New PAD

It is now common for respondents to pre-action disclosure (PAD) applications in personal injury disputes to challenge the recoverability of costs on the grounds of CPR 48.1 and by reference to the indemnity principle. A comprehensive judgment on the issues posed by the rule was handed down by Manchester's DCJ, HHJ Holman, last year. But, in the decision in Sherred v Western Housing (Manchester County Court, 13 October 2009) the judge referred the indemnity point to the Senior Courts Costs Office (SCCO). That case was compromised, but the SCCO has now had its say on the indemnity issues in the case of Connaughton v Imperial College Healthcare NHS Trust [2010] EWHC 90173 (Costs) '“ a decision of Master Haworth.

Respondents typically raise the indemnity issues where the retainer is based on the Law Society model CFA (as was the case in Connaughton). One issue is whether 'your claim for damages', as provided by the agreement, does not cover applications for pre-action disclosure; another is that no costs can be recovered in any event because no 'win' under the agreement has been achieved. The first issue is potentially applicable to any retainer. The second is exclusive to CFAs.

Does the model CFA cover PAD applications?

The most relevant parts of the model CFA, taken from the signed CFA and the attached document entitled 'Conditional Fee Agreements: what you need to know' are detailed in the box below.

The defendant argued that 'your claim... for damages' could not encompass a PAD application which was a separate cause of action or set of proceedings. The claimant contended an application is distinct from a cause of action or set of proceedings. In any event, the claimant argued that interpretation of the agreement should not be overly legalistic given it is designed to be understood by a lay person.

Master Howarth reviewed the principles of contractual interpretation summarised by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28, and concluded that the words 'your claim' should be given a broad interpretation to include applications for PAD. He found that the purpose of the CFA was to inform the client of her rights as well as to provide the vehicle for recovery of costs. In the circumstances, it was clear that 'your claim' was not limited to the issuing of proceedings but related to a demand for damages whether or not proceedings were issued. It was held that the PAD application was part of the demand for damages and a natural consequence of the defendant's failure to comply with the pre-action protocol. Further, it was recognised that an application for pre-action disclosure is an interim order and that the agreement covers appeals from interim orders made by the claimant. Such analysis provides a clear indication that interim orders are covered by the words 'your claim'.

Ultimately, it is clear that the retainer should be interpreted from the point of view of the reasonable lay person. Master Howarth rightly recognised that a lay person's reasonable expectation would be that non-compliance with a pre-action protocol which was part of the pre-litigation process and necessitated an application to the court would be covered under the terms of the retainer.

Can costs be recovered?

The issue of whether costs can be recovered without achieving a win under the agreement was dealt with swiftly. The claimant did not claim that a 'win' had been achieved under the agreement. Instead, reference was made to the following provision within the terms: 'If on the way to winning or losing you are awarded any costs by agreement or court order, then we are entitled to payment of those costs together with a success fee on those charges if you win overall.' This was deemed sufficient to allow costs to be recovered in the circumstances.

Finally, the master rejected the defendant's submission that no costs were recoverable because the claimant had, in fact, proceeded against a third party. The claimant had sought damages from the defendant for a slipping accident at the defendant's premises. The disclosure provided had led the claimant to pursue the independent cleaning contractors. However, this did not prevent recovery of costs against the defendant, because when the retainer was signed it was clearly within the contemplation of the parties to the retainer that the defendant would be pursued for damages. The letter of claim was sent some six days after the agreement was signed and, at that point, the claimant had no reason to think that anyone else was responsible.

The judgment of Master Howarth demonstrates that the tide has turned against respondents to PAD applications in respect of these issues. The often cited case of Roche v Newbury Homes [2009] EW Misc 3 (EWCC) was expressly rejected. Instead, Master Howarth followed the approach taken by DJ Culleton in Smith v McDonalds (Liverpool County Court, 1 October 2009). It is hoped that this authoritative judgment will now bring an end to some of the satellite litigation generated by these matters.