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Costs: Sousa v London Borough of Waltham Forest Council [2011] EWCA Civ 194

In Sousa the issue before the Court of Appeal was whether the court should have regard to the fact that a claimant is insured (and has been fully indemnified) when considering whether it is reasonable for a claimant (and/or his insurers) to instruct solicitors on terms that include a success fee.

Mr Sousa's ("C") house was damaged by subsidence. The trees which caused the damage were the responsibility of the Waltham Forest Council ("D"). C was indemnified by his insurers for the damage. The insurers then exercised their right of subrogation and required C to bring a claim against D, instructing a firm of solicitors with whom the insurer had entered into a collective conditional fee agreement ("CCFA").

The majority of the Court of Appeal held that:

  1. The court should not look "behind the curtain" and the fact that C was indemnified was irrelevant. (Ward LJ dissented on this point and held that CPR44.3 requires the court to have regard to all the circumstances when making an order as to costs and, therefore, the court must look to the reality of the situation. However, the reality was that C had little choice but to do what the insurer wished in advancing his claim and C could not refuse to acknowledge or accept the CCFA arrangement made by the insurers.)
  2. In any event, it was reasonable for the insurer to enter into a CCFA. Following the House of Lords decision in Campbell v MGN (No 2) [2005] UKHL 61 there was no doubt that insurers are entitled to enter into CFAs. It must be reasonable for the rich as well as the poor to take advantage of arrangements which the law permits.

The court discussed the impact of the European Court of Human Rights (ECtHR) decision in MGN v The United Kingdom (No. 39401/04) (see Round-Up, March 2011). The ECtHR held that requiring MGN to pay a success fee was a disproportionate interference with MGN's right to freedom of expression. However, the Court of Appeal considered that in the present case D was not alleging any infringement of its Convention rights and that, in any event, the Court of Appeal remains bound by the decision of the House of Lords in Campbell v MGN (No.2).

It appears that the Lords Justices of Appeal reached their conclusions somewhat reluctantly. Both Lord Justice Ward and Lord Justice Moore-Bick endorsed the recommendation of the Jackson Report that insurers can and should bear the costs of proceedings for damages caused by subsidence without recourse to CCFA's. Lord Justice Ward comments: "I cannot but feel that in many respects CFAs have operated as a bonanza for insurers and their lawyers... Let Jackson LJ's reforms be enacted sooner rather than later."

/ 1st May 2011


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