Last minute change from DBA to CFA did not prevent the Claimant from seeking a full recovery of their costs.
Dial Partners LLP and Anor v Eastern Airways International Ltd and Ors [2018] EWHC B1 (Costs)
In January 2018 the High Court has ruled that the Claimants did not act unreasonably in switching funding from a damages-based agreement (DBA) to a conditional fee agreement (CFA) shortly before trial and allowed the Claimants to claim higher costs on the new deal. This significantly changed the Defendants’ costs liability. However, it was found that the Defendants had not raised a “genuine issue” as far as reasonableness was concerned and the decision was made in favour of the Claimants.
The issue discussed in this case relates to the Claimants’ entitlement for recovering full costs following the change in funding agreement from DBA to CFA shortly before trial.
The Claimants’ case initially proceeded by way of a DBA dated 19 March 2015, under which their solicitors would receive 50% of the proceeds of the claim. On 2 November 2016, less than 2 weeks before trial, which was listed to take place on 14 November 2016, the Claimants replaced their DBA with a post-LASPO CFA. The Defendants were notified of the DBA, but they were not notified regarding the switch to the CFA. Also the Defendants’ £300,000.00 Part 36 offer was open at the time of the switch.
On the eve of trial the matter eventually settled for £625,000.00 inclusive of VAT and interest, but excluding costs.
The effect of the changing funding arrangements was significant. The Defendants’ liability under the DBA would have been a maximum of £250,000.00 plus disbursements other than counsel’s fees. Under the CFA, however, the Claimant was seeking costs of £523,032.76.
The Defendants’ argued that “they should not be held liable for anything more than the amount generated had the original DBA remained extant at the time of settlement, further stating that they had believed that the DBA was still in existence when they settled the matter”. They sought to rely on the principle established in Kellar v Williams [2004] UKPC 30, in which the Privy Council held that, where a costs agreement was amended after judgment, the paying party could elect to pay costs under the old agreement or the new, as best suited their client. They submitted that this could apply in certain circumstances, such as a Part 36 offer, before trial too.
In response to the Defendants’ argument the Claimant submitted that both the DBA and CFA were valid and enforceable retainers and that there was no effective ground upon which the Defendants could criticise them for the decision to switch from one form of funding to the other in and of itself. The Claimant also highlighted the fact that post-LASPO there is no obligation to inform an opponent regarding funding arrangements.
The second issue raised by the Defendants was whether or not the Claimants’ funding arrangements were reasonable. In that regard the Claimants relied on the ruling of Mr Justice Foskett in Surrey v Barnet and Chase Farm Hospital and others [2016] EWHC 1598 that a paying party has to raise a “genuine issue” before any investigation into the reason for the change in funding would be undertaken.
The High Court agreed with the Claimants’ submissions and it was found that the “change of funding from DBA to CFA was not merely a tactical step to take advantage of a near-certain settlement”.
On the question of reasonableness, the Court agreed with the Claimants again and it was found that no “genuine issue” had been raised. Further, the judge added: “It is not that the Claimants would wish to “punish” the Defendants by incurring an extra costs burden just in order to pass it on to them, 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?… In fact, if the case had settled at above a certain figure (Candey [the Claimants’ Solicitors] put it at £950,000) they would actually be worse off than had they stayed with the DBA.”
In conclusion the judge said: “… 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.”
The outcome of this case is significant for Claimants. This decision clearly emphasises the importance of the raising a “genuine issue” before any investigation into the reason for the change in funding would be undertaken as “the change in funding arrangements from a DBA to a CFA is not objectionable per se”.
Tanya Bland