Solicitors cannot recover ‘cost of funding’, CA rules – but approves £10m ATE premium

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By Legal Futures

13 October 2011

Court of Appeal: £9.7m premium recoverable in full

Solicitors cannot recover the cost of arranging conditional fee agreements (CFAs) and after-the-event (ATE) insurance, the Court of Appeal ruled yesterday.

The Master of the Rolls Lord Neuberger also said that where a judge finds that base costs appear to be disproportionate, “he should only allow any item on the bill if he was satisfied that it had been necessary”.

These were the two significant reversals of Senior Costs Judge Peter Hurst’s ruling in Motto & Ors v Trafigura, which involves a £105m costs bill submitted by London firm Leigh Day & Co after it settled the infamous Trafigura group action for £30m.

In its eagerly awaited decision on nine preliminary points ([2011] EWCA Civ 1150), the Court of Appeal upheld Master Hurst’s reduction of Leigh Day and counsel’s success fees from 100% to 58%, as well as his decision to allow recovery of FirstAssist’s £9.7m ATE policy in full.

On the cost of funding, Lord Neuberger said: “Costs incurred in connection with a CFA and ATE insurance are ultimately attributable to the need of a litigant to fund the litigation as opposed to the actual funding of the litigation itself…

“Until the CFA is signed, the potential claimant is not merely not a claimant: he is not a client. When advising a potential claimant on the terms and effect of the CFA, the solicitors are acting for themselves, not for the potential claimant: the solicitors are negotiating with him as a prospective client, not for him as an actual client.”

He said any costs of getting business “should generally be treated as part of a solicitor’s general overheads or expenses, which can be taken into account when assessing appropriate levels of charging, such as hourly rates”. That solicitors are required by the code of conduct to discuss funding with their clients neither means they should not be able to charge for it, nor that they should, Lord Neuberger said.

Costs incurred in discussing the progress of the litigation with the ATE insurers are also not recoverable, he continued. “The precise dividing line between recoverability and irrecoverability is, perhaps inevitably, somewhat blurred and subjective. However, as I see it, the cost incurred in having such discussions and taking such instructions was not so much a cost of the litigation as a cost which was collateral to the litigation, being a cost incurred to ensure that the claimants were not at risk on costs.”

On proportionality, Lord Neuberger followed Lord Woolf’s reasoning in the benchmark case of Lownds v Home Office [2002] EWCA Civ 365 that if “the costs as a whole appear disproportionate then the court will want to be satisfied that the work in relation to each item was necessary and, if necessary, that the cost of the item is reasonable”. Master Hurst had said that if he decided a particular item was proportionate, then he would not need to determine whether it was necessary.

Lord Neuberger said the fact that Lord Justice Jackson’s recommendation – accepted by the government – to replace the Lownds guidelines on the basis that they are too generous to a claimant by allowing for a disproportionate costs award “is another reason for refusing to accede to the claimants’ case that a more expansive approach to assessing costs would be appropriate”.

Leigh Day senior partner Martyn Day said: “The Court of Appeal was very largely supporting what Master Hurst had decided and to the extent we had largely accepted what he found, we are pretty happy with the judgment.”

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