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should success fees and ATE premiums within CFA agreements remain recoverable?

28 January 2011
Should success fees and ATE premiums within CFA agreements remain recoverable? 28 January 2011

Following the recommendations of Lord Justice Jackson in his final report and the review of civil litigation costs, the Ministry of Justice (MOJ) published a Green Paper on 15 November 2010 with a consultation period due to expire on 14 February. One of the fundamental issues to be debated is whether or not success fees and ATE premiums within CFA agreements should no longer be recoverable - a key recommendation of Jacksons report.

Whilst the consultation and broader debate continues, the Judiciary has tackled the same issues in two cases decided this month. Both cases have provided useful guidance on how parties to litigation can expect cases to be viewed, pending the outcome of the consultation.

The first is a case which has already garnered a considerable degree of media attention over the past few years. This is the case of MGN v. United Kingdom (Case No. 39401/04), decided by the European Court of Human Rights.

The claim dates back to 2001 and concerns proceedings which were brought by the supermodel Naomi Campbell against the Mirror Group and which concerned the primary issue as to whether or not that by publishing its story, MGN Limited breach the privacy of Naomi Campbell. Naomi Campbell, in bringing the litigation, entered into a CFA with her solicitors, with the CFA containing a success fee of 100.

It was the contention of MGN that the fees it was being asked to pay were unreasonably high because of the existence of the CFA and the success fee. They relied upon Article 10 of the Convention (Freedom of Expression).

The Court found:

"192. The applicants complaint … concerns the impact on it of a costs award which, under domestic law, included success fees calculated at almost twice most of the base costs of two appeals to the House of Lords. The Court considered, and it was not seriously disputed by the Government, that the requirement to pay these success fees, as an unsuccessful defendant in breach of confidence proceedings, constituted an interference with the applicants rights to freedom of expression guaranteed by Article 10 of the Convention".

The Court noted the findings of the Jackson review and in particular four flaws identified by Lord Justice Jackson in the system, which can be summarised as follows:

  • the lack of focus of the regime and lack of qualifying requirements for claimants allowed to enter into a CFA
  • no incentive for the claimant to control the incurring of legal costs on his or her behalf
  • the blackmail or chilling effect of the system of recoverable success fees where it is felt that the other party is "driven to settle early despite good prospects of a successful defence"
  • it is not possible to verify the records of solicitors and barristers to cherry pick winning cases

It should be noted from this case that the CFA regime is not condemned per se. It is high level success fees that have earned the wrath of the Court. Going forward, therefore, it is unlikely that we will see 100 success fees being allowed or, indeed, pursued by claimant solicitors in defamation claims, and perhaps in other areas of litigation.

It must also be recorded that this case was determined under Article 10, namely the freedom of expression. It is binding on the government, though not directly binding on the Courts. The government will, therefore, need to consider its position carefully on CFAs in the light of this decision.

We anticipate, going forward, that solicitors will seek lower success fees and many cost commentators are suggesting that the normal success fee sought will be more in the region of 20 rather than the high figure which we are currently used to seeing.

A second judgment was given in the Technology and Construction Court in the case of Redwing Construction Limited v. Charles Wishart. Redwing brought proceedings against Mr Wishart arising out of his alleged failure to honour an adjudication decision. Redwing entered into a CFA with its solicitors and took out an ATE insurance policy which covered opponents costs, but not disbursements.

The case was resolved in Redwings favour and the decision concerns the costs aspect of the CFA and ATE insurance so far as they relate to extent and scope of recovery.

Mr Justice Akemhead, in his introduction, notes that the large majority of adjudication enforcements are resolved in favour of claimants. Despite this, claimants very often enter into CFAs with their solicitors and "it is difficult to avoid the inference … that this is being done so as to impose greater economic pressure on the defendant to settle early".

He went to slash the success fee in the CFA from 100 to 20. In addition, the premium for the ATE insurance which was being sought from the defendant was £8,480 for £20,000 worth of cover. He judged this to be excessive and ordered that the defendant pay 20 of the premium.

Whilst it is currently unusual to see the Courts take this line, it is the judicial comment in the case that it worth noting. The terminology reflects many of the concerns raised in the Jackson report. Mr Justice Akemhead looked at the reason why Redwing entered into a CFA. This is in line with Jacksons criticism that the ability to enter into a CFA is not linked to ones ability to pay.

Furthermore, at paragraph 16 of his judgment, he notes that so far as adjudication enforcement claims are concerned that:

"It must follow that courts, particularly the TCC which deals with virtually all such cases, will think long and hard about allowing substantial CFA mark ups, particularly when there is a summary judgment application by the party with the CFA. It is important that claimants that do not use CFAs and ATE insurance primarily as a commercial threat to defendants. It is legitimate for the Court to ask itself whether in any particular case a CFA or ATE insurance was a reasonable and proportionate arrangement to make".

Whilst it may be many months before we know for certain what the government intends to do with regard to civil costs, it does seem from these decisions that claimant solicitors will have to be extremely careful when fixing their success fees. What also seems certain is that defendants will have more scope to challenge success fees at the higher end with the Judiciary apparently more sympathetic to their arguments.

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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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