ANOTHER ROUND IN A LONG-RUNNING SOLICITOR-CLIENT COSTS DISPUTE: JUDGE REFUSES APPLICATION FOR A STAY AND FOR SECURITY FOR COSTS.

In Edwards & Ors v Slater & Gordon UK Ltd [2021] EWHC B19 (Costs) Costs Judge Rowley considered several procedural issues in relation to ongoing solicitor and own-client assessments.

THE CASE

Some 134 cases are being brought by Clear Legal Ltd trading as Checkmylegalfees.com (“Clear Legal”) challenging costs charged by the defendant company. The judge ordered that 10 cases be chosen, essentially as test cases.  The judge made an application for disclosure in relation to some documents held by the defendant.  The judge then considered the defendant’s applications for a stay and for an order that Clearwater pay an order for security for costs. The basis of the applications were that Clearwater were essentially “insurers” and bringing the actions on their client’s behalf, with a financial interest in the outcome.

 

DECISION RELATING TO LATE SERVICE OF EVIDENCE

The judge first considered an issue in relation to late service of evidence by the claimants.  It was held that it was served late, but the court could still consider it.

Decision regarding a stay
82.         The first issue I need to deal with is Mr Carlisle’s evidence given the complaint of late service made by the defendant and the fact that it provides the entire evidential case put forward by the claimants / Clear Legal.  Looking at the pre-hearing correspondence between the parties, the evidence of Mr Carlisle was chased on 18 June and again on 30 June. In the former letter, the evidence was requested by 23 June and in the latter, an email, asked for confirmation as to when the evidence would be served. The defendant’s position was reserved in respect of any prejudice caused by “late” evidence. Mr Carlisle’s witness statement was served on 2 July and the letter serving that statement is the last one included in the bundle so there is no response before the court.
83.         The defendant itself, let alone its experienced legal advisors, would no doubt have considered the options open to it, having received this evidence. An adjournment could have been requested in order to produce evidence in response. Cross examination of Mr Carlisle could have been requested, although Mr Marven understandably demurred when that point was made by Mr Dunne given that Mr Carlisle’s witness statement does not exhibit the key documents and as such Mr Marven would have been interrogating blind.  An application might have been made to seek production of the three retainers before the application was heard on the basis that privilege was waived.
84.         However, none of these approaches were taken and instead the defendant served further evidence regarding Clear Legal’s finances and left Mr Marven to do his best in undermining the evidence that Mr Carlisle had produced.  In these circumstances, I have no doubt that I am able to consider Mr Carlisle’s evidence as well as Ms Wheeler’s witness evidence for the defendant.

THE DEFENDANT’S APPLICATION FOR A STAY

The judge considered the application for a stay on the basis that it was Clear Legal that was, in essence, funding and insuring the actions. The legal principles were reviewed at length. The judge did not grant the stay.
86.         The starting point in my view is Sibthorpe.  The Court of Appeal’s imprimatur of MacDuff J’s decision may not be binding on me but the Master of the Rolls’ specific endorsement of the reasoning of MacDuff J’s decision (as well as the decision itself) is very powerfully persuasive. There may be a nice argument regarding whether the principle of judicial comity applies to all judges in the High Court. My own understanding of this is that, if it is arguable at all, it relates to decisions at first instance, and MacDuff J was sitting on an appeal in Sibthorpe. Consequently, I consider his decision is binding upon me.  But even if that is not so, I have no doubt that Sibthorpe is the most helpful authority given the similarity of its facts.
87.         Macduff J followed the principal object description set out in McGillivray in concluding that the contract was one for legal services with only a subsidiary element regarding an indemnity for insurance.
88.         It does not seem to me that the cases referred to by Mr Marven really alter the conclusion in Sibthorpe. I have set out the entirety of paragraph 14 – 040 from Colinvaux at paragraph 62 above which distils the cases referred to by him. In particular, the first part of the first paragraph cites the Fuji Finance case in its footnote. The final sentence of that paragraph, however, cites Sibthorpe in its footnotes to support the need for a substantial insurance element. Similarly, the second paragraph requires authorisation specific to a particular class of insurance where there is a substantial part of the contract within that class. The final paragraph reverts to the need for there to be life cover as a “principal object” to establish an insurance contract for regulatory purposes under the FSMA 2000. There is perhaps only a modest difference between something needing to be substantial and something which is a principal object.
89.         The need for there to be a significant element of insurance as one of the objects of the contract also seems to me to be the essence of Warren J’s comments in the Digital Satellite case. Consequently, my task is to decide whether or not the indemnity provided by Clear Legal was no more than a subsidiary part of the contract in the manner described in Sibthorpe or whether there are sufficient differences to raise the importance of the indemnity so that it becomes an object of the contract such that it ought to be recognised by the contract being characterised as a contract of insurance.
90.         The basic structure of the arrangements set out in the welcome pack regarding a CFA Lite being used if proceedings are commenced with an indemnity against adverse costs is on all fours with Sibthorpe. Mr Carlisle’s evidence regarding the lack of availability of ATE insurance also chimes with the evidence of the claimant solicitor, Mr Curtin, in Sibthorpe. Mr Marven suggested that the disinterest of ATE insurers perhaps told its own story but it was not really clear to me what that story was. These are low value claims and as such an ATE provider’s scope for charging premiums of any weight seem to me to be rather limited. I did not find it surprising that Mr Carlisle, amongst others, had been unable to source ATE insurance. It reminded me of the experiences of solicitors representing claimants in claims against the police where the damages would usually be limited and there was every expectation that the case would be stoutly defended. As such, it did not create an attractive risk profile for ATE insurers and so ATE policies were difficult to obtain.  That was a reason why those representing claimants sought to extend the Qualified One way Costs Shifting to such cases during the Jackson Reforms.
91.         In the circumstances, the conclusion that an indemnity by the solicitors against adverse costs needed to be provided was a logical one in the absence of any ATE insurance to go with the use of a CFA. It was exactly the same conclusion that Mr Curtin reached and which the Court of Appeal considered was not champertous since the solicitor’s “interest” in the litigation was solely a negative one.
92.         What then might lead to the conclusion that Clear Legal have an interest in the litigation which is at least champertous and may amount to unlawful insurance by virtue of the creation of a contract of insurance?
93.         I have to say there seems to be nothing in these arrangements which comes close to the concept of “trafficking in litigation” referred to in the Latreefers case. Where is the unjustified buying and selling of rights to litigation? The gloriously florid phrase of “wanton and officious intermeddling” in the disputes of others “without justification or excuse” which is regularly used as a description of champerty is only said “may be a form of trafficking in litigation.” The terminology used in Latreefers suggests a very high bar and the suspicions and conjecture of the defendant do not even get it off the ground. There is simply no room for a conclusion of champerty here for the reasons set out in Sibthorpe.
94.         Clear Legal offer a CFA Lite in terms which solicitors up and down the country are prepared to offer their clients.   The welcome pack refers to publicity for cases they have brought which no doubt has brought business in. That is not buying or selling litigation but simply conducting business as a solicitor.
95.         These arrangements do not suggest that any unlawful insurance is being provided either. When the defendant scoured the welcome pack provided by one of its former clients, it must have appeared to be essentially on all fours with the Sibthorpe arrangements. The single potentially differentiating factor is the description of why the hourly rates claimed are, in Clear Legal’s own view, much higher than some other firms might charge.
96.         The three reasons given for claiming the rates that are charged are (i) specialism, (ii) ensuring the work of this value remains commercial and profitable and (iii) providing an indemnity to protect the client against adverse costs.
97.         Clear Legal are able to demonstrate a specialism in this area.  Whilst it might be expected that solicitors would all understand the Solicitors Act 1974, the experience of this court is that it is a mystery to a great many of them. The age of the Act itself has led to many cases being reported since it was incepted and, it is almost trite to say, there are many cases going back to Victorian times which impact on Solicitors Act cases given that the 1974 Act is essentially a reiteration of numerous previous Acts stretching back to the 19th Century.  Specialist practitioners need to be aware of this mass of case law which is not likely to be come across in any other context.
98.         The great majority of the cases brought by Clear Legal are of limited value and, as Mr Carlisle states, were it not for the availability of Solicitors Act proceedings, cases would probably have to be brought in the Small Claims Court.  Such cases would not attract recoverable costs and the environment would be similar to “Portal” cases for low value personal injury where the profitability of such work is keenly felt. Claiming hourly rates of the sort set out in the CFA where it is possible to recover them is bound to occur to assist profitability. It is the same as the close eye kept by those running Portal cases of the option of escaping the Portal where there is an opportunity to do so.
99.         In my view, both reasons (i) and (ii) would justify higher hourly rates being claimed by Clear Legal from their clients than might be claimed by a less specialist or simply less commercially aware firm of solicitors. The purpose of the relevant paragraph in the client care letter seems to me to be written so that it can be referred to if necessary on a Solicitors Act assessment of Clear Legal’s own fees by one of its clients. The presumption at rule 46.9(3)(c) is that costs will be presumed to be unreasonably incurred if they were unlikely to be recovered from an opponent and that prospect had not been explained to the client. The wording, in my view, seeks to assist Clear Legal in respect of the second part of the test.
100.       This leaves the third reason given for the higher hourly rates being claimed and which is the one relied upon by the defendant in establishing that a contract of insurance has been created. The wording clearly seeks to justify the level of the hourly rate by the fact that one of the elements of the contract of retainer is that an indemnity is provided against adverse costs. The conclusion reached by the defendant is undoubtedly an arguable one in that it might be expected that an amount within the hourly rates claimed had been “priced in” to reflect the provision of that indemnity.
101.       The difficulty with the defendant’s conclusion however is Mr Carlisle’s evidence that the same hourly rates are claimed whether or not an indemnity is offered to back up the CFA (or indeed whether a CFA is used or a client simply pays fees, win or lose, under a privately paying retainer.) Mr Marven understandably took great pains to seek to challenge the weight that could be placed on Mr Carlisle’s witness statement by pointing to issues which were not covered, or not covered sufficiently, in the defendant’s view.
102.       In my judgment, however, the challenges to Mr Carlisle’s evidence highlighted if anything, the paucity of evidence that the defendant has on which to bring this application. The defendant has had the two retainers by Clear Legal together with the client care letter and overall covering letter (i.e. the welcome pack) and the only challenge that is made is to a single reference, albeit repeated, that the existence of the indemnity offered by the solicitors is, in part, a justification for the hourly rates charged by the solicitor to the client and which will be sought from the defendant in the event of a win.
103.       Based upon that single sentence, the defendant has sought to query how much the claimants actually know of these proceedings and to seek to interrogate the claimants’ arrangements with their solicitors at a point where the claimants have not even obtained an order for costs against the defendant which is the stage at which such questions might usually be raised. I queried this during the submissions since it seems to me to be unique that the challenge to the opponents’ retainer had been made within the proceedings. Mr Marven quite fairly point out that client’s funding of proceedings is raised, for example in security for costs applications, and it is usual that the funding is separate from the solicitor’s retainer. As such this situation would not normally arise. But it seems to me that that argument points to the fact that this retainer, viewed as a whole, actually bears little resemblance to the sort of funding agreement (e.g. ATE insurance) which might be put forward to combat an application for security for costs.
104.       The parties did not dwell on agreement one which is described as a contingency fee agreement. It could equally be described as a non-contentious business agreement in that it agrees to act for the claimant on the basis of a share of the damages if there is no need for any court proceedings. Once proceedings are commenced, all of the work to that point becomes contentious and continued reliance on such an agreement becomes unlawful. Hence the need for agreement two i.e. the CFA.
105.       It is unusual in my experience for the two agreement approach to be undertaken because it tends to increase the opportunities for errors in the drafting to be made. Where CFAs are generally used, the CFA is used from the beginning in the expectation that a case settled before proceedings will be costs bearing in that the defendant agrees to pay costs in addition to damages to avoid proceedings (or are specifically allowed for such as in Portal cases). There is no need for a non-contentious business agreement in those circumstances.
106.       The only purpose of such an agreement is, as it describes, where the defendant pays the claim but does not agree to pay any costs in addition.  It can easily be visualised that a solicitor, upon receipt of a letter of claim from Clear Legal acting on behalf of a former client who says that they have been overcharged in some way, may prompt the solicitor simply to send a cheque to resolve matters without having to pay costs of any court proceedings. Acceptance of the cheque in full and final settlement would preclude any claim for costs.  In such cases agreement one would enable Clear Legal to receive a share of that cheque.
107.       I have described this situation because it seems to me to reflect the fact that many of the claims for modest sums brought by Clear Legal on behalf of their client will operate in this pre-proceedings environment. There is no equivalent of the Portal and it is a matter of correspondence and negotiation. Either those negotiations will prove fruitful and the client receives a cheque or they will not and the claim goes away. But in none of these cases would there be any claim on the indemnity provided to the client since the defendant could not make a claim for costs in the absence of proceedings (see e.g. McGlinn v Waltham Contractors Ltd [2005] EWHC 1419 (TCC)).
108.       This court’s experience of cases involving clients of Clear Legal is overwhelmingly Part 8 claim forms containing applications under either section 68 (for the delivery of a statute bill) or section 70 of the Solicitors Act 1974.  Most of those claims are resolved before any hearing takes place. I would describe that litigation as modest and relatively low risk. The decision to bring the proceedings is always in the claimant’s hands and it would be extremely rare for any claimant in my view to disagree with their solicitors as to whether proceedings should be brought.
109.       Given this business model of pre-proceedings work and modest applications, it seems to me that the indemnity provided is in fact very similar to the one in Sibthorpe in terms of its likely impact upon Clear Legal’s business. The decision to provide an indemnity to clients to encourage them to bring proceedings does not in my view inevitably mean that it actually costs enough money to weigh in the balance in respect of the hourly rates that are charged. At most, on the evidence before me, any allowance in the hourly rates charged must spread the cost of that indemnity over the entire caseload of indemnified and non-indemnified clients which would reduce its financial impact still further.
110.       In my view therefore, it is difficult for there to be any conclusion that there is a payment of a sum of money or some corresponding benefit which is sufficient to provide consideration for a contract of insurance in the first place. But if the defendant is able to get over that hurdle it seems to me that the “scheme” run by Clear Legal as evidenced by the welcome pack is overwhelmingly a contract for legal services and the indemnity that is provided is entirely subsidiary to that scheme.
111.       It seems to me unlikely that when considering the provision of an indemnity to clients, Clear Legal would ever have concluded that they would be involved in litigation of the sort which is now before this court. The defendant estimates that costs in respect of claims brought by those represented by Clear Legal amount to £700,000. I will say more about that below but for the moment, it does not seem to me that the fact that some clients may have to call upon an indemnity which is considerably larger than would have been expected can somehow distort the general scheme put forward and which is the one in my judgment that needs to be considered when deciding whether the contract with the client is a contract of insurance.
112.       To sum up, I do not accept the defendant’s characterisation of the claimants and Clear Legal’s arrangements as consisting of unlawful insurance or to be otherwise champertous.  The indemnity is a peripheral element of the contract of legal services and I do not consider that, even if the defendant is correct regarding the asset position of Clear Legal, it would be appropriate to stay proceedings purely for that reason.  Similarly, the defendant’s argument that the claimants are passengers in these proceedings and are somehow unaware of their responsibilities holds no weight in the absence of any specific evidence regarding this supposition nor any substantiated criticism (in my judgment) of the Clear Legal business model.
113.       Accordingly, I reject the application for a stay of these proceedings.

 

THE DEFENDANT’S APPLICATION FOR SECURITY FOR COSTS

 

The judge then considered the defendant’s application for security for costs against Clearwater.  Again this was not accepted.
  1. The defendant says that Clear Legal have contributed to the claimants’ costs, or agreed to do so, in return for a share of any money which their clients may recover in the proceedings and as such come within rule 25.14(2)(b). Given the circumstances of the case, the defendant says that it is just for an order for security of costs to be made against Clear Legal. Whilst there is some suggestion of making Clear Legal a party for these purposes, there is undoubtedly jurisdiction to make such an order under section 51 of the Senior Courts Act 1981 and no point was taken by Mr Dunne about the entitlement of the court to make an order against Clear Legal without them being made a party to these proceedings.
  2. Before considering the parties’ submissions on CPR 25.14, I should first deal with Mr Dunne’s jurisdictional challenge based upon the wording of section 70(1) Solicitors Act 1974, which says:
“(1) Where before the expiration of one month from the delivery of a solicitor’s bill an application is made by the party chargeable with the bill, the High Court shall, without requiring any sum to be paid into court, order that the bill be assessed and that no action be commenced on the bill until the assessment is completed.”
  1. The claimants’ argument is that the phrase “without requiring any sum to be paid into court” is a complete answer to the defendant’s application for security for costs. The claimants say that the rule is clear that no order for payment into court can be made when ordering that the solicitor’s bill is to be assessed. It would be nonsensical for there to be any jurisdiction once that order has been made to order a payment into court at a later stage. It would rob the provision of any practical meaning.
  2. Mr Marven challenged the written and oral submissions of Mr Dunne on this part as rendering the court essentially impotent in its case management powers if it could not sanction a claimant simply because the claimant brought proceedings promptly.
  3. In my view, the claimant’s interpretation of this provision goes some way beyond its force in detailed assessment proceedings under the CPR. When the Solicitors Act was enacted in 1974, an application for an order for assessment would have been made to a master in either the Chancery Division or Queen’s Bench Division. If the order was made then the taxation would have been carried out by a taxing master in the Supreme Court Taxing Office. The master making the order for assessment would no doubt have refrained from making any order for a payment into court where section 70(1) rather than section 70(2) applied. The procedure thereafter would have been dealt with by a different judge who would not have had the jurisdiction to make an order for a payment into court during the taxation procedure.
  4. The revamping of Order 62 in 1986 and the advent of the Civil Procedure Rules in 2000 have changed the landscape in respect of Solicitors Act proceedings. All High Court proceedings (save in the District Registries) regarding Part III of the Solicitors Act concerning remuneration are now brought in the Senior Courts Costs Office. Those proceedings are allocated to costs judges who deal with them from beginning to end. The distinction between the application for an order for assessment and the assessment itself has consequently become comparatively blurred.
  5. Nevertheless, it is clear, in my view, that the restriction on the order to be made under section 70(1) only applies to the making of the order itself, as Mr Marven submitted. Thereafter, active case management, which was a concept that was not in play in 1974, dictates that the court must be able to sanction a defaulting party where appropriate. The idea that a party can litigate without concern up to and including the assessment, as was the essence of Mr Dunne’s submissions, is not, in my view, a realistic proposition.
  6. There is only one practical argument put against the view that the restriction in section 70(1) applies at the time of making the order for assessment.  That is the proposition that the statutory provision would be toothless if the solicitor could apply for an interim payment in respect of its costs as soon as an order has been made.
  7. In some cases, the court will not order a detailed assessment at the initial directions hearing but will give directions for a preliminary issues hearing to deal with matters relating to the retainer, or similar, which may require evidence to be produced in order to deal with those issues. There is no order for assessment because the preliminary issues are often potentially knockout blows or at least will materially affect the amount that can be claimed. Since there is no order for detailed assessment at this point, then no application for an interim payment can be made in a section 70(1) case.
  8. Where an order for assessment is made, it will invariably provide directions along the lines of CPR 46.10 for a breakdown of the disputed invoice or invoices together with points of dispute, any replies and provision for requesting a detailed assessment hearing. It is extremely unlikely, in my view, that a costs judge receiving an immediate application for an interim payment will consider it appropriate to make such an order unless and until they have seen the points of dispute and any replies so as to see the extent of the challenges.  They will no doubt have in mind the statutory restriction in section 70(1) which provides a reward for those who act promptly.
  9. As such, it seems to me that the theoretical position raised by Mr Dunne is not one which in practice has any effect. At the earliest, an application for an interim payment would be made at around the time that an interim costs certificate could be sought in a between the parties’ assessment i.e. at the time a detailed assessment hearing has been requested. That is a very different proposition from the one raised by Mr Dunne.  Consequently, I do not accept that there is a jurisdictional difficulty based on the wording of the Solicitors Act in making an order for security for costs, if it is just to do so.
  10. But, even if I were wrong on this approach, I consider that two of Mr Marven’s further submissions would defeat this argument in any event. The first is that it is not the claimants from whom the defendant seeks security for costs and s70(1) is squarely aimed at the clients who are challenging the bill rather than their legal representatives. Mr Dunne, quite rightly, did not take any literal argument regarding the fact that it does not say exactly who should be paying money into court since it is obviously intended to be the client. The statutory provision relevant to this point would be section 51 Senior Courts Act 1981 and not any provision in the Solicitors Act. Secondly, Mr Marven pointed out that security for costs is regularly given in some manner other than a payment into court in any event.
  11. I now return to the competing arguments on rule 25.14. The defendant has to demonstrate that Clear Legal has contributed or agreed to contribute to the claimants’ costs in return for a share of any money or property the claimants may recover in the proceedings. Mr Marven says that Clear Legal has clearly contributed to the claimants’ costs by paying all expenses and disbursements as well as funding adverse costs through the indemnity. It did not seem to me that Mr Dunne disagreed with that proposition although it is not obvious to me, at least, why funding (or indemnification) against adverse costs bears any relation to a contribution to the claimants’ costs. Nor is it, in my experience, unusual for solicitors running numerous modest value claims to meet disbursements without monies on account in order to avoid the administration that chasing clients for such sums entails. This is particularly so where, as here, those disbursements would essentially be written off if the claimant did not succeed.
  12. The dispute between the parties in relation to this subparagraph (25.14(2)(b)) is really whether the contribution to the claimants’ costs is “in return for a share of any money or property which the claimant may recover in the proceedings.” Mr Dunne referred to commentary in the White Book which confirms that mere contribution to the claimants’ costs is not sufficient.
  13. Mr Marven said that this element is established by the provision in the Clear Legal CFA which allows for a reduction of the damages recovered by up to 25% plus VAT where the claimant has been successful in respect of damages but has not obtained an order for costs. Furthermore, Mr Marven submitted that if there is an order for costs in the claimants’ favour then those sums are paid to Clear Legal and that is part of the money which the claimant recovers.
  14. In respect of the first argument, Mr Dunne relied upon Mr Carlisle’s evidence. At paragraph 28, he recalls a case where a more substantial bill than is involved in these cases was in issue and a reduction of £50,000 was offered by the solicitors on condition that there was no additional order for costs. In essence, it was a global settlement and the pressure to accept it was increased by an indication that the firm would enter into some insolvency procedure from which nothing would be likely to be forthcoming if the offer was not accepted. In the light of the client’s acceptance of that offer, which provided no fees for Mr Carlisle or his counsel, the provision in the agreement regarding payment of a share from the damages was included in subsequent retainers. Mr Carlisle’s evidence is that the occasion he recounted is the only one which has occurred in the last six years during which he has been dealing with such cases in volume.
  15. Regarding Mr Marven’s second point, Mr Dunne disputed the description of the recoverable costs where an order for costs was made as being a share of any money or property that the claimant may recover. The CFA Lite provided for such costs as were agreed with the defendant or assessed by the court and that was no more nor less than any other solicitor would obtain. If that amounted to a share of the spoils, then all solicitors would be at risk of paying security for costs.
  16. In Mr Dunne’s submission, rule 25.14 was aimed at commercial litigation funders who obtained a percentage of the damages in return for funding the case. He relied upon the decision of Hildyard J in theRBS Rights Issue Litigation [2017) EWHC 1217 (Ch) which was clearly such a case. In the context of commercial funders, the judge considered various factors to be of particular relevance in deciding whether security for costs against a non-party would be appropriate and just. They included whether the non-party is to be treated as having effectively become in all but name a real party “motivated to participate by its commercial interest in the litigation”; whether there was a real risk of non-payment; whether there was a sufficient link between the funding and the costs for which recovery was sought; and whether the costs liability risk had been sufficiently brought home to the non-party.
  17. It seems to me that this is the weakest part of the defendant’s application. I do not think it can be the case that if the claimant obtained an order for costs against the defendant and those costs are quantified, that they can be properly categorised as a share of the money recovered by the claimant. The order for costs is consequent upon the recovery of the money or property and in my judgment is an entirely separate matter. I agree with Mr Dunne on this point that the purpose of rule 25.14 is to deal with commercial funders of litigation and the defendant’s interpretation of this point would potentially bring many solicitors into the frame for a security for costs application.
  18. This then simply leaves the provision regarding payment from the damages where those damages have been recovered but no order for costs has been made. This cannot mean recoveries made under agreement one since no adverse costs apply in that environment and as such there can be no need for security for costs. It can only mean the provision in the CFA which Mr Carlisle described as occurring once in six years of specialising in these cases.
  19. If the client has not paid the disputed bills, then there is no recovery, but simply a smaller liability.  Therefore, the proceedings would have to involve bills that have already been paid.  The proceedings would have to be successful to an extent for an order to repay fees to be made, but it would require a reduction of less than 20% of the solicitor’s bill so that the one fifth rule in section 70(9) Solicitors Act applied in the solicitors’ favour.  It would also mean that there were no special circumstances available to overturn that provision.
  20. Such a result is not uncommon where clients merely challenge their solicitor’s bill in respect of the amount of time claimed and seek to reduce specific times or certain amounts of work. Such challenges are regularly ineffective.  It seems to me to be much less likely to occur in the sort of claim brought by Clear Legal where there is a fundamental challenge to the bill which results in either a reduction of rather more than 20% or no reduction at all. Neither of these scenarios produces a “win” on damages but no order for costs.  I am not surprised therefore by Mr Carlisle’s evidence that this has only occurred to him on one occasion and yet was of sufficient consequence to cause him to amend the terms of business.
  21. It does not seem to me that an outcome which is as rare as this properly fits within the description in rule 25.14(2)(b) of agreeing to contribute to the claimant’s costs in return for a share of the damages.
  22. Mr Marven urged upon me not to take too narrow a view of this subparagraph given that there is the “just in all the circumstances” safeguard at 25.14(2)(a). But if I take the view that this particular provision of the retainer does (just about) amount to an agreement that satisfies subparagraph (b), it seems to me that it must weigh heavily against making an order when considering all the circumstances in subparagraph (a).
  23. The parties’ arguments as to whether it would be just in all circumstances to make an order for security for costs tread upon similar, if not the same, ground as the application for a stay. The defendant points to the schedule it has produced to justify seeking the sum of £700,000 by way of security for costs. Based on that sum, the defendant queries Clear Legal’s ability to meet such a sum and we head into the dispute as to whether or not the £3 million or so of net assets in Clear Legal’s accounts are really capable of meeting adverse costs.
  24. The parties’ arguments regarding the financial position of Clear Legal have generated some considerable effort, particularly on the part of the defendant, but it seems to me with little real effect upon the issues with which this court is concerned.
  25. The extent of the evidence before the court in Ms Wheeler’s first witness statement is what she describes as an asset report. It is anonymised and redacted and largely, (it appears from accounts exhibited to Ms Wheeler’s second witness statement), a transposition of the numbers into a different format. To the extent that there is any analysis, the report says that the accounts show “a low amount of outstanding short term obligations”, “a very positive Net Assets position” and that the company “trades in an industry with a low level of corporate failures.” None of this suggests that the court should be concerned about the position of Clear Legal and yet presumably this report represents the fruits of the defendant’s investigation before and after the intention to bring this application was ventilated at the hearing on 14 April.
  26. In her second witness statement, Ms Wheeler says that the purpose of it is to counter Mr Carlisle’s evidence regarding the liquidity of the assets.  She comments upon the accounts of both Clear Legal and Clear Law LLP, a related company.  She appears to draw adverse conclusions from the absence of any “cash at bank” for Clear Legal and only £60 for Clear Law LLP as if this is a sign that there are no funds available to meet obligations.
  27. In my view that is a questionable proposition even if it did not depend upon accounts from two years ago (the most recent accounts available.) Purely to demonstrate why this seems to be of little relevance, I refer to the defendant’s own most recent accounts.  They are clearly a much bigger concern than Clear Legal but their “cash and cash equivalents” entry for each of the two years shown was less than £20,000  That may very well represent an efficiently run company but if Clear Legal had such figures in its balance sheet, it appears from this application that it would be said to have insufficient funds to meet the defendant’s potential costs of these and related proceedings.
  28. I use the cash at bank comments simply as an illustration of the issue here.  There is insufficient information publicly available for any real depth to the analysis put forward but nevertheless I am asked to conclude that a sum in publicly available accounts cannot be relied upon simply by virtue of the fact that it has been owed by a different company for some considerable time. That might be entirely correct but I do not see that I have the evidence to support that supposition.  It might equally be the case that the controlling minds of the group of companies could do something rapidly about the intra company payments if they wish but simply choose not to do so.
  29. Therefore, whilst the second witness statement of Ms Wheeler was produced with commendable speed in response to Mr Carlisle’s witness statement, some relatively limited analysis by a lawyer of available accounts (no criticism of Ms Wheeler is intended by this comment) is, in my judgment, of relatively little weight in considering whether it is just to require a sum to be paid to safeguard costs incurred by the defendant.
  30. The sum that the defendant says it has incurred and is likely to incur is summarised on a one-page schedule in the bundle. The estimate of costs is broken down into five parts. The general, incurred costs are said to amount to £109,261.20 of which a little over half is profit costs and the remainder are counsel’s fees. It is not obvious to me as to what these costs actually cover. There were two hearings at which I invited costs lawyers to attend on behalf of their clients and for which the defendant instructed leading counsel. There will no doubt be some general consideration of strategy, tactics et cetera involved in the numerous cases that have been brought against the defendant in similar and related proceedings elsewhere. Nevertheless, it seems to me that the sum claimed would need some justification, not least because the appearance has been given that no investigation as to disclosure has yet been undertaken and which might have formed a sizeable proportion of the time claimed.  I posed a simple question to Mr Marven at the hearing regarding whether or not there are actually any recordings which form part of the application for disclosure and which are obviously central to this case given submissions that have been made at all of the hearings. Mr Marven told me that he had not been provided with any instructions on that issue.  That might mean that the solicitors were seeking to prevent placing Mr Marven in an awkward position but equally it may mean that in fact no investigation has been carried out as to whether they exist. I would not normally make that comment but given that in the case of Piper, the ATE policy at the heart of a hard fought application did not actually exist, it seemed to me to be a relevant question to ask.
  31. The second part of the estimated costs is in fact in relation to the application concerning Piper regarding Part 18 requests as to the non-existent ATE premium (as well as the similar case of Raubenheimer).  The costs claimed in that part amount to £26,055.90 and which, it seems to me are separate from this case since a separate order for costs has been made.
  32. The third part concerns costs up to and including the preliminary issues hearing which the parties appear to think will take three days and which are claimed in the sum of £97,684.20.  Three quarters of that sum is put down as counsel’s fees. The assumption appears to be that, whatever the outcome of those preliminary issues, most of the work in respect of the test cases will have been dealt with since part four regarding post preliminary issue costs in respect of the test cases is for the rather lower sum of £37,407.70.
  33. The most significant part of the schedule is part five which deals with costs after the preliminary issues hearing in respect of all of the other cases and for which costs of £443,990.60 are claimed, more or less equally split between the fees of the solicitors and counsel. The figures for the five parts make a total sum of £714,399.60 and form the basis of the request for £700,000 by way of security for costs.
  34. Mr Dunne’s written submissions were withering as to the appropriateness of the sums claimed. Mr Marven was moved to describe there having been a certain amount of cold water poured upon those figures, particularly in relation to the part five costs concerning the additional cases. Those cases are, as Mr Dunne pointed out, already stayed for all practical purposes since they are awaiting the outcome of the test cases. The entire purpose of having a limited number of cases on which to try the central issues was so that they can then be applied to all of the other cases.  The need for hearings for each individual case following the hearing of the test cases would be a first in my experience and making an assumption that such hearings would still be required is unduly pessimistic.
  35. It is not clear to me how the defendant says that it expects to be able to claim the part one costs from the claimants even if ultimately all of the cases are unsuccessful. There are no orders for costs made in respect of the first two hearings and there will have to be some demonstration that the costs are of and incidental to the proceedings commenced in this court. The part two costs are definitely outwith this application in my view and that leaves approximately £135,000 in relation to the costs up to and after the preliminary issues hearing in respect of the test cases (parts three and four).
  36. Seen in this light, the defendant’s concerns regarding the liquidity of the assets in Clear Legal’s accounts are, in my judgment, severely weakened.  Mr Dunne appeared to suggest that the figures for the additional cases in part five had been included in the application for security for costs simply to increase its value so as to make it appear of more concern. I do not ascribe any particular motive to the defendant in its calculation of the costs which it seeks to be secured but, having deducted the additional claims costs etc, it seems to me that the sum sought has considerably less resonance when looking at the real risk of non-payment as described by Hillyard J in his checklist.
  37. As far as that checklist is concerned, I do not consider that Clear Legal can be described as having effectively become, in all but name, a real party to the litigation motivated by its commercial interest. Mr Marven prayed in aid the case ofMurphy v Young & Co [1997] 1 WLR 1591 CA as authority for the possibility of an order for costs being made against Clear Legal where it contracted to pay adverse costs. In Murphy the court considered making an order under section 51 at the end of the case. If it transpired that Clear Legal were a real party to these claims then the same possibility would apply here. The fact that a section 51 application may ultimately be made does not of itself mean that security for costs should follow.
  38. Mr Marven also relied upon the case ofIn Re Jones (1870-1871) LR 6 Ch App 497 to support the proposition that a solicitor who contracts to hold the claimant harmless as against adverse costs has stepped outside the role of a solicitor. The case of Jones described itself as being a peculiar one and involved a solicitor who did not originally act for the claimant ultimately taking over the case entirely so that he was “to be the only person answerable in every respect for the suit.” The facts of that case are odd and it seems to me that if there is to be any analogy drawn to it, the defendant will have to demonstrate that Clear Legal are running the cases without input from the claimants as a minimum.
  39. I did indicate earlier that Mr Marven suggested that Clear Legal’s methodology was to seek to tell the clients that they did not have to get involved in the case or that they should feel the need to contact Clear Legal as it progressed. Mr Dunne responded that the involvement of the claimants in these cases was probably rather more considerable than had been their involvement in the original personal injury cases run by the defendant. It is in the nature of cases for modest values that clients will simply tend to take the advice of their trusted adviser in running the case and consequently the lawyer will have great sway in how the cases are pursued and ultimately what settlement is reached. That does not seem to me to be anything resembling the position of Mr Jones where he decided to run the case without the need for any input from the client at all.  As such, there is nothing before me, in my judgment, to suggest that the likelihood of a section 51 order is sufficiently probable for me to make an order for security for costs against a non-party at this stage.
Decision regarding security for costs
  1. Drawing these matters together, I am not persuaded that the defendant has managed to proceed through the gateway in rule 25.14 in establishing that Clear Legal have contributed to the claimant’s costs in order to obtain a share of sums recovered by the claimants. But even if that is just about established, it would not be just, in my judgment, to order Clear Legal to make a payment as security for the defendant’s costs.
  2. I have found that Clear Legal has, like the solicitors inSibthorpe, agreed to provide legal services to their clients but with an indemnity against adverse costs.  The defendant has not established that Clear Legal has stepped outside that role so that a section 51 order is probable at this stage. Nor has it demonstrated that Clear Legal’s balance sheet should be a matter of concern for the repayment of the defendant’s potential costs in these proceedings in accordance with the indemnity provided to the claimants.  As such, it would not be just in all the circumstances to require Clear Legal to make a payment into court or provide some other security for costs to the defendant.
  3. I therefore dismiss the defendant’s application for security for costs.