Claim No SGS0802166
BAILII Citation Number: [2008] EWHC 90112 (Costs)
IN THE HIGH COURT OF JUSTICE

Royal Courts of Justice
Supreme Court Costs Office
Clifford's Inn
London EC4A 1DQ

Date: Thursday  17  July  2008

B e f o r e:

MASTER  GORDON-SAKER
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B E T W E E N:

NEIL  MORRIS
	Claimant
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JOHN  DENNIS  (BARNSLEY)  LIMITED
	Defendant
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Tape Transcription by John Larking Verbatim Reporters
Suite 91 Temple Chambers,
3 - 7 Temple Avenue, London EC4Y OHP
Telephone 020 7404 7464
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Mr Howard Colman appeared on behalf of the Claimant

Mr Crawley appeared on behalf of the Defendant

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J U D G M E N T

MASTER GORDON-SAKER:

1.  The claimant is entitled to his costs of his claim for damages for personal injury in the Central London County Court by virtue of his acceptance of a Part 36 payment of £1600 net of Compensation Recovery Unit benefits.

2.  The bill which comes before me for detailed assessment is in the sum of £15,600 odd.  That includes additional liabilities by way of a success fee and by way of an after the event insurance premium because the claimant funded his claim by way of a conditional fee agreement.  That agreement, dated 18 August 2005, was disclosed to the defendant together with a copy of the claimant's solicitors' letter to the claimant dated 12 August 2005.  As a result of the defendant's analysis of those documents this point is raised in the points of dispute:

“The CFA breaches section 58(4)(a) of the Courts and Legal Services Act 1990.  As the success fee in this case exceeds 100 per cent, the statutory maximum of fee payable on success being one of 100 per cent, plus a £176.25 administration fee.  The defendant would refer to Jones v Caradon Catnic Limited [2005] EWCA Civ 1821 and Oyston v Royal Bank of Scotland Plc SCCO No 0508524.”  

3.  There are various other challenges to the conditional fee agreement.  The points of dispute in this section conclude:

"In the premises the claimant's CFA is unenforceable for breaches of regulation 4(2)(c) and (e) and section 58(4)(a) of the Courts and Legal Services Act 1990."

4.  The relevant parts of the two documents to which I have referred are these.  In the letter dated 12 August 2005 it is provided on page 3 under the heading "Administration Charge":

"In addition to our fees and disbursements, if your claim is successful we will make a charge to you of £150, plus VAT, for our administrative work on your case."

In the conditional fee agreement (the pagination of which follows sequentially from the letter) it is provided at page 8 under the heading "Paying":

"If you win your claim you pay our basic charges, our disbursements and a success fee.  The amount of these is not based on or limited by the damages.  You are entitled to seek recovery from your opponent of part or all of our basic charges, our disbursements, a success fee and insurance premium, if any.  Please also see conditions 4 and 6.  It may be that your opponent makes a Part 36 offer or payment which you reject and on our advice your claim for damages goes ahead to trial.  Where you recover damages that are less than that offer or payment, we will not add our success fee to the basic charges for the work done after we received notice of the offer or payment.

....  If you end this agreement before you win or lose, you pay our basic charges.  If you go on to win, you pay a success fee.  Please also see condition 7(a)."

On page 9, under the heading "How we calculate our basic charges", the agreement reads:

"These are calculated for each hour engaged on your matter.  Routine letters and telephone calls will be charged as units of one-tenth of an hour.  Other letters and telephone calls will be charged on a time basis."

The hourly rates are then set out.  Under the heading "Success Fee" the agreement reads:

"This is 100 per cent of our basic charges, but will be reduced to 25 per cent if your opponent admits liability and causation within three months of our sending a letter of claim to them."

Under the heading "Value Added Tax", it reads:

"We add VAT at the rate (now 17.5%) that applies when the work is done to the total of the basic charges and success fee and the administration charge."

Under the heading "Administrative Charge", it reads:

"In addition to our basic charges and success fee, if your claim is successful you pay us an administration charge of £150.  This charge will not be recoverable from your opponent."

5.  The conditional fee agreement incorporated the Law Society Conditions in an amended form.  At paragraph 3(m) of the conditions "Success Fee" is defined as:

"The percentage of basic charges that we add to you bill if you win your claim for damages and that we will seek to recover from your opponent."

At paragraph 3(n) "Win" is defined as:

"Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages.  'Finally' means that your opponent is not allowed to appeal against the court decision or has not appealed in time or has lost any appeal."

Under the heading "What happens if you win?", it reads:

"If you win, you are then liable to pay all our basic charges, our disbursements and success fee.  Please see condition 3(n) and our administration charge."

6.  The effect of that -- and this would not appear to be in dispute  -- is that if the claimant succeeds in his action, he is liable to pay basic charges, the success fee of either 100 per cent or 25 per cent, and the administration charge of £150, plus VAT.

7.  The defendant contends that, on that basis, the success fee is equivalent to 100 per cent, plus the administration fee of £150, plus VAT, and therefore exceeds 100 per cent; that accordingly there is a breach of section 58(4)(b) and (c) of the Courts and Legal Services Act 1990; that the agreement does not comply with the section and is accordingly unenforceable.

8.  The material parts of section 58 provide:

"(1)  A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement but, subject to subsection (5), any other conditional fee agreement shall be unenforceable.  

(2)  For the purposes of this section and section 59(a) --

(a)a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and

(b)a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased in specified circumstances above the amount which would be payable if it were not payable only in specified circumstances.

....

(4) The following further conditions are applicable to a conditional fee agreement which provides for a success fee --

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(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and

(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor."

The prescribed percentage is 100 per cent.

9.  Mr Crawley on behalf of the defendant argues that this agreement does not comply with section 58(4)(b) because the administration fee is part of the success fee by virtue of the definition in section 58(2)(b), but is not stated in terms of a percentage.  Further, the agreement fails to comply with section 58(4)(c) because the 100 per cent that is payable in the event of success, and the £150 payable by way of an administrative charge in the event of success, exceeds 100 per cent.  In support of his argument he referred me to the decision of the Senior Costs Judge in Oyston v Royal Bank of Scotland Plc (16 May 2006).  In that case the claimant's action was pursued under a conditional fee agreement which provided under the heading "Success Fee":

"This is 100 per cent of our base fees.  In addition, you will pay £50,000, provided you recover damages in excess of £1 million."

The defendant argued that the conditional fee agreement was unenforceable by reason of its failure to comply with section 58.  At paragraph 6 of his judgment the Senior Costs Judge said:

"6.  Mr Morgan seeks to overcome his difficulties with the CFA in three ways: firstly, by relying on the deed of variation; secondly, by arguing that there has in any event been no materially adverse effect; and thirdly, by severance of the offending words.

7.  He argues that the original CFA has been rectified by the deed of 16 August 2005 and that the rectification is retrospective to the date of the original CFA and the agreement as rectified does not contain the provisions which were attacked in the defendants' points of claim.  Accordingly, therefore, in his submission the claimant's claim for costs is backed by a valid and enforceable CFA.

8.  Alternatively, Mr Morgan QC submits that the original CFA is enforceable.  Although he accepts that by reason of the inclusion of the stipulation for an additional success fee of £50,000, if the claimant recovered damages in excess of £1 million, the original CFA departed from the statutory scheme.  He submits, however, that there has been no materially adverse effect upon the protection afforded to the client or upon the proper administration of justice.

9.  Mr McLaren QC argues that the original CFA is plainly champertous at common law and also fails to comply with section 58 of the Courts and Legal Services Act 1990.  Given the terms of the deed of variation and the claimant's points of response, this is not controversial."

Thus it would appear that in Oyston there was a concession by the claimant that the conditional fee agreement failed to comply with section 58.  The arguments were in relation to the effect of the deed of variation which removed the reference to the liability to pay £50,000, whether the breach was material and whether the offending words could be severed.

10.  At paragraph 50 of his judgment the Senior Costs Judge said:

"The CFA dated 2 July 2002 is in clear breach of section 58(4) of the 1990 Act."  

There is no further reasoning in relation to that because of the concession that had been made.

11.  Mr Colman for the claimant submits that the administration fee is not part of the success fee.  He points to differences between the present case and Oyston.  In this case, he argues, the administration fee does not form part of the definition of the success fee; in Oyston arguably it did.  In this case the administration fee is payable in the event of success.  It is not payable only if a certain sum in damages is awarded.  In Oyston, he argues, what was effectively being provided for was a share of the damages and that was clearly champertous.

12.  There is, in my judgment, no reason for me to conclude that the administration charge is anything other than what it purports to be.  It is described as a charge for administrative work done on the case.  If the retainer were not based on a conditional fee agreement, there would, it seems to me, be no objection to the solicitor and client agreeing that, in addition to the work charged for at an hourly rate, a lump sum fee should be payable for non-fee-earner work.  Of course, that would be subject to the test of reasonableness and amenable to assessment under section 70 of the Solicitors Act 1974.  

13.  I can see no real distinction between this administration charge and the basic charges that are payable in the event of success.  The success fee is clearly defined on page 9 of the conditional fee agreement at 100 per cent of the basic charges, or 25 per cent in the event of an admission.  On the face of it, the administrative charge does not fall within that definition.  Nor does it fall within the definition at 3(m) of the Law Society conditions, the definition there being that the success fee is a percentage of the basic charges.  

14.  It seems to me that in the event of the claimant failing to beat a Part 36 offer or payment, his liability under the terms set out on page 8 of the conditional fee agreement would be to pay the basic charges and the administrative charge because he had succeeded, but not the success fee.  Again, it seems to me that a distinction is drawn between the success fee and the administrative charge.

15.  Accordingly, in my judgment the agreement does not fail to comply with section 58(4)(b) or (c), because the administration charge is not part of the success fee as defined in section 58(2)(b).  It is not an amount of other fees which are increased in specified circumstances; it is a stand-alone fee payable in the event of success in the same way that basic charges are payable only in the event of success. 

16.  Mr Crawley takes a public policy point that while the administrative charge in this case is relatively modest, it is a not insignificant proportion of the award of damages -- a little under 10 per cent -- but that if solicitors are permitted to charge in this way there would be scope for abuse.  It seems to me that the way of policing the use of these charges is the same as for policing solicitors' charges generally: the client can seek an assessment of the solicitors' costs under section 70 of the 1974 Act.  The scope for abuse in relation to the administrative charge is no different to the scope of potential abuse in relation to solicitors' charges generally.  In my judgment there is no public policy requiring the intercession of the court.