Southwark loses key Court of Appeal CFA case

The London Borough of Southwark has failed to persuade the Court of Appeal that a conditional fee agreement in a housing disrepair case was champertous and should have been declared unlawful.

In Sibthorpe and Morris v London Borough of Southwark [2011] EWCA Civ 25, the claimants were both tenants of Southwark and had complained about the state of their properties. Their solicitor had, through a CFA, indemnified his clients against paying the council’s costs.

Southwark lost the housing disrepair cases, but contested the costs by claiming that the CFA was unlawful.

Giving the lead judgement and ruling that the agreement between the parties was binding, Lord Neuberger said champerty cases all involved a gain if the action succeeded. No case had been cited in which it has been held to be champertous for a person just to agree to run the risk of a loss if the action failed, without enjoying any gain if it succeeded.

“I find it hard to accept that, by shouldering the risk of an adverse order for costs against his client, a solicitor is acting contrary to public policy, which is, of course, the basis for the law of champerty,” the Master of the Rolls said.

He had earlier concluded that the law of champerty has been relaxed to a degree in relation to agreements involving third parties, but not agreements involving lawyers. However, he said it would be another thing altogether to expand the law to include the kind of indemnity provided in this case.

The court also agreed with Mr Justice Macduff’s earlier ruling on a separate point that providing an indemnity such as this does not transform a contract for legal services into a contract of insurance regulated under financial services law.

The Law Society hailed the Court of Appeal’s ruling as a landmark decision confirming the court’s modern approach to, champertous agreements and access to justice issues.

Chancery Lane had intervened in the case, arguing that the issue at stake was one of significant importance to solicitors and access to justice.

Law Society President Linda Lee said: “The government’s proposals to abolish the recovery of ATE premiums from defendants in successful cases combined with changes to the scope of legal aid, will lead to many individuals finding it difficult to bring claims where their only access to a remedy is through the courts and although in some instances solicitors would be able to offer an indemnity for costs, this would be very rare.

“Funding of this type will not replace the products currently offered by the insurance market. If the government proposals are introduced they will undoubtedly adversely effect the after the event insurance market, and the public should be aware that their ability to defend their rights which they have enjoyed over the last few years will disappear.”

Lee added that the solicitors in the Sibthorpe case had not breached any professional conduct rule and had made every effort to assist a client with funding “what was clearly a valid claim”.

She added: “The Court of Appeal has reached an eminently sensible decision which, in addition to providing a clear message about the importance of access to justice it also paves the way for clients to be fully indemnified against adverse costs orders by solicitors in cases where either legal aid or legal expenses insurance are unavailable.

“The Law Society was surprised that the appeal was commenced in the first place especially bearing in mind the government’s policy on public spending cuts and the fact that the solicitors’ indemnity would have reimbursed the local authority’s legal costs had it successfully defended the original claim.”

Reporting by Neil Rose and Philip Hoult. Neil Rose is editor of Legal Futures.