Kerry Underwood

QUALIFIED ONE-WAY COSTS SHIFTING: CAN YOU SWITCH CFA’S TO GET PROTECTION?

with 2 comments


In Catalano v Espley-Tyas Development Group Ltd [2017] EWCA Civ 1132

the vexed issue of the transitional provisions in relation to Qualified One-Way Costs Shifting, and specifically the issues raised at page 132 of my book, were considered for the first time at Court of Appeal level.

All of this is dealt with in great detail in chapter 6 – Pre-Jackson Funding Arrangements – in my book Qualified Costs Shifting, Section 57 and Set-Off, £25.00 on Amazon here or me here.

The Court of Appeal has followed my reasoning.

Put simply, if prior to 1 April 2013, there was in place a Claimant Conditional Fee Agreement or collective Conditional Fee Agreement or After the Event insurance, or membership organisation indemnity, then the Claimant can never get QOCS protection.

CPR 44.17 reads:

“This section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).”

On page 132  I say:

“By ending any relevant agreement can you disapply the disapplication and achieve retrospective QOCS protection?”

“This depends upon the meaning of “has entered into”. Clearly the better wording would have been “had entered into” or “has ever entered into”, which would have put it beyond doubt. “Has” is not tense specific. “Has my client got a CFA ?” is present tense.”

I then said that “my view is that anyone who has ever had recoverable liability does not get QOCS protection.”

The Court of Appeal has now agreed and has effectively reworded CPR 44.17 as suggested by me.

Here Ms Catalano had a pre-Jackson Conditional Fee Agreement, but After the Event insurance was declined by the insurer. She did not enjoy QOCS protection.

The inability of the Claimant to obtain After the Event insurance in this case explains a great deal.

As she did not have ATE insurance, then under a pre-Jackson funding arrangement, where QOCS does not apply, Ms Catalano would personally have had to pay the costs, and thus had a strong incentive to try and get QOCS protection, even at the price of losing recoverability of the success fee.

Had she had a recoverable ATE premium, covering her costs risk, she would have had no incentive whatsoever to cancel the pre-Jackson Conditional Fee Agreement and enter into a new one.

However these somewhat unusual facts do not affect the legal principles that are applicable.

Proceedings were issued on 26 July 2013, but on 15 July 2013, that is post-Jackson but prior to the issue of proceedings, the Claimant and her solicitors entered into a new CFA, which was said to have replaced the earlier one.

Form N251, Notice of Funding, was served on the Defendant on 20 January 2014 and explained that the case was now being funded by way of a Conditional Fee Agreement dated 15 July 2013.

It referred to the existence of the earlier Conditional Fee Agreement of 13 June 2012, but the box available for saying that that agreement had been terminated was not ticked.

This, in itself, is curious. There was no ATE insurance in place, and therefore no information to be given about that non-existent insurance.

Post-31 March 2013, in cases where there is no recoverability of a success fee, that is a post-Jackson funding arrangement, there is no requirement to serve Notice of Funding upon the Defendant as it makes no difference whatsoever to their liability for costs.

There remained an obligation to serve notice on the Defendant if the original Conditional Fee Agreement was terminated, as this would lead to the Defendant having a lower liability for costs, in that they would not be liable for the success fee, and that may affect their attitude to settling, or not settling a case.

I do not know whether the solicitors were trying to have it both ways and keep the old agreement alive while laying the ground to obtain QOCS protection, or whether they did not understand the rules.

In any event the trial was due to start on 14 January 2015, but the day before the Claimant served a Notice of Discontinuance, and under CPR 38.6, that triggers a costs liability against the discontinuing party.

Thus a Costs Order had to be made against the Claimant.

The issue was whether or not it was enforceable, or in other words whether the Claimant enjoyed QOCS protection as there was now no pre-Jackson funding arrangement in place, or whether the costs protection had been lost forever because of the one-time existence of the old, pre-Jackson Conditional Fee Agreement.

The District Judge held that Ms Catalano did not enjoy QOCS protection in the circumstances.

He considered the case of

Landau v The Big Bus Company, 31 October 2014, Senior Courts Costs Office

where Master Haworth in the Senior Courts Costs Office held that QOCS protection did not apply to appeal proceedings where a Claimant had had a pre-Jackson CFA for the original trial and a post-Jackson Conditional Fee Agreement for the appeal.

In that case there had been no attempt to manipulate the rules. The original CFA did not cover appeal proceedings and so a fresh one had to be entered into post-Jackson.

Nevertheless, the court held that there was no protection in relation to the appeal as the reference to “proceedings” in CPR 44.17 means “claim” and that the proceedings, both at first instance and on appeal, plainly concerned the same claim.

However in

Casseldine v The Diocese of Llandaff, 3 July 2015, Cardiff County Court, Claim 3YU56348

Cardiff County Court held that a Claimant enjoyed Qualified One-Way Costs Shifting, and thus protection from paying the successful Defendant’s costs in a personal injury case, even though the Claimant had entered into a pre-1 April 2013 Conditional Fee Agreement with recoverable additional liabilities.

That CFA had been terminated by the first solicitors on 30 January 2013 before proceedings were issued. The Claimant entered into another CFA on August 2013 with her new solicitors.

DJ Phillips distinguished the case from Landau v Big Bus Company Ltd [2014] SCCO on the grounds that here no proceedings had been commenced under the first CFA and as the solicitors had terminated it there was never any entitlement to any success fee or costs.

As the Claimant only issued proceedings under the second CFA, entered into post recoverability, the court was never able to order the defendant to pay additional liabilities.

The purpose of the rules was to allow QOCS protection where a defendant no longer faced an additional liability.

The key difference between this case and Landau is that here proceedings had never been issued.

That leaves open the question of what the position is where a CFA is terminated after proceedings have been issued.

There the defendant would also face no additional liability provided that the new CFA was post recoverability. There seems no reason why the issuing of proceedings should affect the central point that QOCS is allowed where a defendant does not face an additional liability.

The judge here did not have to decide that point as he could distinguish Landau. However he did say, correctly:-

“31. In my judgment the case of Landau is distinguishable and in any event even if it were not, and with the greatest of respect to Master Haworth, the decision is not binding upon me.”

That suggests that DJ Phillips would have made the same decision even if proceedings had already been issued under the original CFA.

My view is that DJ Phillips is right.

It may seem that I am contradicting myself, in that I have said that the Court of Appeal have adopted the wording that I thought the Rule Committee intended to adopt, or rather the wording which would have given intention to the will of Parliament, and yet here I say that DJ Phillips is correct.

On the actual wording of the Civil Procedure Rules, my view is that DJ Phillips is indeed arguably correct, but I believe the Court of Appeal in this case has correctly interpreted the will of Parliament.

In any event, in the current case Ms Catalano entered into a new agreement before issuing proceedings, and so the case was on all fours with Casseldine, save that in Casseldine a different firm of solicitors was instructed under the second Conditional Fee Agreement.

That seems to me to make no difference in law, although clearly in Casseldine there was no attempt to manipulate the rules as the first set of solicitors had unilaterally terminated the contract and thus gave up their right to any costs, let alone a success fee.

Here the termination was mutually agreed and Ms Catalano then continued to instruct the same set of solicitors, and presumably this was a deliberate attempt to acquire QOCS protection.

In the Catalano case the District Judge followed Landau and not Casseldine.

The appeal was leapfrogged to the Court of Appeal.

The Claimant relied on Casseldine.

The Defendant submitted that it could not have been the intention of the Rule Committee to allow a Claimant to cherry pick the advantages of both regimes by proceeding first with the benefit of an ATE premium and a success fee which will be recoverable from the Defendant and then, by adopting a new Conditional Fee Agreement, avoiding the costs consequences of losing the case.

The Court of Appeal accepted the Defendant’s submission and upheld the District Judge’s decision, and although distinguishing Casseldine on the basis that their solicitors had unilaterally terminated the retainer, said that they were doubtful as to the correctness of Casseldine, even on its own facts.

In my view that must be correct, that is that if the Court of Appeal here are right, then the Casseldine decision must be considered wrong, whereas if the court was right in Casseldine, then the Court of Appeal decision here must be wrong.

I set out the reasons for that above.

Casseldine was a first instance decision, as was Landau, and this is a Court of Appeal decision and therefore represents the law.

Nevertheless the Court of the Appeal got a little confused here, saying at paragraph 24:

“24. … A claimant could make an agreement providing for a success fee and purchase ATE insurance and wait until shortly before trial to re-assess his or her prospects. If they appeared to be high, such claimant could continue and claim the cost of the ATE premium and the success fee as costs from the defendants; if they appeared to be low, he or she could cancel the original CFA, make a second CFA and then discontinue the claim a day later and escape the costs consequences. The framers of the rules could not have intended that a claimant should be able to blow hot and cold in that way. The right construction of the rule, therefore, is to give the words “funding arrangement” their natural meaning and apply them to any pre-1st April 2013 agreement (whether terminated or not).”

That misses the point. As set out above a Claimant with ATE in place would never have any incentive to scrap an old Conditional Fee Agreement where they have full, free, costs protection under the ATE policy AND recoverability, both of the success fee and the ATE premium.

The Court of Appeal then gets even more confused at paragraphs 28 and 29:

“28. What then of the case where a CFA is made before 1st April 2013 but, before any work is done, a second CFA is made after 1st April 2013, or the case where work is done but the retainer is terminated (whether by the solicitors or the client) before 1st April 2013 and a second CFA is made by new solicitors after 1st April 2013?

  1. We would prefer to express no concluded view since this case is different from those cases. But we think the first case will be comparatively rare since almost inevitably some chargeable work will be done at about the time the first CFA is made. The second case is the Casseldine case in which DJ Phillips held that it was the solicitor who terminated the retainer and therefore had no entitlement to a success fee in any event. If, however, work had been done (which is probable) we are doubtful that Casseldine can be supported on the true construction of CPR 44.17 and CPR 48.2, unless it could be said that the second CFA retrospectively discharged and extinguished the first agreement and replaced it with the second agreement. That was contemplated as a possibility by Lord Sumption (with whom the majority of the Supreme Court agreed) in Plevin v Paragon Personal Finance Ltd [2017] 1 WLR 1249, para 13 where however the second and third CFA were held on the facts to be merely a variation of the first agreement.”

 

I think that what they are getting at is the issue of whether QOCS applies where there is no success fee payable, for whatever reason, apart from the manipulation of the process as here in Catalano.

Supposing it is a pre-Jackson funding arrangement with a nil success fee.

Is that QOCS protected or not?

This is all dealt with at pages 120 to 124 of my book, as is the issue of whether you can acquire QOCS protection by discontinuing the whole claim, and starting again, rather than switching Conditional Fee Agreements.

This decision also leaves open the possibility of the second agreement being retrospective to the date of the first agreement, so as to acquire QOCS protection in that the new agreement would not have a success fee, but to allow recovery of ordinary between the party’s base costs back to the date the original work was done, rather than the date of the new Conditional Fee Agreement.

Clearly, recoverability would be lost as even though retrospective, the new Conditional Fee Agreement would be post-Jackson and that cannot be recoverability, except in very limited circumstances which do not apply here, of a success fee in a Conditional Fee Agreement entered into on or after 1 April 2013.

I do not think that this works to gain QOCS protection.

If CPR 44.17 is read as disqualifying QOCS if there has ever been a pre-Jackson funding arrangement in place, then the retrospective discharge of that agreement does not get away from the fact that it once existed.

Retrospection cannot airbrush a pre-Jackson funding arrangement out of history.

The issue of potential retrospection in these circumstances arises out of the Supreme Court decision in Plevin v Paragon Personal Finance Ltd [2017] UKSC 23, but again this misses the point.

The Plevin case does not assist on the issue of pre-Jackson funding arrangements as, very surprisingly, the paying party had conceded that the pre-Jackson funding arrangement was capable of assignment and therefore the issue of whether there were really new post-Jackson Conditional Fee Agreements in place did not have to be decided by the Supreme Court.

Furthermore there was no issue of manipulation of the process as the solicitors acting throughout had been the same; the issue arose because of organisation changes within the same firm, with the partnership becoming a Limited Liability Partnership and then a Limited Company.

There the Supreme Court held that the second and third Conditional Fee Agreements were variations of the original one, so there was no issue of true retrospection.

The Court of Appeal recites at paragraph 19:

“Mr Jamie Carpenter for the respondents accepted that the first CFA had been terminated once the second CFA was made (because it is impossible to have two CFAs at the same time)…”.

That statement is contrary to all contractual principles, and to the views of the Court of Appeal in many other decisions, most notably the very long and well-reasoned judgment in

Forde v Birmingham City Council [2008] EWHC 90105 (Costs)] – see for example paragraph 207.

I look at the Plevin case in my blog

RECOVERABILITY OF ADDITIONAL LIABILITIES: FOUR NEW CASES: TWO SUPREME COURT CASES.

Comment

Qualified One-Way Costs Shifting is a minefield.

There are huge numbers of unanswered questions about the transitional provisions, and very much else.

What, for example, is the case where pre-Jackson funding arrangement ends post-Jackson due to the death of the Claimant, maybe a death caused by the very injuries being claimed for?

If the executor or executrix enters into a new post-Jackson CFA, then clearly there is no recoverability of the success fee or ATE premium if that new CFA is on or after 1 April 2013.

Is the executor/executrix also denied QOCS protection as there was once a pre-Jackson funding arrangement in place?

If so, the alleged tortfeasor gets a windfall – no recoverability by the Claimant and no QOCS protection for the Claimant either.

Thus the Defendant is at no risk of paying additional liabilities, but will be able to enforce its costs order if it succeeds.

In those circumstances the Defendant would be financially better off if the Claimant dies from the injuries that it inflicted.

That is why, in my book and above, I say that DJ Phillips in the Casseldine case is right.

The Court of Appeal may have to revisit its decision here as cases with similar facts, but with the same principles applying, come before it.

Unfortunately this is a rather short and confused Court of Appeal decision, possibly influenced by a very unusual set of facts.

 

I am grateful to Colin Campbell of Kain Knight for his interesting blog on the subject on Practical Law’s Dispute Resolution blog.

 

 

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Written by kerryunderwood

August 22, 2017 at 9:47 am

Posted in Uncategorized

2 Responses

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  1. What a total shambles the whole question of costs in PI claims has become. How many thousands of valuable judicial hours have been wasted on abstruse and absurd cases like this one?

    The abolition of legal aid for PI claims and the introduction of CFA’s was the worst decision ever made about our legal system. It turned a reasonably respectable if unglamorous area of law into a cesspit of corruption and a source of fraud on an industrial scale, and the attempts to change it back have just made a bad situation worse.

    The idiots who have overseen this 20 year fiasco should be taken to the Tower and summarily despatched!

    Pro Bono

    August 22, 2017 at 11:29 am

    • But only around 20% of people qualified for legal aid on financial grounds, and conditional fee agreements were approved years before legal aid was abolished and in fact work very well generally, so I disagree entirely with your comment.

      As this is the first case at Court of Appeal level on this point, not many is the answer in relation to judicial hours.

      Kerry

      kerryunderwood

      August 22, 2017 at 11:49 am


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