R (Morris and another) v London Borough of Southwark

JurisdictionEngland & Wales
JudgeLord Justice Gross,Lord Justice Lloyd
Judgment Date25 January 2011
Neutral Citation[2011] EWCA Civ 25
Docket NumberCase No: A2/2010/0456 & 0456(A)
CourtCourt of Appeal (Civil Division)
Date25 January 2011
Between
Regina Sibthorpe and Danri Morris
Claimants Respondents
and
London Borough of Southwark
Defendant Appellant

[2011] EWCA Civ 25

[2010] EWHC B1 (QB)

Mr Justice Macduff

Deputy Costs Judge Hoffmann

Before: Master of the Rolls

Lord Justice Lloyd

and

Lord Justice Gross

Case No: A2/2010/0456 & 0456(A)

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE

QUEEN'S BENCH DIVISION

Roger Mallalieu (instructed by Director of Communities Law and Governance, London Borough of Southwark) for the Appellant

Mark James (instructed by Belshaw & Curtin) for the Respondents

David Holland (instructed by the Law Society) for the Interveners

Hearing dates: 6 October 2010 to 12 November 2010

Lord Neuberger MR:

1

These are two appeals brought, with permission given by Waller LJ, by the London Borough of Southwark against a decision of Macduff J, reversing a decision of Deputy Master Hoffman sitting in the Senior Court Costs Office. The issue in each appeal concerns the extent to which the ancient rule against champerty prevents a solicitor agreeing to indemnify his claimant client against any liability for costs which she may incur against the defendant in the litigation in which the solicitors are to act for her.

The factual background

2

Each of the two appeals arises out of a claim brought by a residential tenant against her landlord, the London Borough of Southwark ("the Council"). Both claimants are represented by the same counsel and solicitors, and any differences between the two cases are irrelevant for present purposes. Accordingly, in this judgment I shall limit myself to the facts of one of the cases, Morris v. London Borough of Southwark.

3

Ms Morris is and was at all material times a residential tenant of the Council, and, in the normal way, her tenancy agreement included obligations on the part of the Council to maintain the exterior and structure of her flat. She contended that the Council had failed to comply with this covenant, and that she had thereby suffered consequential damage. She instructed solicitors, Messrs Belshaw & Curtin ("the Solicitors"), to act for her in connection with a claim ("the claim") which she then brought in the County Court. The purpose of the claim was to recover damages from the Council and to require the Council to perform its repairing obligations.

4

The terms upon which Ms Morris instructed the Solicitors to act for her in connection with pursuing her claim were contained in a contract of engagement, which was a conditional fee agreement ("the CFA"). The terms of the CFA, in summary, provided that, at least in general, the client would not be obliged to pay the Solicitors' costs fees or disbursements if the claim failed, and, if the claim succeeded, the client would not have to pay the Solicitors more than the client would recover from the Council by way of costs. The CFA further provided that if the claim succeeded and the client recovered costs, the Solicitors would be entitled to a 10% success fee.

5

Crucially for present purposes, the CFA also included the following:

"If you lose, you pay your opponent's charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponent's charges at the end of the case if you lose. This means that we will pay those charges."

I shall refer to this provision as "the indemnity". The CFA included a similar indemnity as to what would happen if the damages were less than a Part 36 payment, or if an adverse order for costs was made at an interlocutory stage.

6

Pursuant to the CFA, the Solicitors issued proceedings on Ms Morris's behalf in the County Court based on the Council's breach of covenant. In due course, the claim was settled by an agreed order. The settlement involved the Council agreeing (a) to pay Ms Morris £10,000 for breach of its repairing covenant, (b) to carry out the necessary work and repair in order to comply with that covenant, and (c) to pay Ms Morris's costs to be subject to a detailed assessment if they could not be agreed.

7

The detailed assessment of costs was assigned to Deputy Master Hoffman, and, before him, the Council contended that Ms Morris was not entitled to recover any costs, whether incurred before or after the CFA was entered into. In relation to costs before the CFA was entered into, this was on the ground that the initial retainer was, in reality, a CFA which was unenforceable for non compliance with s.58 Courts & Legal Services Act 1990. In relation to the costs after the CFA was entered into, this was on the ground that the Solicitors were not entitled to claim any payment from their client, as the arrangement between them fell foul of the law against champerty because of the presence of the indemnity. The Deputy Master accepted both arguments, and accordingly disallowed any sum in respect of Ms Morris's claims for costs, which were £2,684.98 before, and £9,295.05 after, the CFA was entered into, (in each case, exclusive of VAT), There is no appeal in relation to his decision on the former sum, and I shall say no more about it.

8

The Deputy Master's reasoning in relation to the CFA being champertous was based on the proposition that it is unlawful for a solicitor (or indeed a barrister) to agree to conduct litigation for a client on terms which give the solicitor (or barrister) a financial interest in the outcome of the proceedings, unless, of course, legislation permits the particular terms. As it is common ground that there is no legislation permitting a solicitor to underwrite a client's liability to pay the costs of the defendant in the proceedings, runs the argument, the indemnity in the CFA was void on the grounds of champerty, and this invalidated the CFA in its entirety.

9

Ms Morris (perfectly properly lending her name for this purpose for the benefit of the Solicitors) appealed that decision. The appeal came before Macduff J, who took a different view from the Deputy Master – [2010] EWHC B1 (QB). He concluded that, while the indemnity in the CFA was not sanctioned by legislation, and therefore might have fallen foul of the rule against champerty in former times, more recent jurisprudence showed that the law had moved on, and that the question of whether an agreement was void on the grounds of champerty should be decided by reference to the facts and circumstances of the particular case. He went on to decide that, in this case, there was no public policy reason for invalidating the CFA.

10

The Council now appeals to this court, and the Law Society has intervened to join with Ms Morris in resisting the appeal.

A summary of the contentions

11

In a nutshell, the contentions advanced by the parties are as follows. The Council, through Mr Mallalieu, contends that, according to well established principles, the indemnity is champertous, and that, while the remainder of the CFA was lawful, it is unenforceable as it contains an integral provision which is champertous. He also argues that there is no warrant for contending that the law of champerty has weakened in recent times other than by statute, at least in relation to agreements with those actually conducting litigation.

12

On behalf of Ms Morris, it is contended by Mr James that, even if the indemnity would have been held to be champertous in former times, the law has developed, so that an agreement such as the CFA in the present case would not by any means necessarily be held to be champertous. Essentially, whether an agreement is champertous should, he says, be assessed on a case by case basis. He also argues, as does Mr Holland for the Law Society, that, on close analysis, no part of the CFA, not even the indemnity, is champertous according to any decided case, and it would be inappropriate in present times to extend the law of champerty so as to render the indemnity champertous.

13

In so far as it is relevant to look at the precise terms and circumstances of the CFA in the present case, the Council contends that those facts and circumstances should lead to the conclusion that it is void on the grounds of public policy, whereas Ms Morris (and the Solicitors) and the Law Society contend the opposite.

14

If the indemnity is nonetheless champertous, it is argued on behalf of Ms Morris that it should be treated as deleted from the CFA, and the other provisions of the CFA are therefore valid. If the indemnity is not champertous, there is an issue, upon which the Council have not so far been granted permission to appeal, as to whether the CFA in any event is void under the provisions of the Financial Services and Markets Act 2000 ("the 2000 Act").

The law relating to champertous agreements with those conducting litigation

15

As Lord Phillips MR said, when giving the judgment of the Court of Appeal in R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381, at 399, para 31, although no longer a crime, "champerty survives as a rule of public policy capable of rendering a contract unenforceable". He went on to explain in the next paragraph of his judgment, quoting from the then current, 28 th, edition of Chitty on Contracts, "[a] person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse". It has also been described as "wanton and officious intermeddling in the disputes of others … where the assistance [the maintainer] renders to...

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