Factual and Procedural Background
These appeals arise from claims brought by residential tenants against their landlord, Company A, concerning alleged breaches of repair obligations under tenancy agreements. The solicitors representing the tenants entered into conditional fee agreements (CFAs) with indemnity provisions, under which the solicitors agreed to indemnify their clients against any liability for the defendant's costs if the claim was lost. The claims were settled, but a detailed assessment of costs was contested. The defendant challenged the enforceability of the indemnity provision on the grounds that it was champertous and thus void. The Deputy Master disallowed the solicitors’ costs post-CFA on this basis. The tenants appealed, and Macduff J reversed the Deputy Master’s decision, holding that the indemnity did not offend public policy. The defendant now appeals to the Court of Appeal, with the Law Society intervening in support of the tenants.
Legal Issues Presented
- Whether the indemnity provision in the conditional fee agreement, by which solicitors indemnify their client against liability for the defendant’s costs, is champertous and thus unenforceable under common law.
- Whether the law relating to champerty has evolved such that such indemnity provisions should no longer be regarded as champertous when entered into with those conducting litigation.
- Whether, if the indemnity is champertous, it can be severed from the rest of the conditional fee agreement, leaving the remainder enforceable.
- Whether the conditional fee agreement constitutes a contract of insurance under the Financial Services and Markets Act 2000, rendering it void for lack of authorization.
Arguments of the Parties
Appellant's Arguments (Company A)
- The indemnity provision is champertous because it gives the solicitors a financial interest in the outcome of the litigation beyond that permitted by statute.
- The indemnity renders the CFA unenforceable as it contains an integral, unlawful provision.
- The law of champerty has not weakened except by statute, particularly regarding agreements with those conducting litigation.
- On the insurance issue, the CFA should be regarded as a contract of insurance and thus void without appropriate authorization.
Appellee's Arguments (Plaintiff and Law Society)
- The law on champerty has evolved, requiring a case-by-case assessment rather than a strict prohibition of such indemnity provisions.
- The indemnity provision does not amount to champerty as it does not involve a share of the proceeds but only a risk of loss.
- There is no public policy justification for invalidating the indemnity or the CFA as a whole.
- If the indemnity were champertous, it should be severable, leaving the remainder of the CFA valid.
- The CFA is primarily a contract for legal services, not a contract of insurance, and thus not void under the Financial Services and Markets Act 2000.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| R (Factortame Ltd) v Secretary of State for Transport (No 8) [2003] QB 381 |
Champerty as a public policy rule; need for case-by-case assessment; distinction between those conducting litigation and others |
Used to explain modern approach to champerty, emphasizing protection of justice and the role of legislation in defining permissible agreements. |
| Wallersteiner v Moir (No 2) [1975] QB 373 |
Prohibition of contingency fees for solicitors; champerty involving financial interest in litigation outcome |
Reaffirmed principle that solicitors should not have financial interests in litigation outcomes beyond statutory allowances. |
| British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] 1 KB 1006 |
Definition of maintenance and champerty as officious intermeddling and division of spoils |
Adopted to clarify the nature of champerty and maintenance in assessing the indemnity provision. |
| Giles v Thompson [1994] 1 AC 142 |
Champerty and maintenance principles; importance of legitimate interest distinct from benefit sought |
Referenced to support the modern view that champerty depends on public policy and facts of each case. |
| Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629 |
Champerty's diminishing scope; public policy as a changing concept |
Used to illustrate the historical development and narrowing of champerty doctrine. |
| Thai Trading Co v Taylor [1998] QB 785 |
Enforceability of "no win no fee" agreements involving solicitors; reconsideration of champerty in modern context |
Discussed with caution; judgment considered per incuriam but noted for its progressive view on indemnity-like arrangements. |
| Awwad v Geraghty & Co [2001] QB 570 |
Reluctance to develop common law champerty when Parliament legislates; reaffirmation of strict rules for solicitors |
Supported the view that common law champerty rules remain largely unchanged for those conducting litigation. |
| Kellar v Williams [2004] UKPC 30 |
Call to reconsider champerty prohibition in light of modern practice |
Used to endorse the view that the law of champerty may be due for reassessment. |
Court's Reasoning and Analysis
The court analysed whether the indemnity provision in the CFA was champertous by examining the historical and modern principles of champerty and maintenance. It acknowledged that champerty traditionally involves a person supporting litigation in return for a share of the proceeds, i.e., a financial gain contingent on success. The indemnity provision, by contrast, only exposed the solicitors to a potential loss if the claim failed, without a corresponding gain if the claim succeeded.
The court noted that the law of champerty has evolved, with recent authorities emphasizing a fact-specific approach and the influence of statutory regulation, particularly the Courts and Legal Services Act 1990. However, it distinguished agreements involving those conducting litigation, which remain subject to stricter rules due to their unique role and duties as officers of the court.
The court found no precedent where indemnity provisions exposing solicitors solely to loss were deemed champertous and reasoned that extending champerty to cover such arrangements would be inconsistent with the modern trend to curtail champerty’s scope. It also considered access to justice and the practical difficulties faced by claimants in obtaining insurance, recognizing the indemnity’s potential utility in facilitating litigation.
Regarding the insurance issue, the court concluded that the CFA was primarily a contract for legal services with an ancillary indemnity clause, and thus not a contract of insurance requiring authorization under the Financial Services and Markets Act 2000.
Holding and Implications
The Court held that the indemnity provision in the conditional fee agreement is not champertous and is therefore enforceable. The appeal by the defendant was dismissed on the champerty issue, and permission to appeal on the insurance issue was refused.
The decision confirms that indemnity provisions where solicitors agree to indemnify their clients against adverse costs, exposing the solicitors only to loss without a financial gain from success, do not fall within the traditional rule against champerty. This preserves the enforceability of such indemnities and supports flexible funding arrangements in litigation, particularly where insurance is unavailable or costly.
No new precedent was established beyond affirming the current understanding of champerty’s scope in relation to solicitors conducting litigation and the role of statutory regulation.