Sibthorpe & Anor v London Borough of Southwark

An adverse-costs indemnity given by a solicitor to a claimant client under an otherwise compliant conditional fee agreement is not champertous merely because the solicitor will suffer a loss if the claim fails. Champerty in this setting should not be extended to an arrangement which gives the solicitor no additional gain from success.

The stricter common-law rules governing litigation funders who conduct litigation remain subject to the statutory scheme in section 58 of the Courts and Legal Services Act 1990. The modern case-specific public-policy approach applies principally to agreements with non-litigators.

Two residential tenants brought housing disrepair claims against their local-authority landlord. Their solicitors acted under conditional fee agreements which included an indemnity against liability for the opponent’s costs where after-the-event insurance could not be obtained.

Following settlement, the Deputy Costs Judge disallowed the post-agreement costs on the ground that the indemnity rendered the agreements champertous. Macduff J allowed the tenants’ appeals: Sibthorpe & Anor v London Borough of Southwark [2010] EWHC B1 (QB). The Council appealed. It also sought permission to challenge the judge’s conclusion that the agreements were not contracts of insurance.

The central issue was whether a solicitor’s indemnity against adverse costs invalidated an otherwise lawful conditional fee agreement on grounds of champerty.

1. The appeals were dismissed. The indemnities did not make the conditional fee agreements champertous. Lord Justice Lloyd agreed with the Master of the Rolls’ reasons, and Lord Justice Gross agreed with both judgments.
2. The modern, fact-sensitive public-policy approach to champerty applies to agreements involving persons who do not conduct the litigation. Agreements with solicitors and advocates remain a distinct category. The common law therefore remains substantially as described in Wallersteiner v Moir (No 2) [1975] QB 373 and Awwad v Geraghty & Co [2001] QB 570. Parliament has prescribed, through section 58 of the Courts and Legal Services Act 1990, which conditional fee arrangements for litigators are permitted.
3. That principle did not make this indemnity unlawful. The solicitor had a financial interest because a failed claim could expose the solicitor to a loss. However, the indemnity gave no additional reward if the claim succeeded. The established definitions of champerty contemplate a gain or share in the proceeds of the litigation. No authority held that an agreement exposing a solicitor only to loss on failure was champertous.
4. Public policy did not justify expanding champerty to cover the indemnity. The recent direction of authority and legislation was to restrict rather than enlarge the doctrine. The arrangement could also facilitate access to justice where after-the-event insurance was unavailable or prohibitively expensive.
5. The court also observed that a solicitor acting for a litigant could not realistically be an officious intermeddler for the purposes of maintenance. In the special context of those conducting litigation, champerty may nevertheless exist without maintenance because the relevant policy concerns an interest in the litigation’s outcome.
6. Permission to appeal on the insurance point was refused. The agreement’s principal object was the provision of legal services, and its subsidiary indemnity did not make it a contract of insurance for article 10 of the Financial Services and Markets Act (Regulated Activities) Order 2001.

• Court of Appeal (Civil Division): dismissed the Council’s appeals on champerty and refused permission to appeal on the insurance issue: [2011] EWCA Civ 25.
• High Court (Queen’s Bench Division): Macduff J reversed the Deputy Costs Judge’s ruling that the indemnities invalidated the conditional fee agreements: [2010] EWHC B1 (QB).
• Senior Courts Costs Office: Deputy Costs Judge Hoffmann disallowed the tenants’ claimed costs, holding that the agreements were champertous because of the indemnities.