England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
On appeal from the Senior Court Costs Office
(Master Gordon-Saker, Costs Judge)

		Royal Courts of Justice Strand, London, WC2A 2LL
		10/11/2011

Mr Justice Spencer:

1. The appeal and cross-appeal in this case concern the assessment of costs in connection with conditional fee agreements (CFAs) entered into by solicitors and counsel who represented the claimant, Mr Manning, and subsequently his executors, in a highly complex clinical negligence claim arising from the illness and death of his wife, Jane Louise Manning. The claim succeeded at first instance and in the Court of Appeal, and the defendants were ordered to pay almost the whole of the claimants' costs.
2. There was a seven day hearing of the detailed assessment of costs before Master Gordon-Saker in October and November 2010. This case concerns three of his decisions within those proceedings. First, in refusing relief from sanctions he deprived the claimants' solicitors and counsel of the uplift in their CFAs for a period of 17 months during which the defendants had not been given proper notice of the CFAs as the rules required. The sum involved was £132,125. Secondly, the Master deprived the claimant of the costs of an after-the-event ("ATE") insurance premium paid during that period, in the sum of £70,875. The claimants appeal against these two decisions, by permission of Burnett J.
3. At the detailed assessment hearing it was also contended by the defendants that the claimants' solicitors and counsel were not entitled to the 100% success fee in their CFAs. The sum in question was around £286,000. The Master rejected this contention. The defendants cross-appeal against this decision, by permission of Foskett J.
4. In hearing the appeal and cross-appeal I have sat with and been greatly assisted by Master Campbell, Costs Judge, and Mr Gregory Cox, a solicitor assessor. Although the decisions, and this judgment, are mine and mine alone, I am comforted that both my assessors are in complete agreement with my conclusions.

Factual background and the issues

5. In order to understand and explain the issues which arise for determination, it is necessary to set out in some detail the highly unusual factual background which, in the experience of all three of us, is quite unique.
6. Mrs Jane Manning died from cancer on 13^th May 2002. On 11^th May 2005 her husband, Mr Gary Manning, commenced proceedings against the defendant health authority for damages on behalf of her estate under the Law Reform (Miscellaneous Provisions) Act 1934 and for her dependants under the Fatal Accidents Act 1976. In essence it was alleged that there had been failures in diagnosis and treatment, dating back to 1995, which had caused her death.
7. On 22^nd September 2005 Mr Manning entered into a CFA with his solicitors, Leigh Day and Co. Previously he had enjoyed the benefit of a legal expenses insurance policy but the limit of its cover had been reached. The CFA provides for a success fee of 62.3% of basic charges, unless the claim had not been settled by 28 days prior to trial, when the success fee would rise to 90% (plus a postponement element of 10%). By letter dated 30^th September 2005 Leigh Day and Co effected an amendment to the CFA by which the solicitors accepted the risk of not beating a Part 36 offer.
8. On 29^th September 2005 Leigh Day and Co entered into a CFA with Mr John Grace QC, a distinguished and very experienced personal injuries Silk who sadly died in July 2011. The agreement provided for staged success fees with 100% payable if the case proceeded to trial on any issue. By a manuscript amendment to the terms of the pro forma agreement, Mr Grace accepted the risk of not beating a Part 36 offer.
9. On 30^th September 2005 Leigh Day and Co arranged an ATE insurance policy providing cover of £100,000.
10. On 3^rd October 2005 Leigh Day and Co duly gave notice to the defendants, in form N251, of the existence of the CFA, including the date and the fact that it provided for a success fee. The notice also gave details of the ATE policy.
11. The assessment of risk, for the purpose of the CFAs, was based upon advice at that stage from Mr Grace QC that there was a 60% prospect of success in establishing that Mrs Manning's death was caused by the negligence of the defendants.
12. In the defence served in July 2006 there were certain admissions of negligence in relation to the later treatment of Mrs Manning's cancer. There was, and remained throughout the trial, a denial that her death was caused by any negligence on the part of the defendants.
13. On 21^st December 2006 the defendants' solicitors acknowledged that, in consequence of the limited admissions of breach of duty, a small sum of damages might be recovered for the deceased's extra pain and suffering during the latter stages of her illness. They made a Part 36 offer in the sum of £15,000. That offer was firmly rejected. By letter dated 18^th January 2007 the claimant made a counter-offer that he would accept the sum of £500,000. On 13^th July 2007 the defendants increased their Part 36 offer from £15,000 to £50,000. That increased offer was again firmly rejected.
14. That is how matters remained until the claim was heard in the autumn of 2007. The battle lines were very clearly drawn. To succeed and be sure of recovering his costs, Mr Manning had to recover more than £50,000. For practical purposes he had to win in full on breach of duty, on causation, and on quantum. It is also quite clear that Mr Manning was determined, as a matter of principle, to pursue the claim in order to establish that his wife's death was caused by the defendants' negligence. The position with counsel and solicitors, under their CFAs, was that if the claimants failed to beat a Part 36 offer at trial they would not be entitled to any fees for the period after the rejection, on their advice, of that Part 36 offer.
15. The trial of the claim commenced on 4^th October 2007 before Stadlen J. Although estimated to last 10 days, it ran for 30 days. The case was enormously difficult and complex. On 5^th December 2007 Stadlen J reserved judgment. Sadly, by the time of the trial Mr Manning was himself seriously ill and in the last stages of terminal cancer. He was desperate to know the outcome of the case before he died. For this reason, understandably but very exceptionally, the parties attended upon Stadlen J in chambers to ascertain whether he was at least able to indicate whether he would find in the claimant's favour. Stadlen J was unable to give such an indication, making it clear that he still had not made up his mind. That meeting was on 14^th January 2008. Four days later, on 18^th January 2008, Mr Manning died. The cause of action vested in his estate, and his executors were substituted as claimants. One of the executors is Mr Manning's brother, and is himself a solicitor. The other is that executor's brother in law.
16. It is evident that the reserved judgment was imminently expected in March 2008. In the event the draft judgment was not circulated until the end of July 2008, and judgment was not formally handed down until 29^th September 2008. Because the CFAs which the solicitors and counsel had entered into had come to an end on the death of Mr Manning, who had been the claimant, it was necessary for fresh CFAs to be entered into now that the executors had taken over the claim.
17. There is no reason to think that either the solicitors or Mr Grace QC would have wished to continue representing Mr Manning's estate on terms any different from the terms on which they had represented Mr Manning himself.
18. Although there is some uncertainty about the dates, it is clear that sometime between Mr Manning's death on 18^th January 2008 and 19^th March 2008 the fresh CFAs were entered into by Leigh Day and Co and by Mr Grace QC. This time the solicitors' CFA provided for a success fee of 100%. Counsel's CFA again provided for a success fee of 100%. The schedule to the solicitors' fresh CFA detailing the success fee stated that, in view of the judge's inability to give any indication at the meeting in chambers, the risk of losing had now increased to the point that "the prospects of success can no longer be put any higher than 50/50".
19. In these fresh CFAs neither the solicitors nor counsel stipulated that they remained at risk if the Part 36 was not beaten. It is not suggested that there is any good reason why they should have omitted to do so. The claimants' case is that it was simply an oversight, and that it must have been the common intention of the parties to the fresh CFAs, as before, that the solicitors and counsel would only be entitled to their fees if they beat the previous Part 36 offer when judgment was handed down. The defendants contend that the literal wording of the fresh CFAs must prevail and that, for reasons which will be explained more fully in considering the cross-appeal, this means that a "win" had already been achieved by the concession during the trial (foreshadowed by a limited admission in the defence) that Mr Manning was bound to recover some damages (however modest) for his wife's pain and suffering during the limited period of her illness for which liability was accepted.
20. On 19^th March 2008 Leigh Day and Co wrote to the defendant's solicitors informing them that the executors had agreed to take over the action as claimants and had entered into a CFA to cover all work following Mr Manning's death on 18^th January 2008 from that date. The letter did not give the date of the CFA, nor did it inform the defendants there was a success fee. It was accepted before the Master that the omission to give notice of these matters, in Form N251 or otherwise, was a breach of the relevant rules, in respect of which the claimants ultimately had to seek relief from the sanctions which would otherwise apply, i.e. that the success fees were irrecoverable.
21. Stadlen J handed down his judgment on liability on 29^th September 2008. Not least because of the additional complexities arising from Mr Manning's death following the trial, it was a judgment on liability only, with damages still to be assessed. Stadlen J granted permission to appeal against his judgment on liability. On 5th December 2008, having assessed quantum, he awarded damages to the claimants in the sum of £475,191.
22. On 24^th June 2009, twelve days before the hearing in the Court of Appeal against the decision of Stadlen J on liability, Leigh Day and Co wrote to the defendants' solicitors informing them that there was a success fee under the fresh CFA entered into by solicitors and counsel "whilst liability was in issue".
23. The hearing in the Court of Appeal lasted four days. The appeal was resoundingly dismissed. The Court of Appeal paid tribute to the thoroughness of Stadlen J's judgment, noting the extraordinary complexity and difficulty of the issues. The claimants were awarded all their costs in the Court of Appeal. They had been awarded 92.5% of their costs of the claim at first instance.
24. The claimants commenced detailed assessment proceedings in September 2009. In the points of dispute in relation to the High Court bill of costs the defendants contended that the claimants had failed to serve statements of reasons in relation to the percentage increases claimed for the CFAs of solicitors and counsel and that "accordingly, pursuant to CPR Part 44.3B(1)(d) these items should be disallowed". The Master in due course granted relief from this sanction.
25. In the points of dispute in relation to the High Court bill, and subsequently in relation to the Court of Appeal bill, it was contended that the success fees claimed under the fresh CFAs entered into by the solicitors and counsel following Mr Manning's death should be disallowed pursuant to CPR 44.3B (1) (c) by reason of the failure to give notice of funding (Form N251). It was also contended that there had been a breach of the rules in that no copy of the ATE insurance certificate had been served.
26. The detailed assessment proceedings before Master Gordon-Saker were as hotly contested as almost every other issue in the case. On the fifth day of the hearing (Friday 29^th October 2010) Mr Vinsen, the costs draftsman employed by the defendants' solicitors Barlow Lyde and Gilbert, submitted that by the time the claimants' solicitors and counsel entered into the fresh CFAs following Mr Manning's death there was no risk justifying any success fee; this was because the claimants were bound by then to recover some damages even if they were to lose on the main issues in the trial when the reserved judgment was handed down. The Master rejected this submission without calling upon the claimants' solicitor, Mr Levy, and allowed the success fees at 100%. It is this decision that is the subject of the cross-appeal by the defendants.
27. Also on the fifth day of the detailed assessment proceedings it became clear that there was a live issue on the consequences of the failure of the claimants' solicitors to comply with the requirements of the rules in notifying the defendants of the details of the CFAs and the insurance policy. The claimants' solicitors were given the opportunity to issue a formal application for relief from sanctions, pursuant to CPR 3.9. That application was issued on 1^st November 2010, supported by a witness statement from the solicitor Mr Levy, and was heard and determined by Master Gordon-Saker the following week when the detailed assessment proceedings resumed. He reserved his judgment on the application, handing down a written judgment on 1^st December 2010.
28. In that judgment he granted relief from sanctions save in respect of the failure to give notice (in Form N251) of the fact that the CFAs included a success fee. However, he limited the period of that refusal of relief to reflect the fact that the defendants' solicitors were provided with the required information, and indeed more than was required (i.e. the amount of the success fee), in the letter (already mentioned) sent twelve days before the Court of Appeal hearing. The period for which relief was refused was, therefore, the period from the start of the fresh CFA, corresponding to the date of Mr Manning's death (18^th January 2008), up to the date of the letter in which the requisite information was provided (24^th June 2009). It is the refusal of relief for this period which is the subject of the claimants' first ground of appeal.
29. When the Master handed down his reserved judgment on 1^st December 2010, a further issue arose which was immediately argued and the Master gave an ex tempore judgment that day. The issue was whether his refusal to grant relief from sanctions during the period mentioned above also had the effect of precluding recovery by the claimants of the ATE insurance premium paid (by way of topping up the existing policy) during that period. This is the subject of the second ground of appeal.

The first ground of appeal: was the Master wrong to refuse relief from sanctions for the period 18^th January 2008 to 24^th June 2009?

30. The effect of the Master's order was to deprive the claimants' solicitors and counsel of £132,125. Of this sum, £14,560 represented counsel's success fee and the balance the solicitors' success fee.
31. In short, Mr Williams, for the claimants, argues that the Master's decision was plainly wrong in the sense of being outside the range of reasonable decisions. In particular he submits that there was a complete absence of prejudice to the defendants arising from the breach of the rules. He submits that the consequence of the Master's decision was to leave in place a sanction wholly disproportionate to the seriousness of the default.
32. In short, Mr Hutton, for the defendants, argues that the Master approached the exercise of his discretion with meticulous care, balancing the relevant factors as he weighed them. He submits that the refusal to grant full relief must be seen in the context of the Master's decision to grant relief from the other sanctions flowing from the claimants' solicitors' default, which had exposed them to the risk of losing a sum of around £1million in total.
33. The relevant provisions of the rules and the Costs Practice Direction, so far as directly material to the appeal, are set out below.
34. CPR 44.3B provides:

Limits on recovery under funding arrangements

44.3B

(1) Unless the court orders otherwise, a party may not recover as an additional liability-

…

(c) Any additional liability for any period during which that party failed to provide information about a funding arrangement in accordance with a rule, practice direction or court order;

(d) Any percentage increase where that party had failed to comply with-

(i) A requirement in the Costs Practice Direction; or

(ii) A court order, to disclose in any assessment proceedings the reasons for setting the percentage increase at the level stated in the conditional fee agreement;

(e) Any insurance premium where that party has failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order.

(Paragraph 9.3 of the Practice Direction (Pre-Action Conduct) provides that a party must inform any other party as soon as possible about a funding arrangement entered into before the start of proceedings.)

…..

(Rule 3.9 sets out the circumstances the court will consider on an application for relief from a sanction for failure to comply with any rule, practice direction or court order.)

35. CPR 44.15 provides;

Providing information about funding arrangements

44.15

(1) A party who seeks to recover an additional liability must provide information about the funding arrangement to the court and to other parties as required by a rule, practice direction or court order.

(2) Where the funding arrangement has changed, and the information a party has previously provided in accordance with paragraph (1) is no longer accurate, that party must file notice of the change and serve it on all other parties within 7 days.

36. "Additional Liability" is defined by CPR 43.2 (1) (o) as:

"… The percentage increase, the insurance premium, or the additional amount in respect of provision made by a membership organisation, as the case may be".

37. The relevant passages of the Costs Practice Direction are:

Section 10 Limits on recovery under funding arrangements: Rule 44. 3(B)

10.1

In a case to which rule 44.3(B) (1) (c) or (d) applies the party in default may apply for relief from the sanction. He should do so as quickly as possible after he becomes aware of the default. An application, supported by evidence, should be made under Part 23 to a costs judge or district judge of the court which is dealing with the case. (Attention is drawn to rules 3.8 and 3.9 which deal with sanctions and relief from sanctions).

Section 19 Providing information about funding arrangements: Rule 44.15

19.1

(1) A party who wishes to claim an additional liability in respect of a funding arrangement must give any other party information about that claim if he is to recover the additional liability. There is no requirement to specify the amount of the additional liability separately nor to state how it is calculated until it falls to be assessed…

Method of giving information

19.2

(1) In this paragraph … the notice of funding to be filed or served is a notice containing the information set out in Form N251. ….

……..

(4) … a party must file and serve notice within 7 days of entering into the funding arrangement concerned"

Notice of change of information

19.3

(1) Rule 44.15 imposes a duty on a party to give notice of change if the information he has previously provided is no longer accurate. To comply he must file and serve notice containing the information set out in Form N251…

(2) Further notification need not be provided where a party has already given notice :

(a) That he has entered into a conditional fee agreement with a legal representative and during the currency of that agreement either of them enters into another such agreement with an additional legal representative; or

(b) Of some insurance cover, unless the cover is cancelled or unless new cover is taken out with a different insurer.

…

(4) The notice must be signed by the party or by his legal representative.

Information which must be provided

19.4

(1) Unless the court otherwise orders, a party who is required to supply information about a funding arrangement must state whether he has-

entered into a conditional fee agreement which provides for a success fee with the meaning of section 58(2) of the Courts and Legal Services Act 1990;

taken out an insurance policy to which section 29 of the Access to Justice Act 1999 applies;

made an arrangement with a body which is prescribed for the purpose of section 30 of the Act;

or more than one of these.

(2) Where the funding arrangement is a conditional fee agreement, the party must state the date of the agreement and identify the claim or claims to which it relates…

38. CPR 3.9 provides:

Relief from Sanctions

3.9

(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including-

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure;

(e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant pre-action protocol;

(f) whether the failure to comply was caused by the party or his legal representative;

(g) whether the trial date or the likely trial date can still be met if relief is granted;

(h) the effect which the failure to comply had on each party; and

(i) the effect which the granting of relief would have on each party.

(2) An application for relief must be supported by evidence.

39. In his reserved judgment Master Gordon-Saker made passing reference to several first instance authorities which are illustrative of the exercise of the court's discretion to grant relief from sanctions in cases involving non-compliance with the rules governing CFAs. These were authorities citied to him by Mr Hutton, who appeared for the defendants on the relevant day of the detailed assessment proceedings, and Mr Hutton has relied on them again in resisting the appeal.
40. In particular Mr Hutton relies upon Supperstone v Hurst [2008] EWHC 735 (Ch) in which Floyd J dismissed an appeal from Master Gordon-Saker's decision to grant relief from sanctions following a failure properly to serve a form N251 in relation to a CFA and an ATE insurance policy. At paragraph 39 of the judgment, Floyd J said:

"I agree that relief from sanctions should not be granted lightly and any party who fails to comply with the CPR runs a significant risk that he will be refused relief. Thus if a party does not have a good explanation, or the other side is prejudiced by his failure, relief from sanctions will usually be refused. It is vitally important to the administration of justice that the rules of procedure are observed."

Mr Hutton accepts, of course, that the learned judge was not purporting, in that passage, to lay down a test which puts a gloss on the court's duty to consider all the circumstances of the case and the nine factors set out specifically in CPR 3.9.

41. Mr Hutton relies upon the decision of His Honour Judge Hamilton in O'Connor v Birmingham City Council (16^th November 2005, unreported) on appeal from the decision of a district judge in the county court who refused to grant relief from sanctions on facts which, arguably, were stronger in the claimant's favour than here. The defendants had been aware from the outset that the claimant's representation was funded by a CFA with a success fee, but no notice in form N251 had been served and there was no application for relief until the detailed assessment proceedings. The claimant's representative before the district judge had an unfortunately cavalier attitude towards the breach, describing it as purely a "technical error" and asserting that the defendants could not show "a blind bit of prejudice because they knew from the off that it was a CFA case". The appeal was dismissed on the basis that the district judge's decision did not fall outside the generous ambit within which reasonable disagreement is possible.
42. Rather than pay undue attention to these and other decisions in the High Court, Master Gordon-Saker rightly concentrated on the authoritative general guidance given by the Court of Appeal on the proper approach to applications for relief from sanctions in CIBC Mellon Trust Co v Stolzenberg [2004] EWCA Civ 827. In that case Arden LJ referred to the judgment of Brooke LJ in Woodhouse v Consignia Plc [2002] 1 WLR 2558, including his observation that one of the great demerits of the former procedural regimes was that simple rules got "barnacled with case-law". Instead, the obligation lay on the court conscientiously to work through the exercise of considering the nine factors in determining how, on balance, to exercise its discretion. This encouraged, and was liable to achieve, structured decision-making which was unlikely to be susceptible to appeal.
43. Arden LJ also approved the dictum of Mance LJ in Hansom v Makin and Wright [2003] EWCA Civ 1801, at paragraph 20:

"… at the end of the day, the right approach is to stand back and assess the significance and weight of all relevant circumstances overall, rather than to engage in some form of "head-counting" of circumstances."

Arden LJ said, at paragraph 155:

"In addition to going through the sub-paragraph[s] of CPR 3.9, the court must ask itself if there are any other circumstances that need to be taken into account. However, having done all this, the court is then also required to stand back and form a judgment to the aggregate to the relevant circumstances that have been identified in going through the list to see whether it is in accordance with the overriding objective in the CPR to lift the sanction. This overall "look see" is simply the overriding objective in action."

44. In accordance with this guidance Master Gordon-Saker then considered the relevant circumstances against the nine factors set out in CPR 3.9. It is necessary to examine his findings and conclusions in respect of the sub-paragraphs of CPR 3.9.
45. As to (a), the interests of the administration of justice, the Master noted that submissions on the application had taken up the best part of a court day, at a time when the resources of the court are increasingly precious. He also noted that failure to give proper notice of the second CFA (following Mr Manning's death) "will have generated greater uncertainty as to the outcome of the assessment".
46. As to (b) whether the application was made promptly, the Master noted that although the claimants' solicitors had been on notice of the objections since 16^th September 2009, when points of dispute were served, the application for relief from sanctions was not made until 1^st November 2010. He acknowledged that there had been correspondence following service of the points of dispute in which the defendants' concern seemed to be the level of the success fees rather than any technical objection based upon lack of notice. It was not until the fifth day of the detailed assessment hearing that the defendants' costs draftsman, Mr Vinsen, indicated that the defendants' stance was that some of the additional liabilities would not be recoverable at all unless the court granted relief from sanctions.
47. The Master thought that the view Mr Levy had formed, in the light of the correspondence, that the only objection was to the level of success fees was "understandable even though wrong". It afforded an explanation for the delay but it did not entirely excuse the delay. A more timely application would have alleviated or shortened the additional uncertainty as to the likely outcome of the detailed assessment created by the failure to comply with the rules and the practice direction.
48. In relation to this factor the Master indicated that it was his experience that points of dispute often raise the argument that an additional liability should be disallowed as the result of a sanction, only to find that the argument is not pursued even though no application for relief is made. This is a matter I discussed with my assessors, at the invitation of counsel. My assessors' experience is the same. Indeed they were not surprised, in the light of the correspondence and the circumstances generally, that no application for relief from sanctions was pursued in the present case until it was raised during the detailed assessment hearing itself.
49. As to (c), whether the failure to comply was intentional, the Master accepted that the omission to comply with the rules was purely an oversight on Mr Levy's part. Notice of funding (Form N251) had been duly given in relation to the first CFA, and the difficult circumstances following Mr Manning's death may well have contributed to the matter being overlooked.
50. As to (d), whether there is a good explanation for the failure, the Master observed that oversight cannot be a good explanation.
51. As to (e), the Master noted there was no suggestion that the claimants' solicitors had failed to comply with other rules or orders.
52. As to (f), the Master noted that the failure was caused by the solicitors and not by the claimant himself. Any financial consequences would be suffered by the solicitors and not by the client.
53. As to (g), the Master noted that no trial date had been imperilled. The application for relief had been accommodated within the time allowed for the detailed assessment hearing.
54. The final two paragraphs of CPR 3.9 involved an examination of prejudice. Paragraph (h) required the court to consider "the effect which the failure to comply had on each party". Paragraph (i) required the court to consider "the effect which the granting of relief would have on each party". The Master's findings on these issues are central to the appeal and merit close examination.
55. The Master found in terms, at paragraph 78 of his judgment, that the defendants suffered no prejudice through not being told before 24^th June 2009 that the second CFA provided for a success fee. There was no evidence and no reason to believe that the defendants would have acted differently had they been told earlier. It was, as the Master put it, "… a hard fought, and quite extraordinary, case".
56. In reaching this view, the Master was clearly influenced by the defendants' "tongue in cheek attitude" towards the CFA (as he described it) a few days before the hearing in the Court of Appeal. The defendants' solicitor wrote:

"If our client has no prospect of success as you state in your letter we presume there will be no success fee in your cost figures. Please confirm that this is correct, if not, please confirm what success fee you have applied".

The claimants solicitors replied that the CFAs entered into by themselves and counsel whilst liability was in issue included a success fee of 100%, adding:

"…if you wish to challenge the success fee you are welcome to seek to do so before the Costs Judge at a detailed assessment hearing."

The Master inferred from this exchange (rightly, with respect) that the obvious intention of the defendants' solicitor in writing this letter was to obtain ammunition (the size of the success fee) to undermine Mr Levy's apparent assertion that the appeal had no prospect of success.

57. At the hearing of the appeal, Mr Hutton frankly and properly conceded that, save in respect of the detailed assessment proceedings themselves, the defendants have suffered no prejudice. Mr Williams submitted cogently that it was inconceivable that the defendants' solicitors had not appreciated that there would be a success fee in the fresh CFAs as there was in the original CFAs. He invited me to consult my assessors on this matter. I have done so. They confirm that it is very rare indeed for a CFA not to include a success fee, and insofar as it is ever so, there is no requirement to give notice of funding.
58. So the Master's finding was that there had been no prejudice to the defendants in the substantive proceedings. However, the Master also looked to see whether the defendants were prejudiced in the detailed assessment proceedings as a result of the late application for relief from sanctions in respect of the 17 month delay in telling the defendants that the fresh CFAs also provided for a success fee. At paragraph 75 of his judgment the Master said:

"I accept that the Defendant might suffer prejudice if it had not, but otherwise would have, made an offer in relation to the Claimants' costs which took into account the additional liabilities claimed (on the basis that they would not be irrecoverable) and that offer equalled or exceeded the amount which the Claimants recovered. The prejudice then would lie in relation to the costs of the detailed assessment proceedings."

59. Pausing there, Mr Williams makes the bold submission that the Master was wrong to have regard at all to prejudice in the detailed assessment proceedings, caused by the failure to give notice of the success fee. He submits that the only relevant prejudice could be prejudice in the conduct of the main action, and there was none. I shall return to this.
60. Having identified the potential prejudice to the defendants in the detailed assessment proceedings, the Master referred to the offers which the defendants had made in those proceedings. In particular, in relation to the Court of Appeal bill the defendants had made an offer of £300,000, which was in excess of the base costs and just under the aggregate of the base costs plus the ATE premium.
61. Earlier in his judgment, at paragraph 58, the Master had recorded:

"Mr Hutton submitted that the Defendant had formulated offers on the basis that no application for relief had been made and that the additional liabilities were automatically disallowed. However he accepted that any prejudice resulting from this could be compensated in costs." (emphasis added)

62. Despite this very significant concession, the Master went on to make the following findings, in the teeth of that concession:

"77. I do accept, however, that the Claimants' solicitors failure to comply with the rules in relation to notice of the second CFA, the consequent automatic sanction and the uncertainty as to whether the court would grant relief from that sanction will have made the Defendant's decisions as to what offers to make in relation to costs more difficult. That difficulty would have been reduced or shortened had a more timely application for relief been made.

78. It seems to me that any prejudice caused to the Defendant by reason of these additional uncertainties could not accurately be compensated in costs. It is impossible for the court to predict whether, or in what ways, the Defendant would have approached the detailed assessment had there been no failures to comply with the rules or had the application for relief been made earlier."

63. Mr Williams submits, in essence, that this was a perverse conclusion to reach, particularly in the light of the concession made by Mr Hutton that any prejudice in the detailed assessment proceedings could be compensated in costs. Mr Williams points out that if the defendants' solicitors had found themselves in any genuine difficulty in predicting the likely outcome of an application for relief from sanctions (if such an application were made at all) there was nothing to prevent them making an offer in respect of the base costs only, reserving their position in relation to any success fee. Alternatively, an appropriate offer could have been formulated in express terms that it was conditional on relief from sanctions being granted. In short, and contrary to the Master's finding, any prejudice could be compensated in costs (as Mr Hutton had conceded on the defendants' behalf), and any perceived difficulty was more apparent than real.
64. Instead the Master went on to find, in paragraph 81 of his judgment, that in respect of the failure to give proper notice of the success fee in the fresh CFAs it was proportionate not to grant relief from the sanction of disallowance of the success fees for the 17 month period in question. He expressed his conclusion in this way:

"81. Having regard to all the circumstances but in particular the prejudice caused to the Defendant by the uncertainty I have attempted to identify and the delay in making the application, in my judgment it would not be appropriate to grant full relief from sanctions in respect of the failure to give the correct notice of the second CFA. In reaching that conclusion I have taken into account the other failures, which by themselves would not justify sanctions, and I have proceeded on the footing that there is no realistic prospect that either the Claimants or the estates would bear any of the losses caused by the sanctions."

65. It follows that, in the end, the decisive factor which weighed with the Master in refusing full relief was the prejudice caused by the uncertainty flowing from the delay in making the application for relief.
66. Curiously, when the question of the costs of the detailed assessment proceedings was argued before him after handing down his reserved judgment, the Master's view of prejudice seemed to change dramatically. In his ex tempore judgment he said, at paragraph 10:

"I note also that the defendant seems to have had no difficulty in making an offer which was in excess of the aggregate of the base costs and insurance premium, and it seems to me that the defendant could have taken a view of the likely outcome of any application for relief which would inevitably be made in view of the defendant's own stance."(emphasis added)

67. This contradicted the Master's previous finding that the defendants were bound to be prejudiced by the difficulty in formulating an offer in respect of costs.

Discussion

68. In his submissions on behalf of the claimants Mr Williams acknowledged the difficulty he faced in seeking to persuade this court to overturn the decision of such an experienced costs judge on a matter which essentially involved the exercise of his discretion. However, Mr Williams did not shrink from submitting that the Master's approach to the question of prejudice, and his conclusion on prejudice, were plainly wrong. Mr Hutton, on behalf of the defendants, accepted that if the Master's conclusion on prejudice was plainly wrong then his decision as a whole cannot stand. He submits, however, that the decision was within the proper ambit of the Master's discretion and should not be disturbed. Mr Hutton accepted that the contradiction between the Master's conclusion on prejudice in his reserved judgment and his conclusion in paragraph 10 of his extempore judgment was difficult, if not impossible, to explain.
69. It seems to me that the starting point in considering prejudice, must be the Master's clear finding that the defendants suffered no prejudice in the substantive proceedings as a result of the 17 month delay in notifying the defendants that there was a success fee in the fresh CFAs entered into before Mr Manning's death. That was the "failure to comply" for the purpose of CPR 3.9. It was "the effect which [that] failure to comply had on [the defendants]" which the court had to consider under CPR 3.9(1)(h). The effect of that failure was, on the Master's findings, nil.
70. What led to the supposed uncertainty for the defendants in formulating their offer in respect of costs in the detailed assessment proceedings, was the delay in making the application itself for relief from sanctions under CPR 3.9. By contrast, the Master was entitled to have regard to that prejudice in considering "the effect which the granting of relief would have on each party", under paragraph (i) of CPR 3.9(1). But that prejudice had to be prejudice which could not be compensated in costs. The defendants' own counsel conceded before the Master that it was prejudice which could be compensated in costs.
71. In my judgment, the difficulty which the Master foresaw, arising from uncertainty of the outcome of the relief application, was prejudice which could and should have been compensated only in costs, not by withholding relief from sanctions. At paragraph 30 of his skeleton argument Mr Williams submitted;

"With respect, it would be an answer to almost every relief from sanction application to say that the uncertainty inherent in the outcome of the application was itself a bar to granting relief. If the uncertainty had impacted on the Defendants' conduct of the assessment proceedings, the solution was to protect the Defendants in the costs of those proceedings, not to refuse a relief which would otherwise have been forthcoming."

It seems to me that the logic of that submission is irrefutable.

72. Mr Williams further submits that the Master failed to follow the guidance of the Court of Appeal, re-stated by Arden LJ in CIBC Melon Trust Co [see paragraph 42 above], in that he failed to "stand back and assess the significance and weight of all relevant circumstances overall" or (put more pithily) failed to engage in an overall "look see" to ensure that the refusal to grant full relief from sanctions was proportionate. It is accepted that by the time he gave this decision the Master would have known roughly what level of reduction in success fees would result from his order, even if he did not know the precise amount. It is submitted that to deprive the successful party in the claim and the appeal of £132,125 is out of all proportion to the seriousness of the default. Again, I accept this submission by Mr Williams.
73. It follows that, unusually, and despite the care with which the Master addressed the factors in CPR 3.9, the exercise of his discretion was flawed in two separate and crucial respects, and his decision cannot stand.
74. Having regard to the Master's findings in relation to the other factors set out in CPR 3.9, and in particular the specific finding in paragraph 81 of his reserved judgment that the other failures would not by themselves justify sanctions, the only possible outcome is that (subject to the question of costs) the application for relief from sanctions, for the full 17 month period, must be allowed.

Conclusion on the first ground of appeal

75. It follows that the first ground of appeal succeeds. Subject to the cross-appeal, the claimants' solicitors and counsel are, on the specific facts of this case, entitled to their success fees in the fresh CFAs for the whole period, and they are entitled to recover those "additional liabilities" despite non-compliance with the rules as to notice.
76. That leaves the question of how, on this appeal, the costs order made by Master Gordon-Saker should be varied to reflect any prejudice to the defendants which resulted from uncertainty as to the outcome of the application for relief from sanctions, caused by the delay in that application being made. To this end we invited counsel, at the conclusion of the hearing, to provide us with a note of the amounts and dates of the offers made, and the amounts awarded and/or assessed in respect of the costs of the parties for the assessment proceedings. In the light of the note which they supplied, we requested further information.
77. In his grounds of appeal, at paragraph 31(g), Mr Williams asserted:

"In any event, the Master could have protected the Defendant in the costs of the detailed assessment proceedings (for example by awarding it the costs from the date 21 days after its offer in any event, even though that offer was in the result beaten by the Claimants)."

On the figures now available, if Mr Williams were held to that submission, the claimants would be no better off than they were with the Master's original order refusing relief from sanctions for the 17 month period. Arguably that would seem to be equally disproportionate, and wrong.

78. Having discussed the matter with my assessors, the proper course is to invite further submissions from the parties, in writing initially, when this judgment is circulated in draft, so that when judgment is handed down on Thursday 10^th November those submissions can be developed and considered further. I shall return to this matter at the conclusion of my judgment, as the whole question of costs depends on the outcome of the cross-appeal as well as the outcome of the appeal.
79. For completeness, I should mention two further arguments advanced by Mr Williams which, in the event, are not determinative of the appeal.
80. First, Mr Williams submitted that there was, in fact, no obligation to serve a fresh form N251 when the solicitors' second CFA was entered into in about March 2008. The argument is that CPR 44.15 required that such notice be filed only "where the funding arrangement has changed, and the information the parties previously provided in accordance with paragraph (1) is no longer accurate". Mr Williams submits that the crucial information, for present purposes, was that there was a success fee. As that part of the funding arrangement had not changed, there was no requirement to give notice.
81. Whilst it is correct that compliance with the rule did not strictly require the information to be provided in a pro forma N251 notice, the information given in the solicitors' letter of 19^th March 2008 did not, in my judgment, comply with the rule. This was not a further CFA between the same parties. It was a completely fresh CFA between different parties. Notice should therefore have been given that the fresh CFA provided for a success fee. In any event, the point Mr Williams now takes was not taken before the Master. The hearing before him proceeded on the basis that there were admitted breaches of the rules, including this breach.
82. Mr Williams took a second point, not argued before the Master, in relation to the fresh CFA entered into by Mr Grace QC. Paragraph 19.3(2) of the Costs Practice Direction (quoted at [37] above) states that where there is a change of information, notification need not be provided where a party has already given notice that he has entered into a CFA with a legal representative:

"… and during the currency of that agreement either of them enters into another such agreement with an additional legal representative…"

Mr Williams submits that this covers the situation in which Mr Grace QC entered into his second CFA.

83. The problem with this argument is that the "party" who had previously given notice was Mr Manning, whereas now the "party" required to give notice had become the executors of Mr Manning's estate. The executors had not "already given notice". Furthermore, the fresh CFA entered into with Mr Grace QC was not entered into "during the currency" of the solicitors' previous CFA with Mr Manning himself. That CFA came to an end on Mr Manning's death. The fresh CFA must have been entered into subsequently.

The second ground of appeal: was the Master correct, in his supplemental judgment, to rule that the ATE premium paid during the period for which he refused relief from sanctions could not be recovered as an "additional liability"?

84. In view of my conclusion on the first ground of appeal, the ATE premium (in the sum of £70,875) is now recoverable in any event. To that extent this second ground of appeal becomes redundant. However, as the second ground raises a point of construction of CPR 44.3B of some potential importance, it is appropriate that I address the point.
85. It is important first to note that the only breach of the rules (or of the Costs Practice Direction) in relation to the ATE policy lay in the failure by the claimants' solicitors to serve a copy of the insurance certificate when the detailed assessment proceedings commenced: see paragraph 32.5(2) of the Costs Practice Direction, and CPR 44.15(1). Proper notice had duly been given that such an insurance certificate was in place. An additional premium was incurred on 20^th November 2008, during the period for which the Master refused relief from sanctions. That premium was simply a topping up premium to increase cover under the policy. It is common ground that there was no requirement to give notice of that increase during the proceedings.
86. There had been no suggestion by the defendants in their points of dispute that there was any breach of the rules other than failure to serve a copy of the insurance certificate. The Master gave relief from sanctions in respect of that breach. He concluded (at paragraph 65 of his reserved judgment) that to disallow the insurance premium would be disproportionate to the seriousness of the breach.
87. The reason why, despite this, the claimants found themselves deprived of the top up premium of £70,875 is to be found in the concluding paragraph of the Master's reserved judgment:

"The result, pursuant to CPR 44.3B(1)(c), is that [the Claimants] are not entitled to recover any additional liabilities, whether success fees or insurance premiums, incurred between 18^th January 2008 and 24^th June 2009 (inclusive)."

It is to be noted the word "incurred" does not appear in the rules.

88. When this reserved judgment was handed down there was further oral argument about the disallowance of the insurance premium paid on 20^th November 2008. The claimants submitted that it could not be right to deprive them of this insurance premium when they had been granted relief from sanctions in respect of any breach specifically relating to the ATE insurance. The Master held that the provisions of CPR 44.3B(1)(c ) compelled him to that conclusion.
89. CPR 44.3B(1)(c) provides:

" Unless the court orders otherwise, a party may not recover as an additional liability-

…

(c ) any additional liability for any period during which that party failed to provide information about funding arrangement in a accordance with a rule, practice direction or court order… "

90. The phrase "additional liability", as already explained, is defined in CPR 43.2(1)(o) as meaning;..

" … the percentage increase, the insurance premium or the additional amount in respect of provision made by a membership organisation, as the case may be"(emphasis added)

91. The Master's reasoning was as follows. During the 17 month period for which he had refused relief from sanctions, the claimants had failed to provide information about a funding arrangement, namely the fact that the fresh CFAs provided for a success fee. That being so, CPR 44.3B precluded recovery of "any" additional liability for that 17 month period. The insurance premium was such an "additional liability". Although it did not provide cover exclusively for the 17 month period in question, it was incurred during that 17 month period. Therefore it was an additional liability which was irrecoverable.
92. The Master was faced, on the spot, with a difficult and unusual point of construction. He recognised that the rule was not as well drafted as it might be. However, his construction produces a result which is anomalous in the extreme. Having ruled, quite properly, that relief should be granted from any breach of the rules in respect of the insurance policy, he held the premium to be irrecoverable because of a quite separate breach of the rules which was nothing to do with the insurance policy. That cannot be right.
93. The answer, in my judgment, lies in the all important words "as the case may be" at the end of the definition of additional liability. Those words must be imported into the interpretation of the phrase "any additional liability" where it appears in sub-paragraph (1)(c) of CPR 44.3B. In other words, the rule is not intended to impose a disproportionate blanket penalty rendering irrecoverable every additional liability for the period of default, but applies only to the specific additional liability which is the subject of the default, here the success fee in the CFA agreements.
94. Mr Hutton submits that if that construction were correct, there would be no need for sub-paragraph (1)(e) in CPR 44.3B, which precludes recovery as an additional liability of:

"… any insurance premium where that party failed to provide information about the insurance policy in question by the time required by a rule, practice direction or court order."

If sub-paragraph (e) had always been part of CPR 44.3B there might be some force in this submission. However, sub-paragraph (1)(e) was added to CPR 44.3B by amendment with effect from November 2009 by The Civil Procedure (Amendment) Rules 2009 (SI 2092) for very specific reasons, unconnected with the point in issue here.

95. The explanatory note to the statutory instrument indicates that the reason for the addition of sub-paragraph (e) was:

" ..to make it clear that in relation to publication cases (defamation and similar cases) insurance premiums for an ATE insurance policy cannot be recovered for any period if the information about the insurance policy required elsewhere was not given as so required, and to provide that an ATE insurance premium cannot be recovered in costs-only proceedings by a party if an admission of liability leading to settlement was made by the other party within 42 days of being given the required information."

96. In these circumstances it would be wrong in principle to regard sub-paragraph (e) as somehow precluding the construction I have suggested of "any additional liability" in sub-paragraph (c) of the rule.

Conclusion on the second ground of appeal

97. Accordingly I am satisfied that the construction of sub-paragraph (1)(c) of the rule to which the Master considered himself compelled cannot be correct. It follows that even if the claimants' appeal on the first ground had been dismissed, this second ground of appeal would have succeeded. The claimants are entitled in any event to the ATE insurance premium of £70,875 incurred on 20^th November 2008.

The cross-appeal: was the Master entitled to conclude that the 100% uplift in the fresh CFAs for solicitors and counsel entered into after Mr Manning's death was a proper reflection of the relevant risk?

98. Turning to the cross-appeal, the total success fees allowed under the fresh CFAs entered into by solicitors and counsel following Mr Manning's death (referred to hereafter as "the second CFAs") amounted to £286,063.89 (including VAT). The defendants' case is that no success fees at all should have been allowed because the relevant risk, at the time the agreements were entered into, was nil. The claimants' case is that, when properly and robustly construed to give effect to the meaning the parties must have intended the documents to have, the second CFAs envisaged that a "win" would only be achieved if the claimants succeeded on the issues which had been tried, in respect of which Stadlen J's reserved judgment was awaited. Only if the claimants succeeded in beating the Part 36 offer of £50,000 would the claimants' solicitors and counsel be entitled to their fees.
99. It is necessary first to note how this issue arose at all in the detailed assessment proceedings. Mr Williams submits that the point was raised without proper notice, and the Master should never have entertained it. I have some sympathy for that submission (my assessors less so) but the point was one of substance and the Master would have been wrong simply to refuse to entertain it at all. However, the fact that the point was raised so late, and without proper notice, might be a powerful factor influencing the court should Mr Williams need to rely upon fresh evidence in this cross-appeal to establish the basis upon which the parties were proceeding. By agreement between counsel, reference has been made de bene esse to the proposed fresh evidence in the form of the witness statement of Mr Levy, dated 27^th September 2011, and the witness statement of the executor Mr Nicholas Manning, dated 26^th September 2011.
100. In the points of dispute it was simply asserted:

"…the Defendant submits that the success fees claimed are excessive and reserves its position in generally."

It is to be noted that no alternative success fee was put forward, contrary to the suggestion in the precedent we were shown ( precedent G48 PD10). It was accepted by Mr Hutton for the purpose of the appeal, and no contrary argument could seriously have been advanced before the Master, that a success fee of 100% would have been entirely appropriate if the risk the solicitors and counsel were truly running was non-payment of their fees unless the claimants succeeded on the issues tried by Stadlen J and recovered damages in excess of the Part 36 offer of £50,000. To that extent, the claimants' solicitors could be confident they were on firm ground in resisting any token challenge to the size of the success fee.

101. Mr Hutton submitted that brevity in points of dispute is to be applauded, with which my assessors and I all agree. However, if the point to be taken was not simply that the success fee was excessive but that it should be disallowed altogether, this was something which could and should have been flagged up before the fifth day of the hearing, which is when it was first raised. For example, counsel was entitled to proper notice that such a fundamental challenge was being mounted.
102. In fairness to the defendants' solicitors, now that the position has been checked, it is agreed that in fact the defendants' solicitors were not served with copies of the second CFAs until 18^th October 2010, i.e. 7 days before the commencement of the detailed assessment hearing. Nevertheless, it was unattractive and wrong for the defendants' solicitors to have sat on this point until they produced it, like a rabbit from a hat, on the fifth day of the hearing.
103. Master Gordon-Saker dealt with the issue at paragraphs 9 and 10 of his ex tempore judgment given on 29^th October 2010 when the point arose. He had not called upon Mr Levy to reply to the submission. He said:

"Mr Vinsen submits that there had been a partial admission in the defence insofar as the Defendant accepted that there had been some delay in diagnosis in [2001]. That admission would not be sufficient to found a judgment. There were, however, offers to settle, first in the sum of £15,000 and then subsequently £50,000. In the event the Claimants were awarded damages of just under £500,000. Mr Vinsen submits that there was no real risk in relation to the second conditional fee agreement because there would be some recovery. The second conditional fee agreement, like the first, provides that the Claimants' solicitors would not be entitled to their success fee in the event that a Part 36 offer was not beaten if the offer was rejected on their advice. The difficulty with this argument, to my mind, is that it is unrealistic. If this claim had succeeded solely on the basis a delay and diagnosis for a few months in [2001], there is no reasonable prospect that the Claimants would have been awarded the bulk of their costs. They would have lost on the rest of this case. In those circumstances, it seems to me that there would be no prospect that the Claimants' solicitors would recover any costs in respect of the work done for which the Claimants had not obtained a costs order. The assessment of 50/50 as at the date of the second conditional fee agreement was, in my judgment, again, a reasonable one to make and, accordingly, …the Claimants' solicitors and counsel … who also entered into a conditional fee agreement with the executors at about the same time should be entitled to a success fee of 100%."

104. Mr Hutton submits that the Master fell into a fundamental error in reaching this conclusion. He submits that the Master failed properly to consider and analyse the position as between solicitor and client, concentrating instead on the position as between party and party. When the second CFAs were entered into, Mr Hutton submits, the admissions made by the defendants meant that the claimants had already "won", and the solicitors were entitled, as against their clients (the claimants), to their base fees at least. Mr Hutton further submits that the Master was wrong to focus on whether there was any "prospect" that the solicitors would recover any costs from the claimants without an order against the defendants. Rather the focus should have been on their entitlement to recover those costs, even if in practice they would never have dreamt of enforcing that entitlement. Mr Hutton submits that the Master appeared to be treating the arrangement as a "CFA-lite", where the solicitor is only entitled to recover from his client the amount of costs awarded against the other side.
105. The cross-appeal raises difficult and unusual issues. But those issues must be determined against the quite exceptional, and probably unique, factual background to which I have already referred.
106. The CFAs which were entered into by solicitors and counsel initially, when Mr Manning was their client, demonstrate very clearly the intention of the parties at that time. Those CFAs were entered into long before any defence was filed or any Part 36 offer was made. I shall refer to these as the "first CFAs" They were in familiar and standard form.
107. The solicitors' CFA, dated 22^nd September 2005, incorporated the relevant Law Society Conditions, which included definitions of the terms "win" and "lose". Under the heading in the CFA "Paying us", the following appeared:

"If you win your claim, you pay our basic charges, our disbursements and a success fee. The amount of these is not based on or limited by the damages. You are entitled to seek recovery from your opponent of part or all of our basic charges, or disbursements, a success fee and insurance premium…

It may be that your opponent makes a Part 36 offer or payment into Court which you reject and, on our advice, your claim for damages goes ahead to trial where you recover damages that are less than that offer or payment. If that happens we will not add our success fee to the basic charges for the work done after we received notice of the offer or payment into Court."

108. Pausing there, as drafted that last paragraph did not put the solicitors' basic fees at risk if the claimant failed to beat the Part 36 offer. However, that was remedied (so as to be binding between solicitor and client) by an amendment communicated to Mr Manning in a letter from the solicitors dated 30^th September 2005, so that the paragraph instead read as follows (the amendment is shown in italics):

"It may be that your opponent makes a Part 36 offer or payment which you reject and, on our advice, your claim for damages goes ahead to trial where you recover damages which are less than that offer or payment. You will not pay our charges (but may be required to pay our disbursements) from after the time for acceptance of the Part 36 offer or payment has expired."

109. Thus, from a very early stage in the life of the action, the solicitors accepted that Mr Manning would not be liable to pay even their basic fees if he failed to beat a Part 36 offer which his solicitors advised him to reject. In common parlance, the solicitors accepted a Part 36 risk.
110. Schedule 1 of the solicitors' first CFA explained and defined the success fee. Under the heading "The risk element" eight separate points were identified. The final point read:

"These multiple complexities heighten the risk of not beating a Part 36 offer or payment into Court because the prospects of success and the likely compensation that will be recovered are much more difficult to predict."

111. The total success fee included a "postponement" element of 10%. The risk element was fixed at the highest level it could be, 90%, to produce the maximum possible success fee of 100%. There is now no suggestion, nor could there be, that this was an unreasonable success fee given the extraordinary complexities and risks of the case.
112. The first CFA entered into by Mr Grace QC, dated 29^th September 2005, was in the standard form (fifth edition) agreed between the Association of Personal Injury Lawyers and the Personal Injuries Bar Association ( APIL/PIBA 5). Counsel's success fee was specified to be "100% if the case proceeds to trial on any issue". Lower percentage success fees were specified should the case settle at specified earlier stages. "Success" was defined to mean the same as "win" in the CFA between the solicitors and Mr Manning, and "in the event of success" the solicitors were to pay counsel his normal and success fees, subject (inter alia) to paragraph 20.
113. Mr Grace made a manuscript amendment to paragraph 20 so that it read:

"If the amount of damages and interest awarded by a court is less than a Part 36 payment into Court or effective Part 36 offer then:

1) if counsel advised its rejection he/she is entitled to normal and success fees for work up to receipt of the notice of Part 36 payment into court or offer but only expenses for subsequent work. [Mr Grace substituted the word "expenses" for the words "normal fees" in the pro forma]

2) if counsel advised its acceptance he/she is entitled to normal and success fees for all work done".

114. Paragraph 21 of the agreement provided;

"Subject to paragraph 22(1) hereof [which is not material], if the case is lost or on counsel's advice ends without success then counsel is not entitled to any fees or expenses."

115. Thus it is crystal clear that Mr Grace, like the solicitors, was accepting a Part 36 risk. If Mr Manning failed to beat a Part 36 offer which he was advised to reject, Mr Grace would not be entitled to any fees.
116. That is how matters stood when the Part 36 offers of £15,000 and £50,000 were rejected, long before the trial. Recovery of any sum less than the Part 36 offer would be catastrophic for Mr Manning. It would also have very serious consequences for his solicitors and counsel, but that was the risk they were willing to take in order to earn the success fee.
117. The second CFAs were entered into by solicitors and counsel only because, tragically, Mr Manning himself had died before the result of the trial was known. Stadlen J had been unable to give any indication of his decision on liability when he saw the parties in chambers four days before Mr Manning's death. But for Mr Manning's death, there would have been no need for any second CFAs. It was necessary to put the executors in the same position as Mr Manning, once they had decided to take over conduct of the claim. Common sense suggests that these must have been extremely difficult and sensitive matters to deal with so soon after Mr Manning's death. There was also uncertainty as to when the reserved judgment would be handed down, or circulated in draft prior to handing down. It appears that there had been some indication given to the parties that judgment might be handed down in late March 2008. No doubt this was the spur to entering into the second CFAs with solicitors and counsel shortly prior to 18^th March 2008 ( when the solicitors informed the defendants' solicitors there was a new CFA).
118. The solicitors' second CFA was again in standard form, following very closely the wording of the first CFA before its amendment by the letter of 30^th September 2005. Under the heading "Paying us", the second CFA read:

"If you win your claim, you pay our basic charges, our disbursements and a success fee. You are entitled to seek recovery from your opponent of part or all of our basic charges, our disbursements, a success fee and insurance premium as set out in the document "What you need to know about a CFA."

119. The definition of the word "win" was set out in the Law Society document "What you need to know about CFA", which was specifically incorporated into the CFA. A claimaint "wins" if:

"Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim".

I shall return to this definition of "win".

120. The next paragraph of the second CFA dealt with Part 36 offers. It stated:

"It may be that your opponent makes a Part 36 offer or payment which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are not more than that offer or payment. If this happens, we will not add our success fee to the basic charges from after the time for acceptance of the Part 36 or payment has expired."

Thus, the provision was essentially in the same terms as the un-amended equivalent paragraph in the first CFA. Mr Williams submits that, if read literally, the use of the future conditional tense meant that only in the event that the executors failed to beat any future Part 36 offer, would they still be liable to pay the solicitors' basic charges (but not the success fee).

121. In the solicitors' second CFA the total success fee remained at 100%. The recoverable success fee element (not related to postponement) increased from 90% to 100%. Schedule 1 to the second CFA dealt with the success fee in detail. It recited the same risks which had been identified in the first CFA, in the eight points already referred to. There was then the following paragraph:

"Given that we have now concluded the Trial some of these risks remain but in essence, the fact that the Judge told the parties when we met in his chambers on 14^th January 2008 that he was finding the matter extremely complex and had been unable to reach a decision yet increases the risk of losing to the point that the prospects of success can no longer be put any higher than 50/50."

122. This is, on the face of it, the clearest indication that the risk, and the success fee, was being assessed by reference to the need to beat the Part 36 offer. This paragraph is totally inconsistent with any realisation and/or common intention that because there had been limited admissions at trial, and the claimants were bound to recover some damages at least, the solicitors would be entitled to claim from the executors their basic charges and the success fee. This would have been wholly anomalous when the estimate of the prospects of success had decreased from 60% in the first CFA to 50% in the second CFA.
123. Counsel's second CFA was again in the standard form, now APIL/PIBA 6. The "client" was now the executors of Mr Manning's estate. The agreement was expressed to cover "the client's claim against the [defendants] arising out of the death of Jane Louise Manning… until the claim is won, lost or otherwise concluded, or this agreement is terminated". It was also expressed to cover any appeal by the defendants and to cover the assessment of costs.
124. Counsel's second CFA explained the success fee of 100% in these terms:

"The reasons, briefly stated, for counsel's success fee are [that] the case has proceeded to trial. The success fee inclusive of any additional % relating to postponement will not be more than 100% of counsel's normal fees in total."

125. On this occasion Mr Grace did not make any amendment to the pro forma in relation to Part 36 offers. In fact there was no such paragraph at all this time in the pro forma . However, there were deemed to be incorporated into the second CFA the provisions of APIL/PIBA 6 in the terms of paragraph 15 which states:

"Part 36 Offers and Payments

If the amount of damages or interest awarded by a court is less than a Part 36 payment into Court or effective Part 36 offer then:

1) if counsel advised its rejection he/she is entitled to normal success fees for work up to receipt of the notice of Part 36 payment into Court or offer but only normal fees for subsequent work;

2) if counsel advised its acceptance he/she is entitled to normal and success fees for all work done."

In other words, the second CFA incorporated the same terms as counsel's first CFA in its original form before the manuscript amendment made by Mr Grace. On the face of it, therefore, counsel was no longer accepting any Part 36 risk.

126. It is to be noted that, contrary to the wording in the solicitors' second CFA (where the future conditional tense was used) the standard wording in counsel's second CFA did not appear to draw any distinction between a Part 36 offer which had been made in the past and was still running, and a Part 36 offer which might be made in the future.

The defendants' case on the cross-appeal

127. Mr Hutton submits that, for what ever reason, both solicitors and counsel elected not to take any Part 36 risk in the second CFAs. Even if they lost on the main issues at trial when the reserved judgment was handed down (for example by recovering only £40,000 in damages and thus failing to beat the Part 36 offer) they would still have been entitled to recover from the executors their basic (or normal) fees and their success fees. That liability would exist even if any damages the executors recovered (on the basis of the limited admissions of liability) was extinguished by the costs they would have to pay to the defendants (subject to indemnity under the ATE insurance policy). Thus Mr Hutton submits that on proper legal analysis neither the solicitors nor counsel were "at risk" in the sense necessary to entitle them to any success fee.
128. In support of this submission, and to illustrate that it is a factual situation which the courts have had to consider previously, Mr Hutton relies upon two authorities in particular.
129. In C v W [2008] EWCA Civ 1459, a personal injuries case, the Court of Appeal was concerned with the reasonableness of a success fee of 70% allowed by the district judge in a solicitors' CFA in circumstances where there had been a complete admission of liability. The court examined the provisions of section 58 of the Courts and Legal Services Act 1990 (as amended) which sanction such funding arrangements and define a CFA as:

" … an agreement with a person providing advocacy or litigation services which provides for his fees or expenses, or any part of it, to be payable only in specified circumstances… " (emphasis added)

130. At paragraph 8 of his judgment, Moore Bick LJ explained the underlying policy of the provisions:

"It was common ground that the purpose of a success fee under a CFA is to compensate solicitors for the risk of failing to recover any fee at all. However, that does not mean they can charge, and subsequently recover if successful, whatever success fee their client is prepared to agree, because to be subject to assessment the CPR 44 (in so far as is payable by the opposing party) and paragraph 11.8(1) of the Costs Practice Direction makes it clear that in deciding whether a success fee is reasonable one of the principal factors to be taken into account (normally the most significant) is the risk that the circumstances in which the costs, fees or expense would be payable might or might not occur. Moreover, if part of it is disallowed, paragraph 3(2)(b) of the CFA 2000 Regulations [note: these Regulations had been repealed by the time of the second CFAs in the present case] precludes its recovery from the client. Accordingly, it was accepted that the success fee must reflect a reasonable and rational assessment of the risks facing the solicitor at the time when the agreement was entered into. Paragraph 11.7 of the Costs Practice Direction makes it clear that when the Costs Judge is assessing the reasonableness of the success fee on a detailed assessment, he cannot take advantage of hindsight but must have regard to the facts and circumstances as they reasonably appeared to the solicitor at the time of entering into the agreement. " (emphasis added)

131. Mr Hutton understandably emphasises the word "payable", as distinct from "paid". He also relies on the case as authority for the proposition that the risk that a solicitor may be unable to recover from his client the fees to which the CFA entitles him, for example by reason of the client's impecuniosities, is not a risk which is relevant.
132. By way of further illustration of the point, Mr Hutton relies upon the decision of His Honour Judge Behrens, sitting as judge of the High Court, in Thornley v Ministry of Defence [2010] EWHC 2584 (QB). In that case counsel claimed a success fee of 100% where, on proper analysis, there were no circumstances in which (and thus no risk that) she would not receive her normal fee. For that reason the judge, on appeal, concluded that it was unreasonable to claim any success fee at all.

The claimants' case on the cross-appeal

133. Mr Williams submits that, despite the express wording of the second CFAs, the relevant provisions as to "win" and "success" must be interpreted so as to give effect to the presumed common intention of the parties (the executors, the solicitors and counsel) as to the meaning the documents were to bear. He relies upon the well known guidance on the interpretation of contracts given by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. At page 912 G Lord Hoffmann referred to earlier authorities on the proper approach to construing contractual documents and said:

" The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows.

(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the "matrix of fact" but this phrase, is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, use the wrong words or syntax…

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antios Compania Naviera SA v Salen Rederierna AB [1985] AC 191, 201:

"If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that defies business common sense, it must be made to yield to business common sense".

Discussion

134. To decide in the cross-appeal whether the decision of the Master should stand, my task is to ascertain the meaning which, in the quite exceptional circumstances of this case, these two CFAs would have conveyed to a reasonable person with all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. Specifically, I have to decide whether the CFAs would have conveyed the meaning for which Mr Williams contends, namely that "win" and "success" could only sensibly mean winning on the issues that had been tried and on which judgment was awaited.
135. The relevant background knowledge, available to the parties at the time of the second CFAs was (or at least included) the following:

(1) Under the first CFAs neither solicitors nor counsel would have been entitled to payment of any fees unless the Part 36 offer of £50,000 was beaten at trial.

(2) The second CFAs were being entered into only because Mr Manning had died, and it was necessary for technical reasons that his executors take over the action on behalf of his estate.

(3) If Stadlen J were to find for the claimant on liability, the impact of Mr Manning's death on the assessment of quantum would almost inevitably mean that there would have to be a separate hearing for the assessment of damages.

(4) If Stadlen J were to find in the claimants' favour on liability, there was every likelihood of an appeal to the Court of Appeal.

(5) Mr Manning had made it a matter of principle to pursue the case to trial to establish that his wife's death was caused by the defendants' negligence.

(6) Particularly as one of the executors was Mr Manning's brother, the executors were likley to share Mr Manning's determination to win the case on liability and causation of death, not least to honour his memory.

(7) The solicitors and Mr Grace QC had effectively staked their professional reputation on succeeding in winning on the issues tried by Stadlen J. Having come so far, there would have to be very good reason for them to adopt a different stance in relation to the fees for the remainder of the case.

(8) The executors had to have regard to the interests of the two orphaned children of Mr and Mrs Manning, who were the dependants in the Fatal Accidents Act claim. The executors could not take the risk of having to pay any fees to the solicitors or counsel should they fail to beat the Part 36 offer when judgment was given.

136. Viewed against this background, I am quite satisfied that the meaning which the second CFAs would convey to a reasonable person was that the success fee was not earned, and the case not "won", unless the claimants won on the issues which had been tried before Stadlen J. My reasons are as follows.
137. The definition of "success fee", in paragraph (m) of the "explanation of words used" in the Law Society document "Conditional Fee Agreements, what you need to know", was;

"The percentage of basic charges that we add to your bill if you win your claim for damages and which we will seek to recover from your opponent"

I have already set out [at paragraph 119] the definition of "win", to be found at paragraph (o) of the same section of the Law Society document.

138. Against the very special factual background I have identified, it is plain that the meaning conveyed to a reasonable person, with full knowledge of that background, must have been that a "win" would only be achieved if the claim for damages for Mrs Manning's death, in the form in which the claim had been presented and disputed in the trial before Stadlen J preceding these fresh CFAs, was decided in the claimants' favour. Only in such an event would the claimants "derive benefit from pursuing the claim" in any meaningful sense.
139. Mr Hutton submitted that such a construction was not permissible, even within the scope of Lord Hoffmann's guidance in Investors Compensation Scheme Ltd v West Bromwich Building Society, because the words of the Law Society definitions incorporated into the CFAs were clear and unambiguous. This was not a business document in respect of which it was necessary to give business sense to its interpretation. Furthermore, the solicitors had consciously opted to adopt the wording they did, faced with a choice, and so had Mr Grace QC. The executor who was Mr Manning's brother was himself a solicitor (specialising in tax planning) who must be taken to have considered and understood the implications of the agreement he was entering into.
140. Attractively as they were argued, I reject Mr Hutton's submissions. In Chitty on Contracts (30^th Edition) Volume 1, at paragraph 12-118 (page 877), the position is summarised as follows (supported by a vast array of cases in the relevant footnote):

"So the court is entitled (and, indeed bound) to enquire beyond the language of the document and see what the circumstances were with reference to which words were used, and the object appearing from those circumstances which the person using them had in view. The court must place itself in the same "factual matrix" as that in which the parties were."

Further on, at paragraph 12-120 (page 879) reference is made to Prenn v Simmonds [1971] 1WLR 1381, where Lord Wilberforce summed up the position as follows:

"In my opinion, then, evidence of negotiations, or of the parties' intentions, and a fortiori of [the claimant's] intentions, ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the "genesis" and objectively the "aim" of the transaction." (Emphasis added)

141. In the factual background I have identified the "genesis" and the "objective aim" of the executors and their lawyers in entering into the second CFAs point very strongly to the conclusion I have reached.
142. Mr Hutton's submission that the solicitors must have deliberately opted to adopt the wording they did is based upon the premise that the draftsman on behalf of the solicitors was working from the Law Society's new model conditional fee agreement (published in January 2006) which, under the heading "Paying us" provides the option relied upon by Mr Hutton, set out in italics below:

"It may be that your opponent makes a Part 36 offer or payment which you reject on our advice, and your claim for damages goes ahead to trial where you recover damages that are less than that offer or payment. If this happens, we will [not add our success fees to the basic charges / not claim any costs] for the work done after e received notice of the offer or payment."

143. Mr Hutton submits that by opting for the first alternative rather than the second there was a conscious decision on the solicitors' part to take a different stance from that which they took in the first CFA (as amended by the side letter of 30^th September 2005). One problem with this submission is that it involves a degree of speculation. It is equally possible that the draftsman of the second CFA was working from the first CFA and simply omitted to recall that the original wording had been amended by the side letter. In any event, it is the presumed common intention of the parties as to what they were seeking to achieve which is critical, not the intention of one party alone.
144. As to Mr Hutton's submission that Mr Manning's brother, as a solicitor executor, must be taken to have recognised and approved the fundamental change of stance on the part of solicitors and counsel in the fresh CFAs, once again one has to have an eye to the realities of the situation in which the executors found themselves. The CFA Regulations (2000) had been repealed by the time of the second CFAs, abolishing many of the obligations that previously would have required Mr Levy to explain the terms of the CFAs to the executors in order to secure a signed acknowledgment from them that they understood fully the relevant terms. At the time of the first CFAs the regulations were still in force, and the prescribed documentation was duly signed by Mr Manning. Ironically, had Mr Manning's brother not been a solicitor, it may well be that Mr Levy would have had to explain the fresh CFAs to the executors in detail, and in the course of doing so would himself have realised that they might be construed as saying something completely different from the original CFAs. However, all this is speculation. The fact remains, for the reasons I have explained, that the "aim of the transaction" in the second CFAs was clear, and the documents must be read in such a way as to give effect to that aim.
145. Whilst the CFAs were not "commercial contracts" in quite the sense of ICS Limited v West Bromwich Building Society, they were nevertheless important commercial contracts in the context of the litigation. Adapting the words of Lord Diplock in Antarios Compania Navia SA v Salen Rederiperna AB already quoted [see paragraph 133]: if detailed semantic and syntactical analysis of words in an important contractual document concerning the obligation of executor trustees to pay solicitors' fees in very expensive and uncertain litigation is going to lead to a conclusion that flouts the commonsense of what they and their lawyers must have intended the document to mean, such analysis must be made to yield to that commonsense.
146. In reaching this conclusion I am also heavily influenced by one very important matter already touched on. The solicitors undoubtedly applied their mind to the changed situation uppermost in the thinking of all parties to the fresh CFAs, namely the assessment of risk in the light of Stadlen J's inability to give an indication of his judgment. Their assessment of that risk, underpinning the success fee, was that it had increased rather than decreased. Had anyone thought that in any real sense the claim had already been "won" through the limited admissions made at trial, such a risk assessment would have been wholly otiose. The fact that it was expressed in the terms it was is the clearest indication of how the parties saw the situation, and how they saw their mutual rights and liabilities under the CFAs.

Fresh evidence

147. Having reached this conclusion, it is unnecessary to consider in detail the alternative contention by Mr Williams that the court should admit the fresh evidence of Mr Levy and the executor Mr Manning in order to prove what their intention actually was in entering into the second CFAs. However, in deference to the thoroughness and quality of the submissions advanced by Mr Hutton and Mr Williams I will address the issue briefly.
148. Mr Hutton submits that there are two principal reasons why the fresh evidence should not be admitted. First, as Lord Hoffmann made clear in ICS Ltd v West Bromwich Building Society, insofar as it consists of evidence of subjective intent it would be admissible only in an action for rectification. This is not an action for rectification, nor has there been such an action. Secondly, the conventional pre-conditions for the admission of fresh evidence, established in Ladd v Marshall [1954] 1 WLR 1489, are not met in the present case. I shall consider each of these submissions in turn.
149. As to rectification, Mr Williams submits that there was no need for a collusive action (in the Chancery Division) between the solicitors and the executors to establish something which they were agreed upon, i.e. the true meaning of the fresh CFAs. Mr Williams submits that the test which the Master had to apply under the Costs Practice Direction, at Section 11.7, in deciding whether the percentage increase claimed in the success fee was reasonable, required the Master to "have regard to the facts and circumstances as they reasonably appeared to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement." Thus, argues Mr Williams, the executors would have been entitled (if necessary) to obtain rectification of the second CFAs to reflect the parties' true common intention that the position should be no different from the position under the first CFAs in terms of what was meant by a "win". The Master would have been entitled to take this into account even though no order for rectification had in fact been obtained in separate proceedings. I accept Mr Williams' submission on this point.
150. Mr Hutton made a further submission that there is authority from the Privy Counsel in Kellar v Williams [2004] UKPC 30 that the court will not permit a solicitor's retainer to be altered so as to increase his entitlement to fees after the costs order has been made. However, as Mr Williams points out, that case involved a variation of the contract after the event rather than rectification of the contract to give effect to its meaning from the outset. This is also the explanation for the unwillingness of the court to vary a contract retrospectively in Oyston v Royal Bank of Scotland [2006] EWHC 90053 (Costs), Crook v Birmingham City Council [2007] EWHC 1415 (QB). In Brennan v Associated Asphalt [2006] EWHC 90052 (Costs) the point was left open because it was not pursued fully, and Master Hurst decided the case on a different basis.
151. Turning to the second principal objection raised by Mr Hutton to the admission of fresh evidence, in Ladd v Marshall three pre-conditions were laid down:

(1) the evidence could not have been obtained with reasonable diligence for use at the trial;

(2) the evidence must be such that, if given, it would probably have an important influence on result of the case, although it need not be decisive;

(3) the evidence must be such as is presumably to be believed, i.e. it must be apparently credible, though it need not be incontrovertible.

Mr Hutton submits that the fresh evidence sought to be relied upon by the claimants fails each of these pre-conditions.

152. First, Mr Hutton submits that the evidence could have been obtained with reasonable diligence for the detailed assessment proceedings. For the reasons already explained, it was in my judgment unrealistic to expect the solicitors to produce such evidence for the detailed assessment proceedings when the point at issue had not been clearly raised in advance, and was first raised only on the fifth day of the hearing.
153. Secondly, Mr Hutton submits that the evidence could not have had an important influence on the result of the case, because it would have been inadmissible in the absence of any claim for rectification. I have already dealt with that point. Mr Hutton further submits that the evidence would have been inadmissible because the only purpose of admitting it would have been to contradict, vary, add to or subtract from a contract contained in writing, and required to be in writing by section 58(3)(a) of the Courts and Legal Services Act 1990, and such evidence cannot be adduced: see Chitty on Contracts (30^th Edition), Volume 1, paragraph 12-101, and the cases there cited. This ignores the fact that the whole purpose of admitting the evidence would be to establish that the contract was always liable to be rectified because it did not reflect the true intention of the parties and the meaning they intended the document should have.
154. Thirdly, Mr Hutton submits that the evidence of Mr Levy and of the executor Mr Manning is not "credible" in the sense that it is inconsistent not only with the terms themselves of the second CFAs but also with other documents. For example, in paragraph 19 of Mr Levy's witness statement dated 27^th September 2011 (which is sought to be introduced as fresh evidence) Mr Levy says he "…made it very clear that under no circumstances would the estate have to pay anything towards my firm's own fees or counsels fees…." However, that apparent assurance is not mentioned in Mr Levy's contemporaneous attendance note dated 10^th March 2008 exhibited to his statement. Indeed, the retainer document signed by both executors on 15^th March 2008 stated in terms that there were circumstances in which the executors would be responsible for paying an element of the solicitors' costs.
155. In my judgment the third pre-condition in Ladd v Marshall would have been satisfied. The evidence in question had only to be apparently credible not incontrovertible. Looked at broadly, it was not contradicted by the other documentation mentioned. The evidence and the documentation had to be viewed against the background of the quite exceptional circumstances I have already identified surrounding the necessity for the second CFAs. In any event, on proper construction, the passage relied upon by Mr Hutton in the retainer document was merely stating that even if costs were recovered from the other side, detailed assessment on the standard basis would inevitably leave a shortfall of 10% to 30% of the full costs, and the client would be responsible for paying the solicitors the balance. This perfectly standard explanation of a "winning" costs order cannot, in my view, properly be said to undermine the common understanding of solicitors, counsel and the executors that they would only obtain any fees at all if Stadlen J's reserved judgment went in their favour on the issues which had been tried, and if they beat the Part 36 offer of £50,000.
156. It follows that, had it been necessary for the claimants to rely upon the fresh evidence, it would in my judgment have been admissible in the wholly exceptional circumstances of this case.

Conclusion on the cross-appeal

157. In the end, therefore, although the Master did not analyse the position in such detail as I have been called upon to analyse it, his instinctive view that it was unrealistic to conclude that solicitors and counsel were not "at risk" (in the requisite sense) was undoubtedly correct. Nor is it a justified criticism of his ex tempore judgment that, in terms of the risk being run, he wrongly failed to distinguish the position as between solicitor and client from the position as between claimants and defendants.
158. The test the Master had to apply under Section 11 of the Costs Practice Direction was whether the percentage increase in the second CFA was reasonable having regard to all the relevant factors, including the risk that the circumstances in which the costs, fees or expenses would be payable might or might not occur. For the reasons I have explained, when the second CFAs are properly and robustly interpreted in accordance with principles so clearly stated by Lord Hoffmann, there can be no doubt that the solicitors and Mr Grace QC continued to run the same risk as they had run in the first CFAs, and the percentage increase was entirely justified.
159. It follows that the cross-appeal is dismissed.

Further submissions on the impact of costs

160. The effect of my judgment on the costs orders made by Master Gordon-Saker needs to be carefully considered. As already mentioned, following the hearing we requested and were provided with further detailed information about the costs ordered by the Master in respect of the detailed assessment proceedings, and the offers the defendants had made. In short, the position is that the Master treated the claimants as having beaten the offer made by the defendants in relation to the High Court bill, but treated the claimants as failing to beat the offer in relation to the Court of Appeal bill. We anticipate that, in the light of my judgment on the appeal and the cross-appeal, the claimants would now have beaten the offer on the Court of Appeal bill as well.
161. However, there remains the question of what costs sanction, if any, is appropriate to meet any prejudice the defendants suffered through the uncertainty surrounding the very late application for relief from sanctions, the subject of the first ground of appeal. We note that, as one would expect, the claimants were ordered to pay the defendants costs of that application in any event (assessed at £10,000).
162. We should like to receive further submissions on whether there should be any further costs sanction. I direct that such submissions, in writing, be served and filed by 4pm on Wednesday 9^th November , so that my assessors and I have the opportunity of considering them before the hearing the following day, 10^th November, at which this judgment (subject to corrections) is to be handed down. At that hearing we will hear further oral submissions on this matter as well as submissions on the costs of the appeal and the cross appeal. If I am to be invited (with the assistance of my assessors) to conduct a summary assessment of the costs of the appeal, I direct that schedules of costs be filed by 4pm on Wednesday 9^th November.
163. Although I have not reached even a provisional conclusion on the issue of the appropriate costs sanction, one possible approach which may commend itself is to leave the Master's orders undisturbed. On the figures presented to us, this would mean (in effect) that the claimants would still have to pay the defendants' costs (post offer) of £8,000 on the Court of Appeal bill, and would not recover their own costs (post offer) on the Court of Appeal bill, estimated at £22,500. That might not be unreasonable. The claimants' solicitors hold themselves out as leading specialists in this field of litigation, and the omissions which led to the need for relief from sanctions must be viewed against that background.