Wetzel v KBC Fidea

MASTER O’HARE: The bill before me relates to the costs of a modest road traffic accident claim, which settled before the commencement of court proceedings on an agreement by the defendant to pay the claimant damages of £2,800 plus costs.

The costs claimed are a little over £2,000. The case was originally listed for detailed assessment before a costs officer. It was switched to a hearing before me last week for this reason; this appears to be one of a series of similar cases being argued before costs officers and it was thought since there will be a right of appeal in all of them it is easier to take one of them direct to that place of appeal, to a costs judge. The parties were informed about that and both have attended today represented by counsel and I must say both counsel have argued the points which arise very fully and very ably.

In this case the solicitors’ base profit costs are fixed by the rules, CPR 45 Part II, in a sum of £1,360. The claimant claims that sum, which the defendant does not object to, but the claimant claims also a further £170 in respect of a success fee. The rules indicate that success fees may be allowed as a further 12.5 per cent. That is why the claimant claims a further £170 in this case.

The defendant challenges whether a success fee is payable, saying that instead of instructing these solicitors on CFA terms the claimant should have made use of an alternative funding arrangement which was then open to her. I have not heard argument or investigated whether in fact there was an alternative funding arrangement open to the claimant and therefore I am making this ruling on the assumption that there was such an alternative. Even if there was, would the success fee of 12.5 per cent still be recoverable?

The claimant argues that it would be, on the basis that the success fee, like the base profit costs is fixed by the rules. Counsel for the claimant places reliance on Nizami v Butt [2006] EWHC 159 (QB) and she relies in particular on paragraphs 23 and 24 of that judgment.

For the defendant, Mr Mallalieu raises a careful and ingenious argument by which he seeks to distinguish the ruling in Nizami. He says Nizami only applies to the question of whether the costs were incurred, ie the indemnity principle. He argues Nizami does not exclude challenges as to the reasonableness of the costs claimed and in making that distinction he places reliance on the different words use in CPR 45.9, which deals with base profit costs, and compares that with the words used in CPR 45.11, which refers to success fees and says the court “may” allow a success fee. He says that different wording should lead to a different result; although the base profit costs are fixed, the success fee ought to be in the court’s discretion. He argues that the different wording makes the provision of a success fee more akin to the system which applies to disbursements. The rule on disbursements is CPR 45.10.

On his interpretation the rules applicable to success fees lie somewhere between base profit costs and disbursements. Rule 45.11 does fix the amount of success fees but does not compel the allowance of success fees in all cases. It leaves the court a discretion. His argument reminds me of the rule which applies to cases which go to the fast track. CPR 46.2 (1) sets out fixed trial costs, the amounts for which have remained unchanged since the rules were first implemented. CPR 46.2 (2) states:

“The court may not award more or less than the amount in the table, except where:-

(a)

It decides not to award any fast track trial costs, or

(b)

Where Rule 46.3 applies.”

CPR 46.3 provides certain allowed increases such as success fees. CPR 46.2 gives us an all or nothing system for the base costs at trial. The court does not look at the amount of them but simply states whether or not they are going to be allowed.

Mr Mallalieu also relies on paragraph 25A.10 of the Costs Practice Direction which states:

He finds support also in looking at CPR 45 Part III which deals with road traffic accident claims which go to trial. It does not fix the base costs in those cases, but does fix the success fees in those cases. So where the main proceedings are issued there are fixed success fees where the claimant had a relevant CFA. For solicitors it is 12.5 per cent, unless the case goes to trial and if it goes to trial it is 100 per cent. Mr Mallalieu asked me to imagine cases where by the time of the trial that it was made plain to the parties that it was unreasonable for the claimant to use a CFA with a success fee, for example, he had “before the event” insurance cover. He argues that in that case, the court should award the base costs but in its discretion not award any success fee on top of the base costs.

In answer to these subtle arguments Miss Gibbons for the claimant draws my attention to paragraph 25.1 of the decision in Nizami. Although I have not set out the other paragraphs she relied on, I will set out that one. The judge there was saying that fixed costs ought to be just that – fixed.

“I should add that in coming to this conclusion:-

(i)

I have rejected the argument that there is an over-riding need to enable the paying party to satisfy themselves that the conditional fee agreement has complied with the regulations. This may result in some non-compliant agreements having effect, but will avoid wasteful arguments about whether or not there has or has not been substantial compliance in what is required in these straightforward types of cases.”

Miss Gibbons says it is easy to apply exactly the same reasoning taking out the words “wasteful arguments about substantial compliance” and instead inserting the words “wasteful arguments about the reasonableness”. Miss Gibbons pours scorn on the construction offered by Mr Mallalieu, saying that that would mean that whilst Nizami v Butt was a rule which leads to un-incurred costs being recovered, the ruling sought in this case would be that certain incurred costs are not recoverable. She says there is an obvious inconsistency in such an argument.

Turning to my decision on these points, it seems to me that the logic in Nizami v Butt does apply as much to the problem before me as it does to questions of indemnity principle. In particular, the learned judge in that case in his paragraph 23 refers to what he describes as “the intention underlying CPR 45.7 to 14.” In other words, he bases his decision on the whole of CPR 45 Part II ie including Rule 45.11.

I reach that conclusion for these reasons; first of all, the construction placed on 45.11 seems to me too slight to produce the obviously wasteful and disproportionate inquiries likely to arise if Mr Mallalieu’s construction was correct. Although it uses the word “may”, “may” does not have to be “may in the court’s discretion”. “May” can mean “may if circumstances permit”. In other words, the entitlement to a success fee is conditional upon the circumstances, not upon the court’s discretion.

CPR 45 Part II seems to me to have no equivalent to CPR 46.2. There was no rule that the court must or must not. There is a rule just that these shall be the costs and these costs are, as they say, fixed costs for all cases.

As to the reliance on the Costs Practice Direction 25A.10, it is obvious that a practice direction cannot gainsay the rule. It can elucidate but it cannot contradict what the rules say. In any case, the paragraph relied on is almost as consistent with Miss Gibbons’ argument as with Mr Mallalieu’s. It refers to questions of the amount of a success fee being referred to for assessment, but the wording of that paragraph pre-dates the rules under which success feeshave become fixed. It seems to me that the words there are not to be understood in as precise a way as Mr Mallalieu suggests.

Turning now to CPR 45 Part III, a comparison with issued cases where it might be that the success fee is an irrecoverable item because the conditional fee agreement is invalid or is an unreasonable item because the claimant always had available to him before the event cover. It seems to me the comparison between those cases and this case is not apposite. In those cases, where the amounts at stake may be very much larger (these cases may have gone all the way to trial) there are other ways in which a court can avoid the unjust recoveries Mr Mallalieu points out.

The court awarding costs may withhold some of the costs otherwise recoverable. It can do that by being specific about which items of costs are recoverable in that case.

Although Mr Mallalieu says that is properly the province of the court assessing costs, not the court awarding costs to determine questions relating to the success fee, I respectfully disagree. It seems to me the courts awarding costs regularly give directions as to the quantum of costs to be allowed. I am thinking in particular of issues of conduct and misconduct. It is a proper function of the court awarding costs to make plain which items of costs are or are not recoverable. Also, the powers which the court assessing costs has under CPR 45 Part III may be different from the powers it has under CPR 45 Part II.

That being my decision, it seems that it is not relevant for me to consider whether or not the claimant did act reasonably in instructing these solicitors on CFA terms, or indeed to inquire what success fee was specified in this claimant’s CFA at all. In the events which have happened I think this claimant is entitled to base profit costs of £1,360 plus a success fee of £170.