Sousa v London Borough of Waltham Forest Council

A claimant bringing a subrogated claim may recover a success fee under a collective conditional fee agreement where solicitors act for the claimant at the insurer’s direction. The claimant’s indemnity by the insurer does not, by itself, make the arrangement unreasonable or provide the defendant with a defence to costs. The costs court must apply the Civil Procedure Rules 1998 and the Costs Practice Direction, considering all circumstances and available funding. An insurer’s wealth, commercial status, or ability to fund litigation is not decisive. Before-the-event insurance may present a different case, but observations on that issue in [2001] EWCA Civ 1401 were obiter. The Court of Appeal remained bound by [2005] UKHL 61. The appeal was dismissed.

Mr Sousa’s house was damaged by tree roots from trees for which the Council was responsible. His household insurers indemnified him and, exercising subrogation rights, instructed solicitors to pursue the claim in his name under a collective conditional fee agreement. The claim settled without proceedings, with the Council agreeing to pay reasonable costs.

A District Judge disallowed the 100% success fee on assessment, holding that Mr Sousa was never at risk because the insurers would meet the costs. His Honour Judge Behrens allowed the success fee on appeal. The Council appealed to the Court of Appeal, raising the reasonableness and recoverability of the success fee where the insured claimant is indemnified and the insurer controls the litigation.

1. Disposition. Ward LJ, Moore-Bick LJ and Etherton LJ unanimously dismissed the appeal.
2. Indemnity and subrogation. The indemnity principle permits recovery only of costs paid or costs for which the litigant is liable. Mr Sousa was the party to the proceedings and, absent an agreement excluding liability, was liable to the solicitors. Applying [1974] AC 225, [2003] EWCA Civ 1484 and [1921] 1 KB 495, the Court held that his ratification of the solicitors’ acts at the insurers’ instigation extended to the insurers’ instructions. He was therefore to be treated as instructing on the same conditional-fee terms, so the success fee could in principle form part of his recoverable costs.
3. Reasonableness. Under the Civil Procedure Rules 1998 and the Costs Practice Direction, the court must consider all the circumstances, including whether costs were reasonably incurred, reasonable in amount and proportionate, and what other funding methods were available. Ward LJ considered the practical reality that the insurers controlled the claim and bore the litigation risk. Moore-Bick LJ considered the insurance arrangement legally irrelevant as between claimant and defendant, or alternatively treated the insurers as the real parties at risk. Neither approach made the CFA unreasonable.
4. Commercial insurers and alternative funding. An insurer, like any other commercial litigant, may use a CFA. Wealth or an ability to fund litigation does not alone make a CFA unreasonable: [2005] UKHL 61. The observations in [2001] EWCA Civ 1401 concerning before-the-event insurance were obiter and concerned a materially different funding arrangement.
5. Convention arguments. The European Court of Human Rights decision concerning Article 10 dealt with a disproportionate interference with freedom of expression and did not establish a general rule for this case. The Court of Appeal remained bound by [2005] UKHL 61, as recognised in [2006] UKHL 10. A new Article 6 argument was not entertained because it had not been raised earlier.

1. Court of Appeal (Civil Division). The Council’s appeal was dismissed on 3 March 2011.
2. Leeds County Court. District Judge Fairwood disallowed the 100% success fee on assessment. His Honour Judge Behrens subsequently allowed the success fee, leading to the Council’s appeal.