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
		7 January 2008

Master Gordon-Saker :

1. On 7^th May 2001 the Claimant, Mr Richard Puksis, sustained severe head injuries when he was knocked down by a car driven by the Defendant. As Mr Puksis was under a disability his mother, Mrs Kathleen Puksis, agreed to act as his Litigation Friend. In October 2001 she instructed Bruce Lance & Co, a firm of solicitors in High Wycombe, to pursue a claim on her son's behalf. To finance that claim Mrs Puksis entered into a conditional fee agreement on 2^nd April 2002. Proceedings were issued on 24^th October 2003. Liability for the accident was settled by negotiation and on 2^nd February 2004 judgment was entered for the Claimant for 50 per cent of his damages to be assessed.
2. The assessment of damages was listed for 9^th October 2006. Negotiations at Court on that day resulted in a settlement of the claim on terms that the Defendant would pay the Claimant damages in the sum of £900,000 and his costs to be assessed in default of agreement. The amount of costs has not been agreed and the Claimant's solicitors have submitted their bill in the sum of £250,050, excluding value added tax, for detailed assessment.
3. Because of the matters raised by the Defendant in the points of dispute, on 28^th August 2007 I directed that the following should be determined as preliminary issues:

(a) Whether the Claimant's solicitor was in material breach of regulation 4(2)(e) of the Conditional Fee Agreement Regulations 2000 in failing to inform the Claimant of his interest in recommending the Accident Line Protect insurance policy.

(b) Whether the Claimant's solicitor was in material breach of the Conditional Fee Agreement Regulations 2000 by failing to make adequate enquiries as to whether the Claimant had before the event insurance available.

(c) Whether the Claimant was liable to pay the hourly rates claimed in the bill or was liable only to pay rates increased by the retail price index.

(d) Whether the success fee percentage claimed is reasonable.

4. The hearing of the preliminary issues was listed for 22^nd November 2007. Witness statements signed by Mrs Puksis and by Mr Gasper, the partner in Bruce Lance & Co who had the conduct of this matter, were filed in advance of the hearing and both attended the hearing for cross-examination.
5. Detailed skeleton arguments were provided by counsel for both parties and I am grateful to them.

Whether the Claimant's solicitor was in material breach of regulation 4(2)(e) of the Conditional Fee Agreement Regulations 2000 in failing to inform the Claimant of his interest in recommending the Accident Line Protect insurance policy.

6. It is common ground that the conditional fee agreement entered into between Mrs Puksis and Bruce Lance & Co was subject to the 2000 regulations. Regulation 4 provided (insofar as material):

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 –

…..

(e) whether the legal representative considers that any particular method or methods of financing any or all of those costs is appropriate and, if he considers that a contract of insurance is appropriate or recommends a particular such contract –

(i) his reasons for doing so, and

(ii) whether he has an interest in doing so.

(3) Before a conditional fee agreement is made the legal representative must explain its effect to the client.

…..

(5) Information required to be given under paragraph (1) about the matters in paragraph 2(a) to (d) must be given orally (whether or not it is also given in writing), but information required to be so given about the matters in paragraph 2(e) and the explanation required by paragraph (3) must be given both orally and in writing.

7. Thus where a solicitor suggests or recommends a particular contract of insurance he must state whether he has an interest in so doing both orally and in writing.
8. It is common ground that Mr Gasper recommended to Mrs Puksis that she purchase an "Accident Line Protect" policy ("ALP") from Abbey Legal Protection Limited to cover the risk of liability for the Defendant's costs. It is also common ground, following a concession by the Claimant, that he had an interest in doing so. The only issues therefore are:

i) whether that interest was disclosed to Mrs Puksis in compliance with regulation 4 and

ii) if not, whether that failure was material.

9. Bruce Lance & Co has been a member of the Accident Line panel for some years but it would appear that membership of the scheme has not generated a great deal of work for them. In his first witness statement^[1] Mr Gasper stated that referrals had been "fairly limited". In the period 11^th October 2000 to 6^th February 2003 his firm had received 43 referrals from Accident Line and in only 14 of those were conditional fee agreements entered into.^[2] In the period 1^st May 2001 to 30^th April 2007 the firm opened 8,631 files of which 245, or 2.84%, were governed by conditional fee agreements.
10. Under the terms of its membership the solicitors must issue an ALP policy "in all eligible CFA cases".^[3] However, no commission is payable to the solicitor for arranging the policy.
11. The concession that Mr Gasper had an interest in recommending or suggesting the ALP policy was, in my judgment, well made. In Garrett v Halton Borough Council^[4] Dyson LJ, giving the judgment of the Court, explained that "interest" in regulation 4 should not be given a narrow meaning:

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.

12. Thus in Garrett counsel for the Claimant did not challenge the finding in the court below that the Claimant's solicitors had a financial interest in recommending the particular policy to the Claimant in circumstances in which the solicitor would be removed from a panel if he failed to recommend that policy.^[5]
13. In his first statement^[6] Mr Gasper explained:

I am aware of Regulation 4 of CFA Regulations 2000 which requires me to provide information to the Client. When I saw Mrs Puksis in late 2001 and early 2002 I did not mention in my file notes that I had an interest in the Accident Line Protect Policy. However, I invariably inform clients that I am a Member of Accident Line and that to be a Member one needs to be a specialist in the Personal Injury field and that I can only use this particular policy. However the file notes mention a discussion on funding. Furthermore, I recall that I told this to Mrs Puksis, and that I advised that there were other ATE policies and I mentioned the fact that information about these policies can be obtained by a referral to the Judge^[7] which selects other providers. However, Mrs Puksis told me that she specifically wished to use Bruce Lance & Co. Although she was a referral through Accident Line she had been recommended to the firm by her son Richard's Social Worker, Mrs Janice Varney.

14. That is repeated in Mr Gasper's second statement at paragraph 22. In cross-examination Mr Gasper did not retract or vary this evidence.
15. With his second witness statement Mr Gasper disclosed a letter from him to Mrs Puksis dated 20^th March 2002. In that letter Mr Gasper confirmed that his firm was willing to act under a conditional fee agreement and explained:

The Scheme operates on the basis of a payment of £393.75 for road traffic cases and if your claim fails the insurers would meet the Defendant's costs. You would not have to pay this firm's profit costs nor VAT after entering the agreement.

…..

With regard to the insurance, we have recommended that you take out a policy with Accident Line Protect. Our reason for this is that under our Membership of the Accident Line Scheme, we are obliged to ensure [sic] all eligible Conditional Fee Agreement cases under this particular insurance scheme. We do not receive any commission for doing so. In view of the type and extent of Richard's injuries, the initial premium totals £393.75. However, if the Claim were to be allocated to what is known as "Multi-Track" then an additional premium of £1,050 is payable. Richard's claim would be allocated to this track should the level of damages to be recovered be in excess of £15,000.

16. It would seem reasonable to infer that parts of this letter are standard form. On any view it would have been known, as at March 2002, that the Claimant would be seeking damages well in excess of £15,000.
17. At one stage in the course of Mr Simpson's cross-examination of Mr Gasper I gained the impression that the provenance of this letter was doubted by the Defendant. However Mr Simpson confirmed to me that it was not the Defendant's case that the letter was a fraudulent document.
18. Mr Simpson's objections to the letter were first that it did not specifically state whether the firm had an "interest" in recommending the policy and secondly that it did not expressly state that the interest that the firm had was that it received referrals from the Accident Line.
19. In my judgment it is not necessary to use the word "interest" in order to comply with regulation 4(2)(e). The obligation on the solicitor is to state whether he has an interest in recommending the policy. It seems to me that the purpose of that obligation is to enable the client to know whether the policy is being recommended to him as the result of independent advice or because the solicitor obtains an advantage from recommending it. If a solicitor who does have an interest explains that interest without using the word "interest" it seems to me that he has complied. Indeed an explanation of what the interest is will probably be far more valuable to the client than a bald statement that the solicitor has an interest with no explanation of what it is.
20. It seems to me that Mr Gasper's letter does properly explain the interest that he had in recommending the policy. The letter informs Mrs Puksis that the firm is a member of the Accident Line scheme, that they are obliged to use this policy and that they receive no commission for doing so. The relevant explanation for the purpose of the regulation is that the solicitors were obliged to use this policy.
21. In Garrett Dyson LJ referred to the effect of the Solicitors' Financial Services (Conduct of Business) Rules 2001 and explained:^[8]

Thus, from 14 January 2005, a solicitor who proposed 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. [emphasis added]

22. In his letter of 20^th March 2002 Mr Gasper told Mrs Puksis that his firm was obliged, under its membership of the scheme, to recommend the ALP policy. On the basis of the passage in Garrett to which I have just referred that was sufficient to fulfil the obligation to provide the information required by regulation 4(2)(e) in writing.
23. By similar reasoning if it is accepted that Mr Gasper told Mrs Puksis that he was a member of Accident Line and "could only use this particular policy" that would be sufficient to fulfil the obligation to provide the information required by regulation 4(2)(e) orally.
24. It would be surprising if Mr Gasper had a particular recollection of the advice that he gave orally five years ago. In cross-examination Mr Simpson strove to persuade him that it was unlikely that he would have given this advice. Mr Simpson relied on the reply to the points of dispute, signed by Mr Gasper, in which it was contended:

The Claimant does not have any interest in the Insurance company, there are no arrangement fees involved.

25. Mr Gasper sought to explain that as an inaccurate explanation of his belief that "we had no interest by comparison with the relationship between the solicitors and TAG etc". I do not think that anything turns on this post-rationalisation. Whether Mr Gasper gave the required information or did not is a pure question of fact.
26. It seems to me that Mr Gasper's letter dated 20^th March 2002 is the best indication of what he then believed was the interest that he was obliged to disclose. Mr Gasper struck me as being a truthful witness. He also struck me as being a solicitor who has had a reasonably good grasp of his obligations under the 2000 regulations. I accept his evidence that it was his invariable practice to tell clients that he was a Member of Accident Line and that he had to use the ALP policy. That is entirely consistent with the contemporaneous letter.
27. What is not consistent with that letter is the statement in the conditional fee agreement at paragraph (e)(iii) under Other Points:

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

…..

(e) …..

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

28. How, asked Mr Simpson, could Mr Gasper have informed Mrs Puksis that the firm did have an interest in view of the express statement that it did not? In cross–examination Mr Gasper explained that the form of conditional fee agreement used was prescribed by the Accident Line and he believed that he was not allowed to amend it. When he went through the agreement with Mrs Puksis on 27^th March 2002 and "got to the bit about the firm not having an interest in the policy" he went through the letter of 20^th March. In support of that Mrs Puksis said in evidence that "Mr Gasper always went through the letters".
29. On the basis of that evidence, which I accept, even if Mr Gasper did not follow his invariable practice of giving the explanation that he has described, in going through the letter of 20^th March 2002 in his meeting with Mrs Puksis 7 days later, he gave the oral explanation required by the regulations.
30. Accordingly in my judgment there was no breach of regulation 4(2)(e) or, in relation to regulation 4(2)(e), regulation 4(5).

Whether the Claimant's solicitor was in material breach of the Conditional Fee Agreement Regulations 2000 by failing to make adequate enquiries as to whether the Claimant had before the event insurance available.

31. Regulation 4 provides insofar as is material:

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 –

…..

(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 …

32. On 2^nd October 2001 Mr Gasper wrote to Mrs Puksis in anticipation of their first meeting which was fixed for the following week:

It may be that you are covered by legal expense insurance to bring a claim. Please bring with you any relevant motor insurance policy, any household insurance policy and any stand-alone BTE insurance policy belonging to you or your spouse.

33. In evidence Mr Gasper told me that he had a telephone conversation with Mrs Puksis before he wrote that letter. That is clear from the opening words of the letter which "confirms" the date, time and place of the meeting. There is no attendance note of that conversation but Mr Gasper told me that his practice was to say that there was a lot of information that the client would have to bring to the meeting and that he would write setting out what was needed. In particular he would "go into the question of other insurance policies". He would "have had to explain what a stand-alone BTE policy was".
34. The attendance note of the meeting on 9^th October 2001 records under the heading "Funding":

Legal Expense Insurance – Surprisingly client does not have household contents insurance. She does not drive and does not have credit cards so that there is no legal expense cover.

35. In his second statement Mr Gasper explained, at paragraph 25:

I have not stated in my attendance note but can confirm that I was told by Mrs Puksis that she and her husband owned 73 Fassetts Road, Loudwater, and it was subject to a mortgage. Mrs Puksis confirmed that she had not paid for additional legal expense in relation to her property insurance of which she only had building insurance cover. It was either at this meeting or subsequently before the Conditional Fee Agreement was entered into that Mrs Puksis produced an Insurance Policy Schedule which confirmed that she had building insurance but not contents insurance and that she had not paid any extra premium for legal expense insurance.

36. Mrs Puksis said in evidence that she recalled finding the building insurance document and taking it to show to Mr Gasper.
37. Were these enquiries sufficient to enable the solicitors to provide the information required by the regulations?
38. The obligation under Regulation 4(2)(c) of the 2000 regulations was considered by the Court of Appeal in Myatt v The National Coal Board [2006] EWCA Civ 1017. At paragraph 55 Dyson LJ said:

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.

39. The learned judge continued, at paragraph 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.^[9] 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.

40. At paragraph 72 the Court gave guidance as to the steps which should reasonably be taken. It seems to me that in the present case it is only the first factor which is of particular significance:

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.

41. Applying that to the present case it seems to me that Mrs Puksis did not have the real knowledge and understanding of insurance matters to make it reasonable for the solicitors to ask the ultimate question. Indeed in the course of cross-examination she said that she "didn't know about BTE".
42. However, in my judgment the enquiries made by Mr Gasper were sufficient. They revealed that she "does not have household contents insurance … does not drive and does not have credit cards so that there is no legal expense cover". I am satisfied on the evidence that he checked the building insurance policy that she did have. Those enquiries covered the realistic possibilities in the circumstances of this case.
43. It seems to me that somebody who has bought a stand-alone legal expenses insurance policy would know that they had it, because they would only have it as the result of a conscious decision to buy it. While, in the event, it was probably pointless for Mr Gasper to ask Mrs Puksis to bring along "any stand-alone BTE insurance policy" because she did not then know what it was, it seems to me to be likely that she would only have had that type of policy if she knew what it was.
44. I observe that Mr Gasper's letter was written about a fortnight after the Court of Appeal had handed down judgment in Sarwar and the list of documents which he asked Mrs Puksis to bring mirrors the wording of the guidance given to solicitors by Lord Phillips MR, as he then was, in paragraph 45 of the judgment.
45. Mr Simpson made the further submission that having regard to the 6 month period between these enquiries and the signing of the conditional fee agreement it was incumbent on the solicitors to repeat the enquiries before the agreement was entered into. In some circumstances that might be appropriate. But the solicitors' obligation was to take reasonable steps. In my judgment there was no realistic prospect that in this 6 month period Mrs Puksis would have gone out and purchased a policy which would have covered this claim.
46. In my judgment Mr Gasper did make sufficient enquiries as to the existence of other insurance cover and as to the possibility of alternative methods of funding the claim and there was no breach of regulations 4(2)(c) or (d) of the 2000 regulations.

Whether the Claimant was liable to pay the hourly rates claimed in the bill or was liable only to pay rates increased by the retail price index.

47. The conditional fee agreement prescribed the hourly rates that would be charged for three grades of fee earners and provided:

We will review the hourly rate on the review date and on each anniversary of the review date. We will not increase the rate by more than the rise in the Retail Prices Index and will notify you of the increased rate in writing.

48. The Claimant's bill covers the period October 2001 to October 2006 and claims hourly rates which are increased annually. It is not apparently in issue that the increases exceeded the retail price index. However if the calculations in paragraph 34 of Mr Grant's skeleton argument are correct, they did not exceed the index by much.
49. In his first witness statement Mr Gasper explained:^[10]

This was unintentional and an oversight for having omitted to take into consideration the exact and full wording of the Law Society's standard Conditional Fee Agreement in 2002. However, I would submit that there cannot be a breach of the indemnity principle on this basis because the hourly rates claimed are those that the client was advised that would be and could be recovered from her in the absence of the CFA.

50. In his second witness statement he explained:^[11]

"I accept that I overlooked the reference to the RPI when I subsequently gave notice to the Litigation Friend, Mrs Puksis, of increases in the firm's hourly rate."

51. In pressing for the higher rates Mr Gasper is, to my mind, adopting a rather unattractive position. Rates were agreed in the conditional fee agreement. That agreement is the only basis of the retainer from the date that it was signed. On that date the previous private retainer was determined. What could have been recovered from Mrs Puksis "in the absence of the CFA" is not relevant. What is relevant is the extent of her liability under the agreement.
52. It was agreed that the solicitor could increase the rates annually but would not increase them by more than the retail price index. That the client was notified of higher rates was the result of an oversight by Mr Gasper.
53. I have absolutely no doubt that Mrs Puksis would not have realised that the increases in the rates notified to her exceeded the index. Few, if any, clients would check. A unilateral increase greater than that permitted by the agreement cannot amount to a mutual variation of the agreement. The absence of complaint by the client cannot be taken to be consent.
54. In my judgment Mrs Puksis is not obliged to pay any more than the rates set out in the conditional fee agreement as increased by the retail price index. There is unequivocal evidence that Mrs Puksis is not liable for any more and accordingly she cannot recover more from the Defendant.

Whether the success fee percentage claimed is reasonable

55. The conditional fee agreement provided for a success fee of 100% of which 10% reflected the deferment of payment and the arrangements made about paying disbursements. Accordingly a success fee of 90% is claimed from the Defendant.
56. The Claimant's case is that at the time that the agreement was entered into, this was a 50/50 case. Following receipt of the Police accident report and witness statements Mr Gasper wrote to Mrs Puksis on 18^th December 2001:

It appears that Richard was walking up the middle of the road … Richard remained positioned by the central white line.

…..

Mr Brumby states that he did not see Richard until Richard was within 15 metres distance from his car. There is no evidence as to the speed of this vehicle. It did take Mr Brumby considerable time to stop following the accident.

57. The attendance note dated 20^th December 2001 records:

The evidence of the principle [sic] independent witness, Andrew Biney is not entirely helpful, as he supports the third party's contention that the first vehicle driving from Penn towards Beaconsfield and the bend in the road, prevented the third party from seeing the pedestrian in the road until it was too late.

…..

Richard was, of course, negligent in being drunk and disorderly and messing about in the middle of a fast country road …

58. As against that, the Defendant contends that there was evidence which supported the Claimant, in particular the evidence of Hazel Alexander who said that the Defendant was travelling too fast.
59. In my judgment this was a case which carried considerable risk for the Claimant's solicitors. At the time of the collision the Claimant, who had been drinking, was in the middle of the road. There was evidence that the Defendant was driving too fast but there was also evidence that the Defendant may not have had the chance, even if driving within the speed limit, to avoid the Claimant. There was little realistic prospect that the Claimant himself would be able to give evidence.
60. In these circumstances I cannot say that at the time that the conditional fee agreement was entered into an assessment of the prospects of success at no better than 50 per cent was unreasonable. Accordingly the Claimant is entitled to recover a success fee of 90 per cent from the Defendant.
61. I was not specifically addressed on counsels' success fees and the assessment of those should await the adjourned hearing.
*****

Note 1   24th August 2007, paragraph 3    [Back]

Note 2   Ibid. paragraph 10    [Back]

Note 3   Mr Gasper’s 1st statement paragraph 11    [Back]

Note 4   [2006] EWCA Civ 1017, at paragraph 97    [Back]

Note 5   at paragraphs 97 and 98    [Back]

Note 6   24th August 2007 at paragraph 9    [Back]

Note 7   a reference to the website: www.thejudge.co.uk    [Back]

Note 8   at paragraph 103    [Back]

Note 9   Sarwar v Alam [2002] 1 WLR 125    [Back]

Note 10   at paragraph 13    [Back]

Note 11   at paragraph 26    [Back]