England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE
FROM THE WARWICK COUNTY COURT

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		12 August 2005

Master Wright

1. In each of these four claims the Claimant had been employed by the Defendant and had suffered from noise induced hearing loss ("NIHL") as a result of that employment.

2. In each case the claim was settled for less than £5000 and the Defendant agreed to pay the Claimant's costs.

3. The Claimants entered into conditional fee agreements ("CFAs") with Ollerenshaw and orders were made in the Warwick County Court under the CPR Part 8 procedure for a detailed assessment of those costs pursuant to CPR Part 44.12A.

4. By an Order dated 28th February 2005 District Judge Ridgway (in the Warwick County Court) ordered that the assessment of costs in all four cases be transferred to the Supreme Court Costs Office.

5. The parties agreed that a preliminary issue should be determined. The terms of that preliminary issues are as follows:

   "The issue is whether or not the CFA in each of the four cases is unenforceable by reason of a breach of Regulation 4(2)(c) of the CFA Regulations 2000."

6. In each case the Claimant had also taken out an after-the-event (ATE) insurance policy. The parties have agreed that if the CFA in any of the cases is found to be unenforceable then (by reason of the wording of the policies and the CFAs) the ATE premium is not recoverable from the Defendant.

7. Section 58(1) of the Courts and Legal Services Act 1990 (as amended) provides:

   "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 (subject to subsection (5)) any other Conditional Fee Agreement shall be unenforceable."

8. The requirements for an enforceable CFA are set out in the Conditional Fee Agreements Regulations 2000. Regulation 4(1) provides:

   "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."

9. Regulation 4 (2) provides:

   "Those matters are:

   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."

10. In each case the Claimant relies on the witness statement of Marie O'Malley dated 18 April 2005. Ms O'Malley's statement sets out in detail the procedure followed by Ollerenshaw in relation to compliance with Regulation 4(2)(c).

11. From Ms O'Malley's Witness statement it appears that from approximately November 2002 until March 2004 Ollerenshaw had industrial disease claims referred to it by Beresfords Solicitors LLP. The claims were a mixture of NIHL and Vibration White Finger. Beresfords took initial instructions from the Claimant and a questionnaire was completed. Upon receipt of the fully completed questionnaire Ollerenshaw would take over the conduct of the claim.

12. The fee earner at Ollerenshaw would then (if it was a NIHL case) check page 10 of Beresfords NIHL questionnaire to see whether the client had confirmed that he did not have any applicable before-the-event (BTE) legal expenses insurance. Exhibit "MOMI" displays photocopies of page 10 of each of the questionnaires relating to these claims.

13. In each case the client confirmed that he had checked all his policies and that he had no legal expenses cover which would fund his claim.

14. Ms O'Malley states, however, in paragraph 10 of her witness statement:

    "Ollerenshaw takes note of the answer as to BTE in the questionnaire, but does not rely on it."

15. The fee earners who acted in these four cases were Claire Giret (who had conduct of the file of Mr Edwards) and Amy Martin (nee May) who had initial conduct of the files of Mr Ellis, Mr Myatt and Mr Rodger.

16. Claire Giret has made a witness statement dated 18th April 2005 in which she confirms that, as regards Colin Edwards, she followed the firm's standard pre- Conditional Fee Agreement procedure in relation to possible existing legal expenses insurance as described in Ms O'Malley's Statement.

17. Ms Martin did not make a witness statement. However, Ms O'Malley states in her witness statement:

    "8. The Personal Injury Department at Ollerenshaw has a procedure which is designed to ensure compliance with the regulations in relation to BTE insurance. Every fee earner that works in the department is required to follow the procedure. I have no reason to doubt that when dealing with those four cases Claire Giret and Amy Martin followed the procedure; indeed the documents confirm that they did."

18. Paragraphs 9 to 19 of Ms O'Malley's witness statement set out the procedure adopted by Ollerenshaw.

19. In paragraph 10 Ms O'Malley (having said that the firm does not rely on the answers as to BTE in the questionnaire sent to them by Beresfords and that the firm conducts its own investigation) says:

    "The first step in the procedure is an initial telephone call made to the client in which the fee earners introduce him/herself to the client and then goes through the "No Win No Fee Oral Advice Checklist" with the client. Copies of the completed checklists in respect of these four cases are exhibited at "MOM2". Miss Giret telephoned Mr Edwards on 4 December 2003. Mrs Martin telephoned Mr Ellis on 4 August 2003, Mr Myatt on 30 July and Mr Rodger on 30 July 2003, introducing themselves and going through the checklist."

20. She says (in paragraph 11) that the form requires the fee earner to confirm that certain matters have been explained to the client. These are:

    What constitutes a win and what constitutes the firm's fees and costs;

    The two circumstances in which costs and fees become payable;

    The client's right to seek detailed assessment of costs;

    Details of pre-existing legal expenses insurance;

    Other methods of funding his claim.

21. She points out (in paragraph 12) that the section of the checklist about preexisting 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 noiseinduced hearing loss against their former employer the National Coal Board."

22. Ms O'Malley says (in paragraph 13) that when she goes through this part of the oral advice check list with a client she explains to him that sometimes legal expenses cover is a benefit provided by policies of household, car and credit card insurance without the policy holder necessarily being aware of it. She says:

    "I make sure 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 against 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."

23. Following the telephone conversation with the client a bundle of paperwork is (see pargraph 15 of Ms O'Malley witness statement) posted to him including two copies of the client care letter and conditional fee agreement, proposal form for the ATE insurance policy and pre-CFA checklist.

24. The client care letter in each case states:

    "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 that 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."

25. The insurance proposal form which is signed by each of the Claimants states:

    "I understand that there may be other ways of funding the proceedings apart from this Proposal:

    if I am a member of a trade union or similar membership benefit scheme, or if I have insurance cover for legal expenses, that scheme or cover may pay my opponent's costs if I lose. I understand that such insurance may be found in sections of my motor insurance, household insurance, credit cards or my opponent may have such insurance for my benefit (for example, where the accident occurred whilst I was a passenger in a motor vehicle).

    I confirm that I have considered this and that I am not a member of such an organisation nor do I have any insurance to cover legal expenses. I understand that if any of these matters apply to me and I do not disclose it, I may be unable to recover from my opponent the CLE Conditional Fee Care Policy insurance premium and that I will have to pay for it myself."

26. The pre-CFA checklist which each of these Claimants signed prior to entering into the CFA says (among other things):

    "4. I have checked to see if I or anyone in my household (and the driver of any car in which I was a passenger if my claim relates to a road traffic accident) has any pre-purchased legal expenses insurance."

27. The Defendant's counsel Mr Carpenter prepared a helpful "Schedule of Relevant Dates and Figures" which is attached to his skeleton argument. It is as follows:
    SCHEDULE OF RELEVANT DATES AND FIGURES
    

28. On behalf of the Defendant, Mr Carpenter challenged the enforceability of the CFAs as between Ollerenshaw and the four Claimants because of alleged breaches of Regulation 4(2)(c) of the Conditional Fee Agreements Regulations 2000. He submitted that by virtue of the indemnity principle the CFAs were accordingly unenforceable between the parties. If that is right, it will mean that no costs will be recoverable from the Defendant in these cases.

29. Mr Carpenter referred to paragraph 4(2)(c). One of the matters about which the legal representative must inform the client before a CFA is made is:

    "c) Whether the legal representative considers (emphasis added) that the client's risk of incurring liability for costs in respect of the proceedings to which this agreement relates is insured against under an existing contract of insurance."

30. He submitted that unless the client has specialist knowledge, which is not the case here, the word 'considers' requires the solicitor to do more than simply ask the client whether he has BTE insurance. In the context of the reasonableness of taking out an ATE insurance premium where there might be BTE insurance, the Court of Appeal had said:

    "In our judgment, proper modern practice dictates that a solicitor should normally invite a client to bring with him to the first interview any relevant motor insurance policy, household insurance 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. It would be desirable for solicitors to develop the practice of sending a standard form letter requesting a sight of these documents to the client in advance of the first interview."

    (Sarwar –v- Alam [2002] 1WLR 125 at 139 paragraph 45)

31. Mr Carpenter said that the Court of Appeal in Sarwar had referred to the Solicitors Costs Information and Client Care Code 1999 when concluding that the solicitors had a duty to make these enquires. Paragraph 4(j) of the code provides:

    "The solicitor should discuss with the client how and when any costs are to be met and consider (emphasis is added):

    i. Whether the client may be eligible and should apply for legal aid (including advice and assistance);

    ii. Whether the client's liability for their own costs may be covered by insurance,

    iii. Whether the client's liability for another party's costs may be covered by pre-purchased insurance and, if not, whether it would be advisable for the client's liability for another party's costs to be covered by after the event insurance (including in every case where a conditional fee or contingency fee arrangement is proposed); and

    iv. Whether the client's liability for costs (including the costs of another party) may be paid by another person e.g. an employer or trade union."

32. Mr Carpenter referred to paragraph 15 of the judgment in Sarwar where (he submitted) it is made clear that the Client Care Code is concerned with the protection of the client.

33. He also referred to paragraph 50 of the judgment in which the Court of Appeal says:

    "50. The guidance we have given in this part of our judgment 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."

34. Mr Carpenter submitted that the greater the proposed ATE premium, the greater the duty on the solicitor to carry out proper investigations. He said that in these four cases the ATE premiums cost half or nearly half the value of the claims. If, in these four cases, the clients did have appropriate BTE insurance they would not have had to be responsible for either a 100% success fee or an ATE premium costing half or nearly half the value of the claim.

35. Mr Carpenter also submitted that there was no evidence that the client had been warned of the proposed telephone call or the desirability of his having available any relevant insurance policies belonging either to him or to a member of his household.

36. Mr Carpenter pointed out that there was no evidence from Ms Martin (who had interviewed three of the four clients) and that after the telephone interviews the clients were sent the paperwork described in paragraph 15 of Ms O'Malley Statement. He submitted that it was unlikely that these clients would properly understand the significance of what was said about BTE insurance in all that paperwork.

37. Mr Carpenter submitted that the solicitors should not have asked the client the question (see paragraph 12 of Ms O'Malley's statement) whether he has "credit cards, a motor insurance policy, a household insurance policy or trade union membership which would enable 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".

38. He submitted that the clients in this case were not sophisticated and would have needed advice on the policy wording before being able to answer such a question.

39. Instead, he submitted, the clients should have been asked whether they or any member of their household held a credit card, motor insurance policy or household insurance policy or trade union membership. If the answer to that question was in the affirmative, the solicitors should then have asked that the relevant documents (or copies) be sent to them so that they could decide on their relevance and give appropriate advice.

40. Both Mr Carpenter and Mr McCue (who represented the Claimants) provided me with helpful skeleton arguments and referred me to almost the same authorities.

41. Among these are the decisions of HHJ George in Jackson –v- Tierney (Liverpool County Court 1st November 2002 unreported) HHJ Stewart QC in Culshaw –v- Goodliffe (Liverpool County Court 24th November 2003 unreported), HHJ Holman in Adair –v- Cullen (Manchester County Court 14th June 2004 unreported) and Chief Master Hurst, the Senior Costs Judge, in Samonini v London General Transport Services Ltd (2005) EWHC9001 (Costs).

42. Jackson–v- Tierney pre-dates the judgment of the Court of Appeal in Hollins -v- Russell [2003] 1WLR 2487 to which I was also referred.

43. Mr Carpenter submitted that in all the County Court cases the inquiry as to whether there had been a breach of Regulation 4(2)(c) was sparked off by the fact that it emerged that there was BTE insurance and that the solicitors had failed to make proper inquiries. In Samonini there had in fact (as it turned out) been no BTE insurance but Chief Master Hurst found that the inquiries were inadequate and the ATE insurance premium was disproportionately large.

44. Mr Carpenter pointed out that in only one of the cases where Regulation 4(2)(c) has been considered has it been held that there was no requirement to make full inquiries into the existence of BTE insurance. That was the case of Pratt v Bull (considered by the Court of Appeal in Hollins) where the Claimant, an 80 year old woman, gave instructions to her solicitor while she was in hospital having been severely injured when struck by the Defendant's car.

45. Mr Carpenter submitted that the Court of Appeal in Hollins had indicated that when solicitors made the enquiries required by Regulation 4(2)(c), the solicitor should see the policies. In paragraph 200 of the judgment the Court of Appeal said:

    "We can see no reason why those duties cannot be performed by someone on the solicitor's behalf who does not happen to be a qualified solicitor or a fellow of the Institute of Legal Executives. The relevant advice is very clearly set out in the oral explanation sheet, and the fact find part of that sheet, discussed with the client in his home (where she can readily look for documents relating to his household insurance or her trade union membership), will enable the client to deal with the matters raised in (c) and (d) above……."

46. Mr McCue submitted that the Defendant had not raised any genuine compliance issue and that accordingly the Court should not embark upon an enquiry as to whether Regulation 4(2)(c) had been breached.

47. In Culshaw and Adair, the compliance issue was raised by the fact that a BTE policy was in fact available to the Claimant.

48. In Samonini the issues were:

    i. That it is a proposition of common sense that a taxi driver would have an insurance policy to cover him in bringing a claim in respect of an accident;

    ii. The paucity and quality of material put before the Court; the attendance note and follow-up letter positively invited investigation;

    iii. The premium for the ATE policy (£798 for a claim which would not be worth more than £2000) was on its face disproportionate and demanded investigation.

49. Mr McCue submitted that issue (i) does raise a genuine compliance issue which justified the Court's investigation. However, he submitted that the quantum of the ATE insurance premium could not of itself be evidence of non-compliance with Regulation 4(2)(c) and that until it had been established that there was a genuine compliance issue it would be objectionable to consider the material put before the Court.

50. It seems to me, however, that once the material showing the detail of the work done by the Solicitors and the procedures adopted by them is placed before the Court (as it has been in this case) the Court ought to consider that material.

51. The Court of Appeal in Hollins said in paragraph 220:

    "Attendance notes and other correspondence should not ordinarily be disclosed, but the judge conducting the assessment may require the disclosure of material of this kind if a genuine issue is raised. A genuine issue is one in which there is a real chance that the CFA is unenforceable as a result of failure to satisfy the applicable conditions."

52. Nevertheless once the material has been produced it does not seem to me that the Court can properly ignore it.

53. In any event, the Court will have to decide whether or not there is a genuine compliance issue in these four cases.

54. Mr McCue submitted that there has been no breach of Regulation 4(2)(c). He says that it is clear that the Ollerenshaw solicitor in these cases explained fully the nature of existing BTE insurance and where it might be found, so that the clients were fully aware that they might find BTE insurance in their home, motor or credit card policies. He submitted that proper explanations and enquiries as to BTE insurance were made.

55. The Sarwar guidelines assume, he submitted, that the solicitor's office is near enough to the client's address for it to be practicable for the client to visit the solicitor in person. Where, as here, that is not the case, he submitted that it was reasonable for the solicitor to explain to the client what BTE insurance is, why he may have it, and in which policies it may be included. If the client, being fully informed in this way, says he does not have any such BTE insurance, he is acting reasonably (in the sense referred to in paragraph 50 of Sarwar).

56. It is not, he submitted, a desirable or legitimate construction of Regulation 4(2)(c) to hold that compliance with it requires the solicitor in such circumstances to insist that the client may be wrong and that the client should send the policies to the solicitor by post so that the solicitor can check them himself.

57. Mr McCue submitted that the Court should be wary of transposing guidance given in motor claim cases to cases involving industrial disease. In motor claim cases the motor insurance policy held by the Claimant (which he is obliged by law to have if he is the driver) covers the cost of legal proceedings in relation to the accident concerned. By contrast, in the case of industrial disease there is no requirement on individuals to hold a policy insuring themselves against industrial injury. While he accepted that there was no evidence on the matter, common sense, he submitted, suggests that such policies are rare.

58. Mr McCue referred to the test which must be applied if the Court were to find that there had been a breach of Regulation 4(2)(c) in these cases.

59. The test is stated by the Court of Appeal in Hollins in paragraph 221:

    "Costs judges should ask themselves the following question:

    "Has the particular departure from a regulation or requirement in S58, 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 administration of justice?"

60. Mr McCue conceded however that if there had been a breach in these cases (which he contended there had not) that the breach would be materially adverse to the proper administration of justice. It would be materially adverse to such proper administration "if solicitors are permitted to skimp on the proper investigation of (BTE)" (Samonini at paragraph 66).

61. In coming to my conclusions I must bear carefully in mind two further passages from the Court of Appeal's judgment in Hollins. At paragraph 224 they say:

    "The Court should be watchful when it considers allegations that there have been breaches of the regulations. The parliamentary purpose is to enhance access to justice, not to impede it, and to create better ways of delivering litigation services, not worse ones. These purposes will be thwarted if those who render good service to their clients under CFAs are at risk of going unremunerated at the culmination of the bitter trench warfare which has been such an unhappy feature of the recent litigation scene."

62. Then, after referring to the Court of Appeal's judgment in Burstein v Times Newspapers Ltd [2002] EWCA Civ 1739 they continue:

    "226. In future district judges and costs judges must be equally astute to prevent satellite litigation about costs from being protracted by allegations about breaches of the 2000 Regulations where the breaches do not matter. They should remember that the law does not care about very little things, and that they should only declare a CFA unenforceable if the breach does matter and if the client could have relied on it successfully against his solicitor."

63. Miss O'Malley says (see paragraph 21 above) in paragraph 12 of her witness statement that the No Win No Fee Oral Advice Check List 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.

64. The No Win No Fee Oral Advice Check List says:

    "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 bring 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

    •    A motor insurance policy

    •    Household insurance

    •    Trade union membership

    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."

65. In each of these four cases the answer given on the form was that the client did not have any of the listed credit cards, policies or trade union membership and that it had been explained to him that if he had legal expenses insurance under any of those heads, he or she could use that to fund the claim.

66. Ms O'Malley says in paragraph 13 of her witness statement (see paragraph 22 above) that she makes sure the client understands what he is being asked about when she goes through this part of the oral check list with a client.

67. There are two difficulties with that. 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.

76. Accordingly I have come to the conclusion that this preliminary issue must be answered to the effect that the CFA in each of the four cases in unenforceable by reason of a breach of Regulation 4(2)(c) of the CFA Regulations 2000.

77. If the parties do not attend when this judgment is handed down I will arrange another hearing date when the parties can make submissions about the terms of the order and any request for permission to appeal. Otherwise I will deal with those matters when the judgment is handed down.