The costs of rectification

Where should the costs of seeking rectification fall? Lord Neuberger described the case as ‘unfortunate’ on the basis of the amount of litigation involved, which if the costs were ordered from the estate (as the sons argued should be the case) would leave nothing for the successful Mr Marley.

As readers will be aware, Mr and Mrs Rawlings made wills in identical terms leaving everything to the other, and if the other had predeceased to their quasi-adopted son, Terry Marley. They did not leave anything to their two sons. The solicitor who prepared the wills oversaw execution but unfortunately did not notice that Mr Rawlings signed the will of Mrs Rawlings and vice versa. The error was not noticed when Mrs Rawlings died (presumably because everything passed by survivorship so there was no need to prove the will). It was only discovered when Mr Rawlings died.

The sons contended that the will was invalid and therefore they should take the estate (£70,000) under the intestacy rules. Marley, who undoubtedly had a negligence claim against the solicitor, was required by the solicitor’s insurers to mitigate his loss by bringing proceedings to seek to have the will upheld as valid. (The Court of Appeal held in Walker v Medlicott [1999] 1 WLR 727 that where a claimant has a claim in negligence for faulty will drafting but the same facts would justify an application for rectification, the correct approach is to bring the application for rectification before pursuing the negligence claim.)

The Supreme Court said the costs had two elements. The costs at first instance and in the Court of Appeal had been charged on a ‘traditional’ basis, but the costs in the Supreme Court had been subject to a conditional fee agreement (CFA).

Costs apart from the CFA

Lord Neuberger considered that it was possible to justify more than one different order for costs.

Had there been no question of negligence on the part of the solicitor, it would have been very difficult to decide what order to make as between Marley and the respondents. On the one hand, there was considerable force in Marley’s argument that, although the litigation related to the validity of a will, and it was a case where both parties had a reasonable argument, it was ultimately hostile litigation between two parties fighting over money, and, therefore, the normal rule of ‘loser pays’ should apply.

On the other hand, there is case law authority that, where there is an unsuccessful challenge to the validity of a will, and the challenge is a reasonable one and based on an error which occurred in the drafting or execution of the will, the court often orders that all parties’ costs come out of the estate. See, for example, Spiers v English [1907] P 122 and Kostic v Chaplin [2007] EWHC 2909 (Ch).

Given the fact that there were arguments both ways, a pragmatic approach, had the estate been very substantial, would have been to direct that costs be paid out of the estate, but in the present case where the estate was modest, such an order would deprive the successful party of any benefit from the litigation or from the estate.

However, he said it could not possibly be right to ignore the position of the solicitor. It was the error of the solicitor which caused the problem that gave rise to the proceedings (as was reflected by the fact that the insurers accepted liability to Marley for his costs in the Court of Appeal and the Supreme Court). Moreover, the solicitor’s insurers had required Marley to bring those proceedings.

Because an order that all parties be paid out of the estate would result in Marley being able, in effect, to reconstitute the estate through a claim for damages against the solicitor, the position was equivalent to one where the estate was substantial in nature. Accordingly, an order that the parties recover all their costs out of the estate was justified on the basis that all those costs would, in practice, be recovered by Marley from the solicitor, and by the solicitor from the insurers.

As a short cut it would be appropriate to order that the insurers pay the costs of Marley and the respondents.

The same approach would have applied to the costs in the Supreme Court had it not been for the CFA.

The costs in the Supreme Court subject to the CFA

Under a CFA of the type entered into here, lawyers provide their services on a conditional fee (or ‘no win, no fee’) basis. If successful, there is an uplift (typically 100%) to compensate for the fact that they may get nothing. In addition, there is an after-the-event premium which is payable to an insurer who agrees to underwrite the appellants’ potential liability to the respondents for their costs if the respondents win. This is also recoverable. ‘Success’ can be defined in different ways and here the definition included in relation to counsel’s fees and solicitors’ disbursements an order that the other side pay the respondents’ costs. Hence, since the Supreme Court had ordered the insurers to pay the costs, there was an element of success.

Lord Neuberger was prepared to accept the respondents’ submission that it would usually be inappropriate not to allow the lawyers who have acted for successful clients under a CFA the agreed uplift (normally 100%). However, this case was a long way from ‘normal’. The respondents were not successful; they had lost the appeal and it could be said that they were lucky to be getting anything. In his opinion, it would be inappropriate for anyone to have to pay a success fee to the unsuccessful respondents’ counsel.

Accordingly, unless both the respondents’ counsel were prepared to waive their success fees, Lord Neuberger said it would be right to depart from the order he would otherwise have made, so that the respondents would be entitled to recover no costs from the insurers in connection with the Supreme Court appeal.

He concluded by saying: ‘This is, I appreciate, a fairly remarkable course to take, but the unusual facts of this case coupled with the many unsatisfactory aspects of the CFA system under the Access to Justice Act 1999 (as illustrated in our very recent decision in Coventry v Lawrence (No 2) [2014] UKSC 46), appear to me to require and justify an unusual approach in order to achieve a just result.’

It is worth noting that CFAs have led to substantial increases in the level of costs and their influence was described as ‘malign’ in the Coventry case mentioned above. Following Sir Rupert Jackson’s Review of Civil Litigation Costs (2010) the system of costs recovery has been substantially altered.