Wednesday, 9 February 2011

Sibthorpe v London Borough of Southwark [2011] EWCA Civ 25: get the champerty out

English law used to be suffused with obscure terms.  Detinue, enfeoffment, ejectment, replevin.  All long gone with the Rush to Modernity.  One that still survives is champerty.  Simply put, it’s what bans solicitors having a stake in a case.  A solicitor is an officer of the court, and it has long been held that it creates a conflict of interest.  If the solicitor gets a bonus for winning a case, it could be tempting to crack the rules a little.

It’s a common law doctrine, not set up by statute.  Which means that it can be changed by statute.  And indeed has.  The most obviously champertous thing for a solicitor to do is agree that they will only get paid if they win.  You can hardly have a greater interest in the case.  Common law bans it.  Despite numerous attempts by the Court to get around this, no Court had the guts to abolish it, save for an odd one in the case of Thai Trading v Taylor – a Court of Appeal judgment that has been studiously ignored ever since.  So, Parliament got around it.  Section 58 of the Courts and Legal Services Act 1990 allows conditional fees – no win no fee – to be used.  The solicitor gets rewarded by being able to add a percentage uplift to the basic fee.  Which the losing party will pay.  On the basis that the bonus for the winning cases will compensate for the risky lost cases.  This is of course a big problem – a good solicitor will be able to pick out the 60%-chance-of-winning cases, win them all, get big percentage uplifts, and not have to suffer the loss of a losing case, by simply not taking them on…

So this limited form of champerty is specifically permitted.  Contingency fees – getting a slug of the damages – are not; that is a step too far.  For England at least.

As solicitors can often double their money with conditional fees, losing parties pore all over the agreement to find some technical error which makes the fee unenforceable.  In the Sibthorpe case Southwark Council thought they had found something.  Belshaw & Curtin represented a number of tenants who sued the Council over building defects; the claims settled with the Council agreeing to pay recoverable costs.  B&C had acted on a conditional fee.  Only a 10% uplift, so confident of victory.  So confident, in fact, that they had persuaded tenants to sue by promising to pay the Council’s costs if they lost.  A-ha, said the Council.  This is champertous.  You have an interest in the case.  Not in winning, but in not losing.  You will lose money by losing the case; that goes beyond the Act.

Costs judge originally agreed with the Council.  Which meant that B&C could not get their fees paid by anyone.  Harsh.   So they appealed, second time around a High Court judge decided, yes, they could get their fees.  So the Council appealed.

High-powered Court of Appeal; Neuberger MR plus Lloyd LJ.  And even the traditional new bug on the appellate bench was a high-powered one, namely Gross LJ, the head of the Commercial Court.  So they were taking it seriously.  Indeed Neuberger went through the history of champerty and confirmed that, no, it won’t be abolished just yet.  And that the agreement B&C had with clients fell outside the provisions of the Act.  Therefore they couldn’t rely on the blanket conditional fee exemption.   All going badly so far.

But was the agreement champertous?  The Court decided that the general fashion was to move away from the champerty trap.  Not to extend it.  Would the agreement be champertous because of the promise for an indemnity?  The Court followed the principle that many things may be done, but nothing for the first time.  Nobody had found a case that an indemnity would be champertous; therefore the indemnity would not be champertous.  So that was fine – and the remainder of the agreement did fall within the Act’s provisions.  Although the Court does not seem to have split the agreement into two, this seems to be the upshot.  The indemnity falls outside the Act, the rest does not.  Champerty was a matter of public policy; barring the B&C agreement would not be in the public interest, as it would put people off suing.  Especially if, as in Sibthorpe, their claims were successful.

A bit of a relief for B&C, then, they got paid for their good work. Or at least they will.  Given the public interest in the whole issue of litigation funding, it is possible that it will go to the Supreme Court, although given the strength of the Court of Appeal’s reasoning, and the particularly acute intellectual analysis provided by Neuberger and the support of two other important judges, it is possible that this will remain the final word on the indemnity issue.  Certainly we do at least have clarity on those rare cases where the solicitors put their money where their mouths are.

No comments:

Post a Comment