Flatman v Germany; Weddall v Barchester Health Care Ltd [10.04.13]
 
Court of Appeal holds that funding of disbursements did not render Claimants’ solicitors liable to pay Defendants’ costs; disclosure ordered to allow further investigations.
 
Implications

This is an important judgment for those seeking clarity over the potential for obtaining a non-party costs order.

Recent changes in the costs regime, which came into force from 1 April 2013, include qualified one way costs shifting (QOCS) in personal injury cases. If, therefore, a claimant wins a case which was issued after that date, he can still recover costs. Claimants are not, however, responsible for the defendant’s costs, except to the extent of any damages and interest awarded in specific circumstances.

The Law Society had expressed its concern that, given these changes, it is expected that more solicitors will fund disbursements, especially in claims subject to QOCS. It was concerned that solicitors would not take these cases on if they would be at risk of paying the defendants’ costs.

This judgment will no doubt come as a relief to claimants’ solicitors who can fund disbursements in the knowledge that this does not automatically expose them to a non-party costs order. It remains to be seen to what extent defendants will continue to pursue such orders, but it certainly appears that these will not be easily obtained.

Background

The same firm of solicitors acted for both Claimants in what were ultimately unsuccessful personal injury claims. In both cases the Claimants had no ATE insurance and the solicitors acted under a CFA.

The Defendants’ insurers argued that the Claimants’ solicitors had become commercial funders of the litigation. They suspected that the Claimant’s solicitors had agreed to fund disbursements. They argued that, in such circumstances, they were liable to pay the Defendants’ costs. They made applications for orders for disclosure and for provision of information about the Claimants’ funding arrangements.

Legal framework

The starting point for non-party costs orders is contained in s.51 of the Senior Courts Act 1981. This provides courts with powers to determine to what extent the cost of litigation should be paid by one of the legal representatives or by a third party.

The extent to which a non-party costs order can be made against a solicitor was considered in Tolstoy-Miloslavsky v Aldington [1995]. The Court of Appeal stated there were only three categories of conduct which could give rise to an order for costs against a solicitor:

  • If it is within the wasted costs jurisdiction of s.51(6) and (7).
  • If it is otherwise a breach of duty to the court, for example, if he acts, even unwittingly, without authority or in breach of an undertaking.
  • If he acts outside the role of a solicitor, for example, in a private capacity or as a true third party funder for someone else. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [2004] these principles were further considered by the Privy Council:
  • Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties litigate claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether, in all the circumstances, it is just to make the order.
  • Generally the discretion will not be exercised against “pure funders”.
  • Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. In such cases he is “the real party” to the litigation.

Decision

Lord Justice Leveson held as follows:

  • He confirmed that solicitors who fund disbursements cannot be ordered to pay costs for that reason alone. This was despite the rather unusual circumstances, in that one of the Claimants had written to the Defendant’s solicitors to complain about his solicitor’s conduct.
  • There was no reason why a defendant with a costs order against an impecunious litigant could not invite the litigant to reveal the extent of any third party support and provide any reason why the costs order should not be enforced.
  • If the only basis for seeking disclosure was to ascertain whether or not the solicitors had funded disbursements, this would not ordinarily be allowed. However, because of the disclosure which had emerged in these cases and due to their unusual facts, disclosure was justified.