RHYS EDWARDS & Ors v SLATER AND GORDON UK LIMITED

The Claimants are members of the public who all suffered different personal injury accidents, wished to bring civil claims and did so through the claims Portal.

The Defendant is a large firm of solicitors who handle, inter alia, personal injury claims. The Defendant represented each and every one of the Claimants in their individual personal injury claims. It submitted bills once requested by the Claimants and made deductions from the damages awards achieved by and for the Claimants.

For the appeals hearing I had a digital bundle of documents for each appeal and one bundle of authorities. I was also provided with the audio recording of the sign up phone call made between the Defendant and Mr Turnbull (deceased), one of the lead Claimants.

PI: personal injury.

PSL: pain, suffering and loss of amenity.

ACOs: adverse costs orders.

URCs: unrecovered costs.

BTE: before the event insurance against ACOs.

ATE: after the event insurance against ACOs.

RTA: Road Traffic Act.

SOCA: solicitor-own client costs assessment.

CJ: Costs Judge.

Retainer: the contract made between a lay client and her/his lawyers for the lawyers to perform legal services work.

CFA: conditional fee agreement made between a claimant and a solicitors firm for the solicitors to conduct the claimant’s PI claim on a no-win-no-fee basis.

CLL: Clear Legal Limited – the Claimants’ solicitors instructed to bring these claims for assessment of the Defendant’s bill of costs and certification of the cash account.

SOC: Statement of Claim.

FSMA: Financial Services and Markets Act 2000.

SC: the Solicitors Code of Conduct for solicitors firms.

SRA FCBR: the SRA (Financial Conduct of Business) Rules.

CCR: Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013.

UTR: Unfair Trading Regulations 2008.

The Defendant in Edwards & Ors appeals the decisions made by CJ Rowley (the Judge) on 15 September 2021 whilst managing the interlocutory stages of the claims. All the claims were brought by the Claimants under CPR Part 8 for SOCAs of the Defendant’s bills to challenge the deductions made by the Defendant from the Claimants’ damages.

The challenged decisions of the Judge in Edwards are:

the order requiring the Defendant to provide standard disclosure relating to the pleaded issues;

the Judge’s refusal to stay the claims or to order the Claimants’ solicitors to provide security for costs of £700,000 or less;

for the Defendant to pay the costs of the applications.

The Claimant in Raubenheimer appeals the Costs Judge’s refusal to order part 18 replies to requests made by the Claimant.

At the root of the disclosure application appeal is the issue of whether in a part 8 claim for a SOCA the CJ has power to order disclosure. In addition the Defendant asserts disclosure should not have been ordered.

At the root of the Defendant’s appeals relating to the applications for a stay and for security for costs lay the issue of whether the retainer between CLL and each of the Claimants was an illegal/unlawful/unregulated insurance contract and/or was champertous and whether CLL were impecunious.

At the root of the appeal over the part 18 request is the Claimant’s (Raubenheimer’s) desire for answers from the Defendant as to the secret commissions allegedly paid by a certain ATE insurer (now in liquidation) as a result of the ATE policy taken out in his personal injury claim by the Defendant on his behalf.

Under CPR rule 52.21 every appeal is a review of the decision of the lower court, unless the court rules otherwise or a practice direction makes different provision, it will not hear oral evidence or new evidence which was not before the lower court.

I take into account the decision in Grizzly Business v Stena Drilling [2017] EWCA Civ 94, at paras. 39-40, which was that any challenges to findings of fact in the court below have to pass a high threshold test.

Appeals from case management decisions have a high threshold test, see Royal & Sun v T & N [2002] EWCA Civ 1964.

I also take into account that in Abdulle v Comm of the Police [2015] EWCA Civ 1260 Lewison LJ ruled that:

I take into account the judgment of Mrs Justice Yip in Razaq v Zafar [2020] EWHC 1236 (QB)

In the old days, when the world was young, the Government provided legal aid to injured claimants in most personal injury claims and that, along with Union funding, paid the claimants’ lawyers to fight PI cases. If the cases were won the defendants paid the claimants’ lawyers costs, if the cases were lost the Legal Aid Board or the Unions paid the claimants’ lawyers.

Legal Aid for PI claims was withdrawn in 1999/2000 and thereafter a system was set up for claimants to be able to contract with their lawyers under regulated conditional fee agreements (CFAs). These so called “no-win-no-fee” agreements meant that the claimants could sue without much or any risk of having to pay ACOs. Success fees for claimant lawyers were allowed to offset the risks of losing the more risky cases, but those are not the subject of these appeals and so I move on. CFA ATE insurance was created so that claimants could take out ATE policies to insure against the risk of losing and having to pay ACOs. Thus claimants were protected from the downside risks of litigation.

At first the law allowed claimants to recover the success fees charged by their lawyers in their CFAs from the defendants if they won their claims. In addition they were permitted to recover their ATE premiums from the defendant as well. Later the law was changed to prevent recovery from defendants in most (but not all) PI claims so that the claimants themselves had to pay their lawyers success fees out of damages. There was a cap placed on the amount of success fees which could be deducted from the damages recovered of 25% of the past loss and the PSL awards. A small mark-up was created at the same time so that a 10% increase on awards of PSL was meant to offset or mitigate the deduction. In addition claimants had to pay their own ATE premiums in most cases. Many PI solicitors chose the business model called “CFA Lite” under which they did not take their URCs from the clients’ damages.

Throughout the whole of these regulatory changes claimants’ lawyers were always permitted to deduct their unrecovered costs (URCs) from the claimants’ damages awards so long as the relevant legal protections for their clients – the claimants, had been satisfied. If there were challenges made by claimants to their lawyers’ bills of costs, either to the validity of the retainer or the entitlement to make deductions, the process for making such challenges was by part 8 claim leading to solicitor-own client costs assessments: SOCAs.

In 2010 the Portal was created initially to cover small RTA PI claims. The limit for RTA claims was up to £10,000 in total value (maximum £5,000 for PSL) but that was increased to £25,000. It also covers employers liability claims which are not relevant in this appeal. Fixed costs were introduced so that insurers were not overburdened in such claims with claimants’ legal costs, to stream line the process and to eradicate costs assessment in Portal claims. A new electronic, paperless process was created for the Portal to make it efficient. Evidence was carefully controlled and limited. Efficiency was required. The Portal had and has three stages:

Stage 1: submission of the Claim Form.

Stage 2: evidence for the claim and then settlement.

Stage 3: trial of the claim and an award of damage or dismissal of the claim and a fixed costs order.

The costs allowed to be paid to the claimants’ solicitors for Portal claims were fixed at each stage. Claimant firms had to adapt their business models to be able to operate at a profit when running PI claims through the Portal. CFAs are used by many firms to fund PI claims in the Portal. ATE insurance was arranged by some firms to pay the downside risk for claimants of the litigation: namely ACOs.

The Portal covers various types of PI claim and includes those under the Pre-action Protocol for Personal Injury Claims below the Small Claims Limit in Road Traffic Accidents (official title: the RTA Small Claims Protocol), which I shall refer to as “the Protocol”.

Some solicitors firms (the Defendant being one of these) who do Portal work consider that they do not make sufficient profit from the work without taking a deduction from the client’s damages to make up the shortfall between the work done on the claims on an “hourly rate” basis and the fixed fees recoverable under the rules from the Defendants when the claims are settled or won. These deductions are for unrecovered costs: URCs. They are sums deducted from claimants’ damages which are kept by the claimants’ solicitors to pay the solicitors’ fees over and above what the solicitors receive from the losing defendants.

The Defendant signed up the Claimants on their standard form CFAs for their individual PI claims and all the claims were run through the Portal. I do not know whether all stayed in the Portal or some exited. All were won or settled. Damages were payable to each Claimant. The Defendant deducted from each Claimant’s damages various sums relating to Slater and Gordon’s URCs and the ATE premiums.

The Claimants were dissatisfied with the Defendant’s URC deductions from their damages settlements or awards and all retained CLL to request the Defendant to submit bills of costs and then to bring part 8 claims for SOCAs of the Defendant’s bills. The claims were all issued and now there are approximately 150 claims in which the Claimants seek to challenge the deductions made by the Defendant. Mr. Raubenheimer and the Edward’s Claimants also challenged the placing of the whole ATE figures in the Cash Accounts suspecting that secret commissions have been paid to Slater and Gordon which should be credited to the Claimants.

Each individual claim for a refund of a deduction is comparatively modest and as a result the Courts need to manage the cases in a proportionate manner.

I was informed by counsel that none of these claims has yet been made the subject of a SOCA order.

By an Order made by CJ Rowley on 14 April 2021, 10 lead claims were selected (5 by each party). The other 140 cases are stayed pending the resolution of the lead claims. In the Edwards claim the Claimant was ordered to draft and serve a Statement of Claim and the other 9 Claimants were permitted either to adopt that or to plead themselves by 12 May 2021. The Defendant was ordered to serve a Statement or Statements of Reply by 2 June 2021.

I have seen only the SOC (dated 14 May 2021) in the Edwards claim but it is expressed to be from “the Claimants” plural. I do not know if this was adopted by the other 9 lead Claimants. In it, in summary:

the Claimants relied on the audio recordings of the sign up process with Mr. Turnbull, who is now sadly deceased and whose claim is now continued by his personal representative “Piper”. I am informed a full refund has been paid and the claim is therefore settled.

The Claimants pointed out that the relevant documents on the Defendant’s files had not yet been disclosed and challenged the validity of the retainers inter alia on regulatory grounds and consumer legislation grounds.

The Claimants asserted that the Defendant received on each claim a “pecuniary award or advantage” (which in this judgment I shall refer to as the secret commission allegations) as a result of arranging the ATE insurance to cover the risk of ACOs on losing each claim. The Claimants referred to a part 18 request made for details of the alleged secret commission received by the Defendant on each claim. The Claimants pleaded that they were entitled to a refund of any secret commission on various legal grounds: fiduciary duty, the SC (Rule 5.1), the SRA FCBR (Rule 16) and the FSMA S.327. The Claimants asserted that any secret commission should be set out in each Claimants’ “Cash Account”. That is a defined term to which I shall return below.

The Claimants asserted that the retainers were void due to breaches of the CCR, the UTR, the CRA and due to multiple failures to comply with the Solicitors Code relating to providing best information to clients before the signing of their CFAs and before making deductions from damages.

Furthermore, the Claimants asserted that the Defendant’s written retainers: its CFAs, were ambiguous and unclear as to the URCs deductions which it would make from the damages recovered by each Claimant and failed to comply with CPR r.46.9(2) and (3). So the Claimants asserted that under the Solicitors Act 1974 S.74(3) and due to a lack of “informed consent” the Defendant was not permitted to deduct any URCs from damages.

Furthermore, the Claimants asserted that the sign up process the Defendant used was not fair and they were not properly or adequately “informed” in relation to URC deductions. In relation to Mr. Turnbull (deceased) the written text in the CFA relating to URCs was in very small font and was on pages 8 and 14 and yet the signing process involved the Defendant’s agent sending an e-document link in an email whilst Mr. Turner was on the phone, and requesting him to “click” a link which opened a digital document and then requesting him to “click” a box which meant the CFA was signed by the Claimant. All this occurred within less than one minute from opening the e-document so Mr. Turnbull had no time to read the detailed small print. The Claimants assert that this process gave none of the Claimants sufficient time to read the small print relating to URC deductions in the long digital CFA e-documents.

In the Reply (dated 4 June 2021) in summary:

The Defendant complained that the SOC lacked particularity; that the Claimants had all relied on the Turnbull CFA, not their own CFAs; denied carrying any fiduciary duties or breaching them in any event; denied breaches of regulatory or consumer legislation; alternatively asserted such breaches were not issues for SOCA assessment; pleaded that the Defendant did recommend ATE and the CFA provided for the Defendant to apply for it on behalf of the Claimants.

In relation to the secret commission allegation the Defendant pleaded:

In relation to the CFA terms the Defendant pleaded they expressly provided for deductions from damages of URCs up to 25% of the damages and that the requirements of informed consent were complied with and that the Defendant had provided each Claimant with the best possible information and there was no omission of material information given to the Claimants.

CLL are the Claimants’ solicitors in these claims. Having been challenged on their retainer, the Defendant challenged back by applying on 26 May 2021 for a stay of all of the claims on the basis that the CLL retainers with the Claimants were unlawful insurance contracts and/or that CLL were acting in a champertous manner by providing indemnity to the Claimants for ACOs and by taking their fees out of any sum recovered. The Defendant also applied for security for costs on the basis that CLL were funding the claims and were impecunious and could not afford to honour the indemnities.

On 14 June 2021 the Claimants applied for disclosure from the Defendant of documents on their files or in their possession, custody and power relevant to the pleaded issues including the audio files of each lead Claimant’s sign up process.

The hearing before CJ Rowley in Edwards & Ors took place on 7 July 2021. Judgment was given on 15 September 2021. The Defendant’s appeal notice was filed on 27 September 2021. A stay pending appeal was granted by Saini J. on 28 September 2021 in relation to the costs order and the disclosure order and permission to appeal was granted by Martin Spencer J. on 16 December 2021.

On 3 February 2022 at the request of the parties I ordered both appeals in Edwards v S&G and Raubenheimer v S&G to be heard together and (not by consent) I set aside the stays. On 2 March 2022 Bennathan J re-imposed the stay on the disclosure order but left the costs order in force. I assume it has been paid by Slater & Gordon.

On 18 June 2021 CJ Rowley gave judgment on the Claimant’s part 18 application in Raubenheimer refusing the application. The order was made on 16 July 2021. That order is also appealed by that Claimant.

I heard the appeals with a CJ sitting as an assessor to whom I am grateful for his wisdom and guidance. However the judgment herein is my own and I do not purport to make rulings on his behalf.

To summarise again: in Edwards CJ Rowley granted the Claimants’ disclosure application and rejected the Defendant’s applications for a stay of the claims and for security for costs against CLL. In Raubenheimer CJ Rowley rejected the Claimants’ part 18 application. Those decisions are appealed.

In Edwards my summary of the reasoning in the 15 September 2021 judgment is as follows.

The Claimants applied for standard disclosure under CPR part 31 because the usual process for assessment on a solicitor and own client basis was inadequate, omitting as it does any express disclosure requirement. In the alternative the Claimants invited the Court to exercise its general case management powers so to do. The Judge noted that in a part 8 claim CPR rule 46.10 did not provide for disclosure because in most part 8 SOCAs there was minimal dispute as to the facts. Although the Judge noted that in such assessments the judge may hear limited oral evidence or accept written evidence on factual issues. The Judge noted the Defendant’s objection to disclosure and assertion that there was no power in CPR rule 46.10 or elsewhere expressly for disclosure. The Judge noted that the Defendant accepted that a part 8 claim is a claim but asserted that once assessment was ordered it was an assessment not “a claim” and submitted that CPR part 31 did not apply to assessments. At paragraph 16 the Judge noted that the Defendant accepted that the CPR applied to Solicitors Act proceedings. The Judge rejected the Defendant’s floodgate arguments, took into account the limited jurisdiction under part 8 and that part 8 proceedings should not generally be used where part 7 proceedings were more appropriate - for instance for professional negligence claims. The Judge noted that part 8 claims were treated as allocated to the multitrack. The Judge noted that disclosure on a standard basis would be limited to the issues identified in the pleadings and specifically mentioned the audio recording of the sign up of Mr. Turnbull and his belief, on the evidence, that the Defendant had audio recordings for the other lead Claimants which would be relevant.

At paragraph 27 the Judge ruled that he had jurisdiction and power under CPR part 31, to order standard disclosure and even if he did not have that power he had the power under his general case management powers and that the proceedings did involve “claims”.

In relation to the application for a stay the Judge noted that the Defendant was not asserting that the Claimants were companies that were unable to pay, they were individuals, nor that they were outside the jurisdiction. The Judge noted the Defendant’s application was a full frontal attack upon CLL based upon champerty and alleged unlawful insurance provision. The Judge went on to consider the evidence from the Defendant in relation to CLL's Welcome Pack and no win - no fee - agreements and the indemnity provided within those against ACOs. The Judge carefully considered the charging rates set out in the witness statement of Mr. Carlisle and the assertion that the hourly rates were higher than the Court’s Guideline Hourly Rates due to various stated factors. The first was “legal specialism” in the area. The second was the provision of the indemnity against ACOs. The Judge analysed Mr. Carlisle's evidence on the three different types of CFA retainer under which various of the Claimants were contracted. The first being an old retainer with no deduction from the Claimants’ sums recovered and with no success fee but with an indemnity against ACOs. The second being the same but with a higher hourly rate and the third being the same but with no indemnity. The Judge noted that Mr. Carlisle asserted that there was no causal connexion between the indemnity and the hourly rates because the hourly rates were not lower in the retainers where there was no indemnity when compared to the retainers where there was an indemnity. The Judge also noted that in a very limited category of cases, where the claim would be won but no order for costs would be made, CLL could recover their costs out of the sums awarded, capped at a maximum of 20%.

The Judge rejected the Defendant’s submission that because Mr. Carlisle's witness statement had been provided a mere five days, (three working days) before the hearing it should be excluded and took into account that the Defendant did not ask for an adjournment and did not put before the Court any submission that they were so disadvantaged that they could not deal with it without an adjournment.

The Judge then went on to deal with the Defendant’s assertion that CLL had inadequate capital and hence were unlikely to be able to pay out on the indemnities they had given to the Claimants. The Judge accepted that if CLL were providing unlawful insurance without regulation that would be a highly relevant matter for the stay.

The Judge specifically considered Mr. Carlisle's evidence about the lack of an ATE market for ACOs in SOCAs and that CLL had stepped in to plug the gap in the market by providing the indemnity themselves.

At paragraph 55 the Judge considered Morris v Southwark [2010] 4 Costs LR 526 and Sibthorpe v Southwark [2011] EWCA Civ 25, and the decision by Mr. Justice MacDuff (sitting with assessors) on first appeal. The Judge noted that the indemnity and CFA provisions in those claims were characterised as legal services contracts with an indemnity clause and not as insurance contracts. The Judge noted that on appeal the Master of the Rolls stated in his judgment that he rejected the renewed application for permission on the unlawful insurance point and stated that he considered that Mr Justice MacDuff ‘s decision was right on that point. The Judge then considered the Defendant’s assertion that the ruling in Sibthorpe should be distinguished. He rejected that submission. He considered the text of MacGillivray on Insurance Law and the old definition of insurance contracts in Prudential Insurance v Inland Revenue (1904) 2 KB 658 by Mr. Justice Channell. The Judge went on to consider contracts with mixed elements: both insurance and non-insurance related. He also considered the text Collinvaux’s Law of Insurance and Fuji Finance v Aetna Life (1997) Ch 173, and Marac Life v Commissioner of Inland Revenue (1986) 1 N.Z.L.R 694. In addition the Judge considered the Defendant’s submissions in relation to re Digital Satellite Warranty cover (2011) EWHC 122 (Ch) in which Mr. Justice Warren doubted whether the “principal object” test was the appropriate test in mixed contracts. Preferring, as he did, an analysis to distinguish between “principal objects” and “ancillary or minor elements”. The Judge specifically considered whether the principal object (singular) test was too narrow and should be expanded to the plural or altered.

In his ruling at paragraphs 82 to 112 the Judge ruled that the CLL CFA was not an insurance contract. He ruled that it was a contract of legal services and the indemnity provision was peripheral.

In relation to Champerty and also impinging on the issue of alleged unlawful insurance, the Judge considered the evidence in relation to the lack of ATE insurance for ACOs in solicitor and own client assessments and also considered CLL's specialism in the area and the hourly rates they charged. He noted that CLL charged the same hourly rate in CFAs where the indemnity was not provided as in CFAs where the indemnity was provided. At paragraph 108 the Judge referred to his own experience in the SCCO of cases involving CLL being overwhelmingly part 8 claims for SOCAs which were often resolved before any hearing took place. With the recovery of sums generally being modest and which he regarded as relatively low risk claims in his experience. At paragraph 109 the Judge came to the conclusion that the CLL model of business in this field was similar to the field for CFAs for dilapidations claims in Sibthorpe and rejected the suggestion that the CLL indemnity would lead to substantial payouts generally.

When considering whether there was, as a fact, inherent within the indemnity, evidence that the structure of the indemnity was akin to an insurance contract, the Judge considered whether there was a premium or other sum or money passing from the Claimants to CLL. At paragraph 110 he described it as:

In relation to the application for security for costs, under CPR 25.14, the Judge rejected the Claimants’ assertion that section 70 (1) of the Solicitors Act 1974 stood as a bar to any application for sums to be paid into court. The Judge ruled that the bar on making a Payment In order at the time of ordering the assessment did not extend to the whole of the assessment proceedings. I stop there to say that this decision was not appealed by the Claimants so I am not asked to reconsider it in these appeals.

The Judge noted that there was no application for security for costs by the Defendant against the Claimants themselves. This was an application for security against a third party: CLL. The Judge identified that the real issue was whether CLL were providing the indemnity in return for a share of any money which the Claimants might recover in the proceedings. At paragraphs 134 & 137 the Judge rejected the Defendant’s assertion that because, in the small minority of cases, where there was a no costs order, CLL could recover their hourly costs out of the sums recovered (capped at 20%), that recovery could be regarded as “taking a profit share from the proceedings”. Likewise at paragraph 133 the Judge ruled that mere recovery of costs in the SOCAs from the Defendant in a successful claim could not be regarded as a share in the Claimants’ winnings.

In relation to whether it would be just to order security for costs the Judge considered the evidence in relation to CLL's accounts. He ruled that there was insufficient information publicly available for any in depth analysis. The Judge was clearly not prepared to accept the Defendant’s estimated adverse costs total of £700,000 and at paragraph 151 preferred the sum of £135,000. At paragraph 153 the Judge rejected the assertion that CLL could be characterised as motivated by a “commercial” interest in the proceedings and the Judge’s ruling at paragraph 156 was that the gateway in CPR rule 25.14 was not made out in relation to the assertion that CLL had contributed to the Claimants’ costs.

In Raubenheimer the Judge found the following facts. The Defendant’s cash account dated August 2020 showed a payment for the ATE premium of £258.87 made in October 2017 and a later refund of £4.63. CLL communicated with the administrators of Elite Insurance (the ATE providers to the Defendant) who admitted that payments were made by Elite to unknown persons relating to the Claimant’s claim as follows:

The Judge noted [at paras 7 and 9] that:

The Judge noted that the Defendant relied on the judgment of the Master of the Rolls in Herbert v HH Law [2019] EWCA Civ 527, in which the Court ruled that in Solicitors Act 1974 SOCAs the CJ cannot assess the amount of the ATE insurance premium and the claimant cannot challenge it. Such challenges must be brought in separate proceedings.

The Claimants submitted that the Cash Account was to be assessed or approved in the SOCA and to that extent the ATE premium had to be considered and that the information would help to decide whether to pursue another claim. The Judge rejected the second submission and then considered the Cash Account submission.

In relation to the novel issue of whether in a SOCA the CJ can assess the ATE premium after the assessment of the bill of costs when the CJ has to consider the Cash Account and certify the final sum due between the Claimant and the solicitors, the CJ ruled against the Claimant [para 38]. An exposition of the history of SOCAs and how they focus on the solicitor’s bill of costs and disbursements and how those items are different from the solicitor’s Cash Account for the Claimant, which contains a record of receipts and payments relating to the Claimant’s case, is in paras 15-21 of the judgment. The Judge considered the Court of Appeal’s decisions in Herbert v HH Law and compared an action for an account involving CPR r.40 and PD 40A with assessment of a bill of costs involving CPR part 46 and noted the differences specifically in relation to the evidence needed for a claim for account in the Chancery Division. Finally the Judge rejected the Claimant’s submission that there was inherent jurisdiction in a SOCA to require the Defendant to disclose commissions relating to the ATE premium and that this was not an onerous request.

The Judge ruled that there was no room or jurisdiction for a CJ in a SOCA to consider the composition or adequacy of the ATE premium [paras 51-53], and stated in relation to the Cash Account that:

In the Edwards case, in the Defendant’s grounds of appeal it asserts that CLL's indemnities were unlawful and champertous; that the Judge was wrong to apply the decision in Sibthorpe; the Judge was wrong to hold that the indemnity was subsidiary to legal services; that public policy requires the indemnity to be characterised as an insurance contract and that the impact of the indemnities would be substantial, not minimal, on CLL's business.

The Defendant further asserted that there was consideration for the indemnities and that CLL had an excessive interest in the outcome of the claims, not least because if they won the claims they would not have to pay out on the indemnities. In addition they had control over the claims.

The second ground was that security for costs should have been granted and that it was just to do so based on CLL's lack of assets. The Defendant complained that the Judge should not have investigated the Defendant’s own accounts and ought to have ordered security of £700,000 or less.

The third ground of appeal was that the disclosure order was wrong because the Judge had no jurisdiction to order disclosure under CPR rule 31 which did not apply in part 8 claims and the Statement of Claim was not sufficiently particularised to do so.

The fourth ground of appeal was that the Judge should have excluded the witness statement of Mr. Carlisle because it was late and evasive.

In the Defendant’s skeleton argument, which I shall not summarise other than in the most general way here, the grounds for appeal were expanded. Defence counsel relied on the statements made by CLL in their documentation to the effect that the hourly rate charged under the CFAs was calculated taking into account many matters but also the indemnities that they provided to Claimants. In his submissions defence counsel stated that the correct test for the court to apply to characterise these CFAs as an insurance contract would be simply to ask whether they had “an insurance element” within them. Defence counsel relied on the text of Colinvaux’s Law of Insurance at paragraph 14-040 which he submitted suggests that it does not matter that the insurance element of the contract is not the predominant element when characterising the contract as an insurance contract. The Defendant relied on the PERG (FCA) Guidance at paragraphs 6.3.3 and 6.3.4 and the judgment of Mr. Justice Warren in the Digital case in 2011.

The Defendant asserted that the decision in Sibthorpe of Mr. Justice MacDuff was not binding on this appeal court but did not concede that it was binding on the CJ despite being a decision of an appellate Court. The Defendant asserted that the judgment of the Master of the Rolls on appeal in Sibthorpe could not be cited or relied upon as a result of the Practice Direction in 2001 relating to the citing of authority, stating that decisions on permission to appeal could not relied upon. The Defendant submitted that because the indemnity looked like legal expenses insurance it was indistinguishable from legal expenses insurance, had that been purchased separately by CLL. The Defendant raised what it submitted was a substantial risk to the Claimants that they were being “misled” into believing they had cast iron indemnities when the likelihood was that these cases would be lost, £700,000 worth of adverse costs would be incurred and CLL would not be good for the money to fund the loss. Defence counsel dressed up the application for a stay as something in the best interests of the Claimants because they had been misled into believing that the indemnities were certain to be honoured when on the Defendant’s submission they would not be. I do not consider that submission to have merit.

Defence counsel asserted that consideration for the indemnity was given by the Claimants entering into the CFAs and in particular by the higher hourly rates charged as a result of providing the indemnity. Remarkably, in my judgment, taking into account the fact that the Defendant refused to provide documentation in the part 8 claims between themselves and their previous clients relating to either the retainer or the audio recordings relating to their retainers, defence counsel submitted that the Defendant required CLL to provide disclosure and the details of each of their retainers funding the claims made under part 8.

In relation to Champerty the Defendant submitted that although the CFAs were not champertous the CLL indemnities were champertous. Although the decision in Sibthorpe was contrary to that submission, defence counsel sought to distinguish that case. It was suggested that CLL had too much of a commercial interest in the outcome of these claims and that it would be in the public interest for solicitors firms offering such indemnities to backup CFAs to be regulated by the insurers regulator.

In relation to security for costs, the oral submissions ran along the lines set out in the written skeleton including the repetition that the filed asset statements which showed more than £3 million worth of assets owed by a group company to CLL were, on the Defendant’s case, illusory and inadequate to meet any liability which would arise under the indemnities. Complaint was made that no further disclosure of CLL's financial circumstances had been provided by Mr. Carlisle.

In relation to the application for disclosure the Defendant submitted that SOCAs were carried out under a discreet regime which did not include CPR 31 and it was not right for the Judge to take into account issues such as breach of fiduciary duty and the various regulatory and consumer protection allegations, all of which should only be dealt with under a part 7 claim not in part 8 proceedings. Stopping there, firstly I was not impressed by the contradiction the Defendant propagated in this approach. It challenged the CLL retainers before the Judge (thereby asserting he had jurisdiction to hear that challenge) relying on regulatory insurance law, but asserted the reverse could not occur if the Claimants challenged the Defendant’s retainer relying on regulatory and consumer law. Secondly I asked both counsel to draw up a Word document setting out the issues and indicating which they agreed could be dealt with in a part 8 SOCA and which could only be dealt with under part 7. They did so and it is appended to this judgment at Appendix 1.

Defence counsel also submitted to the Judge that because there is no statement of truth on the Statement of Claim it should be struck out. This was a matter which the Judge rejected in the judgment and was not appealed in the grounds of appeal.

Claimants’ counsel submitted simply that the Judge was right in relation to disclosure, the refusal of a stay and the refusal to order security for costs. The thrust of the Claimants’ response was that the Defendant was making a song and dance in relation to these part 8 claims and was intentionally running up the costs unnecessarily at the same time as refusing to provide either to the court or the Claimants the retainers, the audio recordings relating to the retainers or any other documents which could prove the case which it had itself pleaded, namely that the clients had given them “informed consent” for the URCs deducted from the bills. The burden of proof being on the Defendant to show informed consent, it was, in effect, shooting itself in the foot.

In relation to unlawful insurance the thrust of the Claimants’ submissions was that the process that I should go through should take the following steps:

Determine whether the indemnity on its own can be properly characterised as an insurance provision by reference to the two necessary factors: (a) does the insurer style party have to pay out money or money’s worth on the future occurrence of some fortuity. (b) does the insurer style party receive a premium in money or money's worth whether it be up front or delayed?

Next, if the answer to the first question is: there is no insurance provision, no further analysis is required. If the answer to the first question is: this is an insurance provision, then this Court should consider the various factors necessary to determine whether or not the whole contract is to be characterised as an insurance contract and hence needs to be regulated by the insurers’ regulator. In this step the Court should take into account whether there is a single purpose for the contract or multiple purposes. Put another way whether there is a single objective or multiple objectives. If the contract is a single purpose contract, so the provider seeks to provide insurance for profit, then the Court doesn't need to go any further. However if the contract has multiple purposes or objectives then further analysis is required properly to categorise the contract.

What factors are to be taken into account when characterising a mixed purpose contract? Claimant counsel’s submissions were that the purposes and objectives of the parties needed to be taken into account. In addition the risk needs to be considered and all other factors need to be considered, marketing, the details of the services being provided, the business terms, the regulators of the parties (if any) etc.

Once those factors have been considered it is for the Court to determine whether the main purpose or purposes, objective or objectives of the contract is/are insurance business or whether those purposes are in fact the supply of goods, like washing machines with a guarantee or warranty, or the supply of services, like legal services with an indemnity. Then the court has to determine whether the indemnity is a mere adjunct to or is peripheral to or is ancillary to the main purposes of the contract.

The Claimants relied on MacGillivray on Insurance Law at paragraph 1-008. The Claimants also relied on the decision in Sibthorpe.

In relation to Champerty the Claimants relied on the decision in Sibthorpe in the Court of Appeal, which the Claimants submitted was binding on this Court. In particular the judgment of Lord Neuberger at paragraphs 42 to 44. The Claimants submitted that CLL were not making any financial gain out of the indemnity, quite the opposite, they faced an element of risk of loss. CLL were not in business to sell indemnities. CLL would prefer not to provide indemnities at all. Their difficulty was there was that no ATE market was available so, to assist in CLL’s marketing for such claims based on CFAs, they offered indemnities to clients against the known ACO risks. CLL also relied on the submission that by providing these indemnities they were expanding access to justice.

In relation to the application for security for costs against a Third Party (CLL) the Claimants submitted that the Judge was right in his decision and that the criteria in CPR 25.14 (2) were not fulfilled. Relying on a decision of Mr. Justice Hildyard in RBS [2017] EWHC 463, at paragraph 19, the Claimants asserted that the relevant factors were not in place for a security for costs order. CLL were not running this litigation for commercial profit (other than mere legal fees on an hourly rate), they were running it so that they could do legal work and recover their normal hourly rates. Indeed they might not even recover their normal hourly rates: firstly if they lost they would get nothing; secondly, even if they won they would only recover the rates allowed by the Court on assessment, which might be lower than their normal hourly rates; and thirdly they contracted to make no recovery of unrecovered costs in most claims.

In relation to disclosure, which the Claimants asserted the Judge was right to order, it was submitted that the Court had the power under CPR 31.5 or inherently, to order disclosure and it was correct to do so. The documents to be disclosed were relevant to the issues and could be examined by the parties and later by the Court.

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.

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:

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:

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:

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:

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:

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):

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:

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:

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:

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:

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:

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:

The Judge found at paragraph 110 that it was:

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):

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:

“Please indemnify my Claimants”. When asked: “what premium will you pay?” the response would be: “if the claims are lost, you will pay out the ACOs we will pay you nothing at all.”

When asked: “what if you win the claims?”, the response would be: “you will receive an uncertain but small part of the hourly rate we receive for the legal work we had done on the claims to enable us to win them”.

If then asked: “do you mean the full hourly rate in the CFA?” the answer would be: “well no, not exactly, that may be reduced on assessment by the Court to a lower hourly rate.”

When asked: “well how much of your awarded fees are you going to pay us?” the answer on the evidence would be: “we are not sure but a small percentage, we have to cover our fluctuating staff costs, the property costs, the power and other services costs, our business overheads, the unrecovered costs incurred in the cases we lose and other costs.”

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:

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:

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:

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;

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:

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

The PERG guidance states:

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):

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):

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):

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:

Determine whether the indemnity term / wording on its own can be properly characterised as an insurance provision by reference to the two necessary factors: (a) does the alleged insurer contract to pay out money or money’s worth on the future occurrence of some chance or fortuity. (b) Does the alleged insurer receive a premium in money or money's worth for the contract so to pay, whether it be upfront or delayed?

If the answer to the first question is: there is no insurance provision, then no further analysis is required.

If the answer to the first question is: this is an insurance provision, then this Court should consider the various factors necessary to determine whether or not the whole contract is to be characterised as an insurance contract and hence needs to be regulated by the insurers’ regulator or not. In this second step the Court should determine whether the contract is a single purpose contract.

Single Purpose contract: the Court should determine whether there is a single purpose for the contract or multiple purposes. Put another way whether there is a single objective or multiple objectives. Put another way whether the contract is just for insurance or indemnity or also for something else as well. If the contract is a single purpose contract, so for instance the provider seeks to provide insurance for premiums, then the Court doesn't need to go any further. However if the contract has multiple purposes or objectives or contracted for activities then further analysis is required properly to categorise the contract.

Mixed purpose contracts: What factors are to be taken into account when characterising a mixed purpose contract? I consider that the following are relevant in these claims:

the purposes and objectives of the parties; and

the proposed and contracted future activities of the parties; and

the moneys or benefits in kind moving between the parties and third parties and how they are calculated; and

the full terms of the contract including termination clauses, arbitration clauses and variation clauses; and

where the risks fall; and

the marketing carried out by the parties; and

the businesses of the parties; and

the regulators of the parties (if any); and

all factors relating to the contract and what it looks like to an objective bystander.

Once those factors have been considered, it is for the Court to determine whether the main purpose or purposes, objective or objectives of the contract is/are insurance business or whether those purposes are in fact the supply of goods, like washing machines with a guarantee or warranty, or the supply of services, like legal services with an indemnity. Then the Court has to determine whether or not the indemnity is a mere adjunct to, or is peripheral to, or is ancillary to the main purposes of the contract.

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:

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:

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):

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:

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:

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:

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:

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:

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 Claimant’s costs of the Claimants’ appeal in Raubenheimer shall be paid by the Defendant.

The Claimants’ costs of the Defendant’s appeal shall paid by the Defendant.

If not agreed, I will assess the costs summarily at a hearing listed for 1 hour at a date to be fixed before 21 May 2022.

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.