Court of Appeal
The Issues: The defendant sought an order for costs against the claimants’ solicitors, for costs incurred when defending the claimants’ appeal against an order that their CFAs were unenforceable. Was it right to make an order for costs against a non-party, in this way?
Held: In July 2006 the Court of Appeal had dismissed an appeal made by the claimants, holding that their CFAs were unenforceable. The original appeal was in relation to four claimants represented by the same firm of solicitors. The defendants were entitled to their costs of the appeal but the claimants had no insurance against any liability for costs because it was a condition of their ATE insurance policy that an enforceable CFA had to be in place. Accordingly the defendant sought an order that the claimants’ solicitors should pay.
The claimants did have a financial interest in the original appeal, because although they would not have to pay their solicitor’s costs if the CFA was unenforceable, they were liable for their own irrecoverable disbursements of approximately £2,500 per case. This would have to be deducted from their damages of only £3,000 - 4,000 per claimant.
However, the financial consequences for the claimants’ solicitors were also very serious. Not only were they at risk of not being able to recover their costs of the four cases which were the subject of the appeal, ranging from £5,000 to £7,100 per case, but there were also approximately 60 other cases they were running at the same time, which were in a similar position. It was estimated that the costs of these ongoing claims were in the region of £200,000.
The Court accepted that the claimants did have a significant financial incentive to bring the appeal, because their disbursements represented approximately one third of the costs incurred by them before their claims were settled. Nevertheless the Court’s view was that the main reason why the original expensive appeal had been launched was to protect the claimants’ solicitor’s profit costs (para 12).
The claimants’ solicitors were therefore ordered to pay 50% of the defendant’s costs, because of their financial interest in bringing and running the appeal (para 15). The Court took into account that the claimants’ solicitors had not been given any warning that an application for costs would be made against them, until the appeals were dismissed. It appears therefore that if a warning had been given then the claimants’ solicitors would probably have been ordered to pay the full costs.
It was emphasised (para 14) that if a party thinks they may apply for an order for costs against a solicitor in similar circumstances then they should warn the solicitors at an early stage.
Comment: In light of this case firms will need to consider the risk of being ordered to pay the other side’s costs when pursuing appeals which are about their own costs, rather than a true benefit to the client.