Solicitors who fund disbursements for impecunious claimants will not be liable for adverse costs simply because they do so. They might be so liable, however, if there is evidence that they were the true party to the litigation and were directing it for their own financial gain.
This was the finding of the Court of Appeal in Flatman v Germany and Weddall v Barchester Health Care Ltd. The claimants' personal injury claims were funded by way of conditional fee agreements (CFAs) with their solicitors. They could not afford to take out after the event (ATE) insurance. The solicitors therefore paid some, if not all, of their disbursements as the claims proceeded.
The claimants lost their claims. The defendants sought disclosure of the claimants' funding arrangements to determine whether they should then seek a costs order against the solicitors.
The Court of Appeal held that an adverse costs order could be made against a solicitor who was a "real party" in critical respects and who not merely funded the proceedings but substantially controlled and benefitted from them
It went on to find that the payment of disbursements by a solicitor comes within the meaning of expense in s 58 of the Courts and Legal Services Act 1990. This defines a CFA as an agreement "...which provides for his [the clients] fees and expenses...to be payable only in specified circumstances".
Therefore, as the legislation visualised that solicitors might fund disbursements, the fact that they did so could not, on its own, justify a conclusion that the solicitor had stepped outside the normal role of a solicitor so as to justify an order for disclosure.
However, in Weddall, the claimant had disclosed information himself to the defendant to the effect that he had not wanted to bring the litigation without ATE insurance, but had been left with no alternative but to proceed as he was unable to pay the costs already incurred by his solicitors. He had already disclosed information to suggest that the solicitors had gone beyond mere funding of disbursements and that they were taking the lead in the litigation and controlling its course. That information justified an order for further disclosure.
The Court of Appeal also suggested that it was open to a successful party to invite an impecunious funded opponent to reveal the extent to which the litigation had been supported by a third party and to provide a reason why a costs order should not be enforced against it. In this way, evidence may come to light of whether an indemnity for cost had been provided or whether some other behaviour may lead to an order for disclosure; and, thereafter, an order against the solicitor for adverse costs.
Things to consider
The main part of this decision is good news for solicitors, funded parties and access to justice. The final comment by the Court of Appeal may also prove helpful for successful parties who may not otherwise be able to enforce a costs order against an impecunious funded party.