RHYS EDWARDS & Ors v SLATER AND GORDON UK LIMITED

In solicitor-own-client costs proceedings, Part 31 of the Civil Procedure Rules 1998 applies unless expressly excluded. Disclosure is available where it is relevant to pleaded issues, informed consent, or fair case management, although it is not routine in such assessments.

An indemnity against adverse costs supplied as part of a legal-services CFA is not insurance merely because it responds to an uncertain adverse event. The court must identify any premium and then characterise the contract as a whole. An indemnity exposing solicitors only to loss, without a share of the proceeds, is not champertous. A disputed cash-account entry may justify information requests about secret commissions even though the quantum of an ATE premium is outside the SOCA.

These conjoined appeals arose from approximately 150 solicitor-own-client costs claims brought by former personal-injury clients against their solicitors. The claims challenged deductions from damages for unrecovered costs and ATE premiums.

In the Edwards proceedings, the Costs Judge ordered disclosure and refused the solicitors’ applications for a stay and security for costs against the clients’ new solicitors. In Raubenheimer, the Costs Judge refused a Part 18 request concerning alleged ATE commissions. The central issues were the court’s power to order disclosure in Part 8 SOCA claims, whether the indemnities were unlawful insurance or champerty, whether security for costs was justified, and whether information about alleged commissions could be required.

1. Appeal principles. The appeals were reviews under CPR rule 52.21. The court applied the high threshold applicable to challenges to factual findings and case-management decisions. It would not second-guess a decision within the lower court’s discretion where the correct principles had been applied.
2. Disclosure. A Part 8 SOCA claim remains a “claim” for the purposes of Part 31, both before and after an assessment order. Part 31 was not expressly excluded by CPR rule 8.9. The court therefore had power to order disclosure. Disclosure should not be routine in SOCA proceedings, but may be ordered where it is relevant to pleaded issues, informed consent, the need for a hybrid or Part 7 procedure, allocation of issues, or the overriding objective. The disclosure order concerning retainers and sign-up recordings was a proper case-management decision and the Defendant’s appeal on that issue was dismissed.
3. Insurance. The court adopted a two-stage approach. First, it asked whether the indemnity itself required payment on an uncertain adverse event and whether a premium in money or money’s worth was received. Secondly, if an insurance provision existed, it considered the CFA as a whole, including its purposes, activities, payments, risks, marketing, businesses, regulators and objective appearance. There was no discernible premium paid for the indemnity. The indemnity was therefore not an insurance provision. Even if it had been, the CFA was principally a legal-services contract and the indemnity was ancillary. The approach in Morris v Southwark [2010] 4 Costs LR 526 and Sibthorpe v Southwark [2011] EWCA Civ 25 was approved and applied. The appeal on unlawful insurance was dismissed.
4. Champerty and security. The indemnities exposed the solicitors to possible loss but gave them no share of damages or other litigation proceeds. Receipt of assessed legal fees for work performed was not a share of the clients’ winnings and did not make the arrangement champertous. Nor was there sufficient evidence of a realistic risk that the solicitors could not meet adverse costs. They were not commercial funders motivated by a share of the recoveries. In any event, security was not just, having regard to access to justice. The appeals concerning champerty, the stay and security for costs were dismissed.
5. Part 18 and the cash account. Herbert v HH Law [2019] EWCA Civ 527 prevented the quantum of an ATE premium from being assessed through a SOCA. It did not prevent the court from requiring information needed to establish whether cash-account entries were accurate or whether secret commissions existed. The Cash Account had to be accurate before the Costs Judge could certify the final balance. The Part 18 request was therefore ordered to be answered, with the forum and scope of any later determination to be addressed at case management. Raubenheimer’s appeal was allowed.

• High Court (Queen’s Bench Division): On 11 May 2022, Ritchie J dismissed Slater and Gordon’s appeal in Edwards and allowed Raubenheimer’s appeal in relation to the Part 18 request: [2022] EWHC 1091 (QB).
• Supreme Court Costs Office: Costs Judge Rowley ordered disclosure and refused applications for a stay and security for costs in Edwards on 15 September 2021. In Raubenheimer, the Costs Judge refused the Part 18 application in judgment given on 18 June 2021 and order dated 16 July 2021.