England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE
(MASTER WRIGHT)

		Royal Courts of Justice Strand, London, WC2A 2LL
		16 March 2007

Lord Justice Dyson:

1. On 18 July 2006 we dismissed the claimants' appeals. We held that the CFAs were unenforceable. Our decision is now reported in 2007 1 WLR 554. The issue of costs was adjourned generally. We ordered that Ollerenshaws, the claimants' solicitors, be joined as parties to the appeals for the purposes of costs only pursuant to CPR 48.2. The parties agreed that Ollerenshaws should have time for further consideration. The claimants, meanwhile, sought leave to appeal to the House of Lords. Their petitions were dismissed on 6 December 2006.
2. It is not in issue the defendant is entitled to its costs of the appeal. It seems to be common ground that the claimants have no insurance against any liability for costs: this is because it was a condition precedent to the liability of the insurers under the claimants' ATE policies that enforceable CFAs were in place. If the claimants had the benefit of such insurance, the defendant would be content with an order for costs against them. It is in these circumstances that the defendant seeks an order for costs against the solicitors.
3. We were given figures for Ollerenshaws' profit costs and disbursements in the four cases. They ranged from £5,000 to £7,100. By far the most substantial disbursements were the ATE insurance premiums, which were £1,522 in each case. The total disbursements were approximately £2,500 in each case. The four cases were in the nature of test cases so far as Ollerenshaws were concerned. We were told that there are about 60 other cases where clients have entered into CFAs with Ollerenshaws in circumstances not materially different from those which obtained in the four cases before us. It follows from our judgment that the CFAs in those cases are not enforceable either.
4. The financial consequences of our decision for Ollerenshaws are very serious indeed. On the basis that Ollerenshaws' average profit costs in all those cases is in the range of £3,000-£4,000 it can be seen that was what at stake for Ollerenshaws in these appeals was their entitlement to a sum in the region of £200,000. It is clear that the four claimants had a financial interest in the appeals since the finding of Master Wright that the CFAs were unenforceable -- which they sought to challenge -- left them with a considerable shortfall in the recovery of costs which would inevitably have to be paid out of their damages. The agreed damages were very modest: sums of the order of £3,000-£4,000. The disbursements remained payable and/or were irrecoverable by the claimants, notwithstanding that the CFAs were unenforceable.
5. The question that arises for our decision is whether, despite the claimants' financial interest, there is jurisdiction to order that Ollerenshaws should pay some or all of the defendant's costs and if so how that jurisdiction should be exercised. Mr Morgan QC submits that Ollerenshaws had a substantial interest in appealing the decision of Master Wright and that that is sufficient to found jurisdiction to make the order the defendant seeks. He relies on section 51 of the Supreme Court Act 1981 which, so far as is material, provides:

"(1) Subject to the provisions of this or any other enactment and to rules of court, the costs of and incidental to all proceedings in –

(a) the civil division of the Court of Appeal…

shall be in the discretion of the court.

…

"(3) The court shall have full power to determine by whom and to what extent the costs are to be paid."

He also relies upon CPR 48.2, to which I need not refer.

6. The apparently wide language of section 51(1) and 51(3) has been the subject of considerable judicial interpretation. Sir Geoffrey Nice QC submits that Ollerenshaws were acting as the claimants' legal representatives in pursuing the appeal and that for that reason there is no jurisdiction to make the order sought. He places considerable reliance on the decision of this court in Tolstoy-Miloslavsky v Aldington [1996] 1 WLR 736 and the judgment in particular of Rose LJ. At page 743 Rose LJ said:


"Section 51(1) and (3) of the Supreme Court Act 1981 do not confer jurisdiction to make an order for costs against legal representatives when acting as legal representatives."

He then gave six reasons for that conclusion. At page 745 H he said:

"In my judgment Mr Mansfield is correct in his submission that there are only three categories of conduct which can give rise to an order for costs against a solicitor:

1. It is within the wasted costs jurisdiction of section 51(6) and (7);

2. It is otherwise a breach of duty to the court, such as even before the Judicature Acts could found an order, eg if he acts even unwittingly without authority or in breach of an undertaking;

3. If he acts outside the role of solicitor, eg in a private capacity or as a true third party funder for someone else."

Sir Geoffrey also points out that an order for payment of costs by a non-party will always be "exceptional", see per Balcolme LJ in Symphony Group PLC v Hodgson [1994] 1 QB 179, 192.

7. But it is now necessary to have regard to the judgment of the Privy Council given by Lord Brown of Eaton-under-Heywood in Dymocks v Todd [2004] 1 WLR 2807 [2004] UKPC 39, especially paragraph 25 where he said:

"A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion, but their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows:

1. Although cost orders against non-parties are to be regarded as 'exceptional', exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such 'exceptional' case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact specific jurisdiction and that there will often be a number of different considerations in play; some militating in favour of an order, some against.

2. Generally speaking, the discretion will not be exercised against 'pure funders' described in para 40 of Hamilton v Al Fayed (No 2) [2003] QB 1175-1194 as 'those with no personal interest in a litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course.' In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.

3. Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice would ordinarily require that if the proceedings fail he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded, as himself gaining access to justice for his own purposes. He himself is 'the real party' to the litigation, a concept repeatedly invoked throughout the jurisprudence (see, for example, the High Court of Australia in the Knight Case 174 CLR 178 and Millet LJ's judgment in Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613). Consistently with this approach Philips LJ described the non-party underwriters in T G A Chapman Ltd v Christopher [1998] 1 WLR 12, 22 as 'the defendants in all but name'. Nor, indeed, is it necessary that the non-party be 'the only real party' to the litigation in the sense explained in the Knight case, provided that he is 'a real party in … very important and critical respects.'"

8. In my judgment, the third category described by Rose LJ in Tolstoy's case should be understood as including a solicitor who, to use the words of Lord Brown in Dymocks is "a real party … in very important and critical respects" and who "not merely funds the proceedings but substantially also contributes, or at any rate, is to benefit from them". I do not accept that the mere fact that a solicitor is on the record prosecuting proceedings for his or her client is fatal to an application by the successful opposing party under section 51(1) and (3) of the Supreme Court Act 1981, that the solicitor should pay some or all of the costs.
9. Suppose that the claimants had no financial interest in the outcome of the appeal at all because the solicitors had assumed liability for all the disbursements with no right of recourse against the clients. In that event, the only party with an interest in the appeal would be the solicitors. In my judgment, they would undoubtedly be acting outside the role of solicitor, to use the language of Rose LJ.
10. Let us now suppose that the solicitors have the major financial interest in the outcome of the appeal but that the claimants have a modest financial interest in it as well. It would be very surprising if the existence of the claimants' modest financial interest meant that the solicitor's financial interest counted for nothing when deciding what order for costs it was just to make. Why should the existence of the claimants' modest financial interest deprive the court of the jurisdiction to make an order against the solicitors, which absent that interest it would undoubtedly have? Sir Geoffrey submitted that if a client has a financial interest in the success of the appeal, the solicitors are acting for him in the usual way, and it is nothing to the point that the solicitors may have a far greater financial interest of their own in the success of the appeal. In my view, this does not provide a satisfactory answer to the question that I have posed.
11. Rose LJ did not have in mind the kind of hybrid situation that has arisen in the present cases. He did not have to consider the position of an appeal in whose success the solicitor has the principal interest but in which the client has his own lesser interest, too. It is at this point salutary to recall that Lord Brown said that the non-party need not be the only real party to the litigation, provided that he is "a real party… in very important and critical respects". I can think of no good reason why those observations should not apply with equal force to solicitors and non-solicitors. I have no doubt that there is jurisdiction to make an order under section 51(3) against a solicitor where litigation is pursued by the client for the benefit or to a substantial degree for the benefit of the solicitor.
12. I turn, therefore, to consider whether this court should make an order in the present case. What was at stake in the appeals of these four claimants? So far as the claimants were concerned, the disbursements of approximately £2,500 each; so far as Ollerenshaws were concerned, it was their profit costs of approximately £12,000-£16,000 in the four cases. But of far greater significance was the fact that their profit costs in the region of £200,000 in approximately 60 cases were at stake. Viewed in this way, it seems to me inescapable that the main reason why this expensive appeal was launched was to protect Ollerenshaws' claim to their profit costs.
13. In the Dymocks case at paragraph 20, Lord Brown made the point that, but for the involvement of the non-party, the unsuccessful appellant would not have pursued its appeal. We were not told by Sir Geoffrey whether the four claimants would have pursued their appeals to this court in order to obtain reimbursement from the defendant of their disbursements, but I think it most unlikely that they would have done so. It is unfortunate that the defendant did not warn Ollerenshaws at an early stage of the appeals process that, if the appeal failed, it would or might apply for costs against the solicitors. Failure to do this is a factor to be taken into account in deciding whether or not to make an order against the non-party; see Symphony Group page 193C. Sir Geoffrey did not tell us whether, if they had received such a warning at an early stage, Ollerenshaws would have abandoned the appeal. The fact that Ollerenshaws have not felt able to say that this is what they would have done leads me to conclude that it is unlikely that, faced with such a warning, they would have abandoned the appeal. Nevertheless, they were denied the opportunity of taking that course.
14. I think it important to emphasise the need for parties who think that they may apply for an order for costs against solicitors in circumstances such as obtained in the present case to warn the solicitors at an early stage, so as to give them a reasonable opportunity for deciding whether or not to continue with the proceedings.
15. In my view, a fair and just order to make in this case is to order Ollerenshaws to pay 50 per cent of the defendant's costs of the appeal. In arriving at this percentage I have taken into account the fact that the claimants had a real financial interest in the success of the appeals; their disbursements represented approximately one third of the total costs incurred by them before their claims were settled. I also take into account the fact that Ollerenshaws were not given a warning until the appeals had been dismissed that an application for costs might be made against them.
16. As regards the other outstanding matters, it is agreed that the defendant should have interest on their costs from 18 July 2006. As for a payment on account of costs, I suggest that we hear further argument from counsel in the light of our judgments.

Lord Justice Lloyd:

17. I agree. At the risk of repetition, but in the light of the potentially wider importance of the point, I add some observations of my own.
18. In the Count Tolstoy case, as my Lord, Lord Justice Dyson, has said, Rose LJ enunciated at the top of page 746 of the report that, relevantly to the present case, an order for costs can only be made against a solicitor if the solicitor is acting "outside the role of a solicitor, eg in a private capacity or as a true third party funder for someone else". Roch LJ put it in much the same way at page 750 E, saying this:

"The legal representative who acts as a legal representative does not make himself a quasi party and no jurisdiction to make an order for costs against him under section 51(1) (3) arises. However, a legal representative who goes beyond conducting proceedings as a legal representative and behaves as a quasi party will not be immune from a costs order under section 51(1) and (3) merely because he is a barrister or a solicitor."

Ward LJ agreed with Rose LJ that section 51(1) and (3) have "no application to solicitors acting as such".

19. Those observations do not, and did not purport to, set out in definitive terms exactly what is the borderline between the case where a solicitor acts purely as such in the ordinary way on behalf of a client and is therefore immune from the jurisdiction of the court under sections 51(1) and (3), and on the other hand a case where the solicitor's acts are such that he is within the scope of that jurisdiction. Although the court in Count Tolstoy noted the enactment of the conditional fee provisions of the Courts and Legal Services Act 1990, it did not have occasion to consider the implications of those provisions in detail.
20. In the present appeal, Sir Geoffrey Nice points out that the claimants have a real interest as regards their right to recover from the defendants the ATE insurance premium as well as other disbursements. The other disbursements would not, as I understand it, have been at issue on the appeal, but the ATE premium was, for reasons that my Lord has explained.
21. Having succeeded in showing to be invalid the CFA, the defendants are entitled to resist any contention that they indemnify the claimants for that premium. We were told the amount of the premium that my Lord has mentioned and we have to proceed on the basis that each claimant is out of pocket to that extent. However, in the circumstances that my Lord has mentioned, a larger amount was also at stake on the appeals, namely Ollerenshaws' profit costs including the uplift, not only in these four cases but in the larger body of other cases which my Lord has mentioned, to a total of profit costs at stake well into six figures.
22. In respect of those amounts the claimants were not at risk, because if they were recoverable the defendants would undoubtedly have paid them and if they were not that was because the claimants did not have to pay. In relation to those amounts, therefore, the appeal was brought for the solicitor's sake, not for that of the client. There may be cases of litigation funded on a conventional private basis where it may be said to be in the interests of the appellant's solicitor that an appeal be brought and succeed on question of costs, for example if the opponent is clearly able to pay, whereas the client would have greater difficulty in paying. Such a case would however be fundamentally different from this one as regards the profit cost element because here the claimants were and are not at risk at all for the profit costs.
23. Accordingly, although I would accept that a decision in favour of the respondents and against the solicitors in the present case is of wider relevance, it seems to me that its relevance is limited to cases where the litigation is funded by a CFA and where the issue is as to the enforceability of the CFA. Sir Geoffrey submitted that, given the claimants' real interest in the outcome of the appeal because of the question as to the ATE premiums, the solicitors could not be said to have been acting "outside the role of the solicitor" in relation to the appeal, despite having their own separate interest in the outcome of the appeal; or, to use Roch LJ's formula, he argued that Ollerenshaws did not at any stage go beyond conducting the proceedings as a legal representative and never behaved as a quasi-party.
24. At any given stage in the course of the appeal, if one had asked in what role the solicitors were acting, even looking beyond their necessary role of conducting the litigation, he said the answer would have to be that they were representing the claimants and their interests, even if they were also furthering their own interests. Like my Lord, I do not consider that this is a sufficient answer to the arguments of Mr Morgan for the respondents. In the very different context of CFA funded litigation, which was not at issue in Tolstoy, it seems to me that the criteria indicated in that case must be considered and applied with as clear an understanding as the court can have of the reality of the issues at stake in the litigation and their economic context and also, of course, with the benefit of later developments in the law as regards the circumstances in which it is possible, and if so proper, to make an order under subsections (1) or (3) of section 51.
25. In that respect, the opinion of Lord Brown in the Dymocks case is helpful. Of course, that did not address the liability of the legal representative, but it did consider the circumstances in which an order may be made against a third party funder. Since in essence that is the basis of the respondent's application and since it must be assumed that the solicitors did fund the appeal, at least by paying counsel (who were not retained, as we understand it, on a CFA) and providing their own services free, they were acting as a funder although also as a solicitor.
26. My Lord has read the relevant part of paragraph 25 of Lord Brown's opinion in which he set out principles derived from the decided cases and in particular the three propositions set out at 1.2(1), which concerns what is meant by exceptional, and (2) and (3), contrasting the case of the non-funder or the pure funder and the third party funder who is at risk. It seems to me that, taking the essence of what Lord Brown says in that passage together with what the Court of Appeal had said on that particular point in Tolstoy, it is correct to regard Ollerenshaws in the present case in relation to the conduct of the appeal as having acted in part for the sake of their own benefit in a respect which was of no interest or concern to their clients, and as having acted as a matter of business to seek to establish their right to be paid, not by their own clients in practice, the profit costs on these four cases and all the others of which these were representative.
27. In those circumstances, which could be common in relation to cases where the enforceability of a CFA is at stake but would be most unusual in any situation, it seems to me proper to regard the solicitors as having acted in respect of the appeal in a dual capacity; acting for their clients, certainly and with a real interest of those clients to protect, but primarily acting for their own sake. In terms of what Lord Brown said later in paragraph 25 in Dymocks, I agree with my Lord in saying that Ollerenshaws were a real party to the litigation at the stage of the appeal, albeit that the claimants were also. On that basis it seems to me that the case is materially different from the Count Tolstoy case and the court has jurisdiction to make an order under subsection (1) and (3) of section 51 against the solicitors.
28. I agree with my Lord that, pursuant to that jurisdiction and in exercise of the court's general discretion as to costs, the appropriate order on the facts is that Ollerenshaws should pay one half of the respondent's costs of the appeal.

Sir Henry Brooke:

29. I agree with both judgments.

Order: Appellant's solicitors pay 50% of Respondent's costs of appeal.