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

IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		29 June 2007

Master Simons:

1. This judgment is in respect of a preliminary issue raised by the Defendant in the Detailed Assessment proceedings and relates to the enforceability of a conditional fee agreement ("CFA") entered into between the Claimant and his solicitors, Davies & Company.
2. The Claimant had sought compensation for personal injury and loss arising from an accident at work which occurred on 28 November 2004. Shortly afterwards the Claimant instructed Davies & Company who sent him a letter on 4 January 2005. Thereafter the Claimant entered into a CFA with Davies & Company dated 30 March 2005.
3. A formal letter of claim was sent to the Defendant on 12 September 2005 and an admission of liability was received on 4 January 2006. Following negotiations between the parties the claim was settled on 13 August 2006 whereby the Defendant agreed to pay the Claimant the sum of £16,000 and to pay the Claimant's costs and disbursements, including additional liabilities, to be assessed if not agreed.
4. The parties were unable to agree costs, and the Claimant issued Costs Only proceedings in the Manchester County Court on 15 November 2006 and on 19 December 2006 the Manchester County Court made a formal order, Ordering the Defendant to pay the Claimant's costs, such costs to be determined by detailed assessment proceedings. On 26 February 2007 at the request of the Claimant the detailed assessment proceedings were transferred to the Supreme Court Costs Office.
5. Notice of Commencement of Detailed Assessment together with the Claimant's bill seeking costs of £7087.26 was served on the Defendants on 2 January 2007. The Defendant's Points of Dispute raise the preliminary point that the CFA was unenforceable in that the Claimant solicitors had failed to comply with Regulation 4(2)(e) of the Conditional Fee Agreements Regulations 2000.

"Conditional Fee Agreements Regulations 2000 ("the regulations")

4. Information to be given before Conditional Fee Agreements made

(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 –

…

(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."

6. This judgement will also refer to Regulation 3A of the regulations:

3A (1) This regulation applies to a conditional fee agreement under which………….the client is liable to pay his legal representative's fees and expenses only to the extent that sums are recovered in respect of the relevant proceedings, whether by way of costs or otherwise.

(3) Regulations 2, 3 and 4 do not apply to a conditional fee agreement to which this regulation applies.

THE EVIDENCE

7. The CFA, dated 30 March 2005, contained the following clauses which are relevant to the issues. In the second paragraph on page 2:

"If you lose, you pay your opponent's charges and disbursements. You may have taken out an insurance policy against this risk. Please also see conditions 3(j) and 5. If you lose, you do not pay our basic charges but we may require you to pay our disbursements. You may have also taken out an insurance policy against this risk."

8. Under the heading "Other Points" at the top of page 3 the CFA stated:

"Immediately before you signed this agreement, we verbally explain to you the effect of this Agreement and in particular the following:

(e) (iii) We confirm that we do not have any financial interest in recommending this particular insurance agreement, save that we are an approved member of the Lawcall Direct Ltd's Solicitors Panel."

9. The CFA contained what are described as "Law Society Conditions". One of these conditions stated, under the heading:

"What happens if you win?:

If you win:

You are then liable to pay all our basic charges, our disbursements and success fees – please see condition 3(n).

Normally you will be entitled to recover part or all of our basic charges, our disbursements and success fee from your opponent.

If you and your opponent cannot agree the amount, the Court will decide how much you can recover. If the amount agreed or allowed by the Court does not cover all our basic charges and our disbursements, then you are not required to pay the difference."

10. The Claimant filed a witness statement of Philip Hulme Davies, the principal of the Claimants' solicitors. Mr Davies confirmed the contents of the CFA and the fact that his firm had declared that they had a financial interest in Lawcall by stating that they were an approved member of Lawcall Direct Ltd's Solicitors Panel.
11. Mr Davies also referred to the letter which his firm sent to the Claimant on 4 January 2005 in which his firm informed the Claimant that they were members of the Lawcall Direct Panel of Solicitors and that they had referred Davies & Company to the Claimant. In paragraph 20 of the witness statement Mr Davies referred to a specific paragraph in the client letter detailing the relationship his firm had with Lawcall Direct and quoted the wording from the letter which read:

"By the Solicitors Introduction and Referral Code, a full copy of which can be provided on written request, we are obliged to make disclosure of our referral arrangements. This is a regulation which we are happy to embrace. As you are aware, your case has been referred to us by Lawcall Direct Ltd. We have a commercial arrangement with Lawcall, where in return for a payment up to a maximum of £300, they refer a case to us. This fee relates to marketing and valuable vetting services provided by Lawcall. We are satisfied that our arrangements with Lawcall do not impact on our duties to you. Please rest assured that you will not be required to pay anything towards this fee."

12. Mr Davies' witness statement also set out details of his relationship with Lawcall. In paragraph 29 of his witness statement Mr Davies stated:

"29. Lawcall usually operates on a fairly typical claims management business model, providing funding through a loan and marketing its own branded policy of ATE insurance. However, when we were asked to join the panel, we advised Lawcall we were unable to conduct work on this basis. In particular, we were not and are not prepared to sign our clients up to loans. We do not recommend insurance in every case. The view we take as a practice is that clients with relatively strong cases, where admission of liability is likely, do not need to take out ATE insurance as a matter of course. In such cases we often advise clients to wait to see whether ATE insurance is necessary (for example, on the subsequent issuing of proceedings)."

13. Mr Davies stated that his firm had carried out an audit of cases referred to his firm by Lawcall and that the greatest number at one time was 87. Of those cases in 26 the client was advised that ATE insurance was unnecessary or his firm had recommended a policy other than Lawcall's branded product. Mr Davies had stated that the total number of active files within his firm was in the region of 1,100, of which 87 were recommendations from Lawcall.
14. In his witness statement Mr Davies also made clear that he felt no inhibition in recommending a Lawcall policy if he felt it appropriate. The premium in this particular case was £850 plus IPT which was well within the market norm and which provided a level of indemnity of £25,000.
15. Mr Davies further stated that at its peak the 87 cases referred to his firm by Law Call amounted to less than 7½% of his practice as a percentage of cases and consequently there was no dependency upon Lawcall as a source of work.
16. Mr Davies confirmed that his firm had complied with the appropriate regulation concerning the disclosure of any interest. He also suggested that it was not strictly necessary for him to have done so, owing to the fact that as his firm had promised both in his firm's letter of 4 January 2005 and in the CFA not to look to the Claimant for any unrecovered costs, the CFA was governed by Regulation 3A of the regulations which disapplied regulation 4 of the Conditional Fee Agreements Regulations 2000 from this particular CFA and that this was a CFA Lite.
17. Mr Davies gave oral evidence before me. He said that he had carried out a further audit of cases and that the total number of cases from Lawcall was 91 and that of the additional four, his firm had recommended the Lawcall insurance policy in one case.

THE DEFENDANT'S SUBMISSIONS

18. Mr Patel's primary submission was that membership of a panel in the context of a claims management company referring cases on its panel to solicitors amounts to a fiduciary relationship. When that relationship involves the recommendation of insurance products of the claims management company that interest must be disclosed in order to comply with CFA Regulation 4(2)(e). The disclosure of panel membership of itself is insufficient as it fails to inform the client that Davies & Company had an ongoing commercial venture with Lawcall. Mr Patel submitted that the statement in the client care letter did not express to the client that Davies & Company have an ongoing commercial venture with Lawcall and that it gave the impression that this was a single transaction and that the quid pro quo was a fee for £300. He submitted that no mention is made in the letter of Lawcall's involvement with the insurance contract.
19. Mr Patel referred me to Garrett v Halton Borough Council [2006] EWCA Civ 1017 which provides general guidance in relation to the interpretation of what interest should be disclosed and he submitted that that guidance should be broadly construed.
20. Mr Patel further submitted that it was not necessary for the court to establish that there was an obligation on the part of Davies & Company to recommend Lawcall insurance for there to be a finding of a financial interest. He submitted that by recommending Lawcall's product Davies & Company entered into a collaborative venture where they received work and recommended the insurance product in some cases. It did not matter that the insurance product was not recommended in every case to show that there was a relationship that existed to enable Lawcall to continue to send work.
21. Mr Patel also rejected any suggestion that there must be a finding of dependency as a condition precedent for the principles in Garrett to apply as to do so would introduce an entirely artificial quantative test into the application of Garrett. Davies & Company's financial interest in Lawcall is not extinguished simply because they are not dependent on Lawcall for referrals. The fact is that they obtained referrals and they have a financial interest to be disclosed.
22. Mr Patel submitted that the disclosure to the client in the letter of 4 January 2005 that Davies & Company received £300 per case from Lawcall was only in the context of the solicitors complying with the Solicitors Information and Care Code and not for the purpose of complying with the CFA Regulations. He also referred to the fact that this disclosure only referred to "marketing and valuable vetting services provided by Lawcall" but made no reference to the insurance product.
23. Mr Patel also dismissed the suggestion that Regulation 4(2)(e) could be disapplied in accordance with Regulation 3A of the CFA Regulations 2000. He submitted that the relevant condition in the CFA made clear that whilst the Claimant was not going to be liable to pay Davies & Company's basic charges, Davies & Company could require the Claimant to pay their disbursements. For as long as there was such a liability, this CFA could not be regarded as a CFA Lite, and consequently Regulation 4(2)(e) must apply. Fees and expenses must include disbursements, he submitted.
24. Mr Patel also addressed me on the question of materiality. He submitted that the disclosure had simply been that the Solicitors were on Lawcall's panel and this was insufficient disclosure. There accordingly had been a material departure from the Regulations.
25. In summarising his submissions Mr Patel said that there was sufficient material before the court to conclude that there was a financial interest in Davies & Company recommending the Lawcall policy in that the policy was routinely recommended to the clients who had been introduced to Davies & Company, and that it was open for the court to infer that Davies & Company as panel solicitor had a vested interest in ensuring that the Lawcall policy was adopted so as to sustain the profitable joint venture.
26. Mr Patel also referred me to a number of similar cases dealing with the points in issue, including Willoughby v Sempra Energy Trading (UK) Ltd which was a decision of District Judge Smedley sitting as a Regional Costs Judge which was handed down on 5 April 2007, Shirali v London Central Bus Co Ltd, which was a decision of Deputy District Judge Lateef handed down in the Altrincham County Court, the decision of the Senior Costs Judge in the case of Andrews v Harrison Taylor Scaffolding, handed down on 9 February 2007 and also a note of the appeal judgment in the case of King v Halton Borough Council, which was a decision of Judge Halbert the Designated Civil Judge in Chester which was handed down on 14 November 2006. I have read and have considered Mr Patel's references and submissions with regard to these cases.
27. Mr Patel's submissions were supported by a detailed skeleton argument which although filed late has been read and considered by me.

THE CLAIMANT'S SUBMISSIONS

28. Mr Williams' primary submission was that Davies & Company had complied fully with the regulations and that this case was distinguishable from Garrett. In Garrett the solicitor had a hidden obligation under the rules of the claims management scheme to recommend the claims management's company's insurance policy in every case. Not only did the solicitor fail to identify this interest, but he actually stated that he had no interest. This is entirely different to this particular case where the solicitors declared that they were an approved member of the solicitors panel and identified their arrangement with Lawcall to their client in an earlier document. Furthermore it was Mr Davies' unchallenged evidence that even if the Lawcall scheme required him to recommend particular insurance, he had made clear to Lawcall that he would not necessarily do so.
29. Mr Williams submitted that the fact that Davies & Company had no dependency on Lawcall for referral of work was in complete contrast with the facts in Andrews and there was never any threat to Mr Davies that if he failed to recommend Lawcall's insurance policy or to take out a policy with them that he would be removed from their panel and would not receive any more cases.
30. Mr Williams then submitted that even if there had not been sufficient compliance with the regulations this CFA was a CFA Lite as the CFA provides that the client was liable to pay his legal representative's fees and expenses only to the extent that sums were recovered in respect of the relevant proceedings whether by way of costs or otherwise. He submitted that the words "fees and expenses" must exclude disbursements as there is a difference between disbursements which are liabilities to third parties which are incurred by the client through the agency of his solicitor and expenses which are incurred by the solicitor himself in the course of providing his professional services. This distinction is recognised by the CPR.
31. Furthermore the CFA makes clear in its conditions that if the amount agreed or allowed by the court in respect of costs does not cover basic charges and disbursements, then the client is not required to pay the difference. In addition the letter of 4 January 2005 makes clear that the client was promised that in the event of a win he would be paid his damages without deduction and that the solicitor promised not to look to the client for any shortfall in costs.
32. Mr Williams submitted that the reason the word "disbursements" had not specifically been mentioned in regulation 3A was because disbursements are usually covered by insurance.
33. Mr Williams submitted that even if there had been a breach of the Regulations the CFA would only be unenforceable if there had been a materially adverse effect on the protection afforded to the client or to the administration of justice.
34. Mr Williams referred me to the fact that in this case an insurance policy had been taken out prior to the entering into of the CFA, that the solicitors had paid the premium and had made it clear to the client that, to the extent that it was not recovered, the solicitor absorbed the shortfall. There had been no suggestion that the product itself was bad and Mr Davies had stated in his evidence that he had never felt any inhibition in recommending that particular policy. In this particular case there had been disclosure of financial interest and even if the court was going to find that the disclosure was insufficient there could be little doubt that the regulation had been substantially complied with. Consequently if there had been any breach, any breach was immaterial.

MY CONCLUSIONS

35. I am satisfied that there has been no breach of Regulation 4(2)(e). The Regulations require the solicitors to inform the client if he considers that a contract of insurance is appropriate, his reasons for doing so and whether he has an interest in doing so. The unchallenged evidence of Mr Davies is that he recommended the insurance, that it was an appropriate policy in this case, that it was a policy with which he was familiar with and which he considered sufficient and that he had disclosed an interest that his firm was on the panel of solicitors operated by Lawcall. He had gone further and also informed the client that his firm had a commercial arrangement with Lawcall and that for payment of a fee they referred cases to them. I cannot see what other disclosure the solicitors could have made. They certainly had no financial interest in recommending the particular insurance with Lawcall and it is the unchallenged evidence of Mr Davies that there was no obligation upon him to recommend the policy. It seems to me that the financial arrangement between Davies & Company and Lawcall was that Davies & Company paid £300 to receive the case. Thereafter, according to Mr Davies' unchallenged evidence, Mr Davies could run the case how he wished and was under no obligation to recommend the Lawcall insurance product. The fact that he did recommend the product in a number of cases seems to me a question of judgment on the solicitor's part rather than an obligation. If Davies & Company decided not to take out insurance policies with Lawcall but took them out with another company, there is no evidence to suggest that this would affect their commercial arrangement with Lawcall. For this commercial arrangement to continue all that the solicitors had to do was to pay their £300 and receive the referral. Consequently all elements of the solicitors' financial interest with Lawcall were disclosed to the client either in the CFA itself or in the letter of 4 January 2005.
36. Mr Patel has made references to a number of cases, but whilst Garrett clearly established basic principles, it seems to me that all these cases depend on their own particular facts. The principle set out in Garrett was that financial interests had to be disclosed. Not every firm of solicitors has the same financial arrangement with every claims management company and therefore each of these cases must be decided on their own particular facts and I have found little help from these cases other than the general guidance given in the case of Garrett.
37. I am also satisfied that this CFA was a CFA Lite to which regulation 4(2)(e) of the CFA Regulations 2000 is disapplied. There is no doubt in my mind that in the conditions of the CFA and in the correspondence from the solicitors to the client it is made clear that "the client is liable to pay his legal representative's fees and expenses only to the extent that sums are recovered in respect of relevant proceedings …" The documents state that the client would receive his damages without deduction. I accept Mr Williams' submission that expenses and disbursements are separate but in any event the CFA contains a provision that "if the amount agreed or allowed by the Court does not cover all our basic charges and our disbursements then you are not required to pay the difference" which confirms my judgment in that respect.
38. Accordingly the Claimant succeeds on the preliminary point