Whilst the buzz in the legal costs world is all about the future of litigation funding, as set out in the twin reports of Lord Justice Jackson and Lord Young, the costs judges continue to deal with matters raised by the current system. One of the these matters is the perpetual question of what is a reasonable success fee for a case and a recent decision of Master Campbell in the Senior Court Costs Office, Peacock v MGN Ltd. (2010), sets out some very helpful guidance in this regard.
The claim arose from a libel action brought by the Claimant with the assistance of the well known libel firm of Carter Ruck. The claim was funded by way of a Conditional Fee Agreement (CFA) dated 16th May 2008 and the success fee was staged according to the stage of the proceedings which the case reached:
A letter of claim was sent on 16th April 2008 and was responded to by the Defendant on 30th April. Correspondence was exchanged and proceedings issued on the 2nd September 2008. A Defence was served on 24th October 2008 wherein the claim was disputed on the basis of justification. On the 27th January 2009 the Claimant applied for part of the Defendant to be struck out and on the 4th March 2009 the Defendant applied for a costs capping order. The matters came before Mr Justice Eady and he dismissed both applications and gave further directions on the 21st April 2009. The case progressed, disclosure took place, witness statements prepared and served and the matter was finally settled by consent order on the 30th November 2009. The order provided, inter alia, for damages of £15,000 and for the Defendant to pay the Claimant’s reasonable costs on the standard basis.
The Claimant sought costs of £382,071.24 to include a 100% success fee, based on the claim having settled more than 28 days after the Defence was served. The Defendant contended for a success fee of no more than 53%.
The Defendant’s submissions were threefold. Firstly, it was argued that it was unreasonable for the Claimant to fix their success fee at 100% at such an early stage of the proceedings as 28 days after the service of the Defence. Secondly, it was argued that the risk assessment undertaken by the Claimant Solicitors was, in fact, no more than a block rating applied to all cases and was not, therefore, a reasonable assessment of the risks associated with this case. Thirdly, and possibly in conflict with the second argument, the Defendant sought to rely upon a television interview by a partner in the Claimant firm when it was stated that only about 15 of the 200-300 large CFA libel cases taken on by the firm were actually lost. Therefore, it was argued, the 100% success fee was manifestly unreasonable.
The Claimant’s starting point in response was Section 11.7 of the Costs Practice Direction:
‘When the court is considering the factors to be taken into account in assessing an additional liability, it will have regard to the facts and circumstances as they reasonably appear to the solicitor or counsel when the funding arrangement was entered into and at the time of any variation of the arrangement.’
The Claimant submitted that the decision to enter into a staged success fee was reasonable. At the time the decision was made, the Claimant Solicitor already knew the stance the Defendant would be adopting due to the pre-CFA exchange of correspondence. In essence, the case would stand or fall on which party would be able to persuade a jury that they were telling the truth, a notoriously difficult outcome to predict. In particular, the decision to apply the 100% success fee from a point 28 days after service of the Defence reflected the fact that if the case reached this stage, the Defendant clearly considered it had a serious defence and the risks were correspondingly high. In the circumstances, it was argued that the level of the success fee and the stages at which it changed were reasonable.
Master Rogers concluded that the Claimant’s 100% success fee was reasonable. More importantly, he then sent on to set out a number of propositions which had influenced his decision and would provide guidance for future cases.
Firstly, he reaffirmed the principle, as set out by the Court of Appeal in Callery v Gray (2001) and KU v Liverpool City Council (2005) and recently applied by Mackay J in McCarthy v Essex Rivers NHS Trust (2009), that a party who contends for a high success fee in a matter that has gone a long way towards a trial stands a better prospect of having that fee approved by the Court if their CFA provides for a lower success fee in the claim had settled earlier. By contrast, a CFA with a high single staged success fee will, correspondingly, be more difficult to justify.
Secondly, where a solicitor chooses to enter into a staged success fee, it is open to them to choose the date of staging. In KU (supra), the Court of Appeal suggested the service of a Defendant as a reasonable staging point and, therefore, prima facie, a stage 28 days after service of the Defendant did not appear unreasonable. In addition, in this case, the Defendant had served a detailed Defence containing multiple paragraphs seeking setting out the defence of justification. It follows that the Defendant must have believed that it had a realistic chance of defending the claim at trial. In all the circumstances, the stage 28 days after service of the Defendant was a reasonable one and the 100% success fee applied was reasonable in all the circumstances.
In relation to the Defendant’s reference to other cases where the Claimant Solicitors had applied a 100% success fee and the proportion of these cases that were successful, there was nothing more than anecdotal evidence in this regard. Furthermore, the economics was complicated by the fact that the amount of costs lost when a case went to trial and lost was not necessarily balanced out by a case that settled before trial but was won. The Defendant’s analysis was too simplistic and was not a factor that influenced the Court’s decision.
In summary, this decision is the latest in a recent run of cases where the effect of a decision to use or not use a staged success fee has had an effect on the success fee allowed. Where a staged success fee is utilised, the Court is much more likely to allow a 100% success fee. By contrast, where a single stage success fee is used, even where the prospects of success appeared uncertain at the time the CFA was entered into, the Courts are increasingly unlikely to allow a success fee approaching 100%. However, there is one rather curious aspect of this, and indeed, other decisions on success fees. The general principle is that the reasonableness of the success fee should be judge by reference to the facts as known at the time the CFA was entered into. Hindsight should not be a relevant factor. In this case, the Defendant’s stance, particularly in the Defence, was clearly a factor in the conclusion that the level of the success fee and the stage at which it applied were reasonable. If, by contrast, the Defence was less robust and the Defendant had made admissions, would this have lead the Court to conclude that the 100% was not reasonable? It seems that this may well have been the case but this does appear to fly in the face of the ‘no hindsight’ test. More generally, paying parties will often argue that a success fee is too high in a case where liability was admitted. The standard retort to such an argument is that the Court is being asked to apply hindsight which it cannot do. Which is right? It seems fair to say that it all depends. As always when it comes to costs, there are no simple answers.
Paul Jones
Technical Director
Legal Costs Negotiators Ltd.
Cases Cited:
Peacock v MGN Ltd. [2010] EWHC 90174 (Costs)
http://www.bailii.org/ew/cases/EWHC/Costs/2010/90174.html
Callery v Gray Ltd. [2001] EWCA Civ 1117
http://www.bailli.org/ew/cases/EWCA/Civ/2001/1117.html
KU v Liverpool City Council [2005] EWCA Civ 475
http://www.bailii.org/ew/cases/EWCA/Civ/2005/475.html
McCarthy v Essex Rivers NHS Trust (13 November 2009) (unreported)