Thai Trading v Taylor
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MILLETT,LORD JUSTICE HUTCHISON,LORD JUSTICE KENNEDY |
| Judgment Date | 27 February 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0227-9 |
| Docket Number | CCRTF 97/0880 CMS2 |
| Court | Court of Appeal (Civil Division) |
| Date | 27 February 1998 |
and
[1998] EWCA Civ J0227-9
Lord Justice Kennedy
Lord Justice Millett and
Lord Justice Hutchison
CCRTF 97/0880 CMS2
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE READING COUNTY COURT
(His Honour Judge Haque)
Royal Courts of Justice,
Strand, London WC2
DR J WILLIAMS (instructed by Messrs Taylors of Caversham, Reading) appeared on behalf of the Appellant Appellant.
THE RESPONDENT PLAINTIFFS MR A BEARD and MR T BEARD (assisted by MR HEAVER, their McKenzie Friend) appeared in person.
In June 1991 Mrs Taylor ordered a four-poster Thai carved bed from the Plaintiffs for the price of £2,500. She paid a deposit of £1,500. The bed was delivered, but it did not match Mrs Taylor's expectations. She rejected it and refused to pay anything more. The Plaintiffs brought proceedings in the Reading County Court for the unpaid balance of the purchase price and Mrs Taylor counterclaimed for the return of the money she had paid.
The case was a small, run-of-the-mill county court case and should have been disposed of speedily and with relatively little expense. Unfortunately it had a protracted history and involved a number of court appearances, with the result that the present appeal, which relates to Mrs Taylor's costs, is concerned with a sum which is out of all proportion to the amount originally in issue.
Mrs Taylor won her case. The Plaintiffs' action was dismissed and Mrs Taylor obtained judgment on her counterclaim. The Plaintiffs were ordered to pay Mrs Taylor's costs up to 22nd March 1993 and from 25th January 1994 with no order as to costs for the intervening period. This reflected the fact that Mrs Taylor had eventually succeeded on a point not taken before the District Judge.
In the course of taxation the Plaintiffs challenged the amount claimed to be due from them. Mrs Taylor had paid the disbursements out of her own money and the Plaintiffs did not dispute their liability for these. But they disputed any further liability on the ground that Mrs Taylor was not legally liable to pay her solicitor his profit costs. It is a well settled principle that a successful party who has been awarded his costs can recover by way of indemnity only the costs which he is legally liable to pay to his own solicitor or in the case of disbursements to third parties. The principle was established in Gundry v Sainsbury [1910] 1 KB 645, where the successful party was unable to obtain an order for costs because his solicitor had agreed to act for him without reward.
The circumstances which give rise to the allegation that Mrs Taylor was not legally liable to pay her solicitor's profit costs are as follows. Mrs Taylor's husband is a solicitor practising under the firm name of Taylors. He is a sole practitioner. Mrs Taylor works for the firm as an accounts clerk. She naturally employed the firm to act for her in the proceedings brought against her, and it represented her throughout the course of the litigation.
Mrs Taylor deposed in an affidavit as follows:
"There was no agreement either expressly or by implication between myself and my husband, acting as my solicitor, that he would not render bills to me. Upon the recovery of costs awarded to me they will be dealt with in the same way as with any client recovering costs following litigation and a bill will be raised covering these costs."
The Judge (His Honour Judge Nigel Hague QC) accepted Mrs Taylor's evidence that there was no express agreement between her and her husband in regard to her costs, but he found that there was an understanding that she would not pay anything if she lost. He said:
"…the commonsense of the matter points strongly to the conclusion that Taylors would only be paid by Mrs Taylor if and to the extent that she won the litigation and could recover the costs from the Plaintiffs. I cannot believe that Taylors intended or expected to be paid if she lost. The notions that in those circumstances Taylors would have billed Mrs Taylor and that she would have paid such a bill (whether out of her own earnings or savings or out of money provided by her husband), thereby increasing Mr Taylor's profits and his income tax liability, are to my mind fanciful…
"For those reasons, although I reject the Plaintiffs' first contention that Mrs Taylor was under no obligation to pay Taylors in any circumstances, I accept their second contention. I find that there was an understanding between Taylors and Mrs Taylor that she would not be liable to them for any profit costs except in the event of success in the litigation and an order for costs in her favour, when she would be liable for their normal profit costs."
There is no appeal from this finding, which was based on inference from the primary facts. In my opinion the facts did not warrant the inference that there was any understanding as to Mrs Taylor's legal liability in respect of costs. To my mind the only legitimate inference was that, while Mrs Taylor's legal liability for costs was not affected, save in unforeseen circumstances neither party expected Mr Taylor to demand payment or enforce her liability unless she won her case and to the extent that she recovered costs from the Plaintiffs.
In a judgment for which I should wish to express my respectful admiration the Judge pointed out that, if the law relating to the recovery of contingent fees be put on one side, the so-called indemnity principle did not avail the Plaintiffs. Even if there was an express agreement that Mr Taylor would be paid his profit costs only if Mrs Taylor won her case, she would still be entitled to be indemnified against a legal liability which had been incurred in the events which had happened. The fact that she would have incurred no liability in a different event which had not happened would not affect this.
Had he felt free to do so, the Judge would have held that the agreement between Mrs Taylor and her husband which he had found was entered into was a valid and enforceable agreement. But he reluctantly concluded that he was bound by authority, in particular the decisions of the Divisional Court in British Waterways Board v Norman (1993) 22 HLR 232 and of Garland J in Aratra Potato Co Ltd v Taylor Johnson Garrett [1995] 4 All ER 695, to hold that the agreement, being an agreement for a contingent fee, was contrary to public policy and so void. Those decisions also showed that the consequence was that there was no legal liability on Mrs Taylor to pay Taylors' profit costs, and hence by virtue of the indemnity principle no liability on the Plaintiffs to pay such costs.
The Judge felt the injustice of the result which he was constrained by authority to reach. He subjected the two decisions to which I have referred to respectful criticism, but rightly held that he was bound by them. We are not so bound, and are free to examine the underlying principles afresh.
Mrs Taylor has appealed the Judge's decision, but has no financial interest in the result of the appeal. Accordingly Mr Taylor has been joined as an additional party to the appeal and argument has been presented on his behalf.
It should be observed at the outset that there is nothing in the Solicitors Act 1974 which prohibits the charging of contingent fees. Section 59(2) merely provides that nothing in the Act shall give validity to arrangements of the kind there specified. It does not legitimise such arrangements if they are otherwise unlawful, but neither does it make them unlawful if they are otherwise lawful.
The Solicitors Practice Rules 1987 by contrast provide that a solicitor engaged in any contentious business shall not enter into any arrangement to receive a contingency fee, that is to say a fee payable only in the event of success in the proceeding. There is now an exception for conditional fee agreements which satisfy the requirements of the Courts and Legal Services Act 1990. Except as there provided, therefore, it is unprofessional conduct for a solicitor to enter into any agreement even for his normal fee where this is dependent on achieving a successful result in litigation. The Plaintiffs placed much reliance on this. But the fact that a professional rule prohibits a particular practice does not of itself make the practice contrary to law: see Picton Jones & Co. v Arcadia Developments Ltd. [1989] 1 EGLR 42. Moreover, the Solicitors Rules are based on a perception of public policy derived from judicial decisions the correctness of which is in question in this appeal.
Maintenance and champerty
The law governing contingent fees outside the scope of the Courts and Legal Services Act 1990 is derived from the public policy relating to champerty and maintenance. Until 1967 these were both criminal and tortious. Following the recommendation of the Law Commission the Criminal Law Act 1967 provided that they should no longer be either criminal or tortious. Section 14(2) of the Act, however, preserved the rule of the common law that they are contrary to public policy.
Maintenance was described by Lord Denning MR in Re Trepca Mines (No. 2) [1963] 1 Ch. 199, 219 as
"improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse."
Champerty was described by Scrutton LJ in Ellis v Torrington [1920] 1 KB 399, 412 as
"…only a particular form of maintenance where the person who maintains takes as a reward a share in the property recovered."
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