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Cite as: [2017] EWCA Civ 1132

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Neutral Citation Number: [2017] EWCA Civ 1132
Case No: A2/2016/0351

DEPUTY DISTRICT JUDGE HARRIS (Sitting as a regional costs Judge)

Royal Courts of Justice
Strand, London, WC2A 2LL

B e f o r e :

SENIOR COSTS JUDGE GORDON-SAKER (sitting as an assessor)


- and -



Mr Andrew McGee (instructed by Woodward Solicitors Industrial Disease Ltd) for the Appellant
Mr Jamie Carpenter (instructed by DAC Beachcroft Claims Ltd) for the Respondent

Hearing date: 19th July 2017



Crown Copyright ©

    See Order at foot of this judgment.

    Lord Justice Longmore:


  1. This appeal is about the transitional rules necessitated by the introduction of Qualified One-way Costs Shifting ("QOCS"). This is the judgment of the court.
  2. Before 2000, the personal injury claimant in this case, Ms Catalano, would almost certainly have been entitled to legal aid and, in the event that she lost, would have been entitled to costs protection under section 17 of the Legal Aid Act 1988.
  3. After the Access to Justice Act 1999 she was not entitled to legal aid but could fund proceedings through a conditional fee agreement ("CFA") and obtain costs protection by purchasing after the event insurance ("ATE insurance"). Typically such insurance covered not only liability for the other side's costs but also any liability to pay the premium in the event that the insured lost (payment of the premium was usually deferred until the end of the case). In the event that the insured won, the premium would be recoverable, in principle, from the other side as costs. Either way the claimant usually paid nothing either for the other side's costs or for the premium. In effect the whole cost of ATE insurance was funded by unsuccessful defendants and their insurers. The same was true of any success fee agreed in the CFA.
  4. In Jackson LJ's 2009 Review of Civil Litigation Costs, he recommended that success fees under conditional fee arrangements and ATE premiums should no longer be recoverable as costs from the defendant but he recognised that some form of costs protection would be required in personal injury cases. His intention was that claimants should have protection similar to that enjoyed under the pre-2000 legal aid provisions:-
  5. "In personal injuries litigation it must be accepted that claimants require protection against adverse costs orders. Otherwise injured persons may be deterred from bringing claims for compensation. I recommend a form of qualified one way costs shifting in personal injury cases, as set out in chapter 19 below". (Final Report chapter 9 para 5.8)
    "I therefore propose that all claimants in personal injury cases, whether or not legally aided, be given a broadly similar degree of protection against adverse costs. In order to achieve this result I propose that a provision along the following lines be added to the CPR:
    "Costs ordered against the claimant in any claim for personal injuries or clinical negligence shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including:
    (a) the financial resources of all the parties to the proceedings, and
    (b) their conduct in connection with the dispute to which the proceedings relate." (Final Report chapter 19 para 4.7)
  6. Parliament accepted the principle of Jackson LJ's recommendation; after the event insurance premiums ceased to be recoverable as costs after 1st April 2013 save where the policy had been purchased before that date: section 46(3) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO"). Any agreed success fee was to be recoverable out of the damages recovered by the claimant, subject to a cap: section 44(2) of LASPO.
  7. By the QOCS rules (CPR 44.13 44.17) claimants are, contrary to Jackson LJ's original proposal, given costs protection regardless of their resources. The effect of QOCS is that orders for costs made against a claimant in a personal injury action may be enforced only to the extent that the amount does not exceed any damages and interest awarded to the claimant: CPR 44.14(1). A claimant who loses on liability (or discontinues) will not therefore have to pay the successful defendant's costs. (There are exceptions for claims which are fundamentally dishonest or are struck out).
  8. Overall the 2013 reforms are therefore favourable to defendants and their insurers, since the cost of defending unsuccessful claims should be significantly less than the amount of ATE insurance premiums and success fees formerly recovered by successful claimants.
  9. The transitional provision (CPR 44.17) provides that QOCS does not apply where the claimant has entered into a pre-commencement funding agreement. A pre-commencement funding agreement is a conditional fee agreement or after the event insurance policy entered into before 1st April 2013. CPR 48.2 relevantly provides:-
  10. "(1) A pre-commencement funding arrangement is
    a) in relation to proceedings other than insolvency-related proceedings, publication and privacy proceedings or a mesothelioma claim
    i) a funding arrangement as defined by rule 43.2(1)(k)(i) where
    (aa) the agreement was entered into before 1st April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made; or
    (bb) the agreement was entered into before 1st April 2013 and advocacy or litigation services were provided to that person under the agreement in connection with that matter before 1st April 2013;
    ii) a funding arrangement as defined by rule 43.2(1)(k)(ii) where the party seeking to recover the insurance premium took out the insurance policy in relation to the proceedings before 1st April 2013."
  11. A "funding arrangement as defined by rule 43.2(1)(k)(i)" (as in force before 1st April 2013) is a CFA which provides for a success fee.
  12. Factual Background

  13. Ms Catalano brought an action by a claim form issued on 26th July 2013 for loss and damage suffered as a result of noise induced hearing loss sustained during employment. She claimed that while working for the defendant company as a cone winder she was exposed to harmful noise. A cone winder is a person in the textile industry whose job it is to tend the machines which spin yarn.
  14. Proceedings were initially funded by way of a CFA entered into on 13th June 2012. Evidence of this arrangement was notified to the defendant in a letter of claim dated 6th September 2012. Also on that day, the claimant's application for ATE insurance was declined. Expert evidence was obtained during the period in which that CFA was in force. There was a written report from Mr D Walker dated 29th October 2012 and also from Mr V Sharma dated 25th May 2013. There is no dispute that this CFA was "a funding arrangement as defined by rule 43.2(1)(k)(i)" for the purposes of CPR 48.2 (1)(a)(i).
  15. On 1st April 2013 the QOCS regime came into force.
  16. On 15th July 2013 the claimant and her solicitors entered into a new CFA which is said to have replaced the prior arrangement. Proceedings were then issued in the County Court Money Claims Centre. On 16th December 2013 the claimant's solicitors submitted their costs budget to the court which referred to pre-action costs of 5,375 as having been incurred. The defendant was served with a notice of funding on 20th January 2014 which explained that the case was now being funded by way of a CFA dated 15th July 2013. This notice referred to the existence of the earlier CFA of June 2012 "which provides for a success fee" but did not tick the box available for saying it had been terminated.
  17. The trial was due to take place on 14th January 2015. However, the claimant served a notice of discontinuance on 13th January 2015. Pursuant to CPR rule 38.6 the claimant was, in principle, liable to pay the defendant's costs and a defendant's costs order was deemed to have been made on the standard basis. The defendant filed and served a bill of costs on the claimant on 28th April 2015 amounting to 21,675.52 excluding interest.
  18. A dispute arose as to whether the QOCS regime was applicable to this case. Ms Catalano argued that the litigation services provided by her solicitors were provided pursuant to a funding arrangement made after 1st April 2013 and that QOCS (the new regime) applied so that she could not be liable for costs after discontinuance.
  19. Deputy District Judge Harris found that the new regime was not applicable on these facts. He considered two previous cases: Landau v The Big Bus Company (31st October 2014) in which Master Haworth had held that the QOCS regime did not apply when a litigant had made a CFA before 1st April 2013 for the trial and a second CFA after 1st April 2013 for the appeal, because there was only one matter within CPR 48.2(1)(a)(i)(aa), and Casseldine v The Diocese of Llandaff (3rd July 2015, Cardiff County Court) in which the litigant had made a CFA with her solicitors (Thompsons) before 1st April 2013 but then the retainer was terminated and she instructed second solicitors with whom she made a CFA after 1st April 2013 pursuant to which a claim form was issued. Thompsons had made no claim for any success fee or costs and it was held by District Judge Phillips that it was they who had terminated the CFA and that they, therefore, had no entitlement to payment of any success fee or costs. Moreover no proceedings were ever issued pursuant to the first CFA and there was thus no pre-commencement funding arrangement for the purposes of CPR 48.2.
  20. Deputy District Judge Harris then said (para 20):-
  21. "In this claim the claimant's current solicitors discontinued one CFA entered into prior to CPR 44.17 taking effect and entered into a second one thereafter. There is no doubt that the case in question was the same matter and that that matter was the subject of proceedings and I find the approach adopted by Master Haworth in Landau so far as that applies to apply here. Master Haworth concluded that there was only one matter namely a personal injury claim arising out of one accident and that approach seems to be applicable here."

    He accordingly held that there was a pre-commencement funding arrangement, that QOCS did not apply and Ms Catalano was liable to pay the defendants' costs. Lewison LJ has granted permission for a leapfrog appeal to this court.

    The submissions

  22. Mr Andrew McGee for Ms Catalano submitted:-
  23. i) the judge should have followed the Casseldine case because her solicitors had terminated the first CFA, just as Thompsons had done;

    ii) it was irrelevant that in this case Ms Catalano's solicitors remained the same after terminating the first CFA; the second CFA replaced the first which was no longer in force and should therefore be treated as being abandoned; and

    iii) Ms Catalano was not therefore operating under a pre-commencement funding arrangement, did not have the benefit of ATE cover and should have the benefit of QOCS.

  24. Mr Jamie Carpenter for the respondents accepted that the first CFA had been terminated once the second CFA was made (because it is impossible to have two CFAs at the same time) but submitted:-
  25. i) Mr McGee was reading the words "a funding arrangement" in CPR 48.2(1)(a)(i) as "an un-terminated funding arrangement" which was to read a word into the rule which was not there;

    ii) it could not be the intention of the rule to allow a claimant to cherrypick the advantages of both regimes by proceeding first with the benefit of an ATE premium and a success fee which would be recoverable from the defendant and then, by adopting a new CFA, avoid the costs consequences of losing the case;

    iii) since Ms Catalano's proposal for ATE insurance had been declined, but she decided to proceed in any event, she was always going to be liable for the costs if she lost; and

    iv) the deputy district judge was therefore right to say that there was a pre-commencement funding arrangement and QOCS did not apply.


  26. One must start with the wording of CPR 48.2(1)(a). A distinction is drawn between pre-1st April 2013 funding arrangements involving a CFA which provides for a success fee (sub-rule(1)(a)(i)) and a pre-1st April 2013 funding arrangement involving ATE insurance (sub-rule (1)(a)(ii)). The first form of funding arrangement can itself be of two kinds: (aa) an arrangement for the provision of litigation services to the person by whom the success fee is payable or (bb) an agreement under which litigation services were (in fact) provided to that person before 1st April 2013.
  27. The concept of a pre-1st April 2013 funding arrangement is thus remarkably wide. It does not just include an agreement where services have in fact been provided before 1st April 2013 but also an agreement made before 1st April 2013 for the provision of such services in the future.
  28. It is clear that on the facts of this case, Ms Catalano's solicitors did provide services to her before 1st April 2013 since proposals for ATE insurance were made (although in the event those proposals were declined) and experts were retained, one of whom had even submitted a report before 1st April 2013. Those services were noted and a charge of 5375 was included in Ms Catalano's solicitors' costs budget.
  29. In these circumstances, unless Mr McGee is right to read the words "a funding arrangement" as "an un-terminated funding arrangement", there was undoubtedly a pre-commencement funding arrangement within CPR 48.2(1).
  30. We cannot accept that Mr McGee is right. Not only does he seek to read a word into the rules which is not there, but such a construction would lead to a situation where a claimant could have the best of both worlds. A claimant could make an agreement providing for a success fee and purchase ATE insurance and wait until shortly before trial to re-assess his or her prospects. If they appeared to be high, such claimant could continue and claim the cost of the ATE premium and the success fee as costs from the defendants; if they appeared to be low, he or she could cancel the original CFA, make a second CFA and then discontinue the claim a day later and escape the costs consequences. The framers of the rules could not have intended that a claimant should be able to blow hot and cold in that way. The right construction of the rule, therefore, is to give the words "funding arrangement" their natural meaning and apply them to any pre-1st April 2013 agreement (whether terminated or not).
  31. It is also important to note that, while CPR 44.17 provides that QOCS does not apply where a claimant has entered into a pre-commencement funding arrangement before 1st April 2013, the rule defining a pre-commencement funding arrangement is (unsurprisingly) the mirror image of the statutory provision which first prohibits the recovery of a success fee as costs but then preserves the position for CFAs entered into before the statutory provision comes into force which was 1st April 2013.
  32. As mentioned in para 5 above, section 44(2) of LASPO provided for success fees to be limited to a percentage of the damages to be awarded in the proceedings. Section 44(4) then provided:-
  33. "A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement."

    It was, however, necessary to preserve the right to recover such success fees as were provided for in agreements already concluded and section 44(6) therefore enacted:-

    "(6) The amendment made by subsection (4) does not prevent a costs order including provision in relation to a success fee payable by a person ("P") under a conditional fee agreement entered into before the day on which that subsection comes into force ("the commencement day") if
    i) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or
    ii) advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day."

    If Mr McGee's argument were correct it would either be necessary to read the words "a conditional fee agreement" in section 44(6) as "an un-terminated conditional fee agreement" which would be impermissibly to read the word "un-terminated" into the statute or there would be a complete mismatch between the statute and the rule when the statute and the rule were self-evidently intended to cover the same ground albeit from the two different perspectives of continuing entitlement to recover the success fee as part of the costs and the non-application of QOCS to agreements already made.

  34. In any case, therefore, in which litigation services have in fact been provided under a CFA made before 1st April 2013, success fees can continue to be recovered as costs and QOCS will not apply even if the CFA is terminated and a second CFA is made. It follows that Ms Catalano's appeal will have to be dismissed. As Mr Carpenter pointed out, that causes no injustice to Ms Catalano and her solicitors since, once insurance was refused but it was decided that the litigation should continue, she (or they) would be at risk of the defendants recovering their costs in any event.
  35. What then of the case where a CFA is made before 1st April 2013 but, before any work is done, a second CFA is made after 1st April 2013, or the case where work is done but the retainer is terminated (whether by the solicitors or the client) before 1st April 2013 and a second CFA is made by new solicitors after 1st April 2013?
  36. We would prefer to express no concluded view since this case is different from those cases. But we think the first case will be comparatively rare since almost inevitably some chargeable work will be done at about the time the first CFA is made. The second case is the Casseldine case in which DJ Phillips held that it was the solicitor who terminated the retainer and therefore had no entitlement to a success fee in any event. If, however, work had been done (which is probable) we are doubtful that Casseldine can be supported on the true construction of CPR 44.17 and CPR 48.2, unless it could be said that the second CFA retrospectively discharged and extinguished the first agreement and replaced it with the second agreement. That was contemplated as a possibility by Lord Sumption (with whom the majority of the Supreme Court agreed) in Plevin v Paragon Personal Finance Ltd [2017] 1 WLR 1249, para 13 where however the second and third CFA were held on the facts to be merely a variation of the first agreement.
  37. Conclusion

  38. For the reasons given, however, this appeal must be dismissed.
  39. -------------------------------------------------------------------------------------------------------------

    UPON hearing Counsel for the Appellant and Counsel for the Respondent,


  40. The appeal is dismissed.
  41. The Appellant do pay the Respondent's costs of the appeal, to be the subject of a detailed assessment if not agreed.
  42. The Appellant do pay 10,000 on account of the Respondent's costs of the appeal.

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