Callery v Gray (Nos 1 and 2)

JurisdictionEngland & Wales
CourtHouse of Lords
Judgment Date27 Jun 2002
Neutral Citation[2002] UKHL 28

[2002] UKHL 28


Lord Bingham of Cornhill

Lord Nicholls of Birkenhead

Lord Hoffmann

Lord Hope of Craighead

Lord Scott of Foscote

Stephen Callery
Charles Gray

My Lords,


For nearly half a century, legal aid provided out of public funds was the main source of funding for those of modest means who sought to make or (less frequently) defend claims in the civil courts and who needed professional help to do so. By this means access to the courts was made available to many who would otherwise, for want of means, have been denied it. But as time passed the defects of the legal aid regime established under the Legal Aid and Advice Act 1949 and later statutes became more and more apparent. While the scheme served the poorest well, it left many with means above a low ceiling in an unsatisfactory position, too well off to qualify for legal aid but too badly off to contemplate incurring the costs of contested litigation. There was no access to the courts for them. Moreover, the effective immunity against adverse costs orders enjoyed by legally-aided claimants was always recognised to place an unfair burden on a privately-funded defendant resisting a legally-aided claim, since he would be liable for both sides' costs if he lost and his own even if he won. Most seriously of all, the cost to the public purse of providing civil legal aid had risen sharply, without however showing an increase in the number of cases funded or evidence that legal aid was directed to cases which most clearly justified the expenditure of public money.


Recognition of these defects underpinned the Access to Justice Act 1999 which, building on the Courts and Legal Services Act 1990, introduced a new regime for funding litigation, and in particular personal injury litigation with which alone this opinion is concerned. My noble and learned friend Lord Scott of Foscote makes full reference to these Acts and the relevant subordinate legislation made under them in his opinion, which I have been privileged to read in draft, and I gratefully adopt his account which I need not repeat. The 1999 Act and the accompanying regulations had (so far as relevant for present purposes) three aims. One aim was to contain the rising cost of legal aid to public funds and enable existing expenditure to be refocused on causes with the greatest need to be funded at public expense, whether because of their intrinsic importance or because of the difficulty of funding them otherwise than out of public funds or for both those reasons. A second aim was to improve access to the courts for members of the public with meritorious claims. It was appreciated that the risk of incurring substantial liabilities in costs is a powerful disincentive to all but the very rich from becoming involved in litigation, and it was therefore hoped that the new arrangements would enable claimants to protect themselves against liability for paying costs either to those acting for them or (if they chose) to those on the other side. A third aim was to discourage weak claims and enable successful defendants to recover their costs in actions brought against them by indigent claimants. Pursuant to the first of these aims publicly-funded assistance was withdrawn from run-of-the-mill personal injury claimants. The main instruments upon which it was intended that claimants should rely to achieve the second and third of the aims are described by my noble and learned friend: they are conditional fee agreements and insurance cover obtained after the event giving rise to the claim.


At the time when the 1999 Act was enacted and brought into effect, new Civil Procedure Rules were also in the course of being implemented. The objects underlying these rules were not new, but the rules gave a sharply increased emphasis to the need for expedition in the conduct of legal proceedings, to the need for simplicity and to the need to avoid unnecessary and disproportionate costs. To achieve these ends new and detailed procedures were devised to moderate the traditional adversarial approach to the making and defending of claims. There was inevitably a bedding-down period during which both judges and practitioners adjusted to the practical implications of the new procedural regime to which they were required to give effect.


If the objects underlying the new procedural regime were not new, those underlying the new funding regime were. Arrangements which had until relatively recently been professionally improper were to become the norm. It was however evident that the success of the new funding regime was threatened by two contingencies which, had they occurred, could have proved fatal. One was that lawyers, in particular solicitors, would decline to act on a conditional fee basis. To counter that risk the maximum permissible uplift, on the first introduction of conditional fees in 1995, had been fixed, despite very strong opposition, at 100% and this high level of permissible uplift was retained. It was no doubt felt, rightly as events have proved, that if solicitors were permitted in some cases to earn, as the reward for success, double the fee otherwise receivable, they would be tempted into the market. The other contingency was that no accessible market would develop in after the event insurance. There was at the outset very little knowledge and experience of whether or how such a market would develop.


Even if these contingencies did not occur, the new funding regime was obviously open to abuse in a number of ways. One possible abuse was that lawyers would be willing to act for claimants on a conditional fee basis but would charge excessive fees for their basic costs, knowing that their own client would not have to pay them and that the burden would in all probability fall on the defendant or his liability insurers. With this expectation the claimant's lawyers would have no incentive to moderate their charges. Another possible abuse was that lawyers would be willing to act for claimants on a conditional fee basis but would contract for a success uplift grossly disproportionate to any fair assessment of the risks of failure in the litigation, again knowing that the burden of paying this uplifted fee would never fall on their client but would be borne by the defendant or his insurers. A third possible abuse was that claimants, although able to obtain after the event insurance, would be able to do so only at an unreasonably high price, the after the event insurers having no incentive to moderate a premium which would be paid by the defendant or his insurers and which might be grossly disproportionate to the risk which the insurer was underwriting. Under the new regime, a claimant who makes appropriate arrangements can litigate without any risk of ever having personally to pay costs either to those acting for him or to the other side and without any risk of ever having to pay an after the event insurance premium whatever the outcome: the practical result is to transfer the entire cost of funding this kind of litigation to the liability insurers of unsuccessful defendants (and defendants who settle the claims made against them) and thus, indirectly, to the wider public who pay premiums to insure themselves against liability to pay compensation for causing personal injury.


The front-line responsibility for making the new funding regime work fairly and effectively and in accordance with the objects both of the 1999 Act and the new Civil Procedure Rules lay with lawyers agreeing to act under conditional fee agreements and insurers offering after the event insurance cover. The role of watchdog would be exercised, in the first instance, by district judges and costs judges, on whose judgment and insight in assessing recoverable costs much would depend. If they were too restrictive in the level of success fees or after the event insurance premiums which they allowed, lawyers and clients might be deterred from acting or proceeding on this basis and the objects of the new regime would be defeated. If they were too generous and too uncritical, excessive fees and premiums might be allowed and an unfair and disproportionate burden placed on defendants and their liability insurers, thereby undermining one of the key objects of the Civil Procedure Rules. The difficult task entrusted to district judges and costs judges called for a clear understanding of the object of both the 1999 Act and the Civil Procedure Rules, an understanding how the new funding regime was developing in practice and an alert willingness to make appropriate orders if and when signs of abuse appeared. However carefully and attentively district judges and costs judges applied themselves to their task, it was inevitable that occasions would arise when judges misdirected themselves and made erroneous orders, and given the number of orders made by different judges in different parts of the country disparities in practice would be likely to arise. The responsibility for curbing errors and giving guidance to district judges and costs judges on the exercise of their powers in this context, of correcting erroneous orders and of seeking to harmonise practice between various courts rests with circuit judges and then, importantly, with the Court of Appeal.


There is obvious force in the appellant's contention that even a 20% success uplift provided a generous level of reward for Mr Callery's solicitors given the minuscule risk of failure which his claim apparently presented, that it would have been reasonable to await a reply from Mr Gray or his liability insurers before obtaining after the event insurance cover and that the premium charged for such cover, on the facts of the case as they then appeared, was unreasonable and disproportionate. There are nonetheless two...

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