QOCS: THE TRANSITIONAL PROVISIONS CONSIDERED BY THE COURT OF APPEAL: CLAIMANTS CANNOT BLOW HOT AND COLD
In the judgment today in Catalano -v- Espley Tyas Development Group Limited  EWCA Civ 1132 the Court of Appeal considered the transitional provisions relating to QOCS.
“We cannot accept that Mr McGee is right. Not only does he seek to read a word into the rules which is not there, but such a construction would lead to a situation where a claimant could have the best of both worlds. A claimant could make an agreement providing for a success fee and purchase ATE insurance and wait until shortly before trial to re-assess his or her prospects. If they appeared to be high, such claimant could continue and claim the cost of the ATE premium and the success fee as costs from the defendants; if they appeared to be low, he or she could cancel the original CFA, make a second CFA and then discontinue the claim a day later and escape the costs consequences. The framers of the rules could not have intended that a claimant should be able to blow hot and cold in that way. The right construction of the rule, therefore, is to give the words “funding arrangement” their natural meaning and apply them to any pre-1st April 2013 agreement (whether terminated or not).”
The claimant issued proceedings in 2013 for noise induced hearing loss. The claimant was initially instructed her solicitors and was funded by a CFA which was entered into on the 13th June 2012 and which was notified to the defendant.. There was no dispute that the initial CFA was “a funding arrangement as defined by rule 43.2(1)(k)(i)” for the purposes of CPR 48.2 (1)(a)(i).
The QOCs regime came into force on the 1st April 2013. On the 15th July 2013 the claimant entered into a new CFA which was said to have replaced the prior agreement. Proceedings were then issued.
The claimant’s costs budget referred to pre-action costs of £5,375. The defendant was served with a notice of funding on 20th January 2014 which explained that the case was now being funded by way of a CFA dated 15th July 2013. This notice referred to the existence of the earlier CFA of June 2012 “which provides for a success fee” but did not tick the box available for saying it had been terminated.
The claimant then discontinued the case shortly before trial. As a result she was liable to pay the defendant’s costs.
DID QOCS APPLY?
The claimant argued that the litigation services provided by her solicitors were provided pursuant to a funding arrangement made after 1st April 2013 and that QOCS (the new regime) applied so that she could not be liable for costs after discontinuance.
THE FINDINGS OF THE DISTRICT JUDGE: THE CLAIMANT DID NOT HAVE QOCS PROTECTION
Deputy District Judge Harris found that the new regime was not applicable on these facts. He considered two previous cases: Landau v The Big Bus Company (31st October 2014) in which Master Haworth had held that the QOCS regime did not apply when a litigant had made a CFA before 1stApril 2013 for the trial and a second CFA after 1st April 2013 for the appeal, because there was only one matter within CPR 48.2(1)(a)(i)(aa), and Casseldine v The Diocese of Llandaff (3rd July 2015, Cardiff County Court) in which the litigant had made a CFA with her solicitors (Thompsons) before 1st April 2013 but then the retainer was terminated and she instructed second solicitors with whom she made a CFA after 1st April 2013 pursuant to which a claim form was issued. Thompsons had made no claim for any success fee or costs and it was held by District Judge Phillips that it was they who had terminated the CFA and that they, therefore, had no entitlement to payment of any success fee or costs. Moreover no proceedings were ever issued pursuant to the first CFA and there was thus no pre-commencement funding arrangement for the purposes of CPR 48.2.
“In this claim the claimant’s current solicitors discontinued one CFA entered into prior to CPR 44.17 taking effect and entered into a second one thereafter. There is no doubt that the case in question was the same matter and that that matter was the subject of proceedings and I find the approach adopted by Master Haworth in Landau so far as that applies to apply here. Master Haworth concluded that there was only one matter namely a personal injury claim arising out of one accident and that approach seems to be applicable here.”
He accordingly held that there was a pre-commencement funding arrangement, that QOCS did not apply and Ms Catalano was liable to pay the defendants’ costs. Lewison LJ has granted permission for a leapfrog appeal to this court.
THE FINDINGS OF THE COURT OF APPEAL: THE DISTRICT JUDGE WAS RIGHT
- One must start with the wording of CPR 48.2(1)(a). A distinction is drawn between pre-1st April 2013 funding arrangements involving a CFA which provides for a success fee (sub-rule(1)(a)(i)) and a pre-1st April 2013 funding arrangement involving ATE insurance (sub-rule (1)(a)(ii)). The first form of funding arrangement can itself be of two kinds: (aa) an arrangement for the provision of litigation services to the person by whom the success fee is payable or (bb) an agreement under which litigation services were (in fact) provided to that person before 1st April 2013.
- The concept of a pre-1st April 2013 funding arrangement is thus remarkably wide. It does not just include an agreement where services have in fact been provided before 1st April 2013 but also an agreement made before 1st April 2013 for the provision of such services in the future.
- It is clear that on the facts of this case, Ms Catalano’s solicitors did provide services to her before 1st April 2013 since proposals for ATE insurance were made (although in the event those proposals were declined) and experts were retained, one of whom had even submitted a report before 1stApril 2013. Those services were noted and a charge of £5375 was included in Ms Catalano’s solicitors’ costs budget.
- In these circumstances, unless Mr McGee is right to read the words “a funding arrangement” as “an un-terminated funding arrangement”, there was undoubtedly a pre-commencement funding arrangement within CPR 48.2(1).
- We cannot accept that Mr McGee is right. Not only does he seek to read a word into the rules which is not there, but such a construction would lead to a situation where a claimant could have the best of both worlds. A claimant could make an agreement providing for a success fee and purchase ATE insurance and wait until shortly before trial to re-assess his or her prospects. If they appeared to be high, such claimant could continue and claim the cost of the ATE premium and the success fee as costs from the defendants; if they appeared to be low, he or she could cancel the original CFA, make a second CFA and then discontinue the claim a day later and escape the costs consequences. The framers of the rules could not have intended that a claimant should be able to blow hot and cold in that way. The right construction of the rule, therefore, is to give the words “funding arrangement” their natural meaning and apply them to any pre-1st April 2013 agreement (whether terminated or not).
- It is also important to note that, while CPR 44.17 provides that QOCS does not apply where a claimant has entered into a pre-commencement funding arrangement before 1st April 2013, the rule defining a pre-commencement funding arrangement is (unsurprisingly) the mirror image of the statutory provision which first prohibits the recovery of a success fee as costs but then preserves the position for CFAs entered into before the statutory provision comes into force – which was 1st April 2013.
- As mentioned in para 5 above, section 44(2) of LASPO provided for success fees to be limited to a percentage of the damages to be awarded in the proceedings. Section 44(4) then provided:-
“A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.”
It was, however, necessary to preserve the right to recover such success fees as were provided for in agreements already concluded and section 44(6) therefore enacted:-
“(6) The amendment made by subsection (4) does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if
i) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or
ii) advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.”
If Mr McGee’s argument were correct it would either be necessary to read the words “a conditional fee agreement” in section 44(6) as “an un-terminated conditional fee agreement” which would be impermissibly to read the word “un-terminated” into the statute or there would be a complete mismatch between the statute and the rule when the statute and the rule were self-evidently intended to cover the same ground albeit from the two different perspectives of continuing entitlement to recover the success fee as part of the costs and the non-application of QOCS to agreements already made.
- In any case, therefore, in which litigation services have in fact been provided under a CFA made before 1st April 2013, success fees can continue to be recovered as costs and QOCS will not apply even if the CFA is terminated and a second CFA is made. It follows that Ms Catalano’s appeal will have to be dismissed. As Mr Carpenter pointed out, that causes no injustice to Ms Catalano and her solicitors since, once insurance was refused but it was decided that the litigation should continue, she (or they) would be at risk of the defendants recovering their costs in any event.
- What then of the case where a CFA is made before 1st April 2013 but, before any work is done, a second CFA is made after 1st April 2013, or the case where work is done but the retainer is terminated (whether by the solicitors or the client) before 1st April 2013 and a second CFA is made by new solicitors after 1st April 2013?
- We would prefer to express no concluded view since this case is different from those cases. But we think the first case will be comparatively rare since almost inevitably some chargeable work will be done at about the time the first CFA is made. The second case is the Casseldine case in which DJ Phillips held that it was the solicitor who terminated the retainer and therefore had no entitlement to a success fee in any event. If, however, work had been done (which is probable) we are doubtful that Casseldine can be supported on the true construction of CPR 44.17 and CPR 48.2, unless it could be said that the second CFA retrospectively discharged and extinguished the first agreement and replaced it with the second agreement. That was contemplated as a possibility by Lord Sumption (with whom the majority of the Supreme Court agreed) in Plevin v Paragon Personal Finance Ltd  1 WLR 1249, para 13 where however the second and third CFA were held on the facts to be merely a variation of the first agreement.