Sibthorpe & Anor v London Borough of Southwark

These are two appeals brought, with permission given by Waller LJ, by the London Borough of Southwark against a decision of Macduff J, reversing a decision of Deputy Master Hoffman sitting in the Senior Court Costs Office. The issue in each appeal concerns the extent to which the ancient rule against champerty prevents a solicitor agreeing to indemnify his claimant client against any liability for costs which she may incur against the defendant in the litigation in which the solicitors are to act for her.

Each of the two appeals arises out of a claim brought by a residential tenant against her landlord, the London Borough of Southwark (“the Council”). Both claimants are represented by the same counsel and solicitors, and any differences between the two cases are irrelevant for present purposes. Accordingly, in this judgment I shall limit myself to the facts of one of the cases, Morris v. London Borough of Southwark.

Ms Morris is and was at all material times a residential tenant of the Council, and, in the normal way, her tenancy agreement included obligations on the part of the Council to maintain the exterior and structure of her flat. She contended that the Council had failed to comply with this covenant, and that she had thereby suffered consequential damage. She instructed solicitors, Messrs Belshaw & Curtin (“the Solicitors”), to act for her in connection with a claim (“the claim”) which she then brought in the County Court. The purpose of the claim was to recover damages from the Council and to require the Council to perform its repairing obligations.

The terms upon which Ms Morris instructed the Solicitors to act for her in connection with pursuing her claim were contained in a contract of engagement, which was a conditional fee agreement (“the CFA”). The terms of the CFA, in summary, provided that, at least in general, the client would not be obliged to pay the Solicitors’ costs fees or disbursements if the claim failed, and, if the claim succeeded, the client would not have to pay the Solicitors more than the client would recover from the Council by way of costs. The CFA further provided that if the claim succeeded and the client recovered costs, the Solicitors would be entitled to a 10% success fee.

Crucially for present purposes, the CFA also included the following:

“If you lose, you pay your opponent’s charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponent’s charges at the end of the case if you lose. This means that we will pay those charges.”

I shall refer to this provision as “the indemnity”. The CFA included a similar indemnity as to what would happen if the damages were less than a Part 36 payment, or if an adverse order for costs was made at an interlocutory stage.

Pursuant to the CFA, the Solicitors issued proceedings on Ms Morris’s behalf in the County Court based on the Council’s breach of covenant. In due course, the claim was settled by an agreed order. The settlement involved the Council agreeing (a) to pay Ms Morris £10,000 for breach of its repairing covenant, (b) to carry out the necessary work and repair in order to comply with that covenant, and (c) to pay Ms Morris’s costs to be subject to a detailed assessment if they could not be agreed.

The detailed assessment of costs was assigned to Deputy Master Hoffman, and, before him, the Council contended that Ms Morris was not entitled to recover any costs, whether incurred before or after the CFA was entered into. In relation to costs before the CFA was entered into, this was on the ground that the initial retainer was, in reality, a CFA which was unenforceable for non compliance with s.58 Courts & Legal Services Act 1990. In relation to the costs after the CFA was entered into, this was on the ground that the Solicitors were not entitled to claim any payment from their client, as the arrangement between them fell foul of the law against champerty because of the presence of the indemnity. The Deputy Master accepted both arguments, and accordingly disallowed any sum in respect of Ms Morris’s claims for costs, which were £2,684.98 before, and £9,295.05 after, the CFA was entered into, (in each case, exclusive of VAT), There is no appeal in relation to his decision on the former sum, and I shall say no more about it.

The Deputy Master’s reasoning in relation to the CFA being champertous was based on the proposition that it is unlawful for a solicitor (or indeed a barrister) to agree to conduct litigation for a client on terms which give the solicitor (or barrister) a financial interest in the outcome of the proceedings, unless, of course, legislation permits the particular terms. As it is common ground that there is no legislation permitting a solicitor to underwrite a client’s liability to pay the costs of the defendant in the proceedings, runs the argument, the indemnity in the CFA was void on the grounds of champerty, and this invalidated the CFA in its entirety.

Ms Morris (perfectly properly lending her name for this purpose for the benefit of the Solicitors) appealed that decision. The appeal came before Macduff J, who took a different view from the Deputy Master – [2010] EWHC B1 (QB). He concluded that, while the indemnity in the CFA was not sanctioned by legislation, and therefore might have fallen foul of the rule against champerty in former times, more recent jurisprudence showed that the law had moved on, and that the question of whether an agreement was void on the grounds of champerty should be decided by reference to the facts and circumstances of the particular case. He went on to decide that, in this case, there was no public policy reason for invalidating the CFA.

The Council now appeals to this court, and the Law Society has intervened to join with Ms Morris in resisting the appeal.

In a nutshell, the contentions advanced by the parties are as follows. The Council, through Mr Mallalieu, contends that, according to well established principles, the indemnity is champertous, and that, while the remainder of the CFA was lawful, it is unenforceable as it contains an integral provision which is champertous. He also argues that there is no warrant for contending that the law of champerty has weakened in recent times other than by statute, at least in relation to agreements with those actually conducting litigation.

On behalf of Ms Morris, it is contended by Mr James that, even if the indemnity would have been held to be champertous in former times, the law has developed, so that an agreement such as the CFA in the present case would not by any means necessarily be held to be champertous. Essentially, whether an agreement is champertous should, he says, be assessed on a case by case basis. He also argues, as does Mr Holland for the Law Society, that, on close analysis, no part of the CFA, not even the indemnity, is champertous according to any decided case, and it would be inappropriate in present times to extend the law of champerty so as to render the indemnity champertous.

In so far as it is relevant to look at the precise terms and circumstances of the CFA in the present case, the Council contends that those facts and circumstances should lead to the conclusion that it is void on the grounds of public policy, whereas Ms Morris (and the Solicitors) and the Law Society contend the opposite.

If the indemnity is nonetheless champertous, it is argued on behalf of Ms Morris that it should be treated as deleted from the CFA, and the other provisions of the CFA are therefore valid. If the indemnity is not champertous, there is an issue, upon which the Council have not so far been granted permission to appeal, as to whether the CFA in any event is void under the provisions of the Financial Services and Markets Act 2000 (“the 2000 Act”).

As Lord Phillips MR said, when giving the judgment of the Court of Appeal in R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381, at 399, para 31, although no longer a crime, “champerty survives as a rule of public policy capable of rendering a contract unenforceable”. He went on to explain in the next paragraph of his judgment, quoting from the then current, 28^th, edition of Chitty on Contracts, “[a] person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse”. It has also been described as “wanton and officious intermeddling in the disputes of others … where the assistance [the maintainer] renders to the one or the other party is without justification or excuse” by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd [1908] 1 K.B. 1006, 1014.

In Factortame (No 8) [2003] QB 381, at 399, para 32, Lord Phillips went on to say, quoting again from Chitty op. cit. that “[c]hamperty occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit”. It will be necessary to examine that definition of champerty a little more closely in paragraphs 52 and following below, but it is to be noted that Lord Phillips added “Because the question of whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes.”

A type of contract which has relatively often given rise to an allegation of champerty or maintenance is one between a claimant in a piece of litigation and the person conducting the litigation (almost always a solicitor or barrister) on the claimant’s behalf. At any rate until the recent past, the law had set its face against those who conduct litigation placing themselves in a position where they could profit from their clients’ success. As Lord Denning MR put it in Wallersteiner v Moir (No 2) [1975] QB 373, 394, “English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a ‘contingency fee’ that is he gets paid the fee if he wins, but not if he loses”, describing this as champerty. He relied on a dictum of Lord Esher MR in Pittman v Prudential Deposit Bank Ltd 13 TLR 110, 111:

“In order to preserve the honour and honesty of the profession it was a rule of law which the court had laid down and would always insist upon that a solicitor could not make an arrangement of any kind with his client during the litigation he was conducting so as to give him any advantage in respect of the result of that litigation”

Buckley and Scarman LJJ agreed with Lord Denning as to the principle. Buckley LJ said this at [1975] QB 373, 401:

“A contingency fee, that is, an arrangement under which the legal advisers of a litigant shall be remunerated only in the event of the litigant succeeding in recovering money or other property in the action, has hitherto always been regarded as illegal under English law on the ground that it involves maintenance of the action by the legal adviser. Moreover where, as is usual in such a case, the remuneration which the adviser is to receive is to be, or to be measured by, a proportion of the fund or of the value of the property recovered, the arrangement may fall within that particular class of maintenance called champerty….. It may, however, be worthwhile to indicate briefly the nature of the public policy question. It can, I think, be summarised in two statements. First, in litigation a professional lawyer’s role is to advise his client with a clear eye and an unbiased judgment. Secondly, a solicitor retained to conduct litigation is not merely the agent and adviser to his client, but also an officer of the court with a duty to the court to ensure that his client’s case, which he must, of course, present and conduct with the utmost care of his client’s interests, is also presented and conducted with scrupulous fairness and integrity. A barrister owes similar obligations. A legal adviser who acquires a personal financial interest in the outcome of the litigation may obviously find himself in a situation in which that interest conflicts with those obligations.”

Champerty and maintenance were considered some five years later by the Court of Appeal, in a case where the arrangement under attack did not involve lawyers. In Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629, Oliver LJ discussed the history of the law of champerty in some detail. He said at [1980] QB 629, 663:

“Maintenance and champerty … have, since 1967, ceased to [attract criminal pemalties] …. Only in the field of contractual rights and duties do they still cast their shadow … and even in this field the trend of all the recent authorities has been to foreshorten the shadow. … In Hill v Archbold [1968] 1 QB 686, 697, Danckwerts LJ said:

‘… the law of maintenance depends upon the question of public policy, and public policy … is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time.’

There is, I think a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called “contingency fees”.

In 1990, section 58 of the Courts and Legal Services Act 1990 was enacted. Subject to some limitations and conditions, it entitled a litigant to employ “a person providing advocacy or litigation services” to provide such services under a conditional fee agreement, i.e. what is sometimes called a “no win no fee” arrangement.

Giles v Thompson [1993] 3 All ER 321, [1994] 1 AC 142 was concerned with an allegedly champertous agreement which was not made with anyone conducting litigation. In the Court of Appeal, [1993] 3 All ER 321, 332, Steyn LJ described contingency fee agreements as “nowadays perhaps the most important species of champerty”, which, he said, were “still unlawful”. He added that, while champerty had not “wither[ed] away”, its “scope … has been shrunk greatly”. He suggested that the correct question was whether “in accordance with contemporary public policy, the agreement [in issue] has in fact caused the corruption of public justice. The court must consider the tendency of the agreement” – [1993] 3 All ER 321, 333.

In the House of Lords, Lord Mustill took much the same view. He referred to the fact that “there have evolved crystallised policies in relation to solicitors’ contingent fees”, and that, in relation to such cases, “it is necessary first to consider whether the transaction bears the marks of unlawful champerty and then to ask whether it is validated by the existence of a legitimate interest in the person supporting the action distinct from the benefit which he seeks to derive from it” – [1994] 1 AC 142, 163.

In Thai Trading Co v Taylor [1998] QB 785, the Court of Appeal held that a solicitor could enforce a “no win no fee” agreement made with his client (who was also his wife). Millett LJ (with whom Kennedy and Hutchison LJJ agreed) had no difficulty in concluding that there was no claim in maintenance, on the ground that the solicitor had an interest in the proceedings, as the plaintiff was “both his wife and his employee” – [1998] 1 QB 785, 787. On the issue of champerty, he thought it right “to step back and consider the matter afresh in the light of modern conditions” - [1998] 1 QB 785, 789. Having considered the arguments, he concluded at [1998] 1 QB 785, 790 that “there was nothing unlawful in a solicitor acting for a party in litigation to agree to forgo part or all of his fee if he loses, provided that he does not recover than his ordinary costs and disbursements if he wins”. In reaching that conclusion, Millett LJ relied in part on the changes to the law made by the 1990 Act.

In my view, the decision in Thai Trading [1998] QB 785 must be approached with caution. That is not so much because the party alleging champerty was not represented; it is more because relevant authority (Swain v The Law Society [1983] 1 A.C. 598) was not cited, as the Divisional Court said in Hughes v Kingston upon Hull City Council [1999] QB 1193. Equally, another decision of this court, Ali Mohammed v Alaga [1999] EWCA Civ 3037, [2000] 1 WLR 1815, is of dubious assistance as neither Thai Trading [1998] Q.B. 785 nor Hughes [1999] QB 1193 was cited in argument or in the judgments. It is unsurprising that, when the question of an allegedly champertous agreement with a solicitor next came before this court, Awwad v Geraghty & Co [1999] EWCA Civ 3036, [2001] QB 570, where all the relevant cases appear to have been cited, it was concluded that the decisions in Thai Trading Co [1998] Q.B. 785 and Ali Mohammed [2000] 1 WLR 1815 were not binding on the court.

Meanwhile, in the Courts and Legal Services Act 1999, Parliament repealed section 58 of the 1990 Act and re-enacted it in different terms. In particular, whereas there originally was nothing in the section which specifically outlawed conditional fee agreements which did not comply with the statutory limitations and conditions, the new subsection 58(1) expressly provided that any such agreement which did not comply with the requirements of section 58 “shall be unenforceable”. Section 58 of the 1990 Act only applies to those with rights to conduct litigation or those with rights of audience - Factortame (No 8) [2003] QB 381, 405, paragraph 54.

In Awwad [2001] QB 570, 593, Schiemann LJ said that he “shared [the] reluctance” expressed in Wallersteiner (No 2) [1975] QB 373] to develop the common law at a time when Parliament [is] in the process of addressing [the] very problem [of contingency and conditional fees]”. To the same effect, May LJ said at [2001] QB 570, 600:

“I accept the general thesis in the judgment of Millett LJ in the Thai Trading case that modern perception of what kinds of lawyers’ fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose that my opinion, or that of any individual judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties and delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has, by what are now (with section 27 of the Access to Justice Act 1999) successive enactments, modified the law by which any arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided. That applied with, if anything, greater force in 1993 than it does today.”

Lord Bingham CJ agreed with both judgments.

Much reliance was placed in oral argument by all parties on more than one aspect of the judgment in Factortame (No 8) [2003] QB 381, and it is appropriate to discuss it in a little detail. The issue in the appeal was whether the Secretary of State, who had unsuccessfully defended the claim and had been ordered to pay the claimants’ costs, was obliged to pay the fees charged by the claimants’ accountants, Grant Thornton, as those fees were agreed to be a percentage of the damages which the claimants recovered. The Secretary of State’s argument, which failed, was that the fees were irrecoverable as the agreement was void as being champertous.

Having explained the facts, Lord Phillips turned to “[t]he nature of the services provided”, and began by saying at [2003] QB 381, 397, paragraph 23, that “When we come to consider the law of champerty we shall find that its application requires an analysis of the facts of the particular case. Special principles apply to those who are entitled to have the conduct of litigation, and in particular to solicitors.” He then went on to consider whether Grant Thornton had “been providing services which are customarily provided to litigants by solicitors”, and after saying that they had “done nothing which required authority under section 28 of the [1990 Act] or offended against section 20 of the [Solicitors Act 1974]”, he concluded that “[t]heir services have been ancillary to the conduct of the litigation by [the applicants’ solicitors]” – [2003] QB 381, 397 and 398, paragraphs 23 and 27.

After a little further discussion about Grant Thornton’s role in that litigation, Lord Phillips turned to “[t]he law of champerty”, and began with the passage quoted in paragraph 12 above, and, after citing what Oliver LJ said in Trendtex [1980] 1 QB 629, 663, as to the “clear requirement” that officers of the court should not put themselves in a position of potential conflict with their duties to the court, he continued :

Lord Phillips then said that, in reaching that conclusion, the Court had “been particularly influenced by the approach of the Court of Appeal and House of Lords in Giles v Thompson [1993] 3 All ER 321; [1994] 1 AC 142”. He considered the reasoning in that decision in some detail, and concluded that it “abundantly support[ed] the proposition that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy that is directed to protecting the due administration of justice with particular regard to the interests of the defendant” – [2003] QB 381, 402, paragraph 44. In the course of his discussion, Lord Phillips quoted a passage from the judgment of Lord Mustill at [1994] 1 AC 142, 161:

“It is sufficient to adopt the description of the policy underlying the former criminal and civil sanctions expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd [1908] 1 K.B. 1006, 1014:

‘It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse.”

This was a description of maintenance. For champerty there must be added the notion of a division of the spoils.’”

Lord Phillips then turned to the relevant legislation governing the way in which lawyers can charge clients in connection with litigation, and in particular the introduction of conditional fee agreements by section 58 of the 1990 Act. After considering various points, Lord Phillips said that “the legislative intent was that the provisions of section 58 of the 1990 Act were intended to apply only to those who could be described as ‘litigators’, that is advocates and those conducting the litigation” – [2003] QB 381, 407, paragraph 59 (a point repeated at paragraph 61). He explained the rationale for this in the next paragraph by quoting in full and adopting the passage cited above in the judgment of Buckley LJ in Wallersteiner v Moir (No 2) [1975] QB 373, 401.

Lord Phillips then referred to Awwad v Geraghty & Co [2001] QB 70 with apparent approval at [2003] QB 381, 407, paragraph 61, and said, in the following paragraph, that section 58 of the 1990 Act “evidences a radical shift in the attitude of public policy to the practice of conducting litigation on terms that the obligation to pay fees will be contingent upon success.” Having expanded on that observation, he then turned to an issue irrelevant for present purposes, and turned to the question whether the agreement with Grant Thornton “put at risk the purity of justice”, and decided that it did not, because of the impecuniosity of the claimants, “the importance which public policy attache[s] to access to justice”, the agreement having been entered into after the claimants had already succeeded on liability, the percentage share being “not extravagant”, and the work they did being “transparent” – [2003] QB 381, 412-414, paragraphs 79-90.

The final passage I should cite from Factortame (No 8) [2003] QB 381, is from paragraph 76, when Lord Phillips was discussing the question of principle, and before he turned to the facts of the case before the court. He said this:

“In Giles v Thompson [1994] 1 AC 142 Lord Mustill applied the test of public policy identified by Fletcher Moulton LJ in the British Cash case [1908] 1 KB 1006. That test is appropriate when considering those who, in one way or another, support litigation in which they are concerned. It is not, however, really in point when considering agreements under which those who are playing a legitimate part in the process of litigation provide their services on a contingency fee basis. A solicitor who charges a contingency fee which does not satisfy the requirements of section 58, can hardly be said to be guilty of ‘wanton and officious intermeddling in the disputes of others …where the assistance he renders to one party or another is without justification of excuse’. The public policy in play in the present case is that which weighs against a person who is in a position to influence the outcome of litigation having an interest in that outcome.”

Were it not for the inclusion of the indemnity, the CFA in the present case could not be attacked as being champertous, even though it would result in the Solicitors plainly profiting from the litigation with which it is concerned, through the no win no fee arrangement and the 10% uplift. That is, of course, because, at least in the absence of the indemnity, the CFA would have complied with the requirements of section 58 of the 1990 Act (as amended). However, the indemnity is not permitted by that provision, and therefore the issue is whether it is champertous for a solicitor to indemnify his claimant client against any potential liability for the defendant’s costs.

The first argument to be addressed is that, even if such an indemnity would have been held to be champertous in the past, it no longer should be so regarded today. Relying on statements and principles laid down in Factortame (No 8) [2003] QB 381, applying Giles [1994] 1 AC 142, it is said on behalf of Ms Morris that there is no longer a strict principle such as Lord Esher laid down in Pittman 13 TLR 110 and the Court of Appeal affirmed in Wallersteiner (No 2) [1975] QB 373; it is further said that the correct approach is now to look at the CFA in the round, and decide whether it would undermine the purity of justice, or would corrupt public justice, a question to be decided on a case by case basis.

There is, at least at first sight, much to be said for this argument. Indeed, I consider that it represents the modern approach where there is an allegation of champerty in relation to an agreement to which a person conducting the litigation (or providing advocacy services) is not a party. That seems to me to be the effect of the views expressed by Steyn LJ and Lord Mustill in Giles [1993] 3 All ER 322, [1994] 1 AC 142 respectively, and by what was said by Lord Phillips in Factortame (No 8) [2003] QB 381. Indeed, I think that such an approach was foreshadowed by Oliver LJ in Trendtex [1980] 1 QB 629 and by Danckwerts LJ in Hill v Archbold [1968] 1 QB 686.

However, with the sole exception of Thai Trading [1998] QB 785, there seems to be no support for the application of such an approach where the allegedly champertous agreement is entered into with a person who is conducting the litigation in question (or providing advocacy services in connection therewith). Such agreements have, as I see it, always been treated as a special category or species of champertous agreements, and are subject to stricter rules. That is clear from what Oliver LJ said in Trendtex [1980] 1 QB 629, 663, and from what Steyn LJ and Lord Mustill said in Giles [1993] 3 All ER 321, 332, and [1994] 1 AC 142, 163 respectively. It was also the effect of the reasoning of Schiemann and May LJJ in Awwad [2001] QB 570, 593 and 600 respectively.

Despite Mr James’s submission to the contrary, I believe that this view also accords with that of this court in Factortame (No 8) [2003] QB 381: see per Lord Phillips MR at paragraphs 23 and 33-35. Further, Lord Phillips’s citation of Buckley LJ’s observations in Wallersteiner (No 2) [1975] QB 373, 401, and his reference to Awwad [2001] QB 570, at [2003] QB 381, paragraphs 62 and 63 respectively, undermine the notion that he was intending to depart from the principles in those cases. Indeed, one would have expected a very full discussion and analysis of the law if he was intending to differ from a decision of the Court of Appeal less than two years earlier. Further, the only reason that Lord Phillips considered whether Grant Thornton had been conducting the litigation was because the approach in Giles [1993] 3 All ER 321, [1994] 1 AC 142 would have been inappropriate if they had been doing so.

I accept that Thai Trading [1998] QB 785 gives some real support to the notion that it is now appropriate to consider a fresh approach to the law of champerty, even in relation to arrangements with those who conduct litigation. However, although the trenchant judgment of Millett LJ is powerful and deserves respect, it was clearly per incuriam, and, in relation to the point I am currently considering, as mentioned in paragraph 34 above, inconsistent with the subsequent decisions of this court in Awwad [2001] QB 570 and Factortame (No 8) [2003] QB 381.

In my judgment, when it comes to agreements involving those who conduct litigation or provide advocacy services, the common law of champerty remains substantially as it was described and discussed in Wallersteiner (No 2) [1975] QB 373 and Awwad [2001] QB 570. This is for two main reasons. The first is to be found in the passages in the judgments of Scarman LJ in the former case at [1975] QB 373, 401, and of Oliver LJ in Trendtex [1980] 1 QB 629, 663. The second reason, articulated in Awwad [2001] 1 QB 570, 593, 600, by Schiemann and May LJJ, is that, in section 58 of the 1990 Act (as amended) the legislature has laid down the rules as to which previously champertous agreements may be entered into by those conducting litigation and those providing advocacy services, and which may not.

There is a third reason, at least in my judgment, for this conclusion. As already indicated, there is obvious attraction in the notion that there should be no general rule as to whether an agreement with a person conducting the relevant litigation which involves him benefiting from the success of the litigation, is unlawful, and that each case should be assessed on its merits. However, there is also much to be said for clear rules so that all parties, solicitor and claimant client as well as the defendant, know where they stand rather than waiting for a determination as to the validity of a potentially champertous agreement on the overall merits. There is also much to be said for a properly funded legal profession, which has no need to have recourse to conditional fees or contingency fees or the like. It is a matter for the legislature if such arrangements are thought to be necessary for economic or other reasons, and, if they are so necessary, then it is for the legislature to decide on their ambit.

There is, however, a second argument as to why the indemnity may be enforceable. The inclusion of the indemnity meant that the Solicitors had a financial interest in the outcome of the litigation in question, because they would have been likely to have to pay the Council’s costs if the claim had failed, whereas they have no such liability as the claim succeeded. However, there is no case where such an arrangement has been held to be champertous. When one examines the cases on champerty, they all involve arrangements whereby there is a gain if the action in question succeeds, and while there may also be a loss if the action fails, what is different about the indemnity is that there is just a loss if the action fails.

No case has been cited in which it has been held to be champertous for a person to agree to run the risk of a loss if the action in question fails, without enjoying any gain if the action succeeds. Further, if one considers the various judicial definitions of champerty, they all envisage a gain if the action concerned succeeds. I have already quoted Lord Phillips’s adoption in Factortame (No 8) [2003] QB 381, paragraph 32 of the definition in Chitty, namely maintaining an action “for a share of the proceeds of the action”. So, too, Lord Esher in Pittman 13 TLR 110,111, referred to “any advantage in respect of the result of that litigation”. Other definitions of champerty support this view. In Trendtex [1980] 1 QB 629, 654, Lord Denning MR described it as maintenance “when the maintainer seeks to make a profit”. Lord Mustill in Giles v Thompson [1994] 1 AC 142, 161, having described maintenance, said that “For champerty there must be added the notion of division of the spoils”, a definition adopted in Thai Trading [1998] 1 QB 781, 787.

The intellectual attraction of this argument is that to hold the indemnity in the present case champertous would involve extending the law of champerty, at a time when, as is apparent from the judicial observations I have quoted, its scope is to be curtailed rather than expanded. Thus, “the trend of all the recent authorities has been to foreshorten [champerty’s] shadow” (per Oliver LJ in Trendtex [1980] QB 629, 663), and all we have now are “the vestigial remnants of the law of champerty” (per Lord Phillips in Factortame (No 8) [2003] QB 381, 414, paragraph 91).

It also seems to me to be legitimate to invoke Thai Trading [1998] 1 QB 781 in support of this argument. Although the decision itself was per incuriam, the judgment represents the considered view of Millett LJ and two other members of this court. Millett LJ said at [1998] QB 781, 788:

“It is understandable that a contingency fee which entitles the solicitor to a reward over and above his ordinary profit costs if he wins should be condemned as tending to corrupt the administration of justice. There is no reason to suppose that Lord Denning in Trendtex [1980] 1 QB 629 or any of the members of the Court in Wallersteiner (No 2) [1975] 1 QB 373 had in mind a contingency fee which entitles the solicitor to no more than his ordinary profit costs if he wins. These are subject to taxation and their only vice is that they are more than he will receive if he loses. Such a fee cannot sensibly be described as a “division of the spoils”. The solicitor cannot obtain more than he would without the arrangement and risks obtaining less.”

It is apparent therefore that he would have seen nothing wrong with an arrangement which included the indemnity, if it was otherwise lawful. Further, in Kellar v Williams [2004] UKPC 30, paragraph 21, the Privy Council expressed the view that “it may now be time to reconsider the accepted prohibition in the light of modern practising conditions”, citing Millett LJ in Thai Trading [1998] 1 QB 781 and May LJ in Awwad [2001] QB 570, 600.

Furthermore, as mentioned, one of the main reasons for not curtailing the scope of champerty in relation to contracts involving those who conduct litigation is that Parliament has stepped into that area. That is an equally good reason for not expanding the scope of champerty in relation to such contracts. Indeed, it may well be a more powerful reason for not expanding the scope, given that the legislative trend is clearly in favour of restricting the scope.

Quite apart from this, there is attraction in the notion that an otherwise unobjectionable CFA with the indemnity should be valid, at least in small cases where After the Event (“ATE”) insurance is unavailable or is prohibitively expensive. The unchallenged evidence from the Solicitors before Macduff J was that “the ATE insurance market for housing disrepair cases was not well developed [so that] fees [are] very high”, and this was supported by evidence in this court given on behalf of the Law Society. In practice, unless someone provides the indemnity such as the Solicitors provided in this case, tenants with valid claims for disrepair but little money will be reluctant to take the risk of issuing proceedings against their landlords.

Access to justice is an essential ingredient of a modern civilised society, but it is difficult to achieve for the great majority of citizens, especially with the ever reducing availability of legal aid. This has been accompanied by a shift in legislative policy towards favouring the relaxation of previously tight professional ethical constraints, in order to enable a variety of more flexible funding arrangements (which some applaud and others believe give too much weight to consumerism and involve expensive regulation). In these circumstances, I find it hard to accept that, by shouldering the risk of an adverse order for costs against his client, a solicitor is acting contrary to public policy, which is, of course, the basis for the law of champerty. It is one thing to say, in relation to contracts with those who conduct litigation, that the reach of champerty should not be curtailed by the courts. It is quite another to say that, in relation to such contracts, the law of champerty should be expanded. I bear in mind in this context the observation of Danckwerts LJ in Hill v Archbold [1968] 1 QB 686, 697, that the law in this area “depends upon the question of public policy, and public policy … must be alterable by the passage of time.”

However, as Lloyd LJ said in argument, suffering a loss if the claimant loses is

In my view, we should accede to the argument that it would be inappropriate in the 21^st century to extend the law of champerty. There is some force in the argument that economic logic supports the case for condemning the indemnity as champertous. However, the rule against champerty is not entirely logical in its extent or limits, judicial observations strongly suggest that champerty should be curtailed not expanded, and, given that champerty is based on public policy, it is hard to see how arrangements such as the indemnity, at the very least in connection with litigation such as that in these cases, are against the public interest or undermine justice.

For the above reasons, I would hold that the indemnity was not champertous. I have, however, wondered if it could nonetheless be argued that it amounted to maintenance, even thought that point was not taken in oral argument on behalf of the Council. On the face of it, the fact that the indemnity does not amount to champerty begs the anterior question of whether it amounts to maintenance, as there are authoritative dicta indicating that champerty is a subspecies of maintenance (e.g. the observations of Lord Phillips in Factortame (No 8) [2003] QB 381, 399, para 32 and Lord Mustill in Giles [1994] 1 AC 142, 161).

However, as I understand it, the Council does not put its case on the basis of maintenance, and concedes that it can only succeed if it establishes that the indemnity amounted to champerty. The reason for this is that maintenance is based on “wanton and officious intermeddling in the disputes of others” assisting one of the parties “without justification or excuse” - British Cash [1908] 1 K.B. 1006, 1014, and it is unrealistic to contend that a solicitor acting for a party to litigation can fall within that expression. This concession appears to me to be supported by what Lord Phillips said in Factortame (No 8) [2003] QB 381, 411, paragraph 76, namely that “a solicitor who charges a contingency fee [not sanctioned by statute]… can hardly be said to be guilty of ‘wanton and officious intermeddling in the disputes of others …where the assistance he renders to one party or another is without justification of excuse’”. In other words, a solicitor in such a case is not involved in maintenance. If that is true of solicitors who enter into an unlawful CFA, it must be a fortiori true of solicitors who, as in the present case, enter into an otherwise lawful CFA with an indemnity.

Nonetheless, as Lord Phillips immediately went on to say, in a case where a solicitor charges a contingency fee not permitted by statute, what is “in play” is the policy “against a person who is in a position to influence the outcome of litigation having an interest in that outcome.”

Thus, it appears to me that the law has developed, perhaps unconsciously, so that, at least when it comes to agreements with those who conduct litigation (and, presumably, with those who provide advocacy services), there can be champerty without maintenance. This is consistent with the fact that, in recent times, the reach of the law of maintenance has been decreasing, while the common law has adhered to the principle that those who conduct litigation (and provide advocacy services) should not benefit financially from their clients’ success in the litigation.

This analysis is also consistent with the approach of the Court of Appeal in Thai Trading [1998] 1 QB 761. Having had no difficulty in rejecting the contention that there could be any question of maintenance, Millett LJ went on to resolve the much more difficult issue of whether the arrangement between solicitor and client in that case constituted champerty. If the classic definition of champerty (namely maintenance plus a share of the spoils) was the only form of champerty, then it would have been unnecessary to address that issue at all.

There are three outstanding issues, the first two of which need not be decided. The first is whether the indemnity was champertous, if the question is to be decided on a case by case basis. For the reasons I have briefly touched on, my answer would almost certainly be no, but there is no point in going into the issue. The second issue is of potentially more interest: it is whether the CFA would be valid even if the indemnity was champertous, on the basis that the indemnity can be severed from the rest of the CFA. This is not a simple point, and, as we do not need to decide it, I consider that we should leave it unanswered.

That leaves the issue on which Waller LJ refused permission to appeal, namely whether the CFA is rendered unenforceable because, owing to the inclusion of the indemnity, it is a contract of insurance within the meaning of article 10 of the Financial Services and Markets Act (Regulated Activities) Order 2001 (“the 2001 Order”). If it is, then the indemnity, and hence, it is said, the CFA, could only have been entered into by an authorised or exempt person by virtue of section 19 of the 2000 Act, and, as the Solicitors were not authorised or exempt, the CFA is said to be void by virtue of section 26(1) of the 2000 Act.

I am of the view that permission to appeal this point should not be granted. I think that the Judge was right in his view and reasoning on the point, which he expressed in the following terms [2010] EWHC B1 (QB), paragraphs 45-46:

“45.

I have been referred to the following extract from McGillivray on Insurance Law. I do not apologise for quoting it, word-for-word, reflecting as it does my own view,

‘It is sometimes necessary to decide, in the context of fiscal or regulatory legislation, whether a contract containing insurance and non-insurance elements should be classified wholly or partly as a contract of insurance. The inclusion of indemnity provisions within a contract, or the supply of services, neither makes the indemnifier an insurer, nor justifies describing the contract as wholly or partly one of insurance. Where a contract for sale, or for services, contains elements of insurance, it will be regarded as a contract of insurance only if, taking the contract as whole, it can be said to have as its principal object the provision of insurance.’

Accordingly, I would dismiss this appeal in relation to the champerty issue, and refuse permission to appeal on the insurance issue.

The agreements between the respective Claimants and the Solicitors were conditional fee agreements within the terms of section 58 of the Courts and Legal Services Act 1990 as it stood at the relevant time. Subsections (1) and (2) of that section are as follows:

“(1)

A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.

(2)

For the purposes of this section and section 58A—

(a)

a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and

(b)

a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.”

Subsections (3) and (4) set out and provide for conditions to be satisfied by all conditional fee agreements and by those that provide for a success fee. It is not in dispute that those conditions were satisfied in these cases.

The effect of section 58(1) is that the agreements are not unenforceable by reason only of their being conditional fee agreements. Because they do satisfy all relevant statutory conditions, they are not rendered unenforceable by the last words of section 58(1).

Therefore, if they are to be found unenforceable by reason of the inclusion of the indemnity provision, as Mr Mallalieu contends for the Council, it must be because that provision is itself unenforceable at common law under the rule against champerty. The section itself neither validates nor strikes down the indemnity provision.

I would reject the argument that the indemnity is unenforceable as being champertous, for the reasons given by the Master of the Rolls, to which I do not need to add anything.

Accordingly I too would dismiss the appeal.

I agree with both judgments; I too would dismiss the appeal on the champerty issue and refuse permission to appeal on the insurance issue.