Sibthorpe & Anor –v- London Borough of Southwark [2011] EWCA Civ 25

Posted on Tuesday, January 25th, 2011

These two appeals related to disrepair claims by residential tenants against their landlord. The settlement of each claim included an agreement by the Defendant to pay costs. Both Claimants were represented by the same Counsel and Solicitors.

The CFA’s between the Claimants and their Solicitors contained the following term:

“If you lose, you pay your opponent’s charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponent’s charges at the end of your case if you lose. This means that we will pay those charges.”

A similar indemnity against the failure to beat Part 36 offers and adverse interlocutory costs orders was included.

At detailed assessment before Deputy Master Hoffman, the costs under the CFA were disallowed because the indemnity caused the agreement to fall foul of the law against champerty.

On appeal, Macduff J reversed the decision, holding that the agreement may have been champertous in the past but modern jurisprudence had moved on and champerty had to be determined on a case by case basis and, in this case, there was no public policy reason for invalidating the CFA.

The Defendant appealed, arguing that the CFA was void because it contained an integral provision which was champertous and, other than statutory exceptions, the law against champerty had not been relaxed in relation to those conducting litigation.

The Claimants argued that the law had developed and that the indemnity contained in the CFA between the Claimants and their Solicitors was not champertous according to any decided case.

Neuberger MR considered the authorities in detail, in particular Factortame (No. 8), from which he distilled the propositions that “champerty occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit” and that the prohibition against champerty arose from public policy which was amenable to change over time.

Held:

  1. The Claimants could not rely on Factortame (No. 8) because that case related to a firm of accountants taking a portion of the proceeds of litigation as their fee. Those conducting litigation were subject to different, stricter rules.
  2. All of the decided cases involved arrangements whereby there was a gain if the action succeeded, not just a loss if the action failed. To hold the agreement between the Claimants and their Solicitors champertous would be to extend the law of champerty at a time when policy was to curtail its scope and when Parliament itself had stepped into the arena.
  3. The ATE insurance market for disrepair cases was not well developed and premiums tended to be very high. In the circumstances, indemnities such as the ones provided by the Solicitors to their clients provided access to justice, an essential ingredient in a modern society but one difficult for the majority of citizens to achieve, especially with the ever reducing availability of legal aid. Such indemnities were not contrary to public policy and the law of champerty should not be extended to make them so.

Although the Defendant had not put their case on the basis of maintenance, Lord Neuberger went on to consider whether the retainer in the present case could be so construed. He had no hesitation in finding that the retainer did not amount to “wanton and officious meddling in the disputes of others… where the assistance he renders to one party or another is without justification or excuse”.

The Defendant also argued that the indemnity contained within the CFA amounted to a contract of insurance which the Solicitors could not lawfully enter into. The Defendant had been refused permission to appeal on this issue and Neuberger MR upheld the refusal for the reasons given by the Judge, quoting from McGillivray on Insurance Law:

“The inclusion of indemnity provisions within a contract…neither makes the indemnifier an insurer, nor justifies describing the contract as wholly or partly one of insurance”.

Appeal dismissed unanimously.

It is interesting to note Lord Neuberger’s expression of opinion at paragraph 41 of his Judgment:

“There is also much to be said for a properly funded legal profession, which has no need to have recourse to conditional fees or contingency fees and the like.”

The Law Society welcomed the decision as offering members of the public access to justice in times when such is becoming much more difficult. Their press release is available here: http://www.lawsocietymedia.org.uk/Press.aspx?ID=1411

http://www.bailii.org/ew/cases/EWCA/Civ/2011/25.html

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