COST BITES 104: “THE LATEST BATTLE IN A WIDER FORENSIC LEGAL WAR”: DEFENDANT NOT ENTITLED TO NON-PARTY COSTS ORDER AGAINST A COMPANY IT ASSERTED WAS “THE REAL PARTY” IN THE DISPUTE

In the judgment given today in Soares v Wilson [2023] EW Misc 11 (CC) HHJ Luba KC rejected an application that costs be paid by a non-party. The defendant’s application that a PLC pay the costs of the action because it was part of a group the encompassed the claimant’s solicitors, counsel and the hire company, was dismissed.

“This judgment delivers the outcome of the latest battle in a wider forensic legal war.”

THE CASE

The claimant was involved in a road traffic accident in 2016. He made a claim for damages, the most significant element of the claim was for £97,000 in hire charges. The claim was allocated to the fast track and, during the course of the proceedings, the claimant was debarred from arguing impecuniosity. The claimant then served an amended schedule reducing the claim for hire charges to £10,112 and £1,344 for additional insurance charges. The case settled on the basis that the defendant pay the claimant £9,000.

THE COSTS HEARING AND APPEAL

There was then an issue about the basis upon which costs should be paid.  The defendant was successful on an appeal on this issue. As a result the claimant’s costs were reduced from £21,895 to £4,455.

THE DEFENDANT’S APPLICATION AGAINST THE HIRE COMPANY

The defendant initially sought costs from the claimant’s solicitors. Liability for costs was denied by the solicitors and the defendant then made an application for a non-party costs order against the Anexo group.

“The rationale was that all of those involved in the Claimant’s case – Bond Turner (the solicitors), McAMS (the credit hire provider), PALS (the engineering report provider) and Mr Sellers (his counsel) – were united by their involvement with the Anexo Group and it was therefore a real party in the costs dispute.”

THE JUDGMENT: THE BACKGROUND

The judge set out the background to the application.  It was, he said, the latest battle in a long war.

1. 1. This judgment delivers the outcome of the latest battle in a wider forensic legal war.

1. 1. On the one side stand the not inconsiderable forces of the many insurance companies of the UK motor insurance industry and their regularly retained solicitors.

1. 1. On the other side stand the massed ranks of entities which aid and assist impecunious motor accident victims to bring modest compensation claims in the civil courts. Particularly those who act for claimants whose claims seek damages for the cost of hiring alternative vehicles on credit. The entities involved on this ‘side’ may include claims introducers, credit hire companies, vehicle damage experts, medico-legal services agencies, medical professionals acting as experts, and ‘claimant’ solicitors’ firms who undertake this class of work, often in very significant bulk.

1. 1. The individual litigants in cases in which battle has been joined between these forces, are often nominal participants in what Mr Williams described in his final written submissions as a “war of attrition”. Such contests are being played out at first instance and on appeal in the county courts across the country.

1. 1. The origins of this legal ‘warfare’ are to be found in the modern costs regime applicable to claims for compensation brought by those who have suffered personal injury in road traffic accidents. Under that regime, if their claims succeed, they recover not only their compensation but also, normally, their legal costs of bringing their claims.

1. 1. Where they cannot afford to finance a legal claim from their own resources, legal aid is no longer available. Such individuals seeking recompense therefore enter into conditional fee agreements (CFAs) with solicitors who are willing to undertake these cases on what is colloquially described as a ‘no win, no fee’ basis.

1. 1. The costs regime is such that, whether financed from personal funds or by a CFA, if the claim is unsuccessful, the person bringing the personal injury claim is ordinarily not liable to pay the legal costs of the successful defendant (such defendants’ legal costs having, ordinarily, been financed or underwritten by a motor insurer). This is the effect of Qualified One-Way Costs Shifting or ‘QOCS’.

2. A particular sub-category of injured party is the impecunious motorist who requires a replacement vehicle (while their own is repaired) but who cannot afford to hire a substitute vehicle at ordinary hire rates. They can obtain assistance from suppliers who will enable the provision of credit to impecunious drivers to finance their hire of replacement vehicles in the expectation that the borrowers will succeed in subsequent claims against insured drivers. The costs of the finance and the hire will then be recovered as part of the injured driver’s damages.

THE JUDGE’S DECISION ON THE NON-PARTY COSTS APPLICATION

The judge did not accept the defendant’s argument.

1. 1. Despite the calibre of the submissions advanced in support of this application, and despite the length of time I have taken in consideration of and in reflection upon the application, I have no hesitation in concluding that it must be dismissed.

1. 1. In reaching my decision, that it would not be just to grant the order sought, I am substantially accepting the submissions made on behalf of Anexo (as briefly summarised above), but my own reasoning can best be expressed as follows.

1. 1. First, despite the present Claimant being precisely the sort of person who might have been ‘captured’ by Anexo, as a result of its client-capture working model, he was not in fact brought – even notionally – into its purview until a late stage in his litigation. Anexo had not even been incorporated when the Claimant had his accident, sought a hire vehicle on credit, instructed solicitors, agreed terms with them, and initiated his claim or served his Particulars of Claim. Those core facts are not altered by the entities with which he engaged having been later brought into the newly established Anexo Group.

1. 1. Second, the undisputed evidence is that Anexo Group PLC knew nothing of the Claimant individually, even after its establishment. It not only knew nothing of his individual claim or of his precise arrangements with his solicitors, but it had no knowledge of the dispute being pursued in relation to the assessment of the costs of his claim or the appeal in those costs proceedings. It certainly did not fund, direct, control or in any way manage that dispute which led to the costs order in the costs proceedings which it is now said to be just that it should meet, despite its not being a party to the proceedings.

1. 1. Third, notwithstanding the language used in the published materials produced by both Bond Turner and Anexo about the Group having “in house” lawyers, the Claimant had instructed a firm of solicitors independently regulated as a discreet entity by the SRA. It is registered with the SRA as managed and controlled by individuals not including Anexo. Bond Turner and Anexo are separate legal entities. The solicitors at Bond Turner would have been acting in breach of their obligations and their professional duties, both to their client and more generally had they disclosed to Anexo, as one of the firm’s owners, the instructions they had received or were receiving from their client about his claim or the costs dispute arising in it. This description of ‘separate’ companies has nothing to do with the ‘corporate veil’ or any need to pierce it. If I had been satisfied that Anexo had in fact ‘pulled the strings’ and directed Bond Turner to use the Claimant’s name in pursuit of its own interests rather than or in addition to his, nothing about the separate corporate status of the two companies would, I consider, have deprived me of the jurisdiction of making a NPCO against it, had I considered it just to do so.

1. 1. Fourth, Anexo cannot, in my judgment, be the just recipient of a NPCO simply by reason of the fact that it is an owner or even the majority owner of the Claimant’s solicitors unless the circumstances are such that those solicitors would themselves have been made subject to a NPCO had the application been directed against them. In this case, it simply has not been demonstrated that Bond Turner would rightfully have been made subject to a NPCO themselves. There is no evidence before me of the terms on which the Claimant instructed Bond Turner. Even if it be assumed that it was on a CFA, that agreement was not before me. I have no evidence as to who took the decisions to press the costs dispute or resist the appeal brought in it. That includes an absence of any evidence about what, if any, involvement the Claimant had himself in such decision making.

1. 1. I understood Mr Mallalieu to accept that, in the ordinary course, the fact that solicitors have a financial or economic interest in what is recovered as to damages and costs in a case funded under a CFA does not expose them to liability to a NPCO. Certainly, he took me to authorities that establish exceptions (such as where the CFA is invalid or enforceable) but there is no evidence of any irregularity here. I consider that even if the prime beneficiary of a dispute about the quantum of costs to be recovered in settled litigation like this might in many cases be the solicitor, rather than the client, that does not alter the fact that it is the client’s costs that are being recovered or disputed. It is client who ordinarily bears the liability for his solicitors’ costs. As already indicated, I have no details of any specific agreement made between Bond Turner and their client in this case, but I have no reason to believe that it was exceptional, unusual, or out of the norm. The authorities binding on me underscore good policy reasons for concluding that NPCOs should not ordinarily be made against solicitors seeking to maximise the outcomes of litigation, pursued in the names of their clients, even if, as in respect of costs, they are ultimately pocketed by those solicitors. As Lord Woolf has said: “The existence of a CFA should make a legal advisers’ position as a matter of law no worse, so far as being ordered to pay costs is concerned, than it would be if there was no CFAs. This is unless, of course, the CFA is outside the statutory protection.”^[12]

1. 1. Fifth, it does not follow from the fact that Bond Turner may have a financial or economic interest in the outturn of a particular case that an entity which is one of its owners, and which may ultimately benefit from any overall profit made by Bond Turner, is in any sense either the party or a party with a financial interest in the particular case. That would place all owners of solicitor’s firms in the potential frame for receipt of a NPCO. Anexo is itself owned by others. Logically, if the applicant here is right, they might also potentially be exposed to a NPCO.

1. 1. Sixth, the reality here is that the application boils down to an assertion that the Anexo Group PLC can be treated as having a notional stake in any piece of litigation consistent with its working model and run through one or more of its Group members, because it is an ingredient in a modus operandi that generates profit for the Group. I do not accept that it is just to make it subject to a NPCO on that footing in this case. There is no evidence before me to show how or in what way any outcome for Bond Turner from the costs dispute in this particular litigation would have fed into what the holding company received from Bond Turner in the financial year in which the litigation concluded or at all.

1. Having reached the above conclusion on the merits of the application, I need not deal in any detail with Mr Williams’ subordinate contention that the application should in any event have been refused on procedural grounds because it was made without any advance notice having been given to Anexo. The absence of notice had, in the event, not prejudiced Anexo or caused it any difficulty in the preparation or presentation of its response to the application. I would not have dismissed the application on the basis of want of notice.