Council loses appeal over use of CCFA by insurers in tree roots claim

A local authority has failed in an appeal over the use of a collective conditional fee agreement (CCFA) by solicitors acting for a large insurance company in a tree root claim.

In Sousa v London Borough of Waltham Forest [2011] EWCA 194 Civ, the council was responsible for a tree that damaged Mr Sousa’s property. The damage was covered by a household insurance policy with Virgin Insurance, part of the RBS group.

Mr Sousa claimed against his insurers and was indemnified by them. Leeds law firm Cogent Law were instructed by Virgin to recover the loss. They did £3,000-worth of preparatory work and by the end of January 2008 were ready to make a demand against Waltham Forest.

On 1 February 2008 Virgin entered into a CCFA with Cogent providing for a success fee with a mark-up of 100%. The council did not dispute liability and the claim was compromised in July 2008 without the need for proceedings to be issued.

Waltham Forest agreed to pay £6,250 plus reasonable costs in full and final settlement of the claim. Cogent submitted its bill of costs for assessment, claiming £2,948.60 for pre-CFA services and £2,629.60 for post-CFA work.

Before the matter came before the costs judge, the two parties had agreed costs in the sum of £3,750. However, they asked the judge to resolve the question of whether a success fee was recoverable and if so, what percentage the uplift should be.

District Judge Fairwood refused to allow any success fee, suggesting that the claimant was never at risk on costs in the case. However, Judge Behrens at Leeds County Court came to the opposite conclusion and reinstated the success fee.

A number of local authorities voiced support for Waltham Forest in taking the case to the Court of Appeal. But the court has now ruled in favour of the insurance company and its solicitors.

Lord Justice Ward, giving the lead judgement, said that – as a consequence of Campbell v MGN (No. 2) [2005] UKHL 61 – an insurance company is entitled to enter into a CFA. The judge said that, in reality, the appeal turned upon whether or not it was reasonable for Virgin to enter into the CFA.

“I can well understand why the appellant so strenuously resists the success fee,” he said. “As the local authorities see it, household insurers fixed their premium with some regard to the risk not only of having to meet a claim but also the costs involved in seeking to recoup any loss from the local authority whose trees have damaged the assured’s property.

“If insurers can avoid their liability for costs by entering into a CFA, they will have received part of their premium without being subject to any risk in respect of it at all. Moreover, and more importantly from the local authority's point of view, having to pay a 100% uplift, which will become the norm in all these cases, casts a heavy debt on straightened local authority resources……The way this system operates gives benefit to the solicitors on the panel and to the insurers but it does not seem likely to spread the largesse to fill the gap created by the withdrawal of public funding for litigation so as to enable solicitors to be instructed by impecunious claimants who, unlike insurance companies, cannot afford their services.”

However, the judge added: “Sympathetic though I am to that argument, I do not see how the Court can possibly conclude that if CFAs are open to all, they are nonetheless unreasonable by virtue of the fact only that they will also be open to rich and powerful insurance companies who accept the price of litigation as a necessary incident of their business. If the law permits it, it must be reasonable for rich as well as poor to take advantage of that which the law permits.

“Thus I would conclude that whether one approaches the matter through an application of pure principles of subrogation or after an examination of the real facts, the appeal should fail.”

Lord Justice Moore-Bick, agreeing with Lord Justice Ward, pointed out that Mr Sousa did not have before-the-event insurance. “In any event, it has since been made clear that the mere fact that a person is able to fund litigation without resorting to a conditional fee agreement does not make it unreasonable for him to do so.”

The Court of Appeal also considered the recent European Court of Human Rights decision in MGN v The United Kingdom [2011] ECHR 66 in which the court held that the award of costs in favour of supermodel Naomi Campbell against MGN that included a success fee involved an infringement of the defendant’s right to free speech.

Lord Justice Ward said he preferred the respondent’s view that the Court of Appeal remained bound by the decision of the House of Lords in Kay v Lambeth LBC [2006] UKHL 10. “If the House of Lords regarded the fees as reasonably incurred, so should we.”

The judge also rejected Waltham Forest’s argument that success fees have “such a ‘chilling’ effect as to amount to a denial of justice and a fetter on the freedom of access to the court in breach of Article 6”. He added: “I agree with the respondent that this is not an argument the appellant should be allowed to run at this stage of the proceedings. I am not prepared to entertain the argument: indeed I am far from convinced on cursory examination that it is well founded.”

Lord Justice Moore-Bick said he could not accept the submission that the ECHR ruling in the Naomi Campbell case supported the proposition that it was unreasonable for the claimant who can finance the litigation without recourse to a CFA to do so and therefore Mr Sousa should not be allowed to recover the success fee as part of the costs of the case.

The judge said: “I am unable to accept that submission for two reasons. First, because in MGN v The United Kingdom the court was concerned with the question whether the liability to pay a success fee involved a disproportionate interference with the newspaper's right of free speech and was unreasonable on that account. The case is not, therefore, remotely comparable to the present.

“Second, because unless the liability to pay a success fee can be said to infringe the defendant's rights under the Convention (which is clearly not the case here), questions of proportionality and reasonableness do not arise. It is for Parliament to decide what arrangements viewed overall will best serve the general requirement for access to justice. Moreover, the submission is contrary to the decision of the House of Lords in Campbell v MGN (No. 2), which remains binding on this court.”

Although dismissing the appeal, Lord Justice Ward expressed sympathy for Waltham Forest “and all the other local authorities whose legal costs are doubling as success fees bite”.

He added: “Being an old curmudgeon, already a judge for almost as long as I practised at the Bar, I cannot but feel that in many respects CFAs have operated as a bonanza for insurers and their lawyers.”

Lord Justice Ward said he “entirely” endorsed Lord Justice Jackson’s view of the flaws with the recoverability regime in this situation, citing Jackson’s views that it was “absurd” that insurance companies can bring tree roots claims using CCFAs and that “the insurance companies can well afford to fund such litigation themselves and should do so”.

“Alas I am driven to the conclusion that I cannot compel them to do,” Lord Justice Ward said. “The present law is in their favour. Let Lord Justice Jackson’s reforms be enacted sooner rather than later.”

Philip Hoult