JUDGMENT

1.	Following the outcome of trials of the principal issues the first defendant (SCL) has sought orders pursuant to Section 51 of the Supreme Court Act 1981ActsActs against the second claimant, Mr David Flood (Mr Flood), and has also joined the former solicitors who once acted for the first claimant (FOQ), Winward Fearon (WF) to obtain a similar order against them. (Mr Flood and his brothers are directors of FOQ but Mr Flood runs the company and its affairs.) In March 1999 I decided that FOQ was entitled to £214,793.87 and that SCL's contested counterclaims failed. In December 1999 I rejected FOQ's claim under section 2(2) of the Misrepresentation Act 1967. SCL had paid £350,000 into court on 24 March 1995 so I then decided that, whilst FOQ was entitled to its costs to that date, SCL was entitled to recover its costs from FOQ thereafter. (FOQ was also awarded interest of nearly £50,000 so that the total for which judgment was given was £264,462.99; that amount was to be treated as an interim payment on account of SCL's costs after 24 March 1995.)
2.	FOQ has had no money for a long time and never had much before the inception of this action. SCL was aware of FOQ's position and has long been curious (and concerned) to know how and by whom this action has been financed. Its case, in essence, is that SCL although faced with a grossly inflated claim, acted in an appropriate manner at a very early stage of the litigation by paying into court what has been proved to be a generous amount and which ought to have been regarded as generous at that time. It was therefore submitted that those who decided to press on with this litigation in the expectation that a greater sum would be recovered should be required to compensate SCL as that expectation not only did not materialise but was never likely to do so.
3.	Similarly but for different reasons Mr Flood has long been concerned about SCL which ceased operations at the outset of the sub-contract. The costs of its defence was met from group funds, specifically by Morrison Construction Limited. Mr Colin Reese QC submitted that there was nothing in this point since Mr Flood or Winward Fearon have been aware of the reality since 1995 (at latest) and a formal undertaking was given willingly at their request that Morrison Construction Limited would meet any judgment in favour of SCL.
4.	The issues which I have now to determine are agreed and are the following:
	1   Did the second claimant, Mr David Flood, fund and/or maintain and/or finance the proceedings, or any part thereof, brought by the first claimant against the defendants? 2   Is it just in all the circumstances to make Mr David Flood pay the unrecovered costs (or a proportion thereof or a fixed lump sum representing a part of the unrecovered costs) of the proceedings? 3   Does the court have jurisdiction to make an order against Winward Fearon? Did the second Part 20 defendant, Winward Fearon, fund and/or maintain and/or finance the proceedings or any part thereof, brought by the first claimant against the defendants? 4   Is it just in all the circumstances to make Winward Fearon pay the unrecovered costs (or a proportion thereof or a fixed lump sum representing a part of the unrecovered costs) of the proceedings? 5   To whom should the insurance monies which were paid into Court pursuant to the order dated 9 June 2000 be paid? (The last issue refers to legal costs insurance which was obtained by FOQ in 1997 and 1998.)
5.	Before I set out the facts I need to refer to the first part of issue 3. WF maintain that as a matter of law I do not have power to make an order against it. Mr Nigel Davis QC and Mr Edmund Cullen submitted that the only power was to be found in sections 51(3). Section 51 of the 1981 Act, as amended by the 1990 Act, is, in material parts, in these terms:
	"(1)   Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in (a) the civil division of the Court of Appeal; (b) the High Court; and (c) any county court, shall be in the discretion of the court. ..... (3)   The court shall have full power to determine by whom and to what extent the costs are to be paid. .... (6)   In any proceedings mentioned in subsection (1), the court may disallow, or (as the case may be) order the legal or other representative concerned to meet, the whole of any wasted costs or such part of them as may be determined in accordance with rules of court. (7)   In subsection (6), wasted costs means any costs incurred by a party (a) as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay. "
6.	Mr Davis for WF submitted that no order could be made under section 51(6) or (7) in the absence of improper, unreasonable or negligent conduct. He also submitted there was authority binding on me that no order could be made under section 51(1) and (3) against the legal representative of a party. In Tolstoy-Miloslavsky v Aldington [1996] 1 WLR 736 the Court of Appeal held that there was no jurisdiction under s 51(1) and (3) of the 1981 Act to make an order for costs against legal representatives when acting as legal representatives. There were only three categories of conduct which could give rise to an order for costs against a solicitor: (i) if it was within the wasted costs jurisdiction of section 51(6) and (7); (ii) if it was otherwise a breach of duty to the court such as could found an order (e.g. if he acted, even unwittingly, without authority or in breach of an undertaking); and (iii) if he acted outside the role of solicitor (e.g. in a private capacity or as a third party funder for someone else). Accordingly it set aside an order in favour of the defendant which had been made on that basis (although the decision was upheld as a proper application of section 51(6) and (7)). Rose LJ said at page 745H:
	"There are only three categories of conduct which can give rise to an order for costs against a solicitor: (i) if it is within the wasted costs jurisdiction of section 51(6) and (7); (ii) if it is otherwise a breach of duty to the court such as, even before the Judicature Acts, could found an order, e.g., if he acts, even unwittingly, without authority or in breach of an undertaking; (iii) if he acts outside the role of solicitor, e.g. in a private capacity or as a true third party funder for someone else.    There is, in my judgment, no jurisdiction to make an order for costs against a solicitor solely on the ground that he acted without fee. It is in the public interest, and it has always been recognised that it is proper, for counsel and solicitors to act without fee. The access to justice which this can provide, for example in cases outwith the scope of Legal Aid, confers a benefit on the public. Section 58 of the [Courts and Legal Services Act 1990], which legitimises conditional fees, inferentially demonstrates Parliament's recognition of this principle. For it would be very curious if a legal representative on a contingent fee and, therefore, with a financial interest in the outcome of litigation, could resist an order for costs against himself but one acting for no fee could not. Whether a solicitor is acting for remuneration or not does not alter the existence or nature of his duty to his client and the court, or affect the absence of any duty to protect the opposing party in litigation from exposure to the expense of a hopeless claim."
	This decision was considered in Hodgson v Imperial Tobacco Ltd [1998] 1 WLR 1056. Lord Woolf MR, in giving the judgment of the court, said at page 1066C:
	"The second area of additional jurisdiction is that which arises under the general jurisdiction of the court as to costs contained in s 51(1) and (3) of the 1981 Act. This is a jurisdiction which cannot arise where a legal representative is acting only in that capacity in the context of legal proceedings. There are therefore three possible heads of jurisdiction under which a legal representative may be made liable for costs. That this is the position was made clear by the decision of this court in Count Tolstoy-Miloslavsky v Lord Aldington [1996] 1 WLR 736."
7.	Mr Colin Reese QC for SCL accepted the effect of these decisions but reserved the position of SCL in the event that they had to be considered by the House of Lords. He made certain submissions directed to removing SCL from the ambit of Tolstoy-Miloslavsky but in my judgment it would serve no useful purpose to deal with them as they do not bring SCL within any of the exceptions. Nevertheless I shall return to the submission that an order should be made against WF. Otherwise I am bound to answer the first part of question 3: No.
8.	Mr Christopher Gibson QC for Mr David Flood accepted that the Court had jurisdiction under section 51 but submitted that the necessary facts had not been made out: Aiden Shipping Ltd v Interbulk Ltd [1986] 1 AC 965. His case in essence is that the facts of this case simply do not justify such an award. It is contended on his behalf that he did not materially 'fund' or finance the claim, nor did he improperly maintain the claim.
9.	Before setting out the facts it is necessary to record that, inevitably, the documents and evidence were incomplete. Parts of the documents were redacted as they were privileged. Mr Flood produced a large number of documents at a relatively late stage. But for them it would have been very difficult to have got any reasonable picture. Nevertheless there remain areas where I do not have material to make any findings, and the redacted passages have made me very cautious about expressing views about the advice given or not given to FOQ and to Mr Flood. The action was commenced on 10 October 1994 by FOQ which was then represented by Church & Church. The partner in charge of the case, Mr Timothy Reynolds, had been advising FOQ since early 1994. He moved to become a partner of Winward Fearon so WF took over in January 1995. From the outset FOQ had no money to pay its solicitors. Church & Church's invoices had not been paid, and as will be seen, WF's bills were not paid. On 2 February 1995 a discussion took place between Mr Reynolds, Mr Flood and Mr Jones about funding, which was noted by Mr Reynolds. Mr Flood thought that about £40,000 was due to Church & Church and that "he was in effect living off VAT refunds. This raised major issues about future funding of [the] case". Discussion took place about FOQ's exposure to an application for security for costs and about Mr Flood obtaining Legal Aid, since, not for the first or last time, Mr Flood had evidently been looking up the law. The note of the discussion provides early evidence not only of Mr Flood's thorough knowledge of the law which undoubtedly has informed all that he has done and not done, but also of his contacts with other solicitors some of whom have been paid (but the origins of the payments are still not entirely clear to me). Mr Reynolds recorded that he would "see whether WF might be prepared to fund a case on any terms", and from his cross-examination this included the possibility of providing credit until the conclusion of the case.
10.	On 1 March 1995 I gave directions towards a trial starting in June 1996. On 24 March 1995 SCL paid £350,000 into court in satisfaction of the claims against it. Although the notice did not cover any counterclaim in reality it did so since much of FOQ's claim required decisions about the periods within which its work was to be carried out and completed and whether it was obliged to do certain work, both of which areas were central to the counterclaim subsequently advanced. For all practical purposes if FOQ had wished to accept the offer represented by the payment into court the action would have been disposed of by agreement. FOQ had been paid £831,225 so in order to beat the payment into court the total valuation of its works plus its claims would have to be assessed at a minimum of about £1,182,000. The actual costs that it incurred in performing the sub-contract came to about £1,115,000, exclusive of any allowance for overheads and profit. It had however off-loaded a substantial part of the costs by means of "credit notes". In my judgment Mr Reese was right in submitting that if the payment in had been accepted FOQ would have been able to recover all the costs and its costs of the action (taxed) and with a margin of over £100,000. SCL subsequently applied for security for costs. Mr Flood maintained that he was not advised about the payment in, and it seems that there was no formal written advice. However the payment into court had been preceded by settlement discussions during which FOQ was offered £400,000 in two tranches. Mr Reynolds agreed that this was a serious offer and that he undertook to reply to it but the offer was not accepted (nor was it positively declined). If FOQ had wanted formal advice about the offer I am sure that it would have been given, even though SCL's defence was not known in any detail. It was not sought as Mr Flood (and Mr Reynolds) thought that the amount would be improved. Mr Reynolds said that at the time of the settlement discussions Mr Flood had been told of his view that the claim was worth between £500,000 - £700,000 although it was not raised in the discussions. This belief evidently continued until the end of the trial and was the dominant reason for Mr Flood's pursuit of the defendants and for his legal advisers' decisions to continue to assist him.
11.	Thus on 19 July 1995 Mr Reynolds sent a memorandum to Mr David Cornes and Mr Richard Winward, the senior partners of WF, in which he acknowledged that the firm had heavy costs outstanding, but he thought that FOQ's claim was "worth a considerable amount more than £350,000 and that if we keep going Shand/Morrison will make a higher offer" (although not until after the application for security was heard). He concluded: "I therefore believe a substantial amount of recoverable costs will in the end be generated. However, at present, it would look as if we have to finance the case if we are continue, although money may be generated from the property company in the near future". I accept SCL's case that by the autumn of 1995 the action could still have been settled on the basis of the payment in although the margin that existed at the time of the payment in would have been extinguished by FOQ's costs since that date.
12.	On 10 November 1995 Mr Recorder Blunt QC gave judgment on SCL's application. He decided that FOQ should provide £75,000 as security for SCL's costs until the conclusion of the case. (The defendants were unsuccessful in an application to the Court of Appeal about the amount of the security.) He also dismissed an application that the action should be struck out on the ground that it was being maintained by a third party and thus rejected the defendants' case that Mr Flood's funding of the action amounted to unlawful maintenance. The action was then stayed since FOQ could not provide the security. Mr Reynolds and Mr Flood returned from the court and took stock of the case with Mr Winward, who was the finance partner of WF. Mr Reynolds' note states: "RW made it plain that we could not go on acting without security and part payment. Left that DCF would review position and go back to RW early next week." Mr Winward followed up the meeting by asking Mr Reynolds to prepare a full report together with a list of outstanding costs (including those due to Church & Church). Mr Winward made it clear in his evidence that he was not involved in the detail of the case but as an equity partner and the finance partner he was concerned about the debt and received reports from Mr Raff, who was responsible for the firm's accounts and debts.
13.	On 15 November 1995 the defendants' solicitors notified Mr Flood that they would seek an order for costs against him on the grounds that he was funding the proceedings. On 4 December 1995 FOQ assigned its causes of action to Mr Flood. The consideration was £37,800 being the balance of the loans then due to Mr Flood from FOQ which had been made since September 1993. Mr Flood was then able to obtain Legal Aid to pursue the claims against SCL. Although that step enabled the claims against SCL to be maintained and the likely consequences of SCL's proposed application to be limited (both at least for the time being), it did not however solve the problem of the fees due from FOQ. As Mr Winward pointed out in a discussion on 12 January 1996 with Mr Reynolds and Mr Cornes (another equity partner of WF) if the assignment were successful then WF was left with a right against a company with no assets even though WF retained the overall conduct of the case. On 19 January 1996 the application was made formally. The grounds were, in summary, that Mr Flood knew that FOQ would not be able to pay the defendants' costs if it lost; that he maintained or funded the action "not upon the usual commercial terms"; that he stood to gain personally if FOQ was successful; and that he had managed, conducted and supervised the action. The defendants opposed an application to substitute Mr Flood for FOQ but on 23 February 1996 His Honour Judge Thornton QC allowed the application. During 1996 WF continued to press for payment of the fees owed by FOQ and sought a guarantee from Mr Flood but nothing was achieved. On 3 July 1996 Mr Flood acquired for £5,000 the debts of £22,590 due from FOQ to Church & Church and reached a similar settlement with Mr Jones about the fees due to him in 1995 and 1996 (i.e. a payment of £6,800 for fees of £37,187) whereby FOQ owed him a further £60,000. I refer later to Mr Flood's loans. Mr Flood had therefore another interest in the outcome of the action.
14.	In September 1996 Mr Reynolds moved from WF to become a partner in Constant & Constant. Mr David Gwillim succeeded him as the partner responsible at WF. (Mr Barry Rideout was employed by WF from June 1996 to June 1998 to have the day to day conduct of the case). Before leaving Mr Reynolds recorded that FOQ owed Church & Church £23,364 (which indicates that Mr Flood's deal with that firm was apparently then unknown to Mr Reynolds, who still had an interest in the amount recovered by his former firm). At a consultation on 28 November Mr John L Powell QC and Mr Andrew Stafford warned Mr Flood that the case was not ready for a trial in April. Just before Christmas 1996 the Court of Appeal allowed the appeal from the order of Judge Thornton QC on the grounds that FOQ had no right under the sub-contract to assign certain claims to Mr Flood (81 BLR 31). (Other parts of the appeal had been stayed pending the decision of the House of Lords from the judgment in Norglen Ltd v Reeds Rain Prudential [1996] 1 WLR 864.) Thus the main claims in the action could only be maintained by FOQ. By that time the action was heading for trial dates of 14 April 1997 and 12 January 1998. Mr Flood therefore had to ask WF whether and on what terms it would be prepared to continue to act for FOQ (assuming the stay was lifted). On 23 December 1996 Mr Gwillim wrote to Mr Flood:
	"Shand Construction Limited and Others    You have asked me to indicate on what terms Winward Fearon would be prepared to continue to act for Floods of Queensferry Ltd in these proceedings. I have discussed the position with Richard Winward and I am pleased to be able to tell you that we would be happy to represent Flood of Queensferry Ltd up to the conclusion of the trial of the first part of these proceedings fixed for April 1997.    The preparation for the forthcoming trial requires the application of a range of resources. That will encompass incurring substantial time costs for my time and that of Barry Rideout. In addition, there is the probability that Counsel's fees will also be incurred, witness expenses will have to be met and charges of expert witnesses will have to be deal with as well. As you will appreciate, whilst I can take a view and adopt a position in relation to this firm's costs I am not able to bind my partners to meet fees and expenses of Expert witnesses and other disbursements such as Counsel.    Accordingly, what I propose is that Winward Fearon agrees to represent Floods of Queensferry Ltd up to the conclusion of the April trial and not to render a Bill of costs until May 1997 or to press for the payment of the earlier unpaid bills on the following conditions.    1   All or any proceeds of any settlement with the Defendants are paid to my firm's client account. 2   You undertake full and exclusive responsibility for meeting all disbursements including Expert's fees and that this firm is absolved from any liability therefor. 3   That you place us in funds sufficient to meet Counsel's fees. 4   That you follow our advice in relation to the tactical approach to these proceedings, retainer of Counsel and settlement. This is an area that you may wish to discuss with me before we reach our agreement. As you know, in the past I have asked you to give me an indication at what level you believe these proceedings ought to be settled at. In the absence of such an indication my partners and I must retain the ability to exercise our discretion in this matter.    My partners would also require personal guarantees from the Directors and Shareholders of Floods of Queensferry Ltd in relation to this firm's fees. 6   Since this firm would be required to "fund" an element of your company's costs we would expect to agree terms whereby outstanding bills, any work in progress that has yet to be billed, and disbursements carry interest charges at our usual rates for outstanding bills.    I look forward to hearing from you to fix a meeting to discuss these outline proposals with you and with my Finance Partner. I am sure that you will appreciate that these proposals are subject to entering into a formal agreement and to its ratification by my Finance Partner."
15.	Mr Flood replied on 30 December. Effectively he was happy to accept WF's offer to continue but not on the terms proposed as FOQ had no money so that, for example, the fees of counsel and experts would only be met if in some way Legal Aid continued to be available. He raised the possibility of himself representing the company. He also found paragraph 4 to be unacceptable, although it clearly followed from the basic proposition that WF had put forward. However he said that he and his brother, Mr Antony Flood would find £75,000 so that the stay could be lifted. On 30 December a summons was issued to join Mr Flood as a party. A meeting was arranged for 10 January 1997 with Mr Gwillim but it was inconclusive as neither side moved. Mr Flood told Mr Gwillim that the experts (Mr Pennington and Mr Jones) were expecting to be instructed (and paid) by WF. Mr Flood recorded his position in a long letter of 13 January. It is a good instance of the combination of Mr Flood's obsession with the case and his ability to deploy the results of his researches (the accompanying five pages of extracts from the Legal Aid Handbook have been omitted):
	"I am extremely disappointed and concerned at the negative attitude Winward Fearon have adopted to my case. As your client I am entitled to proper care, conduct and advice, but your partners seem mainly interested in their fees. In this regard, as an assisted person, I consider your attempts to extract guarantees from me, that I am obviously not able to give, to be wholly improper. I should also add that Richard Winward's refusal to see me on Friday, after I had come to London for that purpose, was totally inexcusable.    As you have become so focused on your firm's position, and before our relationship deteriorates further, I want you to try to think constructively about a more positive approach to the legal position of the case, both generally and specifically with regard to the Legal Aid Board. I apologise if anything I advance is technically or legally incorrect but at least it will balance the otherwise negative and prejudiced views that you seem to have formed towards the future of the action. You must understand that I am putting these views forward out of concern for the case as a whole, in which both yourselves and the Legal Aid Board now have a substantial cost interest along with myself.    1   My original application was for Joinder, not Substitution. This was amended at the hearing between Counsel and Judge Thornton. When giving judgment I believe Judge Thornton, albeit briefly as a formality, joined me before making me a substitute Plaintiff. If I was once joined as a Plaintiff, could it be possible that the effect of the Appeal Decision was to revert me to being a joint Plaintiff, i.e. that the recent decision does not, in fact, remove me from the action. I mention this because you may not have considered it and there may be a point on costs to be raised to the other side ahead of the proposed application hearing on 24 January, in the event that I am applying for what I already possess. 2   Assuming the Joinder application is required, I would ask you to remember that, based on my assignment from Queensferry, I remain, regardless of the Appeal Decision and the position under clause 2(3) of the Blue Form, the only interested person in the outcome of this action, because all sums due are due to myself only. Once a sum is judged to be due to the Plaintiff it will come to me directly and not through the company. In these circumstances I cannot accept that I am not legally entitled to be joined in the company's action, based on my total and legitimate interest in its outcome. As there is a Section 51 application against me then it is clear that the Defendants intend to proceed against me personally for their costs. This fact further legitimatises my right to be joined. 3   As regards the position of the Legal Aid Board I would urge you to read the relevant notes for guidance in the handbook. If I am joined with Queensferry, the question that arises under Regulation 32 of the Civil Legal Aid Regulations 1989 is whether there are other persons (i.e. Queensferry) that have the same interest as myself (the applicant) in the outcome of the action. As all sums due will flow directly to me under the assignment then the answer must be that Queensferry does not have the same interest as myself. The Appeal Court clearly did not remove me from the action but found, wrongly in my view, that the assignment was not valid in respect of sums not yet due pursuant to a judgment. Whilst it sent the contractual claim back to the company it did not say that I have no interest in the action or find that the assignment was invalid in respect of sums due. In this connection I would remind you that there are sums due but for the counterclaim. If you do not agree with my view on these points I request that you explain the position as you see it. 4   While Queensferry is a party to the action, it has no means to proceed with, and no interest in the outcome of the action. In these circumstances I would be totally prejudiced by not being joined as a party and by not having the continuing support of the Legal Aid for which I qualify, in order to realise what I am due. If Queensferry were means tested as to its ability to contribute to the proceedings, or to go it alone, then it would be found to be incapable on both counts. 5   Judge Thornton said the clause 2(3) proviso gave rise to a crisp point of law. I think it may be simply that and nothing more. In other words, provided I am joint Plaintiff, the Court of Appeal ruling should not have any practical impact on this action. If that is so then the only question that arises is why the Appeal took place? 6   On the point of contract/quantum meruit and the alternative claims against D2/D3. Apart from the practical considerations we have raised in respect of the facts of the case which have indicated that you will not even consider, it is particularly necessary to protect the Legal Aid Board against fruitless litigation. As D1 is insolvent, but for a parent guarantee that has not been produced in evidence, there is clear reason to retain the claims against D3 as the only solvent Defendant.    I request that you, and all of your partners, take careful note of my concerns and consider the points I have raised before taking any decisions that we may all regret. I would also appreciate it if you would apply yourselves to supporting and not undermining my action. To help you consider the position I am sending you extracts from the Legal Aid Handbook with relevant sections highlighted with asterisks. Please look thoroughly and carefully at these aspects and try to at least give me some faith that you are looking at the position of the case with my interests in mind."
	SCL relied on parts of this letter, such as paragraph 2, as showing that Mr Flood realised that the possibility of an order being made against him under section 51 was real.
16.	In reply Mr Gwillim sent two letters on 14 January. The first explained clearly what Mr Gwillim's duties were to the Legal Aid Fund and to Mr Flood and dealt with Mr Floods's numbered points and gave him a clear and correct warning that FOQ's claim for a quantum meruit depended on establishing in fact and in law an entitlement to be paid for what it had done. The second essentially reiterated the terms of the letter of 23 December, including the requirement for a guarantee from Mr Flood (no doubt since WF thought that Mr Flood would ultimately have substantial assets). He attached a copy of the letter for Mr Flood and FOQ to sign. Mr Flood and Mr Antony Flood wrote on behalf of FOQ on 20 January 1997 to decline the offer in WF's second letter as FOQ had no money to instruct a solicitor and would not receive anything as it had assigned its rights so Mr Flood would be paid. However in other letters of 20 and 27 January Mr Flood asked WF to do eight things such as: to advise him; to apply to join him and to represent him on that application; to defend him on SCL's application under section 51; to instruct at least one other counsel on aspects of the case. It seems that WF agreed to some of these requests since it did act on Mr Flood's behalf in the application to join him. Following a hearing on 31 January that application succeeded but I refused Mr Flood's own application to represent FOQ (see 81 BLR 49).
17.	Mr Flood's efforts then concentrated on getting WF to persuade the Legal Aid Board to provide Mr Flood with Legal Aid to prosecute the claims of FOQ as he was the beneficiary of its rights against SCL.  However on 24 February Mr Benjamin Levy advised that whilst Mr Flood would have no prospect of success, the Legal Aid Board might accept that he had a fiduciary capacity for the purposes of Regulation 33. FOQ was however able to meet the order for security by providing a bank guarantee so on 24 February the stay was lifted. On 4 March 1997 Mr Andrew Stafford gave qualified and basically negative advice to Mr Flood about his prospects of success on the claim for a quantum meruit. In it he expressed the view, based on material from Mr Jones, that FOQ should recover more than the amount of the payment into court but only on the basis that it presumably represented less than the defendants' estimate of their liability (see paragraph 14). He later informed WF that he would not alter his advice as he had lent over backwards to give the most favourable advice for the purposes of Legal Aid and that he did not wish his name to appear on the pleadings which were to be amended to plead a restitutionary claim against the second and third defendants.
18.	In March 1997 Mr Flood raised the possibility of obtaining legal costs insurance if it proved impossible to get Legal Aid. The trial fixed for April was adjourned to October 1997 or January 1998, depending on readiness. On 26 March 1997 WF told Mr Jones and Mr Pennington (in separate letters) that each would have to continue relying on Mr Flood to pay his fees as WF had no funds and there was no Legal Aid funding for his services. Mr Pennington accepted this. On 2 April 1997 Mr Flood had a meeting with Mr Winward who set out the terms upon which WF would continue. It was made clear to Mr Flood that Legal Aid cover had effectively ended, although the Chester Area Office said that cover would not be withdrawn at that stage. WF had sent the Area Office a reassuring letter on 4 April in which it was said "Estimated recovery is £1.2 million plus costs..". Mr Rideout said that neither he nor Mr Jones produced that figure, but I doubt it, as Mr Rideout was the author of other comparable figures, for which little or no rational justification was provided, (and certainly none is apparent from the documents and evidence that I have heard). A similarly optimistic assessment was made in WF's letter of 23 April to the Area Office, and a file note of 9 May 1997 (£750,000). Mr Winward followed the meeting up by his letter of 15 April, and a chasing letter of 28 April. The letter of 15 April was as follows:
	"Dear David    Further to our meeting on the 2 April I have now spoken to my Partners as to the basis on which we might go forward to get this matter to trial in January next year or October this year or indeed satisfactory settlement. As you know these arrangements will only come into effect if and insofar as your Legal Aid Certificate does not cover the requisite preparatory work. I also confirm that we will continue our negotiations with the Legal Aid Board to secure the widest possible cover from your Certificate. In this respect you will have received a copy of the Legal Aid Board's letter dated 8th April which is encouraging.    As you know we are not permitted by our professional rules of conduct to conduct contingency fee litigation save in a limited respect not relevant to this case. I consider that such a situation will not arise provided you give me your personal guarantee to pay the costs and disbursements incurred on behalf of Floods of Queensferry. You stated that you understood this point and were agreeable in principle to a guarantee. Accordingly I now set out below the terms upon which Winward Fearon will continue to represent Floods of Queensferry namely:-    1   You will execute the personal guarantee in the form attached and will procure that Floods of Queensferry Ltd also executes the guarantee. 2   You and Floods of Queensferry will give a written undertaking to pay all or any proceeds of settlement with the Defendants or judgment of the court into his firm's client account without deduction and you and Floods of Queensferry agree to permit us to deduct our costs from client account money whether or not those costs are outstanding now or relate to work between now and the date of any settlement or judgment. 3   You will be responsible for direct payment of all experts' fees and costs of photocopying. 4   Our charges will be calculated on a time basis at an hourly rate of £275 per hour. The work will be mainly undertaken by Barry Rideout and David Gwillim. Insofar as we use junior solicitors or trainees the hourly rate will be £150 per hour and £90 per hour respectively. In addition we shall charge VAT and the costs of disbursements. 5   We shall have the right to choose the Counsel to represent you at the Hearing and/or whether or not David Gwillim represents you at that Hearing with or without Counsel. 6   A finance charge of 3% per annum above the prevailing base rate shall be charged in respect of the outstanding invoices identified in the schedule attached to this letter to be calculated from the respective dates of the said invoices until date of payment. 7   We agree not to issue any further bills until the end of the trial in this matter or settlement or compromise of the action whichever is the earlier.    I enclose a copy of this letter which I should be obliged if you could please sign to signify your agreement to its terms and return to me. This letter is a contentious business fee agreement and by signifying your approval to the rates set out above you agree that our costs shall not be subject to Taxation and you waive the Company's statutory rights in that regard.    Nothing in this letter is to be taken as affecting the personal position of D C Flood vis a vis the Legal Aid Fund."
19.	No reply was sent by Mr Flood until a brief acknowledgement on 31 May 1997. By that time a proposal for Legal Cost Insurance had been submitted. The intention was to replace WF's requirement for a personal guarantee from Mr Flood. The proposal form was signed by both Mr Flood on behalf of FOQ and by Mr Gwillim. It estimated the claim to be worth "£900,000 to £1,500,000", and the prospects of success to be "very good". These entries came from Mr Rideout, who admitted that he had not done any exercise to arrive at the figures. On 23 May Mr Rideout had sent a candid fax to Greystoke in which he had said:
	"We are posting to you without a covering letter the Report of Mr Richard Jones, the expert Quantity Surveyor dated 10 June 1996 which was provided on an interim basis. The report identifies claims amounting in all to £1,240.000.00. I have this morning spoken to Mr Jones regarding the figures contained in his Report.    The practice of inflating a legitimate claim is so endemic in the construction industry, that it is not possible to mount a genuine claim and conduct it to a conclusion without such inflation. Mr Jones' original claim and the figure of £1,245,000 contains an element of excess which neither Mr Jones nor Mr Flood would expect to recover at a trial of the issues. However, there are indications that some of the figures and claims made by Mr Jones are less than they might have been, had he been aware of the full situation at the date of the interim report. Mr Flood having reviewed the figures, places a value upon the claim of £600,000 plus interest. Mr Jones asked to give a conservative recovery figure suggests £500,000. Mr Flood in arriving at his figure of £600,000 has made an allowance of £22,500 towards the counterclaim made by the Defendants. Mr Jones makes no allowance for the counterclaim on the grounds that it is wholly unsustainable without a fully pleaded causation and in respect of which there has been no discovery.    A rough calculation of interest would give a figure of approximately one third additional to the recovered sum. That would give an anticipated recovery of between £800,000 and £650,000.    In addition, under the terms of the main Contract, the main contractor has a duty to seek to recover monies due to the sub-Contractor and on payment of monies from the client to the main contractor in respect of works conducted by the sub-Contractor to pay over such sums.    The main contract the contractor has recovered a sum of £185,000 in respect of works solely undertaken by the sub-Contractor. Those figures however have not appeared in any of the allowances, calculations or considerations of the sub-Contractor's account. Knowledge of the payment only came to light as a consequence of discovery of documents and was not admitted by the Defendants at the time of their Affidavit evidence before the court on summary judgement. The Official Referees courts have, in the past, taken a dim view of main Contractors failing to meet their obligation to pass over monies to the sub-contractors where they themselves have received payment. In the present instance, the Court could as a matter of discretion award either on that sum or the whole damages a superior rate of interest or permit interest to be compounded. Also in such circumstances, it is not unknown for a Court on accepting that such conduct has taken place, to be more inclined to lean towards the claimant and give the benefit of the doubt to the claimant rather than the Defendant. Because of these factors, we do think that the figure put forward by Mr Flood and Mr Jones can genuinely be accepted as a conservative recovery.    The quantity surveyors for the parties have been engaged in 'without prejudice' discussions to agree facts and identify issues, pursuant to the Courts directions. The extent of agreement between them is extremely limited and comprises primarily quantities and calculations. The Defendants QS has refused to agree even matters upon which there is overwhelming evidence.    This, therefore cannot be regarded as a case where the parties are likely to come together in their thinking upon quantum.    The Defendants' tactics both prior to the institution of proceedings and subsequently have been of attrition to exhaust the Plaintiffs financially. The Defendants' primary tactic and expectation has been that the Plaintiffs would run out of funding. The certainty that this action is financed sufficiently to go to trial is as likely to provoke settlement as anything."
20.	Mr Flood said that he received a copy of the fax at the time. I am sure that it reflects his views, including the last paragraph. Mr Flood agreed that the figure for "anticipated recovery of between £800,000 and £650,000", including an additional one third for interest represented the amounts then contemplated. However a few days after signing the proposal form Mr Flood complained to Mr Gwillim about Mr Rideout's "lack of competence" and being a loose cannon capable of doing untold harm to the strength of my case". Mr Rideout said that he completed the form for Mr Flood to sign so I do not suppose Mr Flood's complaints were about the optimistic statements made in it. Mr Winward required the insurance to be completed but Mr Flood was reluctant to do so. By 6 June WF was owed nearly £90,000 (inc VAT) for its non-aided work and had only received two payments totalling £3,000. Mr Flood's application for Legal Aid in his "fiduciary" role was refused but there was an appeal. On 23 June Mr Winward wrote to Mr Flood to tell him that if the appeal were unsuccessful then Winward Fearon would cease to act unless it had an executed fee agreement by 27 June and he enclosed again a letter agreement for Mr Flood to sign. On 24 June the appeal was dismissed. Mr Winward wrote again on 1 July 1997 in the much the same terms as his previous letter of April, although there were certain modifications, e.g. to deal with the fact that legal costs insurance had now been obtained.
	"Dear David    Further to our meeting on the 2 April I have now spoken to my partners as to the basis on which we might go forward to get this matter to trial in January next year or October this year or indeed satisfactory settlement. As you know these arrangements will only come into effect if and insofar as your Legal Aid Certificate does not cover the requisite preparatory work. I also confirm that we will continue our negotiations with the Legal Aid Board to secure the widest possible cover from your Certificate. In this respect you will have received a copy of the Legal Aid Board's letter dated 8 April which is encouraging.    As you know we are not permitted by our professional rules of conduct to conduct contingency fee litigation save in a limited respect not relevant to this case. I consider that such a situation will not arise provided you give me your personal guarantee to pay the costs and disbursements incurred on behalf of Floods of Queensferry. You stated that you understood this point and were agreeable in principle to a guarantee. Accordingly I now set out below the terms upon which Winward Fearon will continue to represent Floods of Queensferry, namely:-    1   There is in place legal costs indemnity in sums agreed between us which may be subject to enlargement if required. Accordingly the personal guarantee in the form attached is not required until such time as the legal costs indemnity is exhausted. 2   You and Floods of Queensferry will give a written undertaking to pay all or any proceeds of settlement with the Defendants or judgment of the court into this firm's client account without deduction and you and Floods of Queensferry agree to permit us to deduct our costs from client account money whether or not those costs are outstanding now or relate to work between now and the date of any settlement or judgment. 3   You will be responsible for direct payment of all experts' fees and costs of photocopying. 4   Our charges will be calculated on a time basis at the following hourly rates, namely:- David Gwillim £275 per hour Barry Rideout £240 per hour Junior Solicitors £150 per hour In addition we shall charge VAT and the costs of disbursements. 5   We shall have the right to choose the Counsel to represent you at the Hearing and/or whether or not David Gwillim represents you at that Hearing with or without Counsel. 6   A finance charge of 3% per annum above the prevailing base rate shall be charged in respect of the outstanding invoices identified in the schedule attached to this letter to be calculated from the respective dates of the said invoices until date of payment. 7   We agree not to issue any further bills until the end of the trial in this matter or settlement or compromise of the action whichever is the earlier.    I enclose a copy of this letter which I should be obliged if you could please sign to signify your agreement to its terms and return to me. This letter is a contentious business fee agreement and by signifying your approval to the rates set out above you agree that our costs set out in the Schedule attached hereto but not further or otherwise shall not be subject to Taxation and you waive the Company's statutory rights in that regard.    Nothing in this letter is to be taken as affecting the personal position of D C Flood vis a vis the Legal Aid Fund."
	Although the letter did not specifically repeat what had been said in June, namely that without an agreement WF would cease to act, there is nothing in the letter which is inconsistent with that intention and its form and content are consistent with that intention.
21.	Mr Flood replied at length on the same day. He said that he intended to appeal against the appeal decision, that he had paid for legal costs insurance cover of £50,000 to deal with costs incurred by FOQ which fall to the company outside the scope of any Legal Aid coverage, and that he could not "give proper consideration to the terms of your firm's offer" without further details which he said that he had not received. Most of Mr Flood's requests were designed to embarrass but they were essentially irrelevant and, as usual, his letter was calculated to divert attention from what had to be done by him. Not surprisingly Mr Winward's answer on 4 July was relatively short, and having reminded Mr Flood that he had been given the information that he had asked for, rightly described the remainder of Mr Flood's letter as "unhelpful". "However I propose to make an allowance for the stress that you have been under recently. May I suggest that our joint energies be directed towards winning your case rather than engaging in hostile and negative correspondence". WF continued to act for FOQ since Mr Winward thought that WF's costs would be covered by the insurance and it had made it clear that it was not liable for experts' fees. Mr Rideout submitted a very bullish note to the Legal Aid Board in August 1997, which Mr Flood saw later. I do not consider that he disagreed with it. It set out factors which had apparently been taken into account in considering the possibilities of settlement. They included the view of WF that "the only reason this action has proceeded this far is that the defendant's solicitors and their client believe that they can defeat the plaintiffs financially. .... Following the hearing of 10 October next that delusion can no longer be maintained."
22.	The insurance policy was effected by early July. I shall call it the Greystoke insurance policy after the brokers or agents. I shall set out its terms when I deal with Issue 5. According to an affidavit by the directors of FOQ sworn on 5 May 2000 the premium of £2,740 for the insurance cover was lent by Mr Flood's mother to Mr Flood who in turn lent it to the company. The cover was subsequently increased to £100,000 in early January and then to £200,000 in December 1997 (effective from 22 January 1998) with the additional premiums being financed in the same way. The total amounts lent to FOQ by Mr Flood between 30 January 1997 and 13 December 1999 came to about £66,000, some of which came from other sources.
23.	Legal Aid was obtained on appeal for FOQ on the grounds that it was acting in a fiduciary or representative capacity. The Legal Aid Board declined to issue the certificate but in October 1997 an order was obtained for its issue. However the Board was successful in persuading Popplewell J to quash the decision in an application for judicial review. An appeal against that judgment was dismissed by the Court of Appeal on 18 December 1997. Its effect was that Legal Aid was no longer available to prosecute the claims of FOQ (see for example the judgment of Millett LJ at pages 12-14 of the transcript).
24.	A PTR was held on 28 November when directions were given for the trial to start on 12 January. I had previously directed that the trial should deal with FOQ's claim under and for breach of the contract with SCL (and SCL's counterclaim) and would not deal with other issues such as the claims made by Mr Flood personally. About a month earlier the defendants offered the claimants £500,000 inclusive of costs as an overall settlement. Mr Flood however wanted to know how the costs would be dealt with as he thought "it would make settlement easier to achieve and give us a negotiating advantage". I am sure that WF did not withhold any such information about costs from Mr Flood, contrary to the impression conveyed by Mr Flood. A letter was sent on 17 November to record and to repeat the offer. It was rejected on 21 November. WF said that it "would advise our clients to accept £2.5m now, inclusive of interest and costs". It is very difficult to see how this figure could have been arrived at, unless it was intended to ensure that WF, counsel and experts were fully paid at their billed fees and on an indemnity basis, without taxation. The estimate used in the summer was £600,000 to £850,000 inclusive of interest. Mr Rideout's note of November said that "Flood will take £700K clear." Mr Flood would have been very happy with that. I accept the submission made by Mr Reese that one can reasonably infer that of the £2.5 million probably about £700,000 has been included for the claim (and may thus be compared with the £350,000 paid into court). Mr Flood also said that as the trial approached he became less confident, although one would not have known it from his manner. (It appears that after the decision of the Court of Appeal in December 1996 leading counsel for SCL was instructed to tell junior counsel for FOQ that the offer might be increased to £600,000 all in but I do not consider that such an intimation reached Mr Flood.)
25.	In my view the real reasons for any lack of confidence (if true, which I doubt) could only have been as follows. First, he knew of FOQ's finances during the contract and that (as I recorded earlier) FOQ's site costs were about £1,115,000. Allowing 10% (as I did) for overheads and profit, FOQ would have been fully compensated if it had received £1,223,000. It had already been paid £831,000, i.e. some £392,000 short of that ideal target. However if the effect of the credit notes were taken account the figure for site costs reduces by some £200,000. Even if the position were considered from the point of view of the Flood family interests FOQ had through the use of credit notes avoided a significant amount of VAT. So it is remarkable both that SCL's payment into court was not treated as a sensible offer and that in November 1997 no sensible counter offer was made to SCL's offer. The amount of interest would or should have been not material, given FOQ had ceased to trade and given that the amount in court was earning interest. Secondly, the plan to keep the action going in the hope that the defendants' offer would be increased had not worked. Each side had determined on a war of attrition; each must have been concerned not just that seemingly unlimited resources were being found but that there were no signs of any retreat, still less capitulation. The amounts at stake did not justify a trial of a classic construction dispute, much of the costs of which would spent on investigating issues out of all proportion to the sums recoverable. I am sure that neither side wished the trial to take place. So it would only be natural if Mr Flood's was getting cold feet, especially since WF would return again to require an agreement whereby the trial could be financed.
26.	However, on the basis of information provided by Mr Gwillim and Mr Rideout, Mr Winward continued to believe that, taking account the amounts that might be recovered from Legal Aid, the amount insured would be enough to cover WF's base costs. In his second witness statement he said:
	"46.   By early January 1998, I was satisfied that there was sufficient funding in place to cover Winward Fearon's costs of the trial. This was on the basis of the insurance cover of £200,000 (which I understood would be available to meet Winward Fearon's costs), the payment on account received by the Legal Aid Board (approximately £200,000 exclusive of VAT) and the further sums due from the Legal Aid Board (anticipated to be in the region of £100,000). On the basis of the 28 day time estimate, I calculated that counsel's fees would amount to approximately £180,000 (on the assumption that Simon Hughes fees would amount to roughly half of those of Tim Elliot [£65,000, plus a refresher of £2,000]). Taking into account Barry Rideout's base cost for attending the trial (approximately £20,000), this left approximately £300,000, which I considered would be sufficient to cover Winward Fearon's base costs and disbursements to date, and provide a profit (albeit modest in comparison with the profit margins on Winward Fearon's mainstream business). I did not include experts fees in the calculation, since I had insisted, and been assured, that Winward Fearon was not to be responsible for these. 47.   On the basis of my calculation, I was prepared to permit Winward Fearon to continue to act for FOQ and to represent it at trial. Of course, I also had in mind that, were FOQ to succeed on liability and beat the payment into court, FOQ's costs would be recoverable from the Defendants. As I have indicated previously, I had been told that FOQ was almost certain to be successful at trial and beat the payment in. Nevertheless, I would not have been prepared for Winward Fearon to continue acting had I not been satisfied that it was covered for its base costs, disbursements and counsel' s fees.
	It is not easy to see how Mr Winward could arrive at these views. He had not tested the advice given and he must have relied on Mr Gwillim and Mr Rideout to assess the probability of beating the payment into court. In November 1997 he had been presented with a cost estimate from Mr Rideout which listed time recorded as £860,000. Counsel's fees then amounted to £116,753 and disbursements came to £66,167. Mr Winward struck out experts' fees of £333,089 but with some other costs the total was still above £1 million, with the costs of the trial still to come. A further estimate of 21 November for the trial put WF's costs at about £180,000, the experts at about £85,000, counsel at about £145,000 with copying and disbursements at £20,000, or some £430,000. Nevertheless since Mr Winward said that he discussed the position with Mr Gwillim, that his concern was for his firm's base costs and since, when giving evidence, he effectively answered the criticisms put to him, I conclude with some reservations that, on the assumptions made by Mr Winward, e.g. that WF would not be liable for experts (and presumably copying and disbursements would be funded) the amount of insurance cover would have met his firm's base costs, but the amount of profit on the work would have been not just modest but probably negligible. WF's decision could only have been justified commercially by what it expected to get for the work done when Legal Aid was available (the estimates for which varied but was likely to be about £250,000). It averted the crisis facing Mr Flood and FOQ and enabled the trial to start.
27.	The trial lasted longer than expected. Mr Winward maintained that its effect was no more than an "erosion of the profit return". I suspect that this is a tactful under-statement, and likely to be unrealistic and improbable, but I cannot find that it was wrong, as I do not have material to decide the effect of the assumptions made by Mr Winward. However Mr Winward rightly said that there was then no question of WF coming off the record as that would be contrary to its professional duties. In my view the true position may be seen by Mr Winward's letter to Mr Flood of 15 May 1998. The letter was prompted by the parlous position of Mr Jones, upon whose evidence on quantum FOQ's case had largely depended. WF had made it clear throughout that it was not liable for the fees of experts such as Mr Jones and Mr Pennington (who by then was also seriously concerned about the balance of his fees amounting to £173,700). At a meeting on 12 May Mr Flood maintained that "FOQ had no formal agreement with RJ about his fees" and was not even prepared to meet WF's offer to advance Richard Jones £5,000 if it was matched by FOQ, although Mr Jones' evidence was crucial. (Mr Flood met other expenses during the trial of about £27,000.) Mr Flood was also told about counsel's fees which were then said to come to £400,000. Mr Winward's letter confirmed what Mr Flood had been told:
	"I refer to our discussion earlier this week. I have today spoken with Richard Jones. I fully understand that having received no monies on account of his professional fees since the end of 1996, his position is a most difficult one. As I have advised you and as I reminded him this office has no legal obligation for his fees (beyond accounting for the Legal Aid period costs) however his whole hearted commitment is still required through to the conclusion of the trial at the end of June.    As a result of my discussion with Richard it is proposed that Richard will provide an invoice for a notional sum generally on account of professional fees since the 1st April 1998 for which this office would be responsible for half upon an ex gratia basis and you would seek family support for the same proportion.    As a condition of our accepting this additional burden I must resolve the hourly rates for the non-Legal Aid work. I propose the following:-       From the initial instruction of this practice in January 1995 the rate previously agreed with Tim Reynolds of £175 per hour would remain applicable until the 31st December 1995. From the 31st December 1995 to the 31st December 1996 the non-Legal Aid rate be £220 per hour for Tim Reynolds, David Gwillim, Peter Smith and Barry Rideout and £70 per hour for trainees and £25 for para-legals.    For the period 1 January 1997 to 1 January 1998 the rates will be £240, £80 and £25 respectively.    For the period from the 1 January 1998 and continuing the rates will be £250, £75 and £30.    These rates will only apply to non-Legal Aid work. Legal Aid costs are a matter for taxation in any event.    I reaffirm my comments made to you that I wish to view the final cost position, if at all possible, on the basis that damages recovered are not depleted by a liability for this offices costs. By this I intend that this office should be content with the costs which are recovered under the Legal Aid Certificates and against the Defendants. Because of the complexity of the costs situation I cannot at this point in time formally confirm that we would not seek payment of solicitor and client costs as we cannot know before taxation what proportion of the costs incurred will in the view of the Taxing Master be solicitor and own client costs. Where we have undertaken work in making applications for Legal Aid and dealing with Appeals and other steps in respect of Legal Aid for the limited company we will not look to recover those costs.    There will be a liability for costs awarded to the Defendants which Barry informs me includes    (a)   The amendment of Pleadings. (b)   Security for costs application. (c)   Substitution and joinder to the proceedings and appeals to the Court of Appeal. (d)   6th August 1997 Hearing. (e)   The application to personally represent the limited company.    (This list is not conclusive). Such costs will have to come out of any judgment sums.    It will be necessary for any monies paid by the Defendants to be paid to this office and to be held by this office under the terms of the Legal Aid Board's Statutory Charge.    Whilst writing I would confirm that we have discussed the practice involved in taxation of costs and I have outlined to you alternative ways of dealing with the non-Legal Aid costs that may be recovered from the Defendants which would allow for their resolution without formal taxation."
	Mr Winward therefore made it clear, quite understandably, that WF would have to be content with what it could get from the Legal Aid and from the defendants or the insurance. At that stage there was still optimism that the payment in would be beaten. Mr Flood did not reply to this letter and in evidence could not say clearly how he dealt with this request, which was noteworthy. (Mr Flood has always been positive when he was sure that the answer suited his case but not otherwise.) WF itself generously made an ex gratia payment of £10,000 to Mr Jones to help him. Mr Pennington's fees however remained unpaid.
28.	After the conclusion of the trial of the issues the amounts owing by FOQ was recorded in April 2000 by its accountants in a letter to Mr Flood as follows:
	"Floods of Queensferry Limited
	Further to your recent request we set out below a breakdown of Creditors as disclosed within the Company's accounts for the year ended 31 March 1999:
	(a)   Accrued Expenses    Winward Fearon outstanding fees, disbursements, counsel's fees and work in progress. £    Period to 12 January 1999 1,381,235    Estimate for expert witness fees outstanding 119,315    Period 1 April 1999 to 30 April 1999 (Counsel's Fees) 5,749   £1,506,299 (b)   Other Creditors    Balance due to Floods Properties and Development Co Limited £8,350 (c)   Director's Current Account    Floods of Queensferry Limited    Director's Current Account    As at 31 March 1999 DR CR    Balance brought forward 0 0    Year ended 31 March 1997    Liabilities taken over by DC Flood – Church & Church, Richard Jones 57977.27    Year ended 31 March 1998    Monies introduced 02/08/97 1500.00 08/07/97 300.00 14/08/97 500.00 06/01/98 4110.00 18/01/98 10960.00 17370.00    Year ended 31 March 1999    Expenses paid privately    Hotels, general, trains, subsistence etc 27387.00    Legal costs insurance – Greystoke 2740.00    Expert witness fees – Mr Ian Pennington 11000.00    Security charges – HSBC 3875.00 45002.00 120349.27   Rounding 1.73    Balance carried forward as at 31 March 1999 152551.00 120351.00 120351.00 (By this time counsel had agreed to forego the balance of their fees which had not been paid by WF which in each case was a very substantial sum.) Mr Flood agreed that FOQ was liable for Mr Pennington's fees. It is clear that WF did not agree to pay Mr Pennington's fees on behalf of FOQ, still less itself, and was indeed at pains to make it clear that it would not accept liability for the fees of experts.
	Issue 1: Did the second claimant, Mr David Flood, fund and/or maintain and/or finance the proceedings, or any part thereof, brought by the first claimant against the defendants?
29.	SCL voluntarily amplified its claim against Mr Flood on 13 June 2000. It submitted that it did not need to do so as an application under section 51 was a summary procedure. A summary procedure is the normal one where the application depends on what took place in the course of the proceedings and the trial. However, as I said when declining to allow SCL to advance a case against WF under section 51(6) and (7) as part of these present proceedings, an application under section 51 can be made and decided by a non-summary procedure where it is just to do so, such as where, as here, the facts relied on came to light after the trial and were not and could not reasonably have been known to the applicant. The overriding objective set out in part 1 of the CPR would not be met if such material was not available or could not be tested because a summary procedure was adopted. The case against Mr Flood was that he was a director of FOQ but that he did not act "in the proper and objective way that a company director should act"; that he had a direct financial interest in the outcome; that he knew that FOQ could not pay the costs if unsuccessful; that in 1996 he was the substituted plaintiff; that he directly funded the proceedings; that he persuaded WF to fund the proceedings and arranged for the insurance cover; and that he arranged the credit notes.
30.	Mr Flood denied that he effectively controlled the proceedings. It was said that his attempts to do so by following through the assignment and becoming the substituted plaintiff were, paradoxically, thwarted by the defendants but for which the order for costs made against FOQ would or might have been made against Mr Flood, i.e. that now sought by SCL. Mr Flood did no more than a company director of a family company. The loans made or procured by him (which came to £101,110) were proper.
31.	First, I do not consider that Mr Flood funded or financed the proceedings. Obviously the proceedings have been brought and continued primarily for his benefit, both as controlling shareholder and as the company's principal creditor (leaving aside SCL's claims and the claims of WF and others generated by the proceedings). That is frequently so with a family company but it does not follow that the shareholders lose the benefit of limited liability by supporting the company to protect their interests. I have set out the main occasions upon which Mr Flood either directly or indirectly assisted FOQ to continue the litigation, e.g. as set out in the statements sworn by all three directors about the source of the funds, and by providing security for the £75,000 by way of a charge on his house. Leaving aside the latter, Mr Flood appears to me to have been able to find or to have contributed from his own assets about £60,000, itself a significant figure for someone who qualified for Legal Aid. It was suggested that the amount was a very small part of the costs, but I do not think it is right to use WF's assessments of about £2 million. That figure assumes recovery on a ordinary basis from a solvent and well-disposed client at the rates put forward by WF; it includes amounts recoverable from Legal Aid; it includes fees of counsel and experts. Nevertheless it would not be a material contribution, especially since it includes Mr Flood's own expenses. I do not consider that providing a charge on the house and paying the bank's arrangement fee amount to funding the action. Those behind any small company are liable to support it if its assets cannot otherwise support the obligations inherent in litigation. This is not funding in the sense of intervening. So too is the provision of the Greystoke insurance: that is the same as the directors of a small company providing the company's solicitors with security for fees.
32.	The proceedings have otherwise been funded on credit, itself provided by a mixture of circumstances. First, there was the belief that the action would be successful and that there would be judgment for more than the amount paid into court. I am satisfied that that belief was sincerely held by those in WF responsible for the conduct of the action. I am not satisfied that it was reasonably held by Mr Gwillim (or Mr Rideout), but it may have been since privilege has not been completely waived. Secondly, misfortune bred of misplaced trust and inexperience played its part, certainly as regards the experts who provided their services apparently without securing worthwhile agreements. Thirdly, WF appear to have found itself trapped. It allowed the proceedings to continue without an adequate arrangement for the payment of their fees. Having decided that the case of FOQ was worth supporting or having allowed Mr Flood to think that it was sound it could not bring itself to withdraw support and had therefore to hope that its fall back arrangements would contain the position to acceptable limits.
33.	Nor do I consider that Mr Flood has acted improperly as a director. FOQ was a family company. In paragraph 2 of my principal judgment I set out the relationship of some of the Flood family companies. He was one of three directors of FOQ. Important decisions were taken by all three. Mr Antony Flood's independent views can be seen from paragraph 4 of the minutes of the FOQ Board dated 31 March 1992 (quoted in paragraph 277 of my principal judgment). However Mr David Flood held 51% of the shares, and after the assignment of December 1995, had an overwhelming financial interest in the outcome. As Mr Reese said, "the assignment merely formalised the commercial reality". Even in January 1997 Mr Flood treated FOQ's claim as his own - see paragraphs 2 onwards of his letter of 13 January 1997. Thus Mr Antony Flood's co-director's signature to the Greystoke proposal form must be treated as a mere formality. Prior to the assignment I do not consider that Mr Flood's endorsement of the prosecution of the case after the payment into court was improper. He was duty bound to get the best settlement for the company. I cannot conclude that a rational and competent company director would then have seen the offer as providing more than its costs plus profit (as well as its costs of the action). The claim was then seen as a contractual claim. Few directors of companies operating in the construction industry, especially directors of small private companies, test contractual entitlement against actual cost plus profit. In addition FOQ had to consider its position after the defence and counterclaim. The payment in followed an earlier offer. Whatever the underlying weaknesses in FOQ's case (which I accept either Mr Flood knew about or should have known about) it was not unreasonable to press on in the hope of a better offer. After the assignment Mr Flood could not divorce his personal interests from those of the company. They were now inseparable, and to say that he acted improperly as a director from 1997 is to say that he acted unreasonably and improperly when he was a substituted plaintiff in receipt of Legal Aid. But many proceedings are brought and persisted in unreasonably in the sense that they seek amounts to which the claimant is not in fact and in law entitled, but the claimant holds a genuine belief that the claim is good. Millett LJ started his judgment in Metalloy Supplies v M.A. (UK) Ltd [1997] 1 WLR 1613 at page 1619H:
	"It is not an abuse of the process of the court or in any way improper or unreasonable for an impecunious [plaintiff] to bring proceedings which are otherwise proper and bona fide while lacking the means to pay the defendant's costs if they should fail. Litigants do it every day, with or without Legal Aid."
	Lord Hoffmann in Norglen [1999] 2 AC 1 at 19 said:
	"Having to litigate against an impecunious plaintiff is a risk of litigation which has to be accepted".
	A defendant has a number of remedies; it can ask the court to exercise powers which might have the effect of confronting the claimant with the problems that it has to face or which might lead to the case being struck out or otherwise curtailed; it can make an offer or payment into court; it can apply for security for costs where the claimant is impecunious. However an unreasonable litigant whether claimant or defendant whose case has some merit and cannot therefore be described as improper or lacking bona fides cannot otherwise be silenced if the threat of an adverse costs order proves to be an ineffective sanction. To this extent the defendants' quandary really stems from the order of Mr Recorder Blunt QC for security of only £75,000 until the end of the trial (i.e. without the usual provision for an amount up to a specific stage with the opportunity of review). The amount ordered is explicable only as calculated not to be oppressive to FOQ, even taking account the payment into court. However the defendants had their opportunity to appeal. Quite apart from the judge's view that the action was not being maintained it is therefore difficult to conclude that its further prosecution of the case by FOQ was improper, as opposed to being imprudent.
34.	Clearly once Mr Flood decided to harry the defendants and once the defendants had made it clear that they were going to fight FOQ and Mr Flood every inch of the way then in an ideal world a rational director would have taken stock. However I doubt if he would then have been dissuaded from continuing. First, the defendants' opposition did not necessarily mean that a better offer might not be forthcoming eventually. Secondly, I do not consider that he would have been advised to negotiate. Mr Flood was critical of his legal advisers and the lack of legal advice. Since he refused to agree WF's terms he has only himself to blame. In addition he knew the strength and weaknesses of FOQ's case at least as well as any of his advisers so I see his criticisms as a typical manoeuvre to deflect attention from his own decisions. Assuming that Mr Flood had been really determined to be properly advised (and in my judgment, I have seen no evidence of that intention - but of course it may lie behind the arras of privilege) and that any of his advisers (counsel excepted) at any stage understood how important it was to verify the basis of the claims, whether contractual, for new rates, for day works, for remeasurement, for delay or disruption or for breach of contract or misrepresentation. It does not appear that Mr Flood was aware of the potential weakness of the claims for damages that had been created by the credit notes until the eve of trial, at the earliest. As frequently happens efforts were concentrated on establishing liability at the expense of attending to quantum, despite the clear recognition in the fax of 23 May 1997 that the claim was inflated. The payment into court should have made it plain to FOQ's advisers that the vital question was whether causation and quantum could be established. The quality of the first claimant's witness statements and the statements and reports of Mr Jones indicated to me that these areas had not been given sufficient attention. I doubt therefore if Mr Flood would have received the advice that he now suggests that he should have been given. The claim for misrepresentation could only have been advanced on the basis of legal advice. It must for the purposes of the present issues be treated as a claim that was made by FOQ bona fide although it ought not in my view to have been brought to trial.
35.	In Giles v Thompson [1994] AC 142 the House of Lords adopted and applied the description of the policy of the tort of maintenance which had been expressed by Fletcher Moulton LJ in British Cash & Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 at 1014:
	"It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse."
	In the Court of Appeal Sir Thomas Bingham MR had described it as an excellent working description and emphasised that justification could usually be found in a legitimate business interest. In my judgment although the motives for the assignment of December 1995 were questionable it remained a legitimate manoeuvre to get Legal Aid and when it proved unsuccessful it provided Mr Flood with a good business reason to pursue the action towards a settlement, quite apart from his other interest such as his position as a director of a family company and the assignment of the claims of Church & Church and Mr Jones. Since someone has to manage and control litigation on behalf of a company I do not consider that Mr Flood should be regarded as having maintained the proceedings for the purposes of issue 1. There was no one else who could have done so. The issue will therefore be answered: No.
	Issue 2: Is it just in all the circumstances to make Mr David Flood pay the unrecovered costs (or a proportion thereof or a fixed lump sum representing a part of the unrecovered costs) of the proceedings?
36.	The answer to issue 1 (whichever it is) does not necessarily lead to the answer to Issue 2. There must be some good reason why a person who is not a party to an action should be liable to an order under section 51. The starting point for a consideration of the factors that might be taken into account may begin with the judgment of Balcombe LJ in Symphony Group Ltd v Hodgson [1994] QB 179 at pages 192-3:
	"I accept that these categories are neither rigid nor closed. They indicate the sorts of connection which have so far led the courts to entertain a claim for costs against a non-party. However, it seems to me that the particular circumstances of this case require this court to accept the invitation of Lord Goff in the Aiden Shipping case and to lay down some principles for the guidance of judges of first instance when they are asked to make an order for costs against a non-party and in doing so I am well aware of what Lloyd LJ said in Taylor v Pace Developments Ltd [1991] BCC 406 at 408:       'There is only one immutable rule in relation to costs, and that is that there are no immutable rules.'    I am also aware of the observations warning against laying down rules for the exercise of a discretion in relation to costs generally by Bowen LJ in Jones v Curling (1884) 13 QBD 262 at 271 and by Brett MR in The Friedeberg (1885) 10 PD 112 at 113. Nevertheless I am fortified by the fact that Lord Goff considered that such guidance might well become necessary and I believe that the circumstances of this case indicate the present necessity for guidance. In my judgment, the following are material considerations to be taken into account, although I do not suggest that there may not be others which are relevant.    (1)   An order for the payment of costs by a non-party will always be exceptional: see the Aiden Shipping case [1986] AC 965 at 980 per Lord Goff. The judge should treat any application for such an order with considerable caution. (2)   It will be even more exceptional for an order for the payment of costs to be made against a non-party, where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings. Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, e.g. the framing of the issues by pleadings, discovery of documents, the opportunity to pay into court or to make a Calderbank offer (see Calderbank v Calderbank [1976] Fam 93), and the knowledge of what the issues are before giving evidence. (3)   Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action under Ord 15, r 6(2)(b)(i) or (ii).    Principles (2) and (3) require no further justification on my part; they are an obvious application of the basic principles of natural justice. (4)   An application for payment of costs by a non-party should normally be determined by the trial judge: see Bahai v Rashidian [1985] 1 WLR 1337. (5)   The fact that the trial judge may in the course of his judgment in the action have expressed views on the conduct of the non-party neither constitutes bias nor the appearance of bias. Bias is the antithesis of the proper exercise of a judicial function: see Bahai v Rashidian [1985] 1 WLR 1337 at 1342, 1346. (6)   The procedure for the determination of costs is a summary procedure, not necessarily subject to all the rules that would apply in an action. Thus, subject to any relevant statutory exceptions, judicial findings are inadmissible as evidence of the facts upon which they were based in proceedings between one of the parties to the original proceedings and a stranger: see Hollington v F Hewthorn & Co Ltd [1943] KB 587 and Cross on Evidence (7th edn, 1990) pp 100–101. Yet in the summary procedure for the determination of the liability of a solicitor to pay the costs of an action to which he was not a party, the judge's findings of fact may be admissible: see Brendon v Spiro [1938] 1 KB 176 at 192 per Scott LJ, cited with approval by this court in Bahai v Rashidian [1985] 1 WLR 1337 at 1343, 1345. This departure from basic principles can only be justified if the connection of the non-party with the original proceedings was so close that he will not suffer any injustice by allowing this exception to the general rule. (7)   Again the normal rule is that witnesses in either civil or criminal proceedings enjoy immunity from any form of civil action in respect of evidence given during those proceedings. One reason for this immunity is so that witnesses may give their evidence fearlessly: see Palmer v Durnford Ford (a firm) [1992] QB 483 at 487. In so far as the evidence of a witness in proceedings may lead to an application for the costs of those proceedings against him or his company, it introduces yet another exception to a valuable general principle. (8)   The fact that an employee, or even a director or the managing director, of a company gives evidence in an action does not normally mean that the company is taking part in that action, in so far as that is an allegation relied upon by the party who applies for an order for costs against a non-party company: see Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510 at 513. (9)   The judge should be alert to the possibility that an application against a non-party is motivated by resentment of an inability to obtain an effective order for costs against a legally aided litigant. The courts are well aware of the financial difficulties faced by parties who are facing legally aided litigants at first instance, where the opportunity of a claim against the Legal Aid Board under s 18 of the Legal Aid Act 1988Acts is very limited. Nevertheless the Civil Legal Aid (General) Regulations 1989, SI 1989/339, and in particular regs 67, 69 and 70, lay down conditions designed to ensure that there is no abuse of Legal Aid by a legally assisted person and these are designed to protect the other party to the litigation as well as the Legal Aid fund. The court will be very reluctant to infer that solicitors to a legally aided party have failed to discharge their duties under the regulations—see Orchard v South Eastern Electricity Board [1987] QB 565—and, in my judgment, this principle extends to a reluctance to infer that any maintenance by a non-party has occurred."
	In Murphy v Young's Brewery [1997] 1 WLR 1591 Phillips LJ pointed out that these principles related largely to questions of procedure. He then said at page 1601:
	"The time has come to attempt to formulate some principles in the light of these decisions. My conclusions are as follows.    "(1)   In Giles v Thompson [1994] 1 AC 142 at 164 Lord Mustill suggested that the current test of maintenance should ask the question whether—       'there is wanton and officious intermeddling with the disputes of others in [which] the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.'    Where such a test is satisfied, I would expect the court to be receptive to an application under s 51 that the meddler pay any costs attributable to his intermeddling. (2)   Where a non-party has supported an unsuccessful party on terms that place the non-party under a clear contractual obligation to indemnify the unsuccessful party against his liability to pay the costs of the successful party, it may well be appropriate to make an order under s 51 that the non-party pay those costs directly to the successful party. Such an order may, for instance, save time and costs in short-circuiting the Third Parties (Rights against Insurers) Act 1930. Bourne v Colodense [1985] ICR 291 is a case where the court might well have thought fit to make such an order had it appreciated that it had jurisdiction to do so. (3)   Where a trade union funds unsuccessful litigation on behalf of a member the following factors, in addition to the funding itself, are likely to be present and, where they are, to make it appropriate to order the union to pay the successful party's costs should such an order be necessary: (a) an implied obligation owed by the union to its member to do so—see (2) above; (b) an interest on the part of the union in supporting and being seen to support the member's claim; (c) responsibility both for the decision whether the litigation is to be pursued and for the conduct of the litigation; and (d) expectation based on convention that the union will bear the costs of the successful party should the member lose. (4)   Where an unsuccessful defendant's costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit, the same considerations that I have set out under (3) are likely to apply."    I omit the fifth principle as it is not relevant (and indeed Phillips LJ later said that none of the considerations of principle were relevant to the facts of the case). It concerns a decision which was subsequently affirmed but on other grounds: Chapman Ltd v Christopher [1998] 1 WLR 12. At page 1603H he said:       "Funding alone will not justify an order against the funder under section 51. I do not consider that an order under section 51 will normally be appropriate where a disinterested relative has, out of natural affection, funded costs of a claim or a defence that is reasonably advanced".
37.	In Globe Equities Ltd v Globe Legal Services Ltd 5 March 1999, unreported, the Court of Appeal had to consider what circumstances might justify a order under section 51. Morritt LJ (with whom the other members agreed) said:
	"The principal argument was directed to the question whether the circumstances in these applications could properly be regarded as "exceptional". Counsel for Miller Gardner submitted that they could not. In addition to the judgment of Balcombe LJ in Symphony Group Plc v Hodgson he referred to similar statements in Taylor v Pace Developments Ltd [1991] BCC 406 at page 410 per Lloyd LJ; Metalloy Supplies v MA (UK) Ltd [1997] 1 WLR 1613 at page 1620 per Millett LJ, and Murphy v Young & Co's Brewery Plc [1997] 1 WLR 1591 at page 1604 per Phillips LJ. But these statements left open the question by what standard the circumstances are to be judged in ascertaining whether they are exceptional. That question was answered by Phillips LJ in TGA Chapman Ltd v Christopher [1998] 1 WLR 12 at page 20 where he said:       "The test is whether they [sc. the features relied on] are extraordinary in the context of the entire range of litigation that comes to the courts." I would also comment that there appears to me to be a danger of treating the requirement that the circumstances are "exceptional" as being part of the statute to be applied. It is not. The epithet originates in the first proposition enunciated by Balcombe LJ in Symphony Group Plc v Hodgson, but it is based on what Lord Goff said in Aiden Shipping Co Ltd v Interbulk Ltd [1986] 1 AC 965, 980:       "In the vast majority of cases it would no doubt be unjust to make an award of costs against a person who is not a party to the relevant proceedings. But, as the facts of this case show, that is not always so."    In none of the cases to which I have referred have "exceptional circumstances" been elevated into a precondition to the exercise of the power; nor should they be.    Ultimately the test is whether in all the circumstances it is just to exercise the power conferred by subsections (1) and (3) of s.51 Supreme Court Act 1981Acts to make a non-party pay the costs of the proceedings. Plainly in the ordinary run of cases where the party is pursuing or defending the claim for his own benefit through solicitors acting as such there is not usually any justification for making someone else pay the costs. But there will be cases where either or both these tw