Costs – Conditional fee agreement (CFA) – After the event (ATE) insurance – Court ruling successful claimant entitled to costs on standard basis — Whether claimant entitled to costs of CFA and ATE insurance – Claim allowed in part
A building dispute between the claimant and the defendant was referred to adjudication. A second adjudicator, by way of a revised decision, decided that the defendant should pay the claimant £100,602 together with adjudicator’s fees of £9,900. The defendant failed to do so and the claimant issued proceedings for recovery of the award.
The claimant entered into a conditional fee agreement (CFA) with its solicitor. If it lost the proceedings, it would be liable to pay only the defendant’s costs; if it won, it would pay the solicitor’s basic charges, disbursements, the success fee and the premium for after the event (ATE) insurance. The success fee comprised 100% of the solicitor’s basic charges; the total sum insured under the ATE insurance was £20,000
The claimant’s action was successful: [2010] EWHC 3366 (TCC); [2011] PLSCS 7. It was common ground that the claimant was entitled to its costs on a standard basis. The defendant accepted that he was liable to pay £66,960.70 plus interest, together with the fee for the issue of proceedings. However, an issue arose as to whether the claimant was entitled to the costs of the CFA and the ATE insurance.
Held: The claim was allowed in part.
The basic costs rules and practice regarding reasonableness and proportionality applied to CFAs and ATE insurance so that, to the extent that the mark-up or uplift under the CFA or the ATE premium was unreasonable or disproportionate, it should be disallowed, at least on a standard assessment. A CFA percentage increase would not be reduced simply on the ground that, when added to reasonable base costs and, where relevant, proportionate costs, the total appeared disproportionate. A primary factor in considering the reasonableness of the percentage increase had to be the claimant’s prospects of success, which was to be judged primarily as at the date on which it entered into the CFA.
Similar considerations applied to the ATE insurance. It was necessary for these to be a reasonable presumption that premiums were linked to an assessment of risks and the prospects of success in the litigation. The premium allowable on a costs assessment could be adjusted downwards to reflect the fact that, when the insurance contract was entered into, the prospects of success were good. Different considerations might apply on a summary assessment, particularly in a relatively low-value claim, where it would be disproportionate to expect what would in effect be expert evidence to be adduced as to the unreasonableness of the premium. There was no presumption that the premium was reasonable. One had to bear in mind that on a standard basis of costs assessment, it was for the party entitled to the costs to establish what was reasonable: Kris Motor Spares Ltd v Fox Williams LLP [2010] EWHC 1008 (QB) considered.
The notification requirements relating to funding arrangements were important because a party facing a potential costs risk might want to make its dispositions as soon as it was aware of the size of that risk. Those dispositions might include admitting liability as soon as possible or paying into court. It followed that, unless there was a good reason for non-notification in accordance with the rules, the default position to be adopted by the court was that set out in CPR 44.3B(1). Thus, the successful party should not recover for its enhanced CFA percentage uplift for the period before the notification.
Although it was not unreasonable for the claimant to enter into a CFA and to obtain ATE insurance, there was no good reason for the lack of notification of the CFA when the claim form was issued. Accordingly, the claimant should not be entitled to the extra mark-up on solicitor’s fees incurred before the formal notification. Although the CFA referred to the success fee, which was said to have been based on the solicitor’s assessment of the risks of the case, no such assessment had been provided to the court.
The court had formed the clear view that the risks were limited: the fact that the claimant and its solicitor had pursued a summary judgment application suggested strongly that they believed the claimant could win. In all the circumstances, the claimant should receive 20% of the CFA uplift and the ATE insurance premium. A 20% uplift of basic solicitor’s charges was reasonable where the claimant was likely to win its claim, judged at the time the CFA was entered into, with the only real risk being that the defendant might do what he did, namely pay out what he was bound to lose and argue the balance, where the risk of losing was between 30-40%.
With regard to the ATE insurance premium, there was no presumption that it was reasonable. Moreover, bearing in mind that it was a summary assessment of costs on a standard basis, one could understand why a claimant might want such a safety net, but the risk of losing, judged at the time when the ATE was entered into, was sufficiently low to undermine the reasonableness of imposing anything near 100% of its cost on the paying party in the instant case. In the absence of any evidence from the claimant as to the reasonableness of the premium, but without deciding that the premium was itself unreasonable, it was right to make the defendant pay 20% of it.
Per curiam the courts, particularly the Technology and Construction Court, which dealt with most adjudication enforcement cases, would think long and hard about whether to allow substantial CFA mark-ups, particularly where the party holding the CFA lodged a summary judgment. It was important that claimants should not use CFAs and ATE insurance primarily as commercial threats. It was legitimate for the court to ask whether either was reasonable and proportionate.
Samuel Townend (instructed by CJ Hough & Co Ltd, of Crawley) appeared for the claimant; Camille Slow (instructed by Quercus Law) appeared for the defendant.
Eileen O’Grady, barrister
