Legal advice – Local government – Insurance

D Sousa v Waltham Forest London Borough Council: CA (Civ Div) (Lords Justices Ward, Moore-Bick, Etherton): 3 March 2011

The appellant local authority appealed against a decision ((2010) Lloyd’s Rep IR 649) that it was liable to pay the respondent (S) a success fee under a conditional fee agreement (CFA) following an assessment of costs.

S had suffered subsidence damage to his property caused by the roots of a tree owned by the local authority. S claimed against his household insurance policy. His insurer (V) settled the claim and, in the exercise of its rights of subrogation, required S to pursue a claim against the local authority in respect of the loss. V required S to instruct a specific firm of solicitors (C) pursuant to a collective CFA that had been negotiated between C and V. Thereafter, C successfully negotiated a settlement of the claim on terms that included an agreement that the local authority would pay S’s costs to be subject to an assessment on a standard basis in default of agreement. At the assessment, S sought to recover a success fee. The local authority disputed S's entitlement to a success fee on the basis that he had been fully indemnified by V for his costs.

A judge allowed the success fee on the basis that it would be anomalous if an insurer with an assigned cause of action could take advantage of a CFA whereas an insured with a subrogated claim could not. The local authority contended that that recovery of a success fee and the size of the uplift depended upon whether the costs were reasonably incurred and that the fact S was indemnified in respect of those costs was a fact that had be taken into account by virtue of the CPR PD 44 paragraph 11.8. In particular, it meant S should be in no different position from a claimant who had the benefit of ‘before the event’ insurance against legal fees, who would not be entitled to claim a success fee.

Held: S was entitled to recover his costs and those costs could include a success fee. If an assured ratified the acts of solicitors in acting as his solicitors at the instigation of his insurer, he had to be taken as ratifying all the instructions given by his insurer to the solicitors to pursue the claim in the name of the assured. Where there was a collective CFA in force, the solicitors would be quite clearly acting pursuant to it and their client was to be taken as instructing them on the same basis as the insurer had, namely on CFA terms, Adams v London Improved Motor Coach Builders Ltd (1921) 1 KB 495 CA and Thornley v Lang (2003) EWCA Civ 1484, (2004) 1 WLR 378 applied. Accordingly the collective CFA had to be treated as S’s CFA. Whether the success fee was recoverable and the uplift rate depended on the application of the rules to the facts of the case. The court always had to ask whether the costs had been unreasonably incurred or were unreasonable in amount. In considering that, the court had to take all the circumstances of the case into account and in particular had to have regard to the Practice Direction. Accordingly, the court was required to have regard to the reality of the situation when deciding what order to make as to costs. As such the court had to consider the reasonableness of V entering into the collective CFA. It was clear that, as CFAs were open to all, it was not open to the court to conclude that CFAs were nonetheless unreasonable by virtue of the fact only that they were also open to rich and powerful insurance companies who accepted the price of litigation as a necessary incident of their business. It had to be reasonable for the rich as well as the poor to take advantage of that which the law permitted. Accordingly, whether the court approached the matter through an application of pure principles of subrogation or after an examination of the real facts, the local authority's appeal had to fail.

Appeal dismissed.

Nicholas Bacon QC (instructed by Barlow Lyde & Gilbert) for the appellant; Benjamin Williams (instructed by Parabis Law LLP) for the respondent.