England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE LIVERPOOL COUNTY COURT
HIS HONOUR JUDGE STEWART QC
DEPUTY DISTRICT JUDGE STORRY
ON APPEAL FROM THE SUPREME COURT COSTS OFFICE
MASTER WRIGHT

		Royal Courts of Justice Strand, London, WC2A 2LL
		18/07/2006

Lord Justice Dyson: this is the judgment of the court.

Introduction

1. Yet again, the court is faced with complex issues arising out of the legislation relating to conditional fee agreements ("CFAs"). The history of CFAs was described in considerable detail by this court at paras 1-36 of its judgment in the 6 linked appeals of which the first named was Hollins v Russell [2003] EWCA Civ 718, [2003] 1 WLR 2487. Section 58 of the Courts and Legal Services Act 1990 ("the 1990 Act"), as substituted by section 27(1) of the Access to Justice Act 1999, provides:

"(1) A conditional fee agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of its being a conditional fee agreement; but…..any other conditional fee agreement shall be unenforceable."

2. Section 58(3) provides that:

"(3) The following conditions are applicable to every conditional fee agreement-

(a) it must be in writing;

(b) it must not relate to proceedings which cannot be the subject of an enforceable conditional fee agreement; and

(c) it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor."

3. Section 58A(3) provides that the requirements which the Lord Chancellor may prescribe under section 58(3)(c) "(a) include requirements for the person providing…litigation services to have provided prescribed information before the agreement is made".
4. The Conditional Fee Agreements Regulations 2000 ("the Regulations") so far as material to the present appeals provide:

"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."

5. The present appeals involve an examination of regulation 4(2)(c) (in the four claims which we shall refer to as "the Myatt claims") and regulation 4(2)(e)(ii) (in the case of Garrett v Halton Borough Council). Before we come to the details of these cases, we need to deal with the central issue of principle which affects all of them. The potentially wide significance of the points which arise on these appeals accounts for our having the benefit of written and oral submissions in both appeals on behalf of the Law Society from Mr Drabble QC and Mr Holland, and written submissions from Mr Foy QC on behalf of the Association of Personal Injury Lawyers ("APIL").
6. In Hollins v Russell, the defendants' insurers sought to resist liability for any of the costs ordered against them on the grounds that the CFAs failed (or might, if disclosed, be found to fail) to comply with either section 58(1) of the 1990 Act or various of the Regulations and that to require the defendants to pay would be a breach of the indemnity principle that a paying party cannot be ordered to pay a receiving party more costs than a receiving party himself is liable to pay. This court said at para 107:

"107. The key question, therefore, is whether the conditions applicable to the CFA by virtue of section 58 of the 1990 Act have been sufficiently complied with in the light of their purposes. Costs judges should accordingly ask themselves the following question:

"Has the particular departure from a regulation pursuant to section 58(3)(c) of the 1990 Act or a requirement in section 58, either on its own or in conjunction with any other such departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?"

If the answer is "yes" the conditions have not been satisfied. If the answer is "no" then the departure is immaterial and (assuming that there is no other reason to conclude otherwise) the conditions have been satisfied."

7. Much of the argument before this court has centred on the meaning of this paragraph when read in the light of the judgment as a whole. The principal question that arises is whether the test of "materiality" referred to in para 107 of Hollins v Russell requires the court to consider whether the client has suffered actual prejudice as a result of an alleged failure to satisfy the conditions referred to section 58(3) of the 1990 Act. A related question is whether the enforceability of a CFA is to be judged by reference to the circumstances existing at the time when it is entered into, or by reference to the circumstances known to exist at the time when the question arises for decision.
8. The Regulations do not apply to CFAs that have been entered into since 1 November 2005: see Conditional Fee Agreements (Revocation) Regulations 2005. Nevertheless, the outcome of these appeals is of considerable importance to the Law Society and the solicitors' profession, since thousands of CFAs were entered into before 1 November 2005 in respect of claims whose costs consequences have not yet been resolved.
9. In view of the nature of these questions, it was inevitable that the judgment in Hollins v Russell should be subjected to the kind of microscopic textual analysis to which Greek and Latin texts have been subjected by classical scholars for centuries. It is necessary to examine the judgment carefully to see whether, as Mr Drabble submits, the central issues before us were decided in that case. For reasons that we shall explain, we are satisfied that they were not. That being so, it is for this court to decide these issues by interpreting the relevant provisions of the 1990 Act and the Regulations with such assistance as may be derived from Hollins v Russell and other authorities to which we have been referred.

Have the questions referred to at para 7 above been decided by Hollins v Russell?

10. At para 89, the court said that the question for it to decide was whether it was intended to render unenforceable a CFA "which did not comply in every particular with the requirements of the section and of regulations made under powers contained in the section". Mr Drabble relies on para 97 as indicating that the court considered that the consequences to the claimant of a solicitor's failure to comply are relevant to the materiality of the non-compliance. In this paragraph, the court was dealing with the submission by Mr Drabble (recorded at para 96) that the "prescribed requirements should themselves be construed in a realistic way" ie not in so rigid a fashion as to render the whole of the solicitor's fees irrecoverable because of a minor breach. Para 97 records that Mr Drabble acknowledged that this approach has disadvantages. The court continued:

"…..The main disadvantage is that it might tempt a court in costs proceedings, where the client herself makes no complaint and has suffered no detriment, to interpret the requirements in such a way as to dilute the protection given; but in other proceedings, where the client had indeed suffered detriment and wished to raise a legitimate complaint against her legal representative, the court would not wish to do this….."

11. Mr Drabble relies on the reference to the client having "indeed suffered detriment". But at this point in its judgment, the court had not even promulgated its test. It was merely considering reasons for rejecting one of Mr Drabble's submissions, making the point that it is undesirable to interpret the requirements in one way where the client complains and in a different way where the client does not complain, it being clear that the client is only likely to complain where he has suffered some detriment. In our view, para 97 sheds no light on the problem.
12. At para 100, the court referred to Mr Drabble's preferred approach, viz that an agreement which satisfies all of the conditions of the primary legislation and substantially, if not literally, conforms to the prescribed requirements should be held to satisfy the conditions applicable to it. The court added: "Put another way, an agreement should not be held unenforceable for immaterial breaches of the Regulations". This approach was based on the proposition that the words "satisfies all the conditions applicable to it" in section 58(1) should be construed in a realistic way to reflect the purposes of the legislation. These purposes were "to increase access to legal services by making new types of funding arrangements possible, while protecting both the public interest and the interests of clients".
13. The critical part of the judgment starts at para 105:

"105 We have already considered (in paragraphs 1 to 40 above) the historical context of this legislation, its declared statutory objective, the extensions to the CFA regime in April 2000, and the purposes of the regime in section 58 and the new Regulations. In approaching the meaning of the words "satisfies the conditions" we can be confident that Parliament would not have meant to render unenforceable a CFA which adequately meets the requirements which were designed to safeguard the administration of justice, protect the client, and acknowledge the legitimate interests of the other party to the litigation. The other party to the litigation has no legitimate interest in seeking to avoid his proper obligations by seizing on an apparent breach of the requirements which is immaterial in the context of the other two purposes of the statutory regulation.

106 The question whether something is "satisfied" inevitably raises questions of degree. What is enough to satisfy? There can be different degrees of satisfaction. A court may be satisfied beyond reasonable doubt or on the balance of probabilities but it is still satisfied. Different things can be satisfied in different ways. Hunger is satisfied by enough to eat. Greed may only be satisfied by more than enough. Sufficiency produces satisfaction. Conditions are satisfied when they have been sufficiently met. How sufficiently must depend upon the purpose of the conditions. It is not impossible to imagine conditions which would only be sufficiently met if they were observed in every minute particular: the specifications for precision machinery might be an example. But in general conditions are sufficiently met when there has been substantial compliance with, or in other words no material departure from, what is required.

107 The key question, therefore, is whether the conditions applicable to the CFA by virtue of section 58 of the 1990 Act have been sufficiently complied with in the light of their purposes. Costs judges should accordingly ask themselves the following question:

"Has the particular departure from a regulation pursuant to section 58(3)(c) of the 1990 Act or a requirement in section 58, either on its own or in conjunction with any other such departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?"

If the answer is "yes" the conditions have not been satisfied. If the answer is "no" then the departure is immaterial and (assuming that there is no other reason to conclude otherwise) the conditions have been satisfied.

108 We would not draw any formal distinction between the conditions contained in the section itself and those contained in the Regulations. The meaning of "satisfies" must be the same in each case. However, it is more difficult to envisage questions of degree coming into the question whether the conditions in the section have been sufficiently met. Either the CFA relates to permissible proceedings or it does not. But one example might be that in section 58(4)(b) which requires that a CFA providing for a success fee "must state the percentage by which the amount of the fees which would be payable if it were not a conditional fee agreement is to be increased". Was that condition sufficiently met by an agreement such as that in Tichband v Hurdman, which left blank the percentage in the clause where it should have been filled in but stated it clearly in the risk assessment (see paragraph 133 below)? The answer to that question is obviously "yes".

109 We would, however, draw from both Ex p Jeyeanthan [2000] 1 WLR 354 and the Factortame (No 8) case [2003] QB 381 the principle that sufficiency or materiality will depend upon the circumstances of each case. This is not to encourage paying parties to trawl through the facts of each case in order to try to discover a material breach. Quite the reverse. At the stage when the agreement has been made, acted upon, and success for the client has been achieved, it is most unlikely that any minor shortcoming which the paying party might discover in the agreement or the procedures leading up to its making will amount to a material breach of the requirements or mean that the applicable conditions have not been sufficiently met."

14. At para 117, the court turned to consider the individual cases before it. It is unnecessary to refer to what it said in detail in relation to each case. There is no hint in the judgment that, in considering whether the conditions had been sufficiently complied with in these cases, it was necessary or relevant to take into account any detriment actually suffered by the claimant as a result of the departure from the regulation in question. In each case, the court considered whether there had been substantial compliance with, or a material departure from, what was required by looking at what the solicitor did without regard to the consequences for the client. One example will suffice. In the case of Dunn v Ward, the defendants' insurers sought to establish that there had been a breach of regulation 4(5), which requires the legal representative to explain the effect of the CFA in writing to the client before she enters into it, in addition to the oral explanation required by regulation 4(3). The court concluded that a written explanation in a document which formed part of the CFA would suffice. Revealingly, the court said:

"If these documents had been in small print and as far removed from winning a prize for Plain English as many documents of their type, then it is obvious that regulation 4(5) would have been breached".

15. There is no suggestion here that there would only be a breach if it were shown that the client had actually suffered detriment as a result of it.
16. If the central question that is before this court had been in issue in Hollins v Russell, it is unthinkable that, in such a detailed and apparently comprehensive judgment as was given, the court would not have made express reference to the point and dealt with it explicitly. Reading the judgment as a whole, we are satisfied that the point was not dealt with. We have already dealt with the point made by Mr Drabble on para 97. The last two sentences of para 106 sit unhappily with Mr Drabble's submission. The penultimate sentence is plainly concerned only with the extent of compliance, and not at all with the question whether a particular client has suffered detriment as a result of non-compliance: note the words "sufficiently met if they were observed in every minute particular". So too is the last sentence only concerned with the extent of compliance and not with the consequences of non-compliance. This sentence, introduced by the words "But in general" is the counterpart of the penultimate sentence.
17. The importance of these two sentences is, as was observed by Judge Stewart QC in the Garrett case, that they lead immediately into the critical para 107 whose opening words are: "The key question, therefore, is whether the conditions applicable to the CFA….have been sufficiently complied with in the light of their purposes" (emphasis added). Read in its context, para 107 is dealing with the same subject as the last two sentences of para 106 ie substantial compliance or material departure and not their consequences. The question formulated for costs judges in para 107 is intended to reflect that subject, no more and no less: "Costs judges should accordingly ask themselves the following question" (emphasis added). The use of the word "had" in "has the particular departure…had a materially adverse effect" does not invite the judges to consider whether the departure from the regulation has caused the client to suffer any detriment. It merely reflects the fact that cost judges will be looking back to an earlier point in time when considering whether there has been a material departure.
18. Nor does the phrase "materially adverse effect either upon the protection…" indicate that the court intended that there should be a consideration of the actual consequences of a material departure. The court did not say "has the departure had a materially adverse effect on the client". The focus on the adverse effect was on the protection afforded to the client, not whether, as a matter of fact, the client had actually suffered any prejudice. In his skeleton argument, Mr Morgan illustrates the difference by reference to burglar alarms. A person is protected against burglaries if he instals a burglar alarm, whether or not anyone attempts to burgle his home. If a burglary does take place, then an inquiry into the protection he had will focus on the quality of the burglar alarm, the fact of the burglary merely being evidence that the protection was not as good as it might have been. By analogy, he is protected against buying a poor insurance policy if measures which are intended to help him avoid doing so are implemented. He might buy the policy despite these measures, and he might avoid buying it even if such measures are not taken. Neither of these facts is relevant to whether he had "protection".
19. In our judgment, this analogy is apt. The "protection afforded to the client" is a reference to the protection afforded by virtue of the Regulations. If paras 106 and 107 are read as a whole, the court was saying that, if there has been a failure of substantial compliance or a material departure from what is required by the Regulations, that failure or departure of itself has a material adverse effect on the protection afforded to the client or upon the proper administration of justice.
20. We come to para 109. At first sight, in this paragraph the court appears to be referring to the consequences of an alleged breach and a consideration of the matter after success for the client has been achieved. But this is far too slender a foundation on which to base the conclusion that the court decided the point that we have to decide one way or the other. The paragraph starts by saying that sufficiency or materiality will depend on the circumstances of each case. That statement does not give any clue as to how the question before us should be resolved, any more than does the court's discouragement to paying parties from trawling through the facts in order to discover a material breach. The strongest point in Mr Drabble's favour is the statement that it was "most unlikely that any minor shortcoming which the paying party might discover in the agreement or the procedures leading up to its making will amount to a material breach" when the agreement "has been made, acted upon, and success for the client has been achieved" (emphasis added). The court does not explain how the reference to the words that we have italicised is relevant to its reasoning. It is clear, however, that the court is referring to any "minor shortcoming" in the agreement. The statement that a minor shortcoming in the agreement or the procedures leading up to its making is most unlikely to amount to a material breach is most naturally an application of the approach stated in the last two sentences of para 106 and the test stated in para 107. The court cannot have intended in para 109 to adopt a different approach from that stated in these earlier paragraphs.
21. At paras 219-226, the court summarised its conclusions as to the right approach. At para 222, it said: "If the court considers that as between solicitor and client the client would have just cause for complaint because some requirement introduced for his protection was not satisfied… then the CFA will be unenforceable…" (emphasis added). But we do not consider that the court was here saying or even implying that the CFA would be unenforceable only if the client had suffered some detriment. We would accept that a client is unlikely to complain unless he has suffered some actual detriment. But if there has been a departure from a regulation which has had a materially adverse effect on client protection, the client "would have just cause for complaint" even if he chooses not to complain because he has not in fact suffered any detriment.
22. We conclude, therefore, that the question that we have to decide was not decided in Hollins v Russell.

The meaning of the test in para 107 of Hollins v Russell: does materiality require a consideration of actual detriment?

23. Mr Drabble submits that it should be borne in mind that, although as a matter of form, the critical question is always whether the relevant breach renders the CFA unenforceable, and the CFA is a bipartite agreement between the claimant and his solicitor, in substance three parties are interested in the enforceability of the CFA: the claimant, his solicitor and the defendant's insurers. The interest of the solicitor is obvious and acute: if the CFA is unenforceable, he is not entitled to receive any remuneration for his services. In the paradigm case, the claimant has no interest in whether the CFA is enforceable or not, since win or lose, he will not be liable to pay his solicitor's fees. The same is not true of the defendant's insurers. They have a strong commercial interest in showing that the CFA is unenforceable, so that, by reason of the indemnity principle, they may avoid liability to pay any legal fees to the successful claimant. Challenges to the enforceability of CFAs based on alleged trivial breaches of the Regulations were rejected in Hollins v Russell. Mr Drabble submits that, if actual prejudice is irrelevant to the question of material breach, then defendants' insurers will be able to mount successful unmeritorious challenges to the enforceability of CFAs and obtain windfalls. In principle, he argues, such challenges are no different from those which were roundly rejected by this court in Hollins v Russell. They should fail for the same reasons as those challenges failed.
24. Mr Drabble submits, therefore, that section 58(1) of the 1990 Act should be construed as requiring the court to determine whether there has been a material breach of the statutory requirements by reference to the events that have occurred by the time the court has to consider the matter. The statutory purpose of Part II of the 1990 Act is the "development of legal services…by making provision for new and better ways of providing such services and a wider choice of persons providing them, while maintaining the proper and efficient administration of justice" (section 17(1)). Mr Drabble submits that this purpose will be frustrated (and access to justice threatened or denied) unless claimants' solicitors are to be refused remuneration only if they have done something wrong of which the claimants themselves complain. Parliament intended by the 1990 Act to protect claimants, but cannot have intended to render CFAs unenforceable on grounds of client protection in circumstances where the client does not complain. As Hollins v Russell shows, a robust response is called for to meet unmeritorious challenges by defendants' insurers. If a claimant has in fact suffered no loss as a result of a solicitor's breach of one of the Regulations or section 58(3) of the Act, then it cannot have been intended that the CFA should be unenforceable.
25. In short, Mr Drabble submits that the effect of the judgment in Hollins v Russell is, or should be, to make successful challenges to the enforceability of CFAs rare. That is as it should be, in the light of the tone and content of the court's judgment and the purposes behind the statutory scheme.
26. Mr Bacon adopts the submissions of Mr Drabble and Mr McCue substantially adopts the submissions of both of them. Mr Bacon submits that, if a breach of the Regulations has no material adverse consequences for the client, then the requirements of the Regulations are sufficiently met. He says that the facts of a case such as Garrett show why it is necessary to have regard to the consequences of a breach when determining whether it is material. In Garrett, the premium for the after the event legal expenses insurance policy ("ATE") was held to be recoverable from the defendant (after a modest reduction), and yet the claimant's solicitors' fees were disallowed in their entirety solely because, in breach of regulation 4(2)(e)(ii), they had failed to inform the client that they had an interest in recommending the insurance which they recommended. It is strange, to say the least, that the defendant should be liable to pay a reasonable premium for that insurance, but not liable to pay any of the solicitors' fees because they infringed a regulation which was directed exclusively to affording the client protection in relation to insurance.
27. We reject these submissions largely for the reasons given by Mr Morgan. The starting point must be the language of section 58(1) and (3) of the 1990 Act. It is clear and uncompromising: if one or more of the applicable conditions is not satisfied, then the CFA is unenforceable. Parliament could have adopted a different model. It could, for example, have provided that where an applicable condition is not satisfied, the CFA will only be enforceable with the permission of the court or upon such terms as the court thinks fit. There is nothing inherently improbable in a statutory scheme which provides that, if the applicable conditions are not satisfied, the CFA shall be unenforceable with the consequence that the solicitor will not be entitled to payment for his services. Such a scheme can yield harsh results in certain circumstances, especially if the client has not suffered any actual loss as a result of the breach. It can also produce results which, at first sight, may seem odd: see the point made by Mr Bacon mentioned at para 26 above. But the scheme is designed to protect clients and to encourage solicitors to comply with detailed statutory requirements which are clearly intended to achieve that purpose. The fact that it may produce harsh or surprising results in individual cases is not necessarily a good reason for construing the statutory provisions in such a way as will avoid such results.
28. Our attention was drawn to other statutory regimes which introduce a bar on the enforcement of rights which can operate harshly in certain circumstances. Thus, in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [2004] 1 AC 816, the House of Lords was concerned with a claim based on a loan agreement between a pawnbroker and a borrower. The pawnbroker sought repayment of the loan. Relying on section 127(3) of the Consumer Credit Act 1974, the borrower claimed that the loan was unenforceable because the agreement did not contain all the prescribed terms. This was a harsh result for the pawnbroker, since the borrower could not point to any prejudice suffered by her as a result of the failure to include all the prescribed terms in the agreement. Lord Nicholls of Birkenhead said:

"72. Undoubtedly, as illustrated by the facts of the present case, section 127(3) may be drastic, even harsh, in its adverse consequences for a lender. He loses all his rights under the agreement, including his rights to any security which has been lodged. Conversely, the borrower acquires what can only be described as a windfall. He keeps the money and recovers his security. These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance. These consequences also apply where, as in the present case, the borrower suffered no prejudice as a result of the non-compliance as they do where the borrower was misled. Parliament was painting here with a broad brush.

73. The unattractive feature of this approach is that it will sometimes involve punishing the blameless pour encourager les autres. On its face, considered in the context of one particular case, a sanction having this effect is difficult to justify. The Moneylenders Act 1927 adopted a similarly severe approach. Infringement of statutory requirements rendered the loan and any security unenforceable. So did the Hire Purchase Act 1965, although to a lesser extent. This approach was roundly condemned in the Crowther report (Report of the Committee on Consumer Credit, under the presidency of Lord Crowther, March 1971)(Cmnd 4596), vol I, p311, para 6.11.4:

"It offends every notion of justice or fairness that because of some technical slip which in no way prejudices him, a borrower, having received a substantial sum of money, should be entitled to retain or spend it without any obligation to repay a single penny."

74. Despite this criticism I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreements. This course is open to Parliament even though this will sometimes yield a seemingly unreasonable result in a particular case. Considered overall, this course may well be a proportionate response in practice to a perceived social problem. Parliament may consider the response should be a uniform solution across the board. A tailor-made response, fitting the facts of each case as decided in an application to the court, may not be appropriate. This may be considered an insufficient incentive and insufficient deterrent. And it may fail to protect consumers adequately….."

29. A similar approach was adopted in Smith (Administrator of Cosslett (Contractors) Ltd) v Bridgend County Borough Council [2001] UKHL 58, [2002] 1 AC 336, paras 76-78.
30. In our view, this is the approach which should be adopted in relation to section 58(1) and (3) of the 1990 Act. To use the words of Lord Nicholls, Parliament was painting with a broad brush. It must be taken to have deliberately decided not to distinguish between cases of non-compliance which are innocent and those which are negligent or committed in bad faith, nor between those which cause prejudice (in the sense of actual loss) and those which do not. It would have been open to Parliament to distinguish between such cases, but it chose not to do so. The conditions stated in section 58(3)(c) and in particular the requirements prescribed in the Regulations are for the protection of solicitors' clients. Parliament considered that the need to safeguard the interests of clients was so important that it should be secured by providing that, if any of the conditions were not satisfied, the CFA would not be enforceable and the solicitor would not be paid. To use the words of Lord Nicholls again, this is an approach of punishing solicitors pour encourager les autres. Such a policy is tough, but it is not irrational. The public interest in protecting solicitors' clients required that the satisfaction of the statutory conditions was an essential prerequisite to the enforcement of CFAs. It is to be noted that in September 2000, the Lord Chancellor issued a consultation paper entitled "Conditional fees: Sharing the Risks of Litigation". The Law Society and the Senior Costs Judge responded that the Law Society's new Client Care Code adequately covered the need to provide additional information about CFAs. But in the view of the Government, such was the need to ensure client protection that this response was not accepted.
31. The only mitigation of this strict approach is that, as was made clear in Hollins v Russell, the breach must be material in the sense described at para 107 of the judgment. Thus, literal but trivial and immaterial departures from the statutory requirements did not amount to a failure to satisfy the statutory conditions. It is unnecessary to decide whether the test stated at para 107 was no more than an application of the principle that the law is not concerned with very small things.
32. The principal question that arises on these appeals is whether there is substantial compliance with (or no material departure from) a requirement if a breach does not in fact cause the client to suffer detriment. If it had been intended that a CFA should only be enforceable where the client suffered actual damage, it would have been easy enough so to provide. But the focus of the scheme was on whether the CFA satisfied the applicable conditions, not on the actual consequences of a breach of one of the requirements of the scheme. In our view, it is fallacious to say that a breach is trivial or not material because it does not in fact cause loss to the client in the particular case. The scheme has the wider purpose of providing for client protection (as well as the proper administration of justice).
33. There have been other contexts where the court has said that actual prejudice is irrelevant to questions of substantial compliance. For example, in London & Clydesdale Estates Ltd v Aberdeen District Council [1980] 1 WLR 182, a local planning authority had failed to include in a certificate a statement of the rights of appeal. Lord Hailsham LC said that the requirement to state the rights of appeal was mandatory and that "the certificate falls independently of whether the appellants had in fact been misled" (p 186G): see also per Lord Fraser (p 195B). The same view was taken by this court in two landlord and tenant cases: Tegerdine v Brooks (1978) 36 P & CR 261, 266 (Roskill LJ) and Mountain v Hastings (1993) 25 HLR 427, 435 (Ralph Gibson LJ).
34. We have already said that the question whether a departure which caused no actual loss is a material departure was not decided in Hollins v Russell. It is, however, of some significance to see that, in order to determine whether a breach was material, the court's approach to the disposal of the individual appeals in those cases did not involve looking outside the CFAs and the advice that was given by the solicitors in relation to them. In none of the cases did the court conduct a factual investigation to determine whether there had been any prejudice to the client in question.
35. As Mr Morgan points out, the enforceability of a CFA (like any other contract) should, as a matter of principle, be capable of being determined as at the date that it is made. Otherwise, its enforceability may change during the lifetime of the contract, thus making the contractual position between solicitor and client uncertain from day to day, according to whether, at the point in time when the issue is being considered, it can be shown that the client has or has not suffered detriment as a result of the breach.
36. Mr Drabble acknowledges that the enforceability of a contract is usually determinable as at the date of the making of the contract. But he submits that the unusual features of this statutory scheme are such that this general rule does not apply here. In particular, he relies on the fact that a CFA is not a typical bi-partite agreement. The unusual feature on which Mr Drabble relies is that the client has no incentive to complain about a solicitor's breach of the requirements, whereas the defendant's insurers, who are not party to the agreement, do. We confess that we have difficulty in seeing how this bears on the question whether the enforceability of the CFA should be judged as at the date of the agreement or as at the date when costs are being assessed by the court. We see no reason for departing from the general rule that the legal character of a contract must be determined (or determinable) at its commencement, as Ward LJ said of consumer credit agreements in MacMillan Williams v Range [2004] EWCA Civ 294, [2004] 1 WLR 1858 paras 16 and 20.
37. Difficulties of causation and loss are inherent in the common law. But there is no warrant for importing these difficulties into a statutory scheme which states in terms that breaches of the requirements render a CFA unenforceable. On the face of it, the statutory scheme is straightforward. It provides that, if a solicitor fails to comply with the obligation to inform the client of any of the matters set out in regulation 4(2), the CFA will be unenforceable. That is clear and stark. At first sight, there is no room here for any consideration of the actual consequences of the failure to comply. To adopt language appropriate to a breach of contract, the statutory language refers only to breach, and not to causation or loss. Subject to the principle that the law is not concerned with very small things, a breach of contract is a breach even if it causes no loss.
38. The importance of Hollins v Russell is that it dealt a fatal blow to challenges that were being made by defendants' insurers to the enforceability of CFAs on the grounds of minor technical breaches of the statutory requirements. The court explained that Parliament did not intend that such breaches should render CFAs unenforceable. The breaches had to be material in the sense that they had a materially adverse effect on the protection afforded to the client or on the proper administration of justice. The primary statutory purpose of the requirements was to provide protection to claimants. In these circumstances, it seems to us that it would be extraordinary if the court were required to hold that, however egregious the breach, it was not material if it had not in fact caused the client to suffer any loss. The solicitor might have been guilty of serious negligence or even have acted deliberately to further his own interests at the expense of those of his client. In such cases, on the argument advanced on behalf of the Law Society, there would be no material breach unless the court concluded that the client had actually suffered loss as a result of the breach. That would be a startling result in view of the plain language in which the 1990 Act and the Regulations are expressed, and the purpose that they were intended to serve.
39. We see no basis for interpreting the statutory provisions as having that effect. In some cases, it may be helpful to have regard to what actually happened, because that may shed light on the potential consequences of a breach (if the matter is judged at the date of the CFA) and therefore on the extent to which the breach had a material adverse effect on the protection afforded to the client. In our view, however, in most cases the court should focus its attention principally on the terms of the CFA and the advice and information given by the solicitor and other relevant circumstances which existed at the date of the CFA and make a judgment as to whether, in the light of that material, the departure from the requirement in question had a material adverse effect on the protection afforded to the client.
40. We should refer to the decision of this court in Jones v Caradon Catnic Ltd [2005] EWCA Civ 1821. The claimants' solicitors claimed a success fee of 120% which exceeded the maximum prescribed by the Conditional Fee Agreements Order 2000. The court held that there was a clear breach of the 1990 Act and the 2000 Order. Was it a material breach as explained by Hollins v Russell? Construing the CFA as a whole, the court held that there was no question that the client would ever have to pay a success fee of more than 100%. Accordingly, "this was not a case in which our attention should be devoted to consumer protection or client protection." Rather, it was a case in which the issue was "whether the breach was material or not to the administration of justice"(para 29).
41. At para 32, Brooke LJ said that the breach was material in that sense: it was "on any showing a more serious breach compared with the trivial breaches set out in the two cases to which I have referred" (these were the first two cases in Hollins v Russell). Laws LJ agreed. He said that he could not characterise the breach in the instant case as a "marginal" failure to respect the statute. To disregard the specified 100% limit was inimical to the administration of justice "even if in the result it could be shown that no-one would be the loser" (para 35). If the court were to treat this violation as marginal, it would be acting "flat against the grain of the legislature's policy objectives attained by section 58(1)".
42. It is true that this decision is not based on the client protection limb of the question stated in para 107 of Hollins v Russell. It shows that, in deciding whether there has been an adverse effect upon the proper administration of justice, the court does not consider whether actual prejudice has been caused to the claimant or indeed anyone else. But if actual prejudice is irrelevant to the question whether there has been an adverse effect on the proper administration of justice, it is difficult to see why it should not also be irrelevant to the question whether there has been an adverse effect on the protection afforded to the client. In our judgment, therefore, this decision supports the view that we have expressed at paras 27-39 above.
43. A particular point arises in relation to breaches of regulation 4(2)(c) which is relevant to the Myatt claims. Suppose that a solicitor fails to inform the client whether he considers that his risk of incurring liability for costs is covered by a before the event legal expenses insurance policy ("BTE"), but the client does not in fact have a relevant BTE at that time. The question that arises is whether the court is entitled to have regard to the fact that the client does not have a BTE when it decides whether the solicitor's failure to consider the matter is a material breach. Mr McCue submits that it is something that should be taken into account.
44. For what purpose is it suggested that it should be taken into account? It is not relevant to whether the solicitor failed to comply with the regulation by failing to inform the client whether he considered that he already had relevant BTE insurance. The purpose for which Mr McCue submits that it should be taken into account is to show that the client has suffered no prejudice as a result of the solicitor's failure. The argument is that, if the solicitor had elicited the fact that the client had no relevant BTE, he would have so advised the client, and the client would almost certainly have taken the ATE insurance that he in fact took. In other words, the client has suffered no loss. It is clear, therefore, that although one of the circumstances relied on in support of this argument is a fact existing at the date of the CFA (that the client had no BTE), in truth that fact is being relied on as a step in the argument leading to the conclusion that the client has suffered no loss as a result of the breach.
45. At first sight, it might seem odd that the fact that the client does not have BTE should not be taken into account. But once the relevance of that fact is understood, it becomes clear that Mr McCue wishes to rely on it for no other reason than that it shows that the breach has caused no loss to the client. It is not relied on as shedding any light on the gravity of the breach (which might be the result of a momentary lapse or a deliberate act taken to further the commercial interests of the solicitor). We have already explained why in our view the materiality of a breach is not judged by its consequences. For these reasons, the fact that a client had no relevant BTE when a solicitor infringes regulation 4(2)(c) is irrelevant to the materiality of the breach.

The four Myatt cases

The facts

46. All four claimants are ex-miners. Each claimed damages for noise induced hearing loss suffered in the course of his employment. In each case, the claim was settled for less than £5000. Each claimant had entered into a CFA with Ollerenshaw, a firm of solicitors practising in Leamington Spa, and orders were made in the Warwick County Court under the CPR 8 procedure for a detailed assessment of costs pursuant to CPR 44.12A. The assessment was conducted by Master Wright. He decided as a preliminary issue that the CFA in each case was unenforceable by reason of a breach of regulation 4(2)(c) of the Regulations in that the solicitors had failed to inform any of the Myatt claimants whether they considered that they had relevant BTE cover. It was agreed that, if the CFA was found to be unenforceable, then (by reason of the wording of the ATEs, and the CFAs), the ATE premium was not recoverable from the defendant. Before Master Wright, it was conceded by Mr McCue that, if the master found that there had been a breach of regulation 4(2)(c), the breach would be material. The Master did not, therefore, consider the issue of materiality. Before us, Mr McCue was given permission to withdraw this concession.
47. The claimants adduced the evidence of Marie O'Malley, whose statement sets out the procedure followed by her firm which she says was designed to ensure compliance with the Regulations in relation to BTEs. Ms O'Malley is an assistant solicitor who has been employed by Ollerenshaw since she qualified in 2001. Between November 2002 and March 2004, many industrial disease claims were referred to her firm by Beresfords Solicitors LLP. Every fee earner was required to follow the procedure. She says that she has no reason to doubt that the fee earners who dealt with these four cases did so.
48. Claire Giret had the initial conduct of the claim of Colin Edwards. In her witness statement, she confirms that in relation to his case she followed the procedure described by Ms O'Malley in her statement. There was no evidence from Amy Martin (the fee earner who had the initial conduct of the claims of the other three claimants). It is reasonable to infer that she did follow the procedure.
49. The procedure described by Ms O'Malley was as follows. On receipt of the papers from Beresfords, the fee earner would check the questionnaire that had been completed by Beresfords to see whether the client had confirmed to that firm that he did not have "applicable cover". In the present case, that questionnaire indicated that all four claimants had confirmed that they did not have such cover. But the Ollerenshaw procedure required their fee earners to conduct their own enquiry and place no reliance on the answers to the Beresfords' questionnaire. The first step in the enquiry was a telephone call to the client in which the fee earner introduced himself to the client and went through the "no win no fee oral advice checklist" ("the checklist"). The fourth step in the checklist is described in that document in the following terms :

"4. Ask for details of pre-existing legal expenses insurance:-

Does the client have an existing contract of insurance that would cover him/her for bringing this claim?

Does the client have any of the following that would entitle him/her to legal expenses insurance? If so, ask him/her to send in the policy document when returning the CFA:-

• Credit Cards	YES	NO
• A motor insurance policy	YES	NO
• Household Insurance	YES	NO
• Trade Union Membership	YES	NO

The client must be fully aware that if he/she has legal expenses insurance under any of the above, he/she could use that to fund the claim.

HAS THIS BEEN EXPLAINED TO THE CLIENT? YES NO"

50. Ms O'Malley explains this step in her witness statement as follows:

"12. The section on pre-existing legal expenses insurance requires the fee-earner to ask the client whether he has credit cards, a motor insurance policy, a household insurance policy or Trade Union membership which would entitle him to legal expenses insurance in respect of the contemplated claim; i.e. a claim for noise-induced hearing loss against their former employer the National Coal Board.

13. When I go through this part of the oral advice checklist with a client I explain to him that sometimes legal expenses cover is a benefit provided by policies of household, car and credit car insurance without the policy holder necessarily being aware of it. I make sure that the client understands what he is being asked about. Some clients referred by Beresfords were quite clear (having, of course, already checked once for Beresfords) that they had no relevant legal expenses policy, whether attached to a credit card agreement, household or motor insurance policy, or by way of trade union membership, or otherwise. In that event I would circle "No" in the checklist against the four specific sources and "Yes" to the question "Has this been explained to the client?" However, if a client was unsure about the matter my practice in such instances was to agree with the client that he would check again his insurance policies and that if he still suspected that he might have relevant legal expenses cover he would send in the policy so that I could check whether cover existed. I cannot specifically confirm that Claire Giret and Amy Martin follows this practice, but it was standard in the firm and I would expect that they did."

51. The checklist in each of the four cases shows that a circle has been placed round the word "NO" against "credit cards", "a motor insurance policy", "Household insurance" and "Trade Union Membership" and round the word "YES" opposite the question "HAS THIS BEEN EXPLAINED TO THE CLIENT?"
52. Following the telephone conversation, a bundle of paperwork was sent to the client which included two copies of the client care letter and the proposed CFA as well as a "Conditional Fee Checklist". The care letter at point 7 stated:

"Our enquiries within the insurance industry indicate that a growing percentage of people have house, contents or other forms of insurance which gives them cover for legal costs when they need to bring a claim. Although we have already discussed this with you, please ensure you check your policies to see if you have that type of cover in which case it may not be appropriate for us to act for you on the "No Win No Fee" basis and we would have to discuss the matter further with you and your insurers."

53. The "Conditional Fee Checklist" contains a statement signed by the client that he has checked to see whether he or anyone in his household has purchased legal expenses insurance.
54. The reasons why Master Wright concluded that there was a breach of regulation 4(2)(c) in each of the four cases are set out at paras 67-75 of his judgment:

"67. There are two difficulties with that [para 13 of Ms O'Malley's statement]. The first is that she says in paragraph 12 of her witness statement that the client is asked whether he has credit cards insurance policies or trade union membership:

"which would entitle him to legal expenses insurance in respect of the contemplated claim i.e. a claim for noise-induced hearing loss against their former employer the National Coal Board. (emphasis added)"

68. The second difficulty is that while Ms Giret confirms in her witness statement that she followed the firm's standard pre-Conditional Fee Agreement procedure as described in Ms O'Malley's statement (see paragraph 16 above) she only interviewed Mr Edwards and Ms O'Malley's evidence about the procedure in these cases indicates that the client was asked the wrong questions.

69. If what Ms O'Malley says in paragraph 12 of her witness statement is correct, then the client was being asked to interpret what could well have been a complex document. Being unsophisticated clients, it would, in my judgment, have been an inadequate inquiry and would not have been compliant with Regulation 4(2)(c).

70. Apart from this, there is the difficulty that the other three clients (Mr Ellis, Mr Myatt and Mr Rodger) were interviewed by Ms Martin who has given no evidence at all.

71. This, in my judgment, gives rise to a genuine compliance issue. The Defendant says that the solicitors should have asked the clients whether they, or any spouse or partner living in the same household, had any credit cards, motor insurance or household insurance policies or trade union membership without more. They concede that it may have been unnecessary for them to visit the client's home to inspect the policies but say that at the very least they should have asked the clients to send the documents (or copies) to them to inspect. I agree.

72. In my judgment the solicitors did not comply with Regulation 4(2)(c) because they asked the wrong questions. Indeed it appears likely (although there is no evidence one way or the other) that the solicitors gave no warning to the clients that they would be interviewing them on the telephone and should have any relevant documents to hand.

73. Further I am not satisfied that the solicitors asked about relevant documents belonging to other members of the client's household.

74. It may be (as Mr McCue suggested) unlikely that any credit card, household or motor policy or trade union membership would assist in a case of industrial disease but no evidence has been produced to establish the point.

75. The ATE insurance premiums are high when seen in the light of the size of each claim. Although I accept that premiums in industrial disease claims may be higher than in RTA claims, I still have the concern that the solicitors should have made more thorough enquiries about the possibility in these four cases of there being BTE insurance which might have made ATE insurance and CFA success fees unnecessary. In my judgment the bundle of paperwork subsequently sent to the clients (see paragraphs 23 to 26 above) did not make good that lack of thorough enquiry".

Discussion

55. It is common ground that, in order to discharge the obligation to inform the client whether the solicitor "considers" that the risk of costs is already covered by a BTE, the solicitor must ask the client one or more questions. That is obviously right. It is implicit in the regulation that the solicitor must take steps to ascertain what the insurance position is, in order to be in a position to say whether he considers that the client's risk of costs is already insured. To some extent, the solicitor is bound to rely on the client for this purpose. In our judgment, he is required to do no more than take reasonable steps. What is reasonable will depend on all the circumstances of the case. We discuss this further at paras 65-77 below.
56. Mr McCue suggested three possible approaches that could be adopted by a solicitor. One approach is that the solicitor should ask the client whether he has any home, credit card or motor insurance and whether he is a member of a Trade Union. If the answer is "yes", then the solicitor should ask the client to send him the policy to enable him to consider whether the risk of costs is covered by a BTE. A second approach is for the solicitor to ask the client whether he has any legal expenses insurance at all. If the answer is "yes" or "I do not know", then the solicitor should ask to see the policy. If the answer is "no", then no further steps need be taken. The first and second approaches could be combined, with specific questions as under the first approach followed up by a general question as under the second. The third possible approach is that the solicitor should ask the client whether he has any legal expenses insurance which will cover costs in respect of the proposed claim. The solicitor should ask to see the policy only if the client answers that he does not know or is not sure.
57. Mr McCue submits that in a case such as the present, the second approach is sufficient and that this is the approach that was adopted by Ollerenshaw. He accepts that in such a case (involving ex-miners who cannot reasonably be expected to have familiarity with or a proper understanding of insurance policies), a solicitor should not adopt the third approach. In our view, he is right to do so. He submits that the master was wrong to hold that the solicitors should have adopted the first approach (para 71 of the judgment), and also wrong to hold that they in fact adopted the third approach (paras 67 and 69).
58. We shall start by considering whether the master was right to hold that the solicitors adopted the third approach. Mr McCue submits that the master misunderstood the evidence. In our judgment, Master Wright interpreted the evidence correctly. We consider that, at paragraph 12 of her statement, Ms O'Malley is not merely saying (as Mr McCue submits) that the client is asked whether he has any of the specified insurances or is a member of a Trade Union. The qualifying words "which would entitle him to legal expenses insurance in respect of the contemplated claim" (emphasis added) are important. They qualify the phrase "legal expenses insurance". They accurately reflect the language of the first sentence of the first question in point 4 of the checklist: "Does the client have an existing contract of insurance that would cover him/her for bringing this claim?" (emphasis added). In our judgment, paragraph 12 and the first question in point 4 are not merely directed to eliciting whether the client has any legal expenses insurance at all. Mr McCue submits that this is not a question which the solicitor is told to, or does, ask the client, and that this is apparent from the absence of a Yes/No check after this question to record the answer (unlike all the other questions that the solicitor is told to ask). However, the language of the checklist does not support this, and it cannot easily be read merely as an introduction to the questions which follow. If that were its intended function, it would have been drafted rather differently, as a statement rather than a question to the client.
59. If there were any doubt that the first question in point 4, as explained by paragraph 12 of the statement, is asking the client to make a judgment as to whether the policy would cover the costs of the proposed claim, it is dispelled by paragraph 13 of the statement. It is significant that in paragraph 13 Ms O'Malley twice uses the word "relevant" to describe the legal expenses policy. In respect of those clients who were "quite clear" that they had no "relevant" legal expenses policy, the word "No" would be circled on the checklist against the question "does the client have any of the following that would entitle him/her to legal expenses insurance?" and the word "Yes" to the question "has this been explained to the client?" If the client was unsure and, after checking again, suspected that he might have "relevant" cover, he would be asked to send the policy. The use of the word "relevant" in paragraph 13 of the witness statement accurately reflects the qualifying words in point 4 of the checklist "any of the following that would entitle him/her to legal expenses insurance". In context, the word "would" suggests that the legal expenses insurance would fund the particular proposed claim: see also the checklist at the end of point 4: "The client must be fully aware that if he/she has legal expenses insurance under any of the above, he/she could use that to fund the claim".
60. It is an odd feature of the evidence that in paragraph 13 of her statement, Ms O'Malley says that, if after checking again the client suspects that he might have relevant legal expenses cover, he is asked to send the policy; whereas the checklist states that the client should be asked to send the policy document if the client does in fact have the relevant cover.
61. The important point, however, is that paragraph 13 and the questions in point 4 of the checklist both involve asking the client (a) whether he has credit card, motor and household insurance cover or is a Trade Union member at all, if yes, (b) whether the insurance or membership of the Trade Union includes any kind of legal expenses insurance, and if yes (c) whether the legal expenses insurance includes cover for the contemplated claim. We therefore reject the submission of Mr McCue that the clients in these four cases were not asked to check whether they had legal expenses insurance which would cover a claim for industrial disease.
62. We agree with Master Wright that the solicitors asked the wrong question. They should not have asked these ex-miners to decide whether they had BTEs which would cover their risk as to costs in respect of their claims. Since they asked the wrong question, they did not take reasonable steps to ascertain the true insurance position so as to enable them to inform their clients whether they considered that the risk was already insured.
63. It follows that in our view the master was right to hold that Ollerenshaw failed to inform the four claimants whether they considered that the risk of incurring liability for costs in respect of their proposed claims was insured under a BTE. Although none of the four had BTE which would cover his claim, for the reasons explained at paras 27-45 above (especially paras 43-45), we would hold that there was a material breach of regulation 4(2)(c).
64. We would, therefore, dismiss these appeals.
65. We heard a good deal of argument as to the general nature of the duty in regulation 4(2)(c). I have already said that in my judgment there was an implied obligation to take reasonable steps to ascertain what BTE insurance cover the client has, and that what is reasonable will depend on all the circumstances of the case. Our attention was drawn to a number of decisions which have attempted to give guidance on this point, for example, Jackson v Tierney (Judge George, at Liverpool County Court, 1 November 2002), Culshaw v Goodcliffe (Judge Stewart QC, at Liverpool County Court, 24 November 2003) and Adair v Cullen (Judge Holman, at Manchester County Court, 14 June 2004).
66. Mr Morgan submits that, in determining what was reasonably to be expected of solicitors in relation to regulation 4(2)(c), the court should apply the guidance given by this court in Sarwar v Alam [2001] EWCA Civ 1401, [2002] 1 WLR 125. In that case, the question was whether the cost of ATE insurance should be disallowed as unreasonable under CPR 44.4 on the ground that BTE cover was available to the claimant as a passenger under the defendant's motor insurance policy. The Regulations did not apply because the CFA in that case was entered into before they came into force. The central question was whether it was reasonable for the claimant, acting on his solicitor's advice, to incur the cost of the ATE premium without making further enquiries into the possible existence of BTE cover. The claim was small: it had been settled for £2250. At para 45, the court said that proper modern practice dictated that a solicitor should normally invite a client to bring to the first interview any relevant motor insurance policy, household policy and any stand-alone BTE insurance policy belonging to the client and/or any spouse or partner living in the same household as the client. At para 46, the court said that the solicitor's enquiries should be proportionate to the amount at stake. The solicitor was not obliged to embark on a treasure hunt, seeking to see the insurance policies of every member of the client's family in case by chance they provided relevant BTE cover. The court gave guidance in relation to motor insurance (para 47-48) and credit cards and charge cards (para 49), but said (para 50) that this guidance should not be treated as an inflexible code:

"The overriding principle is that the claimant, assisted by his/her solicitor, should act in a manner that is reasonable. The availability of ATE cover at a modest premium will inevitably restrict the extent to which it will be reasonable for a solicitor's time to be used in investigating alternative sources of insurance."

67. Mr Drabble submits that there is no logical reason why the Sarwar test should be applied to regulation 4(2)(c). That test was fashioned to deal with the question whether it was reasonable to incur the ATE premium. If it was not reasonable, then the premium (or part of it) would be disallowed at an assessment of costs, but that had no bearing on the solicitor's entitlement to payment for his services. On the other hand, the sanction for breach of the regulation was that the solicitor recovered no costs at all.
68. APIL submits that in the ordinary case it is sufficient for the solicitor to ask the client whether he has legal expenses insurance as part of any motor, household or other insurance policy held by him or any partner or spouse or whether he has any free-standing legal expenses insurance. If the client says that he has no such insurance and the solicitor has no reason to doubt what he is told, the solicitor should not be required to do more. It is only if the client says that he does have BTE insurance, and there is any doubt as to whether the client is right, or as to whether it covers the proposed claim, that the solicitor should examine the relevant documents.
69. We agree with Mr Drabble that there is no logical necessity to apply the Sarwar test. The point was made at para 139 of Hollins v Russell that the recovery of insurance premium is provided for under section 29 of the Access to Justice Act 1999 "and is an entirely separate matter from the enforceability of the CFA". Mr Morgan submits for a number of reasons that the Sarwar test should be applied to the regulation 4(2)(c) duty. These include that it is simpler if there is a single standard to be met, particularly in the low value personal injury market, where most of the work is done by unqualified staff or junior fee-earners. It is undesirable to apply different standards to what solicitors are expected to do when advising their clients in relation to BTEs. We see the force of the points that Mr Morgan makes. It is important to keep in mind, however, that Sarwar did not propound a rigid test. The court was at pains to say that the overriding principle is that the claimant and his solicitor should act reasonably. We have already said that duty to act reasonably is implicit in regulation 4(2)(c).
70. In our view, it follows that the regulation 4(2)(c) duty does not require solicitors slavishly to follow the detailed guidance given by this court in Sarwar. In particular, the statement at para 45 that a solicitor should normally invite a client to bring to the first interview any relevant policy should be treated with considerable caution. It has no application in high volume low value litigation conducted by solicitors on referral by claims management companies. As the Myatt cases show, the clients will often live far from the solicitor's offices, and face to face interviews may well not take place. Inconsistently with his primary submission, Mr Morgan submits that, if the solicitor does not meet the client, that is a reason for adopting more stringent standards than those suggested in Sarwar, since the opportunities for misunderstanding during a telephone conversation are greater than in face to face communications.
71. So what guidance can be given as to the steps that a solicitor should reasonably take to discharge his obligation under regulation 4(2)(c)? A number of factors are relevant. What follows is not intended to be an exhaustive list. We emphasise that what is reasonably required of a solicitor depends on all the circumstances of the case.
72. First, the nature of the client. If the client is evidently intelligent and has a real knowledge and understanding of insurance matters, it may be reasonable for the solicitor to ask him not only (i) whether he has credit cards, motor insurance or household insurance or is a member of a trade union, (ii) whether he has legal expenses insurance, but also (iii) the ultimate question of whether the legal expenses policy covers the proposed claim and, if so, whether it does so to a sufficient extent. Litigants such as the Myatt claimants and Ms Garrett plainly do not fall into this category: few litigants will. If the solicitor does ask such questions, he will have to form a view as to whether the client's answers to the questions can reasonably be relied upon.
73. Secondly, the circumstances in which the solicitor is instructed may be relevant to the nature of the enquiries that it is reasonable to expect the solicitor to undertake in order to establish the BTE position. A good example of the application of this factor is to be found in Pratt v Bull, which was one of the five cases that was heard together with Hollins v Russell. In that case, the 80-year old claimant was injured in a road accident. A solicitor visited her while she was in hospital and a CFA was made. At the assessment of her costs, it was argued on behalf of the defendant that the possibility of legal expenses insurance under her home insurance policy had not been fully explored. At para 138, the court said that there were limits to what can reasonably be expected of the interchange between solicitor and client in such circumstances: "It would be ridiculous to expect a solicitor dealing with a seriously ill old woman in hospital to delay making a CFA while her home insurance policy was found and checked." It was sufficient that the solicitor had discussed it with her and formed a view on the funding options.
74. Thirdly, the nature of the claim may be relevant. If the claim is one in respect of which it is unlikely that standard insurance policies would provide legal expenses cover, this may be a further reason why it may be reasonable for the solicitor to take fewer steps to ascertain the position than might otherwise be the case.
75. Fourthly, the cost of the ATE premium may be a relevant factor. This is the point made at para 50 of Sarwar. In our judgment, it is as relevant to a question of breach of regulation 4(2)(c) as to a question of the reasonableness of the premium for the purposes of an assessment of costs pursuant to CPR 44.4.
76. Fifthly, if the claim has been referred to solicitors who are on a panel, it may be relevant that the referring body has already investigated the question of the availability of BTE. Whether it is reasonable to rely on any conclusion already reached will be a matter on which the panel solicitor must exercise his own judgment.
77. It follows from the calibrated approach that we have suggested at paras 72-76 above that we do not consider that it is possible to give rigid guidance as to the questions a solicitor should ask in every case. In particular, in our judgment a solicitor is not required in every case to ask the client who says that he has a home, credit card or motor insurance or is a member of a trade union to send him the policy or trade union membership document (the first of the three approaches suggested by Mr McCue: see para 56 above). In some circumstances, it is reasonable for the solicitor to ask the further question whether the insurance covers legal expenses and to rely on the answer given by the client without further ado. In yet other cases, it is even reasonable to ask the client to answer what we have called the ultimate question.
78. We acknowledge that to require the solicitor to ask the client to send the policies in all cases has the merit of certainty and would minimise the risk of satellite litigation. In Adair v Cullen, Judge Holman said that the Sarwar approach should be adopted to breach of regulation cases and that it "suggests a question along the lines of "Do you have motor insurance" and if the answer is "Yes", the next question is "can I see the policy document please?"" In some cases, such an approach is reasonable and necessary to enable the solicitor to discharge his regulation 4(2)(c) duty. But for the reasons that we have given, we do not accept that it is required in all cases.
79. What we have said in paras 71-78 should not be interpreted as giving encouragement to defendants to embark on fishing expeditions in the hope that, if they ask a sufficient number of questions, they may be able to show that the claimant's solicitor did not discharge his regulation 4(2)(c) duty. We refer to the salutary words of this court in Hollins v Russell at para 81 that the court should not require further disclosure unless there is a genuine issue as to whether there has been compliance with regulation 4.

Garrett v Halton Borough Council

The facts

80. Ms Garrett suffered personal injury as a result of an accident that took place on 24 February 2003. On 19 June 2003, she entered into a CFA with Messrs Websters, solicitors, which entitled the solicitors to a success fee of 70% in the event of her success. The case had been referred to Websters by a claims management company called Ashley Ainsworth ("Ainsworth").
81. The claim was settled in the sum of £3800 plus Ms Garrett's reasonable costs, to be subject to a detailed assessment, if not agreed. The detailed assessment was conducted by Deputy District Judge Storry. He disallowed the entirety of her solicitors' costs on the grounds that he considered that they had acted in breach of regulation 4(2)(e)(ii) of the Regulations: in recommending the ATE insurance that they recommended, they had failed to inform her whether they had an interest in doing so.
82. Ms Garrett appealed. Before we come to the judgment of Judge Stephen Stewart QC, we need to set out the facts on which the allegation of breach of regulation 4(2)(e)(ii) are based. The CFA of 19 June 2003 records that "immediately before you signed this agreement, we verbally explained to you the effect of this agreement and in particular the following". There follow a number of points including:

"(e)(i) In all the circumstances, on the information currently available to us, we believe that a contract of insurance with the National Insurance & Guarantee (NIG) is appropriate. Detailed reasons for this are set out in Schedule 2.

…..

(g) (iii) We confirm that we do not have an interest in recommending this particular insurance agreement."

83. It is not known what the Ainsworth representative told Ms Garrett when he visited her home to explain the CFA. There is, however, an attendance note of a telephone conversation between her and a representative of Websters dated 19 June 2003. The note states that it was explained to her "that Websters had no interest in the [insurance] premium and it is between the client and AA although we are on the AA Panel". The reference to "AA" is a reference to Ainsworth.
84. The grounds of appeal before Judge Stewart raised 4 issues: (i) did Websters have an interest which they were required to disclose; (ii) if yes, did Websters disclose it; (iii) what was the effect of the certificate of insurance bearing a date earlier than the CFA; and (iv) if there was a failure to disclose in accordance with regulation 4(2)(e), did that failure have a materially adverse effect on the protection afforded to Ms Garrett or on the administration of justice so as to render the CFA unenforceable? The judge refused permission to appeal from the district judge on (i), (ii) and (iii), but gave permission in relation to (iv).
85. Strictly speaking, this court has no jurisdiction to deal with the issues on which the judge refused permission to appeal from the district judge. But in our judgment, it is not realistic to decide whether a breach of the regulation was material without also considering whether there was a breach at all. We heard full argument on this issue.
86. In refusing permission to appeal on issues (i) and (ii), the judge said that "there was a declarable interest because the allegation was made upon reasonable circumstantial evidence that if the claimant's solicitors did not recommend the Ashley Ainsworth policy, which was with NIG, then that would lead to termination of the panel membership…..Although not a direct financial interest, it would be a perfectly understandable indirect financial incentive, if by not recommending a particular policy, a solicitor was taken off a panel of solicitors where there was a not insubstantial amount of work fed through to them because they were members of that panel." In short, the solicitors had a disclosable interest. He also held that there was no real prospect of showing that they did in fact disclose that interest.
87. The judge dismissed the appeal in relation to (iv). Much of his judgment is concerned with the question of what is meant by the test stated at para 107 of Hollins v Russell. We have already dealt with that. He explained why he considered that the failure to disclose the interest was a material breach of regulation 4(2)(e) in these terms:

"14. It seems to me that this breach was one which was not a very little thing, that the breach did matter and the client could have relied on it successfully against his solicitor in order properly to give effect to the will of Parliament, as expressed in the Courts and Legal Services Act 1999, Section 58, and Regulation 4(2)(e)(ii) of the relevant regulations.

15. I should finally mention this. It was argued by Mr Bacon that in the telephone note of 19^th June 2003, it was helpful to his client/solicitor that the solicitor, RJW, "Also explained that Websters had no interest in the premium and it is between the client and AA, although we are on the AA Panel." He said that in effect the client was being told that the solicitors were on the AA Panel and therefore it might be inferred that their breach was less material. I have said that I do not suggest that the solicitors were anything other that bona fide in this case but that extract could be read by some clients, not as being helpful to the claimant's argument. Some clients might say, "Well he said he was on the AA Panel, but even despite that they had no interest in the premium" in other words reinforcing the point. It is capable of all sorts of construction, but it seems to me it does not take the argument any further one way or the other."

Discussion

88. Mr Bacon submits that the judge reached the wrong conclusion. He relies on the attendance note of the telephone conversation of 19 June 2003 as showing that Websters made it clear to Ms Garrett that they were members of the Ainsworth panel. Their only failure was that in breach of regulation 4(5) they failed to inform her in writing that they were members of the panel, but, he submits, this was not a material breach. They were not required to disclose any financial interest resulting from their membership of the panel. They did not have any direct financial interest in the NIG insurance; and the disclosure of membership of the panel was a sufficient declaration of the indirect financial interest that comes with membership of the panel, namely the potential for further panel work.
89. On behalf of the Law Society, Mr Drabble supports Mr Bacon in submitting that the judge was wrong to hold that Websters were in breach of regulation 4(2)(e)(ii). He advances a number of arguments. First, he submits that the word "interest" in regulation 4(2)(e)(ii) should be construed narrowly so as to mean only a direct financial interest such as commission (a direct profit arising from the payment of the premium). He acknowledges that the Lord Chancellor's consultation paper of February 2000 purported to "draw on the example of the Solicitors' Client Care Code" to require the legal representative "to provide explanations of the different possibilities open to the client on the insurance front": see para 29 of Hollins v Russell. This part of the paper concluded, at para 83:

"if the legal representative recommends a particular product, but also has an interest in doing so, for example because he or she will receive a commission or is a member of the insurer's panel of solicitors, then this must be disclosed to the client" (emphasis added).

90. Mr Drabble submits that, although the consultation material may be used as a guide to interpretation in some circumstances, it should not be so used in the present context. The result of a finding that there has been a material breach is that the whole of the CFA is unenforceable. This is draconian. Accordingly, the regulations should be construed objectively and without reference to their legislative history. The same draconian consequences also justify interpreting the regulations narrowly, particularly those which are ambiguous. Mr Drabble submits that the word "interest" is ambiguous: it could refer to a direct or an indirect interest. On the basis of an objective and narrow interpretation of regulation 4(2)(e)(ii), the requirement to state whether the solicitor "has an interest" should be construed to mean no more than that the solicitor should state whether he has "a direct financial interest".
91. We cannot accept these submissions. We see no reason why regard cannot be had to the legislative history or travaux preparatoires as an aid to the interpretation of the Regulations. Even if the Regulations are "draconian", that is not a good reason for refusing to have regard to this material. No authority has been cited to us to support the surprising proposition that the admissibility of legislative history or travaux preparatoires as an aid to construction depends on whether the provision whose meaning is in issue is draconian or not.
92. Nor do we accept that the regulations should be construed narrowly because of their potentially draconian effect on solicitors. The purpose of the Regulations is to protect clients, not the financial interests of solicitors. In our judgment, the Regulations should be construed by giving the plain language in which they are expressed its normal and natural meaning. We do not accept that the word "interest" is ambiguous. For the reasons that we shall give, it seems to us to be clear that it includes membership of a panel such as the Ainsworth panel.
93. Mr Drabble's second submission is that the terms of regulation 4(2)(e)(ii) are precisely fulfilled by the mere statement that the solicitor does or does not have an interest in the ATE policy. The regulation deals solely with the information that has to be supplied to the client. There is no justification for importing a further duty of, in effect, warranting that the information supplied to the client is correct. This submission needs to be considered against the background that, outside the Regulations, there are more than adequate remedies available against a solicitor who inaccurately informs a client that he has no interest in recommending a policy when in fact he has. Accordingly, there is no need to interpret regulation 4(2)(e)(ii) in an expansive way which would result in the solicitor receiving no payment at all.
94. We cannot accept this submission either. The obligation in regulation 4(2)(e)(ii) is to inform the client if he recommends a particular insurance contract "whether he has an interest in doing so". The obligation is not to inform the client whether he believes that he has an interest in doing so; it is to inform the client whether he has an interest in doing so in fact. This regulation is concerned with client protection. As Mr Morgan points out, if Mr Drabble's construction were accepted, it would deprive regulation 4(2)(e)(ii) of real effect. Indeed, the logic of Mr Drabble's submission is that it is sufficient for the solicitor simply to say that he has no interest in recommending the insurance regardless of the true position and even regardless of what the solicitor believes to be the true position. Thus, it would mean that the obligation created by the regulation would be discharged if a solicitor informed the client that he had no interest in recommending an insurance contract even if he knew that, or was reckless as to whether, he had such an interest. On Mr Drabble's argument, it is difficult to see by what process of interpretation such an extraordinary result could be avoided.
95. We should add that paragraph 83 of the consultation paper clearly required the solicitor to disclose any interest that he in fact had in the particular insurance product, not merely any interest that the solicitor believed that he had. Our attention has not been drawn to any material which indicates that in enacting regulation 4(2)(e)(ii), Parliament intended a different test from that stated in the consultation paper.
96. We turn, therefore, to consider whether the judge was right to hold that Websters acted in breach of regulation 4(2)(e)(ii) on the facts of this case. As we have said, Mr Bacon submits that (i) there was no obligation on the solicitors to disclose any financial interest resulting from their membership of the Ainsworth panel, but (ii) if there was such an obligation, it was discharged in this case by informing Ms Garrett that they were on the Ainsworth panel.
97. We do not accept the first of these submissions. There was a close relationship between Websters and Ainsworth. Websters were dependent on Ainsworth 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 Ainsworth insurance product came in a CFA that it had apparently supplied to its panel solicitors and which bore its livery. As the judge pointed out at para 7 of his judgment on the application for permission to appeal the decision of the district judge:

"But the crunch averment in the points of dispute was that failure to comply with recommending the NIG policy would lead to termination of panel membership, and I accept from the lack of response to that direct matter that it is a proper inference that in fact it would have done so, in the sense that the claimant solicitors, Websters, recommended to some clients to go elsewhere for their ATE insurance, then they would have been taken off the panel, or, as the deputy district judge put it slightly differently, "I am not satisfied that the claimant has established that the claimant solicitors have no interest in recommending this policy". Although not a direct financial interest, it would be a perfectly understandable indirect financial incentive, if by not recommending a particular policy, a solicitor was taken off a panel of solicitors where there was a not insubstantial amount of work fed through to them because they were members of that panel."

98. Mr Bacon has not challenged this finding. Accordingly, Websters did have a financial interest in recommending the NIG insurance to Ms Garrett. Was there sufficient disclosure of that interest? In our judgment, the judge correctly concluded that there was not. In considering the effect of the explanation given to Ms Garrett during the telephone conversation on 19 June 2003, it is important to have regard to the unequivocal statement in the CFA itself: "we confirm that we do not have an interest in recommending this particular insurance agreement". In the light of that clear statement, it would be surprising if during the telephone conversation the legal representative had said that Websters did have an interest in recommending the policy and had told Ms Garrett what that interest was.
99. The statement that Websters had no interest in the insurance premium "although we are on the AA Panel" did not disclose to Ms Garrett that Websters 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 Websters were recommending the NIG policy because this was dictated by their financial interests.
100. She would not have understood the significance of Websters being of the Ainsworth 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. This is borne out by the evidence of Chris Ward, who is managing director of Abbey Legal Protection. He explains that Accident Line is a scheme managed by Abbey Legal Protection on behalf of the Law Society. It is a membership scheme for which firms pay a fee in return for a range of services, including referrals. Membership is based on quality criteria, one of which is that solicitors must have an individual member of the Law Society's Personal Injury Panel in their office.
101. At para 90 of Hollins v Russell, the court recorded the submission of Mr Drabble that the statutory regulation had two distinct aims. The second, he submitted, was "to protect the client—to ensure so far as possible that she understands what she is letting herself in for and is able to make an informed choice amongst the funding options available to her". The court seems to have accepted this submission. We certainly would. In our judgment, by informing Ms Garrett that they were on the Ainsworth panel, the Websters representative did not disclose the real financial interest they had in recommending the NIG policy.
102. Ian Austen-Jones is a partner in Websters. He says that most clients are not interested in their explanations about insurance. Only a handful make enquiries about the insurance they recommend, and he has never known a client to refuse an insurance product that he has recommended. If clients are never told that membership of the Ainsworth panel means that Websters can only recommend the NIG policy, this may not be surprising. But even if clients rarely show any interest in these matters, that is not a good reason for not giving effect to the plain intention of Parliament.
103. Under a quite different legislative regime from that governing CFAs, the requirements imposed on solicitors by way of disclosure in relation to insurance policies which they recommend to their clients changed on 14 January 2005. With effect from that date, the Solicitors' Financial Services (Conduct of Business) Rules 2001, made by the Law Society in its capacity as a recognised professional body under the Financial Services and Markets Act 2000, were amended so as to introduce new provisions in this respect. By virtue of rule 8A and Appendix 1, if a firm recommends a contract of insurance to a client, and does not conduct a fair analysis of the market for such policies, it must advise the client, among other things, whether it is contractually obliged to conduct insurance mediation activities only with one or more insurance undertakings. "Insurance mediation activities" is defined in a European Directive on Insurance Mediation, 2002/92/EC. It includes the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance. Thus, from 14 January 2005, a solicitor who proposes that his client should enter into an ATE insurance policy, and who recommends a particular policy because it is the only policy which, consistently with his firm's membership of a panel, he is allowed to recommend, must tell the client that he is contractually obliged to recommend a policy with that insurer. That would give the client notice of the particular interest which the firm has in recommending the policy, whereas just to tell the client that the firm is on a particular panel does not convey that information. If that obligation was observed from 14 January 2005, the problem which we have had to consider in relation to the Garrett case will not have arisen between that date and the revocation of the Regulations on 1 November 2005.
104. These provisions, however, have no application to Ms Garrett's appeal, which we would dismiss for the reasons that we have given.