A costs judge has rejected a challenge to a decision by claimants to change their funding from a damages-based agreement (DBA) to a conditional fee agreement (CFA) shortly before trial, as a result of which they have more than doubled their costs claim.
Master James (pictured) ruled that the defendants did not raise a “genuine issue” over the reasonableness of the decision.
In Dial Partners LLP and Anor v Eastern Airways International Ltd and Ors  EWHC B1 (Costs), under the DBA signed in March 2015, the claimants’ solicitors, Candey, were to receive 50% of the proceeds of the claim. In November 2016, less than two weeks before the date listed for trial, this was replaced by a CFA.
The claim settled on the eve of trial for £625,000 inclusive of VAT and interest, but excluding costs. The defendants’ liability under the DBA would have been a maximum of £250,000 plus disbursements other than counsel’s fees. Under the CFA, however, the claimant was seeking costs of £523,000.
The defendants were notified of the DBA but not the switch to the CFA. A defendants’ £300,000 part 36 offer was open at the time of the switch.
The claimants argued 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.
They said there was no evidence that they had factored in the DBA ‘cap’ when making the change. There was also no obligation post-LASPO to tell an opponent in a case such as this about their funding arrangements.
The defendants sought to rely on the principle established in Kellar v Williams  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 argued that this could apply in certain circumstances – such as a part 36 offer – before trial too.
Master James said: “The claimants’ case is that this change from DBA to CFA was not a mere tactical step to take advantage of a near-certain settlement; as far as they were concerned, the matter might well have fought on to trial and the outcome thereof could not be predicted merely because a defendants’ part 36 offer had been made. I have to say that, based upon the facts and figures above referred to, I accept that submission.
“The claimants did not receive an offer of £300,000, craftily change their retainer and then accept that offer a day later; they received an offer of £300,000, changed their retainer but fought or at least negotiated on for almost two more weeks, until the eve of trial when they settled over the weekend for more than double what the defendants had on the table at the time that the retainer was changed.
“As such, I do not find that the claimants fall foul of the Kellar principle on the facts of this case and nor do I find that, once a part 36 offer has been made, settlement is a near certainty.”
The claimants relied too on the ruling of Mr Justice Foskett in Surrey v Barnet and Chase Farm Hospital and others  EWHC 1598 that a paying party has to raise a “genuine issue” before any investigation into the reason for the change in funding, advice given etc, would be undertaken.
Master James agreed that the defendants had not raised a “genuine issue” as far as reasonableness was concerned and “therefore for present purposes, it was not for me to decide upon the attraction to the claimants of an award of full damages plus full costs, or at least of costs on the standard basis to be assessed if not agreed under a CFA, rather than of full damages out of which costs to a maximum of half of the damages award must be paid and with the defendants’ liability to repay those costs likewise ‘capped’ at half the damages award under the DBA, but it seems straightforward enough.
“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 put it at £950,000), they would actually be worse off than had they stayed with the DBA.”