B e f o r e :
LORD PHILLIPS MR
LORD JUSTICE ROBERT WALKER
and
LORD JUSTICE CLARKE
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Between:
| | THE QUEEN ON THE APPLICATION OF FACTORTAME & OTHERS
| Respondent
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| | - and -
|
|
| | THE SECRETARY OF STATE FOR TRANSPORT
| Appellant
|
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
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Mr David Friedman, QC and Mr Alexander Hutton (instructed by The Treasury Solicitor) for the Appellant
Mr Christopher Hancock, QC and Mr Jeremy Morgan (instructed by Thomas Cooper & Stibbard) for the Respondents
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HTML VERSION OF JUDGMENT
AS APPROVED BY THE COURT
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Crown Copyright ©
Lord Phillips MR
This is the judgment of the court
- This is an appeal from the judgment of Master Wright, Costs Judge, delivered on 24 October 2001, on an important preliminary issue that has arisen in the context of the assessment of the costs payable by the Appellant (‘the Minister’) to the Respondents (‘the Claimants’). The Claimants seek to recover as costs fees paid to a firm of accountants, Grant Thornton. Those fees were paid pursuant to an agreement under which the Claimants agreed to pay Grant Thornton 8% ‘of the final settlement received’. The Minister contends that this agreement was champertous and, in consequence, unenforceable and that the Claimants are not entitled to recover as costs any sums paid pursuant to it. The Costs Judge held that the agreement was not champertous. We have to decide whether he was correct. If we find that he was not, there are further issues which we shall have to address.
Background facts
- The Factortame litigation forms a notable chapter in the jurisprudence of this country and the European Court of Justice. It is a lengthy chapter and, as this appeal demonstrates, one that has not quite been completed. The claimants were Anglo-Spanish fishing companies who triumphed by demonstrating both that they had been unlawfully excluded from fishing in British waters and that they were entitled to damages to compensate them for the consequences of this. The Claimants before us are only some of these claimants, being companies for whom Thomas Cooper & Stibbard (‘Thomas Cooper’) have at all times acted as solicitors. Furthermore, the Claimants before us are only some of those for whom Thomas Cooper has acted, as we shall explain in due course. We shall henceforth refer to the experiences of the Claimants, but in the earlier stages of the story these were shared with the other claimants.
- The events with which this appeal is concerned begin comparatively late in the story at a stage where the Claimants had crossed almost all the hurdles that stood between them and entitlement to damages. The story started on 1 December 1988, when Part II of the Merchant Shipping Act 1988 and the Merchant Shipping (Registration of Fishing Vessels) Regulations 1988 removed the Claimants’ vessels from the British Registry, with the effect that they were no longer entitled to fish in UK waters. The Claimants brought judicial review proceedings in which they challenged the legality of the Act and the Regulations on the grounds that they violated the provisions of the EC Treaty. In March 1989 the Divisional Court referred the issue to the European Court of Justice but granted an interim injunction restraining the Minister from enforcing the provisions under challenge. This victory was short lived, for the Court of Appeal quickly reversed the Divisional Court and the House of Lords upheld this decision, holding that an English Court had no power to suspend the operation of an English Act of Parliament: [1990] 2 AC 85.
- The scene then shifted to Luxembourg where, in June 1990, the European Court ruled that our national courts had power to suspend the operation of an Act of Parliament by way of interim relief where its validity under European law was in issue. The direct effect of this ruling was that the operation of the provisions in question was suspended, and the Claimants were free again to fish in UK waters.
- In July 1991 the European Court ruled on the substantive issue. It held that the Act was incompatible with European law: [1992] QB 680. The issue then arose as to whether the Claimants were entitled to damages in respect of the Government’s breach of Community law. That question the Divisional Court referred to Luxembourg. The European Court replied that the Claimants would be entitled to damages provided that certain criteria were satisfied, one of which was whether the breach was “sufficiently serious”. That question was, however, an issue for the domestic court: [1996] QB 404. In July 1997 the Divisional Court answered the question, holding that the Government’s breach was sufficiently serious to give rise to a right to compensatory damages, but not to a right to exemplary damages: [1997] EuLR 475. The Minster appealed to the Court of Appeal. On 8 April 1998 the Court of Appeal dismissed the appeal: [1998] EuLR 456. In July 1998 the Court of Appeal referred the assessment of damages to the Official Referee’s Court, later to be renamed the Technology and Construction Court (‘TCC’). At the same time the Minister decided to appeal to the House of Lords.
- By this stage the Claimants were in a parlous financial state. Mr Swabey of Thomas Cooper described the position as follows in his witness statement.
“…. the financial position of the Anglo-Spanish fleet in 1997 was parlous in the extreme. Of 100 or so Claimants, a large number had given up fishing, sold their vessels and licences and were holding their creditors at bay pending the outcome of the litigation. Many had gone into liquidation, others had been dissolved and a significant number languished in a sort of insolvent dormancy while the Inland Revenue, the VAT authorities, banks, trade creditors and others anxiously awaited the outcome of the litigation.”
- Among the anxious creditors were Grant Thornton, who had provided accountancy services to a number of the Claimants and who were owed fees of approximately £200,000 plus substantial interest in respect of these. They appreciated that the only prospect that they had of recovering these fees was if their clients succeeded in recovering substantial damages from the Government.
The engagement of Grant Thornton
- Evidence of the circumstances in which Grant Thornton were engaged has been provided principally in witness statements of Mr Swabey and of Mr John Davies, a partner in Grant Thornton. The task of establishing damage that confronted the Claimants was unusual and complex. Mr Swabey described it as follows:
“(i) The effect of the MSA had been to lay up a virtually complete section of the British fishing industry. That section was the group of vessels which fished in ICES Area VII (i.e., off the south west and west coasts of the Republic of Ireland) and, to a lesser extent in British waters in the south west approaches) against UK quotas of, principally, three species of fish –Hake, Monk and Megrim. The vessels were fresh fish catchers (i.e., although they carried ice they did not freeze the catch so it had to be brought to market quickly). As to gear, the vessels were either longliners, trawlers or gill netters. The market for the fish was Spain which was reached either by landing in the UK and transporting the catch in refrigerated trucks or landing direct into Spain. The vessels had been laid up for between 18 months and 3 years. As general rule, the poorer the company the longer it took to get back to sea following the House of Lords interim measures judgment.
(ii) The problem facing the experts was to assess how much the vessels would have caught and what they would have sold the catch for at a time when both the amount available to be caught and the price was – or at any rate could have been – severely affected by the very absence of the vessels in question. To assess the loss of profit of a ball bearing factory caused by a two year shut down is a relatively straightforward matter. It should be possible to assess how many ball bearings the factory could have produced and what the market price for them would have been – neither of these variables will be affected by the closure of the factory. The fishing boats on the other hand fished against artificially set and administered quotas and were the principal suppliers to a very volatile fish market. Prices soared in 1990- 1992 but who knows whether this was because of the absence of the Anglo-Spaniards or would have happened anyway. Moreover, there is no market price for fish. The price of fish depends principally on quality and quality depends principally on freshness. Some vessels (particularly the Basques) cut short their trips to get a fresher catch to the market. Some vessels prefer to get a lower price for a larger quantity. Each major Spanish fish market publishes daily prices for the important species but the range of prices on a particular day is so enormous both from port to port and within individual ports that published prices are a useless guide to what an individual vessel could have achieved throughout the year.
(iii) In addition all manner of variables have to be taken into account:
(a) weather conditions during actual years of lay-up in particular the high price months;
(b) when in the year the quota might have been exhausted;
(c) would the vessels have missed trips because of mechanical breakdown?
(d) how would MAFF have managed the quota during the year? Fish are migratory and are more abundant at some times during the year than others. Furthermore demand is not even throughout the year fish being especially in demand in Spain at Christmas.
(iv) Variables at a deeper level were:
(a) the development during the 1990s of the “sectoral” system of quota management which, for reasons too complicated to explain in this statement, severely prejudiced those who had been forced by the MSA to stop fishing because the “sectoral” system was based on catches during a reference period which included the lay-up period;
(b) the development of a large fish exporting industry from South America to Spain. This industry used aircraft to transport the fish. It was therefore very expensive but has now been established and competes effectively with the traditional industry. Whether it would have been established but for the severe disruption of supplies of fish during the lay-up period is a moot point.”
- An expert witness on the fishing industry was going to be essential, and Mr Swabey had identified as the ideal expert a Mr Richard Banks. There was also plainly going to be a major forensic accountancy exercise. There proved to be three contenders for this role: Ernst & Young, who were prepared to provide their services on an hourly rate basis, and were prepared to give a year’s credit before being paid; Grant Thornton, who also wished to be paid on an hourly basis, but who accepted that they would have to wait to be paid until the Claimants had recovered their damages; and Managers and Processors of Claims Ltd (‘MPC’), who claimed to have an excellent track record in recovering compensation for fisherman affected by marine oil pollution. They made it plain that they were only prepared to act on the basis of entitlement to a percentage of the damages recovered.
- Negotiations between the Claimants and those who were competing for the provision of forensic accountancy services began towards the end of 1997 and proceeded on a Claimant by Claimant basis, largely in Spain, without direct involvement on the part of Thomas Cooper. Grant Thornton were, as we have indicated, anxious to act on a conventional hourly rate basis. It became apparent, however, that many of the claimants were concerned at the prospect of incurring an open-ended liability for accountancy fees and were predisposed to contract with MPC, on the basis of a percentage of the damages recoverable.
- Mr Davies states that Grant Thornton estimated that the Claimants with whom they were negotiating would be likely to recover something in the order of £25 million by way of damages and that Grant Thornton’s charges on an hourly basis, together with associated expenses would probably be in excess of £2 million. In these circumstances Grant Thornton indicated to the Claimants that they would be prepared to put a cap on their charges of 8% of the damages recovered.
- On, or after, 8 July 1998 Grant Thornton entered into agreements (‘the 1998 Agreements’) in writing with the several Claimants in the following terms:
“TERMS OF ENGAGEMENT IN RESPECT OF CLAIMS IN RELATION TO THE UNLAWFUL PROHIBITION OF FISHING RIGHTS IN THE TERRITORIAL WATERS OF THE UNITED KINGDOM
Our Instructions
We write to confirm your instructions for us to prepare and submit your claims for loss or damage suffered as a result of the unlawful prohibition of fishing in the territorial waters of the United Kingdom.
Our Team
Because of the potential size of claims we have drawn together a first class team with a wealth of relevant knowledge and experience. These are set out in detail in our proposal, and include:
- David Anton, one of the UK’s leading expert witnesses.
- Nautilus Consulting, Europe’s foremost firm of fishing consultants.
- Grant Thornton, one of the leading international firms of accountants with many years of experience in this matter and with the facilities for translation available through their offices in Spain.
Finally we will provide expertise to reduce any liability to the United Kingdom taxation authorities, thereby increasing the amount of cash available to you.
Our Fees
Our fees for this work will be 8% of the final settlement received, plus any relevant value added tax.
Costs charged to the UK Government
As part of the claim process we should be able to recover some of our fees, if successful, from the United Kingdom Government. We undertake to pay to you the monies recovered from the Government. This reduces your overall costs.
Other matters
Whilst we have a wealth of experience in dealing with claims for damages we are not lawyers. We will therefore work closely with Stephen Swabey of Thomas Cooper & Stibbard, your solicitor, to advise us, where appropriate, as to any points of law of relevance to our work or to its conduct.
Governing law
This engagement shall be governed by and construed by in accordance with English Law and you hereby agree with us to submit for all purposes in connection with this engagement to the exclusive jurisdiction of the English courts.
Books and Papers
We need to start the exercise immediately therefore we will contact you to access your business’ books and papers in the near future.
All documents we create or receive from third parties, either as principal in our own right or agent for the business, belong to Grant Thornton. Any documents belonging to the business which have been delivered to our office remain your property.”
- David Anton was an independent expert accountant. Nautilus Consulting was, in effect, Mr Richard Banks. Mr Davies explains in his witness statement that his firm appreciated that because they had a financial interest in the recovery of damages by the Claimants, by which he meant the interest in recovering their outstanding accountancy fees, they could not act as expert witnesses. They envisaged that they would be performing ‘a substantial administrative role as evidence as to loss would have to be gathered and submitted to experts, particularly as much evidence would have to be obtained from Spain’. While on 5 August 1999 Thomas Cooper wrote letters of engagement to both David Anton and Richard Banks, each of these experts looked to Grant Thornton for payment of their fees and were in fact paid by Grant Thornton.
- The statement in the 1998 Agreements that Grant Thornton should be able to recover some of their fees from the Government as part of the claim process, and would account to the Claimants in respect of such recoveries, shows a fundamental mis-appreciation of the basis upon which, and the persons by whom, costs are recoverable in litigation. Some of the documentation suggests that Grant Thornton anticipated that costs would be recovered on an hourly rate basis without reference to the terms upon which their services had been provided. Indeed, it was only by chance that those acting for the Minister came to learn of those terms. This lack of transparency was an unattractive feature of the story.
- Up until the start of the hearing before Master Wright, it was the Claimants’ case that, under the 1998 Agreements, the 8% was a cap, and that the fees of the two experts were recoverable in addition to the 8%. In the course of the hearing, however, counsel for the Claimants conceded that the terms of the July Agreement were that Grant Thornton would be remunerated on the basis of 8% of what was recovered, and that this covered the fees of Mr Banks and Mr Anton.
Fast track and slow track
- On 5 March 1999 the TCC allowed claimants to choose whether they wished to proceed with their claims for damages whilst the Government’s appeal to the House of Lords was pending or to wait until the outcome of that appeal before doing so. 12 claimants, owning 15 vessels between them, elected to proceed straight away. They have been described as the fast track claimants. Seven of them were represented by Thomas Cooper, the remainder by another firm of solicitors, Edwin Coe. The vast majority, approximately 123 claimants, elected to await the decision of the House of Lords. They have been described as the slow track claimants. Thomas Cooper acted for 36 of these.
- The Claimants who are directly involved in this appeal are the 7 fast track claimants for whom Thomas Cooper act. By 27 March 2000 all fast track claims had settled by acceptance of Part 36 offers made by the Minister. Issues then arose as to the effect of the Part 36 offers on claimants’ entitlement to costs. These issues were resolved by Judge Toulmin QC in respect of both the Edwin Coe and the Thomas Cooper claimants. He gave judgment on 27 July 2000. The amount of costs recoverable remained to be assessed.
- The slow track claims subsequently settled. We are not directly concerned with these claims. The champerty issue arises, however, in relation to the costs of the slow track claimants for whom Thomas Cooper act. These proceedings are, in consequence, of significance to those claimants.
The July 2000 Agreements
- Mr Davies states that when the July 1998 Agreements were concluded it was anticipated that the assessment of damages would involve individual calculations of some complexity to be carried out on a vessel by vessel basis, but that it subsequently proved necessary to do substantial work, including in particular the preparation of computer fishing models, that would provide a foundation for the calculation of damages in all cases. He describes such work as ‘generic work’.
- On or after 11 July 2000 Grant Thornton entered into agreements by deed with the Claimants, and other claimants represented by Thomas Cooper, in the following terms:
“WHEREAS
1. By a contract dated 13th July 1998, Grant Thornton were appointed by and on behalf of the Company to prepare and submit the Company’s claims against the Secretary of State for Transport for loss and damage suffered as a result of unlawful prohibition of fishing in the territorial waters of the United Kingdom (“the assignment”).
2. The said claims form part of a multi-claimant action proceeding in the Technology and Construction Court under action number 1998 TCC 546 (“the Factortame litigation”).
3. The terms of the written contractual document failed clearly to reflect the fee payment terms upon which Grant Thornton had agreed to undertake the assignment.
NOW THIS DEED WITNESSES as follows:
1. In consideration of Grant Thornton agreeing to advise the company as to the appropriateness of the level of any offers of settlement (whether pursuant to CPR Part 36 or otherwise) received by the Company in relation to its said claims, and in consideration of Grant Thornton agreeing to provide ongoing advice of a general nature in respect of the application of certain principles of the law of Value Added Tax in relation to the company’s claims which are the subject matter of the assignment, IT IS AGREED and confirmed that the company is liable to meet Grant Thornton’s fees for the assignment on the basis set out below.
2. In relation to costs which are or have been incurred (whether by way of Grant Thornton’s own time costs, payments made by grant Thornton to third parties, or otherwise) and which are of sole and specific benefit to the Company’s claims (“specific costs”), the Company hereby assigns to Grant Thornton 8% of the damages (together with any interest thereon) awarded to the Company, whether following judgment or by prior settlement. The Company will, in addition, be responsible for the payment of any Value Added Tax chargeable upon all fees.
3. In relation to costs which, given the multi-claimant nature of Factortame litigation, are or have been incurred for the general benefit of all claimants in the Factortame litigation by whom Grant Thornton are instructed, (“generic costs”, the Company will be responsible for payment of those costs on a joint and several basis with other such claimants.
4. In the interests of administrative convenience, given the joint and several nature of the Company's liability for generic costs, the Company will instruct its solicitors, Thomas Cooper & Stibbard, to enter a separate contract directly with Grant Thornton in order that generic costs may be invoiced directly by Grant Thornton to Thomas Cooper & Stibbard, who also act for all other relevant claimants, who will discharge the generic costs invoice on behalf of all such claimants as a disbursement.”
- If we hold that the 1998 Agreements were champertous, an issue will arise as to whether those parts of the 2000 Agreements which deal with generic fees can be severed from the remainder of the agreements in a manner which renders them enforceable. If we hold that the 1998 Agreements were not champertous, the Minister may have further points to take on the effect of the 2000 Agreements on his liability to pay costs, but they are not points with which we are concerned.
- It was only as a result of attempting to enforce the assignment granted by paragraph 2 of one of the 2000 Agreements that Grant Thornton alerted the Minister to the terms upon which their services had been provided. All Claimants have now paid to Grant Thornton 8% of the damages recovered. They have yet to pay the fees claimed by Grant Thornton in respect of generic work.
The nature of the services provided
- When we come to consider the law of champerty we shall find that its application requires an analysis of the facts of the particular case. Special principles apply to those who are entitled to have the conduct of litigation, and in particular to solicitors. On behalf of the Minister, Mr Friedman QC argued that those principles had application to Grant Thornton because the services that they were providing were, in large measure, the type of services that solicitors customarily provide in the course of the conduct of litigation. In addition, or by way of an alternative to this submission, Mr Friedman submitted that some of the services provided by Grant Thornton were in the nature of expert evidence and that principles of, or similar to, the law of champerty could render unenforceable an agreement by experts to give evidence in a case in consideration of a share of any recovery. Having regard to these submissions it has been necessary for us to consider the nature of the services provided by Grant Thornton and, in particular, whether they have been providing services which are customarily provided to litigants by solicitors.
- S.28 of the Courts and Legal Services Act 1990 makes provision for those who have the ‘right to conduct litigation’. Such a right can only be granted by ‘the appropriate authorised body’. The Law Society is such a body. The Institute of Chartered Accountants is not. Thus accountants have no right to ‘conduct litigation’. The right to conduct litigation is defined by s.119 of the Act. It means the right:
(a) to issue proceedings before any court; and
(b) to perform any ancillary functions in relation to proceedings (such as entering appearances to actions)’
- S.20 of the Solicitors’ Act 1974 makes it an indictable criminal offence for an unqualified person to ‘act as a solicitor’. It is plain, in the light of this, that the ‘conduct of litigation’ which is reserved to a solicitor or other authorised person by s.28 of the 1990 Act must be given a restricted ambit. It cannot embrace all the activities that are ancillary to litigation and which are sometimes carried on by a solicitor and sometimes by a person who has no right to conduct litigation.
- Thus, in Piper Double Glazing Ltd v D.C. Contracts [1994] 1 WLR 777 where the issue was whether the fees for the services of claims consultants in relation to the conduct of an arbitration could be recovered as costs, Potter J. observed at p.783:
“By acting as claims consultants in the arbitration, Knowles neither acted as a solicitor nor purported to act as a solicitor within the letter or spirit of section 20(1) or section 25(1) of the Solicitors Act 1974. An unqualified person does not act as a solicitor within the meaning of section 25(1) merely by doing acts of a kind commonly done by solicitors. To fall within that phrase, the act in question must be an act which it is lawful only for a qualified solicitor to do and/or any other act in relation to which the unqualified person purports to act as a solicitor.”
- Thomas Cooper have at all times had the conduct of the litigation on behalf of the Claimants. Grant Thornton have done nothing for which they required authority under s.28 of the 1990 Act or which offended against s.20 of the 1974 Act. Their services have been ancillary to the conduct of the litigation by Thomas Cooper. Of what have those services consisted?
- The Bill of Costs prepared by Thomas Cooper starts with a narrative which includes the following description of the role played by Grant Thornton.
“The Firm of Grant Thornton Chartered Accountants were appointed by the applicants and their Solicitors to advise on co-ordinate and play a major part in the gathering of voluminous and complex evidence as to loss, particularly that within their expertise as Chartered Accountants. Grant Thornton were also instrumental in the appointment of the Independent Experts instructed and again played a major part in the assisting and liasing with those Experts and also with Solicitors and Counsel. Grant Thornton worked closely with the Experts to create the original Model for calculating the losses claimed. Grant Thornton made a considerable number of modifications to the model and created several different versions to accommodate various contentions and arguments. Grant Thornton were engaged throughout in a supporting and advisory role to the Applicants and their legal representatives.
Grant Thornton’s involvement was also very cost effective, as overall their charging rates were significantly lower than Thomas Cooper and Stibbard’s rates and it will be appreciated that Thomas Cooper and Stibbard would have had to carry out all the work undertaken by Grant Thornton if Grant Thornton had not been involved.”
- We consider that this is an accurate summary, subject to one comment. Grant Thornton’s work consisted largely of important back-up services for the two independent experts, Mr Banks and Mr Anton. Many of those services, such as the collection of documentary evidence and liaison with the clients in Spain, could have formed part of the services provided by Thomas Cooper themselves. Most of the services would, however, more naturally have formed part of a package of forensic accountancy services which would have included the provision of the expert evidence itself. It was only the fact that they considered that they were precluded by their interest in recovering their outstanding accountancy fees from their clients’ damages that led Grant Thornton to engage Mr Anton as an independent accountancy expert.
- There can be no doubt that Grant Thornton played a very important role in the damages phase of the litigation. Particularly important was their input into the agreement of a computer model. As Mr Friedman pointed out, their fees outstripped those of Thomas Cooper. One further matter Mr Friedman emphasised. Their services included advising the Claimants on settlement offers.
The law of champerty
- Champerty is a variety of maintenance. Maintenance and champerty used to be both crimes and torts. A champertous agreement was illegal and void, involving as it did criminal conduct. Ss. 13(1) and 14(1) of the Criminal Law Act 1967 abolished both the crimes and the torts of maintenance and champerty. S.14(2) provided, however:
“The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.”
Thus, champerty survives as a rule of public policy capable of rendering a contract unenforceable.
- ‘A person is guilty of maintenance if he supports litigation in which he has no legitimate concern without just cause or excuse’ – Chitty 28th Ed. Vol.1 17-050. Champerty ‘occurs when the person maintaining another stipulates for a share of the proceeds of the action or suit’ – ibid 17-054. Because the question of whether maintenance and champerty can be justified is one of public policy, the law must be kept under review as public policy changes. As Danckwerts L.J. observed in Hill v Archbold [1968] 1 QB 686 at 697:
“…the law of maintenance depends upon the question of public policy, and public policy …is not a fixed and immutable matter. It is a conception which, if it has any sense at all, must be alterable by the passage of time.”
- In Trendtex Trading v Credit Suisse [1980] 1 QB 629 at p.663 Oliver LJ remarked:
“There is, I think, a clear requirement of public policy that officers of the court should be inhibited from putting themselves in a position where their own interests may conflict with their duties to the court by agreement, for instance, of so called “contingency fees”.
- The introduction of conditional fees shows that even this requirement of public policy is no longer absolute. This case raises the question of whether the requirement extends to expert witnesses or others in a position to influence the conduct of litigation and, if it does, whether on the facts of the present case the agreements concluded by Grant Thornton can be justified.
- In Trepca Mines Ltd (No.2) [1963] 1 Ch 199 at p.219 Lord Denning MR observed:
“The reason why the common law condemns champerty is because of the abuses to which it may give rise. The common law fears that the champertous maintainer might be tempted, for his own personal gain, to inflame the damages, to suppress evidence, or even to suborn witnesses. These fears may be exaggerated, but, be that so or not, the law for centuries had declared champerty to be unlawful, and we cannot do otherwise than enforce the law; and I may observe that it has received statutory support, in the case of solicitors, in section 65 of the Solicitors Act 1957.”
- Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain, to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice.
- In reaching this conclusion we have been particularly influenced by the approach of the Court of Appeal and the House of Lords in Giles v Thompson. The issue in that case was whether the plaintiffs in two conjoined appeals could recover as damages the costs of hiring cars to replace those put out of commission by the defendants’ negligence. The cars had been provided by hire companies under agreements which gave the hire companies the right to pursue actions against the defendants in the plaintiffs’ names to recover those damages. In one case the hire agreement gave the plaintiff credit in respect of payment of the hire charges until ‘such time as the claim for damages has been concluded’. In the other case the credit was given ‘until such time as damages, and statutory interest, have been recovered’. Thus, in the latter case, the hire company’s right to payment of the hire was conditional upon the success of the action. The defendants objected to paying the hire charges in each case on the ground, among others, that the hire agreements were unenforceable as constituting maintenance or champerty.
- In the leading judgment in the Court of Appeal [1993] 3 All ER 321 Steyn LJ at p.328 identified the public policy which renders champertous agreements illegal as resting on the perceived need to protect the integrity of public justice. Later, at p.336, he added that the policy focused on the protection of the party confronted with the maintained litigation, it did not exist to protect the plaintiff. At pp.328-9 he gave a valuable exposition of the history of this area of the law, culminating in the enactment of s.58 of the Courts and Legal Services Act 1990, which we shall have to consider in more detail in due course. As to this, he remarked at p.331:
“The relevance of s58 is that Parliament has, subject to the requirements of the section, empowered the Lord Chancellor to validate by order agreements for a percentage uplift in the costs in the event of success. The ability to recover fees beyond what was otherwise reasonable was intended to be ‘an incentive to lawyers to undertake speculative actions’. Such agreements were, and in the absence of an order still are, unlawful as being contrary to public policy. The rationale of the common law rule is that such agreements allowed the duty and interest of solicitors to conflict with a resultant risk of abuse of legal procedure. Section 58 evidences a proposed modification in relation to an important species of champerty. It represents at least a concession to the view that the abuses associated with champerty are not the inevitable result of all variants of contingency fee agreements. And there is, of course, no more cogent evidence of a change of public policy than the expression of the will of Parliament.”
Subsequently, he observed at p.332:
“Contingency fee agreements are nowadays perhaps the most important species of champerty. Such agreements are still unlawful. Yet an English solicitor may share in a contingency fee earned in foreign litigation; see r.8 (contingency fees) of the Solicitors’ Practice Rules 1990. This reinforces the point that the doctrine of champerty serves to protect only the integrity of English public justice. It is based not on grounds of morality but on a concern to protect the administration of civil justice in this country.”
He continued, on the following page:
“Ultimately, it is necessary to consider the questions posed in this case in the light of contemporary public policy.
The correct approach is not to ask whether, in accordance with contemporary public policy, the agreement has in fact caused the corruption of public justice. The court must consider the tendency of the agreement. The question is whether the agreement has the tendency to corrupt public justice. And this question requires the closest attention to the nature and surrounding circumstances of a particular agreement. That is illustrated by the well-known decision of the House of Lords in Trendtex Trading Corp v Credit Suisse [1981] 3 AllER 520, [1982] AC 679.”
- Applying that approach, he held that neither agreement was contrary to public policy. The other members of the Court concurred.
- In the House of Lords [1994] 1 AC 142 Lord Mustill gave the leading speech, in which the other members of the House concurred. At p.153, after a brief reference to their history, he observed:
“In the most recent decades of the present century maintenance and champerty have become almost invisible in both their criminal and their tortious manifestations. In practice, they have maintained a living presence in only two respects. First, as the source of the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services on behalf of a plaintiff calculated as a proportion of the sum recovered from the defendant. Secondly, as the ground for denying recognition to the assignment of a “bare right of action”. The former survives nowadays, so far as it survives at all, largely as a rule of professional conduct, and the latter is in my opinion best treated as having achieved an independent life of its own.”
- Lord Mustill then proceeded to analyse the facts of each case. First he observed, at p.160, that neither hire contract gave the hire company any legal interest in the proceeds of the litigation. Next he noted that each hirer was under a residual liability to pay the hire charges. Finally he turned to the question of the degree to which the hire contract gave the hire company control of the litigation. In the first case, it did not purport to do so, and the hirer had appointed her own solicitor. In the second case the contract gave the hire company the right to appoint its own solicitor to pursue an action for damages in the hirer’s name, and the hire company exercised this right. Lord Mustill concluded, however, at pp.162-3, that in the event of any conflict between the hire company and the plaintiff, the wishes of the plaintiff were likely to prevail.
- On these facts Lord Mustill held that it was appropriate to consider whether the mischief was established against which the public policy was directed. As to this, he observed at p.161:
“It is sufficient to adopt the description of the policy underlying the former criminal and civil sanctions expressed by Fletcher Moulton LJ in British Cash and Parcel Conveyors Ltd v. Lamson Store Service Co. Ltd [1908] 1 KB 1006, 1014:
“It is directed against wanton and officious intermeddling with the disputes of others in which the [maintainer] has no interest whatever, and where the assistance he renders to the one or the other party is without justification or excuse.”
This was a description of maintenance. For champerty there must be added the notion of a division of the spoils.”
- Lord Mustill held that in neither case was this mischief established. Summarising the position, he said at p.165:
“Returning to the company, is it wantonly or officiously interfering in the litigation; is it doing so in order to share in the profits? I think not. The company makes its profits from the hiring, not from the litigation. It does not divide the spoils, but relies upon the fruits of the litigation as a source from which the motorist can satisfy his or her liability for the provision of a genuine service, external to the litigation. I can see no convincing reason for saying that, as between the parties to the hiring agreement, the whole transaction is so unbalanced, or so fraught with risk, that it ought to be stamped out. The agreement is one which in my opinion the law should recognise and enforce.”
- This decision abundantly supports the proposition that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy that is directed to protecting the due administration of justice with particular regard to the interests of the defendant. This is a question that we have to address. In so doing we revert to the statement of Lord Mustill that ‘the rule, now in the course of attenuation, which forbids a solicitor from accepting payment for professional services calculated as a proportion of the sum recovered from the defendant …survives nowadays, so far as it survives at all, largely as a rule of professional conduct’. With respect, this statement is not correct. The basis of the rule is statutory. It is now necessary to look at the relevant statutory provisions, not merely because Mr Friedman has submitted that they are indicative of public policy which extends beyond the confines of the statutory provisions, but because he has submitted that the most recent statute, which came into force after the events with which we are concerned, would have outlawed the 1998 agreements. If this is correct, it strongly supports his contention that those agreements were in conflict with public policy.
Legislation
- Rule 8 of the Solicitors Practice Rules 1990 provides:
“(1) A solicitor who is retained or employed to prosecute or defend any action, suit or other contentious proceeding shall not enter into any arrangement to receive a contingency fee in respect of that proceedings, save one permitted under statute or by the common law.
(2) Paragraph (1) of this rule shall not apply to an arrangement in respect of an action, suit or other contentious proceeding in any country other than England and Wales to the extent that a local lawyer would be permitted to receive a contingency fee in respect of that proceeding.”
“Contingency fee” is defined by Rule 18(2)(c) to mean:
“any sum (whether fixed, or calculated either as a percentage of the proceeds or otherwise howsoever) payable only in the event of success in the prosecution of any action, suit or other contentious proceeding….”
- Rule 8 was made pursuant to s.31(1) of the Solicitors Act 1974 and has statutory force. The rule allows a solicitor to conclude a contingency fee agreement if it is permitted by the common law. In theory this would enable the court to find that changes of public policy had rendered legitimate at common law contingency fees which were, in consequence, not precluded by the rule. Parliament has, however, expressly addressed the circumstances in which such fees are permitted, and this circumscribes the scope for finding that the common law has developed in this area. We turn to the relevant statutory provisions.
- S.58 of the Courts and Legal Services Act 1990, as originally enacted, provided:
“(1) In this section ‘a conditional fee agreement’ means an agreement in writing between a person providing advocacy or litigation services and his client which-
(a) does not relate to proceedings of a kind mentioned in subsection (10);
(b) provides for that person’s fees and expenses, or any part of them, to be payable only in specified circumstances;
(c) complies with such requirements (if any) as may be prescribed by the Lord Chancellor; and
(d) is not a contentious business agreement (as defined by section 59 of the Solicitors Act 1974).
(2) Where a conditional fee agreement provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not a conditional fee agreement, it shall specify the percentage by which that amount is to be increased.
(3) Subject to subsection (6), a conditional fee agreement which relates to specified proceedings shall not be unenforceable by reason only of its being a conditional fee agreement.
(4) In this section ‘specified proceedings’ means proceedings of a description specified by order made by the Lord Chancellor for the purposes of subsection (3).
(5) Any such order shall prescribe the maximum permitted percentage for each description of specified proceedings.
(6) An agreement which falls within subsection (2) shall be unenforceable if, at the time when it is entered into, the percentage specified in the agreement exceeds the prescribed maximum permitted percentage for the description of proceedings to which it relates.
(7) Before making any order under this section the Lord Chancellor shall consult the designated judges, the General Council of the Bar, the Law Society and such other authorised bodies (if any) as he considers appropriate.
(8) Where a party to any proceedings has entered into a conditional fee agreement and a costs order is made in those proceedings in his favour, the costs payable to him shall not include any element which takes account of any percentage increase payable under the agreement.”
- In 1995 regulations were made which specified the proceedings to which s.58 applied, the most significant of which were claims in respect of death or personal injury. The regulations fixed the maximum permitted percentage uplift of fees at 100%.
- S.119, the interpretation section of the Act, includes the following definitions:
‘advocacy services’ means any services which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right of audience in relation to any proceedings, or contemplated proceedings, to provide;
….
… ‘litigation services’ means any services which it would be reasonable to expect a person who is exercising, or contemplating exercising, a right to conduct litigation in relation to any proceedings, or contemplated proceedings, to provide;”
- S.58 did not state in terms that conditional fee agreements that were not expressly permitted in accordance with its provisions were unenforceable. Mr Friedman submitted, however, that this was implicit and that such agreements were indeed unenforceable by reason of the principles of the law of champerty and maintenance. We accept that this argument has force. There is an issue, however, as to whether the ‘conditional fee agreements’ explicitly permitted, and those that are implicitly unenforceable, by reason of the provisions of s.58, are restricted to agreements concluded by solicitors and others authorised to ‘conduct litigation’, or whether they extend to agreements by any person or body providing services ancillary to the conduct of litigation. Mr Hancock QC for the Claimants argued that the former was the position and that s.58 was not relevant to the issues arising on this appeal. Mr Friedman submitted that the 1998 contracts were in respect of ‘litigation services’ and constituted ‘conditional fee agreements’ within the meaning of that phrase in s.58. In that they were not expressly permitted by s.58 they were implicitly forbidden.
- This issue arises more acutely in relation to the provisions of s.58 after their amendment by the Access to Justice Act 1999 and we intend to consider them in that context.
- S.58 of the 1990 Act, as amended by the 1999 Act, provides:
“(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but (subject to subsection (5)) any other conditional fee agreement shall be unenforceable.
(2) For the purposes of this section and section 58A-
(a) a conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances; and
(b) a conditional fee agreement provides for a success fee if it provides for the amount of any fees to which it applies to be increased, in specified circumstances, above the amount which would be payable if it were not payable only in specified circumstances.
(3) The following conditions are applicable to every conditional fee agreement-
(a) it must be in writing;
(b) it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and
(c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor.
(4) The following further conditions are applicable to a conditional fee agreement which provides for a success fee-
(a) it must relate to proceedings of a description specified by order made by the Lord Chancellor;
(b) it must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased; and
(c) that percentage must not exceed the percentage specified in relation to the description of proceedings to which the agreement relates by order made by the Lord Chancellor.”
- Thus, ‘conditional fee agreements’ which do not satisfy the conditions applicable under s.58 are expressly stated to be unenforceable. It is common ground that the meaning of ‘conditional fee agreements’ remains unchanged. Does the amended s.58 now expressly render unenforceable agreements such as the 1998 Agreements concluded after 1 April 2000, when the amendments came into force? If so, does this demonstrate by implication that the 1998 Agreements were unenforceable at the time that they were concluded?
- We have concluded that Mr Hancock’s submissions on this issue are correct. ‘Conditional fee agreements’ under s.58 embrace only agreements for the provision of litigation or advocacy services concluded by those with rights to conduct litigation (s.28) or those with rights of audience (s.27). Our reasons for this conclusion are as follows:
- Ss.27, 28 and 58 are all located in Part II of the 1990 Act. The objective of Part II, referred to as ‘the statutory objective’ is stated in its first subsection:
“17 The statutory objective and the general principle
(1) The general objective of this Part is the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice.”
- Part II deals exclusively with the authorisation of persons to provide different types of legal services, with their regulation and with Ombudsmen schemes relating to the provision of legal services. In its context it is natural to read s.58 as applying to the provision of advocacy and litigation services by those authorised in accordance with the earlier sections to exercise rights of audience or conduct litigation. There is nothing in the section which suggests that it is intended to apply to the provision of services ancillary to the conduct of litigation by the many different categories of person who have, in the past, been accustomed to assist with the conduct of litigation.
- This conclusion is supported by the Regulations that were passed pursuant to s.58. The Conditional Fees Agreements Regulations 1995 (SI 1995 No. 1675) and the Conditional Fee Agreements Regulations 2000 (SI 2000 No. 692) require, among other matters, that a conditional fee agreement must specify ‘the circumstances in which the legal representative’s fees and expenses, or part of them are payable’. “Legal representative” is defined to mean “the person providing the advocacy or litigation services to which the conditional fee agreement relates”. The term “legal representative” is appropriate to describe a person conducting the litigation, or exercising rights of audience on behalf of the litigant. It is not appropriate to describe persons, such as Grant Thornton in the present case, who are providing services ancillary to those provided by those conducting the litigation. While provisions in a Statutory Instrument cannot alter the meaning of the primary legislation under which they are made, it seems to us legitimate to refer to them as confirming what appears to be the legislative intention of the provisions of the primary legislation.
- Were there ambiguity, it would be legitimate to refer to Hansard under the principles established in Pepper v Hart [1993] AC 593. Reference to Hansard for 26 January 1999 at pp.962 and 964, shows beyond doubt that the provisions of s.58, as amended, were not intended to apply to those who were not conducting the litigation or appearing as advocates. In the course of debate in the House of Lords on amendments to s.58, Lord Clinton-Davies asked the Lord Chancellor whether he proposed to deal with:
“…the disparities between lawyers and non-lawyers; for example, claims assessors and so on who are able to operate contingency fees. And yet the essential difference between the two is something which my noble and learned friend has lost no opportunity of emphasising throughout our debates; that is, quality control. There is no quality control in relation to claims assessors and people of that character.”
The Lord Chancellor replied :
“The noble Lord, Lord Clinton-Davis, asked about the work of claims’ assessors and related categories. Those are people who offer to recover compensation for members of the public arising, for example, out of personal injury, for a fixed percentage of the damages recovered. I have to say that I have to share his anxieties in that regard. I and my department have received complaints from lawyers about the activities of those people and indeed other practitioners whose activities fall short of the work of litigators and who are otherwise not currently regulated.”
- These passages confirm our view that the legislative intent was that the provisions of s.58 of the 1990 Act were intended to apply only to those who could be described as ‘litigators’, that is advocates and those conducting the litigation.
- There is good reason why principles of maintenance and champerty should apply with particular rigour to those conducting litigation or appearing as advocates. To demonstrate this we can do no better than cite a passage in the judgment of Buckley LJ in Wallersteiner v Moir (No 2) [1975] QB 373 at p.401:
“A contingency fee, that is, an arrangement under which the legal advisers of a litigant shall be remunerated only in the event of the litigant succeeding in recovering money or other property in the action, has hitherto always been regarded as illegal under English law on the ground that it involves maintenance of the action by the legal adviser. Moreover where, as is usual in such a case, the remuneration which the adviser is to receive is to be, or to be measured by, a proportion of the fund or of the value of the property recovered, the arrangement may fall within that particular class of maintenance called champerty….. It may, however, be worthwhile to indicate briefly the nature of the public policy question. It can, I think, be summarised in two statements. First, in litigation a professional lawyer’s role is to advise his client with a clear eye and an unbiased judgment. Secondly, a solicitor retained to conduct litigation is not merely the agent and adviser to his client, but also an officer of the court with a duty to the court to ensure that his client’s case, which he must, of course, present and conduct with the utmost care of his client’s interests, is also presented and conducted with scrupulous fairness and integrity. A barrister owes similar obligations. A legal adviser who acquires a personal financial interest in the outcome of the litigation may obviously find himself in a situation in which that interest conflicts with those obligations.”
- These, then, are the reasons that have led us to conclude that s.58 of the 1990 Act, both as originally enacted and as amended by the 1999 Act, applies only to agreements concluded by those conducting litigation or providing advocacy services. The effect of the section extends more widely, however, for it reflects Parliament’s assessment of the present state of public policy in this area. Thus, in Awwad v Geraghty [2001] QB 570 at 600 the Court of Appeal held that there was no scope for the Court to hold that the common law permitted conditional fee agreements that did not conform to the requirements imposed by s.58 and, in Bevan Ashford v Geoff Yeandle (Contractors) Limited (in Liquidation) [1999] Ch 239 Sir Richard Scott V-C held that the provisions of s.58, which applied only to litigation, should be applied by analogy to solicitors who were conducting arbitration.
- More generally, however, s.58 evidences a radical shift in the attitude of public policy to the practice of conducting litigation on terms that the obligation to pay fees will be contingent upon success. Whereas before this practice was outlawed, it is now permissible – subject to the requirements imposed by the section. These requirements do not appear designed to mitigate the mischief that had led to the banning of contingency fees - the undesirability of the interests of officers of the court conflicting with their duties to the court. Rather the requirements appear designed to protect the litigants concluding conditional fee agreements who, when the section was first enacted, were required to pay any ‘uplift’ out of their recoveries. Conditional fees are now permitted in order to give effect to another facet of public policy – the desirability of access to justice. Conditional fees are designed to ensure that those who do not have the resources to fund advocacy or litigation services should none the less be able to obtain these in support claims which appear to have merit.
The position of expert witnesses
- S.58 of the 1990 Act does not apply to expert witnesses. Was it, prior to 1990, legitimate for expert witnesses to provide their services on a contingency fee basis and, if not, has the change in public policy evidenced by s.58 altered the position?
- CPR 35.3 provides:
“Experts – overriding duty to the court
(1) It is the duty of an expert to help the court on the matters within his experience
(2) This duty overrides any obligation to the person from whom he has received instructions or by whom he is paid.”
These provisions enunciate principles which are long established, but have not been universally recognised. Thus, in Whitehouse v Jordan [1981] 1 WLR 246 at p.256 Lord Wilberforce was led to observe:
“It is necessary that expert evidence presented to the court should be, and should be seen to be, the independent product of the expert, uninfluenced as to form or content by the exigencies of litigation. To the extent that it is not, the evidence is likely to be not only incorrect but self-defeating.”
- The Practice Directions which relate to the Rules on expert evidence annexe a ‘Code of Guidance on Expert Evidence’ produced by a working party set up by the Head of Civil Justice. This includes the following guidance:
“Payments contingent upon the …outcome of a case must not be offered or accepted. To do so would contravene the expert’s overriding duty to the court.”
The Academy of Experts has also produced a code of conduct in respect of expert evidence which has a similar provision.
- We are not aware of any authority that deals with the propriety of an expert witness entering into a contract to give evidence on a contingency fee basis and it may well be that such an event has never occurred. In two recent decisions the court has, however, considered whether it is essential that an expert witness should have no interest in the outcome of the case in which he is giving evidence.
- Field v Leeds City Council (unreported 8 December 1999) concerned a claim by tenants against their local authority landlord, Leeds City Council, in respect of alleged disrepair. The Council wished to call as an expert witness, a surveyor, employed by them in their Claims Investigation Section. It appears that the District Judge refused to entertain this evidence on the ground that the expert was not independent and, on appeal, the County Court Judge upheld this decision. On appeal to the Court of Appeal Lord Woolf MR held that the fact that the expert was employed by the Council did not automatically disqualify him from giving evidence. Whether or not he was qualified to give such evidence could not be determined without sight of the report that he intended to give and his background and qualifications.
- In concurring, Waller LJ said, at paragraph 26:
“The question whether someone should be able to give expert evidence should depend on whether, (i) it can be demonstrated whether that person has relevant expertise in an area in issue in the case; and (ii) that it can be demonstrated that he or she is aware of their primary duty to the court if they give expert evidence.”
May LJ, also concurring, said:
“As to questions of opinion and generally, I entirely agree with my Lord, the Master of the Rolls, that there is no overriding objection to a properly qualified person giving opinion evidence because he is employed by one of the parties. The fact of his employment may affect its weight but that is another matter.”
- This decision is to be contrasted with observations made by Evans-Lombe J. in Liverpool Roman Catholic Archdiocesan Trustees Inc. v Goldberg (No. 3) [2001] 1 WLR 2337. That case involved a claim for professional negligence in relation to advice given by a Queen’s Counsel specialising in tax law to the plaintiff about its tax affairs. The defendant called to give expert evidence a Queen’s Counsel who shared his chambers and was a personal friend of long standing. The question of whether, in these circumstances, the expert’s evidence was admissible was raised at an early stage of the trial. The Judge decided not to deal with admissibility at that stage, but to deal with that question in the course of his judgment. The action then settled, but the Judge felt it appropriate deal with the admissibility of the expert’s evidence. He held that the evidence was inadmissible on the grounds of the public policy that justice should not only be done but should be seen to be done. He put the matter thus:
“I accept that neither s.3 of the 1972 Act nor the authorities under it expressly exclude the expert evidence of a friend of one of the parties. However, in my judgment, where it is demonstrated that there exists a relationship between the proposed expert and the party calling him which a reasonable observer might think was capable of affecting the views of the expert so as to make them unduly favourable to that party, his evidence should not be admitted however unbiased the conclusions of the expert might probably be. The question is one of fact, namely, the extent and nature of the relationship between the proposed witness and the party.”
- This passage seems to us to be applying to an expert witness the same test of apparent bias that would be applicable to the tribunal. We do not believe that this approach is correct. It would inevitably exclude an employee from giving expert evidence on behalf of an employer. Expert evidence comes in many forms and in relation to many different types of issue. It is always desirable that an expert should have no actual or apparent interest in the outcome of the proceedings in which he gives evidence, but such disinterest is not automatically a precondition to the admissibility of his evidence. Where an expert has an interest of one kind or another in the outcome of the case, this fact should be made known to the court as soon as possible. The question of whether the proposed expert should be permitted to give evidence should then be determined in the course of case management. In considering that question the Judge will have to weigh the alternative choices open if the expert’s evidence is excluded, having regard to the overriding objective of the Civil Procedure Rules.
- In Hamilton v Al Fayed and others [2002] EWCA Civ 665 this Court had to consider whether a number of individuals who had provided financial support to Mr Hamilton, in the unsuccessful libel action that he brought against Mr Fayed, should be liable to satisfy the costs order made in favour of Mr Fayed. The Court held that they should not. In the course of his judgment, Chadwick LJ made the following pertinent comments about the public interest in access to justice:
“The appellant relies heavily on what is said to be the unfairness inherent in a funding arrangement which has the consequence that, if the claim succeeds, the funders will be reimbursed out of costs which the claimant will recover from him, but that, if the claim fails, he will not recover his costs from the funders. But that is a feature inherent also in a conditional fee agreement. And it is accepted that it is in the public interest to facilitate access to justice by an agreement which has that effect. Indeed, it is accepted that it remains in the public interest to fund litigation by that means notwithstanding that the other party to the proceedings – usually a defendant – is exposed to the risk of liability for the uplifted fees payable under the conditional fee agreement if the claim succeeds.
For my part I can see no difference in principle, in the context of facilitating access to justice, between the lawyer who provides his services pro bono or under a conditional fee arrangement, the expert (say an accountant, a valuer or a medical practitioner) who provides his services on a no-win-no fee basis and the supporter who – having no skill which he can offer in kind – provides support in the form of funding to meet the fees of those who have. In each case the provision of support – whether in kind or in cash – facilitates access to justice by enabling the impecunious claimant to meet the defendant on an equal footing.”
- Clearly, Chadwick LJ did not contemplate any legal bar to experts providing their services on a conditional fee basis and it is correct that such a course can assist access to justice. But the expert will often be in a position to influence the course of the litigation in a manner in which the funder, or even the lawyer conducting the litigation, will not.
- To give evidence on a contingency fee basis gives an expert, who would otherwise be independent, a significant financial interest in the outcome of the case. As a general proposition, such an interest is highly undesirable. In many cases the expert will be giving an authoritative opinion on issues that are critical to the outcome of the case. In such a situation the threat to his objectivity posed by a contingency fee agreement may carry greater dangers to the administration of justice than would the interest of an advocate or solicitor acting under a similar agreement. Accordingly, we consider that it will be in a very rare case indeed that the Court will be prepared to consent to an expert being instructed under a contingency fee agreement.
- In the present case Grant Thornton did not perform the role of expert witnesses. They were careful to retain for that purpose experts who were entirely independent. The position of the Claimants’ expert witnesses can be contrasted with that of those acting for the Minister. They were members of the staff of another Ministry, the Ministry of Agriculture, Fisheries and Food. As such, they had an obvious interest in the outcome of the litigation against the Minister. It was not however suggested, nor could it have been, that their positions rendered contrary to public policy the receipt of their evidence in an expert capacity.
- We consider that Grant Thornton were prudent to engage independent expert witnesses rather than performing this role themselves. Nonetheless they performed important back-up services for these experts and also services which might well have been performed by Thomas Cooper, the Claimants’ solicitors. We turn to consider whether the nature of those services was such that their agreement to act on a contingency basis offended against public policy in the light of the principles that we have explored above.
Did the 1998 Agreements put at risk the purity of justice?
- In Giles v Thompson Lord Mustill applied the test of public policy identified by Fletcher Moulton LJ in the British Cash case. That test is appropriate when considering those who, in one way or another, support litigation in which they are concerned. It is not, however, really in point when considering agreements under which those who are playing a legitimate part in the process of litigation provide their services on a contingency fee basis. A solicitor who charges a contingency fee which does not satisfy the requirements of s.58, can hardly be said to be guilty of ‘wanton and officious intermeddling in the disputes of others …where the assistance he renders to one party or another is without justification of excuse’. The public policy in play in the present case is that which weighs against a person who is in a position to influence the outcome of litigation having an interest in that outcome.
- For this reason, it does not seem to us that one point made on behalf of Grant Thornton advances their case to any significant extent. This was that they had an interest in intervening in the litigation because the payment of their outstanding accountancy fees was dependent upon the Claimants recovering damages in the litigation. In paragraph 114 of his judgment, the Costs Judge held:
“I am satisfied that the role of GT in this case was not of a ‘wanton and officious intermeddler’. GT had an interest in assisting the TCS fast track Claimants to recover damages out of which the Claimants had promised to pay their outstanding professional fees. That, it seems to me, is a legitimate interest.”
- We do not consider that this goes far towards answering the case made by the Minister. That case identified the objectionable features of the 1998 Agreements, first that they gave Grant Thornton an interest in the outcome of the litigation and secondly that they entitled Grant Thornton to a percentage of the amounts recovered. We shall consider each feature in turn.
An interest in the result of the litigation
- Anyone who provided services to the Claimants in connection with their litigation could only expect to be paid out of recoveries in the litigation. The Claimants were heavily in debt and had no other resources from which to pay for assistance. Thus the reality was that, whoever provided the services, would have a financial interest in the result of the litigation. Whether the agreement under which the services were rendered recognised this fact or not made little difference in practice. This might have raised problems so far as procuring the services of expert witnesses was concerned. By funding the fees of the two experts, Grant Thornton avoided the possibility that they also might have had an interest in the result of the litigation which, for the reasons that we have given, would have been undesirable.
- In Hamilton v Al Fayed, both Chadwick LJ and Hale LJ emphasised the importance that public policy attached to access to justice. This had overborne the previous absolute prohibition on lawyers agreeing to act for contingency fees. The same public policy considerations mitigate the criticism that there might otherwise have been of the agreements under which Grant Thornton provided their own services, and funded the services of the expert witnesses, on a contingency basis.
- There is another matter which greatly reduces the significance of the fact that Grant Thornton were acting on a contingency fee basis. By the time that the 1998 Agreements were concluded, the Claimants had succeeded on the issue of liability. While it was possible that their victory might be reversed by the House of Lords, this was no more than a possibility. Mr Davies, with the benefit of legal advice, believed that, after the final decision of the European Court, recovery of damages by the Claimants was inevitable. The advice which he had received proved sound. Thus the contingency that the claims might fail was not great. Furthermore, and this is also highly material, Grant Thornton had no role at all to play in the final battle before the House of Lords on the issue of liability. The fact that they had an interest in its outcome posed no threat of any kind to the manner in which that battle was conducted.
- For all of these reasons we have concluded that public policy was not affronted by the fact that Grant Thornton agreed to act on terms that made their remuneration contingent upon the success of the proceedings.
The agreement to share the spoils
- Mr Hancock argued that, in the present case, the terms upon which Grant Thornton agreed to provide their services were justified because they constituted the only way in which the Claimants could obtain access to justice. We do not accept this argument. It is true that the terms were not of Grant Thornton’s making. They wished to contract on the basis of hourly rates. The insistence of remuneration by reference to a percentage of what was recovered was that of the Claimants. But the Claimants were able to insist upon this formula because MPC were offering their services on this basis and, if Grant Thornton were not prepared to accept it the Claimants made it plain that MPC would get the business. The fact remains that, if contracting on the basis of a share of the profits had been outlawed, Grant Thornton’s services would have been available to the Claimants on a conventional basis. Was the basis upon which they, in fact, contracted one which public policy requires us to condemn?
- A contingency fee agreement which entitles those providing litigation services to a percentage of anything recovered may give rise to particular objection on the ground that it poses a temptation to act in an unethical manner in order to achieve the maximum recovery. Mr Friedman did not put this argument at the forefront of his case. Paradoxically, he suggested that Grant Thornton might have had a motive to urge the Claimants to settle their claims at an undervalue in order to bring to an end Grant Thornton’s obligations, which were proving unexpectedly onerous. We say paradoxically, because an agreement which entitles a provider of litigation services to a percentage share of the recovery will militate against any temptation to encourage settlement at an undervalue. Nonetheless, it is pertinent to consider the role played by Grant Thornton in order to see whether the nature of their interest in the outcome of the litigation carried with it any tendency to sully the purity of justice on the facts of this case.
- The greater the share of the spoils that the provider of legal services will receive, the greater the temptation to stray from the path of rectitude. The 8% that was agreed between Grant Thornton and the Claimants was not extravagant. Grant Thornton had not wished to contract on this basis, but had agreed to do so under pressure from the Claimants. They, understandably, viewed a reasonable percentage of their recoveries as more satisfactory than an open-ended commitment to pay for the services provided on an hourly basis. Grant Thornton had originally been persuaded to agree 8% as a cap, but by the time the agreements were drawn up this had crystallised into a firm figure. Mr Swabey said that he was very relieved when he heard that the percentage agreed was 8% as he considered that this was very reasonable on the basis of the potential damages as he saw them at the time. As he pointed out, the formula agreed had the added advantage of apportioning the fees between the Claimants in a manner that appeared equitable.
- Our view of the 8% agreement was that it should have appeared attractive not merely to the Claimants but to the Government, who would ultimately be liable to pay the costs if the Claims succeeded. The Government would, in any event, only be liable to pay reasonable costs, which would be likely to be assessed on an hourly rate basis. Thus, for the Government the 8% would be likely to operate as a cap.
- The prospect of receiving 8% of recoveries would have provided a motive for Grant Thornton to inflame the damages, though not to the extent that a larger proportion would have done. As to the likelihood of their yielding to this temptation, we consider that Mr Hancock was justified in emphasising the fact that Grant Thornton are reputable members of a respectable profession whose members are subject to regulation. We do not believe than any reasonable onlooker, or indeed the Minister, would seriously have suspected that the fact that they were to receive 8% of the recoveries would tempt Grant Thornton to deviate from performing their duties in an honest manner. Had this not been the case, we do not consider that there would have been much scope for Grant Thornton to influence the outcome of the assessment of damages.
- Grant Thornton had an important input into the preparation of the computer model – indeed on the Claimants’ side they provided almost all the input. But this was a task which was being carried out in conjunction with the MAFF experts – indeed we were told that the latter claimed to have had the major responsibility for this work. The skeleton argument submitted for the Minister described the position as follows:
“The importance of the model should not be underestimated. It was a large, complicated and sophisticated spreadsheet. The evidence before the Costs Judge reveals a dispute, irrelevant for present purposes, as to which party had the most significant involvement in its development. However, one of the Secretary of State’s experts was a statistician, Mr Hall. He produced the model which was used at the trial, gave a “neutral” explanation and demonstration of its workings to the judge during the openings, participated in expert meetings at which it was discussed (and to a substantial extent agreed) and gave evidence about it. The claimants did not call an expert statistician. Their fisheries experts, and in particular Mr Banks for the Thomas Cooper claimants, discussed and to a substantial extent agreed principles with the Secretary of State’s fisheries expert. It was GT on behalf of the Thomas Cooper claimants who were responsible for considering whether those principles were properly and adequately reflected in the model and for explaining its working.”
- The task of producing a suitable model was plainly being carried out as a joint operation involving both sides, and in a manner that was transparent. It does not seem to us that this was an area where any lack of objectivity on the part of Grant Thornton could be expected to impact on the assessment of damages.
- In the event all the claims were settled. Grant Thornton were involved in liaising with counsel and advising on the settlement. No less than 9 counsel were involved for different claimants or groups of claimants. Furthermore, the litigation was being conducted by a well known and highly experienced firm of commercial solicitors. Mr Swabey had very properly insisted on remaining in control of the conduct of the litigation. The suggestion that Grant Thornton might have attempted to procure a settlement on terms which were at odds with their appreciation of the merits we regard as unrealistic.
Conclusion
- The Costs Judge concluded that the 1998 Agreements lacked the characteristics that might have rendered them contrary to public policy under the vestigial remnants of the law of champerty. As we considered the evidence and heard the argument unfold we became increasingly convinced that he was correct. Reflection after reserving our judgment has not shaken that conclusion. The Claimants had been brought low by the initial wrong done to them and by the costs and stress of prolonged litigation in which no quarter was given. They were faced with an extraordinarily complicated task in proving the damage that they had suffered and there was a real risk that lack of funds might result in their losing the fruits of their litigation. The 1998 Agreements ensured that they continued to enjoy access to justice. They did this without putting justice in jeopardy. The 1998 Agreements were not champertous.
- This conclusion means that there are no other issues that fall to be resolved on this appeal. The appeal must be dismissed.
Order:
- Appeal dismissed with costs to be subject to detailed assessment on standard basis if not agreed.
- Defendant to pay claimants sum of £100,000 on account of costs of appeal and preliminary issue.
(Order does not form part of the approved judgment)
