WHEN A PARTY CHANGES ITS FUNDING ARRANGEMENTS PART WAY THROUGH: A CHANGE FROM DBA TO CFA DID NOT PREVENT THE CLAIMANT RECOVERING FULL COSTS

January 17, 2018 · by · in Conditional Fee Agreements, Costs

The decision of Master James in Dial Partners LLP & Anor v Eastern Airways International Ltd & Ors [2018] EWHC B1 (Costs) raises an interesting set of issues when a party changes the basis of its funding part-way through a case, but prior to settlement.

“The Claimants point out that, post-LASPO there is no obligation to tell an opponent in a case such as this about their funding arrangements, since the reason for doing so – warning their opponent that additional liabilities such as Success Fees and ATE Premiums may be mounting up – no longer exists. Therefore, if the Defendants settled upon the basis that the DBA “must” still be in place or else they would have heard about it, that is the Defendants’ hard luck”

 

THE CASE

  • The claimant brought an action against the defendant.
  • The claimant’s cases was funded by entering into a Damages-based Agreement (DBA) with its solicitors which provided for 50% of the proceeds of the claim. (The claim was originally pleaded at £4.5 million).
  • Shortly before the claim settled the claimant’s changed funding to a CFA.
  • The defendant knew about the existence of the DBA but not the switch to a CFA – some 7 days before trial.
  • The case settled for £625,000 + costs on the eve of the trial.
  • The claimant’s costs, as drawn, were £523,032.76.
  • The defendant argued that it was only liable for the sum due under the DBA – that is 50% of the damages plus disbursements other than counsel’s fees.

THE ISSUE

The issue was defined by the Master.

  1. The subject of this Judgment is, put simply, whether the Claimants should be held to the terms of the DBA, at least as far as their party and party recovery from the Defendants, is concerned. It should be noted that this decision would (if it went the Defendants’ way) have a salutary effect upon the Claimants’ costs; as drawn these are stated at £523,032.76 and a “cap” of £250,000 plus disbursements would therefore clearly leave the Claimants with a six-figure hole in their costs recovery. Equally this decision (if it went the Defendants’ way) would likely end the matter as, with costs as drawn at £523,032.76, if they were subject to a “cap” as above referred-to, the Defendants would have to reduce the costs below that “cap” on an item-by-item assessment before they would see any benefit from that exercise.

THE DECISION

 

(1)The claimant did not fall foul of the Kellar principle (a party cannot change the basis of its funding after an agreement or judgment).

(2 The switch from DBA to a CFA was not unreasonable.Indeed the defendant’s argument did not even raise a genuine issue.

THE JUDGMENT

    1. “The Claimants rely upon Surrey v Barnet and Chase Farm Hospital and others [2016] EWHC 1598 (Foskett J with SCJ Gordon-Saker). In that case it was held that:

i) There is a need for Paying Parties to raise a genuine issue before any investigation into the reason for the change in funding, advice given etc., will be undertaken (see paragraph 110).

ii) Foskett J warns against a detailed assessment becoming “…an arena for a wide-ranging inquiry into the decision-making processes as between the Claimant and his Solicitors…” (paragraph 99 refers).

  1. The Claimants assert that the Defendants do not even reach the threshold of establishing a genuine issue on the reasonableness of the change in funding from DBA to CFA, and that in fact they are simply trying to obtain a windfall from the late change in funding, which would leave the Claimants with a six-figure shortfall in their costs recovery. They add that if I were to entertain this argument to any extent Candey would have to put in evidence as to which they might well be hamstrung as the advice in question would be privileged and (I assume) they could not guarantee that the Claimants would agree to waive privilege.

  2. In his paragraph 38 Mr Patel asserts that the Claimants have been left much worse off than if they had stuck with the DBA unless the CFA were a CFA “lite”. In fact, the CFA is indeed a CFA “lite,” in other words a CFA where the base costs are, as usual, conditional upon achieving a “win” but where there is not the added filip of a Success Fee payable out of the Claimants’ damages (rather than by the Defendants; in this CFA which, being dated 2 November 2016, was post LASPO by over three and a half years, there would be no prospect of passing that Success Fee on to the Defendants as was proposed in the JN Dairies case).

  3. Mr Patel’s paragraph 38 attempts to number-crunch the new agreement to show that the Claimants have been left much worse off and in particular states that if the DBA had remained in place, the Claimants would have had a “cap” of some £280,000.00 on what they must pay to Candey, with a further £60,000.00 to White and Case (previous Solicitors) but that, “…[they] would have had an Order for Assessment of the full £583k, making it that much more likely that [their] costs liability would be covered by [their] recoveries, without a shortfall, or with a smaller one.”

  4. By the operation of the Indemnity Principle, if the maximum that the Claimants are obliged to pay Candey is £280,000.00 then the maximum that the Defendants must pay to the Claimants to reimburse their legal fees, would likewise be £280,000.00. The Claimants cite the case of General of Berne Insurance v Jardine Reinsurance Management Limited [1998] 1 WLR 1231 on this issue.

  5. What Mr Patel is saying is that, with a Bill at £583,000.00, the chance of the Defendants getting it reduced as far as £280,000.00 let alone below that figure and hence leaving the Claimants with a shortfall to make up, is minimal. I have already referred above to the fact that if I decided that the DBA should stand and the “cap” operate, that would likely be the end of the matter because the Defendants (if they take a realistic approach) are fairly likely to leave it at that rather than trying to reduce the £583,000.00 figure below £280,000.00 over a contested Detailed Assessment – for example if they took two days and got it down to £300,000.00 they would not actually see any benefit and would be extremely ill-placed to argue against paying the full costs of the line-by-line Assessment which would likely run well into five figures.

  6. Mr Patel refers again to JN Dairies stating that, as Candey would have received no fees at all upon losing the case even under the DBA, they could not say that it was reasonable to change to a CFA because they were not “giving up” anything (in JN Dairies it could at least be said that fees for which the Solicitors originally had a private retainer, would be put in jeopardy by a switch to CFA funding since, absent a “win” those fees would not be recoverable).

  7. Having considered this matter long and carefully I again find in favour of the Claimants. The change in funding arrangements from a DBA to a CFA is not objectionable per se, as the Claimants (per Mr Stacey’s first Skeleton Argument) submitted.

  8. I agree with the Claimants’ submission that the Defendants have not raised a “genuine issue” as far as reasonableness is concerned and therefore for present purposes, it was not for me to decide upon the attraction to the Claimants of an award of full damages plus full costs, or at least of costs on the standard basis to be Assessed if not agreed under a CFA, rather than of full damages out of which costs to a maximum of half of the damages award must be paid and with the Defendants’ liability to repay those costs likewise “capped” at half the damages award under the DBA, but it seems straightforward enough. It is not that the Claimants would wish to “punish” the Defendants by incurring an extra costs burden just in order to pass it on to them, but why should the Claimants not take the opportunity to ensure that their Solicitors were paid (and that the Defendants were liable to pay) something much closer to what the case actually cost to run? There is not the “double or quits” attempt, as in JN Dairies to add a large, retrospective Success Fee to the costs; rather the attempt was to remove a “cap” which may have left Candey with an unrealistic recovery. In fact, if the case had settled at above a certain figure (Candey put it at £950,000) they would actually be worse off than had they stayed with the DBA.

  9. Nor, for present purposes, was it for me to decide upon the specific point of whether the Defendants could have reduced these costs considerably had they settled the case sooner. However, the fact that their first offer of £155,000.00 was roughly 25% of the ultimate settlement figure, does not give the lie to such an inference.

  10. There was also some argument before me at the Hearing as to whose “fault” it was that Candey and/or the Claimants had so overstated the value of the case at the outset. The Defendants asserted that the value could easily have been ascertained from publicly-available documents (relating to the disputed share sales) and the Claimants asserted that if the Defendants had wished to see an end of the matter they could have been forthcoming with this information at a much earlier stage.

  11. These may be matters upon which I have to rule if the matter comes back for a line-by-line Assessment, when questions of reasonableness, proportionality and conduct may be relevant to the quantum rather than the principle of the Claimants’ costs recovery.

  12. However, upon the specific question of whether it is against the Kellar principle to switch from a DBA to a CFA in the way that the Claimant has done here, I find that it was not, and on the question of whether it was reasonable to do so I find that the Defendants have not reached the threshold of a genuine issue (per Surrey v Barnet and Chase Farm Hospital and others) and as such my comments above to the effect that it does not at first blush seem unreasonable, are perhaps obiter.”

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