Pushing forward

It is not just the Ministry of Justice that has been busy working on cost reforms. The courts have also been frantic, with a string of important decisions pushing current law forward.

On 3 March the Court of Appeal handed down judgment in Sousa v London Borough of Waltham Forest [2011] EWCA Civ 194. This case concerned a claimant who suffered subsidence damage to his property caused by the roots of a tree owned by the defendant local authority. The claimant's damages were insured. The claimant made a claim upon the policy. The insurer satisfied the claim and exercised its rights of subrogation to bring proceedings against the defendant in the name of the claimant. The claim was brought under the terms of a collective conditional fee agreement. The defendant objected to payment of the success fee.

The Court of Appeal ruled that the insurers had the same right to enter into a CFA and recover a success fee as the claimant would have done. The House of Lords' decision in Campbell v MGN (No. 2) [2005] UKHL 61 was followed so that 'the mere fact that a person is able to fund litigation without resorting to a conditional fee agreement does not make it unreasonable for him to do so'.

This decision was important enough for cases of this nature. However, the real point of interest was that it gave the Court of Appeal its first opportunity to comment on MGN v United Kingdom (Application No. 39401/04) (see Solicitors Journal 155/7, 22 February 2011). Would the Court of Appeal be prepared to apply that decision to the totally different facts in Sousa? If so, the current CFA regime may have been dead in the water without the need to wait for implementation of Jackson.

The court ruled that it was too late in the case for the local authority to be allowed to introduce arguments that liability for a success fee breached their own article 6 rights. It ruled that it was bound by the House of Lords decision in Campbell v MGN (No. 2) notwithstanding MGN v United Kingdom.

This is unlikely to be the last word on the matter. The decision not to allow the defendant to argue for its own article 6 rights (right to a fair trial) effectively prevented the issue from being properly argued. Even assuming the Court of Appeal's hands are tied by earlier case law, it still begs the question as to what the Supreme Court would do if and when this issue reaches it.

More decisions

In Sibthorpe & Morris v London Borough of Southwark [2011] EWCA Civ 25, the Court of Appeal declined to strike down as unlawful (on the basis of champerty) CFAs where the claimants' solicitors agreed to indemnify the claimants against adverse costs orders.

This decision pushes yet further at the boundaries of the type of fee arrangement the courts will tolerate and suggests one possible model for the post-Jackson funding landscape.

In Barratt Goff & Tomlinson v Commissioners for HMRC [2011] UKFTT 71 (TC), the VAT tribunal ruled that medical reports and record fees obtained by solicitors in personal injury claims are to be treated as disbursements and therefore the solicitor does not have to charge VAT on the fees.

This decision should not be misread. Where the medical expert is VAT registered and has charged VAT on the report then VAT is payable in the normal way. However, where the medical expert has not charged VAT, or those providing medical records have not charged VAT, then VAT should not be added by the solicitors.

Another interesting decision is that of HHJ Stewart QC in Gray v Toner (unreported) 11 November 2011. He first held that, contrary to what has been the long accepted position, interest on costs does not normally begin to run from the date the entitlement to costs arose (e.g. consent order) but rather from the date that costs are actually assessed. Given the delay in many matters reaching detailed assessment, this decision, if correct, has big implications.

Second, the judge considered whether, even if he was incorrect on the first point, he should exercise his discretion to disallow interest until the costs were actually assessed. The matter had been funded by a CFA, and the claimant had therefore not paid any costs as the case progressed.

The judge held that as the primary purpose of interest on costs was to compensate a party for being kept out of pocket it would be appropriate that interest should only run from the date of assessment of costs and not from the date of the order for costs to be assessed.