RHYS EDWARDS & Ors v SLATER AND GORDON UK LIMITED

SOCAs are created pursuant to the Solicitors Act 1974. The relevant sections in these appeals, which were all brought within 1 month of the delivery of the bills of costs, follow. They are set out in the Supreme Court Practice (SCP) Vol 2 with helpful notes.

“70[F1Assessment] on application of party chargeable or solicitor.

(1)Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be [F2assessed] and that no action be commenced on the bill until the [F3assessment] is completed.

…

(5)An order for the [F6assessment] of a bill made on an application under this section by the party chargeable with the bill shall, if he so requests, be an order for the [F6assessment] of the profit costs covered by the bill.

(6)Subject to subsection (5), the court may under this section order the [F7assessment] of all the costs, or of the profit costs, or of the costs other than profit costs and, where part of the costs is not to be [F8assessed], may allow an action to be commenced or to be continued for that part of the costs.

(7)Every order for the [F9assessment] of a bill shall require the [F10costs officer] to [F11assess] not only the bill but also the costs of the [F9assessment] and to certify what is due to or by the solicitor in respect of the bill and in respect of the costs of the taxation.

…

(10)The [F17costs officer] may certify to the court any special circumstances relating to a bill or to the [F18assessment] of a bill, and the court may make such order as respects the costs of the [F18assessment] as it may think fit.

(11)F19. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(12)In this section “profit costs” means costs other than counsel’s fees or costs paid or payable in the discharge of a liability incurred by the solicitor on behalf of the party chargeable, and the reference in subsection (9) to the fraction of the amount [F20of the reduction in the bill] shall be taken, where the [F21assessment] concerns only part of the costs covered by the bill, as a reference to that fraction of the amount of those costs which is being [F22assessed].”

It is clear from this section that a SOCA is an assessment of the bill of costs not the Cash Account. The bill of costs contains the solicitors’ fees and the disbursements properly so characterised. At the end the CJ has to certify what sums are due from the solicitor to the Claimant or vice versa. To do so the Cash Account must be considered.

Section 72 states:

“72 Supplementary provisions as to [F1assessments].

(1)Every application for an order for the [F2assessment] of a solicitor’s bill or for the delivery of a solicitor’s bill and for the delivery up by a solicitor of any documents in his possession, custody or power shall be made in the matter of that solicitor.

…

(4)The certificate of the [F9costs officer] by whom any bill has been [F10assessed] shall, unless it is set aside or altered by the court, be final as to the amount of the costs covered by it, and the court may make such order in relation to the certificate as it thinks fit, including, in a case where the retainer is not disputed, an order that judgment be entered for the sum certified to be due with costs.”

This provision makes it clear that in a SOCA the CJ can order delivery up by the solicitor of any documents in his possession, custody or power. I did not hear submissions on the scope of this provision from either counsel in relation to the disclosure application.

Section 74 states:

“74 Special provisions as to contentious business done in county courts.

(1)The remuneration of a solicitor in respect of contentious business done by him in [F1the county court] shall be regulated in accordance with sections 59 to 73, and for that purpose those sections shall have effect subject to the following provisions of this section.

F2(2). . . . . . . .

(3)The amount which may be allowed on the [F3assessment] of any costs or bill of costs in respect of any item relating to proceedings in [F4the county court] shall not, except in so far as rules of court may otherwise provide, exceed the amount which could have been allowed in respect of that item as between party and party in those proceedings, having regard to the nature of the proceedings and the amount of the claim and of any counterclaim.”

This provision prevents a solicitor from recovering URCs from the client unless the Civil Procedure Rules allow such when the bill of costs relates to contentious business. I heard no argument on the definition of contentious business. That it will be relevant to the legal issues which will be before the CJ in the SOCAs in relation to the Defendant’s power to make deductions from the Claimants’ damages awards of their URCs. If the Claimants’ claims in the Portal are contentious business then the section is engaged.

The PI Small Claims Protocol states:

“Preamble General

2.1

(1)

This Protocol applies where a claimant who has suffered personal injuries (including but not limited to whiplash injuries) because of a road traffic accident wishes to make a claim for compensation and the amount claimed for their injuries is not more than £5,000 and for their overall claim is not more than £10,000. This would mean that, if the claim was dealt with by a court, it would be normally be allocated to the small claims track and dealt with as a small claim.

(2)

The Protocol describes the behaviour expected from both parties before starting court proceedings. It establishes a process to help the parties to reach a fair settlement in respect of any claim to which the Protocol applies.

(3)

The Protocol also deals with the first steps the parties must take if they are unable to reach a settlement and the claimant wishes to start court proceedings. Claims can leave the Portal for the court to determine specific issues such as liability, then return to the Portal for later steps as directed by the court.

(4)

The Civil Procedure Rules 1998 enable the court to consider costs sanctions where this Protocol is not followed.”

“The Portal

2.2

A key feature of this Protocol is the use of an online Portal. The Portal is an online service through which the parties communicate. The Portal is used to make a claim, to exchange information and documents, and to negotiate a settlement or start court proceedings. An unrepresented claimant also uses the Portal to obtain any medical report in support of their claim.

The Guide to Making a Claim

2.3

(1)

This Protocol should be read together with the Guide to Making a Claim Under the RTA Small Claims Protocol, which provides more information about when and how to use this Protocol. The Guide to Making a Claim can be found at:

https://www.officialinjuryclaim.org.uk/

Copies may also be obtained from the Portal Support Centre.

(2)

For the avoidance of doubt, if anything in the Guide to Making a Claim conflicts with the provisions of this Protocol, this Protocol takes precedence.”

(The bold is in the original text, the underlining is mine).

I understand from counsel in this appeal that in Belsner v Cam Legal [2020] Costs LR 1371, an appeal to the Court of Appeal may be considering whether the Portal claim involved was contentious business or not. I do not understand how that can be so when at para 42 of the judgment Lavender J. stated:

“42.

Although no claim form was issued in the present case, and although there appears to have been a dispute about this point before the district judge, it was not disputed before me that s 74(3) applies in the present case, except insofar as rules of court may otherwise provide.”

I consider that the underlined words make it clear that the Portal deals with “claims”. I tend to the view that in these claims for damages for PI the claims are contentious business, the contentions being liability and quantum. But I did not hear argument on this point and in any event I do not need to rule upon this issue on these appeals. I need to be aware of it as part of the background to the issues relating to the recoverability of URCs and the deduction of them from the Claimants’ damages by the Defendant.

Turning then to the Civil Procedure Rules on SOCAs. Part 67 governs proceedings relating to solicitors.

Pursuant to CPR r.67.3 a claim for SOCA must be made under CPR part 8 (or in existing proceedings). Claims under part III of the Solicitors Act 1974 (in which S.s 70-74 are placed) may be determined by a Master, Costs Judge or High Court Judge. The Practice Direction to CPR 67 gives some guidance on SOCAs being issued in the Senior Courts Costs Office. So, as I understand matters, these claims could be listed before a High Court Judge who could decide any part 7 and part 8 elements together, perhaps sitting with an assessor.

CPR r.67.2 empowers to Court, on the application of the client, to order a solicitor to produce a Cash Account to a client and a bill of costs as well. Any application for those must be made under part 8. If the solicitor alleges he has a claim for costs against the client who applies under r.67.2 the Court may make an order for detailed assessment and an order securing payment of the costs.

The notes in the Supreme Court Practice (SCP) state [at 67.2.1] that it is quite common on such applications for disputed evidence to be tried by the CJ in the part 8 application, with directions governing the evidence required in relation to the nature of the bill of costs: see Badaei v Woodwards [2019] EWHC 1854. That was a food poisoning PI claim in which the solicitor terminated the CFA retainer due to considering it was not a winner (the client’s credibility was apparently damaged by photos posted on the internet) and then issued a bill. There were issues over whether there was a breach of the retainer by the client. Separate part 7 and part 8 proceedings were issued and on appeal O’Farrell J. ruled that the factual issues could be tried within the first issued part 8 claim and stayed the part 7 claim, reasoning as follows:

“48.

It is now common ground between counsel, and correct, that the Part 8 proceedings were proper proceedings to be issued. There is nothing to stop the court determining all of the issues that have arisen between the parties under Part 8, in the same way that those matters could be determined under Part 7.

49.

The Part 8 proceedings were started first in time, and although that is not a conclusive matter, it is certainly a factor that the judge should have taken into account when considering whether or not the Part 8 proceedings were effectively an abuse of process, which is what she found. Further, if the district judge considered that a sensible case management of this matter was by determining the breach of contract matter first under Part 7, that could have been accommodated by a stay of the Part 8 proceedings and/or reserving the costs.

…

50.

For those reasons, I have no hesitation in allowing the appeal, reinstating the Part 8 proceedings, and setting aside the costs order made by the district judge in relation to the Part 8 claim.

60.

However, on balance, I consider that that could be accommodated fairly readily within the Part 8 proceedings. There already are the relevant CFA documents. There are contemporaneous documents, including the declaration signed by the appellant. There are the photographs that were posted on her Instagram page.

61.

Therefore, the scope of any dispute is relatively narrow. I accept that there may be the need for factual witness statements and some limited cross-examination. I accept that there will be a need for detailed skeleton arguments and submissions, but they are not so cumbersome, so as to remove the clear advantages of dealing with this

as part of the Part 8 proceedings.”

Taking into account that on a number of occasions in the Defendant’s skeleton argument and in Court the Defendant asserted that many of the issues raised in the Claimants’ Statement of Claim were outside the jurisdiction of the Court on a part 8 claim, I raised with defence counsel at the appeal hearings whether the Defendant wished a hybrid hearing within part 8 going forwards or for the identified issues to be transferred to the Chancery Division under part 7. The Defendant declined to request a hybrid hearing going forwards at this time or for the part 7 issues to be transferred by me at the end of the judgment. So this will be a matter for future case management.

Under gateway 1, Part 8 of the CPR is used generally for claims in which there is unlikely to be “a substantial dispute of fact”, see this gateway in CPR r.8.1(2)(a).

However there is a second gateway in CPR r.8.1(6) which is expressly an alternative to gateway 1. Gateway 2 states that a rule or practice direction may require or permit the use of part 8 and disapply or modify any rules of court set out in part 8 to those proceedings. I note that CPR r.67 requires the use of part 8 for SOCAs so CPR r.8.1(6) is engaged.

The question then arises: to what extent (if at all) does the first qualifying gateway for part 8: claims with limited factual disputes, impinge upon or pollute the second qualifying gateway: claims where a rule requires part 8 to be the procedural route? The notes do not make that clear. The case law on this is not fully developed but is summarised inter alia in the SCP in the notes at para. 8.0.1.

In Vitpol v Samen [2008] EWHC 2283, the ruling of Coulson J. (at paras 18-19) favoured a flexible and sensible approach to developing issues in part 8 claims, allowing them to be switched between part 8 and part 7, without cumbersome procedural formality, in the TCC. I take on board his guidance and agree that procedure needs to serve the needs of the case rather than itself becoming the dominant element. Procedure is the servant of justice, not the master.

In Forest v ISG [2010] EWHC 322, a decision of Ramsey J. about the first gateway, he ruled thus (para 30):

“This court is also prepared to deal with certain limited factual issues which might arise on a Part 8 claim and does so by way of a hybrid procedure involving an element of fact finding. In those cases a short hearing can dispose of any disputed fact based on a decision after hearing oral evidence: see the observations of Coulson J in Vitpol Building Service v Michael Samen [2008] EWHC 2283 (TCC) at [18(b)].”

The limited factual dispute gateway was considered in ING Bank v Ros Roca [2011] EWCA Civ 353, per Stanley Burnton LJ at paras 77-78, in which the factual dispute about the fee due under a construction agreement involving an issue of estoppel was held to take the claim outside part 8 qualification through the first gateway: CPR r.8.1(2)(a) but the case did not involve the second gateway: CPR 4.8.1(6) so it was not considered. Stanley Burnton L.J. stated:

“77 This case proceeded under CPR Part 8. In general Part 8 proceedings are wholly unsuitable for the trial of an issue of estoppel. Once such a claim is disputed, save in exceptional cases, the proceedings will cease to comply with CPR r 8.1(2)(a), since they will cease to be proceedings in which the parties do not seek the court’s decision only on questions which are “unlikely to involve a substantial dispute of fact”. A disputed claim of estoppel should be carefully pleaded. I strongly endorse the contents of the note at para 8.0.2 of Civil Procedure 2011 (vol 1):

“In essence, the Part 8 procedure is in general terms designed for the determination of relevant claims without elaborate pleadings. If the procedure is misused, the defendant can object and equally the court of its own motion, and as part of its function to manage claims, will order the claim to proceed under the general procedure and allocate a track and give appropriate directions.”

78 In the present case, the parties should have agreed or applied for directions for the exchange of pleadings on the estoppel issue. Pleadings would have clarified precisely how Ros Roca put its case and what facts were in dispute. In the event, this court has been able to determine the issue of estoppel on the basis of the judge’s findings of fact. However, his determination of the factual issues would have been easier, and the risk of injustice less, if the parties had pleaded their respective cases.”

So far as I can find the case law, an analysis of the limits of the second gateway in CPR r.8.1(6) has not been so clearly analysed as the scope of the first gateway. However, when dealing with a SCCO case concerning a SOCA by a Costs Judge it seems to me that the first gateway (limited factual issues) has in the past in practice been interpreted as affecting the CJ’s case management decisions about where and how the issues raised in the issued part 8 claim should be considered. Whether it should be depends on the experience and scope of expertise and the jurisdiction of costs judges. Perhaps also on the Rules Committee and how they would like to approach allocation of work since the decision in Herbert. So what issues should be dealt with in the assessment by the CJ? What should be dealt with in part 7 proceedings by a High Court Judge? Which grade of Judge should decide which issues (should a High Court Judge deal with the SOCA and the part 7 issues)? whether there should be pleadings or not? and as I will refer to below, whether there should be disclosure or not. These are case management decisions and if they arise in a part 8 claim, issued in the SCCO before the assessment order, (or after), they still need to be case managed fairly, proportionately and efficiently.

After the issue of the part 8 claim form, at a case management hearing or on paper, an order for an assessment (which in these claims will be a SOCA) will be made by the CJ (for part 8 claims issued in the Costs Office). The usual procedure for SOCAs is set out in CPR r.46.10. The solicitor serves a bill of costs with the breakdown thereof; the client usually inspects the file and then must serve points of dispute; the solicitor serves a reply and either party then requests a hearing date for the assessment.

However, it is clear that in some SOCAs some pleadings will be needed and in those claims some evidence may also be needed and some limited cross examination at the assessment hearing too. I can see why it makes sense for the issues to be identified before the assessment order is made so the scope of the issues is clear and the scope of the assessment is also made clear.

I note that CPR r.8.6 provides that no written evidence may be relied upon at the part 8 hearing unless served in accordance with r.8.5 or the court gives permission. Rule 8.5 requires written evidence to be filed with the Claim Form. None was filed in these claims. I understand evidence, if needed, is usually agreed or ordered at the first directions hearing.

In relation to pleadings in part 8 claims, CPR r.8.9 dispenses with them and the claim is treated as allocated to the multi-track. However, properly in my judgement, in this case the CJ made an order for quasi pleadings and this has been complied with. No appeal is made from that decision. It was a wise one for it has clarified the issues between the parties and those are now set out in a list in Appendix 1.

One narrow question I have to consider is whether disclosure orders can be made at all in part 8 proceedings. The other is whether the part 18 request arising from the pleadings should also be ordered. Some of these have arisen before the assessment orders (SOCAs) are made but some after. I am informed that SOCAs have been made in Raubenheimer; Riley, Roy, Finney, Bateman and Hoskins before they were transferred to the SCCO.

Once a SOCA has been ordered, CPR r.46.10 gives the general procedure as set out above. But I see and know of no reason why pleadings or other case management directions should not be given after the SOCA order, should the CJ consider them necessary then.

CPR r.46.9 sets out the basis of the assessment. It states at (2) that there is a bar on the recovery of URCs as set out in the Solicitors Act 1974 S.74(3) which applies unless the solicitor and the client have entered a written agreement which expressly permits the solicitor to recover URCs from the client. As set out above this only applies to contentious business and that is in issue, or may be, in these claims.

In any event CPR r.46.9(3) applies to every claim and states that:

“(3)

Subject to paragraph (2), costs are to be assessed on the indemnity basis but are to be presumed –

(a)

to have been reasonably incurred if they were incurred with the express or implied approval of the client;

(b)

to be reasonable in amount if their amount was expressly or impliedly approved by the client;

(c)

to have been unreasonably incurred if –

(i)

they are of an unusual nature or amount; and

(ii)

the solicitor did not tell the client that as a result the costs might not be recovered from the other party.”

(The underlining and bold are mine).

It became apparent during the appeal hearings that the issue of informed consent is at the root of the defence to the claims. I shall look at the case law below in more detail. However in summary, to use lay persons’ language, the question is whether under a “no-win-no-fee agreement” (a CFA) the solicitor has to inform the client if the CFA is in fact a “yes-win-but-fee-deduction agreement” and whether Slater and Gordon did.

I have carefully considered the arguments put forwards by the Defendant on this appeal relating to disclosure in relation to the Court’s powers. I reject them.

I note here that in the CPR there is no express rule set out in part 8 dispensing with the disclosure provisions of CPR part 31. So the Defendant’s submission that part 31 does not apply to the Claimants’ part 8 claims for SOCAs rests on the exclusion of CPR part 31 by an implication of some sort.

I take into account that the CPR generally and the Solicitors Act 1974 (as amended on countless occasions) do not expressly exclude the Court’s powers given under CPR part 31 to order disclosure in part 8 claims or in SOCAs.

I take into account that under CPR r.8.9 some specific Civil Procedure Rules are expressly excluded from applying to part 8 claims for SOCAs but part 31 is not expressly excluded. It seems to me that the terms of these specific exclusions give the lie to the Defendant’s submissions. Also part 31 is specifically excluded in other areas: see r.76.26(1), 79.22(1) and 80.22.(1) which all feature clear wording such as:

“Part 31 (disclosure and inspection of documents), Part 32 (evidence) and Part 33 (miscellaneous rules about evidence) do not apply to any proceedings to which this Part applies”.

I take into account that CPR r.31.1 states that it applies to all “claims”. The Defendant submits that the Claimants’ claims are not claims they are SOCAs. I rule that these part 8 claims are “claims”. The procedure for handling the claims is to use SOCAs but that does not change the nature of the claims. I reject the appeal made on this issue. That deals with claims which are all at the stage before a SOCA order is made, but I also hold that the claims remain “claims” even after the SOCA is ordered.

The Defendant has applied for security for costs against CLL under CPR 25.14 and asked for disclosure of CLL’s retainers (but made no application). Thus the Defendant asserts that part 31 applies to their application in this part 8 claim. In In re RBS Rights Litigation [2017] EWHC 463, Hildyard J. ruled that CPR part 31 applied so as to allow the Court to order disclosure relating just to the application for security made against a third party funder. If the power to order disclosure exists in the Defendant’s own application herein it would be bizarre for it not to exist in the main claim.

On policy grounds I take into account that it is in the interests of the parties to a part 8 claim and the interests of the Courts and of Justice, that the Judges dealing with such claims can make whatever case management decisions they should need to make so as fairly to elicit the issues and to permit the parties to prove their claims and to achieve justice in accordance with the overriding objective in CPR r.1.1. I also consider that the power to order disclosure is useful, for the purpose before a SOCA is made, of determining whether a hybrid hearing is needed within part 8 or a transformation order should be made (transforming part or all of the part 8 claim into a part 7 claim) and to identify the scope of the issues and to decide which judge should hear which issues. Disclosure should not be the normal order in SOCAs because it is not usually needed and this judgment should not be taken as a licence to apply in all part 8 claims.

I rule that CPR part 31 (the power to order disclosure) does apply to the part 8 claims by these Claimants and the Judge was right so to conclude.

Applying this ruling to the issues in this case, to determine whether a disclosure order should have been made, I must consider the main issue of “informed consent” to which the disclosure would apply.

Paragraph 6 of CPR Practice Direction 46 concerns the assessment of solicitor and own client costs and relates, among other things, to CPR r.46.9. It provides, so far as relevant to this appeal, as follows:

“6.1

A client and solicitor may agree whatever terms they consider appropriate about the payment of the solicitor’s charges. If however, the costs are of an unusual nature, either in amount or the type of costs incurred, those costs will be presumed to have been unreasonably incurred unless the solicitor satisfies the court that the client was informed that they were unusual and that they might not be allowed on an assessment of costs between the parties. That information must have been given to the client before the costs were incurred.

6.2

Costs as between a solicitor and client are assessed on the indemnity basis. The presumptions in rule 46.9(3) are rebuttable.”

In Herbert v HH Law [2019] EWCA Civ 527, the issue of informed consent was considered. This was a simple rear end collision in which a bus rear ended the claimant’s car. Despite the lack of risk in the claim (liability had been admitted on linked files) the solicitors charged a 100% success fee. This was limited by statute to be capped at a deduction from damages recovered at 25% of past loss and PSL. The client agreed. The claim produced a settlement offer which was accepted of £3,400. HH deducted the ATE premium of £349 and their success fee of £829. The claimant accepted the settlement and challenged the deduction of the success fee. In the part 8 assessment the District Judge found the success fee was “unusual” because it did not reflect the risk and so was not in line with the way most success fees were calculated. He reduced it to 15% of base costs and awarded the costs of the assessment to the claimant. He ruled that the ATE premium was a disbursement and was wrongly placed on the Cash Account. On appeal Soole J. agreed. The Court of Appeal ruled, through the lead judgment of the Master of the Rolls: Sir Terence Etherton, that once the issue of lack of informed consent had been raised by the client, the burden of proof was on the solicitor to satisfy the Court that consent which was properly informed had been provided. Only then could the solicitor recover URCs and deduct them from damages (para 38). He also ruled that the ATE premium was not a disbursement stating:

“71 I appreciate that the consequence is that the client will not be able to challenge the amount of an ATE insurance premium through the convenient mechanism of an assessment under the Solicitors Act 1974, section 70. That is not, however, a good reason to decline to apply the principle, which is clearly binding on us, in the light of the limited evidence before us, and so create a precedent which both undermines the coherence of the principle and may have unforeseen implications in other and different cases. No doubt, if this outcome is considered unsatisfactory within the profession, the Solicitors Regulation Authority and the Law Society can consider what could be done to bring an ATE insurance premium within the principle as to what is a solicitor’s disbursement.”

The effect of this decision is that the ATE premium goes into the Cash Account and comes out of the bill of costs and is not “assessed” within the SOCA. I shall return to this below.

In the notes to CPR r.46 in the SCP at 46.9.3, the editors summarise that the signing of the CFA requires the client’s agreement with “informed consent” and the solicitor’s ability to deduct URCs from damages requires the client’s approval thereto with “informed consent”. The case relied upon for that text is Belsner v Cam Legal [2020] EWHC 2755, a decision of Lavender J. made on appeal from a District Judge relating to a low value PI claim made through the Portal. Thus the facts are similar to the claims in the appeals before me. On the SOCA the DJ allowed the solicitor to recover a success fee and URCs, but on appeal Lavender J. did not.

The ratio of the judgment of Lavender J. was that the solicitor owed the client a fiduciary duty to provide the client with the necessary information for the client to give “informed consent” to the CFA and under CPR r.46.9(2) the same was required. To be properly informed the client had to have enough and adequate information about the URCs that would be deducted from damages to make the decision. In particular, in Portal claims, the amount of the deduction, compared to the amount of damages, needed to be made clear in advance for informed consent to have been given.

At para. 34 Lavender J. noted the editors of Snell’s Equity advised that the solicitor had a fiduciary relationship to the client which involved providing full and frank disclosure of all material facts. Material facts were ones which would or may have affected the client’s decision. The sufficiency of the information given depended to an extent on the sophistication and intelligence of the client and the facts of each case. He reviewed FHR v Mankarious [2011] EWHC 2308, a decision of Simon J. [paras. 81-82]; and the decision of Tuckey L.J. in Hurstanger v Wilson [2007] 1 WLR 2351, and he found those relevant by analogy [para. 39].

He then considered cases directly upon SOCAs under the Solicitors Act 1974 and the CPR r.46.9. He reviewed Macdougall v Boote [2001] 1 Costs LR 118, in which Holland J. ruled that “informed” approval was required and the solicitor had to satisfy the judge that it was obtained following a full and fair “exposition” of the factors relevant to the consent, so that the lay person client could reasonably be bound by it. He considered Herbert v HH [2019] 1 WLR 4253 (Court of Appeal), and noted that the Court of Appeal had upheld the decisions of DJ Bellamy and, on appeal, Soole J. that no informed consent had been given by the client and the success fee should be assessed down to 15% of damages (sic – the report is wrong it was 15% of base costs). The Court of Appeal ruled that once the client had raised the consent issue in a SOCA the burden lay on the solicitor to prove informed consent had been given.

Lavender J. ruled (para. 91) that the general terms used in the solicitor’s documents in that case did not provide the information necessary for the client to have given informed consent. The client did not know how large the success fee and URC deduction was going to be.

The law on clients challenging retainers goes back for hundreds of years. CJs in SOCAs deal with such challenges regularly. In the claims concerning these appeals the main challenge is based on the informed consent point. In these appeals the Defendant accepts that the CJ has power to judge an attack on a retainer on informed consent and more generally, because it attacked the Claimants’ retainers with CLL before the Judge.

The Claimants sought standard disclosure of the Slater and Gordon retainers and the audio recordings of the signing of the retainers and all other documents relating to the pleaded issues. The Judge granted it. The Defendant did not want to give any of these and appeals the order for standard disclosure. Should I grant the appeal on the grounds that disclosure is not usually ordered in Part 8 claims? I see no reason in justice to do that. Should I grant the Appeal on the basis that there is no power to order disclosure? I have already ruled that the Court had such power. Should I interfere with a case management decision on the basis that I disagree with it? I do not disagree with it. In addition I have taken into account the case law on my powers in appeals set out above and dismiss this ground of appeal. The disclosure order stands and should be complied with in my judgement.

The facts are set out in the Judge’s judgment at paras 30-43. No appeal is made on the findings save that the Defendant asserts that the Judge’s ruling on the facts that there was no discernible premium paid by the Claimants to CLL for the indemnities was wrong.

In summary CCL provided an indemnity to the Claimants should they lose their claims and suffer ACOs as part of the CFA terms.

The editors of MacGillivray on Insurance Law admit that the definition of a “contract of insurance” is elusive (para 1-001). It is an important decision, as they state, because it is used to determine regulatory scope. It also has many other consequences too. The editors state that a useful working definition can be found in the old case Prudential Insurance v Inland Revenue [1904] 2 K.B. 658:

There are two elements in this definition: the premium and the obligation on the insurer to pay out on the future happening of an event, the likelihood of which is uncertain and the financial consequences of which are unknown.

The editors of MacGillivray state (at 1-002) that the purpose of insurance is to spread the cost amongst many policy holders to pay for the few happenings of adverse events causing losses. Thus the premium is not the actual cost of the pay outs by insurers (if any) but the estimated future cost of the uncertainties split between the prospective customers who seek insurance, see para 1-002:

“This characteristic distinguishes contracts of insurance from certain others. Thus a contract by which an engineer undertakes to repair a machine whenever it breaks down is clearly not a contract of insurance if the engineer is to be remunerated in accordance with the amount of work done. If, however the remuneration is fixed without regard to the amount of work done it is a consideration of the type of an insurance premium and the contract may be one of insurance. Premium need not necessarily be payable before any claim is made. A promise to reimburse a mutual insurer for sums paid to indemnify a member of an employer’s mutual society had been described as a form of premium.”

The Judge found at paragraph 110 that it was:

“Difficult for there to be any conclusion that there is a payment of a sum of money or some corresponding benefit which is sufficient to provide consideration for a contract of insurance”.

The Defendant asserts that the premium paid by the Claimants was the entering of the CFAs by the Claimants. That enabled CLL to earn their fees in the claims if they were won.

I take into account here the advice from the editors of Colinvaux’s Law of Insurance who described the test for ascertaining whether there was a premium thus (12th Ed. 1-044):

“(FSA), the predecessor in title of the two current insurance regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), has published guidelines on the meaning of “insurance”. The guidelines, which have been adopted by the FCA, are not designed to be exhaustive or binding, and for the most part adopt the principles set out in the cases.”

Under “relevant factors” the guidance states:

“(a)

A contract is more likely to be regarded as a contract of insurance if the amount payable by the recipient under the contract is calculated by reference to either or both of the probability of occurrence or likely severity of the uncertain event.”

I agree that for the payment to the alleged insurer to be categorised as a premium it should be calculated by reference to the risk of the adverse event occurring and the size of the likely loss.

Analysing the Defendant’s submission on the asserted premium, I consider that it quickly falls apart.

If CLL approached an insurer and said:

This analysis shows how difficult it is to identify any premium in the hourly rates. The focus on the words used by CLL in their marketing and contractual material in the Welcome Pack to the effect that the hourly rates take into account the indemnity is unavoidable and no doubt correct but it can only make up a speculative and small part of the costs of running the legal firm.

I rule that there was no discernible premium paid by the Claimants to CLL and uphold the Judge’s implied finding on that matter.

I have no difficulty in finding that the second part of the definition of insurance contract is made out: namely that the agreement was to pay out on the future happening of an adverse event.

It seems to me that the indemnity is more akin to a business expense used for marketing purposes than an insurance contract term. The evidence before the CJ was unopposed and to the effect that there was no ATE market for insuring ACOs in SOCAs. So CLL stepped up and took on the possible expense but not as an insurer, as a business person.

I have also considered the regulatory side of the issue. Indemnities attached to CFAs were given the all clear in 2011 by the Court of Appeal approving the indemnity provisions by the solicitors in Sibthorpe. In that appeal the claimant was supported by the intervention of the Law Society. After the case on the evidence before the judge, the Law Society did not further regulate such indemnities provided by solicitors from 2011 onwards, nor advise solicitors to approach the insurance regulator to ask whether to be regulated when solicitors offered such indemnities attached to CFAs. Nor, on the evidence, has the insurance regulator issued any guidance on these solicitors’ indemnities.

One evidential matter which was not raised in the appeal or before the Judge was whether CLL’s professional insurance would have covered their liabilities under the indemnities, should they go bust in future. It seems to me that this might have been a relevant factor. However the Defendant, who should have understood the scope of solicitors’ insurance, did not take the point that it would not cover the loss or give evidence upon it to the Judge.

I rule that the CLL indemnity was not an insurance provision.

If I am wrong about the characteristics of the indemnity, I should consider the overall characteristics of the whole CFA with the indemnity. Should that be characterised as an insurance contract?

This issue arose in Morris & Sibthorpe v Southwark [2010] 4 Costs LR 526. MacDuff J. on appeal from Deputy Master Hoffman, was required to consider whether two similar CFAs, with an indemnity clause in each against ACOs, were insurance contracts or champertous. The claims related to housing disrepairs. The Master found the arrangement champertous but not unlawful insurance. MacDuff J. allowed the claimants’ appeal on Champerty. The Defendant cross appealed asserting the arrangement was unlawful insurance. MacDuff J. dismissed that ground. In relation to unlawful insurance he ruled thus:

“45.

I have been referred to the following extract from MacGillivray 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.”

46.

In my judgment, this, on any view, was a contract for the provision of legal services. The indemnity clause, whether looked at individually or as part of the contract, was a subsidiary part of the contract. In his oral submissions, Mr Bacon adopted what might be called “the bystander test”. Anybody, he submitted, looking at this agreement, would say, “Well, this is really providing insurance”. With respect, I would beg to differ; the bystander looking at this agreement, would say to himself or herself that this was a contract for the provision of legal services, with an indemnity clause whereby the solicitor undertook to pay the opponent’s costs, in the event that that became necessary. To characterise it as a contract of insurance, albeit that the indemnity created some principles similar to an insurance contract, is to go too far. I appreciate that that does not do full justice to Mr Bacon’s long and careful argument. But in my judgment this could not be characterised as a contract of insurance, and albeit delivered with brevity, the Deputy Master’s judgment was entirely accurate and cannot be faulted.”

The cases went to the Court of Appeal and were reported as Sibthorpe v Southwark [2011] EWCA Civ 25. Lord Neuberger MR; Lloyd and Gross LJJ., ruled in favour of the claimants on the Champerty decision and refused permission to appeal on the unlawful insurance decision, so the appeals were dismissed. The Master of the Rolls gave the lead judgment. On unlawful insurance the ruling was as follows:

“58 That leaves the issue on which Waller L.J. 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 2000 (Regulated Activities) Order 2001 (SI 2001/544). 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 Financial Services and Markets Act 2000, 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.

59 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] 4 Costs LR 526, paras 45—46:”

Now it is said by the Defendant that the Judge should not have and I should not rely on this decision as authority, because such is banned by the Practice Direction on citing authorities dated 2001 because it is a decision on permissions to appeal. I cannot be wilfully blind to the words of the Master of the Rolls in a Court of Appeal judgment. Nor do I consider that MacDuff J.’s judgment on this was wrong, quite the contrary.

The Defendant sought to distinguish Sibthorpe on the basis that housing repair claims are easy to run and low risk and, in comparison, that the Claimants’ claims are bound to be lost in large numbers and so the indemnities provided by CLL are of a different order of magnitude. The Judge dealt with that submission partly from his own experience of such SOCAs issued in the Supreme Court Costs Office and I am not going to attempt to question the experience of CJ Rowley when I have no such experience. As to the assertion by Slater and Gordon, through their counsel, that housing repair claims are easy and low risk, no evidence was provided in support of that. As to the assertion that the current claims by the Claimants will fail in droves, one only has to listen to the audio recording of the sign up process for Mr. Turnbull to feel uncomfortable about lack of informed consent for the URC clauses in the CFA. I reject that submission.

The editors of MacGillivray on Insurance Law deal with the classification of mixed contracts containing insurance provisions and other provisions at paras. 1-008 and 1-009 as follows:

“Problems in classification It is sometimes necessary to decide 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 insurance. The inclusion of indemnity provisions within a contract for the supply of services neither makes the indemnifier an insurer nor justifies describing the contract as wholly or partly one of insurance. when a contract of sale or for services contains elements of insurance it will be regarded as a contract of insurance only if, taking the contract as a whole, it can be said to have as its principal object the provision of insurance.”

The footnotes to this text refer to Larrinaga Steamship v R [1945] AC 246 at 256, a case relating to a time charter party; and Caledonia North Sea v London Bridge Engineering [2000] Lloyds reports IR 249 at 263, 287 and 291; and also [2002] 1 Lloyd’s Reports 553 HL. They also refer to Sibthorpe and the fact that their text was approved therein.

“…The “principal object” test is not however, appropriate where the contract in question does not have distinct insurance and non-insurance elements, and the question at issue is whether it is properly to be characterised as insurance. In Fuji Finance v Aetna Life Insurance the question was whether a single premium capital investment bond in the form of a life assurance policy was a contract of life assurance, or merely an investment contract. Given that the element of investment is a common feature of modern life assurance policies it was not a case of contract containing distinct insurance and non-insurance elements, and the Court of Appeal held that the correct approach was to characterise the contract as a whole and then see if it came within the definition of life assurance, which it did.”

“1-009 In its Perimeter Guidance referred to above, the former Financial Services Authority, now the FCA, departed from the principal object test it had used as the criterion for determining whether a contract containing both insurance and non-insurance elements is to be treated as a contract of insurance, and substituted for it the test of whether the contract contains “an identifiable and distinct obligation that is, in substance and insurance obligation”. “insurance obligation” is shorthand for an assumption for valuable consideration of an obligation to pay money or to provide a benefit in response to an uncertain event adverse to the interests of the recipient.”

The footnotes to those pieces of text refer to the Perimeter Guidance at paragraphs 6.3.4 and 6.6.7 (2).

Defence counsel ran his submissions along the lines that no principal object/s test applied.

Having read the Larrinaga v R and Caledonia North cases, I gain only minor assistance from the paragraphs highlighted in the footnotes to MacGillivray, in that they were cases seeking to determine subrogation rights from either primary or secondary status of indemnities.

The FSMA (RA) Order 2001 at S.3 states;

“contract of insurance” means any contract of insurance which is a contract of long-term insurance or a contract of general insurance, and includes—

(a)

fidelity bonds, performance bonds, administration bonds, bail bonds, customs

bonds or similar contracts of guarantee, where these are—

(i)

…

(ii)

not effected merely incidentally to some other business carried on by the person effecting them; and

(iii)

effected in return for the payment of one or more premiums;”

So I note that in dealing with contracts of guarantee the Order seeks to define insurance contracts by virtue of an analysis of whether a premium is paid and whether the guarantee is merely incidental to the business carried on or not. I note that in S.10 the definition of effecting and carrying out contracts of insurance is as follows:

“10.

Effecting and carrying out contracts of insurance

(1)

Effecting a contract of insurance as principal is a specified kind of activity.

(2)

Carrying out a contract of insurance as principal is a specified kind of activity.”

Schedule 1 article 17 sets out that one of the specified areas of insurance contracts which is a “specified activity” is:

“17.

Legal expenses

Contracts of insurance against risks of loss to the persons insured attributable to their incurring legal expenses (including costs of litigation).”

The PERG guidance states:

“PERG 6/4 www.handbook.fca.org.uk Release 8, Jun 2021

6.3

Background

The business of effecting or carrying out contracts of insurance is subject to prior authorisation under the Act and regulation by the FCA and PRA. (There are some limited exceptions to this requirement, for example, for breakdown insurance.)

The Regulated Activities Order, which sets out the activities for which authorisation is required, does not attempt an exhaustive definition of a 'contract of insurance'. Instead, it makes some specific extensions and limitations to the general common law meaning of the concept. For example, it expressly extends the concept to fidelity bonds and similar contracts of guarantee, which are not contracts of insurance at common law, and it excludes certain funeral plan contracts, which would generally be contracts of insurance at common law. Similarly, the Exemption Order excludes certain trade union provident business, which would also be insurance at common law. One consequence of this is that common law judicial decisions about whether particular contracts amount to 'insurance' or 'insurance business' are relevant in defining the scope of the FCA's authorisation and regulatory activities, as they were under predecessor legislation.

6.3.3

The courts have not fully defined the common law meaning of 'insurance' and 'insurance business', since they have, on the whole, confined their decisions to the facts before them. They have, however, given useful guidance in the form of descriptions of contracts of insurance.

6.3.4

The best established of these descriptions appears in the case of Prudential v. Commissioners of Inland Revenue [1904] 2 KB 658. This case, read with a number of later cases, treats as insurance any enforceable contract under which a 'provider' undertakes:

(1)

in consideration of one or more payments;

(2)

to pay money or provide a corresponding benefit (including in some cases services to be paid for by the provider) to a 'recipient';

(3)

in response to a defined event the occurrence of which is uncertain (either as to when it will occur or as to whether it will occur at all) and adverse to the interests of the recipient.”

Any Court placing reliance on PERG, when PERG itself relies in part on a summary of the common law, is of course circular. However I am assisted by the way in which the regulator focuses on the classic elements of an insurance contract when seeking to define the scope of its own field of regulation and takes into account the words “incidental to some other business”.

Looking at the case law beyond Prudential, some assistance is gained from Fuji v Aetna [1996] LRLR 365. The Court of Appeal were determining the character of a life insurance policy and capital investment contract. This is therefore a different field of mixed contract and different principles may apply or they may directly assist this court. The trial judge had applied the test of looking at the overall position of contracts with more than one element (p184D). He then agreed with the “principal object” test stated in the then current 8^th edition of MacGillivray. The judge ruled that it was not a contract of life insurance. The defendant submitted it was a contract of insurance on appeal. Morritt L.J. considered the case law worldwide, much of it criticising the use of the primary or dominant purpose test for distinguishing life insurance from investment return contracts. For instance Somers J. in Marac Life v Inland Revenue [1986] 1 NZLR 694, has preferred to approach the question thus (p186E):

“'I have reached the conclusion, however, that the insurance content of the Marac Life Bonds of whatever term, is not properly to be regarded as negligible. It is sufficiently substantial to justify the arrangement entered into between the insurer and the bondholder being regarded as a contract of life insurance.”

Morritt L.J. then examined the particular facts and features of life insurance and how such policies had morphed over the years as the business had developed. The appeal was dismissed and he ruled as follows (p189G):

“Insurance Companies Act 1982 and the Financial Services Act 1986 are not relevant to this issue, but that question does not arise in the view that I have taken. Further, I do not accept that Sir Donald Nicholls V.-C. by his reference, at p. 133, to the principal object of the insurance indicated that he was adopting some inappropriate test. Reading his judgment on this issue as a whole it is clear that Sir Donald Nicholls V.-C. was correctly considering the characterisation of the policy as a whole and posing the question whether so read it was a policy of life insurance.”

I do find that this judgment provides general guidance on how to apply the correct test to determine whether an indemnity in a CFA contact for legal services should be characterised as an insurance contract and hence regulated but not specific guidance.

The editors of Colinvaux’s Law of Insurance described some of the factors for the test for ascertaining whether there was a contract of insurance thus (12th Ed. 1-044):

“(FSA), the predecessor in title of the two current insurance regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), has published guidelines on the meaning of “insurance”. The guidelines, which have been adopted by the FCA, are not designed to be exhaustive or binding, and for the most part adopt the principles set out in the cases.”

Under “relevant factors” the guidance states:

“(a)

A contract is more likely to be regarded as a contract of insurance if the amount payable by the recipient under the contract is calculated by reference to either or both of the probability of occurrence or likely severity of the uncertain event.

(b)

A contract is less likely to be regarded as a contract of insurance if it requires the provider to assume a speculative risk (i.e. a risk carrying the possibility of either profit or loss) rather than a pure risk (i.e. a risk of loss only).

(c)

A contract is more likely to be regarded as a contract of insurance if the contract is described as insurance and contains terms that are consistent with its classification as a contract of insurance, for example, obligations of the utmost good faith and the duty of fair presentation.

(d)

A contract that contains terms that are inconsistent with obligations of good faith may, therefore, be less likely to be classified as a contract of insurance; however, since it is the substance of the provider’s rights and obligations under the contract that is more significant, a contract does not cease to be a contract of insurance simply because the terms included are not usual insurance terms.”

Having looked and the authorities and taken into account the Acts and Regulations, the Guidance and the texts books, I consider that, in relation to this CFA and this indemnity, the correct approach I should take when trying to determine whether it is a contract of insurance (thus requiring regulation) is as follows.

The Court should take the following steps:

On the basis that I am wrong above and the indemnity clause can be classified as an insurance clause, looking at the CFA which CLL offered to the Claimants, it is clearly a mixed contract, so I need to move on to step two. Taking each factor in turn.

The purposes and objectives of the parties The Claimants wished to obtain specialist legal services to obtain refunds from Slater and Gordon. They were not looking to buy insurance. CLL were trying to sell their legal services. CLL were not trading as insurers or insurance brokers and were not going to work to sell indemnities. It is likely that they would have preferred not to have offered any indemnities if they could have obtained ATE cover in the market.

The proposed and contracted future activities of the parties The activities which the Claimants were to provide were evidence and instructions to enable CLL to obtain a refund of money. The activities for CLL to perform were legal work and legal services at a profitable rate. The future activities involved the Claimants assisting CLL and authorising them. For CLL there was legal work and court work.

The moneys or benefits in kind moving between the parties and third parties No money was to come from the Claimants to CLL. Nor did any money pass from CLL to the Claimants. CLL merely provided legal services. CLL did hope for and work for a win and hence the Claimants would receive refunds from the Defendant and CLL would receive their hourly rates, maybe assessed downwards. CLL paid Court fees and disbursements.

The full terms of the contract including termination clauses, arbitration clauses and variation clauses This Court has not been provided with the full terms of the CLL CFAs but did have enough to determine that they were for the issuing of part 8 claims, the seeking of SOCAs and refunds, under part 8 or if necessary part 7. The indemnities were part of the terms inducing the Claimants to enter the CFA.

Where the risks fell No risk fell on the Claimants’ shoulders. The risk was all taken by CLL’s business model.

The marketing carried out by the parties CLL marketed themselves as specialist lawyers not insurers. The indemnity was a marketing tool to help persuade the Claimants to sign up, as part of CLL’s offered CFA light retainers.

The businesses of the parties The Claimants were consumers or injured ex-parties to successful civil litigation. CLL were lawyers and costs draftsmen.

The regulators of the parties (if any) CLL were regulated by the Law Society. The evidence does not disclose any other regulation, and the Claimants were consumers.

All factors relating to the contract and what it looks like to an objective bystander I stand back and look at the CFAs which were “lite” and so involved no deduction of URCs and had indemnities against ACOs. I compare them to those in Sibthorne and they are similar. I compare them to a guarantee for repairs, if needed in future, provided on the sale of a new or old car. I compare them to a warranty for a washing machine sold by a shop. In my judgement an objective bystander would say this is a lawyer’s contact with lots of terms, one of which (the indemnity) is an inducement to use CLL’s legal services to make a claim.

Taking the above into account I rule that these CFAs had the character of a lawyer’s business deal, for the provision of legal services, made with members of the public in a particular category (ex-claimants in PI claims). I rule that the indemnities were a minor or ancillary term in that business model. I rule that the CFAs were not insurance contracts, even if the indemnities were insurance terms (which I have ruled they were not).

The Defendant’s appeal on the basis of unlawful insurance is therefore dismissed.

MacDuff J. in Morris considered the test in relation to Champerty this way:

“38 … Is there a real and significant risk (those are my words) that this agreement containing as it does this indemnity clause, might tempt the claimant’s solicitor for his personal gain to inflame the damages? The answer to that is “No”. To suppress evidence, the answer to that is “No”. To suborn witnesses, the answer to that is “No”. Or otherwise to undermine the ends of justice, in my judgment the answer to that also is “No”. But in reaching that conclusion, I have to confirm that I have taken into account the policy arguments advanced by both Mr James and Mr Bacon before this court.”

On appeal, in Sibthorpe v Southwark [2011] EWCA Civ 25, the Court ruled in favour of the claimants on the Champerty issue. Lord Neuberger MR ruled as follows:

“40 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 v Moir (No 2) [1975] QB 373 and Awwad’s case [2001] QB 570. This is for two main reasons. The fist is to be found in the passages in the judgments of Buckley LJ in the former case at [1975] QB373, 401, and of Oliver LJ in the Trendtex case [1980] QB 629, 663. The second reason, articulated in Awwad’s case [2001] 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.

41 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.”

The validity of the indemnity: is it champertous?

42 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.

43 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 MR’s adoption in the Factortame (No 8) case [2003] QB 381, para 32 of the definition in Chitty on Contract, namely maintaining an action “for a share of the proceeds of the action”. So, too, Lord Esher in Pittman’s case 13 TLR 110, 111, referred to “any advantage in respect of the result of that litigation”. Other definitions of champerty support this view. In the Trendtex case [1980] 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 a division of the spoils”, a definition adopted in the Thai Trading case [1998] QB781, 787.

44 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 the Trendtex case [1980] QB 629, 663), and all we have now are “the vestigial remnants of the law of champerty” (per Lord Phillips MR in the Factortame (No 8) case [2003] QB381, 414, para 91).

45 It also seems to me to be legitimate to invoke the Thai Trading case [1998] 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 p 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 MR in Trendtex Trading Corpn v Credit Suisse [1980] QB 629 or any of the members of the court in Wallersteiner v Moir (No 2) [1975] 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”_

46 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 [2005] 4 Costs LR 559, para 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 the Thai Trading case [1998] QB 781 and May LJ in Awwad’s case [2001] QB 570, 600.”

47 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.”

The only financial benefit which CLL would achieve from the claims would be the receipt, from the Defendant, of their assessed (never upwards and more probably downwards) legal fees on winning.

The classic Champerty categories arise where the funder gains from a share of the claimants’ “damages” or sums won. There is no such gain by CLL in my judgement through a lawyer simply receiving assessed fees for legal work. The circumstances in which they would be able to receive fees from the Claimants were limited and in my judgement unlikely to occur against this Defendant: the trigger being a win with a no costs order.

I reject the submission that hourly rates at the levels claimed by CLL can be regarded as champertous profiteering.

I have considered the public interest in access to Justice for Claimants who feel aggrieved by deductions made from their damages by PI firms. I consider that it is in the public interest for claimants generally and these Claimants specifically to be enfranchised to test the way in which those fees were explained, charged, deducted and calculated.

I dismiss the appeal on the grounds of asserted Champerty.

The final part of the application for a stay was founded on the alleged impecuniosity of CLL to meet the Defendant’s costs orders should all or many of the claims be lost. I deal with that below and incorporate the findings and rulings I make there, here. I dismiss the appeal to impose a stay.

Having argued that part 31 of the Civil Procedure Rules did not apply to part 8 claims, the Defendant asserted that part 25 of the same rules did apply and seeks to appeal the refusal of its application for security for costs against an alleged third party funder: CLL.

In In re RBS Rights Litigation [2017] EWHC 1217, Hildyard J. gave some guidance on security for costs applications against alleged third party funders. In that long running litigation a British Virgin Islands funder and another in the Isle of Man had funded group litigation against the bank and its directors who applied for security for costs against the funder. As mentioned above disclosure of the details of the funder was ordered early in 2017 and then, after that was provided, the application was made. Many of the claims had settled and the funders were receiving a substantial share of the payouts. The guidance Hildyard J. gave was as follows (para. 19):

“Of particular relevance in assessing whether an interlocutory order against a non-party under CPR r 25.14(2)(b) to secure a contingent liability pursuant to section 51 is appropriate and just will be:

(1)

whether it is sufficiently clear that the non-party is to be treated as having in effect become in all but name a real party motivated to participate by its commercial interest in the litigation;

(2)

whether there is a real risk of non-payment such that security against the contingent liability should be granted;

(3)

whether there is a sufficient link between the funding and the costs for which recovery is sought to make it just for an order to be made;

(4)

whether a risk of liability for costs has sufficiently been brought home to the non-party, either by express warning, or by reference to what a person in its position should be taken to appreciate as to the inherent risks;

(5)

whether there are factors, including for example, delay in the making of an application for security or likely adverse effects such as to tip the overall balance against making an order.

20 As to (1) in para 19 above, amongst the important considerations in play is as to the reasons and motivation for the funder’s involvement. In particular, the court will seek to ascertain whether the funder has become engaged by way of business with a view to profiting from an action in which it otherwise has no interest, or whether it is what is sometimes called a “pure funder”, acting altruistically to enable access to justice and what it perceives to be a worthwhile case to be adjudicated.”

Looking at those factors and CPR r.25.14, I do not consider that the recovery of hourly rates for legal work on winning a case can be categorised as “a share of any money or property which the Claimant may recover”. Although, on winning, a Claimant does recover her/his lawyers’ costs, he does not receive them into his pocket. They go to his lawyers. They are not the Claimant’s recovered winnings. Claimants do not bring claims just so that their lawyers will get paid.

I note that those words are in the very same paragraph in the rule as the words: “has contributed or agreed to contribute to the Claimant’s costs”. The difference is telling. I do not consider that CLL contributed to the Claimants’ costs by providing the indemnity. They were going to do the work for free under the CFA in any event, unless the claims were won.

CLL are not commercial litigation funders for profit, they are lawyers providing a legal service to these Claimants and the only profit they make is that part of the hourly rates recovered which exceed their operating expenses and liabilities.

In relation to impecuniosity, in the absence of any evidence served and filed by Slater and Gordon from a forensic accountant explaining the significance of the public financial statements of CLL and in the absence of any profit and loss accounts at all, I find myself unable and unwilling to make any adverse ruling on impecuniosity. The evidence showed the assets of the business of CLL to be over £3 million. Defence counsel’s rather harsh assertions about the invalidity of the listed £3 million of assets owned by CLL were nothing more than submissions by a barrister. I do not see that there was any proper evidence before the Judge on which to found a ruling of there being a realistic risk of impecuniosity. I also reiterate that no evidence was put before the Judge on whether CLL’s professional insurance would have covered any such losses should they go bust in future. I uphold the Judge’s decision on this matter.

In any event, even if I am wrong, Justice is one of the two factors to consider in the CPR r.25.14 test. The Judge did not consider it just to make any security for costs order and I do not consider it just so to do either. When asked how it would be just to the Defendant’s ex-clients to have their claims stayed because their first lawyers were squabbling with their second lawyers over the latter allegedly having insufficient funds to pay the first lawyers’ legal fees if the assessments went against the clients, the Defendant submitted that Slater and Gordon might not get paid in full due to suspected impecuniosity. I have dealt with that assertion above. Weighed against that risk is the principle that access to Justice is important. All litigation is uncertain. No PI solicitors firm is immune from financial pressures as the financial history of many firms (some of which have gone bust and others of which have been taken over) during the last 20 years has shown.

For the reasons provided by the Judge and above I dismiss the appeal on security for costs.

By a request dated 26 August 2020 the Claimant (Raubenheimer) asked for a copy of his ATE policy; the details of intermediaries used; the commissions or payments received directly or indirectly from the ATE insurers by the Defendant and/or to whom they were paid and any other financial benefits which came back to the Defendant or any associate. The Defendant refused all the requests.

In the Cash Account the Defendant asserted the past payment of a premium for the ATE policy of £258.87 on 24 October 2017. No commissions or payments back from the ATE insurer were listed.

In an email from Elite, the ATE insurers, dated 10 September 2020 they informed CLL that:

“Elite's pre-administration records show that this case has not concluded, therefore the premium of GBP 254.24 remains unpaid.

Should the case conclude, a claims handling commission of GBP 30.00 and a claims fund contribution of GBP 176.13 would fall due.”

That raises the questions: was the premium ever paid in 2017 as Slater and Gordon assert? Also, to whom were the “claims handling commission” and “claims fund contribution” paid? and why were they paid? and what were they actually for?

In the Reply in the Edwards claims the Defendant pleaded:

“13.4.

If the claimant might instead want to refer to the Raubenheimer claim, it is denied that there has been any receipt of any commission (as that term is properly understood); rather, if this is a reference to what has been called a ‘commission’ in that claim, it was in fact a legitimate claims-handling fee for services payable to a separate group company who was appointed by the ATE Insurer to provide claims handling services and manage the claims fund. Further there have not been other unexplained payments.”

(The bold and underlining are mine).

That raised the questions: which separate group company? Which group? Was it actually separate? And what were the payments for? This was, after all, simple ATE insurance for simple Portal claims with limited fixed costs ACO liabilities. An objective bystander might think that the premium for insurance would cover and include the costs of the insurer managing its own fund of premiums. A simple phone call or email from Slater and Gordon to the ATE insurer would trigger the policy for each Claimant under a pre-negotiated group agreement for ATE for their Portal claims. What “handling” of the claims was going on? It leaves the bystander wondering: “what fund was being managed?”

The SRA FS(CB) Rules state at rule 5.1:

The Defendant submitted that the Claimant was not entitled to question the Defendant on these matters (Judgment para. 9). Further that such issues are not for part 8 claims but part 7 instead, relying on Herbert v HH Law (citation above).

I take into account that the quantum of an ATE premium is a matter outside a SOCA, following the ruling in Herbert, but that, in my judgement, is not the point.

The Judge held that:

“13.

… There is no suggestion that these proceedings are in some way a precursor to other proceedings. Even if they were, it is unattractive to suggest that one court should carry out investigations into something which another court will ultimately need to consider. If this court has no jurisdiction to deal with the ATE premium, then it does not seem to me that it is the correct court in which to seek the information requested by the Part 18 request. Some form of pre-action disclosure in proceedings in the Chancery Division or an application within those proceedings would seem to be the appropriate course.”

I was informed by both counsel during the hearing that no SOCA has yet been ordered in any of the claims but, as set out above, when this judgment was being corrected (in draft) I was informed as set out at para 118 above that some have SOCA orders in place. The stage they are at is that pleadings have been ordered and provided. Case management is needed going forwards as to whether part of the claims should be transferred/treated as part 7 claims and heard in the Chancery Division.

In relation to the Cash Account the Judge ruled that:

“30 … The intention of the bill and cash account is, as I have quoted above, to provide a complete record of the financial transactions between the solicitor and the client during the period of the retainer. The extent of the solicitors’ charges and the payments that have been made on behalf of the client can be compared to the sums paid by the client so that an outstanding balance, in one direction or other, can be paid over.”

“50.

Whichever description is taken, a cash account is no more than a ledger showing receipt of monies during the retainer, invoices rendered and the payment of items such as damages or purchase monies to others. The payment of an insurance premium to the ATE provider fits into this category. The client has taken out the insurance and the solicitor, as his agent, pays for it by sending money to the ATE insurer, often at the end of proceedings upon receipt of monies from the losing opponent.”

“52.

When looking at the nature of the cash account, I have given the example of a solicitor paying out monies to another party on behalf of the client. There is no possibility, in my view, of the court in Solicitors Act proceedings, making any enquiries as to the adequacy of that sum of money. The remedy of the client if the monies paid out had in some way be in error would be to bring proceedings against the solicitor for breach of one of a number of potential duties. I can see no reason to distinguish between the ATE premium and any other cash account payment in this respect.”

Here I consider that the Judge fell into error. In my judgement the Cash Account cannot be signed off in the SOCA and no order can be made by the CJ for sums to be paid to or by the Defendant or the Claimants unless the items in the Cash Account are accurate and certified by the CJ. If they are in dispute, that dispute must be resolved before the final SOCA order can be made between the parties.

The Judge ruled (para. 37) that a challenge to the ATE premium should be determined in the Chancery Court.

I reject the Claimant’s clever, but ultimately faulted submission, that assessment of the ATE premium can occur in a SOCA through the back door route of it being listed in the Cash Account in the wrong sum and assessed there. A challenge to the quantum of the ATE premium is usually more of a Chancery matter. However secret commissions may or may not be solely for Chancery. If the solicitor has complied with the SC rules, full disclosure of the commission will make the situation clear on paper. A simple paper trail may determine whether the commission is owed to the client or not. If evidence is required, the CJ will need to consider how much and where the best forum for determination is.

The Judge held that:

“Conclusion

60.

For these reasons I dismiss the claimant’s application to compel the defendant to answer the Part 18 request for further information.”

Taking into account what I have set out above about hybrid hearings and transferring parts of part 8 claims to the Chancery Division for determination if that is necessary, I do not consider that the right way to go forwards in these claims was or would be to require the Claimants to issue 150 or less part 7 claims relating to the alleged secret commissions. These commissions were very small sums. The issuing fees alone would be substantial. The better way for these issues to be dealt with would be to consider the correct Judge/transfer to the Chancery Division, at the next case management hearing after disclosure has been provided and the part 18 answers have been provided, certified by a statement of truth, and to determine the scope of the SOCA orders at the same time. The issues may involve quantification of the ATE premiums or the proof of the existence of and reason for the alleged secret commissions.

I consider that the Judge fell into error when refusing to order the Defendant to answer the part 18 requests relating inter alia to the alleged secret commissions.

I rule that, properly to facilitate the efficient handling of the next case management hearing, the part 18 requests should be answered so that the Judge can get a proper grasp of the issues, the Claimants can determine whether there is anything to worry about, or whether it is all a storm in a teacup, and the Defendant can consider whether to fight or settle the claims for alleged secret commissions.

I did offer the Parties a way out of the secret commission issue by suggesting that a partner in the Defendant firm sign a statement of truth on the Cash Account in Raubenheimer, but no agreement could be reached on whether that would fully bite on the issues, so the parties did not accept that this suggestion would resolve the issues.

Once the part 18 requests are answered and the Defendant provides disclosure the Raubenheimer claim, it will go with the other lead claims in Edwards, for determination of where, when and by whom the alleged secret commission issues will be tried (or assessed).

I take into account the law relating to appeals from case management decisions and I rule that the threshold is passed to overturn this case management decision.

For the reasons set out above I allow the appeal by the Claimant in Raubenheimer and order that the Defendant shall answer the part 18 requests.

I dismiss the Defendant’s appeal in Edwards & others v Slater and Gordon and I allow the Claimant’s appeal in Raubenheimer.

I intend currently to make the following costs orders, subject to any submissions.

The Claimants shall draw up the order and submit it to the Court by 10 am on 13 May 2022.

If a hearing is needed to deal with other consequentials then it can be listed before me for an additional 1 hour on the date to be fixed and my clerk should be kept informed.

List of Issues and where the Parties say they should be heard: