锘縄t鈥檚 never good to lose a case, but it must really hurt to then be told you have to pay your opponent鈥檚 legal fees, and at double the usual rate
If I had ever taken out the supermodel Naomi Campbell, walked hand-in-hand o鈥檈r hills and dales, rested a while in the heather, I would have told you about it. Good job I didn鈥檛: she may have sued for breach of confidence. And her lawyers would likely have agreed something called a CFA (the proper name is a 鈥渃onditional fee agreement鈥�) and on ATE (鈥渁fter the event鈥�) insurance with her.
That鈥檚 what she did when the Daily Mirror ran a story about her. It went all the way to the House of Lords. She won 拢3,500 - but the newspaper group also faced her lawyer鈥檚 bill of more than 拢1m in costs. Much of it was to do with the CFA and ATE. The case about costs has gone all the way to the European Court of Human Rights.
Let me explain how all this works. Your friendly lawyer advises you to sue on the building contract. What about his fees though? He likes you so much he offers a 鈥橬o win, No fee鈥� deal
Three weeks ago (14 January 2011) I told you here about a building case, Redwing vs Charles Wishart. Redwing Construction claimed 拢100,000 in the High Court as a result of an adjudication, but didn鈥檛 pay. The judge ordered payment. The judge then ordered that the losing party pay Redwing鈥檚 lawyers鈥� costs. But wait, Redwing had a CFA and ATE.
Let me explain how all this works. Your friendly lawyer advises you to sue on the building contract. What about his fees, though? He likes you so much he offers a
鈥渘o win, no fee鈥� deal, or more properly, a 鈥渃onditional fee agreement鈥�. Instead of charging you whatever per hour or minute, he will do it for free. He will write to the opponent and inform them that his client is 鈥渙n a CFA and will double his usual hourly lawyer rate if his client wins鈥�. The kick in the groin is that should the opponent lose, the opponent will pay double.
It gets better. Your lawyer also informs the opponent that your side has paid an insurer a premium so that if by chance he loses, then the insurer will pay the opponent鈥檚 costs. But if he wins, the 鈥渁fter the event鈥� insurance premium is payable by the other side, as well as the CFA costs. All of this is quite lawful.
The rules for awarding costs work on the principle of 鈥渃osts follow the event鈥�: the loser is likely to have to pay the winners costs
Redwing won an adjudication but the loser didn鈥檛 honour the award. The High Court enforced. Redwing鈥檚 solicitors鈥� bill - payable by the loser - would have been a respectable 拢13,282. But now the CFA 100% mark-up was applied, increasing the costs to 拢26,565. On top of that was the ATE insurance premium of 拢8,480. Mr Justice Akenhead looked hard at the 100% up-lift and the use of ATE insurance. And by the way, on the same day in Strasbourg, the European Court of Human Rights was examining the CFA and ATE of Miss Naomi Campbell.
OK, the rules for awarding costs work on the principle of 鈥渃osts follow the event鈥�: the loser is likely to have to pay the winners reasonable costs. The base rule is subject to the 鈥渄iscretion鈥� of the court or arbitrator. Then when a judge or arbitrator examines the actual costs he makes another judgement call: whether the bills are 鈥減roportionate鈥� when considering complexity, skill, specialised knowledge required, sums involved and more besides. And again for the percentage uplift on basic hourly lawyers鈥� rates. In short, the tribunal is entitled to weigh up how reasonable and proportionate these CFA and ATE arrangements are.
In terms of the uplift awarded with the CFA, Mr Justice Akenhead said: 鈥淭he greater the prospects of success the lower the reasonable and proportionate percentage (uplift) will be. It is difficult to be prescriptive about this, however, and there is no magic sliding scale.鈥�
Helpfully, though, he added that for both the CFA and the ATE, irrespective of what premium was paid, the amount payable by the loser has to reflect the prospects of success in the litigation or arbitration. The premium ought to be low when the prospects of success are good or high.
As to Redwing using a CFA and ATE in court to enforce an adjudicator鈥檚 decision, that is perfectly reasonable, said the judge.
As to the 100% mark-up, he took the view that the risk of Redwing losing was small. As to the insurance premium of 拢8,480, that seemed 鈥渟ubstantially excessive鈥� for a risk of 拢20,000. In the end the judge said of the CFA that he would allow a 20% mark-up and he discounted the ATE by 80%.
As to Miss Campbell鈥檚 uplift, the European Court did a downgrade. I wonder how she鈥檚 fixed for lunch鈥�
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