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

IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		23 February 2010

Master O'Hare:

1. This is my ruling on the first of two preliminary points relating to the bill before me in this case. The two preliminary points are as follows:

i) Is the Claimant's solicitor's retainer unenforceable for illegality at common law because of maintenance or champerty?

ii) Is the Claimant's solicitor's retainer illegal as constituting unlawful insurance contrary to the Financial Services and Markets Act 2000?

2. The Claimant in this case was injured in an accident at work in April 2003. By a consent order made in October 2007 he accepted £15,000 in full and final settlement of his claim for damages, plus his reasonable costs to be assessed if not agreed. The bill before me claims £74,004.47, including success fees on profit costs claimed at 80% and success fees on Counsel's fees at 67%.
3. The claim in this case was conducted by Advance Legal Solicitors, who acted for the Claimant under a conditional fee agreement ("CFA") entered into in April 2003. The CFA provides:

"IF YOU LOSE

In the unlikely event that you lose your claim, we will make no charge whatsoever for our legal work. Further, you will not have to repay us for any legal expenses (disbursements) we have incurred on your behalf and we will cover your opponent's charges. Therefore, you will have nothing to pay. If we have taken out an insurance policy on your behalf, we will make a claim under it to recover your legal expenses and opponent's charges …"

Other provisions in the CFA made clear that the Solicitors wished to avoid the cost of incurring after the event (ATE) insurance premiums, but, if they did later consider that expense to be appropriate, the Claimant would be obliged to sign the necessary insurance forms.

4. At the hearing before me each side was represented by Counsel of very great ability, each of whom put in skeleton arguments which were helpful and explicit. The Claimant also relied upon two witness statements made by Mr Kehoe, who is the proprietor of Advance Legal.
5. The facts of this case are similar, but not of course identical, to the facts of the reported decision in another case which was heard in this office: Dix v Townend (1) and Frizzell Financial Services (2) [2008] EWHC 90117 (Costs). In that case Deputy Master Williams decided issue 1 in favour of the Defendants, and issue 2 in favour of the Claimants. In the case before me both Counsel have addressed me at length as to the parts of the decision they ask me to adopt.
6. The leading House of Lords authority on the topic maintenance and champerty in the 20^th century is Giles v Thompson [1994] 1 AC 141. In that case Lord Mustill defined maintenance and champerty in the following way:

"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 & Parcel Conveyers Ltd v Lamson Store Service Co Ltd [1908] 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."

7. The general law of maintenance and champerty, as it stood at that time, was also described by Millett LJ in Thai Trading Co v Taylor [1998] QB 781. I say "general law" because, as subsequent cases made clear, the Thai Trading decision overlooked a particular aspect of the law which applied in that case. The description of the general law which I adopt is as follows:

"Maintenance was described by Lord Denning MR In The Trepca Mines Ltd (No.2) [1963] Ch 199, 219 as "improperly stirring up litigation and strife by giving aid to one party to bring or defend a claim without just cause or excuse.

Champerty was described by Scrutton LJ in Ellis v Torrington [1920] 1 KB 399, 412 as "only a particular form of maintenance, namely where the person who maintains takes as a reward a share in the property recovered". This last formulation does not assume that the maintenance is unlawful. There can be no champerty if there is no maintenance; but there can still be champerty even if the maintenance is not unlawful. The public policy which informs the two doctrines is different and allows for different exceptions. In examining the present scope of the doctrine, it must be remembered that public policy is not static. In recent times the roles of maintenance and champerty have been progressively redefined and narrowed in scope. The current position is as stated by the decision of the House of Lords in Giles v Thompson [1994] 1 AC 142, 161."

8. The particular aspect of the law which was overlooked in Thai Trading was the statutory authority of the Solicitors Practice Rules which, for many years, have made it illegal for solicitors to enter into any arrangement to receive a contingency fee in respect of contentious proceedings. That rule gives way, of course, to statutory exceptions, such as those relating to conditional fee agreements properly made. Exceptional cases apart, a retainer in respect of contentious business under which a contingency fee is payable is illegal even if that retainer does not constitute maintenance or champerty.
9. In my judgment, despite the forceful advocacy presented by Miss Ayling for the Defendant, it is unarguable that the Claimant's solicitor in this case is guilty of unlawful maintenance. This litigation is not a dispute in which he has no interest. There is nothing in the solicitor's conduct which merits the charge of amounting to "wanton and officious intermeddling". The solicitor did not "improperly stir up litigation." I am not persuaded that there is any maintenance here. However, even if his contractual promise to shoulder the risk of adverse orders for costs should be regarded as maintenance, such maintenance cannot be characterised as unlawful.
10. Had there been no maintenance there could be no champerty. On the assumption that this Solicitor has maintained his client's claim, I do not think he is guilty of champerty, at least in the sense in which that term was used in the cases I have mentioned. The acceptance of an obligation to pay adverse costs orders does not, in my judgment, amount to a "sharing of the spoils" or the "acquisition of any benefit or advantage to the solicitor". Indeed, it is the reverse.
11. For the sake of completeness I should also add that the agreement to accept liability for adverse costs orders cannot amount to a breach of any of the Solicitors Practice Rules: they strike down a retainer in which the payment of fees is contingent, not the undertaking of liabilities.
12. The Law Commission has offered a new definition of maintenance:

"Maintenance is the procurement, by direct or indirect financial assistance, of another person to institute, or carry on or defend civil proceedings without lawful justification."

13. If that formulation was regarded as correctly stating current law I accept that the Claimant's Solicitor was maintaining this claim, but such maintenance would be lawful maintenance. Absent breach of some other restriction (for example, insurance law) why should public policy set its face against solicitors agreeing to pay adverse costs orders in litigation they themselves have conducted?
14. Miss Ayling, for the Defendant in this case, argues that the common law of maintenance and champerty has now developed so as to render the retainer in this case illegal. Her argument first emphasises the general law prohibiting solicitors from acting for contingency fees, save where strictly permitted by statute. From this it is said that statute permits only fees reduced from normal fees if the case is lost, or fees increased by up to 100% where a success fee of that amount is provided for. She then points out that the Claimant's solicitor's financial stake in this case does not vary between zero and 200% of his ordinary fees. Although the theoretical maximum is 180% of his ordinary fees, the theoretical minimum is a large minus figure: zero minus the Defendant's recoverable costs.
15. I have already mentioned the point that the Solicitors Practice Rules against contingency fees are not breached by an agreement under which the solicitor undertakes conditional liabilities. However, Miss Ayling places reliance upon what she described as a new formulation of the principles underlying maintenance and champerty which, she says, is especially applicable to lawyers: an obligation not to put themselves in the position where their financial stake differs according to the outcome, save where they are permitted by statute to do so. As authority for this formulation she relies upon citations from two Court of Appeal cases. The first is Trendtex Trading v Credit Suisse [1980] 629 at 633 where Oliver LJ states:

"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 only interests may conflict with their duty to the court by agreement, for instance, of so called "contingency fees"."

16. The second Court of Appeal authority relied on is R (Factortame Ltd) v Secretary of State for Transport (Local Government and the Regions) (No.8) [2003] QB 381, where, at paragraph 76, Lord Phillips states:

"In Giles v Thompson [1994] 1 AC 142 Lord Mustill applied the test of public policy identified by Fletcher Moulton LJ in the British Cash & Parcel Conveyers Ltd v Lamson Store Service Co Ltd [1901] 1 KB 1006 . That test is appropriate when considering those who, in one way or another, support litigation in which they are not 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 with the disputes of others …where the assistance he renders to the one or another party is without justification or 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."

17. The Section 58 referred to in that quotation concerns the statutory exception which permits solicitors to enter into conditional fee agreements. Factortame concerns the recovery as costs of sums in respect of work done by accountants who provided services ancillary to litigation in return for a share of the damages the claimants would recover. The judgment goes on to consider whether the accountants' interest in the damages was such as might have tempted them to stray from the path of rectitude. Deciding that it was not, the judgment held that the accountancy fees were not champertous.
18. Having considered these points as carefully as I can, I do not accept that the law of maintenance and champerty has been reinterpreted in the manner the Defendants argue. In several cases, including Giles v Thompson and Factortame, it is plain that the application of the old law of maintenance and champerty is attenuating not increasing. The cases just mentioned both permitted relaxations in the law of champerty. It seems to me inappropriate to read into them an intention by those courts to reinvigorate that law. References to the Solicitors Practice Rules and the statutory exception for conditional fee agreements seem to me irrelevant. The defence argument, if accepted, would also apply to a solicitor hired on traditional retainer terms who also undertook responsibility for any adverse orders for costs.
19. I now turn to consider the position if I am wrong to say that the law is not reformulated as Counsel for the Defendant argues. Would the obligation to pay the opponent's costs have a tendency to tempt the Claimant's solicitor to stray from the path of rectitude? I have no hesitation in saying that it would not have that effect. In this I am guided by another quotation to be found in Thai Trading:

"It is in my judgment fanciful to suppose that a solicitor will be tempted to compromise his professional integrity because he will be unable to recover his ordinary profit costs in a small case if the case is lost. Solicitors are accustomed to withstand far greater incentives to impropriety than this. The solicitor who acts for a multi national company in a heavy commercial action knows that if he loses the case his client may take his business elsewhere. In the present case, Mr Taylor has more at stake than his profit costs if he lost. His client was his wife; desire for domestic harmony alone must have provided a powerful incentive to win. Current attitudes to these questions are exemplified by the passage into law of the Courts and Legal Services Act 1990. This shows that the fear that lawyers may be tempted by having a financial incentive in the outcome of litigation to act improperly is exaggerated, and that there is a countervailing public policy in making justice readily accessible to persons of modest means. Legislation was needed to authorise the increase in the lawyer's reward over and above his ordinary profit costs. It by no means follows that it was needed to legitimise the longstanding practice of solicitors to act for meritorious clients without means and it is in the public interest that they should continue to do so."

20. So far as I am aware it is not, or is not yet, a long standing practice of solicitors to shoulder the risk of adverse costs orders. Nevertheless I cannot believe that such an interest would jeopardise the integrity of a solicitor. I reach that result without reference to the individual circumstances of the solicitor in question or his record of success in other cases in which he has offered similar terms to clients. It seems to me the protection which litigants have here rests in the professionalism of the persons whom statute allows to conduct litigation in this country.
21. In this case I had evidence as to the particular solicitor's success rate over a period of ten years, beginning three years before the date of the CFA before me. If (contrary to my belief) I did have to decide whether this particular solicitor might have been tempted to stray from the path of rectitude, this evidence would not have been enough to save this retainer. It seems to me that there is no court equal to the task of investigating whether any particular solicitor had in fact exposed himself to too great a temptation of corruption. If there was a perceivable risk of such a temptation that alone would be sufficient to invalidate the CFA whatever was the solicitor's previous record of success. It is only to this very small extent on the first preliminary issue that I arrive at the same conclusion as Deputy Master Williams did in Dix v Townend. However, I do not accept, as she did, that the law of maintenance and champerty has been extended in the way the defence suggests. Moreover, even if it has been extended, I do not think that an agreement to shoulder the risk of adverse costs orders ought to be regarded as threatening the integrity of any solicitor.
22. There is to be a further hearing listed for this case to complete submissions on the second preliminary issue. At that hearing I will also hear any submissions either side wishes to make as to costs, permission to appeal or time for appealing in relation to this, the first preliminary issue. The further hearing is provisionally listed for 9 and 10 March 2010. A draft of this judgment, which was circulated, stated that neither side need attend today (23 February 2010) but they may do so if they wish.