A number of Claimants brought claims against their banks for breaches of the Consumer Credit Act 1974 and had been introduced to a firm of solicitors by a Case Management Company ("CMC”). The solicitors failed to arrange After the Event Insurance (ATE) cover and did not inform their clients about the risk of an adverse costs award and that there was no cover in place. The Claimants case failed and costs were awarded against some of them, but when they were unable to pay the Defendant made an application for a non-party costs order (NPCO) against the solicitors and the CMC.
Whether the "non-party” has effective control of the litigation and causation are important factors in determining whether a NPCO should be made.
The CMC’s literature said that ATE insurance would be purchased on their behalf should proceedings be issued, but no such cover was ever arranged. It was accepted that this was a failure on the part of the Claimants’ solicitors.
The Claimants’ solicitors had never spoken to any of the Claimants informing them that they had no insurance nor did they explain to any of their clients the costs consequences of them having no insurance if they lost. This failure to tell clients that they had no ATE insurance when they believed they were protected was "a gross breach of duty” by the Claimants’ solicitors and meant that they were effectively acting without instructions as their clients were prevented from giving instructions on anything like an informed view [para 27].
The Court held that had the Claimants been aware of the risk that they might become personally liable for the Defendant’s costs then they would have been likely to inform their solicitors that they did not want to continue with their claims. Therefore had the Claimants’ solicitors acted as they should have done, these cases would not have been issued nor would the Defendant’s costs have been incurred, creating a direct causal link. It was also held that as the Claimants’ solicitors were effectively acting without instructions, they were in a very real sense controlling the litigation. [para 43]
The NPCO applications against the CMC were dismissed, but those against the solicitors succeeded on the basis of the central failing of not arranging ATE insurance [para 46].
Box Legal Limited: After the Event Insurance Providers
- In this case the client was told by a work referrer that an ATE policy would be purchased so care needs to be taken especially when clients have been told by either a work referrer or the solicitor that the claim is risk free, or that cover is being arranged, that there is sufficient legal expense insurance in place. Indeed it may be reasonable to assume that most work referrers have told their clients (orally at least) that there is no costs risk to them.
- In addition, Rules 2.03(1)(f) and (g) of the Code of Conduct require solicitors to advise their clients of their potential liability for another party’s costs and to discuss whether their liability for adverse costs is covered by an existing insurance policy or whether specially purchased insurance should be obtained. It therefore seems that there is a risk of a NPCO against a solicitor whenever they fail to properly advise and protect their client against the risk of adverse costs, and where they fail to do so, they may be deemed to have pursued an action without instructions.
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