Russell Young & Co v Brown & Ors

This is an appeal brought with the permission of Dyson LJ, from a decision of the Senior Costs Judge Hurst sitting as a Recorder on appeal from Master Wright, sitting as a Deputy District judge. The appeal is concerned with the liability of a tortfeasor to a claimant for a share of those costs which have been incurred by the claimant’s solicitor in investigating and settling a large number of claims of a similar nature, and which have been incurred for the joint benefit of all the claimants. Such costs are known as generic or common costs.

In the mid-1990s a large number of claims were brought by miners and former miners against British Coal (formerly the National Coal Board) alleging that they had developed vibration white finger (VWF) as the result of prolonged use of vibrating machinery during the course of their employment. A group of lead actions were heard at a split trial. At each stage, the claimants were successful and British Coal appealed to the Court of Appeal. The process of litigation took about three years. The upshot was that the claimants succeeded. The Government decided to finance a compensation scheme or ‘handling arrangement’ whereby the claims could be settled under a tariff of damages, to reflect the litigation findings. A group of claimants’ solicitors negotiated a scheme with the Department of Trade and Industry under which a handling arrangement was set up in 1999.

The claimants in the present litigation are six of a large group of miners who instructed a firm of solicitors, Russell Young & Co, to initiate claims for VWF against British Coal. In each case, the claim was settled before the result of the group litigation was known and the handling arrangement up and running. The claims were settled for sums substantially smaller than the claimants would have received under the handling arrangement. The claimants consulted Burroughs Day to claim for the professional negligence of Russell Young in settling their claims at undervalue. Burroughs Day also had some clients whose VWF claims had allegedly been under-settled by another firm of solicitors called Thomas & Co.

Each of Burroughs Day’s clients entered into a conditional fee arrangement (CFA) with the firm. These agreements were in standard form, as approved by the Law Society. In effect, the client promised that, if the claim were successful, he would pay Burroughs Day’s basic charges, disbursements and success fee. The client would be entitled to seek recovery of those costs from the opponent or tortfeasor. The CFA also provided that, if the claim were not successful, Burroughs Day would not look to the client to pay its basic costs, only its disbursements; as to them and as to the client’s liability to pay the opponent’s costs, an insurance policy was to be taken out at the client’s expense. The premium could be claimed from the opponent if the claim was successful. As consideration for the risk of failing to recover their profit costs if the claim failed, Burroughs Day claimed to be entitled to a 96% success fee. In the agreement, basic charges were said to be ‘for work done from now until this Agreement ends’. An explanation was given as to how the charges would be calculated. The hourly rate was specified. The Law Society Conditions were attached to the agreement. These defined basic charges as ‘Our charges for the legal work we do on your claim for damages’.

The claims were advanced by letter. It was Burroughs Day’s intention to conduct the claims as group litigation. They obtained the advice of leading counsel as to the prospects of success as a matter of principle. That advice was intended to benefit all their clients. A while later, they instructed junior counsel to draft master particulars of claim. Also, they expended time and money investigating the state of development of the handling arrangement so as to enable them to assess what their clients would have received under that scheme. It appears that Burroughs Day had an arrangement with other firms of solicitors who also had clients alleging negligent under-settlement of their VWF claims. It seems to have been their intention that there would be a costs-sharing arrangement between the various firms handling these claims, whereby work done or paid for by one firm, (for example, leading counsel’s advice on liability which was paid for by Burroughs Day) would be shared not only between Burroughs Day’s clients but also between the clients of the other firms.

It was Burroughs Day’s intention to seek a group litigation order under CPR 19.11. Such an order would, among other things, have engaged CPR 48.6A, which makes provision for the costs which had been incurred for the benefit of claimants collectively, the generic or common costs. However, that never happened. When Burroughs Day applied to the court, James Chapman & Co (now Halliwells LLP) solicitors for the Solicitors Indemnity Fund (SIF), argued that such a step would be premature because they had already made offers of settlement in some cases and intended to make offers in the great majority of cases. In the event, an appropriate offer was made in every case save a few which the SIF regarded as hopeless. Each offer was accompanied by an offer to pay the client’s reasonable costs. In each case, the offer was accepted. Proceedings were never commenced and no group litigation order was made.

Discussions between Burroughs Day and James Chapman resulted in failure to reach agreement on several costs issues. Accordingly, on 21^st May 2003, in reliance on CPR Part 44.12A, Burroughs Day commenced CPR Part 8 proceedings in the Bristol County Court. On 4^th August 2003, District Judge Frenkel ordered the defendants Russell Young & Co to pay the claimants’ costs to be determined by detailed assessment. He further ordered that:

3.

The parties shall identify and agree by no later than 29^th August 2003 a maximum of 6 claims of which Burroughs Day has conduct to be lead claims for the purposes of resolving the issues. BD and JC shall each select 3 of the lead claims.

District Judge Frenkel also ordered Burroughs Day to prepare and serve supplemental bills of costs relating to their generic costs, which had not been included in the bills already served. Burroughs served these bills but all six bills were identical; each claimed the sum of £32,598.72 profit costs, £12,042.33 disbursements and £7,810.43 VAT. The total was £52,451.48. There was no indication as to how many claimants these generic costs were to be shared between and therefore no specific sum was apportioned to the six individual lead claimants.

There followed some correspondence between the parties in December 2003 and January 2004 from which it is clear that it was Burroughs Day’s contention that the SIF should pay a global bill of generic costs incurred by Burroughs Day. They contended that SIF should also pay for work done by the other firms of solicitors from which Burroughs Day’s clients had derived an advantage. James Chapman said that Burroughs Day had to apportion the generic costs between their clients. In reply, Burroughs Day contended that it would be inappropriate and artificial to attempt to apportion the generic costs between individual clients.

On 2^nd March 2004, James Chapman served a document entitled ‘Points of Dispute’. This did not refer to Burroughs Day’s failure to apportion the generic costs between their clients. Rather, it contended that the claimants were not entitled to any generic costs because they did not have an order for generic costs. It was also contended that this issue (of entitlement in principle to generic costs) would have to be addressed by the judge seized of ‘the generic issue’ and could not be dealt with at detailed assessment.

District Judge Frenkel had transferred the hearing of the assessment to the Supreme Court Costs Office where it came before Master Wright on 25^th May 2005. It appears that either he directed or the parties agreed that four issues should be determined as preliminary issues of principle. These were:

The first issue was conceded by the defendants. Master Wright determined the second and third issues and adjourned the fourth to another date. He gave judgment on that issue on 5^th September 2005. He held that Burroughs Day were not entitled to any sums at all in respect of generic costs because, in the absence of a group litigation order, the court could only make an award of generic costs if the individual client had agreed with his solicitor that he would be liable to the solicitor for those costs. In the present case, the CFAs, which were the only evidence of what had been agreed between the solicitors and their clients, were not capable of covering an agreement in respect of generic costs; they were apt to cover only the costs of the client’s individual case. Master Wright did not adjudicate upon the argument, which was raised in the defendants’ skeleton argument, that the claimants could not recover any share of generic costs because Burroughs Day had failed to apportion those costs between the individual claimants. He pronounced only on the question of principle raised in the defendants’ points of dispute dated 2^nd March 2004.

Burroughs Day appealed that decision and the appeal came before Senior Costs Judge Hurst, sitting as a Recorder, nominally in the Bristol County Court. Judgment was given on 12^th April 2006.

The claimants argued that Master Wright had been wrong to hold that the words ‘basic costs’ in the CFAs could include only the work that the solicitors had done on the individual case and could not include a share of any work that had been done for the benefit of a group of claimants. It was conceded by the defendants that the term ‘basic costs’, as defined in the agreement and conditions attached was indeed wide enough to cover shared as well as individual costs. The claimants’ argument was that, once that concession had been made and it had been accepted that the Conditional Fee Regulations 2000 had been complied with, the point of principle had effectively been conceded. The claimants were able to recover from the defendants such generic costs as had been reasonably incurred. Whether each item was recoverable would be decided according to the usual principles set out in Part 44.

The defendants disagreed, arguing that a claimant had to show, by evidence, that he had agreed with his solicitor that he would make himself liable to the solicitor for his share of the generic costs. He had to show that he had given his informed consent to the doing of work or the expenditure of money on a shared basis. As there was no evidence as to what the solicitor had told the clients about generic costs, the clients could not recover any part of them.

Senior Costs Judge Hurst accepted the claimants’ contention. He disagreed with Master Wright’s conclusion that generic costs could only be recovered where the client had agreed with the solicitor that he would liable to the solicitor for those costs. He observed that, where a costs-sharing order had been made in proceedings, there could be no question but that there was entitlement to a share of generic costs. He held that where claims had settled before proceedings had begun and there had been no opportunity for a costs-sharing order to be made, a claimant could recover generic or common costs under the terms of the CFA, which were wide enough to encompass such costs. It is against that holding that this appeal is brought.

Senior Costs Judge Hurst went on to make some observations about the difficulties faced by the claimants in recovering the generic costs in this case. He observed that there was considerable confusion about what generic costs had been incurred and for the benefit of whom. He said that there would have to be another hearing to determine exactly what each claimant could recover by way of generic costs.

In this appeal it was said that the Senior Costs Judge was wrong. Mr Justin Fenwick QC for the appellants submitted that the judge should have held that, in a case in which there was no group litigation order including a costs-sharing provision, a successful claimant who sought to recover a share of costs incurred by his solicitor for the joint benefit of a group of clients, would have to show, by evidence, that he had agreed that his solicitor would incur generic costs and that he would be liable to his solicitor for a proportion of them. He accepted that the CFA in these cases was capable of encompassing an agreement to pay a share of generic costs but argued that, standing alone, the CFA was insufficient to create liability for such costs. In addition, there had to be an agreement collateral to the CFA. Evidence of such a collateral agreement would usually be found in correspondence between the solicitor and client (for example a client care letter) in which the solicitor explained that he intended to incur generic costs and gave the client some idea of between how many other clients the costs would be shared. If the solicitor had entered into a costs-sharing arrangement with other solicitors, it was incumbent upon him to inform his client of the terms of that agreement. Only if such information and explanations had been given, submitted Mr Fenwick, could the client give informed consent to the solicitor’s expenditure of time or money on a shared basis so as to create liability between them. Only then would the paying party have to indemnify the client for his liability to his solicitor.

Mr Fenwick drew attention to the dangers to defendants and insurers that careless or unscrupulous solicitors might abuse their clients’ entitlement to generic costs. He gave, as an example, the possibility that a solicitor who advanced 100 similar claims (of which only 40 were settled and 60 rejected) might try to recover the whole of the generic costs by seeking to share all of them between the 40 successful claimants rather than, as would be proper, only seeking 40% of the total generic bill.

I can see that there is a risk of abuse or injustice if a claimant’s solicitor were to be unscrupulous or careless. But I think that the risks are small. A solicitor is an Officer of the Court and he has to sign the bill of costs warranting its correctness. Also, in situations such as exist in the present case, the paying party must have a fairly good idea of how many claims have been made by which solicitors and also how many have been settled and how many rejected. It is in a good position to challenge a claim at detailed assessment if it suspects an inflated claim. In any event, I cannot see how the kind of evidence that Mr Fenwick contends should be available would help to avoid the risk of abuse. Mr Fenwick accepted that it could not be expected that the solicitor could set out in a client care letter the number of clients between whom the generic costs were to be shared.

Mr Fenwick complained about Burroughs Day’s approach to the costs of these claims. He said that it was most unsatisfactory that they appeared to have entered into costs-sharing agreements with other firms of solicitors but there was no evidence of the terms of such agreements. Burroughs Day had not made clear how many claimants they were acting for and how many clients of other firms had benefited from the generic work done by them. Although Burroughs Day had now abandoned the attempt to recover any part of the costs expended by other firms, the agreements with other firms were still relevant because the SIF was entitled to know between how many clients the generic work was properly to be shared.

Mr Fenwick also complained that Burroughs Day had not even attempted to attribute a specific share of the generic costs to each of the six lead claimants. He submitted that it was clear that Burroughs Day were seeking to avoid having to do so; at one stage they had said that it would be impossible or artificial. He told us that, only the day before the hearing, Burroughs Day had produced a schedule of clients and were now saying that it would be possible to carry out an apportionment. The appellants, he said, had no confidence that the apportionment was being properly approached.

On that point, Mr Simon Jonathan Brown, for the respondents, very frankly acknowledged that Burroughs Day had been hoping to avoid having to apportion the generic costs between the individual claimants; it would be a time-consuming mathematical exercise. They had hoped that James Chapman would agree to pay their generic costs as a global sum. However, Mr Brown accepted that apportionment would have to be done.

In my view, it does not assist the appellants on this appeal to complain about the state of the bills submitted by Burroughs Day. It seems to me that the appellants had the opportunity to defeat the claims for generic costs at the hearing before Master Wright. That hearing was intended to be a detailed assessment. The appellants raised the point that the individual claims for generic costs should be struck out for failure properly to apportion the generic costs to each of the 6 claimants. But they also raised the point of principle that the claimants were not entitled to any generic costs because they could not demonstrate an enforceable agreement covering such costs. Master Wright accepted that submission and did not deal with the question of whether the individual claims for generic costs would fail because they were not properly apportioned. I do not know whether he was asked to deal with that issue as an alternative to the issue of principle. I assume not because, on the appeal to Senior Costs Judge Hurst, there was no cross-appeal complaining of Master Wright’s failure to deal with that issue. The result is that the issue of principle is the only issue now before this court.

Mr Brown submitted that the Senior Costs Judge had been right. He said that entitlement to recover generic costs was dependent upon the contractual arrangements between each claimant and his solicitor. Here the contractual arrangements were the CFAs. It was accepted that the wording of the CFAs was wide enough to encompass costs incurred by the solicitor which were for the benefit of more than one client. It was also accepted that the requirements of the Conditional Fees Regulations 2000 had been complied with. The requirements of the regulations included the provision to the client by the solicitor of information and explanation as to the client’s liability for costs. Once that had been done, as it had been here, the agreement was enforceable between solicitor and client. The CFA created a liability upon the client to pay to his solicitor such costs as would on detailed assessment be held to have been reasonably incurred. There was no need for any additional agreement between solicitor and client to pay costs that had been incurred on behalf of several clients.

Mr Brown submitted that there is no distinction in principle between costs that are incurred solely for the benefit of an individual claimant (for example a medical report) and costs which are incurred for the benefit of several claimants such as a joint advice on liability. The sharing of costs is an every day occurrence and there is no warrant for the suggestion that the client had to give his express approval for this to occur. He gave, as an example, the case of a solicitor who travelled up to London for the day for three separate conferences with counsel in three different actions. The solicitor would apportion his travelling expenses and travelling time between the three cases. That was plainly fair and sensible as between everyone. There was no need for the clients to be told that this would happen. Indeed, if the solicitor did not share the costs in this way, he might well be open to criticism.

Mr Brown observed that it was accepted that where a claimant’s costs did not include any generic element, there was no obligation upon him to prove that he had expressly agreed with his solicitor what costs should be incurred. He asked rhetorically, why should any greater discipline be imposed upon a claimant who sought to include some shared costs in his bill than that imposed on a claimant who did not?

In reply, Mr Fenwick submitted that a higher discipline should be imposed in order to remove doubt about what costs had been incurred for the benefit of each claimant. He repeated that the kind of information which should be available would usually be contained in a client care letter.

Mr Fenwick also submitted that it was important that there should be a structured approach towards generic costs. Where a group litigation order was made, such a structured approach was available. However, such orders tended to result in increased costs and solicitors should not rush to enter them. But where there was no group litigation order, it was incumbent on the solicitor to adopt a structured approach. It should at all times be possible for the solicitor to demonstrate what his arrangements were with other firms of solicitors and also to ascertain between how many of his clients the generic costs were being shared.

The only issue before this court is whether, in the six lead cases, the CFAs, standing alone, provide a sufficient basis on which to rest a valid claim to recover from the SIF, the paying party, a share of the costs incurred by Burroughs Day on behalf of a large group of clients. It is common ground that the wording of the CFA is wide enough to encompass a share of generic costs. It is also accepted that the CFAs were binding as between the solicitor and the clients because the Conditional Fees Regulations 2000 were satisfied. The only question is whether the individual client must demonstrate that there was an agreement between him and his solicitor (collateral to the CFA) specifically relating to generic costs. That would only be necessary if generic costs were in some way different from costs incurred solely for the individual client.

I am satisfied that there is no requirement for any such additional or collateral agreement relating to generic costs. The client’s entitlement is to recover the costs for which he would have been liable to his solicitor. He would be liable for all costs properly incurred whether they were incurred solely on his behalf or whether they were incurred for the benefit of a large group and he had only to pay an appropriate proportion. There is nothing fundamentally different or special about generic costs; they are simply costs that have been shared for the sensible purpose of keeping the costs of each claim down. I can see no merit in the suggestion that some special rule applies to the generic element of a bill of costs.

In any event, Mr Fenwick’s suggestion that the client and eventual paying party require some additional protection from an inflated claim is without merit. The protection against an inflated claim is to be found in CPR 44.5(1)(a), where it is provided that, when assessing costs on a standard basis (as would be the case here), the court must consider whether, in the circumstances, the costs were proportionately and reasonably incurred and were proportionate and reasonable in amount. That is an objective test. What is more, if there is any doubt about the reasonableness or proportionality of any item on the bill, that doubt must be resolved in favour of the paying party: CPR 44.4(2)(b).

The protection provided by detailed assessment under CPR 44.5(1) would not in any way be enhanced by the existence of a letter, sent at the time of the retainer, wherein the solicitor told the client that some of the costs would be expended for the benefit of other claimants besides himself but that he would only be asked to pay a share of those costs. In the real world, that would be a statement of the obvious. In practice, it is highly likely that the claimant will be aware that there are other men making similar claims to his, through the same solicitors. Why would the solicitor do anything other than share those costs which were capable of being shared and thereby save some money?

I can see that it would be good practice for a solicitor to mention in a client care letter that some of the work to be done would be for the benefit of a group of clients and the individual would be liable only for his share. It would be sensible for a solicitor to keep records of the number of clients for whom he is acting at any time. Such records would help him to demonstrate, if need be, that the proportion claimed for any individual client was justified. I can see that, where a solicitor intends to claim a share of costs incurred by other solicitors, it would be wise for him to ensure that the terms of the agreement between the solicitors are clearly defined. But that would be in order for him more easily to demonstrate that the bill under scrutiny was reasonable and proportionate. In short, such records are desirable because they will be an aid to proof of the reasonableness of a bill; they are not required as a pre-requisite to the recovery of a share of generic costs.

For these reasons, I would dismiss this appeal.

I agree.

I also agree.