Metcalfe v Clipston

This judgment concerns the consequences of the Claimant’s failure to serve notice of funding under Civil Procedure Rule ("CPR") 44.15 and addresses the following issues:

The Claimant consulted Scrivenger Seabrook Solicitors on 10 January 2001 and subsequently instructed them to pursue a claim for dental negligence arising from treatment he had received from the Defendant, his former dentist. He signed a conditional fee agreement ("CFA") on that date with his solicitors which provided for a success fee. On 26 September 2001 a detailed letter before action was sent to the Defendant. That letter relied on findings made on 8 May 2001 by the Complaints Convener of the Cambridgeshire Health Authority which included the view that:

On 15 October 2001 the Dental Defence Union ("DDU") acknowledged receipt of the letter of 26 September 2001 on behalf of the Defendant and subsequently extensions of time were agreed for the DDU to serve a substantive response to the claim.

On 31 January 2002 the DDU responded to the letter of claim in the following terms:

That offer was not accepted and on 18 February 2002 Scrivenger Seabrook wrote to the DDU in the following terms:

Negotiations continued during 2002. On 8 May 2002 the Defendant increased his offer to £16,500. Subsequently the Claimant counter offered and terms were agreed on 9 December 2002 at a final figure of £25,000 plus costs.

On 7 January 2003 the Claimant served his bill which included a claim for a success fee of 100%. On 21 January 2003 the Defendant’s solicitors acknowledged receipt of the bill and stated that they had not been notified of any CFA and accordingly there was no entitlement to a success fee.

A second bill of costs was served on 28 March 2003 incorporating a success fee of 90% but agreement could not be reached about the costs. Accordingly, "costs only" proceedings were issued on 4 June 2003 under CPR 44.12A and on 11 June 2003 District Judge Pescod ordered that the Defendant pay the Claimant’s costs by way of a detailed assessment.

In his bill of costs the Claimant claimed profit costs of £11,909, VAT thereon of £2,084.02 and disbursements of £864, making a total of £15,857.02. Of the sum claimed for profit costs, £5,499 plus VAT represented the success fee which was payable under the terms of the CFA. (That agreement actually sought 100% of which it is common ground that 10% is irrecoverable against the Defendant as it relates to the costs of postponing receipt of the solicitor’s charges and disbursements which are irrecoverable under CPR 44.3B(1)(a)).

The detailed assessment of the Claimant’s costs was listed in the Huntingdon County Court but in advance of the hearing, the Claimant’s base costs inclusive of disbursements, profit costs and VAT were agreed in the sum of £8,333.83. The issue of the costs of preparing the bill, the costs only proceedings, the detailed assessment proceedings and the success fee could not be agreed. On 13 August 2003 District Judge Pescod directed that these matters be referred to the Supreme Court Costs Office for assessment by a Costs Judge where the assessment was assigned to me. On 13 January 2004 the Claimant served Notice of Funding and on 20 January 2004 the case was listed before me for hearing on 6 February 2004.

In his Points of Dispute served on 14 August 2003 the Defendant raised the following matter:

It was agreed that I would deal with both these matters as preliminary issues on 4 February 2004. At that hearing I also agreed to hear an application which the Claimant had issued on 20 January 2004 for an order in the following terms:

Accordingly, the issues which require decision are firstly whether the Claimant can recover any of the success fee given his failure to notify the Defendant about the existence of the CFA; if not, can he obtain relief from the sanction imposed by CPR 44.15 and if so, is 90% a reasonable percentage to reflect the risks of the claim?

CPR 43.2(1) sets out the following definitions:

CPR 44.3A provides:

The notes to CPR 44.3A.1 state:

CPR 44.15 provides as follows:

The note to CPR 44.15 at 44.15.1 says this:

CPR 44.3B provides limits on recovery under a funding arrangement. Sub-section (1) provides that:

Section 19 of the CPD provides:

Section 19.2 CPD sets out the method of giving information. Sub-section (1) provides:

Sub-Section (3) deals with a defendant who has entered into a funding arrangement and is not relevant to the issue I have to decide.

Sub-section (4) provides:

Sub-section (5) provides:

Section 19.4 CPD sets out the information which must be provided. Sub-section (1) provides:

Section 10 CPD sets out what a defaulting party must do to obtain relief from court sanctions. Section 10.1 provides:

The pre action protocol for the resolution of clinical disputes applies in this case. It outlines the steps parties should take to seek information from and provide information to each other about a prospective legal claim.

The Practice Direction – Protocols ("PDP") applies to the clinical disputes protocol. The objectives of pre action protocols are set out at paragraph 1.4. They are:

Practice Direction 2.2 states:

Paragraph 4 of the PDP deals with information about funding arrangements and provides as follows:

Miss Ward submitted that CPR 44.3B(1)(c) barred the recovery of a success fee where information was not provided as required by a rule, practice direction or court order. In the present case, the PDP applied and under paragraph 4A.1, the Claimant should have informed the Defendant (as a potential party to the claim) that he had entered into a funding arrangement. Whilst Miss Ward accepted that the claim was settled prior to the issue of proceedings, the PDP specifically dealt with the pre-action position and the reference in paragraph 4A.1 to "potential parties" reflected this. The clear meaning of the CPR and the PDP was that a success fee was irrecoverable where, as here, a party failed to provide information about the funding arrangement, whether this be either before the issue of proceedings (under paragraph 4A.1) or after the issue of proceedings under CPR 44.15.

Miss Ward drew my attention to two first instance cases in which the learned District Judges had reached apparently conflicting decisions.

In Bednash v Tesco Stores (Watford County Court 12 March 2002 District Judge Pearl) a claim involving an accident at work was settled prior to the issue of proceedings. The claimant sought to recover the cost of an after the event insurance premium in respect of which no information had been given to the defendant. The District Judge held that PDP 4A.1 meant a party who had paid an after the event insurance premium before the issue of proceedings but had failed to notify the other party, could not recover this as an additional liability when the claim was settled without proceedings being issued.

In Hardcastle v Leeds & Holbeck Building Society (Leeds District Registry 16 October 2002 District Judge Bellamy) the learned Judge reached a different conclusion. He held that the failure to give notice of a funding arrangement prior to the issue of proceedings did not automatically disentitle the claimant from recovering a success fee from the defendant. In his judgment, it was clear from the rules and the practice directions that the court was entitled to consider disallowing all or part of the success fee as a result of the claimant’s failure to give notice. He then asked himself the following question:

The learned Judge concluded that before it would be right for the court to penalise a party for failure to give notice of any funding arrangement prior to the issue of proceedings, the paying party must first establish some prejudice arising from that failure. On the facts no prejudice was shown and accordingly there was nothing in the circumstances of the case which made it either fair or appropriate for the court to reduce or even withhold the success fee.

Miss Ward relied on Bednash and submitted that Hardcastle was distinguishable because, in the latter case, the parties had agreed that there was no relevant protocol in force. Here the position was different. It was accepted by the Claimant that the clinical negligence protocol applied and there had been a total failure by the Claimant’s Solicitors to comply with the relevant requirements of PDP paragraph 4A. In these circumstances the claim for the success fee should be disallowed.

Mr Herlihy relied on Section 19.2 CPD that:

Mr Herlihy drew attention to the fact that the clinical disputes pre-action protocol, did not make it mandatory to disclose details in respect of funding arrangements.

Sofaras the PDP was concerned, Mr Herlihy submitted that the requirement whereby a person who enters a funding arrangement should inform other potential parties to the claim that he has done so under paragraph 4A.1, only applies after the issue of proceedings. This was the effect of paragraph 4.A.2. In the present case, the dispute had been settled before the issue of a claim form and accordingly the PDP at paragraphs 4A.1 and 4A.2, which Miss Ward relied on, were not applicable.

Mr Herlihy submitted that if this was wrong, the Defendant needed to show prejudice. On the facts before me it was impossible to show that any costs had been incurred needlessly through the Claimant’s failure to inform the Defendant prior to the settlement that the case was being dealt with under a CFA.

So far as Bednash was concerned, Mr Herlihy had not seen a full transcript and observed that in any event the decision was not binding.

So far as Hardcastle was concerned, Mr Herlihy relied upon the conclusion reached by the learned Judge that failure to give notice of a funding arrangement prior to the issue of proceedings did not automatically disentitle the Claimant from the right to recover the success fee. The judgment further went on to state that before the court could penalise a party for failure to give notice of a funding arrangement prior to the issue of proceedings, the paying party should also establish some prejudice arising from that failure. None could be shown here.

In summary, Mr Herlihy contended that under Section 19(1)(i) of the CPD, notice in respect of funding provisions was only recommended (his emphasis) but may be required by a pre action protocol. The relevant pre action protocol in this case had no such requirement. In his view such notice was only necessary after the proceedings had been issued. In the present case the only proceedings ever issued were the Part 8 costs only proceedings. He accepted that Notice of Funding had not been filed when those proceedings began. He submitted that that failure should be forgiven by the court granting relief from sanctions under s.10 CPD.

It is common ground that if proceedings are issued, the success fee is irrecoverable if the receiving party fails to serve notice of funding under Section 19(2) and (4) CPD. That is the effect of CPR 44.3B(1)(c). There was no argument before me about what constitutes "proceedings" and I infer therefore that both sides accepted the finding of District Judge Bellamy in Hardcastle at paragraph 30 that:

In the present case, it will be recalled, there was no issue of court process to litigate the claim; the only proceedings ever issued were the "costs only" proceedings. Under Section 19.2(5) CPD there is no requirement for any information to be provided before the commencement of proceedings. The effect of this, in my opinion, is plain. Once proceedings are started, it is an absolute requirement for the receiving party to provide information about a funding arrangement if he is to recover a success fee from his opponent but before issue it is not.

Is that simple analysis sufficient to decide this point in favour of the Claimant? Miss Ward placed emphasis on the words in the second sentence of Section 19.2(5) CPD that:

Miss Ward did not seek to rely on any provision of the clinical disputes protocol. Her case depended instead upon paragraph 4A of the PDP which at sub-paragraph 1 requires a person entering into a funding arrangement to inform other parties that he has done so. She dismissed the Claimant’ argument that this did not apply prior to the issue of proceedings. In her view the note to paragraph 4A.2 in the PDP specifically referred to CPR 44.3B(1)(c), making it clear that the sanction preventing recovery of a success fee would apply if a party failed to comply with the requirements of that paragraph. Moreover the reference to "potential parties" in paragraph 4A.1 PDP reflected the fact that the requirement to give information applied pre-action. Therefore a success fee was irrecoverable where a party failed to provide information about the funding arrangement before or after the issue of proceedings.

In my judgment, Miss Ward’s analysis is flawed. It is common ground that there is no requirement in the clinical disputes protocol which requires any notification about funding to be given by the receiving party. Under Section 19.2(5) CPD, such notification is, however, "recommended" and under the PPD, where the receiving party enters into a funding arrangement "he should (my emphasis) inform other potential parties to the claim that he has done so" (see PPD 4A.1).

For Miss Ward to succeed, I consider the obligation on the receiving party to give notification of funding pre issue must be absolute but in my judgment, the word "should" in the PDP does not impose such an obligation. On the contrary, I would construe "should" as meaning "ought to" which is not the same as "has to" or "must". Likewise I consider that a step that is "recommended" under the CPD does not involve any element of compulsion but instead means "favoured". It follows that I find against Miss Ward. In my judgment, pre issue, all the CPD does is to recommend that information is provided and although Section 19.2(5) states that notification may be required by a pre-action protocol, there is nothing in the clinical dispute protocol requiring service of any information. The PDP at paragraph 4.A.1 is of no assistance either because the requirement to provide information is optional not compulsory. Nor does paragraph 4A.2 PDP assist because "proceedings" means the issue of court process and not prospective proceedings. It follows that in my judgment the Claimant is not precluded under CPR 43.3B(1)(c) from recovering a success fee prior to the issue of the costs only proceedings in this case.

For completeness, I need to mention conduct. CPR 44.5 sets out the factors to be taken into account in deciding the amount of the costs. At (3) the rule provides as follows:

In Hardcastle the claimant’s conduct in failing to give notice of the funding arrangement was conduct to be taken into account in deciding whether to withhold or reduce the claimant’s entitlement to a success fee. However, conduct was not a factor relied upon or argued at the hearing before me and therefore I have not given weight to this aspect in reaching my decision.

In case I am mistaken it is necessary for me to indicate whether I would have granted the Claimant relief from the sanction imposed by CPR 44.3B(1)(c) disentitling the recovery of any success fee.

CPR 3.9(1) sets out the factors which the court must consider when hearing an application for relief from any sanction imposed for failure to comply with any rule, practice direction or court order. The court will consider all the circumstances including:

Mr Herlihy submitted that the Claimant’s omission was, at worst, a technical breach of the rules in respect of which the Defendant could not have suffered any prejudice.

Miss Ward submitted that the administration of justice would be undermined if parties routinely failed to provide information about funding arrangements as required by the rules and practice directions.

Mr Herlihy submitted that the application had been issued so that the court could consider it at the conclusion of the detailed assessment and that the Defendant was advised in the replies to the points of dispute that the Claimant would seek relief pursuant to CPR 3.9.

Miss Ward submitted that although the Defendant raised the issue of non service of the required information in January 2003, the application for relief was not issued until 23 December 2003. "This cannot be described as prompt" – see skeleton argument paragraph 20(b).

Mr Herlihy submitted that the failure was simply an oversight by the solicitor with conduct of the proceedings who believed it was only when the proceedings were issued that Form N251 needed to be served.

Miss Ward submitted that whether or not the failure was intentional, the Claimant’s solicitors appeared to have been unaware of the requirement to provide information.

Mr Herlihy submitted, once again, that the failure was as a result of an oversight.

Miss Ward submitted that ignorance of the rules, particularly on the part of solicitors experienced in this area, should not be treated as an excuse.

Miss Ward accepted that there were no other failures.

Mr Herlihy admitted very frankly that the failure to comply had been caused by the legal representatives.

Miss Ward submitted that the responsibility for the failure clearly lay with the legal representatives and that it was noteworthy that the recovery of the success fee was for the benefit of those legal representatives.

Not relevant.

Mr Herlihy submitted that the failure had had no prejudicial effect on the Defendant and that the failure to comply with either the Regulations or the Civil Procedure Rules had not had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice.

Miss Ward submitted that the Defendants had not received the information about costs to which they were entitled and therefore were not aware that their potential liability in costs was actually double the amount that was recoverable if there was no CFA.

Mr Herlihy submitted that if the success fee was disallowed on a technicality, this would have a material effect on the Claimant’s solicitors who would be out of pocket, whereas the Defendant would gain a windfall.

Miss Ward submitted that if relief from sanctions was granted, the Defendant would be required to pay the Claimant’s solicitors a success fee notwithstanding their failure to provide the required information under the rules and practice direction.

This pre-supposes that, contrary to my earlier finding, the Defendant was entitled to notification of the existence of the CFA and success fee prior to the issue of the "costs only" proceedings.

CPR 3.9(2) provides that an application for relief from sanctions must be supported by evidence.

The notes to the rule at CPR 3.9.1 provide that the party seeking relief may rely upon written evidence set out in the statement of case or application notice or in a witness statement. Section 10.1 CPD sets out the procedure for applying (see paragraph 26 ante).

Having considered the material before me, and mindful of the circumstances set out in CPR 3.9(1)(a) to (i) I accept without hesitation that the failure to comply was not intentional, that the reason was an oversight by the Claimant’s solicitor and that there was no other default. That said, the application for relief was not made promptly for reasons which remain unexplained. The Claimant was alerted to the default in the Points of Dispute served on the Defendant on 14 August 2003 but did not apply for relief until 13 January 2004. Moreover it is not clear to me that the failure was as harmless to the Defendant as Mr Herlihy would wish me to believe. In the course of argument Miss Ward was unable to say whether her clients would have acted differently had they known of the success fee, but the fact remains that the Claimant’s costs were running up at double the usual rate, and this was a factor the Defendant was entitled to know about. In my opinion there is force in this submission. In legal aid cases, it is sometimes the practice of defendants to buy off the claim because they know that they would never be able to recover any costs from an assisted claimant. I consider there is an analogy in this case. The Defendant may well have considered making a higher offer at an earlier stage to resolve the case had he known about the CFA, in order to prevent the Claimant’s costs from increasing at a rate uplifted by 90% on all work subsequently carried out.

Given these considerations, I would not have granted relief from sanctions. In my judgment the application was made far too late, and the Defendant may have suffered prejudice by the failure to give notice of funding.

If a success fee is payable should the level of this be 90% (as Mr Herlihy contends) or 20% (as Miss Ward concedes)?

In the CFA, the factors which reflect the percentage claimed for the success fee are set out in schedule 1. So far as relevant they are:

Mr Herlihy supplemented these factors in his submissions. He pointed to the absence of any admission of liability and to the fact that causation and quantum remained in dispute. The case was not settled quickly and it took 15 months to reach agreement. Moreover this was a clinical negligence case rather than a simple running down action in which a low success fee would be appropriate (see Callery v Gray (No.2) [2001] EWCA Civ 1246 and Halloran v Delaney [2002] EWCA Civ 1258). Nor were the facts as straightforward as they were in Bensusan v Freedman [2001] AER (D) 210 which was a very simple case of dental negligence in which Master Hurst allowed a 20% success fee. On the contrary, this was a risky matter which justified a success fee of 90%.

Miss Ward disagreed. She submitted the case was not particularly complex and by the time the letter of claim was written, the Claimant had already obtained a supportive opinion from the Independent Review Panel. The DDU’s letter of 31 January 2002 effectively conceded liability. There was simply no justification for setting the success fee at the maximum level possible and accordingly a figure of 20% more accurately reflected the risks of the claim.

In my judgment, the claim for a success fee of 90% is unsustainable. It is clear that when the solicitors were first consulted and the CFA signed on 10 January 2001, the solicitors had little or nothing to go on. Whilst I accept that this supports the view that at the date the CFA was signed, it was reasonable for the solicitors to assess the prospects of success at 50/50, in my judgment those prospects rapidly improved as their investigations progressed. This is evidenced by the DDU’s letter of 31 January 2002 by the fact that an offer of £12,000 was made promptly and by the settlement of the claim without the need to issue proceedings.

Section 11.7 CPD requires the court to have regard to the facts and circumstances as they reasonably appeared to the solicitor when the funding agreement was entered into – in other words a hindsight test cannot be applied. Section 178(2) requires the court to have regard to the time when and the extent to which the claim was settled and to the fact that the claim was settled without the need to commence proceedings. Section 18.8(2) enables the court, when considering whether a percentage increase is reasonable, to allow different percentages for different items of costs or for different periods during which costs were incurred. In my view this would permit me to allow a high success fee at the beginning of the case when the prospects of success were unclear and a lower success fee when these had crystallised.

Taking all these factors into account I consider that an allowance of 20%, as offered by the Defendant, is fair, proportionate and reasonable. This was far from being a difficult case and was very much at the Bensusan end of the scale. I would therefore allow a success fee of 20% in the event that the Claimant is entitled to recover an additional liability in this case.

I understand that the parties are anxious to save the costs of a further attendance. There remains outstanding the costs of preparing the bill. The Claimant seeks £805.75 but indicates he would accept £650 against an offer of £500. I consider the Claimant’s concession is realistic and allow £650 plus VAT for this item.

As to the costs of the hearing, it has been suggested that both sides should provide their submissions in writing. I am content for this to be done. In case it is of assistance, in my view the Claimant has succeeded on the main issue (recoverability of the success fee) but has lost on the other two issues (level of success fee and relief from sanctions). Subject to the parties’ submissions, the fair order would be that each party should bear his own costs.

As to permission to appeal, it was agreed at the conclusion of the hearing that any party who wished to appeal about the recoverability of the success fee could do so. At this stage, I am not persuaded that permission should be granted for the two other issues. In my opinion there would be no prospect of success on an appeal under CPR 52 of overturning my decision that the Claimant did not apply promptly enough for relief from sanctions. Moreover, I consider the guidance given by Master Hurst in Bensusan, which I have followed, is on all fours with the facts here and likewise there would be no prospect of success on appeal.

The parties have liberty to restore so that any points that remain outstanding can be resolved.