Costs Law

David Beats GoliathThe hot topic of the day at present is the Judiciary’s attempt to curtail the legal costs of litigation.

But the recent decision of His Honour Judge Behrens , in his judgment on Sousa -v- London Borough of Waltham Council [2010] EW Misc 1 (EWCC), appears to buck that desire by permitting Insurance companies, of all people, to pursue recovery of their outlays under the terms of a Conditional Fee Agreement, together with a success fee of up to 100%, thereby potentially doubling the costs of such claims.
One only has to reflect on the last decade of the cost wars to appreciate the irony of this. Over that period, the liability Insurers have been screaming at the ever increasing legal costs they have faced, primarily from Claimant personal injury lawyers, as a result of the recoverability of success fees in CFA funded cases. At the same time, those same Insurers have severely curtailed the amount they were able to recover in those cases they won due to the heavily discounted rates they forced their own panel solicitors to work under.

Now it seems they may well be able to exact their revenge by funding their cases under the exact same agreements their opponents are operating under.

In Sousa, RBS Insurance (branded as Virgin) brought a subrogated claim in Mr Sousa’s name to pursue recovery of their outlay to him following tree root damage to his property. A claim was directed to the local authority, London Borough of Waltham Council, who settled the claim for the sum of £6250 plus costs. Although the claim was brought in Mr Sousa’s name, it was RBS who were conducting the matter for their benefit as it was they who were seeking to recover their outlay. RBS instructed their panel solicitors under the terms of a Collective Conditional Fee Agreement between them which provided for payment of a success fee in the event of a successful outcome to the case.
The Defendant’s argument was simple - it was unreasonable for Mr Sousa to incur the burden of a success fee when he already had the benefit of an indemnity for his legal costs from RBS. At first instance this argument was successful and the claim for recovery of the success fee was refused. However, on appeal before HHJ Behrens, the decision was overturned, the Judge finding:-
1. An insurer is entitled to litigate with the benefit of a CFA;

2. There is no difference in principle between a Union funding its member’s action under a CCFA and recovering a success fee, and an Insurer funding its insured’s action to recover their losses;

3. The Insurer was entitled to control the litigation and to dictate to the Insured the terms of the agreement between him and his solicitors (subject to an indemnity from the Insurer). If those terms included a success fee it was not unreasonable for the Insured to enter into it. In effect he had no choice.

It followed Mr Sousa, in reality RBS and their lawyers, were entitled to recover a success fee from the Defendant local authority.

It is true to say that Insurers are now becoming increasingly alive to the fact that they can take advantage of CCFAs - hitherto, they have mainly been written so as to enable the recovery of a full commercial rate in the event of success with a discounted rate in the event of failure. It now seems agreements can be written which provide for the recovery of a success fee in addition notwithstanding their Insured is, by definition, already insured for his legal costs.

Logically, it seems that this may also pave the way to similar agreements with liability insurers where they are funding the defence of a claim against their Insured, for example an Employers Liability claim. The prospect of both parties to the action being represented under CFAs with Success fees may just about to become the norm!

Its a fair cop - or is it?What is the costs position of a party who is found to have exaggerated or dishonestly submitted a claim?

The courts have demonstrated over the last few years that if a claimant is found to have exaggerated or brought a dishonest claim, then the courts are only too willing to penalise that party in costs.

But what is the position of the Claimant who, having being found to have behaved in such a way, has still beaten the Defendant’s Part 36 offer?

In Widlake v BAA Ltd [2009] EWCA Civ 1256, the Court of Appeal found that the claimant had lied to both party’s medical experts and had grossly exaggerated the extent of her claim with a view to maximising her compensation.

The Claimant suffered a back injury following a fall down the stairs at work for which the Defendant admitted liability. The Claimant was examined by medical experts for both parties and on both occasions, she told the experts she had no prior history of any back pain or problems. However, the truth was she had a significant pre-accident history of back problems.

The Claimant was seeking general damages of £11,000 together with financial losses which a t one point were submitted in the sum of almost £150,000 but which were moderated by the time of the trial to just under £24,000. The Defendant made a Part 36 offer of just £4500.

At trial, the Judge found the Claimant had deliberately concealed her previous medical history in order to increase the amount of compensation she would recover. She was awarded damages for the ‘genuine’ part of her claim (a 12 month aggravation of pre-accident symptoms and commensurate loss of earnings) in the sum of £5522 thereby exceeding the Defendant’s Part 36 offer but recovering a sum significantly less than the amount she had originally claimed.

The trial Judge originally ordered the claimant to pay the defendant’s costs, on the basis of her dishonest conduct but the decision was overturned on appeal and finding that dishonest exaggeration does not result in the dismissal of the whole claim for damages and nor should it dismiss the whole of the claim for costs. The starting point, the Court stated, is to determine who the successful party was. The claimant had established a genuine claim because she had suffered injury through the admitted negligence of the defendant and had also beaten the defendant’s Part 36 payment. On that basis, she would ordinarily be entitled to her costs.

However, the Court of Appeal accepted that the Claimant’s conduct should be taken into account when determining the issue of costs and whether the general rule should be departed from. CPR 44.3(5) specifically requires the Court to consider “whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue” and “whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim”.

The Court found that the Claimant had grossly exaggerated the extent of her injury and her alleged financial losses but took the view that “lies are told in litigation every day up and down the country and quite rightly do not lead to a penalty being imposed… there is a considerable difference between a concocted claim and an exaggerated claim”.

The Court addressed what effect the dishonest conduct had in terms of incurring or wasting costs; the defendant had clearly been put to extra cost, for which they were entitled to be compensated, and the claimant had incurred additional time and expense which they were not entitled to recover.

However, the fact was the claimant had beaten the defendant’s Part 36 offer. The court of Appeal emphasised that Part 36 is the 'shield' behind which a defendant can protect itself by making a sufficient Part 36 offer which the claimant fails to beat.

The Court concluded that the appropriate order would be no order for costs.

For other decisions on this issue see

Molloy v Shell UK Ltd (2001) EWCA Civ 1272, [2001] All ER (D) 79 (Jul) where the claimant had deceived the court by exaggerating the extent of his injuries and claiming for lost earnings for a period when he had in fact been fully employed. He had sought damages in excess of £300,000, but at trial, had recovered only £18,897. The trial judge ordered him to pay 75% of the defendant's costs. The defendant appealed, and on appeal, given the claimant's gross dishonesty, the court ordered the claimant to pay the defendant's costs in full.

Painting v Oxford University [2005] All ER (D) 45 (Feb) where the claimant recovered only £23,331 compared with her pleaded claim of over £400,000. She beat the defendant's Pt 36 offer, but was ordered at trial to pay the defendant's costs as she had intentionally exaggerated her claim. On that basis the defendant could be viewed as the overall winner despite its Pt 36 offer of £10,000 having been beaten. On appeal, the court held that, although the claimant had commenced and effectively lost a claim on the basis that it was exaggerated,
and had made no attempt to settle, it was not apparent that the trial judge had taken these matters into consideration. The court therefore decided the claimant should recover her costs to the date of the payment into court, and would pay the defendant's costs thereafter.