The failure to obtain after-the-event (ATE) insurance for a client is not, on its own, enough to show that a solicitor has become the ‘real party’ to a case and so liable for a non-party costs order, the Court of Appeal ruled last week.
Lord Justice Leveson also took a swipe at the “ever-widening reference” to county court judgments that have no value as authorities.
Heron v TNT (UK) Ltd  EWCA Civ 469 concerned an employer’s liability case that lasted from late 2005 until the spring of 2011, when at trial the claimant – by this stage representing himself – was awarded far less in damages than had been offered by the defendant under part 36 in late 2006.
The defendant applied for a non-party costs order against his solicitors – London firm Mackrell Turner Garrett (MTG) – on the grounds that the failure to obtain ATE insurance meant there was an undeclared conflict of interest between them and their client and that this motivated the firm to continue with the case.
At first instance, Judge Reid at Guildford County Court rejected this, saying there was no evidence that the conducting solicitor appreciated this “supposed conflict of interest”. He also said that simply standing to gain financially from litigation is insufficient as that would always be the case with a solicitor acting on a CFA; there must be additional factors.
His ruling was upheld by the Court of Appeal. Lord Justice Leveson said: “Based on the facts as found by the judge and with which I would not interfere, the application has to be put on the basis that the failure by MTG to obtain ATE insurance (and the subsequent failure to admit that fact to Mr Heron) is itself sufficient not only to give rise to a breach of duty to him but, in addition, to demonstrate that MTG had become a ‘real party’ to the litigation, the person ‘with the principal interest’ in its outcome, or that it was acting ‘primarily for his own sake’.
“If that was so, as I have said, every act of negligence by a solicitor in the conduct of litigation (thereby giving rise to a conflict) which means that an opposing party incurs costs which might not otherwise have been incurred would be sufficient. When pressed by Beatson LJ during the course of argument, Mr Bacon [Nick Bacon QC for TNT] was unable to identify a principled way of drawing the line so as to avoid this consequence.”
The judge continued: “I do not accept that the law goes anything like that far. A solicitor is entitled to act on a CFA for an impecunious client who they know or suspect will not be able to pay own (or other side’s costs) if unsuccessful.
“As far as the other side is concerned, whether the solicitor has negligently failed to obtain ATE insurance to protect his client (as opposed to not being able to obtain such insurance) does not impact on the costs they will incur unless it is demonstrably provable that the costs would not have been incurred (as in Adris). That is not the case here.”
MTG’s counsel argued that the appeal was an attempt to short circuit threatened professional negligence proceedings to which MTG would be able to put in issue questions of breach, causation, contributory negligence and quantum.
Lord Justice Leveson said: “Speaking for myself, I doubt how live some of those issues will be but that arguments can be deployed with the benefit of tested evidence is beyond question. It is certainly appropriate for that forum to determine the extent to which MTG may be liable to compensate Mr Heron for any costs that he will have to pay to his employers’ insurers; this summary procedure is not.”
Among the cases to which Mr Bacon had referred the court during argument was an unreported county court decision. Leveson LJ said: “In my judgment, that decision does not take the analysis further even if (about which, with respect, I have real reservations) it was correctly decided. On the wider issue and in any event, I deprecate an ever-widening reference to judgments which have no authoritative value and may be no more than examples of the exercise of judicial discretion.”