CFAS: NEVER NAME THE DEFENDANT! (1)

In Engeham v London and Quadrant Housing Trust & Another [2015] EWCA Civ 1530

the Conditional Fee Agreement, under the heading “What is covered by this agreement” said:-

“Your claim against the defendant L & Q for damages”.

In fact proceedings were issued against both L & Q and the Academy of Plumbing Ltd (APL) and was settled by a “Tomlin” order, the relevant terms of which read:-

“2.      [APL] do pay the Claimant’s costs of this action, such costs to be assessed on a standard basis by way of detailed assessment if not agreement.

4. Upon payment by [APL] of the agreed sum and costs, [L & Q and APL] be discharged from all further liability to the Claimant in respect of the claims made by the Claimant in this action.

Schedule

1. The Claimant has agreed to accept the sum of £10,000 plus costs in full and final settlement of the claims brought in this action.

2. The sum of £10,000 be paid by [APL] to the Claimant’s solicitors by 4 pm on 26 July 2011.”

I deal with the issue of a win below but in relation to the named defendant both courts below held that Ms Engeham could not recover any costs in relation to the action against APL as the words in the Conditional Fee Agreement quoted above “were not wide enough to encompass an action against anybody else.”

That matter was not before the Court of Appeal as Ms Engeham did not pursue that point but the court confirmed the correctness of the lower courts’ decision:-

“On this further appeal, Ms Engeham does not seek to challenge those conclusions, and I consider that she was right to do so. It follows, that the only costs which she can now recover are costs which relate to her action against L & Q.”

Thus naming a defendant means that costs cannot be recovered in relation to work against any other party and thus it remains crucial not to name the defendant in any Conditional Fee Agreement – see my post CFAs: Never Name the Defendant! (2)

This case thus follows the reasoning in

Brookes v DC Leisure Management Ltd and Technogym UK Ltd [2013] EW Misc 17 (CC) Exeter County Court

dealt with in my post referred to above.

Win

What the Court of Appeal was actually considering here was whether the outcome of the action represented a win for the claimant Ms Engeham under the terms of the Conditional Fee Agreement.

The Principal Costs Officer and Master Haworth held that it was not a win, but on further appeal HH Judge Mitchell sitting with Master Hurst, Senior Costs Judge, held that it was a win and APL now appealed against that decision, seeking to restore the order of the first two courts.

The definition of a win was the one contained in both the Underwoods Model Conditional Fee Agreement and the Law Society Model Conditional Fee Agreement:-

“Your claim for damages is finally decided in your favour, whether by a court decision or an agreement to pay you damages or in any way that you derive benefit from pursuing the claim.

‘Finally’ means that your opponent:-

• is not allowed to appeal against the court decision; or

• has not appealed in time; or

• has lost any appeal.”

APL argued that Ms Engeham had not won against L & Q and as they were the only defendant named in the Conditional Fee Agreement she had not won anything under that agreement and so was not bound to pay her solicitors anything and under the indemnity principle she could not recover costs from anyone in respect of her non-existent liability to pay costs.

Here the terms of the Tomlin order provided for payment of damages by APL but that such payment acted as a discharge for both L & Q and APL.

The Court of Appeal upheld the decision of HH Judge Mitchell that APL were liable for the costs of Ms Engeham’s action against L & Q.

The court pointed out that as far as Ms Engeham was concerned the object was to obtain damages for her injuries. She had done that. She had won. True it was that the action against L & Q was not finally decided in her favour by an agreement to pay her damages if one read into the Conditional Fee Agreement a clause that it must be L & Q who actually pay the damages, but there was no reason to do so.

As the court said:-

“It frequently occurs that a settlement is achieved with an action, but the person who pays the damages is not the defendant who is being sued.”

The Court of Appeal said that the parties could not have contemplated “that a win was restricted to causing L & Q to be the payer, even if L & Q was the only anticipated defendant at the date of the CFA. I therefore consider that the “win” clause in the CFA is not limited by reference to the identity of a person who actually pays the damages. Once one construes the CFA in that way, it seems to me that the Tomlin order is plainly an agreement to pay damages within the meaning of the CFA. The fact that those damages were to be paid by APL and not L & Q is not relevant.”

The Court of Appeal also pointed out that had Ms Engeham just sued L & Q and L & Q had brought Part 20 proceedings against APL, who then made payment in an overall settlement, she would have won against L & Q.

The court said:-

“Other examples abound, such as a parent or a related company, a shareholder or a simple well-wisher making the payment of damages.”

That is perhaps not a valid point – the “win” would still have been against the named defendant, whoever actually paid the damages. The argument here was that there had not been a win within the proceedings against the named defendant.

Comment

This is a very fact specific case. A differently worded Tomlin order may have resulted in Ms Engeham recovering no costs. As Simon Gibbs says in his always excellent blog – Wrong defendant named in CFA – again:-

“The important point to note is that for many – probably most – cases where the wrong defendant is named, this decision will be of no assistance.  The Court of Appeal has recognised that expressly naming one party as defendant in a CFA limits the scope of what the agreement covers.  Perhaps the classic example of this problem arises where a CFA in a highway tripping claim names a local authority as defendant but it is subsequently discovered the correct defendant is actually another party (eg utilities company), with the claim then being successfully pursued against that other party.  Ordinarily, and absent a rather unusual final costs order, there will be no recoverable costs given the limitation of the CFA.”

As the High Court said in

Law v Liverpool City Council [2005] EWHC 90020 (Costs):-

“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”

In Brierley v Prescott [2006] EWHC 90062 (Costs)

the High Court said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. The court said:-

“…the sin therefore was one of addition: including an unnecessary detail.”

As stated in my post – Conditional Fee Agreements, Damages-Based Agreements and Contingency Fees:-

“The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.”

The decision in Engeham has been widely misreported, as pointed out by Simon Gibbs. I suspected that that was the case and as I said in my post:-

“I have not yet got the full Judgment and my advice remains that you should not name the defendant in a Conditional Fee Agreement.”

That advice is reinforced, not changed, by the Court of Appeal’s decision in this case.

Previously four courts have reached four different conclusions in cases where the wrong defendant has been named in a conditional fee agreement; what all four decisions have in common is that each states that there is never any need to name a defendant and doing so risks all costs being lost.

In Hailey v Assurance Mutuelle Des Motards SCCO: CCD 1405291

the Senior Court Costs Office held that if the wrong defendant was named in a Conditional Fee Agreement then there was no valid retainer and thus the indemnity principle meant that no costs could be recovered.

However the court held that disbursements could be recovered as these were payable by the claimant in any event, win or lose.

I do not pretend to understand the logic of this decision. The claimant won and therefore there must have been an implied term that he would pay his lawyers in the circumstances. Either the retainer is invalid in which case nothing is recoverable, or it is valid, in which case disbursements and costs were both recoverable.

There can be no logic in holding the retainer valid in relation to disbursements but not valid in relation to costs. If there was no retainer because there was no successful action against the driver of the motorcycle then clearly disbursements in relation to a completely different matter, which the court found this was, against the insurer could not be covered by that retainer.

Here the accident had occurred in France and thus the action, under French and apparently European Union Law, was against the insurer and not the driver of the motorcycle; the Conditional Fee Agreement wrongly named the driver rather than the insurance company and that part of the claim had been struck out.

Nevertheless it was the same accident which occurred on the same date.

In Brierley v Prescott [2006] EWHC 90062 (Costs)

the Conditional Fee Agreement covered:-

“Your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000”

where the true defendant should have been the other driver, a Mr Prescott. There Master Gordon-Saker said:-

“In my view the words “your claim against Hertz UK Limited Car Hire for damages for personal injury suffered on 7 January 2000” meant “the claim for damages arising out of the accident and which was being handled by Hertz”. “

He also said that the intention of the parties was obvious and that there was only ever one claim and therefore he held that the Conditional Fee Agreement was binding and the claimant was bound to pay his own solicitors under that agreement which meant that he could recover those costs from the defendant.

That decision is far better reasoned and clearly gives intention to the will of Parliament.

Simon Gibbs appeared for the defendant in each case and in Brierley v Prescott Simon Gibbs conceded that if the agreement had been expressed to cover “your claim for damages for personal injury suffered on 7 January 2000” without identifying the opponent, he would have no argument.

The court there said that it is commonly the case that Conditional Fee Agreements do not identify the opponent and that there is no requirement that they should, provided that “the particular proceedings” to which they relate are specified. As the court said “the sin therefore was one of addition: including an unnecessary detail.”

The key lesson to be drawn from these cases is that the defendant should never be mentioned in a Conditional Fee Agreement, but rather simply the date of the accident, and possibly the rough location, so that “the particular proceedings” are specified.

In that case the claimant and his solicitor had sought retrospectively to replace the 2002 agreement with one in 2005 but backdated. The court had this to say about that:-

“Although this is perhaps not the right vehicle to decide the point, I think it likely that a conditional fee agreement can have retrospective effect. However for the reasons suggested by Colman J in Arkin v Borchard Lines Ltd (Costs Judgment) [2001] NLJR 970, an agreement made after the conclusion of the proceedings to vary a conditional fee agreement relating to those proceedings would be unenforceable as contrary to public policy.”

In Law v Liverpool City Council [2005] EWHC 90020 (Costs)

the court also said that there was no requirement to name a defendant. There, Liverpool City Council were named as the defendant but in fact the property concerned, where the injury took place, had been transferred to Berrybridge Housing Association just two months before the accident. They were not named in the Conditional Fee Agreement. There the court held that there was a retainer, allowing the claimant to recover base costs but that there was no valid Conditional Fee Agreement, as the claim was not against Liverpool City Council, and therefore no success fee could be recovered.

The court said:-

“If the CFA as drafted is such that it can include a claim against any potential Defendant, then the present problem would not arise.”

It also said:-

“In my judgment, when it became apparent that the second defendant needed to be added the claimant and the solicitor should have considered the point and if it was the intention of both of them to have a CFA as well as a retainer covering the second defendant then a fresh CFA agreement should have been entered into or the existing one properly varied in writing and signed. This should have been effected.” (Paragraph 22).

In Brookes v DC Leisure Management Ltd and Technogym UK Ltd [2013] EW Misc 17 (CC) Exeter County Court considered a case where the CFA stated that it covered:-

“Your claim against Exeter City Council for damages for personal injury suffered in an accident at work on or about 19 May 2006”.

In fact the true defendants were DC Leisure Management Ltd and Technogym UK Ltd.

Yet again the court pointed out that it was unnecessary to name any defendant at all:-

“The claim could have been defined in relation to the date of the accident only, but the naming of a particular defendant evidences a clear intention to identify a particular legal claim against a particular Defendant.”

“Although the statutory requirement is that the CFA must be in writing, it does not have to identify the Defendant.”

In that case the court upheld the decision of Master Gordon-Saker sitting in the Senior Courts Costs Office that no costs would be recovered.

Thus on virtually identical facts we now have the following conflicting decisions:-

1. All costs can be recovered (Brierley v Prescott).
2. Base costs, but no success fee can be recovered (Law v Liverpool City Council).
3. Disbursements only can be recovered (Hailey v Assurance Mutuelle Des Motards).
4. Nothing can be recovered (Brookes v DC Leisure Management Ltd).

That is four different possibilities on the same facts. The ingenuity of the courts knows no bounds. I wonder how many further variations they can come up with.

For the sake of completion in the case of Scott v Transport for London (2009) Hastings County Court 23 December 2009 unreported the court allowed an appeal against the decision of the District Judge who had refused to allow any costs in relation to a Conditional Fee Agreement referred to “your claim against Lambeth Council” when in fact the defendant was Transport for London. Thus the County Court allowed costs in full as did the court in Brierley v Prescott.

Insofar as anything is clear from these decisions it is that you should never name a defendant in a Conditional Fee Agreement.

None of these problems are avoided by the fact that the Conditional Fee Agreement is a post 31 March 2013 one where the success fee is not recoverable from the other side. The central point in all of the above cases is that the retainer was invalid, in full or in part, and thus the claimant, that is the person entering into the Conditional Fee Agreement, was not liable to pay their own solicitors because of the defective retainer and therefore because of the indemnity principle those costs could not be recovered from the other side.

Exactly the same principle applies where the success fee is not recoverable, that is that if the claimant is not liable to pay it to the solicitor then obviously the solicitor cannot charge the success fee to the client. As we have seen above there is also the risk that the defendant will be off the hook in relation to base costs as the only retainer is the potentially defective Conditional Fee Agreement.

Please see my related blogs:-

CFAS: NEVER NAME THE DEFENDANT! (2)

CONDITIONAL FEE AGREEMENTS, DAMAGES-BASED AGREEMENTS AND CONTINGENCY FEES