Sarwar v Alam

This is an important test case in the developing law on CFAs and is fully reported at inter alia [2002] 1 COSTS LR 37 (CA). Although, as indicated, a test case which went from a District Judge to a Circuit Judge and thence to the Court of Appeal who delivered a reserved judgment on 19^th September 2001, it was, so far as the Claimant was concerned, a very small case in which he was involved in a relatively minor accident which he was prepared to settle for £2,250 damages. In the circumstances, the Claimant’s bill for £255,745.30 was not well received by the paying party/Defendant.

It was balloted to me and there was a preliminary hearing on 18^th October 2002 when the same counsel who appeared before me on this aspect of the case were also present, namely Mr Nicholas Bacon for the Claimant and Mr David Holland for the Defendant. I decided, after hearing full submissions, that the circumstances surrounding the Claimant’s CFA, disclosed to me pursuant to an order to that effect, did not raise in my mind any suspicious or other circumstances that ought to be disclosed to the Defendant. I therefore refused to allow the Defendant’s advisers to see the relevant paperwork, nor did I put the Claimant to his election under CPD 40.14. At the same hearing, I decided in favour of the Defendants that the costs appeared on their face to be disproportionate and accordingly, the "necessary test" laid down by Lord Woolf LCJ in Home Office v Lownds [2002] 2 Costs LR 279 had to be applied to the detailed assessment.

Those decisions were the subject of an extempore judgment which was of course recorded but in respect of which there has been no appeal by either party. After delivering that judgment and at the request of both parties, I gave directions for a further preliminary hearing relating to three matters namely:

These issues, which were preceded by skeleton arguments in accordance with my directions, were fully and helpfully argued by Mr Bacon and Mr Holland. I was supplied with a wealth of authority to some of which I will need to refer in this judgment. I would like to record my debt to both counsel for their helpful yet concise submissions on what were difficult points.

As already indicated, a case which was a costs only case came before a District Judge who found that the Defendant was correct in his submissions that the Claimant should have relied on the Defendant’s LEI insurance rather than taking out an ATE policy with the additional expenditure that such a claim involved.

That adverse decision from the Claimant’s point of view was appealed to Judge Halbert who heard the appeal on 5^th July 2001, which was between the conclusion of the hearing in the Court of Appeal in Callery v Gray [2001] 2 COSTS LR 163 and formal delivery of judgment therein by their Lordships on 17^th July 2001. In a reserved judgment, Judge Halbert upheld the decision of the District Judge, adverse to the Claimant. During the arguments in Callery v Gray and the preparation of Master O’Hare’s report in relation to the second Callery v Gray Appeal [2001] 2 COSTS LR 205, its importance to the insurance industry was recognised and arrangements for it to be heard as an expedited appeal with a number of interested parties being allowed to make representations were made. Accordingly judgment was delivered by the Court of Appeal in Sarwar v Alam on 19^th September 2001, allowing the Claimant’s appeal.

I mention this chronology, not just as a matter of record, but because Mr Bacon relied on it as a justification for the level of the insurance premium which is claimed at £62,500. In the courts below the Claimant was covered by a CFA backed by a standard Temple policy but after the second adverse hearing, that policy was not extended and those representing the Claimant had to do much hard work in a very short time to try to find an alternative policy.

I have seen some of the relevant correspondence in relation to the first hearing in October and although I did not consider it necessary to allow Mr Holland and his clients to see that correspondence, I can state that it does indeed confirm, as must be obvious from the chronology, that considerable efforts had to be made during that period to arrange any cover at all. Ultimately, a policy with Lloyds was effected and this has usefully been put in evidence before me.

It is I think important that I should quote certain paragraphs from that policy.

The schedule includes the following:

Mr Holland vigorously attacked the level of this insurance premium on a number of diverse but connected grounds. His primary argument was that his clients should not be liable for more than £31,250 because of the no claims bonus. He sought to analyse the clauses I have quoted above as suggesting, on their proper interpretation, that in the event of no claim being made (no claim had yet been made), there must be an automatic refund to the Claimant of £31,250 and it was in some sense an agreement which at the very least should be "held up to the pure light of judicial examination".

There was considerable debate between counsel as to the exact extent of the cover and in particular, whether the cost of the premium itself was covered by the policy. Under the Temple policy there is no doubt about that but whilst it is not self evident in respect of this policy, I incline to accept the submissions made to me on this point by Mr Bacon, though it is not strictly necessary for me to come to any concluded decision. It is certainly agreed between the parties that since the decision in Halloran V Delaney [2002] 3 COSTS LR 503 (CA) the policy does extend to cover the costs of the detailed assessment proceedings.

Mr Holland submitted that it was a wholly unattractive argument that the Defendants should in effect be told that if they did not object to any of the Claimant’s disbursements in the bill, then there would be a refund of £31,250. As a result of the skeletons submitted to me in advance of this hearing, it became apparent that the solicitors had paid the whole £62,500 out of their own funds on behalf of the Claimant and this raised further points in the mind of Mr Holland which he urged upon me as grounds for saying that his client should not be liable for more than half the insurance premium claimed. For instance, he submitted that it was prima facie evidence that there was a breach of the indemnity principle. He said that there was no evidence at all that the Claimant was a wealthy man or could afford to pay the sort of premium, whether it be £31,250 or £62,500, and he asked me to infer that there must have been an agreement between the Claimant and his solicitors, Messrs Amelans, that in no circumstances would they look to him for any part of the premium which they had paid on his behalf.

As a result, a substantial number of cases on the indemnity principle were put before me and reference was made to a number of these. At the end of the day however it seemed to be accepted by Mr Holland that the true test of whether there was a breach of the indemnity principle is whether there is unequivocal evidence that in no circumstances will the Claimant be liable for the costs involved.

Mr Holland further submitted that the Claimant in this case had absolutely no interest in the costs aspect of the case and therefore I ought to draw the inference that he would never be asked to pay the costs.

However, it seems to me that the matter is well put, as always, by Lord Denning MR in the case of Lewis v Averay [1973] WLR 510 where the successful unassisted party, Mr Averay, was backed by the Automobile Association. On page 513D Lord Denning says this:

That case can be contrasted with the case of British Waterways Board v Norman (1993)26 HLR 232. That was a Housing Act case where the findings of fact by the lower court were that in no circumstances would the solicitor seek payment from Mrs Norman but they nevertheless held that she was entitled to recover costs having won her case. The Divisional Court consisting of Lord Justice McCowan and Mr Justice Tuckey however reversed that finding. The concluding paragraph of Lord Justice McCowan’s judgment reads:

I was acutely aware of the likelihood that this issue would be raised at some point during the detailed assessment proceedings and, therefore, prior to the first hearing before me, called for documents which were privileged, which would satisfy me one way or the other. And as already indicated, they did satisfy me that there was a residual liability on the Claimant for legal costs, including the insurance premium. I therefore find both on the facts and the law there is in this case no breach of the indemnity principle

Mr Holland argued however that that was not necessarily the end of the matter because the fact that the solicitors had advanced to the client a sum of money, which it was very unlikely that he would be able to repay, was in some way a champertous agreement which this court ought to condemn. In that connection, reference was made to the case of Regina (Factortame Ltd and others) v Secretary of State for Transport, Local Government and the Regions (No 8) a direct appeal to the Court of Appeal from Master Wright. The question in that case was whether accountants who advised foreign fishermen who had substantial claims of damages against the British Government, were entitled to charge for their services on a contingency fee basis, they of course not being lawyers. In a lengthy judgment, the Master of the Rolls did conclude that as a general rule the policy of the courts should lean against allowing such arrangements, but on the particular facts of the case, the arrangement was not improper.

Paragraph 91 of the judgment reads as follows:

It is clear from the recent and not yet fully reported Court of Appeal decision in Times Newspapers Ltd v Keith Burstein [2002] EWCA Civ 1739 that solicitors are not to be condemned for financing their potentially impecunious clients’ litigation. In that case the Claimant in defamation proceedings entered into a CFA with his solicitors and the Defendants went to great lengths to seek to satisfy the Deputy Costs Judge that he should further investigate the issue of whether or not there was ever any true liability on the Claimant to pay costs. The Deputy Costs Judge having considered material put before him which did raise a prima facie case, nevertheless refused to allow cross examination and the Defendant’s appeal to the Court of Appeal was dismissed without counsel for the respondent (who happened to be Mr Holland, the same counsel who appeared before me in this case) being called on. The judgment of the Court of Appeal was delivered by Lord Justice Latham and paragraph 21 thereof reads as follows:

Valiantly though the points were put by Mr Holland, at the end of the day I am afraid that he did not satisfy me that there was anything improper in the payment by the solicitors of the premium of £62,500 but that of course leaves outstanding the question of whether it is a reasonable premium to have paid.

Mr Holland suggested that for cover of £125,000 a premium of £62,500 was excessive. Of course, in the ordinary minor P.I. cases in which CFAs are routinely used, the costs are very unlikely to come to anything approaching £125,000 which is why the premiums for those cases are relatively modest.

There are few reported cases on the level of the insurance premium. One case that was cited to me in argument was the decision of Master Wright in Ashworth v Peterborough United Football Club Ltd., a case that is not reported but which is available on the SCCO page of the Court Service website. In that case the Claimant took out insurance some six weeks prior to his action for wrongful dismissal as football manager of the Defendants and paid a premium therefor of £45,937.50. That case differs from this, not only in respect of the nature of the claim, but also in the fact that the relevant background material was placed before the paying party as well as before the Costs Judge.

Master Wright sets out the relevant correspondence in detail in his judgment from which it is apparent why the premium was so high and he quoted the submission of Mr Friston for the paying party in paragraphs 60 to 72 of his judgment and giving his decision in paragraphs 105 to 109.

In Inline Logistics Ltd v UCI Logistics Ltd [2002] 2 COSTS LR 304, the question Mr Justice Ferris had to decide was whether a premium of £40,000 plus insurance tax was recoverable by virtue of the transitional provisions in regulation 39 of the Civil Procedure (Amendment No 3) Regulations 2003 and section 37 of the Costs Practice Direction.

It does not appear from the report that the level of the insurance premium in that case was in issue, but simply whether on the proper interpretation of the regulations it was recoverable. But it is nevertheless another indication that a "tailor made" insurance premium is likely to be very substantially higher than a standard premium.

Mr Bacon referred me to the correspondence which I had seen, which showed the difficulties of obtaining suitable cover. He pointed out that the Claimant had failed before the District Judge and the Circuit Judge and it was very much a risky case where it was not at all unreasonable to pay a premium of approximately half the total liability for costs should the case be lost in the Court of Appeal. By way of emphasis for his submission, he said that whilst invited to do so, he had declined the chance to enter into a CFA in respect of his own fees, because he thought that the case was too risky to be run in that way.

Mr Holland conceded this was far from a run of the mill case and even though the costs for those instructing him were considerably less than the Claimant’s costs, he did accept that there was a substantial risk which had to be covered.

I have come to the conclusion that although the premium was high, it was unlikely that the Claimant’s advisors could have obtained an alternative quotation at a lower rate. They tried but they were unsuccessful. Law and practice were in a state of flux and insurers were understandably reluctant to commit themselves to a large potential liability. Accordingly, I hold on the facts and on the law the full amount of the insurance premium is recoverable in these detailed assessment proceedings.

The success fee claimed in this case is one of one hundred percent. Mr Holland conceded that a substantial success fee was appropriate because of the uncertainties and difficulties of the case and under pressure from me during the course of argument, suggested that the appropriate level should be seventy-five percent.

Again, there is a dearth of authority on the level of success fees, it being conceded that the Callery v Gray twenty percent, now downgraded to five percent by the Court of Appeal in Halloran v Delaney, is not the appropriate level for this case.

I was handed at the hearing a decision of Chief Master Hurst sitting as a Judicial Taxing Officer in the House of Lords in the case of Designer Guild Ltd v Russell Williams (Textiles) Ltd (trading as Washington DC). In that case the appellant succeeded in the House of Lords and the question was whether a success fee of one hundred percent was reasonable. Master Hurst said this in paragraphs 14 to 16 of his judgment:

He continues in paragraph 20 quoting CPD 11.9:

I accept Mr Bacon’s submissions that this case was very finely balanced and that the solicitors were assuming a substantial risk in entering into a CFA and that therefore the claim success fee of one hundred per cent was justified and again, I find in favour of the Claimant on this point.

The Claimants solicitors, Messrs Amelans, have their offices in Didsbury on the outskirts of Manchester. For work in the county court, both before the District Judge and the Circuit Judge, rates appropriate to that area were claimed and are not disputed. However for the hearing in the Court of Appeal, a much higher hourly rate of £350 is claimed. This of course is well above the rate set out in the Guide to Summary Assessment of Costs (2001 edition), which would suggest a rate of £140 for outer Manchester at the relevant time. In their original points of reply, the Claimant offered £225 as a compromise. In their amended points of reply however that concession was withdrawn.

A substantial number of cases were referred to me in relation to hourly rates and the case of Jones v Secretary of State for Wales and Another [1997] 1 WLR 1008 appeared to be relied upon by the Claimant. It was said that Amelans are a niche firm specialising in this sort of work and therefore entitled to charge more than the norm for solicitors in their area who did not have the expertise. Certainly, I take judicial notice of the fact Amelans are rapidly acquiring a reputation for dealing with this sort of case and have always had a reputation for dealing with a large volume of P.I. cases but when the Jones v Secretary of State for Wales (in which coincidentally I sat as the Master Assessor) is analysed, it is clear that Mr Justice Buckley held that whilst a solicitor can claim higher rates than other local firms because of a speciality, he does have to produce evidence to justify a higher rate. This is apparent from the quotation below from page 1012 letters B-C of his Lordship’s judgment:

Mr Bacon conceded that the claimed rate of £350 was too high. He did not seek to rely on my decision in Higgs v Camden and Islington Health Authority which was affirmed on appeal by Mr Justice Fulford. In that, so far unreported, case I allowed an hourly rate of £300 for a senior partner in Messrs Leigh Day (a Central London firm) for conducting preparations for what would have been a very lengthy trial in a serious clinical negligence case which settled for £3.25 million but which might have resulted in a payment to the Claimant of £6.5 million. But using my experience of other cases and, previous to my appointment, in private practice, I had concluded that the claimed rate was not unreasonable, and, as a test, I applied the old A + B principles to check my decision. Mr Justice Fulford said this:

Having carefully analysed the rival arguments on this point, Fulford J expressed his conclusion in paragraph 51(x):

I fully accept that this case is a long way on its facts from Higgs. I do however accept that although an appeal to the Court of Appeal does involve less work by solicitors than preparing a heavy trial, nevertheless there was some helpful input by the solicitors in the sense that they obtained from the insurance industry very helpful information which counsel were then able to deploy in their submissions to the Court of Appeal. I do not accept Mr Holland’s dismissal of this exercise as their being merely a conduit passing on to counsel information obtained by telephone calls to various contacts in the insurance industry.

I conclude that the appropriate level of hourly rate for these solicitors for the Court of Appeal aspect of the case should be £215 and I so find.

Since preparing this judgment the Court of Appeal has handed down its reserved judgment in the case of Claims Direct Test Cases [2003] EWCA Civ 136 but having read the judgment of Brooke LJ, and in particular, paragraphs 91-101, I see no reason to alter or modify my judgment.

I have also seen the decision of Chief Master Hurst in Veronica Pirie v Doreen Violet Ayling (unreported but available on the SCCO page of the Court Service Website) and decided as recently as 18 February 2003, but, again do not consider that that case should cause me to alter or modify my judgment.