ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MR JUSTICE MACDUFF
ON APPEAL FROM THE SENIOR COURTS COSTS OFFICE
DEPUTY COSTS JUDGE HOFFMANN
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LORD JUSTICE GROSS
| REGINA SIBTHORPE AND DANRI MORRIS
|- and -
|LONDON BOROUGH OF SOUTHWARK
Mark James (instructed by Belshaw & Curtin) for the Respondents
David Holland (instructed by the Law Society) for the Interveners
Hearing date: 14 December 2010
Crown Copyright ©
Lord Neuberger MR :
The factual background
"If you lose, you pay your opponent's charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponent's charges at the end of the case if you lose. This means that we will pay those charges."
I shall refer to this provision as "the indemnity". The CFA included a similar indemnity as to what would happen if the damages were less than a Part 36 payment, or if an adverse order for costs was made at an interlocutory stage.
A summary of the contentions
The law relating to champertous agreements with those conducting litigation
"In order to preserve the honour and honesty of the profession it was a rule of law which the court had laid down and would always insist upon that a solicitor could not make an arrangement of any kind with his client during the litigation he was conducting so as to give him any advantage in respect of the result of that litigation"
"A contingency fee, that is, an arrangement under which the legal advisers of a litigant shall be remunerated only in the event of the litigant succeeding in recovering money or other property in the action, has hitherto always been regarded as illegal under English law on the ground that it involves maintenance of the action by the legal adviser. Moreover where, as is usual in such a case, the remuneration which the adviser is to receive is to be, or to be measured by, a proportion of the fund or of the value of the property recovered, the arrangement may fall within that particular class of maintenance called champerty .. It may, however, be worthwhile to indicate briefly the nature of the public policy question. It can, I think, be summarised in two statements. First, in litigation a professional lawyer's role is to advise his client with a clear eye and an unbiased judgment. Secondly, a solicitor retained to conduct litigation is not merely the agent and adviser to his client, but also an officer of the court with a duty to the court to ensure that his client's case, which he must, of course, present and conduct with the utmost care of his client's interests, is also presented and conducted with scrupulous fairness and integrity. A barrister owes similar obligations. A legal adviser who acquires a personal financial interest in the outcome of the litigation may obviously find himself in a situation in which that interest conflicts with those obligations."
"Maintenance and champerty have, since 1967, ceased to [attract criminal pemalties] . Only in the field of contractual rights and duties do they still cast their shadow and even in this field the trend of all the recent authorities has been to foreshorten the shadow. In Hill v Archbold  1 QB 686, 697, Danckwerts LJ said:
' the law of maintenance depends upon the question of public policy, and public policy is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time.'
There is, I think a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called "contingency fees".
"I accept the general thesis in the judgment of Millett LJ in the Thai Trading case that modern perception of what kinds of lawyers' fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose that my opinion, or that of any individual judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties and delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has, by what are now (with section 27 of the Access to Justice Act 1999) successive enactments, modified the law by which any arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided. That applied with, if anything, greater force in 1993 than it does today."
Lord Bingham CJ agreed with both judgments.
1. The introduction of conditional fees shows that even this requirement of public policy is no longer absolute. This case raises the question of whether the requirement extends to expert witnesses or others in a position to influence the conduct of litigation and, if it does, whether on the facts of the present case the agreements concluded by Grant Thornton can be justified.
2. [Reference is here made to an observation of Lord Denning MR in Re Trepca Mines Ltd (No 2)  Ch 199, 219-220].
3. Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain, to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice."
"It is sufficient to adopt the description of the policy underlying the former criminal and civil sanctions expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd  1 KB 1006, 1014:
'It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse."
This was a description of maintenance. For champerty there must be added the notion of a division of the spoils.'"
"In Giles v Thompson  1 AC 142 Lord Mustill applied the test of public policy identified by Fletcher Moulton LJ in the British Cash case  1 KB 1006. That test is appropriate when considering those who, in one way or another, support litigation in which they are concerned. It is not, however, really in point when considering agreements under which those who are playing a legitimate part in the process of litigation provide their services on a contingency fee basis. A solicitor who charges a contingency fee which does not satisfy the requirements of section 58, can hardly be said to be guilty of 'wanton and officious intermeddling in the disputes of others where the assistance he renders to one party or another is without justification of excuse'. The public policy in play in the present case is that which weighs against a person who is in a position to influence the outcome of litigation having an interest in that outcome."
The validity of the indemnity: has the law on champerty relevantly changed?
The validity of the indemnity: is it champertous?
"It is understandable that a contingency fee which entitles the solicitor to a reward over and above his ordinary profit costs if he wins should be condemned as tending to corrupt the administration of justice. There is no reason to suppose that Lord Denning in Trendtex  1 QB 629 or any of the members of the Court in Wallersteiner (No 2)  1 QB 373 had in mind a contingency fee which entitles the solicitor to no more than his ordinary profit costs if he wins. These are subject to taxation and their only vice is that they are more than he will receive if he loses. Such a fee cannot sensibly be described as a "division of the spoils". The solicitor cannot obtain more than he would without the arrangement and risks obtaining less."
the economic mirror image of enjoying a profit if the claimant wins. Thus, there is no doubt but that, as a result of the indemnity, the Solicitors had an interest in the outcome of the claim, over and above the statutorily sanctioned interest due to the no win no fee agreement and 10% uplift. However, it is by no means unknown, and perfectly proper, for solicitors to conduct litigation for a client knowing that, unless the client wins, the solicitors may find it impossible, or will find it hard, to recover their fees. Further, it is common for solicitors, particularly in high profile cases, to publicise the fact that they acted for the successful party in litigation. In each such case, the solicitor has an interest in the outcome of the litigation. An even more everyday point is that solicitors, and barristers, have a very real interest in winning a case for their client, especially when the client is substantial: there is a significantly greater prospect of further instructions from the client.
Revisiting the definition of champerty
"45. I have been referred to the following extract from McGillivray on Insurance Law. I do not apologise for quoting it, word-for-word, reflecting as it does my own view,
'It is sometimes necessary to decide, in the context of fiscal or regulatory legislation, whether a contract containing insurance and non-insurance elements should be classified wholly or partly as a contract of insurance. The inclusion of indemnity provisions within a contract, or the supply of services, neither makes the indemnifier an insurer, nor justifies describing the contract as wholly or partly one of insurance. Where a contract for sale, or for services, contains elements of insurance, it will be regarded as a contract of insurance only if, taking the contract as whole, it can be said to have as its principal object the provision of insurance.'
46. In my judgment, this, on any view, was a contract for the provision of legal services. The indemnity clause, whether looked at individually or as part of the contract, was a subsidiary part of the contract. [T]his was a contract for the provision of legal services, with an indemnity clause whereby the solicitor undertook to pay the opponent's costs, in the event that that became necessary. To characterise it as a contract of insurance, albeit that the indemnity created some principles similar to an insurance contract, is to go too far. "
Lord Justice Lloyd:
"(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.
(2) For the purposes of this section and section 58A
(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and
(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances."
Lord Justice Gross: