Conditional Fee Agreements - recoverability clarified
On 17 July 2001 the Court of Appeal handed down its decision in Callery v Gray [2001] EWCA Civ 1117, a test case on the ability of a claimant to recover from a defendant success fees and after-the-event insurance premiums in circumstances where a claim settles before proceedings are issued.
The decision confirmed that both success fees and insurance premiums are able to be recovered by successful parties from their opponents, but limited the success fee in straightforward cases and recommended an investigation into the amount being charged for after-the-event insurance by insurance providers.
Both Callery and Russell v Pal Pak Corrugated Ltd, another case heard at the same time, involved claims for personal injury as a result of road traffic accidents. In both cases liability had been admitted by the defendants, who had offered to pay damages to the claimants, plus their legal costs. Both claimants had, prior to contacting the defendants, entered into conditional fee agreements with their solicitors and, in conjunction with those agreements, had taken out after-the-event insurance. Mr Callery’s CFA provided for a success fee of 60% and his insurance cost him £350 plus insurance premium tax. Mr Russell’s CFA provided for a success fee of 30% and he paid £495 for his insurance. Their respective defendants declined to meet these costs and Messrs Callery and Russell each instituted costs-only proceedings under section 29 of the Access to Justice Act 1999.
The District Judge in Callery accepted that the insurance premium was recoverable in costs-only proceedings but reduced the success fee under the CFA to 40%. In Russell the Circuit Judge reduced the success fee to 20%. Mr Russell had abandoned his claim to the insurance premium before the hearing. Both defendants appealed against the costs awards made and the Court of Appeal was asked to determine the following issues:
(1) Whether an after-the-event insurance premium could be recovered in costs-only proceedings.
(2) The stage of proceedings at which it was appropriate to enter into a CFA and after-the-event insurance.
(3) The reasonableness of the percentage uplifts and after-the-event insurance premiums.
The first issue was a fairly technical one, with much argument about the meaning of the words “proceedings and “costs in CPR 44.12A. The court decided that an after-the-event insurance premium could be recovered in such proceedings. In respect of the second issue, the defendant appellants argued that the claimants had rushed into CFAs with their solicitors before they needed to do so, given that both defendants had admitted liability almost immediately. They said that the claimants should have waited until an initial approach had been made to the defendants in order that the solicitors could accurately gauge the risk of failure in the proceedings. They said that it was impossible for a success fee to be accurately set when a solicitor had only his own client’s version of the facts. The court held that it was not unreasonable for the CFAs to have been entered into when the claimants first instructed their solicitors. The 1999 Access to Justice Act and the Conditional Fee Agreements Regulations 2000 contemplated that the after-the-event insurance premium and the amount of uplift would reflect an assessment of the risk that the claim would fail. That did not mean that the claimant’s solicitor could not assess that risk on the basis only of the information provided by the claimant and on his general experience of similar claims. In cases where a reasonable uplift was agreed and insurance taken out at a reasonable premium, the costs of both were recoverable from the unsuccessful party, whether at the end of proceedings or following a settlement on terms that one party paid the other’s costs.
The third issue was the amount of the success fee which it was reasonable to charge. The Court of Appeal examined the facts in each case and concluded that, in those cases, 20% was the maximum uplift that could reasonably be agreed. It was stressed that that figure applied because there was no special feature in the cases to suggest particular difficulties with them, and noted that where potential difficulties arise, “the appropriate uplift will be higher, but it may not be reasonable to attempt to assess that uplift until further information about the defendant’s response is to hand. The judges then canvassed the concept of a “two-stage success fee, with a higher level if the case was contested and a lower level if it settled. They also recommended an inquiry into the level of after-the-event insurance premiums.
The Court of Appeal’s decision therefore means that claimants may enter into CFAs as early in the proceedings as they wish, and that they will be able to recover both the success fees and after-the-event insurance premiums in cases where the defendant admits liability and offers to settle the claim. The amount of a reasonable success fee remains open to debate, however. The decision is general guidance as to what will be considered reasonable in straightforward personal injury cases.
For further information on Callery v Gray or conditional fee agreements, please contact Tony Marks by e-mail tony.marks@cms-cmck.com or by telephone +44 (0)20 7367 2508
