In the recent decision of Marley -v- Rawlings, the Supreme Court issued an ultimatum to counsel – waive your success fee or you won’t get paid. Paul Edwards takes a look at the judgment behind this decision and asks whether it can be safely distinguished on facts alone or whether it is an insight into a new judicial approach.

Background

Mr and Mrs Rawlings each prepared a will, leaving their respective estates to the other, or if predeceased, to Mr Marley. However, due to an oversight by their solicitor, they each signed the wrong will. Mrs Rawlings passed away, followed by her husband. Mr Rawlings’ will was refused probate in light of the solicitor’s error. Mr and Mrs Rawlings’ sons claimed the estate as beneficiaries on intestacy.

The Supreme Court found that each will was valid and the estate should pass to Mr Marley as per the intentions of the deceased. The issue of costs then arose.

Costs

Mr Marley sought recovery of his costs from the unsuccessful respondents in accordance with the general rule of hostile litigation. The respondents, Messrs Rawlings, contended that the costs of all parties should be paid out of the estate as is usual when a will is reasonably challenged. In the alternative, they contended that the solicitors who prepared the wills should be ordered to pay all costs as they were ultimately responsible for the litigation. The solicitors submitted that they should not be liable for Messrs Rawlings costs as they owed no duty to them and had no influence over their decision to fight the case.

The Supreme Court concluded that, while unsuccessful, Messrs Rawlings had acted reasonably as evidenced by their success at first instance and on appeal and it would be harsh to order them to pay costs as a result. However, to order that their costs be covered by the estate would be unfair to Mr Marley who would receive less of the estate as a result. The Supreme Court placed considerable weight on the negligence of the solicitors and found that Mr Marley would have a claim against them in negligence for any loss as a result of the litigation. Taking a rather pragmatic view, and seeking to short circuit the process, the court found that the solicitors, as covered by their insurers, should ultimately bear all costs of the litigation.

The CFA

The position was then complicated by the fact that Messrs Rawlings had funded the matter in the Supreme Court by way of conditional fee agreement (CFA). A traditional funding arrangement was in place at first instance and on appeal, and that caused no problem – they would recover these costs. The question arose as to how the existence of a CFA would affect their entitlement to costs in the Supreme Court.

As Messrs Rawlings had been unsuccessful, then they would not ordinarily be liable to pay their solicitors costs and, in accordance with the indemnity principle, could not therefore recover any costs they are not liable to pay. However, on examination of the CFA, the court noted that Messrs Rawlings would be liable for disbursements in any event, but may also be liable for their solicitors costs if they ‘in any way… derive benefit from pursuing the claim’.

Messrs Rawlings submitted that, by avoiding liability for Mr Marley’s costs, and recovering their own costs of the first instance and appeal, they arguably derived a benefit from the litigation. The Supreme Court rejected this argument. However, the Supreme Court noted that Messrs Rawlings were liable to pay the solicitors disbursements irrespective of the outcome. These were recoverable. However, the solicitors’ disbursements included counsels’ fees also payable pursuant to a CFA if, amongst other things, ‘either the opposing party…. agrees to pay or the court orders that they pay your costs’. As Messrs Rawlings had been awarded their costs payable by the solicitors, this triggered enforcement of counsels CFA.

The success fee

The court then moved on to consider payment of counsels’ uplift. The court relied on the discretion afforded by rule 46(1) of the Supreme Court Rules 2009. As Messrs Rawlings had not been successful in the claim itself, it would be inappropriate to award payment of the success fee. In the courts view: ‘it can be said with real force that their counsel are lucky to be getting anything’. However, by rendering the CFA enforceable to the extent that base costs were recoverable, it followed that the uplift may also be recoverable.

In order to address this, Lord Neuberger said: ‘I consider that, unless both the respondents counsel are prepared to waive their success fees, it would be right to depart from the order which I would otherwise propose, so that the respondents would be entitled to recover no costs .. in connection with the Supreme Court appeal.’ He went on to say ‘the unusual facts of this case coupled with the many unsatisfactory aspects of the CFA system … appear to me to require and justify an unusual approach in order to achieve a just result’.

A just result?

Counsel were caught between a rock and a hard place. The court separated the CFA into base costs and success fee. The court exercised its discretion to try and achieve what it believed was a just outcome. Messrs Rawlings should not be penalised for submitting a reasonable challenge to a will, yet payment of a success fee when the challenge had failed was wholly inappropriate. The court had no way of legally rendering part of a CFA enforceable and part not - it was all or nothing. This did not deter the court from, not so discreetly, issuing its ultimatum. Counsel had no option but to waive the right to the success fee in order to receive something.

A new judicial approach?

The facts of this case are highly peculiar, and the court stressed that it was these unusual facts that justified such an extraordinary result. However, the court’s decision undermines the contractual nature of, and fundamental principle behind CFAs. In his judgment, Lord Neuberger also relied on the issues raised in the recent decision of Coventry -v- Lawrence – an ongoing case in which he criticised the CFA system and questioned the very legality of automatic entitlement to additional liabilities. That another case has attacked the concept of CFAs is perhaps indicative of a new judicial approach. Certainly, reference to Coventry in this judgment sends a clear message that the court’s concerns over additional liabilities will not just go away.