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As pointed out in Callery v Gray this kind of arrangement has a serious effect on
costs.
(a)
Lord Nicholls, summarising submissions made in the appeal, described the
impact of the system as follows :-
"The consequence, it was said, of these arrangements, hugely attractive to claimants, is that
claimants are entering into conditional fee agreements, and after the event insurance, at an
inappropriately early stage. They have every incentive to do so, and no financial interest in
doing otherwise. Moreover, in entering into conditional fee agreements and insurance
arrangements they have no financial interest in keeping down their solicitors' fees or the
amount of the uplift or the amount of the policy premiums. Further, they have no financial
incentive to accept reasonable offers or payments into court: come what may, their solicitors'
bills will be met by others. So will the other side's legal costs.
As a result, it was said, the new arrangements, as they are currently working, are unbalanced
and unfairly prejudicial to liability insurers and the general body of motorists whose
insurance policy premiums provide the money with which liability insurers meet these
personal injuries claims and costs."
His Lordship commented that :-
"...... the criticisms outlined above give cause for serious concern. It is imperative that these
aspects of the new funding system should be watched closely as the system develops and
matures."
(b)
As Lord Hoffmann noted, the role of the costs judge or taxing master becomes
crucial. Judicial taxation of fees and disbursements becomes the sole means of
trying to hold costs in check
:-
"The transaction ...... lacks the features of a normal insurance, in which the transaction takes
place against the background of an insurance market in which the economically rational
client or his broker will choose the cheapest insurance suited to his needs. Since the client
will in no event be paying the success fee out of his pocket or his damages, he is not
concerned with economic rationality. He has no interest in what the fee is. The only persons
who have such an interest are the solicitor on the one hand and the liability insurer who will
be called upon to pay it on the other. And their interest centres entirely upon whether the
agreed success fee will or will not exceed what the costs judge is willing to allow."
Notes
[2002] 1 WLR 2000 at 2006 §§14-15.
Ibid, §16
Judicial fixing of success fees is controversial. See Halloran v Delaney [2003] 1 WLR 28, where the
English Court of Appeal gave guidance suggesting that success fees in simple, easily settlable, cases
should be limited to 5%. See the comments of Professor Zander, "Is this the end of conditional
fees " The Times, October 1 2002.
At 2008 §25.
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