THE INDEMNITY PRINCIPLE BITES ON A SUCCESSFUL DEFENDANT BUT NOT ON A SUCCESSFUL CLAIMANT INSURER: CLAIM £438,388.95 IN COSTS, RECOVER £1,368.75.

Issues relating to the indemnity principle give rise to a number of issues in litigation about costs. The principles loom large in the judgment of Costs Judge Leonard in Liverpool Victoria Insurance Co Ltd v Khan & Ors [2022] EWHC B8 (Costs).

THE CASE

This was a dispute that this blog has looked at several times before.  A solicitor and a doctor had been found in contempt of court. The fourth defendant  to the committal proceedings was not found guilty and obtained a costs order against the claimant insurer.

THE INDEMNITY PRINCIPLE AND THE FOURTH DEFENDANT

The fourth defendant lodged a bill in the sum of  £438,388.95.  Some steps had been taken in the assessment process when the defendant took the point that the fourth defendant’s costs were limited to those that had been allowed under that defendant’s legal aid certificate.  This was a criminal legal aid certificate.  The maximum sum recoverable was £1,368.75.

“… the Claimant filed an application for permission to argue that the Fourth Defendant’s entitlement to costs is limited by virtue of the indemnity principle) to the amount prescribed by the Paragraph 7(2) of Schedule 4 to the Criminal Legal Aid (Remuneration) Regulations 2013, with an upper ceiling of £1,368.75.”

THE JUDGE’S FINDINGS

The judge found that the fourth defendant’s costs were confined to those allowed under the Regulations.

“… it is my conclusion that the indemnity principle is not disapplied for a party in receipt of Criminal Legal Aid in Prescribed Proceedings. The costs recoverable by the fourth Defendant from the Claimant under the order of Garnham J of 5 October 2018 are limited to those payable under paragraph 7(b) of Schedule 4 to the Criminal Remuneration Regulations.”

THE CLAIMANT’S RETAINER

The claimant’s retainer was also under scrutiny. The claimant’s solicitor was proceeding under a CCFA, with a success fee.  The defendants argued that the proceedings were criminal proceedings and there was a statutory bar on conditional fee agreements in criminal proceedings.

THE JUDGE’S DECISION

The judge decided that contempt of court proceedings were civil proceedings and therefore there was no statutory bar.

1. 341. The Defendants have offered a list of indicia which they say, justify the conclusion that contempt proceedings should be characterised as criminal proceedings. Again, I think that that argument must fall foul of Daltel Europe Limited v Makki, but as regards the specific question of the proper interpretation of section 58A of the CLSA, there is much force in Mr Mallalieu’s point that it cannot have been the intention of those drafting the CLSA that in judging whether they could enter into a valid and enforceable CFA, parties should have to have regard to some or all of  a broad list of indicia some of which are not, in fact, exclusive to criminal proceedings and none of which are to be found in any statutory provision or any other authority.

1. 342. The obvious interpretation would rather be that the “criminal proceedings” referred to in section 58A are proceedings in courts with criminal jurisdiction, governed by the Criminal Procedure Rules. If it had been intended to extend section 58A’s prohibition on CFAs to proceedings which are, as a matter of law, civil proceedings then section 58A would say so.

1. 343. As for public policy, I understand the concerns raised by the proposition that any legal representatives should stand to benefit financially in the event that they succeed on behalf of their client in committing a person to prison, but it is not for me to determine public policy.

1. 344. Nor, for the reasons given by Mr Mallalieu, can I impose upon section 58A, (either on the basis of public policy or the “mischief rule” of interpretation relied upon by Mr Newman in oral submissions) some additional or implied wording extending to civil proceedings a prohibition which is expressly limited to criminal proceedings.

1. 345.  I would take that view even if the other provisions of the CLSA relied upon by the Claimant (which I accept can be of assistance in interpreting section 58A) did not recognise that a person could be committed to prison in either civil or criminal proceedings and did not offer an indication that references in the CLSA to criminal proceedings are limited to proceedings in courts with criminal jurisdiction. Mr Naik has pointed out that section 111 of the CLSA echoes similar but separate provisions for civil courts at section 4, but that does not seem to me to weaken the point: rather the contrary.

1. 346. As the contempt proceedings were not “criminal proceedings” for the purposes of section 58A of the CLSA, the CCFA is not unenforceable.

1. 347. If it were, I very much doubt that the severance clause relied upon by the Claimant could save it, for the reasons given by Mr Newman. Whilst it is incorrect to say that the Claimant continues to seek anything in excess of Horwich Farrelly’s base fees, it is equally incorrect to say (an argument not pressed by Mr Mallalieu) that without the success fee, the CCFA is no longer a CFA. An agreement under which base fees are payable in the event of success, and reduced fees payable in any other event, is still a CFA within the definition provided by section 58 of the CLSA.

1. 348.  It is not a question of severing everything but the CCFA’s provisions for payment of reduced fees and disbursements. The conditional character of the CCFA seems to me to be fundamental to it. Gloucestershire County Council v Evans is not to the point, whereas Awwad v Geraghty & Co and Forde v Birmingham City Council seem to me to be very much so. I also agree with the Defendants that if the CCFA were unenforceable it would not be open to the Claimant (for the reasons given by Mr Newman) to fall back on quantum meruit.

349. There is however much force in Mr Mallalieu’s submission that the indemnity principle cannot operate to prevent the Claimant from recovering costs which it has actually paid and which, by virtue of Aratra Potato Co v Taylor Joynson Garrett and Sobrany v UAB Transtira, would not be repayable even if the CCFA were unenforceable.

A GRAVE INEQUALITY OF ARMS

The Master’s decision highlights the fact that there is a grave inequality of arms.   A successful respondent could not recover costs in full because he obtained criminal legal aid to defendant civil proceedings (where he could have gone to prison).  The claimant can recover costs on a CFA because these are civil and not criminal proceedings.

Some thought should be given to enabling defendants (who have been successful in defending contempt proceedings) to ensure full and proper representation.