An increasing feature of personal injury litigation is the use of various forms of agents by solicitors. Traditionally, solicitors would sometimes instruct another firm of solicitors as their agents to attend Court on their behalf, for example where the hearing was in London and the solicitors were based elsewhere. Increasingly, however, this has broadened out such that solicitors now routinely instruct agents, both solicitor and non-solicitor, to conduct attendances with the client and witnesses, undertake investigations and site visits, obtain medical reports and records and to deal with costs once the litigation has concluded. However, as a result of the expansion of the use of Conditional Fee Agreements (CFA) since 1999, a question has arisen that was previously considered of little importance. Are the fees of an agent to form part of a solicitor’s profit costs or disbursements? This question has recently come before the Court of Appeal in the case of Crane v Canons Leisure Centre (2007).

Crane concerned the fees of a costs draftsman. The Claimant had brought proceedings with the aid of his trade union for an electric shock suffered at work. The claim was settled without proceedings for £1,500 plus costs on the standard basis. A claim for costs was made by the Claimant’s Solicitors but this could not be agreed. Costs only proceedings were issued and the matter progressed to Detailed Assessment. The matter came before a Costs Officer who assessed the costs at £6,572.70 and awarded costs of the assessment to the Claimant. The costs of assessment included the costs of the Claimant’s costs draftsman as part of the solicitor’s profit costs. As the case was funded by way of a Collective Conditional Fee Agreement (CCFA), this included a success fee of 50%. The Costs Officer saw no reason why this was not correct and allowed the success fee on the costs draftsman’s fees, albeit at 45%. The Defendant appealed and the matter came before Master Wright. His decision was that, under the terms of the CCFA, the costs draftsman’s fees could not be included within the solicitor’s profit costs. Therefore, no success fee could be applied to them. The Claimant appealed and the matter was referred to the Court of Appeal by Collins HHJ and the matter was due to be heard on the 15th January 2007 together with another case dealing with agency fees, Woollard v Fowler (2005) (of which more later). Woollard v Fowler was compromised between the parties and Crane was left high and dry. The matter finally came back before the Court of Appeal in November 2007 and judgement was reserved. On the 19th December 2007, judgement was finally handed down.

The Court of Appeal started by considering the terms of the CCFA. Base charges (analogous to profit costs) were defined as:

‘charges for work done by or on behalf of the Solicitors which would have been payable if this agreement did not provide for a success fee, calculated on the basis of the fees allowable for that work in the court in which the action in question is conducted or would have been conducted if proceedings were issued.’

By contrast, disbursements were defined in the CCFA as:

‘expenses which the Solicitors incur on the member’s behalf in the course of an action, such as court fees, fees for experts, barrister’s fees (including success fees for barristers where appropriate), copying charges made by others, travelling and hotel expenses (this is not an exhaustive list)’

The Court of Appeal therefore had to decide under which heading a costs draftsman’s fees fell. If they were base charges (profit costs) then a success fee applied, whereas if they were a disbursement, then no success fee should be allowed.

The Court considered the various cases that had dealt with the issue previously. The case most often cited by parties seeking to argue that an agent’s fees are part of profit costs is the case of Smith Graham v Lord Chancellor’s Department (1999). In this case, solicitors had instructed an external agent, who was not a solicitor, to carry out investigative work. Hallett J held that this work was of a fee-earner nature and therefore the agent should be considered as being a temporary employee of the instructing solicitors with the consequence that his fees could be charged as profit costs. This was followed by Stringer v Copley (2002) where HHJ Cook followed the decision in Smith Graham in relation to the fees of external enquiry agents and extended the principal to the fees of a medical agency instructed to obtain a medical report. The Court also mentioned, in passing, the decisions in Cannon v Mid-Essex Hospital Services NHS Trust (2006) and Guy v Castle Morpeth. In the former, the fees of a costs draftsman had been held to form part of profit costs, whereas in the latter, they had been held to be a disbursement. Finally, the Court referred to the judgement of the Senior Costs Judge, who was sitting as an Assessor with the Court of Appeal, in the Claims Direct Test Cases (Tranche 2) (2003). The distinction he had drawn was between work done by an agent for which the solicitor retains control and responsibility, which forms part of profit costs, and work done by an agent is done on behalf of the client directly, albeit via the solicitor. The former is a profit cost, the latter is a disbursement.

On this basis, it was not wholly surprising that the Court concluded that the costs of a costs draftsman fell under the heading of base costs.

‘In my view, Costings Ltd. (the costs draftsmen) in the present case were doing work which Rowley Ashworth (the solicitors) has themselves undertaken to their client to do. It was solicitors’ work for which Rowley Ashworth were entitled to make their own direct charge…I do not think that the classification of the cost of this work can sensibly depend on whether Rowley Ashworth did the work themselves, whether they delegated it to another firm of solicitors or whether they delegated it to costs draftsmen who were not solicitors.’ (May LJ at paragraph 15)

However, Maurice Kay LJ gave a dissenting judgment. His view was that:

‘In my judgment, it is unjust if the paying party has to pay a success fee to and on behalf of the solicitor (his emphasis) when the solicitor has chosen not to do the work in question but to instruct someone else to do it.’ (at paragraph 28)

The Court also considered the question of whether the success fee that should be applied to the costs draftsmen’s fees should be the same success fee applied to the solicitor’s costs for the main claim. Following the court’s judgment in KU v Liverpool City Council (2005), it was held that the same success fee must apply to Detailed Assessment as applied to the costs of the main action. The Court does not have the power to order a different success fee for different stages of the case, unless the CFA makes express provision for the same.

So is this the last word on the subject? On the one hand, it would appear to be. The Court of Appeal has ratified the orthodox view that agents’ fees can be claimed as profit costs if the solicitor retains control and responsibility for the work done by the agent. However, there is one final possible twist in the tail. The case of Woollard v Fowler was due to be heard at the same time as Crane in January 2007 because it was considered that they dealt with a common issue. In Woollard, the issue was whether the fees of an agency instructed to obtain a medical report and medical records were a disbursement such that they could be recovered as part of the predictable costs scheme in CPR 45. The Senior Costs Judge had held that such fees were a disbursement:

‘in my judgment it is entirely proper, and in accordance with general and established custom, that the payment should be treated as a disbursement made on behalf of the client and thus be recoverable on her behalf.’ (at paragraph 42)

Would the Court of Appeal, if faced with the Woollard decision, have reached the same conclusion as Crane? If so, then the fees of medical agencies would not be recoverable under the predictable costs scheme. In fact, the agreement between the parties that avoided the appeal was that the fees were payable. Is it possible that this particular hornet’s nest might yet be reopened again in the future? The Court of Appeal certainly hope not. May LJ’s opening remarks in the judgement in Crane were:

‘This appeal has an unsavoury flavour to it.’

One cannot imagine they will be particularly keen to savour the question once more.

Paul Jones
Technical Director
LCN

Cases Cited:

Crane v Canons Leisure Centre [2007] EWCA Civ 1352
Woollard v Fowler [2005] EWHC 90051 (Costs)
Graham v Lord Chancellor’s Department (1999) (unreported)
Stringer v Copley (2002) (unreported)
Cannon v Mid-Essex Hospital Services NHS Trust (2006) (unreported)
Guy v Castle Morpeth (2006) (unreported)
Claims Direct Test Cases Tranche 2 [2003] EWHC 9005
KU v Liverpool City Council [2005] EWCA Civ 475