Dial Partners LLP and Another v Eastern Airways International Ltd and others – 16 January 2018
The Senior Costs Office has recently approved a Claimant's variation of his funding arrangements just before settlement, to the substantial detriment of the paying Defendant. In a climate of ever-evolving approaches to Claimant funding and litigation costs, Defendant's representatives need to be alive to the risk that the case fires the imagination of Claimants' representatives who may exploit this finding. A failure to enquire as to funding and / or warn a client of possible risks during settlement negotiations in appropriate cases is likely to be negligent.
The Claimant had entered into a Damages Based Agreement ("DBA") in March 2015 which limited its solicitor's costs recovery to 50% of their recovered damages. At the time, the Claimant anticipated a high seven figure outcome. By 2016, it became clear that the claim had a far lower maximum value.
On 21 October 2016, the Defendant's solicitors made a Part 36 offer of £300,000 in advance of a trial which was due to start on 14 November 2016. On 2 November 2016 the Claimant entered into a Conditional Fee Agreement ("CFA") with its solicitors in place of the DBA. Notice was not given to the Defendant's solicitors who, it is clear from the judgment, still believed the DBA was in place. On the eve of trial, the claim was settled for £650,000 plus costs to be assessed if not agreed.
The Claimant's solicitors subsequently sought £523,000 in costs instead of the £250,000 plus disbursements, other than counsel's fees, to which they would otherwise have been limited by operation of the indemnity principle had the DBA still been in force.
Costs Master James considered the full settlement history and concluded that the Claimant's change in funding arrangements could not be considered a purely tactical step to take advantage of a near-certain settlement. Despite the existence of a Part 36 offer, the outcome was not certain as many offers are made for commercial reasons. He placed reliance on the fact that negotiations continued for 2 weeks after the Part 36 offer was made and on the fact that the claim settled for nearly double the original Part 36 offer. He was clearly alive to the fact that a decision either way would have substantial ramifications for the parties. He recognised that the funding arrangements enabled the Claimant's solicitors to recover closer to the true cost of running the case, rather than suffer a substantial loss.
Whilst the Defendant's solicitors asserted that they relied on the continuing existence of the DBA when agreeing the settlement, the Master noted that no evidence had been submitted to this effect. There was no suggestion that they had contacted the Claimant's solicitors to confirm the position. They sought unsuccessfully to rely on a Privy Council case which held that where costs were amended after judgment, the paying party could elect to pay on either the old or new basis; the point here being that the amendment to the CFA occurred well before settlement.
The Claimant's solicitors asserted that as a result of the coming into force of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) they were no longer obliged to tell their opponent about changes in their funding arrangements.
The Master noted that the Defendants were only able to point to cases where a party had sought to change the funding arrangements after a costs order was made or deemed made (e.g. by the acceptance of a Part 36 offer). Whilst he did not need to decide the point, the case law suggests the position would be different were a Claimant to seek to change the funding arrangements in between settlement of a claim and settlement of costs.
This is clearly a cautionary tale to bear in mind if a paying party is reliant on their opponent having particular funding arrangements in place. Where appropriate an express enquiry, upon which reliance could be asserted, should be made in the course of settlement negotiations. Post-LAPSO, a Claimant may refuse to clarify, although the dynamics of negotiations may have a persuasive effect; in any event, suitable advice as to any uncertainty should be provided to the client.