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Sousa v Waltham Forest London Borough Council, Court of Appeal, 3 March 2011

15 March 2011
The issues

CFA – Conditional Fee Agreement – costs – entitlement to success fee – MGN v United Kingdom – success fees.

The facts

Waltham Forest were responsible for a tree which damaged the property of Mr Sousa by reason of subsidence damage caused by its roots. Mr Sousa was insured by Virgin Insurance, part of the RBS Group, under a household insurance policy. He made a claim against his insurers and was indemnified by them. The solicitors acting for Virgin were instructed to recover the loss and brought a claim against Waltham Forest. Before they made the claim they had done nearly £3,000 worth of preparatory work. It was only at the point that the claim was made that the solicitors entered into a CCFA with Virgin Insurance providing for a success fee with a mark up of 100%. As it happened, liability was not disputed and the claim was compromised in July 2008 without the need for proceedings to be issued. Agreement was reached over the costs between the parties save for the issue of whether or not any success fee should be recoverable and if so at what percentage.

The matter came before the District Judge who, having regard to ‘the reality of the situation’ and applying CPR 44, took the view that the claimant was never at risk on costs and it would be therefore unreasonable to allow the claimant to rely upon on Conditional Fee Agreement.

On appeal the matter came before a judge who reversed the District Judge’s decision.

The matter came before the Court of Appeal.

The decision

It was important to remember that although the proceedings were being conducted at the behest of insurers, the parties to the litigation were Mr Sousa and the Council. Any solicitors instructed by Mr Sousa were acting for him and he became liable for their costs. Since the insurers were entitled to direct the conduct of the litigation they were entitled to decide whom he should instruct to act on his behalf. They were also, for the same reason and because they were obliged to bear the costs of the action, entitled to require him to instruct the solicitors they chose on a conditional fee basis.

As between Mr Sousa and the council, the existence of a policy of insurance was in law irrelevant. The fact that the insurers were bound to indemnify him against the cost of proceedings did not provide the council with a defence to a claim to recover the costs any more than it provided it with a defence to a claim for damage caused to his house. If Mr Sousa had been uninsured it would have been impossible to suggest that it was unreasonable for him to instruct solicitors on a conditional fee basis. The fact that he was insured made no difference. Moreover, one reached the same conclusion if one viewed it from the perspective of the insurer on the basis that they were the real parties to the litigation, as they were in practical terms. They were seeking to recover through Mr Sousa the loss which they had incurred as the result of a damage to the house caused by the council’s trees and were entitled to instruct solicitors of their choice and to enter into a Conditional Fee Agreement to protect themselves in the same way as any other litigant. Neither the fact that they were financially strong nor that they were a commercial organisation precluded that. The difficulty with the District Judge’s decision was that in his enthusiasm to look at the reality of the situation, he looked at only half of it. Having found that Mr Sousa was not at risk for the costs, he did not ask who ‘in reality’ was at risk and who ‘in reality’ was going to benefit from the Conditional Fee Agreement. One had either to disregard the insurance arrangements entirely, which was the proper course, or recognise that ‘in reality’ the insurers were the parties in suit and as such were at risk for costs and entitled to protect themselves.

It had also been raised following the decision in MGN v United Kingdom, that that decision supported the wider proposition that it was unreasonable for a claimant who could finance the litigation with the cause to a Conditional Fee Agreement to do so and that therefore Mr Sousa should not be allowed to recover the success fee as part of the costs in the case. The court could not accept that submission for two reasons. Firstly, in MGN, the court was concerned with the question of whether the liability to pay a success fee involved a disproportionate interference with a newspaper’s right of free speech. This case is not remotely comparable. Secondly, because, unless the liability to pay a success fee could be said to infringe the defendant’s rights under the convention (which was not the case here) question of proportionality and reasonableness did not arise. It was for Parliament to decide what arrangements viewed overall would best serve the general requirement for access to judgment.

Appeal dismissed.

Comments

MGN kicked into touch – though interestingly no suggestion that the right to property was being infringed as was acknowledged by the court potentially in Martin v McGuinness. Secondly, Lord Justice Ward, who like Lord Justice Everton and Lord Justice Moore-Bick dismissed the Appeal, nonetheless expressed sympathy for Waltham Forest and commented that in many respects, CFAs had operated as a bonanza for insurers and their lawyers. In that regard, he endorsed the critical views of Lord Justice Jackson and ended his judgment with the words:

“Let Lord Justice Jackson’s reforms be enacted sooner rather than later”.

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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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