The Supreme Court Costs Office
No.23 of 2004
Wood v Worthing & Southlands Hospitals NHS Trust
18 October 2004
Mr Justice Hodge (Sitting with Assessors)
In this case the Claimant received treatment for serious medical problems from the Defendant. Part of that treatment included the prescription of tablets but, by mistake, the Claimant was supplied with the wrong tablets and taking them substantially worsened his condition. Liability was never in dispute. At one time causation was in dispute but the Defendant subsequently admitted the causation of some harm to the Claimant and paid into court a sum exceeding £200,000. From then on the primary defence was that, although the admitted mistake had exacerbated the Claimant's serious medical problems, his health would have deteriorated to that extent anyway within ten years even if no mistake had ever been made.
At the time of the payment into court the Claimant, who was then legally aided, was advised to reject it. Legal aid was later withdrawn because of a substantial change in the Claimant's means and the Claimant entered into a conditional fee agreement (CFA) with the same solicitors specifying a success fee of 100%. The CFA was largely based on the Law Society Model but deleted the standard provision made in that model under the heading 'Paying us'. The standard provision is that, in the event of a failure to beat a payment into court which the solicitors advised the client to reject, the solicitors are entitled to base fees but cannot not add any success fee to the base fees payable after the payment in. Instead this agreement provided that, in the event of a failure to beat a payment into court which the Claimant had been advised to reject, the solicitor would not charge any fees (base fees or success fees) from a date shortly after the date of payment in. This alternative provision was included as paragraph 3(k) of a document headed 'Law Society Conditions as Modified by' the solicitors. These conditions were incorporated into the CFA by express reference. Paragraph 3(k) bore the heading: 'Part 36 Offers of Payments' and stated as follows:
'It may be that your opponent makes a Part 36 offer or payment which you reject and, on our advice, your claim for damages goes ahead to trial where you recover damages that are less than that offer or payment. If so, we will not charge you our basic charges for the work done after the 21 day period following receipt of notice of the offer or payment.'
Paragraph 3 of the Conditions was headed 'Explanation of Words Used' and included definitions of several technical terms (eg 'basic charges', 'damages', 'success fee' and 'win').
A provision dealing with the effect of a failure to beat a payment into court was also mentioned in the schedule to the CFA which explained the risk assessment made by the solicitors so as to justify the success fee of 100%. The key words in the schedule were as follows:
'Part 36 Offer Yes
Is it likely the defendant will make an early Part 36 offer which will cause difficulties? (This is particularly important if taking over a claim from other solicitors.)
Payment into court in November 2001. Possibility it will not be beaten.'
Nearly one year after the CFA was made the parties negotiated terms of settlement which took the form of a consent order under which the Defendant was to pay a sum exceeding £400,000 plus costs.
At the detailed assessment of the Claimant's bill of costs, the Costs Judge gave a preliminary ruling that no success fee was justified. This was because clause 4 of the conditions stated:
'If you win:
You are then liable to pay all our basic charges, success fee, VAT, your disbursements and insurance premium'
and paragraph 3(n) defined 'win' as meaning:
'Your claim for damages is finally decided in your favour'
The Costs Judge relied upon the principles set out in Lord Hoffman's speech in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912. Lord Hoffman said:
'Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.'
The Costs Judge took the view that a reasonable person, having all the background knowledge which would reasonably have been available to the parties, would read the passages entitled 'if you win' and the definition of the word 'win' but would not go on to read the qualification made by paragraph 3(k).
Allowing the appeal the learned Judge held:
(1)Is was not appropriate in this case to apply the reasonable man test described by Lord Hoffman in such a way as to render passages of an agreement as having no effect. To do so in this case would mean that the solicitors would be entitled to base costs (and a success fee) whether or not the payment into court was beaten. That cannot have been the intention of either party.
(2)Although paragraph 3(k) was wrongly described in the contract as if it comprised a definition only, that paragraph and the concluding words of the schedule did make real reference to what was to happen in relation to a Part 36 payment which was not beaten.
(3)Despite the infelicity of drafting, the CFA did put the solicitor at risk of receiving no costs following a payment into court had that payment not been beaten.
The appeal was allowed and the case was remitted to the Costs Judge to complete the detailed assessment subject to the following ruling: one of the factors to be taken into account in assessing the success fee is the risk that the receiving party's legal representative would not be paid any of their charges on the grounds that the receiving party might not do better than the Part 36 payment which the receiving party had already rejected on their advice.
The Claimant was awarded his base costs of the appeal which were summarily assessed. At the ensuing detailed assessment the Costs Judge would determine what to allow as the success fee thereon and also who should be awarded the costs of the proceedings immediately prior to the appeal.