Danri Morris and Another v London Borough of Southwark

JurisdictionEngland & Wales
JudgeMR JUSTICE MACDUFF
Judgment Date05 February 2010
Judgment citation (vLex)[2010] EWHC J0205-1
Docket NumberCase No: CC/2009/APP/0373
Date05 February 2010
CourtQueen's Bench Division (Administrative Court)

[2010] EWHC J0205-1

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Strand

London

WC2A 2LL

Before: The Honourable Mr Justice Macduff

Case No: CC/2009/APP/0373

Between
Danri Morris & Anor
and
London Borough of Southwark

MR JAMES appeared on behalf of the APELLANT

MR BACON appeared on behalf of the RESPONDENT

MR JUSTICE MACDUFF
1

This is an appeal from a decision of Deputy Master Hoffman sitting in the Supreme Court Costs Office, and from an order which he made in two cases on 10 th June last year. He found against the Claimant on a preliminary issue, and gave permission to appeal. I should mention at the head of this judgment that I have been greatly assisted by two Assessors, Master Campbell and Mr Seymour with whom I am sitting. I am assisted by the support and advice that they have given me, but the decision and judgment in this matter are of course my own.

2

I should also mention this, lest I forget later, that a Respondent's Notice was served in this case, effectively cross-appealing (as I shall presently describe) one matter decided by the Deputy Master. During the argument, I granted permission to appeal. It was an application which was not opposed; permission to the Defendants to allow them to cross-appeal.

3

The case before the Deputy Master and before this Court today centres upon the enforceability of two identical, I think identical or very nearly so, conditional fee agreements (CFAs). The Deputy Master was dealing with two cases: the case of Morris and the case of Sibthorpe both of which involved identical points of principle; the same solicitors, Messrs Belshaw & Curtin, and the same counsel, Mr James, acted for the Claimants and now the Appellants, both below and in this court. The Defendant, the London Borough of Southwark are the same with the same representation in both cases.

4

The background is this. The cases were straightforward (if I can use that adjective) housing disrepair claims. Mr Morris' claim centred upon allegations of rodent infestation, and Mr Sibthorpe's upon the ingress of water into his accommodation. Both cases were issued; both cases moved forward to settlement; both cases were settled by the device of a Tomlin order, Mr Morris receiving £10,000 in damages, together with an agreement that the defects in his home would be remedied, and an order for costs against the Defendant. Mr Sibthorpe received £1,300 or so damages, less outstanding amounts of rent, also an order for costs. In his case, by the time the settlement was achieved, the remedial works had been done.

5

So the solicitors had acted for both of them to that successful conclusion, and had obtained an order for costs. Both cases, as I have indicated, had been funded by CFAs, which to all intents and purposes were identical.

6

The terms of the CFA included at several places these words,

'In those circumstances, if you had been able to obtain an insurance policy, that policy will likely pay any costs order made against you. If not, we will indemnify you against any adverse costs order, if you do not beat the opponent's offer'.

7

That was in the context of a Part 36 offer. It was also made in very similar terms in the context of an interim hearing, and in the context of winning and losing. There were other relevant clauses, including the agreement by the solicitors to limit their costs to those agreed with the other side or ordered at an assessment hearing.

8

In summary, under that agreement the Claimants had the benefit of expert solicitor representation. If they won, their damages would be ring-fenced; the solicitors' costs and success fees would be recovered from the Defendants, and the solicitors would limit their costs to what could be recovered. If they lost, which included of course losing at some interim hearing or failing to beat a Part 36 offer, the Claimants were fully protected against any expenditure of costs by them.

9

I note that in the normal CFA (if there is such a being) costs are protected normally by insurance policies, frequently after-the-event (ATE) insurance policies. But here the protection was to be provided to the clients by the solicitor, and it is of course that indemnity which is at the heart of this appeal. Had ATE insurance been provided, the matter would not have been considered by the Deputy Master, and would not be before us today.

10

Having settled the case as I have described, the matter went for detailed assessment before the Deputy Costs Master. The Defendants took three preliminary points which had to be decided by the judge. The first point related to a pre-CFA agreement; I need say no more about that; the Master's decision about that is not appealed, and it need not fall for consideration. The second preliminary point was this: whether that indemnity against liability to pay the opponent's costs was effectively tainted by champerty or maintenance, and if so, whether that made the whole CFA unenforceable. The Master determined that issue against the Claimant, as a result of which the costs order that had previously been negotiated became valueless, and the Claimant's solicitors were unable to obtain any costs from the Defendant.

11

The third preliminary issue was whether the indemnity against liability to pay the opponent's costs was insurance, provided as an activity by way of business within the Financial Services and Markets Act 2000. If so, it is conceded that that would render the CFA unenforceable. The Deputy Master noted that that part of his judgment was now unnecessary (in view of his other decisions) and dealt with that matter very briefly. But insofar as he did deal with it, he decided that issue in favour of the Claimant. It is against that decision that a counter-appeal is launched, Mr Bacon submitting on behalf of the Defendant that he should have succeeded on that point as well.

12

The importance of this case is patent: there are, as I know, other similar cases in the pipeline involving the same parties. Messrs Belshaw & Curtin wish to be paid for the pursuit of their clients' claims against the Borough. Perhaps I can make one or two preliminary observations: the CFA provided for what is, on any view, a modest success fee, one of 10%. It could be so modest for a host of reasons, not least that the evidence below and before me establishes that the solicitors had a firm handle on these cases, assessed them carefully and only pursued those cases which were meritorious. That had the additional advantage, from their point of view, that any indemnity which they gave, (assuming it to be lawful and valid) would have to be used rarely, if at all; and the absence of any ATE insurance was, at least at first glance, of potential benefit to the Defendants because as and when these cases are settled, as they usually are, the Defendants would be faced with a costs bill, damages and a modest uplift, but would not be required, as they would normally, to pay the ATE insurance premium.

13

I should also say something about the background to the way these cases came into being. I have been able to read the witness statement from Mr Curtin which was before the judge in the court below and summarised in the skeleton argument produced on behalf of the Claimant. It is of some significance to understand how it is that this particular form of CFA came into being, and was used not only in respect of these two claims, but in respect of other Claimants as well. For reasons which I am satisfied were entirely good ones, Messrs Belshaw & Curtin had not had their legal aid franchise renewed. That was their own choice. That choice was informed by the nature of the new contracts which were being offered, also the additional bureaucracy consequent upon those contracts. There were also other factors which caused not only this firm of solicitors but many others to move away from legal aid work, and into work provided under CFAs.

14

The clients whom they were seeking to serve were clearly in no position to fund their own litigation. Mr Curtin described this arrangement as a ‘scheme’ and in his witness statement set out the purposes of the scheme and its advantages. I will be forgiven, I hope, if I read to some extent from the Claimant's skeleton argument, which encapsulates the matter admirably,

'In order to continue offering a valuable and much-needed service to the local community, Mr Curtin attempted to design a system which would permit the firm to act for meritorious cases, avoiding the disadvantages of the legal aid scheme, without taking from the clients the benefits of the legal aid scheme such as costs protection and the absence of liability to pay costs to the firm acting; and the core elements of the scheme were a CFA agreement, in fact a CFA-lite agreement, with a low success fee, supported by the indemnity. The system avoided the disadvantages of the legal aid scheme, means-testing, contributions, statutory charge, bureaucracy and so on, but was intended to replicate, at modest cost, to anybody including the Defendant, the benefits of legal aid, as it had once been supplied.'

15

The problem that Mr Curtin had, as he set out to prepare this arrangement, was that ATE insurance was virtually unavailable and certainly unavailable at proportionate cost. An investigation revealed that brokers would require a premium of £3,000, to support a claim which in the case of Mr Morris settled at £10,000 and in the case of Mr Sibthorpe £1,300, with costs including success fee, VAT and disbursements, of £13,000 and £8,000 respectively. Moreover, the financial risk to the firm of paying out on the indemnity was modest, because of the careful attention that was provided for these cases, before the starting-line was crossed.

16

Mr Curtin also suggested that, in devising this arrangement (scheme) the interests of...

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