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

IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE
ON TRANSFER FROM CLERKENWELL COUNTY COURT
MASTER ROGERS SITTING AS A DEPUTY
DISTRICT JUDGE OF CLERKENWELL COUNTY COURT

		28 July 2008

Master Rogers:

THE ISSUE

1. The issue in this case is whether the Claimant's CFA with her solicitors has been rendered unenforceable for failure by the latter to comply with Regulation 4(2)(e)(ii) of the Conditional Fee Agreements Regulations 2000.

THE BACKGROUND

2. On 21 January 2002 the Defendant rode his motorcycle into the side of the Claimant's car causing her to sustain soft tissue injuries to her neck and lumbar spine and leaving her with permanent back pain.
3. The Claimant was referred to Bolt Burden Kemp (hereinafter referred to as "BBK") by the Accident Advice Helpline (hereinafter called "AAH). On 8 July 2002 the Claimant entered into a CFA with BBK, having, three days previously, on 5 July 2002, taken out ATE insurance with NIG Skandia. The letter of claim was written on 15 July 2002 with liability being very promptly admitted by the Defendant on 25 July 2002.
4. The parties being unable to agree the quantum of damages, proceedings were issued on 5 January 2005 but were settled on 23 February 2005 by a payment to the Claimant of £8,500 together with her costs to be assessed on the standard basis if not agreed.
5. BBK's total bill including VAT and disbursements as lodged for assessment was in the sum of £12,303.97 which includes a success fee of 50 per cent on the base charges and the AEI premium of £837.90.
6. Because the case emanated from Clerkenwell County Court detailed assessment proceedings were started, as they now have to be, in this office on 14 June 2005. The matter was balloted to Costs Officer Martin, who prepared for the assessment until shortly before the hearing, when the CFA challenge which has been brought before me, was raised and the parties agreed that the matter should be transferred to a Costs Judge for a decision on that preliminary issue.
7. The matter was balloted to me at Costs Judge level, and, on 3 October 2006, I made an order that preliminary issues be listed for hearing on the next available date after 22 November 2006 with an estimated length of one day and that if the Claimant was going to produce any evidence in the form of witness statements these had to be filed by 25 October 2006, with the Defendant being given leave to serve a skeleton argument in relation to the preliminary issue within 14 days of receipt of that evidence.
8. Finally, the Claimant was directed to file a response to the Defendant's skeleton within 14 days of receipt thereof.
9. Unfortunately the court managed to mislay the file and it was only earlier this year that the parties pressed for the matter to be brought to a hearing. Accordingly the case was listed for detailed assessment before me on 20 June 2008.

THE HEARING ON 20 JUNE

10. Both parties filed skeleton arguments and in addition the Defendant's solicitors reconstructed the missing file and provided me with a helpfully full duplicate file and also with a folder of authorities.
11. At the hearing I was also provided with details of the insurance certificate provided and replies to the amended points of dispute, as well as a letter from AAH relating to the "vetting solicitor point".
12. Interestingly, and almost uniquely in my experience, no witness evidence was filed on behalf of the Claimant, something which the Defendant's advocate submitted was of great and significant importance.
13. The amended points of dispute on behalf of the Defendant include the following:

"Enforceability of the Claimant's Conditional Fee Agreement. For want of compliance with CFA Regulation 4(2)(e)(ii) SI 2000 No.692

The Conditional Fee Agreement in this case dated 21 January 2002 has ostensibly been prepared by a claims management company who are Accident and Advice Helpline [AAH]. AAH are not only the claims introducer but also the insurance intermediary (the policy of insurance dated 5 July 2002).

Despite the factual circumstances set out above the CFA declares that the solicitor has no interest in recommending this particular policy of insurance.

AAH operate a panel solicitor scheme. That much is clear from the documentation that was made available to Master Hurst in the case of Samonini v London General Transport Service, see paragraphs 4-15.

The above fiduciary relationship which arises from Bolt Burdon's membership of the AAH panel. The panel is one that ought to have been declared in the Conditional Fee Agreement.

CONSEQUENCES

The above amounts to a failure to comply with Conditional Fee Agreement Regulations 4(2)(e)(ii), as a consequence the Claimant's solicitors cannot recover costs under a Conditional Fee Agreement."

14. Again, somewhat unusually, the AAH Panel Solicitors Manual (3^rd edition September 2002) was made available to the Defendant at an early stage and is in the agreed bundle of documentation and much use was made of it, particularly by the Defendant's advocate in the submissions before me.
15. The CFA was also in evidence, having previously been supplied to the Defendant's solicitors.
16. It appears to be a pro forma document adapted to the circumstances of this particular case but under the heading "Other Points" the following appears:

"4. Whether we consider any particular method(s) of financing those fees and disbursements mentioned in 2) above is appropriate. We explained that we consider the particular method(s) of financing those fees and disbursements in your case to be an insurance policy effected through the company specified in the schedule under number 8 in the schedule ('the insurance policy')."

17. The following paragraph in the section "Other points" reads as follows:

"5. Our reasons for this are: there are risks in any litigation and for your peace of mind it is important to ensure that your exposure to payment of fees and disbursements is insured. This policy not only indemnifies you against the risk of having to pay your opponent's fees and disbursements. It also facilitates a funding arrangement with the bank specified in the schedule under number 9 of the schedule ("the Bank") to provide payment of some disbursements to which you are primarily liable as the case proceeds."

THE DEFENDANT'S SUBMISSIONS

18. The Defendant submitted that it is quite clear from the AAH Panel Solicitors Manual that this matter was introduced, and totally directed, by AAH throughout and that in effect BBK had no option but to recommend the policy which they did with NIG, but by failing to disclose that obligation to the client they were in breach of Regulation 4(2)(e)(ii).
19. Mr McGowan referred to numerous provisions in the Manual which in his submission wholly supported his argument that there was absolutely no discretion allowed to BBK because of the wording of the document.
20. He referred to numerous provisions in the document which supported that contention and also, significantly, to the fact that the insurance policy was only taken out before the CFA was signed and bore the logo of AAH.
21. Mr McGowan particularly relied on paragraph 4 of the Manual which reads as follows:

"This Manual provides details of the working arrangements between the Panel of Solicitors, AAH and the third party. The Manual is not intended as a comprehensive statement and is not a substitute for reading any relevant source documents.

All parties acknowledge that if the Panel solicitor fails to comply with the provisions of this Manual, the Master Certificate and the Panel Solicitor's Agreement or any other relevant document it may lead to termination of the Panel Solicitor's Agreement and/or termination of the Client's Insurance Certificate. In such circumstances the Panel solicitor may become liable for any losses incurred by the client, AAH or any relevant third party."

AUTHORITIES RELIED ON BY THE DEFENDANT

22. The cases primarily relied upon by the Defendant were

Deborah Garrett v Halton Borough Council [2006] 5 Costs LR 798; [2006] EWCA Civ 1017;

Jones v Wrexham Borough Council [2008] 1 Costs LR 147; [2007] EWCA Civ 1356;

Samonini v London General Transport Services Ltd (Senior Costs Judge Master Hurst: January 2005);

Lewis v Lindsay (Regional Costs Judge Smedley: 12 October 2007);

Bevan v Power Panels; (Master Wright: 17 May 2007);

Fallon v M & W Mack Ltd. (District Judge Cooper: 21 May 2007).

23. Consideration of the authorities started with the dictum in paragraph 92 of Garrett:

"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 "interests" is ambiguous. For the reasons that we shall give it seems to us to be clear that it includes memberships of panels such as the Ainsworth Panel."

Again, in paragraph 97 of the judgment:

"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 life blood of solicitors. The profit generated by cases are likely to be of greater significance to solicitors than commissions paid on insurance premiums or 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… "

24. The decision of the Senior Costs Judge in Samonini is relied on not least because it dealt with this very scheme. Mr McGowan relies particularly on paragraph 23 of the judgment, which reads:

"Surprisingly, the defendants' points of dispute do not raise the issue of proportionality, nor do they challenge the quantum of the insurance premium. Similarly, the status of the investigation is not queried. This case can only be decided on the evidence and submissions put before me but I feel bound to say that it seems unlikely that the scheme being run by AAH would stand up to close scrutiny."

25. Mr McGowan also derives much support for his submissions from the decision of the Regional Costs Judge in Lewis v Lindsay. In paragraph 7 of his judgment, District Judge Smedley says of the Manual at sub-paragraph (f):

"For the same reasons the oral advice given to the client – 'We have no financial or other interest in recommending the insurance policy to you, except that we are on the Accident Advice Helpline Panel of solicitors and insurance policies are part of the Accident Advice Helpline scheme' does not adequately make clear to the client the nature of the solicitor's interest or that panel membership was more than a mark of quality."

26. It is submitted on behalf of the Defendant that this echoes what is said in paragraphs 99 and 100 of Garrett.
27. Finally, on the authorities, Mr McGowan suggested that the case of Jones v Wrexham Borough Council is of help. He accepted that this case primarily decided that the CFA in question was a CFA Lite but nevertheless relies on the detailed consideration of the 4(2)(e)(ii) point and in particular the conclusion in paragraph 69:

"69. If, therefore, the CFA had not been a CFA Lite, I would have held that there had been a non-compliance with Regulation 4(2)(e) by the solicitors' failure to disclose their interest and the CFA would have been unenforceable."

28. In his helpfully full skeleton, as amplified in his oral submissions, Mr Carpenter conceded that AAH operated a Panel Solicitors scheme of which BBK are a member and that BBK were "vetting solicitors" under the AAH scheme but that they ceased to be such some six months before the CFA in this case was entered into.
29. Finally, and significantly, Mr Carpenter concedes that if I am against him on his points of construction, then he accepts that if they had a declarable interest in the ATE product, BBK failed to declare that interest, which would amount to a material breach of Regulation 4(2)(e)(ii).
30. However, Mr Carpenter referred me to the specific wording of paragraph 4(2)(e)(ii) which is set out below:

"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 any particular matter or matters of financing any or all of those costs is appropriate and, if he considers that the 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."

31. At the heart of Mr Carpenter's submissions are paragraphs 10-13 of his skeleton where he says:

"10. It is submitted that the Defendant's error is in considering whether BBK had an interest in the referrals, rather than the insurance.

11. Paragraph 4(2)(e)(ii) requires the solicitor to inform the client whether he has an interest in '[recommending] a particular [ATE] contract'. In other words, the solicitor must answer the question which the client might pose: 'Why are you recommending this insurance?' Not, 'Why have you been instructed to act for me?'

12. The fact that the solicitor is on a referral panel per se does not answer the former question. It is an answer to the latter question, but that is not a matter falling within the ambit of the CFA Regulations 2000. If it is governed by anything, it is governed by the Solicitors Introduction and Referral Code 1990. A breach of that code is not alleged here and, even if proved, would have no effect on the enforceability of the CFA.

13. It is only if the answer to the former question is 'I am recommending this insurance, because I am obliged to consistently with my membership of this referral scheme' that the necessary link is created between the scheme and the insurance, such that the solicitor has an interest in recommending the insurance."

32. Mr Carpenter's analysis of the Garrett case suggests that that is precisely the exercise which they carried out and that a case cannot be properly understood without considering the factual nexus for the decision.
33. He went on further in his paragraph 17 of his skeleton to say:

"17. Thus, when the Court of Appeal stated (at para 92) that an interest 'includes membership of a panel such as the Ainsworth panel', it is submitted that they plainly meant a panel, membership of which is conditional upon recommending particular insurance, not simply any referral panel. Had they meant the latter, the words "such as the Ainsworth panel" would have been redundant.

18. Indeed, had it been the mere membership of the panel which gave rise to the interest, then that interest would have been declared by saying 'we are on the panel', but the Court of Appeal clearly held that that was not sufficient disclosure of the interest (para 101).

19. Furthermore, if mere membership of a panel created an interest, it would mean that a referral scheme which was connected to no ATE insurance at all, and which left its panel solicitors free to choose any ATE product they liked, would give rise to a declarable interest in whatever ATE insurance they recommended. That cannot be right. To come back to the questions posed by the client in paragraph 10 above, the answer to the first would be (and could only be), 'I am recommending this insurance, because I think it is most appropriate for your case'."

34. Mr Carpenter further submitted that there was no obligation on BBK to take out the AAH recommended policy and he contended that was clearly confirmed by paragraph 8.2 of the manual which reads:

"8.2 For other claims insured with NIG the level of cover is £50,000. (In all cases it is a matter for the panel solicitor to ensure that cover is adequate.)"

35. He submitted that that must give the solicitor an option whether or not to adopt the NIG policy and not simply restrict it to cases where the expenditure likely to be incurred would or might exceed £50,000.
36. As to the other cases cited by Mr McGowan, he first dismissed the decision in Samonini for two reasons: firstly, the Manual was not before the Senior Costs Judge and secondly, it was a case turning on Regulation 4(2)(c).
37. Similarly, in the case of Lewis he said there was no reference to the Regional Costs Judge having been referred to paragraph 8.2 of the manual cited above.
38. So far as Jones v Wrexham Borough Council was concerned he considered that the comments made in paragraph 69 and quoted above were obiter, since the court had decided that the CFA in question was a CFA Lite and therefore any additional comments they made must necessarily have been obiter.
39. Mr Carpenter introduced a case of his own which he considered to be of significance, namely Brian Foord v American Airlines Inc [2007] EWHC 90076 (Costs), a decision of Costs Judge Simons. In particular he relied on paragraph 36, which reads as follows:

"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.."

40. I have already touched on the "vetting solicitor point" and again, Mr Carpenter suggested that this was not an issue since BBK had ceased to be vetting solicitors some six months before the CFA was entered into.
41. In conclusion, Mr Carpenter submitted that the essential plank in the Defendant's argument, namely that failure to recommend the particular insurance policy would inevitably result in BBK being taken off the list of panel solicitors had not been proved in evidence in this case and therefore there was no breach of Regulation 4(2)(e)(ii).

MY DECISION

42. I am satisfied that Mr Carpenter's submissions should prevail. There is indeed no evidence that BBK would have lost panel membership if they had not recommended this particular policy, nor was it obligatory that they should do so.
43. I also agree with what Master Simons said in paragraph 36 of Foord, that each case must turn on its individual facts and only general guidance on the law is to be derived from the Garrett v Halton Borough Council case.
44. I also derive support from what Master Simons said about the referring claims management company not having its own insurance (as in this case). In paragraph 35 Master Simons said:

"… 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."

45. Like Mr Carpenter, I do not place any great significance on the fact that the certificate of insurance was taken out before the CFA, as frequently happens, or that it bore the heading "Accident Advice Helpline Compensations Claim Protection Plan".
46. I consider there has been no breach of Regulation 4(2)(e)(ii) and therefore the issue of materiality does not arise.

CONCLUSION

47. When this judgment is formally handed down I will deal with any outstanding issues as to costs and give directions as to the future conduct of this case, though it is to be hoped that in the light of this judgment the parties may be able to agree the quantum of costs to avoid further expensive proceedings.