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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Flatman v Germany  EWCA Civ 278 (10 April 2013)
Cite as:  WLR 2676,  WLR(D) 138,  1 WLR 2676,  EWCA Civ 278,  CP Rep 31,  4 All ER 349
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (Mr Justice Eady)
ON APPEAL FROM THE NORWICH COUNTY COURT
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RICHARDS
LORD JUSTICE LEVESON
| GAVIN FLATMAN
|- and -
|and Between :
|- and -
|BARCHESTER HEALTH CARE LIMITED
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Simon J Brown and Mr Richard Sage (instructed by Plexus Law) for the Respondents
Mr David Holland Q.C. (instructed by the Law Society) appeared on behalf of the Law Society as Interveners.
Hearing dates : 6, 7 March 2013
Crown Copyright ©
Lord Justice Leveson :
"My solicitor, GMS law have sent me a Bill of Costs As I have very little savings, no assets and in a low paid job, I am unable to pay these horrendous costs.
I was unhappy that the case proceeded without insurance in place etc and have advised GMS law accordingly. See the attached copy letter.
I have never been in debt and feel due to bad advice have become a victim of the no win no fee syndrome."
"The objection I have to this Bill is it would never have come to this had my views been listened to and respected by GMS law during the case.
(1) The case should have been stopped when the original barrister only gave me a 20-25% chance of winning.
(2) I stressed throughout the case that I only wished to proceed with the relevant insurance in place, a stance which you agreed with. Several of my letters refer to this."
"At the end of the day, no insurance was forthcoming, four companies were approached in September 2010 (very late in the day) and none were prepared to offer any terms. Any solicitors dealing in the best interests of his client would have called it a day. [Mr Weddall's emphasis]
However, the case was then bulldozed through as I was left with little/no alternative as you were stating I would be liable to your costs in excess of five figures (£10,000 plus) if I did not proceed!
I feel the decision to proceed on your part, without the insurance, was totally wrong, a gamble at my expense, to protect your own investment in the case. You were not dealing in my best interests by proceeding at this stage."
"I, of course, would not expect you to proceed with the case if you could not get insurance, I appreciate that the last thing you want to have to do is to go bankrupt if you were not successful.
In turn, you will of course appreciate as you kindly offered in your previous correspondence that if we do not proceed with the action then you in turn would pay the costs and disbursements which have been incurred."
Third Party Costs
" there are only three categories of conduct which can give rise to an order for costs against a solicitor: (i) if it is within the wasted costs jurisdiction of section 51(6) and (7); (ii) if it is otherwise a breach of duty to the court, such as, even before the Judicature Acts, could found an order, e.g. if he acts, even unwittingly, without authority or in breach of an undertaking; (iii) if he acts outside the role of solicitor, e.g. in a private capacity or as a true third party funder for someone else."
"(1) 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 pursue or defend 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. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction .
(2) Generally speaking the discretion will not be exercised against 'pure funders', described in para 40 of Hamilton v Al Fayed (No 2)  QB 1175, 1194 as "those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course".
(3) 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. The non party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is 'the real party' to the litigation Nor, indeed, is it necessary that the non-party be 'the only real party' to the litigation in the sense explained in the Knight case [Knight v FP Special Assets Ltd (1992) 174 CLR 178] provided that he is 'a real party in very important and critical respects'."
"For our part, we consider it appropriate to recognise a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. The category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."
"In my judgment, the third category described by Rose LJ in the Tolstoy-Miloslavsky case should be understood as including a solicitor who, to use the words of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, is 'a real party in very important and critical respects' and who 'not merely funds the proceedings but substantially also controls or at any rate is to benefit from them'. I do not accept that the mere fact that a solicitor is on the record prosecuting proceedings for his or her client is fatal to an application by the successful opposing party, under s.51(1) and (3) of [the Senior Courts Act 1981], that the solicitor should pay some or all of the costs. Suppose that the claimants had no financial interest in the outcome of the appeal at all because the solicitors had assumed liability for all the disbursements with no right of recourse against the clients. In that event, the only party with an interest in the appeal would be the solicitors. In my judgment, they would undoubtedly be acting outside the role of solicitor, to use the language of Rose LJ."
"It may suffice, depending upon the circumstances, that the funder has something to gain alongside the nominal party. In the case of a solicitor, for example, it is not necessary to demonstrate that in the event of the litigation leading to a successful outcome he would be the sole beneficiary. Even though his client may recover compensation for himself, the solicitor could still be regarded as benefiting, or potentially benefiting, from the case to the extent that a costs order should be made against him."
The Effect of the CFA regime
"1. My Lords, for nearly half a century, legal aid provided out of public funds was the main source of funding for those of modest means who sought to make or (less frequently) defend claims in the civil courts and who needed professional help to do so. By this means access to the courts was made available to many who would otherwise, for want of means, have been denied it. But as time passed the defects of the legal aid regime established under the Legal Aid and Advice Act 1949 and later statutes became more and more apparent. While the scheme served the poorest well, it left many with means above a low ceiling in an unsatisfactory position, too well off to qualify for legal aid but too badly off to contemplate incurring the costs of contested litigation. There was no access to the courts for them. Moreover, the effective immunity against adverse costs orders enjoyed by legally-aided claimants was always recognised to place an unfair burden on a privately-funded defendant resisting a legally-funded claim, since he would be liable for both sides' costs if he lost and his own even if he won. Most seriously of all, the cost to the public purse of providing civil legal aid had risen sharply, without however showing an increase in the number of cases funded or evidence that legal aid was directed to cases which most clearly justified the expenditure of public money.
2. Recognition of these defects underpinned the Access to Justice Act 1999 which, building on the Courts and Legal Services Act 1990, introduced a new regime for funding litigation, and in particular personal injury litigation with which alone this opinion is concerned The 1999 Act and the accompanying regulations had (so far as relevant for present purposes) three aims. One aim was to contain the rising cost of legal aid to public funds and enable existing expenditure to be refocused on causes with the greatest need to be funded at public expense, whether because of their intrinsic importance or because of the difficulty of funding them otherwise than out of public funds or for both those reasons. A second aim was to improve access to the courts for members of the public with meritorious claims. It was appreciated that the risk of incurring substantial liabilities in costs is a powerful disincentive to all but the very rich from becoming involved in litigation, and it was therefore hoped that the new arrangements would enable claimants to protect themselves against liability for paying costs either to those acting for them or (if they chose) to those on the other side. A third aim was to discourage weak claims and enable successful defendants to recover their costs in actions brought against them by indigent claimants. Pursuant to the first of these aims publicly-funded assistance was withdrawn from run-of-the-mill personal injury claimants. The main instruments upon which it was intended that claimants should rely to achieve the second and third of the aims are conditional fee agreements and insurance cover obtained after the event giving rise to the claim."
"28. I would add (although words used in the Regulations might, I accept, be construed differently) that insofar as Mr Bacon was suggesting that in Regulation 3A the word 'expenses' might not include solicitor and own client disbursements, I would reject the same. Section 58(2)(a) provides as follows:-
"A conditional fee agreement is an agreement with a person providing advocacy or litigation services which provides for his fees and expenses, or any part of them, to be payable only in specified circumstances."
29. If Mr Bacon were right that in Regulation 3(A) "expenses" excluded disbursements, that would also have to be true of the word "expenses" in s.58(2)(a). As Mr Morgan submitted, that would have the effect of a solicitor being unable to agree that disbursements should only be paid in specified circumstances. That cannot have been Parliament's intention."
"Under the paradigm form of CFA the client escaped his own solicitor's charges if he lost. He did not escape (i) his own-side disbursements or (ii) the other-side costs of the successful defendants who would ordinarily obtain an order that he pay them."
"The test created by Regulation 3A(1) focuses on own-side costs. It says nothing about other-side costs. I agree that the expression "fees and expenses" in Regulation 3A(1) includes own-side disbursements. Of course there is for some purposes a significant distinction between fees, expenses and disbursements, but in the context of this Regulation the inclusion of disbursements seems to me the clear natural meaning of the words; there appears to have been no issue between the parties about this until a late stage in the written submissions to this court on second appeal."
"(i) The order for payment of costs by a non-party would always be exceptional and any application should be treated with considerable caution.
(ii) The application should normally be determined by the trial judge who could give effect to any views he had expressed as to the conduct of the non-party without constituting bias or the appearance of bias.
(iii) The mere fact that someone has funded proceedings would generally be insufficient to support an application that they pay the costs of the successful party. Pure funders, as described at the case of Hamilton v Al-Fayed No. 2  EWCA Civ 665 reported  QB 117 at , will not normally have the discretion exercised against them. That definition of "pure funders" means those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course.
(iv) It is relevant but not decisive that the defendant has warned the non-party of the intention to seek costs or that the non-party's funding has caused the defendant to incur the costs it would not otherwise have had to incur;
(v) The conduct of the non-party in the course of the litigation and other than as a pure witness of material fact is of relevance and potential weight.
(vi) Most of the decided cases on the exercise of the court's discretion under section 51 concerned commercial funders or corporate bodies closely associated with the party who incurred the costs liability which they were unable to satisfy. In the family context, the courts have been reluctant to impose third party costs orders against those family or friends who in the interests of access to justice assist a party to come to court for philanthropic and disinterested reasons.
(vii) In determining these applications the court must exercise its case management powers to ensure that the application does not turn into satellite litigation that results in prolonged, complex and over-extended arguments about costs about costs. For that reason the inherent strength of the application is always a relevant factor."
(i) The strength of the application as it now appears unassisted by disclosure;
(ii) The potential value to the fair determination of the application of the documents of which the claimant seeks disclosure and whether they are likely to elucidate considerations highly probative of the exercise of the court's discretion, or threaten to drag the application into a side alley of satellite litigation with diminishing returns for the overall issue;
(iii) Whether on a summary assessment it is obvious that the documents for which disclosure is sought will be the subject of proper legal professional privilege;
(iv) Whether the likely effect of any order the court might be minded to make will be proportionate and just in all the circumstances."
Lord Justice Richards:
Lord Justice Mummery: