The Law Society intervened in the case of Sibthorpe & Anor v London Borough of Southwark [2011] EWCA Civ 25 because of the importance to the legal profession of the issue in question. Was an indemnity for adverse costs, provided by a solicitor to its client in a CFA, champertous? The defendant in this housing disrepair claim said it was making the CFA unenforceable.
The matter went to the Court of Appeal and the Master of the Rolls give the leading judgment. There was no challenge to the validity of the CFA other than for the indemnity clause which read:
If you lose, you pay your opponent’s charges and disbursements. You may be able to take out an insurance policy against this risk. If you are unable to obtain an insurance policy against this risk, we indemnify you against payment of your opponent’s charges at the end of the case if you lose. This means that we will pay those charges.
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The court accepted that “no case has been cited in which it has been held to be champertous for a person to agree to run the risk of a loss if the action in question fails, without enjoying any gain if the action succeeds.” The various judicial definitions of champerty all envisaged a gain if the action succeeded rather than a loss if it failed. Therefore to rule this CFA as champertous would be expanding the definition. The court did not feel able to do that and so the CFA was valid and enforceable. Lord Neuberger said :
Access to justice is an essential ingredient of a modern civilised society, but it is difficult to achieve for the great majority of citizens, especially with the ever reducing availability of legal aid. This has been accompanied by a shift in legislative policy towards favouring the relaxation of previously tight professional ethical constraints, in order to enable a variety of more flexible funding arrangements (which some applaud and others believe give too much weight to consumerism and involve expensive regulation). In these circumstances, I find it hard to accept that, by shouldering the risk of an adverse order for costs against his client, a solicitor is acting contrary to public policy, which is, of course, the basis for the law of champerty. It is one thing to say, in relation to contracts with those who conduct litigation, that the reach of champerty should not be curtailed by the courts. It is quite another to say that, in relation to such contracts, the law of champerty should be expanded.
The case is important currently for this type of case where ATE insurance is difficult to find or prohibitively expensive. It may have even greater importance if Lord Jackson’s proposals to restrict the recoverability of ATE premiums is enacted.
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