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Callery v Gray, House of Lords

2 July 2002
The issues

Conditional fees – role of the House of Lords.

The facts

The Claimant entered into a CFA with Amelans at the same time as instructing them to pursue a claim for damages. The CFA said that if the Claimant succeeded in his claim for damages, he would pay Amelans basic charges and a success fee and that win or lose, Mr Callery would have to pay disbursements. The success fee was put at 60% of the basic charges, provided that if the Court disallowed any of the success fee, the amount would cease to be payable under the agreement. Six days later he took out an ATE Insurance Policy with Temple Legal Protection Limited of £350.00 plus £17.50 Tax, indemnifying him up to a limit of £100,000.00 for other side’s costs and all of Claimant’s disbursements, other than those ordered to be paid by the Defendant. Two weeks after the ATE Notice was taken out, the Claimant’s Insurers admitted liability save as to causation and on the 2nd August, 3 months after the policy was taken out, the claim was settled for £1,500.00. At Assessment, the District Judge allowed a 40% uplift and the premium as claimed. Before the Court of Appeal, the uplift was reduced to 20% and the premium (after a separate and second Judgment from the Court of Appeal) allowed. The Defendant appealed to the House of Lords.

The decision

Appeal dismissed.
(Lord Scott dissenting as to the recoverability of the premium alone)

1. Whilst there was force in the Appellant’s contention that a 20% uplift was generous, given the miniscule risk of failure in the claim; that it would have been reasonable to await a reply from Mr Gray or Insurers before obtaining the after the event cover; and that the premium charge was unreasonable and disproportionate, the House should not intervene because:-

(a) Responsibility for monitoring and controlling the development of practice lay with the Court of Appeal and not the House of Lords which should be slow to intervene;

(b) Information was sparse at this early stage and the practical development of the new funding regime. Market experience was meagre and trends hard to discern. The guidance the Court of Appeal had given was provisional, to be reviewed in the light of increased knowledge and experience (Lord Bingham)

Comments

Whilst Lord Bingham’s speech sets out the germ of the decision with admirable clarity, Lord Hoffman’s speech is worth reading for some general points that he makes and may give both Claimants and Defendants pause for thought in this developing market. Notably, Lord Hoffman (paragraph 32) picks up on the problem of circularity when talk is made by the Judiciary of the importance of the market. The decisions of costs Judges are themselves part of that market. (If this is forgotten “the exercise becomes circular and costs Judges will be deciding what is reasonable according to general levels which costs Judges themselves have determined. In such circumstances, there is no restraint upon a ratchet effect, whereby the highest success fees obtainable from a costs Judge are relied upon in subsequent assessments”).

And at paragraph 43, he comments, in connection with the ATE premium, “ATE Insurers do not compete for Claimants, still less do they compete on premiums charged. They compete for Solicitors who will sell or recommend their product. And they compete by offering Solicitors the most profitable arrangements to enable them to attract profitable work. There is only one restraining force on the premium charged and that is how much the Costs Judge will allow on an Assessment against the liability Insurer”.

He suggests that not only may this be an area for further needful legislation, but that costs in claims of the type that were before the House, should be governed by fixed fees in all but exceptional circumstances. “A legislative decision to fixed costs at levels calculated to provide adequate access to justice in the most economical way, seems to me a more rational approach than to leave the matter to individual costs Judges”.

Lord Scott’s Judgment is also worth reading, not least for his welcome emphasis on the importance of Judges looking at the facts of the particular case and not being swayed or distracted (as he implies the Court of Appeal may have been) by the wider arguments. “The question whether the paying party should be required to meet a particular item of expenditure, is a case specific question. It is not a question to which the macro economics of the ATE Insurance Market has any relevance”. He was critical of the fact that ATE Insurance had been offered before notifying the Defendant of the claim and obtaining the Defendant’s reaction and was obtained not on the footing that the client would be likely to need it, but because it had become practice to offer the policy.

The same reasoning leads him to the view that the success fee should be assessed by reference to the risk in the particular case. It should not be a reflection of types of cases or the caseload of individual Solicitors. “I agree with the Appellant that the Costs Rules and Practice Directions reflect a case specific approach. If the risk of a claim failing is minimal, then, in my opinion, the success fee should be correspondingly low”. If the concerns of Lords Hoffman and Scott in particular are listened to by the lower Courts, Callery may not be the failure which at first light it appears to be.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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