England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		10 July 2007

Master Campbell:

1. On 28 June 2007 I heard an application dated 20 June 2007 for an order in the following terms:-

"We, Mills & Reeve, the solicitor on behalf of the defendant, apply for an order … for the claimants to disclose their conditional fee agreement (CFA) with their solicitors, Bolt Burdon Kemp (BBK) and BBK's CFA with counsel or, if once put to their election, BBK choose not to disclose their CFAs that they serve such other evidence as they intend to rely upon."

2. At the hearing the defendant was represented by Mrs Butler-Cole and the claimants by Mr Carpenter, both of counsel. Having heard submissions, I informed the parties that the court had no power to order disclosure of the CFAs in question but that both should be produced to the court under section 40.14 Costs Practice Direction (CPD). These are my reasons for making that decision.

BACKGROUND

3. The litigation between the parties concerned professional negligence proceedings, the claimants having alleged that the defendant solicitors had failed to advise them properly as to their rights and obligations under a commercial lease of premises in Windsor. That claim was compromised on 1 November 2006 on terms that the defendant would pay damages to the claimants agreed in the sum of £225,000 together with costs to be assessed if not agreed. As matters stand at present, those costs are to be assessed on 17 and 18 July 2007, the claimants having served notice of commencement on 31 January 2007 with their bill seeking £341,125.39. Of that sum, a significant proportion relates to the success fee of 100 per cent claimed in both the CFAs which are dated respectively 15 June 2005 for BBK and 2 September 2005 for counsel.

THE DEFENDANT'S APPLICATION

4. The defendant's case is set out in a witness statement made by Stephen King, a solicitor at Mills & Reeve on 20 June 2007. In paragraph 10 Mr King says this:-

"… the defendant in this case does have further grounds for wishing to see the CFAs and both risk assessments;

10.1 The additional liabilities are very high.

10.2 The statement of reasons served by BBK includes as a reason for the success fee that 'the fact that if you win we will not be paid our basic charges until the end of the claim' and yet the figures at the end of the document attribute no part of the success fee to postponement. The postponement element is of course not recoverable from the paying party.

10.3 There are reasonable doubts about others of the reasons cited for BBK's success fee and so the paying party wishes to examine the definition of 'win' and 'within the CFA'. See Points of Dispute at general point 6 (pages 7 and 8).

10.4 The hourly rate charged for the fee earner who undertook the greatest amount of work on the case, Jodie Newton, jumps very sharply from £175 to £210 per hour on 16 July 2005, when she reached 4 years post-qualification. Given that substantial increase, it is absolutely reasonable for the paying party to be able to compare client care letters and the CFA to ascertain that the increased hourly rate was properly chargeable to the clients."

5. In paragraph 12 Mr King acknowledges that on 2 April 2007 BBK disclosed a redacted version of their CFA which revealed the claimants' retainer, the charging rates and the schedule containing the risk assessment, but in his submission those documents were of limited value. In particular they did not include any details about counsel's CFA or the section which defines "win". During the course of argument Mrs Butler-Cole submitted that the combination of these factors made it impossible for the defendant to advance a properly calculated offer under Civil Procedure Rule (CPR) 47 which would give her client protection against their liability for the costs of the detailed assessment proceedings.
6. Mrs Butler-Cole additionally drew my attention to the judgment of the Court of Appeal in Hollins v Russell [2003] 1 WLR 2487, in which Brooke LJ (giving the judgment of the court) said this at paragraph 220:-

"So far as matters of procedure are concerned, we consider that it should become normal practice for a CFA to be disclosed for the purpose of costs proceedings in which a success fee is claimed. If the CFA contains confidential information relating to other proceedings, it may be suitably redacted before disclosure takes place. Attendance notes and other correspondence should not ordinarily be disclosed, but the judge conducting the assessment may require the disclosure of material of this kind if a genuine issue (emphasis added) is raised. A genuine issue is one in which there is a real chance that the CFA is unenforceable as a result of failure to satisfy the applicable conditions."

7. It follows, Mrs Butler-Cole submits, that the court should order disclosure of the CFAs in line with the guidance of the Court of Appeal in Hollins, but if the court is against her on this point, both should be produced to me under the CPD 40.14 procedure (see paragraph 8 ) below.

THE CLAIMANT'S SUBMISSIONS

8. Mr Carpenter's primary position for the claimants is that the court has no power to order disclosure. Neither the CPR nor the passages in Hollins relied on by the claimants permit the court to order disclosure of a CFA unless the respondent to the application consents. Moreover, he submits that it is inappropriate and premature for the section 40.14 procedure to be engaged. This provides as follows:-

"The court may direct the receiving party to produce any document which in the opinion of the court is necessary to enable it to reach its decision. These documents will in the first instance be produced to the court, but the court may ask the receiving party to elect whether to disclose the particular document to the paying party in order to rely on the contents of the document, or whether to decline disclosure and instead rely on other evidence."

9. In Mr Carpenter's submission, section 40.14 is to be engaged, if at all, only at the detailed assessment hearing itself. That this is so is plain from the following passage in Pamplin v Express Newspapers (1985) 1 WLR 689. At 696 D-E , Hobhouse J said this:

"The essence of the question, therefore, is to identify the stage at which the claimant has to be put to his election, or must be taken to have waived his privilege. I have no doubt that that stage is not reached when the claimant lodges his documents under Order 62 Rule 21 and the Practice Notes [the predecessor to CPR 47 and CPD section 40.12]. At that stage the claimant is simply complying with the requirements of the rule. The fact that the Master goes through the lodged documents does not at that stage raise any problems of natural justice. At the taxation a problem may arise …"

10. Since the stage has yet to be reached when claimants must lodge their documents in accordance with section 40.12, Mr Carpenter submits that the present application under section 40.14 is premature and should be dismissed.
11. Mr Carpenter further submits that any such application and, indeed, the putting of a receiving party to an election as to whether to disclose privileged documents, is very rare. That, too, is clear from Pamplin at 696 H, when Hobhouse J said this:-

"I expect that it will remain as heretofore, very rare for the full formality of these steps to be gone through. Most respondents appreciate that once they have drawn to the Master's attention the possibility that an item of charge may be unnecessary or may be being overvalued, their interests are best served by allowing the Master to look at the relevant documents and form his own judgment. The respondent will normally achieve little or nothing by asking to see the documents as well."

12. This approach was reinforced in Goldman v Hesper (1998) 1 WLR 1238, when the Court of Appeal had indicated that the procedure "may only rarely be practicable" (at paragraph 1244H). In Mr Carpenter's submission, the defendant's application did not justify use of the election procedure since production of the CFAs in question was not necessary in order to enable the court to reach its decision. Much had already been disclosed voluntarily in redacted form. For the defendant to press for more was simply a "fishing expedition" embarked upon in the hope of stumbling upon some form of non-compliance with the CFA 2000 Regulations which might enable the defendant to avoid its liability for the claimants' costs under the indemnity principle. (See Gundry v Sainsbury (1910) 1 QB 645.) In this context the argument that the high level of success fee was a good reason to see the CFA was without merit given that a statement of the risk assessment for the claimants' CFA with BBK had already been disclosed and would be, in due course, under CPD section 32.5 CPD insofar as counsel's CFA was concerned. Given too that the defendant had raised no genuine issue to justify the engaging of section 40.14, the application should be dismissed.

DECISION

13. In my judgment Mr Carpenter is correct that there is no power conferred on the court either under the CPR or elsewhere to compel a receiving party on detailed assessment to disclose to his opponent a document in respect of which privilege is asserted, such as a CFA, the position here. Had that not been the case, it is reasonable to suppose that the Court of Appeal in Hollins would have recited the power or rule permitting an order for disclosure to be made. In my judgment, a reasonable inference to be drawn from paragraph 220 of Brooke LJ's judgment is that no such power or rule exists; the Court in Hollins was simply expressing the view with force that CFAs ought normally to be disclosed. That conclusion is supported by consideration of the proposed amendment to the Costs Practice Direction 35(i)(d) which reads:

"If the CFA is not disclosed (and the Court of Appeal has indicated that it should be the usual practice for a CFA – redacted where appropriate – to be disclosed for the purpose of costs proceedings in which a success fee is claimed) a statement setting out the following information from the CFA so as to enable the paying party and the court to determine the level of risk undertaken by the solicitor:

(i) the definition of 'win' and (if applicable) 'lose';

(ii) details of the receiving party's liability to pay costs if he or she wins or loses; and

(iii) details of the receiving party's liability to pay costs if he or she fails to beat a Part 36 offer."

14. If, as things stand at present, the court is permitted to order a receiving party to disclose his CFA, no such amendment would be needed to the Costs Practice Direction. If follows that, in my judgment, the first limb of the claimant's application must fail.
15. So far as section 40.14 is concerned, the starting point for the defendant is to raise a genuine issue which merits further investigation by the court (see Hollins at paragraph 220 ante). In my opinion, the defendant can rely on paragraph 74 of Hollins to meet this point. Brooke LJ said this:

"In our view a combination of the indemnity principle and a significant increase in the paying party's liabilities results in there ordinarily being a sufficient ground in cases involving a CFA (whether or not the CFA contains a success fee) for the paying party to require the receiving party to be put to her election to produce the CFA or rely on other evidence."

16. Here, the claimant is seeking the maximum permitted success fee of 100 per cent in both CFAs, so I reject the argument advanced in paragraphs 17-22 of Mr Carpenter's skeleton argument that no genuine issue has been raised in relation to Counsel's CFA in respect of which the compliance requirements applicable between lawyers are much reduced. In my judgment, it is of importance that the significant increase in the paying party's liability was a factor which Brooke LJ in Hollins found persuasive in considering whether the receiving party should be put to his election to disclose the CFA under section 40.14. That factor is present here not only in relation to the Claimants' CFA but also as regards Counsel's. I also agree with Mrs Butler-Cole's submission that Pamplin must be read in the light of Hollins, the judgment of Hobhouse J having been given before the use of CFAs was permitted in law. In these circumstances it is no longer rare for parties to be put to their election; on the contrary, in cases where the receiving party does not disclose the CFA voluntarily, it is likely to be the case.
17. I am not persuaded, either, that the defendant's application is premature and, whatever its merits, that it should only be dealt with at the detailed assessment hearing itself. CPR 3 gives the court case management powers in order to further the overriding objective set out in CPR 1. In my view, dealing with an application such as this now, may avoid an adjournment of the detailed assessment hearing itself, which might arise if the issue is deferred until 17 July.
18. Taking all these factors into account, in my judgment the defendant has raised a genuine issue which it would be just for the court to investigate further through the mechanism of section 40.14. As I indicated at the hearing, both BBK's and counsel's CFA should be lodged at the court by 5 July (but not served on the defendant). I will then examine the documents. If the outcome of that examination is that I form a provisional view that there is a case for the claimants to meet on the assessment, they will be put to their election whether to waive privilege and to disclose the CFAs or to prove their case by relying on other information. (See Hollins, paragraph 74). Alternatively, if I reach a provisional conclusion that the points raised by Mr King in paragraph 10 of his witness statement are not a matter for concern, that fact will be notified to the defendant, who must decide whether to accept my provisional view, (in which case the point is at an end), or to reject it, in which event the claimants would be put to their election in the way described by Brooke LJ in Hollins.
19. I should add the following caveat. Although in Pamplin Hobhouse J at 696 H said that "the Master is well aware of the criteria he has to apply and is highly experienced in the exercise of assessments he has to undertake", I respectfully suggest that the defendant should adopt a cautious approach to any decision I reach. In my view, it is more likely that a legal representative skilled in drafting CFAs will identify potential shortcomings under the CFA 2000 Regulations (if any) and that the present unskilled incumbent of the post identified by Hobhouse J on page 696H, will not This is a factor which the defendant should bear in mind.

FORMAL DECISION

20. The application for disclosure of BBK's CFA with their clients and their CFA with counsel is refused but both CFAs should be produced to the court under section 40.14 CPD on or before 5 July 2007. Costs reserved.