England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE ALTRINCHAM COUNTY COURT
His Honour Judge Tetlow
(On appeal from Deputy District Judge Buckley)

		Royal Courts of Justice Strand, London, WC2A 2LL
		9th May 2007

Lord Justice Dyson : this is the judgment of the court.

Introduction

1. CPR 45.16(a) provides that the percentage increase which is to be allowed in relation to solicitors' fees in road traffic accident claims to which Section III of Part 45 applies is "100% where the claim concludes at trial". Section III applies to this case because the dispute arose from a road traffic claim and the claimant entered into a conditional fee agreement ("CFA") of a type specified in rule 43.2(k)(i). It is common ground that the claim concluded at trial. The issue that arises on this appeal is whether the 100% increase is mandatory in all cases or whether, as the defendant submits, there is a discretion to vary it and, if so, whether the discretion should have been exercised on the facts of this case. The point is of some importance. This is not only because there are large numbers of road traffic claims which are concluded at trial every year, but also because the point has equal relevance to employers' liability claims which are the subject of Sections IV and V of Part 45.

The facts

2. The claimant was injured in a road traffic accident on 10 September 2004. He instructed solicitors under a CFA and took out ATE insurance. They wrote a letter of claim on 21 October 2004. The defendant admitted liability 7 days later. Proceedings were issued on 10 June 2005. No defence was filed. A Part 36 payment in the sum of £1800 was made on 16 August 2005, but this was not accepted. A "disposal hearing" within the meaning of CPR 36 PD para 12.4 was conducted by Deputy District Judge Buckley on 13 September 2005 at which the claimant was awarded damages of £1774.32.
3. The deputy district judge awarded the claimant his costs up to 7 September 2005 (the latest date on which the Part 36 payment could have been accepted without needing the permission of the court) and summarily assessed them at £4550.92. These comprised base costs (£1537.20), a success fee of 100% (£1537.20), disbursements (£938.50) and VAT. He also ordered the claimant to pay the defendant's costs incurred since 8 September 2005 which he assessed at £721.68.

The relevant rules

4. The material provisions of Part 44 of the CPR ("General rules about costs") are:

"44.1 This Part contains general rules about costs and entitlement to costs.

…

44.3 (1) The court has discretion as to –

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

…

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including –

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention, and which is not an offer to which costs consequences under Part 36 apply.

(Part 36 contains further provisions about how the court's discretion is to be exercised where a payment into court or an offer to settle is made under that Part).

…

(6) The orders which the court may make under this rule include an order that a party must pay –

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only;

…..

44.6 A party may recover the fixed costs specified in Part 45 in accordance with that Part."

5. The material provisions of Section III of CPR Part 45 ("The Fixed Percentage Increase in Road Traffic Accident Claims") are:

"45.15 (1) This Section sets out the percentage increase which is to be allowed in the cases to which this Section applies.

(Rule 43.2(1)(l) defines 'percentage increase' as the percentage by which the amount of a legal representative's fee can be increased in accordance with a conditional fee agreement which provides for a success fee)

(2) This Section applies where –

(a) the dispute arises from a road traffic accident; and

(b) the claimant has entered into a funding arrangement of a type specified in rule 43.2(k)(i).

(Rule 43.2(k)(i) defines a funding arrangement as including an arrangement where a person has entered into a conditional fee agreement or collective conditional fee agreement which provides for a success fee).

(3) This Section does not apply if the proceedings are costs only proceedings to which Section II of this Part applies.

…

(5) The definitions in rule 45.7(4) apply to this Section as they apply to Section II.

(6) In this Section –

(a) a reference to 'fees' is a reference to fees for work done under a conditional fee agreement or collective conditional fee agreement;

(b) a reference to 'trial' is a reference to the final contested hearing or to the contested hearing of any issue ordered to be tried separately;

(c) a reference to a claim concluding at trial is a reference to a claim concluding by settlement after the trial has commenced or by judgment; and

…

45.16 Subject to rule 45.18, the percentage increase which is to be allowed in relation to solicitors' fees is –

(a) 100% where the claim concludes at trial; or

(b) 12.5% where –

(i) the claim concludes before a trial has commenced; or

(ii) the dispute is settled before a claim is issued.

45.18 (1) This rule applies where the percentage increase to be allowed –

(a) in relation to solicitors' fees under the provisions of rule 45.16; or

(b) in relation to counsel's fees under rule 45.17,

is 12.5%.

(2) A party may apply for a percentage increase greater or less than that amount if –

(a) the parties agree damages of an amount greater than £500,000 or the court awards damages of an amount greater than £500,000; or

(b) the court awards damages of £500,000 or less but would have awarded damages greater than £500,000 if it had not made a finding of contributory negligence; or

(c) the parties agree damages of £500,000 or less and it is reasonable to expect that if the court had made an award of damages, it would have awarded damages greater than £500,000, disregarding any reduction the court may have made in respect of contributory negligence.

(3) In paragraph (2), a reference to a lump sum of damages includes a reference to periodical payments of equivalent value.

(4) If the court is satisfied that the circumstances set out in paragraph (2) apply it must –

(a) assess the percentage increase; or

(b) make an order for the percentage increase to be assessed."

Background to Section III of Part 45

6. Although Sections II to V of Part 45 were recommended by the Civil Procedure Rule Committee and they subsequently received Parliamentary approval, their genesis lies in a series of negotiations which were conducted under the auspices of the Civil Justice Council. The parties to the negotiations were some liability insurers who promoted the interests of defendants, and a combination of claimants' solicitors (represented by Association of Personal Injury Lawyers and the Motor Accident Solicitors Society) and legal expenses' insurers who promoted the interests of claimants. The figures in Sections II to V were the product of those negotiations.
7. The negotiators had the benefit of a report entitled "Calculating "Reasonable" Success Fees for RTA Claims" by Paul Fenn and Neil Rickman. The report suggested that "one measure of reasonableness was to calculate success fees such that a CFA case yields the same revenue to the solicitor as an hourly fee counterpart (on average), that is a success fee which would make the choice between CFA cases and hourly fee cases revenue-neutral over a sufficiently large number of RTA cases". The report recorded that the claimants' representatives had commented "that an important element of risk in CFA cases has been introduced by Part 36 offers. We have no means of estimating the impact of this factor."
8. It is not necessary for the purposes of this appeal to examine the details of the report, not least because it is not clear to what extent its conclusions shaped the agreement which resulted from the negotiations. But it is of some relevance to note that in their conclusion the writers made it clear that their data had not been able to address some of the concerns raised by the various parties "for example, with respect to the role of Part 36 offers as they affect the balance of risk between claimant and defendant".
9. The effect of the negotiations was summarised correctly by Simon J (sitting with assessors) in Nizami v Butt [2006] EWHC 159 (QB), [2006] 2 All ER 140:

"22 …Changes were made to the Rules of Court. Some of these changes, and in particular the provisions of Sections II to V of CPR45, were introduced following "industry wide" discussions under the aegis of the Civil Justice Council. Agreement was reached on the recoverable costs in the different situations covered by the various sections.

23. It seems to me clear that the intention underlying CPR 45.7-14 was to provide an agreed scheme of recovery which was certain and easily calculated. This was done by providing fixed levels of remuneration which might over-reward in some cases and under-reward in others, but which were regarded as fair when taken as a whole."

The costs decisions in the courts below

Deputy District Judge

10. We have already referred to the costs order that was made by Deputy District Judge Buckley. It was argued before the deputy judge on behalf of the defendant that the claimant should have accepted the Part 36 payment within the time for acceptance; and that had he done so, the claim would have concluded before trial, so that the percentage increase for solicitors' fees prescribed by rule 45.16(b)(i) would have been 12.5%. Accordingly, it was submitted that the deputy judge should exercise his discretion to allow the claimant an uplift of 12.5%.
11. The deputy judge decided that he had no discretion to award the claimant a success fee of less than 100%.

His Honour Judge Tetlow

12. The defendant appealed on the ground (among others) that the deputy district judge was wrong to consider himself bound by rule 45.16(a) to award an increase of 100% in relation to solicitors' fees and wrong, on the facts of this case, to reject the submission that he should exercise his discretion to award a different percentage, namely 12.5%.
13. Judge Tetlow agreed with the deputy district judge. He analysed the relevant provisions of rules 44 and 45. He drew attention to the absence from rule 45.16 of the words "unless the court orders otherwise", noting their presence in rule 45.15(1). As regards the discretion conferred by rule 44.3(1), the judge said that "the general discretion must give place to the particular case where discretion is by the very words excluded" (para 25). More importantly, he relied on the words of rule 44.6 "which indicate that the costs specified in Part 45 are to be dealt with in accordance with that Part ie not by Part 44" (para 28). He concluded that the words of rule 45.16 were clear and mandatory. The claimant's solicitors were entitled to an increase of 100% and the deputy district judge was correct in holding that he had no discretion to award a different percentage increase.

The claimant's submissions

14. Mr Jeremy Morgan QC accepts that rule 45.16 does not give the court jurisdiction to allow a different percentage increase from 100% (where the claim concludes at trial) or from 12.5% (where the claim concludes before a trial has commenced or the dispute is settled before a claim is issued). He concedes that the language of rule 45.16 itself is mandatory. But he submits that the court can allow a different percentage by exercising the discretionary power conferred by rule 44.3, in particular rule 44.3 (1)(b), (4)(c) and (6)(a) and/or (b), at any rate in a case such as this. Mr Morgan does not challenge the scheme whereby the fee is 12.5% if the case does not go to trial and 100% if it does. He does not, for example, argue that the court can use the discretionary power conferred by rule 44 to award a success fee of 50%. He submits, however, that there is a lacuna in rule 45 since it does not deal with the situation that arises where a claimant fails at trial to better a Part 36 offer or payment. Fairness demands that in that situation the success fee should be no greater than it would have been under rule 45.16 if the offer or payment had been accepted.
15. He submits that it is important not to be misled by the mandatory language of rule 45.16 into thinking that a claimant who goes to trial has an automatic right to costs with a success fee of 100% in a CFA case. A claimant who goes to trial has no right to costs at all until they are awarded to him: Donald Campbell v Pollak [1927] AC 732, 811-1 per Viscount Cave LC. The exercise of the court's discretion to award costs to a claimant is the exercise of the discretion under rule 44.3. In other words it is a pre-condition for the application of rule 45.16 that the court should first have exercised its discretion under rule 44.3. In exercising that discretion, the court can limit the amount of costs to which a litigant is entitled.
16. It is clear from rule 44.3(6) that the court, in awarding costs to a party, has the power to limit that award. The use of the word "include" in the introductory words of that rule makes it clear that the ways in which this may be done are not stated exclusively in the paragraph. As a matter of discretion, it is open to the court, where a defendant has made a successful Part 36 offer or payment, to provide that the claimant should have no more costs than he would have recovered if he had accepted the offer or payment.
17. Mr Morgan submits, therefore, that rule 45.16 only applies where (a) there has been an award of costs to the claimant and (b) the court decides not to limit those costs under rule 44.3(6). Once an award of costs has been made, then the quantification of costs proceeds either under rule 44.5 (where quantum is discretionary) or under rule 44.6/Part 45 (where the fixed costs regime applies), but in either case, quantification must be subject to any limitation imposed at the award stage.
18. There are strong policy reasons why the court should have jurisdiction to award a lower percentage increase than 100% in certain cases where the claim concludes at trial. Under the CPR, incentives and sanctions are rightly seen as an important means of controlling the behaviour of litigants and their legal representatives. They are the principal tool that enables the court to achieve and enforce the overriding objective. These underlying policy aims will be defeated if the incentive to accept a good Part 36 offer or payment is reduced or extinguished. If the interpretation adopted by the judges below is correct, the present case shows how a claimant's solicitor may be better off advising his client to reject a Part 36 offer or payment.

Discussion

19. We cannot accept Mr Morgan's submissions largely for the reasons given by Mr Cox. Mr Morgan is right to accept that there is no jurisdiction in rule 45.16 itself to award different percentage increases from those stated in the rule. Rule 45.15(1) provides that Section III of Part 45 sets out the percentage increase "which is to be allowed in the cases to which this Section applies". This mandatory language is repeated in rule 45.16 itself: "Subject to rule 45.18, the percentage increase which is to be allowed in relation to solicitors' fees is…" This is to be contrasted with rule 45.1(1) which provides that Section I sets out the amounts "which, unless the court otherwise orders, are to be allowed in respect of solicitors' charges in the cases to which this Section applies" (emphasis added in each case).
20. We readily accept that a claimant who goes to trial has no right to costs until they are awarded to him. The court has a wide discretion under rule 44.3 to make whatever costs order it considers appropriate in the particular circumstances of the case, taking account of the various factors specified in the rule. Rule 44.3(4) provides that it must have regard to all the circumstances including the conduct of the parties; whether a party has succeeded on part of his case even if he has not been wholly successful; and any payment or admissible offer to settle which is drawn to the attention of the court and which is not an offer to which costs consequences under Part 36 apply. The court can order that a party must pay a proportion of another party's costs and can make other orders including those listed in rule 44.3(6).
21. The central question is whether under rule 44 the court can order that a claimant be awarded a different success fee from that prescribed by rule 45.16. and in particular whether the court can award a success fee of 12.5% in a case for which rule 45.16(b) provides that the fee that is to be allowed is 100%. It was common ground before us that rule 44.6 does not provide the answer to this question. Judge Tetlow considered that this rule shows that, in effect, rule 44 is ousted by rule 45 in relation to the assessment of the costs that are fixed by rule 45. In our judgment, the parties are right to agree that rule 44.6 does not shed light on the relationship between rules 44 and 45.
22. As we have said, Mr Morgan submits that, since rule 44.3(6) contains a non-exhaustive list of the orders that can be made by the court, there is nothing in rule 44 which denies it the jurisdiction to award such percentage increase as it considers appropriate in all the circumstances even if such an increase is at variance with that prescribed by rule 45.16.
23. As applied to the facts of this case, Mr Morgan's submission has some superficial attraction. Where a solicitor advises his client to reject a Part 36 offer or payment and, at least with the benefit of hindsight, it can be seen that the advice was wrong, why should the claimant (or more realistically, his solicitor) be able to take advantage of the error and be awarded a higher success fee than he would have been awarded if the solicitor had given the correct advice?
24. Rule 44.3 can be, and often is, invoked to award a successful claimant only part of his costs for all manner of reasons. In the present case, the deputy district judge awarded the claimant his costs up to the latest date when the Part 36 payment could have been accepted without the permission of the court and ordered the claimant to pay the defendant's costs thereafter. That is the kind of order that is routinely made where a claimant fails to better a Part 36 payment.
25. In our judgment, however, what the court cannot do under rule 44 is to circumvent the mandatory provisions of rule 45. It cannot do this directly by awarding a different success fee under rule 44 (in this case 12.5% instead of the 100% fee prescribed by rule 45.16). Nor can it do this indirectly by awarding the claimant a proportion of his costs which is calculated for the avowed purpose of awarding a success fee of 12.5% instead of 100%. An example of how this might be done was given by Smith LJ in argument. Suppose the solicitor's base costs are £100. Applying rule 45.16 to a case such as the present, the court could allow an increase of 100% and, thereby, award solicitors' fees of £200. If the court considered that fairness demanded an increase of no more than 12.5% (i.e. a total award of £112.50), it could manipulate the rule 44 process by awarding the claimant 56.25% of his costs (£56.25) and allow the prescribed increase of 100% so as to produce a total award of £112.50.
26. Section III of Part 45 contains a carefully balanced scheme for the award of success fees in road traffic accident cases. The object of the scheme is to provide certainty and avoid litigation over the amount of success fees to be allowed to successful parties. The only circumstances in which the court may allow a success fee different from that prescribed by rule 45.16 in relation to solicitors' fees are those described in rule 45.18 (broadly speaking, where rule 45.16 prescribes a fee of 12.5% and the damages agreed or awarded exceed £500,000). It is inherent in the scheme that in some individual cases, the success fee will be unreasonably high and in others unreasonably low. But that is the price that has to be paid for achieving certainty and avoiding litigation over the amount of success fees. Rule 44 cannot be invoked to circumvent the careful structure of rule 45 and to undermine its objective of achieving certainty.
27. As we have said, Mr Morgan does not submit that rule 44 can be invoked to permit the court to award different percentage increases from those prescribed by rule 45.16. He does not challenge the scheme whereby the fee is 12.5% if the case does not go to trial and is 100% if it does. He submits that there is a lacuna in rule 45, since it does not deal with the situation that arises where a claimant fails to do better at trial than a Part 36 offer or payment, and fairness demands that in that situation the success fee should be no greater than it would have been under rule 45.16 if the offer had been accepted.
28. The fundamental difficulty with this argument is that, if rule 44 can be invoked to permit the award of 12.5% in such a case, it can also be invoked to allow a percentage increase which is at variance with that prescribed by rule 45.16 in any case where fairness requires it. Either the language of rule 44, when read in conjunction with rule 45, permits a different fee from that prescribed by rule 45 or it does not. If it does (as Mr Morgan submits), then there is nothing in the language which restricts the power of the court to award a different fee to cases where a claimant has failed to better a Part 36 offer or payment. Why can the court not allow a different fee in any circumstances where this is dictated by the demands of fairness? But if fairness were to be the touchstone for invoking rule 44 to achieve a result which is inconsistent with rule 45, then the whole Part 45 scheme would be unravelled and the mandatory effect of rule 45.16 would be set at nought. We do not consider that, when read together, rules 44 and 45 have that effect.
29. Moreover, Mr Morgan cannot point to anything in the language of the rules which would require the court to allow 12.5% where a claimant has failed to better a Part 36 offer or payment. Why should the court necessarily allow 12.5%? Why should the court not award a reasonable success fee assessed in the light of the particular circumstances of the case? For obvious reasons, Mr Morgan does not contend that rule 44 can be invoked to award a reasonable success fee in cases to which section III of Part 45 applies. But in our judgment the logic of his argument inevitably leads to the conclusion that it can be so invoked.
30. Nor is it at all clear that 12.5% would be a reasonable success fee to award in all cases where a claimant has failed at trial to better a Part 36 offer or payment. Take two cases. In case A, the defendant makes a Part 36 offer which the claimant narrowly fails to beat and which, in the light of information available to the claimant's solicitor at the time, it was reasonable for him to advise his client to reject. In case B, the defendant makes a generous Part 36 offer which, it should have been obvious to the claimant's solicitor at the time, he should have advised his client to accept. It is at least arguable that fairness would demand that the claimant should be allowed different increases in relation to solicitors' fees in the two cases. It is clear from the Fenn and Rickman report that the problems presented by Part 36 in relation to success fees were ones of considerable difficulty.
31. As we have said earlier, Mr Morgan submits that there are strong policy reasons why a claimant who fails to better a Part 36 offer or payment should not be awarded a higher increase than he would have been awarded if he had accepted the offer.
32. We see some force in these arguments. But as Mr Cox points out, there remains considerable incentive for a claimant to accept a good Part 36 offer or payment. The sanction for failure to better a Part 36 offer or payment is the disallowance of all of the base costs from the date when the offer or payment should have been accepted and the liability to pay the defendant's costs from the latest date when it could have been accepted without the permission of the court. In a case where the offer is made at an early stage of the proceedings, this can be a very significant sanction. In the present case, the deputy district judge disallowed the claimant the solicitors' base costs from 8 September 2005 (this period included all of the preparations for trial) and ordered the claimant to pay the defendant's costs which he assessed at £721.68.
33. In our judgment, the policy considerations relied on by Mr Morgan cannot affect the clear meaning of rules 44 and 45. For the reasons we have given, rule 44 cannot be invoked to circumvent the careful scheme prescribed by rule 45.

Conclusion

34. We have had no evidence about the details of the negotiations that were the progenitor of Section III of the Part 45. In the light of the Fenn and Rickman report, it seems probable that the effect of Part 36 was not reflected in the agreement that resulted from the negotiations. Whether that represents a lacuna as Mr Morgan submits depends on whether the effect of Part 36 calls for special treatment. The Part 36 issue is one of some difficulty, although we accept that there may well be a case for deciding that, where a claimant fails to better a Part 36 offer or payment, he should be allowed the same success fee that he would have recovered if he had accepted the offer. For the reasons that we have given, that is not the effect of the rules in their present form. It will be a matter for the Rule Committee and the Civil Justice Council to consider whether to amend Part 45 to make special provision to deal with the Part 36 issue.
35. For the reasons that we have given, however, this appeal must be dismissed.