Ghadami & Anor v Lyon Cole Insurance Group Ltd

Where solicitors act for an insured litigant and the insurer pays litigation costs subject to an excess, the insured remains liable to the solicitors for reasonable fees and disbursements unless an agreement provides that the solicitors will not look to the insured beyond the excess. The agreement may be express or implied, but it must be established from the retainer and surrounding circumstances. Correspondence explaining the insurance position, without more, does not create that limitation. Failure to send a client care letter may breach professional obligations, but does not itself prevent recovery. The paying party’s liability is therefore assessed by reference to the receiving party’s liability to its solicitors, subject to detailed assessment of reasonableness.

The appellants’ claim against Lyon Cole Insurance Group Ltd had been dismissed, with the appellants ordered to pay Lyon Cole’s costs on the indemnity basis and to make an interim payment of £20,000.

On detailed assessment, District Judge Pelly limited the appellants’ liability to £1,000, representing Lyon Cole’s insurance excess, and ordered repayment of £19,000. His Honour Judge Moloney QC allowed Lyon Cole’s appeal, holding that the correspondence did not establish an agreement limiting Lyon Cole’s liability to its solicitors. The central issue before the Court of Appeal was whether such an agreement existed and whether the solicitors’ failure to comply with client-care obligations affected their right to recover fees.

1. Appeal dismissed. Lord Justice Lloyd gave the leading judgment. Lord Justice Etherton and Lord Justice Elias agreed.
2. The indemnity principle did not limit recovery to the £1,000 paid by Lyon Cole. Costs paid directly by an insurer are nevertheless costs incurred by the insured litigant. The insured remains liable to its solicitors unless an agreement shows that the solicitors would not seek payment from the insured in any circumstances. The Court relied on the principles discussed in Adams v London Improved Motor Coaches Limited [1921] 1 KB 495, Lewis v Averay (No. 2) [1973] 1 WLR 510 and Davies v Taylor (No.2) [1974] AC 225.
3. Such an agreement may be express or implied. The November 2003 letter did not address costs. The July 2004 letter merely explained the policy position: Lyon Cole was responsible for the excess and Markel would indemnify the balance. It was not a proposal or agreement limiting Lyon Cole’s liability to £1,000. The court could take account of Lyon Cole’s experience in the insurance market as objective context, without relying on the subjective understanding of any particular individual.
4. The comparison with British Waterways Board v Norman, unreported, 26 November 1993, did not assist the appellants. That case involved different evidence from which an implied agreement had been inferred. The absence of a client care letter was regrettable, but under Garbutt v Edwards [2006] 1 W.L.R. 2907 it did not prevent recovery. CM was entitled to reasonable fees and disbursements for work reasonably done under the retainer.
5. The costs were to be subject to an ordinary detailed assessment on the indemnity basis. The appellants could challenge items as unreasonable in amount or unreasonably incurred. The appellants were ordered to pay the respondent’s appeal costs, and permission to appeal to the Supreme Court was refused.

• Court of Appeal (Civil Division) — In [2010] EWCA Civ 767, the appeal from His Honour Judge Moloney QC was dismissed. Lyon Cole’s costs were remitted for detailed assessment, and permission to appeal to the Supreme Court was refused.
• Cambridge County Court — His Honour Judge Moloney QC allowed Lyon Cole’s appeal from District Judge Pelly’s assessment.
• Cambridge County Court — District Judge Pelly assessed the appellants’ liability at £1,000 and ordered repayment of £19,000 from the interim payment.