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Non-Party Costs Order against Solicitors acting on CFAs

03 January 2013.

In the recent case of Tinseltime Limited, the Defendants made an application for a non-party costs order against the Claimant's solicitor.

(Click here to read...).  Although the application was ultimately unsuccessful, there were interesting discussions about when a non-party costs order can be made against a solicitor, particularly when they are acting under a CFA.

The need for such an application arose after a non-party costs order was made against the sole director and shareholder of the Claimant (who the Court found to be an unreliable witness who was confused and contradictory). The Court had found that he had brought the claim entirely for his benefit and the Claimant had insufficiently pleaded their case on a number of occasions and in respect of a number of issues.  However, that individual disappeared leaving no apparent assets and the Claimant company was in insolvent liquidation.

The Defendants then turned to the Claimant's solicitor to seek to recover their costs.

The Claimant's solicitor was acting under a CFA which provided for a 100% success fee.  The solicitor was fully aware that if the Claimant lost the claim, it would be unable to meet any liability for costs as it was insolvent and there was no ATE policy in place. The Claimant's solicitor had agreed to fund the disbursements to allow the litigation to proceed.

Relevant Issues

In reaching his decision, the Judge decided the relevant issues were: (i) whether it was just to make a non-party costs order (ii) whether the solicitor acted beyond or outside his role as a solicitor in conducting the litigation for his client (iii) whether the solicitor acting under a CFA stands to benefit financially from the success of the litigation, (but the fact that he will not otherwise be able to recover his profit costs or success fee does not in itself mean he has acted in some way beyond his role); and (iv) whether a solicitor who, acting under a CFA, agrees to fund disbursements should be viewed differently to a solicitor who was not.

In finding that there should be no costs order against the solicitor, the Judge determined that the solicitor must not be judged with the benefit of hindsight; at the time the solicitors decided to take on the Claimant's case, it was clear from his file that he did not think that the matter would proceed anywhere near trial but that it would settle at an early stage. The fact that the matter proceeded further ought not to count against the solicitor.

Myatt v National Coal Board

This case however should be read alongside Myatt v National Coal Board [2007] 4 All E.R 1094 (click here to read...) where the Appellants' solicitors were ordered to pay 50% of the Respondent's costs of appeal.  In Myatt the appeal was held to have only been brought because the Appellants' solicitors had over £200,000 profit costs at stake in respect of a further 60 cases sitting behind the main action.  The CFAs in the underlying action of the Appeal were found to be unenforceable and therefore the Claimant had no valid ATE insurance as it was subject to valid CFAs being in place. The Court found that the appeal was brought for the solicitors' sake and not in the interests of the client.  The solicitors in Myatt case were found to be a real party to the proceedings and were substantially controlling and/or benefitting from them and so the order was made on that basis.  

Conclusion

Although this case is limited to where litigation is funded by a CFA and there are issues in respect of the validity of those CFAs in the ever increasing numbers of CFAs being used, solicitors should be aware of the adverse effects of letting recovery of profit costs lead decisions to enter into or to further litigation, particularly when the validity of the CFA may be brought into question.

One further point to take from Tinseltime comes from a comment made by the Judge towards the end of his Judgment: rather than look to the solicitors for costs at the conclusion of the case, a security for costs application made during litigation "is a potent weapon against injustice to a defendant in a case such as the present where the claim is being mounted by an impecunious limited company". This strategic step could therefore help avoid clients being left with the injustice of having to pay wasted costs that they have been forced to incur when defending a case brought by a claimant that will not be able to pay any costs orders made against them.