Legal advice and funding – Champerty – Conditional fee agreements – Indemnity clauses

Danri Morris and Anor v Southwark London Borough Council: CA (Civ Div) (Lord Neuberger of Abbotsbury MR, Lords Justices Lloyd, Gross): 25 January 2011

The appellant local authority appealed against a decision ([2010] 4 Costs LR 526) that a conditional fee agreement (CFA) between the respondent (M) and her solicitors was valid.

The CFA had been entered into in respect of M’s housing disrepair claim against the local authority. The CFA complied with the statutory requirements, but also included an indemnity, which was not specifically permitted by statute, against having to pay the opponents costs if the claim were unsuccessful and if M had been unable to obtain insurance against that risk. The local authority agreed to settle the claim including payment of costs. At the costs assessment the local authority’s argument that the CFA was void for champerty because of the indemnity was accepted. The deputy master found the CFA to be champertous because it was unlawful for a solicitor to agree to conduct litigation for a client on terms that gave the solicitor a financial interest in the outcome of the proceedings. M argued that (1) even if the indemnity would have been held champertous in the past it no longer should be so regarded, and the correct approach was to look at the CFA in the round in each case and decide whether it would undermine the purity of justice or corrupt public justice; (2) the indemnity was not champertous because there was a loss if the action failed, but no gain if it succeeded, and to find it champertous would involve extending the law.

Held: (1) In respect of agreements involving those who conducted litigation or provided advocacy services, the common law of champerty remained substantially unchanged and as described in Wallersteiner v Moir (No2) [1975] QB 373 CA (Civ Div) and Awwad v Geraghty & Co [2001] QB 570 CA (Civ Div), Wallersteiner and Awwad applied. That was because of the clear requirement that officers of the court should not put themselves in a position of potential conflict with their duties to the court, and because the legislature had laid down rules as to which previously champertous agreements could be entered into by those conducting litigation and providing advocacy services, and which could not. Further, there was much to be said for clear rules rather than determination on a case-by-case basis. The decision in Thai Trading Co v Taylor [1998] QB 781 CA (Civ Div) that gave some support to the notion that it was appropriate to consider a fresh approach to champerty had been per incuriam, Thai Trading doubted (see paras 39-41 of judgment).

(2) The various judicial definitions of champerty all envisaged a gain if an action succeeded. To hold the instant indemnity champertous would involve extending the law at a time when the trend of judicial authorities, and the legislature, was to curtail it, Trendtex Trading Corp v Credit Suisse [1980] QB 629 CA (Civ Div), Factortame Ltd v Secretary of State for the Environment, Transport and the Regions (Costs) (No2) [2002] EWCA Civ 932, [2003] QB 381 and Thai Trading considered. In addition, there was an attraction in the notion that an otherwise unobjectionable CFA with such an indemnity should be valid, at least in small cases where after-the-event insurance was unavailable or prohibitively expensive. It was hard to see that in such cases an indemnity would be against the public interest or undermine justice. The indemnity was not champertous (paragraphs 44-48, 51).

(3) (Obiter) The law had developed so that, at least for agreements with those who conducted litigation or provided advocacy services, there could be champerty without maintenance.

Appeal dismissed.

Roger Mallalieu (instructed by in-house solicitor) for the appellant; Mark James (instructed by Belshaw & Curtin) for the respondents; David Holland (instructed by the Law Society) for the intervener.