I have returned from my Easter holidays, with a sense that the pace of events is quickening.
Today sees the final round of the French presidential election, with the population invited to choose between two candidates, charmingly described as offering them a choice between plague and cholera, the corks of Party-gate are still popping, and Mordor presumably being full, the government proposes to send the poor and desperate to have their papers checked in Rwanda.
How did it come to this? In a sense it is a relief to turn to some intricate questions of costs law.
This week will see the appeal to the High Court in the case of Edwards v Slater & Gordon UK Limited Master Rowley SCCO 15th September 2021 which it will be recalled involved a number of issues, the principal one of which the court described in these terms in paragraph 29 of its judgment:
The defendant’s application is a full frontal attack upon the Clear Legal business model as it applies to the 10 cases that have been grouped together and indeed in respect of other proceedings brought by Clear Legal against this defendant. It is the defendant’s case that Clear Legal are acting champertously and / or are providing insurance unlawfully to at least some of the claimants; that they do not have the wherewithal to meet adverse orders for costs and as such is a company made of straw as far as the indemnity it has provided to some claimants is concerned and has left those who are not indemnified unaware of their potential liabilities. These are serious allegations and they are robustly denied by Clear Legal.
The full frontal attack failed before the Master: whether a different result will pertain before the High Court judge remains to be seen. However the case is interesting, as the appellate decision will cast light upon the vexed question of whether a solicitor acting for an impecunious client who either cannot obtain, or does not wish to pay for ATE insurance, can offer that client an indemnity for any adverse costs they may become liable to pay.
If you are wondering why any solicitor would wish to start incurring potential liabilities of this kind, the answer lies in the large number of low value claims in obscure areas of practice, which the ATE insurance companies either have no interest in insuring, or if they were prepared to offer terms would demand eyewatering premiums for the benefit of a policy.
If no such adverse costs protection can be obtained, then either the claim does not proceed, or it proceeds with the client on risk. In such circumstances a solicitor already shouldering the risk of unrecovered disbursements, or having to write her own fees off, may regard it as a natural extension of their role to offer an indemnity, for the further potential element of costs a client may incur, namely adverse costs to their opponent.
But it is far from clear on the authorities that a solicitor’s role extends so far. The authority which does support the position that a solicitor may, at least in certain circumstances, offer such an indemnity is that of Morris and Sibthorpe v Southwark London Borough Council [2011] EWCA Civ 25. However since that decision was handed down, the law has moved on. In particular the scope of a solicitor to act in ways that would otherwise constitute maintenance or champerty was considered recently in the case of Farrar v Candey Limited [2022] EWCA Civ 295. That decision repays careful reading for any solicitor contemplating offering an indemnity to a client.
29. The third rule is the rule against champerty. As Lord Phillips of Worth Matravers MR delivering the judgment of the Court of Appeal consisting of himself, Robert Walker and Clarke LJJ explained in R (Factortame Ltd) v. Secretary of State for Transport, Local Government and the Regions (No 8) [2002] EWCA Civ 932, [2003] QB 381 at [31]-[32], a person is guilty of maintenance if they support litigation in which they have no legitimate concern without just cause or excuse. Champerty occurs when a person supports litigation and stipulates for a share of the proceeds of the action or suit. Although champerty was formerly regarded as an aggravated form of maintenance, more recently it has been recognised that there can be champerty without maintenance: see Sibthorpe v Southwark London Borough Council [2011] EWCA Civ 25, [2011] 1 WLR 2111 at [55] (Lord Neuberger of Abbotsbury MR, with whom Lloyd and Gross LJJ agreed).
30. Maintenance and champerty used to be both crimes and torts, and thus a champertous agreement was void. Sections 13(1) and 14(1) of the Criminal Law Act 1967 abolished both the crimes and the torts of maintenance and champerty. Section 14(2) provided, however, that this “shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.” Thus champerty survives as a rule of public policy capable of rendering a contract unenforceable. As such, the observation of Danckwerts LJ in Hill v Archbold [1968] 1 QB 686 at 697 is equally applicable to champerty:
“… the law of maintenance depends upon the question of public policy, and public policy … is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time.”
31. It is because of the rules against maintenance and champerty that, prior to 1990, it was consistently held that solicitors could not conduct litigation pursuant to agreements under which they only recovered their fees if their client was successful or under which they took a share of the proceeds.
Further considering authority the Court of Appeal noted:
38. Finally, in Rees v Gateley Wareing [2014] EWCA Civ 1351, [2015] 1 WLR 2179 this Court held that a contingency fee agreement between the claimants and the defendant firm of solicitors in respect of work done in relation to the recovery of sums owing to the claimants as a result of the sale of property, including work on litigation conducted by another firm of solicitors, under which part of the defendant’s charges would be a percentage of the recoveries was unenforceable as being champertous since it did not fall within section 58 of the 1990 Act. As Lewison LJ, with whom Elias and McFarlane LJJ agreed, stated at [33]:
“Where legislation has provided for conditional fees and contingent fees to be lawful in certain cases, those cases must be taken to be the limits of what is permissible, and the courts should not create any further cases: Awwad v Geraghty & Co [2001] QB 570, 593G, 600E; Factortame Ltd (No 8), para 61.”
The Court of Appeal concluded thus in the appeal before it:
51. I do not accept this argument for two reasons, each of which can be shortly stated. The first is that this Court is bound by its previous decision in Pittman v Prudential that a solicitor acting for a client in legal proceedings may not validly take an assignment of the client’s cause of action prior to judgment. The second is that this Court is bound by its previous decisions in Awwad v Gerachty and Rees v Gately Wareing, reinforced by the powerful obiter dicta in Factortame and Sibthorpe v Southwark, that a champertous agreement not sanctioned by the 1990 Act remains contrary to public policy and is therefore unenforceable.
52. When confronted with the problem of precedent during the course of argument, counsel for CANDEY’s response was to argue that this Court was not bound by its own precedents in circumstances where statute demonstrated that the underlying public policy had changed. He was unable to cite any authority in support of this submission, however. In any event, Awwad v Gerachty and Rees v Gateley are recent decisions of this Court which establish that there has been no relevant change in public policy. Even if it was open to this Court to depart from the previous authorities, I would not do so. I consider the reasoning in those cases and in Factortame and Sibthorpe v Southwark to be entirely convincing. Section 58(1) of the 1990 Act is explicit that conditional fee agreements that do not comply with all the relevant conditions are unenforceable. The same is true of section 58AA(2) of the 1990 Act and damages-based agreements. It is no answer to this point that the Assignment is neither a conditional fee agreement nor a damages-based agreement: what section 58(1) and section 58AA(2) show is that Parliament, being well aware of the common law rules, decided to go so far towards relaxing them as sections 58 and 58AA provide and no further.
One interpretation of this case, is that if a solicitor offers any form of contingent funding arrangement such as an indemnity, which falls outside the scope of the Courts and Legal Services Act 1990, then it is liable to fall foul of the prohibitions on maintenance and champerty, which still exist: the Act creates an island of legality, in a sea of illegality, and there are no more bridges to be built, by the common law.
If that is so, then it creates a tension with the result in Morris and Sibthorpe: a contrary interpretation would require this latter decision of the Court of Appeal to be read more narrowly, noting that it was concerned with the fairly unusual circumstances of a solicitor taking an assignment of a client’s cause of action, which is somewhat further removed than the question of a solicitor giving a client an indemnity.