The Legal Service Board’s recent report into referral fees revealed some interesting statistics.

It showed that the number of personal injury claims arising from RTAs has risen from the year 2000 to 2009 (see Figure 21 on page 96). This is despite the number RTA accidents involving personal injuries having decreased (see Figure 16 on page 83).

“In contrast to the decline of RTAs and RTA injuries, motor personal injury claims have been increasing from 400,000 in 2000-01 to 625,000 in 2008-09.”

The report concluded that:

“Overall therefore there is evidence that referral fees have facilitated a growth in the number of motor claims as individuals make claims that would not otherwise have arisen.”

On the other hand, there had been no corresponding increase in EL claims during the same period. The report commented on this apparent anomaly in this way:

“there is no evidence of a trend in the level of referral fees (or their equivalent) among trade unions, hence we would not necessarily expect to see an increase in the number of employer liability claims. Indeed, interviewees believed that the employer liability area was not facing a similar trend to the RTA sector because the employer liability sector had not seen as great an increase in marketing activity that had occurred in the RTA sector. Interviewees indicated that the increase in the number of claims in recent years was related to the economic cycle rather than referral fees.”

None of this seems a particularly convincing explanation for the lack of an increase in EL claims, with the possible exception of the economic cycle. It’s hard to have an accident in a factory when we don’t have any left in this country.

The report firstly seems to assume that EL referrals come mainly from trade unions. Although these are naturally significant, only a minority of employees are members of trade unions. Secondly, whenever I see a claims management company advertisement on television it is almost invariably focused on EL/trippers/slippers claims rather than RTA claims. I have seen very little indication of an increase in RTA marketing for claims in recent years, although I recognise that does not exactly amount to a comprehensive review of the subject.

However, assuming the figures for the rising level of RTA claims are accurate, this raises another issue.

Readers may remember the Better Regulation Task Force report on the “compensation culture” back in 2004. This concluded that the “compensation culture” was a myth and that the number of personal injury claims was going down. Looking back on the report it seems this conclusion was based on a graph showing a reduction in claims for the year 2003/04 (Table 1 on page 12). Since this report was published, it hasn’t been possible for a claimant lawyer to open their mouth without them repeatedly banging on about this conclusion.

However, looking at the figures contained in the Legal Services Board report, it appears that the 2003/04 figures quoted by the Better Regulation Task Force were an anomaly, if they were even accurate. Given the majority of personal injury claims are RTAs, and there are an increasing number of RTA claims despite the number of accidents decreasing, the “compensation culture” begins to look less and less like a myth.  The Legal Costs Blog demands a recount.

A regular reader of the Legal Costs Blog recently got in touch to ask whether the decision in National Westminster Bank v Kotonou [2009] EWHC 3309 (Ch) was a useful one when challenging the costs associated with the funding of a claim.

Before turning to the case itself, it is useful to remind ourselves of the case law surrounding this area.

Dr Mark Friston’s definitive new work, Civil Costs: Law and Practice summarises the position in this way: “There is no binding authority on the recoverability of the costs of funding advice; there is a significant divergence of judicial opinion on the topic”.

The starting point is perhaps the decision of Master Hurst in Claims Direct Test Cases [2002] EWHC 9002 (Costs):

“It has long been held that the cost of funding litigation is not a recoverable cost as between the parties:

‘… by established practice and custom funding costs have never been included in the category of expenses, costs or disbursements envisaged by the statute or RSC Order 62. To include them would constitute an extension of the existing category of “legal costs” which is not under the prevailing circumstances warranted.’

(per Lord Justice Purchas, Hunt v R M Douglas (Roofing) Ltd, 18 November 1987, CA, unreported. This point was not taken in the subsequent House of Lords Appeal.)

It follows from this that the only costs of funding litigation which are recoverable are those permitted by statute, in this case Section 29 of the Access to Justice Act 1999. Section 29 is specific and has been interpreted by the Court of Appeal in Callery v Gray. Anything falling outside the scope of the Section is not recoverable.”

Master Seager-Berry in Ghannouchi v Houni Ltd (SCCO, 12 January 2004) allowed the costs associated with funding and this case is routinely relied on by receiving parties:

“the work of providing detailed advice and drafting the CFA and the risk assessment and making enquiries about insurance are recoverable.”

I’m sure I have seen a copy of this judgment at some stage but it is not available through any of the normal sources.

His Honour Judge Cockcroft, in the case of Masters v Hewden Stuart Heavy Lifting Ltd (Leeds Civil Hearing Centre, 18 March 2005), having analysed the case law, held:

“Without being qualified by any subsequent authority drawn to my attention, they seem fairly and squarely to preclude recovery from the other party, the defendant, of the claimant solicitors funding costs. … I am driven here to conclude that [the judge below] was wrong to allow one hour’s costs, or indeed any costs against the defendants in respect of work done concerning the funding of the claim.”

We then have the case of Woolley v Haden Building Services (No 2) [2008] EWHC 90111 (Costs) where Master Rogers held:

“In my judgment, the costs of funding have never been recoverable and nothing has changed as a result of the introduction of CPR or, indeed, as a result of the introduction of the CFA Regulations, and therefore that element of this bill in which the Claimant seeks to recover its funding costs, fails.”

However, we then have a further decision from Master Rogers on the same point. Here he managed to muddy the waters compared with his earlier decision. This is the case of Bollito v Arriva London [2009] EWHC 90136 (Costs):

“There has been considerable disagreement at costs judge and district judge level as to whether or not costs of funding are recoverable as between the parties in a detailed assessment.

…

On the basis of what I said in [the case of Woolley] Mr Cooper submitted that the costs of funding should not be recoverable by the Claimant from the Defendant in this case. Mr Cooper however accepted that, as always, I have a discretion in these matters and there was no hard and fast rule laid down by a court which is binding on me.

Mr Walton submitted that this was not a usual case where a couple of letters were written to set up a CFA where the costs of funding were de minimis. On the contrary, there were three separate retainers and much work needed to be done in relation to matters not least because the Claimant was not able to deal with matters directly and of course was not English speaking anyway.

Equally important was the fact that when the £50,000 limit of cover was reached under the BTE insurance offered by DAS substantial efforts had to be made by the Claimant’s solicitors to find an alternative source of insurance or cover.

I was told that at a rough estimate the costs of funding in this case came to about £5,000.

It seemed to me that even in a bill of this size this was not a negligible sum and that in my discretion it would be right to award those costs to the Claimant which is what I did.

I refused Mr Cooper’s application for permission to appeal. I said in the quotation from Woolley mentioned above that it would be nice to have authority from a higher level as to whether the Senior Costs Judge is right as set out in Claims Direct Test Cases or whether the decision of Master Seager-Berry in Ghannouchi v Houni Ltd and others is to be preferred.

However, I do not think this is an appropriate case for such a decision because in my discretion I decided that the costs of funding in this case were sufficiently large to justify ordering them to be paid by the Defendant to the Claimant.

As this was a decision taken by a specialist judge in his own field I do not think that there is any reasonable prospect of that decision being reversed on appeal and that is why I refused permission.”

I find this decision somewhat odd, even ignoring the difficulty it throws up for practitioners advising their clients when the same costs judge can reach different decisions on exactly the same issue. If, having held in the case of Woolley, that well established law did not allow this category of work to fall within that which is recoverable, how can there then be a general discretion on a judge to allow it in a particular case? This is not an issue such a photocopying where a general discretion is allowed in the rules for such costs to be “exceptionally” allowed. If a category of work is not recoverable, the fact that is unusually large in amount should make no difference (although the photocopying example does work the other way).

So, then we come to the decision in National Westminster Bank v Kotonou. This was a decision by Mr Justice Briggs. The facts of the case were unusual and need not trouble us for current purposes. However, the relevant section of the judgment was as follows:

“Turning to ground two, it was common ground both before Master Campbell and on this appeal that there is a general principle that the costs of a claim do not include costs incurred by a party in seeking funding either for the prosecution or for the defence of that claim. Nothing in this judgment is intended to cast doubt on that general principle.”

Therefore, although the point was not argued, it was accepted by all concerned that funding costs are not recoverable. These comments might be easier to dismiss in other circumstances but for a number of issues:

1. This is a High Court decision (although the point itself was not argued) where there has previously been none.
2. Both sides were represented by experienced specialist costs counsel (Mr Andrew Post and Mr Simon P Browne). It does not appear to have been taken as even in doubt as to whether the law was otherwise.
3. The Senior Costs Judge, Master Hurst, sat as one of the two assessors; the other being Mr Martin Cockx (partner in Amelans and therefore no suggestion that the claimant side of the argument could not be put before the judge). The fact that there is no suggestion in the judgment of Mr Justice Briggs that he thought there was any doubt over the law implies that the Senior Costs Judge did not advise him to the contrary.

So, on balance, this case is certainly helpful to paying parties even if not definitively the last word on the matter.

This case was also interesting for those who undertake appeals. Mr Justice Briggs held:

“In my judgment the fact that, unless the court orders otherwise, an appeal is by way of review does not necessarily preclude the consideration of fresh legal argument. In the present case, all the factual material upon the basis of which the first ground of appeal is sought to be advanced was available to the Costs Judge, and no unfair prejudice would be occasioned to the Kotonous by permitting the Bank to raise this additional argument.”
 

A firm of solicitors offers to indemnify its client against an adverse costs order as part of its CFA.

In Dix v Townend [2008] EWHC 90117 (Costs) Deputy Master Williams held such an agreement to be contrary to public policy and to invalidate any retainer.

MacDuff J in Morris v London Borough of Southwark [2010] EWHC B1 (QB) held that such an agreement might be unlawful but the particular one he was considering was lawful.

The matter is now headed off to the Court of Appeal.  Until the Court gives a definitive ruling, solicitors would be foolish to continue to offer such indemnities.  

Readers may be interested in the recent article I wrote for the New Law Journal (see link) on Lord Justice Jackson’s proposals in relation to redefining the concept of proportionality in legal costs.