Judgment in the conjoined appeals of Gavin Flatman v Gill Germany and Richard Weddall v Barchester Health Care Ltd was handed down last month [2013] EWCA Civ 278. The decision was an important one in view of the new funding and costs regime that exists following the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO).

The underlying issue in both cases was the extent to which solicitors acting on behalf of claimants can fund litigation when those claimants are taking proceedings pursuant to a conditional fee agreement (CFA) with no after-the-event (ATE) cover. Both appeals arose from the costs regime before 1 April 2013 but, as Leveson LJ pointed out in his lead judgment, the issues arising may become more acute following the coming into force of part 2 of LASPO. The premiums for ATE insurance to cover both disbursements and adverse costs risks are no longer recoverable inter partes (save for some limited exceptions), and also bearing in mind the withdrawal of legal aid from most clinical negligence cases, there is a real risk of claimants not being able to afford insurance premiums let alone the cost of disbursements such as expert witness reports.

Therefore the ability of solicitors to fund disbursements for clients without also running the risk of an adverse costs order becomes one of access to justice. This led to the Court of Appeal taking the unusual step of granting permission to bring second appeals as well as allowing the intervention of the Law Society in the appeals. The Society argued that, as an issue of principle, payment of disbursements, without more, does not incur any potential liability to an adverse costs order. The Court of Appeal (unanimously) agreed.

The judgment considers all the relevant authorities and bears reading. It is worth noting that it gives approval to both the funding of disbursements generally (that is, to solicitors acting as a bank and paying disbursements as the case goes on, with the client repaying at the end) and to disbursements being contingent (that is, the solicitor paying them and only recovering them if the case is won). In the latter case, this would presumably allow solicitors to fund them on a ‘CFA lite’ basis, that is, only recovering for disbursements what is recovered inter partes. The decision was equally important to the new qualified one-way costs shifting regime (QOCS). As recognised by the Court of Appeal, there exists a possibility that: ‘Defendant’s insurers can undermine the principle of qualified one-way costs shifting… by pursuing the solicitors acting for the claimant who fails.’

QOCS has been introduced for personal injury claims under new Civil Procedure Rule 44 and the supporting practice direction. Under CPR 44.16(2) orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where: (a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

Under 44.16(3), where the claim is for the benefit of another, the court will usually order the beneficiary to pay the costs of the proceedings or attributable to the issues to which CPR 44.16(2)(a) applies. The importance of the appeals is therefore obvious, and the judgment reinforces the new rule and the benefit of QOCS for claimants in personal injury cases, while at the same time promoting access to justice for less well-off claimants whose solicitors are able to afford to fund their claimant’s disbursements. Bearing in mind that the Civil Procedure Rule Committee is said to be considering the roll-out of QOCS to all practice areas the judgment assumes even more importance. The ruling should enable claimants’ solicitors to resist any applications for non-party costs orders – a protection not afforded to third-party funders. It is likely though that defendants will continue to try to find ways round the costs protection offered by QOCS.

As far as ATE insurance goes, the only remaining risk for a claimant to insure against will be part 36 risk, and early indications are that ATE providers are offering much more competitively priced – and consumer-friendly – premiums. It will be interesting to see how this market develops over the coming months. It is worth mentioning in passing that the court expressed concern about the level of costs that would have been sought by the claimant’s solicitor in these cases had they succeeded. The remarks reinforce the importance the Jackson/LASPO reforms place on active case and costs management by the courts. This was further reinforced by the ruling in Murray and another v Neil Dowlman Architecture Ltd [2013] EWHC 872 (TCC).

Although Coulson J allowed the claimants to revise their costs budget on the basis that there were special circumstances in the case, he held that it will normally be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a budget, which is then approved by the court, should be subsequently rectified.

Sue Nash is founder of Omnia Legal Software and a costs lawyer