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Can insurers bringing a subrogated claim recover a success fee? Shirley Denyer and Raj Patel report
In Sousa v London Borough of Waltham Forest Council [2011] EWCA Civ 194, the Court of Appeal has given its judgment on an issue which also exercised Lord Justice Jackson: the use of CFAs by insurance companies when bringing subrogated claims against local authorities for tree-root damage suffered by their policyholders.
The court held that there was nothing within the law preventing an insurer using a CFA/CCFA to fund the subrogated claim and to then recover a success fee under the agreement as part of a costs award. As the court had called for written submissions, after the appeal hearing, on the ECHR case of MGN v UK, there was some expectation that the lords might respond to that judgment in some way. In fact, although MGN was referred to in the judgment, the approach was conservative, with the judges unwilling to go beyond the fact that the court remains bound by the House of Lords in Campbell v MGN (No 2).
While Sousa provides that a success fee may be recoverable where there is a CCFA/CFA between an insurer and a claimant panel solicitor, it does not appear that the assessment of the success fee, which had been reduced to 54 per cent in the court below, was argued in this appeal. Further, the court was forced to make broad assumptions as to the workings of the CCFA '“ the CCFA terms were not disclosed. The court adopted the working hypothesis that it provided for 'no fee' in the instance of a lost case and a success fee where a case was won.
In practice CCFAs do not always adopt the form of a pure 'no win, no fee' agreement, providing, instead, for a 'low fee' in the event of loss, and do not usually provide funding for disbursements. In such cases it may be arguable that the recoverable success fee should be much reduced. Paying parties, while having to accept that they must pay a success fee, are now likely to turn their attention to the amount.
'A bonanza'
It may seem ironic that the first major case to consider the recoverability of success fees after MGN v UK should be one in which an insurer is seeking to benefit from a CFA/ CCFA with a success fee. Lord Justice Ward confessed that on the 'vexed topic of conditional fee arrangements' he had 'lived in blissful ignorance of its finer ramifications'. There will be those who feel that in describing CFAs as 'in many respects a bonanza for insurers and their lawyers', he is taking a rather narrow view.
The judgment concerns a specific issue: can an insurer bringing a subrogated case use a CFA/CCFA and recover a success fee? The judges' answer is a rather reluctant: yes they can. In the marketplace this decision is likely to attract a mixed reaction, with parties bringing subrogated claims welcoming a successful result just as local authorities and other paying parties will be disappointed.
Aside from this narrow legal point, the consideration of MGN v UK by the lords raised the prospect of a decision on CFAs of wider significance, affecting personal injury claims, but the court has rejected the wider arguments put before it challenging the CFA regime on the grounds of economic impact and human rights.
On the issue of reform, Lord Justice Ward called in his judgment for the Jackson reforms to be implemented 'sooner rather than later'. As Moore-Bick LJ noted in his judgment, the decisions on CFA reform are now ultimately a matter for parliament.