Crane v Canons Leisure Centre

This appeal has an unsavoury flavour to it. It does not concern the real dispute between the parties. That dispute concluded more than two years ago when Mr Crane’s personal injury claim for receiving an electric shock to his left hand at work on 24^th January 2002 was compromised on 10^th August 2004 for an agreed payment of £1,500 plus costs on a standard basis to be assessed if not agreed. It was not necessary, I believe, for Mr Crane to start proceedings to secure this agreement. Since then, Mr Crane’s solicitors, Rowley Ashworth, and the defendants’ insurers have been arguing about costs which by now will have exceeded Mr Crane’s agreed damages by more than ten times. The further unsavoury feature is that this appeal is not about the costs of Mr Crane recovering £1,500, but about the satellite costs of assessing those costs in the Part 8 costs only proceedings begun for that purpose. This all arises in large measure because claims for personal injury in excess of £1,000 cannot be brought in the small claims track, as they should, since, in my view, the £1,000 should be substantially increased; and because Mr Crane’s Union entered into a Collective Conditional Fee Agreement with Rowley Ashworth.

Rowley Ashworth engaged costs consultants, Costings Limited, to conduct the detailed assessment of Mr Crane’s costs. They wrote to the defendants’ insurers saying that they were acting under delegated authority from Rowley Ashworth. They prepared an initial schedule and then a detailed bill of costs. They then conducted detailed assessment proceedings before a costs officer. It was determined that Rowley Ashworth were entitled under the Collective Conditional Fee Agreement to a success fee, having succeeded in recovering £1,500 for Mr Crane. It was further determined that the solicitors (nominally the claimant) were entitled to recover a proper amount for the costs of Costings Limited conducting the detailed assessment. The costs officer assessed the costs in Rowley Ashworth’s bill at £6,572.70 (on an amount claimed which exceeded £9,500). It will be recalled that Mr Crane recovered a mere £1,500. The costs officer reduced the success fee claimed at 50% to 45%. He allowed the costs of the assessment in a total of £3,860 85 including the success fee of 45%. Master Wright, as costs judge, on appeal from the costs officer on 1^st March 2006 disallowed the success fee part of this assessment, and reduced these costs to £2,930.51, still nearly twice what Mr Crane recovered as damages.

The question was and is whether the satellite costs of conducting the detailed costs assessment are to be regarded as profit costs or disbursements. The significance of the distinction is that Rowley Ashworth would be entitled to a percentage success fee on these costs, if they are profit costs, as part of their base costs, but not if they are disbursements. Master Wright decided that these costs were disbursements which did not attract the success fee. This is the solicitors’ (nominally Mr Crane’s) appeal against that decision, with permission from HHJ Paul Collins CBE, who transferred the appeal directly to the Court of Appeal.

The starting point is the definition of “base costs” and “disbursements” in the Collective Conditional Fee Agreement. “Base charges”, upon which the solicitors were entitled to a success fee uplift, were defined as:

By clause 2 of the agreement, it covered all claims for damages for personal injury. “Claim” is defined to include any proceedings to enforce a judgment, order or agreement. It was held by this court in Halloran v. Delaney [2003] 1WLR 28 in very similar circumstances that the agreement covered costs only proceedings and that a success fee was in principle recoverable in such proceedings.

Some solicitors draft their bills of costs themselves within the firm and use their own staff to conduct costs assessments. Others engage independent costs draftsmen or consultants, as in the present case. I apprehend that, if they do the costs work themselves in house, the cost of doing so would be legitimately charged as profit costs.

Barristers’ fees are conventionally charged as disbursements, although some work done by barristers might be done by the solicitors themselves. So are fees for expert witnesses. On the other hand, there are cases in which work done by outsiders has been held to have been done for costs purposes as a fee earner for the solicitor. This is acknowledged to be so when a solicitor engages another solicitor, as for instance when a London agent acts for a solicitor out of London, as to which see paragraph 4.16(6) of the Costs Practice Direction. See also in re Pomeroy & Tanner [1897] 1 Ch. 284 and Agassi v. Robinson [2006] 1 All E.R. 900 at paragraph 74. There may be a case for reconsidering this, but the question does not arise on this appeal and a change would probably require changing the Costs Practice Direction. Other cases include:

Two other cases are Cannon v. Mid-Essex Hospital Services NHS Trust (2.4.06) and Guy v. Castle Morpeth Borough Council (9.1.06) in which HHJ Marr-Johnson and HHJ Hewitt respectively came to essentially conflicting conclusions about costs draftsmen.

Master Hurst, the Senior Costs Judge who sits with us a assessor on this appeal, has held that a characteristic of whether charges of a person engaged by solicitors are profit costs or disbursements is whether the solicitors have personal responsibility to the client for the work done – see Claims Direct Test Cases, Tranche 2 at paragraph 80. This could be expressed as whether the outside agency is engaged to act for the solicitor or for the client. That in turn accords with the definition of base costs in the Collective Conditional Fee Agreement in the present case.

When Costings Limited conducted the costs assessment hearing, their rights of audience rested on a fiction that they were employed by the solicitors and derived from section 27(2)(e) of the Courts and Legal Services Act 1990. The terms of this section include that the person may be employed or otherwise engaged to assist in the conduct of the litigation doing so under instructions given by a qualified litigator. The solicitors urge this in this appeal as an indicator that Costings Limited are to be taken as their employee. I do not consider that a provision about rights of audience has much to do with whether Costings Limited’s charges are profit costs or disbursements.

Costings Limited’s initial schedule of Rowley Ashworth’s costs identified their own fee for preparing the schedule as a disbursement. The bill with which they started the detailed assessment proceedings had their own costs of preparing the bill as a disbursement.

The solicitors’ case is that the work done by the costs consultant was the type of work which the solicitors were retained to do themselves. It was solicitors’ work. They chose to delegate it, but they retained control and supervision. The costs draftsman was effectively their temporary employee with a right of audience under the Courts and Legal Services Act 1990. The solicitors remained liable to the client for any negligence in the conduct of the costs assessment. If the work had been done by a qualified solicitor, there could have been no argument about whether the costs were part of the base costs. The work could just as well have been done by the solicitors in house. It is the nature of the work rather than the status of the person who does it that is crucial. It was for services to be rendered by the solicitors themselves – as to which see Agassi v. Robinson [2006] 1 All E.R. 900.

The respondents’ case is that, as a matter of construction of the Collective Conditional Fee Agreement Costings Limited’s fees were disbursements, because they were expenses which Rowley Ashworth incurred on Mr Crane’s behalf. They are not base costs because they are not for work done by his solicitor or by another solicitor on his behalf. In the modern world subcontracting to costs draftsmen who are not solicitors and who themselves make a profit should result in their charges being disbursements because they are not in truth costs which are internal to the solicitor. Mr Drabble relies on paragraph 80 of Senior Master Hurst’s judgment in Claims Direct Test Cases Tranche 2 (3^rd January 2003). The Costs Practice Direction relates to the format of a bill and how the costs will be assessed. The fictional statutory basis for Costings Limited’s right of audience has no bearing on the basis upon which the client has agreed to pay for the work. It was not until late in the day that Rowley Ashworth claimed that the work done by Costings Limited was their own work to be charged as base costs, since initially they sought to pass on Costings Limited’s charges as disbursement. It is further said that this was a detailed assessment on a standard basis so that any doubt should be resolved in favour of the paying party. I am not persuaded by this last point when the issue is one of construction for the court to determine one way or the other.

The distinction in the definitions of “base costs” and “disbursements” in the Collective Conditional Fee Agreement is between charges for work done by or on behalf of the solicitors and expenses which the solicitors incur on the member’s behalf. That is, in my view, a distinction between charges by the solicitors themselves for work which they themselves do or are directly responsible for; and expenses which they incur for the client some of which are for other people’s work which they are not directly responsible for and which they simply pass on to the client at cost. If they properly choose to delegate their own work, they remain entitled to charge on their own account and the proper amount of the charge is not necessarily the same as the amount which they agree to pay to their subcontractor. It could be more or it could be less. In my view, the appellants are right to concentrate on whether the work is solicitors’ work; and Master Hurst was right to say that a characteristic of such work is whether the solicitor remains responsible to the client for its proper conduct. Intrinsically, it might be said that profit costs should be limited to work which the solicitors do themselves, because if they delegate it, the subcontractor is making a profit as well. But, since the solicitor remains entitled to the proper amount which he, not the subcontractor, would charge, there is in theory only one amount of profit; and the success fee in a conditional fee agreement is supposed to cover the cost of other cases which the solicitor loses and for which he is paid nothing, not for his profit on this case which he has won. As a matter of detail, in the present case Costings Limited were not themselves contracted with Rowley Ashworth to receive any success fee, so that the product of success in this appeal would go to Rowley Ashworth, not Costings Limited.

In my view, Costings Limited in the present case were doing work which Rowley Ashworth had themselves undertaken to their client to do. It was solicitors’ work for which Rowley Ashworth were entitled to make their own direct charge. In theory, they remained liable for it, although in reality it was done entirely for their own benefit, since poor Mr Crane had no interest in this costs squabble and was never going to be affected by it one way or the other. I do not think that the classification of the cost of this work can sensibly depend on whether Rowley Ashworth did the work themselves, whether they delegated it to another solicitor or whether they delegated it to costs draftsmen who were not solicitors.

By Respondent’s Notice, the respondents seek to say in the alternative that a success fee of 45% on the costs of conducting the costs assessment should be disallowed or severely reduced as being unreasonable. Although 45% might at the outset have been a reasonable percentage uplift for Mr Crane’s original claim, it was not reasonable for a costs assessment which could only be predicated on success already having been achieved. The risks at the time of costs assessment are quite different from the risks of the case as a whole at the outset. The Collective Conditional Fee Agreement should therefore have stipulated for no (or a very low) success fee on this part of the costs, or the court should reject 45% as unreasonable. The only risks on a costs assessment in these circumstances would be if the paying party made an offer exceeding the eventual assessment which was rejected. But that would not relate to any risk inherent in the proceedings and certainly not to one assessed on Mr Crane’s original chances of success. It is certainly not a risk which the paying party, having made a successful offer, should be expected to undertake. The submission recognises that this court in KU v. Liverpool City Council [2005] 1 WLR 2657 held that success fees have to be agreed at the outset and that a single agreed percentage uplift is to be looked at as at the time it is agreed and not revisited with hindsight for part of the proceedings after the risks had reduced. The language of section 58 of the Courts and Legal Services Act 1990 as substituted by Section 27 of the Access to Justice Act 1999 and Regulations under it do not envisage a conditional fee agreement which contains two or more success fees. Mr Drabble says that the language of section 58 does not require a single success fee. He says that there is nothing to prevent a separate success fee being agreed for the assessment of costs after the risks of the litigation have necessarily disappeared. He says that the decision in KU is concerned mainly with hindsight, and that Callery v. Gray [2001] 1 WLR 2112 and Rogers v. Merthyr Tydfil [2007] 1 WLR 808 at paragraph 107 are both authority for the legitimacy of a form of two-stage success fee.

The appellant submits that the statutory wording discussed in KU does not envisage more than one initially agreed uplift and that the court should not in effect require one for the assessment of costs. This submission, in my view, is supported by KU and in particular by paragraph 47 of Brooke LJ’s judgment. Further, in paragraph 42 of his judgment, Brooke LJ said this:

In Halloran v. Delaney [2003] 1 WLR 28, it was argued that there should be no success fee, or a very small one, in costs only proceedings. This court did not accept that there was no risk in costs only proceedings and the discussion centred, not on whether there should be a separate success fee for assessment proceedings, but on the risk of not winning the litigation. In the present case, the success fee was agreed before the claim was compromised and there is no suggestion on this appeal that 45 % success fee was not reasonable for the risks of the litigation as a whole.

The appellants suggest that, if the Respondents’ submissions were correct, they might equally apply where there is an order for a split trial to the stage after liability is determined. They say, correctly no doubt, that CFAs and CCFAs are not habitually drafted with a different percentage success fee for costs assessments after the main issues in the proceedings have been determined in favour of the party receiving their costs. They say that, if litigants are to be required to agree in advance separate rates of success fee for costs proceedings, that would encourage satellite litigation. They say that the risk in relation to the assessment of costs extends to the initial risk that the solicitors’ client may lose an action which is started but the solicitor will have to deal with the other party’s costs assessment or other consequential matters.

It seems to me that, if the court were to say that different and lower rates of success fee should normally be agreed for the assessment of costs, that should in theory apply to both parties, if they are both proceeding under conditional fee agreements. Thus, if the claimant won the proceedings and was awarded his costs, but the defendant made a successful offer to compromise the costs proceedings, so that the defendant was awarded his cost of those proceedings, the level of the defendant’s agreed success fee for the proceedings might need to be examined for the purposes of their award of costs. In reality, of course, there would, I suspect, be no success fee for the defendant in the case I have supposed because their client would not have won the proceedings. Given that, as Halloran decided, a single success fee normally carries through into costs proceedings, that seems to me to highlight the underlying fact that success fees are mainly to compensate lawyers for other cases which they lose, and thus to encourage them to take the risk of receiving no fee in cases which they may lose. There is thus a wider interest than the individual case. In addition, Mr Foy QC for the appellant is correct in saying that, at the outset the solicitors have to face a risk that their client’s claim will fail, but they may have to conduct costs assessment proceedings on a costs order in favour of the other party for which they will receive no payment.

There is no reason of principle which compels the court to require parties who enter into CFAs to address at the outset the risk of costs proceedings separately, and in my judgment there are clear reasons of policy for the court not to require this. There is general sense, if CFAs are to be a substantial means of financing civil litigation, that they should not be overcomplicated, that costs should be agreed wherever possible, and that, if there are to be contested costs proceedings, the means whereby the winning solicitor finances litigation which he loses should extend to the costs proceedings at the same rate as the proceedings themselves, if that is what has been agreed with the client.

For these reasons, I would allow the appeal.

Conditional fee agreements (CFAs) and collective conditional fee agreements (CCFAs) are creatures of modern statute, the purpose of which is to enhance access to justice, partly but not exclusively in relation to types of litigation which no longer benefit from the provision of legal aid. Personal injury litigation is the primary example. The underlying philosophy of CFAs and CCFAs is utilitarian and redistributive. In order to ensure that professional litigators are not deterred from providing their services to clients whose cases may end in failure and, from the point of view of the professionals, no fees, the model permits the practice whereby the professionals can recover premium fees for their successful cases. These then subsidise the unsuccessful, unpaid cases. The medium through which this is achieved is the success fee. Although it required statutory authority for its introduction, in every case it requires an appropriate contractual basis for its operation.

In a typical personal injury case, a CFA or CCFA will provide for the payment of a success fee. However, although its origin is to be found in the agreement between the claimant and his solicitor, the expectation is that, upon success being achieved, the liability for the success fee will ultimately fall on the defendant or his insurers as part of the agreed or awarded costs. This immediately throws into relief the exceptional nature of the scheme. It countenances a situation in which the unsuccessful defendant or his insurers may become liable for the subsidy paid to the solicitor for the successful claimant to compensate him for his otherwise unpaid work on unsuccessful cases. If the scheme only operated in cases where the unsuccessful defendant falls to be indemnified by his insurers, the redistributive assumption would be reflective of just another cost to be absorbed by a company the raison d’être of which is profitable risk-spreading. However, the scheme is not restricted to types of litigation in which the defendant can be assumed to be covered by liability insurance and the development and interpretation of CFAs and CCFAs by the courts cannot always differentiate between insurance cases and the rest. The principles will be the same because the legislation draws no distinction. In these circumstances, it is obviously incumbent upon the courts to ensure that success fees do not operate unjustly.

It is appropriate to stand back and keep in mind the way in which the issue at the heart of this case arises. As in very many cases, a personal injury claimant has been successful in obtaining a proper sum by way of compensation without having to issue proceedings. The only proceedings are costs-only proceedings because there has been a failure to agree an amount for the fairly modest costs reasonably incurred in recovering a modest sum of compensation. The claimant’s solicitors instructed a firm of costs consultants in connection with the drawing of the bill of costs and attendance upon the assessment. That was a reasonable thing for them to do, although they could have carried out the same tasks in-house. The “success” contemplated by the CCFA was achieved when the settlement agreement was concluded. However I respectfully agree with Lord Justice May about two of the legal consequences. It is clear that (1) by reference to Halloran v Delaney [2002] EWCA Civ 1258 and the terms of the CCFA in the present case, the success fee was not limited to the period ending with the settlement agreement; and (2) KU v Liverpool City Council [2005] EWCA Civ 475 shows that we have no power to rewrite the CCFA so as to provide for a lower or no success fee in respect of the costs-only proceedings (which point defeats the Respondent’s Notice). However, that still leaves the central issue: are the claimant’s solicitors entitled to a success fee in respect of the work done by the costs consultants in the costs-only proceedings? Any such entitlement, it is agreed, would accrue to the benefit of the solicitors and not the costs consultants.

The resolution of this issue turns on whether the fees of the costs consultants are properly classified as “base costs” or “disbursements”. Although there are lines of authority both preceding and succeeding the statutory innovation of CFAs and CCFAs which have addressed issues which have arisen as to whether particular items are properly classified as profit costs or disbursements, I accept the submission of Mr Drabble that there is no authority binding on this Court which requires us to hold that, in this context, the fees of the costs consultants must be classified as profit costs or “base costs” of the solicitors rather than as disbursements. The authorities to which we have been referred are either merely persuasive (and not wholly consistent with each other) as being decisions of lower courts or have considered a similar issue but in a different context: for example, Agassi v Robinson [2006] 1 All ER 900.

The decision of Master Wright, against which this appeal is brought, was based on a construction of the CCFA, it being common ground that that is the fundamental issue. He said:

It seems to me that the Master was right to consider the fees of a solicitor agent to be profit costs as a matter of settled law, just as the fees of counsel – whether or not in relation to tasks which could have been done by the instructing solicitor – are established to be disbursements. Where the position is not governed by binding authority, in my judgment it is important to keep the context in mind. Although one is construing an agreement between solicitor and client, one is doing so in circumstances which will usually determine the liability of a person who is not party to the agreement. Whilst I accept the policy rationale of success fees, I consider it incumbent upon the court to approach the construction of the solicitor-client agreement in a way which does not operate unjustly on the ultimate paying party. There is no injustice in the paying party having to pay a reasonable success fee for work actually done by a solicitor. However, in my judgment, it is unjust if the paying party has to pay a success fee to and for the benefit of the solicitor when the solicitor has chosen not to do the work in question but to instruct someone else to do it. I do not consider that the imposition of such a liability falls naturally within the policy and rationale of the conditional fee scheme and, where possible, I would approach the construction of a CFA or CCFA, with that in mind. Having done so in the present case, I come to the same conclusion as the Master. In so doing, I resist the submission that we should adopt the concept of “solicitors’ work” as determinative taxonomy, regardless of whether the solicitor carries out the work. Nor am I persuaded that the potential liability of the solicitor to his client for the negligence of the costs consultant is decisive. In the event of such liability the solicitor would be able to seek an indemnity from the costs consultant.

I appreciate that this conclusion may seem anomalous and adventitious. The paying party has no control over whether the solicitor engages an independent costs consultant or carries out the work in-house, in which latter case the success fee would be payable. On the other hand, the solicitor may elect to instruct specialist costs counsel (for such people exist) on the assessment and in that case counsel’s fee would be a disbursement and no success fee would become payable upon it, unless counsel had his own CFA. The anomalies are not all one way. For my part, I prefer an anomalous conclusion to an unjust one.

It is only after great hesitation that I part company with Lord Justice May, especially on a subject such as this, but I would dismiss this appeal.

I add this as a postscript. When the conditional fee system was introduced, it soon became obvious that its novelty was producing unforeseen and sometimes unwelcome results, some of which are apparent from the satellite litigation which has been generated. Some of the difficulties have been resolved or at least patched up by amendments or judicial decision. Initially, it was not possible to form a reliable view of what was happening “on the ground”. However, the time may now be approaching when the working of the system is ripe for an in-depth review so that there can be ascertained the extent to which the system is enhancing or impeding access to justice and at what financial cost. I resist the temptation to say more on merely anecdotal evidence.

The question for this court is a simple one to state: given the terms of the CCFA between Mr Crane and his solicitors, was a success fee payable on the fees of the independent costs draftsman the solicitors chose to instruct? The relevant provisions of the CCFA are at paragraphs 1.2.1 and 1.2.3 which I shall not repeat. Neither of the possible constructions advanced leads to an entirely happy result. On the appellant’s case the paying party would have to pay a success fee to solicitors for someone else’s work, a result Maurice Kay LJ considers unjust (but which, I note, is not unknown). On the respondents’ case, whether or not the paying party has to pay a success fee depends entirely on the solicitors’ choice of costs draftsman: in-house or independent, solicitor or non-solicitor.

Master Wright held that the fees of Costings Limited fell “fairly and squarely” within the definition of ‘disbursements’ in paragraph 1.2.3. In other words he found they were expenses which the solicitors incurred on Mr Crane’s behalf, rather than work done on the solicitors’ behalf. For my part, I do not find the answer to the question quite as straightforward as it appeared to the Master. As I see it, the only items that can be described as obviously falling fairly and squarely within the disbursement provisions are those given as examples of disbursements: court fees, experts’ fees, barristers’ fees, the copying charges of others and travel/hotel expenses. The list of examples is said not to be exhaustive, but, given their disparate nature, it is not immediately apparent what additional categories of work were envisaged or what, if any, common feature they share.

No-one suggests that what marks out a disbursement is the fact that the costs have been incurred by the instruction of and/or payment to an outside body. It is common ground that, as the law stands, had Rowley Ashworth chosen to use a solicitor agent, for example, their fees would have been charged as profit costs and not as a disbursement. Conversely, delegation of work to an independent fellow professional of what might be solicitors’ work, for example, the provision of advocacy services, does not inevitably render the costs profit costs: barristers’ fees are expressly included in the definition of disbursements.

I respectfully agree with May LJ, therefore, for the reasons he gives, that to construe these particular provisions and determine whether or not these costs are properly described as base costs or disbursements, one must focus on the nature of the work done (whether it is solicitors’ work) and where responsibility for the work lies.

In my view, the work done by Costings was undoubtedly solicitors’ work. It was the type of work Rowley Ashworth were retained to do. Rowley Ashworth may have chosen to delegate their work, but they never relinquished control of it and responsibility for it. At every stage of the process Costings’ work was under Rowley Ashworth’s supervision. Costings drafted a Schedule of Costs with a view to negotiating a settlement; this was subject to approval by Rowley Ashworth. Costings drafted a Bill of Costs; this was checked and signed by a Rowley Ashworth partner. Rowley Ashworth instructed Costings to draw up the Points of Dispute (which they approved) and to conduct the detailed assessment before the Costs Officer. For this, Costings required rights of audience and instruction by a qualified litigator. They were, therefore, deemed to be temporary employees of Rowley Ashworth and, as such, assisted Rowley Ashworth in the conduct of the litigation. Finally, had there been any failure on the part of Costings, Rowley Ashworth could have been held accountable. Given that background, for my part, I am satisfied that Costings’ work is properly described as work done “on behalf of the solicitors” and their fees are properly described as base costs within the terms of paragraph 1.2.1. Accordingly a success fee is payable on them.

I further agree that the court should not require a different percentage uplift for the assessment of costs proceedings for the reasons given by May LJ.

I would allow the appeal.