Retrospective success fees allowed on Appeal
Whilst it is too late now to worry about the drafting of CFA’s which will contain a recoverable success fee, there are still many cases out there upon which assessment of success fees will still be required. One particular aspect which has caused some trouble in the past has raised its head again in the decision of the High Court in Ghising v Secretary of State for the Home Department [2015} EWHC 3706(QB) – the question of recoverability of retrospective success fees..
Following the decision in Birmingham City Counsel v Forde  EWHC 12 (QB) many practitioners took advantage of the ability to claim a success fee on costs incurred prior to entry into a CFA. This was a very neat device which overcame the problem created by many clients not having any expectation of having to pay anything towards their legal fees, most likely because of advertising which had promised them just that. However, before a CFA could be made, some work really had to be done, for example taking initial instructions. Thereafter, it was quite common for a case to follow some internal risk assessment process before being approved to be taken on. There could be a delay of a matter of days or sometimes weeks before the funding documentation was prepared and completed.
In the absence of a private client retainer enabling the Solicitor to charge for the work done prior to entry into the CFA, it is at the very least arguable that the costs incurred in the pre-CFA work would not be recoverable because of the lack of an agreement to pay for those costs and therefore the indemnity principle would apply such that if the client had no liability to pay costs, at the end of the case the unsuccessful party would have no greater liability than the client for those costs, i.e. nothing.
A retrospective CFA overcame those problems not only by ensuring that there was a valid retainer covering all of the work and thus base costs would be recoverable, but a success fee could also be applied to those costs.
In practice, where the work done from receipt of initial instructions to the completion of the CFA was relatively minimal and the period involved was a matter of days or a couple of weeks, there has been very little challenge to the propriety of a retrospective CFA.
However, the situation becomes far more controversial where the period of retrospectivity stretches into months. In some cases, this occurs because some other funding option falls through or because a client’s funds run out and the Solicitor feels that if he has to take the risk of a case from that point on, then is only fair that he should be compensated by way of a success fee from the very beginning.
In Ghising the Claimant had, by his Solicitors, made an application for legal aid in July 2012 but with a hearing looming in December 2012, there had still been no final decision and therefore no Certificate granted. In those circumstances, both the Claimant’s Solicitors and Counsel were prepared to enter into CFA’s, but on the basis that they would cover the period from receipt of initial instructions and that a success fee would apply on the entirety of the work.
When the matter came before the Senior Court Costs Office, the Costs Judge (who for ease hereafter we will refer to as “the Master”) was prepared to accept that the CFA’s were valid retainers from the date of initial instruction and that base costs would be recoverable from that point up until conclusion, but declined to allow any success fees prior to the date of either CFA.
In a Judgment which is rather unsparing in its criticism of the Costs Judge, this decision was overturned. The High Court Judge (hereafter “The Judge”) identified that the question to be answered was whether the retrospective success fee was allowable in the circumstances of the case. She found that this was a matter of principle rather than one of the Master’s discretion and therefore felt that in accordance with the rationale of Neuberger J in Motto v Trafigura, an appeal lay if the Judge at first instance had been wrong on a point of law or principle; reached a conclusion which was plainly wrong; took account of irrelevant evidence or misunderstood the relevance of any evidence.
The Judge found that the Master’s ruling had not been as “pellucid” as it might have been. He had been right to identify that the success fee was to be assessed at the time of entry into the CFA without the benefit of hindsight, but beyond that his findings were often either unsubstantiated or inappropriate. He had come to the conclusion that it was not for the court to carry out risk assessments for July 2012 and December 2012 and he rejected the argument that the same risk had applied at both dates. The High Court found that on the evidence before the Master, the application for legal aid had put the prospects of success at between 60 and 80% and that at the time of the CFA the prospect of winning had been put at 65%. The High Court therefore found that it was self-evident that the prospects of success were in the same bracket.
The only possible difference, it seemed, was that there had been late service of a skeleton argument from the Defendant. The Claimant’s Counsel said that the case became riskier after receipt of that document, but on the High Court’s analysis, that had been received several days after the Solicitors had entered into the CFA and after Counsel had entered into the CFA, albeit the latter was on the same day. The Judge said that she did not understand the evidential basis for the Master’s conclusion.
She went on to say that she could find no indication that the Master had made an evaluation as to whether the risk was materially different and if the reason for simply finding that it was, was based upon the skeleton argument then the Master had been mistaken. Without the skeleton argument, there was certainly no basis for finding that the risk was any different.
One obvious area in which to challenge the reasonableness of recovery of a retrospective CFA is whether the Paying party has been prejudiced. Would their position have been any different if notice of funding had been supplied at the date to which the CFA was made retrospective? The High Court found that there was no evidence before the Master that the Defendant’s position would have altered in any way and therefore this was not something which could be taken into account.
Finally, she fairly summarily dismissed the Master’s finding that the Solicitors’ CFA was ambiguous (he had said that it was not clear even whether it was retrospective) by saying that it was entirely clear to her that it was retrospective and indeed it was not ambiguous at all.
It must be borne in mind that in this case there were very good reasons for the decision to have a retrospective CFA. There could be no serious allegation made that this was motivated by greed on the part of the Solicitors or Counsel. The delay in the decision as to whether to grant the legal aid certificate was the genuine reason and if the legal representatives were in the position where their fees for the whole matter were not going to be covered by some absolute liability for costs, then surely it was reasonable for the CFA to be made.
It seems that the Master’s dislike for retrospective CFA’s and the potential unfairness which they give led him to a decision which, in the High Court’s view at least, was unfounded and incorrect. The case is a useful review of the law and procedure in this area and perhaps provide some encouragement for those who might be discontented by the outcome of the matter at the SCCO (how often have we heard the contention that more weight should be applied to Costs Judges’ decisions because they are specialists in their field?) to be prepared to take matters further.