Costs – Third party – Liability of third party
Flatman v Germany; Weddall v Barchester Health Care Ltd (Law Society intervening): Court of Appeal, Civil Division: 10 April 2013
The instant appeal concerned two separate personal injury actions. The firm of solicitors instructed by the claimants in both sets of proceedings was the same firm (the solicitors). In the first action, the claimant (F) issued proceedings for damages said to have been sustained following a road traffic accident. He instructed the solicitors under a conditional fee agreement (CFA) but without after the event insurance cover (ATE cover).
The claim was unsuccessful and the defendant's insurers sought their costs. However, it had become apparent that F had been unable to pay the costs. Disbursements had arisen for a court fee, a medical report and a fee for records. The defendant's solicitors suspected that the disbursements had been defrayed by the solicitors, and they accordingly applied for an order that the solicitors be joined as a party and for an order revealing how F's claim had been funded.
In the second action, the claimant (W) sought damages for injuries sustained at work. W had also instructed the solicitors under a CFA and without ATE cover. The action was dismissed. One set of court fees had been paid by W and the cost of the medical report had been deferred. In that action, the defendant's solicitors had been concerned that the most likely source of funding had been the solicitors themselves. In both actions the defendants' solicitors had sought orders requiring the solicitors to disclose information of the source of funding of the respective cases.
On appeal, the solicitors were ordered to provide that information, the judge holding, inter alia, that even though the claimant in each case might have recovered compensation for himself if successful, the solicitors could still be regarded as having benefited, or potentially benefited from the case to the extent that a third-party costs order could be made against them on the basis that, by funding disbursements, it was possible that the solicitors had stepped outside the 'normal role' of a solicitor. The solicitors appealed.
The issues for determination were whether a third-party costs order could or should be made against the solicitors on the grounds that they had funded disbursements; and, if so, whether it was appropriate to order disclosure and information regarding the funding of each case. The Law Society, intervening, submitted, inter alia, that a solicitor who funded disbursements on behalf of a client on the basis that the costs would be recovered from the other side in the event of success, but would not be recovered from the client if the claim failed, was not acting in circumstances which were outside the ordinary run of cases so as to open the solicitor up to a third-party costs order, because the solicitor was neither 'the real party' to the litigation nor the person 'with the principal interest' in its outcome.
Following the judge's decision, letters sent by W to the solicitors had been disclosed, in which W had stated, inter alia, that he had only wished to proceed with the action if the relevant ATE cover had been obtained, but that, in W's view, the solicitors had proceeded without the insurance in place to protect their own interests rather than those of W. Consideration was given to section 58 of the Courts and Legal Services Act 1990 (the 1990 act). The appeal would be dismissed.
Once it had been conceded that a solicitor did not have to be in funds before incurring costs (such as the obtaining of a medical report), that cost had been borne by the solicitor and became an expense of providing advocacy or litigation services. The cost might have to be the subject of an account to the client as a disbursement, but the credit afforded to the client in respect of that cost was part of the service provided by the solicitor to the client. The 1990 act visualised the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was 'the real party' or even 'a real party' to the litigation.
The fact that a litigant could or could not afford an expert report or the court fee said nothing about his or her ability to fund the costs incurred by opponents in an unsuccessful claim, and the solicitor could advance disbursements with a technical, albeit improbable, obligation for repayment. Accordingly, payment of disbursements, without more, did not incur any potential liability to an adverse costs order (see , ,  of the judgment).
Accordingly, in the instant case, the judge had been wrong to find that funding disbursements alone was sufficient to justify his conclusion that the solicitors had stepped outside the 'normal role' of a solicitor. However, in W's case, in light of what had become known in regard to his instructions to the solicitors, if what W had alleged was made good, namely, that the solicitors had pressed on with the litigation without ATE cover contrary to his express instructions, it had been arguable that the solicitors had been taking the lead in the litigation and effectively seeking to control its course. That possibility had justified full disclosure and, given the circumstances, it was sufficient equally to justify disclosure in cases conducted at the same time by the same solicitors on a CFA without ATE cover, namely, F's action.
Accordingly, in the case of F, there was no reason why, in the unusual circumstances that had arisen, why disclosure should not also be provided. Unless waived by F, legal professional privilege might impact on documents the disclosure of which was not sought and any order had to permit an argument about privilege to be taken (see , - of the judgment). Accordingly, although the basis on which the judge had ordered disclosure of information had not been justified in law, that which had emerged from W had clearly justified the orders that had been made in both cases (see , ,  of the judgment).
Awwad v Geraghty & Co (a firm)  1 All ER 608 considered; Floods of Queensferry Ltd v Shand Construction Ltd  All ER (D) 467 (May) considered; Hamilton v Al Fayed  3 All ER 641 considered; King v Telegraph Group Ltd  All ER (D) 242 (May) considered; Jones v Wrexham Borough Council  All ER (D) 300 (Dec) considered; Dolphin Quays Developments Ltd v Mills  4 All ER 58 considered; Thomson v Berkhamsted Collegiate School  All ER (D) 39 (Oct) considered. Decision of Eady J  All ER (D) 81 (Nov) affirmed.
James Carpenter (instructed by Godfrey Morgan Solicitors Ltd) for the solicitors; Simon J Brown and Richard Sage (instructed by Plexus Law) for the defendants; David Holland QC (instructed by the Law Society) for the interveners.