Solicitors must be allowed to shoulder the risk of adverse costs orders on behalf of their clients to ensure proper access to justice, the Court of Appeal ruled today.

Giving judgment in Sibthorpe and Morris v London Borough of Southwark, the court said that a conditional fee agreement (CFA) under which solicitors had indemnified clients against adverse costs was legal.

In the case, legal aid was unavailable for the claimant clients, so their solicitors offered costs protection as part of a CFA instead. Southwark argued that the agreement was unlawful on the basis of maintenance and/or champerty, and that because of this, it should not pay the costs after the claimants won their cases.

Giving the leading judgment, master of the rolls Lord Neuberger said: ‘Access to justice is an essential ingredient in a modern civilised society but it is difficult to achieve for the great majority of citizens, especially with the ever reducing availability of legal aid. I find it hard to accept that, by shouldering the risk of an adverse order for costs against his client, a solicitor is acting contrary to public policy, which is, of course, the basis for the law of champerty.’

The Law Society, which intervened in the case, said that the issue is one of ‘significant importance to solicitors and access to justice’. Society president Linda Lee said that the ‘eminently sensible’ decision of the court ‘paves the way for clients to be fully indemnified against adverse costs orders by solicitors in cases where either legal aid or legal expenses insurance are unavailable'.

Lee said: ‘The government’s proposals to abolish the recovery of ATE premiums from defendants in successful cases combined with changes to the scope of legal aid, will lead to many individuals finding it difficult to bring claims where their only access to a remedy is through the courts and although in some instances solicitors would be able to offer an indemnity for costs, this would be very rare.

‘Funding of this type will not replace the products currently offered by the insurance market. If the government proposals are introduced they will undoubtedly adversely affect the ATE insurance market, and the public should be aware that their ability to defend the rights that they have enjoyed over the last few years will disappear.

‘The solicitors in this case did not breach any professional conduct rule and made every effort to assist a client with funding what was clearly a valid claim.

‘The Law Society was surprised that the appeal was commenced in the first place especially bearing in mind the government’s policy on public spending cuts and the fact that the solicitors’ indemnity would have reimbursed the local authority’s legal costs had it successfully defended the original claim.’