H v City &council of Swansea & others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Ward,Lord Justice Moore-Bick,Lord Justice Etherton |
| Judgment Date | 03 March 2011 |
| Neutral Citation | [2011] EWCA Civ 194 |
| Court | Court of Appeal (Civil Division) |
| Date | 03 March 2011 |
| Docket Number | Case No: B2/2010/0225 |
[2011] EWCA Civ 194
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS COUNTY COURT
His Honour Judge Behrens
Before: Lord Justice Ward
Lord Justice Moore-Bick
and
Lord Justice Etherton
Case No: B2/2010/0225
8LS 55424
Mr Nicholas Bacon QC (instructed by Barlow Lyde & Gilbert) for the appellant
Mr Benjamin Williams (instructed by Parabis Law LLP) for the respondent
Hearing date: 21st October 2010
Lord Justice Ward:
The tree-lined streets in our cities, towns and villages may be pleasing to the eye, but the pleasure comes at a cost, probably ultimately to each and every one of us. The trees have roots, and the roots frequently damage the adjacent buildings with the invariable consequence that the householder recovers the cost of underpinning and other remedial work on his household insurance, but the insurer then brings a subrogated claim against the local authority responsible for the trees growing in the highway. These claims, frequently made by solicitors acting under Collective Conditional Fee Agreements ("CCFAs"), and the cost of defending them are an increasing cause for concern for local authorities as demonstrated by the number who have voiced support for the London Borough of Waltham Forest Council in its appeal against the order of His Honour Judge Behrens in the Leeds County Court on 13th January 2010 allowing a success fee on the assessment of a claimant's costs of its claim against it, District Judge Fairwood having disallowed the 100% mark up when he assessed the costs.
This concern was conveyed to Jackson L.J. who reported in his Review of Civil Litigation Costs:
"3.25 … I have received a submission sent in on behalf of sixteen councils in the London area, stating:
"Insurance companies are increasingly engaging the services of solicitors under CCFAs to handle recovery actions for costs incurred in subsidence claims where local authorities trees are implicated as the cause of the damage. This practice, however, is having a detrimental effect on public finances by significantly increasing claim costs unnecessarily."
The councils state that the costs of these cases have risen greatly and are inflated by 100% success fees.
The Local Government Association shares the concern of the sixteen councils. It states:
"We share [the councils'] concern that, at a time when councils and the wider public sector are facing increased pressure on resources, the existing rules enable commercial firms to inflate the costs of these cases, despite local authorities typically being willing to settle these claims pre-litigation. It seems to us that the benefits of using solicitors acting under CCFAs accrue almost entirely to the firms themselves, through excessive legal fees, rather than to the claimants, and that this is to the detriment of local taxpayers."
The problem was neatly encapsulated by Longmore L.J. when giving permission for this second appeal:
"This [application for permission to appeal] self-evidently fulfils the criteria for second appeals since it raises a point of principle namely: is it permissible for the court to have regard to the fact that the claimant is insured (and has been fully indemnified) in considering the question whether it was reasonable for the claimant (and/or his insurers) to instruct solicitors on terms which included a success fee?"
What happened was this. The trees for which the Waltham Forest L.B.C. are responsible damaged the property of a Mr D. Sousa. This damage was covered by a household insurance policy written by Virgin Insurance, part of the R.B.S. group. Mr Sousa made a claim against his insurers and was indemnified by them. Cogent Law LLP, solicitors in Leeds, handle all Virgin Insurance claims and in September 2006 they were instructed to recover the loss. Having done nearly £3000 worth of preparatory work, Cogent Law were by the end of January 2008 in a position to make a demand of Waltham Forest L.B.C.. It was only at this point on 1st February 2008 that Virgin Insurance entered into a Collective Conditional Fee Agreement (a "CCFA") with Cogent Law LLP providing for a success fee with a mark-up of 100%. Liability was not disputed and after an exchange of offer and counter-offer the claim was compromised in July 2008 without the need for proceedings to be issued. The Council had agreed to pay £6,250 plus reasonable costs in full and final settlement of the claim. Cogent Law then submitted its Bill of Costs for assessment claiming £2948.60 for pre-CFA services and £2629.60 in respect of their post-CCFA work. Before the matter could come before the costs judge to conduct that assessment, the parties had agreed costs in the sum of £3,750 but they invited the judge to resolve the burning question which divided them, namely whether any success fee was recoverable, and if so, what percentage uplift should be allowed.
The assessment was originally set down to be conducted by the regional costs judge but his case overran and as District Judge Fairwood recorded, self-deprecatingly, "It has accordingly been released to a mere mortal district judge." I hope the District Judge will be consoled: this judgment is written by a mere mortal Lord Justice; divine judgment is delivered by costs judges and the Supreme Court only. The heart of the District Judge's conclusion was this:
"Applying CPR 44 and the Practice Direction, it is incumbent on the court to look at and reflect the reality of the situation, never mind notional this and notional that. The fact is the claimant, in my judgment, was never at risk on costs in this case and as such it was, applying CPR 44, unreasonable of him to rely upon and be allowed to rely upon a conditional fee agreement. I do not accept the submission that one can ignore the reality of the situation that this was a subrogation arrangement. I find the court can and must take it into account in looking at all the circumstances of the case and applying CPR 44. It would be artificial to pretend that it does not exist."
So he refused to allow any success fee.
In coming to the opposite conclusion, Judge Behrens gave four reasons for his judgment. First he considered it to be anomalous if an insurer with an assigned cause of action were able to take advantage of a conditional fee agreement whereas an insurer with a subrogated claim could not. Secondly, he held that it is inherent in the concept of subrogation that the insurer is entitled to take advantage of every right of the assured.
"It is for that reason that a defendant is not allowed to rely on payment by the insurer as a defence to a subrogated claim against him. Equally, as it seems to me, he should not be allowed to rely on the fact that the Insurer has to fund the claim as a defence to the Insured's claim to a success fee when a claim succeeds. Otherwise the Insurer is in a worse position in recovering the loss that the Insured would have been."
Thirdly, since it was not seriously arguable that a union member acts unreasonably in taking advantage of the funding provided by his union under its CCFA, it is difficult to see why a claimant pursuing a subrogated claim as instructed by the insurer is in a different position. Finally, the insurer in a subrogated claim controls the litigation and dictates to the assured the terms of the agreement between him and the solicitors (subject to an indemnity from the insurer). If those terms included a success fee, it was not unreasonable for the claimant to enter into it. "In effect he had no choice."
The statutory scheme
Until comparatively recently the only means of funding litigation (apart from legal aid) was to agree an ordinary retainer with a lawyer. The common law position was that lawyers could not agree to conduct litigation on the basis that they would only be paid if the action were successful. The Courts and Legal Services Act 1990 ("the 1990 Act") changed that. Section 58 of the 1990 Act foreshadowed the use of a Conditional Fee Agreement (a "CFA") being an agreement between the client and his legal representatives which provided for his fees and expenses to be payable only in specified circumstances, for example, if successful. Secondary legislation was necessary to allow CFAs to be adopted as they were by virtue of the Conditional Fee Agreements Order 1995 which permitted CFAs for certain categories of litigation. Such an arrangement could make provision for payment of a percentage uplift in fees, a success fee, later set at no more than 100%. Further changes were made by the Access to Justice Act 1999 ("the 1999 Act") which introduced a new section 58, 58A and 58B into the 1990 Act. New regulations were made in 2000.
The position now is that by virtue of section 58(1) a CFA satisfying all the prescribed conditions is no longer unenforceable. Section 58(2) contains these definitions:
"For the purposes of this section and 58A –
(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and
(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances."
Subsections (3) and (4) spell out the conditions applicable to every CFA and a success fee.
The supplementary provisions of section 58A...
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