Last minute change pays off

In the recent decision of Dial Partners LLP & Anor v Eastern Airways International Ltd & Ors [2018] EWHC B1 (Costs) the Claimants’ decision to change funding from a Damages Based Agreement (DBA) to a Conditional Fee Agreement (CFA) less than 2 weeks before trial did not prevent the Claimant from seeking a full recovery of their costs.

The Claimants’ case initially proceeded by way of a DBA dated 19 March 2015, under which their solicitors would receive 50% of such proceeds as were recovered in the claim. Notably, notice of this funding arrangement was provided on 22 June 2016. On 2 November 2016, shortly before trial, which was listed to take place on 14 November 2016, the Claimants entered into a CFA with their solicitors which was intended to replace the DBA. The matter eventually settled for £625,000, exclusive of costs, on the eve of trial.

Unsurprisingly, when the question of costs fell to be decided, the Claimants sought to recover the full extent of their costs which totalled £523,032.76. In response, the Defendants argued that they should not be held liable for anything more than the amount permissible under the terms of the DBA, had it remained in place [which equated to £250,000 plus disbursements other than Counsel’s fees], further stating that they had believed the DBA was still in place when they settled the matter.

The claim had originally been pleaded at £4.5 million and, consequently, had the Claimants succeeded at, or in the region of, that figure their solicitors would have received 50% before deducting disbursements (excluding Counsel’s fees) under the terms of the DBA. However, as the claim progressed the value decreased significantly leaving them in a position, whereby, if the matter had proceeded to trial, given the maximum costs recovery imposed by the terms of the DBA, then in all likelihood they would have incurred a loss in terms of what they could be paid. As such, it’s not hard to see why moving on to a CFA was an attractive option for the Claimants’ solicitors.

The Defendants submitted that they had not been told about the switch from a DBA to a CFA and that they had factored the DBA ‘cap’ into their considerations when settling the matter. In response, the Claimants were quick to highlight that, of course, post-LASPO there is no obligation to inform an opponent regarding funding arrangements.

Primarily, the Defendants sought to rely on the Kellar principle (i.e. a receiving party cannot increase the paying party’s liability for costs by changing the terms of a retainer after a settlement or judgment – Kellar v Williams [2004] UKPC 30) in submitting that the eponymously named principle arising from the case must:

“26…      surely apply where (as he [Counsel for the Defendant] states was the case here) there is a Part 36 offer open which the Receiving Party intends to accept and indeed does accept the following day; surely, he says, that is an abuse of the Kellar principle.

The argument did not find favour. The matter had not yet reached trial, much less being post-settlement as in Kellar. Nor was the case certain to settle; with the parties being nearly £1 million apart at the date the CFA was entered into. The court accepted the Claimants’ submission that the change of funding from DBA to CFA was not merely a tactical step to take advantage of a near-certain settlement. At the time of the offers made, the matter could have conceivably been fought to trial.

“33… The syllogism that a Part 36 offer equates to a near certainty of settlement of the case, simply does not work.”

The second limb of the Defendants’ attack upon the Claimants’ funding arrangements hinged upon whether or not those arrangements were reasonable arguing that, in the absence of any evidence of what led to the change in funding, the court had no basis upon which to find that it was reasonable to do so.

The Claimants’ relied upon Surrey v Barnet and Chase Farm Hospital and others [2016] EWHC 1598:

“i) There is a need for Paying Parties to raise a genuine issue before any investigation into the reason for the change in funding, advice given etc., will be undertaken (see paragraph 110).

ii) Foskett J warns against a detailed assessment becoming “…an arena for a wide-ranging inquiry into the decision-making processes as between the Claimant and his Solicitors…” (paragraph 99 refers).”

The Defendants’ attempted to show that the Claimants’ had been worse off as a result of the change in funding in addition to an argument that turned on the fact that in moving from a DBA to a CFA Lite (as was the case here), the change could not be considered reasonable as there was no consideration on the part of the solicitors.

However, the court ultimately agreed with the Claimants’ submission that no genuine issue had been raised and commenting that the Claimants had not been seeking to punish the Defendants by incurring extra costs:

“44…      but why should the Claimants not take the opportunity to ensure that their Solicitors were paid (and that the Defendants were liable to pay) something much closer to what the case actually cost to run? There is not the “double or quits” attempt, as in JN Dairies to add a large, retrospective Success Fee to the costs; rather the attempt was to remove a “cap” which may have left Candey with an unrealistic recovery. In fact, if the case had settled at above a certain figure (Candey put it at £950,000) they would actually be worse off than had they stayed with the DBA.”

Overall Master James agreed with the Claimants’ arguments, concluding:

“44…      upon the specific question of whether it is against the Kellar principle to switch from a DBA to a CFA in the way that the Claimant has done here, I find that it was not, and on the question of whether it was reasonable to do so I find that the Defendants have not reached the threshold of a genuine issue (per Surrey v Barnet and Chase Farm Hospital and others) and as such my comments above to the effect that it does not at first blush seem unreasonable, are perhaps obiter.

Whether this decision will encourage the uptake of Damages Based Agreements remains to be seen.