Costs - Assessment - Collective conditional fee agreement

Court of Appeal, Civil Division

May, Maurice Kay and Hallett

LJJ and Senior Costs Judge Hurst

sitting as an assessor

19 December 2007

John Foy QC (instructed by Rowley Ashworth) for the claimant.

Richard Drabble QC and Robert Marven (instructed by

McCullagh & Co) for the defendant.

In order to determine whether costs are properly described as base costs or disbursements, it is necessary to focus on whether the work done was solicitors’ work, and where the responsibility for the work lies.

The claimant brought an action for personal injury. His solicitors acted under a collective conditional fee agreement (CFA). In August 2004, the claim was compromised for an agreed payment of £1,500 plus costs on a standard basis to be assessed if not agreed.

The claimant’s solicitors engaged costs consultants to conduct the detailed assessment of his costs. It was determined by a costs officer that the claimant’s solicitors were entitled to a success fee, having succeeded in recovering the £1,500. It was further held that the solicitors were entitled to recover a proper amount for the costs of the consultants conducting the detailed assessment. The costs officer assessed the costs in the solicitors’ bill at £6,572.70. He reduced the success fee claimed at 50% to 45%. He allowed the costs of the assessment in a total of £3,860.85, including the success fee of 45%. On appeal the costs judge disallowed the success fee part of that assessment, and reduced the costs to £2,930.51.

The question arose as to whether or not the satellite costs of conducting the detailed costs assessment were to be regarded as profit costs or disbursements. If they amounted to profit costs, the solicitors would be entitled to a percentage success fee, as part of their base costs, but not if they were disbursements. The master held that the costs were disbursements which did not attract the success fee. The solicitors (nominally the claimant) appealed against that decision with permission of a High Court judge, who transferred the appeal directly to the Court of Appeal.

LORD JUSTICE MAY:

“Base charges”, upon which the solicitors were entitled to a success fee uplift, were defined in the CFA as:

“…charges for work done by or on behalf of the Solicitors which would have been payable if this agreement did not provide for a success fee, calculated on the basis of the fees allowable for that work in the court in which the action in question is conducted or would be conducted if proceedings were to be issued.”

As a matter of language, the important part was that the charges were charges by or on behalf of the solicitors. It had been taken to equate with solicitors’ profit costs.

“Disbursements” were defined as:

“…expenses which the Solicitors incur on the member’s behalf in the course of an action, such as court fees, fees for experts, barristers’ fees (including success fees for barristers where appropriate), copying charges made by others, travelling and hotel expenses (this is not an exhaustive list).”

Solicitors charged disbursements at cost. They did not attract an uplift for profit nor a success fee. The distinction in the definitions of base costs and disbursements in the CFA was between charges for work done by or on behalf of the solicitors and expenses which the solicitors incurred on the member’s behalf. That was a distinction between charges by the solicitors themselves for work which they themselves did or were directly responsible for; and expenses which they incurred for the client, some of which were for other people’s work which they were not directly responsible for and which they simply passed on to the client at cost.

If they properly chose to delegate their own work, they remained entitled to charge on their own account and the proper amount of the charge was not necessarily the same as the amount which they agreed to pay to their subcontractor. It could be more or it could be less.

The appellants were right to concentrate on whether the work was solicitors’ work; and a characteristic of such work was whether the solicitor remained responsible to the client for its proper conduct. Intrinsically, it might be said that profit costs should be limited to work which the solicitors did themselves, because if they delegated it, the subcontractor was making a profit as well.

But, since the solicitor remained entitled to the proper amount which he, not the subcontractor, would charge, there was in theory only one amount of profit; and the success fee in a CFA was supposed to cover the cost of other cases which the solicitor lost and for which he was paid nothing, not for his profit on the case which he had won.

Solicitors’ work

His lordship held that the consultants in this case had been doing work which the solicitors had themselves undertaken to their client to do. It was solicitors’ work for which the solicitors were entitled to make their own direct charge. In theory, they remained liable for it, although in reality it was done entirely for their own benefit, since the claimant had no interest in the argument.

The classification of the cost of the work could not sensibly depend on whether the solicitors had done the work themselves, whether they had delegated it to another solicitor or whether they had delegated it to costs draftsmen who were not solicitors. His lordship added that there was no reason of principle which compelled the court to require parties who entered into CFAs to address at the outset the risk of costs proceedings separately, and there were clear reasons of policy for the court not to require that.

There was general sense, if CFAs were to be a substantial means of financing civil litigation, that they should not be overcomplicated, that costs should be agreed wherever possible, and that, if there were to be contested costs proceedings, the means whereby the winning solicitor had financed litigation which he had lost should extend to the costs proceedings at the same rate as the proceedings themselves, if that was what had been agreed with the client. The appeal would therefore be allowed. Lady Justice Hallett delivered a concurring judgment and Lord Justice Maurice Kay dissented.