This judgment relates to three discrete applications in ten test cases out of 134 or more cases initiated through Edwards and others v Slater & Gordon UK Ltd; namely the claimants’ application for disclosure and the defendant’s application for security for costs against a non-party, Clear Legal.
The claimants were former clients of the defendant and represented by Clear Legal.
All these cases concern invoices, which had been paid by way of deduction from damages so if successful, the claimant would be entitled to a refund of monies from the defendant.
Application for disclosure
All the claims were brought under section 70 of the Solicitors Act 1974 for an assessment of the final statute bills rendered by the defendant for costs incurred in acting for the claimant. The standard direction for such an assessment involves the solicitor producing a breakdown of their bill and for the former client to serve points of dispute; it is usual to enable the former client to see the solicitor’s file of papers for this purpose.
“The essence of these claimants’ challenges concern the signing up process and as such the documentation on the clients’ files is only of limited relevance. Having obtained a copy of an audio recording of the signup of a Mr Turnbull, the claimants made allegations about the signing up process and which, on the claimants’ case, affect the costs that can properly be claimed from them” (paragraph 10, judgment).
The sign-up procedure was described as “lighting fast” and lacked the information expected from a solicitor to their client. The defendant confirmed that all “such telephone calls are recorded” and “there is every reason to assume that there are other recordings available” (paragraph 26, judgment).
As none of these recordings were placed on the file that was opened (nor a transcript), it is in this context that the application for disclosure was brought (CPR 31).
Costs Judge Rowley concluded that “the parties should be directed to give standard disclosure by list in accordance with Part 31 in these 10 cases” (paragraph 26, judgment).
Application for a stay
The defendant’s application was first and foremost for a stay of proceedings with their fall-back application for security for costs if the proceedings were allowed to continue.
This application was described as a “full frontal attack upon the Clear Legal business model” with the defendant arguing that “Clear Legal are acting champertously and/or are providing insurance unlawfully to at least some of the claimants; that they do not have the wherewithal to meet adverse orders for costs and as such is a company made of straw as far as the indemnity is concerned” leaving the claimants not indemnified unaware of their potential liabilities (paragraph 29, judgment).
The application for a stay was rejected.
Application for security for costs
The defendant sought as an alternative to the order for a stay, an order for security for costs pursuant to CPR 25.14 and in particular CPR 25.14(2)(b).
Costs Judge Rowley did not accept that he had any “jurisdictional difficulty based on the wording of the Solicitors Act in making an order for security for costs, if it is just to do so” (paragraph 125, judgment). He determined that it was for the defendant to “demonstrate that Clear Legal are running the cases without input from the claimants as a minimum” (paragraph 127, judgment).
Costs Judge Rowley dismissed the application for security for costs as he was “not persuaded that the defendant had managed to proceed through the gateway in rule 25.14 in establishing that Clear Legal have contributed to the claimant’s costs in order to obtain a share of sums recovered by the claimants. But even if that is established, it would not be just, in my judgment to order Clear Legal to make a payment as security for the defendant’s costs” (paragraph 156, judgment).
The retainers
Clear Legal signed up their clients on day one, to two agreements:
- Pre-proceedings (from day one until the issue of legal proceedings) under a damages-based agreement where Clear Legal were entitled to deduct 45% from any recovered damages.
- Post-proceedings under a conditional fee agreement where Clear Legal were entitled to charge an hourly rate and deduct a success fee.
Those hourly rates were described by Clear Legal as being “much higher than the normal typical hourly rate charged for legal work for claims with the typical value of the sums involved in your claim. We charge these rates because we’re market leading specialists, because we provide you with an indemnity to protect you against adverse costs, and so that we can ensure that work of this value remains commercial and profitable for us. Alternative Solicitors may charge you either a lower hourly rate or may charge on a different basis to us and we would recommend that you shop around before deciding to instruct us based on these terms”.
The hourly rate charged was £231.00 on the basis of:
- Specialism.
- Ensuring the work of this value remains commercial and profitable.
- Providing an indemnity to protect the client against adverse costs.
Costs Judge Rowley considered that “Clear Legal are able to demonstrate a specialism in this area” such that the first and second reasons above would justify the higher hourly rate being claimed.
He went on to affirm that the wording of the retainer assisted Clear Legal with regard to the second test imposed by CPR 46.9(3)(c) in that costs will be presumed to be reasonably incurred if the prospect of them being unlikely to be recovered from the opponent has been explained to the client.
The indemnity issue
The client care letter stated that:
“We have agreed to indemnify you in relation to your opponent’s costs and your own expenses and disbursements subject to you complying with your obligations under the agreements you have signed and as outlined above.”
“You may be liable to pay some or all of your opponent’s costs. Your liability for those costs is not altered by the terms of this agreement but we will indemnify you for those costs in any event.”
In evidence, it transpired that the main reason for the indemnity being provided was due to Clear Legal being unable to obtain any ATE insurance for these claims, which was presumed by Mr Carlisle (fee earner with conduct of the cases) to be due to a “wish for the insurers to avoid supporting claims against their primary market of solicitors and also that the premiums would be unaffordable” (paragraph 43, judgment).
The defendant contended that providing such an indemnity “was a fundamental part of the arrangement and clearly induced claimants to bring cases by the lack of any risk” (paragraph 66, judgment) and that the provision of such an indemnity was akin to “providing insurance but which is unregulated” and as such is “unlawful” (paragraph 50, judgment).
The defendants contended that “claimants were told that they would be at no risk and as such entered into litigation on a fundamentally false premise because they were at risk of a considerable liability” and that the proceedings were “maintained champertously” and were “an abuse of process” (paragraph 69, judgment).
The welcome pack refers to publicity for cases they have brought which no doubt has brought business in, “that is not buying or selling litigation but simply conducting business as a solicitor” (paragraph 94, judgment). The defendant questioned whether the claimants really knew anything about these proceedings and the potential costs impact that it could have upon them, and argued that “an amount within the hourly rates claimed had been “priced in” to reflect the provision of that indemnity” (paragraph 100, judgment). However, the judge found that there was a “paucity of evidence” submitted by the defendants to support this application and line of enquiry (paragraph 102, judgment).
Costs Judge Rowley considered whether the arrangements entered into were properly described as a contract for legal services or as a contract for insurance and whether the indemnity provided was more than a subsidiary part of the contract.
Costs Judge Rowley concluded that the “scheme” run by Clear Legal as evidenced by the “welcome pack is overwhelmingly a contract for legal services and the indemnity that is provided is entirely subsidiary to that scheme” (paragraph 110, judgment).
He did not accept that the “defendant’s characterisation of the claimants and Clear Legal’s arrangements as consisting of unlawful insurance or to be otherwise champertous. The indemnity is a peripheral element of the contract of legal services. Similarly […] the defendant’s argument that the claimants are passengers and are somehow unaware of their responsibilities holds no weight in the absence of any specific evidence” (paragraph 112, judgment).
The defendant’s costs
The defendant’s costs summary (broken down into five parts) claimed £714,399.60 of incurred and anticipated costs. However, with no order for costs for the first two hearings and part of the costs falling outside of the application for security, the judge was only concerned with costs amounting to £135,000. The judge commented that this level of costs has “considerably less resonance when looking at the real risk of non-payment”, having regard to Hillyard J’s checklist in RBS Rights Issue Litigation.
Comment
The decision serves as a reminder that standard disclosure is available in assessment proceedings under the Solicitors Act 1974.
Costs Judge Rowley has sent out a very clear warning in this case to all legal practitioners:
“Whilst it might be expected that solicitors would all understand the Solicitors Act 1974, the experience of this court is that it is a mystery to a great many of them. The age of the Act itself has led to many cases being reported since it was incepted and, it is almost trite to say, there are many cases going back to Victorian times which impact on Solicitors Act cases given that the 1974 Act is essentially a reiteration of numerous previous Acts stretching back to the 19th Century” (paragraph 97, judgment).
There can be no mistaking that the courts will have little sympathy for solicitors who do not know their own code of conduct and the Solicitors Act 1974.
It is important solicitors ensure that, when they are retaining their clients, they are certain that their clients understand the arrangement they have entered into, and their respective obligations, in order to demonstrate to the court that they have their client’s informed consent to act.
