Law firms cannot be held liable for disbursement costs, rules CoA

Firms cannot automatically be held liable for costs when they have funded a claimant’s disbursements in a failed claim, the Court of Appeal has ruled.

The decision, handed down by Lord Justices Mummery, Richards and Leveson yesterday, will come as a relief to claimant firms but a blow to the appellant who may now face an adverse costs claim.

Commenting on the ruling Hardwicke’s PJ Kirby QC said: “Solicitors acting under CFAs will be relieved that the Court of Appeal has confirmed that indemnifying a client in respect of disbursements or even adverse costs will not normally lead to laying themselves open to an adverse third party costs order.

“However the facts of this particular case illustrate the conflicts of interest that can arise between a solicitor and client; and those solicitors who press on with claims despite the concerns – or in this case clearly expressed protestations – of their own client may well face adverse costs orders.”

The CoA had strong words for the firm at the centre of the legal fiasco, Godfrey Morgan Solicitors, which is also known as Norwich-based GMS Law, stating that it was a matter of concern that the firm had managed to build up costs in relatively simple cases.

In essence the case concerned a disclosure bid by the defendant insurer in two separate and unrelated personal injury (PI) claims being pursued against it by GMS.

The court was asked to consider whether the firm should reveal whether it had funded the disbursements in the claims.The firm was appealing disclosure orders made against it.

The CoA, however, upheld the first instance ruling that it should, paving the way for a wasted costs case against the firm.

The first PI case concerned a claim by a motorist who, having fallen off his bike onto gravel on the road, sued the day nursery he claimed was responsible for the gravel.

That case was lost but not before the firm ramped up costs of £20,652, compared with the defendant’s £14,420 costs. There was no legal expenses in place and the motorist turned out to be impecunious.

“It is a matter of concern that so much time could apparently have been spent by the solicitors on what is comparatively straightforward litigation,” Leveson LJ said in his ruling.

The second PI action concerned an individual, Richard Weddall, who launched a vicarious liability suit against his employers after he was assaulted on the job.

The judgment reveals that despite Weddall suggesting the case should be halted because he did not have legal expenses cover, the firm persisted and billed ‘profit costs’ of £23,500.

The judge reiterated: “Once again, I repeat that it is a matter of concern that so much time could apparently have been spent by the solicitors on litigation which was likely to turn entirely on a narrow point of law, namely the issue of vicarious liability.”

The disclosure, the judge said, was “more than enough to enable the defendant’s insurers in Weddall to decide whether it is appropriate to pursue a third party claim for costs or a wasted costs order against GMS Law or whether, alternatively, in an effort to recover the outlay on costs, to seek to pursue GMS Law through Mr Weddall and any potential claim that he might have by way of breach of contract or other duty to recover whatever sums he is ordered to pay by way of costs.”

The judge said the insurers had already launched a claim.

The case highlights the conflicting natured of the now-defunct no-win no fee system. It attracted an intervention from the Law Society because, it argued, without lawyers agreeing to fund some cases access to justice would be blocked.

The legal lineup

For the appellants

Hailsham Chambers’ James Carpenter instructed directly by Godfrey Morgan Solicitors Ltd trading as GMS Law)

For the respondents
Crown Office Chambers’ Simon J Brown leading Richard Sage of the same set instructed by Plexus Law partner Alan Rennie

For the intervenors the Law Society
Landmark Chambers’ David Holland QC instructed directly by the Law Society