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Tuesday 10th May 2005
KU -v- Liverpool City Council
A long awaited decision of the Court of Appeal, as the Court of Appeal was required to give consideration to Conditional Fee Agreements and appropriate Success Fees.
The Local Authority appealed against an Order that it pay the costs of the Detailed Assessment proceedings and that a Success Fee of 100% should apply throughout the proceedings.
The dispute between the parties related to the reasonableness of the Success Fee and a Conditional Fee Agreement agreed between the Mother of the Respondent (K) and Solicitors instructed.
The District Judge had held that the Success Fee of 100% was reasonable for the period until the Local Authority filed its Defence in the Action but thereafter the Success Fee should be reduced to 5% both for the substantive proceedings and in the Detailed Assessment proceedings which followed.
On the first Appeal the Judge held that the District Judge had no power to reduce the Success Fee.
On the instant Appeal, the Court considered the following issues; (i) whether a Success Fee of 100% was appropriate on the CFA at the time when it was made; (ii) whether the CFA allowed contractually for the possibility of a different Success Fee on a Detailed Assessment from the Success Fee on the main claim; (iii) given that differential rates were not permissible under the contract, whether the Court had the power under Cost Practice Direction paragraph 11.8 (2) to direct that a Success Fee was recoverable at different rates for different periods of the proceedings; (iv) what the proper order was (v) whether the decision of the Judge was wrong.
The facts of the case appeared straightforward; the Claimant was four years old at the time of her accident. The Claimant had sustained a cut leg when she stepped into a hole walking across a grass verge.
The Court of Appeal stated that the Claimant’s Solicitor when deciding upon a Success Fee had two choices. He could have taken the view that the Claimant would probably settle without fuss at a reasonable and early stage but wished to protect himself against a risk that a claim might go the full distance and might eventually fail. In those circumstances he could select the 2-stage Success Fee discussed by the Court in Callery -v- Gray. In this situation the Solicitor would be willing to restrict himself to a low Success Fee if the case settled within the protocol period – or within such other period, perhaps until the service of the Defence and to have the benefit of a high Success Fee should the case no settle early. In the alternative he could have selected, as he did in fact, a single-stage Success Fee being a fee which he would seek to recover at the same level however quickly or slowly the claim was resolved.
The Court of Appeal considered an appropriate single-stage Success Fee would have been 50% and on issue (i) found that a single-stage Success Fee of 100% was inappropriate on this CFA at the time it was made, and a reasonable Success Fee would have been 50%.
The Court of Appeal turned to issue (ii) and referred to Halloran –v- Delaney when considering whether a CFA allowed contractually for the possibility of a different Success Fee on a Detailed Assessment from the Success Fee on the main claim. The Court of Appeal answered the question as “no”. As a matter of contract the same single-stage Success Fee was available throughout the proceedings on the claim, including the Detailed Assessment of costs.
The Court of Appeal then turned to issue (iii) lengthy consideration was given to the Civil Procedure Rules and accompanying Directions. The Court of Appeal found that the only matter which caused any difficulty or uncertainty arose out of paragraph 11.8 (2) of the Cost Practice Direction set out as follows:
“ (2) The Court has the power, when considering whether a percentage increase is reasonable, to allow different percentages for different items of costs of different periods during which costs were incurred.”
The Court of Appeal having heard argument held that once it is clear that a CFA may only carry one Success Fee, and that the task of the Cost Judge is to determine whether that Success Fee was a reasonable one in the light of the matters that the legal representative knew or should have known when it was made, there is simply no room for a Cost Judge to substitute different percentage increases for different items of cost, or for different periods when costs are incurred. He could only do this with the benefit of hindsight, which is prohibited, and the rules and the regulations gave him no power to remake the parties’ agreement.
The Court of Appeal found that the Court had no power to direct a Success Fee as recoverable at different rates for different periods of the proceedings. Insofar as paragraph 11.8 (2) of the Costs Practice Directions suggests otherwise, “it is wrong”.
Having found that the Court possesses no such power issue (iv) did not arise.
The Court of Appeal held, dealing with issue (v) that the District Judge should have ruled that the Success Fee of 100% was unreasonable, and should have substituted a 50% Success Fee which would have covered the entire proceedings, including the Detailed Assessment of costs.
Dealing with issue (vi) the Court of Appeal found that the decision of the Judge was not wrong as he was entirely correct to rule that if a Success Fee was held to be proper at the outset, the District Judge should not have varied it in relation to a later period of the proceedings when the risks were reduced. The Court of Appeal observed that the Judge was not invited to rule on the reasonableness of the initial 100% Success Fee.
In conclusion the Court of Appeal held that they no power to alter the actual outcome of the case because the Council did not in fact appeal the reasonableness of the initial Success Fee to the first Appeal Court.
Finally the Court of Appeal reiterated that Cost Judges should be more willing to approve what appear to be high Success Fees in cases which had gone a long distance towards trial if the maker of the CFA had agreed that a much lower Success Fee should be payable if the claim settles at an early stage.
It should also be noted that this case has also been referred to as Ungi -v- Liverpool City Council.
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