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Flatman v Germany - Weddall v Barchester Health Care Limited - Court of Appeal, 25 October 2011

15 April 2013
The issues:

Funding – costs – non-party costs – disclosure

The facts:

Mr Flatman had an accident on his motorbike which he says had been caused by gravel strewn over the road and was the responsibility of Ms Germany trading as Old McDonald’s Children’s Centre. He issued a claim supported by a CFA. He did not obtain ATE cover. At trial, Mr Flatman lost. The defendant sought its costs. Mr Flatman had no money and no insurance. The defendant’s solicitors suspected that the disbursements had been borne by GMS Law, the claimant’s solicitors. They applied to the judge for an order that GMS Law be joined as a party for an order to reveal how the claim had been funded and an order that they pay the defendant’s costs. That application was dismissed by the judge but allowed on appeal by the High Court judge.

Mr Weddall was the Deputy Manager of a Care Home operated by Barchester Healthcare Ltd. He was attacked by another employee. He brought an action against his employer on the basis that they were vicariously liable for the assault. GMS Law represented Mr Weddall. At trial, Mr Weddall lost his claim as against the employer. Mr Weddall had no insurance policy supporting his claim. Again the defendant solicitors were concerned that the most likely source of funding was the solicitors themselves and an application for further information was made. This was dismissed by the judge and allowed on appeal by the High Court. On both cases, appeal was made to the Court of Appeal. Prior to the hearing of the Court of Appeal further disclosure was made and described as “startling” and was admitted for the purpose of the appeals by the Court of Appeal.

These included letters from Mr Weddall complaining that he had never wanted to take the matter to trial and that he had only wished to do so with “the relevant insurance in place” . Other letters complained that he felt he had been bulldozed in that he had been told that if he did not proceed with the claim he would be liable for the solicitors costs in excess of 5 figures. Other correspondence included comments by the solicitors to Mr Weddall that he had nothing to lose “if you don’t own a house with equity” – this remark in the context of a Part 36 Offer from the defendant’s solicitors to discontinue with no order for costs. The disclosed information that had a wider significance in that it opened a window on the very difficult pressures if not conflicts that it created and the need for clarity about the circumstances in which it was appropriate to consider third party costs orders against solicitors.

The Decision:

The starting point was Section 51 of the Senior Courts Act 1981 which provided a power to decide to what extent the costs of litigation should be paid whether by a legal representative or a third party. The basic circumstances in which costs orders could be made against solicitors were 3 – if it was within the wasted costs jurisdiction; if it was otherwise a breach of duty to the court; or if he acted outside the role of solicitor. In later cases (Dymocks v Franchise Systems) these principals had been expanded. In Dymocks Lord Brown had emphasised that the jurisdiction was fact specific and that the discretion would not be exercised generally against ‘pure funders’ i.e. those with no personal interest in the litigation who did not stand to benefit from it. Where the non-party funded the proceedings and also controlled or benefited from them, justice would ordinarily require that if the proceedings failed, that party bear the costs. The question was whether a solicitor under the CFA regime came into this category. The Law Society, intervening, had argued that a solicitor who funded disbursements on the basis that costs would be recovered from the other side if successful, but not recovered from the client if the claim failed, was not acting in circumstances outside the ordinary run of cases nor the, Law Society argued, were they the real party to the litigation.

On a proper interpretation, in section 58 of the Courts and Legal Services Act 1990 (which made CFAs lawful) the legislature had visualised the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that a solicitor was the real party to the litigation. Consequently on this issue, the Court of Appeal agreed with the Law Society’s submissions to the effect that payments of disbursements without more did not incur any potential liability to an adverse costs order on the part of the solicitor.

The second issue that needed to be dealt with was the question of disclosure. The High Court judge had ordered disclosure of information prior to the insurers considering whether to apply for an order of costs.

In Thomson v Berkhamsted Collegiate School, the High Court had set out the relevant test in disclosure issues in the context of non-party costs orders. The High Court had said that in determining these applications, the court had to exercise its case management powers to ensure that the application did not turn into satellite litigation resulting in prolonged, complex, and overextended arguments about costs. The inherent strength of the application was therefore always a relevant factor. This had to be judged as it appeared unassisted by disclosure. In addition, the High Court had said that it was necessary to consider the potential value of the documents sought as to whether they were likely to be prohibitive in the context of the court exercising its discretion or whether they threatened to drag the application into a side alley of satellite litigation; and whether on the summary assessment it was obvious that the documents for which disclosure was sought would be the subject of proper legal professional privilege; and whether the likely effect of any order the court might be minded to make would be proportionate and just in all the circumstances. The rational of the High Court judge below in this case was not sufficient in that merely funding disbursements alone was not just sufficient to justify his conclusion that the solicitors had stepped outside the normal role of a solicitor.

Although therefore the basis on which the High Court judge had ordered disclosure of information and documents was not justified in law, what had emerged from Mr Weddall clearly justified the order that had been made and had been complied with. In those circumstances, the appeal in Weddall would be dismissed. Because the argument that the approach of the solicitor in that case (to press on regardless of specific instructions not to do so without ATE insurance) could justify an order for costs against the solicitor but it was equally sufficient to require disclosure in a similar case undertaken by the same solicitor at the same time. The appeal in Mr Flatman’s case would be dismissed as well.

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