnership. There is no detailed evidence before this court as to the exact nature of the organisation, but it clearly straddles more than one legal jurisdiction, and they provide at least legal services (maybe rather more than legal services) but have done so over a considerable period and to a very large extent, on any view, to Megantic, in the course of the dispute with the Revenue.

5.	The extent of those services is mirrored in a schedule of invoices for the services presented by Dorsey to Megantic, helpfully scheduled as an annex to the Particulars of Claim in the case.   There are ten invoices reciting services delivered to Megantic beginning on 4th April 2006 and finishing, so far as the series of ten invoices is concerned, on 31st July 2007.  The total bills in these invoices is very large indeed, reaching the sum of £866,956.  A very considerable sum has been paid by Megantic towards those invoices; it is agreed that the total is £350,230.57.  

6.	In 2007 tension about the level of fees emerged between Dorsey and Megantic. The chronology of events and references to documents which I am about to outline was before the master in his various decisions.  It was not before him in a convenient form, but it has become clear in the course of this hearing that he did have all of the material to which I am intending to refer, and that at least at one stage the correspondence and documentation was formed into a clip in chronological order so that it was easier for all those appearing before him and for the master to follow the sequence of events.

7.	The principal lawyer dealing with Megantic’s affairs at Dorsey over the relevant period was Leslie Allen.  He is no longer with Dorsey.  He in fact is not a solicitor, although he was described as a “senior partner” of Dorsey.  It is admitted that he is in fact a non-practising barrister.

8.	After a sequence of bills had been presented and some of them paid, bills up to the summer of 2007 (in fact until the end of June) were sent to Megantic on 2nd July 2007.  This was a piece of preparation for a meeting to discuss the level of charging which was planned for a few days later. That meeting took place, it seems, in a branch of Starbucks on Thursday 5th July 2007.  In attendance were Stephen Brookfield, a director from Megantic; Howard Nicholson, a man who supported Megantic financially and was clearly fully consulted by them in relation to these disputes; Leslie Allen; and another representative of Dorsey, Savina Kanagasabay.  There were others in attendance, but for present purposes those were the important attendees.

9.	Before me and before the master is a copy of the notes on Megantic Services Limited headed notepaper, summarising from their point of view the discussion in Starbucks on 5th July. There is also before the court a copy of a letter dated 6th July to Leslie Allen in which Mr Brookfield encloses a copy of the minutes of the meeting the previous day.  It is worth recording that the claimant says that these notes and this letter were never received, or were not received at the time.

10.	The nub of the notes is to suggest, among other things, not only that there was a considerable dispute over fee billing but that the level of fee billing had been “a complete shock” to Megantic, that Mr Allen apologised that the bills had only just been sent, and, in addition, the following:
“In respect of all the previous invoices LA [Mr Allen] agreed to review, however he thought there was time which had been duplicated/incorrectly charged which would amount to the sum of the last 3 invoices raised circa £300k.  This he said was the best way of raising the appropriate credits.  He promised to have this review done within a relatively short timeframe in order to get the bills settled.  

SJB [Mr Brookfield] agreed to make a payment circa £50k, to be made in a relatively short timeframe.  LA agreed to start to raise the necessary credits.”

	Then a little further on in the note the following appears:
“LA confirmed that no further bills would be raised for June/July/Aug/Sep 2007.”

11.	As I say, the claimants say that that was never received.  The defendants say it was sent. The defendants advance that as an accurate note of the discussion.  The claimants do not accept that.  What is clear is that there certainly was such a discussion and that there was a high level of concern expressed by Megantic about fees at that meeting.  

12.	By 11th July Mr Allen had emailed his superior within Dorsey, a Mr Paul Klass, and he copied the email or forwarded it to Mr Nicholson, the gentleman who was involved in Megantic’s affairs.  It is worth quoting from this email at a little length so as to get the evidence clear:
“I have had numerous conversations with Megantic.  Unfortunately as you will recall we had not agreed the £134k at the meeting and they were upset that I put that they had, oh well! They are going to pay the £100k over the next few weeks with a CHAPS payment tomorrow of, I think £60k – I will know in the morning – and the rest before months end.  On the other monies we are negotiating hard they point out that in a period of 10 months we have billed them £740k approx which they believe is excessive for the work done – they accept the quality of the work but not the quantity.  On reviewing the fees I have identified £23k going to the wrong code which we can correct. Also they argue that when we attended other court hearings whilst the info we obtained improved our knowledge in a new and rapidly growing area of law they did not think they were paying for it bearing in mind we will have other clients who will also benefit from this knowledge.  If we accept this then that will be an additional £90k that is arguably not due.”

	A little further on the email records:
“One thing is clear is that they want us and want to use us going forward but are unhappy with the level of fees billed.  The amount of work going forward will be greater than the work to date and they said they are frightened by the level of fees as to what they will end up paying. I myself did not realise how high the fees were as when you bill a bit each time it does not sink in and if I was them I would also question the amount.  Whilst going forward there will be a lot of work to be honest it will be down to me now and I can probably dispense with Savina and just use a paralegal as required. I do not want to kill the goose who laid the golden egg and we must recognise that they have genuine concerns over the level of fees.  If they were going to stiff us they would not be making any payment now.  They accept they will owe over and above the £100k but want to agree quantum.  I will try to do this by Thursday but how much can I agree?”

13.	It will be clear that there is a direct conflict on several points between the way Mr Allen put it to Mr Klass and copied to Mr Nicholson on 11th July and the suggested content of the meeting as set out in the note which the defendants say was sent in July but which the claimants say was not received.  What is also clear, of course, in general terms, is that there was a very high level of expenditure on legal fees, that there was a high level of concern on the part of the defendants, and that Mr Allen was alive to that and intended to yield to those concerns at least to some degree.

14.	Dorsey went on working for Megantic through July and August.  £740,000 became £870,000 by the end of July.  Under a covering letter of 6th September Dorsey sent to Megantic the invoice dated 28th August 2007, but billing for the work up to work done by the end of July.  It is that invoice which completes the total figure I have already given.

15.	On 13th September Mr Allen emailed Mr Brookfield and wrote to him as follows: 
“Please find attached a copy of all breakdowns for the relevant invoices in addition to the breakdowns of the outstanding invoices sent by email on 6th July 2007.  

As you are aware, we previously offered a credit in the region of £113,000 as part of an overall settlement of the outstanding fees and on the basis of our continued retainer on an agreed basis going forward. With this in mind, we would be grateful if you could review the attached as well as the previous breakdowns provided and identify the specific services where you consider an incorrect or excessive charge has been made and the reasons for this consideration.”

16.	It is inconceivable that if Mr Allen had received the supposed account of the discussion of 5th July recording an agreement that Dorsey would provide a credit to Megantic of £300,000, he would here be recording a previous offer of a credit in the sum of £113,000.  I do not resolve the factual dispute here, but merely observe that such an inference is extremely difficult to avoid.

17.	On 17th September Megantic wrote to Leslie Allen. Again I quote in part from this letter from Mr Brookfield:
“At our meeting on 5th July 2007 prior to meeting with Paul Klass at your office, it was agreed that we would not be charged for June/July/August and September 2007.  However that agreement too has been broken by your firm as they now appear to have invoiced us for time charged to our account in June and July 2007.  In particular I note from this invoice that in the lead up to the short PTR hearing on 22nd June 2007 Savina Kanagasabay has charged in excess of 86 hours for the period from 1st June 2007 to 22nd June 2007 for the PTR and you have charged us a significant number of hours (35) also, the overall cost being well in excess of £42,000 which seems totally excessive for a half-day PTR.  

At the meeting on 5th July 2007 with yourself and Savina Kanagasabay, prior to the meeting with Paul Klass, we came away from that meeting with agreement that we would receive a credit note of £300,000 and that we would not be charged any more fees for June, July, August and September 2007 and that we would agree a reduced charge out rate going forward with a success fee once we had received our VAT refund as confirmed by our letter of 6th July 2007.  This confirmed previous discussions that you have had with both Howard and myself independently and we understood this agreement would be binding. At the meeting with Paul it was agreed that we would make a further payment as a gesture of goodwill which we duly did on 12th July 2007 in the sum of £52,500.”

18.	As I have already observed, there is an impossible conflict between the documentation coming from each side.

19.	On 24th September Mr Allen met Mr Brookfield. There are again competing contentions about what happened, but what is clear is that they went through the invoices which have been presented, detailed invoices with the breakdown, and Mr Allen annotated those invoices in the margin. The competing suggestions are, firstly, from the defendants that the marginalia in Mr Allen’s handwriting represent his own thoughts, observations or concessions.  The proposition from the claimant, Dorsey, is that he was recording the complaints or objections on the part of Mr Brookfield on behalf of Dorsey.  The way it is put by those now acting for the claimants is that Mr Allen was acting as stenographer, merely recording what was being said.  

20.	As I observed in the course of argument, in my judgment the proposition that this set of comments represents Mr Allen’s own views is untenable.  One could give many examples of that, but I instance two.  On page 630 of the bundle, a page dealing with 25th and 26th July 2006, beside an item for 25th July recording work done by Miss Kanagasabay is written: “Excessive and unrealistic.”  The same phrase appears next to more work done by her on the following day.  It seems to me quite unrealistic to suggest that Mr Allen would himself solemnly write down that work done and presented in a bill by someone whom he supervised was excessive and unrealistic, and only one sensible inference arises which is that was the criticism being levelled by Megantic.

21.	However, it is also clearly wrong to suggest that he was merely acting as a stenographer, because there are some occasions when what he wrote is at least capable of the inference of concession by him following criticism, and here I instance page 628 in the bundle, 20th July, where he wrote against a range of work done on that day by different people, “Too many fee-earners doing same work, charging for meeting with each other.”  Pausing there, it seems to me unavoidable that that is him recording the complaint. But he went on to write, “Say half” and then wrote the figure £2,400. That could be a suggestion by Megantic, or it could be his proposed concession in the face of Megantic which he would then carry back to Mr Klass and seek to agree.

22.	Following the discussion, matters appear to have broken down completely and by the time 9th October 2007 came along Megantic had instructed other lawyers, Charles Gomez & Company, Barristers at Law of Gibraltar, and on that date they wrote to Dorseys.  In part I quote as follows:
“Attached please find copies of your various ‘bill breakdowns’ containing annotations made by your primary file handler and Partner, Mr Les Allen.  As you will see he makes a number of admissions clearly indicating that there has been overcharging on a monumental scale (£341,349.74).  

Your conduct represents an extremely serious breach of your duty of good faith towards our client as a result of which they have naturally lost all faith in you and, as a result, are forced in the middle of complex litigation to seek alternative representation.”

	The letter goes on to record Megantic’s intention to complain to the Law Society and the intention of Charles Gomez & Company to quantify damages: 
“…although the full amount of the losses will not be capable of quantification until the impact of your behaviour on the ongoing litigation has been assessed. Undoubtedly the amount will be very substantial indeed and we reserve the right to claim exemplary damages. 

No doubt you will immediately send a copy of this letter to your Professional Indemnity Insurers.”

	A little later they propose a mediator. Finally they say:
“Finally we think it fair to warn you that we are seeking Counsel’s advice on the possible criminal liability implications of this matter.”

23.	Dorsey replied on 17th October:
“We have no intention of litigating this matter by correspondence. The position is clear: this firm has acted for Megantic in high stakes litigation pursuant to the terms of a binding and enforceable engagement letter under which Megantic is liable to pay our fees and disbursements in accordance with the hourly rates therein set out (subject to annual review) and it has plainly failed to do so.  

Megantic paid this firm’s bills as and when it suited it to do so and continued instructing us to do work for a considerable period of time during which substantial fees and disbursements were incurred…   

Your claim that there has been overcharging on a monumental scale is emphatically denied and rejected.  We note that you put the amount of overcharging in the sum of £341,349.74 (although it is not clear to us how you arrived at that figure because the annotations quantify reductions of approximately £280,000.)  While we do not for one moment accept an overcharge in that or any other sum, we note that even on your own case you appear to concede that the sum of £175.714.28 is unchallenged and owing (this is calculated by deducting from the £517,064.02 in unpaid fees and disbursements the alleged overcharging in the sum of £341,349.74 leaving a balance of £175,714.28.) In the circumstances, we assume you would accept that at the very least this sum should be paid without further delay and we look forward to payment of the same by return.

The allegation of overcharging is based solely on the annotations made by Leslie Allen of this firm to the detailed breakdowns provided to Megantic. You characterise those annotations as ‘admissions’ of overcharging.  Your contentions in this regard are fundamentally flawed and entirely misconceived.  As Megantic will well know, the annotations made by Mr Allen to the detailed breakdowns were made by him at their request during a meeting held at our offices on 24th September 2007.  Mr Allen acted as stenographer and not author of the comments contained in the annotations.”

24.	Dorsey then go on to explain the background to that meeting and suggest that there must be a serious offer to resolve matters by 19th October or they will take legal action. I pause to observe that, before me, the assertion that Dorsey make in that letter, that the annotations do not in fact total £350,000 but would amount to reductions of around £280,000, has not been accepted or rejected by anyone.  The outline figure asserted by Megantic has been the working basis for all those to date, so far as I have been shown.

25.	On 18th October Charles Gomez & Company replied:
“Our client stands by its position that it has been very seriously overcharged and that your conduct represents a breach of a fundamental term of your retainer, the duty to act in good faith, as a result of which you are not only not entitled to any further payment but also liable to our client for damages for breach of contract and/or trust.”

	The assertion that Mr Allen was making concessions by his annotations is repeated.

26.	Dorsey & Whitney sued. A Defence and Counterclaim was entered on 7th January 2008.  It is a short document.  In essence, the lines of defence were that the contract for fees was an entire contract and that no part of the fees could be obtained until the work was complete. Secondly, that there was no final bill delivered.  Next, that it was agreed that £335,000-odd had been paid and £516,000-odd was alleged to be due. The defendants (in the hallowed phrase) put the claimants to proof of all those bills. There was a general allegation of excessive charging, a counterclaim seeking a detailed assessment of all the fees, repayment of any sums overpaid, and criticism that it had been negligent to “make no effort” to get costs in respect of the successful permission for judicial review.  This pleading sets out no detail as to any of the alleged overcharging.  At that stage the defendants were unaware that Mr Allen was not a solicitor and so of course no point could be taken as to whether he could or could not sign the bill – a point taken later in these proceedings – as a partner in the firm.

27.	The Reply and Defence to Counterclaim was served by Dorsey on 21st January.  It is detailed and fully argued and sets out to refute and answer the outline allegations made in the course of the Defence and Counterclaim.

28.	That is the context for the hearings before the master and the orders made by the master.  The first hearing before the master took place on 29th January 2008. There were two applications.  The defendants’ application for an order that the claimant deliver a bill of costs for assessment was refused, and the master ordered that the defendant, no later than 29th February 2008, serve a draft amended defence on the claimant and file the same, and directed as to how the defence should set out the defendants’ allegations giving specific and clear directions to the defendants with which they must comply.  Mr Bacon, for the claimants here, make the point that they had asked for and been given additional time to plead.  

29.	The second order of the same date was upon the claimant’s application for an order that the defendant make an interim payment to the claimant of £175,000. The rubric to the order was cited by the master on the order itself and reads in part:
“AND IT APPEARING to the Court that the Defendant acknowledged as long ago as the 9th October 2007 that on its own version of the facts it owed the Claimant £175,000 AND that there is no material before the Court enabling the Defendant to go behind that acknowledgement

IT IS ORDERED 
1  That the application be granted.
2  That the Defendant by no later than 1 p.m on the 12th February 2008 pay the Claimant £175,000 by way of interim payment 
3 That there be liberty to the Defendant by no later than the 5th February 2008 to apply for a variation to ‘2’ above, any such application to be supported by a detailed witness statement of means, exhibiting any documents to be treated as relevant.”

	Then the master provided for costs on the application.

30.	The transcript of the proceedings which led to these two orders, both of which are appealed, reveals the nature of the discussion before the master and it is absolutely clear that on the way the matter was being put by the claimant before him the figure of £175,000 was not “challenged” or “undisputed”.  Mr Finch, who then appeared for the defendant, argued for an assessment, but the master rejected that fairly roundly and then pressed Mr Finch to respond to the question of interim payment:
“MASTER EYRE: I am going to hear the rest of this. You should be focusing your mind now on the question of a payment as to which the amount needs to be considered and whether it is to be made to the claimant or perhaps into court, and secondly directions.

MR FINCH:  In that case, Master, I will be guided by you on this matter. I would ask for leave to seek instructions on the correct amount.

MASTER EYRE: I will notionally rise now. You can take instructions now from your principals.”

31.	Then Mr Finch took instructions, returned before the master and continued as follows:
“MR FINCH:  May it please you, Master, I managed to speak to Mr Nicholson, who is one of the interested persons as already mentioned.  Megantic itself, may I just explain, the defendant itself, because its monies have been withheld by Customs, the repayment of their input VAT in a substantial amount, the company itself is virtually without liquidity at all.”

	He went on to explain the lack of liquidity on the part of the company, but made clear that Mr Nicholson would consider making a personal loan to the company in the amount of half of the £175,000, although there might need to be some provisions as to time.

32.	Mr Finch having argued in that fashion, Master Eyre turned to counsel for the claimant. Mr Bacon told him:
“During the course of the retainer by the defendant of the claimant, the claimant recovered something £8 million---”

	Master Ayre then stopped Mr Bacon and said to Mr Finch:
“This is not acceptable, Mr Finch. I am proposing to order that the full amount be paid in 14 days and that there be liberty to apply in the next seven days, any such application to be supported with a detailed witness statement of means exhibiting any relevant documents. If the defendant wants to say, ‘No, our means are such…’, a detailed witness statement of means if Mr Nicholson who is proposing actually to fund at least part of this [then that should be provided].”

33.	So that was the way the matter was dealt with, before the master made his order. 

34.	I remind myself that the relevant provisions for making an interim payment are contained in CPR 25.7 and for present purposes subparagraph 1(c):
“(1) The court may only make an order for an interim payment where any of the following conditions are satisfied…

(c) it is satisfied that, if the claim went to trial, the claimant would obtain judgment for a substantial amount of money (other than costs) against the defendant from whom he is seeking an order for an interim payment whether or not that defendant is the only defendant…

(4) The court must not order an interim payment of more than a reasonable proportion of the likely amount of the final judgment.

(5) The court must take into account-
(a)	contributory negligence; and
(b)	any relevant set-off or counterclaim.”

35.	The appellant says that the master did not pay sufficient attention to the criteria, to the fact that there was no judgment, to the contents of the counterclaim and the nature of the defence.  Criticism is also made of this decision of Master Eyre, and of the other decisions, that no reasoned judgment was given. I disagree with those criticisms. First of all, it is not necessary for full reasoned judgments to be given in interim payment applications. That has never been universally practised and should not need to become so. The question is: was the decision properly reached?

36.	Secondly, at this hearing before the master the appellant simply had not made anything of the Defence and Counterclaim to this level.  There had been no assertion with any force or backed by any reasoned argument as to why the Defence and Counterclaim were likely at any level of likelihood to reduce the claim below £175,000 above and beyond the monies already paid. I would in any event have been reluctant to interfere with a decision of this kind, since it is a matter of case management, and interference with such a decision should, as courts have repeatedly said, only be taken if there is a clear mistake.  In any event, on the order made, the defendants could seek to vary. 

37.	Going back to the terms of the order itself, the master specifically provided that the defendant could seek to apply for a variation providing the application was made by 5th February.  Of course he went on to stipulate that such an application should be supported by a detailed witness statement of means, and the reason that he did so was that the live issue in argument before him was not that the Defence and Counterclaim would extinguish the £175,000, but that he should not order an interim payment because it would have the effect of stifling the action since the defendant, Megantic, could not pay it.  So that is why, no doubt, that provision appeared as to how the defendants might approach an application to vary.  But it is perfectly obvious that, had the defendants sought to vary on that basis, nothing could have prevented them from seeking to vary on any other basis. They could perfectly well have returned before the master and said, “Master, please reconsider and vary this order to nil or to a nominal sum, because it is inappropriate for any reason.”  

38.	Therefore, in respect of the orders made on 29th January and in particular the order for an interim payment , it seems to me that this was a perfectly proper order, it was not wrong, and the appeal is dismissed.

39.	On 5th February the defendants did apply to vary the order for interim payment and to stay the order until the application was heard, and on 7th February there was indeed a further hearing. By then a witness statement had been served by Mr Brookfield dated 5th February.  There are two relevant features to this witness statement. Firstly, in paragraphs 11 to 14 Mr Brookfield made a series of assertions about the underlying position of Megantic in relation to the allegations of VAT fraud and of the attitude by the Revenue Commissioners. He said:
“11. The defendant has not participated in any VAT fraud. Since the transactions, the defendant has had no knowledge of any VAT fraud. The defendant also has no knowledge of any VAT fraud committed by anyone else.”

	Paragraph 12 reads in part: 
“HMRC’s verification process into the April 2006 VAT return has now taken over 20 months and has not produced any evidence to indicate that the defendant had knowledge or the means of knowledge of VAT fraud in relation to any of the transactions it entered into. This is acknowledged by HMRC.  The defendant has continuously attempted to expedite matters by corresponding with HMRC…

13. HMRC have already examined the deal packs and export documentation, initiated enquiries into the transaction chains and initiated enquiries of customers in other EU Member States.  None of these investigations have produced evidence to show that the defendant had knowledge, means of knowledge or involvement in fraudulent transactions.  This is acknowledged by HMRC.

14. Since 18th July 2006, HMRC have acknowledged that they have found no VAT losses in 88 of the 98 transactions undertaken.”

40.	It follows that Mr Brookfield was making a very direct suggestion in his witness statement that HMRC had acknowledged that they had found no fraud in relation to the investigations to that point.

41.	He also dealt, in paragraphs 29 and following, with the means of Megantic and in very short form in paragraph 31 set out the assets of Megantic without reference to any accounts or in any audited way.  I take these slightly out of order: 
“Fixtures and fittings 				       £500
Debtors/Prepayments				       £23,820
First Curacao International Bank [frozen account]    £236,326
Cash at Bank [see exhibit SJB2 for breakdown]        £40,635
HMRC – VAT Debtor 				£38,574,887”

	Recent bank statements were produced to support the “Cash at bank”.

42.	It became a live issue before the master as to whether the Revenue did or did not acknowledge that there had been no evidence of fraud. The assertions made by Mr Brookfield in this witness statement appear to me (I shall review how they appeared to the master shortly) to be, at the very least, a wild overstatement.  The Revenue did not acknowledge and have not acknowledged that their evidence so far disclosed no fraud.  They were taking active steps to prosecute proceedings at this stage and for some months thereafter; indeed it is continuing to this day so far as this court is aware, with continuing tribunal proceedings designed to show that there was fraud.

43.	Also before the master at this hearing was evidence from Savina Kanagasabay in a witness statement dated 6th February which reads in part:
“The defendant has recovered over £8 million whilst being represented by the claimant. Please see the schedule I have prepared by reference to our documents at page 1. This amount consisted of payments from HMRC in relation to repayment supplement returns, VAT incurred on expenses and VAT repayment claims.”

	That last quotation is, of course, relevant to the assertion which had been made in the previous hearing by Mr Bacon for Dorsey that Dorsey had recovered £8 million in the course of the period they represented the defendants.

44.	On the application to vary, the master, having that evidence before him, ordered on 7th February: 
“AND IT APPEARING to the Court that the Applicant’s evidence falls far short of what is required to justify any such Order as is sought

IT IS ORDERED THAT:

1   The application be refused.
2  There be liberty to the Defendant to apply, any such application to be supported by a properly detailed witness statement exhibiting all documents to be treated as relevant and to be served and filed no later than 1 p.m on 12th February 2008.  
3. If the application be made as above, time in which to make the interim payment be extended to 1 p.m on 19th February 2008.”

45.	So once again, although very far from satisfied by the evidence produced by the defendant, the master gave further liberty to apply so that the defendants had a third opportunity – once before the first order and once before the first application to vary – so as to show the master that it was not appropriate to sustain the order he had made.  Again on the face of what was before the master at that time, it seems to me that that order was perfectly correct, it was not wrong, and the appeal in respect of that order is dismissed.

46.	The matter then came back before the court on 18th February. More evidence was brought to bear upon matters before then. Firstly, there was a further witness statement from Mr Brookfield of 12th February.  In paragraph 5 of that statement (which it is not necessary for me to read out) in general terms Mr Brookfield sought to sustain the nature of the defence as being disputes as to whether Mr Leslie Allen had overcharged the defendant, whether there was a fundamental breach of contract or professional duty, and whether there were damages which would arise. He did say also that the defendant would seek to argue that the amount already paid by the defendant to the claimant in respect of its costs is excessive.  However, although this was now the third opportunity, no detail, no back-up, no full account of how all of these matters might bring the net which would be likely to be recovered below £175,000 was ever even attempted, in my judgment, in the course of this witness statement.

47.	Mr Brookfield did raise a point that he had been advised by his solicitors, Roach & Co (not Gomez, it seems), that 
“…no action may be brought to recover any costs due to a solicitor before the expiration of one month from the date on which a bill of costs is delivered in accordance with the requirements of the Solicitors Act 1974 (‘the Act’).  One such requirement of the Act is that the bill of costs must be signed by the solicitor, his personal representative or assignee, or, in the case of a partnership, by any of the partners either in his own name or the name of the partnership, or must be enclosed in or accompanied by a letter so signed and referring to the bill.”

48.	The point being taken by Mr Brookfield, which was then argued by the next advocate appearing for the defendant, was that the bills were unsigned. This point is not maintained today and was untenable in any event since the bills were signed. An allied point is raised by Mr Williams as to the signature by Mr Allen, and I will turn to that at the end of this judgment.  Mr Brookfield did return to the financial position of the defendant, giving a little more detail of the background to the defendant’s trading, including some detail of VAT returns, and he restated the estimated statement of assets of the defendant, but it amounts to nothing more than a restatement of the figures already set out in previous witness statements.

49.	With regard to the £8 million-odd VAT which had been recovered, while accepting that it had been recovered, Mr Brookfield asserted that Miss Kanagasabay, and indeed the claimant, “was not instrumental in the recovery of these sums”.  Of course, whether they were or not may be interesting, but it is not the point.  The point is whether the defendant had the means to make an interim payment, and that was the point no doubt which had been advanced by Mr Bacon before the master.  It is clear that there was an absolutely huge debt alleged by Megantic to be owing to them from the Revenue.  At the same time they were strongly suggesting that they had not been guilty of any fraud and that they would therefore recover the money.  It is difficult to follow the logic by which at the same time they say there was no fraud, and indeed claim the Revenue do not believe there was a fraud and have conceded that there was no fraud, on the one hand, but, secondly, they say “There is nearly £40 million owing to us which we will recover because there was no fraud, and yet we are unable from any source to raise sufficient means to satisfy an interim payment of £175,000”.  

50.	On 15th February Savina Kanagasabay added a further witness statement, this being her third.  In paragraph 4 the statement reads as follows:
“At the last hearing Master Eyre requested that the defendant provide some details of the underlying VAT litigation. Those documents were in the defendant’s possession but are omitted from Mr Brookfield’s statement. Accordingly, I exhibit them to this statement.  At pages 1 to 6 is the decision letter dated 9th March 2007 from HMRC refusing the VAT claim on the grounds that they are ‘satisfied that the [relevant] transactions….form part of an overall scheme to defraud the Revenue’.  At pages 7 to 23 of the pleadings submitted to the VAT tribunal by the defendant and HMRC respectively this is an appeal reference…”

	She gives the number.
“There are a number of other appeals by the defendant to the VAT tribunal in respect of other transactions, but the issues do not materially differ.”

51.	It is clear from that witness statement that, whilst the issue as to whether Mr Brookfield was being disingenuous about the stance of the Revenue had been raised at the second hearing before the master, he had specifically asked the defendant to give details of the underlying VAT litigation.  It seems they did not.  Miss Kanagasabay did, and we shall see in a moment how the master reacted.

52.	So then there was the hearing on 18th February, this being the third in the sequence.  The points then taken in argument by the defendant, as the transcript reveals, were the signed bill points – that the bills had not been signed at all; that there was no fraud; and that the position of the company meant that they could not pay.

53.	These issues emerged from the witness statements that led up to the 18th February hearing, but when one looks at the transcript there is a very significant passage where Mr Cullen, very early in the hearing, when renewing his application to vary the order and to prevent there being an effective order for an interim payment, said this:
“I am not seeking to re-open the argument that might have been had on the previous occasion. The relevance of that though is perhaps just emphasising that there is a serious dispute here, and there is a defence to be noted and issues to be gone into, but I will return to that.”

	Mr Cullen never really did return to that, and what he was conceding here was that he was not intending to make a live argument as to any of the other issues but those which he then addressed. He was not seeking to re-open the underlying propriety of making an interim payment order, and he concentrated from that point on on the impecunious nature of the company.  He dealt with the point as to whether the Revenue authorities had exonerated his clients from fraud.  The master pressed him by saying as follows:
“You say that, but Mr Brookfield said: ‘The defendant has been exonerated by the Value Added Tax authorities.’”

	That was a comment or rather a paraphrase by the master of the evidence from Mr Brookfield that I have quoted earlier in this judgment.  The master went on:
“All right.  All I ask is to let me see whatever the document is that confirms that. That will be a giant leap forward for this application. The crux of it is that this is a form of trading in which repayment of Value Added Tax from the authorities is absolutely crucial to the viability of it, and that, for reasons according to the applicant, do not reflect on the applicant that there has been an obstruction. So now there is a very serious situation.  All right, so be it.  Please may I see the documents that  confirm this to be the case.  It is specifically put in evidence by the applicant that it has been exonerated. It is not a question of inferences of suspicions. That is its testimony.  I must say that if it wants to maintain that, I wish to see the evidence that confirms that.”

54.	The point is repeated slightly later in the transcript.  No evidence was produced to show that the Revenue authorities had exonerated the defendant.  

55.	In the course of this hearing, counsel for the defendant produced to me some of the reports of tribunal proceedings where it is clear that concessions have been made by counsel currently acting for the Revenue and in relation to these defendants’ proceedings before the tribunal, to the effect that on the existing served evidence there might not be enough for a successful prosecution or impugning of the defendants. That is very far from an exoneration.  It is very far from material which, even if it had been before the master (which it could not have been since it post-dates the hearing before master) would have left him very far short of the position advanced on behalf of the defendants before him.

56.	There was further discussion about funding. The advocate for the defendants told the master that Mr Nicholson had previously offered some funding but that that offer had been withdrawn; that he might not respond to a renewed request for funding if the order for interim payment was maintained, and that is all really that was added to the defendants’ position on this application.  The suggestion that the unsigned bills provided a get out for the defendants was not pursued, and although it is not clear from the transcript, it was conceded before me that in fact signed bills had been shown to those who represented Megantic.  

57.	That was the state of evidence before the master on the 18th.  He then proceeded to make the further order of 18th February. Again following his usual approach, perfectly properly, he recited on the face of the order some of the key points which act as a preamble to the order:
“And it appearing to the court that the defendant’s assertion that HMRC has exonerated it from any guilty involvement in the alleged fraud is on the evidence quite untrue.

The rest of its evidence, other than where corroborated independently, is, for that reason, suspect.

The evidence as a whole does not warrant the making of any order in the defendant’s favour and it is ordered that the application be refused.”

58.	I should add, for the avoidance of any doubt, that those representing the defendants before the master on that occasion never attempted to say, “We didn’t try to assert that the Revenue has exonerated us.”  They simply failed to make out the assertion.

59.	It is obvious that the master was concerned about credibility. He was entitled to be.  It is impossible in a hearing such as this to reconstruct the tone and flow of a hearing before a master.  It is clear from the way the material emerged and from the transcript that his conclusion was, to some considerable degree, influenced by the fact that he felt the defendants had really seriously overstated their position, and that that impinged on their credibility.  It seems to me that was a perfectly fair conclusion.

60.	It is now argued by Mr Williams for Megantic that, taking all the points together, it was wrong to sustain the order for an interim payment.  The cardinal point, he says, is that the order was made on the basis that £175,000 had been conceded as owing by the defendants, that there was no such concession, and that it was as simple as that.  I disagree. What is advanced by the claimant here is that there was no challenge to £175,000 being owed. The riposte was, “See the Defence and Counterclaim and the negligence that was set out there”, but that was never amplified, given flesh and blood, given detail or indeed pursued actively before the master.  He could not be obliged to imagine that was said by the defendants to be a live issue, when they dealt with it in such a short and indeed unenthusiastic fashion before him.   He was entitled to conclude that there was no substance to these allegations and that it was not seriously argued (because it never had been seriously argued) that they would mean there would be recovery of less than £175,000.  It is relevant to remind ourselves that he had left the door open twice so that these defendants had opportunities to come back, reformulate the case and tell him why the order was inappropriate.  They did not. The master was fully entitled to take the view he did.  

61.	The particular part of the counterclaim upon which some emphasis is laid by Mr Williams is the allegation that there was negligence in not obtaining costs for judicial review proceedings, given that permission was granted to these defendants to seek judicial review against the Commissioners, and that those proceedings were then compromised.  In my judgment, even had it been advanced actively before the master so that he could respond to it, this was not something that was likely to succeed. The quantum of such costs would be likely to be very small relative to the figures in this case, even allowing for the intense and expensive services offered by the claimants.  Secondly, counsel for both parties have cited to me examples of cases where costs have, or have not, been recovered in such a situation.  It has to be thought arguably negligent to compromise proceedings in such circumstances as this before that could begin to be a live issue.  It seems to me that there is a very poor prospect for the defendants that such damages would arise at all, given the practice on cases of that kind, and even more difficult to see how it would make a significant impact on the damages in this case.  One must bear in mind the overall shape of the case. There was £350,000 worth of costs which, for all purposes, was simply left out of account before we get to the £175,000 said to be the basis of the interim payment.

62.	A point is now taken that was not and indeed could not have been taken before the master, relating to the status of Mr Allen. I have made reference to that briefly above. He was not a solicitor; he was a barrister. What is said is that, therefore, although the bills were signed by him, those bills did not then comply with the Solicitors Act.  Section 69 of the Solicitors Act 1974 provides in part as follows:
“(1) Subject to the provisions of this Act, no action shall be brought to recover any costs due to a solicitor before the expiration of one month from the date on which a bill of those costs is delivered in accordance with the requirements mentioned in subsection (2)...”

	Subsection (2) reads in part:
“The requirements referred to in subsection (1) are that the bill-

(a) must be signed by the solicitor, or if the costs are due to a firm, by one of the partners of that firm, either in his own name or in the name of the firm, or be enclosed in, or accompanied by, a letter which is so signed and refers to the bill…

and, where a bill is proved to have been delivered in compliance with those requirements, it shall not be necessary in the first instance for the solicitor to prove the contents of the bill, and it shall be presumed, until the contrary is shown, to be a bill bona fide complying with this Act.”

63.	Mr Williams says that since the bill was signed but not signed by a solicitor or a partner in the firm of solicitors, it does not comply with the Act. He says, therefore, that no action should be begun on those bills.  He says that a right to an assessment is a right which arises for up to one month after service of such a properly signed bill, that the requirement to serve such a properly signed bill would inevitably be met here by an exercise of the right to assessment and by an application for a stay, and that thus an interim payment is inappropriate.

64.	Mr Bacon argues that the meaning of “partner” within the Act includes someone described as a “senior partner” in a practice such as Dorsey.  Secondly, he says that, if that is wrong, the requirement under the Act is directory and not mandatory, and that, there having been action issued on the basis of these bills, it can properly be maintained and the requirement should not interfere with the action. Thirdly, he says that a purposive interpretation of the statute which must be applied to make sense of the statute, given change to conditions since 1974, and the purposes to ensure that the individual lawyer with conduct and responsibility for the legal services provided is the person who authorises the bill as being authoritative, the object of the section in the statute being to ensure that the client knows this is the authoritative bill and that there can be no doubt about that.  He says that the various liberalisations of the common law and then, later, statutory precursors to this section demonstrate that, since no longer is it necessary for a full manuscript signature to be applied to a bill: it can be stamped or initialled, and so forth.  Lastly, he says that, if all that is wrong, in any event we are dealing with the same set of proceedings. Even if there were held to be a requirement for fresh bills to be delivered, signed in manuscript by Mr Klass or some other solicitor who is an equity partner in Dorsey, then none of that undermines the prospects of the claimants’ recovery in the action to exactly the same extent, and none of it undermines the propriety or appropriateness of making an interim payment order such as that made by the master.

65.	Clearly when this Act was promulgated Parliament will have had in contemplation only “partners” in the conventional sense of equitable partners in a firm of solicitors, the regulatory position of solicitors in the early 1970s being a world away from the world of legal services in 2008.  Does that mean that such a signature as that of Mr Allen cannot fulfil the test?

66.	I am attracted by the argument advanced by Mr Bacon that the purpose of the statute is to give an authoritative bill, that in a case such as this the Act must be interpreted to include someone who is a senior partner in the sense that Mr Allen was a senior partner or partner, meaning someone who can sign the bill with authority.  

67.	I have been referred to no direct authority on this point; nor is it appropriate that I should have been.  I imply no criticism to counsel.  If such authorities do not exist, certainly they are not before me.  An analogous case has been drawn to my attention, that being Zuliani & Others v Vernon S Veira [1994] 1 WLR 1149, an appeal to the Privy Council from the Eastern Caribbean Court of Appeal,.  It is not necessary for me to recite even the headnote from that case, but it seems to me that, although not binding authority because it is a decision of the Privy Council, it is strong advisory authority that would support a liberal interpretation of the Act, that would support a sensible solution to the professional problem of needing an authoritative signature on the bill for the security and comfort of the client, and would also support the interpretation that this requirement is directory and not mandatory.

68.	In the end, I do not decide that it is unarguable that the meaning of “partner” should be expanded in the way Mr Bacon suggests, but my decision is based on the conclusion that the requirements here, even if unfulfilled, are directory and not mandatory. Were a purposive interpretation to be applied to the Act, which may or may not be permissible, it would certainly favour such an interpretation. But that is a separate line of reasoning.

69.	In any event, the decision here was taken and can be taken on the basis set out in the Rules.  I must return to the central question that the claim, if it went to trial, would bring a substantial amount of money other than costs to the claimant, that that decision must be taken taking into account the likely amount in the final judgment following the question of contributory negligence or any relevant set off or counterclaim, and that the interim payment must not be more than a reasonable proportion of the likely amount of the final judgment.

70.	In my judgment, there is nothing in this final argument which alters the conclusions reached properly by the master.  He was entitled to find that £175,000 was a long way short of the likely recovery. I have heard nothing which disturbs that conclusion or which shows that it was wrong, including the argument based on the status of Mr Allen which could not be advanced in front of the master.

71.	It follows that these appeals are dismissed.