Champerty – Condition Free Agreements – Consultants – Costs Draftsmen – Unlawful Legal Costs

Until the introduction of the Criminal Law Act 1967 an arrangement that paid lawyer fees only if there was a success in that dispute, was a criminal act.  Such arrangements were “Champerty”. The Courts felt that Champerty resulted in aggressive or inappropriate litigation and should be banned.  It was felt that such an agreement might the tempt the lawyer to inflate damages, or to suppress or distort evidence or “otherwise undermine the access to justice” ¹.

In order to extend the access to justice, and some would say to cut Legal Aid budget, this underlying legal position was changed by the Courts & Legal Services Act 1990 (“the Act”). The Act set out a few exceptions of lawful legal contingency fee agreements. Anything not covered in the Act is still unlawful and not enforceable.

Lawful conditional fee agreements relate only to advocacy or litigation services.  These services require the lawyer to have a right of audience. There are complex regulations around rights of audience, which this article will not consider. Instead, I will look at the position of non-lawyers providing services in the litigation as a consultant or agent of the lawyers – a contractor.

The case of Nicholas Crane v Cannon Leisure Centre [2007] EWCA Civ 1352, in the Court of Appeal, is authority for the proposition that such contractor can recover his fees. Contractors normally charge the solicitor a much lower fee than the solicitor might charge the client if he was doing the work personally. This case confirms that the contractor can be charged out at the full rate payable had the solicitor themselves been undertaking that work.  Furthermore, a success fee can be added on top of that amount charged.  The rationale given was that employed lawyers are not charged out at their salary or hourly rate. Employees and contractors costs should be charged at the standard rate, to reflect overheads, etc.

The position is more complex where the contractor charges the lawyer a success fee.

In a case called “On the Application of Factortame & Others v Secretary of State for Transport, Environment & the Regions [No2] [2002] EWCA Civ 932” (“Factortame”) the accountants Grant Thornton entered into a contingency fee arrangement. They undertook a lot of work to establish the extent of damages to be awarded in the claim, on the basis that they would receive a percentage of the final settlement.  In Factortame the Court of Appeal held that such an arrangement was not Champertous.  The Court felt that the Courts & Legal Services Act 1990, which only applied to a person providing advocacy or litigation services, was not applicable to the provision of services ancillary to the conduct of litigation.  The Court of Appeal held that the arrangement was not champertous, as the back-up services provided, although substantial, were not provided in connection with proving liability.  Indeed, liability had already been won, and Grant Thornton was only looking at the extent of damages.

In the case of Ahmed v Powell [2003] PNLR 22, was a case that looked at the position regarding a costs draftsman acting for the insurer of a defendant in a road traffic accident.

Chief Master Hurst found in that case that the particular costs draftsman did not have a right of audience to undertake the assessment. Only costs lawyers have rights of audience in proceedings being conducted in relation to the assessment of legal costs to be paid.  Costs lawyers have the right to litigate under the Solicitors Act 1974 and as amended.  They to do so by virtue of the Association of Law Costs Draftsman Order 2006 (SI 2006/3333). This requires accreditation by the Association of Law Costs Draftsman (now the Association of Costs Lawyers).  If that isn’t the case then the costs draftsman does not have a direct right of audience in front of the costs Judge but appears as an agent on the part of the lawyers who are acting.  This was established in the case of Waterson Hicks v Eliopoulos [1955] Costs LR, in which Evans LJ stated “as regards the authority, actual or apparent, of an independent costs draftsman who attends before the Taxing Officer, it should be remembered that he can appear on behalf of the party only as a duly authorised representative of the solicitor who instructed him to be there.  The scope of his apparent authority would be the same, in my judgment, as that of any costs draftsman employed by the firm”.

In the case of Ahmed v Powell, the costs negotiator with no right of audience was not entitled to recover his costs against the other party in the litigation.  The recovery of the costs negotiator’s costs against the other side in the litigation was unsuccessful on two grounds.  Firstly, the work undertaken in the assessment by the costs negotiator was not work undertaken under a contract with the solicitor.  The insurer instructed the costs draftsman.  As the costs draftsman did not have the right of audience in his own right, this was felt to be too remote for recovery.  Interestingly, the second ground for refusing to allow the costs negotiator’s costs was that the arrangement itself was Champertous.  The arrangement involved a success fee, but it was held that the costs negotiator was litigating. The costs negotiator was not simply supplying ancillary services but was playing a part in the determination as to whether a sum of money would be awarded. As such an arrangement by which he would be paid which was conditional on the result was in itself Champertous.  The public policy basis for this decision was that such arrangements “give rise to concerns that the question of costs may be pursued over vigorously and therefore disproportionately and in breach of the overriding objective”.

A more recent similar case Reece & Another v Gateley Wareing (a firm) & Another [2014] EWCA Civ 1351 came to a similar conclusion; in that case a firm of solicitors employed another firm of specialist solicitors in relation to a complex land transaction.  The consultant solicitors assisted in the litigation that ensued.  There the Court of Appeal held that the consultant solicitors’ retainer agreement was Champertous and unenforceable, on the basis that again they were providing litigation services, however, although entitled to litigate, they were not on the record.  The solicitors were therefore retained on an unenforceable Champertous contract, as it did not fall into the lawful exceptions set out in Section 58 of the Courts & Legal Services Act 1990.

In conclusion, anyone not formally acting in litigation, who claims a success fee in the litigation will be subject to the laws of Champerty.  In particular, costs draftsmen acting in an assessment, where the costs of the assessment itself are disputed, must comply with the exceptions to Champerty, if their own contract is to be enforceable. This will be difficult unless they have rights of audience.

¹ On the Application of Factortame & Others v Secretary of State for Transport, Environment & the Regions [No2] [2002] EWCA Civ 932

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