Brown & Ors v Russell Young & Co (a firm)

The background to this appeal, is set out by Master Wright in his judgment of the 2 August 2005:

Following that order six cases were selected as lead cases. Bills in respect of each case were prepared and filed at the SCCO (to which the assessment had been transferred in accordance with District Judge Frenkel's order of the 4 August 2003). When the matter came before Master Wright on the 25 May 2005, the outstanding issues were:

A further hearing took place in respect of that issue on the 2 August 2005 and Master Wright gave judgment on the issue, dated 5 September 2005. It is that judgment which is the subject of this appeal. The Claimants now appeal Master Wright's finding that the Defendants, Russell Young & Co, are not liable to pay any amount of the Claimants' generic costs.

Mr Birts QC who appeared on behalf of the Claimants before Master Wright had accepted that the Claimants did not have the benefit of an express order for generic costs but submitted that since all of the six claimants had accepted Part 36 offers they were entitled to their costs up to the date of serving notice of acceptance pursuant to CPR 36.13(1) which is in the following terms:

In Mr Birts' submission, the Claimants' entitlement to costs, included a share of the generic costs and that their entitlement crystallised on the acceptance of the Part 36 offers. The issue of the amount of those generic costs would, however, have to await assessment at the end of the litigation.

Mr Fenwick QC on behalf of the Defendants submitted that it was, in general, a pre-requisite for the recovery of generic or common costs that there should be in existence a costs sharing order identifying: the costs which are to be incurred; the solicitors who are entitled to incur them; and the cohort between whom they are to be shared, so that such costs could be accurately measured and each side able to identify the likely burden of costs in respect of any individual claim.

In his submission, since no such order had ever been made in these proceedings, the court had not at any stage accepted that group litigation was appropriate.

Mr Fenwick went on to submit that the Defendants' liability should be assessed by reference to the liabilities of the individual claimants to their solicitors. He argued that there was nothing in the Conditional Fee Agreements or elsewhere to indicate that any Claimant had been asked to, or had agreed to, contribute any part or a specific proportion of any common costs incurred.

The Masters' findings were as follows:

The skeleton argument on behalf of the appellants was prepared by Mr Birts QC who has since been appointed to the Circuit Bench. Mr Dubbery now appears for the appellants, but does not seek to add to that skeleton.

The appellants do not now pursue their claim to generic costs of work carried out by solicitors other than Burroughs Day, who represented the six lead Claimants. The generic work carried out by Burroughs Day is described in the six supplemental bills lodged by the appellants. The figures are identical in all six cases. The work was carried out between the 18 July 2002 and the 6 May 2003 and the total claimed for all generic work is £32,598.72, profit costs, £12,042.33 disbursements and £7,810.43 VAT. A total of £52,451.48.

The appellants firstly questioned Master Wright's finding (in paragraph 30 of his judgment) that generic or common costs can only be recovered where the court has made an appropriate order pursuant to CPR 19.11. This rule provides

The rule goes on to set out the provisions which must be included in a GLO and also those which may be included, none of which deals specifically with costs.

In respect of Master Wright's finding that generic costs can only be recovered where the court has made an appropriate order pursuant to CPR 19.11 Mr Fenwick suggest the Master had in mind an order allocating the costs, ie a costs sharing order.

The appellants submit, correctly, that CPR 48.6A is the rule which provides for orders for costs where a GLO has been made. It is instructive to set out rule 48.6A:

There is no mention in the Costs Practice Direction of anything relating to Group Litigation Orders. In the Directions supplementing Part 19, however, there are provisions at paragraphs 16.1 and 16.2 which are not relevant for present purposes. In respect of case management, the Directions state at 12.4:

No such order has been made. Mr Birts' skeleton submits that since these are costs only proceedings under CPR 44.12A, there can be no order for costs since these are claims in which such orders could have been made, but which have been settled without proceedings. It is suggested that Master Wright did not deal with this point in his judgment and it is now submitted that he did not appreciate that there could never be an order for generic costs in these cases before the conclusion of the costs only proceedings.

As to the absence of a GLO, it is submitted that this is a recent procedural creation but that group litigation had been extensively conducted and developed by the time it was devised. Rule 48.6A provides for orders for costs where a GLO has been made. There is, however, nothing in the new regime, either to require parties to group litigation to apply for a GLO, or more pertinently, to deny them generic or common costs if they do not.

Although the appellants had intended to make an application for a GLO and had arranged for Master Particulars of Claim to be settled by Junior Counsel, the application had not, in the end, been pursued. The application was resisted by the respondents on the grounds that there was no need for group litigation where a number of cases had already been settled and it had been made plain that it was the Defendants' intention to settle all claims.

In respect of Master Wright's finding (at paragraph 30 of the judgment) that generic costs could only be recovered where the client had agreed with the solicitor that he would be liable for such costs, the appellants submit that Master Wright was wrong in his view that the CFAs only made the clients liable to their solicitors for individual costs. The appellants rely on conditions 3 and 4 of The Law Society conditions incorporated into each CFA (and dealt with by Master Wright at paragraph 26 of the judgment). Those conditions define basic charges as "our charges for the legal work we do on your claim for damages" words which, it is submitted, could not be wider as including all charges. Furthermore the words: "You are then liable to pay all our basic charges, our disbursements and success fee" put the matter beyond doubt. It is submitted that the judgment does not give any reason for the Master's conclusion why these conditions were not apt to include generic costs.

The appellants seek to refute the respondents' argument that, interpreting the meaning of the CFA widely would permit the appellants' solicitors to retain an unspecified amount of generic costs not yet ascertained out of the damages recovered, until the conclusion of the litigation. The appellants' acknowledge that the provisions of CFAs generally may have contractual consequences adverse to the clients which may affect the enforceability of the CFA according to the CFA Regulations and the professional obligations of legal representatives, but do not alter the construction of the CFA itself. Secondly, it is submitted that there is nothing in paragraph 4 of the CFA to indicate that generic costs are not included in the phrase: "You agree to let us take the balance of the basic charges."

Thirdly, if the respondents are correct, CFAs, which follow The Law Society model, are not apt to allow the recovery of generic costs in any Group Litigation in which a GLO has not been made.

In respect of Part 36, the appellants submit that the plain effect of CPR 36.13(1) is that on settlement of the six lead claims the party must have expected that the appellants' "costs of the proceedings" would include the generic costs of the proceedings.

Finally, the appellants submit, in their skeleton, that since the respondents did not appeal against the order of District Judge Frenkel of the 4 August 2003, which directed the service of a supplemental bill in respect of each claim, they cannot now be heard to object to the recovery of generic costs in principle. It is submitted that the hearing before the District Judge was conducted on the express basis that the sole purpose of each supplemental bill was that it should include the appellants' generic costs. Paragraph 4 of Master Wright's judgment of the 5 September 2005, states:

Given that statement, it does not appear that the appellants' estoppel argument can survive.

Mr Fenwick accepted that there was nothing to prevent the appellant's agreeing with their solicitors that work done for the benefit of a multiplicity of claimants should be shared between those claimants by agreement. This would generally be the case. In the initial stages of litigation, which subsequently became the subject of a group litigation order, and in all stages of litigation which proceeded on behalf of a number of Claimants without a group litigation order being made.

He goes on to argue, however, that it is an essential element of such arrangements that there should be an expressed contractual arrangement that the solicitor is entitled to incur those costs on behalf of each client and each client is entitled to be told how the costs will be apportioned and should be given sufficient information to enable the client to give informed consent to the arrangement including how many claimants are involved, the approximate amount of those costs and what disbursements the Claimant may be liable for.

Mr Fenwick accepts that where a claim is settled either prior to litigation, or during litigation but without a GLO being made, each Claimant is entitled to recover the reasonable costs they have in fact agreed with their solicitor that they will bear. Thus, if there were evidence that Messrs Burroughs Day had written to each of their clients saying that some of the work that they had carried out was for the benefit of all the Claimants and that either it would be split between the total number or even that they could not currently identify that number but that it was expected that the costs would not exceed a specified amount per client, the Indemnity Principle would, in his submission, apply and it would be clear that each client had such a liability subject to the protection of the CFA and the individual bills of costs could include, within them, a fraction of those costs incurred in accordance with the retainer.

Mr Fenwick also accepts that had the court made some sort of Costs Sharing Order the retainers, with the individual claimants, would have had to be modified accordingly in accordance with that order.

Mr Dubbery argued that the wording of the Conditional Fee Agreement, which is The Law Society's model agreement, is wide enough when it refers to "basic charges" to encompass common or generic costs and also that CPR 36.13 where it refers to "his costs of the proceedings" is similarly sufficiently wide.

Mr Fenwick does not suggest that the wording of the CFA or of Part 36.13 is too narrow to bear the meaning which Mr Dubbery put forwards.

Mr Dubbery, however, does not feel that he needs to go any further than to rely on the CFA and the Rule, in order to establish his client's entitlement to their common costs. He relies on the decision of Mr Justice Blackburn in Nationwide Building Society v various solicitors [1999] 21 July at page 7:

In respect of this, Mr Fenwick points out, that there was in fact only one Claimant seeking to bring several hundred cases arising out of the way in which mortgages had been dealt with by various solicitors. There is no doubt that the Claimant knew very well what costs were being incurred on its behalf and as the judgment demonstrates, the Claimant was entitled to recover not only its case specific costs, but also its generic costs. Mr Fenwick suggests that the case is not on all fours with the present case.

Mr Fenwick spent a little time going through the CFA demonstrating where, in his submission, it would be necessary to explain in detail to the client the client's potential liability so that the client could give informed consent to the incurring of generic costs. Given the modest level of damages recoverable by all Claimants and the relatively modest level of the individual costs, it was, in Mr Fenwick's submission, incumbent on the solicitors to explain fully to the clients so that they were aware of and consented to incurring a potential liability for their share of generic costs which could conceivably exceed the amount of their damages.

Turning to the claim for generic costs, such as it is, Mr Fenwick points out that the lead Claimant, Kevin Brown, settled his own case on 16 December 2002 but the bill in respect of generic costs, which is in five parts, is in respect of work done after Mr Brown's case had been settled in all except Part 1. The Appellants' original approach before Master Wright was that they were entitled to generic costs, including the costs incurred by other solicitors, that position has been abandoned before this tribunal.

Mr Fenwick argues that there is no evidence as to what the solicitors told their clients and there is no specific liability on these Claimants in respect of generic costs. He relies for this proposition on the letters quoted by Master Wright at paragraphs 5 and 6 of his judgment: a letter from Burroughs Day to the Defendants Solicitors dated 2 December 2003:

Following this letter the Defendants Solicitors raised a number of queries with Burroughs Day, who replied on 6 January 2004:

Mr Dubbery suggested that "artificial" in this context meant that it would be artificial to deal with such costs on an individual basis rather than in the round.

Mr Dubbery suggested that the matter before the court was a case management question in costs only proceedings, that apportionment is a matter for the future and to raise it at this point is an unnecessary technicality. He further argues that the level of detail and explanation given to each individual client in respect of each CFA complied with the Regulations and must therefore be taken to be sufficient to inform the client of his potential liability for generic costs.

In order to succeed the Appellants must show that Master Wright was wrong in principle. The point of principle is a difficult one and Master Wright gave permission to appeal "because it raises a difficult question of law and the subject matter is of great importance because of the number of similar claims."

It is, correctly, accepted by Mr Fenwick that the wording both of the CFA and of CPR 36.13 is wide enough to encompass generic costs. There is now no dispute that the CFA is enforceable. I accept Mr Dubbery's submission that compliance with the CFA regulations is sufficient to enable the court to infer that appropriate information has been given to the client. In any litigation there will be areas in respect of which a solicitor will be unable to inform the client, with any degree of accuracy, as to the likely outcome. This situation is even more likely to arise in respect of multiple claimants. I accept that the wording in The Law Society conditions incorporated into the CFA, which defined basic charges as "our charges for the legal work we do on your claim for damages," are wide enough to incorporate generic or common costs.

The question of costs in claims involving multiple claimants has been considered by various courts starting with the Court of Appeal in Davies v Eli Lilly & Co [1987] 1 WLR 1136 where Sir John Donaldson MR, referring to the costs sharing order made by Hirst, J called it a "wholly novel order". Multi party actions have thrown up increasingly complex problems in the field of costs. The court has to be "flexible" and "inventive" in dealing with them (see Davies v Eli Lilly). The purpose of a common costs order is to permit a group of claimants, whose individual means and probable damages are modest, to spread the cost risk amongst them all, in the event of the lead Claimants losing, otherwise the burden on the lead Claimants would be intolerable and no Claimant would be prepared to lead.

It follows from the above, that I disagree with Master Wright's finding at paragraph 30 of his judgment that generic or common costs can only be recovered where the court has made a cost sharing order or where the client has agreed with the solicitor that he will be liable to the solicitor for such costs. Clearly if there is a GLO or a costs sharing order no question will arise as to the entitlement of generic or common costs, but, equally in my judgment where claims are settled before proceedings have been issued, and therefore before the opportunity to make such an order has arisen, common or generic costs are, in principle, recoverable either under CPR 36.13(1) or under the terms of the CFA, both of which, it is conceded, may encompass generic costs. In those circumstances this appeal succeeds.

The effect of that decision is that the six lead Claimants are entitled, in principle, to their generic or common costs. The appellants, or more specifically their legal advisers, have however a considerable problem in identifying exactly what those generic costs are. The claim in respect of generic costs incurred by other firms has been abandoned. It is not at all clear whether the generic costs now claimed refer only to the six lead Claimants or to all the Claimants represented by Burroughs Day or to all the Claimants claiming against these Respondents. It is clear from the correspondence which I have quoted: from the appellants' shifting of their ground in relation to generic costs incurred by other firms, and in respect of the confusion surrounding the nature of these generic costs and how they came to be incurred, that the appellants do not yet have any clear idea of what they are hoping to recover. It seems to me that there will have to be a further hearing before the Costs Judge in order to apportion the incidence of the common costs before those costs are assessed, to ensure that they are reasonable and proportionate and are indeed "costs of the proceedings".

In truth these claims have been settled without any adequate thought having been given by the appellants' solicitors to the possible incidence of generic or common costs in relation to the claims as a whole. These current difficulties would have been avoided had the terms of settlement expressly included a statement that the Defendants would be liable for generic or common costs as well as individual costs.