REUTERS | Toru Hanai

Third party costs application failed against losing claimant’s legal team

In the recent case of Willers v Joyce and others an application was brought by the winning party against the losing party’s counsel and solicitor following an unsuccessful claim for malicious prosecution.

It is trite law that the court has jurisdiction to order a non-party to pay costs, which comes from section 51 of the Senior Courts Act 1981. The principles pursuant to which the court will consider such an application for costs against the opposing parties’ legal team can be summarised as follows:

  • A solicitor will not render himself/herself or the firm liable to a non-party order simply by acting bona fide for a client who may not be able to pay the fees (Floods of Queensferry at paragraph 81).
  • Without more, simply acting for a client under a conditional fee agreement (CFA) will not render a solicitor liable to a non-party costs order on the basis that he or she is a funder of the client’s claim (Hodgson and others v Imperial Tobacco and others). Nor will simply funding disbursements (Flatman v Germany). The reasons for this are rooted in public policy and the need to protect CFAs as a way of preserving access to justice for those who cannot afford to pay legal fees under a traditional retainer.
  • What is required in order to succeed against a solicitor on such an application is something more than some financial benefit to the solicitor over and above the benefit which he or she could expect to receive from the CFA, or some exercise of control over the litigation beyond that which would be expected from a solicitor acting on behalf of a client, or both of these.
  • Thus, a solicitor conducting proceedings pursuant to a CFA, where the enforceability of that CFA is being challenged, could be the real party to the proceedings. (See, for example, Myatt and others v National Coal Board, where the CFA being challenged was one the solicitors had entered into with a large number of their clients. Accordingly, the court found that while the unsuccessful litigants had an interest in the costs proceedings, the major interest in litigating about the enforceability of the CFA was that of the solicitor, such that the solicitor was the real party.)

The case of Willers v Joyce has a somewhat convoluted factual background. In brief:

  • Litigation was brought against Mr Willers which was subsequently discontinued. Mr Willers was awarded his costs of that litigation. Hard fought detailed assessment proceedings followed, which were eventually compromised with Mr Willers accepting a figure for payment of his legal costs from the losing party, leaving him with a £2 million shortfall. The legal team had taken no steps to recover the substantial costs owed to them by Mr Willers.
  • Mr Willers then brought a claim for malicious prosecution and abuse of process arising out of the earlier proceedings. One of the heads of damage in that claim was the £2 million shortfall in costs from the previous proceedings. After a 16 day trial, his claim was dismissed and he was ordered to pay the defendant’s costs of those proceedings, including an interim payment on account of costs of £1 million. The legal team had again taken no steps to recover the legal costs owed to them by Mr Willers.
  • Mr Willers’ only asset was a 50% share in the family home, but this was subject to a charge in favour of his lawyers. He made no attempt to satisfy the order for an interim payment on account of costs.
  • The court found that Mr Willers was not going to be pursued for his unpaid legal costs by his legal team unless he came into some money, either by virtue of winning the malicious prosecution claim or another piece of litigation in which he was involved on the Isle of Man.
  • The successful defendant to the malicious prosecution proceedings made an application against the law firms and barristers who had acted for Mr Willers in those proceedings.
  • In that application, it was asserted that:
    • the lawyers were the real parties to the malicious prosecution litigation because the principal purpose of the claim was to recover as damages an amount equal to the unpaid fees owed by Mr Willers to his legal team for the legal services they provided to him in the earlier action;
    • further, the only way in which Mr Willers could discharge the legal fees he had incurred in the malicious prosecution claim was if he won the claim and was awarded his costs by the losing party;
    • accordingly, it was said that the legal team would be the principal beneficiaries of any success in the malicious prosecution claim.

The court identified the question for the court as being:

“… whether the fact that the fees riding on the success of the claim are not only the fees for work in that claim but also fees outstanding from an earlier claim means that the solicitor to whom those fees are owed is acting in the subsequent claim as a ‘real party’ or acting outside the scope of his role as a legal representative.”

The judge ultimately refused to identify a further, narrowly confined, exception to the general principle that legal representatives who, formally or informally, forego payment of their fees are not thereby liable for the successful party’s costs, where the damages claimed in second proceedings include the unpaid costs of the solicitors incurred in the first proceedings, as this could affect a number of different scenarios.

In dismissing the application, the court noted that as:

“… there is a strong public interest in ensuring that impecunious claimants can have access to justice even if that means that successful defendants are left substantially out of pocket… legal representatives should not be at risk of a third party costs order unless they are acting in some way outside the role of legal representative.”

As Mr Willers had not waived legal professional privilege, the court had to give the lawyers the benefit of any doubt regarding what was likely to have occurred. The applicants simply had very little evidence upon which to hang an application that the legal team were the real party acting outside their role as legal representative.

Ultimately, the court therefore determined this case on established principles. It has not extended the circumstances in which legal advisers may find themselves on the end of non-party costs orders. To have done so must be right. However, not necessarily for the reasons given by the judge; that is, that the decision would not be confined to its own facts and would open up solicitors to such applications in a number of spheres, but because, as the judge noted, what was at stake here were the legal costs that Mr Willers owed to his legal team. Whether those were going to be recovered as costs or damages makes little difference if the way in which they were incurred was by the provision of legal services to a client in the pursuit of his claim.

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