KU v Liverpool CC - Judicial Imposition of 2-Stage CFA Uplifts
KU v Liverpool CC - Judicial Imposition of 2-Stage CFA Uplifts
KU [a child, by her mother and litigation friend PU]
-and-
LIVERPOOL CITY COUNCIL
[2005] EWCA Civ 475
Whilst walking home from school across a grass verge, the claimant stepped into a sizeable hole hidden in the grass, cutting her leg. She was four years old at the time of the accident on 6 September 2001. The litigation friend and the claimant’s solicitors entered into a CFA on 18 October 2001, providing for a success fee of 100%. Proceedings were issued on 10 March 2003. Prior to issue, on 24 September 2002, the defendant admitted that they owned the land concerned and conceded that the defect was dangerous. The Defence admitted fault for the dangerous condition of the verge but put the claimant to proof of the accident, liability, causation and loss. Liability was fully conceded by 1 August 2003 and the claim was settled.
The case took a ‘curious’ route to the Court of Appeal. The wheels were set in motion when, at the detailed assessment, DJ Humphreys-Roberts ordered that the success fee of 100% was reasonable until the Defence was filed but that thereafter it should be reduced to 5%. The claimant appealed. HHJ Stewart QC held that the District Judge had no power to reduce the success fee in this manner. Because of the defendant’s failure to appeal the reasonableness of the initial success fee at the first appeal, the CA restricted itself to a declaratory function within the strict confines of six issues.
Concentrating upon the third issue for determination, which was the same issue left hanging by the CA in Atack v Lee:
‘Whether, if differential rates are not permissible as a matter of contract between the solicitor and his client, the court has the power, through para 11.8(2) of the Costs Practice Direction or otherwise, to direct that a success fee is recoverable at different rates for different periods of the proceedings (including a detailed assessment of costs)’
HHJ Stewart QC’s approach was wholeheartedly endorsed:
‘The approach of the district judge negates the whole purpose of assessing at the outset the risks involved in pursuing a claim. The solicitor did not have the contractual power or the professional duty to do what the district judge suggested, namely to renegotiate the success fee once it became clear that the risks were now very small and that there was no longer any need to fear a “worst case scenario” such as might have been in the solicitor’s head when the CFA was initially agreed’. [paragraph 36]
Having examined section 58 of the Courts and Legal Services Act 1990, the Conditional Fee Agreements Regulations 2000 and CPR 43.2 and 44.3A, the CA concluded without difficulty that:
‘Nowhere in the statute, the regulations, or the rules is there any indication that the court is to have any power to subvert the statutory scheme by determining that although the level of a success fee was reasonable in view of the facts which were or should have been known to the legal representative at the time it was set, he is only entitled to recover a different, much lower, success fee in respect of some later period when different facts were or should have been known to him’. [paragraph 42]
The ‘only matter’ which caused any difficulty or uncertainty was 11.8(2) of the same Practice Direction, which provides that:
‘The court has the power, when considering whether a percentage increase is reasonable, to allow different percentages for different items of costs of for different periods during which costs were incurred’.
It was found to be ‘impossible’ to reconcile this paragraph with the statutory and regulatory scheme. After nodding at the cases which set out the status of a practice direction, it was concluded that there was no power for a court to order that a success fee is recoverable at different rates for different periods of the proceedings where the CFA itself did not provide for differential rates.
The decision cuts both ways. It was spelt out that if when the CFA is entered into, the claimant’s representatives are relatively in the dark as to what risks are likely to materialise, and the case is not settled at an early stage, a two-stage success fee will usually be the most favourable to them when it comes to assessment. The kernel of the judgment in this respect is contained within paragraph 57:
‘We end by reiterating that costs judges should be more willing to approve what appear to be high success fees in cases which have gone a long distance towards trial if the maker of the CFA has agreed that a much lower success fee should be payable if the claim settles at an early stage…’
Furthermore, the first issue for determination by the CA was whether the success fee of 100% was an appropriate one in this particular case. They said that it was not and that they would have assessed it at 50% for the whole of the proceedings. Whilst there is no power for a court to order a pseudo two-stage CFA, the CA again stamped down on what it considered to be a unreasonable single stage success fee. This aspect is clearly a victory for defendants.