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Spiralstem Ltd v Marks & Spencer Plc, Court of Appeal, 1 August 2007

21 November 2007
The issues

Costs – success fee – ready reckoner – extent to which ready reckoner approach can be departed from.

The facts

The Claimant’s solicitors acted under a CFA dated 13th August 2002 providing for a success fee of 100%, of which 8% related to the costs of the Claimant’s solicitors postponing receipt of payment of their charges. The success fee therefore sought as against the paying party was 92%. This figure was disputed by the Defendant which contended that the success fee should be no more than 40%.

At risk assessment the matter was judged by the Claimant’s solicitors to be a 50/50 case. Applying the “ready reckoner” (the formula devised by the contributors to the Law Society’s publication ”Conditional Fee Agreements Survival Guide”) the success fee should be 100%. The Defendants admitted firstly that this was never a 50/50 case and that the prospect of success at the time of the CFA should have been about 60%; and secondly that the ready reckoner should be adjusted or modified to reflect the fact that here was a split Trial in that liability was determined before there was a separate Trial on quantum.

The decision

The Court had to consider the stage the litigation had reached by the date the CFA had been entered in to. By the time the agreement was signed proceedings had already been issued and Particulars of Claim served. A Defence had been entered and an Allocation Questionnaire completed. It was clear that the battle lines had been drawn and the Claimant knew that Marks and Spencers would not “roll over”. It was unrealistic to suppose that had it really been a 50/50 case the Claimant’s solicitors would have taken “a flyer” and invested a significant sum in terms of personnel and resources, as had been the case. In the Court’s view, the chance of success was 60% and, to that extent, the Defendant succeeded in that using the ready reckoner that would ordinarily give a success fee of 67%.

The Defendant further submitted that the success fee should reflect the fact that the total costs would be spread over the determinations of liability and quantum and that in those circumstances the uplift on the total should be decreased by the percentage of the overall costs likely to be spent on the quantum stage. The Defendant’s argument was that where liability was decided first, with quantum dealt with subsequently, the ready reckoner should be modified. The chances of failing to win the claim should be divided by the chances of succeeding on the claim and multiplied by 100% as usual but, the Defendant argued, the resulting figure should be then multiplied by the percentage of costs expected to be spent on liability as opposed to quantum. That way the solicitors would not receive 100% success fee for the quantum Trial where there was no risk. This, the Defendants argued, was appropriate because the CFA provided only for a single stage success fee.

Using this calculation the 60% chance of success would give a 33% success fee, based on the modified ready reckoner where the percentage of costs expended on quantum was 50%.

The ready reckoner had been recognised by the Court and applied as a proper measure in calculating success fees – see Smiths Dock v Edwards [2004] EWHC1116QB.

If there was to be a modification of the way the ready reckoner was used it was for an Appeal Court to decide the parameters of such a modification. The argument put forward by the Defendants also gave the appearance of being a method of applying different success fees to particular stages of the proceedings, depending upon the level of risk at the material time, even though the success fee at the end would be expressed as one single figure. In Ku, Atack v Lee the Court of Appeal held that that was not permissible. Once the success fee was decided by the Costs Judge it would continue at that level to the end of the case, including the Detailed Assessment. For that reason the Court would not further modify the success fee, which would stand at 67%.

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