UK: Insurance And Reinsurance Weekly Update - 14 May 2013

Last Updated: 23 May 2013
Article by Nigel Brook

Welcome to the seventeenth edition of Clyde & Co's (Re)insurance and litigation case law weekly updates for 2013.

These updates are aimed at keeping you up to speed and informed of the latest developments in case law relevant to your practice.

This week's case law

Khans Solicitor v Chifuntwe & Anor
Court of Appeal determines the entitlement of solicitors to their costs from a third party which settled with their client.

Jones & Ors v Secretary of State for Energy
A case on discretionary interest on costs where solicitors had funded their clients' disbursements.

Khans Solicitor v Chifuntwe & Anor

Entitlement of solicitors to their costs from third party which settled with their client

The first instance decision in this case was reported in Weekly Update 28/12. The claimant firm of solicitors acted for the defendant in proceedings which were settled. The other side (the Home Secretary) agreed to pay GBP 6,000 towards the defendant's costs (his solicitors having submitted a bill for GBP 9,500). However, the defendant had only paid GBP 1,500 on account to his solicitors and he disappeared with the balance of the payment from the Home Secretary. The solicitors sought to recover GBP 4,500 (ie GBP 6,000 less GBP 1,500) from the Home Secretary. At first instance it was held that, in the absence of collusion between the Home Secretary and the defendant, the Home Secretary was not liable to the solicitors.

The Court of Appeal has now allowed the solicitors' appeal from that decision. It was not necessary to prove collusion - it would suffice if the Home Secretary was put on notice of the solicitors' legitimate interest in the payment: "No authority inhibits us from holding, as we would do, that a paying party who is on notice that the receiving party's solicitor has a claim for fees upon part or all of the sum due pays the receiving party directly at his own risk. Collusion is not necessary".

However, the Court of Appeal recognised the practical difficulties which this conclusion could present. For example, a paying party might not know who to pay (but will equally be keen to avoid incurring interest on the payment). It might, in certain circumstances, be possible for the paying party to make a payment into court pending a determination as to allocation. However, that was not done in this case. On the facts, the Court of Appeal held as follows:

  1. When the Home Secretary entered into the settlement with the defendant, she had not been on notice of any contrary claim by the solicitors. Accordingly, the settlement was binding.
  2. However, at the time of payment, the Home Secretary had become aware of the solicitors' claim and hence the payment could not stand as a good discharge of that claim. It must therefore be made again. Accordingly, the Home Secretary was ordered to pay GBP 4,500 to the solicitors.

Jones & Ors v Secretary of State for Energy

Discretionary interest on costs where solicitors funded their clients' disbursements

The defendants were ordered to pay 80% of the claimants' costs. The claimants sought pre-judgment interest on the disbursements which they had paid. The claimants had entered into an arrangement with their solicitors whereby the solicitors provided credit for payment of the disbursements. Thus, rather than the solicitors funding the disbursements themselves, they agreed that, if the claimants won, they would receive 4% above base rate interest, but if the claimants lost, the claimants' ATE insurer would pay the disbursements.

The court has a discretion to award interest on costs. In Bim Kemi v Blackburn Chemicals [2003], the Court of Appeal said that the norm would be 1% over base rate. However, here the defendants sought to argue that the claim for interest on disbursements was, in effect, the solicitors' (and not the claimants') claim. Had the solicitors carried the cost of funding as part of their overheads, no interest on those disbursements would have been recoverable from the defendants.

That argument was rejected by the judge. She said the position was in reality no different from that which would have existed if the claimants had taken out loans from a bank to fund their disbursements and had agreed to pay interest to the bank. In that case, the claimants would have been entitled to interest on their disbursements. Furthermore, there was no evidence that the claimants could have obtained the necessary funding at a more advantageous rate of 4% above base rate and "the fact that, under the credit agreements, the claimants' liability to pay the credit charges was contingent on the success of their claims does not seem to me to alter the nature of the agreements". Accordingly, the judge awarded interest on pre-judgment disbursements at 4% above base rate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Nigel Brook
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