High Court
Mr Justice Eady
Date: 10 November 2011

The Issues: In these cases heard together, the Claimants lost their claims. They both had limited means and neither of them had ATE insurance cover. The Defendants suspected that the Claimant’s solicitors had agreed to be ultimately responsible for some or all of their client’s own disbursements, and the defendants contended that if so, the solicitors were “a real party” to the claim and they should be jointly liable with the claimant for all of the defendant’s costs.

The Defendants applied to the Trial Judge (Judge Malony QC) for a disclosure order intending to shed light on the funding arrangements in place between the Claimants and their solicitors. The application was refused. 

On Appeal, Eady J considered the public policy which underlay the introduction of the CFA regime.  One of the important aims of the new scheme was to discourage weak claims and enable successful Defendants to recover their costs in actions brought against them by indigent Claimants. Eady J considered it unusual for litigants conducting proceedings under a CFA not to take out ATE insurance.

Held:  Appeal allowed. Eady J confirmed that although orders against non-parties were to be regarded as exceptional, a third party costs order should be made in circumstances where there is suspicion that the solicitor had stepped outside his ordinary role of litigation solicitor and was in reality supporting the claim.

In essence, a solicitor would become a funder if he had agreed with his client that if the disbursements could not be recovered from the defendant then the client need never pay them. Any agreement by a solicitor to support his client in this way would only be countenanced by the Court if it equally carried with it the obligation to pay the defendant's costs if the claim was unsuccessful.

An order was made for the claimant’s solicitor to disclose the documents and in the words of Eady J, “Whether, following disclosure, an application for a third-party costs order is made, that is a matter for the future.”

Comments:

1. The standard wording on the Law Society recommended CFA states: “If you lose, you do not pay our charges but we may require you to pay our disbursements.” and if this clause or something similar is not present then the claimant’s solicitor will be personally liable for the claimant’s disbursements. The claimant’s solicitor may then be caught by this ruling – check your CFA.

2. BUT simply having this clause in your CFA is unlikely to be sufficient. There have been previous rulings where the Court has looked not simply at the documentation between the solicitor and his client, but has examined the real intention of those two parties. Where it is clear that the client has no money whatsoever then there is a very real prospect that the court will conclude that the true intention of the parties was that the solicitor was always going to pay the disbursements if the case was lost. This means that if the claimant has no money to pay his own disbursements the court is likely to rule that the real agreement was that he would never have to pay them, and the solicitor is then liable for the defendant’s costs in accordance with this present ruling.

3. In practice, the safest arrangement is to agree that the client is ultimately responsible for his own disbursements, and then to arrange ATE insurance for those disbursements, so there can be no suggestion that the solicitor was agreeing to foot the bill for his client’s disbursements if they could not be recovered.

Additional Point: Making the client liable for disbursements is also important for ATE purposes - if a claimant is unsuccessful and wishes to recover his own disbursements under his ATE policy he must be liable for them in the first place, otherwise he has nothing to reclaim under his ATE policy.

View transcript on http://www.bailii.org/ew/cases/EWHC/QB/2011/2945.html

< Back to case list