Sibthorpe & Anor v London Borough of Southwark

The Court of Appeal dismissed the Council's appeal and held that an indemnity in a conditional fee agreement by which solicitors agreed to indemnify their client for any order for the defendant's costs was not champertous. The court reviewed the modern law of champerty and maintenance, emphasising that agreements with those conducting litigation remain a special category subject to stricter rules but that the classic concept of champerty involves a maintainer taking a share in the proceeds of the action. Because the indemnity imposed a potential loss on the solicitor if the claim failed, without giving the solicitor a share in any proceeds if it succeeded, it did not fall within the orthodox concept of champerty. The court also refused permission to appeal on the separate contention that the agreement was a contract of insurance under the Financial Services and Markets Act 2000 regime.

Background and facts:

The appeals arose from two housing disrepair claims brought by tenants against the London Borough of Southwark. Each claimant retained the same solicitors under a conditional fee agreement which contained an indemnity clause providing that, if the client lost and was ordered to pay the defendant's costs and could not obtain after-the-event insurance, the solicitors would indemnify the client for that liability. The claims were settled; costs were assessed by the Senior Courts Costs Office where the Deputy Master disallowed recovery of any costs incurred after the CFA on the basis that the indemnity rendered the CFA champertous and therefore unenforceable.

Procedural history:

• Deputy Master Hoffmann, Senior Courts Costs Office: disallowed the claimant's costs post-CFA as champertous.
• High Court, Macduff J [2010] EWHC B1 (QB): allowed the claimant's appeal and held the indemnity was not void for champerty; further questions as to insurance treatment left without permission to appeal.
• Court of Appeal [2011] EWCA Civ 25: the Council appealed and the Court dismissed the appeal.

Nature of the application / relief sought: The appellant Council sought to set aside the High Court's order and reinstate the Deputy Master's disallowance of the claimant's costs on the ground that the CFA's indemnity was champertous (and, in a permission-refused limb, that the CFA was an unauthorised contract of insurance).

Issues framed:

• Whether the indemnity in the CFA offended the common law rule against champerty or maintenance, rendering the CFA unenforceable.
• Whether the law on champerty has evolved so that agreements with those conducting litigation should be assessed case by case.
• Whether, alternatively, the indemnity could be severed from the CFA.
• Whether the CFA amounted to a contract of insurance under the Financial Services and Markets Act 2000 and the 2001 Order.

Court's reasoning and conclusions:

• The court reviewed authorities on champerty and maintenance (including Wallersteiner, Trendtex, Giles, Factortame (No 8), Awwad and Thai Trading) and concluded that agreements with those conducting litigation remain a distinct category to which stricter public policy concerns apply. However, the court also recognised the modern trend to limit the reach of champerty and to resolve borderline cases by reference to public policy considerations.
• The court emphasised that classic champerty involves a maintainer taking a share of the proceeds or otherwise acquiring an advantage from the success of the litigation. The indemnity under review created only a risk of loss for the solicitor if the claim failed and did not confer any gain if it succeeded; no precedent was found holding such an indemnity to be champertous.
• The court concluded that, on principle and policy (including access to justice considerations and the legislative regime governing conditional fee agreements), it would be inappropriate to extend champerty to cover the indemnity and therefore the indemnity was not champertous.
• The court refused permission to appeal on the question whether the CFA was a contract of insurance under the Financial Services and Markets Act 2000, endorsing the view that, on its true character, the agreement was principally a contract for legal services with a subsidiary indemnity clause.

The court left several subsidiary questions undecided (for example, severance of an indemnity found void), as they were not necessary to dispose of the appeals.

The Court of Appeal dismissed the appeals. It held that the indemnity in the conditional fee agreement was not champertous because champerty classically requires an arranger to share in the proceeds of litigation or otherwise obtain an advantage from success; an indemnity exposing a solicitor only to a loss if the action failed did not fall within that definition. The court also refused permission to appeal on the argument that the CFA was a contract of insurance under the Financial Services and Markets Act 2000 regime, accepting the CFA was principally a contract for legal services with a subsidiary indemnity clause.

Deputy Costs Judge Hoffmann, Senior Courts Costs Office (detailed assessment disallowing post-CFA costs); High Court (Macduff J) allowed the claimant's appeal [2010] EWHC B1 (QB); Court of Appeal ([2011] EWCA Civ 25) dismissed the Council's appeal.