SCCO Ref: CCD 0707416
SUPREME COURT COSTS OFFICE
London, EC4A 1DQ
B e f o r e :
| LINDSEY FINDLEY
(By his sister and Litigation Friend
Joy Findley Clarke)
|- and -
|BARRINGTON JONES (1)
MOTOR INSURERS' BUREAU (2)
Mr Roger Mallalieu (instructed by McCullagh & Co) for the Second Defendants
Hearing dates: 27, 28 and 30 October 2008
Crown Copyright ©
|THE TAG SCHEME||7|
|THE POSITION OF THE PARTIES||13|
|The First CFA||18|
|The Second CFA||43|
|The Appointment of the Litigation Friend||52|
|The Claimant's Capacity||58|
|The Letter of 4 May 2006||60|
|THE CONDITIONAL FEE AGREEMENT DATED 20 JULY 2001: (ISSUES 1, 2 AND 3)||78|
|THE CLAIMANT'S CAPACITY: ISSUES 4, 5, 6 AND 7||99|
|THE LETTER OF 4 MAY 2006: ISSUES 8 AND 9||132|
|THE SECOND CFA: ISSUES 10 AND 11||137|
|Does the Second CFA Comply with the Regulations?||146|
|THE INDEMNITY PRINCIPLE AND THE LEI POLICY: ISSUE 12 AND ISSUE 13||160|
|The Conditional Fee Agreement dated 20 July 2001||172|
|The Letter of 4 May 2006||179|
|The Second CFA||181|
|The Indemnity Principle and the LEI Policy||185|
Chief Master Hurst:
i) the conditional fee agreement dated 20 July 2001;
iii) the letter of 4 May 2006;
iv) the second conditional fee agreement;
v) the indemnity principle and the legal expenses insurance (LEI) policy.
The Conditional Fee Agreement dated 20th July 2001
1. Is the Conditional Fee Agreement dated 20th July 2001 unenforceable because of a material breach of Regulation 4(2)(a) to (e) and 4(3) of the Conditional Fee Agreement Regulations 2000 in that the Claimant's solicitor failed to provide any or any adequate oral explanation of the matters required by those regulations before the CFA was entered into?
2. Is the CFA dated 20th July 2001 unenforceable because of a material breach of Regulation 4(2)(c), (d) and/or (e) in that the Claimant's solicitor failed to provide the Claimant with the information required by those regulations, namely:
i. Whether the solicitor considered that the Claimant's risk of incurring a liability for costs was insured under an existing contract of insurance
ii. Whether other methods of financing the costs were available and, if so, how they applied to the Claimant and the proceedings in question
iii. Whether the solicitor considered any particular insurance product was appropriate and, if so, his reasons for doing so.
because he wrongly considered himself unable to do so and had concluded that the Claimant was 'contractually bound' to effect an insurance policy with TAG?
3. Did the Claimant solicitor have any discloseable interest in the TAG policy in the sense required by Regulation 4(2)(e)(ii)? If so, is the CFA dated 10th July 2001 unenforceable because of a material breach of Regulation 4(2)(e) in that the Claimant's solicitor failed to disclose that interest adequately or at all before the Claimant entered into the CFA?
4. Did the CFA with the Claimant come to an end as a result of a lack of capacity on the part of the Claimant at any stage during the conduct of the claim?
5. If so, is there any alternative basis on which the Claimant or his Litigation Friend can seek to recover costs claimed in the bill after the date on which the CFA came to an end?
6. If so, is any such alternative basis in any event a contingent retainer which does not comply with s.58 Courts and Legal Services Act 1990 and/or the Conditional Fee Agreement Regulations 2000 (if applicable) and is therefore unenforceable?
7. In any event, if the original CFA was terminated at any stage prior to the case being 'won' is the claimant liable for any costs under that CFA and accordingly is the claimant able to recover any such costs inter partes?
The letter of the 4th May 2006
8. What is the status and effect of this letter (if and in so far as it is relied on by the Claimant)? In particular, does it amount to a reasonable variation of the retainer (if any) between the Claimant and the solicitor so as to allow the solicitor to vary the hourly rates unilaterally and without apparent limit in circumstances where the original CFA provides for any increase to be by no more than the increase in the Retail Price Index?
9. Does the letter amount to any wider variation of the terms of the retainer, in particular by:
i. Providing that the client will be charged for work done and expenses incurred even if the matter does not proceed to completion
ii. Including a provision for charging the Claimant interest, which was not present in the original CFA
iii. Including provisions in relation to the Claimant's liability to the solicitors on termination of the agreement that are more onerous to the Claimant than those originally provided for by the CFA?
If so, is the varied contract binding on the Claimant so as to allow the recovery of fees and expenses inter partes, whether at the rates claimed or at all?
The second CFA
10. Did the claimant enter into a second CFA in autumn 2002?
11. If so:
(i) Does the second CFA comply with the regulations? In particular is the claimant able to show compliance with regulation 4, especially (but not limited to) regulation 4(2)(d)?
(ii) Is the second CFA void because of undue influence, abuse or confidence and/or lack of consideration? In particular, was the claimant advised in relation to the potential unenforceability of the first CFA and was the claimant advised to seek independent legal advice?
(iii) Was the first CFA terminated when the second CFA was entered into? What is the effect of the second CFA on the client's liability for costs under the first CFA?
The indemnity principle and the LEI policy
12. Was the claimant's liability for the own disbursements limited by reference to the extent of his legal expenses insurance cover and his potential liability for adverse costs? If so, what is the effect on his ability to recover costs inter partes?
13. In any event does any failure to explain to the client any potential liability for own and/or adverse costs in excess of the limits of the legal expenses insurance policy amount to a (further) breach of regulation 4(2)(a) and/or 2(1)(b) such as to render the CFA unenforceable?
THE TAG SCHEME
"The general objective of this part is the development of legal services in England and Wales (and in particular the development of advocacy, litigation, conveyancing and probate services) by making provision for new or better ways of providing such services and a wide choice of persons providing them, while maintaining the proper and efficient administration of justice."
Sections 58 and 58A of the 1990 Act were inserted into Part 2 of that Act by the Access to Justice Act 1999 and are thus covered by the Statutory Objective.
"4(1) Before a conditional fee agreement is made the legal representative must –
(a) inform the client about the following matters, and
(b) if the client requires any further explanation, advice or other information about any of those matters, provide such further explanation, advice or other information about them as the client may reasonably require.
(2) Those matters are:
(a) the circumstances in which the client may be liable to pay the costs of the legal representative in accordance with the agreement,
(b) the circumstances in which the client may seek assessment of the fees and expenses of the legal representative and the procedure for doing so,
(c) whether the legal representative considers that the client's risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance,
(d) whether other methods of financing those costs are available, and, if so, how they apply to the client and the proceedings in question,
(e) whether the legal representative considers that any particular method or methods of financing any or all of those costs is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular such contract:
(i) his reasons for doing so, and
(ii) whether he has an interest in doing so.
(3) Before a conditional fee agreement is made the legal representative must explain its effect to the client.
(5) Information required to be given under paragraph (1) about the matters in paragraphs (2)(a) to (d) must be given orally (whether or not it is also given in writing), but information required to be so given about the matters in paragraph (2)(e) and the explanation required by paragraph (3) must be given both orally and in writing.
THE POSITION OF THE PARTIES
i) That the first CFA is unenforceable.
ii) That no second CFA was entered into, or, if it was, that the second CFA is unenforceable.
iii) In the event that the second CFA is found to have been entered into, that nothing is payable under the first CFA in any event, whether it is enforceable or not.
iv) That in any event the retainer with the Claimant, whether under the first or second CFA, determined as a result of his lack of capacity on a date to be decided by the court.
v) That there is no, or only a limited, liability for costs up to the date the retainer was determined.
vi) That there was no retainer with the Litigation Friend thereafter. Alternatively, any such retainer was an unenforceable CFA.
vii) That in any event any liability for disbursements cannot exceed a maximum of £50,000 (the limit of indemnity under the ATE policy).
i) The solicitors complied with Regulation 4(2)(e).
ii) If there was a breach it was not material.
iii) If the first CFA is enforceable, the second CFA is of no effect.
iv) If the first CFA is unenforceable, the second CFA is enforceable.
v) At the time of the second CFA there was a binding contract of ATE insurance and Regulation 4(2)(e) did not apply.
vi) If Regulation 4(2)(e) did apply, the solicitors nevertheless provided the necessary information, both orally and in writing.
vii) If the information regarding the solicitors' interest in the TAG policy was not properly provided, that failure would not be material because that information would have been of little value to the Claimant, who by then already had ATE insurance.
viii) When Mrs Findley Clarke became Litigation Friend she had the authority to, and did, affirm or ratify the CFA between the Claimant and his solicitors.
ix) If both CFAs are unenforceable the Claimant is nevertheless entitled to recover the costs of his disbursements and counsel's fees for which he took out a loan.
"It was then my practice to telephone each and every client to speak to them individually and ask them to explain exactly how the accident happened and to find out what supporting evidence was available … whilst on the telephone with the client I would go on to give the client the advice required under Regulation 4 of the Conditional Fee Agreement Regulations 2000."
The First CFA
"13 July 2001
I rang client to check out case. It looks like a substantial claim. I explained who I was and that his case had been referred to us via The Accident Group and I am a panel solicitor. He did not seem to be able to understand this. I then explained about the CFA we were sending him and asking him to sign, liability for our costs, etc, financing of the case and whether he had any existing insurance policies. I don't think he understood a word I said. I tried again slowly and kept it to basics but with respect to him, he is clearly a man of limited intelligence. I confirmed that the TAG rep would come out to his home and take him through the papers again and ask him to sign up. If he had any queries to contact me."
Below this, in manuscript, is written:
"This man has suffered a severe head injury!"
"I persevered nonetheless and went through my check-list and the advice concerning the conditional fee agreement and The Accident Group scheme with the linked insurance policy. I believe that I went through it with him two or three times. It is difficult to say how much he took in. At this point I had no clear picture how seriously injured he was."
"10. We understand that you do not require any further explanation, advice or other information about these matters."
"That the above information was given by the claimant and that I orally gave advice in relation to the panel solicitor's CFA and the legal expenses insurance policy as detailed above, on behalf of the panel solicitor."
"That the above information was provided by me to the TAG representative and that I received the oral explanation in relation to the panel solicitor's CFA and the legal expenses insurance policy as detailed above. I am aware that the TAG representative is obtaining the above information and providing me with the above explanation on behalf of the panel solicitor."
"My solicitor has discussed after the event insurance and it has been agreed that a contract of insurance is appropriate. My solicitor has informed me why the insurance we have chosen is appropriate and the interest he has in recommending the policy of insurance is that my solicitor is on the panel of The Accident Group Scheme."
"15. … I would have reiterated the advice again about the ATE policy with TAG and I would have explained to him that my firm received no commission whatsoever on this policy but that it is insurance for his case alone. The only interest is that my firm are on the panel of the TAG Scheme and were under an obligation to use their policy. I would have indicated that the level of indemnity cover under the policy was £50,000 which at that point I felt would have been sufficient cover, given what I knew about the case then …"
"It is a statutory requirement that you are provided with certain advice before you sign any documentation. I have enclosed for you a copy of the documentation and would like to confirm that a representative of The Accident Group will contact you by telephone very shortly to arrange an appointment to call in and see you on our behalf to ensure that you understand the nature of your agreement. Please do not sign or return the documentation until this visit has been carried out."
"We would ask you to note that our hourly charging rates are reviewed on 1 January of each year and may be increased. However, we will write and advise you further in this respect should this occur."
"Prior to the signing of this agreement we and/or our duly authorised agent on our behalf verbally explained to the client the matters in paragraphs (a) and (e) under "other points" in the attached terms and conditions and confirm the matters at (e) in writing in schedule 2.
This agreement which comprises this letter and the attached terms and conditions complies with the Conditional Fee Agreement Regulations 2000 (SI 2000 No.692)."
"Immediately before you signed this agreement we and/or the duly appointed agent verbally explained to you the effect of this agreement and in particular the following:
(a) The circumstances in which you may be liable to pay our disbursements and charges;
(c) Whether we consider that your risk of becoming liable for any costs in these proceedings is insured under an existing contract of insurance. In particular we drew to your attention that you had, prior to our instruction, agreed to purchase a legal expenses insurance policy from the underwriters;
(d) That you had also agreed to fund the purchase of the legal expenses insurance from the underwriters by a loan from First National Bank Plc;
(e) Having regard to points (c) and (d) above that we were unable to discuss other methods of financing those costs, including private funding, community legal service funding, other legal expenses insurance policies, trade union funding."
"The Insurance Policy
As you have already agreed to purchase a legal expenses insurance policy from the underwriters we have not recommended any particular insurance product to you and you may in these circumstances wish to obtain independent legal advice in this regard.
In any event in all the circumstances and on the information currently available to us we believe that a contract of insurance is appropriate to cover your opponent's charges and disbursements in case you lose.
We are not however insurance brokers and cannot give advice on all products which may be available."
"Please note that signature of this letter by you:
1. Constitutes confirmation of your instructions to us.
2. Confirms that we have verbally explained to you the matter (sic) in paragraphs (a) to (e) under "other points" in the attached terms and conditions.
3. Confirms the matters at (e) in writing in Schedule 2.
4. Confirms that you have read and understood this letter (including the authority to deal with monies received on your behalf as set out in the Section entered "your obligations to repay your loan") and the attached terms and conditions and that you accept the same as being the basis of the agreement between us."
"At this point I still believed that Lindsey understood sufficiently about his case and it did not seem to me that it would be necessary to appoint his sister as his Litigation Friend. I therefore got him to sign my CFA check list but not his sister, although she was certainly present when I gave the further explanation. I believe that I then dated the CFA check list 20 July 2001, although in fact he signed it on 28 January 2003. Although this now appears perhaps unwise I did it because I had used the same check list when giving the advice over the telephone in July 2001. These were my records and I certainly did not intend to mislead anyone with the date."
"He certainly knew that he had been in a serious accident and that he had a legitimate claim to pursue and that this could well result in him receiving substantial compensation. I did go through the matter with him a second time so that he would have a clearer understanding."
The Claimant actually improved as the case progressed.
The Second CFA
"I insisted that each fee earner had to ensure that:
(i) the oral advice was given in accordance with the Regulations (and we had a training session in the office so that all fee earners were clear as to their obligations); and
(ii) they sent out fresh CFA papers (this consisted of our own CFA check list, separate client care letter confirming in writing the advice required by Regulation 4 and the CFA retainer) for the clients to sign."
"You have taken out, or agreed to take out such a legal expenses insurance policy with The Accident Group. We have no interest in the policy and we do not receive any commission on the issue of the policy, although we are panel members of The Accident Group Scheme. You are aware that you took out a loan with the bank, either Bank of Scotland or First National to fund the policy premium and disbursements. The loan and interest will be repaid from damages if you win the case, although we should be able to recover the disbursements and policy premium or part of it from the defendant in the event of a successful outcome of your case."
"We now enclose another CFA and client care letter. Please sign both documents on the last page. We also enclose with this letter a CFA check-list which we require you to sign and return. Please note that we cannot carry out any work on your case until we receive back the signed paperwork."
"I explained to him again the CFA and how this works, that he has an ATE policy with The Accident Group and the purpose of this. We went through the Regulation 4 check-list. J Hesketh had already given him this advice and got him to re-sign the CFA earlier but I did it again for the avoidance of doubt. I asked him if he had any queries about the agreement with my firm and he said that he did not. Joy did not have any questions either."
The Appointment of the Litigation Friend
"that it all pointed to the fact that the client was effectively a patient whether under the Mental Health Act or otherwise. In the circumstances he advised that we deal with this immediately at the outset of the conference and explain the situation to [Joy Findley Clarke] and that she should act as his Litigation Friend."
"that the above named [Lindsey Findley] is our patient and he is incapable of dealing with his affairs because of his mental disability. His substantial mental disability is likely to be permanent."
"that it was over two years since Mr Findley's accident with a closed head injury. He has been rendered incapable of work or independent living. Mr Findley is also very vulnerable both from his diminished cognitive function and he is at high risk. His memory is also very poor. He does get aggressive from time to time because of this.
I have no hesitation in recommending Mrs Joy Findley Clarke be appointed as litigation friend for him." (bundle tab 2, pages 157F and 157G)
"You will note on the certificate of suitability that you are giving an undertaking to the Defendant that you will pay their costs in the event that any costs are ordered against Lindsey in the proceedings. At that point in the conference I advised you that you did not need to be concerned about this because Lindsey has a legal expenses insurance policy covering his case which was taken out with The Accident Group at the start of the claim. The insurance provides him with an indemnity of £50,000 against the other side's costs and his own disbursements, and which I believe should be sufficient to cover the costs and disbursements in this case, should there be any difficulty …
If the Defendant's costs and Linsdey's own disbursements exceeded the indemnity limit of £50,000, then you would be liable to pay the balance. However, as I have said, I do not at this stage foresee any problems and I believe that the indemnity limit should be more than sufficient to cover you."
Mrs Findley Clarke consented to act as Litigation Friend on 31 March 2004.
"because it is my understanding that Lindsey is, and always was my client, whilst I would take instructions from the Litigation Friend on his behalf."
The Claimant's Capacity
"If your client loses mental capacity after you have started to act, the law will automatically end the contractual relationship."
(Note 6(a)(ii) to Rule 2)
The Letter of 4 May 2006
"in particular, our charge out rates.
My firm is of course instructed by you and your brother under a conditional fee agreement. Our hourly rates have however been updated in the past year and these are set out below. I am of course a consultant solicitor in practice with 15 years experience. The other terms and conditions remain as before as set out in the conditional fee agreement save as amended below if appropriate."
"Partners, consultants and solicitors with over 8 years experience £250.
Solicitors and legal executives with over 4 years post qualification experience £195.
Other solicitors and legal executives and fee earners of equivalent experience £175.
Trainee solicitors, para-legals and fee earners of equivalent experience £130.
We will review the hourly rates each year and will notify you of the increased rates in writing …"
"We will not increase the rate by more than the rise in the retail prices index and will notify you of the increased rate in writing."
You may terminate your instructions to us in writing at any time but we will be entitled to keep all your papers and documents while there is money owing to us for charges and expenses.
In some circumstances you may consider we ought to stop acting for you, for example if you cannot give clear or proper instructions on how we are to proceed or if it is clear that you have lost confidence in how we are carrying out your work.
We may decide to stop acting for you only with good reason, for example, if you do not pay an interim bill or comply with our request for a payment on account. We must give you reasonable notice that we will stop acting for you.
If you or we decide that we will no longer act for you, you will pay our charges on an hourly basis and expenses as set out earlier."
"Mr Findley's domestic situation was also somewhat unusual (being a drug addict of no fixed abode at the time of the accident). I recall that it was not easy to get detailed instructions from him."
"We were instructed not to carry out any further work on the files until such times as the clients had re-signed the CFAs because of the fear that the earlier CFA might not be enforceable."
"I recall speaking to the Claimant in this case on various issues and on various occasions. I have a hazy recollection of giving him the oral advice and of him having difficulty in comprehending the reason for re-signing the CFA. The Claimant had greater difficulty than most in comprehending legal issues and more time and care were given to him as a result … I am confident that I gave the requisite oral advice to the client during one of those telephone conversations. However it will be appreciated that this was some 6 years ago and for that reason my memory of events is not as precise as I would like it to be.
I would not have continued to work on the case, nor would James McMullan have permitted me to work on the case until the oral advice had been given over the telephone and re-signed CFA signed by the client and received by me. I was very well aware of the potential consequences of failing to do so."
THE CONDITIONAL FEE AGREEMENT DATED 20 JULY 2001: ISSUES 1, 2 AND 3
"8. You should also be aware that there are other methods of financing litigation. However for personal injury claims, legal aid is generally no longer available … you (sic) case does not appear to be a high cost case and further, your panel solicitor advises you against seeking legal aid support for the investigation of your case if he is willing under the terms of the Accident Group Scheme to carry out such an investigation for you without costs and if any disbursements are incurred during the course of that investigation, it is covered under the terms of your legal expenses insurance. It is also open to you to consider paying the panel solicitor's fees win or lose. You will appreciate of course, that as your panel solicitor is prepared to do this on a no win no fee basis, it would be inappropriate for you to accept that option.
9. Having regard to the circumstances of your accident and the value of your claim your panel solicitor believes that the method of financing your case which consists of a solicitor working on a "no win – no fee" basis under a conditional fee agreement and a legal expenses insurance policy is an important method of funding your case. In particular this is because the legal expenses insurance premium is insured if you lose your case, and secondly the policy covers all of your medical fees and other disbursements as well as your opponent's legal costs if you lose. Further, you will not be required to make any payments to the panel solicitor, The Accident Group, or to the legal expenses insurance providers during the handling of your case. The panel solicitors do not have an interest in The Accident Group or the legal expenses insurance providers. However the panel solicitors are members of The Accident Group's panel of solicitors."
"97. … There was a close relationship between [the Solicitors (S)] and [the Claims Management Company (C)]. [S] were dependent on [C] for referrals of cases, although it is unclear to what extent. As Mr Morgan points out, cases are the lifeblood of solicitors. The profit generated by cases is likely to be of greater significance to solicitors than commissions paid on insurance premiums paid for ATEs in connection with CFAs. The indirect financial interest in maintaining a flow of work through membership of a panel of solicitors is greater than the direct financial interest in commissions paid for insurance premiums. The advice to use the [C] insurance product came in a CFA that it had apparently supplied to its panel solicitors and which bore its livery. …
99. The statement that [S] had no interest in the insurance premium "although we are on the [C] Panel" did not disclose to Ms Garrett that [S] had a financial interest in remaining on the panel which would be lost if she did not accept their recommendation that she enter into an ATE with NIG. She could not have known from what she was told that [S] were recommending the NIG policy because this was dictated by their financial interests.
100. She would not have understood the significance of [S] being on the [C] panel. As Mr Morgan suggested in argument, most laypersons would be likely to believe that membership of a panel was a mark of quality control. …
101. … In our judgment, by informing Ms Garrett that they were on the [C] panel, the [S] representative did not disclose the real financial interest they had in recommending the NIG policy."
"13. ... In the course of the argument Dyson LJ suggested that a test along the following lines would be appropriate. For the purposes of regulation 4, a solicitor has an interest if a reasonable person with knowledge of the relevant facts would think that the existence of the interest might affect the advice given by the solicitor to his client. We have considered the appropriate test in the light of the detailed submissions made to us and have concluded that such a test is appropriate because it is consistent with the language of regulation 4 construed with due regard to the legislative purpose, which is identified in Garrett as being that of protecting the solicitor's client. See also in this regard  of Hollins and  of Garrett.
14. As to language, regulation 4 is concerned with giving the client who is considering entering into a CFA sufficient information and advice to enable him to take a properly informed and considered decision. He can only do so if he is given information and advice which are not in any way affected by the solicitor's self-interest. The particular context of paragraph (e) relevant to the question whether or not to enter into a CFA is whether the solicitor considers a CFA is appropriate and, if so, whether he considers that a contract of ATE insurance is appropriate and, if so, whether he or she considers the particular contract which is available under the ALP Scheme is in the client's interest. As we see it, the purpose of the regulation is to ensure that the solicitor acts and gives advice independently of his own interest.
15. In our judgment, the test identified above satisfies that purpose because it ensures that any interest of the solicitor that might affect his or her advice is notified to his or her client. If a reasonable person with knowledge of the relevant facts would think that there might be such a risk, the client must be informed of the interest. If such a person would think that there was no such risk, we cannot think that the draftsman of the Regulations can have intended that the alleged interest should be communicated. The client would himself have no interest in being told about it. His or her only interest would be in being informed of matters which might affect the solicitor's advice or judgment in a manner adverse or potentially adverse to the client.
16. That approach is in our opinion consistent with the approach in Garrett. It is also entirely consistent with the natural meaning of the language used in paragraph (e) and has regard to the purpose of the Regulations. Nothing more is needed to protect the client."
"38. … As Mr Morgan points out, the purpose of regulation 4 is consumer protection: see Hollins at  ff. It must be construed in a way which gives adequate protection to the client. If all that the client is told is that the solicitor has an interest in the recommendation, then he is not much the wiser. The client needs to know more about the nature of the interest before being able to judge whether the solicitor has a motive for making his recommendation. The fact that the client can always ask more questions does not provide adequate consumer protection, because clients often do not ask questions. The purpose of the sub-paragraph is to put the client in a position where he can make an informed decision. ...
43. In approaching this issue, we bear in mind that the purpose of the Regulations is consumer protection. This means that in general terms they must be construed in a way which will promote, rather than detract from, such protection. It means in particular that regulation 4(1)(a) and 4(2)(e)(ii) must be construed in a way which will ensure that the solicitor discloses to the client the true nature of his interest in recommending the insurance so that the client can make the necessary informed decision. This entails explaining to the client the nature of the benefits to the solicitor in remaining on the ALP panel with sufficient clarity for the client to understand what they are and to be able to assess their significance.
44. In our judgment, the dicta at  of Garrett should not be followed. A solicitor who informs his client that he is recommending a policy because that is the only policy which he can recommend consistently with his membership of the panel tells the client nothing about the nature of the benefit that accrues to the solicitor through continuing membership of the panel. …
45. … On any view, the inclusion in the CFA of the confirmation that the solicitor has no interest in recommending the insurance means that there is no clear disclosure of the interest. In our view, the Regulations require clear disclosure of the interest. Anything less would mean that they fail in their objective of providing consumer protection."
THE CLAIMANT'S CAPACITY: ISSUES 4, 5, 6 AND 7
"4-018 Where the contract is one which would be discharged by the death of a party, it may likewise be discharged by that party's supervening incapacity … the relationship of principal and agent is terminated by the insanity of either party … [Drew v Nunn  4 QBD 661; Yonge v Toynbee  1 KB 215]."
In relation to agency and the general rule that a person without capacity cannot appoint an agent, Treitel states:
"4-020 … A similar rule has been applied in cases of the supervening insanity of the principal. This has been held to terminate the actual (though not the apparent) authority of the agent, at least where the principal was "so far afflicted with insanity as to be disabled from acting for himself" [Drew v Nunn at 666] or where the principal had "become so far insane as to have no mind": in such a case "perhaps he ought to be deemed dead for the purpose of contracting" [Drew v Nunn at 669; see also Yonge v Toynbee]. In all these statements it is the fact of the principal's insanity (actual or supervening) which is regarded as decisive …"
"The retainer will be determined by operation of law. However, you should contact, eg, relatives, the Public Trust Office or the Official Solicitor so that the relatives or the relevant agency can take reasonable steps to protect the client's interests."
"8-008 … the term is not confined to such matters only as are positively essential to the minor's personal subsistence or support; it is also employed to denote articles purchased for real use so long as they are not merely ornamental, or are used as matters of comfort or convenience only, and it is a relative term to be construed with reference to the minor's age and station in life. The burden of showing that the goods supplied are necessary is always on the supplier …
8-013 Necessary services. Services as well as goods may be necessaries. So, for example, a contract for legal [De Stacpoole v De Stacpoole  37 Ch D 139] or medical services may be a contract for necessaries … Unlike the uncertain position in respect of contracts to supply necessary goods it is clear that executory contracts for necessary services may be enforced against a minor, at least in the context of apprenticeship or contracts for education. …
8-070 In the case of contracts other than for necessaries, the general rule is that a mentally disordered person is bound by his contract unless he can show that owing to his mental condition he did not understand what he was doing, and further that the other party was aware of this incapacity. But if these two conditions are satisfied, the contract is voidable at his option. This rule was laid down in Imperial Loan Co Ltd v Stone  1 QB 599, 601 where Lord Esher MR said:
"When a person enters into a contract and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.""
"Retainer by mentally disordered persons
A person suffering from a mental disorder which prevents him from understanding what he is doing cannot enter into a contract or appoint an agent, and therefore cannot give a retainer to a solicitor. However, if he purports to do so he may incur quasi contractual obligations to the solicitor (ie, in so far as the retainer may be shown to be a contract for "necessaries" he may be liable to pay the solicitor) and in any case, if it thinks fit, the Court of Protection may validate the contract of retainer.
The authority of a solicitor under a retainer given by a client before becoming mentally disordered ceases as soon as the client becomes mentally disordered (see Yonge v Toynbee) and it is immaterial whether or not the solicitor was aware of the incapacity (see Yonge v Toynbee)."
Mr Mallalieu accepts what is said in the paragraph which I have quoted, but disputes that this is a contract for necessaries.
The test of contractual capacity is whether or not the person was capable of understanding the nature of the contract he was entering into. This depends upon whether there was understanding of the particular transaction; the degree of capacity required will therefore differ according to the nature of the transaction. Furthermore, contracts made during a lucid interval by a person who is mentally incapable of contracting at other times are valid, even if he is liable to be detained at the time. Hence, mental incapacity in relation to contract may be permanent or temporary, general or in relation only to some transactions, or in relation to some transactions some of the time."
"… where a receiver has been appointed, the solicitor acting in the matter is acting for the patient and not for the receiver …
A further difficulty may arise as a result of the case of Yonge v Toynbee … nevertheless incapacitated people may need solicitors to act for them and them alone.
Assuming that a patient or donor is within the jurisdiction of the Court of Protection, the solicitor's authority to act for him can be expressly confirmed by the Court of Protection. Solicitors are also entitled to look upon themselves as acting for a patient or donor and not for the person who has given them instructions (if that is not the patient or donor) from the time that an application which is in order is received by the Court of Protection or the Public Trust Office …"
"3. Capacity to buy and sell –
(1) Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property.
(2) Where necessaries are sold and delivered to a person, who, by reason of mental incapacity or drunkenness, is incompetent to contract he must pay a reasonable price for them.
(3) In sub-section (2) above "necessaries" means goods suitable to the condition in life of the person concerned and to his actual requirements at the time of the sale and delivery."
"The only reason that the next friend of an infant is entitled to bind the infant in matters connected with the cause is that he is the officer of the court to take all measures for the benefit of the infant in the litigation in which he appears as next friend."
"12.06 Who is my client?
(2) A Litigation Friend (formerly a Guardian ad Litem) who instructs a solicitor for the benefit of a minor is normally a client, as is the minor …"
"Your continued instructions in this matter will amount to acceptance of these terms and conditions of business."
"(1) … the Judge shall have the power to make such orders and give such directions and authorities as he thinks fit for the purposes of that section and in particular may for those purposes make orders or give directions or authorities for -
(h) the carrying out of any contract entered into by the patient …"
He submits that since the Litigation Friend is an officer of the court, she was imbued with the court's authority to do all that was necessary for the benefit of the Claimant in the litigation including the same powers as the Judge to authorise the carrying out of any contract entered into by the patient.
"Before a conditional fee agreement is made the legal representative must …"
"A conditional fee agreement must be signed by the client and the legal representative."
"The principle upon which costs as between party and party are allowed is that the costs are awarded to the person claiming them as an indemnity. That being the principle, it follows that anyone who is not in a position to claim to be indemnified is not entitled to an order for party and party costs. It is said here that the plaintiff was not in a position to claim an indemnity, for two reasons, as I understand: one is that the firm who purported to act as his solicitors were not his solicitors at all; that they were the solicitors for the union, and their only instructions were to act as solicitors for the union. The other is that, assuming the union instructed the solicitors to act as solicitors for the plaintiff, yet it was upon the terms that the solicitors should look solely to the union, and not to the plaintiff for payment of their costs. …
When once it is established that the solicitors were acting for the plaintiff with his knowledge and assent, it seems to me that he became liable to the solicitors for costs …"
"To constitute a retainer there need not be an express agreement in writing with a solicitor to employ him. In all such cases it is sufficient to show that the agent, whether he is a professional man or whatever his employment may be, was in fact employed by the principal. In this case it appears to me from the admitted facts that there is only one inference possible – namely, that the plaintiff did in fact employ the solicitors at his solicitors in the action … He knew throughout the proceedings that they were purporting to act as his solicitors. He was made acquainted with the proceedings at every stage …"
THE LETTER OF 4 MAY 2006: ISSUES 8 AND 9
"We will not increase the rate by more than the rise in the retail prices index and will notify you of any increase in writing."
THE SECOND CFA: ISSUES 10 AND 11
"(i) if A has entered into a contract with B to do work for, or to supply goods or service to, B in return for payment by B; and
(ii) at some stage before A has completely performed his obligation under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and
(iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and
(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a dis-benefit; and
(v) B's promise is not given as a result of economic duress on the part of A; then
(vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding."
"consideration there still must be but, in my judgment, the courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect [s] the true intention of the parties."
Does the Second CFA Comply with the Regulations?
"62. I would reject [the submission that Regulation 4(2)(e) only applies where the legal representative is dealing with the situation where there is not already existing insurance] for the simple reason that it cannot have been intended that the solicitor should not be obliged to consider whether the insurance was one that it was appropriate to use. In my view there was no reason why (c), (d) and (e) [of Regulation 4(2)] should not apply cumulatively, whether or not insurance is in place. Accordingly, I would reject Mr Bacon's submission on this aspect."
"61. Read as a whole Regulation 4 provides a logical progression through the steps necessary to ensure that a client is properly informed about a range of matters before he signs up for a CFA or associated ATE policy. That much is obvious. It is submitted that (c) to (e) require a solicitor to:
(i) check whether there is pre-existing insurance;
(ii) if not, to advise the client what methods are available for ensuring that he is not exposed to an adverse costs order;
(iii) if the solicitor recommends a particular method or policy of insurance, the solicitor has to disclose his reasons and his interest.
62. If (c) – (e) are read as if they apply when there is pre- existing insurance, there are bizarre and irrational combinations of obligations:
(i) the solicitor must advise orally if he considers that there is pre-existing insurance, but he must advise orally and in writing if he considers that insurance is appropriate;
(ii) notwithstanding that there is pre-existing insurance, the solicitor must advise the client if there are other methods of financing an adverse costs order, even though it would or might be improper to recommend an alternative;
(iii) a solicitor who happens to have an interest in a pre-existing ATE insurance policy must disclose that interest orally and in writing, whereas a solicitor with pre-existing BTE insurance is under no such obligation …
The passage … at 143 (of Hollins v Russell …) makes it plain that the purpose of Regulation 4(2)(e)(ii) was to protect a client by ensuring that he had the information necessary to make an informed decision. …
The decision faced by the client is whether or not to purchase insurance recommended by a solicitor. The only option open to a client who already has pre-existing ATE insurance is to instruct another solicitor who may or may not have an interest in the insurance policy. It is submitted that that would not be a sensible outcome and does not reflect the intention of Parliament.
(iv) … It is submitted that if Regulations 4(c) – (e) are read as if they apply in situations where there is pre-existing insurance, they have the same draconian effect on solicitors [as that described in Garrett at paragraph 92] but provide no additional protection to clients. That is not consistent with enhancing access to justice, but it is submitted, serves to impede it."
"Has the particular departure from the Regulation had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?"
As Brooke LJ said in Hollins v Russell at 144:
"The mischief which this Regulation was introduced to remedy was the risk that the clients legal representative might induce the client to enter into insurance arrangements in which he had an interest."
"28. … Although one is construing an agreement between solicitor and client, one is doing so in circumstances which will usually determine the liability of a person who is not party to the agreement. Whilst I accept the policy rationale of success fees, I consider it incumbent upon the court to approach the construction of the solicitor-client agreement in a way which does not operate unjustly on the ultimate paying party. …
29. I appreciate that this conclusion may seem anomalous and adventitious. The paying party has no control over whether the solicitor engages an independent costs consultant or carries out the work in-house, in which latter case the success fee would be payable. On the other hand, the solicitor may elect to instruct specialist costs counsel (for such people exist) on the assessment and in that case counsel's fee would be a disbursement and no success fee would become payable upon it, unless counsel had his own CFA. The anomalies are not all one way. For my part, I prefer an anomalous conclusion to an unjust one."
THE INDEMNITY PRINCIPLE AND THE LEI POLICY: ISSUE 12 AND ISSUE 13
"… The policy provides you with legal expenses insurance (to a maximum of £50,000) for the following:-
? own disbursements and counsel's fees …
? your opponent's costs …
? the policy premium and any applicable loan interest in respect thereof …"
"If you lose, you do not have to pay any of our basic charges or success fee. You do have to pay:
? us for our disbursements
? your opponent's legal charges and disbursements.
As you are insured against payment of these amounts by your insurance policy we will make a claim on your behalf and receive any resulting payment in your name. We will give you a statement of account for all money received and paid out."
"The effect of the policy is that if you lose your case, the policy will cover our disbursements and your opponent's costs and disbursements. The maximum cover is £50,000. We shall attempt to recover the premium from you opponent if you win your case, but the court may disallow it in whole or in part. In such circumstances the loan for the policy premium and any interest and charges incurred by you in the purchase of the policy will be deducted from your damages (compensation). In any event, the court will not allow you to recover interest on any loan taken out to purchase the policy even if you win your case. Such interest will be deducted from your compensation if you win. If you lose your case then any loan (including interest) taken out to purchase the premium for the policy is covered by the policy and you will not be called upon to pay the same."
The Conditional Fee Agreement dated 20 July 2001
The Letter of 4 May 2006
The Second CFA
The Indemnity Principle and the LEI Policy